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Chapter 1 and Chapter 2

(Macroeconomics data and Production and Growth)

Indicate the answer choice that best completes the statement or answers the question.

Table 24-2
The following table pertains to Shishkaton, an economy in which the typical consumer's basket consists of 15 pounds of
prunes and 7 dolls.

Price of Prunes Price of Dolls

Year
(Dollars per pound) (Dollars per toy)
1 12 7
2 10 6
3 8  5 

1. Refer to Table 24-2. The inflation rate was

  a. positive in Year 2 and negative in Year 3.
  b. negative in Year 2 and positive in Year 3.
  c. positive in Year 2 and positive in Year 3.
  d. negative in Year 2 and negative in Year 3.

2. A newspaper article informs you that most businesses increased production in the last quarter but also sold from their
inventories during the last quarter. Based on this information GDP likely
  a. decreased.
  b. increased.
  c. stayed the same.
  d. may have increased, decreased, or stayed the
same.

Table 23-3
The following table reports nominal and real GDP for the U.S. from 1929 to 1932.

Nominal GDP Real GDP

Year
(Billions of dollars) (Billions of dollars)
1929 103.6 977
1930 91.2 892.8
1931 76.5 834.9
1932 58.7 725.8

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3. Refer to Table 23-3. What was the growth rate of real GDP for 1930?
  a. −8.62%. Real GDP is a better gauge of economic well-being than nominal GDP.
  b. −8.62%. Nominal GDP is a better gauge of economic well-being than real GDP.
  c. −9.43%. Real GDP is a better gauge of economic well-being than nominal GDP.
  d. −9.43%. Nominal GDP is a better gauge of economic well-being than real GDP.

Scenario 24-1

Mia Denton was an accountant in 1943 and earned $21,000 that year. Her son is an accountant too and he earned
$270,000 this year. Suppose the price index was 18.3 in 1943 and 20.2 in the current year.
4. Refer to Scenario 24-1. Mia's 1943 income in current year dollars is
  a. $39,900.
  b. $424,200.
  c. $23,180.
  d. $298,033.

5. Social Security payments are

  a. included in GDP because they represent current income.
  b. included in GDP because they represent potential consumption.
  c. excluded from GDP because they are not private pensions.
  d. excluded from GDP because they do not reflect the economy's
production.

Scenario 24-1

Mia Denton was an accountant in 1943 and earned $21,000 that year. Her son is an accountant too and he earned
$270,000 this year. Suppose the price index was 18.3 in 1943 and 20.2 in the current year.
6. Refer to Scenario 24-1. In real terms, Mia's income amounts to about what percentage of her son's income?
  a. 12.9 percent
  b. 1164.8 percent
  c. 8.6 percent
  d. 1.1 percent

7. A Texas household receives a Social Security check for $1500, which it uses to purchase a $40 pair of shoes made in
Thailand by a Thai firm, a $1240 television made by a Korean firm in Korea, and $220 on groceries from a local store. As
a result, U.S. GDP
  a. increases by $40.
  b. increases by $220.
  c. increases by $280.
  d. increases by $1500.

8. Educational attainment tends to be

  a. low in countries with high population growth.
  b. low in countries with low population growth.
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  c. high in countries with high population growth.

  d. unrelated to population growth.

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

  a. A random sample of all goods and services produced in the economy
  b. The goods and services that are typically bought by consumers as determined by government surveys
  c. Only food, clothing, transportation, entertainment, and education
  d. The least expensive and the most expensive goods and services in each major category of consumer
expenditures

10. If the CPI was 90 in 1975 and is 225 today, then $100 today purchases the same amount of goods and services as
  a. $25.00 purchased in 1975.
  b. $33.33 purchased in 1975.
  c. $40.00 purchased in 1975.
  d. $135.55 purchased in
1975.

11. A company sells steel to a scooter company for $150. The scooter company uses the steel to produce a scooter, which
it sells for $290. Taken together, these two transactions contribute
  a. $150 to GDP.
  b. $290 to GDP.
  c. between $290 and $440 to GDP, depending on the profit earned by the bicycle company when it sold the
bicycle.
  d. $140 to GDP.

Table 24-4
Will's expenditures on food for three consecutive years, along with other values, are presented in the following table.

  Year
1 2 3
Expenditures on food $4,000 $4,800 $5,200
Consumer price index 175 182 x

12. Refer to Table 24-4. Suppose Will's Year 2 food expenditures in Year 3 dollars amount to $5,610. Then x, the
consumer price index for Year 3, has a value of
  a. 4,160.
  b. 4,615.
  c. 5,077.
  d. 212.7.

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13. The value of goods added to a firm's inventory in a certain year is treated as

  a. consumption, since the goods will be sold to consumers in another period.
  b. intermediate goods, and so is not included in that year's GDP.
  c. investment, since GDP aims to measure the value of the economy's production that year.
  d. spending on durable goods, since the goods could not be inventoried unless they were
durable.

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14. Last year real GDP in the imaginary nation of Olympus was 445.0 billion and the population was 2.2 million. The year
before, real GDP was 390.0 billion and the population was 2.1 million. What was the growth rate of real GDP per person
during the year?
  a. 14.1 percent
  b. 0.09 percent
  c. 1.09 percent
  d. 8.9 percent

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15. Which of the following statements is correct about the relationship between the nominal interest rate and the real
interest rate?
  a. The real interest rate is the nominal interest rate times the rate of inflation.
  b. The real interest rate is the nominal interest rate minus the rate of inflation.
  c. The real interest rate is the nominal interest rate plus the rate of inflation.
  d. The real interest rate is the nominal interest rate divided by the rate of
inflation.

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16. Changes in real GDP reflect

  a. only changes in prices.
  b. only changes in the amounts being produced.
  c. both changes in prices and changes in the amounts being produced.
  d. neither changes in prices nor changes in the amounts being
produced.

17. If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is
  a. −2 percent.
  b. 0.4 percent.
  c. 2 percent.
  d. 12 percent.

18. One variable responsible for most significant explanation of variations in living standards around the world is
  a. productivity.
  b. population.
  c. preferences.
  d. prices.

19. Which of the following includes everyone in the adult population that the Bureau of Labor Statistics counts as
"unemployed"?
  a. Anyone who is not currently employed
  b. Anyone who chose not to for work for the past two weeks
  c. Anyone who is not employed, is available for work, has looked for work in the past four weeks, and anyone
who is waiting to be recalled from a job from which they have been laid off
  d. Anyone who is employed part time and has searched for full time employment in the past four weeks

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20. Most goods and services produced at home

  a. and most goods and services produced illegally are included in GDP.
  b. are included in GDP while most goods and services produced illegally are excluded from
GDP.
  c. are excluded from GDP while most goods and services produced illegally are included in GDP
  d. and most goods and services produced illegally are excluded from GDP.

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