EC 202 Final Exam Cheat SheetOf the following, the one that is most accurate in measuring average living standards is average output per person_____ is NOT a major determinant of average labor productivity as discussed in the course. The share of the population employedif average labor productivity in two countries is the same then the average standard of living will be higher in the country with: higher fraction of the population employedThe country of Southland produced $2,000 of output in one year. The population of Southland was 100 people, 40 of whom were employed, What was the value of average labor productivity in Southland? Output/employed=ALP=2000/40=50 answer=$50 per year of output per personIf the participation rate is 2/3 and if 120 million people are in the labor force, then the number of working age people NOT in the labor force is 60 million PR = LF/WAP, (2/3) = 120m/WAP, WAP=120m/(2/3)=180m. Since LF+NLF=WAP, 120m+NLF=180m, NLF = 60m people. If $500,000 of steel is produced in 1998 of which $400,000 is purchased by an auto producer and if, in 1999, $300,000 of that steel is usedfor the production of $1,000,000 of cars, then these activities will contribute to 1998 & 1999 GDP: Value Added Method: 1998=$500,000 (of steel) 1999=$1,000,000 - $300,000=700,000In 2005, a farmer sells wheat to a miller for $2 and the miller makes the wheat into flour and sells it a baker for $3. In 2006, the baker makes the wheat into bread and sells it a grocer for $5 and the grocer sells the bread to the public for $7. The contribution of all these activities to 2005 GDP is $_____. $3If you are in a period of disinflation, you would observe rising priceswhich of the following statements primarily represents positive(as opposed to normative)analysis? When the Federal Reserve increases themoney supply, interest rates decrease. government actions designed to affect the performance of the economy as a whole are called__policies. Macroeconomic The unemployment rate typically _____the end of a recession. decreases only with a significant lag afterAggregation allows economists to ___ at the cost of ___. see the big picture; obscuring the details Which of the following would be considered an example of fiscal policy? A government initiative to increasing spending on the national highway system. In an economy with a flexible exchange rate, which of the following is an example of fiscal policy that causes net exports to increase? an increase in income tax rates designed to reduce consumptionWhen a government decides to deregulate the electric utility industry, this is an example of ______ policy. StructuralIf a pizza maker, for goods produced in the current year, pays $1 for tomatoes, $1 for cheese, and $2 for sausage, and sells the pizza made with these ingredients for $7, then these activities contribute how much to current year GDP? $7Consumption expenditures include spending by households on: servicesInvestment spending includes spending on: new capital goodsGovernment purchases include all of the following EXCEPT: social security benefits paid by the federal government. Real GDP measures the _______ of production and nominal GDP measures the _______ of production. physical volume; current dollar valuePeg's Manicure Manor did 4,000 sets of nails in the year 2,000 and 4,500 sets of nails in the year 2001. The price of a set of nails was $20 in 2000 and $22 in 2001. If the year 2000 is the base year, Peg's contribution to real GDP in 2001 was _____ and to nominal GDP in 2001 was _____. $90,000=RGDP; $99,000=NGDP Real GDP is measured in base-year prices. 2001 RGDP equals 2001 output measured in 2000 prices; that is, 4500*$20 = $90,000. Nominal GDP measures output in current prices. 2001 NGDP equals 2001 output measured in 2001 prices; that is, 4500*$22 = $99,000 Consumption spending accounts for, approximately, what fraction of GDP? 2/3If output, Y, equals $1000 while consumption, C, equals $700, taxes, T, equal $100, government spending, G, equals $200, and investment, I, equals $300, then national saving equals ______ and net exports equal ______ . S=national savings Y-C-G=S 1000-700-200=100S, S=I+NX, 100=300+NX (Answer $100,$-200)If the percent change in nominal GDP is negative while the percent change in real GDP is positive then we can necessarily conclude. Physical output increased and prices decreased.in a given year, nominal GDP is $6500 per year, real GDP is $5000 per year and real consumption is $4000 per year. What is the value of the GDP deflator for that year? P=(NGDP/RGDP)*100 P= GDP deflatorFor a hypothetical economy in a given year, the GDP deflator is 80, nominal GDP is $4000 and real consumption is $3000. What is the value of real GDP for that year? RGDP=(NGDP/P)*100 (4000/80)*100= 5000The consumer price index for Planet Econ consists of only two items: books and hamburgers. In 1999, the base year, the typical consumer purchased 10 books for $25 each and 25 hamburgers for $2 each. In 2000, the typical consumer purchased 15 books for $30 each and 100 hamburgers for $3 each. The consumer price index for 2000 on Planet Econ most closely equals: The CPI uses the base-year basket of goods; 10 books and 25 hamburgers. At $30 per book and $3 per hamburger, expenditure on the base-year basket is $375. At $25 per book and $2 per hamburger, expenditure on the base-year basket is $300. CPI = cost of CPI basket at current prices/cost of CPI basket at base-year prices all multiplied by 100. CPI = ($375/$300)*100 =125. Prices are 1/4 higher than in the base year by this measure.If the CPI equaled 100 in 1995 and 110 in 2000 and if a typical household's income equaled $30,000 in 1995 and $33,000 in 2000, then between 1995 and 2000, nominal income __ and real household income __ = Nominal income increased from $30,000 to $33,000. Real income is measured in base-year prices. Real income changed from $30,000 to ($33,000/110)*100 or $30,000. Alternatively, nominal income rose by 10% and prices rose by 10% so there is no change in purchasing power or real income. (Answer=increased; was constant)If the price of a shmoo increases from $100 to $120 while at the same time (one year) a $1000 bank deposit increases to $1320, then the simple one year real return from the deposit will be= The real return from a deposit is its percentage increase in purchasing power. The purchasing power of $1000 was 10 shmoos at $100/shmoo. The purchasing power of $1320 is 11 shmoos at