Econ 110 - Test 2

Consider the data above for a simple economy: Using 2005 as the base year, the real GDP in 2011 is

$34,600

Suppose that a simple economy produces only four goods and services: sweaters, CDs, sugar, and soft drinks. If one half of the sugar is used in making the soft drinks and the other half of the sugar is purchased by households. The nominal GDP for this simple economy is:

$4,900

The labor force participation rate for this simple economy equals

(1,100/15,000) × 100 Employment + Unemployment / Working Age Pop

The equation for GDP using the expenditure approach is

GDP =C+I+G+ (Exports-Imports)

Which of the following statements is true?

GDP accounting rules do not adjust for production that pollutes the economy.

The output of Mexican citizens who work in Texas would be included in the

Gross domestic product of the United States

Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?

Real GDP grows by 2.3% in the second quarter

Which of the following could cause nominal GDP to decrease, but real GDP to increase?

The price level falls and the quantity of final goods and services produced rises

Increases in real GDP would overstate the increase in the well-being of a country over time if, over that time period, the

average hours worked per week increased

Suppose that at the beginning of a loan contract, the real interest rate is 4% and expected inflation is currently 6%. If actual inflation turns out to be 7% over the loan contract period, then

borrowers lose 1% of the loan value

Suppose you borrow $1,000 at an interest rate of 10 percent over the next year. If the expected real interest rate at the beginning of the loan contract is 4 percent, then what rate of inflation over the upcoming year would be most beneficial to you as the borrower? An inflation rate

greater than 6 percent

If cyclical unemployment is eliminated in the economy, then

he economy is considered to be at full employment

Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would

increase the measured labor force participation rate

An increase in unemployment insurance payments would, in effect, ________ the amount of time spent searching for a job, which would increase ________ unemployment

increase; frictional

The percent increase in the CPI from one year to the next is a measure of the

inflation rate.

If the GDP deflator is less than 100, then for that year nominal GDP ________ real GDP

is less than

If the quantity of goods and services produced in the economy decreases

it may be possible for nominal GDP to increase.

If firms pay what are called "efficiency wages," they pay wages that

motivate workers to increase their productivity

Real GDP will decrease

only if the quantity of final goods and services produced falls

Making the production and sale of alcohol ilegal

reduces GDP and increases the size of the underground economy.

If your nominal wage rises faster than the price level, we can say your real wage has ________ and the purchasing power of your income has ________

risen; risen

If prices in the economy rise, then

the purchasing power of a dollar declines

When deflation occurs

the real interest rate is greater than the nominal interest rate

Real GDP is GDP in a given year

valued in the prices of the base year.

Assume the market basket for the consumer price index has three products—Cokes, hamburgers, and CDs—with the following values in 2006 and 2011 for price and quantity: The Consumer Price Index for 2011 equals

121

Consider the following values of the consumer price index for 1996, 1997, and 1998: The inflation rate for 1997 was equal to

2.5 percent

Which of the following would be a consequence of substitution bias in the CPI?

Businesses would over-compensate employees for inflation when giving the cost of living rises.

The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is

5% higher in year 2 than in year 1

If the real rate of interest is 3.0% and the inflation rate is 6.5%, what i s the nominal rate of interest?

9.5%

Consider the data above for a simple economy: Using 2005 as the base year, the GDP deflator in 2011 is

93.3

Which of the following is not directly counted in GDP?

Intermediate goods

Which of the following is true about the consumer price index?

It falis to account for people switching to goods whose prices have fallen

Given the information above, and taking into account the change in prices, which of the following statement is true?

John's wage was higher in 2012 than in 1974

Minimum wage laws cause unemployment because the legal minimum wage is set

above the market wage, causing labor demand to be less than labor supply

Which of the following would be the best measure of the cost of living

consumer price index

If you have trouble finding a job because of a slowdown in the overall economy, we would say that you are

cyclically unemployed