Test 2

The consumer price index implicitly assumes that the demand curve for each good and service in the representative market basket is

vertical

If an economy experiences deflation, the real interest rate

will be greater than the nominal interest rate

In 2011, Kendall Ford, an automobile dealership, spent $20,000 on a new car lift for its repair shop, $2,000 on a new copy machine for its sales division, and $600,000 on Ford Motor company stock. Unsold cars and trucks were valued at $400,000 on January 1, 2011 and unsold cars and trucks were valued at $900,000 on December 31, 2011. What is Kendall Ford's total investment spending in 2011?

$522,000

The nominal GDP of the U.S. in 2010 was approximately $14.6 trillion. This means that

all of the above are true.

When actual inflation is less than expected inflation,

borrowers lose and lenders gain

To calculate GDP by the expenditure method, one must add

consumption spending, investment spending, government spending and net exports.

Most of the unemployment that occurred during the Great Depression was

cyclical unemployment

Which of the following policies would reduce structural unemployment?

a job retraining program

The natural rate of unemployment is the amount of unemployment

equal to frictional plus structural unemployment.

If nominal GDP exceeds real GDP for a specific year, then the GDP deflator must be

greater than 100

Gross domestic product understates the total production of final goods and servies because of omission of

household production

A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements. This will

increase GDP and decrease well-being in the economy

In the United States since the mid-1980s, consumption as a percentage of GDP has

increased

During a business cycle expansion, total production_______and total employment________.

increases; decreases

If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion, the growth rate of real GDP between 2010 and 2011

is 3.75%

Human capital refers to which of the following?

the accumulated knowledge and skills workers acquire from education and training or from their life experiences

Potential GDP refers to

the level of GDP attained when all firms are producing at capacity

Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to overstate the true extent of joblessness?

unemployed persons falsely report themselves to be actively looking for a job

Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals

$1,600

The labor force participation rate equals the

(labor force divided by working-age population) × 100

Assume the market basket for the consumer price index has three products: Cokes, hamburgers, and CDs with the following values in 2006 and 2011 for price and quantity: The Consumer Price Index for 2011 equals

121

Using the table above, what is the approximate average annual growth rate from 2008 to 2011?

2%

Consider the following values of the consumer price index for 1996, 1997, and 1998: The inflation rate for 1997 was equal to

2.5 percent

Consider the following data on nominal GDP and real GDP (values are in billions of dollars). The inflation rate in 2010:

2.807%

9) Suppose the working-age population of a fictional economy falls into the following categories: 90 are retired or homemakers; 60 have full-time employment; 20 have part-time employment; 20 do not have employment, but are actively looking for employment; and 10 would like employment but do not have employment and are not actively looking for employment. The official unemployment rate as calculated by the U.S. Bureau of Labor would equal

20.00%

Consider the following data on nominal GDP and real GDP (values are in billons of dollars): The base year used in calculating real GDP is:

2009

If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to double real GDP will decrease from

23.3 years to 17.5 years

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?

3 percent

Consider the following data for a simple economy. What is the GDP deflator for 2010 using 2009 as base year?

97.39%

Which of the following would be a consequence of substitution bias in the CPI?

B) Businesses would over-compensate employees for inflation when giving the cost of living rises.

Efficiency wage is another name for minimum wage

False

Eliminating frictional unemployment would be good for the economy

False

For developed countries like the United States, GDP will always exceed GNP.

False

Residential investment includes spending by firms on office buildings

False

The inflation rate measures the average price of goods and services in the economy

False

The nominal interest rate plus the inflation rate equals the real interest rate

False

A country in which a significant fraction of domestic production takes place in foreign owned factories and facilities is most likely a country where

GDP is much larger than GNP

Which of the following is true about the consumer price index?

It assumes that consumers purchase the same amount of each product in the market basket each month.

You earned $30,000 in 1990, and your salary rose to $80,000 in 2011. If the CPI rose from 82 to 202 between 1990 and 2011, which of the following is true?

The purchasing power of your salary increased between 1900 and 2011

Increases in capital per hour worked cannot sustain high rates of economic growth unless accompanied by technological change

True

Nominal GDP will increase if either the price level of the quantity of the goods and services produced rises

True

The GDP delator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is 5% higher in year 2 than in year 1

True

To examine how the total production of an economy has changed over time, it would be better to examine real GDP

True

The Bureau of Labor Statistics would categorize a retiree who is not working as

out of the labor force

A measure of the standard of living is

real GDP per capita

The resources lost for dealing with inflation:

shoeleather costs

Frictional unemployment is the result of

the search process of matching workers with jobs.

Gross domestic product is calculate by summing up

the total market value of final goods and services produced in the economy during a period of time

Suppose that the labor movement has a revival in the United States and the majority of workers join labor unions. As a result we would expect

the unemployment rate to rise

Suppose, in 2012, you purchased a house built in 2003. Which of the following would be included in the GDP for 2012?

the value of the services of the real estate agent