Macroeconomics: Exam 2 - Ch.5, Ch. 10, Ch. 11

The inflation rate in year 2 equals

[(GDP deflator in year 2 - GDP deflator in year 1)/GDP deflator in year 1] x 100

In the market for oil in the short run, demand

and supply are both inelastic

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

inelastic.

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

lattes

Suppose an economy produces only iPhones and bananas. In 2010, 1000 iPhones are sold at $300 each and 5000 pounds of bananas are sold at $3 per round. In 2009, the base year, iPhones sold at $400 each and bananas sold at $2 per round. For 2010,

nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83.

Transfer payments are

not included in GDP because they are not payments for currently produced goods or services.

For which pairs of goods in the cross-price elasticity most likely to be negative?

peanut butter and jelly

Which of the following is not included in U.S. GDP?

production of U.S. citizens working in foreign countries.

The smaller the price elasticity of demand, the

smaller the responsiveness of quantity demanded to a change in price.

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

the inflation rate.

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.

Which of the following is not included in GDP?

All of the above are included in GDP.

Both the value of hamburgers sold by a restaurant and the value of the beef it used to make these hamburgers are included in GDP.

False

Normal goods have negative income elasticities of demand, while inferior goods have positive income elasticities of demand.

False

Martin, a U.S. citizen, travels to Mexico and buys a newly manufactured motorcycle made there. His purchase is included in

Mexican GDP, but it is not included in U.S. GDP.

If we observe that when the price of chocolate decreases by 10%, quantity demanded increases by 25%, then the demand for chocolate is price elastic.

True

If we observe that when the price of chocolate increases by 10%, quantity demanded falls by 5%, then the demand for chocolate is price inelastic.

True

The cross-price elasticity of demand for bacon and eggs likely would be negative because bacon and eggs are complements for many people.

True

A U.S. citizen buys a tea kettle manufactured in China by a company that is owned and operated by U.S. citizens. In which of the following components of U.S. GDP is this transaction accounted for?

consumption and imports

Suppose that quantity demand falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is

elastic and equal to 6

Demand is said to have unit elasticity if the price elasticity of demand is

equal to 1.

GDP is defined as

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