exam 2

the relative importance of housing in the breakdown of consumer spending is a. 6 percent. b. 42 percent. c. 4 percent. d. 15 percent.

b

Assume, for England, that the domestic price of wine without international trade is lower than the world price of wine. This suggests that, in the production of wine, a. England has a comparative advantage over other countries and England will export wine. b. other countries have a comparative advantage over England and England will import wine. c. England has a comparative advantage over other countries and England will import wine. d. other countries have a comparative advantage over England and England will export wine.

a

Both tariffs and import quotas a. decrease the quantity of imports and raise the domestic price of the good. b. decrease the quantity of imports and lower the domestic price of the good. c. increase the quantity of imports and lower the domestic price of the good. d. increase the quantity of imports and raise the domestic price of the good.

a

During a certain year, the nominal interest rate was 8 percent, the real interest rate was 3 percent, and the CPI was 176.7 at the beginning of the year. The CPI at the end of the year was 185.5. 159.2. 168.3. 196.1.

a

If the nominal interest rate is 9 percent and the real interest rate is 3 percent, then the inflation rate is a. 6 percent. b. 3 percent. c. 12 percent. d. -6 percent.

a

Kristi and Rebecca sell lemonade on the corner. It costs them 7 cents to make each cup. On a certain day, they sell 40 cups. Their producer surplus for that day amounts to $19.20. Kristi & Rebecca sold each cup for a. 55 cents. b. 38 cents. c. 45 cents. d. 31 cents.

a

Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is P = 15 + (1/3) QS . If 90 units of the good are produced and sold, then producer surplus amounts to $1,350. a. True b. False

a

National income is defined as a. the total income earned by a nation's permanent residents in the production of goods and services. b. the total income of a nation's permanent residents minus losses from depreciation. c. the income that households and noncorporate businesses have left after satisfying all their obligations to the government. d. the income that households and noncorporate businesses receive.

a

Suppose Brazil has an absolute advantage over other countries in producing almonds, but other countries have a comparative advantage over Brazil in producing almonds. If trade in almonds is allowed, Brazil a. will import almonds. b. would have nothing to gain either from exporting or importing almonds. c. will either import almonds or export almonds, but it is not clear from the given information. d. will export almonds.

a

Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called a. willingness to pay. b. consumer surplus. c. producer surplus. d. a resistance price.

a

The problem with the protection-as-a-bargaining-chip argument for trade restrictions is a. if it fails the country faces a choice between two bad options. b. if it works producer surplus falls. c. if it fails total surplus will increase. d. if it works consumer surplus will decline.

a

When a country allows international trade and becomes an importer of a good, a. domestic consumers of the good become better off. b. domestic producers of the good become better off. c. the gains of the winners fall short of the losses of the losers. d. All of the above are correct.

a

When looking at a graph of nominal and real interest rates you notice that nominal rates always lie above real rates. From this you conclude a. consumer prices were always rising in the time frame represented on the graph. b. the economy never experienced a recession in the time frame represented on the graph. c. there were serious episodes of deflation in the time frame represented on the graph. d. GDP was always increasing for the time frame represented on the graph.

a

When ranking movies by nominal box office receipts, what important fact is overlooked? a. Prices, including those for movie tickets, have been rising over time. b. More people go to movies now than in the past .c. There are no good substitutes for movies currently. d. Movies and DVD are complements.

a

Which of the following is the most accurate statement? a.In the 1970s, both the GDP deflator and the consumer price index showed high rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed low rates of inflation. b.In the 1970s, both the GDP deflator and the consumer price index showed low rates of inflation, and in the late 1980s, 1990s, and 2000s, both measures showed high rates of inflation. c.In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed low rates of inflation. d.In the 1970s, the late 1980s, 1990s, and 2000s, the GDP deflator and the CPI both showed high rates of inflation.

a

Domestic producers of a good become better off, and domestic consumers of a good become worse off, when a country begins allowing international trade in that good and a. other countries have a comparative advantage, relative to the country in question, in producing the good. b. the world price exceeds the domestic price of the good that prevailed before international trade was allowed. c. the country becomes an importer of the good as a result. d. total surplus does not change as a result.

b

In computing GDP, market prices are used to value final goods and services because a. market prices reflect the quantity sold. b. market prices reflect the values of goods and services. c. market prices do not change much over time, so it is easy to make comparisons between years. d. None of the above is correct; market prices are not used in computing GDP.

b

In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise, then the a. GDP deflator rises much more than does the consumer price index. b. consumer price index rises much more than does the GDP deflator .c. GDP deflator and the consumer price index rise by about the same amount. d. consumer price index rises slightly more than does the GDP deflator.

b

Net exports equal a. GDP minus imports. b. exports minus imports. c. exports plus imports. d. imports minus exports.

b

Suppose a country has government expenditures of $3,500, taxes of $2,200, consumption of $9,000, exports of $2,500, imports of $2,700, transfer payments of $750, capital depreciation of $800, and investment of $3,000. GDP equals a. $20,700. b. $15,300. c. $24,450. d. $11,550.

b

The greater the elasticities of supply and demand, the smaller are the gains from trade. a. True b. False

b

The less freedom people are given to choose the date of their retirement, the a. smaller is the decrease in employment that will result from a tax on labor. b. less elastic is the supply of labor .c. more elastic is the supply of labor. d. flatter is the labor supply curve.

b

The percentage change in the price level from one period to another is called a. the GDP deflator. b. the inflation rate .c. the growth rate. d. the unemployment rate.

b

When a country that imports a particular good imposes an import quota on that good, a. producer surplus decreases and total surplus decreases in the market for that good. b. producer surplus increases and total surplus decreases in the market for that good. c. producer surplus increases and total surplus increases in the market for that good. d. producer surplus decreases and total surplus increases in the market for that good.

b

When box office receipts are corrected for inflation, the most popular movie of all time is a. The Sound of Music. b. Gone With the Wind. c. Star Wars. d. Titanic.

b

Which government entity computes U.S. GDP every three months? a. the Council of Economic Advisers b. the Department of Commerce c. the Department of Treasury d. the Federal Reserve

b

Which of the following statements about real and nominal interest rates is correct? An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate, an increase in the inflation rate, or both. When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate. If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent. When the nominal interest rate is rising, the real interest rate is necessarily rising; when the nominal interest rate is falling, the real interest rate is necessarily falling.

b

Which of the following statements is true? a. If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995, then we have all the information we need to calculate the inflation rate for 1995. b. If we know the base year is 2000, and if we know the value of the consumer price index for the year 1995, then we have all the information we need to calculate the percentage change in the cost of living between 1995 and 2000. c.If we know the base year is 1990, and if we know the value of the consumer price index for the year 2010, then we have all the information we need to calculate the inflation rate for 2010. d.Even if we know the values of the consumer price index for the years 2009 and 2010, we cannot calculate the inflation rate for 2010 if we do not know which year is the base year.

b

the economy's inflation rate is the a. change in the gross domestic product from the previous period. b. percentage change in the price level from the previous period. c. price level in the current period. d. change in the price level from the previous period.

b

An American company operates a fast food restaurant in Paris, France. Which of the following statements is accurate? a.The value added by American workers and equipment in France is included in U.S. GDP and the value added by French workers and equipment is added to French GDP. b.The value of the goods and services produced by the restaurant is included in both French GDP and U.S. GDP. c.The value of the goods and services produced by the restaurant is included in French GDP, but not in U.S. GDP. d.The value of the goods and services produced by the restaurant is included in U.S. GDP, but not in French GDP.

c

If a consumer places a value of $20 on a particular good and if the price of the good is $25,then the a.market is out of equilibrium. b.consumer has consumer surplus of $5 if he buys the good. c.consumer does not purchase the good. d.price of the good will rise due to market forces.

c

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called a. producer surplus. b. deadweight loss. c. willingness to pay. d. consumer surplus.

c

Suppose consumer income increases. If grass seed is a normal good, the equilibrium price of grass seed will a. increase, and producer surplus in the industry will decrease. b. decrease, and producer surplus in the industry will increase. c. increase, and producer surplus in the industry will increase. d. decrease, and producer surplus in the industry will decrease.

c

Suppose the price index was 110 in 2004, 120 in 2005, and 125 in 2006. Which of the following statements is correct? a. The inflation rate was positive between 2004 and 2005, and it was negative between 2005 and 2006. b. The inflation rate was higher between 2005 and 2006 than it was between 2004 and 2005. c. The economy experienced inflation between 2004 and 2005 and between 2005 and 2006. d. All of the above are correct.

c

The Surgeon General announces that eating apples promotes healthy teeth. As a result, the equilibrium price of apples a. decreases, and producer surplus increases. b. decreases, and producer surplus decreases. c. increases, and producer surplus increases. d. increases, and producer surplus decreases.

c

The income that households and noncorporate businesses receive is called a. disposable personal income. b. net national product. c. personal income. d.national income

c

n the national income accounts, depreciation is called a. "negative investment."b. "diminished value."c. "consumption of fixed capital." d. "loss due to wear."

c

. Trade raises the economic well-being of a nation in the sense that a. since countries can choose what products to trade, they will pick those products that are most beneficial to society b. the nation joins the international community when it begins to engage in trade. c. everyone in an economy gains from trade. d. the gains of the winners exceed the losses of the losers.

d

Changes in real GDP reflect a. neither changes in prices nor changes in the amounts being produced. b. only changes in prices. c. both changes in prices and changes in the amounts being produced. d. only changes in the amounts being produced.

d

Chuck would be willing to pay $20 to attend a dog show, but he buys a ticket for $15. Chuck values the dog show at a. $15. b. $35. c. $5. d. $20.

d

Consider a good to which a per-unit tax applies. The greater the price elasticities of demand and supply for the good, the a. more equitable is the distribution of the tax burden between buyers and sellers. b. smaller the deadweight loss from the tax. c. more efficient is the tax. d. greater the deadweight loss from the tax.

d

Supply-side economics is a term associated with the views of a. Karl Marx. b. Bill Clinton and Greg Mankiw. c. Milton Friedman. d. Ronald Reagan and Arthur Laffer.

d

Suppose an apartment complex converts to a condominium, so that the former renters are now owners of their housing units. Suppose further that a current estimate of the value of the condominium owners' housing services is the same as the rent they previously paid. What happens to GDP as a result of this conversion? a.)gap necessarily increases b. gap necessarily decreases c.gdp is unaffected because neither the rent nor the estimate of the owner occupied housing services in included in gdp d. gap is unaffected because previously the rent payments were included in gdp and now the rent payments are replaced in gdp by the estimate of the value of owner occupied housing services

d

The consumer price index tries to gauge how much incomes must rise to maintain a. a decreasing standard of living .b. an increasing standard of living. c. the highest standard of living possible. d. a constant standard of living.

d

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of a. unmeasured quality change. b. substitution bias. c. product-improvement bias. d. introduction of new goods.

d

The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008? a. 217 b. 209 c. 192 d. 208

d

When a country allows international trade and becomes an exporter of a good, a. domestic producers of the good become better off. b. domestic consumers of the good become worse off. c. the gains of the winners exceed the losses of the losers. d. All of the above are correct.

d

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude a. the economy never experienced a recession in the time frame represented on the graph. b. consumer prices were always rising in the time frame represented on the graph .c. GDP was always increasing for the time frame represented on the graph. d. consumer prices sometimes rose and sometimes fell in the time frame represented on the graph.

d

When policymakers are considering a particular action, they can use consumer surplus as a(n) a. objective measure of the benefits to buyers as determined by policymakers. b. measure of the benefits to buyers as the buyers perceive them. c. potentially flawed measure of the benefits to buyers if the buyers are not rational. d. Both b) and c) are correct.

d

Which of the following is not a question addressed by macroeconomists? a. Why is average income high in some nations but low in others? b. What, if anything, can the government do to promote growth in incomes, low inflation, and stable employment? c. Why do production and employment expand in some years and contract in others? d. What is the impact of foreign competition on the U.S. auto industry?

d

Which of the following statements is correct? a. Changes in the consumer price index are often thought to be useful in predicting changes in the producer price index. b.In order to calculate the inflation rate for the year 2011, we need to know the values of the consumer price index for the years 2009, 2010, and 2011. c.Despite its name, the "consumer price index" really measures the overall cost of the goods and services bought by consumers, business firms, and units of government. d.If the prices of all goods and services changed proportionately over time, then the consumer price index would reflect no substitution bias.

d

Which of the following values would be included in U.S. GDP for 2015? a.the value of the legal services provided by Juan, an attorney and a Mexican citizen, who lived in San Antonio and practiced law there in 2015 b.the rent that Sam, an American citizen, would have paid on his home in Houston in 2015 had he not owned that home. c.the rent that Jim, an American citizen, paid on his apartment in San Francisco in 2015. d.All of the above would be included in U.S. GDP for 2015.

d

in the United States in 2015, purchases of capital equipment, inventories, and structures represented approximately a. 7 percent of GDP. b. 3 percent of GDP. c. 15 percent of GDP. d. 17 percent of GDP.

d

Taxes cause deadweight losses because a. cause marginal buyers and marginal sellers to leave the market, causing quantity sold to fall b. prevent buyers and sellers from realizing some of the gains from trade c. reduce the sum of producer and consumer surpluses by more than the amount of tax revenue d. all of the above

d.

during a certain year, the nominal interest rate was 7%, the real interest rate was 4% and the cpi was 198.3 at the end of the year. The cpi at the beginning of the year was. a. 220.1 b.178.6 c.204.2 d.192.5

d. rate of inflation= nominal interest rate - real interest rate = 7% - 4% = 3% Rate of inflation = (CPI at the end of the year - CPI at the beginning of the year) x 100 / CPI at the beginning of the year 3% = (198.3 - CPI at the beginning of the year) x 100/CPI at the beginning of the year 3 x CPI at the beginning of the year = 19830 - 100 x CPI at the beginning of the year CPI at the beginning of the year = 19830/103 = 192.52 Hence, CPI at the beginning of the year was 192.52.

In 1969, Malcolm bought a Pontiac Firebird for $2,500. If the price index was 36.7 in 1969 and the price index was 235 in 2013, then what is the price of the Firebird in 2013 dollars? a. 4,957.51 b.4609.57 c.13508.17 d.16,008.17

d.16,008.17 Price in a x year =(price in a y year /CPI in Y year)*CPI in x year Price in 2013=(2500/36.7)*235 =d

Consumer surplus is the amount a buyer actually has to pay for a good minus the amount the buyer is willing to pay for it. a. True b. False

f

GDP is the market value of all final goods and services produced by a country's citizens in a given period of time. a. True b. False

f

If the United States legally allowed for a market in transplant organs, it is estimated that one kidney would sell for at least $100,000.

f

If the size of a tax doubles, the deadweight loss doubles.

f

In years of economic contraction, firms throughout the economy increase their production of goods and services, employment rises, and jobs are easy to find. a. True b. False

f

Let P represent price; let QS represent quantity supplied; and assume the equation of the supply curve is P = 10 + (1/4)QS . If 80 units of the good are produced and sold, then producer surplus amounts to $1,200.

f

Suppose Ecuador imposes a tariff on imported bananas. If the increase in producer surplus is $50 million, the reduction in consumer surplus is $150 million, and the deadweight loss of the tariff is $30 million, then the tariff generates $130 million in revenue for the government.

f

When you purchase a run-down 1965 Ford Mustang to restore and resell, the purchase of the vehicle and all restoration expenditures are included in current GDP. a. True b. False

f

if the size of a tax triples, the deadweight loss increases by a factor of six.

f

If total spending rises from one year to the next, then the economy must be producing a larger output of goods and services )(t/f?)

false

Purchases by American tourists in other countries increase GDP for both the country in which the purchase was made and for the U.S., since a U.S. citizen carried out the expenditure.

false

The PPI is a price index that measures the cost to consumers of a typical basket of goods sold by firms. a. True b. False

false

If nominal GDP is $12,000 and the GDP deflator is 80, then real GDP is $15,000.

t

Persistent increases in the overall level of prices have been the norm.

t

The current policy on kidney donation effectively sets a price ceiling of zero. a. True b. False

t

The more elastic are supply and demand in a market, the greater are the distortions caused by a tax on that market, and the more likely it is that a tax cut in that market will raise tax revenue.

t

The nation of Spritzland used to prohibit international trade, but now trade is allowed, and Spritzland is exporting wristwatches. Relative to the previous no-trade situation, total surplus in the market for wristwatches in Spritzland has increased

t

Consumer surplus can be measured as the area between the demand curve and the equilibrium price.

true