EC 211 UAB Final Exam

Queen City Sausage stock is selling at $40 per share, it has retained earnings of $2.00 per share and dividends of $.50 per share. What is the price-earnings ratio and what is the dividend yield?

16, 1.25 percent

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

18.2 percent

In 1970, Professor Plum earned $12,000; in 1980, he earned $24,000; and in 1990, he earned $36,000. If the CPI was 40 in 1970, 60 in 1980, and 100 in 1990, then in real terms, Professor Plum's salary was highest in

1980 and lowest in 1970.

The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2009. In 2009, this country's real GDP was

540

The information below for 2008 in millions was reported by the World Bank. On the basis of this information, which list below contains the correct ordering of GDP per person from highest to lowest?

Kenya, Tanzania, Ghana

Which of the following is true?

Kremer argued that with greater population, society would generate more ideas so that growth of real GDP per person could continue. Malthus argued that increasing population would outstrip agricultural production.

A movie company makes 500,000 DVDs of one of its latest releases. It sells 300,000 of them before the end of the second quarter, and holds the others in its warehouse. How will the 200,000 unsold DVDs be treated in the GDP statistics?

The DVDs will be counted as a change in inventory in the second quarter and so will be included in second-quarter GDP.

Suppose that U.S. mining companies purchase German-made ore trucks at a reduced price. By itself, what effect will this purchase have on the GDP deflator and on the consumer price index?

The consumer price index and the GDP deflator will both be unaffected.

Which is the most accurate statement about the GDP deflator and the consumer price index?

The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.

On goods and services, Harry spent $32,000 in 2004 and $39,000 in 2009. The consumer price index was 192 for 2004 and 217 for 2009. Harry's 2004 spending in 2009 dollars is about

a. $36,167.

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude

consumer prices sometimes rose and sometimes fell in the time frame represented on the graph.

Other things the same, when an economy increases its saving rate

consumption falls now and production rises later.

Country A has a population of 1,000, of whom 700 worked an average of 8 hours a day and had a productivity of 2.5. Country B has a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0. The country with the higher real GDP was

country A, and the country with higher real GDP per person was country B.

Nathan owns a bakery that bakes only cakes. All of his bakers work 8 hours per day. In 2009, he employed 5 bakers who produced a total of 200 cakes each day. In 2010, he employed 6 bakers who produced a total of 249 cakes each day. The bakery's productivity

increased by 3.75%.

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $4 billion worth of goods and services each year, collects $6 billion in taxes, and provides $1 billion in transfer payments to households. Private saving in Cedarland is $4 billion. For Cedarland,

investment is $5 billion and consumption is $8 billion.

Suppose a country increases trade restrictions. This country would be pursing an

inward policy, which most economists believe has adverse effects on the economy.

"When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly." This statement

is made under the assumption that the quantities of human capital, natural resources, and technology are being held constant.

If the price of a good has risen over time,

it has become more scarce only if the price adjusted for inflation has risen.

If an economy with constant returns to scale were to double its physical capital stock, its available natural resources, and its human capital, but leave the size of the labor force the same,

its output and productivity would increase, but less than double.

According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would

leave national saving unchanged and reduce private saving.

A decrease in the price of large tractors imported into the United States from Russia

leaves both the GDP deflator and the consumer price index unchanged.

The CPI is calculated

monthly by the Bureau of Labor Statistics.

The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits are called

natural resources.

An American retailer purchased 100 pairs of shoes from a company in Denmark in the second quarter of 2010 but does not sell them to a consumer until the third quarter of 2010. In which quarter(s) is (are) the value of the shoes included in U.S. GDP?

neither the second nor the third quarter

Suppose an economy produces only cheese and fish. In 2010, 20 units of cheese are sold at $5 each and 8 units of fish are sold at $50 each. In 2009, the base year, the price of cheese was $10 per unit and the price of fish was $75 per unit. For 2010,

nominal GDP is $500, real GDP is $800, and the GDP deflator is 62.5.

Investment in

physical capital, like investment in human capital, has an opportunity cost.

If natural resources had become scarcer, then we would expect their

prices to have risen more than inflation, but they have not.

U.S. GDP includes...

production of foreigners working in the U.S. but excludes production by U.S. residents working in foreign countries.

Outward-oriented policies

receive widespread support from economists. [All of the above are correct.] allow countries to take advantage of gains from trade. have generally led to high growth for the countries that pursued them.

Long-term bonds are

riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Otherwise legal transactions that go unreported or unrecorded are called

the shadow economy. the underground economy. the informal economy. [All of the above are correct.]

The Karmic Deed Restaurant uses all of the following to produce vegetarian meals. Which of them is an example of physical capital?

the tables and chairs in the restaurant

During the third quarter of this year, a firm produces consumer goods and adds some of those goods to itsinventory. During the fourth quarter of that year, the firm sells the goods at a retail outlet, with the result that thevalue of its inventory at the end of the fourth quarter is smaller than the value of its inventory at the end of thethird quarter. These actions affect which component(s) of fourth-quarter GDP?

they increase consumption and decrease investment

Which of the following is human capital?

understanding how to use a company's accounting software

For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation most relevant?

unmeasured quality change

If the best educated and most skilled persons leave a country, then in the short term this country's human capital per worker

will decrease but physical capital per worker will increase.

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

would decrease and investment would increase.

Which of the following is included in the investment component of GDP?

All of the above are included in the investment component of GDP. a. spending to build new factories b. spending to build new houses c. spending on business equipment such as welding equipment [d. All of the above are included in the investment component of GDP.]

Spots, Inc. produces ink and sells it to Write on Target which makes pens. The ink produced by Spots, Inc. is called

An intermediate good

When box office receipts are not corrected for inflation, the most popular movie of all time is

Avatar.

Which of the following countries had the lowest level of real GDP per person in 2008?

Bangladesh

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Interest rates would rise.

How does U.S. gross domestic product (GDP) differ from U.S. gross national product (GNP)?

GNP = GDP + income earned by U.S. citizens abroad - income that foreign citizens earned in the U.S.

When box office receipts are not corrected for inflation,

Gone with the Wind does not rank as one of the 50 most popular movies of all time.

Suppose that over the last twenty-five years a country's nominal GDP grew to three times its former size. In the meantime, population grew by 40 percent and prices rose by 100 percent. What happened to real GDP per person?

It increased, but it less than doubled.

Michigan Tea Company sold $15 million worth of tea it produced. In producing this tea it purchased $5 million dollars worth of ingredients from foreign countries and paid workers who reside in Canada but commute to the U.S. $1 million. How much did these transactions add to U.S. GDP?

$10 million

A painter pays $500 for paint he uses to repaint a house. He then presents a bill for $1200 that covers his time and expenses to the homeowner. How much do these transactions add to GDP?

$1200

Ryan lives in an apartment where he pays $7,000 a year in rent. Alexis lives in a house that could be rented for $14,000 a year. How much do these housing services contribute to GDP?

$21,000

Suppose there are only two firms in an economy: Rolling Rawhide produces rawhide and sells it to Chewy Chomp, Inc., which uses the rawhide to produce and sell dog chews. With each $2 of rawhide that it buys from Rolling Rawhide, Chewy Chomp, Inc. produces a dog chew and sells it for $5. Neither firm had any inventory at the beginning of 2008. During that year, Rolling Rawhide produced enough rawhide for 1000 dog chews. Chewy Chomp, Inc. bought 75% of that rawhide for $1500 and promised to buy the remaining 25% for $500 in 2009. Chewy Chomp, Inc. produced 750 dog chews during 2008 and sold each one during that year for $5. What was the economy's GDP for 2008?

$4250

Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2006 salary in 2001 dollars is

$64,000; thus, Ruben's purchasing power increased between 2001 and 2006.

In 2008, XYZ Corporation had total earnings of $200 million and 50 million shares of the corporation's stock were outstanding. If the price-earnings ratio for XYZ is 20, then what is the price of a share of its stock?

$80

The table below contains data for Bahkan for the year 2010. Refer to Table 23-1. What were country A's net exports in 2010?

-$32

Senator Noitall says that in order to help poor countries develop, the United States should: 1. Prevent U.S. corporations from investing in poor countries because they take profits that the poor countries should have; 2. Not import goods from poor countries that use child labor; 3. Work to promote political stability in poor countries; and 4. Reduce poor countries' reliance on market forces in their economies. How many of these ideas are likely to help poor countries grow?

1

Several studies in the 1990s concluded that the consumer price index overstated inflation by about

1 percentage point per year, but recent improvements to the CPI probably have reduced the overstatement of inflation to something less than 1 percentage point

If the cost of food & beverages increases by 10 percent, then, other things the same, the CPI is likely to increase by about

1.5 percent.

Last year real GDP in the imaginary nation of Populia was 907.5 billion and the population was 3.3 million. The year before real GDP was 750 billion and the population was 3 million. What was the growth rate of real GDP per person during the year?

10 percent

The table below applies to an economy with only two goods — hamburgers and hot dogs. The fixed basket consists of 4 hamburgers and 8 hot dogs. YearPrice of hamburgersPrice of hot dogs2009$5.00$3.0020105.503.3020115.613.63 Refer to Table 24-6. If the base year is 2009, then the consumer price index is

100 in 2009, 110 in 2010, and 117 in 2011.

The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. Year Price ofMeat Price of aToy 2004 $3 per pound $2 2005 $1 per pound $7 2006 $4 per pound $5 Refer to Table 24-4. If the base year is 2006, then the inflation rate in 2005 was

12.5%.

If nominal GDP is $12 trillion and real GDP is $10 trillion, then the GDP deflator is

120, and this indicates that the price level has increased by 20 percent since the base year.

For an imaginary economy, the value of the consumer price index was 138.75 in 2007, and the inflation rate was 11 percent between 2006 and 2007. The consumer price index in 2006 was

125.

Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the loan in full, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000. From this, we can conclude that the rate of inflation during the year was

14 percent.

The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. Year Price ofPeaches Price ofPecans 2005 $11 per bushel $6 per bushel 2006 $9 per bushel $10 per bushel Refer to Table 24-1. If 2006 is the base year, then the inflation rate in 2006 was

20 percent.

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006?

24.4 percent

If in some year nominal GDP was $10 trillion and real GDP was $4 trillion, what was the GDP deflator?

250.

Suppose that an economy produces 30,000 units of good A which sells at $3 a unit and 60,000 units of good B which sells at $2 per unit. Production of good A contributes

3/4 times as much to GDP as the production of good B.

The table below pertains to Studious, an economy in which the typical consumer's basket consists of 5 books and 10 calculators. Year Price of aBook Price of aCalculator 2006 $24 $8 2007 $30 $12 2008 $32 $15 Refer to Table 24-3. The inflation rate was

35 percent in 2007 and 14.8 percent in 2008.

If the cost of housing increases by 10 percent, then, other things the same, the CPI is likely to increase by about

4.2 percent.

In 1972, one could buy model rocket engines for $1.50 each. If those same engines cost $2.50 each today, then which pair of CPIs would make the engine prices in today's dollars the same for both years?

90 in 1972 and 150 today

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?

A change in the price of Korean televisions is reflected in the U.S. consumer price index but not in the U.S. GDP deflator.

Which of the following best states economists' understanding of the facts concerning the relationship between natural resources and economic growth?

Abundant domestic natural resources may help make a country rich, but even countries with few natural resources can have high standards of living.

Suppose that real GDP grew more in Country A than in Country B last year.

None of the above are correct.

The price index was 150 in the first year, 160 in the second year, and 165 in the third year. Which of the following statements is correct?

The price level was higher in the second year than in the first year, and it was higher in the third year than in the second year. The inflation rate was positive between the first and second years, and it was positive between the second and third years. The inflation rate was lower between the second and third years than it was between the first and second years. [All of the above are correct.]

Which of the following statements is correct?

The supply of, and demand for, loanable funds depend on the real (rather than nominal) interest rate.

Which of the following is correct?

The typical citizen of China today has about one-half as much real income as the typical citizen of America today. The typical person in Bangladesh today has about twice the real income of a typical American 100 years ago. Over the last 100 years Japan had a higher average growth rate than the United States. It follows that, today, the standard of living in Japan is higher than in the United States. [None of the above is correct.]

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

There would be an increase in the amount of loanable funds borrowed.

A Mexican company operates a restaurant in the U.S. The value of the restaurant's output produced by Mexican citizens and the equipment they own is included in

U.S. GDP and Mexican GNP.

Upland has a population of 15,000, of whom 9,000 work 8 hours a day to produce real output of $342,000. Lowland has a population of 8,000, of whom 7,000 work 7 hours a day to produce real output of $171,500.

Upland has higher productivity and higher real GDP per person than Lowland.

Which of the following transactions adds to U.S. GDP for 2010?

When John and Jennifer were both single, they lived in separate apartments and each paid $750 in rent. John and Jennifer got married in 2010 and they bought a previously unoccupied house that, according to reliable estimates, could be rented for $1,600 per month.

Household spending on education is included in

[a. consumption, although it might be argued that it would fit better in investment.] b. investment, although it might be argued that it would fit better in consumption. c. government spending, based on the fact that most higher-education students attend publicly-supported colleges and universities. d. None of the above is correct; in general, household spending on services is not included in any component of GDP.

A perpetuity is

a bond that pays interest forever.

When the relative price of a good decreases, consumers respond by buying

a larger quantity of that good and a smaller quantity of substitutes for that good.

Which of the following statements is correct?

a. Property rights give people the ability to exercise authority over the resources they own. b. In an economy-wide sense, property rights are an important prerequisite for the price system to work. c. Based on the available evidence, the existence of well-established and well-enforced property rights appears to be associated with an enhanced standard of living. [All of the above are correct.]

Which of the following items is included in U.S. GDP?

a. final goods and services that are purchased by the U.S. federal government b. intermediate goods that are produced in the U.S. but that are unsold at the end of the GDP accounting period c. goods and services produced by foreign citizens working in the U.S. [d. All of the above are included in U.S. GDP.]

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

a. given year divided by the price of the basket in the base year, then multiplied by 100.

Which of the following is a way to compute GDP?

add up the market values of all final goods and services

If Congress increased the tax rate on interest income, investment

and saving would decrease.

In the basket of goods that is used to compute the consumer price index, which of the following categories of consumer spending is the smallest?

apparel

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital and so less real GDP per person. Suppose that both increase their saving rate from 3 percent to 4 percent. In the long run

both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will

demand the required funds by selling bonds.

The consumption component of GDP includes spending on

durable goods and nondurable goods, but not spending on services.

Social Security payments are

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

When economists refer to intangible items, they are referring to such things as

hair styling and dental care, and the value of such items is included in GDP.

All else equal, by saving more, a country

has more resources for capital goods. The increase in capital raises productivity.

Consider three imaginary countries. In Aziria, saving amounts to $3,000 and consumption amounts to $7,000; in Graniva, saving amounts to $2,000 and consumption amounts to $8,000; and in Tanistan, saving amounts to $4,500 and consumption amounts to $10,500. The saving rate is

higher in Aziria than in Graniva, and it is the same in Aziria and Tanistan.

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are

housing, transportation, and food & beverages.

For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?

taxes

If the price of Italian shoes imported into the United States increases, then

the consumer price index will increase, but the GDP deflator will not increase.

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has more capital per worker and so it has more real GDP per worker than the other. Finally, suppose that the saving rate in both countries increases from 4 percent to 7 percent. Over the next ten years we would expect that

the country that started with less capital per worker will grow faster.

A U.S. firm produces nail guns in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the nail guns to a U.S. construction company. In which quarter(s) is (are) GDP higher?

the first but not the second

Country A has real GDP per person of 10,000 while country B has real GDP per person of 20,000. All else constant, country A will eventually have a higher standard of living than country B if

the level of saving per person is 1,000 in country A and 1,800 in country B. [Both of the above are correct.] the level of saving per person is 500 in country A and 750 in country B. None of the above are correct.