Ch 10, 11, 12 Homework Answers

A U.S.-owned car factory in Mexico produces $5 million of cars. $2.5 million of these cars are sold in Mexico and the other $2.5 million are sold in the U.S. In both cases $1 million of the value of the cars was due to U.S-owned equipment located in Mexico and U.S. managers working in Mexico. How much did this production contribute to U.S. GDP?

$0

The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was 191.3.

$0.37

Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 237 for 2015. Ruth's 1931 salary was equivalent to a 2015 salary of about

$1,247,368

If the CPI was 108.00 in 1942 and is 336.96 today, then $10 in 1942 purchased the same amount of goods and services as

$31.20 purchases today.

If the CPI was 104 in 1967 and is 390 today, then $10 in 1967 purchased the same amount of goods and services as

$37.50 purchases today.

A dairy buys $50,000 worth of milk and spend $5,000 on cartons and utilities. It sells the cartons of milk to a grocery store for $60,000 that then sells all of the cartons to consumers for $65,000. How much do these actions add to GDP?

$65,000

A worker received $5 for a daily wage in 1930. What is the value of that wage today if the CPI was 17 in 1930 and is 230 today?

$67.65

An economy recently reported nominal GDP of 3 trillion euro and a GDP deflator of 200. What was real GDP?

1.5 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP.

A worker received $5 for a daily wage in 1930, which has the equivalent value of $63.24 today. If the CPI was 17 in 1930 what is the value of the CPI today, rounded to the nearest whole number?

215

If in some year nominal GDP was $10 trillion and real GDP was $4 trillion, what was the GDP deflator?

250

Between October 2014 and October 2015, the CPI in Canada rose from 120 to 124 and the CPI in Mexico rose from 210 to 229.1. What were the inflation rates for Canada and Mexico over this one-year period?

3.3 percent for Canada and 9.1 percent for Mexico

For an imaginary economy, the value of the consumer price index was 140 in 2013 and 146.5 in 2014. The economy's inflation rate for 2014 was

4.6 percent

what is an example of a brain drain?

A country's most highly educated workers emigrate to rich countries

Adam and Doug both build birdhouses. Adam works 30 hours a week and produces 15 bird houses. Doug works 20 hours a week and produces 12 bird houses. Which of the following is correct?

Adam's production is higher than Doug's, but Doug's productivity is higher than Adam's.

Alexis and Tara both mine salt. Alexis mines 300 pounds in 20 hours. Tara mines 400 pounds in 40 hours. Which of the following is correct?

Alexis's productivity is greater than Tara's. This difference could be explained by Alexis having more physical capital than Tara.

Beth, an American citizen, travels to Italy on vacation and buys an espresso machine to bring home. Her purchase increases

Italy's GDP

net exports equal (equation)

NX = Y - (C + I + G)

All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit?

Output will rise but by less than it did when the previous unit was added.

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

a change from inward-oriented policies to outward-oriented policies, and increase in investment in human capital, strengthening of property rights

If an American-based firm opens and operates a factory in China, then it is engaging in

a foreign direct investment

A recession has traditionally been defined as a period during which

a real GDP declines for two consecutive quarters

outward-oriented policies

allow countries to take advantage of gains from trade, have generally led to high growth for the countries that pursued them, receive widespread support from economists

If companies from foreign countries build and operate factories in China, then China's productivity

and the wages of Chinese workers increase

Expenditures on a nation's domestic production

are equal to its domestic production

​In the simple circular-flow diagram, with households and firms, GDP can be computed

as the income received by households, in the form of wages, rent, and profit

GDP per person tells us the income and expenditure of the

average person in the economy

Changes in nominal GDP reflect

both changes in prices and changes in the amounts being produced

An increase in a country's population may contribute to the rate of technological progress because a larger population

brings with it more scientists, inventors, and engineers.

When the consumer price index falls, the typical family

can spend fewer dollars to maintain the same standard of living

a recession is always associated with

declining real GDP

Other things the same, an increase in population growth decreases...

decreases capital per worker. However, there is some evidence that a higher population growth rate may increase the pace of technological progress.

A leading environmental group recently published a report contending that humans are running a "resource deficit" because we are using natural resources faster than they can be regenerated. The group claims that this means that economic growth will eventually stop, and will even be reversed. An economist would

disagree with the report, in part because it ignores the mitigating effects of technological change.

Foreign saving is used for domestic investment when foreigners engage in

either foreign direct investment or foreign portfolio investment

If a good has become more scarce, then we know for sure that

either the demand for it increased or the supply of it decreased.

because every transaction has a buyer and a seller

every transaction contributes equally to an economy's income and to its expenditure

net exports equal

exports minus imports

Other things equal, relatively poor countries tend to grow

faster than relatively rich countries; this is called the catch-up effect.

Gasoline is considered a final good if it is sold by a

gasoline station to a motorist in Los Angeles

Countries with low GDP per person tend to have

higher rates of infant mortality

A country's human capital increases

if its workers become better educated or healthier

inward-oriented policies..

include imposing tariffs and other trade restrictions

if an economy's GDP falls, then it must be the case that the economy's

income and expenditure both fall

human capital is

knowledge and skills that workers have acquired.

An increase in capital will increase real GDP per person more

more in a poor country than a rich country. The increase in real GDP per person will be the same whether the addition to capital is from domestic or foreign investment.

Suppose an economy produces only cranberries and maple syrup. In 2010, 50 units of cranberries are sold at $20 per unit and 100 units of maple syrup are sold at $8 per unit. In 2009, the base year, the price of cranberries was $10 per unit and the price of maple syrup was $15 per unit. For 2010,

nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 90

Suppose an economy produces only burgers and bags of fries. In 2010, 4000 burgers are sold at $3 each and 6000 bags of fries are sold at $1.50 each. In 2008, the base year, burgers sold for $2.50 each and bags of fries sold for $2 each.

nominal GDP is $21,000, real GDP is $22,000, and the GDP deflator is 95.45.

Suppose an economy produces only cheese and fish. In 2010, 20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each. In 2009, the base year, the price of cheese was $10 per unit and the price of fish was $75 per unit. For 2010,

nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5.

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn more than 400 times as much as Babe Ruth earned in 1931. However, prices have also risen since 1931. We can conclude that

one cannot determine whether baseball stars today enjoy a higher standard of living than Babe Ruth did in 1931 without additional information regarding increases in prices since 1931.

Changes in the GDP deflator reflect

only changes in prices

Changes in real GDP reflect

only changes in the amounts being produced

Country A and country B are the same except country A currently has more capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then

output in country A increases by less than in country B

The economy's inflation rate is the

percentage change in the price level from the previous period

Country A and country B both increase their capital stock by one unit. Output in country A increases by 10 while output in country B increases by 8. Other things the same, diminishing returns implies that country A is

poorer than Country B. If Country A adds another unit of capital, output will increase by less than 10 units

A country reported a nominal GDP of $85 billion in 2010 and $100 billion in 2009. It also reported a GDP deflator of 100 in 2010 and 105 in 2009. Between 2009 and 2010,

real output and the price level both fell

A country reported nominal GDP of $200 billion in 2010 and $180 billion in 2009. It also reported a GDP deflator of 125 in 2010 and 105 in 2009. Between 2009 and 2010,

real output fell and the price level rose.

accumulating capital requires

requires that society sacrifice consumption goods in the present.

Country A and country B both increase their capital stock by one unit. Output in country A increases by 12 while output in country B increases by 15. Other things the same, diminishing returns implies that country A is

richer than Country B. If Country A adds another unit of capital, output will increase by less than 12 units.

An understanding of the best ways to produce goods and services is called

technology

All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year,

the increase in output was greater last year than this year

a policy that increases savings

will improve economic growth and health outcomes.

if an inexpensive alternative to oil were found, the price of oil adjusted for inflation

would decline as the alternative would reduce the demand for oil.