Econ 2 Rojas Midterm Study Guide

b. improve economic growth and health outcomes.

A policy that increases saving will a. improve economic growth but worsen health outcomes. b. improve economic growth and health outcomes. c. worsen economic growth and health outcomes. d. worsen economic growth, but improve health outcomes.

a. real income per person.

A reasonable measure of the standard of living in a country is a. real income per person. b. nominal income. c. the growth rate of nominal income per person. d. nominal income per person. e. real income.

b. only in Japan's GDP.

After graduation, an American college student moves to Japan to teach English. Her salary is included a. only in U.S. GDP. b. only in Japan's GDP. c. in both U.S. GDP and Japan's GDP. d. in neither U.S. GDP nor Japan's GDP.

unemployment benefits.

An example of a transfer payment is a. profit. b. rent. c. wages. d. unemployment benefits. e. government purchases.

c. both the GDP deflator and the consumer price index.

An increase in the price of bread produced domestically will be reflected in a. neither the GDP deflator nor the consumer price index. b. the GDP deflator but not in the consumer price index. c. both the GDP deflator and the consumer price index. d. the consumer price index but not in the GDP deflator.

a. technology.

An understanding of the best ways to produce goods and services is called a. technology. b. physical capital. c. human capital. d. productivity.

c. $80

Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby's store to be sold later. What is GDP here? a. $60 b. $100 c. $80 d. $40

b. housing.

By far the largest category of goods and services in the CPI basket is a. transportation. b. housing. c. food & beverages. d. education & communication.

a. they save and invest an unusually high percentage of their real income.

China, Japan, and Brazil are growing very quickly because a. they save and invest an unusually high percentage of their real income. b. they have always been wealthy and will continue to be wealthy, which is known as the "snowball effect." c. they have enormous natural resources. d. they are imperialists and have collected wealth from previous victories in war.

a. a nonrenewable natural resource.

Copper is an example of a. a nonrenewable natural resource. b. technology. c. a renewable natural resource. d. physical capital. e. human capital.

c. Country B had the higher level of real GDP and real GDP per person.

Country A had a population of 1,000, of whom 600 worked an average of 8 hours a day and had a productivity of 2.5. Country B had a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0. a. Country B had the higher level of real GDP and Country A had the higher level of real GDP per person. b. Country A had the higher level of real GDP and Country B had the higher level of real GDP per person. c. Country B had the higher level of real GDP and real GDP per person. d. Country A had the higher level of real GDP and real GDP per person.

d. grew, but by less than 12 percent.

During a presidential campaign, the incumbent argues that he should be reelected because nominal GDP grew by 12 percent during his 4-year term in office. You know that population grew by 4 percent over the period and that the GDP deflator increased by 6 percent during the past 4 years. You should conclude that real GDP per person a. was unchanged. b. decreased. c. grew by more than 12 percent. d. grew, but by less than 12 percent.

a. Nutrition

Economist Robert Fogel focused on which of the following factors as one determinant of long-run economic growth? a. Nutrition b. Research and development c. Trade restrictions d. Education

a. lend support to the invisible hand by maintaining property rights and political stability.

Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should a. lend support to the invisible hand by maintaining property rights and political stability. b. impose trade restrictions to protect the interests of domestic producers and consumers. c. subsidize key industries. d. limit foreign investment to industries that don't already exist in the country.

b. produce a return to society from education that is greater than the return to the individual.

Educated people may generate ideas that increase production. These ideas a. never justify government subsides for education. b. produce a return to society from education that is greater than the return to the individual. c. are the source of personal benefits of education. d. are generally irrelevant for economic growth.

b. low in countries with high population growth.

Educational attainment tends to be a. low in countries with low population growth. b. low in countries with high population growth. c. high in countries with high population growth. d. unrelated to population growth.

d. labor.

For a given level of technology, we should expect an increase in labor productivity within a nation when there is an increase in each of the following except a. human capital per worker. b. physical capital per worker. c. natural resources per worker. d. labor.

a. capital equipment, inventories, and structures, including household purchases of new housing.

For the purpose of calculating GDP, investment is spending on a. capital equipment, inventories, and structures, including household purchases of new housing. b. stocks, bonds, and other financial assets. c. capital equipment, inventories, and structures, excluding household purchases of new housing. d. real estate and financial assets such as stocks and bonds.

d. South Korea

From 1960 to 1990, in which of the following countries has investment resulted in economic growth sufficiently higher than that in the United States? a. India b. Mexico c. Zimbabwe d. South Korea

c. average person in the economy.

GDP per person tells us the income and expenditure of the a. entire economy. b. poorest person in the economy. c. average person in the economy. d. richest person in the economy.

consulting services

GDP would include which of the following? a. illegal drug sales b. consulting services c. housework d. intermediate sales e. the value of taking a day off from work

consumption, investment, government purchases, and net exports.

Gross domestic product can be measured as the sum of a. consumption, transfer payments, wages, and profits. b. investment, wages, profits, and intermediate production. c. net national product, gross national product, and disposable personal income. d. final goods and services, intermediate goods, transfer payments, and rent. e. consumption, investment, government purchases, and net exports.

final goods and services.

Gross domestic product is the sum of the market value of the a. normal goods and services. b. manufactured goods. c. inferior goods and services. d. final goods and services. e. intermediate goods.

d. income and expenditures.

Gross domestic product measures a. expenditures but not income. b. neither income nor expenditures. c. income but not expenditures. d. income and expenditures.

e. Consumption increases by $40,000 and net exports decrease by $40,000.

How is your purchase of a $40,000 BMW automobile that was produced entirely in Germany recorded in the U.S. GDP accounts? a. Net exports increase by $40,000. b. There is no impact because this transaction does not involve domestic production. c. Investment increases by $40,000 and net exports increase by $40,000. d. Net exports decrease by $40,000. e. Consumption increases by $40,000 and net exports decrease by $40,000.

a. in the future, U.S. GDP will rise more than U.S. GNP.

If Mazda builds a new plant in Illinois, a. in the future, U.S. GDP will rise more than U.S. GNP. b. in the future, U.S. GDP will rise less than U.S. GNP. c. in the future, U.S. GDP and GNP will both fall because some income from this investment will accrue to foreigners. d. there has been an increase in foreign portfolio investment in the United States. e. none of the above is true.

a. falls because his market income decreases.

If Mr. Keating quits his job as a teacher to home school his own children, GDP a. falls because his market income decreases. b. could rise or fall, depending on the value of home schooling. c. rises because he now pays lower income taxes. d. stays the same because he is engaged in the same activity.

$500.

If a cobbler buys leather for $100 and thread for $50 and uses them to produce and sell $500 worth of shoes to consumers, the contribution to GDP is a. $650. b. $500. c. $50. d. $100. e. $600.

d. doubling all of the inputs doubles output.

If a production function exhibits constant returns to scale, a. doubling all of the inputs has absolutely no impact on output because output is constant. b. doubling all of the inputs less than doubles output due to diminishing returns. c. doubling all of the inputs more than doubles output due to the catch-up effect. d. doubling all of the inputs doubles output.

a. income and expenditure both fall.

If an economy's GDP falls, then it must be the case that the economy's a. income and expenditure both fall. b. income falls and saving rises. c. income and saving both fall. d. income falls and expenditure rises.

b. lenders will gain at the expense of borrowers.

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected, a. borrowers will gain at the expense of lenders. b. lenders will gain at the expense of borrowers. c. neither borrowers nor lenders will gain because the nominal interest rate has been fixed by contract. d. none of the above is true.

c. $40 billion

If in some year nominal GDP was $20 billion and the GDP deflator was 50, what was real GDP? a. $10 billion b. $2.5 billion c. $40 billion d. $100 billion

a. 11 percent.

If inflation is 8 percent and the real interest rate is 3 percent, then the nominal interest rate should be a. 11 percent. b. 24 percent. c. 5 percent. d. 3/8 percent. e. −5 percent.

risen or fallen because there is not enough information to determine what happened to real output.

If nominal GDP in 2019 exceeds nominal GDP in 2018, then the production of output must have a. risen or fallen because there is not enough information to determine what happened to real output. b. fallen. c. risen. d. stayed the same.

c. rises but real GDP per person falls.

If over a short time there is an increase in the number of people retired and a decrease in the number of people working, then productivity a. falls and real GDP per person rises. b. and real GDP per person fall. c. rises but real GDP per person falls. d. and real GDP per person rise.

c. 3.1 percent

If real income per person in 2018 is $18,073 and real income per person in 2019 is $18,635, what is the growth rate of real income over this period? a. 18.6 percent b. 2.5 percent c. 3.1 percent d. 18.0 percent e. 5.62 percent

e. 4 percent.

If the nominal interest rate is 7 percent and the inflation rate is 3 percent, then the real interest rate is a. −4 percent. b. 10 percent. c. 3 percent. d. 21 percent. e. 4 percent.

a. 11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.

If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced a. 11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3. b. 11.1 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3. c. 10 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3. d. 10 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.

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

If the price of Italian shoes imported into the United States increases, then a. neither the GDP deflator nor the consumer price index will increase. b. both the GDP deflator and the consumer price index will increase. c. the consumer price index will increase, but the GDP deflator will not increase. d. the GDP deflator will increase, but the consumer price index will not increase.

a. substitution bias.

If there is an increase in the price of apples that causes consumers to purchase fewer pounds of apples and more pounds of oranges, the CPI will suffer from a. substitution bias. b. bias due to the introduction of new goods. c. bias due to unmeasured quality change. d. base-year bias. e. none of the above.

a. either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both.

If total spending rises from one year to the next, then a. either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both. b. goods and services must be selling at higher prices. c. the economy must be producing a larger output of goods and services. d. employment or productivity must be rising.

a. firms will gain at the expense of workers.

If workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be more than they expected, a. firms will gain at the expense of workers. b. workers will gain at the expense of firms. c. neither workers nor firms will gain because the increase in wages is fixed in the labor agreement. d. none of the above is true.

b. investment.

If your grandparents buy a new retirement home, this transaction would affect a. consumption. b. investment. c. government purchases. d. net exports. e. none of the above.

c. 5.4 percent

In 1989, the CPI was 124.0. In 1990, it was 130.7. What was the rate of inflation over this period? a. 5.1 percent b. 30.7 percent c. 5.4 percent d. 6.7 percent e. You can't tell without knowing the base year.

a. consumption falls and investment rises.

In an economy where net exports are zero, if saving rises in some period, then in that period a. consumption falls and investment rises. b. consumption and investment fall. c. consumption rises and investment falls. d. consumption rises and investment falls.

b. protect property rights and maintain political stability

In order to promote growth in living standards, policymakers must a. minimize accumulation of factors of production. b. protect property rights and maintain political stability c. promote bureaucracy . d. rise taxes to increase government revenue.

a. foreign portfolio investment.

In recent decades, Americans have increased their purchase of stocks of foreign-based companies. The Americans who have bought these stocks were engaged in a. foreign portfolio investment. b. foreign indirect investment. c. foreign direct investment. d. indirect domestic investment.

a. consumer price index rises much more than does the GDP deflator.

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the a. consumer price index rises much more than does the GDP deflator. b. GDP deflator rises much more than does the consumer price index. c. GDP deflator and the consumer price index rise by about the same amount. d. consumer price index rises slightly more than does the GDP deflator.

d. high in the 1970s and low in the 1990s.

In the United States, nominal interest rates were a. high in the 1970s and 1990s. b. low in the 1970s and high in the 1990s. c. low in the 1970s and 1990s. d. high in the 1970s and low in the 1990s.

d. households, firms, and the government.

In the actual economy, goods and services are purchased by a. households, but not firms or the government. b. households and the government, but not firms. c. households and firms, but not the government. d. households, firms, and the government.

a. using a law or contract to automatically correct a dollar amount for the effects of inflation.

Indexation refers to a. using a law or contract to automatically correct a dollar amount for the effects of inflation. b. using a price index to deflate dollar values. c. an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator. d. a process of adjusting the nominal interest rate so that it is equal to the real interest rate.

d. a factor of production that in the past was an output from the production process.

Industrial machinery is an example of a. a production function. b. an item which always has the property called constant returns to scale. c. technological knowledge. d. a factor of production that in the past was an output from the production process.

d. finished goods price index.

Inflation can be measured by all of the following except the a. GDP deflator. b. consumer price index. c. producer price index. d. finished goods price index. e. All of the above are used to measure inflation.

d. 2 percent

Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the population was 2.2 million. The year before, real GDP was 500.0 billion and the population was 2.0 million. What was the growth rate of real GDP per person during the year? a. 10 percent b. 12 percent c. 4 percent d. 2 percent

b. 3.7 percent

Last year real GDP per person in the imaginary nation of Olympus was 4,250. The year before it was 4,100. By about what percentage did Olympian real GDP per person grow during the period? a. 2.5 percent b. 3.7 percent c. 1.6 percent d. 6 percent

a. human capital

Madelyn goes to college and reads many books while at school. Her education increases which of the following factors of production? a. human capital b. physical capital c. natural resources d. technology e. All of the above would be increased.

b. Mexican GDP, but it is not included in U.S. GDP.

Martin, a U.S. citizen, travels to Mexico and buys a newly manufactured motorcycle made there. His purchase is included in a. neither Mexican GDP nor U.S. GDP. b. Mexican GDP, but it is not included in U.S. GDP. c. both Mexican GDP and U.S. GDP. d. U.S. GDP, but it is not included in Mexican GDP.

b. it may be harder for it to grow quickly because of the diminishing returns to capital.

Once a country is wealthy, a. it is nearly impossible for it to become relatively poorer. b. it may be harder for it to grow quickly because of the diminishing returns to capital. c. capital becomes more productive due to the "catch-up effect." d. it no longer needs any human capital. e. none of the above is true.

d. fails to account for the introduction of new goods.

One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI a. accounts only for consumer spending on food, clothing, and energy. b. fails to account for the fact that consumers spend larger percentages of their incomes on some goods and smaller percentages of their incomes on other goods. c. fails to account for consumer spending on housing. d. fails to account for the introduction of new goods.

c. our productivity because our income is equal to what we produce.

Our standard of living is most closely related to a. how hard we work. b. our supply of natural resources because they limit production. c. our productivity because our income is equal to what we produce. d. our supply of capital because everything of value is produced by machinery.

c. increased measured GDP by the value added by the restaurant's preparation and serving of the meals.

Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has a. increased measured GDP by the value of the restaurant meals. b. not affected measured GDP. c. increased measured GDP by the value added by the restaurant's preparation and serving of the meals. d. reduced measured GDP.

base year; current year

Real GDP is measured in ______ prices while nominal GDP is measured in ______ prices.

b. $40.

Sam bakes a cake and sells it to Carla for $10. Woody pays Diane $30 to tutor him. In this economy, GDP is a. $10. b. $40. c. $20. d. $30.

a. 141 percent

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2017. Suppose the price index was 17.6 in 1944 and 218.4 in the current year. Refer to Scenario 24-1. In real terms, Josh Holloway's income amounts to about what percentage of Sue Holloway's income? a. 141 percent b. 198 percent c. 71 percent d. 165 percent

a. increase U.S. GDP more than it increases U.S. GNP.

Suppose Japanese-based Toshiba Corporation builds and operates a new computer factory in the United States. Future production from such an investment will a. increase U.S. GDP more than it increases U.S. GNP. b. increase U.S. GNP more than it increases U.S. GDP. c. have no affect on U.S. GNP or GDP. d. have no affect on U.S. GNP, but will increase U.S. GDP.

b. more in the short run than in the long run.

Suppose an economy experiences an increase in its saving rate. The higher saving rate leads to a higher growth rate of productivity a. in both the short run and the long run. b. more in the short run than in the long run. c. more in the long run than in the short run. d. in neither the short run nor the long run.

d. the consumer price index will increase in the future.

Suppose that in 2018, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that a. GDP will increase in 2019. b. interest rates will decrease in the future. c. the producer price index will increase by more than 1.5 percent in 2019. d. the consumer price index will increase in the future.

d. -1.9 percent

Suppose the consumer price index was 184 in Year 1 and 198.17 in Year 1. The nominal interest rate during this period was steady at 5.8 percent. What was the real interest rate during this period? a. 1.2 percent b. -2.6 percent c. 0.4 percent d. -1.9 percent

a. risen.

Suppose your income rises from $19,000 to $31,000 while the CPI rises from 122 to 169. Your standard of living has likely a. risen. b. You can't tell without knowing the base year. c. fallen. d. stayed the same.

c. products purchased by the typical consumer.

The "basket" on which the CPI is based is composed of a. raw materials purchased by firms. b. total current production. c. products purchased by the typical consumer. d. consumer production. e. none of the above.

d. increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.

The CPI differs from the GDP deflator in that a. increases in the prices of domestically produced goods that are sold to the U.S. government show up in the CPI but not in the GDP deflator. b. the CPI is a price index, while the GDP deflator is an inflation index. c. substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator. d. increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.

a. monthly.

The CPI is calculated a. monthly. b. weekly. c. quarterly. d. yearly.

b. CPI better reflects the goods and services bought by consumers.

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because the a. CPI includes more goods and services that the GDP deflator does. b. CPI better reflects the goods and services bought by consumers. c. CPI is easier to measure. d. GDP deflator cannot be used to gauge inflation.

a. housing

The CPI will be most influenced by a 10 percent increase in the price of which of the following consumption categories? a. housing b. transportation c. medical care d. food and beverages e. All of the above would produce the same impact.

b. consumption of services.

The Carters' oldest son attends Big State University. He and his parents pay all his fees and tuition. These payments count in GDP as a. consumption of durable goods. b. consumption of services. c. government spending. d. investment.

a. nominal GDP to real GDP multiplied by 100.

The GDP deflator is the ratio of a. nominal GDP to real GDP multiplied by 100. b. real GDP to nominal GDP multiplied by 100. c. real GDP to the inflation rate multiplied by 100. d. nominal GDP to the inflation rate multiplied by 100.

c. central to macroeconomic analysis as well as to microeconomic analysis.

The basic tools of supply and demand are a. useful in analyzing the overall economy, but not in analyzing individual markets. b. useful only in the analysis of economic behavior in individual markets. c. central to macroeconomic analysis as well as to microeconomic analysis. d. central to microeconomic analysis, but seldom used in macroeconomic analysis.

c. a constant standard of living.

The consumer price index tries to gauge how much incomes must rise to maintain a. a decreasing standard of living. b. the highest standard of living possible. c. a constant standard of living. d. an increasing standard of living.

d. fall and remain lower for a long time.

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, we would expect that the growth rate in Turan will a. fall temporarily, but will return to where it was when the new owners learn how to farm. b. not be affected unless widespread civil disorder or civil war results. c. increase because the total amount of human capital in the country will increase as the new owners learn how to farm. d. fall and remain lower for a long time.

b. how fast the number of dollars in your bank account rises over time.

The nominal interest rate tells you a. the purchasing power of your bank account today. b. how fast the number of dollars in your bank account rises over time. c. the number of dollars in your bank account today. d. how fast the purchasing power of your bank account rises over time.

a. productivity.

The one variable that stands out as the most significant explanation of large variations in living standards around the world is a. productivity. b. preferences. c. population. d. prices.

a. a reduction in current consumption.

The opportunity cost of growth is a. a reduction in current consumption. b. a reduction in taxes. c. a reduction in current saving. d. a reduction in current investment.

b. bought by firms.

The producer price index measures the cost of a basket of goods and services a. sold by producers. b. bought by firms. c. produced for a typical consumer. d. typically produced in the economy.

b. how fast the purchasing power of your bank account rises over time.

The real interest rate tells you a. how fast the number of dollars in your bank account rises over time. b. how fast the purchasing power of your bank account rises over time. c. the number of dollars in your bank account today. d. the purchasing power of your bank account today.

a. inflation.

The term economists use to describe a situation in which the economy's overall price level is rising is a. inflation. b. growth. c. recession. d. expansion.

b. diminishing returns.

The traditional view of the production process is that capital is subject to a. diminishing returns for low levels of capital and increasing returns for high levels of capital. b. diminishing returns. c. constant returns. d. increasing returns.

a. diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.

The traditional view of the production process is that capital is subject to a. diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries. b. diminishing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries. c. increasing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries. d. increasing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries.

depreciation.

The value of plant and equipment worn out in the process of manufacturing goods and services is measured by a. consumption. b. depreciation. c. intermediate production. d. investment. e. Net national product.

c. an ever-increasing population is constrained only by the food supply, resulting in chronic famines.

Thomas Malthus argued that a. technological progress will continuously generate improvements in productivity and living standards. b. labor is the only true factor of production. c. an ever-increasing population is constrained only by the food supply, resulting in chronic famines. d. private charities and government aid will improve the welfare of the poor. e. none of the above is true.

a. nationalize major industries.

To increase growth, governments should do all of the following except a. nationalize major industries. b. promote free trade. c. encourage saving and investment. d. encourage research and development. e. encourage foreigners to invest in your country.

a. cotton purchased by Lee Jeans

U.S. GDP would exclude which of the following? a. cotton purchased by Lee Jeans b. a new bridge purchased by the state of Texas c. the purchase of a new Mazda produced in Illinois d. lawn care services purchased by a homeowner e. lawyer services purchased by a home buyer

people and factories located within the borders of the United States.

U.S. gross domestic product (in contrast to gross national product) measures the production and income of a. Americans and their factories no matter where they are located in the world. b. people and factories located within the borders of the United States. c. the domestic service sector only. d. the domestic manufacturing sector only. e. none of the above.

c. The nominal rate of interest is 20 percent and the inflation rate is 25 percent.

Under which of the following conditions would you prefer to be the borrower? a. The nominal rate of interest is 12 percent and the inflation rate is 9 percent. b. The nominal rate of interest is 15 percent and the inflation rate is 14 percent. c. The nominal rate of interest is 20 percent and the inflation rate is 25 percent. d. The nominal rate of interest is 5 percent and the inflation rate is 1 percent.

a. The nominal rate of interest is 5 percent and the inflation rate is 1 percent.

Under which of the following conditions would you prefer to be the lender? a. The nominal rate of interest is 5 percent and the inflation rate is 1 percent. b. The nominal rate of interest is 15 percent and the inflation rate is 14 percent. c. The nominal rate of interest is 20 percent and the inflation rate is 25 percent. d. The nominal rate of interest is 12 percent and the inflation rate is 9 percent.

c. The goods and services that are typically bought by consumers as determined by government surveys

What basket of goods and services is used to construct the CPI? a. The least expensive and the most expensive goods and services in each major category of consumer expenditures b. A random sample of all goods and services produced in the economy c. The goods and services that are typically bought by consumers as determined by government surveys d. Only food, clothing, transportation, entertainment, and education

c. it has the potential to grow relatively quickly due to the "catch-up effect."

When a nation has very little income per person, a. it is doomed to being relatively poor forever. b. it must be a small nation. c. it has the potential to grow relatively quickly due to the "catch-up effect." d. an increase in capital will likely have little impact on output. e. none of the above is true.

d. Prices, including those for movie tickets, have been rising over time.

When ranking movies by nominal box office receipts, what important fact is overlooked? a. Movies and DVD are complements. b. There are no good substitutes for movies currently. c. More people go to movies now than in the past. d. Prices, including those for movie tickets, have been rising over time.

b. increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.

When the quality of a good improves while its price remains the same, the purchasing power of the dollar a. decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for. b. increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. c. decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. d. increases, so the CPI understates the change in the cost of living if the quality change is not accounted for.

a. The standard of living but not productivity

Which of the following can be measured by the level of real GDP per person? a. The standard of living but not productivity b. Productivity but not the standard of living c. Neither the standard of living nor productivity d. Productivity and the standard of living

c. China

Which of the following countries achieved higher economic growth, in part by mandating a reduction in population growth? a. France b. Australia c. China d. Great Britain

b. A farmer discovers that it is better to plant in the spring rather than in the fall.

Which of the following describes an increase in technological knowledge? a. A farmer buys another tractor. b. A farmer discovers that it is better to plant in the spring rather than in the fall. c. A farmer sends his child to agricultural college, and the child returns to work on the farm. d. A farmer hires another day laborer.

d. Susan pays her college tuition.

Which of the following expenditures to enhance productivity is most likely to emit a positive externality? a. Megabank buys a new computer. b. Exxon leases a new oil field. c. General Motors buys a new drill press. d. Susan pays her college tuition.

b. increase restrictions on the importing of Japanese automobiles and electronics

Which of the following government policies is least likely to increase growth in Africa? a. increase expenditures on public education b. increase restrictions on the importing of Japanese automobiles and electronics c. eliminate civil war d. reduce restrictions on foreign capital investment e. All of the above would increase growth.

c. Toyota buys stock in Ford, and Ford uses the proceeds to build a new plant in Michigan.

Which of the following is an example of foreign portfolio investment? a. A naturalized U.S. citizen, who was originally born in Germany, buys stock in Ford, and Ford uses the proceeds to buy a new plant. b. Toyota builds a new plant in Tennessee. c. Toyota buys stock in Ford, and Ford uses the proceeds to build a new plant in Michigan. d. Ford builds a new plant in Michigan. e. None of the above is an example of foreign portfolio investment.

b. Even though Japan had a higher growth rate of real GDP per person than the United States over the last 120 years, it's level of real GDP per person is less than that of the United States.

Which of the following is correct? a. Countries with the highest growth rates over the last 120 years are the ones that had the highest level of real GDP 120 years ago. b. Even though Japan had a higher growth rate of real GDP per person than the United States over the last 120 years, it's level of real GDP per person is less than that of the United States. c. The ranking of countries by income changes little over time. d. Most countries have had little fluctuation around their average growth rates during the past 120 years.

a. [(price of basket of goods and services in current year/price of basket in base year)] × 100

Which of the following is the correct formula for calculating the consumer price index? a. [(price of basket of goods and services in current year/price of basket in base year)] × 100 b. [(price of basket of goods and services in base year/price of basket in current year)] × 100 c. [(price of basket of goods and services in current year − price of basket in base year)/price of basket in base year] × 100 d. [(CPI in Year 1 − CPI in Year 2)/CPI in Year 2] × 100

d. In one generation, China will be one of the richest countries in the world, if China's GDP per person continues to grow 9% per year.

Which of the following statements accurately describes catch-up growth? a. In one generation, Zimbabwe will be one of middle-income countries, since Zimbabwe's per person GDP fell by 27% in the last couple of decades. b. In one generation, even if China's GDP per person will decline 9% per year, China will remain one of richest countries in the world. c. In one generation, Zimbabwe will be the world richest country, since Zimbabwe's per person GDP grew 9% in the last couple of decades. d. In one generation, China will be one of the richest countries in the world, if China's GDP per person continues to grow 9% per year.

d. In order to fully understand interest rates, we need to know how to correct for the effects of inflation.

Which of the following statements is correct about the relationship between inflation and interest rates? a. The interest rate is determined by the rate of inflation. b. In order to fully understand inflation, we need to know how to correct for the effects of interest rates. c. There is no relationship between inflation and interest rates. d. In order to fully understand interest rates, we need to know how to correct for the effects of inflation.

b. The real interest rate is the nominal interest rate minus the inflation rate.

Which of the following statements is correct? a. The real interest rate is the sum of the nominal interest rate and the inflation rate. b. The real interest rate is the nominal interest rate minus the inflation rate. c. The nominal interest rate is the inflation rate minus the real interest rate. d. The nominal interest rate is the real interest rate minus the inflation rate. e. None of the above is true.

d. Countries have great variance in both the level and growth rate of income per person; thus, poor countries can become relatively rich over time.

Which of the following statements is true? a. Countries all have the same growth rate and level of output because any country can obtain the same factors of production. b. Countries may have a different level of income per person, but they all grow at the same rate. c. Countries may have a different growth rate, but they all have the same level of income per person. d. Countries have great variance in both the level and growth rate of income per person; thus, poor countries can become relatively rich over time.

d. All of the above are true.

Which of the following statements regarding the impact of population growth on productivity is true? a. There is no evidence yet that rapid population growth stretches natural resources to the point that it limits growth in productivity. b. Rapid population growth may dilute the capital stock, lowering productivity. c. Rapid population growth may promote technological progress, increasing productivity. d. All of the above are true.

a home built in 2018 and first sold in 2019.

Which of the following would be excluded from 2019 GDP? The sale of a. a 2019 Honda made in Tennessee. b. a haircut. c. a realtor's services. d. a home built in 2018 and first sold in 2019. e. All of the above should be counted in 2019 GDP.

c. an increase in the price of Hondas produced in Japan and sold in the United States

Which of the following would likely cause the CPI to rise more than the GDP deflator? a. an increase in the price of tanks purchased by the military b. an increase in the price of John Deere tractors c. an increase in the price of Hondas produced in Japan and sold in the United States d. an increase in the price of Fords e. an increase in the price of domestically produced fighter planes sold exclusively to Israel