Problem set 4

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2017. Suppose the price index was 17.6 in 1944 and 218.4 in the current year. Sue Holloway's 1944 income in current year dollars is a. $136,909. b. $148,909. c. $240,960. d. $23,033.

B. $148,909.

An increase in nominal U.S. GDP necessarily implies that the United States is producing a larger output of goods and services. True False

False

An economy's income is the same as its expenditure because every transaction has a buyer and a seller. True or False?

True

Real GDP per person tells us the income and expenditure of the average person in the economy. True False

True

If in some year nominal GDP was $20 billion and the GDP deflator was 50, what was real GDP? a. $40 billion b. $10 billion c. $100 billion d. $2.5 billion

a. $40 Billion

The following table lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. Refer to Table 24-3. What is the inflation rate for May? a. 67.2% b. 10% c. 60.1% d. -4.1%

a. 67.2%

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

a. only changes in prices

The inflation rate is defined as the a. percentage change in the price level from the previous period. b. price level in an economy. c. price level minus the price level from the previous period. d. change in the price level from one period to the next.

a. percentage change in the price level from the previous period.

The income that households and noncorporate businesses receive is called a. personal income. b. net national product. c. disposable personal income. d. national income.

a. personal income

Disposable personal income is a. the income that households and businesses have remaining after satisfying their obligations to the government. b. the income that households and non-corporate businesses receive. c. the total income earned by a nation's permanent residents. d. the total income earned by a nation's residents in the production of goods and services.

a. the income that households and businesses have remaining after satisfying their obligations to the government.

The following table reports nominal and real GDP for the U.S. from 1929 to 1932. Refer to Table 23-3. What was the growth rate of real GDP for 1930? a. −8.62%. Real GDP is a better gauge of economic well-being than nominal GDP. b. −9.43%. Nominal GDP is a better gauge of economic well-being than real GDP. c. −9.43%. Real GDP is a better gauge of economic well-being than nominal GDP. d. −8.62%. Nominal GDP is a better gauge of economic well-being than real GDP.

a. −8.62%. Real GDP is a better gauge of economic well-being than nominal GDP.

The inflation rate is defined as the a. percentage change in the price level from the previous period. b. price level in an economy. c. price level minus the price level from the previous period. d. change in the price level from one period to the next.

a.percentage change in the price level from the previous period.

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2017. Suppose the price index was 17.6 in 1944 and 218.4 in the current year. Refer to Scenario 24-1. Josh Holloway's current year income in 1944 dollars is a. $26,059. b. $16,923. c. $11,528. d. $149,009.

b. $16,923.

The price index was 120 in Year 1 and 126 in Year 2. What was the inflation rate? a. 7.2 percent b. 5.0 percent c. 6.0 percent d. 105 percent

b. 5.0 percent

A recession has traditionally been defined as a period during which a. nominal GDP declines for four consecutive quarters. b. real GDP declines for two consecutive quarters. c. real GDP declines for four consecutive quarters. d. nominal GDP declines for two consecutive quarters

b. real GDP declines for two consecutive quarters.

Core CPI is a. the CPI including only food and energy. b. the CPI excluding food and energy. c. the CPI excluding food, clothing, and energy. d. the CPI including only food, clothing, and energy.

b. the CPI excluding food and energy

Table 23-1The following table contains data for Chereaux for the year 2019. Refer to Table 23-1. Gross national product for Chereaux in 2019 is a. $214. b. $186. c. $200. d.$204

d. $204

The following table lists the per gallon prices of gas and milk for the months of April, May, and June. Assume that the typical consumer buys 60 gallons of gas and 4 gallons of milk each month, and that April is the base period. Refer to Table 24-3. What is the consumer price index for May? a. 123 b. 60 c. 132 d. 167

d.167

The following table reports nominal and real GDP for the U.S. from 1929 to 1932. Refer to Table 23-3. If prices had remained constant between 1929 and 1930, Nominal GDP would have decreased a. 8.62%. b. 11.97%. c. 13.6%. d. 9.43%.

a. 8.62%

The producer price index measures the cost of a basket of goods and services a. bought by firms. b. typically produced in the economy. c. produced for a typical consumer. d. sold by producers.

a. bought by firms.

GDP is defined as the a. 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. b. value of all final goods and services produced within a country in a given period of time. c. value of all goods and services produced within a country in a given period of time. d. 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.

b. value of all final goods and services produced within a country in a given period of time.

Suppose the government passes a law eliminating holidays and, as a result, the production of goods and services increases because people work more days per year (and thus enjoy less leisure per year). Based on this scenario, which of the following statements is correct? a. GDP would definitely increase, despite the fact that GDP includes leisure. b. GDP could either increase or decrease because GDP excludes leisure. c. GDP would definitely increase because GDP excludes leisure. d. GDP could either increase or decrease because GDP includes leisure.

c. GDP would definitely increase because GDP excludes leisure.

By far the largest category of goods and services in the CPI basket is a. transportation. b. food & beverages. c. housing. d. education & communication.

c. housing

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

c. only changes in the amounts being produced.

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

d. Both the GDP deflator and the consumer price index.

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

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

If the price of Italian shoes imported into the United States increases, then a. neither the GDP deflator nor the consumer price index will increase. b. the GDP deflator will increase, but the consumer price index will not increase. c. both the GDP deflator and the consumer price index will increase. d. the consumer price index will increase, but the GDP deflator will not increase.

d. the consumer price index will increase, but the GDP deflator will not increase.

Refer to Table 23-1. The market value of all final goods and services produced within Chereaux in 2019 is a. $214. b. $230. c. $200. d. $204

c. $200

Suppose a basket of goods and services has been selected to calculate the CPI and Year 1 has been selected as the base year. In Year 1, the basket's cost was $50; in Year 2, the basket's cost was $52; and in Year 3, the basket's cost was $55. The value of the CPI in Year 3 was a. 105.0. b. 90.9. c. 110.0. d. 104.0.

c. 110.0

Refer to Table 23-3. What are the GDP deflator and the inflation rate for 1931? What are the GDP deflator and the inflation rate for 1931? a. 1091.37, 11.5 b. 1091.37, 10.3 c. 9.16, −10.3 d. 9.16, −11.5

c. 9.16, −10.3