ECON2203_Midterm
The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. refer to table 24-3. the cost of the basket in 2012 was
$20 x 4 + $12 x 3 = $116
if the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, then how many dollars does it take to buy a meal in Rio
2 real per $ is the same exchange rate as 0.5 $ per real. So 20 real is 20 real x0.5 $/real= $10
Adam and Doug both build birdhouses. Adam works 30 hours a week and produces 15 bird houses. Doug works 20 hours a week and produces 12 birdhouses. which of the following is correct
Adam's production is higher than Doug's, but Doug's productivity is higher than Adam's Adam produces more (15 houses vs. Doug at 12), so his production is higher. However, productivity is measured as output per hour of labor. Adam produces 0.5 houses per hour (15 houses/ 20 hrs.) while Doug produces 0.6 houses per hour (12 houses/20 hrs.)
if the same basket of goods cost $100 in the US and 50 pounds in Britain, then what is the nominal exchange rate of purchasing power parity holds?
If PPP holds then pounds per $ = price in pounds / price in $ = 50/100 = 1/2
The 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 2015. refer to Table 23-5. In 2016, this country's
In 2016: real GDP (ie 2016 production at 2015 prices) was $4.00 x 120 + $1.50 x 200 = $780 Nominal GDP was $4.00 x 120 + $2.00 x 200 = $880 GDP deflator = (nominal GDP/real GDP) x 100 = (880/780) x 100 = 112.8
The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. refer to table 24-3. if 2012 is the base year. then the inflation rate in 2013 was
Inflation can be measured as the percentage change in the CPI. The CPI in 2013 was 132.8. The CPI in 2012 is 100. (132.8-100)/100 = 32.8%
suppose that a country imports $90 million worth of goods and service and exports $80 million worth of goods and services. what is the value of net exports?
NX = exports - imports: 80-90 = -$10 million
if a country has Y>C+I+G, then
S>I and it has a trade surplus when a country has a trade surplus, it will have saving greater than investment and a net capital outflow where that extra saving is invested in other countries.
Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 237 for 2015. Ruth's 1931 salary was equivalent to a 2015 salary of about
Salary on 2015 dollars = salary in 1931 dollars x 2015 CPI / 1931 CPI = $80,000 x 237 / 15.2 = $1,247,368
Estimates of the values of which of the following non-market goods or services are included in GDP?
The rental value of owner occupied homes but not unpaid housework.
Micah buys a used car fo $10,000 and spends $200 on a new radio that is made in the US. The end result of these two transactions is
US consumption purchases increase by $200 and US GDP increases by $200. the amount spent on a used car is not part of GDP (it was counted the year the car was produced). The $200 spent on the radio is included in GDP as part of consumption.
other things the same, if the exchange rate changes from 0.8 euros per dollar to 0.9 euros per dollar, the dollar
appreciates so US goods become more expensive relative to foreign goods a dollar now is more than a euro, so the the dollar has appreciated (it is worth more). As the dollar is worth more it makes foreign goods relatively cheaper and domestic goods relatively more expensive.
changes in nominal GDP reflect
both changes in prices and changes in the amounts being produced.
Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean they rhouses. By itself, this change has
caused measured GDP to rise. Paid housework is included in GDP, unpaid is not. So as more housework is paid it will increase GDP.
domestic saving must equal domestic investment in
closed, but not open economics
The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. refer to table 24-3. If 2012 is the base year, then the CPI for 2013 was
cost of basket in 2012 was $116. The cost of the basket in 2013 was $25 x 4 + $18 x 3 = $154. The CPI in 2013 = (cost of basket in 2013/ cost of basket in base year)x100 = (154/116)x100 = 132.8
If total spending rises from one year to the next, then
either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both.
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.
other things equal, relatively poor countries tend to grow
faster than relatively rich countries; this is called catch-up effect.
If an American-based firm opens and operates a new clothing factory in Honduras, then it is engaging in
foreign direct investment
consider an amount of money on a deposit at a bank. the real interest rate measures
growth in purchasing power of the money.
foreign-produced goods and services that are purchased domestically are called
imports.
On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis. Y/L represents output (Y) per worker (L). refer to figure 25-1. the shape of the curve is consistent with which of the following statements about the economy is which the curve applies?
in the long run, a higher saving rate leads to neither a higher growth rate of productivity nor a higher growth rate of income; in the long run, a higher saving rate leads to a higher level of income; in the long run, a higher saving rate leads to a higher level productivity. The shape above shows diminishing returns: increasing the capital per worker will increase the capita real income, but the amount of increase is diminishing. savings is how you get more capital. so a higher savings rate will lead to a higher level of capital per worker, which makes workers more productive and that leads to a higher real income per capita. the economy will eventual settle into a steady state at the higher level - and at the steady rate there is no growth in capital per worker or per capita incomes. so in the long run, the higher savings will not impact growth of productivity and incomes. it does increase their growth for a while until the steady state. the key to long run growth is technology.
The 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 2015. refer to table 23-5. This country's inflation rate from 2015 to 2016 was
inflation can be measured as the percentage change in the GDP deflator. In 2016 the GDP deflator was 112.8. In 2015 the GDP deflator was 100. So the percentage change is = (112.8-100)/100 = 12.8%
The value of goods added to a firm's inventory in a certain year is treated as
investment, since GDP aims to measure the value of the economy's production that year.
if a country has a trade surplus
it has positive net exports and positive net capital outflow. trade surplus means positive net exports. it is always the case that NX = NCO, so positive net exports means positive net capital outflows.
country A and country B are the same except country a currently has more capital. assuming diminishing returns to capital, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then
output in country A increases by less than in country B that is what diminishing returns refers to - the increase in production you get from more capital is less the more capital you have to begin with (holding all else the same).
productivity is the amount of goods and services
produced for each hour of a worker's time. it is linked to a nation's economic policies.
Which of the following is included in the consumption component of US GDP?
purchases of natural gas by the US households purchases by firms and purchases of new homes are both part of investment
if a bank is currently paying an interest rate of 3.5% on deposits and inflation runs 2%, then the real interest rate is
r = I - inflation = 3.5% - 2% = 1.5%
A nation's Standards of living is most commonly measured by its
real GDP per person.
if purchasing power parity holds, then the value of the
real exchange is equal to one.
a good in the US costs $20. the same good costs 150 pesos in Mexico. If the nominal exchange rate is 10 pesos per dollar, what is the real exchange rate (expressed as the number of Mexican goods per one US good; or stated another way expressed with the US price in the numerator)?
real exchange rate = cost in US/ cost in Mexico using the same currency = Pe/P* = 20*10/150 = 200/150 = 4/3 so the good is more expensive in the US
The substitution bias in the consumer price index refers to the
subsititiution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive.
which of the following items plays a role in determining productivity
technological knowledge, physical capital, natural resources
The inflation rate you are likely to hear on the nightly news is calculated from
the CPI
If the price of Italian shoes imported to the US increases, then
the consumer price index will increase, but the GDP deflator will not increase. The CPI includes consumer goods like shoes no matter where they are produced, but Italian produced goods are not part of GDP and hence are not included in the GDP deflator
the karmic deed restaurants uses all of the following to produce vegetarian meals. which of them is an example of physical capital?
the tables and chairs in the restaurant.
which of the following is an example of human capital?
the things you have learned this semester
GDP is defined as the
value of all final goods and services produced within a country in a given period of time.