ECON 102 Chapters 5-7

In 1954, Canadian Prime Minister Louis Stephen St. Laurent was paid a salary of $15,000. Justin Trudeau, the Prime Minister in 2018, was paid $175,600. The price index for 1954 is 14.1 and the price index for 2018 is 133.4. What is, approximately, Prime Minister St. Laurent's salary equivalent in 2018 dollars?

$141,915

Suppose that the CPI is currently 300 and was 50 in 1950. Then, according to the CPI, $1 in 1950 purchased the same amount of goods and services as what amount today?

$6

In a given year, an economy has consumption of $8000, investment of $6000, government purchases of $5500, exports of $3500, and imports of $2000, What is the GDP?

21,000

Using the GDP deflator to measure the average level of prices and using 2017 as the base year, what is the economy's inflation rate?

25 percent for 2018 and 28 percent for 2019

Senator Noitall says that in order to help poor countries develop, Canada should (1) prevent Canadian 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 labour; (3) work to promote political stability in poor countries; and (4) reduce poor countries' reliance on market forces in their economies. Which of these ideas is likely to help poor countries grow?

3

Using 2018 as the base year, what is the consumer price index in 2017?

74.07

What is an externality aspect of education?

Education produces a return to society that is greater than the return to the individual.

Anna, a Canadian citizen who works in France for a Swiss firm, receives her pay in a German bank. To which country's GDP does Anna's employment contribute?

France

Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best baseball players can earn 200 times as much as Babe Ruth in 1931. Are the best baseball players better off than Babe Ruth?

It cannot be determined without additional information regarding increases in prices since 1931.

Suppose the quality of lap-top computers, which are part of the CPI basket, has improved, while their price has remained the same. If Statistics Canada wants to adjust the CPI so that the effect of better quality on the cost of living is accounted for, what should Statistics Canada do?

It should decrease the CPI, because better quality means lower maintenance costs.

The dictator of Turan has recently begun to arbitrarily seize farms belonging to his political opponents, and he has given the farms to his friends. His friends don't know much about farming. The courts in Turan have ruled that the seizures are illegal, but the dictator has ignored the rulings. Other things equal, what would we expect to happen to the growth rate in Turan?

It will fall and remain lower for a long time because other farmers may expect their farms to be seized as well, and therefore they do not improve their farms.

If there is a reduction in the price of large road paving machines imported into Canada from Sweden, what will happen to the GDP deflator and the consumer price index?

Neither the GDP deflator nor the consumer price index will change.

Lesley looks over reports on four of her workers. Smith made 30 baskets in 6 hours. Dex made 40 baskets in 10 hours. Leo made 55 baskets in 10 hours. Neve made 21 baskets in 3 hours. Who has the greatest productivity?

Neve

Which statement best explains the logic behind the catch-up effect?

New capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.

Which statement best defines productivity?

Productivity is the quantity of goods or services that a worker can produce in one hour.

On the basis of the information in the table, which list below contains the correct ordering of GDP per person (from highest to lowest)?

R,P,Q

Refer to Table 5-2. Using 2018 as the base year, what can we conclude for 2017?

Real GDP is $950, and the GDP deflator is 80.

Suppose that over the past ten years productivity grew faster in Cayo than in San Marcos and the population of both countries was unchanged. What can we conclude?

Real GDP per person grew faster in Cayo than in San Marcos.

Larissa buys and lives in a newly constructed home she paid $400,000 for in 2019. She sells the house in 2020 for $450,000. How is GDP impacted?

The 2020 sale does not increase 2020 GDP and does nothing to 2019 GDP.

How do the GDP deflator and the consumer price index compare to each other?

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, but 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.

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, than the other. Suppose that the saving rate in both countries increases from 5 percent to 6 percent. What would we expect over the next 10 years?

The country with less capital will grow faster.

The local Land Rover dealership has an increase in inventory of 10 SUVs in 2019. How will the sale of all 10 SUVs in 2020 affect the GDP?

The value of the cars will be counted as part of GDP in 2019 but not in 2020.

What is the GDP deflator?

a measure of the overall price level

How is GDP computed?

add up the market values of all final goods and services produced within a country in a given period of time

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. Why is this?

because when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living

A Canadian company owned by a Japanese citizen has opened a Mexican restaurant in France. Where is the profit included?

in French GDP

Suppose Canadian-based Bombardier decides to close a Canadian factory and move production to a foreign facility. Bombardier then builds and operates a new factory in Mexico. What would the future production from such an investment do?

increase Mexico's GDP and decrease Canada's GDP

Which of the following does Y/L refer to?

productivity

Suppose OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed, and it is cheaper to operate than gasoline engines. Which problem in the construction of the CPI would this situation represent, respectively?

substitution bias and introduction of new goods

What does the CPI measure?

the overall price of goods and services bought by a typical consumer