Econ Exam #3 (15,16,17)

A hypothetical country of Lahland produces only movies and popcorn. Quantities and prices of these goods for the last several years are shown in the following table. The base year is 2017.

$10,000

The cost of the basket in Year 1 was

$225.

If in some year nominal GDP was $20 billion and the GDP deflator was 50, what was real GDP?

$40 billion

GDP deflator

100 × 𝑛𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃/ 𝑟𝑒𝑎𝑙 𝐺𝐷𝑃

Suppose a basket of goods and services has been selected to calculate the CPI and Year 1 has been selected as the base year. In Year 1, the basket's cost was $50; in Year 2, the basket's cost was $52; and in Year 3, the basket's cost was $55. The value of the CPI in Year 3 was

110.0

If the base year is Year 1, then the CPI in Year 2 was

112.5

What is the consumer price index for May?

167

Refer to Table 24-1. The cost of the basket in Year 1 was

225

If Year 1 is the base year, then the inflation rate in Year 2 was

4.4

If the consumer price index was 100 in the base year and 106 in the following year, then the inflation rate was

6%

What is the inflation rate for May?

67.2%

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.

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 statistics is usually regarded as the best single measure of a society's economic well-being?

GDP

These components add up to GDP (denoted Y): Y = C + I + G + NX Consumption (C) - Investment (I) -Government Purchases (G) - Net Exports (NX)

GDP added up components

Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?

Gross domestic product

Which of the following statements accurately describes catch-up growth?

In one generation, China will be one of the richest countries in the world, if China's GDP per person continues grow 9% per year.

Out of the following economic statistics, which is the best measure of economic prosperity?

Level of real GDP

Each day Sue works 8 hours and produces 7 units of goods and services. Mary works 10 hours each day and produces 10 units of goods and services. It follows that

Mary's productivity is higher than Sue's.

joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his backyard. Regarding these two practices, which of the following statements is correct?

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

GDP=

PQ+PQ

Which of the following topics are more likely to be studied by a macroeconomist than by a microeconomist?

The percentage of the labor force that is out of work and differences in average income from country to country

The producer price index measures the cost of a basket of goods and services

The producer price index measures the cost of a basket of goods and services

GDP is the market value of all final goods and services produced by a country's citizens in a given period of time.

True

Nominal GDP

Values output using current prices - Not corrected for inflation, Nominal=Real

Real GDP

Values output using the prices of a base year - Is corrected for inflation

Janet is a farmer. Which of the following are included in her human capital?

What she's learned from experience but not her tractor

An organization that tries to encourage the flow of investment from advanced countries to poor countries is the

World Bank

If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals

[(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100.

Which of the following is the correct formula for calculating the consumer price index?

[(price of basket of goods and services in current year/price of basket in base year)]× 100

Which of the following is the correct formula for calculating the consumer price index?

a. [(price of basket of goods and services in current year − price of basket in base year)/price of basket in base year] × 100

Real GDP is the yearly production of final goods and services valued at

constant prices

The curve becomes flatter as the amount of capital per worker increases because of

diminishing returns to capital

Government purchases include spending on goods and services by

federal, state, and local governments.

Exports:

foreign spending on the economy's goods and services

When the consumer price index rises, the typical family

has to spend more dollars to maintain the same standard of living.

Countries with low GDP per person tend to have

higher rates of infant mortality.

By far the largest category of goods and services in the CPI basket is

housing

By far the largest category of goods and services in the CPI basket is

housing.

For an economy as a whol

income must equal expenditure.

The term economists use to describe a situation in which the economy's overall price level is rising is

inflation

The percentage change in the price level from one period to another is called the

inflation rate

A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called

intermediate goods.

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

introduction of new goods

The value of goods added to a firm's inventory in a certain year is treated as

investment, since GDP aims to measure the value of the economy's production that year.

The catch-up effect refers to the idea that

it is easier for a country to grow fast and so catch-up if it starts out relatively poor.

International studies of the relationship between GDP per person and quality of life measures such as life expectancy and literacy rates show that larger GDP per person is associated with

longer life expectancy and a higher percentage of the population that is literate.

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.

Unemployment compensation is

not part of GDP because it is a transfer payment.

The inflation rate is defined as the

percentage change in the price level from the previous period.

Productivity is the amount of goods and services

produced for each hour of a worker's time. It is linked to a nation's economic policies.

If real GDP doubles and the GDP deflator doubles, then nominal GDP

quadruples

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.

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

technology

Two common measures of the overall level of prices are

the GDP deflator and the consumer price index.

Economists use the term inflation to describe a situation in which

the economy's overall price level is rising.

Which of the following is an example of human capital?

the things you have learned this semester

If net exports is a negative number for a particular year, then

the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year

"Investment" does not mean the purchase of financial assets like stocks and bonds.

true

Consumption, C -Total spending by households on goods and services - Does not include purchases of new housing

true

GDP is defined as the

value of all final goods and services produced within a country in a given period of time.

- Imports:

are the portions of C, I, and G that are spent on goods and services produced abroad

GDP per person tells us the income and expenditure of the

average person in the economy.

Most goods and services produced at home

and most goods and services produced illegally are excluded from GDP

Most goods and services produced at home

and most goods and services produced illegally are excluded from GDP.

Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that

GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare.

If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals

a. [(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100.

The following table pertains to Pieway, an economy in which the typical consumer's basket consists of 15 bushels of peaches and 10 bushels of pecans. Refer to Table 24-1. If Year 1 is the base year, then the CPI for Year 1 was

b. 100.0

Which of the following provide benefits to society at large and not just to the person(s) who pursues it?

both technological knowledge that is a public good and education

The producer price index measures the cost of a basket of goods and services

bought by firms.