Econ Exam #1 - Final
The business cycle is the
irregular fluctuations in economic activity
The source of the supply of loanable funds
is saving and the source of demand for loanable funds is investment
What is the most important factor that explains differences in living standards among countries?
its ability to produce goods and services
A stove is produced by a firm in 2014, added to the firm's inventory in 2014, and sold to a household in 2015. It follows that
the value of the good is added to the investment category of 2014 GDP, added to the consumptions category of 2015 GDP, and subtracted from the investment category of 2015 GDP
If you buy a burger and fries at your favorite fast food restaurant,
then both GDP and consumption spending will be higher
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
Which of the following is a way to compute GDP?
add up market values of all final goods and services
Changes in nominal GDP reflect
both changes in prices and changes in the amounts being produced
Gross domestic product measures
income and expenses
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
When economists talk about growth in the economy, they measure that growth as the
percentage change in real GDP from one period to another
The inflation rate is defined as the
percentage change in the price level from the previous period
In a closed economy, what does (Y - T - C) represent?
private saving
In a closed economy, what does (T-G) represent?
public saving
At the broadest level, the financial system moves the economy's scarce resources from
savers to borrowers
When a large, well-known corporation wishes to borrow directly from the public, it can
sell bonds
Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?
unmeasured price change
If 2010 is the base year, then the inflation rate in 2015 equals
(CPI in 2015 - CPI in 2014)/CPI in 2014 x 100
If national saving in a closed economy is greater than zero, which of the following must be true?
-Either public saving or private saving must be greater than zero -Investment is positive Y - C - G > 0
Which of these events would cause the consumer price index to overstate the increase the cost of living?
-Energy prices decrease, and consumers respond by buying more gas and electricity -A new good is introduced that renders cellular telephones inferior and obsolete -Car makers benefit from a new technology that allows them to see higher-quality cars to consumers with no increase in price
The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:
Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate
Which of the following is correct?
Nominal GDP equals real GDP in the base year
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?
Only Joe's and Jim's grocery store purchases are included in GDP
SKIP
SKIP
The supply of a loanable funds slopes
Upward because an increase in the interest rate induces people to save more
Which of the following equations represent GDP for a closed economy?
Y = C + I + G
Which of the following domestically produced items are included in GDP?
a bottle of shampoo, a hairdryer, a haircut
You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?
five cents x (today's CPI/1962CPI)
Consumer goods that are produced, go into inventory, and are not sold during the current period are
included in current period GDP as inventory investment
If a reform of the tax laws encourages greater saving, the result would be
lower interest rates and greater investment
The consumer price index is used to
monitor changes in the cost of living over time
Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that
neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year
The GDP deflator is the ratio of
nominal GDP to real GDP multiplied by 100
Real GDP will increase
only when output increases
The CPI is a measure of the overall cost of
the goods and services purchased by a typical consumer
What basket of goods and services is used to construct the CPI?
the goods and services that are typically bought by consumers as determined by government surveys
When the government's budget deficit increases
the government is borrowing more and public savings falls
Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits 401k and IRA tax-deferred retirement accounts in order to encourage more saving?
the interest rate would decrease and the quantity of loanable funds would increase
In the language of macroeconomics, investment refers to
the purchase of new capital
If there is a shortage of loanable funds, then
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium
