ECON TEST 2 ZIRLOTT

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If nominal GDP is $10 trillion and real GDP is $8 trillion, the the GDP deflator is

125, and this indicated that the price level has increased by 25 percent since the base year

In the calculation of the CPI, coffee is given greater weight than tea if

Consumers buy more coffee than tea

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Fix the basket, find the prices, compute the basket's costs, choose a base year and compute the index, and compute the inflation rate

Goods that go into inventory and are not sold during the current period are

included in current period GDP as inventory investment

The inflation rate is the

percentage change in the price level from one period to another

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.

GDP does not reflect

the value of leisure, the value of goods and services produced at home, the quality of the environment

Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that

GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

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

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 and that doubled

By not taking into account the possibility of consumer substitution, the CPI

Overstates the cost of living

An important difference between GDP deflator and the consumer price index is that

The GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.

A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result,

U.S investment and GDP increase, but German GDP is unaffected

The consumption component of GDP includes spending on

durable goods, non-durable goods, and services

For an economy as a whole, income must equal expenditure because

every dollar of spending by some buyer is a dollar of income for some seller


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