Econ Test 2

purchasing power

# of g&s money can buy

CPI formula

(cost of basket in current year/cost of basket in base year) x 100

Dollar figures from different times

1. amount in today's dollars = amount in year (past) dollars x (1+inflation rate/100) 2. Amount in today's dollars = amount in year (past) dollars x (CPI today) / (CPI in year past)

GDP deflator formula

Nominal GDP/Real GDP x 100

Which of the following would you expect to result in faster economic growth?a. the invention of new computers that increase labor productivity b. a decrease in the average level of education in the economy c. a decrease in the stock of capital per worker d. a decrease in research and development spending

a. the invention of new computers that increase labor productivity

Which of the following government policies would most likely result in an increase in economic growth? a. a decrease in the life of a patent from 20 years to 15 years b. a decrease in the interest rate at which the government provides student loans c. a decrease in government spending on grants issued through the national institutes of health d. decreased copyright protection on music and movies

b. a decrease in the interest rate at which the government provides student loans

An example of business capital investment spending is: a. a purchase of a home by a household. b. a purchase of a computer by an accounting firm. c. a purchase of a bond by General Electric Corporation. d. $200 million of unsold cars at a car dealership.

b. a purchase of a computer by an accounting firm.

If the quality of a good deteriorates from one year to the next while its price remains the same, the value of a dollar ____________. If from one year to the next variety of goods that can be purchased in the economy increases, the value of a dollar ____________. a. falls; falls. b. falls; rises. c. rises; falls. d. rises; rises.

b. falls; rises.

Which of the following is generally an opportunity cost of investment in human capital? a. future job security b. forgone wages at present c. increased earning potential d. All of the above are correct.

b. forgone wages at present

Which of the following is not an example of a transfer payment? a. unemployment insurance payments b. health insurance payments to an army private c. social security payments to retirees d. social security payments to disabled persons

b. health insurance payments to an army private

The largest component in the basket of goods and services used to compute the CPI is a. food and beverages. b. housing. c. medical care. d. apparel.

b. housing.

The purchase of a new house is included in: a. consumption expenditures. b. investment expenditures. c. government purchases. d. net exports.

b. investment expenditures.

If real GDP per person measured in 2012 dollars was $4,000 in 1939 and $56,000 in 2020, we would say that in 2020, the average American could buy ________ times as many goods and services as the average American in 1939. a. 1/12 b. 4 c. 8 d. 14

d. 14

ou deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the CPI risesfrom 200 to 204. In this case, the nominal interest rate is _____ percent, and the real interest rate is _____percent. a. 1, 5 b. 3, 5 c. 5, 1 d. 5, 3

d. 5, 3

Which of the following does NOT add to U.S. GDP? a. Air France buys a plane from Boeing, the U.S. air-craft manufacturer. b. General Motors builds a new auto factory in North Carolina. c. The city of New York pays a salary to a policeman. d. The federal government sends a Social Security check to your grandmother.

d. The federal government sends a Social Security check to your grandmother.

Which of the following transactions would be included in the official calculation of GDP? a. A student buys a used textbook at the bookstore. b. Firestone sells $2 million worth of tires to General Motors. c. You wash and wax your father's car as a favor to him. d. You buy a new iPod.e. You illegally download music off the Internet to put on your new iPod.

d. You buy a new iPod.e. You illegally download music off the Internet to put on your new iPod.

Which of the following government provisions would help increase the accumulation of human capital? a. patents b. copyrights c. education subsidies d. all of the above are correct

d. all of the above are correct

A final good is one that a. is used in the production of another good. b. is a natural resource used to produce a good. c. is purchased as an input in the production process. d. is purchased by its final user.

d. is purchased by its final user.

Proprietary technological knowledge is: a. known but no longer is utilized. b. has recently being discovered. c. known widely by those in profession. d. known only by a company that develops it.

d. known only by a company that develops it.

The purchase by a household in China of a CD produced in the United States is included in U.S. a. consumption expenditures. b. investment expenditures. c. government purchases. d. net exports. e. doesn't affect GDP

d. net exports.

Which factors explain labor productivity? a. technological change; the quantity of labor per hour worked b. diminishing returns; the quantity of labor per hour worked c. diminishing returns; the quantity of capital per hour worked d. technological change; the quantity of capital per hour worked

d. technological change; the quantity of capital per hour worked

f a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army, its price hikes willIncrease: a. both the CPI and the GDP deflator. b. neither the CPI nor the GDP deflator. c. the CPI but not the GDP deflator. d. the GDP deflator but not the CPI.

d. the GDP deflator but not the CPI.

What is human capital? a. labor productivity b. buildings, equipment, and machinery owned by individuals rather than firms c. buildings, equipment, and machinery owned by firms d. the accumulated knowledge and skills that workers acquire from education, training, and their life experiences

d. the accumulated knowledge and skills that workers acquire from education, training, and their life experiences

Suppose in 2022, you purchase a house built in 2013 for $400,000. Which of the following would be included in the gross domestic product for 2022? a. the value of the house in 2022. b. the value of the house in 2013. c. the value of the house in 2022 minus depreciation. d. the value of the services of the real estate agent used to sell the house in 2022.

d. the value of the services of the real estate agent used to sell the house in 2022.

Real GDP is GDP in a given year a. adjusted only for anticipated inflation. b. adjusted only for unanticipated inflation. c. valued in the prices of that year. d. valued in the prices of the base year.

d. valued in the prices of the base year.

In calculating gross domestic product, the Bureau of Economic Analysis (BEA). uses the sum of the market value of final goods and services produced. This means that the BEA: a. simply counts the total number of goods produced in the market place and then adds them up. b. values tangible goods at their market prices, multiplies them by the quantity produced, and then adds them up. c. simply counts the total number of goods and services produced in the marketplace and then adds them up. d. values both goods and services at their market prices, multiplies them by the quantity produced, and then adds them up.

d. values both goods and services at their market prices, multiplies them by the quantity produced, and then addsthem up.

nominal interest rate

deposit x (1+ interest rate/100)

real interest rate

nominal interest rate - inflation rate

productivity determinants

physical capital, human capital, natural resources, technological knowledge

CPI inflation rate

CPI current - CPI past/ CPI past x 100

Nominal Return

A return that doesn't accounts for inflation. Sale current-Sale past

GDP inflation rate

GDP deflator current- GDP deflator past/ GDP deflator past X 100

Real Return

Return adjusted for inflation Amount current x (CPI Past/CPI Current) = X X- Purchase(past)= real return

How are intermediate goods treated in the calculation of GDP? a. Their value is not counted separately, but included as part of the value of the final good for which they are an input. b. Their value is counted separately, and their value is also included as part of the value of the final good for which they are an input. c. Their value is counted separately, but is not included as part of the value of the final good for which they are an input. d. They are included only if they are imported.

a. Their value is not counted separately, but included as part of the value of the final good for which they are an input

In 2002 President Bush imposed restrictions on imports of steel to protect the U.S. steel industry. a. This is an inward-oriented policy which most economists believe have adverse effects on growth. b. This is an inward-oriented policy which most economists believe have beneficial effects on growth. c. This is an outward-oriented policy which most economists believe have adverse effects on growth. d. This is an outward-oriented policy which most economists believe have beneficial effects on growth.

a. This is an inward-oriented policy which most economists believe have adverse effects on growth.

Suppose that an increase in capital per hour worked from $15,000 to $20,000 increases real GDP perhour worked by $500. If capital per hour worked increases further to $25,000, by how much would you expect realGDP per hour worked to increase if there are diminishing returns? a. by less than $500 b. by exactly $500 c. by more than $500 but less than $5,000 d. by more than $5,000 but less than $20,000

a. by less than $500

When additions of input to a fixed quantity of another input lead to progressively smaller increases in output, we say we are facing a. diminishing returns b. negative returns c. accelerating returns d. decreasing production

a. diminishing returns

A good measure of the standard of living is: a. real GDP per person. b. nominal GDP per person. c. total real GDP. d. total nominal GDP.

a. real GDP per person.

Because consumers can sometimes substitute cheaper goods for those that have risen in price, a. the CPI overstates inflation. b. the CPI understates inflation. c. the GDP deflator overstates inflation. d. the GDP deflator understates inflation.

a. the CPI overstates inflation.

What is true about this person's purchasing power? a purchasing power of this person has increase due to this transaction. b. purchasing power of this person has went down due to this transaction. c. purchasing power of this person stayed the same. d. the change in purchasing power can not be determined with the information given.

b. purchasing power of this person has went down due to this transaction.

If there is a change in the ability of a firm to produce a given level of output with a given level of inputs, we say there is a. human capital investment. b. technological change. c. a decrease in labor productivity. d. a movement along a given per-worker production function.

b. technological change.

Suppose that nominal GDP in 2016 was less than real GDP in 2016. Given this information, we know for certain that a. the price level in 2016 was greater than the price level in the base year. b. the price level in 2016 was less than the price level in the base year. c. real GDP in 2016 was less than real GDP in the base year. d. real GDP in 2016 was greater than real GDP in the base year.

b. the price level in 2016 was less than the price level in the base year.

Which of the following is your Economics professor's human capital? a. Ipad she uses during lectures b. the things she learned at grad school c. her copy of Mankiw's textbook d. all of the above

b. the things she learned at grad school

In 2018, General Motors 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. Unsold cars and trucks were valued at $400,000 on January 1, 2020 and unsold cars and trucks were valued at $900,000 on December 31, 2020. How much did General Motors dealership spent on investment in 2020? a. $22,000 b. $322,000 c. $522,000 d. $722,000

c. $522,000

f the CPI is 200 in year 2006 and 255 today, then $600 in 2006 has the same purchasing power as________ today. a. $655 b. $555 c. $765 d. $925

c. $765

An American buys a pair of shoes made in Italy. How do the U.S. Bureau of Economic Analysis (BEA).treats the transaction? a. Net exports and GDP both rise. b. Net exports and GDP both fall. c. Net exports fall, while GDP is unchanged. d. Net exports are unchanged, while GDP rises.

c. Net exports fall, while GDP is unchanged.

Which of the following goods is directly counted in GDP? a. the lettuce that Subway purchases for its sandwiches. b. the bread that Subway purchases for its sandwiches. c. a 12-inch Subway sandwich purchased by a student. d. the plastic bags that Subway purchases to wrap its sandwiches.

c. a 12-inch Subway sandwich purchased by a student.

Which of the following is NOT a durable good? a. furniture. b. automobile. c. clothing. d. refrigerator.

c. clothing.

Other things equal, relatively poor countries tend to grow: a. slower than relatively rich countries, this is known as poverty trap. b. slower than relatively rich countries, this is known as Malthus trap. c. faster than relatively rich countries, this is known as catch-up effect. d. faster than relatively rich countries, this is known as constant return to scale effect.

c. faster than relatively rich countries, this is known as catch-up effect.

An economy can improve its standard of living by a. organizing production so that the quantity of goods produced per hour will decrease. b. reducing the amount of human capital workers have. c. increasing the amount of capital available per hour worked. d. all of the above

c. increasing the amount of capital available per hour worked

In a market economy scarcity of natural resources is reflected in: a. supply of electronics b. demand for natural resources c. market prices d. the stock of physical capital

c. market prices

If the price of imported chocolate rises, then: a. both the CPI and the GDP deflator increase. b. neither the CPI nor the GDP deflator is affected. c. the CPI Increases but not the GDP deflator. d. the CPI decreases but the GDP deflator rises.e. the GDP deflator Increases but not the CPI.

c. the CPI Increases but not the GDP deflator.

The CPI measures approximately the same economic phenomenon as a. nominal GDP. b. real GDP. c. the GDP deflator. d. the unemployment rate.

c. the GDP deflator.

Nominal GDP is GDP in a given year: a. adjusted for inflation. b. adjusted for anticipated inflation. c. valued in the prices of that year. d. valued in the prices of the base year.

c. valued in the prices of that year.