EC 111 Practice Exam

If nominal GDP is $10 trillion and real GDP is $8 trillion, then the GDP deflator is

125, and this indicates that the price level has increased by 25 percent since the base year.

8. Refer to Table 23-4. What are the GDP deflator and the inflation rate for 1932?

8.09, -11.7

GDP does not reflect

All of the above are correct.

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been chosen as the base year. In 2002, the basket's cost was $75.00; in 2004, the basket's cost was $79.50; and in 2006, the basket's cost was $85.86. The value of the CPI was

All of the above are correct.

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.

Goods that go into inventory and are not sold during the current period are

included in current period GDP as inventory investment.

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.

The inflation rate is the

percentage change in the price level from one period to another.

What was the growth rate of real GDP for 1930?

-8.62%. Real GDP is a better gauge of economic well-being than nominal GDP.

Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that

GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare.

Suppose that over the last twenty-five years a country's nominal GDP grew to three times its former size. In the meantime, population grew by 40 percent and prices rose by 100 percent. What happened to real GDP per person?

It increased, but it less than doubled

By not taking into account the possibility of consumer substitution, the CPI

Overstates the cost of living

A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result,

U.S. investment and GDP increase, but German GDP is unaffected.

What are the GDP deflator and the inflation rate for 1931?

b. 9.16, -10.3

In the calculation of the CPI, coffee is given greater weight than tea if

consumers buy more coffee than tea

The consumption component of GDP includes spending on

durable goods, nondurable goods, and services.

For an economy as a whole, income must equal expenditure because

every dollar of spending by some buyer is a dollar of income for some seller.