5-6
To reduce the bias in the consumer price index, the Bureau of Labor Statistics
updates the market basket every two years, rather than every 10 years.
Real GDP is GDP in a given year
valued in the prices of the base year.
If the GDP deflator rises from 185 to 190, what is the rate of inflation between the two years?
2.7%
Table with years 2013-2016
2014
The output of Mexican citizens who work in Texas would be included in the
gross national product of Mexico.
Gross domestic product understates the total production of final goods and services because of the omission of
household production.
Table with Shoes and Ketchup
$6,400
Table with Camera and Books
100.
Table with Cokes, Hamburgers, and CDs.
121.
If nominal GDP is $5 trillion and real GDP is $4 trillion, the GDP deflator is
125.
1996 Table.
2.5 percent.
Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid?
3 percent
If the nominal rate of interest is 6.5% and the inflation rate is 3.0%, what is the real rate of interest?
3.5%
If you want to earn a real interest rate of 3% on money you lend, and you expect that inflation will be 2%, what nominal rate of interest will you charge?
5%
Investment, as defined by economists, would include the purchase of a
computer by an accounting firm.
Which of the following describes the accuracy of the Consumer Price Index?
Changes in the CPI OVERSTATE the true rate of inflation.
Your grandfather tells you that he earned $7,000/year in his first job in 1961. You earn $35,000/year in your first job in 2016. You know that average prices have risen steadily since 1961. You earn
LESS than 5 times as much as your grandfather in terms of REAL income.
You earned $30,000 in 2007, and your salary rose to $80,000 in 2016. If the CPI rose from 82 to 202 between 2007 and 2016, which of the following is true?
The purchasing power of your salary increased between 2007 and 2016.
Developing countries with large informal sectors tend to have firms that invest less in capital equipment.
True.
The costs to firms of changing prices are called menu costs.
True.
The nominal GDP of the U.S. in 2015 was approximately $17.3 trillion. This means that
all of the above are true.
The consumer price index is the
average of the prices of the goods and services purchased by a typical urban family of four.
The substitution bias in the consumer price index refers to the idea that consumers ________ the quantity of products they buy in response to price, and the CPI does not reflect this and ________ the cost of the market basket.
change; overestimates
Gross domestic product in the economy is measured by the
dollar value of all final goods and services produced in the economy.
During a business cycle expansion, total production ________ and total employment ________.
increases; increases
The percent increase in the CPI from one year to the next is a measure of the
inflation rate.
Which of the following is not directly counted in GDP?
intermediate goods
The purchase by a foreign government of an airplane produced in the United States is included in U.S.
net exports.
The producer price index measures the prices that firms
receive for the goods and services they use at all stages of production.
Suppose that nominal GDP in 2016 was less than real GDP in 2016. Given this information, we know for certain that
the price level in 2016 was LESS than the price level in the BASE year.
The average price of goods and services in the economy is also known as
the price level.
The nominal interest rate will be less than the real interest rate when
the rate of inflation is negative.
If inflation is positive and is perfectly anticipated,
those that hold paper money lose.
The consumer price index implicitly assumes that the demand curve for each good and service in the representative market basket is
vertical.
Which of the following are not considered part of government purchases?
welfare benefits
