econ test 3

For an economy as a whole,

income must equal expenditure

The percentage change in the price level from one period to another is called the

inflation rate

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

introduction of new goods

The catch-up effect refers to the idea that

it is easier for a country to grow fast and so catch-up if it starts out relatively poor.

The following table pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. ​ Year Price of Peaches (Dollars per bushel) Price of Pecans (Dollars per bushel) Year 1: 11; 6 Year2: 9; 10 ​ ​ Refer to Table 24-1. The cost of the basket in Year 1 was

$225

Suppose a basket of goods and services has been selected to calculate the CPI and Year 1 has been selected as the base year. In Year 1, the basket's cost was $50; in Year 2, the basket's cost was $52; and in Year 3, the basket's cost was $55. The value of the CPI in Year 3 was

110.0

Table 24-3The following table lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. ​ Month Price of Gas (Dollars per gallon) Price of Milk (Dollars per gallon) April 2.00; 3.50 May 3.50; 3.52 June 3.85; 3.58 ​ Refer to Table 24-3. What is the consumer price index for May?

167

If the consumer price index was 100 in the base year and 106 in the following year, then the inflation rate was

6%

Which of the following provide benefits to society at large and not just to the person(s) who pursues it?

Both technological knowledge that is a public good and education

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate.

Which of the following statements accurately describes catch-up growth?

In one generation, China will be one of the richest countries in the world, if China's GDP per person continues to grow 9% per year.

Each day Sue works 8 hours and produces 7 units of goods and services. Mary works 10 hours each day and produces 10 units of goods and services. It follows that

Mary's productivity is higher than Sue's.

Janet is a farmer. Which of the following are included in her human capital?

What she's learned from experience, not her tractor

An organization that tries to encourage the flow of investment from advanced countries to poor countries is the

World Bank

A bond that never matures is known as

a perpetuity

Most goods and services produced at home

and most goods and services produced illegally are excluded from GDP

The producer price index measures the cost of a basket of goods and services

bought by firms

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

capital investment

The price of a stock will rise if the

demand for the stock rises

The consumer price index is used to

monitor changes in the cost of living over time

The inflation rate is defined as the

percentage change in the price level from the previous period

Productivity is the amount of goods and services

produced for each hour of a worker's time. It is linked to a nation's economic policies.

If real GDP doubles and the GDP deflator doubles, then nominal GDP

quadruples

Long-term bonds are

riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Two common measures of the overall level of prices are

the GDP deflator and the consumer price index

The economy's two most important financial markets are

the bond market and the stock market

Economists use the term inflation to describe a situation in which

the economy's overall price level is rising

Which of the following is an example of human capital?

the things you've learned this semester

If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals

[(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100

Which of the following is the correct formula for calculating the consumer price index?

[(price of basket of goods and services in current year/price of basket in base year)]× 100

Table 24-1 The following table pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. ​ Year Price of Peaches (Dollars per bushel) Price of Pecans (Dollars per bushel) Year 1: 11; 6 Year 2: 9; 10 ​ ​ Refer to Table 24-1. If Year 1 is the base year, then the CPI for Year 1 was

100.0

A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called

intermediate goods

Which of the following statements about the term of a bond is correct?

Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Government purchases include spending on goods and services by

federal, state, and local governments

Financial intermediaries are

financial institutions through which savers can indirectly provide funds to borrowers

12. What do economists call financial institutions through which savers can indirectly provide funds to borrowers

financial intermediaries

What do economists call financial institutions through which savers can indirectly provide funds to borrowers

financial investments

Institutions that help to match one person's saving with another person's investment are collectively called the

financial system

Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?

gross domestic product

When the consumer price index rises, the typical family

has to spend more dollars to maintain the same standard of living

By far the largest category of goods and services in the CPI basket is

housing

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

inflation

In a closed economy, private saving is

*a. the amount of income that households have left after paying for their taxes and consumption.

Table 24-2 The following table pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. ​ Year Price of Meat (Dollars per pound) Price of a Toy (Dollars per toy) Year 1: 3; 2 Year 2: 1; 7 Year 3: 4; 5 ​ Refer to Table 24-2. If the base year is Year 1, then the CPI in Year 2 was

112.5

Table 24-1 The following table pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. ​ Year Price of Peaches (Dollars per bushel) Price of Pecans (Dollars per bushel) Year 11; 16 Year 29; 10 ​ ​ Refer to Table 24-1. If Year 1 is the base year, then the inflation rate in Year 2 was

4.4%

Table 24-3 The following table lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. ​ Month Price of Gas (Dollars per gallon) Price of Milk (Dollars per gallon) April 2.00; 3.50 May 3.50; 3.52 June 3.85; 3.58 ​ Refer to Table 24-3. What is the inflation rate for May?

67.2%

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because the

CPI better reflects the goods and services bought by consumers.

Which of the following topics are more likely to be studied by a macroeconomist than by a microeconomist?

The percentage of the labor force that is out of work and differences in average income from country to country

Refer to Figure 25-1. The curve becomes flatter as the amount of capital per worker increases because of

diminishing returns to capital

In a closed economy, what does the difference between the tax revenue and government purchases, (T − G), represent?

public saving

Given that Monika's income exceeds her expenditures, Monika is best described as a

saver or as a supplier of funds

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

substitution bias

An understanding of the best ways to produce goods and services is called

technology

GDP is defined as the

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

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.

Out of the following economic statistics, which is the best measure of economic prosperity?

the level of real GDP