Macroeconomics Midterm 2 (Ch. 5B,6,7,10)

Suppose the basket of goods used to compute the CPI includes 6 pieces of cake and 2 pints of ice cream and the base year is 2009: Year $ of Piece of Cake $ of Pint of Ice Cream 2009 $3 $5 2010 $4 $4 What is the CPI for 2010?

1) Fix the Basket 2009: 6*$3 + 2*$5=28 2010: 6*$4 + 2*$4=32 2) Calculate CPI 2009:28/28*100=100 2010: 32/28*100=114.2 3) Rate of Inflation 2010: (114.2-100)/100*100=14.2% CPI for 2010:114.2

In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor. What was ACCs productivity per hour?

1/8 cabinets

The consumer price index (CPI) was 120 in 2006 and 127.2 in 2007. What was the inflation rate?

127.2-120 ----------x100=6% 120

If real GDP is $2200 billion, the GDP deflator is 110, net exports are $100 billion, investment is $200 billion, and government expenditures $400 billion, what is consumption?

C. $1720

Indexation is the automatic correction by law or contract of a dollar amount for the effects of inflation. A. True B. False

A. True

Interest Rates by banks are usually reported as nominal interest rates. A. True B. False

A. True

A friend tells you he deposited money in a bank one year ago and it now purchases 2% more goods than it did a year ago. Which of the following is consistent with this claim? a. the nominal interest rate was 1% and the inflation rate was 1% b. the nominal interest rate was 3% and the inflation rate was 5% c. the nominal interest rate was 6% and the inflation rate was 4% d. the nominal interest rate was 7% and the inflation rate was 3.5%

C. the nominal interest rate was 6% and the inflation rate was 4% (Nom.-Infl--->6-4=2%)

Most spells of unemployment are long term true or false

False

Structural unemployment is often the result of time required in finding a suitable job. True or False

False

The labor force participation rate equals the number of people working divided by the adult population True or False

False ( labor force/adult population)

GDP is not a perfect measure of well-being because

GDP does not address environmental quality

Economist Robert Fogel focused on which of the following factors as one determinant of long-run economic growth?

Nutrition

Consider a small economy in which consumers buy only two goods apples and pears. In order to compute the CPI for this economy for two or more consecutive years, we assume what?

That neither the number of apples nor the number of pears bought by the typical consumer changes from one year to the next year

In which way is the figure related to the catchup effect?

The catch-up effect is observed when a relatively poor country with little capital and low productivity starts to experience rapid growth. In such a country, small increases in capital substantially raise workers productivity and make rapid growth possible. In the figure, the production function is relatively steep for small amounts or capital, and that feature is central to the catch-up effect. It happens because of the diminishing returns to capital.

In 1900, the richest country in the world was?

United Kingdom

Which of the following is an observation by Michael Kremer?

World Growth rates increased as the population increased

When the relative price of a good increases, consumers respond by buying...

a smaller quantity of that good and a larger quantity of substitutes for that good

If real GDP is $16 trillion for the base year than nominal GDP for the base year is:' a. $16 trillion b. $14 trillion c. 100x ($16trillion/$14trillion) d. none of the above

a. $16 trillion

Real GDP is the production of final goods and services valued at: a. current prices b. constant prices c. expected future prices d. the cost of production

b. constant prices

Which of the following is correct? a. The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers. b. The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers. c. The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. d. The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

b. the CPI is better than the GDP deflator at reflecting the goods and services bought by consumers

In which of the following cases do firms deliberately choose to keep wages above the equilibrium level? a. when there's a minimum wage b. when firms want to hire better quality workers c. when there are labor unions d. none of the above

b. when firms want to hire better quality workers

In determining living standards, productivity plays a key role for:

both nations and individuals

If the nominal interest rate was 12% and the CPI rose from 125 to 135, what was the real interest rate? a. 0% b. 13% c. 4% d. none of the above

c. 4% (calculated by: ???)

Minimum wage laws:

c. and firms paying wages above equilibrium to reduce worker turnover both create structural unemployment

Which of the following is not one of the categories into which the Bureau of Labor Statistics places each adult of each surveyed household? a. employed b. unemployed c. underemployed d. not in the labor force

c. underemployed

If the real interest rate were 7% and the inflation rate were 3% what would the nominal interest rate be? a. 4% b. 2.5% c. 7% d. 10%

d. 10% (because real interest rate is calculated by Nom. Interest- Real Interest)

Both Arnold and Will work 10 hours a day. Arnold can produce six baskets of goods per hour while Will can produce four baskets of the same goods per hour. It follows that Arnold's a. productivity is greater than Will's b. output is greater than Will's c. standard of living is higher than Will's d. all of the above are correct

d. all of the above are correct

Unemployment that exists because it takes time for workers to search for the job that suits them best is called

frictional unemployment, which partly accounts for the unemployment rate

The CPI and the GDP deflator:

generally move together

For any give year the CPI is the price of the basket goods and services in the:

given year/$ of the basket in base year x100

All else equal, by saving more, a country

has more resources for capital goods. The increase in capital raises productivity.

In the basket of goods that is used to calculate the CPI, the three largest categories of consumer spending are:

housing, transportation, and food & beverages

Inward-oriented policies

include imposing tariffs and other trade restrictions

Edgar is working part-time. Diane is on temporary layoff. Who is included in the Bureau of Labor Statistics' "employed" category?

only edgar

Who would the BLS include in the unemployed category?

people who are not employed but looked for employment in the past four weeks

Investment in

physical capital, like investment in human capital, has an opportunity cost.

unemployment insurance

reduces search effort which raises unemployment

Consider two labor markets in which jobs are equally attractive in all respects. All workers are equally able to do either job. Initially, both labor markets have the same wage. If a union organizes in one of the markets, then the wage rates will tend to....

rise for union jobs and fall for nonunion jobs

Efficiency wage contribute to:

structural unemployment and the natural rate of unemployment

Thomas Malthus predictions turned out to be wrong due to...

technological advances such as those during the industrial revolution

A decrease in the price of domestically produced industrial robots will be reflected in...

the GDP deflator but not the CPI

An increase in the price of Irish whiskey imported into the US will be reflected in...

the US CPI but not the US GDP

All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year...

the increase in output was greater last year than this year

We would expect that, the more generous unemployment compensation a country has:

the longer the duration of each spell of unemployment and the higher the unemployment rate