Econ 204 Test 2 Mercy

If the GDP deflatort increases from 250 to 275 for one year, the rate of inflation for that year is

10 percent

You put money into an account and earn a real interest rate of 5 percent. Inflation is 2 percent, and your marginal tax rate is 35 percent. What is your after-tax real rate of interest?

2.55

A good is produced by a firm in 2009, added to the firm's inventory in 2010, and sold to a household in 2010. As a result,

2009 GDP increased and 2010 GDP did not change.

A car that is produced in 2016 is not sold until 2017. According to the definition of GDP, in which year's GDP should it be counted?

2016

Last year real GDP per capita in the China was 4,250. The year before it was 4,100. By about what percentage did real GDP per person grow during the period?

3.7 percent

The economic definition of investment includes all of the following except

A retirement portfolio of stocks and bonds.

Which of the following statements about GDP is correct?

All of the above are correct.

Why is GDP (or GDP per capita) NOT a perfect measure of well-being? for example because,

All of the above are correct.

A COLA is

An automatic adjustment of nominal income to the rate of inflation.

When production costs increase and producers raise output prices, the result is

Cost-push inflation

If a friend helps you with your homework, it will not be calculated in the GDP accounts. But if you hire a tutor who reports the income, the services will be counted in GDP.

True

A German citizen buys an automobile produced in the United States by a Japanese company. As a result,

U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected

If a U.S. citizen buys a television made in Korea by a Korean firm, then

U.S. net exports decrease and U.S. GDP is unaffected

An example of a transfer payment is

a welfare payment

Suppose that in 2016, all prices in the economy double and that all wages and salaries also double. In 2016 you

are no better off or worse off than you were in 2015 as the purchasing power of your salary has remained the same.

Government purchases include spending on goods and services by

federal, state, and local governments

Which of the following is a transfer payment and is not counted as part of government purchases?

government welfare transfer payments

Tom and Lilly rented a house for $12,000 last year. At the start of the year they bought the house they had been renting directly from the owner for $250,000. They believe they could rent it for $12,000 this year, but stay in the house. How much does Tom and Lilly's decision to buy the house change GDP?

it does not change GDP

To examine how the total production of an economy has changed over time, it would be better to examine

real GDP

A recession has traditionally been defined as a period during which

real GDP declines for two consecutive quarters.

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

0 percent

If the nominal interest rate is 13 percent and the anticipated rate of inflation is 8 percent, the real interest rate is

5 percent

Suppose your grandfather earned a salary of $12,000 in 1964. If the CPI is 31 in 1964 and 219 in 2018, then the value of your grandfather's salary in 2018 dollars is approximately

84,775

Inflation is

An increase in the average level of prices of goods and services

Inflation is

An increase in the average level of prices of goods and services.

Which of the following explains why redistribution occurs during inflation?

Because all prices do not change at the same rate, people buy different combinations of goods and services and own different combinations of wealth.

A nation's GDP is

C + I + G + (X - M).

All of the following are detrimental macro consequences of inflation except

COLAs

Which of the following indexes tracks changes in the average prices paid by consumers?

CPI

During a period of unanticipated inflation,

Debtors/borrowers are better off and creditors are worse off.

What has happened to the U.S. labor force participation rate over time. From 1950 until 2000, the labor force participation rate has

Decreased for men and increased for women.

If consumers attempt to buy more goods than the economy can produce, the result is

Demand-pull inflation.

All of the following are true of the real interest rate except it

Equals the foreign exchange rate minus the inflation rate

Government spending in the national income accounts refers only to expenditures at the federal level.

False

In the calculation of real GDP, the value of goods and services is measured in the current prices for each year.

False

The core inflation rate excludes

Food and energy prices.

Darin grows and sells marijuana to Jennifer. Thomas is an organic farmer who sells broccoli to Jennifer. Marijuana is an illegal good and broccoli is a legal good. Assume that if Jennifer marries either, they give her what they use to sell her. Which of the following statements is consistent with the way GDP is computed?

GDP will fall if Jennifer marries Thomas but not if she marries Darin.

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.

If the CPI doesn't measure product quality improvements, the CPI tends to

Overstate the inflation rate.

GDP per capita

Is equal to a nation's GDP divided by its population.

A friend tells you that his income has risen every year by 5 percent. At the same time, prices, on average, have risen by 5 percent. Your friend claims he is better off. Your friend

Is experiencing money illusion.

Consider the economy represented in Figure 7.4. If actual inflation was greater than anticipated inflation,

Lenders would experience a decrease in real income.

National income accounting is defined as the

Measurement of aggregate economic activity.

Which of the following is not a final good or service?

Paper purchased by a textbook company.

Please complete the following sentese. During a period of deflation,

People on fixed incomes are better off.

When an individual makes repairs to her own home instead of hiring a company to make the repairs, the activity is

Productive but excluded from GDP because it is a nonmarket activity.

Which of the following results from unexpected increases in the rate of inflation?

Redistributions of income and wealth between different groups.

Suppose the total market value of all the final goods and services produced in the country of Cannedada was $4 billion in 2008 (measured in 2008 prices) and $5 billion in 2009 (measured in 2009 prices). Which of the following statements is definitely correct?

The change in real GDP cannot be determined without more information.

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

The expected rate of inflation is 4 percent.

Which of the following could cause nominal GDP to decrease, but real GDP to increase?

The price level falls and the quantity of final goods and services produced rises

Between 2015 and 2016, the CPI of a small nation rose from 182 to 185. If household incomes rose by 3% during that period of time, which of the following is true?

The purchasing power of household income rose between 2015 and 2016.

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

Tips earned by a bartender who does not report them to the IRS.

Suppose that at the beginning of a loan contract, the real interest rate is 4% and expected inflation is currently 6%. If actual inflation turns out to be 7% over the loan contract period, then

borrowers gain 1% of the loan value.

Last year you earned $20,000 and paid taxes in the second tax bracket at 15 percent. This year you earned $25,000, the extra $5,000 just compensating you for inflation. However, this year you paid taxes in the third bracket at 20 percent. This illustrates the concept of

bracket creep

The movement of taxpayers into higher tax brackets as nominal incomes grow is

bracket creep

Investment, as defined by economists, would not include which of the following? Ford

buys U.S. government bonds.

Investment, as defined by economists, would include the purchase of a

computer by an accounting firm.

What is the largest component of spending in the United States?

consumption spending

Inflation that is ________ than what is expected benefits ________ and hurts ________.

less; lenders; borrowers

The GDP deflator is the

ratio of nominal GDP to real GDP multiplied by 100.

When U.S. net exports are negative, the United States consumes more output than it produces.

true