Macro economics

In the national income accounts, depreciation is called

"consumption of fixed capital."

If the CPI was 90 in 1975 and is 225 today, then $100 today purchases the same amount of goods and services as

$40.00 purchased in 1975.

price index was 128 in Year 2, and the inflation rate was 24 percent between Year 1 and Year 2. The price index in Year 2 was

103.2

Suppose a basket of goods and services has been selected to calculate the CPI and Year 1 has been selected as the base year. In Year 1, the basket's cost was $50; in Year 2, the basket's cost was $52; and in Year 3, the basket's cost was $55. The value of the CPI in Year 3 was

110.0

Because every transaction has a buyer and a seller,

Because every transaction has a buyer and a seller,

Which of the following is correct?

Even though Japan had a higher growth rate of real GDP per person than the United States over the last 120 years, it's level of real GDP per person is less than that of the United States.

Economist Michael Kremer found that world growth rates fell as population increased.

False

U.S. GDP and U.S. GNP are related as follows:

GNP = GDP − Income earned by foreigners in the U.S. + Income earned by U.S. citizens abroad.

. Which of the following pairs correctly identify X and Z

Markets for factors of production and markets for goods and services

A dollar figure from 1908 is converted into 2008 dollars by dividing the 2008 price level by the 1908 price level, then multiplying by the 1908 dollar figure

True

Abhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit withdraws his $105. If deflation was 7 percent during the year the money was deposited, then Abhijit's purchasing power has increased by 12 percent.

True

Abhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit withdraws his $105. If inflation was 2 percent during the year the money was deposited, then Abhijit's purchasing power has increased by 3 percent.

True

Assuming constant returns to scale, if two countries are otherwise the same, the one that is poorer grows faster.

True

If a rich country reduced subsidies to domestic producers of goods that poor countries have a comparative advantage producing, the standard of living in these poor countries would likely rise.

True

When the price of Italian wine rises, this change is reflected in the U.S. CPI but not in the U.S. GDP deflator.

True

If the consumer price index was 96 in Year 1, 100 in Year 2, and 102 in Year 3, then the base year must be

Year 2.

Most goods and services produced at home

and most goods and services produced illegally are excluded from GDP.

A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely

decreased.

The traditional view of the production process is that capital is subject to

diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.

If your firm's production function has constant returns to scale, then if you double all your inputs, your firm's output will

double but productivity will not change.

According to the circular-flow diagram, GDP can be computed as

either the revenue firms receive from the sales of goods and services or the payments they make to factors of production.

Social Security payments are

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

statistical discrepancy

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

The dictator of Turan has recently begun to arbitrarily seize farms belonging to his political opponents, and he has given the farms to his friends. His friends don't know much about farming. The courts in Turan have ruled that the seizures are illegal, but the dictator has ignored the rulings. Other things equal, we would expect that the growth rate in Turan will

fall and remain lower for a long time.

Government purchases include spending on goods and services by

federal, state, and local governments.

In recent decades, Americans have increased their purchase of stocks of foreign-based companies. The Americans who have bought these stocks were engaged in

foreign portfolio investment

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

higher future capital and higher future real GDP per person

In the simple circular-flow diagram, with households and firms, GDP can be computed as the

income received by households, in the form of wages, rent and profit.

Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has

increased measured GDP by the value added by the restaurant's preparation and serving of the meals.

A farmer produces oranges and sells them to Fresh Juice, which makes orange juice. The oranges produced by the farmer are called

intermediate goods.

In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily,

market prices.

Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy

more milk and more T-shirts

The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits are called

natural resources.

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.

Unemployment compensation is

not part of GDP because it is a transfer payment.

Proprietary technology is knowledge that is known

only by the company that discovered it.

Apple founder Steve Jobs received patents on many of his ideas. While the patents existed, his ideas were

private goods and proprietary knowledge.

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

technology.

Disposable personal income is

the income that households and businesses have remaining after satisfying their obligations to the government.

If net exports is a negative number for a particular year, then

the value of foreign goods purchased exceeded the value of goods sold to foreigners during the year.

GDP is defined as the

value of all final goods and services produced within a country in a given period of time.

Abhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit withdraws his $105. If deflation was 5 percent during the year the money was deposited, then Abhijit's purchasing power has not changed.

False

Abhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit withdraws his $105. If inflation was 7 percent during the year the money was deposited, then Abhijit's purchasing power has increased by 2 percent. True

False

Foreign direct investment and domestic investment have the same effect on all measures of economic prosperity.

False

Investment in human capital has opportunity costs, but investment in physical capital does not.

False

One reason that governments may find it useful to sponsor universities and basic research is that to a large extent knowledge is generally a private good.

False

Other things the same, domestic investment will increase a country's real GDP by more than foreign investment.

False

Which of the following pairs correctly identify W and Y?

Firms and households

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation rate is 3 percent.

True

If your company opens and operates a branch in a foreign country, your company engages in foreign direct investment.

True

In countries where women are discriminated against, policies that increase the likelihood of career success and educational opportunities for women are likely to decrease the birth rate.

True

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

True

Studies confirm that controlling for other variables such as the percentage of GDP devoted to investment, poor countries tend to grow at a faster rate than rich countries.

True

Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive.

True

The purpose of measuring the overall level of prices in the economy is to permit comparison between dollar figures from different times.

True

The real interest rate is the interest rate corrected for inflation.

True

The real interest rate tells you how fast the purchasing power of your bank account rises over time.

True