JWU Macroeconomics

Theoretically, why should the expenditure and income approaches to calculating GDP give us the same results?

because every dollar spent is a dollar earned

Booms and busts refer to the

fluctuations in economic activity over time.

In free markets, shortages lead to:

higher prices

When the price of a good in Russia increases from 20 rubles to 20 million rubles in a single year, the nation is experiencing

hyperinflation

If the CPI was 100 in 2000 and 120 in 2010 and the price of a gallon of milk was $4.00 in 2000 and $4.80 in 2010, then the real of price milk is

same as $4.80.

The central bank of the United States is:

the Federal Reserve

Which of the three price indexes measures the average price level of the largest total number of goods?

the GDP deflator

Inflation is primarily caused by

the government printing too much money

The actual real rate of return for lenders is equal to:

the nominal rate of return minus the inflation rate

Susan quits her administrative job, which pays $40,000 a year, to finish her four-year college degree. Her annual college expenses are $8,000 for tuition, $900 for books, and $2,500 for food. The opportunity cost of attending college for the year is:

$51,400

Air travel from New York to Los Angeles costs $800 and takes four hours. A bus ticket between the cities costs $100 and takes 104 hours. Other things constant, the minimum value of one's time that would induce a rational individual to fly rather than drive would be:

$7

In 2010, real GDP was $13.2 trillion and nominal GDP was $14.6 trillion. What was the GDP deflator for that year?

110.6

Suppose a nation's inflation rate is 5.8 percent from Year 1 to Year 2. If the CPI in Year 2 is 200, what was the CPI in Year 1?

189

Which of the following does NOT shift the demand curve? A. changes in the product's price B. changes in income C. changes in tastes and preferences D. changes in population

A. changes in the product's price

The real power of trade lies in people's ability to A. specialize and increase production. B. get things they can't produce. C. get the lowest price possible. D. increase their consumption.

A. specialize and increase production

Give an example of non market production:

A. stay-at-home spouse cooks and cleans. B. You paint your own garage. C. You clean up your local park.

If producers form expectations that copper prices will be higher in the future, then this will shift the: A. supply curve of copper to the left. B. demand curve for copper to the right. C. supply curve of copper to the right. D. demand curve for copper to the left.

A. supply curve of copper to the left.

When deciding whether or not to undertake an activity, economists compare: A. the additional cost of the activity against the additional benefits received. B. the total cost of the activity against the total benefit received. C. the total benefit of the activity against the total cost of production. D. the average cost of the activity versus the total benefits received.

A. the additional cost of the activity against the additional benefits received.

Birmingham Steel sells steel to Winston Golf Club Manufacturers for $300,000. Winston sells its golf clubs to Academy Sports for $1,000,000. Academy Sports sells Winston golf clubs for $1,500,000. How much is added to GDP? A. $2,800,000 B. $1,500,000 C. $2,500,000 D. $2,200,000

B. $1,500,000

Tim buys a house from Betty in 2011 for $200,000. Betty receives $185,000 and $15,000 goes to Mary, the real-estate agent. Betty originally purchased the house in 2007 for $240,000. What value is added to GDP in 2011 for this transaction? A. $200,000 B. $15,000 C. -$65,000 D. -$40,000

B. $15,000

You sell your old bedroom set to your roommate for $1,800 and buy brand new custom built furniture for $16,000. How much is added to GDP? A. $1,800 B. $16,000 C. $17,800 D. None of these answers is correct.

B. $16,000

New production technology in the manufacture of plasma television screens has reduced the number of defective screens. What effect will this have in the market for plasma televisions? A. The demand and supply curve both increase. B. The supply curve will increase. C. The demand curve will decrease. D. The demand curve will increase.

B. The supply curve will increase.

Economists think that people are self-interested: A. unless they are being altruistic. B. because they respond to incentives in predictable ways. C. only rarely in response to incentives. D. only when monetary incentives are present.

B. because they respond to incentives in predictable ways.

Which of the following would increase the demand for beef? A. lower pork prices B. higher consumer income C. higher prices of feed grains used to feed beef cattle D. an increase in the price of beef

B. higher consumer income

Most economists believe that an increase in the supply of money results in: A. no change for the economy. B. higher inflation in the long run. C. an increase in the demand for goods and services. D. higher unemployment in the short run

B. higher inflation in the long run.

When it comes to getting the flu shot, most people consider _______, not _________. A. their public interest; their social interest B. their self-interest; the social interest C. their costs; their benefits D. the social interest; their self-interest

B. their self-interest; the social interest

Every day we rely on the work of millions of other people to provide us with food, clothing, and shelter. People work for our benefit because: A. institutions require them to do so. B. they benefit by doing so. C. trade-offs are everywhere. D. people think at the margin.

B. they benefit by doing so.

When a surplus exists in a market, we know that the actual price is: A. below equilibrium price and quantity supplied is greater than quantity demanded. B. below equilibrium price and quantity demanded is greater than quantity supplied. C. above equilibrium price and quantity supplied is greater than quantity demanded. D. above equilibrium price and quantity demanded is greater than quantity supplied.

C. above equilibrium price and quantity supplied is greater than quantity demanded.

OPEC is able to raise oil prices by: A. increasing the demand for oil. B. subsidizing the oil production of developing countries. C. decreasing the supply of oil by cutting production. D. decreasing transportation costs, a complement to oil.

C. decreasing the supply of oil by cutting production.

Suppose the U.S. government wants to encourage individuals to save more of their income. The easiest way for the government to realize this goal is to: A. decrease government spending in order to set an example for individuals. B. increase the tax rate on savings in order to encourage more savings. C. develop incentives such as tax breaks on savings in order to encourage more savings. D. pass a law requiring people to save a larger percentage of their income.

C. develop incentives such as tax breaks on savings in order to encourage more savings.

What is one cause of inflation? A. economic growth without money growth B. the persistent rise in prices in the economy C. production's inability to keep up with spending in the economy D. increased spending by people and the government.

C. production's inability to keep up with spending in the economy

Negative real rates of interest tend to A. exist only in poor countries. B. have no impact on economic growth. C. reduce economic growth. D. increase economic growth.

C. reduce economic growth

Why are transfer payments not counted as part of GDP?

Counting transfer payments constitutes double-counting when they are used to purchase final goods and services.

Which of the following choices best illustrates the concept of Adam Smith's "invisible hand"? A. A fishery's stock of fish becomes depleted due to overfishing as boats from around the world converge. B. A government regulates a firm to clean up the pollutants it has released as part of its production process. C. An apartment building is built, which provides much needed housing, on the site of the only playground for children in that town. D. A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer.

D. A Vietnamese farmer grows rice; an exporter ships it to the United States, and a grocer in New York sells it to a customer.

Why is real GDP not seen as a perfect measure of production in an economy? A. because it is only an estimate and contains accounting errors B. because it does not count the underground economy or nonmarket production C. because it is negatively adjusted for leisure, but not for environmental impacts D. All of the answers are correct.

D. All of the answers are correct.

A local university decides to double its enrollment over the next five years in order to increase tuition revenue. Which of the following would most likely occur in the market for rental housing in the surrounding community? A. a population change leads to a change in quantity demanded, not demand B. a decrease in the price of rental housing C. a decrease in the supply of rental housing D. an increase in the demand for rental housing

D. an increase in the demand for rental housing

The movie trilogy The Lord of the Rings was hugely successful, and, as a result, the demand for fantasy novels, action figures, and online role-playing games surged. The increase in demand can be explained by a(n): A. increase in population. B. change in expectations. C. change in the price of substitutes. D. change in tastes.

D. change in tastes.

Recall the discussion about the demand for oil in your textbook. Which of the following correctly explains why the demand curve for oil is negatively sloped? As the price of oil rises: A. consumers have an incentive to use oil more freely. B. more producers are more willing and able to produce oil. C. consumers use oil for more and varied purposes. D. consumers increasingly use oil only for those purposes without good substitutes.

D. consumers increasingly use oil only for those purposes without good substitutes.

Economic growth in China has led to more Chinese people owning cars which: A. decreased demand for oil, causing oil prices to rise. B. increased demand for oil but decreased supply, causing oil prices to increase rapidly. C. increased demand and supply of oil, causing oil prices to increase rapidly. D. increased demand for oil, causing oil prices to rise.

D. increased demand for oil, causing oil prices to rise.

Which of the following is the best measure of a country's standard of living? A. nominal GDP per capita B. real GDP C. nominal GDP D. real GDP per capita

D. real GDP per capita

The price of coffee has increased, yet evidence suggests the demand for coffee has been stable. A possible explanation is that: A. there has been no change in the supply of coffee. B. wages of workers in coffee production might have decreased. C. there has been increased use of subsidies in coffee production. D. wages of workers in coffee production might have increased.

D. wages of workers in coffee production might have increased.

T or F: Imported goods consumed in the United States are counted as part of the U.S. GDP

False

T or F: In times of rising prices, lenders benefit at the expense of borrowers

False

T or F: Negative real interest rates among countries result when they print too little money.

False

True or False: Greater emphasis on self-sufficiency and trading less with foreign countries would increase incomes and living standards in the United States.

False

True or false: With careful planning, we can usually get something that we like without having to give up something else that we like.

False

True or false: inflation increases the value of money by increasing the purchasing power of money

False

Among the most powerful institutions for supporting good incentives are: I. property rights. II. political stability. III. honest government

I, II, and III

Tim, a citizen of the United States living in Virginia, buys a computer that was made in South Korea by a Japanese firm. This transaction would affect the GDP of the United States in which way?

Net exports would decrease and GDP would be unaffected.

Recall the chapter opening story about the British sea captains and the convicted felons. In what way did economics use the idea of incentives to solve the problem of the high mortality rate on board the ships?

Payment (to ship captains) was made dependent on the survival rate of prisoners.

What is the difference between the CPI (consumer price index) and the GDP deflator?

The CPI measures the average prices of typical goods consumed by consumers, whereas the GDP deflator measures the average prices of all goods consumed by all agents in the economy.

Why do you think researchers sometimes find a positive relationship between the unemployment rate and college enrollment rates?

The opportunity cost of attending college falls during recessions, leading to higher college enrollment rates.

Coke and Pepsi are substitute soft drinks. Which of the following would cause the demand curve for Pepsi to shift to the left?

The price of Coke decreases

T of F: A shortage will occur at any price below equilibrium price and a surplus will occur at any price above equilibrium price.

True

T or F: Large amounts of nonmarket production and illegal activities mean that a lot of Latin American countries are actually richer than they seem.

True

T or F: Education is classified as a consumption expenditure in the National Spending Identity formula.

True

T or F: Monetizing the debt occurs when the government pays off its debts by printing money

True

True or False: If two countries are initially at the same level of development, the institution of well-functioning markets can allow one country to develop faster than the other.

True

True or false: An increase in the use of labor-saving technologies will shift the supply curve to the right.

True

The opportunity cost of winning a free ticket to the Super Bowl worth $950 and attending the game is:

at least $950, the lost market value of selling the ticket and the time to go

For a given nominal interest rate, an increase in the inflation rate will cause real interest rates to

decrease

What causes countries to become wealthier over time?

economic growth

If you want to compare real GDP in 2000 and 2008, what prices can you use? I. 2000 prices for the 2000 GDP and 2008 prices for the 2008 GDP II. 2000 prices for GDP in both years III. 2008 prices for GDP in both years

either II or III

Compared to other countries, inflation in the United States has been

relatively low

In several cities around the country, schools are paying cash awards to students who do well on English and Math tests. This practice highlights the idea of:

incentives—the rewards and penalties that motivate behavior.

nflation generally causes the taxes paid by individuals and business firms to

increase

In Zimbabwe, the government ______ the ______ money, which caused the country's severe inflation A. decreased; supply of B. increased; demand for C. decreased; demand for D. increased; supply of

increased; supply of

What do we call an increase in the average level of prices in an economy?

inflation

Inflation hurts individuals because

it affects the ability of market prices to send signals about the value of resources

A major problem with inflation is that after it starts

it is difficult to stop without experiencing high unemployment

You earned $10 an hour in 2005, when the CPI was 90, and earn $12 an hour today, when the CPI is 120. As compared to 2005, in 2010 your real wage rate is ______ .

lower

When changes in nominal prices are confused with changes in real prices, people experience

money illusion

The main incentive for business activity is:

profit

The opportunity cost of a choice is:

the value of the opportunities lost.