HW #7: GDP & Consumption Function

The GDP deflator in year 2 is 110 using year 1 as a base year. This means that, on average, the price of goods and services is

$168.

The broadest-based price index available is the

GDP deflator.

If the price of used cars rises, then the CPI will ________ and the GDP deflator will ________.

increase; not change

If the change in business inventories is positive, then final sales are

less than GDP.

When GDP is measured in "current prices" it is known as the

nominal GDP.

If Caterpillar Inc. raises the price of earth-moving equipment that it manufactures in Illinois, then the CPI will ________ and the GDP deflator will ________.

not change; increase

The index used most often by the Federal Reserve to measure inflation is the

personal consumption expenditures price index.

The change in consumption divided by the change in income is equal to

the MPC

Which of the following is considered investment?

the acquisition of capital goods

If aggregate output is less than planned spending, then

unplanned inventory investment is negative.

Aggregate output will decrease if there is a(n)

unplanned rise in inventories.

The GDP deflator in year 2 is 110 using year 1 as a base year. This means that, on average, the price of goods and services is

10% higher in year 2 than in year 1.

If nominal GDP is $8 trillion and real GDP is $6 trillion, the GDP deflator is

133.33.

Assume there is no government or foreign sector. If the MPS is 0.10, a $20 billion decrease in planned investment will cause aggregate output to decrease by

200 million

Firms react to positive inventory investment by increasing output.

False

Personal Consumption Expenditures (PCE) differs from Core PCE in that PCE excludes food and energy when calculating the price index and Core PCE includes both categories.

False

Assume that in Narnia, planned investment is $80 billion but actual investment is $50 billion. Unplanned inventory investment is

-$30 billion.

If consumption is $13,000 when income is $12,000, and consumption increases to $15,000 when income increases to $15,000, the MPS is

0.33

If Zach's saving function is of the form [S = -300 + 0.2Y], his consumption equals his income at an income level of

1,500

If the GDP deflator for year 3 is 137, this value means that prices have increased

37

Assume there is no government or foreign sector. If the MPS is 0.25, the multiplier is

4

If C = 200 + 0.5Y and I = 100, then the equilibrium level of income is

600

The GDP deflator in year 2 is 110 and the GDP deflator in year 3 is 118. The rate of inflation between years 2 and 3 is

7.27%.

If the consumption function is above the 45-degree line

consumption exceeds income and saving is negative.

Nominal GDP measures the value of all goods and services

current dollars.