Econ Exam 2 Review
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
Suppose a closed economy had public saving of -$1 trillion and private saving of $3 trillion. What are national saving and investment for this country?
$2 trillion, $2 trillion
If in some year real GDP was $25 billion and the GDP deflator was 68, what was nominal GDP?
$17 billion.
All else equal, which of the following would tend to cause real GDP per person to rise?
an increase in investment in human capital
A decrease in the price of domestically produced industrial robots will be reflected in
the GDP deflator but not in the consumer price index.
If Congress instituted an investment tax credit, the interest rate would
rise and saving would rise
An increase in the budget deficit would cause a
shortage of loanable funds at the original interest rate, which would lead to rising interest rates
One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called
substitution bias
Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. To which problem in the construction of the CPI is this situation most relevant?
substitution bias
Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years. To which problem in the construction of the CPI is this situation most relevant?
substitution bias
The CPI is more commonly used as a gauge of inflation than the GDP deflator is because
the CPI better reflects the goods and services bought by consumers.
If the government institutes policies that diminish incentives to save, then in the loanable funds market
the supply of loanable funds shifts leftward.
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 consumption 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.
The consumer price index is used to
turn dollar figures into meaningful measures of purchasing power
When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?
$859.09
If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is
-1 percent.
Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving?
1,000 and 500, respectively
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 country's real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700. What was this country's inflation rate?
10.0%.
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.
Tim put $275 in the bank one year ago and forgot about it. Today, the bank sent Tim a statement indicating that he now has $294.25 in his account. What interest rate did Tim earn?
7 percent
The price index was 220 in one year and 238.2 in the next year. What was the inflation rate?
8.3 percent
All else equal, which of the following would tend to cause real GDP per person to rise?
All of the above are correct.
We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that
All of the above are correct.
We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that
Bond A has a term of 20 years and Bond B has a term of 2 years
Which of the following would shift the demand for loanable funds to the right?
Congress and the president pass an investment tax credit
For an imaginary economy, the consumer price index was 115.00 in 2004, 126.50 in 2005, and 136.62 in 2006. Which of the following statements is correct?
None of the above is correct.
All else equal, if there are diminishing returns, then which of the following is true if acountry increases its capital by one unit?
Output will rise but by less than it did when the previous unit was added.
Suppose a basket of goods and services has been selected to calculate the CPI. In 2002, the basket's cost was $80; in 2008, the basket's cost was $92; and in 2010, the basket's cost was $108. The base year must be
The base year cannot be determined from the given information.
Which of the following events could explain an increase in interest rates together with a decrease in investment?
The government budget went from surplus to deficit
Interest rates fall and investment falls. Which of the following could explain these changes?
The government repeals an investment tax credit
Micah buys a used car for $10,000 and spends $200 on a new radio that is made in the U.S. The end result of these two transactions is
U.S. consumption purchases increase by $200 and U.S. GDP increases by $200
The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year. Year Consumer Price Index Inflation Rate 2005 100 2006 115 B 2007 125 C 2008 140 D 2009 A 10% 2010 160 E
What belongs in space C? a. 8.7% What belongs in space E? a. 3.9%
James offers you $1,000 today or $X in 7 years. If the interest rate is 4.5 percent, then you would prefer to take the $1,000 today if and only if
X < 1,360.86
In which of the following instances is the present value of the future payment the largest?
You will receive $1,000 in 5 years and the annual interest rate is 5 percent.
If 2010 is the base year, then the inflation rate in 2015 equals
[(CPI in 2015 - CPI in 2014) / CPI in 2014] x 100
A perpetuity is
a bond that pays interest forever
Crowding out occurs when investment declines because
a budget deficit makes interest rates rise
GDP does not reflect
a. the value of leisure. b. the value of goods and services produced at home. c. the quality of the environment. d. All of the above are correct
If there are diminishing returns to capital, then
increases in the capital stock increase output by ever smaller amounts
A budget deficit
changes the supply of loanable funds
When public saving falls by $2b and private saving falls by $1b in a closed economy,
investment falls by $3b.
If there is a shortage in the market for loanable funds, what happens to desired saving and desired investment as the interest rate moves to its equilibrium value?
desired saving rises and desired investment falls
In the CPI, goods and services are weighted according to
how much consumers buy of each good or service.
According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would
leave national saving unchanged and raise public saving
According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would
leave national saving unchanged and reduce private saving.
The consumer price index is used to
monitor changes in the cost of living over time.
A perpetuity is distinguished from other bonds in that it
never matures.
Real GDP will increase
only when output increases.
A U.S. firm produces nail guns in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the nail guns to a U.S. construction company. In which quarter(s) does(do) these transactions raise investment?
the first but not the second
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
One way to characterize the difference between compounding and discounting is to say that
the process of compounding produces a future value, whereas the process of discounting produces a present value.
