CH 2

Suppose that nominal GDP increases by 6 percent in a year when real GDP increases by 3 percent. This means that the inflation rate, as measured by the percentage change in the GDP deflator, is approximately _____ percent in that year. 9 2 0.5 3

3

Suppose that consumers purchase lettuce and computer chips. In 2010, 1 pound of lettuce cost $1, a computer chip cost $1, and the typical consumer bought 10 pounds of lettuce and 10 computer chips. In 2011, 1 pound of lettuce cost $2, a computer chip cost $0.50, and the typical consumer bought 5 pounds of lettuce and 20 computer chips. In 2012, 1 pound of lettuce cost $2.10, a computer chip cost $0.90, and the typical consumer bought 12 pounds of lettuce and 20 computer chips. Using 2010 as the base year, the inflation rate between 2011 and 2012 is _____ percent. 50 25 20 10

20

An economy produces computer chips and tofu. In 2010, 1 pound of tofu cost $1, and a computer chip cost $1. This economy produced 10 pounds of tofu and 10 computer chips. In 2011, 1 pound of tofu cost $2, and a computer chip cost $0.50. The economy produced 5 pounds of tofu and 20 computer chips. If one measures real GDP in 2010 prices, then real GDP in 2010 was $20, and real GDP in 2011 was $25. This implies a real GDP growth rate of _____ percent from 2010 to 2011. 120 22 25 20

25

Suppose that consumers purchase fish and cell phones. In 2010, 1 pound of fish cost $1, a cell phone cost $1, and the typical consumer bought 10 pounds of fish and 10 cell phones. In 2011, 1 pound of fish cost $2, a cell phone cost $0.50, and the typical consumer bought 5 pounds of fish and 20 cell phones. In 2012, 1 pound of fish cost $2.10, a cell phone cost $0.90, and the typical consumer bought 12 pounds of fish and 20 cell phones. Using 2010 as the base year, the inflation rate between 2010 and 2011 was _____ percent. 10 50 20 25

25

Tina is the sole owner of Tina's Lawn Mowing, Incorporated (TLM). In one year, TLM collects $2970000 from customers to mow their lawns. TLM's equipment depreciates in value by $371250. TLM pays $1782000 to its workers, who pay $409860 in taxes on this income. TLM pays $148500 in corporate income taxes and pays Tina a dividend of $445500. Tina pays taxes of $178200 on this dividend income. TLM retains $222750 of earnings in the business to finance future expansion. How much does this economic activity contribute to each of the following? Round your answers to two places after the decimal where necessary. National income = $

2598750 National income = NNP

Tina is the sole owner of Tina's Lawn Mowing, Incorporated (TLM). In one year, TLM collects $2970000 from customers to mow their lawns. TLM's equipment depreciates in value by $371250. TLM pays $1782000 to its workers, who pay $409860 in taxes on this income. TLM pays $148500 in corporate income taxes and pays Tina a dividend of $445500. Tina pays taxes of $178200 on this dividend income. TLM retains $222750 of earnings in the business to finance future expansion. How much does this economic activity contribute to each of the following? Round your answers to two places after the decimal where necessary. NNP: ?

2598750 NNP = Total income - Depreciation or GDP - Depreciation $2970000 - 371250 = 2598750

Tina is the sole owner of Tina's Lawn Mowing, Incorporated (TLM). In one year, TLM collects $2970000 from customers to mow their lawns. TLM's equipment depreciates in value by $371250. TLM pays $1782000 to its workers, who pay $409860 in taxes on this income. TLM pays $148500 in corporate income taxes and pays Tina a dividend of $445500. Tina pays taxes of $178200 on this dividend income. TLM retains $222750 of earnings in the business to finance future expansion. How much does this economic activity contribute to each of the following? Round your answers to two places after the decimal where necessary. GDP: ?

2970000

Suppose that real GDP increases by 3 percent in a year when the GDP deflator increases by 2 percent. This means that nominal GDP increases by approximately _____ percent in that year. 1.5 1 6 5

5

All of these are categories measured in the national income accounts EXCEPT: taxes on production and imports. rental income. proprietors' income. personal income taxes.

personal income taxes.

Which of the following statement about why Real GDP can change is TRUE? Real GDP: can change because either prices increased or quantities produced increased. can change only when prices change. is a constant variable and should not change. can change only because quantities produced have changed.

can change only because quantities produced have changed.

The PCE deflator is the ratio of nominal _____ spending to real _____ spending. consumer; consumer consumer; investment investment; investment investment; consumer

consumer; consumer

There are several ways to compute gross domestic product (GDP) and to arrive at the same dollar figure. GDP can be measured by all of the following EXCEPT as: consumption plus investment plus government purchases minus net exports. the sum of expenditures on domestically produced final goods and services. the total income of domestic factors of production. the sum of the value added at each stage of domestic production.

consumption plus investment plus government purchases minus net exports.

A consumer in the United States buys a T-shirt at a retail store for $17. The label in the T-shirt says "Made in Sri Lanka." The retailer paid $5 to the supplier who shipped the T-shirt from Sri Lanka to the United States. The T-shirt purchase: contributes $17 to U.S. GDP. contributes $12 to U.S. GDP. does not contribute to U.S. GDP. contributes $17 to Sri Lankan GDP.

contributes $12 to U.S. GDP.

According to the text, the two largest income categories in the United States in 2016 were compensation of employees and:

corporate profits.

A person with two paying jobs is _____ in the household survey. not counted counted once counted one and a half times counted twice

counted once

An economy produces wind turbines, pizza, automobiles, and haircuts. Consumers only purchase pizza and haircuts, whereas firms purchase wind turbines, and the government purchases automobiles. A decrease in the price of wind turbines will: decrease the consumer price index. increase the consumer price index. decrease the implicit price deflator. increase the implicit price deflator.

decrease the implicit price deflator.

The core inflation rate is sometimes viewed as a better gauge of ongoing inflation trends because it: excludes food and energy prices. adjusts the CPI when new goods are introduced. takes into account changes in the spending habits of consumers. corrects the consumer price index (CPI) for substitution bias.

excludes food and energy prices.

Suppose that unemployed workers decide to retire rather than continue to seek employment. All else equal, this phenomenon would cause the unemployment rate to: fall. stay the same. change in an unpredictable way. rise.

fall.

The core inflation rate measures the increase in price of a consumer basket that excludes: rent and recreation. food and energy products. food and clothing. research and development.

food and energy products.

The GDP deflator is also called the _____ for GDP. implicit price deflator explicit price adjustor personal consumption expenditure (PCE) deflator labor-force participation rate

implicit price deflator

Every time something is produced within the domestic economy, gross domestic product (GDP): may increase or remain the same. decreases. remains the same. increases.

increases.

All these statements are true regarding the PCE deflator EXCEPT that it: allows the basket of goods to change over time. includes the prices of imported goods. includes the prices of goods and services that consumers buy. is more volatile than the CPI and GDP deflator.

is more volatile than the CPI and GDP deflator.

The average U.S. adult bought more from abroad than they produced and sold to other countries. This means that net exports are _____, and the difference was financed by borrowing from abroad. neutral positive in a direct ratio to tariff protection negative

negative

In the simple circular flow diagram in the text, households: receive all the income because households are the owners of the firms. and firms purchase goods produced in the domestic economy. receive all the income because only wages are paid. provide labor services to the firms and receive only wage income.

receive all the income because households are the owners of the firms.

Adjustment of the CPI to reflect the measurement problems that currently result in the overstatement of price increases will: benefit Social Security recipients. benefit holders of inflation-indexed bonds. reduce government spending. make indexation more costly to the government.

reduce government spending.

As the economy improves after a recession, previously discouraged workers often rejoin the labor force and search for employment because the chances of finding a job have increased. All else equal, this phenomenon would cause the unemployment rate to: fall. rise. change in an unpredictable way. stay the same.

rise.

The percentage change of a product of two variables is approximately the _____ of the percentage changes in each of the variables. product ratio sum difference

sum