Econ Practice Test 1

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Recent changes in methods used to compute the CPI have made the
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upward bias in the CPI inflation rate less severe than it used to be
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College-age athletes who drop out of college to play professional sports..
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are well aware that their opportunity cost of attending college is very high
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what basket of goods and services is used to construct the CPI?
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the goods and services that are typically bought by consumers as determined by government surveys
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the inflation rate is calculated…
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by determining the percentage increase in the price index from the preceding period
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thousands of people develop lung cancer from second-hand exposure to cigarette smoke. this is an example of
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a market failure caused by an externality
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What will happen to the equilibrium price and quantity of traditional camera film if traditional cameras become more expensive, digital cameras become cheaper, the cost of the resources needed to manufacture traditional film falls, and more firms decide to manufacture traditional film?
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price will fall, and the effect on quantity is ambiguous
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The idea that only the government can organize economic activity in a way that promotes economic well-being for a country as a whole..
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amounts to a denial of one of the basic principles regarding interactions among people
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If the nominal interest rate is 4 percent and the real interest rate is -2.5 percent, then the inflation rate is
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6.5%
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the GDP deflator reflects
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the prices of all final goods and services currently produced domestically, while the CPI reflects the price of a fixed basket of goods and services purchased by a typical consumer
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if the price of Italian shoes imported into the US increases then
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the CPI will increase but the GDP deflator will not increase
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When the quality of a good improves while its price remains the same, the purchasing power of the dollar
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increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for
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One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for $3.00 to consumers. A second bag of flour is sold for $1 to a grocery store who sells it to a consumer for $2.00. Taking these four transactions into account, what is the effect on GDP?
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GDP increases by $5
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if the CPI was 110 this year and 100 last year then
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the cost of the CPI basket of goods and services increased by 10 percent this year
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a microeconomist, as opposed to a macroeconomist, might study
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the effect of new regulations on production in the pulp and paper industry
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A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely
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decreased
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when an american household purchases a bottle of Italian wine for $100
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US consumption increases by $100 US next exports decrease by $100 and US GDP does not change
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Suppose the cost of operating a 75 room hotel for a night is $6,000 and there are 5 empty rooms for tonight. The marginal cost per room per night
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cannot be determined from the info given
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When an economist is asked a question like “why is unemployment higher for teenagers than for older workers?” the economist
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is asked to explain the cause of an economic event
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national income is defined as
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the total income earned by a nations permanent residents in the production of goods and services
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In the United States in the late 1970s, nominal interest rates were high and inflation rates were very high. As a result, real interest rates were
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low, and in some years they were negative
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things not included in the investment component of GDP
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The purchase of a $1000 bond. A firm’s purchase of a used van to use for deliveries. The purchase of 100 shares of stock.
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Suppose you know the value of the consumer price index (CPI) in year 1 as well as the inflation rate in year 2. Which of the following equations is valid for the CPI in year 2?
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CPI in year 2=
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To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?
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introduction of new goods
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Suppose that over the past year, the real interest rate was 6 percent and the inflation rate was -2 percent. It follows that
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the dollar value of savings increased at 4 percent, and the purchasing power of savings increased at 6 percent
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the economy’s inflation rate is the
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percentage change in the price level from the previous period

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