Quiz 6

If the CPI is 220 one year and 210 the next, the annual rate of inflation as measured by the CPI is approximately

-4.6

Rhonda sells a house she has owned for 15 years. To make it more marketable, she buys carpeting and has it professionally installed, and buys wallpaper that her daughter hangs. Which items would be included in this year's GDP?

the sale price of the wallpaper and carpeting and the installation fee for the carpet

The consumer price index measures changes in

the total cost of a specific market basket of consumer goods and services

Consumption spending is the biggest aggregate expenditure, about

two thirds

GDP does not include the

value of all transactions in the economy during a given period

Which of the following would not be included in GDP?

you clean the house before relatives visit

The price index in the base year always equals

100

If the CPI overstated inflation by 1 percent per year, then the average real wage, instead of dropping by 2 percent in the last two decades, actually increased by about

20 percent

If the CPI is 200 one year and 206 the next year, the annual rate of inflation as measured by the CPI is approximately

3 percent

If the CPI is 160 one year and 175 the next, the annual rate of inflation as measured by the CPI is approximately

9.4%

Each month, the Bureau of Labor Statistics calculates the

CPI

The value of the films produced in the United States starring Charlie Chaplin that still exist will not be included in this year's U.S. GDP because

Charlie Chaplin did not make the films this year

The final market value of a good is

The sum of values added at all stages of production

If the CPI rises in one year from 220 to 230, the inflation rate is 10 percent. True False

False

The CPI tends to understate the true rate of inflation. True False

False

Marianne and Laura are both homemakers with children. Then Laura takes a volunteer (unpaid) job at a hospital and hires Marianne to care for her preschool-age child. What happens to GDP?

GDP increases

Which of the following transactions is not included in GDP? Someone sells drugs in a vacant lot. Someone sells drugs in a pharmacy. A doctor treats a patient for drug addiction. A drug addict spends two months in a drug rehabilitation center. The drug addict buys cough medicine.

Someone sells drugs in a vacant lot

Which of the following would not be included in GDP as government purchases?

The federal government sends out Social Security checks.

GDP reflects many things; however, it does not reflect the depletion of natural resources, leisure, or many things we as individuals do for ourselves. True False

True

GDP understates total economic activity because it ignores household production of goods and services. Correct Answer True False

True

If currently illegal drugs are made legal, GDP will increase. True False

True

Leakages include any diversion from the domestic spending stream. True False

True

The CPI overstates the true inflation rate because it does not fully incorporate the effects of quality improvements. True False

True

The CPI overstates the true inflation rate because it ignores changes in consumers' purchasing patterns as relative prices change. True False

True

Which of the following would not be included in the calculation of GDP?

Which of the following would not be included in the calculation of GDP?

Which of the following would not be an expenditure on a final good or service?

a medical clinic's purchase of flu vaccine

To determine the CPI, you would need to know the

base-year market basket at current- and base-year prices

Real GDP is measured in

base-year prices

Real GDP is the same thing as

constant dollar GDP

Which of the following is the largest component of GDP? investment (I) government spending (G) consumption (C) net exports (X - M) taxes (T)

consumption (C)

Double counting in the value added approach to GDP refers to

counting the total value of a final output in addition to the value of the inputs used to make it

Nominal GDP is measured in

current-year prices

U.S. exports are

included in U.S. GDP because they are produced domestically

Which of the following is the best example of an intermediate good or service?

legal services hired by a public accounting firm

Gross Domestic Product measures the

market value of all final goods and services produced by resources located within a nation regardless of who owns those resources

U.S. imports are

not added to U.S. GDP because they are produced abroad

The CPI __________ inflation because it includes an item in the market basket only after the product becomes __________.

overstates, widely used