Macro Exam 2

If the consumer price index was 93 in Year 1, 97 in Year 2, and 100 in Year 3, then the base year must be

Year 3.

Which of the following transactions represents the purchase of a final good?

Your father buys a new John Deere riding lawn mower.

Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has

increased measured GDP by the value added by the restaurant's preparation and serving of the meals.

Legalizing all forms of illegal activities

increases GDP and reduces the size of the underground economy.

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.

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

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

Which of the following countries benefited significantly from the catch-up effect in the last half of the twentieth century?

South Korea

Which of the following statements is correct?

The CPI can be used to compare dollar figures from different points in time.

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

Social Security payments are indexed for inflation using the CPI. A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct?

The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI

Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor country to catch up?

The poor country has a health epidemic such as the Zika virus.

Which of the following items is the one type of household expenditure that is categorized as investment rather than consumption?

The purchase of a new house

Which of the following is included in the calculation of GDP?

The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country.

Most goods and services produced at home

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

An increase in the price of bread produced domestically will be reflected in

both the GDP deflator and the consumer price index.

Investment, as defined by economists, would not include which of the following? Ford

buys U.S. government bonds.

Michael learns how to sew from his grandmother. This is an example of

human capital, but not technological knowledge.

Because every transaction has a buyer and a seller,

every transaction contributes equally to an economy's income and to its expenditure.

The output of Mexican citizens who work in Texas would be included in the

gross national product of Mexico.

Apple founder Steve Jobs received patents on many of his ideas. While the patents existed, his ideas were

private goods and proprietary knowledge.

Depreciation is

the value of worn-out equipment, machinery, and buildings.

The consumer price index is used to

turn dollar figures into meaningful measures of purchasing power