Prin of Macro-Assignment 3

Consider the following data for a fictional economy that produces only two products: guns and butter. Refer to the table below. Nominal GDP for this fictional economy in 2006 equals: (Refer to assmt 3) (a) $1,140. (b) $880. (c) $690. (d) $560.

(a) $1,140.

Consider the following data (in billions of dollars) for an economy: • Consumption 3,500 • Investment 800 • Government Spending 900 • Export 50 • Import 100 Gross domestic product (in billions of dollars) for this economy equals: (a) $5,150 (b) $2,100. (c) $4,700. (d) $1,400.

(a) $5,150

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is: (a) 11%. (b) 33%. (c) 91%. (d) 10%.

(a) 11%.

Which of the following statement is correct? (a) In the national income accounts GDP can be measured as production, income, or expenditures. (b) Both the market value of final goods and the market value of intermediate goods are included in GDP. (c) The purchases of financial assets like stocks and bonds are Investment. (d) Meals served by a restaurant located in Canada but owned by an American citizen is included in US GDP

(a) In the national income accounts GDP can be measured as production, income, or expenditures.

To be officially unemployed a person must: (a) be in the labor force. (b) be 21 years of age or older. (c) have just lost a job. (d) be waiting to be called back from a layoff.

(a) be in the labor force.

Which of the following is not included in GDP? (a) carrots grown in your garden and eaten by your family (b) carrots purchased at a farmer's market and eaten by your family (c) carrots purchased at a grocery store and eaten by your family (d) None of the above are included in GDP.

(a) carrots grown in your garden and eaten by your family

Suppose you lend $1,000 at an interest rate of 10 percent. If the expected real interest rate is 4 percent (based on your expected inflation), then the rate of inflation over the upcoming year that would be most beneficial to you (among the following choices) would be a rate of inflation (a) equal to 0% (b) greater than 6%. (c) equal to 6%. (d) equal to 4%.

(a) equal to 0%

Which of the following is included in GDP? (a) marijuana purchased legally in Colorado. (b) marijuana purchased illegally from a drug dealer. (c) marijuana produced and consumed by a man in his attic (d) All of the above are included in GDP.

(a) marijuana purchased legally in Colorado.

Nominal GDP will definitely increase when (a) prices increase and output increases. (b) prices increase and output decreases. (c) prices decrease and output increases. (d) All of the above are correct.

(a) prices increase and output increases.

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move (a) raises GDP. (b) decreases GDP. (c) doesn't change GDP because gambling is never included in GDP. (d) doesn't change GDP because in either case his income is included.

(a) raises GDP.

Unanticipated inflation: (a) reduces the real burden of the public debt to the Federal government. (b) hurts borrowers and helps lenders. (c) benefits people whose sole source of income is from Social Security benefits. (d) helps savers.

(a) reduces the real burden of the public debt to the Federal government.

Suppose that in some state the adult population is 3 million, the labor force participation rate is 80%, and 240,000 people are unemployed. What is the unemployment rate? (a) 15% (b) 10% (c) 8% (d) 20%

(b) 10%

Recently a labor union argued that the standard of living of its members was falling. A critic of the union argued that this could not possibly be true because the union had been acquiring increases in the nominal incomes of its members through collective bargaining. Is the critic correct? (a) Yes, because when you have a large nominal income your standard of living automatically increases. (b) No, because real income may fall if prices increase more proportionately than the increase in nominal income. (c) No, because real income may fall if prices increase less proportionately than the increases in nominal income. (d) Yes, because real income may fall if prices increase less proportionately than the increases in nominal income.

(b) No, because real income may fall if prices increase more proportionately than the increase in nominal income.

In which of the following cases would purchasing power rise? (a) Nominal income rises by 8 percent, and the price level rises by 10 percent. (b) Nominal income rises by 2 percent, and the price level remains unchanged. (c) Nominal income falls by 4 percent, and the price level fall by 4 percent. (d) Purchasing power will rise in all of the above cases.

(b) Nominal income rises by 2 percent, and the price level remains unchanged.

The U.S. government pays an economist at the U.S. Department of Commerce $100,000 in salary in 2013. The economist then retires. In 2014, the government pays him $60,000 in Social Security benefits. Which of the following is correct? (a) The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is included in 2014 GDP as government purchases. (b) The 2013 payment is included in 2013 GDP as government purchases, but the 2014 payment is not included in 2014 GDP. (c) The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is included in 2014 GDP as government transfer payments. (d) The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is allocated to previous years' GDP according to the amount of work performed by the economist each year.

(b) The 2013 payment is included in 2013 GDP as government purchases, but the 2014 payment is not included in 2014 GDP.

Which of the following could cause nominal GDP to decrease, but real GDP to increase? (a) The price level rises and the quantity of final goods and services produced rises. (b) The price level falls and the quantity of final goods and services produced rises. (c) The price level rises and the quantity of final goods and services produced falls. (d) The price level falls and the quantity of final goods and services produced falls.

(b) The price level falls and the quantity of final goods and services produced rises.

Refer to Figure above. Which of the following pairs correctly identify W and Y? (Refer to assmt 3) (a) markets for factors of production and markets for goods and services (b) firms and households (c) expenditures and income (d) consumption and investment

(b) firms and households

Consider the following data for a fictional economy that produces only two products: guns and butter. Refer to the table below. Real GDP for this fictional economy for 2006 using 2000 as the base year equals: (Refer to assmt 3) (a) $1,140. (b) $880. (c ) $690.(d) $560.

(c) $690

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation is: (a) 8 percent. (b) 5 percent. (c) 3 percent. (d) 2 percent.

(c) 3 percent.

Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid? (a) 16% (b) 12 % (c) 8% (d) 6 %

(c) 8%

Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP? (a) Sam's and Ellen's. (b) Sam's but not Ellen's. (c) Ellen's but not Sam's. (d) Neither Sam's nor Ellen's.

(c) Ellen's but not Sam's.

Rachel cuts her sister's hair for free. When she cuts the hair of her customers in her shop, she charges $10. When is Rachel's haircutting included in GDP? (a) When she cuts her sister's hair or cuts her customers' hair. (b) When she cuts her sister's hair, but not her customers' hair. (c) When she cuts her customers' hair, but not her sister's. (d) Never.

(c) When she cuts her customers' hair, but not her sister's.

If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the: (a) frictional unemployment rate is 5 percent. (b) cyclical unemployment rate and the frictional unemployment rate together are 5 percent. (c) cyclical unemployment rate is 4 percent. (d) natural rate of unemployment will eventually increase.

(c) cyclical unemployment rate is 4 percent.

If the price level rose in three consecutive years from 100 to 120 to 140, then the inflation rate over those years would (a) increase. (b) remain the same. (c) decrease. (d) equal 20%.

(c) decrease.

A binding minimal wage leads to (a) more job opportunities. (b) happy life for all workers. (c) higher unemployment rate. (d) lower unemployment rate.

(c) higher unemployment rate.

A lender need not be penalized by inflation if the: (a) long-term rate of inflation is less than the short-term rate of inflation. (b) short-term rate of inflation is less than the long-term rate of inflation. (c) lender correctly anticipates inflation and increases the nominal interest rate accordingly. (d) inflation is unanticipated by both borrower and lender.

(c) lender correctly anticipates inflation and increases the nominal interest rate accordingly.

GDP is defined as the (a) market value of all goods and services produced within a country in a given period of time. (b) market value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. (c) market value of all final goods and services produced within a country in a given period of time. (d) market value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time.

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

If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same, which would rise? (a) both real GDP and nominal GDP. (b) real GDP but not nominal GDP. (c) nominal GDP but not real GDP. (d) neither nominal GDP nor real GDP.

(c) nominal GDP but not real GDP.

Unemployment compensation is (a) part of GDP because it represents income. (b) part of GDP because the recipients must have worked in the past to qualify. (c) not part of GDP because it is a transfer payment. (d) not part of GDP because the payments reduce business profits.

(c) not part of GDP because it is a transfer payment.

The unemployment rate is the: (a) ratio of unemployed to employed workers. (b) number of employed workers minus the number of workers who are not in the labor force. (c) percentage of the labor force that is unemployed. (d) percentage of the total population that is unemployed.

(c) percentage of the labor force that is unemployed.

Refer to the below diagram. A binding minimum wage is best illustrated by: (Refer to assmt 3) (a) price A. (b) quantity E. (c) price C. (d) price B.

(c) price C.

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's purchasing power will: (a) fall by about 20 percent. (b) fall by about 2 percent. (c) rise by about 15 percent. (d) rise by about 25 percent.

(c) rise by about 15 percent.

In comparing GDP data over a period of years, a difference between nominal and real GDP may arise because: (a) of changes in trade deficits and surpluses. (b) the length of the workweek has declined historically. (c) the price level may change over time. (d) depreciation may be greater or smaller than gross investment.

(c) the price level may change over time.

The natural rate of unemployment is: (a) higher than the full-employment rate of unemployment. (b) lower than the full-employment rate of unemployment. (c) the sum of frictional and structural unemployment. (d) found by dividing total unemployment by the size of the labor force.

(c) the sum of frictional and structural unemployment.

Consider the following values of the consumer price index for 2002 and 2003: (Refer to assmt 3) (a) 184% (b) 18.4%. (c) 4.0 %. (d) 2.2 %

(d) 2.2 %

Which of the following people are NOT included in the labor force? (a) Dean who worked without pay for his family's business (b) Sam, a part-time worker (c) Cass who is not employed but has been looking for employment in the past four weeks (d) Lizzie who is a full time student

(d) Lizzie who is a full time student

Suppose there's an unanticipated increase in the rate of inflation. Which of the following is likely to be true? (a) The real value of outstanding loan balances of debtors will increase. (b) Lenders who made loans based on the anticipated rate of inflation will earn a higher real interest rate than they expected. (c) Workers whose nominal wages are set at the beginning of the year are likely to enjoy an increase in real wages (purchasing power). (d) Workers whose nominal wages are set at the beginning of the year are likely to suffer a decrease in real wages (purchasing power).

(d) Workers whose nominal wages are set at the beginning of the year are likely to suffer a decrease in real wages (purchasing power).

Social Security payments are (a) included in GDP because they represent current income. (b) included in GDP because they represent potential consumption. (c) excluded from GDP because they are not private pensions. (d) excluded from GDP because they do not reflect the economy's production.

(d) excluded from GDP because they do not reflect the economy's production.

Bob is looking for work after school, but everywhere he fills out an application, the managers say they always have a lot more applications than open positions. Tom has a law degree. Several firms have made him offers, but he thinks he might be able to find a firm where his talents could be put to better use. a. Bob is structurally unemployed, and Tom is frictionally unemployed. b. Bob and Tom are both structurally unemployed. c. Bob and Tom are both frictionally unemployed. d. Bob is frictionally unemployed, and Tom is structurally unemployed.

a. Bob is structurally unemployed, and Tom is frictionally unemployed.

Suppose that the adult population in the country of Atlantis is 115 million. If 80 million people are employed and 5 million are unemployed, then a. 75 million are in the labor force. b. 30 million are not in the labor force. c. 35 million are not in the labor force. d. 35 million are in the labor force.

b. 30 million are not in the labor force.

Who would be included in the labor force? a. Maggie, who plans to work at the newspaper next year when she turns 16 years old. b. Lisa, who is unhappy with her current job. c. Bart, who is a full-time student and uninterested in finding employment. d. None of the above is correct.

b. Lisa, who is unhappy with her current job.

A person who is not employed and claims to be trying hard to find a job but really is not trying hard to find a job is a. counted as out of the labor force but should be counted as unemployed. b. counted as unemployed but should be counted as out of the labor force. c. correctly counted as unemployed. d. correctly counted as out of the labor force.

b. counted as unemployed but should be counted as out of the labor force.

Suppose that over the past year, the real interest rate was 3 percent and the inflation rate was 1 percent. It follows that the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 3 percent. b. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent. c. the dollar value of savings increased at 2 percent, and the purchasing power of savings increased at 4 percent. d. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 2 percent.

b. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 3 percent.

Suppose that over the past year, the real interest rate was 5 percent and the inflation rate was 3 percent. It follows that a. the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 2 percent. b. the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent. c. the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 8 percent. d. the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 2 percent.

b. the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 5 percent.

If the CPI was 68 in 1965 and is 285 today, then $100 today purchases the same amount of goods and services as a. $68.00 purchased in 1965. b. $32.47 purchased in 1965. c. $23.86 purchased in 1965. d. $419.12 purchased in 1965.

c. $23.86 purchased in 1965.

Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power? a. 70 in Washington, D.C. and 42 in Austin, TX b. 210 in Washington, D.C. and 150 in Austin, TX c. 160 in Washington, D.C. and 72 in Austin, TX d. 140 in Washington, D.C. and 70 in Austin, TX

c. 160 in Washington, D.C. and 72 in Austin, TX

Which of the following is not correct? If the inflation rate exceeds the nominal interest rate, then the purchasing power of an interest-earning deposit falls over time. b. If there is deflation, then the purchasing power of an interest-earning deposit rises by more than the nominal interest rate over time. c. The purchasing power of an interest-earning deposit can increase or decrease over time, but it cannot stay the same. d. The higher the rate of inflation, the smaller the increase in the purchasing power of an interest-earning deposit.

c. The purchasing power of an interest-earning deposit can increase or decrease over time, but it cannot stay the same.

Adam is looking for a job in marketing. He has had some offers and his prospects are promising, but he has not yet accepted a job. Amanda lost her job working for Mercury Bicycles because many customers decided they prefer bicycles manufactured by Ultimate Bicycles instead. Who is frictionally unemployed? a. neither Amanda nor Adam b. Amanda but not Adam c. Adam but not Amanda d. both Adam and Amanda

d. both Adam and Amanda

Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was -2 percent. It follows that a. the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 6 percent. b. the dollar value of savings increased at 8 percent, and the purchasing power of savings increased at 4 percent. c. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 8 percent. d. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 6 percent.

d. the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 6 percent.

The following table shows the value of the Consumer Price Index and the nominal interest rate for 2013-2015.What was the real interest rate in 2015?​ a. 1.8% b. ​2.2% c. ​2.4% d. ​2.0%

d. ​2.0%