Macro Economics Chapter 5& 6: Dr. Smith TU

If a country produced nothing but 20 smartphones and 10 Blu-ray players in 2011, priced at $100 per smartphone and $200 per Blu-ray player, its GDP in 2011 would be

$4,000

(Figure: Supply and Demand 3) If the good is purchased by those with the highest willingness to pay, what is the value of consumer surplus in the figure at the price ceiling of $8?

$54

(Table: iPhones) This table shows a country producing only iPhones. Using 2000 as the base year, real GDP in 2010 is

$9,000.

(Table: iPhones) This table shows a country producing only iPhones. Its nominal GDP in 2010 is

$9,900.

To convert nominal GDP into real GDP, the price level is

Divided into nominal GDP.

U.S. real GDP data is available at the Bureau of

Economic Analysis.

In the United States, which government agency reports GDP statistics?

The Bureau of Economic Analysis

A recession is a significant, widespread decline in real income and employment.

True

A recession is

a significant, widespread decline in real income and employment.

Under a policy of rent control, the short-run shortage ______ the long-run shortage.

is smaller than

The most common measure of the size of an economy is

its GDP.

The GDP deflator is the ratio of

nominal to real GDP (× 100).

Business cycles are

the short-run movements in real GDP around its long-term trend.

$1 trillion is equal to:

$1 million million.

(Table: Wheat and Corn) If this country produces only wheat and corn, the country's real GDP for year 2008 using a 2005 base year is

$139,440 million.

(Figure: Water Market) If a price floor in the diagram gets set at $8 a gallon, what is the quality waste?

$180,000

(Table: Wheat and Corn) If this country produces only wheat and corn, the country's nominal GDP for year 2008 is

$198,120 million.

(Figure: Labor Market 1) If there is a price floor set at $9, how much deadweight loss is created, if any?

$30 million

(Figure: Supply and Demand 2) If the government sets the price at $8.00 in this figure, the total value of the wasted time is

$36.

Given the GDP at the end of both 2004 and 2005, the percentage change is computed as

(GDP 2005 - GDP 2004) divided by GDP 2004.

(Table: iPhones) This table shows a country producing only iPhones. The growth rate of real GDP between 2000 and 2010 is

-10 percent.

U.S. GDP was $14.3 trillion in 2008 and $13.9 trillion in 2009. What was the growth rate of GDP from 2008 to 2009?

-2.8 percent

U.S. GDP was $14.3 trillion in 2008 and $13.9 trillion in 2009. In 2005 dollars, U.S. real GDP was $13.2 trillion in 2008 and $12.7 trillion in 2009. What was the growth rate of real GDP from 2008 to 2009?

-3.8 percent

If a country has 5 percent real GDP growth and 5 percent population growth, how much per capita real GDP growth does it have?

0 percent

If in 2010 nominal GDP was $220 million and real GDP was $200 million, the GDP deflator in 2010 was

110

What makes a bigger contribution to GDP, 12 million cars sold at $28,000 each or 20 million computers sold at $1,000 each?

12 million cars.

(Table: Wheat and Corn) If this country produces only wheat and corn, the country's GDP deflator for 2008 using a 2005 base year is

142

Real GDP for the year 2000 (measured in 2005 dollars) is equal to

2005 prices × 2000 quantities.

(Table: Wheat and Corn) If this country produced only wheat and corn, the press would report the country's economic growth rate from 2007 to 2008 as

21 percent.

In 2007, how much of India's population lived on less than $2 per day?

75 percent

Which of the following best represents the misallocation of resources that would occur under a price ceiling on bottled water following a major hurricane?

A family in a distant state gives bottled water to its dog, but a family in the hurricane area cannot find bottled water to drink.

Which of the following is counted as part of GDP?

A state government hires workers to repave the streets.

Which of the following activities is NOT considered an investment for calculating GDP?

An investor purchases 100 shares of IBM stock.

The value of the production of a U.S. worker employed by a firm located in Canada is part of

Canada's GDP only.

The U.S. government establishes a price floor of $1,000 on personal computers. The market price for netbooks (personal computers that specialize in Internet and other basic computer functions) is about $500. How would this price control affect the netbook market?

Consumers would have a harder time finding conventional netbooks since most would be too powerful.

Which is the largest of the national spending components: C, I, G, or NX?

Consumption

The Soviet Union's experience with price controls demonstrated that with careful planning shortages and surpluses were a rare event.

False

When a German firm produces a vehicle in the United States, the production is part of

GDP but not GNP.

Twenty-two U.S. states prohibit the sale of raw (unpasteurized) milk. Consequently

GDP statistics understate true production because some people break the law and sell raw milk anyway.

Programmers produce a remarkable amount of software on an unpaid, open-source basis. Therefore,

GDP undercounts some software production.

Since the length of the average workweek has fallen in recent years,

GDP understates the gains from leisure in recent years.

In nations that have large underground, or illegal, sectors,

GDP will underestimate total production in the economy.

The market value of all final goods and services produced by a country's residents in a year, whether at home or abroad, is called

GNP.

When the price ceilings on oil and gas were lifted in January 1981, I. the price of oil rose immediately. II. the price of oil continued to rise more than 2 years after the controls were eliminated. III. higher prices gave an incentive to suppliers to increase supply, thus leading eventually to lower prices.

I and III only

Which of the following statements is TRUE? I. In the long run, rent control laws create incentives to turn apartments into hotels or parking garages. II. Apartment owners are less likely to do routine maintenance when the government controls apartment rents. III. Rent-controlled apartments are more likely to be allocated by discrimination than non-rent-controlled apartments.

I, II, and III

Which of the following would NOT be included in this year's GDP?

Jim mows his neighbor's lawn.

Likely the most significant example of federal price controls in the United States, in terms of value of regulated market, came under President

Nixon.

In Ancient Egypt, the "Bronze Law" set maximum prices for wages, preventing them from rising above what rulers perceived as the minimum needed to survive. If this was 10¢ a day for a porter (someone who carries things short distances) and the market wage was 8¢ a day, which of the following would be a plausible consequence of this law?

Nothing unusual would happen.

Which of the following regarding business cycles is TRUE? \

Recessions are occurring less frequently now than 50 years ago.

Which of the following would NOT be included in this year's GDP for the U.S.?

The U.S. government distributes $10 million in social security payments.

In your city, it is illegal to charge more than a certain amount of money for an apartment. People have been signing leases for the highest legal amount, but also agreeing to pay a monthly bribe "on the side" to their landlord in order to get the apartment in the first place and to get timely maintenance. What is the effect of the bribes?

The bribes minimize the damage from the rent control.

Real GDP is equal to nominal GDP divided by

The price level.

Suppose a doctor spends half of the year in the United States and the other half in Canada and works in both places. How does his production get allocated between U.S. and Canadian GDP?

The value of the services produced in the United States gets counted in U.S. GDP, and the value of the services produced in Canada gets counted in Canadian GDP.

Mobile homes are housing units installed on a permanent foundation owned by a landlord. Although a resident owns the home, she rents the foundation from the landlord. In theory, owners of mobile homes can transfer their home to a different foundation if the rent becomes too steep, but uninstalling, transporting, and reinstalling the mobile home is usually prohibitively expensive. This "lock-in" effect encourages state legislatures to create rent controls for mobile home foundations. Which of the following is a plausible unintended consequence of these laws?

There are few new mobile home foundations constructed.

Which of the following explains why GDP does not include the sale of a previously owned home?

This prevents double counting.

Consumption spending tends to be more stable than investment spending in the national spending approach to measuring GDP.

True

Akemi, who is a Japanese citizen, works in the United States as a computer programmer. The value of her output is included in

U.S. GDP and Japan's GNP.

The national spending approach to GDP is

Y = C + I + G + NX

Which of the following is the national spending approach to GDP?

Y = C + I + G + NX

Which of the following is the factor income approach to GDP?

Y = wages + rent + interest + profit.

Which of the following would NOT be included in the calculation of GDP as an investment expenditure?

You purchase $5,000 in shares of Apple stock.

The Edict on Maximum Prices, established by the Roman Emperor Diocletian, created price ceilings on various jobs and goods in a failed effort to curb inflation. For example, legal pay for a farm laborer could be no more than 10.8¢ a day (payment set in modern currency). If the the market rate of farm labor was 12¢ a day, which of the following would be a plausible consequence of this law?

a laborer would work less hard than he otherwise would

In the late 1500s, the city of Antwerp was under siege by the Duke of Parma. The siege caused the price of food to rise so the government of Antwerp established a price ceiling set at a value similar to that before the siege. (This bears a striking resemblance to modern antigouging laws used in times of disaster.) Merchants, fearing the Duke's ability to sink their ships, refused to ferry food into the city that they could only sell at a normal price. Which important effect of a price control best describes this story?

a loss in gains from trade

(Figure: Supply and Demand 4) In the figure, representing a market for apartments, a rent controlled price of $800 will cause

a short-run shortage of 3,000 apartments.

A tire installed on a vehicle in an automobile manufacturing plant is counted as

an intermediate good, and so its market price is not counted part of GDP.

The cost of negative externalities that harm the environment, such as pollution costs,

are not included in GDP.

Nonmarket production is not counted in GDP because these activities

are not priced.

National wealth refers to the value of a nation's entire stock of

assets

If quantity supplied equals 80 units and quantity demanded equals 85 units under a price control, then it is a

binding price ceiling.

If quantity supplied equals 40 units and quantity demanded equals 50 units under a price control, then it is a

binding price ceilings

Airlines in the United States were subject to ______ regulation from 1938 to 1978.

binding price floor

If quantity supplied equals 85 units and quantity demanded equals 80 units under a price control, then it is a

binding price floor.

GDP includes the value of

both goods and services.

A rent control is a price

ceiling on rental housing.

In the past 100 years, there has been a decline in the use of unpaid child labor on family farms. Therefore,

changes in GDP overstate the true increase in production over the past 100 years.

An economy with permanent, universal price controls is in essence a:

command economy.

Deadweight loss occurs when

consumer and/or producer surplus decrease without the surplus going to anyone.

The national spending approach to calculating GDP states that GDP is equal to

consumption + investment + government spending + net exports.

When a price ceiling is in effect

demanders compete for goods in short supply by accepting reductions in quality.

In the case of a nonbinding price ceiling, the price paid in the market will be

equal to free market equilibrium price.

The blat economy described in the text results when price controls are:

extensive and cause chronic shortages in the economy.

Which approach measures GDP by adding together wages, rent, interest, and profit earnings? \

factor income approach

The quantity exchanged of a good ______ under a binding price ceiling.

falls

Economic data are never revised.

false

GDP is the market value of all

final goods and services produced within a country in a year.

To avoid double accounting, the value of

final goods only are included in GDP.

Price controls instituted by President Nixon in 1971

generated shortages in the markets for construction, wool, oil, steel bars, toilets, jeans, and others.

The best measure of a country's changing living standards over time is the

growth in real GDP per capita.

Polar bears becoming extinct would

have little effect on GDP.

What does the Russian word blat refer to?

having connections that enable one to obtain favors

Countries that have greater levels of corruption and higher tax rates usually have

higher levels of underground transactions.

If there are 100 tickets to a concert and 200 fans that would like to go to the concert, each placing a slightly different value on the tickets, is it more efficient to hold an auction for the tickets or to hold a random drawing for the tickets?

hold an auction

The growth rate of GDP tells us

how quickly a country's production is rising or falling over time.

Suppose you spent $10,000 in 2010 remodeling your house, which you originally built for $200,000 in 2000. As a result, GDP in 2010 would

increase by $10,000.

(Table: iPhones) This table shows a country producing only iPhones. The GDP deflator between 2000 and 2010

increased by 10 percent.

If a country's nominal GDP increases by 5 percent between two years while its GDP deflator increases by 4 percent, the country's real GDP

increases by 1 percent.

A real variable is one that corrects for

inflation.

Some economists compare the destructiveness of rent control to that of aerial bombardment because it causes

landlords to neglect their buildings, allowing them to deteriorate over time.

New housing takes some time to build, so rent control creates larger shortages in the

long run than in the short run because long-run supply is more elastic.

Price ceilings

misallocate resources because consumers who buy the product may not be the ones who value it the most.

(Figure: Supply and Demand 4) In the figure, representing a market for apartments, with a rent controlled price of $800, the long-run supply curve will be ______ elastic than the short-run supply curve, causing the

more; shortage to increase to 6,000 apartments.

The omission of nonpriced production introduces two biases into GDP statistics: biases over time and biases across

nations.

Economists call the value of exports minus imports

net exports.

Using the national spending approach to GDP, if Tyler buys 50 shares of Apple stock, it is included in GDP as part of

nothing; it is not included as part of GDP.

Likely the most significant example of federal price controls in the United States, in terms of value of regulated market, came in the market for

oil.

The Bureau of Economic Analysis reports U.S. GDP

once a quarter and once a year.

The value of a country's GDP exceeds that of the country's GNP if the value of the

output produced by foreign workers in the country exceeds that of the value of output produced by the country's permanent residents in other countries.

A tracker, built in 2001 and still operated today is

part of today's national wealth but not part of today's GDP.

The most popular measure of current economic performance is the

percentage change in real GDP.

Rent control is an example of a

price ceiling.

When calculating GDP, the BEA defines consumption spending as

private spending on final goods and services.

The true rate of growth of GDP is measured as increases in

production rather than prices, because only increases in production are true increases in the standard of living.

If we want to compare GDP over time, we should always look at

real GDP

Business fluctuations are the short-run movements in

real GDP around its long-term trend.

Which of the following is the best indicator of a country's standard of living?

real GDP per capita

The measure of total economic activity in a country that adjusts for price changes of the country is

real GDP.

An expansion is a significant, widespread increase in

real income and employment.

How can sellers increase profits when they face a price ceiling?

reduce the quality of the product and provide less customer service

The statement that "price controls do not eliminate competition"

reflects the idea that consumers will compete for price controlled products by waiting in line and offering bribes to sellers.

A binding price ceiling leads to a(n)

shortage

The value of U.S. exports is included in GDP for

the United States.

The value of U.S. imports is included in GDP for

the country that produced the good.

Setting the maximum legal price above the market price will cause

the market to reach an equilibrium outcome.

GDP per capita is

the market value of all final goods and services produced within a country in a year divided by population.

Shortages in economic markets are inefficient because

time spent waiting in line is wasted time, and hence a wasted resource.

Transfer payments are not included in GDP

to avoid double counting.

To what does the Russian concept of blat refer?

to having connections that one can use to get favors

When GDP per capita goes up by 10 percent

total income per person goes up by 10 percent, but the distribution may vary.

The presence of illegal and off the-books activities causes measured GDP to be

understated.

GDP is a measure of

various types of legally earned income.

The factor income approach to calculating GDP states that GDP is equal to

wages + rent + interest + profit.