ECON Exam-2
Abhijit deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Abhijit withdraws his $105. If inflation was 5 percent during the year the money was deposited, then Abhijit's purchasing power has not changed.
F
An increase in the saving rate permanently increases the growth rate of real GDP per person.
F
Changes in the consumer price index are useful in predicting changes in the producer price index.
F
Economists generally believe that inward-oriented policies are more likely to foster growth than outward-oriented policies.
F
If it could increase its growth rates slightly, a country with low income would catch up with rich countries in about ten years.
F
If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.
F
Studies find that mutual fund managers who do well in one year are likely to do well the next year.
F
Substitution bias causes the CPI to understate the increase in the cost of living from one year to the next.
F
The Bureau of Labor Statistics does not try to account for quality changes in the goods and services in the basket used to compute the CPI.
F
The U.S. income tax system is completely indexed for inflation.
F
The content of the basket of goods and services used to compute the CPI changes every month.
F
The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.
F
The market for insurance is an example of diversification.
F
The present value of a payment of $500 to be made two years from today is greater if the interest rate is 7% than if it is 6%.
F
When a new good is introduced, consumers have more variety from which to choose, and this in turn increases the cost of maintaining the same level of economic well-being.
F
A government may use deficit financing to smooth tax rates over time.
T
A person with diminishing marginal utility of wealth is risk averse.
T
Because the consumer price index reflects the goods and services bought by consumers better than the GDP deflator does, it is the more common gauge of inflation.
T
Data from the Bureau of Labor Statistics show that consumer spending on transportation is only slightly higher than consumer spending on food and beverages.
T
If the interest rate is 5 percent, then receiving $1,000 eight years from now is worth more than receiving $700 today.
T
If the quality of a good deteriorates from one year to the next while its price remains the same, then the value of a dollar falls.
T
If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.
T
Journey Motorcycles produced 100 motorcycles using 50 workers who each worked 8 hours a day. Journey's productivity was 1/4.
T
Like physical capital, human capital is a produced factor of production.
T
Many economists believe the bias in the CPI is now only about half as large as it once was.
T
The CPI does not reflect the increase in the value of the dollar that arises from the introduction of new goods.
T
The consumer price index is used to monitor changes in an economy's production of goods and services over time.
T
The majority of economists believe that policies that reduce the saving rate will reduce long-run living standards.
T
The real interest rate tells you how fast the purchasing power of your bank account rises over time.
T
David increases the number of companies in which he holds stocks.
This reduces firm-specific risk.
If Alan is risk-averse, then he will always
choose not to play a game where he has a 50 percent chance of winning $5 and a 50 percent chance of losing $5.
The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland, investment is
investment is $6 billion and consumption is $6 billion.
The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits are called
natural resources
As long as prices are rising over time, then
the nominal interest rate exceeds the real interest rate.
If the consumer price index was 96 in Year 1, 100 in Year 2, and 102 in Year 3, then the base year must be
year 2
Country A had a population of 1,000, of whom 600 worked an average of 8 hours a day and had a productivity of 2.5. Country B had a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0
B had the higher level of real GDP and real GDP per person.
In determining living standards, productivity plays a key role for
For both nations and individuals
Which of the following statements is correct?
On average, index funds outperform managed funds.
When constructing the consumer price index, the Bureau of Labor Statistics does not do which of the following?
Survey sellers to determine what the typical consumer buys.
Which of the following statements is correct?
The expected future profitability of a corporation influences the demand for that corporation's stock.
The CPI differs from the GDP deflator in that
increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.
During periods of deflation, the nominal interest rate will be
lower than the real interest rate
Suppose the price of a quart of milk rises from $1.00 to $1.20 and the price of a T-shirt rises from $8.00 to $9.60. If the CPI rises from 150 to 195, then people likely will buy
more milk and more T-shirts.
Educated people may generate ideas that increase production. These ideas
produce a return to society from education that is greater than the return to the individual.
A bond buyer is a
saver. Bond buyers may sell their bonds prior to maturity.
Kurt decided to increase the number of stocks in his portfolio. In doing so, Kurt reduced
the firm-specific risk, but not the market risk of his portfolio.
If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced
11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.
In real terms, Josh Holloway's income amounts to about what percentage of Sue Holloway's income?
141%
Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the population was 2.2 million. The year before, real GDP was 500.0 billion and the population was 2.0 million. What was the growth rate of real GDP per person during the year?
2%
Nate collected Social Security payments of $220 a month in Year 1. If the price index rose from 90 to 108 between Year 1 and Year 2, then his Social Security payments for Year 2 should have been
264
Assuming the interest rate is 6 percent, which of the following has the greatest present value?
285 today
The largest reduction in a portfolio's risk is achieved when the number of stocks in the portfolio is increased from
1-10
