Econ 202 Macroeconomics final

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Dr. Gregory Hunter Spring 2013 Macro Econ Final

Statistics that are of particular interest to macroeconomists

are widely reported by the media.

Which of the following statements about GDP is correct?

GDP is to a nation's economy as household income is to a household.

In order to include many different goods and services in an aggregate measure, GDP is computed using,

market prices.

Which of the following items is counted in U.S. GDP?

final goods and services that are purchased by the U.S. federal government

intermediate goods that are produced in the U.S. but which are unsold at the end of the GDP
accounting period

goods and services produced by foreign citizens working in the U.S.

All of the above are included in U.S. GDP.

During the third quarter of 2006, a firm produces consumer goods and adds some of those goods to its
inventory. During the fourth quarter of that year, the firm sells the goods at a retail outlet, with the result that the
value of its inventory at the end of the fourth quarter is smaller than the value of its inventory at the end of the
third quarter. These actions affect which component(s) of fourth-quarter GDP?

These actions affect consumption positively and investment negatively.

A German citizen buys an automobile produced in the United States by a Japanese company. As a result,

U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease,
and German GDP and GNP are unaffected.

The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a result,

U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; and
U.S. GDP and GNP are unaffected.

Suppose GDP consists of wheat and rice. In 2005, 20 bushels of wheat are sold at $4 per bushel, and 10 bushels
of rice are sold at $2 per bushel. In 2004, the price of wheat was $2 per bushel and the price of rice was $1 per bushel. Using 2004 as the base year, it follows that, for 2005,

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

Suppose that the country of Samiam produces only eggs and ham. In 2005 it produced 100 dozen eggs at $3 per
dozen and 50 pounds of ham at $4 per pound. In 2004, the base year, eggs sold for $1.50 per dozen and ham sold
for $5 per pound. For 2005,

nominal GDP is $500, real GDP is $400, and the GDP deflator is 125.

A country reported nominal GDP of $200 billion in 2006 and $180 billion in 2005; it reported a GDP deflator of
125 in 2006 and 105 in 2005. Between 2005 and 2006,


A recession is always associated with

declining real GDP.

International studies of the relationship between GDP per person and quality of life measures such as life
expectancy and literacy rates show that larger GDP per person is associated w

longer life expectancy and a higher percentage of the population that is literate.

Being able to measure the behavior of the economy with statistics such as GDP

is a crucial step toward developing the science of macroeconomics.

The CPI is calculated

monthly by the Bureau of Labor Statistics.

What basket of goods is used to construct the CPI?

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

The steps involved in calculating the consumer price index, in order, are as follows:

Fix the basket, find the prices, compute the basket's cost, choose a base year and compute
the index.

Refer to Table 24-2. Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.
What is the consumer price index for 2006 if the base year is 2005?


Refer to Table 24-2. Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn.
What is the inflation rate for 2006 if the base year is 2005?

36.11 percent

Which of these changes in the price index produces the greatest rate of inflation: 106 to 112, 112 to 118, or 118
to 124?

106 to 112

Suppose lawn mowers are part of the market basket used to compute the CPI. Suppose also that the quality of
lawn mowers improves while the price of lawn mowers stays the same. If the Bureau of Labor Statistics is able to precisely adjust the CPI for the improvement in quality, then, other things equal,

the CPI will fall.

For some racquet sports there have been increases in the size of the racquets; also, the methods and materials used for making racquets have improved. To which problem in the construction of the CPI are these facts most

unmeasured quality change

Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. To which problem in the construction of the CPI is this situation most relevant?

substitution bias

Refer to Scenario 24-1. Grant Smith's 1944 income in 2005 dollars is about


If the nominal interest rate is 6 percent and the rate of inflation is 9 percent, then the real interest rate is

-3 percent.

Which of the following does the level of real GDP measure?

total real income


the standard of living
All of the above are correct.

Which of the following is true?

Americans have a higher standard of living than Indonesians because American workers are
more productive than Indonesian workers.

Greater scarcity of a natural resource is indicated

only by any increase in the price which is greater than the rate of inflation.

Historically, the market prices of most natural resources (adjusted for inflation) have

remained stable or decreased.

Which of the following is true?

The prices of most natural resources are stable or falling relative to other prices.

Proprietary technology is technology that is

not widely used because it is known or controlled only by the company that discovered it.

Your company discovers a better way to produce mousetraps, but your better methods are not apparent from the mousetraps themselves. Your knowledge of how to more efficiently produce mousetraps is

proprietary technological knowledge.

Suppose there are constant returns to scale. Now suppose that over time a country doubles its workers, its
natural resources, and its human capital, but its technology is unchanged. Which of the following would

output, but not productivity

If an economy with constant returns to scale were to double its physical capital stock, its available natural
resources, and its human capital, but leave the size of the labor force the same,

its output and productivity would increase, but less than double.

Accumulating capital

requires that society sacrifice consumption goods in the present.

Patents turn new ideas into

private goods, and increase the incentive to engage in research.

On the basis of theory and empirical evidence economists have concluded several things concerning growth.
Which of the following is not one of these conclusions?


Which of the following is not a nonsensical headline?

Government bonds currently pay less interest than corporate bonds.

Which of the following people purchased the correct asset to meet their objective?

Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric.

The single most important piece of information about a stock is the


Thomas Publishing has a share price of $30, retained earnings of $1 per share, and a dividend yield of 5%. What is its PE ratio?


Which of the following is a financial intermediary?

a mutual fund

It is claimed that a secondary advantage of mutual funds is that

they give ordinary people access to the skills of professional money managers.

A closed economy does not

trade with other economies.

According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would

raise national saving and reduce private saving.

Suppose that in a closed economy GDP is $11 trillion, consumption is $7 trillion, taxes are $3 trillion and the
government runs a surplus of $1 trillion. What are private saving and national saving?

$1 trillion and $2 trillion

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction
would be investment in the language of macroeconomics?

only Curly Corporation's

The source of the supply of loanable funds

is saving and the source of demand for loanable funds is investment.

The slope of the supply of loanable funds curve represents the

positive relation between the real interest rate and saving.

If the demand for loanable funds shifts left, the equilibrium interest rate

and quantity of loanable funds fall.

Which of the following could explain a decrease in the interest rate and the equilibrium quantity of loanable

The demand for loanable funds shifted left.

If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is

3 percent.

Suppose that the US offered a tax credit for firms who would build new factories in the US. Then,

the demand for loanable funds would shift right, initially creating a shortage of loanable
funds at the original interest rate.

Suppose that government expenditures on goods and services and net taxes both decrease, but that expenditures fall by more than net taxes. The effects of these changes on the budget deficit make

the interest rate fall and the equilibrium quantity of loanable funds rise.

Refer to Labor Stats. What is the adult unemployment rate in Meditor?


Refer to Labor Stats. What is the adult female labor-force participation rate in Meditor?


Some people who are employed or who are not making serious effort to find employment will report themselves as unemployed. Some people who want to find work will be counted as out of the labor for

The first fact tends to make the reported unemployment rate higher than the actual
unemployment rate. The second fact tends to make the reported unemployment rate lower than the actual rate.

Suppose that we added up all the weeks that each person who was unemployed during a year was unemployed. We'd find that


Samantha, the CEO of a corporation operating in a comparatively poor country where wages are low, decides to raise the wages of her workers even though she faces an excess supply of labor. Her decision

might increase profits if it means that the wage is high enough for her workers to eat a nutritious diet that makes them more productive.

Which of the following best illustrates the medium of exchange function of money?

You pay for your double latte using currency.

Which of the following is not included in M1?

savings deposits

The Federal Reserve does all except which of the following?

make loans to individuals

Members of the Board of Governors

are appointed by the U.S. president, while presidents of the Federal Reserve regional banks are appointed by the banks' boards of directors.

Which of the following has a four-year term?

the Chair of the Board of Governors

Suppose banks desire to hold no excess reserves. If the reserve ratio is 10 percent and a bank receives a new deposit of $10. Then this bank

must increase required reserves by $1.

If the reserve ratio is 10 percent, the money multiplier is


If the reserve ratio is 5 percent, $1,000 of additional reserves can create

$20,000 of new money.

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