Macro Chap 7

1. If the cost of a market basket is $150 in year 1 and $200 in year 2, the price index for year 1 using year 2 as the base is: 100. 75. 133. 150.

75.

Real gdp a measure of aggregate output

inflation raises gdp higher aggregate output- total quantity of final goods and services the economy produces.

Produce Price Index (PPI)

A measure of changes in wholesale prices. Reflects the prices producers receive for their goods and services. early warning signal of changes in inflation rate

1. Value of production of final goods and services GDP

Add up final goods and services produced in the economy excludes value of intermediate goods counts only producers value added in the stage of production

Real GDP

GDP adjusted for inflation overtaken means that chinas real gdp has surpassed that of united states

2. Among the tools available to macroeconomic policy makers is: antitrust policy, to break up monopolies. environmental policy, to clean up the economy. improving standards for food and drugs. fiscal policy, for use in altering government spending and taxation

fiscal policy, for use in altering government spending and taxation.

11. Nominal GDP in the United States was $5,803 billion in 1994 and $11,734 billion in 2008, so we can conclude that aggregate output roughly doubled over the 14-year period in the United States. True False

flase

GDP does NOT exclude: the value of leisure. the value of housework. the value of owner-occupied housing. damage to the environment.

he value of owner-occupied housing

6. When overall price levels rise over time, it is referred to as: an increase in purchasing power. inflation. the consumer price index. deflation.

inflation.

12. Inflation: is a movement of the economy toward economic growth. is a sustained fall in the overall level of prices. is an increase in the overall level of prices. can be thought of as an increase in a nation's standard of living.

is an increase in the overall level of prices.

national accounts

keep track of the flows of money between different sectors of the economy

Gross Domestic Product

new car from dealer to consumer is a final good to the end user automobile manufaturer buying stuff from a glass company is called intermediate good

7. Which example is NOT a government transfer? food stamps Social Security benefits paid to someone who is retired unemployment compensation payments by the Defense Department for a new weapons system

payments by the Defense Department for a new weapons system

GDP per capita

Gross domestic product divided by the number of people in the population.

7. A transfer payment is a payment for: transfer of a debt to a different person. being transferred to a different city by your employer. which no services were rendered by the government. a military transfer to a war zone.

which no services were rendered by the government.

11. Suppose that, in year 1, an economy produces 100 golf balls that sell for $3 each and 75 pizzas that sell for $8 each. The next year, the economy produces 110 golf balls that sell for $3.25 each and 80 pizzas that sell for $9 each. Using year 1 as the base year, real GDP in year 2 is: $900. $1,000. $1,077.50. $970.

$970.

what gdp doesn't measure

-we can use gdp per capital to adjust gdp for population

Consumer Price Index (CPI)

a measure of the overall cost of the goods and services bought by a typical consumer

Real GDP

the production of goods and services valued at constant prices

2Aggregate Spending (GDP)

The sum of all spending from four sectors of the economy. GDP = C+I+G+X-im steel example -the aggregate spending on final goods and services - the final car- is 21500

Gross Domestic Product (GDP)

The total output of all economic activity in the nation, including goods and services.

What is the key difference between the consumer price index and the GDP deflator?

This is different because the CPI includes anything bought by consumers including foreign goods. The second difference is that the GDP Deflator is a measure of the prices of all goods and services while the CPI is a measure of only goods bought by consumers.

aggregate price level

a measure of the overall level of prices in the economy

price index

a measurement that shows how the average price of a standard group of goods changes over time

market basket

a representative collection of goods and services

inflation rate

the percentage increase in the price level from one year to the next p2-p1/p1 x100

nominal gdp

the production of goods and services valued at current prices gdp not adjusted for changes in prices is calculated using prices in the year which output is produced.

11. Which factor is NOT included in investment spending in the national income accounts? the purchase of machinery and other productive physical capital spending on inventories new residential construction the purchase of stocks and bonds by a business

the purchase of stocks and bonds by a business

14. Which item would NOT be included in this year's (2018) GDP? the production of a television show the hiring of a new schoolteacher the purchase of your neighbor's house (assuming that no broker was used), which was built in 1994 the purchase of a new hybrid truck

the purchase of your neighbor's house (assuming that no broker was used), which was built in 1994

5. Which item would NOT be included in this year's GDP? the hiring of a new schoolteacher the purchase of a new hybrid truck the production of a television show the purchase of your neighbor's house, which was built in 1994

the purchase of your neighbor's house, which was built in 1994

calcuating real gdp

to find the increase in aggregate output produced we need to ask how much would gdp have gone up if prices had not changed -need to find value of output in year 2 expressed in year 1 prices focuses more on changes in quantity of output by eliminating the influence of changes in prices

GNP (Gross National Product)

total dollar value of goods & services produced by a nation at home or away gdp is used now because it is a better indication of the economies size, data on international flows of facter income are unreliable

15. Monetary and fiscal policy are tools to improve an economy's economic performance. False True

true

2. For measuring GDP as spending on domestically produced final goods and services, spending on inputs like steel for manufacturing a car is counted in GDP, but spending on a new factory in which the cars are produced is NOT counted in GDP. True False

true

20. Consider an economy that produces only DVDs and DVD players. Last year, 10 DVDs were sold at $20 each and 5 DVD players were sold at $100 each, while this year 15 DVDs were sold at $10 each and 10 DVD players were sold at $50 each. Real GDP this year using last year as the base year is: $100. $1,300. $700. $300

$1,300.

8. If, during 2010, the Republic of Sildavia recorded investment spending of $3 billion, government purchases of $3 billion, consumer spending of $7 billion, imports of $5 billion, government transfers of $1 billion, and exports of $3 billion, Sildavia's GDP in 2010 was: $11 billion. $12 billion. $13 billion. $14 billion.

$11 billion.

calculated gdp

1) Govenments local state and federal -government puchases of goods and services- education or defense 2) households- families aka consume spending from firms or imports 3)Firms- buy goods and services from each other when they do investment spending= machinery to increase production 4)Rest of the world, comes from exports- goods and services sold to residents from other parts of the world add up consumer spending on goods and services and subtract the value of imports then we have gdp

12. If the price index in year 1 is 146 and in year 2 is 163, the rate of inflation between year 1 and year 2 is: 10.43%. 11.64%. 17.0%. 8.2%.

11.64%

6. In the Republic of Sildavia, a market basket of goods and services cost $130 in 2009, $140 in 2010, and $160 in 2011. Based on this information and considering 2009 to be the base year, the price index in 2011 was: 100. 107.69. 123.07. 130.

123.07.

13. In the Republic of Sildavia, a market basket of goods and services cost $130 in 2009, $140 in 2010, and $160 in 2011. Based on this information and considering 2009 as the base year, inflation from 2009 to 2011 was: 23.07%. 7.69%. 7.14%. 14.28%.

23.07%.

1. The calculation of GDP does NOT include the value of: Goodyear tires purchased by the United States Secret Service. Bridgestone tires purchased by Ford Motor Co. Firestone tires sold at your local garage. Michelin tires purchased by Canadian car collectors.

Bridgestone tires purchased by Ford Motor Co.

aggregate output

Economists define aggregate output to be the sum of all the goods and services produced in an economy over a certain period of time. In other words, aggregate output is defined as an economy's total productivity, or GDP.

GDP deflator equation

Nominal GDP/Real GDP x 100 -if gdp doubles but real gdp remains the same then gdp deflator indicates that the aggregate price level doubled

16. Which transaction will be included in the official measurement of GDP? Stan sold his 2015 Honda to his sister. Sean bought a new truck. Monica illegally downloaded movies to her laptop. Ben bought a textbook from his friend who took the class last semester.

Sean bought a new truck.

Chained-dollar real GDP

The measure of real GDP calculated by the Bureau of Economic Analysis.

3 factor income earned from firms in the economy

adding up the total factor income earned by household from firms in the economy 1- wages earned by labor 2-interest paid by to those who lend their savings to firms and gov 3- rent earned by those who lease land to firms 4- dividends- profits paid to the shareholders, the owners of the firms physical capital

10. Choose the best answer. A price index: is normalized to 100 for the base year. measures the cost of purchasing a market basket of output across different years. always includes a base year. always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year.

always includes a base year, measures the cost of purchasing a market basket of output across different years, and is normalized to 100 for the base year.

9. Real GDP per capita is: an incomplete measure of a country's standard of living. used only by the United Nations to compare nations based on measures of welfare. the only way to measure living standards among different countries. a perfect measure of a country's standard of living.

an incomplete measure of a country's standard of living

4. When Intel shifted its production away from CPUs and into the production of processors that power data centers and modem chips used in the latest i-phones as described in the article "Intel's Shortages Chip Away at Micron," this best reflect the role of compliments in production best reflects the role of substitutes in production best reflects the role of price expectations in demand best reflect the role related goods in consumption

best reflects the role of substitutes in productio

9. The switching between recessions and expansions is known as the: macroeconomy. long-run economic growth. business cycle. unemployment rate.

business cycle.

13. Real GDP is nominal GDP adjusted for: imports. population. double counting. changes in prices.

changes in prices.

4. The consumer price index reflects: the level of prices for intermediate goods and services purchased by businesses. the prices of all goods and services computed from the ratio of nominal GDP to real GDP. the level of prices for raw materials. changes in the prices of goods and services typically purchased by consumers.

changes in the prices of goods and services typically purchased by consumers.

GPD tells us

compare countries gpd prices in goods as opposed to output

2. Gross domestic product is defined as: consumer spending + government purchases of goods and services + investment spending + exports - imports. consumer spending + government purchases of goods and services + financial spending + exports - imports. disposable income + taxes + investment spending + exports + imports. consumer spending + government transfers + investment spending + exports - imports.

consumer spending + government purchases of goods and services + investment spending + exports - imports.

national income and product accounts

data collected and published by the government describing the various components of national income and output in the economy

21. The annual percentage change in the aggregate price level is negative when there is: disinflation. deflation. spiraling inflation. inflation.

deflation

18. Intermediate goods are NOT counted in GDP because: these goods are not produced for the market. doing so would result in double counting. these goods involve financial transactions. these goods are produced in the underground economy.

doing so would result in double counting.

6. Goods that are produced in a particular period but NOT sold in that period: go into inventory and are called consumption. end up in inventory and are included in investment. are finally included in depreciation when they are sold. are classified as intermediate goods.

end up in inventory and are included in investment.

17. When an economy is expanding, unemployment tends to _____ and overall prices tend to _____. rise; fall fall; fall rise; rise fall; rise

fall; rise

25. If real GDP rises while nominal GDP falls, then prices on average have: risen. fallen. decreased and then been offset by an equal increase. stayed the same.

fallen.

3. The Federal Reserve, as part of its monetary policy, controls/adjusts the targeted ___________ rate (of interest). U.S. Treasury overnight prime compound federal funds

federal funds

5. GDP is the total dollar value of all: final goods and services produced in the economy in a given period. wages paid to producing workers in a given period. government production in a given period. intermediate goods and services produced in the economy in a given period

final goods and services produced in the economy in a given period

4. GDP is the total dollar value of all: intermediate goods and services produced in the economy in a given period. final goods and services produced in the economy in a given period. wages paid to producing workers in a given period. government production in a given period.

final goods and services produced in the economy in a given period.

5. Payments to Social Security recipients are indexed to the rate of inflation, as measured by the consumer price index. This means that, when the rate of inflation increases, the _____ Social Security recipients _____. payments to; increase market basket for; decreases market basket for; increases payments to; decrease

payments to; increase

14. Inflation can be measured by the: absolute change in the consumer price index. percentage change in the consumer price index. percentage change in GDP. absolute change in the GDP deflator.

percentage change in the consumer price index.

3. The producer price index is often regarded as a warning sign of inflation because: prices of inputs will ultimately be reflected in prices of final products. consumers have to pay the prices charged. producers are likely to have monopoly control over prices. commodity producers can sell whatever they want at higher prices.

prices of inputs will ultimately be reflected in prices of final products.

15. An example of investment spending is the: purchase of a freezer by an ice-cream parlor. purchase of government bonds by a private household. amount of funds raised by the government in the financial markets. purchase of stock shares by a mutual fund.

purchase of a freezer by an ice-cream parlor.

1. The total value of all final goods and services produced in a given year, calculated using the prices of a selected base year, is: real GDP. net exports. consumption spending. nominal GDP.

real GDP.

14. The total value of all final goods and services produced in a given year, calculated using the prices of a selected base year, is: net exports. real GDP. consumption spending. nominal GDP.

real GDP.

24. When economists measure economic growth, they often use: the unemployment rate. real GDP. nominal GDP. the inflation rate.

real GDP.

general trends

rich is better money matters less as you grow richer money isnt everything high gdp per capita makes it easier to achieve a good life, but not always true income needs to be used to increase well being or else it wont make you happy high gdp means edu, health and other good stuff

13. During a recession, one will often observe: rising unemployment rates and falling aggregate output. rising employment rates. rising aggregate output. zero unemployment rates.

rising unemployment rates and falling aggregate output.

1Directly calculating gdp

survey firms and add up the total value of their production of final goods and services flow of funds out of the market for goods is equal to recieved goods

23. Long-run growth is the: expansion phase of business cycles. sustained downward trend in the employment rate over several decades. downturn phase of business cycles. sustained upward trend in aggregate output per person over several decades.

sustained upward trend in aggregate output per person over several decades.

10. Fiscal policy attempts to affect the level of overall spending by making changes in: banking regulations. taxes and spending. the interest rate. the money supply.

taxes and spending.

12. The article entitled "The Fight to Save a Silicon Valley Trailer Park" best reflects that all market outcomes reflect the best social values that all goods and services need to be rationed by price. that prices reflects the relative scarcity of goods and services and that when the overall market demand for a good or service increases that means that the demand increases for everyone in the market such that everyone can obtain the good or service albeit a higher price. that market outcomes are always fair. that housing need not be allocated or rationed in any way. that prices reflects the relative scarcity of goods and services and that when the overall market demand for a good or service increases that does not mean that the demand increases for everyone in the market and, as a result, some buyers or potential buyers are "priced out" of the market (or unable to afford the good or service).

that prices reflects the relative scarcity of goods and services and that when the overall market demand for a good or service increases that does not mean that the demand increases for everyone in the market and, as a result, some buyers or potential buyers are "priced out" of the market (or unable to afford the good or service).

Bureau of Economic Analysis (BEA)

the agency in the United States in charge of compiling and publishing the national accounts

consumption bundle

the collection of all the goods and services consumed by that individual

22. Keynesian economics promotes ideas that: the private sector is perfectly capable of regulating itself. government intervention can be destabilizing. the government can help a depressed economy via fiscal and monetary policies. the free market system will always prevail.

the government can help a depressed economy via fiscal and monetary policies.