Macro exam 2 (ch 9)
Your father earned $34,000 per year in 1984. To the nearest dollar, what is that equivalent to in 2014 if the CPI in 2014 is 215 and the CPI in 1984 is 104?
$70,288
Suppose the CPI in 2013 was 215.3 and the CPI in 2014 was 214.6, what was the inflation rate between 2013 and 2014?
-0.3 percent
If the inflation rate is 6 percent and the nominal interest rate is 4 percent, then the real interest rate is
-2 percent, which is the nominal interest rate minus the inflation rate.
If nominal GDP in a given year is $11,000 billion and real GDP is $10,000 billion, then the GDP price deflator in that year equals
110
As the economy nears the end of an expansion, which of the following typically occurs?
All of the above occur.
The Bureau of Economic Analysis (BEA), part of the federal government, might not want to take on this responsibility. Which one of the following is the most appropriate reason for the BEA's refusal?
Because it is part of the government, the BEA could be pulled into politics with the dating of recessions.
If inflation is unexpectedly high, this will benefit lenders and harm borrowers.
False
The CPI in 2012 is 138. This indicates that prices have increased 138 percent from the base year.
False
The CPI is the average price of all goods and services in the economy.
False
The GDP deflator is defined as the ratio of real GDP to nominal GDP multiplied by 100.
False
The market basket for the CPI changes every month.
False
Which of the following does NOT lead to long-run economic growth?
Increase in average wages
Which of the following is not a cost created by high inflation?
Inflation causes the real wage to fall which means that firms have to pay more for workers.
Which of the following can give an early warning of future increases in the price level?
Producer price index
Which of the following is not a "loanable fund"?
Real estate.
The financial systemlong dash—either financial markets or financial intermediarieslong dash—provides savers and borrowers with all of the following except:
The financial system provides security to savers by warranting that their funds are fully insured against loss.
When tax revenue equals government spending there is
a balanced budget
Suppose that the inflation rate turns out to be much higher than most people expected. In that case,
a borrower will gain from the situation while a lender will lose.
When tax revenue is less than government spending there is
a budget deficit
Which of the following is the best example of human capital?
a worker gets a college degree
What index is used to measure the average prices paid by a typical family? An average of the prices of the goods and services purchased by a typical family is the:
consumer price index (CPI).
Households supply loanable funds because of the
interest income received from the borrowers.
The rule of 70
is a mathematical formula that is used to calculate the number of years it takes real GDP per capita or any other variable to double.
The real interest rate
is equal to the nominal interest rate minus the inflation rate.
Kenmore refrigerators. Production of this good is likely to fluctuate __________ fluctuations of real GDP during the business cycle.
more than
The difference between a nominal variable and a real variable is that
nominal variables are calculated in current-year prices and the real variables are measured in dollars of the base year for the price index to correct the effects of inflation.
The Internet has _____________ the size of menu costs.
reduced
If the minimum wage is set above the market-determined clearing wage
the unemployment rate will be higher than it would be without a minimum wage.
If the consumer price index was 73 in 1979 and 225 in 2014, then prices in 2014 were on average
three times as high as in 1979.
If the CPI was 207 in 2010 and 225 in 2014, what pay raise would someone who earned $50,000 income in 2007 have to earn in order to keep her purchasing power constant in 2014?
$4,348
Fill in the blanks. To obtain prices of a representative group of goods and services, the Bureau of Labor Statistics (BLS) conducts a monthly survey of __________ households nationwide on their spending habits. The results of this survey are used to construct a market basket of _________ goods and services purchased by the typical urban family of four.
30,000; 211
The real interest rate is the nominal interest rate plus the inflation rate.
False
When tax revenue exceeds government spending (government purchases and transfer payments) there is
a budget surplus
A wage higher than the market wage paid by a firm in order to increase worker productivity is
an efficiency wage.
The inflation rate is the percentage
change in the GDP deflator from one year to the next.
Recessions cause the inflation rate to _________, and the unemployment rate to _________.
decrease; increase
Purchases of which types of goods are business cycles most likely to affect?
durable goods
The financial system of a country is important for long-run economic growth because
firms need the financial system to acquire funds from households.
Businesses demand loanable funds because
firms need to borrow funds for new projects, such as building new factories or carrying out new research projects.
Crowding out occurs when
governments must borrow funds which causes interest rates to rise and thus private investment is reduced.
Potential real GDP
grows over time
Of the eight categories in the CPI market basket, which three categories make up more than 75 percent of the basket?
housing, transportation, and food
Huggies diapers. Production of this good is likely to fluctuate _____________ fluctuations of real GDP during the business cycle.
less than
McDonald's Big Macs. Production of this good is likely to fluctuate ___________ fluctuations of real GDP during the business cycle.
less than
Caterpillar industrial tractors. Production of this good is likely to fluctuate __________ fluctuations of real GDP during the business cycle.
more than
Ford F-150 trucks. Production of this good is likely to fluctuate ________ fluctuations of real GDP during the business cycle.
more than
Fill in the blanks. Economic variables that are calculated in current year prices are referred to as __________ variables, while variables that have been corrected to account for the effects of inflation are _________ variables.
nominal;real
Which of the following is the best measure of the standard of living of the typical person in a country?
real GDP per person
Which of the following is a better measure of the average prices of all goods and services included in GDP?
the GDP deflator
Which market basket below specifically targets intermediate goods?
the basket used by the producer price index
Menu costs are
the costs to firms of changing prices.
Capital can be differentiated between physical capital and human capital. Human capital is
the knowledge and skills workers acquire from education and training or from their life experiences
Potential real GDP is
the level of GDP attained when all firms are producing at capacity.
In calculating the CPI,
the market basket does not include large equipment purchased by business firms.
The real interest rate equals
the nominal interest rate minus the inflation rate.
The stated interest rate on a loan is
the nominal interest rate.
Computation of the CPI assumes that households buy the same market basket of products each month. For this reason, one of the following is irrelevant in calculating the CPI. Which one?Suppose the CPI in 2013 was 215.3 and the CPI in 2014 was 214.6, what was the inflation rate between 2013 and 2014?
the quantities of the products purchased in the current year
The two key factors that cause labor productivity to increase over time are
the quantity of capital per hour worked and the level of technology.
Changes in the CPI overstate the true inflation rate due to four "biases." If apple prices rise rapidly during the month while orange prices fall, consumers will reduce their apple purchases and increase their orange purchases. Which of the four biases is concerned with this tendency?
the substitution bias
