Question 1

Which of the following is true of inflation?

Accepted Answer

A)  It is an increase in the general price level of goods and services. 
B)  The purchasing power of money increases as the result of inflation. 
C)  Inflation is similar to interest payments on future money income, such as pensions and receipts from outstanding loans. 
D)  Inflation has no effect on real resources. 
A)  It is an increase in the general price level of goods and services. 
B)  The purchasing power of money increases as the result of inflation. 
C)  Inflation is similar to interest payments on future money income, such as pensions and receipts from outstanding loans. 
D)  Inflation has no effect on real resources. A

Question 2

GDP will tend to overstate the productive capacity of a country when

Accepted Answer

A)  economic bads like pollution are produced and then must be cleaned up. 
B)  there is a sizable underground economy. 
C)  nonmarket production represents a large portion of the economy. 
D)  working conditions improve, allowing jobs to be completed safer and faster. 
A)  economic bads like pollution are produced and then must be cleaned up. 
B)  there is a sizable underground economy. 
C)  nonmarket production represents a large portion of the economy. 
D)  working conditions improve, allowing jobs to be completed safer and faster. A

Question 3

Suppose a country had $3.5 billion of net exports and bought $6.8 billion of goods and services from foreign countries. This country would have

Accepted Answer

A)  $10.3 billion of exports and $6.8 billion of imports. 
B)  $10.3 billion of imports and $6.8 billion of exports. 
C)  $6.8 billion of exports and $3.5 billion of imports. 
D)  $6.8 billion of imports and $3.5 billion of exports. 
A)  $10.3 billion of exports and $6.8 billion of imports. 
B)  $10.3 billion of imports and $6.8 billion of exports. 
C)  $6.8 billion of exports and $3.5 billion of imports. 
D)  $6.8 billion of imports and $3.5 billion of exports. A

Question 4

Use the table below to choose the correct answer.   Given the information in Table 7-1, the GDP equals

Accepted Answer

A)  $1,140. 
B)  $1,330. 
C)  $1,650. 
D)  $2,670. 
A)  $1,140. 
B)  $1,330. 
C)  $1,650. 
D)  $2,670.

Question 5

Which statement represents most correctly the relationship between nominal GDP and real GDP?

Accepted Answer

A)  Nominal GDP measures base-year production using base-year prices, whereas real GDP measures current production using current prices. 
B)  Nominal GDP measures current production using base-year prices, whereas real GDP measures current production using current prices. 
C)  Nominal GDP measures current production using current prices, whereas real GDP measures current production using base-year prices. 
D)  Nominal GDP measures current production using current prices, whereas real GDP measures base-year production using base-year prices. 
A)  Nominal GDP measures base-year production using base-year prices, whereas real GDP measures current production using current prices. 
B)  Nominal GDP measures current production using base-year prices, whereas real GDP measures current production using current prices. 
C)  Nominal GDP measures current production using current prices, whereas real GDP measures current production using base-year prices. 
D)  Nominal GDP measures current production using current prices, whereas real GDP measures base-year production using base-year prices.

Question 6

The primary value of real GDP is its ability to measure year to year changes in

Accepted Answer

A)  real output. 
B)  income inequality. 
C)  real social welfare. 
D)  the general level of prices. 
A)  real output. 
B)  income inequality. 
C)  real social welfare. 
D)  the general level of prices.

Question 7

The Consumer Price Index compares the

Accepted Answer

A)  prices of all goods and services in the economy compared to the prices of those goods and services in a base year. 
B)  prices of consumer goods and services that a household purchases to the prices of those goods and services purchased in a base year. 
C)  prices of producer goods and services that are made for consumers to the prices of those goods and services in a base year. 
D)  prices of goods and services that are purchased by producers to the prices of those goods and services in a base year. 
E)  prices of goods and services that are purchased by consumer manufacturers to the prices of those goods and services in a base year. 
A)  prices of all goods and services in the economy compared to the prices of those goods and services in a base year. 
B)  prices of consumer goods and services that a household purchases to the prices of those goods and services purchased in a base year. 
C)  prices of producer goods and services that are made for consumers to the prices of those goods and services in a base year. 
D)  prices of goods and services that are purchased by producers to the prices of those goods and services in a base year. 
E)  prices of goods and services that are purchased by consumer manufacturers to the prices of those goods and services in a base year.

Question 8

If on-the-job working conditions have improved over time,

Accepted Answer

A)  real GDP will understate the growth rate of real income. 
B)  real GDP will overstate the growth rate of real income. 
C)  the GDP deflator will overestimate inflation. 
D)  real GDP will overstate the growth rate of real income, and the GDP deflator will understate inflation. 
A)  real GDP will understate the growth rate of real income. 
B)  real GDP will overstate the growth rate of real income. 
C)  the GDP deflator will overestimate inflation. 
D)  real GDP will overstate the growth rate of real income, and the GDP deflator will understate inflation.

Question 9

In computing GDP, market prices are used to value final goods and services because

Accepted Answer

A)  market prices reflect the values of goods and services to the buyer. 
B)  market prices do not change much over time, so it is easy to make comparisons between years. 
C)  if market prices are out of line with how people value goods, the government sets price ceilings and price floors. 
D)  None of the above is correct; market prices are not used in computing GDP. 
A)  market prices reflect the values of goods and services to the buyer. 
B)  market prices do not change much over time, so it is easy to make comparisons between years. 
C)  if market prices are out of line with how people value goods, the government sets price ceilings and price floors. 
D)  None of the above is correct; market prices are not used in computing GDP.

Question 10

If this year the CPI is 110 and last year it was 100, then

Accepted Answer

A)  the cost of the CPI basket of goods and services has increased this year by 110 percent. 
B)  the price level as measured by the CPI has increased by 10 percent. 
C)  the inflation rate for this year has increased by 10 percent over last year's inflation rate. 
D)  All of the above are correct. 
A)  the cost of the CPI basket of goods and services has increased this year by 110 percent. 
B)  the price level as measured by the CPI has increased by 10 percent. 
C)  the inflation rate for this year has increased by 10 percent over last year's inflation rate. 
D)  All of the above are correct.

Question 11

Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

Accepted Answer

A)  caused GDP to fall. 
B)  not caused any change in GDP. 
C)  caused GDP to rise. 
D)  probably changed GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted. 
A)  caused GDP to fall. 
B)  not caused any change in GDP. 
C)  caused GDP to rise. 
D)  probably changed GDP, but in an uncertain direction; the direction of the change depends on the difference in the quality of the cleaning that has resulted.

Question 12

One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP?

Accepted Answer

A)  GDP increases by $1.50. 
B)  GDP increases by $3.50. 
C)  GDP increases by $6.00. 
D)  GDP increases by $7.50. 
A)  GDP increases by $1.50. 
B)  GDP increases by $3.50. 
C)  GDP increases by $6.00. 
D)  GDP increases by $7.50.

Question 13

Suppose you received a 5 percent increase in your nominal wage. Over the year, inflation ran about 2 percent. Which of the following is true?

Accepted Answer

A)  Your real wage fell. 
B)  Your nominal wage fell. 
C)  Both your nominal and real wages decreased. 
D)  Although your nominal wage fell, your real wage increased. 
E)  Both your nominal and real wages increased. 
A)  Your real wage fell. 
B)  Your nominal wage fell. 
C)  Both your nominal and real wages decreased. 
D)  Although your nominal wage fell, your real wage increased. 
E)  Both your nominal and real wages increased.

Question 14

Which of the following is the major difference between the chained consumer price index and the regular consumer price index?

Accepted Answer

A)  The chained index assumes that households purchase the same bundle of goods over a lengthy time period; the regular price index makes allowance for shifts away from goods that have become more expensive. 
B)  The chained index makes allowance each month for shifts away from goods that have become more expensive; the regular consumer price index fails to adjust for these shifts. 
C)  The chained consumer price index reflects changes in the prices of all final goods and services produced during a period, whereas the regular consumer price index reflects only changes in the prices of goods purchased by households. 
D)  The chained consumer price index will generally result in a higher measured rate of inflation than the regular consumer price index. 
A)  The chained index assumes that households purchase the same bundle of goods over a lengthy time period; the regular price index makes allowance for shifts away from goods that have become more expensive. 
B)  The chained index makes allowance each month for shifts away from goods that have become more expensive; the regular consumer price index fails to adjust for these shifts. 
C)  The chained consumer price index reflects changes in the prices of all final goods and services produced during a period, whereas the regular consumer price index reflects only changes in the prices of goods purchased by households. 
D)  The chained consumer price index will generally result in a higher measured rate of inflation than the regular consumer price index.

Question 15

GDP is not a perfect measure of welfare because it

Accepted Answer

A)  treats a dollar spent on candy bars the same as a dollar spent on education 
B)  treats a dollar spent on exports the same as a dollar spent on imports 
C)  double counts the value of leisure time 
D)  double counts depreciation 
E)  counts illegal activities in the underground economy 
A)  treats a dollar spent on candy bars the same as a dollar spent on education 
B)  treats a dollar spent on exports the same as a dollar spent on imports 
C)  double counts the value of leisure time 
D)  double counts depreciation 
E)  counts illegal activities in the underground economy

Question 16

Which one of the following transactions would be included in GDP?

Accepted Answer

A)  Ava pays $50 for a used picture frame at a neighborhood garage sale. 
B)  Ethan donates $500 to his town's junior college scholarship fund. 
C)  Emily pays $500 to fix the front end of her car damaged in a recent accident. 
D)  Mia pays $5,000 to purchase 100 shares of Microsoft stock. 
A)  Ava pays $50 for a used picture frame at a neighborhood garage sale. 
B)  Ethan donates $500 to his town's junior college scholarship fund. 
C)  Emily pays $500 to fix the front end of her car damaged in a recent accident. 
D)  Mia pays $5,000 to purchase 100 shares of Microsoft stock.

Question 17

The chained consumer price index

Accepted Answer

A)  assumes that households purchase the same bundle of goods and services over a lengthy time period. 
B)  adjusts the quantities of the typical bundle purchased each month to reflect the substitution away from goods that have become more expensive. 
C)  reflects changes in the prices of all final goods and services produced domestically by the citizens of a nation during a period. 
D)  will generally result in a higher measured rate of inflation than the regular consumer price index. 
A)  assumes that households purchase the same bundle of goods and services over a lengthy time period. 
B)  adjusts the quantities of the typical bundle purchased each month to reflect the substitution away from goods that have become more expensive. 
C)  reflects changes in the prices of all final goods and services produced domestically by the citizens of a nation during a period. 
D)  will generally result in a higher measured rate of inflation than the regular consumer price index.

Question 18

The real GDP data could be properly thought of as

Accepted Answer

A)  an index of our economic well-being. 
B)  a measure of the total wealth of a nation. 
C)  an index of total output or productive activity. 
D)  an index that measures the size of government. 
A)  an index of our economic well-being. 
B)  a measure of the total wealth of a nation. 
C)  an index of total output or productive activity. 
D)  an index that measures the size of government.

Question 19

Between 1991 and 2008, the federal minimum wage increased from $4.25 per hour to $6.55 per hour, while the CPI increased from 136.2 to 215.3. We can conclude from this that

Accepted Answer

A)  the minimum wage increased in nominal and in real terms. 
B)  the minimum wage decreased in nominal terms but increased in real terms. 
C)  the minimum wage increased in nominal terms but decreased in real terms. 
D)  more information is needed to determine what happened to the real minimum wage over the period. 
A)  the minimum wage increased in nominal and in real terms. 
B)  the minimum wage decreased in nominal terms but increased in real terms. 
C)  the minimum wage increased in nominal terms but decreased in real terms. 
D)  more information is needed to determine what happened to the real minimum wage over the period.

Question 20

Suppose that the consumer price index at year-end 2010 was 180 and by year-end 2011 had risen to 189. What was the inflation rate during 2011?

Accepted Answer

A)  4.8 percent 
B)  5 percent 
C)  6 percent 
D)  9 percent 
A)  4.8 percent 
B)  5 percent 
C)  6 percent 
D)  9 percent

Which of the following is true of inflation?

GDP will tend to overstate the productive capacity of a country when

Suppose a country had $3.5 billion of net exports and bought $6.8 billion of goods and services from foreign countries. This country would have

Use the table below to choose the correct answer. Given the information in Table 7-1, the GDP equals

Which statement represents most correctly the relationship between nominal GDP and real GDP?

The primary value of real GDP is its ability to measure year to year changes in

The Consumer Price Index compares the

If on-the-job working conditions have improved over time,

In computing GDP, market prices are used to value final goods and services because

If this year the CPI is 110 and last year it was 100, then

Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP?

Suppose you received a 5 percent increase in your nominal wage. Over the year, inflation ran about 2 percent. Which of the following is true?

Which of the following is the major difference between the chained consumer price index and the regular consumer price index?

GDP is not a perfect measure of welfare because it

Which one of the following transactions would be included in GDP?

The chained consumer price index

The real GDP data could be properly thought of as

Between 1991 and 2008, the federal minimum wage increased from $4.25 per hour to $6.55 per hour, while the CPI increased from 136.2 to 215.3. We can conclude from this that

Suppose that the consumer price index at year-end 2010 was 180 and by year-end 2011 had risen to 189. What was the inflation rate during 2011?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 7: Taking the Nations Economic Pulse

Which of the following is true of inflation?

GDP will tend to overstate the productive capacity of a country when

Suppose a country had $3.5 billion of net exports and bought $6.8 billion of goods and services from foreign countries. This country would have

Use the table below to choose the correct answer. Given the information in Table 7-1, the GDP equals

Which statement represents most correctly the relationship between nominal GDP and real GDP?

The primary value of real GDP is its ability to measure year to year changes in

The Consumer Price Index compares the

If on-the-job working conditions have improved over time,

In computing GDP, market prices are used to value final goods and services because

If this year the CPI is 110 and last year it was 100, then

Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP?

Suppose you received a 5 percent increase in your nominal wage. Over the year, inflation ran about 2 percent. Which of the following is true?

Which of the following is the major difference between the chained consumer price index and the regular consumer price index?

GDP is not a perfect measure of welfare because it

Which one of the following transactions would be included in GDP?

The chained consumer price index

The real GDP data could be properly thought of as

Between 1991 and 2008, the federal minimum wage increased from $4.25 per hour to $6.55 per hour, while the CPI increased from 136.2 to 215.3. We can conclude from this that

Suppose that the consumer price index at year-end 2010 was 180 and by year-end 2011 had risen to 189. What was the inflation rate during 2011?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Economic Fluctuations, Unemployment, and Inflation

An Introduction to Basic Macroeconomic Markets

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters