ECO 2040: Unit 1 Ince (excluded: his love of PBR)

Susan switches from going to Speedy Lube for an oil change to changing the oil in her car herself. Which of the following is correct? The value of changing the oil is a. included in GDP whether Susan pays Speedy Lube to change it or changes it herself. b. included in GDP if Susan pays Speedy Lube to change it but not if she changes it herself. c. included in GDP if Susan changes it herself, but not if she pays Speedy Lube to change it. d. not included in GDP whether Susan pays Speedy lube to change it or she changes it herself.

b. included in GDP if Susan pays Speedy Lube to change it but not if she changes it herself.

.Changes in real GDP reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced.

b. only changes in the amounts being produced.

In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007? a.$1.87 b.$2.08 c.$2.32 d.$3.00

b.$2.08

A farmer sells $50,000 of apples to individuals who take them home to eat and $75,000 of apples to a company that uses them all to produce cider. How much of the farmer's sales will be included as apples in GDP? a.$0 b.$50,000 c.$75,000 d.$125,000

b.$50,000

If the consumer price index was 100 in the base year and 107 in the following year, then the inflation rate was a.1.07 percent. b.7 percent. c.10.7 percent. d.107 percent.

b.7 percent.

Suppose that an economy produces 40,000 units of good A which sells at $4 a unit and 20,000 units of good B which sells at $5 per unit. Production of good A contributes a.2 times as much to GDP as the production of good B. b.8/5 times as much to GDP as the production of good B. c.5/4 times as much to GDP as the production of good B. d.4/5 times as much to GDP as production of good B.

b.8/5 times as much to GDP as the production of good B.

Investment from abroad: A. Increases the stock of capital and therefore can increase productivity B. Causes some of the income earned from the investment to exit the country C. Can bring new technologies to poorer countries D. All these choices

D. All these choices

Suppose that in a closed economy GDP is equal to 11,000, Taxes are equal to 2,500, Consumption equals 7,000, and Government purchases equal 3,000. What are private saving and public saving? a. 1500 and -500 b. 1500 and 500 c. 1000 and -500 d. 1000 and 500

a. 1500 and -500

In 2005, Freedonia had a population of 2,700 and real GDP of about 11,610,000. In 2004 (a year before) it had a population of 2,500 and real GDP of about 10,000,000. What was the approximate growth rate of real GDP per person in Freedonia between 2004 and 2005? a. 7.5 percent b. 12.5 percent c. 20.5 percent d. 35.5 percent

a. 7.5 percent

If there are diminishing returns to capital, a. capital produces fewer goods as it ages. b. new ideas are not as useful as old ideas. c. increases in the capital stock eventually decrease output. d. increases in the capital stock increase output by ever smaller amounts.

a. capital produces fewer goods as it ages.

A nation's standard of living is determined by a. its productivity. b. its gross domestic product. c. its national income. d. how much it has relative to others.

a. its productivity.

When a country saves a larger portion of its GDP, it will have a. more capital and higher productivity. b. more capital and lower productivity. c. less capital and higher productivity. d. less capital and lower productivity.

a. more capital and higher productivity.

Suppose that a new government is elected in Tempestia. The new government takes steps toward improving the court system and reducing government corruption. The citizens of Tempestia find these efforts credible and outsiders believe these changes will be effective and long lasting. These changes will probably a. raise real GDP per person and productivity in Tempestia. b. raise real GDP per person but not productivity in Tempestia. c. raise productivity but not real GDP per person in Tempestia. d. raise neither productivity nor real GDP per person in Tempestia.

a. raise real GDP per person and productivity in Tempestia.

The supply of loanable funds slopes a. upward because an increase in the interest rate induces people to save more. b. downward because an increase in the interest rate induces people to save less. c. downward because an increase in the interest rate induces people to invest less. d. upward because an increase in the interest rate induces people to invest more.

a. upward because an increase in the interest rate induces people to save more.

A country's real GDP rose from 500 to 550 while its nominal GDP rose from 600 to 770. What was this country's inflation rate? a.16.7% b.20% c.-14.3% d.-20%

a.16.7%

Which of the following is not included in GDP? a.carrots grown in your garden and eaten by your family b.carrots purchased at a farmer's market and eaten by your family c.carrots purchased at a grocery store and eaten by your family d.None of the above are included in GDP.

a.carrots grown in your garden and eaten by your family

A U.S. citizen buys a tea kettle manufactured in China by a company that is owned and operated by U.S citizens. In which of the following components of U.S. GDP is this transaction accounted for? a.consumption and imports b.consumption but not imports c.imports but not consumption d.neither consumption nor imports

a.consumption and imports

The term inflation is used to describe a situation in which a.the overall level of prices in the economy is increasing. b.incomes in the economy are increasing. c.stock-market prices are rising. d.the economy is growing rapidly.

a.the overall level of prices in the economy is increasing.

In the economy of Ukzten in 2010, consumption was $6000, exports were $1000, GDP was $10,000, government purchases were $2000, and imports were $600. What was Ukzten's investment in 2010? a. $1400 b. $1600 c. $2400 d. $3600

b. $1600

If the demand for loanable funds shifts left, the equilibrium interest rate a. and quantity of loanable funds rise. b. and quantity of loanable funds fall. c. rises and the quantity of loanable funds falls. d. falls and the quantity of loanable funds rises.

b. and quantity of loanable funds fall.

Martin, a U.S. citizen, travels to Mexico and buys a newly manufactured motorcycle made there. His purchase is included in a.both Mexican GDP and U.S. GDP. b.Mexican GDP, but it is not included in U.S. GDP. c.U.S. GDP, but it is not included in Mexican GDP. d.neither Mexican GDP nor U.S. GDP.

b.Mexican GDP, but it is not included in U.S. GDP.

GDP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because a.the quality of these items is not high enough to contribute value to GDP. b.measuring them is so difficult. c.the government wants to discourage the production and consumption of these items. d.these items are not reported on income tax forms.

b.measuring them is so difficult.

2. Which of the following statements about GDP is correct? a. GDP measures two things at once: the total income of everyone in the economy and the unemployment rate of the economy's labor force. b. Money continuously flows from households to government and then back to households, and GDP measures this flow of money. c. GDP is to a nation's economy as household income is to a household. d. All of the above are correct.

c. GDP is to a nation's economy as household income is to a household.

An American company operates a fast food restaurant in Paris, France. Which of the following statements is accurate? a. The value of the goods and services produced by the restaurant is included in both French GDP and U.S. GDP. b. The value added by American workers and equipment in France is included in U.S. GDP and the value added by French workers and equipment is added to French GDP. c. The value of the goods and services produced by the restaurant is included in French GDP, but not in U.S. GDP. d. The value of the goods and services produced by the restaurant is included in U.S. GDP, but not in French GDP.

c. The value of the goods and services produced by the restaurant is included in French GDP, but not in U.S. GDP.

Changes in nominal GDP reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced.

c. both changes in prices and changes in the amounts being produced.

Which of the following is included in GDP? a. the market value of rental housing services, but not the market value of owner-occupied housing services. b. the market value of owner-occupied housing services, but not the market value of rental housing services c. both the market value of rental housing services and the market value of owner-occupied housing services d. neither the market value of owner-occupied housing services nor the market value of rental housing services.

c. both the market value of rental housing services and the market value of owner-occupied housing services

Macroeconomists study a. the decisions of individual households and firms. b. the interaction between households and firms. c. economy-wide phenomena. d. regulations imposed on firms and unions.

c. economy-wide phenomena.

For an economy as a whole, income must equal expenditure because a. the number of firms is equal to the number of households in an economy. b.individuals can only spend what they earn each period. c. every dollar of spending by some buyer is a dollar of income for some seller. d.every dollar of saving by some consumer is a dollar of spending by some other consumer.

c. every dollar of spending by some buyer is a dollar of income for some seller.

Thomas, a U.S. citizen, works only in Canada. The value of the output he produces is a. included in both U.S. GDP and U.S. GNP. b. included in U.S. GDP, but it is not included in U.S. GNP. c. included in U.S. GNP, but it is not included in U.S. GDP. d. included in neither U.S. GDP nor U.S. GNP.

c. included in U.S. GNP, but it is not included in U.S. GDP.

When the government runs a budget deficit, a. interest rates are lower. b. national saving are higher. c. investment is lower. d. All of the above are correct.

c. investment is lower.

The logic behind the catch-up effect is that a. workers in countries with low incomes will work more hours than workers in countries with high incomes. b. the capital stock in rich countries deteriorates at a higher rate because it already has a lot of capital. c. new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital. d. None of the above is correct.

c. new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.

In the economy of Ukzten in 2010, consumption was $5300, GDP was $8800, government purchases were $1800, imports were $500, and investment was $2000. What were Ukzten's exports in 2010? a.-$800 b.-$300 c.$200 d.$300

c.$200

If the consumer price index was 88 in 2009, 95 in 2010, and 100 in 2011, then the base year must be a.2009. b.2010. c.2011 d.The base year cannot be determined from the given information.

c.2011

Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP? a.Sam's and Ellen's. b.Sam's but not Ellen's. c.Ellen's but not Sam's. d.Nether Sam's nor Ellen's.

c.Ellen's but not Sam's.

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption? a.The CPI was 100 in 2003, 110 in 2004, and 105 in 2005. b.The CPI was 100 in 2003, 120 in 2004, and 135 in 2005. c.The CPI was 100 in 2003, 105 in 2004, and 130 in 2005. d.The CPI was 100 in 2003, 90 in 2004, and 88 in 2005.

c.The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.

Which of the following is not an example of a nondurable good? a.a loaf of bread b.a pair of jeans c.a microwave d.a pound of bacon

c.a microwave

Changes in nominal GDP reflect a.only changes in prices. b.only changes in the amounts being produced. c.both changes in prices and changes in the amounts being produced. d.neither changes in prices nor changes in the amounts being produced.

c.both changes in prices and changes in the amounts being produced.

Which of the following examples of household spending is categorized as investment rather than consumption? a.expenditures on durable goods such as automobiles and refrigerators b.expenditures on intangibles items such as medical care c.expenditures on new housing d.All of the above are correct.

c.expenditures on new housing

Consumption consists of spending by households on goods and services, with the exception of a.purchases of intangible services. b.purchases of durable goods. c.purchases of new houses. d.spending on education.

c.purchases of new houses.

In the base year, the GDP deflator is always a. -1. b. 0. c. 1. d. 100.

d. 100.

Both Tom and Jerry work eight hours a day. Tom can produce six baskets of goods per hour while Jerry can produce four baskets of the same goods per hour. It follows that Tom's a. productivity is greater than Jerry's. b. output is greater than Jerry's. c. standard of living is higher than Jerry's. d. All of the above are correct.

d. All of the above are correct.

Which of the following is consistent with the catch-up effect? a. The United States had a higher growth rate before 1900 than after. b. After World War II the United States had lower growth rates than war-ravaged European countries. c. Although the United States has a relatively high level of output per person, its growth rate is rather modest compared to some countries. d. All of the above are correct.

d. All of the above are correct.

Which of the following is included in the consumption component of GDP? a. household purchases of appliances. b. household purchases of medical care. c. household purchases of food. d. All of the above are included in the consumption component of GDP.

d. All of the above are included in the consumption component of GDP.

From 1960 to 1998 real GDP per capita grew by a factor of 2.5 in the United States and by a factor of 10 in Korea. Which of the following best explains why Korea experienced faster growth than the United States? a. Korea protected domestic companies by making international trade illegal. b. Prices in Korea increased much more rapidly than in the United States. c. The population of Korea increased at a faster rate than in the United States. d. At the start of the comparison, 1960, Korea was much poorer than the United States.

d. At the start of the comparison, 1960, Korea was much poorer than the United States.

The consumer price index (CPI) and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct? a. The CPI involves a base year; the GDP deflator does not involve a base year. b. The CPI can be used to compute the inflation rate; the GDP deflator cannot be used to compute the inflation rate. c. The CPI reflects the prices of goods and services produced domestically; the GDP deflator reflects the prices of all goods and services bought by consumers. d. The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.

d. The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services.

James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP? a.$0 b.$10,000 c.$12,000 d.$22,000

d.$22,000

Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the loan in full, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000. From this, we can conclude that the rate of inflation during the year was a.-4 percent. b.4 percent. c.6 percent. d.14 percent.

d.14 percent.

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006? a.4 percent b.11 percent c.19.6 percent d.24.4 percent

d.24.4 percent

If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is a.104.1 so prices are higher than in the base year. b.104.1 so prices are lower than in the base year. c.96.1 so prices are higher than in the base year. d.96.1 so prices are lower than in the base year.

d.96.1 so prices are lower than in the base year.

If a U.S. citizen buys a television made in Korea by a Korean firm, then a.U.S. net exports decrease and U.S. GDP decreases. b.U.S. net exports are unaffected and U.S. GDP decreases. c.U.S. net exports are unaffected and U.S. GDP is unaffected. d.U.S. net exports decrease and U.S. GDP is unaffected.

d.U.S. net exports decrease and U.S. GDP is unaffected.

The inflation rate is calculated a.by determining the change in the price index from the preceding period. b.by adding up the price increases of all goods and services. c.by computing a simple average of the price increases for all goods and services. d.by determining the percentage increase in the price index from the preceding period.

d.by determining the percentage increase in the price index from the preceding period.

Social Security payments are a.included in GDP because they represent current income. b.included in GDP because they represent potential consumption. c.excluded from GDP because they are not private pensions. d.excluded from GDP because they do not reflect the economy's production.

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