CHAPTER2 - MACRO

The value of a household's assets minus the value of its liabilities is called

a) wealth.

The government budget surplus equals

(b) net government receipts minus government purchases.

The expected real interest rate (r) is equal to

(b) nominal interest rate minus expected inflation rate.

The nominal interest rate minus the inflation rate is the

(b) real interest rate.

If a local government collects taxes of $500,000, has $350,000 of government consumption expenditures, makes transfer payments of $100,000, and has no interest payments or investment, its budget would

(b) show a surplus of $50,000.

The Compagnie Naturelle sells mounted butterflies, using butterfly bait it buys from another firm for $20,000. It pays its workers $35,000, pays $1000 in taxes, and has profits of $3,000. What is its value added?

(c) $39,000

If the price index was 100 in 1990 and 120 in 2000, and nominal GDP was $360 billion in 1990 and $480 billion in 2000, then the value of 2000 GDP in terms of 1990 dollars would be

(c) $400 billion.

The Bigdrill company drills for oil, which it sells for $200 million to the Bigoil company to be made into gas. The Bigoil company's gas is sold for a total of $600 million. What is the total contribution to the country's GDP from companies Bigdrill and Bigoil?

(c) $600 million

Monica grows coconuts and catches fish. Last year she harvested 1500 coconuts and 600 fish. She values one fish as having a worth of three coconuts. She gave Rachel 300 coconuts and 100 fish for helping her to harvest coconuts and catch fish, all of which were consumed by Rachel. Monica consumed the remaining fish and coconuts. In terms of fish, total consumption by both Monica and Rachel would equal

(c) 1100 fish.

By Marks buys a one-year German government bond (called a bund) for $400. He receives principal and interest totaling $436 one year later. During the year the CPI rose from 150 to 162, but he had thought the CPI would be at 159 by the end of the year. By Marks had expected the real interest rate to be ___________, but it actually turned out to be ___________.

(c) 3%; 1%

If nominal GDP for 2003 is $6400 billion and real GDP for 2004 is $6720 billion (in 2003 dollars), then the growth rate of real GDP is

(c) 5%

Currently, the U.S. national income and product accounts (NIPA) use what type of price index to calculate real GDP?

(c) Chain-weight

In the expenditure approach to GDP, which of the following would be excluded from measurements of GDP?

(c) Government payments for welfare

The income-expenditure identity says that

(c) Y = C + I + G + NX.

The measurement of GDP includes

(c) estimated values of activity in the underground economy.

Intermediate goods are

(c) goods that are used up in the production of other goods in the same period that they were produced

Nations such as Egypt and Turkey may have wide differences between GNP and GDP because both the countries

(c) have a large number of citizens working abroad.

If an American construction company built a road in Kuwait, this activity would be

(c) included in U.S. GNP only for that portion that was attributable to American capital and labor.

Historical analysis of real interest rates in the United States shows that

(c) real interest rates were unusually low in the 1970s and unusually high in the 1980s.

The U.S. inflation rate ___________ in the 1960s and 1970s, ___________ in the 1980s, and ___________ in the 1990s.

(c) rose; fell sharply; remained low

Because government services are not sold in markets

(c) they are valued at their cost of production.

2. The value of a producer's output minus the value of the inputs it purchases from other producers is called the producer's

(c) value added.

If C = $500, I = $150, G = $100, NX = $40, and GNP = $800, how much is NFP?

(d) $10

In 2002, national saving was $1456 billion, investment was $1945 billion, and private saving was $1590 billion. How much was the current account balance?

(d) -$489 billion

The country of Old Jersey produces milk and butter, and it has published the following macroeconomic data, where quantities are in gallons and prices are dollars per gallon. Between 2003 and 2004, nominal GDP grew by

(d) 190.0%.

If the price index last year was 1.0 and today it is 1.4, what is the inflation rate over this period?

(d) 40%

Which of the following is included in U.S. GDP?

(d) A newly constructed house

National saving equals private saving plus government saving, which in turn equals

(d) GDP + NFP - C - G.

Which of the following is not a category of consumption spending in the national income accounts?

(d) Housing purchases

The CPI may overstate inflation for all the following reasons EXCEPT

(d) changes in Social Security benefits.

6. In the mid-to-late 1980s, the United States had "twin deficits" because both ___________ and ___________ were negative

(d) government saving; the current account

Marvin's Metal Company produces screws that it sells to Ford, which uses the screws as a component of its cars. In the national income accounts, the screws are classified as

(d) intermediate goods.

Inventories include each of the following EXCEPT

(d) office equipment.

A disadvantage of chain-weighting is that

(d) the components of real GDP don't sum to real GDP

The country of Old Jersey produces milk and butter, and it has published the following macroeconomic data, where quantities are in gallons and prices are dollars per gallon.Between 2003 and 2004, the GDP deflator (based on 2003 as a base year) rose

b) 81.25%

The three approaches to measuring economic activity are the

b) product, income, and expenditure approaches.

A chain-weight price index

is an average of fixed-weight and variable-weight indexes.

Sam's Semiconductors produces computer chips, which it sells for $10 million to Carl's Computer Company (CCC). CCC's computers are sold for a total of $16 million. What is the value added to CCC?

(a) $6 million

In 2002, private saving was $1590 billion, investment was $1945 billion, and the current account balance was -$489 billion. From the uses-of-saving identity, how much was government saving?

(a) -$134 billion

You are given information on the consumer price index (CPI), where the values given are those for December 31 of each year.In which year was the inflation rate the highest?

(a) 1990

Nominal GDP in 1970 was $1,035.6 billion, and in 1980 it was $2,784.2 billion. The GDP price index was 30.6 for 1970 and 60.4 for 1980, where 1992 was the base year. Calculate the percent change in real GDP in the decade from 1970 to 1980. Round off to the nearest percentage point.

(a) 36%

Nominal personal consumption expenditures in the United States were $1760.4 billion in 1980 and rose to $3839.3 billion in 1990. The price index for personal consumption expenditures was 58.5 for 1980 and 92.9 for 1990, where 1992 was the base year. Calculate the percent change in real personal consumption expenditures (rounded to the nearest percentage point) in the decade.

(a) 37%

In 2002 the GDP deflator for Old York was 300, and in 2004 it had risen to 330.75. Based on this information the annual average inflation rate for the two years was

(a) 5%.

By Marks buys a one-year German government bond (called a bund) for $400. He receives principal and interest totaling $436 one year later. During the year the CPI rose from 150 to 162. The nominal interest rate on the bond was ___________, and the real interest rate was ___________.

(a) 9%; 1%

GDP differs from GNP because

(a) GDP = GNP - net factor payments from abroad.

Private disposable income equals

(a) GNP - taxes + transfers + interest.

The uses-of-saving identity shows that if the government budget deficit rises, then one of the following must happen.

(a) Private saving must rise, investment must fall, and/or the current account must fall.

Consumer spending is spending by ___________ households on final goods and services produced ___________.

(a) domestic; domestically and abroad

The value of real GDP in the current year equals

(a) the value of current-year output in prices of the base year.

To ensure that the fundamental identity of national income accounting holds, changes in inventories are

(a) treated as part of expenditure.

Fred the farmer purchased five new tractors at $20,000 each. Fred sold his old tractors to other farmers for $50,000. The net increase in GDP of these transactions was

(b) $100,000.

The Boskin Commission concluded that the CPI overstates increases in the cost of living by ___________ percentage point(s) per year.

(b) 1 to 2

The country of Old Jersey produces milk and butter, and it has published the following macroeconomic data, where quantities are in gallons and prices are dollars per gallon.Between 2003 and 2004, the percent change in real GDP (based on 2003 as a base year) was

(b) 60%

Monica grows coconuts and catches fish. Last year she harvested 1500 coconuts and 600 fish. She values one fish as having a worth of three coconuts. She gave Rachel 300 coconuts and 100 fish for helping her to harvest coconuts and catch fish, all of which were consumed by Rachel. Monica set aside 200 fish to help with next year's harvest. In terms of fish, Monica's income would equal

(b) 900 fish.

To what extent are homemaking and child-rearing accounted for in the government's GDP accounts?

(b) Only to the extent that they are provided for pay

Capital goods are

(b) final goods, because they are not used up during a given year.

Net national product equals

(b) gross national product minus depreciation

The uses-of-saving identity says that an economy's private saving is used for

(b) investment, the government budget deficit, and the current account.