Test 2 - CH. 23-24 Multiple Choice + Written Response

Table 24-3 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. Year Price of Pork Price of Corn 2012 $20 per pound $12 per bushel 2013 $25 per pound $18 per bushel Refer to Table 24-3. The cost of the basket in 2013 was $150.50. $147. $154. $301.

$154

In 2015, U.S. GDP was almost $18 trillion. $15 trillion. $14 trillion. $12 trillion.

$18 trillion.

John just graduated law school and has two competing job offers. The first is in Phoenix and pays a salary of $150,000. He has a similar job offer in Cleveland that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power? 70 in Phoenix and 42 in Cleveland 68 in Phoenix and 34 in Cleveland 42 in Phoenix and 70 in Cleveland 34 in Phoenix and 68 in Cleveland

70 in Phoenix and 42 in Cleveland

The purchase of rice produced this period is included in GDP if the rice is used in a meal a restaurant sells during the same period they buy the rice. purchased by a family who uses it to make tuna casserole for its supper. purchased by a frozen food company to increase its inventory. B and C are correct.

B and C are correct.

Scenario 24-6A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year. Good X Good Y Quantity Price Quantity Price 2010 50 $100 100 $10 2011 60 $120 120 $12 Refer to Scenario 24-6.Using 2010 as the base year, what is the inflation rate in 2011?

CPI Inflation Rate: 20% Basket: 50X and 100Y X Y Total 2010 5000 1000 6000 2011 6000 1200 7200 6000/6000 *100 = 100 7200/6000 *100 = 120 Inflation Rate = (recent-previous)/previous *100 (120-100)/100 *100 = 20%

Table 23-12A country produces only ice cream and cake in the quantities and prices listed below. Use 2011 as the base year. Year Price of Ice Cream Quantity of Ice Cream Price of Cake Quantity of Cake 2011 $2.00 200 $10 40 2012 $2.30 250 $14 50 2013 $2.75 280 $18 80 Refer to Table 23-12. Calculate real and nominal GDP for the year 2013.

For 2013: nominal GDP: 2210 real GDP: 1360 --- nominal = (P*Q) + (P*Q) all from the same year real = (P*Q) + (P*Q) but P is base year prices nominal real 2011 800 800 2012 1275 1000 2013 2210 1360

Table 23-12A country produces only ice cream and cake in the quantities and prices listed below. Use 2011 as the base year. Year Price of Ice Cream Quantity of Ice Cream Price of Cake Quantity of Cake 2011 $2.00 200 $10 40 2012 $2.30 250 $14 50 2013 $2.75 280 $18 80 Refer to Table 23-12. Calculate the GDP deflator for 2012 and 2013.

GDP deflator: 2012: 127.5 2013: 162.5 --- GDP deflator = nominal/real *100 nominal real GDP deflator 2011 800 800 100 2012 1275 1000 127.5 2013 2210 1360 162.5

Wholesome Wheat Bakery buys $10.00 worth of flour from Mikes' Mill and uses the flour to make bread. Wholesome Wheat sells the bread to the public for $22.00. Taking these two transactions into account, what is the effect on GDP? GDP increases by $10.00 GDP increases by $12.00 GDP increases by $22.00 GDP increases by $32.00

GDP increases by $22.00

Which of the following is not included in the investment component of GDP? The purchase of 100 shares of stock. The purchase of a $1000 bond. A firm's purchase of a used van to use for deliveries. None of the above are included in the investment component of GDP.

None of the above are included in the investment component of GDP.

If the inflation rate decreased from 3.33% to 2.90% between October and November, while the nominal interest rate increased from 4.75% to 4.80%, what is the real interest rate in November?

Real interest rate in November: 1.90% --- Nominal Interest Rate = Real interest rate + inflation rate OCT: 4.75% = real + 3.33% >>> real = 1.42% NOV: 4.80% = real + 2.90% >>> real = 1.90%

If the cost of apparel increases by 50 percent, then, other things the same, the CPI is likely to increase by about 0.5 percent. 1.5 percent. 3.0 percent. 11.8 percent.

TEST SAID: 1.5 percent (no idea how/why) I GOT: 3.0 percent (pg. 498 for pie chart)

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption? The CPI was 100 in 2003, 110 in 2004, and 105 in 2005. The CPI was 100 in 2003, 120 in 2004, and 135 in 2005. The CPI was 100 in 2003, 105 in 2004, and 130 in 2005. The CPI was 100 in 2003, 90 in 2004, and 88 in 2005.

The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.

Nominal GDP is $12 trillion and real GDP is $15 trillion. What is the GDP deflator? Show your work.

The GDP deflator is 80. --- nominal/real * 100 = basis pts. 12/15 *100 = 80

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct? The base year is always the first year among the years for which computations are being made. It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases, it is not necessary to designate a base year. The value of the consumer price index is always 100 in the base year. The base year is always the year in which the cost of the basket was highest among the years for which computations are being made.

The value of the consumer price index is always 100 in the base year.

Table 23-7 The table below contains data for the country of Togogo. The base year is 1974. Year Nominal GDP GDP Deflator 1974 $2000 100 1975 $3000 120 1976 $3750 150 1977 $6000 200 Refer to Table 23-7. Which of the following is not correct? This economy experienced growth from 1974 to 1975. This economy experienced growth from 1975 to 1976. This economy experienced growth from 1976 to 1977. This economy experienced inflation from 1974 to 1975, from 1975 to 1976, and from 1976 to 1977.

This economy experienced growth from 1975 to 1976.

A German citizen buys an automobile produced in the United States by a Japanese company. As a result, U.S. net exports increase, U.S. GDP is unaffected, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, German GNP is unaffected, and German GDP decreases. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. U.S. net exports and GDP are unaffected, Japanese GNP increases, and German net exports, GNP, and GDP decrease.

U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected.

For the purpose of calculating GDP, investment is spending on stocks, bonds, and other financial assets. real estate and financial assets such as stocks and bonds. capital equipment, inventories, and structures, including household purchases of new housing. capital equipment, inventories, and structures, excluding household purchases of new housing.

capital equipment, inventories, and structures, including household purchases of new housing.

When the quality of a good deteriorates while its price remains the same, the purchasing power of the dollar increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. increases, so the CPI understates the change in the cost of living if the quality change is not accounted for. decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.

decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.

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

fails to measure all changes in the quality of goods.

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

federal, state, and local governments.

Recently, the U.S. national income accounts have switched to calling government purchases government spending and transfer payments. transfer payments and gross investment by government. government consumption expenditure and gross investment. government wages, salaries, and investment expenditure.

government consumption expenditure and gross investment.

Table 24-5 The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. Year Price of Meat Price of a Toy 2004 $3 per pound $2 2005 $1 per pound $7 2006 $4 per pound $5 Refer to Table 24-5. If the base year is 2006, then the CPI increased from 2004 to 2005 and increased from 2005 to 2006. increased from 2004 to 2005 and decreased from 2005 to 2006. decreased from 2004 to 2005 and increased from 2005 to 2006. decreased from 2004 to 2005 and decreased from 2005 to 2006.

increased from 2004 to 2005 and increased from 2005 to 2006.

Table 23-7 The table below contains data for the country of Togogo. The base year is 1974. Year Nominal GDP GDP Deflator 1974 $2000 100 1975 $3000 120 1976 $3750 150 1977 $6000 200 Refer to Table 23-7. From 1975 to 1976, inflation was 25% and output did not grow. inflation was 25% and output grew. inflation was 50% and output did not grow. inflation was 50% and output grew.

inflation was 25% and output did not grow.

In the United States in 2015, government purchases of goods and services were larger than consumption, but smaller than investment. larger than investment, but smaller than consumption. smaller than both consumption and investment. larger than both consumption and investment.

larger than investment, but smaller than consumption. (pg. 482 for chart)

The CPI is calculated monthly by the Department of Commerce. monthly by the Bureau of Labor Statistics. quarterly by the Department of Commerce. quarterly by the Bureau of Labor Statistics.

monthly by the Bureau of Labor Statistics.

A Korean steel company produces steel in the United States, with some of its steel being exported to other nations and some of it being sold within the United States. If the prices of this steel increase, then the GDP deflator and the CPI will both increase. the GDP deflator will increase and the CPI will be unchanged. the GDP deflator will be unchanged and the CPI will increase. the GDP deflator and the CPI will both be unchanged.

the GDP deflator and the CPI will both increase.

In 1979 and 1980, the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising prices of goods exported by the U.S. 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 prices of goods exported by the U.S. the U.S. inflation rate as measured by the GDP deflator was higher than that measured by the CPI, and the difference was explained by rapidly rising oil prices. 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.

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.

The GDP Deflator reflects the prices of all final goods and services currently produced domestically, as does the CPI. the price of a fixed basket of goods and services purchased by a typical consumer, as does the CPI. the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer. the price of a fixed basket of goods and services purchased by a typical consumer, while the CPI reflects the prices of all final goods and services produced domestically.

the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer.

During the third quarter of this year a firm produces consumer goods and adds some of those goods to its inventory. During the fourth quarter of this year, the firm sells the goods at a retail outlet, with the result that the value of its inventory at the end of the fourth quarter is smaller than the value of its inventory at the end of the third quarter. These actions affect which component(s) of fourth-quarter GDP? they increase consumption and have no affect on investment they increase consumption and decrease investment they have no affect on either consumption or investment they have no affect on consumption and decrease investment

they increase consumption and decrease investment

Suppose in the year 2000 Ken earned $60,000 per year and that in 2015 he earned $78,000 per year. If the CPI in the year 2000 was 172.2 and in 2015 was 236.7, which of the following statements is correct? ​Ken's standard of living got better from 2000 to 2015. ​If Ken had earned $81,000 in 2015, his standard of living would have improved relative to his income in 2000. ​Ken would have needed to earn $87,000 or more in 2015 for his standard of living to have improved relative to his income in 2000. ​If Ken had earned $83,000 in 2015, his standard of living would have improved relative to his income in 2000.

​If Ken had earned $83,000 in 2015, his standard of living would have improved relative to his income in 2000.