CH 8, 9, 10 HWs
Which of the following would result in GDP for an economy equal to $10 trillion?
C = $5 trillion I = $5 trillion G = $2 trillion NX = −$2 trillion
If a 3-month Treasury bill pays 5.5% and the change in the consumer price index (CPI) is 4.7%, what is the real interest rate (the true return to lending)?
0.8%
Monthly expenditures for a family of 4 in 2015 averaged $1,400. In 2016, the cost of the same purchases was $1,500. If 2015 is the base year, what was the CPI in 2016?
107
Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?
3 percent
Assume the average annual CPI values for 2015 and 2016 were 207.3 and 215.3, respectively. What was the percent increase in the CPI between these two years?
3.86
Suppose that the economy enters into a recession and that, as a result, Rusty Z. Wrench loses his job as a delivery truck mechanic and remains unemployed. When the economy recovers, Rusty's previous employer rehires him. What is the best classification for his time as an unemployed truck mechanic?
Cyclically unemployed
Product Quantity (2011) Price (2011) Expenditure (2011) Price (2016) Expenditure (on base year quantities) (2016) Computers 1 $1,200 $1,200 $900 $900 Books 10 25 250 30 300 Burgers 50 3 150 4 200 Total $1,600 $1,400
Suppose an economy has only three goods and the typical family purchases the amounts given in the table above. If 2011 is the base year, then what is the CPI for 2016? 87.5
Denim Jeans 1 $70 $70 $140 $140 $105 $105 Pizzas 20 14 280 20 400 18 360 Coffee Drinks 20 6 120 6 120 7 140 Total $ 470 $ 660 $ 605
The CPI in 2014 equals 140.43 The CPI in 2016 equals 128.72
Base Year (2011) 2016 Product Quantity Price Price Cokes 100 $0.50 $0.75 Hamburgers 200 2 2.50 CDs 10 20 21
The Consumer Price Index for 2016 equals 121.
Which equation represents the relationship between GDP and the four major expenditure components?
Y=C+I+G+NX
A recession occurs when an economy experiences a period in which there is
a decrease in total production.
To calculate GDP by the expenditure method one must add
consumption spending, investment spending, government spending, and net exports.
Nominal GDP is another term for
current−dollar GDP.
Workers who lose their jobs because of a recession are experiencing
cyclical unemployment.
Which of the following is not an example of a transfer payment?
health insurance payments to an army private
During the expansion phase of the business cycle, which of the following eventually increases?
income employment production
The labor force equals the number of people
employed plus unemployed.
In the circular flow model, the value of total income for an economy ________ the value of total production.
equals
In the circular flow model, the value of total production for an economy ________ the value of total expenditures on final goods and services.
equals
The sum of the value added of every firm involved in producing all final goods and services ________ gross domestic product.
equals
When the economy is at full employment, which types of unemployment remain?
frictional and structural
When the economy enters a recessionary phase of the business cycle, unemployment tends to
increase.
As the economy nears the end of a recession, which of the following do we typically see?
increased spending on capital goods by firms
During the recession phase of the business cycle,
interest rates are usually falling.
The real interest rate
is equal to the nominal interest rate minus the inflation rate.
The labor force participation rate
is the percentage of the working-age population in the labor force.
If real GDP in a small country in 2015 is $8 billion and real GDP in the same country in 2016 is $8.3 billion, the growth rate of real GDP between 2015 and 2016
is 3.75%.
A good measure of the standard of living is
real GDP per capita.
Which of the following is the best measure of the standard of living of the typical person in a country?
real GDP per person
As the economy nears the end of an expansion, which of the following do we typically see?
rising interest rates
The unemployment rate
shows the percentage of the labor force that is considered unemployed.
Potential GDP is
sometimes greater, sometimes less, and sometimes equal to actual real GDP.
Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called
structural unemployment.
When the economy is at full employment,
the natural rate of unemployment prevails. the unemployment rate is greater than zero. all remaining unemployment is either frictional or structural.
As of August 2015, which of the following demographic groups has the highest unemployment rate?
African Americans
Sweatshirts 50 $35 Dental examinations 40 75 Coffee drinks 1,000 4 Coffee beans 2,000 0.50 Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above table, nominal GDP for this simple economy equals
$8,750
Which of the following formulas does the Bureau of Labor Statistics use to calculate the unemployment rate?
(# of unemployed/# in labor force) * 100
Total Population 20,000 Workingminus−Age Population 15,000 Employment 1,000 Unemployment 100 Consider the data in the table above for a simple economy. The unemployment rate for this simple economy equals
(100/1100)*100
Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid?
8 percent
2011 2016 Product Quantity Price Quantity Price Camera 100 $10 120 $12 Legal services 50 15 45 20 Books 200 40 210 45 What is the GDP deflator in 2011 if 2016 is the base year?
87
Why is the unemployment rate, as measured by the Bureau of Labor Statistics, an imperfect measure of the extent of joblessness in the economy?
Discouraged workers are not considered unemployed. It does not account for inaccurate responses to the Current Population Survey. It fails to account for illegal activities. Underemployed people are considered employed.
What is the general relationship between the business cycle and unemployment and inflation?
During an expansion, unemployment falls and inflation increases.
Which of the following equations correctly measures GDP in an economy?
GDP = C + I + G + NX
Population = 291 million Labor force = 134 million The number of people employed = 121.9 million The number of people unemployed = 12.1 million
Given the information above, the unemployment rate is 9%
Which of the following is a true statement about real and nominal GDP?
If real GDP increases from one year to the next, we know that production of goods and services has risen.
Use the graph to help determine which one of the following statements regarding flucuations in real GDP is true:
In the first half of the twentieth century, real GDP had much more severe swings than in the second half of the twentieth century.
Suppose an economy has an inflation rate of 2.3% and a bank makes a loan with an interest rate of 5.2%.
In this case, the real interest rate is 2.9%
During an expansion, how do inflation and unemployment typically change?
Inflation rises and unemployment falls.
Between 2015 and 2016, if an economy's exports rise by $8 billion and its imports fall by $8 billion, by how much will GDP change between the two years, all else equal?
Net exports will increase GDP by $16 billion.
If the GDP deflator is 142, by how much have prices changed since the base year?
Prices have increased by 42%.
Which of the following can give an early warning of future increases in the price level?
Producer price index
Assume the market basket for the consumer price index has two products, bread and milk, with the following values in 2011 and 2016 for price and quantity: Base Year (2011) 2016 Product Quantity Price Price Milk 50 $1.20 $1.50 Bread 100 1.00 1.10
The Consumer Price Index for 2016 equals 116
Use the graph to help determine which one of the following statements is true:
The average American in the year 2006 could buy nearly eight times as many goods and services as the average American in the year 1900.
Suppose the economy's consumer price index (CPI) in 2008 was 183 and the CPI in 2009 was 195.
The inflation rate over the period from 2008-2009 was equal to 6.6%
Suppose the economy's consumer price index (CPI) in 2008 was 184 and the CPI in 2009 was 198.
The inflation rate over the period from 2008-2009 was equal to 7.6%
Population = 268 million Working-age population = 177 million Labor force = 136 million The number of people employed = 128 million The number of people unemployed = 8 million
The labor force participation rate for this economy is 76.8%
Which of the following is not true about the composition of GDP in 2014?
The majority of consumer spending is on durable goods.
2015 2016 Nominal GDP $10,000 $12,000 Real GDP 9,500 10,500
The price level has risen.
How would it affect the unemployment rate if the Bureau of Labor Statistics counted as unemployed both (1) discouraged workers and (2) people who work part-time but would prefer to work full-time?
The unemployment rate would increase.
What is the largest component of spending in the U.S.?
consumption spending
Investment, as defined by economists, would include the purchase of a
computer by an accounting firm.
Which of the following price indices comes closest to measuring the cost of living of the typical household?
consumer price index
Which of the following would be the best measure of the cost of living?
consumer price index
What index is used to measure the average prices paid by a typical family? An average of the prices of the goods and services purchased by a typical family is the:
consumer price index (CPI).
The purchase of a new automobile is included in
consumption expenditures on durable goods.
Gross domestic product in the economy is measured by the
dollar value of all final goods and services produced in the economy.
Your grandfather tells you that he earned $7,000/year in his first job in 1961. You earn $35,000/year in your first job in 2016. You know that average prices have risen steadily since 1961.
less than 5 times as much as your grandfather in terms of real income.
Disposable personal income equals personal income
minus personal tax payments.
In 2014, which component of GDP had a negative value?
net exports
One major component of GDP that can be negative is
net exports.
The purchase by a Chinese household of a CD produced in the United States is included in U.S.
net exports.
The stated interest rate on a loan is the
nominal interest rate.
The Bureau of Labor Statistics would categorize a retiree who is not working as _________.
out of the labor force
The nominal interest rate equals the real interest rate ________ the inflation rate.
plus
The broadest measure of the price level that includes all final goods and services is
the GDP deflator.
The most widely used measure of inflation is based on which of the following price indices?
the consumer price index
The CPI is also referred to as
the cost−of−living index.
Potential GDP refers to
the level of GDP attained when all firms are producing at capacity.
The "normal" underlying level of unemployment in the economy is
the natural rate of unemployment. the full-employment rate of unemployment. the sum of structural unemployment and frictional unemployment.
Depreciation is
the value of worn−out equipment, machinery, and buildings.
The nominal GDP of the U.S. in 2015 was approximately $17.3 trillion. This means that
total income in 2015 was around $17.3 trillion. the value of final output in 2015 was around $17.3 trillion. total spending on final goods and services in 2015 was around $17.3 trillion All of the above
The business cycle exists because
total production experiences periods of increases and periods of decreases.
Transfer payments are not included in GDP calculations because
transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.
Consumption expenditures $800 Investment expenditures 200 Government purchases 300 Exports 100 Imports 200 Wages 800 Refer to the table above. Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals
$1,200.
Consumption expenditures $800 Investment expenditures 300 Government purchases 300 Government transfer payments 400 Exports 300 Imports 100 Refer to the table above. Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals
$1,600.
2011 2016 Product Quantity Price Quantity Price Camera 100 $10 120 $12 Legal services 50 15 45 20 Books 200 40 210 45 A very simple economy produces three goods: cameras, legal services, and books. The quantities produced and their corresponding prices for 2011 and 2016 are shown in the table above. What is real GDP in 2016, using 2011 as the base year?
$10,275
2011 2016 Product Quantity Price Quantity Price Camera 100 $10 120 $12 Legal services 50 15 45 20 Books 200 40 210 45 What is real GDP in 2016, using 2016 as the base year?
$11,790
Shoes 40 $60 DVDs 100 18 Tomatoes 2,000 1 Ketchup 300 4 Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above table, nominal GDP for this simple economy equals
$6,400
2011 2016 Product Quantity Price Quantity Price Movies 20 $6.00 30 $7.00 Burgers 100 2.00 90 2.50 Bikes 3 1,000.00 6 1,100.00 What is nominal GDP in 2016?
$7,035
If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is
-3%.
If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years?
2.7%
2013 $8,700 2014 $8,875 2015 $9,000 2016 $9,280 Using the table above, what is the approximate growth rate of real GDP from 2015 to 2016?
3%
If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?
3.5%
What are the four major components of expenditures in GDP?
Consumption, Investment, Government Purchases, and Net Exports
When the economy reaches a trough in a business cycle, which of the following will occur?
Income, production, and employment will begin to rise.
Which of the following categories make up about three-quarters of the market basket?
housing, transportation, and food
Recessions typically cause the unemployment rate to ________ and the inflation rate to ________.
rise; fall