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Exploring Macroeconomics 7th Edition Robert L. Sexton - Solutions
Consumption spending is usually broken down into three subcategories: _____________________ goods, _____________________ consumer goods, and _____________________.
For analytical purposes, economists usually categorize expenditures into four categories:_____________________, _____________________, _____________________, and _____________________.
With the _____________________ approach, GDP is calculated by adding up the expenditures of market participants on final goods and services over a period of time.
The two primary ways of calculating economic output are the _____________________ approach and the _____________________ approach.
A(n) _____________________ good or service is one that is ready for its designated ultimate use, in contrast to _____________________ goods or services, which are used in the production of other goods.
_____________________ is defined as the value of all final goods and services produced in a country in a period of time, almost always one year.
_____________________ accounting was created to provide a reliable, uniform method of measuring economic performance.
How do pollution and crime affect GDP? How do pollution- and crime-control expenditures impact GDP?
If we choose to decrease our hours worked because we value the additional leisure time more, will the resulting change in real GDP accurately reflect the change in our well-being? Why or why not?
How would the existence of a high level of nonmarket activities in one country impact real GDP comparisons between it and other countries?
Why do GDP measures omit nonmarket transactions?
Which of the following is true?a. Real GDP is a highly accurate measure of the economic welfare of a nation.b. In less-developed countries, where a significant amount of food and clothing output is produced in the home, the failure to include nonmarket economic activity in GDP is a serious
If country A has a bigger underground economy than country B, and country A’s citizens work fewer hours per week than the citizens of country B, other things being equal, thena. GDP comparisons between the countries would overstate the economic welfare of country A compared to B.b. GDP
Important factors that are excluded from GDP measurements includea. leisure.b. the underground economy.c. nonmarket transactions.d. the value of changes in the environment.e. all of the above.
What is the underground economy?
What are nonmarket transactions?
What are some of the deficiencies of GDP as a measure of economic welfare?
Why would the growth in real GDP overstate the growth of output per person in a country with a growing population?
If we overestimated inflation over time, would our calculations of real GDP growth be over- or underestimated?
If real GDP increases and population increases, then real GDP per capitaa. will rise.b. will fall.c. will remain unchanged.d. could either rise, fall, or remain unchanged.
Real GDP in base year dollars equals nominal GDPa. divided by the price index, times 100.b. divided by the price index.c. times the price index.d. times the price index, divided by 100.e. none of the above.
Nominal GDP differs from real GDP in thata. nominal GDP tends to increase when total production of output in the economy increases, while real GDP does not.b. nominal GDP is measured in base year prices, while real GDP is measured in current year prices.c. nominal GDP is measured in current year
Nominal GDP isa. the base year market value of all final goods and services produced domestically during a given period.b. the current year market value of all final goods and services produced domestically during a given period.c. usually less than real GDP.d. the current year market value of
What is per capita GDP?
What are the problems with using GDP to measure output?
What is the difference between GDP and national income?
How is personal income different from national income?
Disposable personal income will increase whena. taxes rise and transfer payments rise.b. taxes rise and transfer payments fall.c. taxes fall and transfer payments rise.d. taxes fall and transfer payments fall.
Disposable income is a measure ofa. the market value of total output.b. the income households have to spend before paying taxes.c. the income households have to spend after paying taxes.d. household income from investment income, such as dividends and capital gains.
What is not subtracted from GDP to get national income?a. Net income of foreignersb. Depreciationc. Indirect business taxesd. Personal income taxese. All of the above are subtracted from GDP to get national income.
Which of the following is not considered a factor payment?a. Wagesb. Interestc. Rentd. Profite. Transfer payments
In the income approach to measuring GDP, factor payments do not includea. wages and salaries for the use of labor services.b. rent for land.c. interest payments for the use of capital goods.d. profits for entrepreneurs.e. All of the above are included as factor payments.
What does personal income measure?
How is national income calculated?
Can inventory investment or net exports ever be negative?
If Mary received a welfare check this year, would that transfer payment be included in this year’s GDP? Why or why not?
Why does the investment component of GDP include purchases of new capital goods but not purchases of company stock?
Why are durable goods purchases more unstable than nondurable goods purchases?
Why do you think economic forecasters focus so much on consumption purchases and their determinants?
What would happen to GDP if consumption purchases (C) and net exports (X 2 M) both rose, holding other things equal?
The largest category of GDP is ___________________, and the most unstable category of GDP is ___________________.a. consumption, consumptionb. government, investmentc. consumption, investmentd. consumption, government purchasese. investment, consumption
A negative amount of net exports in the GDP expenditures accounting meansa. exports are less than imports.b. imports are less than exports.c. the sum of this period’s exports and imports has declined from the previous period.d. net exports have declined from the previous period.e. none of the
Which of the following is not included in government purchases?a. Government purchases of investment goodsb. Transfer paymentsc. Government spending on servicesd. None of the above is included in government purchases.e. Neither (b) nor (c) is included in government purchases.
Investment includesa. fixed investment.b. fixed investment plus government investment.c. fixed investment plus additions to business inventories.d. fixed investment plus subtractions from business inventories.e. fixed investment plus government investment plus additions to business inventories.
The expenditure measure of GDP accounting is the total ofa. consumption, interest, government purchases, and net exports.b. consumption, government purchases, wages and salaries, and net exports.c. consumption, investment, government purchases, and net exports.d. wages and salaries, rent, interest,
How are net exports calculated?
What types of government purchases are included in the expenditure approach?
What are fixed investments?
What are durable and nondurable goods?
What are the four categories of purchases included in the expenditure approach?
Why are sales of previously existing inventories of hula hoops not included in the current year’s GDP?
Why do GDP statistics include real estate agents’ commissions from selling existing homes and used-car dealers’profits from selling used cars, but not the value of existing homes or used cars when they are sold?
Why aren’t all of the expenditures on used goods in an economy included in current GDP?
Why does GDP measure only final goods and services produced rather than all goods and services produced?
Which of the following will be counted as part of this year’s U.S. GDP?a. Goods produced last year but not sold until this yearb. Goods produced this year by an American working in Parisc. Purchases of Cisco Systems stock (not issued this year) that take place this Marchd. Sales of used lawn
Which of the following is false?a. Measuring the performance of our economy is important to private businesses and to macroeconomic policy makers in setting goals and developing policy recommendations.b. All goods and services exchanged in the current period are included in this year’s GDP.c. The
GDP is calculated includinga. intermediate products but not final products.b. manufactured goods but not services.c. final products but not intermediate products.d. only goods purchased by consumers in a given year.
An example of an intermediate product isa. the purchase of tires by Ford Motor Company to put on its Ford Explorers.b. the purchase of wood by a home construction firm.c. the purchase of leather by a shoe manufacturer.d. All of the above are examples of intermediate products.
GDP is defined as the value of alla. final goods and services produced in a country in a period of time.b. final goods produced in a country in a period of time.c. goods and services produced in a country in a period of time.d. final services produced in a country in a period of time.
Why must expenditures equal income?
What is gross domestic product?
Indicate which of the following are true of the CPI and the GDP deflator: Tends to overstate inflation More volatile Will reflect the cost of building an aircraft carrier domestically Reflects the cost of imported consumer goods Reflects prices charged in the underground economy CPI GDP Deflator
Say that the bundle of goods purchased by a typical consumer in the base year consisted of 20 gallons of milk at a price of $1 per gallon and 15 loaves of bread at a price of $2 per loaf. What would the price index be in a year in whicha. milk cost $2 per gallon and bread cost $1 per loaf?b. milk
Calculate a price index for 2015, 2016, and 2017 using the following information about prices. Let the market basket consist of one pizza, two sodas, and three caffe lattes. Let the year 2015 be the base year (with an index value of 100).How much inflation occurred between 2015 and 2016? Between
In 2014, Santa Monica, Calif., passed a living wage law. The law that says in a certain part of Santa Monica that everyone must be paid $12.25 an hour, or $10.50, if the employer also includes benefits. Predict the effect of such legislation on unemployment in the hotel and shopping industries in
How does an adjustable rate mortgage agreement protect lenders against inflation? Who bears the inflation risk?
You borrow money at a fixed rate of interest to finance your college education. If the rate of inflation unexpectedly slows down between the time you take out the loan and the time you begin paying it back, is there a redistribution of income?Do you gain or lose? What if you already expected the
Answer the following questions about nominal and real interest rates.a. What would be the real interest rate if the nominal interest rate were 14 percent and the inflation rate were 10 percent?If the nominal interest rate were 8 percent and the inflation rate were 1 percent?b. What would happen to
Does anticipated inflation or unanticipated inflation discourage economic growth? Why?
Answer the following questions about inflation.a. What would be the effect of unexpected inflation on each of the following?retirees on fixed incomes creditors workers shoe-leather costs debtors menu costsb. How would your answers change if the inflation was expected?
Why isn’t the belief that technological advances inevitably displace workers true?
How can unions result in higher unemployment rates? How would the results differ for someone who wants to be employed in the union sector as compared with someone who currently has a job in the union sector?
Unemployment benefits in many European countries tend to be both more generous and available for longer periods than those in the United States. What impact do you think this is likely to have on the unemployment rate in a European country? Why?
a. What is the relationship between the natural rate of unemployment and frictional, structural, and cyclical unemployment?b. What would happen to both unemployment and the normal rate of unemployment if:i. cyclical unemployment increases.ii. frictional unemployment increases.iii. structural
Answer the following questions about reasons for unemployment.a. In a severe recession, what would tend to happen to the number of people in each of the following categories?job losers reentrants job leavers new entrantsb. In good economic times, why might the number of job leavers, reentrants, and
Which type of unemployment would be affected with the following changes? Would it go up or down?a. Employment benefits are increased.b. Minnesota has heavy snowfall.c. Online job searches become more effective.d. Coal has a large, permanent decrease in demand.e. More people have been retrained to
Identify whether each of the following reflects seasonal, structural, frictional, or cyclical unemployment.a. A sales employee is laid off due to slow business after consumer spending falls.b. An automotive worker is replaced by robotic equipment on the assembly line.c. A salesperson quits a job in
Which of the following individuals would economists consider unemployed?a. Sam looked for work for several weeks but has now given up his search and is going back to college.b. A 14-year-old wants to mow lawns for extra cash but is unable to find neighbors willing to hire her.c. A factory worker is
Answer the following questions about unemployment.a. If a country has a noninstitutional population of 200 million and a labor force of 160 million, and 140 million people were employed, what is its labor force participation rate and its unemployment rate?b. If 10 million new jobs were created in
What would be the labor force participation rate if:a. The ___________________ population 5 200 million, the labor force 5 160 million, and employment 5 140 million?b. The ___________________ population 5 200 million, the labor force 5 140 million, and employment 5 120 million?c. Starting from the
Even though the leading economic indicators do provide a warning of a likely downturn, they do not provide accurate information on the ___________________ or ___________________ of the downturn.
If the index of ___________________ increases sharply for 2 or 3 months, it is likely (but not certain)that increases in the overall level of activity will follow.
Businesses, government agencies, and, to a lesser extent, consumers rely on economic ___________________ to learn of forthcoming developments in the business cycles.
Seasonally adjusted unemployment rates in summer months are ___________________ actual unemployment rates because unemployment is normally ___________________ in summertime as a result of the inflow of school-age workers into the labor force.
The ___________________ is when an expansion comes to an end, that is, when output is at the highest point in the business cycle; while the ___________________ is the point in time when output stops declining, that is, when business activity is at its lowest point in the business cycle.
Expansion occurs when output is ___________________ significantly, unemployment is ___________________, and both consumer and business confidence are ___________________.
A business cycle has four phases: ___________________, ___________________, ___________________, and ___________________.
Business cycles refer to the ___________________ fluctuations in economic activity, not to the ___________________ trend in output.
The tendency is for nominal interest rates and inflation rates to move in the ___________________ direction.
Groups try to protect themselves from inflation by using ___________________ clauses in contracts.
If the inflation rate is ___________________ anticipated, new creditors do not lose, nor do debtors gain, from inflation.
When creditors start expecting future inflation, there will be a(n) ___________________ shift in the supply curve of loanable funds. Likewise, demanders of funds (borrowers)are more anxious to borrow because they think they will pay their loans back in dollars of lesser purchasing power than the
The ___________________ the interest rate, the greater the quantity of funds people will demand, ceteris paribus;the ___________________ the interest rate, the greater the quantity of loanable funds supplied, ceteris paribus.
In most economic decisions, it is the ___________________ rate of interest that matters because it shows how much borrowers pay and lenders receive in terms of purchasing power.
The real interest rate equals the ___________________ interest rate minus the ___________________ rate.
___________________ costs are the costs of checking on your assets.
___________________ costs are the costs of changing posted prices.
In periods of high and variable inflation, households and firms have a difficult time distinguishing changes in ___________________ prices from changes in the general price level, distorting the information that flows from price signals.
Inflation can ___________________ one nation’s price level relative to price levels in other countries, which can lead to difficulties in financing the purchase of foreign goods or to a decline in the value of the national currency relative to that of other countries.
The ___________________ that inflation creates can discourage investment and economic growth.
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