Macro exam 2 (ch 9)

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Your father earned​ $34,000 per year in 1984. To the nearest​ dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is​ 104?

$70,288

Suppose the CPI in 2013 was 215.3 and the CPI in 2014 was 214.6, what was the inflation rate between 2013 and 2014?

-0.3 percent

If the inflation rate is 6 percent and the nominal interest rate is 4 percent, then the real interest rate is

-2 percent, which is the nominal interest rate minus the inflation rate.

If nominal GDP in a given year is $11,000 billion and real GDP is $10,000 billion, then the GDP price deflator in that year equals

110

As the economy nears the end of an​ expansion, which of the following typically​ occurs?

All of the above occur.

The Bureau of Economic Analysis​ (BEA), part of the federal​ government, might not want to take on this responsibility. Which one of the following is the most appropriate reason for the​ BEA's refusal?

Because it is part of the​ government, the BEA could be pulled into politics with the dating of recessions.

If inflation is unexpectedly high, this will benefit lenders and harm borrowers.

False

The CPI in 2012 is 138. This indicates that prices have increased 138 percent from the base year.

False

The CPI is the average price of all goods and services in the economy.

False

The GDP deflator is defined as the ratio of real GDP to nominal GDP multiplied by 100.

False

The market basket for the CPI changes every month.

False

Which of the following does NOT lead to long-run economic growth​?

Increase in average wages

Which of the following is not a cost created by high​ inflation?

Inflation causes the real wage to fall which means that firms have to pay more for workers.

Which of the following can give an early warning of future increases in the price​ level?

Producer price index

Which of the following is not a​ "loanable fund"?

Real estate.

The financial systemlong dash—either financial markets or financial intermediarieslong dash—provides savers and borrowers with all of the following​ except:

The financial system provides security to savers by warranting that their funds are fully insured against loss.

When tax revenue equals government spending there is

a balanced budget

Suppose that the inflation rate turns out to be much higher than most people expected. In that​ case,

a borrower will gain from the situation while a lender will lose.

When tax revenue is less than government spending there is

a budget deficit

Which of the following is the best example of human​ capital?

a worker gets a college degree

What index is used to measure the average prices paid by a typical​ family? An average of the prices of the goods and services purchased by a typical family is​ the:

consumer price index​ (CPI).

Households supply loanable funds because of the

interest income received from the borrowers.

The rule of 70

is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double.

The real interest rate

is equal to the nominal interest rate minus the inflation rate.

Kenmore refrigerators. Production of this good is likely to fluctuate __________ fluctuations of real GDP during the business cycle.

more than

The difference between a nominal variable and a real variable is that

nominal variables are calculated in​ current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation.

The Internet has _____________ the size of menu costs.

reduced

If the minimum wage is set above the market-determined clearing wage

the unemployment rate will be higher than it would be without a minimum wage.

If the consumer price index was 73 in 1979 and 225 in 2014, then prices in 2014 were on average

three times as high as in 1979.

If the CPI was 207 in 2010 and 225 in 2014, what pay raise would someone who earned $50,000 income in 2007 have to earn in order to keep her purchasing power constant in 2014?

$4,348

Fill in the blanks. To obtain prices of a representative group of goods and services, the Bureau of Labor Statistics (BLS) conducts a monthly survey of __________ households nationwide on their spending habits. The results of this survey are used to construct a market basket of _________ goods and services purchased by the typical urban family of four.

30,000; 211

The real interest rate is the nominal interest rate plus the inflation rate.

False

When tax revenue exceeds government spending​ (government purchases and transfer​ payments) there is

a budget surplus

A wage higher than the market wage paid by a firm in order to increase worker productivity is

an efficiency wage.

The inflation rate is the percentage

change in the GDP deflator from one year to the next.

Recessions cause the inflation rate to​ _________, and the unemployment rate to​ _________.

decrease; increase

Purchases of which types of goods are business cycles most likely to​ affect?

durable goods

The financial system of a country is important for​ long-run economic growth because

firms need the financial system to acquire funds from households.

Businesses demand loanable funds because

firms need to borrow funds for new​ projects, such as building new factories or carrying out new research projects.

Crowding out occurs when

governments must borrow funds which causes interest rates to rise and thus private investment is reduced.

Potential real GDP

grows over time

Of the eight categories in the CPI market basket, which three categories make up more than 75 percent of the basket?

housing, transportation, and food

Huggies diapers. Production of this good is likely to fluctuate _____________ fluctuations of real GDP during the business cycle.

less than

McDonald's Big Macs. Production of this good is likely to fluctuate ___________ fluctuations of real GDP during the business cycle.

less than

Caterpillar industrial tractors. Production of this good is likely to fluctuate __________ fluctuations of real GDP during the business cycle.

more than

Ford​ F-150 trucks. Production of this good is likely to fluctuate ________ fluctuations of real GDP during the business cycle.

more than

Fill in the blanks. Economic variables that are calculated in current year prices are referred to as __________ variables, while variables that have been corrected to account for the effects of inflation are _________ variables.

nominal;real

Which of the following is the best measure of the standard of living of the typical person in a​ country?

real GDP per person

Which of the following is a better measure of the average prices of all goods and services included in GDP?

the GDP deflator

Which market basket below specifically targets intermediate goods?

the basket used by the producer price index

Menu costs are

the costs to firms of changing prices.

Capital can be differentiated between physical capital and human capital. Human capital is

the knowledge and skills workers acquire from education and training or from their life experiences

Potential real GDP is

the level of GDP attained when all firms are producing at capacity.

In calculating the CPI,

the market basket does not include large equipment purchased by business firms.

The real interest rate equals

the nominal interest rate minus the inflation rate.

The stated interest rate on a loan is

the nominal interest rate.

Computation of the CPI assumes that households buy the same market basket of products each month. For this reason, one of the following is irrelevant in calculating the CPI. Which one?Suppose the CPI in 2013 was 215.3 and the CPI in 2014 was 214.6, what was the inflation rate between 2013 and 2014?

the quantities of the products purchased in the current year

The two key factors that cause labor productivity to increase over time are

the quantity of capital per hour worked and the level of technology.

Changes in the CPI overstate the true inflation rate due to four "biases." If apple prices rise rapidly during the month while orange prices fall, consumers will reduce their apple purchases and increase their orange purchases. Which of the four biases is concerned with this tendency?

the substitution bias


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