ECO 2315 EXAM #2

Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5 percent, then the rate of inflation over the upcoming year that would be most beneficial to you

greater than 7 percent

Except for recessions, the duration of unemployment for the typical person lasts

less than six months

The real interest rate equals the nominal interest rate ________ the inflation rate.

minus

In 2012, which component of GDP had a negative value?

net exports

The producer price index measures the prices that firms

receive for the goods and services they use at all stages of production

If your nominal wage rises faster than the price level, we can say your real wage has ________ and the purchasing power of your income has ________.

risen; risen

Home Depot sells new and used doors to contractors who build new homes. Home Depot also sells new and used doors to homeowners. Which of the following would be counted in GDP?

the sale of a new door to homeowner

What is outlet bias?

the tendency for households to spend their money at discount stores as prices rise

Gross domestic product is calculated by summing up

the total market value of final goods and services produced in the economy during a period of time.

During the month of May, 10 million workers moved from being classified as "unemployed" to being classified as "employed." As a result,

the unemployment rate fell

Caroline is an artist. She purchases canvas, paints, brushes, and accessories for $75. She sells one of her original paintings to an art gallery for $1,500, even though an art lover would pay $4,500 for that painting. How much value does Caroline add?

$1,425 $1,500-$75=

Refer to Table 8-4. Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals

$1,600 GDP= C+I+G+(X-M) GDP=$800+$300+$300+$400+ ($100-$300)

Consider the table above showing three stages of production of an automobile. Refer to Table 8-5. The value added by the automobile dealer equals

$18,000 ($25,000-$18,000)

Refer to Table 9-14. The real average hourly earnings for 1965 in 2010 dollars equal

$18.14

The value of each automobile in gross domestic product equals

$25,000

Refer to Table 8-13. Nominal GDP for Vicuna for 2009 equals

$4,920

If the quantity of goods and services produced in the economydecreases,

it may be possible for nominal GDP to increase

You lend $5,000 to a friend for one year at a nominal interest rate of 10%. Inflation during that year is 5%. As a result, you will receive ________ at the end of the year, but that money has a purchasing power of ________.

$5,500; $5,250 $5,000 x 10% = $500 —> $5,000 + $500= $5,500 $5,000 x 5% = $250 —> $5,000 + $250 = $5,250

Refer to Table 8-13. Real GDP for Vicuna for 2009 using 2011 as the base year equals

$5,650

In 2013, Kendall Ford, an automobile dealership, spent $20,000 on a new car lift for its repair shop, $2,000 on a new copy machine for its sales division, and $600,000 on Ford Motor company stock. Unsold cars and trucks were valued at $400,000 on January 1, 2013 and unsold cars and trucks were valued at $900,000 on December 31, 2013. What is Kendall Ford's total investment spending in 2013?

$522,000 Dealership Cost + Repair Expenses+ Closing Stock (Unsold cars and trucks were valued on December​ 31, 2013) -Opening Cost (Unsold cars and trucks were valued at​ on January​ 1, 2013) $20,000 + $2,000 + $900,000 -$400,000

Refer to Table 9-14. The real average hourly earnings for 1965 in 1982-1984 dollars equal

$8.28 ($2.65/32)x 100=

Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2013, then the value of your grandfather's salary in 2013 dollars is approximately

$84,775 $12,000/31= 387.09 (219) =

In a small economy, consumption spending in 2013 is $6,000, government spending is $1,200, gross investment is $1,500, exports are $2,000, and imports are $1,000. What is gross domestic product in 2013?

$9,700 GDP=C+I+G+(X-M) GDP=$6,000+$1,500+$1,200+($2,000-$1,000)

Refer to Table 9-1. The labor force participation rate for this simple economy equals

(1,100/15,000) × 100

Refer to Table 9-1. The unemployment rate for this simple economy equals

(100/1,100)×100

Suppose the working-age population of a fictional economy falls into the following categories: 90 are retired or homemakers; 60 have full-time employment; 20 have part-time employment; 20 do not have employment, but are actively looking for employment; and 10 would like employment but do not have employment and are not actively looking for employment. The official unemployment rate as calculated by the U.S. Bureau of Labor would equal

(20/100) × 100

A very simple economy produces three goods: cameras, legal services, and books. The quantities produced and their corresponding prices for 2008 and 2013 are shown in the table above. Refer to Table 8-18. What is the GDP deflator in 2013 if 2013 is the base year?

100

Refer to Table 8-15. Consider the following data on nominal GDP and real GDP (values are in billions of dollars): The GDP deflator for 2012 equals

106.2.

Monthly expenditures for a family of 4 in 2012 averaged $1,400. In 2013, the cost of the same purchases was $1,500. If 2012 is the base year, what was the CPI in 2013?

107 ($1,500/$1,400) x 100=

Refer to Table 9-3. Assume the market basket for the consumer price index has three products- Cokes, hamburgers, and CDs- with the following values in 2006 and 2013 for price and quantity: The Consumer Price Index for 2013 equals

121 [100($0.75) + 200($2.50) + 10($21.00)]/ [(100($0.50) + 200($2.00) + 10($20.00)] x 100 =

Refer to Table 9-9. Suppose that the data in the table above reflect the price levels in the economy. Given that data, we can say that the cost of living rose by ________ between 2012 and 2013?

13% [113-100/100] x 100=

Refer to Table 9-4. Assume the market basket for the consumer price index has two products- meat and potatoes -with the following values in 2006 and 2013 for price and quantity: The Consumer Price Index for 2013 equals

141 (100(10)= 1,000) + (200(2)=400) = 1,400 (120(12)=1,440 + 180(3)=540) = 1,980 (1,980/1,400) x 100=

A car that is produced in 2013 is not sold until 2014. According to the definition of GDP, in which year's GDP should it be counted?

2013

Refer to Table 9-11. Suppose an economy has only three goods and the typical family purchases the amounts given in the table above. If 2005 is the base year, then what is the CPI for 2013?

208 ($1,040/$500) x 100

Refer to Table 9-14. The percentage change in real average earnings from 1965 to 2010 equals

24.5 percent ($2.65/32)x 100= $8.28 ($22.59/219)x 100= $2.04 ($2.04/$8.28) x 100=

Assume the average annual CPI values for 2012 and 2013 were 207.3 and 215.3, respectively. What was the percent increase in the CPI between these two years?

3.86 [(215.3-207.3)/207.3] x100

Refer to Table 9-5. Consider the following values of the consumer price index for 2012 and 2013. The inflation rate for 2013 was equal to

3.9 percent.

You lend $5,000 to a friend for one year at a nominal interest rate of 10%. The CPI over that year rises from 180 to 190. What is the real rate of interest you will earn?

4.4% (190-180)/180 x 100 = 5.6% 10%- 5.6%= 4.4%

If the number employed is 190 million, the working-age population is 230 million, and the number unemployed is 10 million, then the unemployment rate is

5% [10 million/(190 million + 10 million)] x 100 =

The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is

5% higher in year 2 than in year 1

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid?

8 percent $600/$5,000= 12% 12%-4%=

The nominal GDP of the U.S. in 2012 was approximately $16.2 trillion. This means that

A) total income in 2012 was around $16.2 trillion. B) the value of output in 2012 was around $16.2 trillion. C) total spending in 2012 was around $16.2 trillion. ***D) all of the above are true.

Refer to Table 8-2. Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above table, nominal GDP for this simple economy equals

B) $6,400 (40x60.00) + (100x18.00) + (1,000x1.00) + (300x4.00)=

The GDP deflator is the

ratio of nominal GDP to real GDP multiplied by 100

Which of the following causes the unemployment rate to understate the true extent of joblessness?

Discouraged workers are not counted as unemployed

Consumption spending is $4.5 billion, gross private domestic investment is $3 billion, and government expenditures are $2 billion. If GDP is $14 billion, which of the following could be true regarding exports and imports in the economy?

Exports are $4.5 billion, and imports are $2 billion GDP=$14 billion=$4.5 billion+$3 billion + $2 billion + (X-I)

Suppose Bob works for Mary as a proofreader. Mary and Bob fall deeply in love, marry and have eight children. Bob stops working for Mary in order to care for the children. What will be the effect on GDP?

GDP will decrease

During a business cycle expansion, total production ________ and total employment ________.

Increases, increases

Which of the following is true about the consumer price index?

It assumes that consumers purchase the same amount of each product in the market basket each month.

Which of the following headlines would be more closely related to what macroeconomists study than what microeconomists study?

Real GDP grows by 2.3% in the second quarter

You agree to lend $1,000 for one year at a nominal interest rate of 10%. You anticipate that inflation will be 4% over that year. If inflation is instead 3% over that year, which of the following is true?

The person who borrowed the $1,000 will be worse off as a result of the unanticipated decrease in inflation.

Refer to Table 8-16. Given the information above, what can we say has happened in the economy from 2012 to 2013?

The price level has risen

Between 2013 and 2014, the CPI of a small nation rose from 182 to 185. If household incomes rose by 3% during that period of time, which of the following is true?

The purchasing power of household income rose between 2013 and 2014

You earned $30,000 in 2000, and your salary rose to $80,000 in 2013. If the CPI rose from 82 to 202 between 2000 and 2013, which of the following is true?

The purchasing power of your salary increased between 2000 and 2013 ($80,000-$30,000)/($30,000) x 100= 166.67% INCREASE

Suppose in 2014, you purchase a house built in 2003. Which of the following would be included in the gross domestic product for 2014?

The value of the services of the real estate agent

How are intermediate goods treated in the calculation of GDP?

Their value is not counted separately , but included as part of the value of the final good for which they are an input.

In calculating gross domestic product, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced. This means that the BEA

Values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up

Which of the following explains the changes in the U.S. adult male labor force participation rate since 1948?

Younger men are remaining in school longer as compared to the past

Which of the following goods is directly counted in GDP?

a 12-inch Subway sandwich purchased by a student

Which of the following describes a situation in which the person is hurt by inflation?

a person paid a fixed income during an inflationary period

An example of business fixed investment spending is

a purchase of a computer by an accounting firm

An example of a transfer payment is

a welfare payment.

When actual inflation is less than expected inflation,

borrowers lose and lenders gain

The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket.

change; overestimates

Investment spending includes spending on

changes in business inventories.

If consumers purchase fewer of those products that increase most in price and more of those products that decrease in price as compared to the CPI basket, then

changes in the CPI overstate the true rate of inflation

Which of the following price indices comes closest to measuring the cost of living of the typical household?

consumer price index

The purchase of a new automobile is included in

consumption expenditures on durable goods.

What is the largest component of spending in the United States?

consumption spending

To calculate GDP by the expenditure method, one must add

consumption spending, investment spending, government spending and net exports

If the price level rose in three consecutive years from 100 to 120 to 140, then the annual inflation rate over those years would

decrease

If the BLS counted persons that are on active military service in the totals for employment, the labor force, or the working-age population, this would

decrease the measured unemployment rate

Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to understate the true extent of joblessness?

discouraged workers

The real wage equals the nominal wage ________ the CPI, all times 100

divided by

The Bureau of Labor Statistics would categorize a person as ________ if they were temporarily away from their job because they were ill.

employed

The labor force equals the number of people

employed plus unemployed

Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would

increase the measured labor force participation rate

Using a broader measure of the unemployment rate where discouraged workers and part-time workers who wished to work full time were counted as unemployed, the BLS estimates the unemployment rate in September 2011 would have ________ compared to the measured unemployment rate.

increased by more than 7 percentage points

Legalizing all forms of illegal activities

increases GDP and reduces the size of the underground economy

The percent increase in the CPI from one year to the next is a measure of the

inflation rate.

In the United States in 2013, the Bureau of Economic Analysis began counting spending on research and development as ________, which counts as a part of GDP.

investment

The purchase of a new house is included in

investment expenditures

An advantage of the establishment survey over the household survey of the labor market is that the establishment survey

is based on actual payrolls, rather than on unverified answers

The cost to firms of changing prices

is called a menu cost

The base period for CPI calculations is generally 1982-84. In 2005, 50% of households accessed the Internet through a broadband connection that would not have existed in the 1980s. This potential for bias in the CPI is referred to as ________ bias and results in ________.

new product; the CPI overestimating the true change in the cost of living

12) The "new product bias" in the consumer price index refers to the idea that

new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers

A full-time student who is not working is categorized as

not in the labor force

Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as

not in the labor force

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but ________ quality increases. This causes the CPI to ________ the cost of the market basket.

not; overstate

Real GDP will increase

only if the quantity of final goods and services produced rises

The Bureau of Labor Statistics would categorize a retiree who is not working as

out of the labor force

Which of the following do not suffer the costs of inflation?

persons whose incomes rise more rapidly than inflation

The broadest measure of the price level that includes all final goods and services is

the GDP deflator

Value added equals the market price of the firm's product minus

the price of intermediate goods.

If we want to use a measure of inflation that foreshadows price changes before they affect prices at the retail level, we would base our measure of inflation on

the producer price index

When deflation occurs,

the real interest rate is greater than the nominal interest rate

Jack lost his job six months ago, and he's been actively looking for a new job ever since. The Bureau of Labor Statistics would classify Jack as

unemployed

The consumer price index implicitly assumes that the demand curve for each good and service in the representative market basket is

vertical