Macro Chapter 10 Full Packet

If a cobbler buys leather for $100 and thread for $50 and uses them to produce and sell $500 worth of shoes, the contribution the shoes make to GDP is A)50 b) 100 C) 500 D) 600 E) 650

C

If the nominal interest rate is 7% and the inflation rate is 3% then the real interest rate is A) -4% B) 3% C) 4% D) 10% E) 21%

C

The "basket" on which the CPI is based is composed of A) raw materials B) total current production C) products purchased by the typical consumer D) consumer production E) None of the above

C

Which of the following statements is correct? A) The real interest rate is the sum of the nominal interest rate and the inflation rate B) The real interest rate is the nominal interest rate minus the inflation rate C) The nominal interest rate is the inflation rate minus the real interest rate D) The nominal interest rate is the real interest rate minus the inflation rate E) None of the above is true

B

If Inflation is 8% and the real interest rate is 3% then the nominal interest rate should be? A) 3/8 % B) 5 % C) 11 % D) 24 % E) -5 %

C

A recession occurs when real GDP declines

True

Inflation can be measured by all of the following except the A) GDP deflator B) Consumer Price Index C) Producer Price Index D) Finished goods price index

D

If the lumberyard sells $1,000 of lumber to a carpenter and the carpenter uses the lumber to build a garage that he sells for $5,000, the contribution to GDP is $6,000

False

In the U.S., investment is the largest component of GDP

False

Net national product always exceeds a nation's GNP because of depreciation

False

The production of an apple contributes more to GDP than the production of a gold ring because food is necessary for life itself

False

Wages are an example of a transfer payment because there is a transfer of payment from the firm to the worker

False

When the city of Chicago purchases a new school building, the investment component of GDP increases

False

If there is an increase in the price of apples that causes consumers to purchase fewer apples and more oranges, the CPI's accuracy will suffer from A) substitution bias B) introduction of new goods bias C) bias due to unmeasured quality change

A

The CPI will be most influenced by a 10 percent increase in the price of which of the following consumption categories A) housing B) transportation C) medical care D) food and beverages E) All of the Above would produce the same impact

A

Under which of the following conditions would you prefer to be the borrower? A) Nominal 20%, inflation rate 25% B) Nominal 15%, inflation rate 14% C) Nominal 12%, inflation rate 9% D) Nominal 5%, Inflation rate 1%

A

How is purchase of a 40,000 BMW produced entirely in Germany recorded in the U.S. GDP accounts A) Investment increases by 40,000 and net exports by 40,000 B) Consumption increases by 40,000 and net exports decrease by 40,000 C) Net Exports decrease by 40,000 D) There is no impact because this transaction does not involve domestic production

B

If borrowers and lenders agree on a nominal interest rate and inflation turns out to be less than they had expected? A) borrowers will gain at the expense of lenders B) lenders will gain at the expense of borrowers C) neither borrowers nor lenders will gain because the nominal interest rate has been fixed by the loan contract D) none of the above is true

B

If your grandparents buy a new retirement house in Boca this transaction would affect A) Consumption B) investment C) Government purchases D) Net Exports E) None of the Above

B

In 1989, the CPI was 124.0. In 1990 it was over 130.7. What was the rate of inflation over this period? A) 5.1 percent B) 5.4 % C) 6.7 % D) 30.7 % E) You cant tell without knowing the base year

B

Real GDP is measured in ________ prices while nominal GDP is measured in _______ prices. A) Current year;base year B) base year;current year C) intermediate; final D) domestic; foreign

B

Suppose your income rises from 19,000 to 31,000 while the CPI rises from 122 to 169. Your standard of living has likely A) fallen B) risen C) stayed the same D) cant tell without knowing the base year

B

The value of plant and equipment worn out in the process of manufacturing goods and services is measured by A) consumption B) depreciation C) Investment D) Intermediate Production

B

U.S. GDP ( in contrast to GNP) measures the production and income of A) Americans and their factories no matter where they are located in the world B) people, factories, and farms located within the borders of the U.S. C) the domestic service sector only D) the domestic manufacturing sector only E) none of the above

B

GDP is the sum of the market value of the A) Intermediate goods B) Manufactured goods C) normal goods and services D) Final goods and services

D

GDP would include which of the following? A) Housework B) Illegal drug sales C) intermediate sales D) consulting services E) the value we place on vacation

D

If nominal GDP in 2005 exceeds nominal GDP in 2004, then the production of output must have A) Risen B) Fallen C) Stayed the same D) there is not enough information to determine what happened to real output

D

GDP can be measured as the sum of A) Consumption, investment, government purchases, and net exports B) consumption, transfer payments, wages, profits C) Investment, wages, profits, and intermediate production D) final goods and services, intermediate goods, transfer payments, and rent E) net national product, GNP, and disposable personal income

A

If US GDP exceeds US GNP then A) foreigners are producing more in the U.S. than Americans are producing in foreign countries B) Americans are producing more in foreign countries than foreign countries are producing here C) real GDP exceeds nominal GDP D) real GNP exceeds nominal GNP E) intermediate production from oversees contributes more to the value of final goods than U.S. value added

A

If the workers and firms agree on an increase in wages based on their expectations of inflation and inflation turns out to be more than expected? A) Firms will gain at the expense of workers B) workers will gain at the expense of firms C) neither workers nor firms will gain because the increase in wages is fixed in the labor agreement D) None of the above is true

A

US GDP would exclude which of the following A) Lawyers services purchased by a home buyer B) lawn care services purchased by a home owner C) a new bridge purchased by the state of Texas D) cotton purchased by the Lee Jeans for its mill in GA E) the purchase of a new Mazda produced in Illinois

D

Under which of the following conditions would you prefer to be the lender? A) Nominal 20%, inflation rate 25% B) Nominal 15%, inflation rate 14% c) Nominal 12%, inflation rate 9% D) Nominal 5%, Inflation rate 1%

D

Which of the following would be excluded from 1989 GDP? The sale A) a 1989 Honda made in Tennessee B) a haircut C) a realtor's services D) a home built in 1988 by Ryan homes and first sold in 1989 E) All of the above should be counted in 1989 GDP

D

Which of the following would likely cause the CPI to rise more than the GDP deflator? A) an increase in the price of Fords B) an increase in the prices of tanks purchased by the military C) an increase in the price of domestically produced fighter planes sold exclusively in Israel D) An increase in the price of Hondas produced in Japan and sold in the U.S. E) An increase in the price of John Derre tractors

D

If nominal GDP in 2010 exceeds nominal GDP in 2009, real output must have risen

False

An example of a transfer payment is A)Wages B) Profit C) Rent D) Government Purchases E) Unemployment benefits

E

A new car produced in 2009, but first sold in 2010, should be counted in 2010 GDP because that is when it was first sold as a final good

False

A country with a larger GDP per person generally has a greater standard of living or quality of life than a country with a smaller GDP per person

True

Cigarettes should be valued in GDP at $5.50 per pack even though $1.00 of that price is tax because the buyers paid $5.50 per pack

True

Depreciation is the value of the wear and tear on the economy's equipment and structures

True

For an economy as a whole, income equals expenditure because the income of the seller must be equal to the expenditure of the buyer

True

If U.S. GDP exceeds U.S. GNP, then foreigners produce more in the United States than U.S. citizens produce in the rest of the world

True

Nominal GDP employs current prices to value output while real GDP employs constant base-year prices to value output

True