Econ - Chp 15, 16, +17

Suppose Eileen is a sports fan and buys only baseball caps. Eileen deposits $3,000 in a bank account that pays an annual nominal interest rate of 5%. Assume this interest rate is fixed—that is, it won't change over time. At the time of her deposit, a baseball cap is priced at $15.00. Initially, the purchasing power of Eileen's $3,000 deposit is ___ baseball caps.

200 Purchasing Power = Initial Deposit / Price = $3,000 / $15.00 per baseball cap = 200 caps

GDP deflator

2016 $540/$540×100=100 2017 $1,130/$565×100=200 2018 $1,080/$480×100=225

Nomial GDP

2016 ($1 per pencil×140 pencils)+($2 per envelope×200 envelopes)=$540 2017 ($2 per pencil×125 pencils)+($4 per envelope×220 envelopes)=$1,130 2018 ($3 per pencil×120 pencils)+($4 per envelope×180 envelopes)=$1,080

Real GDP

2016($1 per pencil×140 pencils)+($2 per envelope×200 envelopes)=$540 2017($1 per pencil×125 pencils)+($2 per envelope×220 envelopes)=$565 2018($1 per pencil×120 pencils)+($2 per envelope×180 envelopes)=$480

Inflation between 2017 and 2018

= 100 × CSPI in 2018 − CSPI in 2017 / CSPI in 2017 = 100 × 120 − 100/ 100 = 20%

Inflation between 2018 and 2019

= 100 × CSPI in 2019 − CSPI in 2018 / CSPI in 2018 = 100 × 150 − 120 / 120 = 25%

CSPI in 2018

= 100 × Cost of Basket in 2018 / Cost of Basket in 2017 = 100 × $1,680 / $1,400 = 100 × 1.2 = 120

CSPI in 2019

= 100 × Cost of Basket in 2019 / Cost of Basket in 2017 = 100 × $2,100 / $1,400 = 100 × 1.5 = 150

Percentage Change in Purchasing Power

= 100 × New Quantity of Caps − Original Quantity of Caps / Original Quantity of Caps = 100 × 210 − 200 / 200 = 5%

GDP = Consumption + Investment + Government Purchases + (Exports - Imports)

= 12283.7 + 3056.6 + 3218.3 + (2264.3 - 2786.3) = 18036.6 billion

Net Exports = Exports - Imports

= 2264.3 - 2786.3 = -522 billion

Costs of Basket in 20--

= CostNotebooks + CostCalculators + CostLargeCoffees + CostEnergyDrinks + CostTextbooks = $70 + $110 + $150 + $150 + $1,200 = $1,680

Winnings Adjusting for Inflation

= Nominal Winnings × Current Year Index / Original Year Index

Labor Productivity

= Output in 2024 / Labor Hours in 2024 = 24,000 garments / 3,000 hours of labor = 8 garments per hour of labor

Output per Worker

= Output with 8 Tools per Worker / Number of Workers = 3,600 gaggles of gop / 40 workers = 90 gaggles of gop per worker

Physical capital per worker

= Physical Capital in 2024 / Labor in 2024 = 120 looms / 60 workers = 2 looms per worker

The real interest rate equals the nominal interest rate minus the inflation rate. For example, the real interest rate in 2004 was 1.6% − 2.7% = −1.1%

...

Indicate whether each scenario will affect the GDP deflator or the CPI for the United States. 01. An increase in the price of a German-made phone that is popular among U.S. consumers 02. A decrease in the price of a Treewood Equipment feller buncher, which is a commercial forestry machine made in the U.S. but not bought by U.S. consumers 03. An increase in the price of a Chinese-made car that is popular among U.S. consumers 04. A decrease in the price of a Waterman Industries deep-water reel, which is a commercial fishing product used for deep-sea fishing, made in the U.S., but not bought by U.S. consumers

01. CPI 02. GDP Deflator 03. CPI 04. GDP Deflator

01. Treetopplers, a U.S. lumber company, produces wood at a plant in Oregon on September 25, 2018. It sells the wood to Buildit and Partners, a developer, for use in the production of a new house that will be built in the United States in 2018. (Note: Focus exclusively on whether production of the wood increases GDP directly, and ignore the effect of production of the new house on GDP.) 02. An accountant starts a client's 2018 tax return on April 14, 2019, finishing it just before midnight on April 15, 2019. 03. An accountant starts a client's 2018 tax return on April 14, 2019, finishing it just before midnight on April 15, 2019. 04. Chocolate Express, a Swiss chocolate company, produces a chocolate bar at a plant in Illinois on December 9, 2018. An elementary school student buys the chocolate bar on December 24. 05. Tasty's, a U.S. fast-food company, produces a hamburger at one of its many St. Louis locations on January 14, 2018. It sells the hamburger to a customer that same day.

01. Excluded 02. Excluded 03. Excluded 04. Included 05. Included

01. The Bertollis build an addition on their house. 02. Simone gets a new refrigerator made in the United States. 03. Yakov paints a landscape and sells it to an art collector in Japan. 04. The Federal Aviation Administration expands the runways at Philadelphia International Airport, which is just a few miles from Rajiv and Simone's house. 05. Simone buys a new BMW, which was assembled in Germany.

01. Investment 02. Consumption 03. Exports 04. Government Purchases 05. Consumption and Imports

01. Gilberto spends $200 to purchase software from PC Pros. 02. Juanita earns $775 per week working for PC Pros. 03. Gilberto earn $500 per week working for Spotless Car Wash.

01. Market for Goods and Services 02. Market for Factors of Production 03. Market for Factors of Production

01. A unique fertilizer that can be spread on the grasslands to induce thicker coats on the sheep 02. The accumulated weaving experience of the workforce 03. The looms used to weave the textiles 04. The grasslands supporting the sheep whose wool is used for weaving

01. Technological Knowledge 02. Human Capital per Worker 03. Physical Capital per Worker 04. Natural Resources per Worker

What is a significant factor in long-run economic growth that Robert Fogel, an economic historian, is best known for suggesting?

Improvements in worker health from better nutrition

Inflation Rate

Inflation Rate in 2018 = 100 × GDP Deflator in 2018 − GDP Deflator in 2017 / GDP Deflator in 2017 = 100 × 225 − 200 / 200 = 100 × 0.125 = 12.5%

Which of the following policies are consistent with the goal of increasing productivity and growth in developing countries?

Protecting property rights and enforcing contracts Providing tax breaks and patents for firms that pursue research and development in health and sciences

Why is real GDP a more accurate measure of an economy's production than nominal GDP?

Real GDP is not influenced by price changes, but nominal GDP is.

Which of the following policies would lead to greater productivity in the weaving industry?

Subsidizing research and development into new weaving technologies Offering free public education to every worker in the country

Which of the elements of this scenario represents a flow from a household to a firm? This could be a flow of dollars, inputs, or outputs.

The $200 Gilberto spends to purchase software from PC Pros Juanits's labor

Although GDP is a reasonably good measure of a nation's output, it does not necessarily include all transactions and production for that nation. Which of the following scenarios are either not accounted for or measured inaccurately by either the income or the expenditure methods of calculating GDP for the United States?

The costs of air and water pollution The import and sale of illegal drugs from South America The quality of goods available to consumers

Which of the following, if true, would illustrate why price indexes such as the CSPI might overstate inflation in the cost of going to college?

The quality of textbooks increased dramatically from 2017 to 2019, with textbook companies bundling new online study aids with their books, but this quality change is hard to measure. As the price of energy drinks increased relative to the price of coffee between 2017 and 2019, students decreased their consumption of energy drinks and increased their consumption of coffee. A new type of personal transporter, which made it easier to get around places like university campuses, became available for purchase.

True or False: According to the previous table, the golfer with the highest PGA winnings in nominal dollars is the same as the golfer with the highest PGA winnings after adjusting for inflation.

True

True or False: Gross domestic product (GDP) measures total expenditures on final goods and services during a given period of time.

True

The CPI for this year is calculated by dividing the ___ using ___ by the ___ using ___ and multiplying by 100. However, the GDP deflator reflects only the prices of all goods and services ___.

cost of a given market basket of goods and services this year's prices cost of a given market basket of goods and services the base year's prices produced domestically

Suppose Vaabo, a Finnish-owned auto manufacturer, builds a production facility in Kentucky. Suppose a wealthy French citizen buys $2 million worth of stock issued by an American corporation. The American firm uses the proceeds for a factory expansion.

direct portfolio

Based on this model, household earn income when ___ purchase ___ in markets for factors of production.

firms labor and capital

When a U.S. company purchases and imports wood from Brazil to use to build new houses within the United States, this purchase increases the ___ component of GDP while also ___ net exports by the same amount. Therefore, the purchase of wood from Brazil causes ___ in US GDP.

investment decreasing no overall change

The gross domestic product (GDP) of the United State is defined as the ___ all ____ ___ in a given period of time

market value of final goods and services produced within the United States

When the rate of inflation is equal to the interest rate on Eileen's deposit, the purchasing power of her deposit ___ over the course of the year.

remains the same

Initially, the number of tools per worker was higher in Blahnik than in Gobbledigook. From 2015 to 2025, capital per worker rises by 4 units in each country. The 4-unit change in capital per worker causes productivity in Blahnik to rise by a ___ amount than productivity in Gobbledigook. This illustrates the ___ effect

smaller catch-up

The GDP deflator for this year is calculated by dividing the ___ using ___ by the ___ using ___and multiplying by 100. However, the CPI reflects only the prices of all goods and services ___.

values of all goods and services produced in the economy this year this year's price values of all goods and services produced in the economy this year the base year's prices bought by consumers