Econ Review

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been selected as the base year. In 2012, the basket's cost was $50; in 2014, the basket's cost was $52; and in 2016, the basket's cost was $55. The value of the CPI in 2016 was

110

A U.S.-owned automobile factory uses $100,000 worth of parts purchased from foreign countries along with U.S. inputs to produce 30 cars worth $20,000 each. Twenty of these cars are sold and 10 are left in inventory. How much did these actions add to GDP? Select one: a. $300,000 b. $500,000 c. $600,000 d. $700,000

B

1. If in some year real GDP was $5 trillion and the GDP deflator was 200, what was nominal GDP? a. $2.5 trillion. c. $10 trillion. b. $40 trillion. d. $100 trillion.

C

1. Suppose the government eliminates all environmental regulations and, as a result, the production of goods and services increases, but there is considerably more pollution. Based on this scenario, which of the following statements is correct? a. GDP would definitely increase, despite the fact that GDP includes environmental quality. b. GDP would definitely decrease because GDP includes environmental quality. c. GDP would definitely increase because GDP excludes environmental quality. d. GDP could either increase or decrease because GDP excludes environmental quality.

C

Which of the following transactions adds to U.S. GDP for 2015? Select one: a. In 2015, Ann sells a car that she bought in 2011 to Bill for $7,000. b. An American management consultant works in Canada during the summer of 2015 and earns the equivalent of $40,000 during that time. c. When Ken and Kim were both single, they lived in separate apartments and each paid $800 in rent. Ken and Kim got married in 2015 and they bought a previously unoccupied house that, according to reliable estimates, could be rented for $1,700 per month. d. None of the above transactions adds to U.S. GDP for 2015.

C

1. If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same, which would rise? a. both real GDP and nominal GDP. b. real GDP but not nominal GDP. c. nominal GDP but not real GDP. d. neither nominal GDP nor real GDP.

C.

1. To encourage formation of small businesses, the government could provide subsidies; these subsidies a. would be included in GDP because they are part of government purchases. b. would be included in GDP because they are part of investment expenditures. c. would not be included in GDP because they are transfer payments. would not be included in GDP because the government raises taxes to pay for them

C.

1. When an American household purchases a bottle of Italian wine for $100, a. U.S. consumption does not change, U.S. net exports decrease by $100, and U.S. GDP decreases by $100. b. U.S. consumption does not change, U.S. net exports increase by $100, and U.S. GDP increases by $100. c. U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change. d. U.S. consumption increases by $100, U.S. net exports do not change, and U.S. GDP increases by $100.

C.

A painter pays $500 for paint he uses to repaint a house. He then presents a bill for $1200 that covers his time and expenses to the homeowner. How much do these transactions add to GDP? Select one: a. $500 b. $700 c. $1200 d. $1700

C.

In early 2010 Molly paid $200,000 for a house built in 2000. She spent $30,000 on new materials to remodel the house. Although Molly lived in the house after she remodeled it, its rental value rose. Which of the following contributed to real GDP in 2010? Select one: a. the price of the house, the cost of remodeling materials, the increase in rental value b. the price of the house and the cost of remodeling materials, but not the increase in rental value c. the costs of the remodeling materials and the increase in rent, but not the price of the house d. None of the above are correct.

C.

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? Select one: a. Sam's and Ellen's. b. Sam's but not Ellen's. c. Ellen's but not Sam's. d. Neither Sam's nor Ellen's.

C.

1. Suppose there are only two firms in an economy: Cowhide, Inc. produces leather and sells it to Couches, Inc., which produces and sells leather furniture. With each $1,000 worth of leather that it buys from Cowhide, Inc., Couches, Inc. produces a couch and sells it for $2,600. Neither firm had any inventory at the beginning of 2015. During that year, Cowhide produced enough leather for 25 couches. Couches, Inc. bought 80% of that leather for $20,000 and promised to buy the remaining 20% for $5,000 in 2016. Couches, Inc. produced 20 couches during 2015 and sold each one during that year for $2,600. What was the economy's GDP for 2015? a. $25,000 b. $52,000 c. $57,000 d. $65,000

C. 57,000

1. Over time, people have come to rely more on market-produced goods and services and less on goods and services they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has a. caused measured GDP to fall. b. not caused any change in measured GDP. c. caused measured GDP to rise. d. probably changed measured GDP, but in an uncertain direction

C. Caused measured GDP to fall

1. 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

1. GDP does not reflect a. the value of leisure. b. the value of goods and services produced at home. c. the quality of the environment. d. All of the above are correct.

D.

1. Frictional unemployment results from a. job searching. It is often thought to explain relatively short spells of unemployment. b. job searching. It is often thought to explain relatively long spells of unemployment c. a surplus in the some labor markets. It is often thought to explain relatively short spells of unemployment. d. a surplus in some labor markets. It is often thought to explain relatively long spells of unemployment.

a

1. Other things the same, which of the following could explain an increase in productivity? a. either an increase in human capital or an increase in physical capital b. an increase in human capital but not an increase in physical capital c. an increase in physical capital but not an increase in human capital d. neither an increase in human capital nor an increase in physical capital

a

1. Over the last ten years productivity grew faster in Mapoli than in Romeria while the population and total hours worked remained the same in both countries. It follows that a. real GDP per person grew faster in Mapoli than in Romeria. b. real GDP per person must be higher in Mapoli than in Romeria. c. the standard of living must be higher in Mapoli than in Romeria. d. All of the above are correct.

a

1. The price index was 150 in the first year, 142.5 in the second year, and 138.2 in the third year. The economy experienced a. 5.0 percent deflation between the first and second years, and 3.0 percent deflation between the second and third years. b. 7.5 percent deflation between the first and second years, and 4.3 percent deflation between the second and third years. c. 5.3 percent inflation between the first and second years, and 4.1 percent inflation between the second and third years. d. 7.5 percent inflation between the first and second years, and 4.3 percent inflation between the second and third years.

a

1. When the consumer price index rises, the typical family a. has to spend more dollars to maintain the same standard of living. b. can spend fewer dollars to maintain the same standard of living. c. finds that its standard of living is not affected. d. can offset the effects of rising prices by saving more.

a

Alexis and Tara both mine salt. Alexis mines 300 pounds in 20 hours. Tara mines 400 pounds in 40 hours. Which of the following is correct? Select one: a. Alexis's productivity is greater than Tara's. This difference could be explained by Alexis having more physical capital than Tara. b. Alexis's productivity is greater than Tara's. This difference cannot be explained by a difference in the physical capital each has. c. Tara's productivity is greater than Alexis's. This difference could be explained by Tara having more physical capital than Alexis. d. Tara's productivity is greater than Alexis's. This difference cannot be explained by a difference in the physical capital each has.

a

By far the largest category of goods and services in the CPI basket is Select one: a.housing b.transportation. c.education & communication. d.food & beverages.

a

If a Japanese company opens a new factory in South Korea, it makes Select one: a. foreign direct investment. The factory will make a bigger impact on South Korea's GDP than on its GNP. b. foreign direct investment. The factory will make a bigger impact on South Korea's GNP than on its GDP. c. foreign portfolio investment. The factory will make a bigger impact on South Korea's GDP than on its GNP. d. foreign portfolio investment. The factory will make a bigger impact on South Korea's GNP than on its GDP. Feedback

a

An increase in the price of dairy products produced domestically will be reflected in Select one: a. both the GDP deflator and the consumer price index. b. neither the GDP deflator nor the consumer price index. c. the GDP deflator but not in the consumer price index. d. the consumer price index but not in the GDP deflator.

a.

For an imaginary economy, the value of the consumer price index was 138.75 in 2016, and the inflation rate was 10 percent between 2015 and 2016. The consumer price index in 2015 was Select one: a. 126.1. b. 128.8. c. 148.8. d. 152.6.

a.

If in some year nominal GDP was $28 trillion and real GDP was $32 trillion, what was the GDP deflator? Select one: a. 87.5. b. 114.3. c. 400. d. 896.

a.

1. Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity. To do this, GDP makes use of a. market prices. b. statistical estimates of the value of goods and services to consumers. c. prices based on the assumption that producers make no profits. d. the maximum amount consumers would be willing to pay.

a.Market Prices

1. Apple founder Steve Jobs received patents on many of his ideas. While the patents existed, his ideas were a. public goods and proprietary knowledge. c. public goods but not proprietary knowledge. b. private goods and proprietary knowledge. d. private goods, not proprietary knowledge

b

1. Economists use the term inflation to describe a situation in which a. some prices are rising faster than others. b. the economy's overall price level is rising. c. the economy's overall price level is high, but not necessarily rising. d. the economy's overall output of goods and services is rising faster than the economy's overall price level.

b

1. If the CPI was 90 in 1975 and is 225 today, then $100 today purchases the same amount of goods and services as a. $25.00 purchased in 1975. c. $33.33 purchased in 1975. b. $40.00 purchased in 1975. d. $135.55 purchased in 1975.

b

1. If the consumer price in-ex was 100 in the base year and 106 in the following year, then the inflation rate was a. 1.06 percent. b. 6 percent. c. 10.6 percent. d. 106 percent.

b

1. Ralph is a plumber. Which of the following are included in his human capital? a. the knowledge he learned on the job, and the tools he uses b. the knowledge he learned on the job, but not the tools he uses c. the tools he uses, but not the knowledge he learned on the job d. neither the knowledge he learned on the job nor the tools he uses 

b

1. The Bureau of Labor Statistics reported in 2005 that there were 28.19 million people over age 25 who had no high school degree or its equivalent, 11.73 million of whom were employed and 1.04 million of whom were unemployed. What were the labor-force participation rate and the unemployment rate for this group? a. 45.3% and 3.7% b. 45.3% and 8.1% c. 41.6% and 3.7% d. 41.6% and 8.1%

b

1. Which of the following is not an explanation for the existence of structural unemployment? a. efficiency wages b. job search c. minimum-wage laws d. unions

b

1. Which of the following is not correct? a. Across countries there are large differences in the average income per person. These differences are reflected in large differences in the quality of life. b. With a growth rate of about 2 percent per year, average income per person doubles about every 60 years. c. The ranking of countries by average income changes substantially over time. d. In some countries real income per person has changed very little over many years.

b

All else equal, if there are diminishing returns, then if a country raised its capital by 100 units last year and by 100 units this year, Select one: a. the increase in output was greater for this year than last year. b. the increase in output was greater last year than this year. c. the increase in output is the same in both years. d. None of the above is necessarily correct.

b

Japan's status as a rich nation is attributable to Select one: a. Japan's quantities of natural resources, but not to international trade. b. international trade, but not to Japan's domestic quantities of natural resources. c. the fact that Japanese productivity has remained nearly constant for more than 100 years. d. the fact that the Japanese have downplayed the role of human capital in economic growth. Feedback

b

Suppose Turkey increases its saving rate. In the long run Select one: a. the growth rates of productivity and real GDP per person increase. b. productivity and real GDP per person increase. c. the growth rate of productivity increases, and real GDP per person increases. d. productivity increases, and the growth rate of real GDP per person increases. Feedback

b

Which of the following is included in the investment component of GDP? Select one: a. spending on new business equipment such as power tools and spending on stocks and bonds b. spending on new business equipment such as power tools but not spending on stocks and bonds c. spending on stocks and bonds but not spending on new business equipment such as power tools d. neither spending on new business equipment such as power tools nor spending on stocks and bonds

b

Which of the following statements is correct? Select one: a. Productivity is a determinant of human capital per worker. b. Technological knowledge is a determinant of productivity. c. Human capital and technological knowledge are the same thing. d. All of the above are correct.

b

A U.S. firm produces nail guns in the first quarter of 2010 and adds them to its inventory. In the second quarter of 2010 the firm sells the nail guns to a U.S. construction company. In which quarter(s) is (are) GDP higher? Select one: a. the first and the second b. the first but not the second c. the second but not the first d. neither the first nor the second

b.

If the CPI was 127 in 1972 and is 324 today, then $10 in 1972 purchased the same amount of goods and services as Select one: a. $3.92 purchases today. b. $25.51 purchases today. c. $207.00 purchases today. d. $324.00 purchases today.

b.

The U.S. government pays an economist at the U.S. Department of Commerce $100,000 in salary in 2013. The economist then retires. In 2014, the government pays him $60,000 in Social Security benefits. Which of the following is correct? Select one: a. The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is included in 2014 GDP as government purchases. b. The 2013 payment is included in 2013 GDP as government purchases, but the 2014 payment is not included in 2014 GDP. c. The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is included in 2014 GDP as government transfer payments. d. The 2013 payment is included in 2013 GDP as government purchases, and the 2014 payment is allocated to previous years' GDP according to the amount of work performed by the economist each year.

b.

1. Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 229.6 for 2012. Ruth's 1931 salary was equivalent to a 2012 salary of about a. $5,296. b. $1,128,421 c. $1,208,421 d. $17,152,000

c

1. In the 1990's Ireland made unemployment benefits less generous. This change would likely have reduced a. both structural unemployment and the natural rate of unemployment. b. structural unemployment but not the natural rate of unemployment. c. both frictional unemployment and the natural rate of unemployment. d. frictional unemployment but not the natural rate of unemployment.

c

1. John is a stockbroker. He has had several job offers, but he has turned them down because he thinks he can find a firm that better matches his tastes and skills. Curtis has looked for work as an accountant for some time. While the demand for accountants does not appear to be falling, there seems to be more people applying than jobs available. a. John and Curtis are both frictionally unemployed. b. John and Curtis are both structurally unemployed. c. John is frictionally unemployed, and Curtis is structurally unemployed. d. John is structurally unemployed, and Curtis is frictionally unemployed.

c

1. Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor county to catch up? a. The poor country has outward-oriented trade policies. b. The poor country allows foreign direct investment. c. The poor country has poorly developed property rights. d. All of the above are correct.

c

1. Which of the following is not an explanation for the existence of unemployment in the long run? a. it takes time for workers to search for the jobs that are best suited for them b. minimum-wage laws c. the business cycle d. unions

c

An increase in a country's population may contribute to the rate of technological progress because a larger population Select one: a. forces the capital stock to be spread more thinly. b. forces natural resources to be spread more thinly. c. brings with it more scientists, inventors, and engineers. d. brings with it more favorable recognition from other countries.

c

Country A and country B are the same except country A currently has more capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then Select one: a. output in country A increases by more than in country B. b. output in country A increases by the same amount as in country B. c. output in country A increases by less than in country B. d. None of the above is necessarily correct.

c

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2009 spending in 2014 dollars is about Select one: a. $43,290. b. $37,143. c. $40,950 d. $40,857.

c

The shape of the curve is consistent with which of the following statements about the economy to which the curve applies? Select one: a. In the long run, a higher saving rate leads to a higher growth rate of productivity. b. In the long run, a higher saving rate leads to a higher growth rate of income. c. Returns to capital become increasingly smaller as the amount of capital per worker increases. d. All of the above are correct.

c

In the economy of Talikastan in 2015, consumption was $3000, GDP was $5500, government purchases were $1000, imports were $1000, and investment was $1000. What were Talikastan's exports in 2015? Select one: a. -$500 b. $500 c. $1500 d. $-1500

c.

When ranking movies by nominal box office receipts, what important fact is overlooked? Select one: a. More people go to movies now than in the past. b. There are no good substitutes for movies currently. c. Prices, including those for movie tickets, have been rising over time. d. Movies and DVD are complements. Feedback

c.

1. Discouraged workers are included in a. the number of unemployed. c. frictional unemployment. b. the labor force. d. None of the above is correct.

d

1. 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

1. Which of the following is not correct? a. The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power. b. The consumer price index is used to monitor changes in the cost of living over time. c. The consumer price index is used by economists to measure the inflation rate. d. The consumer price index is used to measure the quantity of goods and services that the economy is producing.

d

According to research by Robert Fogel, people in Britain grew taller because of Select one: a. genetics. However this increase in height had no effect on productivity. b. genetics. This increase in height is associated with higher productivity. c. higher caloric intake. However, this increase in height had no effect on productivity. d. higher caloric intake. This increase in height is associated with higher productivity.

d

Human capital is Select one: a. the same thing as technological knowledge. b. the same thing as labor. c. the tools and equipment operated by humans. d. knowledge and skills that workers have acquired.

d

If a country increases its saving rate, which of the following permanently grow at a higher rate? Select one: a. productivity and real GDP per person b. productivity but not real GDP per person c. real GDP per person but not productivity d. neither real GDP per person nor productivity

d

Suppose that the U.S. undertakes a policy to increase its saving rate. This policy will likely Select one: a. have no impact on the level of real GDP per person. b. immediately and permanently decrease the level of real GDP per person. c. immediately and permanently increase the level of real GDP person. d. gradually raise the level of real GDP per person.

d

The consumer price index and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct? Select one: 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

Which of the following is consistent with the catch-up effect? Select one: 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

Chapter 7

g

Chapter 10

h

Chapter 6

j