EC 211 Final Exam 2

If one wants to know how the material well-being of the average person has changed over time in a given country, one should look at the

growth rate of real GDP per person.

If a country's saving rate declined, then other things the same, in the long run the country would have

lower productivity and lower real GDP per person.

Rapid population growth

may depress economic prosperity by reducing the amount of capital which each worker has to work with.

Suppose the price of a six-pack of cola rises from $3 to $3.75 and the price of a pack of mints rises from $1.25 to $1.75. If the CPI rises from 140 to 182, then people likely will buy Group of answer choices

more cola and fewer mints.

Suppose an economy produces only burgers and bags of fries. In 2010, 4000 burgers are sold at $3 each and 6000 bags of fires are sold at $1.50 each. In 2008, the base year, burgers sold for $2.50 each and bags of fries sold for $2 each.

nominal GDP is $21,000, real GDP is $22,000, and the GDP deflator is 95.45.

Michigan Tea Company sold $15 million worth of tea it produced. In producing this tea it purchased $5 million dollars worth of ingredients from foreign countries and paid workers who reside in Canada but commute to the U.S. $1 million. How much did these transactions add to U.S. GDP?

$10 million

If in some year real GDP was $25 billion and the GDP deflator was 68, what was nominal GDP?

$17 billion

The table below contains data for Bahkan for the year 2010. GDP$110 Income earned by citizens abroad$5 Income foreigners earn here$15 Losses from depreciation$4 Indirect business taxes$6 Statistical discrepancy$0 Retained earnings$5 Corporate income taxes$6 Social insurance contributions$10 Interest paid to households by government$5 Transfer payments to households from government$15 Personal taxes$30 Nontax payments to government$5 Refer to Table 23-1. What were country A's government purchases in 2010?

$1975

Tim mows the yard for his neighbors. He spends $1 on gas and charges them $20 for each lawn he mows. What's the total contribution to GDP each time Tim mows a yard?

$20

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2008. The price index was 17.6 in 1944 and 184 in 2008. Josh Holloway's 2008 income in 1944 dollars is

$20,086.96.

Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced in American plants. In 2010 Quality Motors produced $30 million worth of automobiles, with $17 million in sales to Americans, $9 million in sales to Canadians, and $4 million worth of automobiles added to Quality Motors' inventory. The transactions just described contribute how much to U.S. GDP for 2010?

$30 million

Ethel purchased a bag of groceries in 1970 for $8. She purchased the same bag of groceries in 2006 for $25. If the price index was 38.8 in 1970 and the price index was 180 in 2006, then what is the price of the 1970 bag of groceries in 2006 dollars?

$37.11

In the economy of Ukzten in 2010, consumption was $4000, exports were $800, GDP was $9500, imports were $200, and investment was $1000. What were Ukzten's government purchases in 2010?

$3900

Table 23-6The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2009. - Year 2008 Price of Waffles $2.00 Quantity of Waffles 100 Price of Pancakes $1.00 Quantity of Pancakes 100 - Year 2009 Price of Waffles $2.00 Quantity of Waffles 120 Price of Pancakes $2.00 Quantity of Pancakes 150 - Year 2010 Price of Waffles $2.00 Quantity of Waffles 150 Price of Pancakes $3.00 Quantity of Pancakes 200 - Year 2011 Price of Waffles $4.00 Quantity of Waffles 180 Price of Pancakes $3.00 Quantity of Pancakes 220 Refer to Table 23-6. In 2008, this country's real GDP was

$400.

Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to Chewy Chomp, Inc., which uses the rawhide to produce and sell dog chews. With each $2 of rawhide that it buys from Rolling Rawhide, Chewy Chomp, Inc. produces a dog chew and sells it for $5. Neither firm had any inventory at the beginning of 2008. During that year, Rolling Rawhide produced enough rawhide for 1000 dog chews. Chewy Chomp, Inc. bought 75% of that rawhide for $1500 and promised to buy the remaining 25% for $500 in 2009. Chewy Chomp, Inc. produced 750 dog chews during 2008 and sold each one during that year for $5. What was the economy's GDP for 2008? Group of answer choices

$4250

Janelle earned a salary of $40,000 in 1996 and $65,000 in 2006. The consumer price index was 160 in 1996 and 266 in 2006. Janelle's 1996 salary in 2006 dollars is

$66,500.00.

Quinn has job offers in Wrexington and across the country in Charlieville. The Wrexington job would pay a salary of $50,000 per year, and the Charlieville job would pay a salary of $40,000 per year. The CPI in Wrexington is 150, and the CPI in Charlieville is 90. The Charlieville salary in Wrexington dollars is

$66,666.67.

Otherwise legal transactions that go unreported or unrecorded are called

- All of the above are correct. (the shadow economy. the underground economy. the informal economy.)

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is

-4 percent.

Table 23-5A hypothetical country of Lahland produces only movies and popcorn. Quantities and prices of these goods for the last several years are shown below. The base year is 2009. - Year 2008 Price of Movies $10.00 Quantity of Movies 400 Price of Popcorn $5 Quantity of Popcorn 800 - Year 2009 Price of Movies $11.00 Quantity of Movies 500 Price of Popcorn $4 Quantity of Popcorn 900 - Year 2010 Price of Movies $12.00 Quantity of Movies 600 Price of Popcorn $5 Quantity of Popcorn 1000 - Year 2011 Price of Movies $12.00 Quantity of Movies 600 Price of Popcorn $6 Quantity of Popcorn 900 Refer to table 23-5 What was this country's GDP deflator in 2010?

115.1

Table 23-4The country of Caspir produces only cereal and milk. Quantities and prices of these goods for the last several years are shown below. The base year is 2008. Prices and Quantities - Year 2008 Price of Cereal $4.00 Quantity of Cereal 90 Price of Milk $1.50 Quantity of Milk 150 - Year 2009 Price of Cereal $4.00 Quantity of Cereal 100 Price of Milk $2.00 Quantity of Milk 180 - Year 2010 Price of Cereal $5.00 Quantity of Cereal 120 Price of Milk $2.50 Quantity of Milk 200 - Year 2011 Price of Cereal $6.00 Quantity of Cereal 150 Price of Milk $3.50 Quantity of Milk 200 Refer to Table 23-4. This country's output grew

15.4% from 2010 to 2011.

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2008. The price index was 17.6 in 1944 and 184 in 2008. In real terms, Josh Holloway's income amounts to about what percentage of Sue Holloway's income?

167 percent

In 2009, the imaginary nation of Viloxia had a population of 5,000 and real GDP of 500,000. In 2010 it had a population of 5,100 and real GDP of 520,200. During 2009 real GDP in Viloxia grew by Group of answer choices

2 percent, which is about the same as average U.S. growth over the last one-hundred years.

If the nominal interest rate is 1.5 percent and the rate of inflation is -0.5 percent, then the real interest rate is

2 percent.

If the cost of medical care increases by 40 percent, then, other things the same, the CPI is likely to increase by about

2.4 percent.

Table 24-5The table below pertains to Napandsnack, an economy in which the typical consumer's basket consists of 2 pillows and 15 hotdogs. - Year 2009 Price of a Pillow $40 Price of a Hotdog $3 - Year 2010 Price of a Pillow $45 Price of a Hotdog $4 - Year 2011 Price of a Pillow $50 Price of a Hotdog $3 Refer to Table 24-5. If the base year is 2010, then the economy's inflation rate in 2010 was

20.0 percent.

In 2009, the imaginary nation of Florastan had a population of 8,300 and real GDP of 190,900. Florastan had 5% growth in real GDP per person. In 2010 it had a population of 8,400. What was real GDP in Florastan in 2010?

202,860

In 1974, one could buy a theater for $1.25. Today the same theater ticket costs $6.50. Which pair of CPIs would imply that the cost in today's dollars was the same for both tickets?

75 in 1964 and 390 today

Table 23-4The table below reports nominal and real GDP for the U.S. from 1929 to 1932. - Year 1992 Nominal GDP 103.6 Real GDP 977 - Year 1930 Nominal GDP 91.2 Real GDP 892.8 - Year 1931 Nominal GDP 76.5 Real GDP 834.9 - Year 1932 Nominal GDP 58.7 Real GDP 725.8 Refer to table 23-3. What is the GDP deflator and the inflation rate for 1932?

8.09, -11.7

From 2008 to 2009, the CPI for medical care increased from 150.8 to 164.4. What was the inflation rate for medical care?

9.0 percent

On the basis of theory and empirical evidence, economists have reached several conclusions about economic growth. Which of the following is not one of these conclusions? Group of answer choices

A relatively simple way to increase growth rates permanently is to increase a country's saving rate.

Which of the following nations experienced average rates of economic growth of less than 2 percent over the last 100 years?

All of the above are correct

Rank the countries from highest to lowest based on underground economic activity as a percentage of GDP.

Bolivia, Thailand, Sweden, United States.

Of Social Security benefits and federal income tax brackets, which is indexed?

Both are indexed.

Given that a country's real output has increased, in which of the following cases can we be sure that its productivity also has increased?

Both b and c are correct.

Which of the following countries achieved higher economic growth, in part by mandating a reduction in population growth?

China

Which of the following is not correct? Group of answer choices

Financial intermediaries are the only type of financial institution.

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.

If national saving in a closed economy is greater than zero, which of the following must be true? Group of answer choices

Investment is positive. Either public saving or private saving must be greater than zero. Y-C-G>0 All of the above are correct.

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit. What would happen to the interest rate?

It would decrease. It would stay the same. It would increase. It might do any of the above.

Janet bought flour and used it to bake bread she ate. ABC Bakery bought flour which it used to bake bread that customers purchased. In which case will the flour be counted as a final good?

Janet's purchase but not ABC Bakery's purchase.

The information for 2008 in millions in the table below was reported by the World Bank. On the basis of this information, which list below contains the correct ordering of real GDP per person from highest to lowest? - Country Germany GDP (Constant US$) 2,091,573 GDP(Current US$) 3,649,493 Population 82.11 - Country Japan GDP (Constant US$) 5,166,281 GDP(Current US$) 4,910,839 Population 127.70 - Country U.S. GDP (Constant US$) 11,513,872 GDP(Current US$) 14,093,309 Population 304.06

Japan, United States, Germany

The information below for 2008 in millions was reported by the World Bank. On the basis of this information, which list below contains the correct ordering of GDP per person from highest to lowest? - Country Ghana GDP (Constant US$) 7,690 GDP(Current US$) 16,653 Population 23.35 - Country Kenya GDP (Constant US$) 17,569 GDP(Current US$) 30,354 Population 38.76 - Country Tanzania GDP (Constant US$) 15,394 GDP(Current US$) 20,490 Population 41.276

Kenya, Tanzania, Ghana

Which of the following statements is not correct?

Malthus argued that charity and government aid was an effective way to reduce poverty.

Over the last 100 years which of the following had growth rates higher than that of the United States? Group of answer choices

Mexico

Which of the following is not always correct for a closed economy?

Private saving equals investment.

The U.S. government pays an economist at the U.S. Department of Commerce $50,000 in salary in 2006. The economist then retires. In 2007, the government pays him $30,000 in retirement benefits. Which of the following is correct?

The 2006 payment is included in 2006 GDP as government purchases, but the 2007 payment is not included in 2007 GDP.

Which of the following is correct?

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

Which of the following is not correct? Group of answer choices

The U.S. economy has never experienced deflation.

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

The demand for loanable funds shifted leftward.

Consider the expressions T - G and Y - T - C. Which of the following statements is correct?

The first of these is public saving; the second one is private saving.

Suppose a country has a consumption tax that is similar to a state sales tax. If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings, what would happen?

The interest rate would increase and saving would decrease.

Suppose the quality of televisions changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be most severe? Group of answer choices

The quality of televisions improves and televisions become more expensive relative to other goods.

Which of the following correctly ranks the three countries, from highest to lowest, for percentage of high-school age children in school?

United Kingdom, Mexico, mali

Upland has a population of 15,000, of whom 9,000 work 8 hours a day to produce real output of $342,000. Lowland has a population of 8,000, of whom 7,000 work 7 hours a day to produce real output of $171,500. Group of answer choices

Upland has higher productivity and higher real GDP per person than Lowland.

Popeye produces 20 cans of spinach in 8 hours. Wimpy produces 15 hamburgers in 10 hours. If each hamburger trades for 1.5 cans of spinach, then

Wimpy's production is greater than Popeye's, but his productivity is less.

In the equation Y = C + I + G + NX,

Y represents the economy's total expenditure.

A perpetuity is

a bond that pays interest forever

The first element of a financial crisis is

a large decline in some asset prices.

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

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

In a simple circular-flow diagram, total income and total expenditure are

always equal because every transaction has a buyer and a seller.

The producer price index measures the cost of a basket of goods and services

bought by firms.

The inflation rate is calculated Group of answer choices

by determining the percentage change in the price index from the preceding period.

Which of the following is not included in GDP?

carrots grown in your garden and eaten by your family

A management professor discovers a way for corporate management to operate more efficiently. He publishes his findings in a journal. His findings are

common, but not proprietary, knowledge.

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the

consumer price index rises much more than does the GDP deflator.

The residents of country A earn $500 million of income from abroad. Residents of other countries earn $200 million in country A. These earnings are accounted for in country A's

country A's net factor payments from abroad are positive, and its GNP is larger than its GDP.

Country A has a population of 1,000, of whom 700 worked an average of 8 hours a day and had a productivity of 2.5. Country B has a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0. The country with the higher real GDP was

country A, and the country with higher real GDP per person was country B.

The table below relates to the economy of Mainland, where the typical consumer's market basket consists of 2 iPhones and 3 hamburgers. - Year 2007 Price of an iPhone $400 Price of a hamburger $3 - Year 2008 Price of an iPhone $300 Price of a hamburger $5 - Year 2009 Price of an iPhone $325 Price of a hamburger $7 Refer to Table 24-6. The cost of the basket

decreased from 2007 to 2008 and increased from 2008 to 2009.

The traditional view of the production process is that capital is subject to

diminishing returns.

In the past there have been violent protests against the World Bank and the World Trade Organization. The protesters argued that these institutions promote free trade and also encourage corporations in rich countries to invest in poor countries. The protesters contended that these practices make rich countries richer and poor countries poorer. An economist would

disagree with the protesters because these practices will help make both rich and poor countries richer.

Social Security payments are

excluded from GDP because they do not reflect the economy's production.

Other things equal, relatively poor countries tend to grow

faster than relatively rich countries; this is called the catch-up effect.

If an American-based firm opens and operates a service call center in Bulgaria, then it is engaging in Group of answer choices

foreign direct investment.

Consider three imaginary countries. In Mainland, saving amounts to $4,000 and consumption amounts to $8,000; in Upland, saving amounts to $2,000 and consumption amounts to $15,000; and in Lowland, saving amounts to $6,000 and consumption amounts to $11,000. The saving rate is

higher in Lowland than in Mainland, and it is higher in Mainland than in Upland.

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are

housing, transportation, and food & beverages.

By far the largest category of goods and services in the CPI basket is

housing.

Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up

in the GDP deflator, but not in the consumer price index.

Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself. Which of the following is correct? The value of changing the oil is

included in GDP if Susan pays Speedy Lube to change it but not if she changes it herself.

The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators. - Year 2006 Price of a Book $24 Price of a Calculator $8 - Year 2007 Price of a Book $30 Price of a Calculator $12 - Year 2008 Price of a Book $32 Price of a Calculator $15 Refer to Table 24-3. The cost of the basket

increased from 2006 to 2007 and increased from 2007 to 2008.

The notion that our ability to conserve natural resources is growing more rapidly than their supplies are dwindling is supported by the fact that

inflation-adjusted prices of most natural resources have been stable or fallen over time.

If the price of a good has risen over time,

it has become more scarce only if the price adjusted for inflation has risen.

Proprietary technology is knowledge that is

known only by the company that discovered it.

Gross domestic product includes all

legal final goods and services, but it excludes illegal final goods and services.

Suppose over the last year that the price of iron ore increased from $1,200 a ton to $1,300 a ton. Over the same time a measure of the overall price level increased from 168 to 187. The price of iron ore increased by Group of answer choices

less than inflation, and this means it became relatively less scarce.

Patents turn new ideas into

private goods, and increase the incentive to engage in research.

Which of the following will increase a country's real GDP per person? Group of answer choices

reducing restrictions on foreign trade and foreign investment

Which of the following is included in the investment component of GDP?

spending on new business equipment such as power tools but not spending on stocks and bonds

Haley discovers a new way to design automobile engines so that they use less gasoline. Haley's finding is an example of Group of answer choices

technological knowledge. If Haley's discovery leads to lower gasoline prices, it has made gasoline less scarce.

Which of the following numbers is not associated with shares of a company's stock?

term

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

the GDP deflator but not in the consumer price index.

If the price of Italian shoes imported into the United States increases, then

the consumer price index will increase, but the GDP deflator will not increase.

If total spending rises from one year to the next, then which of the following could not be true?

the economy is producing a smaller output of goods and services, and goods and services are selling at lower prices

Estimates of the values of which of the following non-market goods or services are included in GDP?

the estimated rental value of owner-occupied homes

Total income from the domestic production of final goods and services equals

the expenditures for these goods whoever buys them.

Country A has real GDP per person of 10,000 while country B has real GDP per person of 20,000. All else constant, country A will eventually have a higher standard of living than country B if

the level of saving per person is 1,000 in country A and 1,800 in country B. the level of saving per person is 500 in country A and 750 in country B. Both of the above are correct.

During a certain year, the consumer price index increased from 150 to 159 and the purchasing power of a person's bank account increased by 3.5 percent. For that year, Group of answer choices

the nominal interest rate was 9.5 percent.

To calculate the CPI, the Bureau of Labor Statistics uses

the prices of some consumer goods.

In a particular production process, if the quantities of all inputs used double, then the quantity of output doubles as well. This means that

the relevant production function has the constant-returns-to-scale property.

For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation most relevant?

unmeasured quality change