Macro Econ Study Guide Test 1 (MindTap Quizzes/Homework)

Efficient production is represented by which point(s)?

R, U

Expenditures by households on education are included in the investment component of GDP. T/F

False

If consumption is $1800, GDP is $4300, government purchases are $1000, imports are $700, and investment is $1200, then exports are $300. T/F

False

In the circular-flow diagram, factors of production are the goods and services produced by firms. T/F

False

Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next. T/F

False

The U.S. economy has never experienced deflation. T/F

False

The content of the basket of goods and services used to compute the CPI changes every month T/F

False

The effects of borrowing by the federal government would be studied by a microeconomist rather than a macroeconomist T/F

False

When a production possibilities frontier is bowed outward, the opportunity cost of one good in terms of the other is constant. T/F

False

When a production possibilities frontier is bowed outward, the opportunity cost of one good in terms of the other is constant. T/F

False

When two variables move in opposite directions, the curve relating them is upward sloping, and we say the variables are positively related. T/F

False

Archie has a savings account at a bank. If he earns 6 percent interest on his account and if there is deflation, then his purchasing power rises by more than 6 percent over the course of a year. T/F

True

Changes in inventory are included in the investment component of GDP. T/F

True

The Bureau of Labor Statistics surveys consumers to determine a fixed basket of goods. T/F

True

The real interest rate tells you how fast the purchasing power of your bank account rises over time. T/F

True

In the economy of Talikastan in 2015, consumption was $3000, exports were $1200, GDP was $8000, government purchases were $1200, and imports were $600. What was Talikastan's investment in 2015? a. $3200 b. $5600 c. $2000 d. $4400

a. $3200

In the economy of Talikastan in 2015, consumption was $1000, GDP was $1950, government purchases were $500, and investment was $700. What were Talikastan's net exports in 2015? a. -$250 b. $250 c. $2200 d. Net exports cannot be calculated from the information given.

a. -$250

Refer to Table 24-1. What belongs in space D? a. 12% b. 154 c. 40% d. 15% Graph: Year CPI Inflation 2005 100 n/a 2006 115 B 2007 125 C 2008 140 D 2009 A 10% 2010 160 E

a. 12%

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 60 in 1980, and 100 in 1990, then in real terms, Professor Plum's salary was highest in a. 1980 and lowest in 1970. b. 1980 and lowest in 1990. c. 1990 and lowest in 1970. d. 1990 and lowest in 1980

a. 1980 and lowest in 1970.

The consumer price index was 200 in 2012 and 208 in 2013. The nominal interest rate during this period was 9 percent. What was the real interest rate during this period? a. 5.00 percent b. 1.00 percent c. 5.15 percent d. 13.00 percent

a. 5.00 percent

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170? a. 80 to 100 b. 100 to 120 c. 150 to 170 d. All of these changes produce the same rate of inflation.

a. 80 to 100

Which of the following agencies calculates the CPI? a. Bureau of Labor Statistics b. Congressional Budget Office c. Federal Reserve d. Bureau of National Price Standards and Records

a. Bureau of Labor Statistics

Which of the following transactions takes place in the markets for the factors of production in the circular-flow diagram? a. Dylan receives a salary for his work as a financial analyst for an investment firm. b. Kristin buys two business suits to wear to her job as a Chief Information Officer. c. Jim receives clean water in his home in exchange for paying his water bill. d. Caroline owns a nail salon and receives payments from her clients for her services.

a. Dylan receives a salary for his work as a financial analyst for an investment firm.

Which of the following is not included in U.S. GDP? a. The market value of an oil change that Ben performs on his own car. b. The market value of an oil change at Speedy Lube. c. The market value of oil purchased by Ben. d. Production of foreign citizens living in the United States that work in an oil packaging facility.

a. The market value of an oil change that Ben performs on his own car.

Which of the following is an example of a positive, as opposed to normative, statement? a. When the minimum wage is increased, unemployment is a predictable consequence. b. The income tax rate should be increased to offset the budget deficit. c. Increasing government spending is the best way to help the economy move out of a recession. d. More than one of the above are positive statements.

a. When the minimum wage is increased, unemployment is a predictable consequence.

The opportunity cost of obtaining more of one good is shown on the production possibilities frontier as the a. amount of the other good that must be given up. b. market price of the additional amount produced. c. amount of resources that must be devoted to its production. d. number of dollars that must be spent to produce it.

a. amount of the other good that must be given up.

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI a. fails to measure all changes in the quality of goods. b. displays a housing bias. c. accounts for changes in prices of some goods, but prices of certain goods are assumed to remain constant. d. All of the above are correct.

a. fails to measure all changes in the quality of goods.

By far the largest category of goods and services in the CPI basket is a. housing. b. transportation. c. education & communication. d. food & beverages.

a. housing.

Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP makes use of a. market prices. b. statistical estimates of the value of goods and services to consumers. c. prices based on the assumption that producers make no profits. d. the maximum amount consumers would be willing to pay.

a. market prices.

Suppose an economy produces only iPhones and bananas. In 2010, 1000 iPhones are sold at $300 each and 5000 pounds of bananas are sold at $3 per pound. In 2009, the base year, iPhones sold at $400 each and bananas sold at $2 per pound. For 2010, a. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83. b. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 130.16. c. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 130.16. d. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 76.83.

a. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83.

Production is... a. possible at points V, W, Y, and Z, but efficient only at points V, W, and Z. b. possible at points V, W, Y, and Z, but efficient only at point Y. c. possible at points U, V, W, and Z, but efficient only at points V, W, and Z. d. possible at points U, V, W, and Z, but efficient only at point U. (Graph) Panel (a) z,w, v on line u outside of line y inside the line

a. possible at points V, W, Y, and Z, but efficient only at points V, W, and Z.

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move a. raises GDP. b. decreases GDP. c. doesn't change GDP because gambling is never included in GDP. d. doesn't change GDP because in either case his income is included.

a. raises GDP.

When economists are trying to explain the world, they are a. scientists. b. policy advisers. c. in the realm of microeconomics rather than macroeconomics. d. in the realm of normative economics rather than positive economics.

a. scientists

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by a. surveying consumers. b. surveying sellers of the goods and services. c. working backward from the rate of inflation to arrive at imputed values for those quantities. d. arbitrary choices made by federal government employees.

a. surveying consumers.

If the price of domestically produced power tools increases, then a. the consumer price index and the GDP deflator will both increase. b. the consumer price index will increase, and the GDP deflator will be unaffected. c. the consumer price index will be unaffected, and the GDP deflator will increase. d. the consumer price index and the GDP deflator will both be unaffected.

a. the consumer price index and the GDP deflator will both increase.

Refer to Table 23-6. In 2013, this country's GDP deflator was a. 1.0. b. 100.0. c. 171.4. d. 240.0. Graph: Price 1 = $4.00 Quantity 1 = 150 Price 2 = $3.00 Quantity = 200

b. 100.0.

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $51; and in 2016, the basket's cost was $52. The value of the CPI in 2014 was a. 98.0. b. 102.0. c. 104.0. d. 151.0

b. 102.0.

Refer to Table 2-4. What is the opportunity cost to Picnicland of increasing the production of hotdogs from 450 to 900? a. 150 burgers b. 225 burgers c. 300 burgers d. 450 burgers Table: Hotdogs: 1800, 1350, 900, 450, 0 Burgers: 0, 450, 750, 975, 1125

b. 225 burgers

In the United States in 2015, consumption represented slightly less than a. 60 percent of GDP. b. 70 percent of GDP. c. 80 percent of GDP. d. 90 percent of GDP.

b. 70 percent of GDP.

Refer to Table 24-15. The inflation rate in 2015 was approximately a. 41%. b. 70%. c. 140%. d. 240%. Table: Year Price X Price Y 2013 2.00 1.00 2014 3.00 2.00 2015 4.00 3.00

b. 70%.

Which of the following statements is correct? a. Few economic models incorporate assumptions. b. Different economic models employ different sets of assumptions. c. Good economic models attempt to mimic reality as closely as possible. d. Economic models, to be accepted, must be tested by conducting experiments.

b. Different economic models employ different sets of assumptions.

Which of the following statements is true about the opportunity cost of obtaining approximately 20 additional gadgets by moving from point B to point C? a. The opportunity cost is the 70 gadgets that are no longer produced. b. The opportunity cost is zero because the economy does not give up producing widgets to go from producing at point B to point C. c. The opportunity cost is greater than zero widgets but less than 70 gadgets. d. The opportunity cost is greater than 70 gadgets. Graph: A, C, on line B, E inside of line D outside of line

b. The opportunity cost is zero because the economy does not give up producing widgets to go from producing at point B to point C.

Tom is an organic gardener. For several years, he produced only for his own consumption, but this year he has sold his vegetables at a farmer's market. The vegetables Tom produces a. are not included in GDP, not for this year nor for previous years. b. are included in GDP for this year, but prior to this year the value of his vegetables was not included in GDP. c. would be included in GDP only if the vegetables were registered with the Department of Agriculture. d. are not part of GDP, since vegetables are not a good included in GDP.

b. are included in GDP for this year, but prior to this year the value of his vegetables was not included in GDP.

Real GDP is the yearly production of final goods and services valued at a. current prices. b. constant prices. c. expected future prices. d. the ratio of current prices to constant prices.

b. constant prices.

Tom and Lilly rented a house for $12,000 last year. At the start of the year they bought the house they had been renting directly from the owner for $250,000. They believe they could rent it for $12,000 this year, but stay in the house. How much does Tom and Lilly's decision to buy the house change GDP? a. it reduces GDP by $12,000 b. it does not change GDP c. it raises GDP by $238,000 d. it raises GDP by $250,000

b. it does not change GDP

Real GDP will increase a. only when prices increase. b. only when output increases. c. when prices increase or output increases. d. All of the above are correct.

b. only when output increases.

In the simple circular-flow diagram, households a. are the only decision makers. b. own the factors of production. c. are buyers of inputs. d. consume only some of the goods and services that firms produce.

b. own the factors of production.

An important difference between the GDP deflator and the consumer price index is that a. the GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index reflects the prices of goods and services bought by consumers. b. the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers. c. the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens, whereas the consumer price index reflects the prices of all final goods and services bought by consumers. d. the GDP deflator reflects the prices of all final goods and services bought by producers and consumers, whereas the consumer price index reflects the prices of all final goods and services bought by consumers.

b. the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.

Economists use the term inflation to describe a situation in which a. some prices are rising faster than others. b. the economy's overall price level is rising. c. the economy's overall price level is high, but not necessarily rising. d. the economy's overall output of goods and services is rising faster than the economy's overall price level.

b. the economy's overall price level is rising.

Which of the following would likely be studied by a microeconomist rather than a macroeconomist? a. the effect of foreign direct investment on economic growth b. the effect of a sales tax on the cigarette industry c. the effect of an investment tax credit on the economy's capital stock d. the effect of a war on government spending

b. the effect of a sales tax on the cigarette industry

A microeconomist — as opposed to a macroeconomist — might study a. the effect of a national healthcare program on the nation's unemployment rate. b. the effect of new regulations on production in the pulp and paper industry. c. the effect of changes in interest rates on gross domestic product. d. the growth rate of production in the economy.

b. the effect of new regulations on production in the pulp and paper industry.

The CPI is a measure of the overall cost of a. the inputs purchased by a typical producer. b. the goods and services purchased by a typical consumer. c. the goods and services produced in the economy. d. the stocks on the New York Stock Exchange.

b. the goods and services purchased by a typical consumer.

Suppose prices of personal computers fall significantly and consumers respond by buying more personal computers. The consumer price index a. reflects this price decrease accurately. b. understates this price decrease due to the substitution bias. c. overstates this price decrease due to the income bias. d. overstates this price decrease due to the substitution bias.

b. understates this price decrease due to the substitution bias.

Which of these terms are used interchangeably? a. "goods and services" and "inputs" b. "goods and services" and "factors of production" c. "inputs" and "factors of production" d. "land, labor, and capital" and "goods and services"

c. "inputs" and "factors of production"

Which of the following steps does an economist take when studying the economy? a. devise theories b. collect data c. analyze data d. All of the above are correct.

d. All of the above are correct.

Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to Chewy Chomp, Inc., which uses the rawhide to produce and sell dog chews. With each $1 worth of rawhide that it buys from Rolling Rawhide, Chewy Chomp, Inc. produces a dog chew and sells it for $2.50. Neither firm had any inventory at the beginning of 2014. During that year, Rolling Rawhide produced enough rawhide for 2000 dog chews. Chewy Chomp, Inc. bought 90% of that rawhide for $1800 and promised to buy the remaining 10% for $200 in 2015. Chewy Chomp, Inc. produced 1800 dog chews during 2014 and sold each one during that year for $2.50. What was the economy's GDP for 2014? a. $3,800 b. $4,500 c. $4,700 d. $5,000

c. $4,700

David earned a salary of $43,500 in 1994 and $89,000 in 2010. The consumer price index was 148.2 in 1994 and 215.3 in 2010. David's 1994 salary in 2010 dollars is a. $43,849.05 b. $61,263.43 c. $63,195.34 d. $93,655.50

c. $63,195.34

Refer to Table 24-2. If 2012 is the base year, then the CPI for 2013 was a. 95.7. b. 100.0. c. 104.4. d. 110.0. Graph 2012 - Peaches $11 - Pecans $6 2013 - Peaches $9 - Pecans $10

c. 104.4.

Inefficient production is represented by which point(s)? a. A, C b. B, C c. B, E d. D Graph: A, C, on line B, E inside of line D outside of line

c. B, E

Refer to Figure 2-5. It is not possible for this economy to produce at point a. A. b. B. c. C. d. D.

c. C

Suppose this economy is producing at point B. Which of the following statements would best explain this situation? a. The economy does not have enough resources to produce more of either product. b. The economy's available technology prevents it from producing more of either product. c. There is widespread unemployment in the economy. d. The economy is getting all it can from the scarce resources available. Graph: A, C, on line B, E inside of line D outside of line

c. There is widespread unemployment in the economy.

Refer to Figure 2-12. Which of the following would most likely have caused the production possibilities frontier to shift outward from A to B? a. a decrease in unemployment b. a technological advance in the consumer goods industries c. a general technological advance d. an increase in the availability of capital-producing resources

c. a general technological advance

The consumer price index is a. not very useful as a measure of the cost of living. b. a perfect measure of the cost of living. c. a useful measure, but not a perfect measure, of the cost of living. d. not used as a measure of the cost of living.

c. a useful measure, but not a perfect measure, of the cost of living.

Which of the following is a way to compute GDP? a. add up the wages paid to all workers b. add up the quantities of all final goods and services c. add up the market values of all final goods and services d. add up the difference between the market values of all final goods and services and then subtract the costs of produci

c. add up the market values of all final goods and services

U.S. GNP a. includes production of foreigners working in the U.S. and production of U.S. citizens working in foreign countries. b. includes production of foreigners working in the U.S. but excludes production of U.S. citizens working in foreign countries. c. excludes production of foreigners working in the U.S. but includes production by U.S. citizens working in foreign countries. d. excludes production of foreigners working in the U.S. and production by U.S. citizens working in foreign countries.

c. excludes production of foreigners working in the U.S. but includes production by U.S. citizens working in foreign countries.

For the economy as a whole, a. income must be greater than expenditure. b. unemployment must rise when GDP rises. c. expenditure must equal income. d. consumption must be greater than investment.

c. expenditure must equal income.

Government purchases include spending on goods and services by a. the federal government, but not by state or local governments. b. federal and state governments, but not by local governments. c. federal, state, and local governments. d. federal, state, and local governments, as well as household spending by employees of those governments.

c. federal, state, and local governments.

Consumer goods that are produced, go into inventory, and are not sold during the current period are a. counted as intermediate goods and so are not included in current period GDP. b. counted in current period GDP only if the firm that produced them sells them to another firm. c. included in current period GDP as inventory investment. d. included in current period GDP as consumption.

c. included in current period GDP as inventory investment.

Normative conclusions a. come from positive analysis alone. b. are based on ignorance of positive analysis. c. involve value judgments. d. reflect the economist's role as scientist.

c. involve value judgments.

Which of the following transactions is not included in GDP? a. oranges sold to households by a grocer. b. orange juice sold by a restaurant to its diners. c. oranges sold by a farmer to a grocery store. d. All of the above are included in GDP.

c. oranges sold by a farmer to a grocery store.

The inflation rate is defined as the a. price level in an economy. b. change in the price level from one period to the next. c. percentage change in the price level from the previous period. d. price level minus the price level from the previous period.

c. percentage change in the price level from the previous period.

A recession has traditionally been defined as a period during which a. nominal GDP declines for two consecutive quarters. b. nominal GDP declines for four consecutive quarters. c. real GDP declines for two consecutive quarters. d. real GDP declines for four consecutive quarters.

c. real GDP declines for two consecutive quarters.

Two alternative measures of the overall level of prices are a. the inflation rate and the consumer price index. b. the inflation rate and the GDP deflator. c. the GDP deflator and the consumer price index. d. the cost of living index and nominal GDP.

c. the GDP deflator and the consumer price index.

A decrease in the price of domestically produced nuclear reactors will be reflected in a. both the GDP deflator and the consumer price index. b. neither the GDP deflator nor the consumer price index. c. the GDP deflator but not in the consumer price index. d. the consumer price index but not in the GDP deflator.

c. the GDP deflator but not in the consumer price index.

Estimates of the values of which of the following non-market goods or services are included in GDP? a. the value of unpaid housework b. the value of services provided by major household appliances purchased in a previous period c. the estimated rental value of owner-occupied homes d. All of the above are included in GDP.

c. the estimated rental value of owner-occupied homes

In the circular-flow diagram, in the markets for... a. goods and services, households and firms are both sellers. b. goods and services, households are sellers and firms are buyers. c. the factors of production, households are sellers and firms are buyers. d. the factors of production, households and firms are both buyers.

c. the factors of production, households are sellers and firms are buyers.

A U.S. firm produces sweatshirts in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the sweatshirts to consumers. In which quarter(s) does(do) these transactions raise consumption? a. the first and the second b. the first but not the second c. the second but not the first d. neither the first nor the second

c. the second but not the first

For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation most relevant? a. substitution bias b. introduction of new goods c. unmeasured quality change d. income bias

c. unmeasured quality change

Janelle earned a salary of $62,000 in 2004 and $80,000 in 2014. The consumer price index was 126 in 2004 and 170 in 2014. Janelle's 2004 salary in 2014 dollars is a. $45,953. b. $89,280. c. $107,953. d. $83,651.

d. $83,651.

Refer to Table 24-1. What belongs in space A? a. 14 b. 150 c. 144 d. 154 Graph: Year CPI Inflation 2005 100 n/a 2006 115 B 2007 125 C 2008 140 D 2009 A 10% 2010 160 E

d. 154

Which of the following values would be included in U.S. GDP for 2015? a. the rent that Sam, an American citizen, would have paid on his home in Houston in 2015 had he not owned that home. b. the rent that Jim, an American citizen, paid on his apartment in San Francisco in 2015. c. the value of the legal services provided by Juan, an attorney and a Mexican citizen, who lived in San Antonio and practiced law there in 2015 d. All of the above would be included in U.S. GDP for 2015.

d. All of the above would be included in U.S. GDP for 2015.

U.S. GDP and U.S. GNP are related as follows: a. GNP = GDP + Value of exported goods - Value of imported goods. b. GNP = GDP - Value of exported goods + Value of imported goods. c. GNP = GDP + Income earned by foreigners in the U.S. - Income earned by U.S. citizens abroad. d. GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.

d. GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.

Refer to Figure 2-4. Inefficient production is represented by which point(s)? a. Q, S b. Q, S, T c. R, U d. T Graph: R, U on line; Q, S are outside line; T inside line

d. T

The consumption component of GDP includes spending on a. durable goods and nondurable goods, but not spending on services. b. durable goods and services, but not spending on nondurable goods. c. nondurable goods and services, but not spending on durable goods. d. durable goods, nondurable goods, and services.

d. durable goods, nondurable goods, and services.

Suppose an economy's production consists only of corn and soybeans. In 2010, 20 bushels of corn are sold at $4 per bushel and 10 bushels of soybeans are sold at $2 per bushel. In 2009, the price of corn was $2 per bushel and the price of soybeans was $1 per bushel. Using 2009 as the base year, it follows that, for 2010, a. nominal GDP is $50, real GDP is $100, and the GDP deflator is 50. b. nominal GDP is $50, real GDP is $100, and the GDP deflator is 200. c. nominal GDP is $100, real GDP is $50, and the GDP deflator is 50. d. nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.

d. nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.

When economists talk about growth in the economy, they measure that growth as the a. absolute change in nominal GDP from one period to another. b. percentage change in nominal GDP from one period to another. c. absolute change in real GDP from one period to another. d. percentage change in real GDP from one period to another.

d. percentage change in real GDP from one period to another.

An increase in the price of Irish whiskey imported into the United States will be reflected in a. both the U.S. GDP deflator and the U.S. CPI. b. neither the U.S. GDP deflator nor the U.S. CPI. c. the U.S. GDP deflator, but not the U.S. CPI. d. the U.S. CPI, but not the U.S. GDP deflator.

d. the U.S. CPI, but not the U.S. GDP deflator.

If net exports is a negative number for a particular year, then a. the value of firms' inventories declined over the course of the year. b. consumption exceeded the sum of investment and government purchases during the year. c. the value of goods sold to foreigners exceeded the value of foreign goods purchased during the year. d. the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year

d. the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year