Econ Test 2 (Quizzes and Homework)

If the consumer price index was 100 in the base year and 103 in the following year, then the inflation rate was

3%

The following table contains data for country Krugeveaux for the year 2019. Refer to Table above. What was country Krugeveaux's GDP in 2019? - Household purchases of durable goods- $1,574 - Household purchases of nondurable goods- $1,717 - Household purchases of services- $385 - Household purchases of new housing- $704 - Purchases of capital equipment- $310 - Inventory changes- $363 - Purchases of new structures- $611 - Depreciation- $117 - Salaries of government workers- $1,422 - Government expenditures on public works- $569 - Transfer payments- $777 - Foreign purchases of domestically produced goods- $88 - Domestic purchases of foreign goods- $140

7,603

Mia Denton was an accountant in 1943 and earned $21,000 that year. Her son is an accountant too and he earned $270,000 this year. Suppose the price index was 18.3 in 1943 and 20.2 in the current year. Refer to Scenario above. Mia's 1943 income in current year dollars is

$23,180

Nate collected Social Security payments of $220 a month in Year 1. If the price index rose from 90 to 108 between Year 1 and Year 2, then his Social Security payments for Year 2 should have been

$264

The following table pertains to Danishia, an economy in which the typical consumer's basket consists of 14 bushels of apples and 5 bushels of almond. Price of Apples- Year 1 ($12) Year 2 ($7) Price of Almonds- Year 1 ($7) Year 2($11) Refer to Table above. If Year 1 is the base year, then the CPI for Year 2 was

$79.27

If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is

-2%

T/F: The content of the basket of goods and services used to compute the CPI changes every month.

False

From 1960 to 1990, in which of the following countries has investment resulted in economic growth sufficiently higher than that in the United States?

South Korea

Which of the following countries benefited significantly from the catch-up effect in the last half of the twentieth century?

South Korea

What basket of goods and services is used to construct the CPI?

The goods and services that are typically bought by consumers as determined by government surveys

Which of the following topics are more likely to be studied by a macroeconomist than by a microeconomist?

The percentage of the labor force that is out of work and cross-country differences in average income

In 1870, the richest country in the world was

United Kingdom

An organization that tries to encourage the flow of investment from advanced countries to poor countries is the

World Bank

The consumer price index tries to gauge how much incomes must rise to maintain

a constant standard of living

Industrial machinery is an example of

a factor of production that in the past was an output from the production process.

The CPI is a measure of the overall cost of the goods and services bought by

a typical consumer, and the CPI is computed and reported by the Bureau of Labor Statistics.

GDP and GNP are identical when

all domestic production is by domestically owned producers and no foreign production is carried out by domestic producers

Most goods and services produced at home

and most goods and services produced illegally are excluded from GDP

The level of real GDP per person

and the growth rate of real GDP per person vary widely across countries.

Expenditures on a nation's domestic production

are equal to its domestic production

Changes in the quality of a good

are not accounted for, as a matter of policy, by the Bureau of Labor Statistics.

GDP per person tells us the income and expenditure of the

average person in the economy

In determining living standards, productivity plays a key role for

both nations and individuals

The producer price index measures the cost of a basket of goods and services

bought by firms

Real GDP is the yearly production of final goods and services valued at

constant prices

The Carters' oldest son attends Big State University. He and his parents pay all his fees and tuition. These payments count in GDP as

consumption of services `

The curve becomes flatter as the amount of capital per worker increases because of

diminishing returns to capital

In the actual economy, households

divide their income among spending, taxes, and saving

If total spending rises from one year to the next, then

either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both.

If the price of a dress is three times the price of a pair of shoes, then a pair of shoes contributes

exactly one-third as much to GDP as does a dress.

Social Security payments are

excluded from GDP because they do not reflect the economy's production.

A statistical discrepancy

exists because data sources are not perfect, so measures of expenditures and income are not equal.

T/F: Both the value of hamburgers sold by a restaurant and the value of the beef it used to make these hamburgers are included in GDP.

false

T/F: Economists generally agree on the role the government should play in promoting productivity and economic growth.

false

T/F: Economists generally believe that inward-oriented policies are more likely to foster growth than outward-oriented policies.

false

T/F: If it could increase its growth rates slightly, a country with low income would catch up with rich countries in about ten years.

false

T/F: Periods during which real GDP rises are called recessions.

false

T/F: When the price of nuclear missiles rises, this change is reflected in the CPI but not in the GDP deflator.

false

For any given year, the CPI is the price of the basket of goods and services in the

given year divided by the price of the basket in the base year, then multiplied by 100.

A transfer payment is a payment made by

government, but not in exchange for a currently produced good or service.

Other things the same, a country that increases its savings rate will have

higher future capital and higher future real GDP per person.

Countries with low GDP per person tend to have

higher rates of infant mortality

By far the largest category of goods and services in the CPI basket is

housing

In the CPI, goods and services are weighted according to

how much consumers buy of each good or service.

A policy that increases saving will

improve economic growth and health outcomes.

Suppose Japanese-based Toshiba Corporation builds and operates a new computer factory in the United States. Future production from such an investment will

increase U.S. GDP more than it increases U.S. GNP.

All else equal, if there are diminishing returns, then

increases in the capital stock increase output by ever smaller amounts.

The CPI differs from the GDP deflator in that

increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.

The term economists use to describe a situation in which the economy's overall price level is rising is

inflation

The catch-up effect refers to the idea that

it is easier for a country to grow fast and so catch-up if it starts out relatively poor.

International data on GDP and socioeconomic variables

leave no doubt that a nation's GDP is closely associated with its citizens' standard of living.

Educational attainment tends to be

low in countries with high population growth

The following table pertains to Shishkaton, an economy in which the typical consumer's basket consists of 15 pounds of prunes and 7 dolls Price of Prunes- Year 1 ($12) Year 2- ($10) Year 3- ($8) Price of Dolls)- Year 1 ($7) Year 2- ($6) Year 3- ($5) Refer to Table above. The inflation rate was

negative in Year 2 and negative in Year 3.

The GDP deflator is the ratio of

nominal GDP to real GDP multiplied by 100

Unemployment compensation is

not part of GDP because it is a transfer payment.

Economist Robert Fogel focused on which of the following factors as one determinant of long-run economic growth?

nutrition

National income differs from net national product because

of a statistical discrepancy.

The income that households and noncorporate businesses receive is called

personal income

Productivity is the amount of goods and services

produced for each hour of a worker's time. It is linked to a nation's economic policies.

In order to promote growth in living standards, policymakers must

protect property rights and maintain political stability

If real GDP doubles and the GDP deflator doubles, then nominal GDP

quadruples

A recession has traditionally been defined as a period during which

real GDP declines for four consecutive quarters.

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called

substitution bias

An understanding of the best ways to produce goods and services is called

technology

Social Security payments are indexed for inflation using

the CPI

If the price of Italian shoes imported into the United States increases, then

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

Lee's expenditures on food for three consecutive years, along with other values, are presented in the following table. Expenditures on food- Year 1 (6,500) 2 (6,700) 3 (7,400) Consumer Price Index- Year 1 (130) 2 (139) 3 (x) Refer to Table above. If the nominal interest rate was 8 percent in Year 2, then

the real interest rate in Year 2 was 2 percent.

T/F: An economy's income is the same as its expenditure because every transaction has a buyer and a seller.

true

T/F: Changes in the GDP deflator reflect only changes in the prices of goods and services.

true

T/F: Henry Ford paid his workers $5 a day in 1914, when the CPI was 10. Today, with the price index at 177, the $5 a day is worth $88.50.

true

T/F: Human capital is the term economists use to refer to the knowledge and skills that workers acquire through education, training, and experience.

true

T/F: It is possible to observe a positive nominal interest rate together with a negative real interest rate.

true

Indexation refers to

using a law or contract to automatically correct a dollar amount for the effects of inflation.