Econ Exam #1 - Final

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The business cycle is the

irregular fluctuations in economic activity

The source of the supply of loanable funds

is saving and the source of demand for loanable funds is investment

What is the most important factor that explains differences in living standards among countries?

its ability to produce goods and services

A stove is produced by a firm in 2014, added to the firm's inventory in 2014, and sold to a household in 2015. It follows that

the value of the good is added to the investment category of 2014 GDP, added to the consumptions category of 2015 GDP, and subtracted from the investment category of 2015 GDP

If you buy a burger and fries at your favorite fast food restaurant,

then both GDP and consumption spending will be higher

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?

$22,000

Which of the following is a way to compute GDP?

add up market values of all final goods and services

Changes in nominal GDP reflect

both changes in prices and changes in the amounts being produced

Gross domestic product measures

income and expenses

A Korean steel company produces steel in the United States, with some of its steel being exported to other nations and some of it being sold within the United States. If the prices of this steel increase, then

the GDP deflator and the CPI will both increase

When economists talk about growth in the economy, they measure that growth as the

percentage change in real GDP from one period to another

The inflation rate is defined as the

percentage change in the price level from the previous period

In a closed economy, what does (Y - T - C) represent?

private saving

In a closed economy, what does (T-G) represent?

public saving

At the broadest level, the financial system moves the economy's scarce resources from

savers to borrowers

When a large, well-known corporation wishes to borrow directly from the public, it can

sell bonds

Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?

unmeasured price change

If 2010 is the base year, then the inflation rate in 2015 equals

(CPI in 2015 - CPI in 2014)/CPI in 2014 x 100

If national saving in a closed economy is greater than zero, which of the following must be true?

-Either public saving or private saving must be greater than zero -Investment is positive Y - C - G > 0

Which of these events would cause the consumer price index to overstate the increase the cost of living?

-Energy prices decrease, and consumers respond by buying more gas and electricity -A new good is introduced that renders cellular telephones inferior and obsolete -Car makers benefit from a new technology that allows them to see higher-quality cars to consumers with no increase in price

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate

Which of the following is correct?

Nominal GDP equals real GDP in the base year

Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his back yard. Regarding these two practices, which of the following statements is correct?

Only Joe's and Jim's grocery store purchases are included in GDP

SKIP

SKIP

The supply of a loanable funds slopes

Upward because an increase in the interest rate induces people to save more

Which of the following equations represent GDP for a closed economy?

Y = C + I + G

Which of the following domestically produced items are included in GDP?

a bottle of shampoo, a hairdryer, a haircut

You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices?

five cents x (today's CPI/1962CPI)

Consumer goods that are produced, go into inventory, and are not sold during the current period are

included in current period GDP as inventory investment

If a reform of the tax laws encourages greater saving, the result would be

lower interest rates and greater investment

The consumer price index is used to

monitor changes in the cost of living over time

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year

The GDP deflator is the ratio of

nominal GDP to real GDP multiplied by 100

Real GDP will increase

only when output increases

The CPI is a measure of the overall cost of

the goods and services purchased by a typical consumer

What basket of goods and services is used to construct the CPI?

the goods and services that are typically bought by consumers as determined by government surveys

When the government's budget deficit increases

the government is borrowing more and public savings falls

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits 401k and IRA tax-deferred retirement accounts in order to encourage more saving?

the interest rate would decrease and the quantity of loanable funds would increase

In the language of macroeconomics, investment refers to

the purchase of new capital

If there is a shortage of loanable funds, then

the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium


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