ECONOMICS MIDTERM

A salary increase always increases the standard of living.

False

All economic activities in the economy are included in GDP

False

Consumer Price Index accounts for people switching to goods whose prices have fallen.

False

Consumption depends on income and interest rates, but not wealth.

False

Depreciation of the US dollar worsens the net exports.

False

Double counting can be avoided by including the value of intermediate goods in the current year

False

GDP deflator is the difference between real GDP and nominal GDP multiplied by 100.

False

If nominal GDP rises, then so must real GDP

False

Investment is the biggest component of GDP

False

Nominal GDP measures value of all goods and services in fixed dollars.

False

Since CPI does not reflect the substitution bias, it underestimates the cost of the basket.

False

The cost of pollution are subtracted from the value of final sales before calculating GDP.

False

The relationship between interest rate and consumption is shown by consumption function.

False

There is a positive relationship between interest rate and investment

False

To obtain real average earnings, nominal average earnings are multiplied by the CPI

False

Transfer payments paid by the government are part of government spending.

False

When GMC sells stocks in NY Stock Exchange, investment increases.

False

The bonus check a stockbroker gets from his company in 2017 will be counted in 2017's GDP.

True

When deflation occurs, the real interest rate is greater than the nominal interest rate.

True

Net exports increase with trade restrictions.

True

Nominal GDP lies above the Real GDP after the base year.

True

Quality bias causes the CPI to overstate the cost of the market basket.

True

Which of the following individuals would be most negatively affected by anticipated inflation? A.a retired engineer who receives a fixed income payment B.a full-time employee who makes more than the minimum wage C.a contractor whose pay is adjusted based on the inflation D.a student who borrows $10,000 at a nominal int. rate of 5%

A.a retired engineer who receives a fixed income payment

Which of the following is a good or service counted in GDP? A. tires Ford buys to put on a car B. a new tire you buy for your personal car C. a used tire you buy for your personal car D. used tires bought by a used car dealer to put on his cars

B. A new tire you buy for your personal car

The CPI in 2013 is 128 and the inflation between 2012 and 2013 is 24%. Then the CPI in 2012 is? A.104.3 B.103.2 C.158.7 D.152

B.103.2

If Dr. Avsar buys a plane ticket to Istanbul from Turkish Airlines' website. A.The price of the ticket is deducted from Turkey's GDP B.The price of the ticket is deducted from US GDP C.The price of the ticket is added to US GDP D.Plane tickets are not part of GDP

B.The price of the ticket is deducted from US GDP

Which of the following is included in both the U.S. GDP and GNP? A.The value of all cars produced by Ford in Mexico. B.The value of all cars produced by General Motors in the U.S. C.The value of cars produced by Nissan in Japan and the U.S. D.The value of all cars produced by Toyota in the U.S.

B.The value of all cars produced by General Motors in the U.S.

The cost to firms of changing prices A.is small even when there is rapid inflation. B.is called a menu cost. C.does not exist if inflation is perfectly anticipated. D.all of the above

B.is called a menu cost.

Income Mexicans earn in the US counts in Mexican GNP.

True

When box office receipts are corrected for inflation, the most popular movie of all time is A.Star Wars B.Titanic C.Gone With the Wind D.The Sound of Music

C.Gone With the Wind

Purchase of a new house is part of ...... A.Consumption B.Saving C.Investment D.Net exports

C.Investment

Which of the following is correct? A.Nominal and real interest rates always move together B.Nominal and real interest rates never move together. C.Nominal and real interest rates do not always move together. D.Nominal and real interest rates move in opposite directions.

C.Nominal and real interest rates do not always move together.

The broadest measure of the price level that includes all final goods and services is A.the producer price index B.the consumer price index C.the GDP deflator D.the wholesale price index

C.the GDP deflator

Which of the following describes a situation in which the person is hurt by inflation? A.a retiree whose pension is adjusted for inflation B.a borrower during a period when inflation is under-predicted C.a lender during a period when inflation is over-predicted D.a person paid a fixed income during an inflationary period

D.a person paid a fixed income during an inflationary period

Which of the following has the smallest portion of the basket of goods that makes up the CPI? A.housing B.food and beverages C.transportation D.apparel

D.apparel

Which of the following would be the best measure of the cost of living? A.real GDP B.real GDP per person C.GDP deflator D.consumer price index

D.consumer price index

Marginal propensity to save shows how much an individual saves when he has an extra dollar

True

An increase in nominal GDP may result from an increase in general price level.

True

GDP does not say anything about the distribution of income

True

Government budget is T-G

True