Econ Exam 1
James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP?
$22,000
A Korean steel company produces steel in the United States with some of its steel being exported to other nations and some of it being sold within the United States. If the prices of this steel increase, then
the GDP deflator and the CPI will both increase.
When economists talk about growth in the economy, they measure that growth as the
percentage change in real GDP from one period to another.
In a closed economy, what does (Y - T- C) represent?
private saving
In a closed economy, what does (T- G) represent?
public saving
At the broadest level, the financial systen roves ihe cconomy's scarce resources from
savers to borrowers.
When a large, well-known corporation wishes to borro directly from the public, it can
sell bonds.
The supply of loanable funds slopes
slopes upward because an increase in the interest rate induces people to save more.
A stove is produced by a firm in 2014, added to the firm's inventory in 2014, and sold to a household in 2015, It follows that
the value of the good is added to the investment category of 2014 GDP, added to the consumption category of 2015 GDP, and subtracted from the investment category of 2015 GDP.
If you buy a burger and fries at your favorite fast food restaurant,
then both GDP and consumption spending will be higher.
What is the most important factor that explains differences in living standards among countries?
to produce goods and services
Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?
unmeasured price change
The business cycle is the
irregular fluctuations in economic activity.
If national saving in a closed economy is greater than zero, which of the following must be true? Either public saving or private saving must be greater than zero. Investment is positive. Y-C-G>0
All of the above are correct.
Which of the following domestically produced items is not included in GDP? A hair cut A hairdryer A bottle of shampoo
All of the above are included in GDP
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.
Gross domestic product measures
Income and expenditures.
Which of the following is correct?
Nominal GDP equals real GDP in the base year.
Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his back yard. Regarding these two practices, which of the following is correct?
Only Joe's and Jim's grocery store purchases are included in GDP.
The inflation rate is defined as the
Percentage change in the price level from the previous period
When the government's budget deficit increases
The govenment is borrowing more and public savings falls
Which of the following equations represents GDP for a closed economy?
Y= C+I+G
If 2010 is the base year, then the inflation rate in 2015 equals
[(CPI in 2015 - CPI in 2014)/ CPI in 2014] x 100
Which of the following is a way to compute GDP?
add up the market values of all final goods and services
Changes in nominal GDP reflect
both changes in prices and changes in the amounts being produced.
You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?
five cents x (today's CPI / 1962 CPI)
Consumer goods that are produced, go into inventory, and are not sold during the current period are
included in current period GDP as inventory investment
The source of the supply of loanable funds
is saving and the source of demand for loanable funds is investment.
If a reform of the tax laws encourages greater saving, the result would be
lower interest rates and greater investment.
The consumer price index is used to
monitor changes in the cost of living over time.
Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that
neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.
The GDP deflator is the ratio of
nominal GDP to real GDP multiplied by 100
Real GDP will increase
only when output increases.
The CPI is a measure of the overall cost of.
the goods and services purchased by a typical consumer
What basket of goods and services is used to construct the CPI?
the goods and services that are typically bought by consumers as determined by government surveys
Suppose the market for loanable funds is in the equilibrium. What would happen in the market for loanable funds other things the same if the Congress and president increase the maximum contribution limits to 401(k) and IRA tax deferred retirement accounts in order to encourage more saving?
the interest rate would decrease and the quantity of loanable funds would increase.
In the language of macroeconomics, investment refers to
the purchase of new capital.
If there is a shortage of loanable funds, then
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.