macroeconomics
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.
Core CPI is
the CPI excluding food and energy.
As long as prices are rising over time, then
the nominal interest rate exceeds the real interest rate.
Indexation refers to
using a law or contract to automatically correct a dollar amount for the effects of inflation.
GDP is defined as the
value of all final goods and services produced within a country in a given period of time.
To encourage formation of small businesses, the government could provide subsidies; these subsidies
would not be included in GDP because they are transfer payments.
During periods of deflation, the nominal interest rate will be
lower than the real interest rate.
If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is
−2 percent.
Expenditures on a nation's domestic production
are equal to its domestic production.
Government purchases include spending on goods and services by
federal, state, and local governments.
A transfer payment is a payment made by
government, but not in exchange for a currently produced good or service.
Disposable personal income is the income that
households and noncorporate businesses have left after paying taxes and non-tax payments to the government.
In the actual economy, goods and services are purchased by
households, firms, and the government.
By far the largest category of goods and services in the CPI basket is
housing.
The nominal interest rate tells you
how fast the number of dollars in your bank account rises over time.
The real interest rate tells you
how fast the purchasing power of your bank account rises over time.
In the GDP accounts production equals
income.
The CPI differs from the GDP deflator in that
increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.
The percentage change in the price level from one period to another is called the
inflation rate.
A farmer produces lemons and sells them to Fresh Juice, which makes lemon juice. The lemons produced by the farmer are called
intermediate goods.
In the simple circular-flow diagram, with households and firms, GDP can be computed as the
income received by households, in the form of wages, rent and profit.
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.
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.
Changes in the GDP deflator reflect
only changes in prices.
In the national income accounts, depreciation is called
"consumption of fixed capital."
In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 237 for 2015. President Hoover's 1931 salary was equivalent to a 2015 salary of about
$1,169,408.
If the consumer price index was 100 in the base year and 103 in the following year, then the inflation rate was
3 percent
The price index was 105 in Year 1 and 111 in Year 2. What was the inflation rate?
5.7 percent
U.S. GDP and U.S. GNP are related as follows:
GNP = GDP − Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.
Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?
Gross domestic product
Which of the following correctly orders U.S. income measures from largest to smallest?
Gross national product, net national product, national income, personal income, disposable personal income
Joe and Bob purchase oranges at a grocery store, but Bob also grows oranges in his backyard. Regarding these two practices, which of the following statements is correct?
Only Joe's and Bob's grocery store purchases are included in GDP.
When ranking movies by nominal box office receipts, what important fact is overlooked?
Prices, including those for movie tickets, have been rising over time.
What basket of goods and services is used to construct the CPI?
The goods and services that are typically bought by consumers as determined by government surveys
Group of answer choices
The percentage of the labor force that is out of work and cross-country differences in average income
Which of the following items is the one type of household expenditure that is categorized as investment rather than consumption?
The purchase of a new house
Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?
The real interest rate is the nominal interest rate minus the rate of inflation.
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
The CPI is a measure of the overall cost of the goods and services bought by
a typical consumer, and the CPI is computed and reported by the Bureau of Labor Statistics.
The producer price index measures the cost of a basket of goods and services
bought by firms.
For the purpose of calculating GDP, investment is spending on
capital equipment, inventories, and structures, including household purchases of new housing.
A newspaper article informs you that most businesses increased production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely
decreased.
In the actual economy, households
divide their income among spending, taxes, and saving.
If total spending rises from one year to the next, then
either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both.
International data on GDP and socioeconomic variables
leave no doubt that a nation's GDP is closely associated with its citizens' standard of living.
A company sells steel to a scooter company for $150. The scooter company uses the steel to produce a scooter, which it sells for $290. Taken together, these two transactions contribute
maybe: $290 to GDP.
A country reported nominal GDP of $105 billion in 2018 and $85 billion in 2017. It also reported a GDP deflator of 130 in 2018 and 125 in 2017. Between 2017 and 2018,
maybe: real output fell and the price level rose.
The CPI is calculated
monthly by the Bureau of Labor Statistics
Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy
more milk and more T-shirts.
The residents of Ireland earn $250 million of income from abroad. Residents of other countries earn $120 million in Ireland. Therefore, Ireland's net factor payments from abroad are
negative, and its GDP is higher than its GNP.
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.
The GDP deflator is the ratio of
nominal GDP to real GDP multiplied by 100.
Changes in real GDP reflect
only changes in the amounts being produced.
When economists talk about growth in the economy, they measure that growth as the
percentage change in real GDP from one period to another.
The income that households and noncorporate businesses receive is called
personal income.