ECON TEST 2 ZIRLOTT
If nominal GDP is $10 trillion and real GDP is $8 trillion, the the GDP deflator is
125, and this indicated that the price level has increased by 25 percent since the base year
In the calculation of the CPI, coffee is given greater weight than tea if
Consumers buy more coffee than tea
The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:
Fix the basket, find the prices, compute the basket's costs, choose a base year and compute the index, and compute the inflation rate
Goods that go into inventory and are not sold during the current period are
included in current period GDP as inventory investment
The inflation rate is the
percentage change in the price level from one period to another
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.
GDP does not reflect
the value of leisure, the value of goods and services produced at home, the quality of the environment
Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that
GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare
When the quality of a good improves while its price remains the same, the purchasing power of the dollar
Increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for
Suppose that over the last twenty-five years a country's nominal GDP grew to three times its former size. In the meantime, population grew by 40 percent and prices rose by 100 percent. What happened to real GDP per person?
It increased, but it less and that doubled
By not taking into account the possibility of consumer substitution, the CPI
Overstates the cost of living
An important difference between GDP deflator and the consumer price index is that
The GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.
A Minnesota farmer buys a new tractor made in Iowa by a German company. As a result,
U.S investment and GDP increase, but German GDP is unaffected
The consumption component of GDP includes spending on
durable goods, non-durable goods, and services
For an economy as a whole, income must equal expenditure because
every dollar of spending by some buyer is a dollar of income for some seller