ag econ 217

If nominal GDP declines from one year to the next

either the price level has decreased, or output has decreased, or both.

The correlation coefficient between the AAA corporate bond interest rate and the CPI inflation rate over the 1961-2013 periold is 0.62. This provides evidence that

lenders increase the interest rate when inflation is high, and decrease the interest rate when inflation is low.

A farmer's corn is sold to make corn sweetener, which is sold to make soft drinks. In the Gross Domestic Product accounts:

only the value of the soft drink are counted directly, because they are final goods.

The cost of equipment that businesses use to produce a product increases in a market. As a result

supply decreases, equilibrium price rises and equilibrium quantity falls.

The cost of raw materials that businesses use to produce a product decreases in a market. As a result:

supply increases, equilibrium price falls and equilibrium quantity rises.

The GDP deflator differs from the consumer price index (CPI) because,

the GDP deflator includes prices of all goods and services in GDP, while the CPI includes only goods and services purchased by households.

Suppose a hurricane in the Gulf of Mexico causes oil refineries to shut down. Which of the above diagrams shows what is likely to happen in the market for gasoline?

d

If prices adjust to equilibrium instantly:

the aggregate supply curve is perfectly inelastic at the potential output level.

The correlation coefficient between the unemployment rate and the CPI inflation rate over the 1961-2013 period is 0.09. This provides evidence that,

there is no consistent relationship between the price level and unemployment.

All year long the weather is perfect for growing corn. As a result:

the supply of corn increases, equilibrium price falls and equilibrium quantity rises.

Cold weather in Florida freezes the orange crop. As a result,

the supply of orange juice decreases, equilibrium price rises and equilibrium quantity falls.

If banks are pessimistic about the prospects of businesses repaying loans,

they lend less, which decreases the money supply and increases the real interest rate.

If the quantity of money rose 10%, velocity was unchanged, and output rose 15%, what would be the inflation rate, according to the equation of exchange? (Type a one or two digit number. Do not use a "+" sign or a "%" sign. Use a "-" sign if the answer is negative.)

-5

To calculate real GDP from nominal GDP, first divide the GDP deflator by 100, then divide nominal GDP by the result.

...

If the corporate less-risky AAA bond interest rate is 6%, and the corporate more-risky BAA bond interest rate is 7%, the interest rate spread is

1%

If banks are charging an interest rate of 6%, and the expected inflation rate is 3%, the real interest rate is,

3%

If the quantity of money rose 10%, velocity was unchanged, and output rose 6%, what would be the inflation rate, according to the equation of exchange?

4

In the spreadsheet assignment, we calculated the unemployment rate for 2013 as

7.5%, which was more than the 53-year average of 6.1%.

If the quantity of money rose 10%, velocity was unchanged, and output rose 2%, what would be the inflation rate, according to the equation of exchange? (Type a one or two digit number. Do not use a "+" sign or a "%" sign. Use a "-" sign if the answer is negative.)

8

n the spreadsheet assignment, we calculated the BAA - AAA corporate bond interest rate spread as

: a. 0.9.

27. Suppose these were the macroeconomic indicators for a three-year period in the U.S. economy. Year Real GDP Growth Rate Unemployment Rate CPI Inflation Rate BAA-AAA Int Rate Spread 1 4.2% 9.0% 4.4% 0.76% 2 3.1% 8.1% 4.1% 0.77% 3 2.9% 7.5% 2.8% 0.75% Suppose that Q in the goods market represents real GDP, P represents the inflation rate (not the price level), unemployment is represented by the difference between equilibrium output and potential output, and r in the money market represents the interest rate spread. Which shift best describes this time period in the goods market

: c. aggregate supply was increasing

The unemployment rate is calculated as

: the number of unemployed people as a percentage of the labor force.

Which of the following describes what was happening in the market for student housing at Purdue in the early 2000's, according to the article?

An increase in apartment supply and an increase in the quantity of apartments demanded by students.

Which of the following is the main reason for the falling price of DVD players in the early 2000's, according to the article?

An increase in the number of firms producing DVD players.

We are richer than our grandparents because of more advanced technology and a bigger stock of tools and machinery. On the PPF diagram, which of the following shifts shows this effect?

B to E.

Suppose a hurricane destroyed oil refineries on the Gulf Coast. Which of the following movements on the production possibility frontier could represent this disaster?

E to B.

29. Suppose these were the macroeconomic indicators for a three-year period in the U.S. economy. Year Real GDP Growth Rate Unemployment Rate CPI Inflation Rate BAA-AAA Int Rate Spread 1 4.2% 9.0% 4.4% 0.76% 2 3.1% 8.1% 4.1% 0.77% 3 2.9% 7.5% 2.8% 0.75% Which shifts best describes what was happening in the money market?

Money demand was increasing by about the same amount as money supply was increasing.

How does nominal GDP differ from real GDP?

Nominal GDP is measured in current prices, meaning the prices from the year the GDP is measured, while real GDP is measured in constant prices, meaning the prices from a "base year."

Which of the following is not counted as government purchases in GDP?

Social Security payments

In the spreadsheet assignment, we calculated the inflation rate for 2013 as

a. 1.7%, which was less than the 53-year average of 4.0%.

Which of the following are the reasons for the rising price of milk, according to the article?

a. Demand is increasing because of increasing tastes for dairy foods in Asia, and supply

Suppose the correlation coefficient between two variables is 0.71. This would provide evidence that:

a. when the first variable increases, the other variable usually increases, and when the first variable decreases, the other variable usually decreases.

In the macroeconomic model, if a drop in home prices causes consumers to save more and spend less:

aggregate demand will decrease, output will decrease and the price level will decrease.

In the macroeconomic model, if a rise in oil prices increases business costs

aggregate supply will decrease, output will decrease and the price level will increase.

The increase in the salaries paid to entry-level teachers represents

an adjustment of price to equilibrium.

Which of the following statements best describes the economy in 2001 and the Federal Reserve policy response from Chairman Greenspan?

b. Banks were reluctant to lend and were increasing reserves, which would reduce the money supply. The Federal Reserve tried to encourage lending by increasing the money supply and reducing interest rates.

The correlation coefficient between the unemployment rate and the change in the CPI core inflation rate over the 1961-2013 period is -0.44. This provides evidence that:

b. output below potential reduces inflation, while output above potential increases inflation.

Which of the following is a reason for the end of the teacher shortage in New York City, according to the article?

c. An increase in the wage paid to teachers increased the quantity of teachers supplied.

Which of the following describes the reasons why Purdue paid for free bus rides for students and staff, according to the article?

c. Bus rides are a substitute for automobile travel. Reducing the price of a substitute will reduce the demand for auto travel, and so will relieve traffic congestion on campus.

28. Suppose these were the macroeconomic indicators for a three-year period in the U.S. economy. Year Real GDP Growth Rate Unemployment Rate CPI Inflation Rate BAA-AAA Int Rate Spread 1 0.4% 6.1% 4.4% 0.76% 2 -0.6% 7.2% 5.6% 1.04% 3 -1.1% 8.0% 8.0% 1.76% Suppose that Q in the goods market represents real GDP, P represents the inflation rate (not the price level), unemployment is represented by the difference between equilibrium output and potential output, and r in the money market represents the interest rate spread. Which shift best describes this time period in the goods market?

d. Aggregate supply was decreasing.

Which shift best describes this time period in the goods market? 0.4

d. Aggregate supply was decreasing.

The core rate of inflation

excludes the prices of energy and food because they are especially volatile.

To calculate the real GDP growth rate,

first divide the GDP deflator by 100, then divide nominal GDP by the result to get real GDP, then take the percentage change in real GDP from one year to the next.

Reporters are fond of the phrase, "Consumers are more than two-thirds of the economy." They mean that

household consumption spending is more than two-thirds of total gross domestic product.

Imports are subtracted from GDP, rather than just ignored, because

imported goods are not produced in the U.S., yet they are counted in consumption and investment spending, and in government purchases.

Widgets and gadgets are complementary goods. The price of widgets increases. As a result:

the demand for gadgets decreases, equilibrium price falls and equilibrium quantity falls.

Widgets and gadgets are complementary goods. The price of widgets decreases. As a result:

the demand for gadgets increases, equilibrium price rises and equilibrium quantity rises.

. The corporate bond interest rate spread shows

the difference between the riskier BAA corporate bond interest rate and the less-risky AAA corporate bond interest rate.

. Suppose the correlation coefficient between two variables is -0.85. This would provide evidence that

when the first variable increases, the other variable usually decreases, and when the first variable decreases, the other variable usually increases.