Macro Midterm (Ch. 10-13)

In 1972, one could buy a bag of chips, a pound of hamburger, a package of buns, and a small bag of charcoal for about $2.50. If the same goods today cost $6.00, then which pair of CPIs would make the cost in today's dollars the same for both years?

65 in 1972 and 156 today

Waldo works eight hours and produces 7 units of goods per hour. Emerson works six hours and produces 10 units of goods per hour.

Emerson's productivity and output are greater than Waldo's.

Martin, a U.S. citizen, travels to Mexico and buys a newly manufactured motorcycle made there. His purchase is included in

Mexican GDP, but it is not included in U.S. GDP

Which country has had a higher growth rate than the U.S. over about the last 120 years?

Mexico

Which of the following restrictions implies that investment exceeds private saving for a closed economy?

The economy's government is running a budget surplus

Which of the following restrictions implies that private saving and investment are equal for a closed economy?

The economy's government is running neither a surplus nor a deficit.

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

There would be an increase in the amount of loanable funds borrowed

When an American household purchases a bottle of Italian wine for $100,

U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change

Other things the same, which bond would you expect to pay the highest interest rate?

a bond issued by a new chain of Brazilian-style restaurants

Other things the same, which bond would you expect to pay the lowest interest rate?

a bond issued by a state with a very good credit rating

On which of these bonds is the prospect of default least likely?

a bond issued by the federal government

Bob's new startup goes public and sells shares of future profits. Bob's startup is best described as

a borrower or as a demander of funds

When the relative price of a good increases, consumers respond by buying

a smaller quantity of that good and a larger quantity of substitutes for that good

The consumer price index is

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

The inflation rate is calculated

by determining the percentage increase in the price index from the preceding period

A closed economy

does not trade with other economies

If the quality of a good deteriorates while its price remains the same, then the value of a dollar

falls and the cost of living increases

GDP includes the value of all

final goods and services produced within a country using primarily market prices to measure the value of goods and services.

The CPI and the GDP deflator

generally move together

Productivity is defined as the quantity of

goods and services produced from each unit of labor input

In the GDP accounts production equals

income

Japan's status as a rich nation is attributable to

international trade, but not to Japan's domestic quantities of natural resources

Educational attainment tends to be

low in countries with high population growth.

The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits are called

natural resources

Transfer payments are

not included in GDP because they are not payments for currently produced goods or services

In the equation for the production function Y/L represents

productivity

The length of time until a bond matures is called the

term

A decrease in the price of domestically produced industrial robots will be reflected in

the GDP deflator but not in the consumer price index

The nominal interest rate is

the interest rate as usually reported by banks

Which of the following statements about mutual funds is correct?

A mutual fund is a financial intermediary. A mutual fund acquires its funds primarily by selling shares to the public. People who buy shares from a mutual fund accept all of the risk and return associated with the mutual fund's portfolio.

The price tag on a golf ball in 1975 read $0.20, and the price tag on a golf ball in 2005 read $2.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3. In 1975 dollars, a 1975 golf ball cost $0.20 and a 2005 golf ball cost

$0.55, so golf balls were cheaper in 1975

For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

$2 trillion and $1 trillion, respectively

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

The country of Meditor, a small country with a closed economy, uses the merit as its currency. Recent national income statistics showed that it had GDP of $600 million merits, no government transfer payments, taxes of $150 million merits, a budget surplus of $40 billion merits, and investment of $100 billion merits. What were its consumption and government expenditures on goods and services?

$390 million merits and $110 million merits

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

$63,195.34

Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

$65,625

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2001 salary in 2006 dollars is

$75,000; thus, Ruben's purchasing power increased between 2001 and 2006.

What is the correct formula for the GDP deflator?

(nominal GDP/real GDP) x 100

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

1,500 deficit

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

102.0

A country produces only ice cream and pie. Quantities and prices of these goods for the last several years are shown below. The base year is 2008. Refer to Table 23-9. This country's inflation rate from 2009 to 2010 to the nearest tenth was:

13.3%

In 2012, the imaginary nation of Kanmiw had a population of 8,044 and real GDP of 36,198,000. In 2013 it had a population of 7,800 and real GDP of 35,880,000. What was the growth rate of real GDP per person in Kanmiw between 2012 and 2013?

2.2 percent

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

208

The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2013. Refer to Table 23-6. From 2012 to 2013, this country's output grew

29.0%

Greg's Ice Cream produces 1120 gallons of ice cream per day. Each employed works seven hours and has productivity of 20 gallons an hour. How many employees does Greg's employ?

8

Country A had a population of 1,000, of whom 600 worked an average of 8 hours a day and had the productivity of 2.5. Country B had a population of 800, of whom 560 worked 8 hours a day and had a productivity of 3.0. Country

B had a higher level of real GDP and real GDP per person.

A bond buyer is a saver

Bond buyers may sell their bonds prior to maturity.

Country A has a population of 1,000, of whom 800 work 8 hours a day to make 128,000 final goods. Country B has a population of 2,000, of whom 1,800 work 6 hours a day to make 270,000 final goods.

Country A has lower productivity and lower real GDP per person than country B

Suppose that you are planning to buy a new cellphone. Your choice is a new Samsung phone or HTC model. Samsung phones are manufactured in Korea and HTC phones are manufactured in Taiwan. Assuming that the price of each phone is the same, will your purchase of the Samsung or the HTC affect U.S. GDP differently?​

No, both have the same impact: your purchase will increase consumption expenditures and decrease net exports by the same amount.

Over the period 1960-1990,

South Korea had a higher growth rate than the United States even though it had a similar ratio of investment to GDP.

Interest rates fall and investment falls. Which of the following could explain these changes?

The government repeals an investment tax credit

Camp Company had total earnings of $600 million in 2013, out of which it retained 20 percent for future investments. In 2013, its stock featured a dividend yield of 4 percent and 100 million shares were outstanding.

The price-earnings ratio for Camp Company stock was 20.

Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

The quality of beef deteriorates and beef becomes more expensive relative to other goods

A manufacturer produces 1 million televisions in the first quarter of the year. It sells 900,000 of them before the end of the first quarter, and holds the others in its warehouse. How will the 100,000 unsold televisions be treated in the GDP statistics?

The televisions will be counted as a change in inventory in the first quarter and so will be included in first-quarter GDP.

Which of the following statements is correct? a. In the late 1800s, real GDP per person was higher in the United Kingdom than in the United States. b. In 2014, real GDP per person was higher in the United Kingdom than in the United States c. The average annual growth rate of real GDP was higher in the United Kingdom than in the United States between the late 1800s and 2014. d. All of the above are correct.

a. In the late 1800s, real GDP per person was higher in the United Kingdom than in the United States.

Which of the following statements about GDP is correct? a. Nominal GDP values production at current prices, whereas real GDP values production at constant prices. b. Nominal GDP values production at constant prices, whereas real GDP values production at current prices. c. Nominal GDP values production at market prices, whereas real GDP values production at the cost of the resources used in the production process. d. Nominal GDP values production at the cost of the resources used in the production process, whereas real GDP values production at market prices.

a. Nominal GDP values production at current prices, whereas real GDP values production at constant prices.

A basic principle of economics is that a country's standard of living depends on its

ability to produce goods and services.

All else equal, which of the following would tend to cause real GDP per person to rise?

an increase in investment in human capital

Other things the same, if a country raises its saving rate, when is productivity growth higher?

as the economy moves toward the long run, but not in the long run.

Suppose the government passes a law eliminating holidays and, as a result, the production of goods and services increases because people work more days per year (and thus enjoy less leisure per year). Based on this scenario, which of the following statements is correct? a. GDP would definitely increase, despite the fact that GDP includes leisure. b. GDP would definitely increase because GDP excludes leisure. c. GDP could either increase or decrease because GDP includes leisure. d. GDP could either increase or decrease because GDP excludes leisure.

b. GDP would definitely increase because GDP excludes leisure

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 statements is correct? a. Only Joe's grocery store purchases are included in GDP. b. Only Joe's and Jim's grocery store purchases are included in GDP. c. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value. d. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value, if Jim provides this information.

b. Only Joe's and Jim's grocery store purchases are included in GDP.

Which of the following is not a question that macroeconomists address? a. Why is average income high in some countries while it is low in others? b. Why does the price of oil rise when war erupts in the Middle East? c. Why do production and employment expand in some years and contract in others? d. Why do prices rise rapidly in some periods of time while they are more stable in other periods?

b. Why does the price of oil rise when war erupts in the Middle East?

Rob wants to create a personal trainer program service and needs to pay for equipment and gym space. He can finance this capital investment by

borrowing money from a friend, selling shares of future profits, and using his own savings.

Which of the following would likely make the interest rate on a bond higher than otherwise?

both high credit risk and a long term

Which of the following are not consumer durable goods? a. Automobiles. ​b. Washing machines. ​c. Air conditioners. ​d. Paperback books.

d. Paperback books

Sheri, a U.S. citizen, works only in Germany. The value she adds to production in Germany is included

in German GDP, but is not included in U.S. GDP

Suppose that the U.S. undertakes a policy to increase its saving rate. This policy will likely

increase the growth of real GDP per person for several decades

Higher education subsidies in the form of the federal government's student loan program

induce more people to attend colleges and universities, keep interest rates low on student loans, and cause lenders to take on more risk

Scenario 25-1. An economy's production form takes the form Y = AF(L, K, H, N). Refer to Scenario 25-1. If the production function has the constant-returns-to-scale property, then if we know the values of A, K/L, H/L, and N/L, we also know the value of

labor productivity

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should make it

less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher

Compared to stocks, bonds offer the holder

lower risk and lower potential return

The CPI is calculated

monthly

For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?

national saving

If there is shortage of loanable funds, then

neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium

By not taking into account the possibility of consumer substitution, the CPI

overstates the cost of living

The economy's inflation rate is the

percentage change in the price level from the previous period

Suppose the typical consumer buys more bananas than oranges. In fixing the basket of goods and services for the purpose of calculating the consumer price index, the Bureau of Labor Statistics

places more weight on the price of bananas than on the price of oranges; the weights of the two prices are determined by surveying consumers

Changes in the quality of a good

present a problem in the construction of the consumer price index, and that problem is sometimes referred to as substitution bias

A rapid increase in the number of workers, other things the same, is likely in the short term to

raise real GDP, but decrease real GDP per person.

When studying changes in the economy over time, economists want a measure of the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods and services. In other words, economists want to study

real GDP

Over the last ten years productivity grew faster in Mapoli than in Romeria while the population and total hours worked remained the same in both countries. It follows that

real GDP per person grew faster in Mapoli than in Romeria.

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 2018, this country's

real GDP was $1080, and the GDP deflator was 177.8.

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

real GDP was $780, and the GDP deflator was 112.8.

With respect to the consumer price index, which of the following does not serve as an example of how the substitution bias arises? Between 2010 and 2011, the price of a pound of peanuts

rises from $0.80 to $1.00 while the price of a loaf of bread rises from $2.00 to $2.50

Suppose lawn mowers are part of the market basket used to compute the CPI. Suppose also that the quality of lawn mowers deteriorates while the price of lawn mowers stays the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality, then, other things equal,

the CPI will rise

Which government entity computes U.S. GDP every three months?

the Department of Commerce

An increase in the price of Irish whiskey imported into the United States will be reflected in

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

In 1979 and 1980,

the U.S. inflation rate as measured by the CPI was higher than that measured by the GDP deflator, and the difference was explained by rapidly rising oil prices

If the price of domestically produced power tools increases, then

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

National saving is the

total income in the economy that remains after paying for consumption and government purchases

Perry accumulated a lot of mathematical skills while in high school, college, and graduate school. Economists include these skills as part of Perry's

human capital

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 their houses. By itself, this change has

caused measured GDP to rise

Outward-oriented policies a. allow countries to take advantage of gains from trade. b. have generally led to high growth for the countries that pursued them. c. receive widespread support from economists. d. All of the above are correct.

d. All of the above are correct.

Which of the following statements is correct? a. In an economy-wide sense, property rights are an important prerequisite for the price system to work. b. Property rights give people the ability to exercise authority over the resources they own. c. Based on the available evidence, the existence of well-established and well-enforced property rights appears to be associated with an enhanced standard of living. d. All of the above are correct.

d. All of the above are correct.

Which of the following is included in the investment component of GDP? a. spending to build new houses b. spending to build new factories c. spending on business equipment such as welding equipment d. All of the above are included in the investment component of GDP.

d. All of the above are included in the investment component of GDP

Daniel owns a coffee kiosk. All of his employees work 8 hours per day. In 2011, he employed 6 people who produced a total of 912 cups of coffee each day. In 2012, he hired a seventh employee and production increased to 1008 cups of coffee each day. In Daniel's kiosk, productivity

decreased by about 5.3 percent

Which of the following are human capital and physical capital, respectively?

for a restaurant: the chefs' knowledge about preparing food and the equipment in the kitchen

Countries with low GDP per person tend to have

higher rates of infant mortality

In the actual economy, goods and services are purchased by

households, firms, and the government

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are

housing, transportation, and food & beverages.