macroeconomics midterm

Rachel babysits for her sister for no pay. When she babysits for someone else she charges $8 an hour. When is Rachel's babysitting included in GDP?

When she babysits for someone else, but not when she babysits for her sister.

Which of the following statements about real and nominal interest rates is correct?

When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate.

A production possibilities frontier is bowed outward when

the rate of tradeoff between the two goods being produced depends on how much of each good is being produced.

A production possibilities frontier is a straight line when

the rate of tradeoff between the two goods being produced is constant.

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?

$1200

A tire manufacturer produces 400 tires valued at $20 each. Three hundred tires are sold to a tire shop, which then sells them to households for $50 each. The remaining tires are unsold and are added to the tire manufacturer's inventory. How much is added to GDP?

$17,000

Abby bakes brownies and Liam grows flowers. In which of the following cases is it impossible for both Abby and Liam to benefit from trade?

Abby does not like flowers and Liam does not like brownies.

Which of the following is not a question addressed by macroeconomists?

What is the impact of foreign competition on the U.S. auto industry?

Real GDP is the yearly production of final goods and services valued at

constant prices.

According to the circular flow diagram, if Suzy is a worker who delivers flowers for Happy Day Flower Company, she participates

in the markets for factors of production exchanging labor for income.

A country that currently does not trade with other countries could benefit by

not restricting trade.

A certain production possibilities frontier shows production possibilities for two goods, jewelry and clothing. Which of the following concepts cannot be illustrated by this model?

the flow of dollars between sellers of jewelry and clothing and buyers of jewelry and clothing

Assume that consumers consider rice and potatoes to be substitutes, so that when the price of rice rises, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account

the increase in the price of rice.

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because

when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.

Fundamentally, economics deals with

scarcity

Henri earned a salary of $50,000 in 2001 and $60,000 in 2012. The consumer price index was 177 in 2001 and 225 in 2012. Henri's 2001 salary in 2012 dollars is

$63,559.32.

A dairy buys $50,000 worth of milk and spend $5,000 on cartons and utilities. It sells the cartons of milk to a grocery store for $60,000 that then sells all of the cartons to consumers for $65,000. How much do these actions add to GDP?

$65,000

Arlo is offered a job in Des Moines, where the CPI is 80, and a job in New York, where the CPI is 125. Arlo's job offer in Des Moines is for $42,000. How much does the New York job have to pay in order for the two salaries to represent the same purchasing power?

$65,625

Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. In real terms, Sue Holloway's income amounts to about what percentage of Josh Holloway's income?

70.9 percent

Belarus has a comparative advantage in the production of linen, but Russia has an absolute advantage in the production of linen. If these two countries decide to trade,

Belarus should export linen to Russia.

Tom Brady should pay someone else to mow his lawn instead of mowing it himself, unless

Brady has a comparative advantage over everyone else in mowing his lawn.

According to the circular flow diagram, if Denny is the owner of a landscaping business and he just received $50 for mowing Mrs. Pendleton's lawn,

Denny acts as a firm who interacted in the markets for goods and services with Mrs. Pendleton.

Suppose an apartment complex converts to a condominium, so that the former renters are now owners of their housing units. Suppose further that a current estimate of the value of the condominium owners' housing services is the same as the rent they previously paid. What happens to GDP as a result of this conversion?

GDP is unaffected because previously the rent payments were included in GDP and now the rent payments are replaced in GDP by the estimate of the value of owner occupied housing services.

Which of the following transactions adds to U.S. GDP for 2015?

In 2015, Frank's Feta manufactures 2000 pounds of cheese that will eventually be sold to grocery stores. The 2000 pounds of cheese remains in Frank's inventory at the end of 2015. b. An Irish marketing consultant works in Richmond during the summer of 2015 and earns $45,000 during that time. c. When Len and Mika were both single, they lived in separate apartments and each paid $700 in rent. Len and Mika got married in 2015 and they bought a previously unoccupied house that, according to reliable estimates, could be rented for $1,500 per month.

A barber currently cuts hair for 50 clients per week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients.

A tax on gasoline encourages people to drive smaller, more fuel-efficient cars. Which principle of economics does this illustrate?

People respond to incentives.

When ranking movies by nominal box office receipts, what important fact is overlooked?

Prices, including those for movie tickets, have been rising over time.

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?

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

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision?

The marginal benefit of going to Spain increases.

Acme Home Builders, Inc., has built 24 houses so far this year at a total cost to the company of $4.80 million. If the company builds a 25th house, its total cost will increase to $5.05 million. Which of the following statements is correct?

The marginal cost of the 25th house, if it is built, will equal $250,000.

In an imaginary economy, consumers buy only razors and cologne. The fixed basket consists of 6 razors and 4 bottles of cologne. A razor cost $20 in 2009 and $25 in 2010. A bottle of cologne cost $30 in 2009 and $40 in 2010. Using 2009 as the base year, which of the following statements is correct?

The rate of inflation is 29.17% in 2010.

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude

consumer prices sometimes rose and sometimes fell in the time frame represented on the graph.

Among economic models, the circular-flow diagram is unusual in that it

does not involve mathematics.

Jackie, a Canadian citizen, works only in the United States. The value of the output she produces is

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

Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has

increased measured GDP by the value added by the restaurant's preparation and serving of the meals.

A tradeoff exists between a clean environment and a higher level of income in that

laws that reduce pollution raise costs of production and reduce incomes.

GDP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because

measuring them is so difficult.

The loss of potential gain from other alternatives when one alternative is chosen is called

opportunity cost

Billie Jean has $120 to spend and wants to buy either a new amplifier for her guitar or a new mp3 player to listen to music while working out. Both the amplifier and the mp3 player cost $120, so she can only buy one. This illustrates the basic concept that

people face trade-offs.

A professor spends 10 hours per day giving lectures and writing papers. For the professor, a graph that shows his various possible mixes of output (lectures given per day and papers written per day) is called his

production possibilities frontier.

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.

A decrease in the price of domestically produced industrial robots will be reflected in

the GDP deflator but not in the consumer price index.

An important difference between the GDP deflator and the consumer price index is that

the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.

A production possibilities frontier shifts outward when

the economy experiences economic growth.

A production possibilities frontier can shift outward if

there is a technological improvement.

For some racquet sports, there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI is this situation most relevant?

unmeasured quality change