Econ: Set 5
Shelly buys a new car for $10,000 and spends $200 on a used sofa. The end result of these two transactions is
U.S. consumption purchases increase by $10,000 and U.S. GDP increases by $10,000.
Sally buys used textbooks for $600 and new textbooks for $800 that are made in the U.S. As a result
U.S. consumption purchases increase by $800 and U.S. GDP increases by $800.
If a U.S. company buys brewing equipment made in Germany by a German firm, the other things the same
U.S. imports increase and so U.S. net exports decrease.
If a U.S. company buys a computer server made in China by a Chinese firm, and the Chinese firm uses the payment to buy stocks issued by a U.S. company then other things the same
U.S. imports increase but U.S. exports are unchanged.
EZ Rental Car buys cars from a Japanese owned car manufacturer who produces the cars in the U.S. Which of the following is correct?
U.S. investment and GDP increase by the same amount.
If the amount U.S. citizens earn abroad is larger than the amount foreign citizens working in the U.S. earn, then
U.S. net factor payments from abroad are positive, and GNP is larger than GDP.
Which of the following is consistent with the fact that national saving in a closed economy is negative?
Y - C - G < 0.
Which of the following is consistent with the fact that national saving in a closed economy is positive?
Y - C - G > 0.
Coffee is weighted more than tea in the calculation of the CPI if
consumers buy more coffee than tea.
By definition, a closed economy
does not trade with other economies.
When nominal GDP rises, we can be certain that
either prices or quantities of goods and services must have risen.
The gross domestic production of a country
equals the income of its residents.
Unemployment benefits are
excluded from GDP because they do not reflect the economy's current production.
GDP:
excludes most goods and services produced at home and most goods and services produced illegally.
Net exports equal
exports minus imports which equals Y - C - I - G.
If the price of a shirt is five times the price of a pair of socks, then a shirt contributes
five times the price of a pair of socks does to GDP.
Which of the following items is included in U.S. GDP?
goods produced by Mexican citizens working in the United States
Which of the following is not included in the consumption component of GDP?
household purchases of newly constructed homes.
In the simple circular-flow model
households spend all of their income but the government does not buy goods or services.
As the term to maturity of a bond increases, the interest rate
increases because the bond's risk increases.
A general increase in the price level of goods and services in an economy describes
inflation.
A farmer produces potatoes, and sells them to a company which uses them all to make potato chips. The potatoes produced by the farmer are called
intermediate goods.
The source of the demand for loanable funds is
investment.
If nominal GDP is three times its old value and the GDP deflator is twice its old value, then real GDP
is 1.5 times its original value.
The value of a carwash
is included in GDP only if it is sold in the market.
The interest earned on bonds issued by the city of Sacramento, California
is not subject to federal income tax and, thus such bonds pay a lower interest rate than comparable bonds issued by the U.S. government.
A corporation will borrow directly from the public by
issuing bonds.
The Bureau of Labor Statistics reports the CPI
monthly.
Suppose a closed economy has public saving of -$1 trillion and private saving of $3 trillion. What are national saving and investment for this country?
national saving is $2 trillion, investment is $2 trillion
Suppose a closed economy had public saving of -$2 trillion and private saving of $4 trillion. What are national saving and investment for this country?
national savings is $2 trillion and investment is $2 trillion
The citizens of Denmark earn $300 million of income from abroad whereas citizens of other countries earn $500 million in Denmark. Therefore, Denmark's
net factor payments from abroad are negative, and its GDP is larger than its GNP.
A perpetuity is distinguished from other bonds in that it
never matures.
The GDP deflator equals
nominal GDP divided by real GDP multiplied by 100.
Suppose an economy produces only eggs and ham. In 2015, 100 dozen eggs are sold at $4.50 per dozen and 50 pounds of ham sold at $3 per pound. In 2014, the base year, eggs sold at $3 per dozen and ham sold at $4 per pound. For 2015
nominal GDP is $600, real GDP is $500, and the GDP deflator is 120
Transfer payments from the government to households are
not for the current production of goods and services. They are not included in GDP.
The value of items produced and purchased in the past such as previously occupied housing and used clothing is
not included in current GDP because GDP only measures the value of final goods and services produced in the current year.
Which of the following items purchased by households are included in investment rather than consumption?
only the purchases of new houses
Real GDP will decrease
only when production of goods and services decreases.
Other things the same, when interest rates fall,
people would tend to borrow more causing the quantity demanded of loanable funds to increase.
Substitution bias is a problem when measuring the consumer price index because
prices of goods and services do not change in the same proportion from year to year.
In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?
public saving is $5 billion, and national saving is $50 billion
In a small closed economy investment is $55 billion and private saving is $50 billion. What are public saving and national saving?
public saving is $5 billion, and national saving is $55 billion
Which of the following is included in the investment component of GDP?
purchases of new capital goods, but not purchases of stocks and bonds
According to the definitions of private and public saving, if Y, C, and G remained the same, a decrease in taxes would
reduce public saving and raise private saving.
The financial system moves the economy's scarce resources from
savers to borrowers.
The source of the supply of loanable funds is
saving.
The introduction of new goods creates a problem when measuring the CPI because
the CPI is based on a fixed basket of goods and services and does not reflect increased value as a result of a larger variety of goods.
The most commonly reported measure of inflation by the media is
the CPI.
Sally drives an automobile she purchased several years ago. This year she bought gasoline and some parts and spent five hours making repairs. Which of the following is included in this year's GDP?
the amount she paid to buy gasoline and new parts, but not the value of her time.
A U.S. firm produced cash registers in the first quarter of 2015 and added them to its inventory. In the second quarter of 2015 the firm sold the cash registers to a U.S. grocery store chain. In which quarter(s) does (do) these transactions raise investment?
the first but not the second
GDP equals:
the market value of all final goods and services produced within a country in a given period of time.
In a simple circular-flow diagram,
the money that flows from households to firms equals expenditure.
Other things the same, when interest rates increase,
the quantity of loanable funds supplied increases, whereas the quantity of loanable funds demanded decreases.
If there is a surplus of loanable funds, then
the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.
Gross domestic production is equal to.
the total income of everyone in the economy, and the total expenditure on the economy's output of goods and services.
During recessions what happens to profits and the unemployment rate?
the unemployment rate rises and profits fall.
McDermott's builds a new restaurant and David purchases stock sold by McDermott's.
the value of the new restaurant is included in GDP, but the value of the new stock is excluded from GDP.
As an alternative to issuing bonds as a means of raising funds, a corporation could
use equity finance.
GDP is defined as the:
value of all final goods and services produced by domestic residents of a country in a given period of time.
In a simple circular-flow diagram, households buy goods and services with the income they get from
wages, rent, and profits.
A national chain of grocery stores with limited internal funds plans to expand by opening several new stores. Which of the following describes how the chain will likely raise the required funds?
Issue bonds.
A candy bar cost $0.60 in 2019. The value for the CPI in 1962 is 30.4 and the value of the CPI for 2019 is 236.2, what is the price of a candy bar in 1962 dollars?
$0.08
A candy bar cost $0.85 in 2019. The value for the CPI in 1962 is 30.4 and the value of the CPI for 2019 is 236.2, what is the price of a candy bar in 1962 dollars?
$0.11
A candy bar cost $1.00 in 2019. The value for the CPI in 1962 is 30.4 and the value of the CPI for 2019 is 236.2, what is the price of a candy bar in 1962 dollars?
$0.13
A soft drink cost $.85 in 2019. The value for the CPI in 1965 is 60.2 and the value of the CPI for 2019 is 236.2, what is the price of a soft drink in 1965 dollars?
$0.22
A soft drink cost $1.00 in 2019. The value for the CPI in 1965 is 60.2 and the value of the CPI for 2019 is 236.2, what is the price of a soft drink in 1965 dollars?
$0.25
A soft drink cost $1.75 in 2019. The value for the CPI in 1965 is 60.2 and the value of the CPI for 2019 is 236.2, what is the price of a soft drink in 1965 dollars?
$0.45
Suppose the consumer price index is 89 in 2012, 94 in 2014, 100 in 2016, and 103 in 2018. If Social Security benefits were $1,000 in 2012 and we indexed them for inflation, the Social Security benefits would have been ________ in 2014.
$1,056.18
Suppose the consumer price index is 89 in 2012, 94 in 2014, 100 in 2016, and 103 in 2018. If Social Security benefits were $1,000 in 2012 and we indexed them for inflation, the Social Security benefits would have been ________ in 2016.
$1,123.60
Suppose the consumer price index is 89 in 2012, 94 in 2014, 100 in 2016, and 103 in 2018. If Social Security benefits were $1,000 in 2012 and we indexed them for inflation, the Social Security benefits would have been ________ in 2018.
$1,157.30
A candy bar cost $1.00 in 2019. Given the value for the CPI in 1962 and the value of the CPI for 2019, which of the following is correct to find the price of a candy bar in 1962 dollars?
$1.00 x (CPI1962/CPI2019 )
The price of a soft drink from a vending machine in 2019 is $1.25. Given the value for the CPI in 1955 and the value of the CPI for 2019, which of the following is correct to find the price of a soft drink in 1955 dollars?
$1.25 x (CPI1955/CPI2019)
The price of a soft drink from a vending machine in 2019 is $1.25. Given the value for the CPI in 1965 and the value of the CPI for 2019, which of the following is correct to find the price of a soft drink in 1965 dollars?
$1.25 x (CPI1965/CPI2019)
Portland Sardines produced $14 million worth of cans of sardines. In producing these cans of sardines, it purchased $2 million dollars' worth of tin from foreign countries and paid workers who reside in Canada but commuted to the U.S. $1 million, all other labor was provided by U.S. residents. How much of the company's production was included in U.S. GDP?
$12 million
Suppose a country has government purchases of $3,000, taxes of $2,000, consumption of $9,000, exports of $2,500, imports of $2,700, transfer payments of $750, capital depreciation of $800, and investment of $4,000. GDP equals
$15,800.
A farmer sells $50,000 worth of apples to individuals who take them home to eat, $75,000 worth to a company that uses them all to produce apple juice, and $100,000 worth of apples to a grocery store that sells all of them to households. How much of the farmer's sales will be included as apples in GDP?
$150,000
Consider a closed economy with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What the economy's is GDP?
$17 trillion
The government of a country, which has adopted American GDP accounting conventions, reported that seasonally adjusted GDP in third quarter was $36 billion at an annual rate. This means that the seasonally-adjusted market value of all final goods and services produced within this country in the third quarter was
$9 billion.
Suppose the consumer price index is 89 in 2012, 94 in 2014, 100 in 2016, and 103 in 2018. If Social Security Benefits were $1,000 in 2018 and we index them for inflation, the Social Security benefits would have been ________ in 2014.
$912.62
Suppose the consumer price index is 89 in 2012, 94 in 2014, 100 in 2016, and 103 in 2018. If Social Security Benefits were $1,000 in 2018 and we indexed for inflation, the Social Security benefits would have been ________ in 2016.
$970.87
If the nominal interest rate is 2 percent and the real interest rate is 4 percent, then the inflation rate is
-2 percent.
If the nominal interest rate is 4 percent and the inflation rate is 6 percent, then the real interest rate is
-2 percent.
The U.S. computes that $3 trillion of GDP was produced in the second quarter of 2014. What, if any, adjustments will it make to this number when it reports GDP for the second quarter?
It will adjust for seasonality and multiple by four.
Consider an economy with GDP = $8.7 trillion, consumption spending = $6.1 trillion, taxes net of transfers = $1.0 trillion, and government purchases = $0.8 trillion. Which of the following is true for the described economy?
Private saving is $1.6 trillion and the quantity of loanable funds demanded is $1.8 trillion.
Consider a closed economy with a government deficit and positive investment. Which of the following is correct?
Private saving is positive; public saving is negative.
Consider a closed economy, in which S = (Y - T - C) + (T - G). In this identity, what does (T - G) represent?
Public saving
Which of the following must be true for an economy in which S = I?
S = Y - C - G.
Which of the following must be true if S = (Y - C - G)?
Such an economy is closed.
A certificate of indebtedness is called
a bond.
A bond is
a certificate of indebtedness.
If the nominal interest rate is 2 percent and the inflation rate is 1 percent, then the real interest rate is
1 percent.
Suppose that the inflation rate is 2% and the real interest rate is 4%. What is the nominal interest rate?
6%.
If nominal GDP is $16 trillion and real GDP is $24 trillion, then the GDP deflator is
67, and this indicates that the price level has decreased by 33 percent since the base year.
A bond that never matures is known as
a perpetuity.
A U.S. company purchases new cement mixers that were made in the U.S. This purchase by itself makes
a positive contribution both to investment and to GDP.
Which of the following is an example of a durable good?
a television
An automotive company has $10 million in cash, which would cover the cost of building a new factory. Suppose that recently, the interest rate has increased. Which of the following correctly describes the effect of a higher interest rate on the decision to build a new factory?
Decreases the likelihood of building a new factory as a higher interest rate increases the opportunity cost of the $10 million.
Which of the following is the way that Net National Product is calculated?
Depreciation losses are subtracted from the total income of a nation's citizens.
A U.S. consumer buys toys made in China. The value of the toys is included only in the consumption component of GDP.
False
A closed economy does not engage in international trade of goods and services but it does engage in international borrowing or lending.
False
An increase in total spending from one year to the next means that an economy's production of goods and services has risen.
False
Banks are the only type of financial intermediaries.
False
Both education expenditures and new home construction are included in the consumption component of GDP.
False
Factors of production include only physical capital such as business structures and business equipment.
False
If real GDP rises and the GDP deflator falls, then it must be that nominal GDP rose.
False
If the GDP deflator in 2015 was 210 and the GDP deflator in 2014 was 200, then the inflation rate in 2015 was 10%.
False
If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, there is a shortage of loanable funds and the interest rate is below the equilibrium level.
False
If the supply curve of loanable funds shifts to the left, then the equilibrium interest rate falls and the quantity of loanable funds rises
False
In the circular-flow diagram households receive income only from wages.
False
Inflation can only be measured by the consumer price index and not by the GDP deflator.
False
Jenny earned a salary of $55,000 in 2015 and a salary of $60,000 in 2019. The consumer price index in 2015 was 220.5. The consumer price index was 236.2 in 2019. Jenny's 2015 salary in 2019 dollars is $56,012.
False
Jim considers borrowing funds to invest in expanding his auto repair shop. He is less likely to do that if interest rates fall.
False
Mutual funds are the only type of financial intermediaries.
False
Nominal GDP is a better gauge of economic well-being than real GDP.
False
People whose consumption exceeds their income are savers.
False
Purchases of capital goods are excluded from GDP.
False
Suppose the government runs a budget surplus. This means that government expenditures are greater than tax revenue, which reduces the supply of loanable funds available to finance investment by households and firms.
False
The consumer price index is a perfect measure of inflation in our economy.
False
The consumer price index is the only measure of inflation used in the United Sates.
False
The term junk bond refers to bonds that have been resold many times.
False
Y = C + I + G represents GDP for an open economy, whereas Y = C + I + G + NX represents GDP for a closed economy.
False
If an economy's income falls, then it must be the case that the economy's
GDP and expenditures both fell.
Which of the following statements about GDP is correct?
GDP measures two things at once: the total income of everyone in the economy and the total expenditure on the economy's output of goods and services.
U.S. GDP and U.S. GNP are related as follows.
GNP = GDP - Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.
Suppose you have to choose between two bonds. The interest rate on one bond is 5% and the interest rate on the other is 2%. Which of the following is likely to be true about these bonds?
The 2% bond is a municipal bond, and the 5% bond is a U.S. government bond.
George lives in a home that was newly constructed in 2011 for which he paid $200,000.In 2014 he sold the house by himself for $250,000. Which of the following statements is correct regarding the sale of the house?
The 2014 sale affected neither 2014 GDP nor 2011 GDP.
Which of the following statements is correct for explaining why the CPI is commonly used as a measure of inflation?
The CPI better reflects the prices of goods and services bought by consumers.
Which of the following statements is correct regarding the CPI and the GDP deflator?
The CPI is better than the GDP deflator at reflecting the prices of goods and services bought by consumers.
Which of the following statements accurately compares the GDP deflator to the CPI?
The GDP deflator is not more commonly reported than the CPI.
A manufacturer produces 500,000 MP3 players in the first quarter of the year. It sells 400,000 of them and adds 100,000 of them to inventory. All the players added to inventory are purchased by consumers in the second quarter. How are the 100,000 that go into inventory counted in GDP?
The MP3 players will be counted as a change in inventory in the first quarter, and so will be included in first quarter GDP as part of investment.
When a large, well-known corporation sells bonds, it means that
The corporation wishes to borrow directly from the public.
Which of the following explains the effect of an investment tax credit on the market for loanable funds?
The demand curve for loanable funds shifts to the right causing both the equilibrium quantity of loanable funds and the equilibrium interest rate to increase.
What would happen in the market for loanable funds if the government increased the tax on interest income?
The equilibrium interest rate would rise.
Which of the following is included in the government purchases component of GDP?
The federal government buys fighter jets, a state government repairs highways, a local government pays its police
Which of the following can explain why one of the two bonds with otherwise identical characteristics pays a higher interest rate than the other?
The higher interest bond was issued by a financially weak corporation, whereas a lower interest bond was issued by a financially sound corporation.
Consider the market for loanable funds, which is initially in equilibrium. Suppose the government allows workers to increase the maximum contribution limits to 401(k) and 403(b) tax-deferred retirement accounts. Which of the following describes the effect of this change on the market for loanable funds?
The interest rate would decrease and the quantity of loanable funds would increase.
Which of the following explains the relationship between the nominal and real interest rates?
The nominal interest rate is the rate reported by banks, whereas the real interest rate is the nominal one corrected for inflation.
Which of the following describes a bond's credit risk?
The probability that the borrower will fail to pay some of the interest or principal.
Which of the following correctly describes how corporations raise funds for new investments?
The sale of stock to raise money is called equity finance, whereas the sale of bonds is called debt finance.
An American company operates a coffeehouse in Lisbon, Portugal. Which of the following statements is accurate?
The value of the goods and services produced by the coffeehouse is included in Portuguese GDP, but not in U.S. GDP.
Which of the following components of GDP include your tuition payments?
Consumption of services
In 2019 an economy's consumption was $5400, GDP was $9000, government purchases were $1800, exports were $500, and investment was $2000. What were this country's imports in 2019?
$700
Suppose the consumer price index is 89 in 2012, 94 in 2014, 100 in 2016, and 103 in 2018. If Social Security Benefits were $1,000 in 2018 and we index them for inflation, the Social Security benefits would have been ________ in 2012.
$864.08
If the nominal interest rate is 10 percent and the inflation rate is 4 percent, then the real interest rate is
6 percent.
A U.S. hospital provides surgical services and a U.S. pharmacy sells prescription drugs.
both the surgical services and prescription drugs are included in GDP.
Which of the following are examples of transfer payments?
both unemployment benefits and social security payments
Consider a closed economy, in which S = (Y - T - C) + (T - G). In this identity, what does (Y - T - C) represent?
Private saving
Tom lives in an apartment where he pays $8,000 a year in rent. Sarah lives in a house that could be rented for $10,000 a year. How much do these housing services contribute to GDP?
$18,000
In 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
Susan sells a house built several years ago. The house sells for $300,000, but $20,000 of this is her real estate agents' commission fee. How much does this transaction add to GDP?
$20,000
John plows snow from driveways. He spends $2 on gas and charges $25 each time he plows. What's the total contribution to GDP each time John plows a driveway?
$25
In 2014, a farmer grew and sold $2 million worth of green beans to a company that froze and bagged them. The company produces $4 million worth of bags of frozen beans in 2014, with sales to households during the year of $3 million. The unsold $1 million worth of frozen beans remains in the company's inventory. The transactions just described contribute how much to GDP for 2014?
$4 million
Jenny earned a salary of $48,000 in 2015 and a salary of $60,000 in 2019. The consumer price index in 2015 was 220.5. The consumer price index was 236.2 in 2019. Jenny's 2015 salary in 2019 dollars is
$51,418.
Jenny earned a salary of $50,000 in 2015 and a salary of $60,000 in 2019. The consumer price index in 2015 was 220.5. The consumer price index was 236.2 in 2014. Jenny's 2015 salary in 2014 dollars is
$53,560.
Jenny earned a salary of $52,000 in 2015 and a salary of $60,000 in 2019. The consumer price index in 2015 was 220.5. The consumer price index was 236.2 in 2019. Jenny's 2015 salary in 2019 dollars is
$55,702.
Jenny earned a salary of $54,000 in 2015 and a salary of $60,000 in 2019. The consumer price index in 2015 was 220.5. The consumer price index was 236.2 in 2019. Jenny's 2015 salary in 2019 dollars is
$57,845.
If in some year real GDP was $45 billion and the GDP deflator was 130, what was nominal GDP?
$58.5 billion
Jenny earned a salary of $56,000 in 2015 and a salary of $60,000 in 2019. The consumer price index in 2015 was 220.5. The consumer price index was 236.2 in 2019. Jenny's 2015 salary in 2019 dollars is
$59,987.
In a closed economy GDP is Y= $100,000, government purchases are G = $25,000, and consumption C = $15,000. In this economy, investment amounts to
$60,000.
Jenny earned a salary of $58,000 in 2015 and a salary of $60,000 in 2019. The consumer price index in 2015 was 220.5. The consumer price index was 236.2 in 2019. Jenny's 2015 salary in 2019 dollars is
$62,130.
In the economy of Urbania in 2019, consumption was $5000, exports were $700, government purchases were $1000, imports were $400, and investment was $1200. What was Urbania's GDP in 2019?
$7,500
Last year was the base year, this year inflation was 5%. What is this year's GDP deflator?
105
If the nominal interest rate is 5 percent and the real interest rate is 3 percent, then the inflation rate is
2 percent.
If the consumer price index was 100 in 2012, 102 in 2014, 105 in 2016, and 107 in 2018, then the base year must be
2012.
If the consumer price index was 97 in 2012, 100 in 2014, 101 in 2016, and 104 in 2018, then the base year must be
2014.
If the consumer price index was 89 in 2014, 94 in 2016, 100 in 2018, and 103 in 2020, then the base year must be
2018.
If the nominal interest rate is 2 percent and the real interest rate is -1 percent, then the inflation rate is
3 percent.
Suppose that the nominal interest rate is 6.5% and the real interest rate is 3%. What is the inflation rate?
3.5%
An economy recently had nominal GDP of 5 trillion euro and a GDP deflator of 125. What was real GDP?
4 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP.
Suppose that the nominal interest rate is 6% and the rate of inflation is 2%. What is the real interest rate?
4%.
Which of the following bonds has the lowest risk of default?
A bond issued by the federal government
Which of the following bonds has the highest risk of default (or credit risk)?
A junk bond
Suppose that Bonds A and B have identical characteristics except that Bond A has a term of 10 years and Bond B has a term of 1 year. Which of the following is true about these bonds?
Bond A pays a higher interest rate than Bond B.
Suppose you make two purchases for yourself. Which of them is included in GDP?
Both a new textbook and a haircut.
The ______ is responsible for calculating and reporting the CPI.
Bureau of Labor Statistics
The _______ is the most commonly reported measure of inflation by the media.
CPI
Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 2% from 2018 to 2019?
CPI in 2018 = 110; CPI in 2019 = 112.2
Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 5% from 2018 to 2019?
CPI in 2018 = 90; CPI in 2019 = 94.5
Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 10% from 2018 to 2019?
CPI in 2018 = 90; CPI in 2019 = 99
The best measure for changes in the price level of a consumer basket of goods and services over time is the
CPI since it measures changes in the prices of a basket of goods and services consumed by a typical consumer over time.
A measure of the overall cost of a basket of goods and services purchased by a typical consumer is the
Consumer Price Index (CPI).
When economists refer to intangible items, they are referring to such things as
Legal and medical services, and the value of such items is included in GDP.
Consider a closed economy, in which S = (Y - T - C) + (T - G) holds. What does this identity imply if the government's tax revenue is equal to its expenditures?
National saving and private saving are equal.
Which of the following must be true if Y = (C + I + G )?
Net exports (NX) are zero.
John restores cars as a hobby. He buys a 1964 Mustang, new parts and paint, and spends personal time restoring it. He then sells the car. Which of the following is included in GDP?
Only the value of the new parts and paint.
A closed economy neither engages in international trade of goods and services nor engages in international borrowing or lending.
True
Because every transaction has a buyer and a seller the expenditure on an economy's goods and services is equal to its income.
True
Bertha considers borrowing funds to invest in expanding her dress shop. She is less likely to do that if interest rates increase.
True
GDP measures both an economy's production and its expenditures.
True
If the government were to decrease the tax rate on interest income, there the equilibrium amount of loanable funds would increase and the equilibrium interest rate would decrease.
True
If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, there is a shortage of loanable funds and the interest rate is below the equilibrium level.
True
If the supply curve of loanable funds shifts to the right, then the equilibrium interest rate falls and the quantity of loanable funds rises
True
In the circular-flow diagram households receive income from wages, rents, and profits.
True
In the circular-flow diagram there are two markets one for goods and services, and one for factors of production.
True
Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
True
Jenny earned a salary of $55,000 in 2015 and a salary of $60,000 in 2019. The consumer price index in 2015 was 220.5. The consumer price index was 236.2 in 2019. Jenny's 2015 salary in 2019 dollars is $58,916.
True
Real GDP uses constant base year prices to place a value on the economy's production of goods and services, while nominal GDP uses current prices to place a value on the economy's production of goods and services.
True
Savers supply their money to the financial system with the expectation that they will get it back with interest at a later date.
True
Suppose that Congress repeals an investment tax credit. The demand curve for loanable funds shifts to the left causing both the equilibrium quantity of loanable funds and the equilibrium interest rate to decrease.
True
Suppose that mortgage rates fell and mortgage lending increased. This can be explained by a rightward shift of the supply curve of loanable funds.
True
Suppose the government runs a budget deficit. This means that government expenditures are greater than tax revenue, which reduces the supply of loanable funds available to finance investment by households and firms.
True
The Bureau of Labor Statistics calculates the CPI.
True
The CPI value in 2018 is 100 and the annual inflation rate is 6%. The CPI value in 2019 is 106.
True
The assumption of a closed economy applies to the world economy.
True
The difference between the nominal interest rate and the inflation rate is equal to the real interest rate.
True
The difference between the nominal interest rate and the real interest rate is equal to the inflation rate.
True
The economy's bond market is associated with debt finance.
True
The economy's stock market is associated with equity finance.
True
The government purchases component of GDP includes salaries paid to soldiers but not Social Security benefits paid to the elderly.
True
The higher the expected future profitability of a corporation, the higher the demand for that corporation's stock.
True
The investment component of GDP includes changes in inventories.
True
Y = C + I + G represents GDP in a closed economy, whereas Y = C + I + G + NX represents GDP in an open economy.
True
Real GDP is computed using
base-year prices and current quantities.
If you buy pizza at your favorite local pizzeria,
both GDP and consumption spending will be higher.
A U.S. grocery chain purchases cans of sardines from a cannery in Morocco and sells them to U.S. consumers. In which of the following is this transaction included?
both U.S. consumption and U.S. imports
If the prices of all goods and services produced in the economy stayed the same while the quantity of all goods and services rose, which would rise?
both real GDP and nominal GDP.
The CPI is able to measure changes in the quality of goods over time
imprecisely because it is relatively complicated to measure quality changes.
Sheri, a U.S. citizen, does some consulting work in Germany. The value she adds to production in Germany is included
in German GDP, but is not included in U.S. GDP.
Juan, a Mexican citizen, works only in the United States. The value of the output he produces is
included in U.S. GDP, but it is not included in U.S. GNP.
A U.S. company produces bicycle helmets some of which go into inventory, and are not sold during the current period. The helmets that go into inventory are
included in current period GDP as inventory investment.
