Macroeconomics Exam 2

Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been selected as the base year. In 2002, the basket's cost was $50; in 2004, the basket's cost was $52; and in 2006, the basket's cost was $54.60. The value of the CPI in 2004 was

104.00

The price index was 220 in one year and 260 in the next year. What was the inflation rate?

18.2 percent

In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the consumer price index in 2007 was 125, the how much did magazine cost in 2007?

2.50

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follow

Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate

For any given year, the CPI is the price of the basket of goods and services in the

Given year divided by the price of the basket in the previous year, then multiplied by 100

Which of the following items plays a role in determining productivity?

Physical capital Natural resources technological knowledge

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct?

The CPI reflects a foxed basket of goods and services; the GDP deflator reflects current production of goods and services.

Example of real and nominal interest rates is correct?

When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate.

If there are constant returns to scale, the production function can be written as

Y/L = A F(1, K/L, H/L, N/L)

Which would tend to cause real GDP per person to rise?

a change from inward-oriented policies to outward-oriented policies An increase in investment in human capital strengthening of property rights

Other things the same, an increase in population growth

decreases capital per worker. However, there is some evidence that a higher population growth rate may increase the pace of technological progress

The consumer price index is used to

monitor changes in the cost of living over time

The inflation rate is defined as the

percentage change in the price level from the pervious period

The inflation rate is defined as the

percentage change in the price level from the previous period

Productivity is the amount of goods and services

produced for each hour of a worker's time. It is linked to a nation's economic policies

A nation's standard of living is best measured by its

real GDP per person

Prices changes from year to year are not proportional, and consumers respond to these changes by altering their spending patterns. The problem this creates for inflation calculations is called

substitution bias

Thomas Malthus's predictions turned out to be wrong due to

technological advance such as those during the Industrial Revolution