Macroeconomics 2.1-2.3

Assume the government of Hamsterville increases taxation and reduces government spending. These actions cause a fall in total spending in the economy.

Which of the following is the best description of the type of unemployment the fall in output will have?

• Frictional unemployment

• Cyclical unemployment

• Structural unemployment

• Natural Rate of Unemployment

Which of the following best describes an increase in structural unemployment?

• More job-search websites are created to better match job seekers

• People must undergo a long retraining process in new skills after losing their jobs

• An economy enters a recession

• People lose jobs in agriculture when the growing season ends

Which of the following will be counted as unemployed by the US Bureau of Labor Statistics?

• Persons who quit their previous jobs to stay at home to care for sick parents

• Persons who were laid off from their previous jobs and have not applied for a job in two years

• Persons who were fired from their previous jobs and are actively looking for work

• Persons who quit their previous jobs to start their own businesses

Which of the following would be most likely to cause a decrease in the natural rate of unemployment?

• An economic book leads to a temporary increase in output

• More people opt for an early retirement

• A recession causes widespread layoffs

• Public policies such as unemployment insurance are introduced

Based on the table, which of the following is most likely correct?

• The current unemployment rate is 10%.

• The labor force participation rate is 91%.

• DIscouraged workers are 4% of the labor force.

• The natural rate of unemployment is 5%.

When using the expenditures approach, which category of gross domestic product (GDP) changes when domestic firms anticipate that a recession will occur soon?

• Net Exports

• Investment Spending

• Consumption Spending

• Government Spending

Spending by households is counted in the consumption category of gross domestic product, but there is one kind of household spending that is included in the investment category instead.

• The purchase of college tuition

• The purchase of new cars

• The purchase of new homes

• The purchase of government bonds

Which of the following expenditures would be counted as investment towards the United States' gross domestic product (GDP)?

• A European airplane manufacturer builds a new assembly plant outside of Atlanta, Georgia

• The US government spends $1 billion on a new interstate highway.

• Ford Motor Company builds a new factory in Mexico.

• A Wall Street investment bank purchases a large number of shares in a young Silicon Valley tech company

Madinsonia has a real gross domestic production (GDP) per capita of $10,000.

Which of the following statements can we infer from this information?

• Every person has an income of at least $10,000

• Every person has an income of less than $10,000

• The average income of a person is $10,000, but this might not be the typical person's income

• Without knowing the size of the population, we cannot say what a typical person earns

A criticism of gross domestic product (GDP) is that it can both underestimate and overestimate production and well-being in an economy.

Which of the following is a reason that GDP might underestimate the actual production and well-being in an economy?

• GDP ignores sustainability.

• GDP excludes production not traded in markets.

• GDP includes how difficult production is for workers.

• GDP is adjusted for changes in product quality and variety over time.

Answer explanation

Goods that are not traded in markets still add to well-being, but they are not counted in GDP because they are not sold in markets. For example, if a household grows tomatoes in its garden, those tomatoes are enjoyed by the household. But, that production is not counted in GDP, leading GDP to underestimate well-being.