Econ Exam 3 Review

Refer to Table 23-6. In 2011, this country's real GDP was

$760.

The inflation rate in year 2 equals

((Gpd deflator in year 2-Gdp deflator in year 1)/Gdp deflator in year 1)x100

Which of the following is the correct formula for the GDP deflator?

(Nominal Gdp/Real Gdp)x100

In the economy of Talikastan in 2015, consumption was $1000, GDP was $1950, government purchases were $500, and investment was $700. What were Talikastan's net exports in 2015?

-$250

Refer to Table 23-4. What was the growth rate of real GDP for 1931?

-6.49%. Real GDP is a better gauge of economic well-being than nominal GDP.

Refer to Table 5-2. Using the midpoint method, if the price falls from $100 to $50, the absolute value of the price elasticity of demand is

0.46.

If a 30 percent change in price causes a 15 percent change in quantity supplied, then the price elasticity of supply is about

0.5, and supply is inelastic.

Refer to Figure 5-9. Using the midpoint method, the price elasticity of demand between point C and point D is about

0.54.

Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound. She purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound. Maddy's cross-price elasticity of demand for beans and rice is

0.71, and they are substitutes.

Most goods and services produced at home

and most goods and services produced illegally are excluded from GDP.

The consumption component of GDP includes spending on

durable goods, nondurable goods, and services.

Macroeconomists study

economy-wide phenomena.

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

elastic and equal to 6.

Refer to Figure 5-4. The section of the demand curve from A to B represents the

elastic section of the demand curve.

When quantity demanded responds strongly to changes in price, demand is said to be

elastic.

Demand is said to have unit elasticity if the price elasticity of demand is

equal to 1.

Net exports equal

exports minus imports.

Refer to Figure 23-1. Which of the following pairs correctly identify W and Y?

firms and households

When demand is perfectly inelastic, the price elasticity of demand

is zero, and the demand curve is vertical.

A key determinant of the price elasticity of supply is the

length of the time period.

Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about

1.2, and X and Y are substitutes.

If a 25% change in price results in a 40% change in quantity supplied, then the price elasticity of supply is about

1.60, and supply is elastic.

In the base year, the GDP deflator is always

100.

Goods with many close substitutes tend to have

more elastic demands.

Refer to Table 23-6. In 2010, this country's GDP deflator was

41.9.

Refer to Table 23-4. What are the GDP deflator and the inflation rate for 1932?

8.09, -11.7

In the economy of Talikastan in 2015, consumption was $6000, exports were $1000, GDP was $10,000, government purchases were $1800, and imports were $1200. What was Talikastan's investment in 2015?

$2400

Refer to Table 23-6. In 2010, this country's nominal GDP was

$260.

The GDP deflator is the ratio of

nominal GDP to real GDP multiplied by 100.

Refer to Table 23-6. In 2011, this country's nominal GDP was

$440.

Refer to Table 23-6. In 2010, this country's real GDP was

$620.

Changes in real GDP reflect

only changes in the amounts being produced.

Suppose that Jane enjoys Diet Coke so much that she consumes one can every day. Although she enjoys gourmet cheese, she consumes it sporadically. If the price of Diet Coke rises, Jane decreases her consumption by only a very small amount. But if the price of gourmet cheese rises, Jane decreases her consumption by a lot.

These examples illustrate the importance of a necessity versus a luxury in determining the price elasticity of demand.

Which of the following is likely to have the most price elastic demand?

Tommy Hilfiger jeans

Elasticity measures how responsive quantity is to changes in price.

True

Changes in nominal GDP reflect

both changes in prices and changes in the amounts being produced.

The term economists use to describe a situation in which the economy's overall price level is rising is

inflation.

Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth, Marcus's

demand for cigarettes is perfectly inelastic.

If the quantity demanded of a certain good responds only slightly to a change in the price of the good, then the

demand for the good is said to be inelastic.

Whether a good is a luxury or necessity depends on the

preferences of the buyer.

In the economy of Talikastan in 2015, consumption was $700, exports were $200, government purchases were $300, imports were $150, and investment was $400. What was Talikastan's GDP in 2015?

$1450

Refer to Table 23-8. In 2012, nominal GDP is

$191.50, and real GDP is $170.

James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP?

$22,000

Refer to Table 5-7. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000?

1.00

A bakery would be willing to supply 500 bagels per day at a price of $0.50 each. At a price of $0.80, the bakery would be willing to supply 1,100 bagels. Using the midpoint method, the price elasticity of supply for bagels is about

1.63.

Refer to Figure 5-17. Using the midpoint method, what is the price elasticity of supply between point A and point B?

1.67

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

2.33.

Last year, Tess bought 5 handbags when her income was $54,000. This year, her income is $60,000, and she purchased 7 handbags. Holding other factors constant, it follows that Tess's income elasticity of demand is about

3.17, and Tess regards handbags as normal goods.

Refer to Table 23-6. This country's inflation rate from 2010 to 2011 was

38.20%.

Refer to Table 23-6. In 2011, this country's GDP deflator was

57.9.

Which of the following expressions is valid for the price elasticity of demand?

Price elasticity of demand = .

Refer to Figure 23-1. Which of the following correctly identifies the flow of dollars?

A, L, N and B

GDP is equal to

All of the above are correct.

Which of the following is included in the consumption component of GDP?

All of the above are included in the consumption component of GDP.

Refer to Figure 5-20. Which supply curve is most likely relevant over a very long period of time?

S3

An increase in nominal U.S. GDP necessarily implies that the United States is producing a larger output of goods and services.

False

Economists use the term inflation to describe a situation in which the economy's overall production level is rising.

False

Nominal GDP uses constant base-year prices to place a value on the economy's production of goods and services, while real GDP uses current prices to place a value on the economy's production of goods and services.

False

When an American doctor opens a practice in Canada, his production there is part of U.S. GDP.

False

While GDP includes tangible goods such as books and bug spray, it excludes intangible services such as the services provided by teachers and exterminators.

False

Which of the following is likely to have the most price elastic demand?

Häagen-Dazs® vanilla bean ice cream

When small changes in price lead to infinite changes in quantity demanded, demand is

Perfectly elastic..

Refer to Scenario 5-1. Using the midpoint method, what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza?

The income elasticity is 1 so pizza is a normal good.

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

The price of gasoline rises due to rising oil prices.

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the followingstatements is correct?

The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.

Which of the following is included in Singapore's GDP?

The value of production by an American working in Singapore

GDP excludes the value of intermediate goods because their value is included in the value of final goods.

True

Real GDP is a better gauge of economic well-being than is nominal GDP.

True

Real GDP per person tells us the income and expenditure of the average person in the economy.

True

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.

True

Elasticity is

a measure of how much buyers and sellers respond to changes in market conditions.

In a simple circular-flow diagram, total income and total expenditure are

always equal because every transaction has a buyer and a seller.

For the purpose of calculating GDP, investment is spending on

capital equipment, and structures, including household purchases of new housing.

Which of the following is not included in GDP?

carrots grown in your garden and eaten by your family

Which of the following is likely to have the most price inelastic demand?

chocolate

Grapes are considered intermediate goods

if the purchaser uses them to make wine to sell others but not if the purchaser eats them.

Gross domestic product measures

income and expenditures.

To determine whether a good is considered normal or inferior, one could examine the value of the

income elasticity of demand for that good.

Suppose that quantity demand rises by 10% as a result of a 15% decrease in price. The price elasticity of demand for this good is

inelastic and equal to 0.67.

Refer to Figure 5-4. The section of the demand curve from B to C represents the

inelastic section of the demand curve.

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

inelastic.

If the price elasticity of supply for wheat is less than 1, then the supply of wheat is

inelastic.

Refer to Figure 23-1. Which of the following pairs correctly identify X and Z?

markets for factors of production and markets for goods and services

If two goods are complements, their cross-price elasticity will be

negative.

Changes in the GDP deflator reflect

only changes in prices.

Consumption consists of spending by households on goods and services, with the exception of

purchases of new houses.

The price elasticity of demand measures how much

quantity demanded responds to a change in price.

In the case of perfectly inelastic demand,

quantity demanded stays the same whenever price changes.

The price elasticity of supply measures how responsive

sellers are to a change in price.

If the cross-price elasticity of two goods is positive, then the two goods are

substitutes.

If the price elasticity of supply for a good is equal to infinity, then the

supply curve is horizontal.

If sellers do not adjust their quantities supplied at all in response to a change in price,

supply is perfectly inelastic.

For a good that is a necessity, demand

tends to be inelastic.

The value of the price elasticity of demand for a good will be relatively large when

the good is a luxury rather than a necessity.

If the price elasticity of supply is zero, then

the quantity supplied is the same, regardless of price.

Which of the following is not a determinant of the price elasticity of demand for a good?

the steepness or flatness of the supply curve for the good

Refer to Figure 5-4. The section of the demand curve at point B represents the

unit elastic section of the demand curve.

GDP is defined as the

value of all final goods and services produced within a country in a given period of time.