Deck 6: Every Macroeconomic Word You Ever Heard: Gross Domestic Product, Inflation, Unemployment, Recession, Depression

Question 1

Which of these goods will not be counted in GDP

A)the Ford manufactured in the US and sold in Canada.
B)the Ford manufactured in Mexico and sold in Mexico.
C)the Ford manufactured in the US in last year and sold in the US this year.
D)the spark plug sold by an auto parts store to go into a Ford when the original wears out.

Answer 1

B

Question 2

The reason that only final sales count in GDP is to

A)make it easier to do the accounting.
B)avoid double counting.
C)undervalue labor.
D)overvalue capital.

Answer 2

B

Question 3

The expenditures approach to GDP equals

A)Employee Compensation + Profit + Net Property Income + Indirect Business Taxes + Depreciation - Income Earned Abroad.
B)Consumption + Gross Investment + Government Purchases + Net Exports.
C)Consumption + Net Investment (Gross Investment-Depreciation)+ Government Purchases + Net Exports.
D)Employee Compensation - Profit - Net Property Income - Indirect Business Taxes-Depreciation - Income Earned Abroad.

Answer 3

B

Question 4

Suppose a Boeing 777 is sold to a Chinese company for $250 million and resells it to a Hong Kong airline for $251 million. GDP will count this as

A)as nothing.
B)as $250 million.
C)as $251 million.
D)as $451 million.

Question 5

Gross Domestic Product is counted using two methods: one which counts all the ways people _____ money and another which counts all the ways people _____ money.

A)earn; spend
B)spend; save
C)earn; save
D)loan; borrow

Question 6

How does GDP deal with a Ford produced in Mexico?

A)It is fully counted.
B)It is not counted at all.
C)It is partially counted.
D)Is counted at twice the value.

Question 7

The reason that only final sales are counted in GDP is

A)to avoid double counting goods that are sold so as to be resold.
B)to not count production in other countries.
C)because the government can't get records on intermediate sales.
D)to simplify the computation and no other reason.

Question 8

Suppose an apple pie sells at a grocery store is for $5. Suppose that the grocery store purchased it from a baking company for $4. Suppose the baking company paid $2 for ingredients, $1 for labor, and made $1 in profit. What is the GDP contribution of the pie?

A)It is $4.
B)It is $5.
C)It is $11.
D)It is $12.

Question 9

If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that basket in 2014, while it cost $11,000 to purchase those identical goods in 2015, then the base year is

A)2013.
B)2014.
C)2015.
D)none of these.

Question 10

The income approach to GDP equals

A)Employee Compensation + Profit + Net Property Income + Indirect Business Taxes + Depreciation - Income Earned Abroad.
B)Consumption + Gross Investment + Government Purchases + Net Exports.
C)Consumption + Net Investment (Gross Investment-Depreciation)+ Government Purchases + Net Exports.
D)Employee Compensation - Profit - Net Property Income - Indirect Business Taxes -Depreciation - Income Earned Abroad.

Question 11

One subject of study for macroeconomics is

A)inflation.
B)monopoly.
C)perfect competition.
D)the shape of an individual's demand curve.

Question 12

GDP can be calculated using

A)either the ways people earn money or the ways people spend money.
B)the way people spend money (but not the way people earn money).
C)the way people earn money (but not the way people spend money).
D)the difference between the way people earn money and the way they spend it.

Question 13

Suppose a DVR is bought from China for $200 and sold in the US for $250. GDP will count this

A)as nothing.
B)as a net of $50 ($250 sale minus $200 import).
C)as $200.
D)as $250.

Question 14

How does GDP deal with a Toyota produced in Kentucky?

A)It is fully counted.
B)It is not counted at all.
C)It is partially counted.
D)Is counted at twice the value.

Question 15

Suppose a 1 pound steak sells at a grocery store is for $7. Suppose that the grocery store purchased it from a butcher for $4. Suppose the butcher bought cattle from farmers for $2 per sellable pound and paid their labor approximately $1 for pound of sellable beef labor, and made $1 in profit. What is the GDP contribution of the steak?

A)It is $4.
B)It is $7.
C)It is $11.
D)It is $15.

Question 16

Inflation is measured using _________ in a price index.

A)the absolute increase
B)a multi-year weighted average increase
C)the percentage year-to-year increase
D)logarithm adjusted absolute increase

Question 17

One subject of study for macroeconomics is

A)economic growth.
B)monopoly.
C)perfect competition.
D)the shape of an individual's demand curve.

Question 18

In measuring Gross Domestic Product, goods produced by foreign firms in the United States are

A)counted, and so are goods produced by American firms in foreign countries.
B)counted, but goods produced by American firms in foreign countries are not counted.
C)not counted, but goods produced by American firms in foreign countries.
D)not counted, and goods produced by American firms in foreign countries are also not counted.

Question 19

One subject of study for macroeconomics is

A)unemployment.
B)monopoly.
C)perfect competition.
D)the shape of an individual's demand curve.

Question 20

How does GDP account for something that was produced for sale in one year and sold in the next year?

A)It is counted in the first year and anything that happens latter does not count.
B)It is counted in the second year.
C)It is counted as an addition to inventory (which is in business investment)in the year it. was produced and the markup is counted in the year in which it is sold.
D)It is counted twice.

Question 21

Suppose there are only two goods (Good A and Good B)and the average person buys 4 of Good A in a year and 3 of Good B. If the Price of Good A is $5 and the Price of Good B is $10, the price of the market basket

A)is 100.
B)is 20.
C)is 30.
D)is 50.

Question 22

If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that basket in 2014, while it cost $11,000 to purchase those identical goods in 2015, then the price index for the base year is

A)100.
B)(10000/11000)*100=90.9.
C)(11000/10000)*100=110.
D)none of these

Question 23

Using Table 6.1, the inflation rate for 1999 would be

A)68.3% (168.3-100).
B)2)7% (((168.3-163.9)/163.9)*100 %).
C)4)4% (168.3-163.9).
D)3)0% (174-163.9)/(2*163.9)*100%).

Question 24

Using Table 6.1, from the 1982-1984 base to 2010, prices increased

A)221.1%.
B)121.1%.
C)by 121.1 dollars per week on monthly bills.
D)121.1 times.

Question 25

If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that basket in 2014, while it cost $11,000 to purchase those identical goods in 2015, then the inflation rate from 2013 to 2014 is

A)(100-100)/100*100%=0%.
B)(100-90.9)/100*100%=9.1%.
C)(110-100)/100*100%=10%.
D)unknown given this data.

Question 26

Using Table 6.1, the inflation rate for 2002 would be

A)80.9% (180.9-100).
B)2)4% (((180.9-176.7)/176.7)*100 %).
C)4)2% (180.9-176.7).
D)2)2% (184.3-176.7)/(2*176.7)*100%).

Question 27

Using Table 6.1, from the 1982-1984 base to 2002, prices increased

A)80.9%.
B)80.9 times.
C)by 80.9 dollars per week on monthly bills.
D)180.9%.

Question 28

Using Table 6.1, from the 1982-1984 base to 2004, prices increased

A)90.3%.
B)90.3 times.
C)by 90.3 dollars per week on monthly bills.
D)190.3%.

Question 29

If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that basket in 2014, while it cost $11,000 to purchase those identical goods in 2015, then the price index for 2015 is

A)100.
B)(10000/11000)*100=90.9.
C)(11000/10000)*100=110.
D)unknown given this data.

Question 30

If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that basket in 2014, while it cost $12,000 to purchase those identical goods in 2015, then the inflation rate from 2006 to 2007 is

A)(100-100)/100*100%=0%.
B)(100-83.3)/100*100%=16.7%.
C)(120-100)/100*100%=20%.
D)unknown given this data

Question 31

Using Table 6.1, the inflation rate for 2001 would be

A)76.7% (176.7-100).
B)1)6% (((176.7-174.0)/174.0)*100 %).
C)2)7% (176.7-174.0).
D)2)0% (180.9-174.0)/(2*174.0)*100%).

Question 32

If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that basket in 2014, while it cost $12,000 to purchase those identical goods in 2015, then the inflation rate from 2005 to 2006 is

A)(100-100)/100*100%=0%.
B)(100-83.3)/100*100%=16.7%.
C)(120-100)/100*100%=20%.
D)unknown given this data.

Question 33

If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that basket in 2014, while it cost $12,000 to purchase those identical goods in 2015, then the price index for 2015 is

A)100.
B)(10000/12000)*100=83.33.
C)(12000/10000)*100=120.
D)unknown given this data.

Question 34

Using Table 6.1, from the 1982-1984 base to 2003, prices increased

A)84.3%.
B)84.3 times.
C)by 84.3 dollars per week on monthly bills.
D)184.3%.

Question 35

Using Table 6.1, the inflation rate for 2004 would be

A)90.3% (190.3-100).
B)3)3% (((190.3-184.3)/184.3)*100 %).
C)6)0% (190.3-184.3).
D)2)6% (190.3-180.9)/(2*180.9)*100%).

Question 36

Using Table 6.1, were there to have been deflation during this time period you would have seen

A)a slower rate of increase in the CPI.
B)a stationary CPI.
C)a more rapid rate of increase in the CPI.
D)a decrease in the CPI.

Question 37

If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that basket in 2014, while it cost $11,000 to purchase those identical goods in 2015, then the inflation rate from 2014 to 2015 is

A)(100-100)/100*100%=0%.
B)(100-90.9)/100*100%=9.1%.
C)(110-100)/100*100%=10%.
D)unknown given this data.

Question 38

Using Table 6.1, the inflation rate for 2000 would be

A)74.0% (174.0-100).
B)3)3% (((174.0-168.3)/168.3)*100 %).
C)5)7% (174.0-168.3).
D)3)1% (174-163.9)/(2*163.9)*100%).

Question 39

If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that basket in 2014, while it cost $12,000 to purchase those identical goods in 2015, then the price index for the base year is

A)100.
B)(10000/12000)*100=83.33.
C)(12000/10000)*100=120.
D)unknown given this data.

Question 40

Using Table 6.1, the inflation rate for 2003 would be

A)84.3% (184.3-100).
B)1)9% (((184.3-180.9)/180.9)*100 %).
C)4)4% (184.3-180.9).
D)3)0% (190.3-180.9)/(2*180.9)*100%).

Question 41

Suppose the price of gasoline has increased from $2 per gallon to $4 per gallon at the same time that the overall price index increased from 200 to 450 then you know that the inflation adjusted price of gasoline has

A)increased.
B)decreased.
C)remained constant.

Question 42

Suppose there are two good types (Type 1 and Type 2)and suppose the weights for the types are 60% for Type 1 and 40% for Type 2. Suppose the Price Index for Type 1 is 200 and the Price Index for Type 2 is 150. The overall price index is

A)Is 140.
B)Is 175.
C)Is 180.
D)Is 350.

Question 43

Suppose there are only two goods (Good A and Good B)and the average person buys 4 of Good A in a year and 3 of Good B. If, in the base year, the Price of Good A is $5 and the Price of Good B is $10, and in the next year the Price of Good A is $6 and the Price of Good B is $9, the inflation that occurred in the second year is

A)is 51%.
B)is 100%.
C)is 1%.
D)is 2%.

Question 44

Suppose there are only two goods (Good A and Good B)and the average person buys 4 of Good A in a year and 3 of Good B. If, in the base year, the Price of Good A is $5 and the Price of Good B is $10, and in the next year the Price of Good A is $6 and the Price of Good B is $9, the price index in the second of the two years

A)is 51.
B)is 100.
C)is 101.
D)is 102.

Question 45

Suppose there are two good types (Type 1 and Type 2)and suppose the weights for the types are 70% for Type 1 and 30% for Type 2. Suppose the Price Index for Type 1 is 200 and the Price Index for Type 2 is 100. The overall price index is

A)is 140.
B)is 150.
C)is 170.
D)is 300.

Question 46

Suppose there are only two goods (Good A and Good B)and the average person buys 8 of Good A in a year and 6 of Good B. If, in the base year, the Price of Good A is $8 and the Price of Good B is $6, and in the next year the Price of Good A is $10 and the Price of Good B is $5, the price index in the second of the two years

A)is 10.
B)is 100.
C)is 110.
D)is 120.

Question 47

Suppose this is the base year and there are only two goods (Good A and Good B)and the average person buys 8 of Good A in a year and 6 of Good B. If the Price of Good A is $8 and the Price of Good B is $6, the price index

A)is 100.
B)is 64.
C)is 36.
D)is 50.

Question 48

Suppose the price of gasoline has increased from $3 per gallon to $4 per gallon at the same time that the overall price index increased from 200 to 300 then you know that the inflation adjusted price of gasoline has

A)increased.
B)decreased.
C)remained constant.

Question 49

Suppose the price of gasoline has increased from $3 per gallon to $4 per gallon at the same time that the overall price index increased from 200 to 250 then you know that the inflation adjusted price of gasoline has

A)increased.
B)decreased.
C)remained constant.

Question 50

Suppose the price of gasoline has increased from $3 per gallon to $4 per gallon at the same time that the overall price index increased from 200 to 266.66 then you know that the inflation adjusted price of gasoline has

A)increased.
B)decreased.
C)remained constant.

Question 51

With deflation people will

A)buy goods earlier than they had originally planned.
B)feel compelled to borrow money.
C)delay their purchases of goods in hopes prices will fall further.
D)see their paycheck rise as bosses seek to reward high performers.

Question 52

Economists consider deflation

A)to be generally healthy for the economy.
B)to be a normal part of the economy, not necessarily healthy or unhealthy.
C)dangerous, as it can lead to a depression.
D)to be no better and no worse than inflation.

Question 53

Suppose this is the base year and there are only two goods (Good A and Good B)and the average person buys 4 of Good A in a year and 3 of Good B. If the Price of Good A is $5 and the Price of Good B is $10, the price index

A)is 100.
B)is 20.
C)is 30.
D)is 50.

Question 54

Suppose there are only two goods (Good A and Good B)and the average person buys 4 of Good A in a year and 3 of Good B. If, in the base year, the Price of Good A is $5 and the Price of Good B is $10, and in the next year the Price of Good A is $6 and the Price of Good B is $9, the inflation that occurred in the second year is

A)is 50%.
B)is 100%.
C)is 10%.
D)is 20%.

Question 55

Suppose there are only two goods (Good A and Good B)and the average person buys 8 of Good A in a year and 6 of Good B. If the Price of Good A is $8 and the Price of Good B is $6, the price of the market basket

A)is 100.
B)is 64.
C)is 36.
D)is 50.

Question 56

Suppose there are two good types (Type 1 and Type 2)and suppose the weights for the types are 80% for Type 1 and 20% for Type 2. Suppose the Price Index for Type 1 is 125 and the Price Index for Type 2 is 120. The overall price index is

A)is 116.
B)is 122.5.
C)is 124.
D)is 128.

Question 57

Deflation occurs only when

A)some prices fall but average prices still rise.
B)all prices for all goods fall.
C)the average price level (CPI)falls.
D)the average price level increases but at a slower rate than before.

Question 58

In early 2005, inflation increased unexpectedly due to an increase oil prices. This helped

A)borrowers.
B)lenders.
C)people on fixed incomes.
D)workers.

Question 59

Suppose the price of gasoline has increased from $2 per gallon to $4 per gallon at the same time that the overall price index increased from 200 to 250 then you know that the inflation adjusted price of gasoline has

A)increased.
B)decreased.
C)remained constant.

Question 60

Suppose the price of gasoline has increased from $2 per gallon to $4 per gallon at the same time that the overall price index increased from 200 to 400 then you know that the inflation adjusted price of gasoline has

A)increased.
B)decreased.
C)remained constant.

Question 61

Suppose people on diets buy the bulk of the ground chicken and ground turkey sold in the U.S. and they use either interchangeably as a substitute in recipes for ground beef. If the price of ground turkey rises and the price of ground chicken does not the then CPI will

A)understate inflation because of the issue of substitution.
B)overstate inflation because of the issue of substitution.
C)overstating inflation because of the issue of missing "where people shop".
D)understating inflation because of the issue of missing "where people shop".

Question 62

The magnitude of the annual overstatement of the CPI is approximately

A)one-tenth of one percentage point.
B)one-half of one percentage point.
C)one percentage point.
D)five percentage point.

Question 63

A reason given why the CPI overstates the cost of living is it

A)only measures the effects of inflation on the poor.
B)makes no attempt to ascertain what average people buy.
C)makes no attempt to update the market basket.
D)makes no attempt to control for substitution to cheaper goods.

Question 64

Which of the following is not a reason that the CPI overstates the cost of living?

A)There are too frequent updates of the market basket.
B)Quality improvements are not adequately incorporated.
C)The location of typical purchases is not adequately updated.
D)The tendency to substitute to nearly equivalent goods is not adequately accounted for.

Question 65

In the 1970s and 1980s Wal-Mart entered several markets outside of its home base of Arkansas. As a result it brought lower prices on a variety of goods. That the Bureau of Labor Statistics did not send its shoppers into these new stores until there was a new survey led to the CPI

A)overstating inflation because they were missing "when people shop".
B)understating inflation because they were missing "when people shop".
C)overstating inflation because they were missing "where people shop".
D)understating inflation because they were missing "where people shop".

Question 66

One of the consequences of the overstatement of the CPI is that

A)Social Security taxes are higher than they would otherwise be.
B)personal income taxes are higher than they would otherwise be.
C)Social Security payments are lower than they would otherwise be.
D)the poverty line is lower than it would otherwise be.

Question 67

The majority of economists believe that the Consumer Price Index

A)overstates the increase in the cost of living.
B)understates the increase in the cost of living.
C)precisely measures the increase in the cost of living.
D)overstates the increase in the cost of living in some years and understates it in others.

Question 68

A reason given why the CPI overstates the cost of living is it

A)only measures the effects of inflation on the poor.
B)makes no attempt to ascertain what average people buy.
C)makes no attempt to update the market basket.
D)makes no attempt to control for quality improvements except in consumer goods

Question 69

Economists generally believe that relative to the true cost of living, the CPI

A)is perfectly measured.
B)overstates it by a factor of 2 (meaning that inflation is really only half as bad as the government states).
C)overstates it by a difference of about .8% (meaning that an official inflation rate of 1.8% is really only about 1%).
D)understates it by a factor of 2 (meaning that inflation is actually twice as bad as the government states).

Question 70

A reason given why the CPI overstates the cost of living is it

A)only measures the effects of inflation on the poor.
B)makes no attempt to ascertain what average people buy.
C)makes no attempt to update the market basket.
D)inadequately deals with updates in product lines for existing goods.

Question 71

A reason given why the CPI overstates the cost of living is it

A)only measures the effects of inflation on the poor.
B)makes no attempt to ascertain what average people buy.
C)makes no attempt to update the market basket.
D)updates the market basket infrequently thereby missing the steep price decline in the early adoption period.

Question 72

One of the consequences of the overstatement of the CPI is that

A)Social Security taxes are lower than they would otherwise be.
B)personal income taxes are higher than they would otherwise be.
C)Social Security payments are higher than they would otherwise be.
D)the poverty line is lower than it would otherwise be.

Question 73

A reason given why the CPI overstates the cost of living is it

A)only measures the effects of inflation on the poor.
B)makes no attempt to ascertain what average people buy.
C)makes no attempt to update the market basket.
D)makes no attempt to control for the fact that sales often occur on holidays.

Question 74

A reason given why the CPI overstates the cost of living is that the

A)CPI only measures the effects of inflation on the poor.
B)CPI makes no attempt to ascertain what average people buy.
C)CPI makes no attempt to update the market basket.
D)BLS audits prices in the same types of stores, rather than shift to cheaper outlets.

Question 75

The Consumer Price Index (CPI)is a heavily criticized measure of inflation because

A)the government does nothing to fix its known deficiencies.
B)it consistently understates the increase in the cost-of-living.
C)it consistently overstates the increase in the cost-of-living.
D)the government constantly makes adjustments in it without warrant.

Question 76

DVD writers allow people to record TV shows in a high quality format. They entered the market in 2002 at a price of $1000. By 2003 they were under $500. By the time they had become part of the CPI market basket they are likely to be less than $250. Economists will argue that this type of issue

A)leads to the CPI overstating the rate of inflation.
B)leads to the CPI understating the rate of inflation.
C)is well handled the by the BLS as they determine the CPI.
D)is irrelevant to CPI calculations.

Question 77

In the 1990s and 2000s Wal-Mart entered the grocery sector in several U.S. cities and as a result it brought lower prices on food. That the Bureau of Labor Statistics did not send its shoppers into these new stores in a timely fashion led to the CPI

A)overstating inflation because they were missing "when people shop".
B)understating inflation because they were missing "when people shop".
C)overstating inflation because they were missing "where people shop".
D)understating inflation because they were missing "where people shop".

Question 78

Which of the following is not a reason that the CPI overstates the cost of living?

A)There are too infrequent updates of the market basket.
B)Quality improvements are not adequately incorporated.
C)The location of typical purchases is not adequately updated.
D)Substitution into nearly-equivalent goods is assumed to be more common than it is.

Question 79

According to the Bureau of Labor Statistics, the Consumer Price Index was

A)always intended to measure increases in the cost of living and does precisely that.
B)never intended to measure increases in the cost of living and no one uses it that way.
C)never intended to measure increases in the cost of living but many use it that way.
D)only intended to measure increases in the cost of living for a small segment of society.

Question 80

One of the consequences of the overstatement of the CPI is that

A)Social Security taxes are lower than they would otherwise be.
B)personal income taxes are lower than they would otherwise be.
C)Social Security payments are lower than they would otherwise be.
D)the poverty line is lower than it would otherwise be.