macro midterm 1

If the nominal interest rate is 5 percent and the rate of inflation is 9 percent, then the real interest rate is a. -4 percent. b. -0.44 percent. c. 4 percent. d. 14 percent

a

In the base year, the GDP deflator is always a. -1. b. 0. c. 1. d. 100

d

A U.S. citizen buys a tea kettle manufactured in China by a company that is owned and operated byU.S citizens. In which of the following components of U.S. GDP is this transaction accounted for? a. consumption and imports b. consumption but not imports c. imports but not consumption d. neither consumption nor imports

a

A U.S. publisher buys new computers that were manufactured in the U.S. This purchase makes a. a positive contribution both to investment and to GDP. b. a positive contribution both to consumption and to GDP. c. a positive contribution to GDP, but it does not affect investment or consumption. d. a positive contribution to investment, but it does not affect GDP

a

A country's human capital increases a. if its workers become better educated or healthier. b. only if its workers become better educated. c. only if its workers become healthier. d. None of the above is correct.

a

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

a

Changes in the GDP deflator reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced

a

Government corruption a. impedes the coordinating power of markets and discourages investment. b. impedes the coordinating power of markets but does not discourage investment. c. does not impede the coordinating power of markets, but does discourage investment. d. can neither impede the coordinating power of markets nor discourage investment.

a

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by a. surveying consumers. b. surveying sellers of the goods and services. c. working backward from the rate of inflation to arrive at imputed values for those quantities. d. arbitrary choices made by federal government employees.

a

Mary looks over reports on four of her workers. Jack made 30 baskets in 5 hours. Rudy made 32baskets in 8 hours. Sam made 40 baskets in 12 hours. Walter made 22 baskets in four hours. Who has the greatest productivity? a. Jack b. Rudy c. Sam d. Walter

a

Nominal GDP will definitely increase when a. prices increase and output increases. b. prices increase and output decreases. c. prices decrease and output increases. d. All of the above are correct.

a

Other things the same, a country that increases its saving rate increases a. its future productivity and future real GDP. b. neither its future productivity nor future real GDP. c. its future productivity, but not its future real GDP. d. its future real GDP, but not its future productivity

a

Other things the same, which of the following could explain an increase in productivity? a. either an increase in human capital or an increase in physical capital b. an increase in human capital but not an increase in physical capital c. an increase in physical capital but not an increase in human capital d. neither an increase in human capital nor an increase in physical capital

a

Rocket Energy Drink Co. buys sugar to produce energy drinks. At the end of a year both its inventoryof sugar and its inventory of energy drinks has increased. Investment for the year will include a. both the increased inventory of sugar and the increased inventory of energy drinks. b. the increased inventory of sugar, but not the increased inventory of energy drinks. c. the increased inventory of energy drinks, but not the increased inventory of sugar. d. neither the increased inventory of sugar nor the increased inventory of energy drinks

a

The key determinant of the standard of living in a country is a. the amount of goods and services produced from each hour of a worker's time. b. the total amount of goods and services produced within the country. c. the total amount of its physical capital. d. its growth rate of real GDP.

a

The nominal 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

The price index was 220 in one year and 238.2 in the next year. What was the inflation rate? a. 8.3 percent b. 108.3 percent c. 4.8 percent d. 38.2 percent

a

The value of the housing services provided by the economy's owner-occupied houses is a. included in GDP, and the estimated rental values of the houses are used to place a value on these housing services. b. included in GDP, and the actual mortgage payments made on the houses are used to estimate the value of these rental services. c. excluded from GDP since these services are not sold in any market. d. excluded from GDP since the value of these housing services cannot be estimated with any degree of precision

a

Which of the following is not correct? a. Countries that have had higher output growth per person have typically done so without higher productivity growth. b. A country's standard of living and its productivity are closely related. c. Productivity refers to output produced per hour of work. d. Increases in productivity can be used to increase output or leisure.

a

if the price of domestically produced power tools increases, then a. the consumer price index and the GDP deflator will both increase. b. the consumer price index will increase, and the GDP deflator will be unaffected. c. the consumer price index will be unaffected, and the GDP deflator will increase. d. the consumer price index and the GDP deflator will both be unaffected

a

in one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor. What was AlphaCabinet Company's productivity? a. 1/8 cabinet per hour b. 8 hours per cabinet c. 40 cabinets d. None of the above is correct

a

in the calculation of the CPI, books are given greater weight than magazines if a. consumers buy more books than magazines. b. the price of books is higher than the price of magazines. c. it costs more to produce books than it costs to produce magazines. d. books are more readily available than magazines to the typical consumer.

a

A barber shop produces 192 haircuts a day. Each barber in the shop works 8 hours per day and produces the same number of haircuts per hour. If the shop's productivity is 2 haircuts per hour of labor, then how many barbers does the shop employ? a. 8 b. 12 c. 16 d. None of the above is correct

b

A car dealer bought a new car from the manufacturer for $18,000 and sold it to Tyler for $22,000.Later that year, Tyler sold the car to Camille for $17,000. What happens to the GDP that year? a. increases by $18,000 b. increases by $22,000 c. increases by $39,000 d. increases by $57,000

b

All else equal, which of the following would tend to cause real GDP per person to rise? a. a change from outward-oriented policies to inward-oriented policies b. an increase in investment in human capital c. a weakening of property rights d. All of the above are correct.

b

An increase in the saving rate would, other things the same, a. increase growth more for a poor country than for a rich country, and raise growth permanently. b. increase growth more for a poor country than for a rich country, but raise growth temporarily. c. increase growth more for a rich country than for a poor country, and raise growth permanently. d. increase growth more for a rich country than for a poor country, but raise growth temporarily.

b

By not taking into account the possibility of consumer substitution, the CPI a. understates the cost of living. b. overstates the cost of living. c. may overstate or understate the cost of living, depending on how quickly prices rise. d. may overstate or understate the cost of living, regardless of how quickly prices rise.

b

During the current quarter, a firm produces consumer goods and adds some of those goods to its inventory rather than selling them. The value of the goods added to inventory is a. not included in the current quarter GDP. b. included in the current quarter GDP as investment. c. included in the current quarter GDP as consumption. d. included in the current quarter GDP as a statistical discrepancy

b

Estimates of the values of which of the following non-market goods or services are included in GDP? a. unpaid housework but not the rental value of owner-occupied homes. b. the rental value of owner-occupied homes but not unpaid housework. c. unpaid housework and the rental value of owner-occupied homes. d. Neither unpaid housework nor the rental value of owner-occupied homes.

b

Grapes are considered intermediate goods a. whether the purchaser uses them to make wine to sell or eats them. b. if the purchaser uses them to make wine to sell others but not if the purchaser eats them. c. if the purchaser eats them, but not if the purchaser uses to them to make wine to sell. d. None of the above is correct

b

If a state made a previously-illegal activity, such as gambling or prostitution, legal, then, other things equal, GDP a. decreases. b. increases. c. doesn't change because both legal and illegal production are included in GDP. d. doesn't change because these activities are never included in GDP.

b

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is a. -16 percent. b. -4 percent. c. 4 percent. d. 16 percent.

b

In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 229.6 for 2012. President Hoover's 1931 salary was equivalent to a 2012 salary of about a. $4,965. b. $1,132,895. c. $1,057,894. d. $16,080,001.

b

Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his back yard.Regarding these two practices, which of the following statements is correct? a. Only Joe's grocery store purchases are included in GDP. b. Only Joe's and Jim's grocery store purchases are included in GDP. c. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value. d. Joe's and Jim's grocery store purchases are included in GDP. The vegetables from Jim's backyard garden are included at their market value, if Jim provides this information.

b

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

b

Net exports equal a. exports plus imports. b. exports minus imports. c. imports minus exports. d. GDP minus imports.

b

On a production function, as capital per worker increases, output per worker a. increases. This increase is larger at larger values of capital per worker. b. increases. This increase is smaller at larger values of capital per worker. c. decreases. This decrease is larger at larger value of capital per worker. d. decreases. This decrease is smaller at larger value of capital per worker

b

Real GDP will increase a. only when prices increase. b. only when output increases. c. when prices increase or output increases. d. All of the above are correct.

b

Technological knowledge refers to a. human capital. b. available information on how to produce things. c. resources expended transmitting society's understanding to the labor force. d. All of the above are technological knowledge.

b

The CPI is calculated a. monthly by the Department of Commerce. b. monthly by the Bureau of Labor Statistics. c. quarterly by the Department of Commerce. d. quarterly by the Bureau of Labor Statistics

b

The city of Ann Arbor Michigan buys a police car manufactured in Germany. In the GDP accounts this transaction is included in a. in government expenditures and exports. b. government expenditures and imports. c. exports, but not government expenditures. d. imports, but not government expenditures

b

The goal of the consumer price index is to measure changes in the a. costs of production. b. cost of living. c. relative prices of consumer goods. d. production of consumer goods.

b

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

b

To which of the problems in the construction of the CPI is the invention of pocket-sized computers most relevant? a. substitution bias b. introduction of new goods c. unmeasured quality change d. income bias

b

f the consumer price index was 96 in 2012, 100 in 2013, and 102 in 2014, then the base year must be a. 2012. b. 2013. c. 2014. d. The base year cannot be determined from the given information.

b

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

b

the CPI is a measure of the overall cost of a. the inputs purchased by a typical producer. b. the goods and services purchased by a typical consumer. c. the goods and services produced in the economy. d. the stocks on the New York Stock Exchange

b

A farmer sells five pounds of pecans to a Smith's Fresh Pecans for $10. Smith's Fresh Pecans resellsthree pounds for $4.50 per pound. The remaining pecans are shelled and canned and sold for a total of$8.00 Taking these transactions into account, how much is added to GDP? a. $22.50 b. $29.50 c. $21.50 d. $31.50

c

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

c

Because of its effect on the amount of capital per worker, in the short term an increase in the working population is likely to a. raise productivity. Other things the same, this increase will be larger in a poor country. b. raise productivity. Other things the same, this increase will be larger in a rich country. c. reduce productivity. Other things the same, this decrease will be larger in a poor country. d. reduce productivity. Other things the same, this decrease will be larger in a rich country

c

Changes in nominal GDP reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced

c

Country A and country B are the same except country A currently has more capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then a. output in country A increases by more than in country B. b. output in country A increases by the same amount as in country B. c. output in country A increases by less than in country B. d. None of the above is necessarily correct

c

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

c

GDP is defined as the a. value of all goods and services produced within a country in a given period of time. b. value of all goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. c. value of all final goods and services produced within a country in a given period of time. d. value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time

c

Government purchases include spending on goods and services by a. the federal government, but not by state or local governments. b. federal and state governments, but not by local governments. c. federal, state, and local governments. d. federal, state, and local governments, as well as household spending by employees of those governments

c

Gross domestic product includes all a. legal and illegal final goods, but it excludes all legal and illegal final services. b. legal and illegal final goods and all legal and illegal final services. c. legal final goods and services, but it excludes illegal final goods and services. d. legal and illegal final goods and legal final services, but it excludes illegal final services

c

If a U.S. company buys an electrical generator made in Japan by a Japanese firm, and the Japanese firm uses the payment to buy stocks issued by a U.S. company then a. U.S. exports and U.S imports increase. b. U.S. exports but not U.S. imports increase. c. U.S. imports but not U.S. exports increase. d. neither U.S. exports nor U.S. imports increase.

c

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct? a. The base year is always the first year among the years for which computations are being made. b. It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases, it is not necessary to designate a base year. c. The value of the consumer price index is always 100 in the base year. d. The base year is always the year in which the cost of the basket was highest among the years forwhich computations are being made

c

In the economy of Talikastan in 2015, consumption was $5000, exports were $400, government purchases were $1000, imports were $600, and investment was $1200. What was Talikastan's GDP in2015? a. $6200 b. $6400 c. $7000 d. $8200

c

Megan is a landscaper. Which of the following are included in her physical capital? a. her knowledge of landscaping learned in college and her landscaping equipment b. her knowledge of landscaping learned in college, but not her landscaping equipment c. her landscaping equipment, but not her knowledge of landscaping learned in college d. neither her knowledge of landscaping learned in college nor her landscaping equipment

c

Productivity is defined as the quantity of a. labor required to produce a nation's GDP. b. labor required to produce one unit of goods and services. c. goods and services produced from each unit of labor input. d. goods and services produced per unit of time.

c

Suppose a country has government expenditures of $3,500, taxes of $2,200, consumption of $9,000, exports of $2,500, imports of $2,700, transfer payments of $750, capital depreciation of $800, and investment of $3,000. GDP equals a. $24,450. b. $11,550. c. $15,300. d. $20,700.

c

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. investment. b. government spending. c. consumption. d. net exports.

c

The substitution bias in the consumer price index refers to the a. substitution by consumers toward new goods and away from old goods. b. substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods. c. substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive. d. substitution of new prices for old prices in the CPI basket of goods and services from one year to the next.

c

Thomas, a U.S. citizen, works only in Canada. The value of the output he produces is a. included in both U.S. GDP and U.S. GNP. b. included in U.S. GDP, but it is not included in U.S. GNP. c. included in U.S. GNP, but it is not included in U.S. GDP. d. included in neither U.S. GDP nor U.S. GNP

c

Unemployment compensation is a. part of GDP because it represents income. b. part of GDP because the recipients must have worked in the past to qualify. c. not part of GDP because it is a transfer payment. d. not part of GDP because the payments reduce business profits.

c

When the relative price of a good increases, consumers respond by buying a. a larger quantity of that good and a larger quantity of substitutes for that good. b. a larger quantity of that good and a smaller quantity of substitutes for that good. c. a smaller quantity of that good and a larger quantity of substitutes for that good. d. a smaller quantity of that good and a smaller quantity of substitutes for that good.

c

Which of the following examples of household spending is categorized as investment rather than consumption? a. expenditures on durable goods such as automobiles and refrigerators b. expenditures on intangibles items such as medical care c. expenditures on new housing d. All of the above are correct

c

Which of the following is an example of human capital? a. the comfortable chair in your dorm room where you read economics texts b. the amount you get paid each week to work at the library c. the things you have learned this semester d. any capital goods that require a human to be present to operate

c

Which of the following is correct? a. Nominal GDP is always less than real GDP. b. Nominal GDP is always greater than real GDP. c. Nominal GDP equals real GDP in the base year. d. Nominal GDP equals real GDP in all years but the base year

c

Which of the following is included in GDP? a. the market value of rental housing services, but not the value of owner-occupied housing services. b. the market value of owner-occupied housing services, but not the value of rental housing services c. both the market value of rental housing services and the value of owner-occupied housing services d. neither the market value of owner-occupied housing services nor the value of rental housing services

c

Which of the following is included in government purchases? a. unemployment benefits a state pays b. Social Security payments the U.S. government makes c. the services of a U.S. government attorney valued at the cost of her salary d. All of the above are correct.

c

Which of the following is not an example of physical capital? a. a new factory building b. a delivery van c. the knowledge of workers d. the office chair in a lawyer's office

c

if the CPI was 90 in 1975 and is 225 today, then $100 today purchases the same amount of goods and services as a. $25.00 purchased in 1975. b. $33.33 purchased in 1975. c. $40.00 purchased in 1975. d. $135.55 purchased in 1975

c

in the economy of Kentstan in 2015, consumption was $6000, exports were $1000, GDP was $10,000, government purchases were $1800, and imports were $1200. What was Kentstan's investment in 2015? a. $0 b. $1200 c. $2400 d. $5600

c

the CPI differs from the GDP deflator in that a. the CPI is a price index, while the GDP deflator is an inflation index. b. substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator. c. 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. d. 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.

c

the GDP Deflator reflects a. the prices of all final goods and services currently produced domestically, as does the CPI. b. the price of a fixed basket of goods and services purchased by a typical consumer, as does theCPI. c. the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer. d. the price of a fixed basket of goods and services purchased by a typical consumer, while the CPI reflects the prices of all final goods and services produced domestically.

c

A rapid increase in the number of workers, other things the same, is likely in the short term to a. raise real GDP per person, but decrease real GDP. b. decrease both real GDP and real GDP per person. c. raise both real GDP and real GDP per person. d. raise real GDP, but decrease real GDP per person

d

An American retailer purchased 100 pairs of shoes from a company in Mexico in the second quarterof 2016 but does not sell them to a consumer until the third quarter of 2016. In which quarter(s)does(do) the value of the shoes add to U.S. GDP? a. the second and third quarters b. the second quarter but not the third quarter c. the third but not the second quarter d. neither the second nor the third quarter

d

Henri earned a salary of $50,000 in 2001 and $60,000 in 2012. The consumer price index was 177 in2001 and 225 in 2012. Henri's 2001 salary in 2012 dollars is a. $39,333.33. b. $74,000.00. c. $89,333.33. d. $63,559.32

d

If there are diminishing returns to capital, then a. capital produces fewer goods as it ages. b. old ideas are not as useful as new ones. c. increases in the capital stock eventually decrease output. d. increases in the capital stock increase output by ever smaller amounts

d

Nate collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986, then his Social Security payments for 1986 should have been a. $228. b. $238. c. $257. d. $264.

d

Outward-oriented policies a. allow countries to take advantage of gains from trade. b. have generally led to high growth for the countries that pursued them. c. receive widespread support from economists. d. All of the above are correct

d

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basket's cost was $80.00; in 2013, the basket's cost was $84; and in 2014, the basket's cost was $87.60. The value of the CPI was a. 100 in 2012. b. 105 in 2013. c. 109.5 in 2014. d. All of the above are correct

d

The consumer price index tries to measure how much consumer incomes must rise in order to maintain a constant a. level of real GDP. b. ratio of consumption to GDP. c. ratio of net exports to GDP. d. standard of living.

d

The inflation rate is the a. absolute change in real GDP from one period to another. b. percentage change in real GDP from one period to another. c. absolute change in the price level from one period to another. d. percentage change in the price level from one period to another.

d

Transfer payments a. are payments that flow from government to households. b. are not made in exchange for currently produced goods or services. c. alter household income, but they do not reflect the economy's production. d. All of the above are correct.

d

Which of the following is considered human capital? Knowledge acquired from a. early childhood education programs b. job training c. on-the-job experience d. All of the above are correct

d

Which of the following is included in the investment component of GDP? a. households' purchases of newly constructed homes b. net additions to firms' inventories c. firms' purchases of capital equipment d. All of the above are correct.

d

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living? a. substitution bias b. introduction of new goods c. unmeasured quality change d. unmeasured price change

d

Which of the following is not correct? a. If the inflation rate exceeds the nominal interest rate, then the purchasing power of an interest-earning deposit falls over time. b. If there is deflation, then the purchasing power of an interest-earning deposit rises by more than the nominal interest rate over time. c. The higher the rate of inflation, the smaller the increase in the purchasing power of an interest-earning deposit. d. The purchasing power of an interest-earning deposit can increase or decrease over time, but it cannot stay the same.

d

Which of the following public policies would be least likely to result in more rapid economic growth for a poor or developing country? a. policies designed to promote economic development in coastal areas b. policies designed to foster strict enforcement of property rights c. policies designed to foster free trade d. inward-oriented policies

d

if a U.S. citizen buys a television made in Korea by a Korean firm, then a. U.S. net exports decrease and U.S. GDP decreases. b. U.S. net exports are unaffected and U.S. GDP decreases. c. U.S. net exports are unaffected and U.S. GDP is unaffected. d. U.S. net exports decrease and U.S. GDP is unaffected

d

investment from abroad a. is a way for poor countries to learn the state-of-the-art technologies developed and used in richer countries. b. is viewed by economists as a way to increase growth .c. often requires removing restrictions that governments have imposed on foreign ownership of domestic capital. d. All of the above are correct.

d