Macro Assign 3 and 4

True or False: An increase in the price of a fighter jet would increase both the CPI and the GDP deflator.

False

In 1971, gasoline was about 40 cents per gallon. Using your answer in problem 8 (which means you better double check your answer for problem 8), what would a gallon of gasoline in 1971 cost in today's dollars? A. $2.20 B. $3.50 C. $23.35 D. $1.55

A) $2.20

Why are transfer payments such as social security, food stamps, and welfare excluded from the calculation of GDP? a) Because no new goods or services were produced and sold with the transfer of funds. b) Because the system is designed to favor the wealthy at the expense of the poor. c) Because welfare recipients stay at home, and items produced and consumed at home do not count towards GDP. d) None of the above

A) Because no new goods or services were produced and sold with the transfer of funds.

Why do economists prefer to use real GDP and not nominal GDP to gauge economic well being? a) By filtering out the effects of inflation, it allows us to look at actual growth in the economy. b) By filtering out the effects of inflation, it allows us to look at the actual individual, or per capita, growth. c) By dividing by the number of people in the population, it allows us to look at the actual individual, or per capita, growth d) None of the above

A) By filtering out the effects of inflation, it allows us to look at actual growth in the economy

You, residing here in Florida, develop a killer app that is sold in the US and in Canada. How do the US national income accounts treat this transaction? a) Domestic consumption, net exports and GDP all rise b) Domestic consumption, net exports and GDP all fall c) Domestic consumption falls, net exports rise, and GDP falls d) Domestic consumption rises, net export falls, and GDP rises

A) Domestic consumption, net exports and GDP all rise

If GDP increased by 3% and the population increased by 4%, then: a) Per capita GDP decreased b) Per capita GDP inceased c) None of the above d) Perhaps, but not enough information to tell

A) Per capita GDP decreased

Consider the following statement: One difference between the GDP deflator and the CPI is that the CPI is comprised of a fixed basket of goods while the goods and services measured by the GDP deflator changes all the time to reflect those that are currently produced A. This is true. B. This is true if GDP deflator was replaced with the PPI. C. This is never true. D. None of the above.

A) This is true

The difference between nominal interest rate and real interest rate is: A. Nominal interest rate equals real interest rate plus inflation B. Real interest rate equals nominal interest rate plus inflation C. An offered interest rate on a loan versus the accepted interest rate on a loan D. If you like econ your interest rate is real. If you don't, your interest rate is nominal.

A. Nominal interest rate equals real interest rate plus inflation

Thomas Robert Malthus believed that population growth would: A. Put stress on the economy's ability to produce food, dooming humans to remain in poverty. B. Spread the capital stock too thinly across the labor force, lowering each worker's productivity. C. Promote technological progress, because there would be more scientists and inventors. D. Eventually decline to sustainable levels, as birth control improved and people had smaller families.

A. Put stress on the economy's ability to produce food, dooming humans to remain in poverty.

A farmer grows oranges which she sells to a juice processor for $100. The juice processor turns the oranges into orange juice which she sells by the tankload to a bottler for $150. The bottler puts the juice into bottles, labels it, and sells it to consumers for $200. What is the total contribution to GDP? A. $100 B. $200 C. $250 D. $450

B) $200

By "eyeballing" several graphs, it appears that the CPI index today is about 230 and the CPI index for 1971 is about 42. Thus, as a measure of inflation, this would indicate that inflation has increased over this time-frame by about: A. 5500% B. 550% C. 55% D. 5%

B) 550%

Which has a greater effect on the consumer price index (CPI), a 10 percent increase in the price of chicken or a ten percent increase in the price of caviar? a) Chicken, because it is included in more recipes b) Chicken, because chicken is included in the government's basket of goods of the typical consumer c) Caviar, because it costs more per pound than chicken d) It doesn't matter because a ten percent increase is a ten percent increase

B) Chicken, because chicken is included in the government's basket of goods of the typical consumer

You, residing here in Florida, purchase a bottle of Chateau Haut Brion from Bordeaux, France. (You purchase it directly from the winery in France and not from a wine shop in Florida.) How do the US national income accounts treat this transaction? a) Net exports and GDP both rise b) Net exports and GDP both fall c) Net exports fall while GDP is unchanged d) Net exports are unchanged while GDP rises

B) Net exports and GDP both fall

If during the past year all quantities produced rise by ten percent and all prices fall by ten percent, which of the following occurs? a)Real GDP rises by ten percent while nominal GDP falls by ten percent b) Real GDP rises by ten percent while nominal GDP is unchanged c) Real GDP is unchanged while nominal GDP rises ten percent d) Real GDP is unchanged while nominal GDP falls by ten percent

B) Real GDP rises by ten percent while nominal GDP is unchanged

You, residing here in Florida, take the profits from the sales of your killer app and invest it in bonds. You use the interest generated by the bonds to purchase some software developed in Silicon Valley and to purchase some new bonds. How do the US national income accounts treat these two purchases? a) Since the money came from your investment in bonds, the purchase of the Silicon Valley software and the purchase of the bonds will continue to be treated as investment. b) The purchase of the Silicon Valley software is treated as consumption and the purchase of the new bonds is treated as investment. c) Since a portion of the profits came originally from sales in Canada, any purchases that came from the interest on the bonds from that portion will continue to be considered as net exports. d) None of the above.

B) The purchase of the Silicon Valley software is treated as consumption and the purchase of the new bonds is treated as investment

If a domestic weapons manufacturer raises the price of missiles it sells the US Army, its price hike will increase: A. Both the CPI and the GDP deflator B. The GDP deflator but not the CPI C. Neither the CPI nor the GDP deflator D. The CPI but not the GDP deflator

B. The GDP deflator but not the CPI

Which of the following is not true? A. To increase per capita output, we can either work more hours and/or we can increase per capita productivity. B. The workers in most countries cannot work more hours, therefore their per capita output is stuck. C. The growth is South Korea's economy during the period 1960-2010 can be best explained by increases in per capita output. D. It is difficult to increase productivity without growth compatible institutions such as property rights.

B. The workers in most countries cannot work more hours, therefore their per capita output is stuck.

A farmer sells wheat to a baker for $2. The baker uses the wheat to make bread, which is sold for $3. What is the total contribution of these transactions to GDP? A. $1 B. $2 C. $3 D. $5

C) $3

You agree to borrow money at a fixed rate of interest for one year from the local bank. During that year, inflation was higher than you or the bank expected. Did the banker gain what he expected to on this loan? A. In economic terms, the banker did not earn as much as he planned. B. In accounting terms, the banker earned the interest on the loan. C. Both are true. D. Neither are true

C) Both are true

If the price of Chateau Haut Brion (an expensive "premier cru" Bordeaux wine) increases, is the CPI, PPI, or the GDP inflator affected the least? A. All three the same B. CPI C. PPI D. GDP deflator

C) PPI

The consumer price index measures approximately the same economic phenomena as: A. Nominal GDP B. Real GDP C. GDP deflator D. Unemployment rate

C. GDP deflator

You agree to borrow money at a fixed rate of interest for one year from the local bank. During that year, inflation was higher than you or the bank expected. How did this affect the real interest rate? A. The real interest rate was unaffected B. The real interest rate was higher C. The real interest rate was lower D. None of the above

C. The real interest rate was lower

You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile the CPI index rises from 200 to 204. In this case, the nominal interest rate is ___ percent, and the real interest rate is _____ percent. A. 1, 5 B. 3, 5 C. 5, 1 D. 5, 3

D) 5, 3

A farmer grows some "bud" and sells it to a dealer for $100 an ounce. The dealer sells it to the consumer for $200 an ounce. What is the total contribution to GDP? A. If the farmer, the dealer, and the consumer reside in Florida the contribution would be zero. B. If the farmer, the dealer, and the consumer reside in Colorado the contribution would be $200. C. GDP excludes items that are sold illicitly. D. All of the above.

D) All of the above ~ If the farmer, the dealer, and the consumer reside in Florida the contribution would be zero. ~ If the farmer, the dealer, and the consumer reside in Colorado the contribution would be $200. ~ GDP excludes items that are sold illicitly.

Which is not one of the three problems in measuring the cost of living? a) Unmeasured quality change b) Substitution bias c) Introduction of new goods d) Confusion in the general population between the CPI and the PPI

D) Confusion in the general population between the CPI and the PPI

About a dozen years ago Steve paid $50 to assemble a collection of new Beatles CDs. This year he sells the collection for $10. How does this affect this year's GDP? (Note: This problem is hypothetical...Steve would never, ever sell his Beatles CDs except perhaps for the offer to play his guitar with one the surviving Beatles.) a)It contributes $10 b) It contributes $50 c) It contributes $60 d) It contributes $0

D) It contributes $0

Which of the following does not add to GDP? a) Air France buys a plane from Boeing (a US aircraft manufacturer) b) General Motors builds a new auto factory in North Carolina c) Martin County pays a salary to a county sheriff d) The federal government sends a social security check to your grandmother

D) The federal government sends a social security check to your grandmother

An increase in the price of aluminum would increase the CPI, the PPI, and the GDP deflator because: A. Aluminum is purchased by households for use in the kitchen B. Aluminum is purchased by businesses for use in manufacturing C. Aluminum is contained in many final goods sold by businesses. D. All of the above

D. All of the above ~ Aluminum is purchased by households for use in the kitchen ~ Aluminum is purchased by businesses for use in manufacturing ~ Aluminum is contained in many final goods sold by businesses.

Which of the following are true? A. In order to have long term growth we need to move the PPC outward. B. Issues of growth are generally considered in a long-run framework. C. The long-run growth framework focuses on incentives for supply; that's why it is sometimes called supply-side economics. D. Classical economists focus on this long term growth. E. All of the above. F. All but A.

E) All of the above ~ In order to have long term growth we need to move the PPC outward. ~ Issues of growth are generally considered in a long-run framework. ~ The long-run growth framework focuses on incentives for supply; that's why it is sometimes called supply-side economics. ~ Classical economists focus on this long term growth.

Which is not one of the four components of GDP?: a) Consumption b) Investment c) Government Spending d) Net Exports e) Per Capita Income

E) Per Capita Income

The participation of women in the US labor force has risen dramatically since 1970. How has this affected GDP? a) It has taken jobs away from better qualified men. Next thing we know there will be a female coach in the National Football League. b) The Declaration of Independence says that we are all entitled to the "pursuit of happiness", and if women wish to pursue a career that makes them happy, then they are entitled to it, but GDP does not directly measure happiness. c) Many services that were performed in the home by women such as child care, cooking, and cleaning (and not counted toward GDP) are now performed by others for pay (and thus are counted toward GDP). d) To the extent that a husband and wife switch the traditional roles (that is, she goes to work and he stays home to do child care, cooking and cleaning), then the only impact on GDP would be the difference in their earnings. e) To the extent there are more workers in the economy, and the economy is able to employ these workers leading to an increase in the quantity of goods and services produced, then GDP will increase. f) All but A.

F) All but A ~ The Declaration of Independence says that we are all entitled to the "pursuit of happiness", and if women wish to pursue a career that makes them happy, then they are entitled to it, but GDP does not directly measure happiness. ~ Many services that were performed in the home by women such as child care, cooking, and cleaning (and not counted toward GDP) are now performed by others for pay (and thus are counted toward GDP). ~ To the extent that a husband and wife switch the traditional roles (that is, she goes to work and he stays home to do child care, cooking and cleaning), then the only impact on GDP would be the difference in their earnings. ~ To the extent there are more workers in the economy, and the economy is able to employ these workers leading to an increase in the quantity of goods and services produced, then GDP will increase.

True or False: If I grow my own tomatoes and sell them to passerbys in front of my house while standing on my own property, it will not count towards GDP.

False

True or False: According to your textbook, a study that focused on the border town of Nogales concluded that poverty can be explained by the lack of growth compatible institutions which in turn can foster crime, graft, and insecurity.

True

True or False: If I purchase tomatoes from Publix it will count towards GDP, but if I grow my own tomatoes (and consume them myself) it will not contribute towards GDP.

True

True or False: Per capita output is total output divided by total population while per capita productivity is output per unit of input per person

True