Macro Set 2

Consider the data above (in billions of dollars)

$1,200

If the CPI was 104 in 1967 and is 390 today, then $10 in 1967 purchased the same amount of goods and services as

$37.50 purchases today.

Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2006 salary in 2001 dollars is

$46,666.67

A U.S. - owned automobile factory uses $100,000 worth of parts purchased from foreign countries along with U.S inputs to produce 30 cars worth $20,000 each. Twenty of these cars are sold and 10 are left in inventory. How much did these actions add to GDP?

$500,000

If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is

-4 percent.

Last year real GDP in the imaginary nation of Populia was 5 billion and the population was 3.3 million. The year before real GDP was 750 billion and the population was 3 million. What was the growth rate of real GDP per person during the year?

10 percent

A country's real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700. What was this country's inflation rate?

10.0%

Over the last century, U.S. real GDP per person grew at a rate of about

2 percent per year, so that it is now 8 times as high as it was a century ago

Over the past century in the United States, real GDP per person has grown, on average, by about

2 percent per year.

In 2010, the imaginary nation of Bovina had a population of 5,000 and real GDP of 600,000. In 2011 it had a population of 5,200 and real GDP of 636,480. During 2011 real GDP per person in Bovina grew by

2 percent, which is about the same as average U.S. growth over the last one-hundred years.

Consider the following values of the consumer price index for 1996, 1997, and 1998: The inflation rate for 1997 was equal to

2.5%

Refer. Price of books and calculators. The inflation rate was

24.3 percent in 2013 and 7.3 percent in 2014.

(Caspir) This country's inflation rate from 2017 to 2018 was

28.0%

The consumer price index was 120 in 2013 and 126 in 2014. The nominal interest rate during this period was 8 What was the real interest rate during this period?

3 percent

According to research by Robert Fogel, what proportion of the increase in the standard of living in Britain between 1790 and 1980 can be accounted for by greater caloric intake?

30 percent

The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?

4.41 percent

If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is

5 percent.

(Graph) Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup

6,400

If 2013 is the base year, then the consumer price index was

80.8 in 2012, 100 in 2013, and 107.7 in 2014

The price index was 92 in 2014, and the inflation rate was 8.7 between 2013 and 2014. The price index in 2013 was

83.3

Which of the following is a way to compute GDP

Add up the market values of all final goods and services

All else equal, which of the following would tend to cause real GDP per person to rise?

All of the above are correct.

GDP does not reflect

All of the above are correct.

If the CPI was 125 this year and 120 last year, then

All of the above are correct.

Industrial machinery is an example of

All of the above are correct.

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base 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

All of the above are correct.

The nominal GDP of the U.S. in 2010 was approximately $14.6 trillion. This means that

All of the above are true

In an economy where net exports are zero, if saving rises in some period, then in that period

Consumption falls and investment rises.

Which of the following is a correct way to measure productivity?

Divide the quantity of output by the number of hours worked.

Net Export is calculated as _________

Exports - Imports

Accumulating a greater number of inputs will ensure that an economy will experience economic growth.

False

Although growth rates across countries vary some, rankings of countries by income remain pretty much the same over time.

False

Economist Michael Kremer found that world growth rates fell as population increased.

False

GDP is the market value of all final goods and services produced by a country's citizens in a given period of time.

False

New home construction is included in the consumption component of GDP.

False

Nominal income is equal to real income if the CPI is less than 100.

False

The GDP deflator is the best measure that reflects the prices of goods and services purchased by the typical household.

False

The content of the basket of goods and services used to compute the CPI changes every month.

False

The population growth rate tends to be higher in developed countries than in developing countries.

False

Transfer payments are subtracted from government purchases when calculating the GDP.

False

For the economy as a whole

Income must equal expenditure

Inflation rate is measured as percentage change in prices from one period to the _______ period

Next

Suppose that real GDP grew more in Country A than in Country B last year.

None of the above are correct.

The GDP is not a perfect measure of standard of living because it does not take _____________ of increasing production into account

Social Problems

Which of the following is not correct?

The U.S. economy has never experienced deflation.

You earned $30,000 in 1990, and your salary rose to $80,000 in 2011. If the CPI rose from 82 to 202 between 1990 and 2011, which of the following is true?

The purchasing power of your salary increased between 1900 and 2011.

Changes in the GDP deflator reflect only changes in the prices of goods and services.

True

Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.

True

If inflationary expectations are increasing, we would expect that the nominal interest rate would also be increasing, holding all else constant.

True

If the quality of a good deteriorates from one year to the next while its price remains the same, then the value of a dollar falls.

True

In some countries in Sub-Saharan Africa real GDP per person has been stagnant for many years.

True

Kristine has a savings account at a bank. If the nominal interest rate she earns exceeds the rate of inflation, then her purchasing power increases over time.

True

Other things equal, in countries with higher levels of real GDP per person, life expectancy and literacy rates are higher than in countries with lower levels of real GDP per person.

True

Studies confirm that controlling for other variables such as the percentage of GDP devoted to investment, poor countries tend to grow at a faster rate than rich countries.

True

The CPI is a measure of the overall cost of the goods and services bought by a typical consumer

True

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

True

Net exports equal

Y - (C + I + G).

Which of the following transactions represent the purchase of a final good?

Your father buys a new John Deere riding lawn mower.

If 2012 is the base year, then the inflation rate for 2012 equals. (HW 7 Q 4)

a

Industrial machinery is an example of

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

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.

An example of business fixed investment spending is

a purchase of a computer by an accounting firm

Expenditures on a nation's domestic production

are equal to its domestic production.

The consumer price index is the

average of the prices of the goods and services purchased by a typical urban family of four.

Changes in nominal GDP reflect

both changes in prices and changes in the amounts being produced.

For the purpose of calculating GDP, investment is spending on

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

The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and _____ the cost of the market basket.

change; over-estimation

The GDP deflator is a ration of ___________ prices.

current to fixed

Figure. The curve becomes flatter as the amount of capital per worker increases because of

diminishing returns to capital.

The traditional view of the production process is that capital is subject to

diminishing returns.

The consumption component of GDP includes spending on

durable goods, nondurable goods, and services.

Which of the following measures how the level of well-being in a country has changed over time?

growth rate of real GDP per person.

Suppose that a country increased its savings rate. In the long run it would have

higher productivity, but another unit of capital would increase output by less than before.

Gross domestic product understates the total production of final goods and services because of the omission of

household production

The nominal interest rate tells you

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

Sheri, a U.S citizen, works only in Germany. The value she adds to production in Germany is included

in German GDP, but is not included in U.S. GDP.

The value of the housing services provided by the economy's owner-occupied houses is

included in GDP, and the estimated rental values of the houses are used to place a value on these housing services

A sharp increase in the divorce rate increases the number of lawyers hired to determine divorce settlements. This will

increase GDP and decrease well being in the economy

Technological advance generally result in

increased life expectancy.

During a business cycle expansion, total production __________ and total employment _____________.

increases; increases

The percent increase in the CPI from one year to the next is a measure of the

inflation rate.

New houses are included in the ______________ component of the GDP.

investment

"When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount." This statement

is consistent with the view that capital is subject to diminishing returns.

For a good to be included in the GDP, it must be produced

legally.

In 2010, real GDP per person in Bangladesh was

less that it was in the U.S. in 1870.

Durable good is a good that can be used for:

more than one period

The "new product bias" in the consumer price index refers to the idea that

new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.

Your company delivers a better way to produce mousetraps, but your better methods are not apparent from the mousetraps themselves. Your knowledge of how to more efficiently produce mousetraps is

proprietary technological knowledge

Over the last ten years productivity grew more slowly in Iberia that in Aire while the population and total hours worked remained the same in both countries. It follows that

real GDP per person grew more slowly in Iberia than in Aire.

The country of Caspir produces only cereal and milk. Quantities and prices of these goods for the last several years are shown below. The base year is 2015. In 2016, this country's

real GDP was $780, and the GDP deflator was 112.8.

Which of the following will increase a country's real GDP per person?

reducing restrictions on foreign trade and foreign investment

The GDP is the market value of goods and services produced by _____________ of a country.

residents

A consumer price index of 160 in 1996 with a base year of 1982-1984 would mean that the cost of the market basket

rose 60% from the cost of the market basket in the base year.

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

substitution bias

Which of the following nations experienced average rates of economic growth of a bit under 2% over the last 100 years or so?

the United States

As long as prices are rising over time, then

the nominal interest rate exceeds the real interest rate.

The average price of goods and services in the economy is also known as

the price level.

To calculate the CPI, the Bureau of Labor Statistics uses

the prices of some consumer goods.

If we want to use a measure of inflation that foreshadows price changes before they affect prices at the retail level, we would base our measure of inflation on

the producer of price index

A nation's standard of living is determined by

the productivity of its workers.

Which of the following is included in government purchases?

the services of a U.S. government attorney valued at the cost of her salary.

The government purchases do not include the

transfer payments

Indexation refers to

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

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

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