Macro Econ Test 2

Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. If Ernesto cleans Erin's house for $90, Ernesto's producer surplus is

$20

Suppose a tax of $5 per unit is imposed on a good, and the tax causes the equilibrium quantity of the good to decrease from 200 units to 100 units. The tax decreases consumer surplus by $450 and decreases producer surplus by $300. The deadweight loss from the tax is

$250

The GDP deflator is the ratio of

(Nominal GDP / Real GDP) x 100

CPI Calculation

(Price of Basket Goods and Services in Current Year / Price of Basket in Base Year ) x 100

If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced

11.2 % inflation between years 2 and 2, and 5% deflation between years 2 and 3

A manufacturer produces 400 units when the market price is $10 per unit and produces 600 units when the market price is $12 per unit. Using the midpoint method, for this range of prices, the price elasticity of supply is about

2.2

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

20 percent decrease in the quantity demanded.

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase total revenue? a. 0.4 b. 0 c. 4 d. 1

4

You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the CPI rises from 200 to 204. In this case, the nominal interest rate is__percent, and the real interest rate is__ percent.

5, 3

Social Security payments are indexed for inflation using

CPI

Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. Assume Erin is required to pay a tax of $40 when she hires someone to clean her house for a week. Which of the following is correct?

Erin will now clean her own house.

The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits are called

Natural resources

Roland mows Karla's lawn for $25. Roland's opportunity cost of mowing Karla's lawn is $20, and Karla's willingness to pay Roland to mow her lawn is $28. Assume Roland is required to pay a tax of $3 each time he mows a lawn. Which of the following results is most likely?

Roland and Karla still can engage in a mutually-agreeable trade.

Which of the following is likely to have the most price elastic demand?

Tommy Hilfiger jeans

When a tax is levied on buyers, the

a. tax creates a wedge between the price buyers pay and the price sellers receive.

Expenditures on a nation's domestic production

are equal to its domestic production

Demand is said to be price elastic if

buyers respond substantially to changes in the price of the good

A tax affects

buyers, sellers, and the govt

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

constant prices

What is the largest component of GDP?

consumption

A tax of $0.25 is imposed on each bag of potato chips that is sold. The tax decreases producer surplus by $600 per day, generates tax revenue of $1,220 per day, and decreases the equilibrium quantity of potato chips by 120 bags per day. The tax

creates a deadweight loss of $15 per day.

Out of the following economic statistics, which is the best measure of economic prosperity? a. The level of nominal GDP b. The price level c. The level of real GDP d. The growth rate of real GDP

d. the growth rate of real GDP

Which of the following is likely to have the most price inelastic demand? a. generic mint-flavored toothpaste b. Colgate mint-flavored toothpaste c. mint-flavored toothpaste d. toothpaste

d. toothpaste

The traditional view of the production process is that capital is subject to

diminishing returns

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

flatter the demand curve will be

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

foreign direct investment

A transfer payment is a payment made by

government, but not in exchange for a currently produced good or service.

Which of the following measures how the level of well-being in a country has changed over time?

growth rate of real GDP per person

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

The Social Security tax is a tax on

labor

Most economists are________that natural resources will eventually limit economic growth. As evidence, they note that the prices of most natural resources, adjusted for overall inflation, have tended to_______over time.

not concerned, fall

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.

After graduation, an American college student moves to Japan to teach English. Her salary is included

only in Japan's GDP

If a policymaker wants to raise revenue by taxing goods while minimizing the deadweight losses, he should look for goods with ___ elasticities of demand and ___ elasticities of supply.

small, small

The government's benefit from a tax can be measured by

tax revenue

Core CPI

the CPI excluding food and energy

Because consumers can sometimes substitute cheaper goods for those that have risen in price,

the CPI overstates inflation

Disposable personal income is

the income that households and businesses have remaining after satisfying their obligations to the government

A tax on a good has a deadweight loss if

the reduction in consumer and producer surplus is greater than the tax revenue

If marijuana were legalized, it is likely that there would be an increase in the demand for marijuana. If demand for marijuana is inelastic and the supply of marijuana is perfectly elastic, this will result in

the same price and higher total revenue from marijuana sales.

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.

A key determinant of the price elasticity of supply is the

time horizon

Indexation refers to

using a law or contract to automatically correct a dollar amount for the effects of inflation

GDP is defined as the

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

​ GDP and GNP are identical when

​all domestic production is by domestically owned producers and no foreign production is carried out by domestic producers.

The real interest rate tells you

how fast the purchasing power of your bank account rises over time

If the labor supply curve is very elastic, a tax on labor

has a large deadweight loss.

Erin would be willing to pay as much as $100 per week to have her house cleaned. Ernesto's opportunity cost of cleaning Erin's house is $70 per week. If Erin pays Ernesto $90 to clean her house, Erin's consumer surplus is

$10

The main reason the cost of living varies across regions of the country is differences in the price of

housing

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 to grow 9% per year.

Deadweight Loss

Is the fall in total surplus that results from a market distortion, such as tax

Kate is a personal trainer whose client William pays $80 per hour-long session. William values this service at $100 per hour, while the opportunity cost of Kate's time is $75 per hour. The government places a tax of $10 per hour on personal trainers. After the tax, what is likely to happen in the market for personal training?

Kate and William will agree to a new price somewhere between $85 and $100.

$ Conversion over period of inflation

Original $ Value (Current Price Index / Original Price Index)

Inflation Rate

Percent change in the price level form one period to the next

If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as

T × Q

A country with a relatively low level of real GDP per person is considering adopting two policies to promote economic growth. The first is to decrease barriers to trade. The second is to restrict foreign portfolio investment. Which of these policies do most economists say promote growth? a. Both the first and the second b. Neither the first nor the second c. The first but not the second d. The second but not the first

The first but not the second

Industrial machinery is an example of

a factor of production that in the past was an output from the production process

The nominal interest rate tells you

how fast the number of dollars in your bank account rises over time

A decrease in supply will cause the largest increase in price when

both supply and demand are inelastic

Which of the following does NOT add to U.S. GDP? a. Boeing manufactures and sells a plane to Air France. b. The city of New York pays a salary to a policeman. c. The federal government sends a Social Security check to your grandmother.

c

Which of the following can be measured by the level of real GDP per person? . a. Productivity and the standard of living b. Productivity but not the standard of living c. The standard of living but not productivity d. Neither the standard of living nor productivity

c. The standard of living but not productivity

For which of the following goods is the income elasticity of demand likely lowest? a. filet mignon steaks b. fresh fruit c. water d. sapphire pendant necklaces

c. water

The supply of aged cheddar cheese is inelastic, and the supply of bread is elastic. Both goods are considered to be normal goods by a majority of consumers. Suppose that a large income tax increase decreases the demand for both goods by 10 percent.

decrease in both the aged cheddar cheese and bread markets

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

diminishing returns to capital

GDP is an imperfect measure of well-being because it...

ignores the environmental degradation from economic activity

A policy that increases saving will

improve economic growth and health outcomes

In the GDP accounts production equals

income

For an economy as a whole,

income must equal expenditure.

If the size of a tax increases, tax revenue

may increase, decrease, or remain the same.

The CPI is calculated

monthly

Goods with many close substitutes tend to have

more elastic demands

The equipment and structures available to produce goods and services are called

physical capital

Suppose the demand for grape jelly is perfectly elastic (because strawberry jelly is a good substitute), while the supply is unit elastic. A tax on grape jelly would have ___ deadweight losses, and the burden of the tax would fall entirely on the ___ of grape jelly.

sizable, producers

In the economy of Agricola, tenant farmers rent the land they use from landowners. If the supply of land is perfectly inelastic, then a tax on land would have ___ deadweight losses, and the burden of the tax would fall entirely on the ___.

no, landowners

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

elastic, and the demand curve will be horizontal

A statistical discrepancy

exists because data sources are not perfect, so measures of expenditures and income are not equal.

The size of a tax and the deadweight loss that results from the tax are

positively related.

If over a short time there is an increase in the number of people retired and a decrease in the number of people working, then productivity

rises but real GDP per person falls

A tax levied on the sellers of a good shifts the

supply curve upward by the size of the tax.

If a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army, its price hikes will increase

the GDP Deflator but not the CPI

The key determinant of the standard of living in a country is

the amount of goods and services produced from each hour of a worker's time.

Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases from 65 to 70. Using the midpoint method, the cross-price elasticity of demand is about

1.2, and X and Y are substitutes

Net exports equal

Y - (C + I + G)

A good will have a more inelastic demand, the

broader the definition of the market.

Increases in the amount of human capital in the economy tend to ______ real incomes because they increase the ______ of labor.

increase, productivity

The CPI differs from the GDP deflator in that

increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

inelastic

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

inflation rate

Educational attainment tends to be

low in countries with high population growth

During periods of deflation, the nominal interest rate will be​

lower than the real interest rate

Which of the following statements is valid when the market supply curve is vertical?

market quantity supplied does not change when the price changes

Suppose demand is perfectly elastic, and the supply of the good in question decreases. As a result,

the equilibrium quantity decreases, and the equilibrium price is unchanged

For a particular good, a 2 percent increase in price causes a 12 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

the good is a luxury

Suppose Yolanda needs a dog sitter so that she can travel to her sister's wedding. Yolanda values dog sitting for the weekend at $200. Rebecca is willing to dog sit for Yolanda so long as she receives at least $175. Yolanda and Rebecca agree on a price of $185. Suppose the government imposes a tax of $30 on dog sitting. What is the deadweight loss of the tax?

the lost benefit to Yolanda and Rebecca because after the tax, Rebecca will not dog sit for Yolanda

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes

Cross-price elasticity of demand measures how

the quantity demanded of one good changes in response to a change in the price of another good

The price elasticity of supply measures how much

the quantity supplied responds to changes in the price of the good