ECO 2305 Test 3

question

Macroeconomists study
answer

economy-wide phenomena.
question

Which of the following questions is more likely to be studied by a microeconomist than a macroeconomist?
answer

Why do wages differ across industries?
question

Which of the following is not a question that macroeconomists address?
answer

Why does the price of oil rise when war erupts in the Middle East?
question

Which of the following statistics is usually regarded as the best single measure of a society’s economic well-being?
answer

gross domestic product
question

Gross domestic product measures
answer

income and expenditures.
question

In a simple circular-flow diagram, total income and total expenditure are
answer

always equal because every transaction has a buyer and a seller.
question

GDP is defined as the
answer

value of all final goods and services produced within a country in a given period of time.
question

Ryan lives in an apartment where he pays $7,000 a year in rent. Sarah lives in a house that could be rented for $21,000 a year. How much do these housing services contribute to GDP?
answer

$28,000
question

Most goods and services produced at home
answer

and most goods and services produced illegally are excluded from GDP
question

Which of the following is not included in GDP?
answer

carrots grown in your garden and eaten by your family
question

Grapes are considered intermediate goods
answer

if the purchaser uses them to make wine to sell others but not if the purchaser eats them.
question

Which of the following transactions is not included in GDP?
answer

oranges sold by a farmer to a grocery store.
question

Which of the following is included in Singapore’s GDP?
answer

The value of production by an American working in Singapore
question

GDP is equal to
answer

– the market value of all final goods and services produced within a country in a given period of time. – Y – C + I + G + NX.
question

The consumption component of GDP includes spending on
answer

durable goods, nondurable goods, and services
question

Which of the following is included in the consumption component of GDP?
answer

– household purchases of appliances. – household purchases of medical care. – household purchases of food. – All of the above are included in the consumption component of GDP
question

For the purpose of calculating GDP, investment is spending on
answer

capital equipment, inventories, and structures, including household purchases of new housing
question

Consumption consists of spending by households on goods and services, with the exception of
answer

purchases of new houses.
question

Which of the following is included in government purchases?
answer

the services of a U.S. government attorney valued at the cost of her salary
question

A transfer payment is
answer

a form of government spending that is not made in exchange for a currently produced good or service
question

Social Security payments are
answer

excluded from GDP because they do not reflect the economy’s production
question

Unemployment compensation is
answer

not part of GDP because it is a transfer payment.
question

Which of the following represents a transfer payment?
answer

The government sends your grandfather his Social Security check
question

Net exports equal
answer

exports minus imports
question

In the economy of Talikastan in 2015, consumption was $6000, exports were $1000, GDP was $10,000, government purchases were $1800, and imports were $1200. What was Talikastan’s investment in 2015?
answer

$2400
question

In the economy of Talikastan in 2015, consumption was $700, exports were $200, government purchases were $300, imports were $150, and investment was $400. What was Talikastan’s GDP in 2015?
answer

$1450
question

In the economy of Talikastan in 2015, consumption was $600, exports were $300, GDP was $1300, government purchases were $250, and investment was $300. What were Talikastan’s imports in 2015?
answer

$150
question

In the economy of Talikastan in 2015, consumption was $1000, GDP was $1950, government purchases were $500, and investment was $700. What were Talikastan’s net exports in 2015?
answer

-$250
question

Changes in nominal GDP reflect
answer

both changes in prices and changes in the amounts being produced.
question

Changes in real GDP reflect
answer

only changes in the amounts being produced
question

Changes in the GDP deflator reflect
answer

only changes in prices
question

In the base year, the GDP deflator is always
answer

100
question

The term economists use to describe a situation in which the economy’s overall price level is rising is
answer

inflation
question

If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is
answer

96.1 so prices are lower than in the base year
question

If in some year nominal GDP was $18 billion and the GDP deflator was 120, what was real GDP?
answer

$15 billion.
question

If in some year nominal GDP was $10 trillion and real GDP was $4 trillion, what was the GDP deflator?
answer

250.
question

Suppose an economy’s production consists only of corn and soybeans. In 2010, 20 bushels of corn are sold at $4 per bushel and 10 bushels of soybeans are sold at $2 per bushel. In 2009, the price of corn was $2 per bushel and the price of soybeans was $1 per bushel. Using 2009 as the base year, it follows that, for 2010,
answer

nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.
question

The GDP deflator is the ratio of
answer

nominal GDP to real GDP multiplied by 100
question

GDP is used as the basic measure of a society’s economic well-being. A better measure of the economic well-being of individuals in society is
answer

GDP per person
question

T/F: GDP excludes the value of intermediate goods because their value is included in the value of final goods
answer

True
question

T/F: While GDP includes tangible goods such as books and bug spray, it excludes intangible services such as the services provided by teachers and exterminators.
answer

False
question

T/F: When an American doctor opens a practice in Canada, his production there is part of U.S. GDP.
answer

False
question

T/F: An increase in nominal U.S. GDP necessarily implies that the United States is producing a larger output of goods and services.
answer

False
question

T/F: Nominal GDP uses constant base-year prices to place a value on the economy’s production of goods and services, while real GDP uses current prices to place a value on the economy’s production of goods and services.
answer

False
question

T/F: Real GDP is a better gauge of economic well-being than is nominal GDP
answer

True
question

T/F: Economists use the term inflation to describe a situation in which the economy’s overall production level is rising.
answer

False
question

T/F: Real GDP per person tells us the income and expenditure of the average person in the economy
answer

True
question

The consumer price index is used to
answer

monitor changes in the cost of living over time
question

When the consumer price index rises, the typical family
answer

has to spend more dollars to maintain the same standard of living
question

Economists use the term inflation to describe a situation in which
answer

the economy’s overall price level is rising
question

The inflation rate is defined as the
answer

percentage change in the price level from the previous period
question

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because
answer

the CPI better reflects the goods and services bought by consumers
question

The CPI is a measure of the overall cost of
answer

the goods and services purchased by a typical consumer.
question

Which of the following agencies calculates the CPI?
answer

the Bureau of Labor Statistics
question

In calculating the CPI, a fixed basket of goods and services is used. The quantities of the goods and services in the fixed basket are determined by
answer

surveying consumers
question

What basket of goods and services is used to construct the CPI?
answer

the goods and services that are typically bought by consumers as determined by government surveys
question

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year?
answer

the prices of the goods and services
question

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct?
answer

The value of the consumer price index is always 100 in the base year.
question

Which of the following is the correct formula for calculating the consumer price index?
answer

(Price of basket of goods and services in current year/price of basket in base year) X 100
question

Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basket’s cost was $80.00; in 2013, the basket’s cost was $84; and in 2014, the basket’s cost was $87.60. The value of the CPI was
answer

– 100 in 2012. – 105 in 2013. – 109.5 in 2014.
question

Which of the following is the correct formula for calculating the inflation rate?
answer

(CPI in year 2 – CPI in year 1/CPI in year 1) X 100
question

The price index was 120 in 2012 and 126 in 2013. What was the inflation rate in 2013?
answer

5.0 percent
question

If the price index was 90 in year 1, 100 in year 2, and 95 in year 3, then the economy experienced
answer

11.1 percent inflation between years 1 and 2, and 5 percent deflation between years 2 and 3.
question

In the basket of goods that is used to compute the consumer price index, the three largest categories of consumer spending are
answer

housing, transportation, and food & beverages
question

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called
answer

substitution bias.
question

Two alternative measures of the overall level of prices are
answer

the GDP deflator and the consumer price index
question

If the price of Italian shoes imported into the United States increases, then
answer

the consumer price index will increase, but the GDP deflator will not increase.
question

A decrease in the price of domestically produced nuclear reactors will be reflected in
answer

the GDP deflator but not in the consumer price index.
question

An increase in the price of bread produced domestically will be reflected in
answer

both the GDP deflator and the consumer price index.
question

T/F: Inflation can be measured using either the GDP deflator or the consumer price index.
answer

True
question

T/F: The Bureau of Labor Statistics is part of the U.S. Department of Labor
answer

True
question

T/F: The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100.
answer

True
question

One of the differences between the GDP deflator and the consumer price index is
answer

the GDP deflator reflects prices for all goods and services produced domestically and the consumer price index reflects prices for some goods and services bought by consumers.
question

T/F: The inflation rate for 2007 is computed by dividing (the CPI in 2007 minus the CPI in 2006) by the CPI in 2006, then multiplying by 100.
answer

True
question

Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 10 percent for 2014?
answer

CPI in 2013 = 210; CPI in 2014 = 231
question

T/F: If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006.
answer

False
question

T/F: The goal of the consumer price index is to gauge how much incomes must rise to maintain a constant standard of living.
answer

True
question

T/F: Substitution bias occurs because the CPI ignores the possibility of consumer substitution toward goods that have become relatively less expensive
answer

True
question

T/F: The group of goods and services used to compute the GDP deflator changes automatically over time, but the group of goods and services used to compute the CPI does not.
answer

True
question

T/F: Consumer Price Index (CPI) = (Price of basket of goods and services in current year/Price of basket in base year) X 100
answer

True
question

T/F: CPI = (Price of basket goods and services in base year/Price of basket in current year) X 100
answer

False
question

A nation’s standard of living is determined by
answer

the productivity of its workers
question

A nation’s standard of living is best measured by its
answer

real GDP per person
question

Which of the following measures how the level of well-being in a country has changed over time?
answer

growth rate of real GDP per person.
question

In 1870, the richest country in the world was
answer

the United Kingdom.
question

Last year real GDP in the imaginary nation of Populia was 907.5 billion and the population was 3.3 million. The year before real GDP was 750 billion and the population was 3 million. What was the growth rate of real GDP per person during the year?
answer

10 percent
question

The one variable that stands out as the most significant explanation of large variations in living standards around the world is
answer

productivity.
question

Productivity is defined as the quantity of
answer

goods and services produced from each unit of labor input.
question

Which of the following is a correct way to measure productivity?
answer

Divide the quantity of output by the number of hours worked.
question

In one day Portal Computer Company made 400 laptops with 1200 hours of labor. What was its productivity?
answer

1/3 laptop per hour
question

Which of the following is an example of physical capital?
answer

the computer a secretary uses
question

The equipment and structures available to produce goods and services are called
answer

physical capital
question

Human capital is the
answer

knowledge and skills that workers acquire through education, training, and experience.
question

Which of the following is a part of your economics professor’s human capital?
answer

the things she learned at some prestigious university
question

The inputs into production of goods and services that are provided by nature, such as land, rivers, and mineral deposits are called
answer

natural resources
question

An understanding of the best ways to produce goods and services is called
answer

technology
question

Matt is going to college to become a pharmacist. What he learns about existing information increases
answer

human capital but not technological knowledge
question

Amy discovers a new way to produce water heaters so they are less expensive and use less natural gas. Amy’s discovery is
answer

technological knowledge
question

Which of the following is a determinant of productivity?
answer

– human capital per worker – physical capital per worker – natural resources per worker
question

A basic principle of economics is that a country’s standard of living depends on its
answer

ability to produce goods and services
question

Which of the following lists contains, in this order, natural resources, human capital, and physical capital?
answer

For a furniture company: wood, the skills and knowledge of its workers, saws.
question

In order for the standard of living within a country to be enhanced over time, which of the following is essential?
answer

The level of productivity must increase.
question

Both Arnold and Will work 10 hours a day. Arnold can produce six baskets of goods per hour while Will can produce four baskets of the same goods per hour. It follows that Arnold’s
answer

– productivity is greater than Will’s. – output is greater than Will’s. – standard of living is higher than Will’s
question

T/F: In the United States in 2010 real GDP per person was about $47,000, while in some poor countries real GDP per person was less than $5,000
answer

True
question

Japan’s status as a rich nation is attributable to
answer

international trade, but not to Japan’s domestic quantities of natural resources.
question

Each day Sue works 8 hours and produces 7 units of goods and services. Mary works 10 hours each day and produces 10 units of goods and services. It follows that
answer

Mary’s productivity is higher than Sue’s.

Get instant access to
all materials

Become a Member