ECN 1B: Exam Review Ch. 5-7

Ch. 5: GDP excludes

most goods and services produced at home and most goods and services produced illegally.

Ch. 6: A candy bar cost $0.85 in 2019. The value for the CPI in 1962 is 30.4 and the value of the CPI for 2019 is 236.2, what is the price of a candy bar in 1962 dollars?

$0.11

Ch. 6: A candy bar cost $0.60 in 2019. The value for the CPI in 1962 is 30.4 and the value of the CPI for 2019 is 236.2, what is the price of a candy bar in 1962 dollars?

$0.78

Ch. 6: The price of a soft drink from a vending machine in 2019 is $1.25. Given the value for the CPI in 1965 and the value of the CPI for 2019, which of the following is correct to find the price of a soft drink in 1965 dollars?

$1.25 x (CPI1965/CPI2019)

A farmer sells $50,000 worth of apples to individuals who take them home to eat, $75,000 worth to a company that uses them all to produce apple juice, and $100,000 worth of apples to a grocery store that sells all of them to households. How much of the farmer's sales will be included as apples in GDP?

$150,000

Ch. 5: John plows snow from driveways. He spends $2 on gas and charges $25 each time he plows. What's the total contribution to GDP each time John plows a driveway?

$25; the price paid includes the price of gasoline and John's time. Gas is an intermediate good, so its value is not included separately. Services, such as snow plowing, are included in GDP.

Ch. 6: Jenny earned a salary of $48,000 in 2015 and a salary of $60,000 in 2019. The consumer price index in 2015 was 220.5. The consumer price index was 236.2 in 2019. Jenny's 2015 salary in 2019 dollars is

$51,418

Ch. 6: Jenny earned a salary of $50,000 in 2015 and a salary of $60,000 in 2019. The consumer price index in 2015 was 220.5. The consumer price index was 236.2 in 2014. Jenny's 2015 salary in 2014 dollars is

$53,560

Jenny earned a salary of $52,000 in 2015 and a salary of $60,000 in 2019. The consumer price index in 2015 was 220.5. The consumer price index was 236.2 in 2019. Jenny's 2015 salary in 2019 dollars is

$55,702

Ch. 6: Suppose the consumer price index is 89 in 2012, 94 in 2014, 100 in 2016, and 103 in 2018. If Social Security Benefits were $1,000 in 2018 and we index them for inflation, the Social Security benefits would have been ________ in 2014.

$912.62

Ch. 6: Suppose the consumer price index is 89 in 2012, 94 in 2014, 100 in 2016, and 103 in 2018. If Social Security Benefits were $1,000 in 2018 and we indexed for inflation, the Social Security benefits would have been ________ in 2016.

$970.87

Ch. 6: If the nominal interest rate is 2 percent and the real interest rate is 4 percent, then the inflation rate is

-2 percent.

Ch. 6: If the consumer price index was 97 in 2012, 100 in 2014, 101 in 2016, and 104 in 2018, then the base year must be

2014

Ch. 6: If the consumer price index was 89 in 2014, 94 in 2016, 100 in 2018, and 103 in 2020, then the base year must be

2018

Ch. 6: If the nominal interest rate is 10 percent and the inflation rate is 4 percent, then the real interest rate is

6 percent

Ch. 5: If nominal GDP is $16 trillion and real GDP is $24 trillion, then the GDP deflator is

67, and this indicates that the price level has decreased by 33 percent since the base year.

Ch. 6: The ______ is responsible for calculating and reporting the CPI.

Bureau of Labor Statistics

Ch. 6: Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 5% from 2018 to 2019?

CPI in 2018 = 90; CPI in 2019 = 94.5

Ch. 6: Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 10% from 2018 to 2019?

CPI in 2018 = 90; CPI in 2019 = 99

Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 10% from 2018 to 2019?

CPI in 2018 = 90; CPI in 2019 = 99

Ch. 7: When China experiences investment from abroad,

China's productivity and the wages of Chinese workers increase

Ch. 7: When China experiences investment from abroad

Chinese workers gain access to the state-of-the-art technologies developed and used in richer countries.

Ch. 5: If the GDP deflator in 2015 was 210 and the GDP deflator in 2014 was 200, then the inflation rate in 2015 was 10%.

False

Ch. 6: The consumer price index is the only measure of inflation used in the United Sates.

False

Ch. 7: What is measured by the level of real GDP divided by hours worked over that year?

Productivity for a given year

Ch. 7: The fact that in Canada, real GDP per year was $2,633 in 1870 and $46,705 in 2017 implies every year, the growth rate was 1.98% per year.

False; If real GDP per person, beginning at $2,633, were to increase by 1.98% every year. Some years it rose by more, other years it rose by less, and in other years it fell. The growth rate of 1.98% per year ignores short-run fluctuations around the long-run trend and represents an average of growth for real GDP per person over many years.

From 1890 to 2017, countries with lower levels of real GDP per person than the United States all had growth rates that are lower than that of the United States.

False; In some cases, countries that had lower levels of real GDP per person than the United States had growth rates that were higher than that of the United States. In other cases, countries with lower levels of real GDP per person had lower growth rates than that of the United States.

Ch. 7: The traditional view of the production process is that capital is subject to constant returns

False; The traditional view of the production process is that capital is subject to diminishing returns: As the stock of capital rises, the extra output produced from an additional unit of capital falls.

Ch. 6: Inflation can only be measured by the consumer price index and not by the GDP deflator.

False; can be measured by both CPI & GDP deflator

In the circular-flow diagram households receive income only from wages.

False; households also receive income from land and capital they supply to firms

Ch. 7: Suppose an economy experiences an increase in its saving rate. The higher saving rate leads to a higher growth rate of productivity in the long-run

False; the accumulation of capital is subject to diminishing returns: The more capital an economy has, the less additional output the economy gets from an extra unit of capital. As a result, although higher saving leads to higher growth for a period of time, growth eventually slows down as capital, productivity, and income rise.

Ch. 7: Which of the following accurately describes the difference between foreign direct investment and foreign portfolio investment?

Foreign direct investment assumes an investment that is owned and operated by a foreign entity, whereas foreign portfolio investment assumes investment into a domestically owned and operated business.

Ch. 6: The CPI is able to measure changes in the quality of goods over time

Imprecisely because it is relatively complicated to measure quality changes.

Ch. 7: Which of the following countries is a middle-income country, which over the past century had a higher rate of economic growth than the United States?

Mexico

Ch. 7: Consider two economies with diminishing returns to capital. The economies are identical except one has a higher capital per worker than the other. Suppose that the saving rates in both countries increase.

Over the next few years, the growth rate of real GDP per worker will be higher in the country that started with less capital per worker.

Last year, a toy factory made 60,000 toys employing 80 workers, each of whom worked 8 hours per day. This year, the factory produced 76,500 toys, employing 85 workers, each of whom worked 10 hours per day. What can you say about factory's productivity?

Productivity decreased by 4%

Ch. 7: Last year, a chocolate factory made 60,000 bars employing 100 workers, each of whom worked 8 hours per day. This year, the factory produced 70,000 toys, employing 80 workers, each of whom worked 10 hours per day. What can you say about factory's productivity?

Productivity increased by 16.7%

Suppose that productivity grew faster in Country A than in Country B, while population and total hours worked remained the same in both countries.

Real GDP per person grew faster in Country A than Country B.

Ch. 6: Which of the following statements is correct for explaining why the CPI is commonly used as a measure of inflation?

The CPI better reflects the prices of goods and services bought by consumers.

Ch. 6: Which of the following statements is correct regarding the CPI and the GDP deflator?

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

Ch 7: One of the Ten Principles of Economics is that country's standard of living depends on its ability to produce goods and services

True

Ch. 6: The CPI value in 2018 is 100 and the annual inflation rate is 6%. The CPI value in 2019 is 106.

True

Ch. 7: Which of the following statements is consistent with the fact that capital in an economy is subject to diminishing returns?

When workers have a relatively small quantity of capital, giving them an additional unit of capital increases their productivity by a relatively large amount.

Ch. 7: It is possible to increase economic growth with population growth because _____

With more people, there are more scientists and inventors to contribute to technological advances.

A U.S. company purchases new cement mixers that were made in the U.S. This purchase by itself makes

a positive contribution both to investment and to GDP

Ch. 5: If you buy pizza at your favorite local pizzeria,

both GDP and consumption spending will be higher.

Ch.5: In the simple circular-flow model

households spend all of their income but the government does not buy goods or services.

The CPI is able to measure changes in the quality of goods over time

imprecisely because it is relatively complicated to measure quality changes.

Ch. 5: Transfer payments from the government to households are

not for the current production of goods and services. They are not included in GDP.

Ch. 7: The downside of pursuing a policy that increases saving and investment is _____

that current consumption of goods and services decreases.

Ch. 6: The most commonly reported measure of inflation by the media is

the CPI

Ch. 5: Sally drives an automobile she purchased several years ago. This year she bought gasoline and some parts and spent five hours making repairs. Which of the following is included in this year's GDP?

the amount she paid to buy gasoline and new parts, but not the value of her time.

Ch. 5: A U.S. firm produced cash registers in the first quarter of 2015 and added them to its inventory. In the second quarter of 2015 the firm sold the cash registers to a U.S. grocery store chain. In which quarter(s) does (do) these transactions raise investment?

the first but not the second; the cash registers are counted as a change in inventory, part of investment spending, in the first quarter. When they are sold to the grocery store chain in the second quarter they will count as investment, but this increase will be offset by the decrease in the change in inventories.

It is possible to increase economic growth with population growth because _____

with more people, there are more scientists and inventors to contribute to technological advances.