Chapter 2

A stock broker charges a 1% fee to purchase stock for clients. If a household uses the broker to buy 100 shares of stock at $50/share, then the transaction contributes ____ spending to GDP. a) $50 of consumption b) $5,000 of investment c) $4,950 of investment b) $50 of investment

a) $50 of consumption

Bill sells his car to a used car dealer for $4,000, which then sells it to another household for $5,000. Together, these transactions add _____ dollars to the GDP a) 1,000 b) 4,000 c) 5,000 d) 9,000

a) 1,000

The core inflation rate measures the increase in price of a consumer basket that excludes: a) food and energy products b) research and development c) food and clothing d) rent and recreation

a) food and energy products

A bakery sells 500 loaves of bread for $2.50 each. In order to produce this amount of bread, the bakery bought 100 pounds flour at $2.00/ pound from a mill. These transactions add _____ to GDP a) $1,050 b) $1,250 c) $1,350 minus the profit of the flour mill b) $1,450

b) $1,250 (only the final good is counted)

A panel of economist appointed by the Senate Finance Committe in 1995 concluded that the best estimate of the upward bias in the inflation rate as measured by the % change in the CPI was about ____ % per year a) 0.1 b) 1.1 c) 2.1 d) 3.1

b) 1.1.

According to the text, one suggested solution to the different employment measures in the household survey and the establishment survey is to use: a) the household survey exclusively b) the average of both surveys c) the establishment survey exclusively d) anecdotal evidence

b) the average of both surveys

An economy produces 30 apples at a market price of $0.25 per apple and 50 oranges at a market price of $.50 per orange in a certain time period. Twenty-nine apples are sold, but 1 apple spoils and is never bought. Forty-six oranges are sold, and 4 oranges are held as inventory. The value of gross domestic product (GDP) in this economy is: a) $30.25 b) $30.30 c) $32.25 d)$32.50

c) $32.25

Suppose that nominal DP increases by 5% in a year when the inflation rate, as measured by the % change in the GDP deflator, is 2%. This means that the real GDP growth rate is approximately _____ % in that year a) 0.4 b) 2.5 c) 3 d) 10

c) 3%

Suppose that consumers purchase fish and computer chips. In 2010, one pound of fish costs $1, a computer chip costs $1, and the typical consumer buys 10 pounds of fish and 10 computer chips. In 2011, one pound of fish cost $2, a computer chip cost $.0.50, and the typical consumer buys 5 pounds of fish and 20 computer chips. In 2012, one pound of fish costs $2.10, a computer chip costs $0.90, and the typical consumer buys 12 pounds of fish and 20 computer chips. Using 2011 as the base year, the inflation rate between 2012 and 2011 is _____ percent a) 21.25 b) 25 c) 42.5 d) 85

c) 42.5

Suppose that nominal GDP increases by 6 percent in a year when real GDP increases by 3 percent. This means that the inflation rate, as measured by the percentage change in the GDP deflator, is approximately _____ percent in that year. a) 0.5 b) 2 c) 3 d) 9

c) 9

The labor force participation rate of men has fallen for all of the following reasons EXCEPT: a) that more fathers stay at home to raise children b) longer time periods spent in education c) increasing numbers of women being employed for pay d) longer life expectancy and time spent in retirement by men

c) increasing numbers of women being employed for pay

In 2016, total U.S. GDP was about _____, U.S. per capita GDP was _____, and U.S. average borrowing per person from abroad was about $1,573 a) $16.8 trillion; $46,382 b) $18.6 billion; $57,638 c) $18.6 billion; $57,638 d) $18.6 trillion; $57,638

d) $18.6 trillion; $57, 638

Which statement regarding the CPI and the GDP deflator is true? a) The GDP deflator is a better measure of inflation because it accounts for substitution of goods b) The CPI is a Paasche index and tends to overstate the impact of higher prices c) The CPI accounts for substitution of goods when prices change d) The GDP deflator is a Paache index and accounts for substitution of goods when prices change

d) The GDP deflator is a Paasche index and accounts for substitution of goods when prices change

These are several ways to compute the GDP and to arrive at the same dollar figure. GDP can be measured by all of the following EXCEPT as: a) the sum of expenditures on domestically produced final goods and services b) the sum of the value added at each stage of domestic production c) the total income of domestic factors of production d) consumption plus investment plus government purchase minute net exports

d) consumption plus investment plus government purchase minus net exports