macro
A __________ price index can __________ the cost of living.
d. fixed-weighted; overstate
A “chain-weighted” price index __________ the response of buying behavior to changes in relative prices, and so __________ a substitution bias.
b. allows; avoids
A “recession” is defined as
a. two or more consecutive quarters of falling Real GDP.
Assume that Ms. Sawyers salary is $74,500, up from $68,900 last year, while the CPI is 165 this year, up from 150 last year. This means that Ms. Sawyers real income has
d. decreased.
Assume that nominal GDP in 1972 was $1,213 billion. If the GDP deflator was 46.5 in 1972 then
e. real GDP in 1972 was $2609 billion
Assume that the economy is in a recession and John is unemployed. He is confident that he will be able to find work as soon as the recession ends. John is an example of
a. cyclical unemployment
Assume that the nominal interest rate is 5 percent and no one expects any inflation in the future. If something now happens which causes everyone to expect higher inflation in the future this will cause
b. nominal interest rates to increase
Assume that one year nominal GDP was $18 trillion and the GDP deflator was 110. The next year nominal GDP was $26 trillion and the GDP deflator was 160. Based on this information we can say that the increase in nominal GDP (hint: you will have to do two calculations to ANS this question)
d. was due completely to an increase in prices
Business firms make which of the following two types of investment?
b. fixed investment and inventory investment
Comprehensive wage and price controls
c. disrupt the ability of the price system to communicate information and lead to shortages
Consider a year in which net investment is $300 billion and depreciation is $600 billion. From this we can deduce that
a. gross investment must have been $900 billion
Disposable income is
c. that portion of personal income that can be used for consumption and saving.
“Full employment” is said to exist when the unemployment rate equals
b. the natural unemployment rate.
Good X sold for $40 in 1957. The CPI in 1957 was 27.6 and the CPI in 1999 was 164.3. What was the price of good X in 1999 dollars?
a. $238.12
Gross Domestic Product (GDP) is the total market value of all
c. final goods and services produced annually within a countrys borders.
If gross investment this year is $800 billion and depreciation is $700 we know that
c. net investment will be $100 billion
If the CPI was 164.3 in 1999 and 142.6 in 1993, by what percentage did prices rise during the period 1993-1999?
c. 15.2 percent
If the economy is operating on its production possibilities frontier this tells us that
e. there is no cyclical unemployment
If the economy produces exactly the same goods and services this year as were produced last year but the price level has increased,
a. nominal GDP will have increased but real GDP will be unchanged
If unemployed people who have been looking for work become discouraged workers and stop looking for work
c. the unemployment rate will decrease
In an economy with 100 million people, 64 million hold jobs and 4.7 million are not working but are looking for jobs. The unemployment rate is __________.
e. 6.8 percent
In an economy with 100 million people, 70 million hold jobs and 10 million are not working but are looking for jobs. The number counted as unemployed is
c. 10 million.
In many large retail stores, price markdowns are now determined by computer. The “middle managers” who used to make these decisions personally became __________ unemployed.
c. structurally
Investment is equal to all purchases of newly produced capital goods
d. plus changes in business inventories.
In year 1 the CPI is 140.1, and in year 2 the CPI is 148.9. If Sarahs salary was $33,500 in year 1, what salary in year 2 would cause her to exactly “keep up with inflation”?
a. $35,604
Jones lost his job in industry A, but he has skills that can be transferred to industry B (which is currently hiring). Smith lost a job in industry C, but his skills cannot be transferred to industry B or to any other industry. Jones is __________ unemployed and Smith is __________ unemployed.
a. frictionally; structurally
Leisure is
a. a good that is not counted in GDP.
Look at the following data: consumption = $813 billion; exports = $43 billion; imports = $33 billion; inventory investment = $123 billion; fixed investment = $300 billion; government purchases = $320 billion. What is GDP?
e. $1,566 billion
Look at the following data: GDP = $5,998 billion; investment = $1,322 billion; exports = $300 billion; government purchases = $1,450 billion; consumption = $3,400 billion. What does import spending equal?
c. none of the other options is correct
Net domestic product (NDP) is the total value of
c. all final goods and services produced within a countrys borders in a year minus capital consumption allowance.
Net exports equals
d. the difference between exports and imports.
One of the problems of using GDP as a measure of the nations welfare or well-being, is that
d. GDP does not take into account the negative effects imposed on society by economic “bads,” such as pollution of the environment
One measure of the inflation rate is the
a. percentage change in the CPI of adjacent years.
Real GDP
b. is not distorted by inflation, since it is calculated using base year prices
Real GDP is always measured in
d. base-year dollars.
Real GDP is the value of all __________ goods and services produced in a given year in __________ prices.
a. final; base-year
Suppose the market basket consists of 10X, 20Y, and 30Z. Current-year prices are $1.00 for each unit of X, $0.96 for each unit of Y, and $1.13 for each unit of Z. Base-year prices are $1.00 for each unit of X, Y, and Z. What is the approximate CPI in the current year?
d. 105.17
The base year is the year
a. that serves as a reference point or benchmark.
The CPI was 117.6 in one year and 121.3 the following year. Approximately how much did prices rise between the two years?
d. 3.15 percent
The cyclical unemployment rate is defined as the __________ unemployment rates.
c. difference between the existing (actual) and the natural
The difference between GDP and NDP is
a. depreciation
The expenditure approach to measuring GDP sums
b. consumption, investment, government purchases, and net exports.
The movie “Return of the Jedi” earned $264 million in 1983 when it was released. The CPI in 1983 was 97.8 and the CPI in 2000 was 168.7. Approximately how much did the movie earn in 2000 dollars?
a. $455 million
The natural rate of unemployment
c. equals the rate of frictional unemployment plus the rate of structural unemployment
The table below gives the price level at the end of each year. Calculate the inflation rate for year 2. YEAR CPI 1 289.1 2 298.4 3 311.1 4 322.2
Answer: c. 3.2%
The three major economic goals are
a. price stability, full employment and high economic growth.
The unemployment due to changes in the types of skills employers require is called __________ unemployment.
b. structural
The unemployment due to the time it takes for unemployed people to locate a job utilizing their transferable skills is called __________ unemployment.
d. frictional
Transfer payments (income transfers)
d. include payments made by the government which are not made in exchange for some good or service
To derive net domestic product (NDP) from gross domestic product (GDP), we must subtract
b. depreciation or capital consumption allowance from GDP.
Underground activities are not counted in GDP because
c. there are no written records of underground activities.
When the rate of inflation unexpectedly increases
c. this redistributes wealth from lenders to borrowers
Which of the following goods is an intermediate good?
d. both the letture and the tires referred to in the other options
Which of the following illustrates double counting?
b. The total market value of the steel used to produce a car and the total market value of the car itself are summed.
Which of the following is counted in GDP?
d. the services of a real estate broker
Which of the following is one of the three main macroeconomic goals that the government seeks to achieve?
a. full employment
b. b. price level stability
c. f. economic growth
Which of the following is the correct equation for computing personal income?
d. Personal income = National income – undistributed corporate profits – social insurance taxes – corporate profits taxes + transfer payments
Which of the following statements about income is correct?
b. disposable income equals personal income minus personal taxes
Which of the following statements about inflation are correct?
d. All of the other statements are true
Which of the following statements about investment spending is not correct?
d. gross investment tells us by how much the capital stock will change during the year after adjusting for the fact that some capital will wear out during the year
Which of the following statements about an economy operating at full employment is correct?
e. When the economy is operating at full employment the unemployment rate will equal the frictional rate plus the structural rate
Which of the following statements is correct?
b. cyclical unemployment does not exist if the economy is operating at full employment
d. because of an increase in the number of discouraged workers, the unemployment rate can sometimes fall when the economy is moving into recession
e. when the economy is at full employment there will be no cyclical unemployment
h. the natural rate of unemployment is the lowest sustainable unemployment rate
Which of the following statements is false?
e. all of the statements are false
Which of the following statements is true?
d. The CPI in the base year will always be 100.
Which of the following transactions would be included when calculating GDP using the expenditure approach?
a. the purchase of a $75,000 computer by a business firm
Which of the following would not be included in the calculation of this years GDP?
b. a headlight bulb purchased by Ford Motor Co. from a supplier
Which of the following would not be included in the measurement of GDP?
c. value of the services of a person who mows his or her own lawn
With the income approach GDP is calculated by starting with national income and making several adjustments. Some of those adjustments are
b. adding indirect business taxes and depreciation
You are a highly skilled television repairman. Unfortunately for you, the televisions you know how to repair have been replaced by a new type about which you know nothing. As a result, you are now unemployed.
b. You are an example of structural unemployment
You are thinking about borrowing some money. The nominal interest rate you will pay is 8% and you believe that, over the life of this loan, the average annual inflation rate will be 3%. Based on this
c. the real interest rate you will pay is 5%
You are given the following estimates: Inflation rate = 10.7 Current unemployment rate = 10.5
Structural rate = 4.8 Expected inflation rate = 6.4 Frictional rate = 2.0
What is the rate of cyclical unemployment?
3.7
YEAR PRICE LEVEL
1 113.9
2 133.3
3 147.3
4 179.1
5 187.5
6 216.8
What was the percent change in the price level between year 4 and year 5?
Answer:
4.69%
YEAR PRICE LEVEL
1 110.8
2 130.6
3 145.9
4 163.2
5 184.4
6 203.2
What was the percent change in the price level between year 1 and year 5?
Answer: 66.43%
With the following information, calculate the price index for year 4. Year 2 has been chosen to be the base year. The basket of goods for this price index includes 48 units of good X and 69 units of good Y.
PRODUCT YEAR 1 YEAR 2 YEAR 3 YEAR 4
Good X 2.5 13.6 13.2 19.3
Good Y 1.1 8.4 2.3 16.3
Answer: 166.43
YEAR PRICE LEVEL
1 107.1
2 126.6
3 141.2
4 177.6
5 184.7
6 201.1
What was the inflation rate for year 3?
Answer: 11.53%
With the following information, calculate the price index for year 3. Year 2 has been chosen to be the base year. The basket of goods for this price index includes 37 units of good X and 68 units of good Y.
PRODUCT YEAR 1 YEAR 2 YEAR 3 YEAR 4
Good X 9.2 5.9 12.0 19.8
Good Y 2.9 8.5 8.9 16.6
Answer: 131.76
YEAR PRICE LEVEL
1 118.4
2 132.7
3 148.3
4 161.7
5 187.6
6 210.7
What was the percent change in the price level between year 2 and year 4?
Answer: 21.85%