(1) The index that includes the prices of raw material and other inputs that go
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Question
(1) The index that includes the prices of raw material and other inputs that go into the production of goods that consumers buy is called the ____________________.
(2) The total amount of money received in an economy by its factors of production is called _______________.
(3) The production possibilities frontier shows all combinations of prices and quantities for all goods and services produced in the economy. all combinations of prices and quantities for all goods and services demanded by consumers. all combinations of goods and services that it is possible to produce given various endowments of resources and technology. all combinations of goods and services that it is possible to produce given a set of resources and technological constraints.
(4) Which of the following factors will cause nominal GDP to rise? An increase in prices but not an increase in output An increase in output but not an increase in prices Both an increase in prices and an increase in output Neither an increase in prices nor an increase in output
(5) Which of the following is not an example of a consumption good? A hamburger A fork lift A blouse Health care
(6) An improvement in technology causes the production possiblities frontier (PPF) to shift to the right. pivot upward. shift to the left. pivot downward.
(7) Which of the following is not shown by the circular flow model? The flow of resources in one direction and money in the other The equality of aggregate spending and aggregate income The interaction of households, firms, and the government The total amount of goods and services the economy can produce
(8) Gross domestic product (GDP) is defined as the market value of all final goods and services produced in an economy in a given period of time. the market value of all consumption goods and services produced in an economy in a given period of time. the market value of all investment goods and services produced in an economy in a given period of time. the real value of all investment goods and services produced in an economy in a given period of time.
(9) Real GDP includes all domestic and foreign transactions. includes the dollar value of domestic transactions only. tries to isolate the effect of changing output, holding prices constant. measures GDP in terms of prices of goods and services produced.
(10) When economists talk about economic growth, they are usually referring to the percentage change in nominal GDP. the percentage change in real GDP. the percentage change in nominal investment. the percentage change in real investment.
(11) A significant share of output is not captured by government statistics because work performed by women is not included in the GDP. work performed in the market is not included in the GDP. not all economic activities are reported to the government. people are not always paid as much as they are worth.
(12) Given the following information, calculate the CPI for year 1.
Base year CPI = 100Price of goods in base year = $625Price of goods in year 1 = $750 112.5 120 125 25
(13) Given the following information, calculate the GDP deflator for year 1.
Nominal GDP in year 1 = $850 billionReal GDP in year 1 = $735 billion 86 100 116 125
(14) If the GDP deflator for year 1 is 119, what was the rate of inflation? 9% 19% 119% Cannot be calculted
(15) Which of the following components is not part of national income? Excise taxes Rent for land Employee compensation Proprietor's income
(16) Which of the following spending components comprises the largest share of aggregate expenditures? Consumer spending Investment spending Government spending Foreign spending
(17) Suppose that nominal GDP for the year 2000 was $8.945 million, and the GDP deflator for 1997 was 102.36. Calculate real GDP for the year 2000 based on 1997 dollars. $8.739 million $8.895 million $9.051 million $9.236 million
(18) Net domestic product equals aggregate income minus depreciated capital. national income minus personal income taxes minus corporate taxes. undistributed corporate profits minus foreign factors. aggregate income minus aggregate spending.
(19) Disposable income equals personal income plus transfer payments. personal income minus personal income taxes. Social Security contributions minus personal income taxes. Social Security contributions plus transfer payments minus personal income taxes.
(20) Total personal income is after-tax income available for the consumer to spend. the sum of personal income and personal income taxes. directly related to corporate profits. not included in the calculation of national income.
(21) The expenditures approach calculates GDP by summing the total spending on consumption, investment, net exports, and government purchases. compensation to employees, rental income, profits, interest income, business owners’ income, government subsidies, indirect taxes, and depreciation. compensation to employees, rental income, profits, interest income, business owners’ income, indirect taxes, and depreciation and subtracting government subsidies. compensation to employees, rental income, profits, interest income, and business owners’ income.
(22) In a circular flow diagram, households and firms interact in financial markets. in only the market for goods and services. in both the market for goods and services and the market for factors of production. in only the market for factors of production.
(23) GDP provides a good indication of the size of the economy because it gives increased weight to consumer goods. it measures all new goods and all used goods. is an estimate of individual income. it is a monetary measure of total production.
(24) Referring to the graph, if this economy moves from point A to point B,
it must give up food to get more military equipment. it must give up military equipment to get more food. it has to give up both military equipment and food. it gains both military equipment and food.
(25) Which of the following would cause both the U.S. consumer price index and the U.S. GDP deflator to increase? An increase in the price of Sony TVs produced in Japan and sold in the U.S. An increase in the price of Ford pickup trucks produced in the U.S. and sold in the U.S. An increase in the price of agricultural equipment made in the U.S. and sold in the U.S. An increase in the price of tanks for the U.S. military by General Motors
Explanation / Answer
1. Answer is Producer price index.
2. Answer is Gross Domestic Product.
3. Answer is all combinations of goods and services that it is possible to produce given a set of resources and technological constraints.
4. Answer is Both an increase in prices and an increase in output .Because we knew that GDP is a measure of total economic output. So an increase in output obviously raises the Nominal GDP. Since nominal GDP is not adjusted for inflation, inflation can also cause it to rise. Thus, an increase in prices also raises the nominal GDP.
5. A blouse is not a consumer good. because its not consumable/
6. An improvement in technology causes the production possiblities frontier (PPF) to shifts to the right.This is because if someone use more efficient way of producing a high demand good, he can produce it quickly and can produce large number of goods.So amount of consumable goods increases.
7.
8. Gross domestic product (GDP) is defined as the market value of all final goods and services produced in an economy in a given period of time.
9. Real GDP tries to isolate the effect of changing output, holding prices constant.
10. When economists talk about economic growth, they are usually referring to the percentage change in real GDP. This is because we want to compare output of different year in terms of a constant base year price.
11. A significant share of output is not captured by government statistics because not all economic activities are reported to the government.
12. This is very simple.Just do the following steps -
CPI of Base Year / Price of goods in Base year = CPI of Year 1 / Price of goods in year 1
=> 100 / $625 = CPI of Year 1 / $750
=> CPI of Year 1 = (100 * $750) / $625
=> CPI of Year 1 = 120.
13. GDP Deflator = (Nominal GDP / Real GDP) * 100
therefore, GDP deflator for year 1 = (Nominal GDP of year 1 / Real GDP of year 1) * 100
=> GDP deflator for year 1 = ($850 / $735) * 100
=> GDP deflator for year 1 = 116.
14. If the GDP deflator for year 1 is 119, the rate of inflation is 19%. This is very simple.As we always normalized base year price to 100.So by substructing we get 19%.
15. Excise Tax is not a part of National income because they are not considered a payment to any resource.
16. Consumer Spending is the largest share of aggregate expenditures.This is because it comprises of purchasing of commodities such as food, clothing, and kitchen appliances.
17. Real GDP of 2000 at 1997 dollar = (Nominal GDP of 2000 / GDP Deflator of 1997) * 100
=> Real GDP of 2000 at 1997 dollar = ($8945 / 102.36) * 100 = $8739.
18. Net domestic product equals aggregate income minus depreciated capital.
19. Disposable income equals personal income minus personal income taxes.
21. The expenditures approach calculates GDP by summing the total spending on consumption, investment, net exports, and government purchases.
22. In a circular flow diagram, households and firms interact in both the market for goods and services and the market for factors of production.
23. GDP provides a good indication of the size of the economy because it is a monetary measure of total production.
24. Referring to the graph, if this economy moves from point A to point B, it must give up military equipment to get more food.
25. The Consumer Price Index measures the price of goods bought in the country. The GDP deflator measures the price of the goods produced in the country.
For both of them to increase, the answer has to be An increase in the price of Ford pickup trucks produced in the U.S. and sold in the U.S.Because the agricultural equipment isn't included in the CPI, so we can't tell An increase in the price of agricultural equipment made in the U.S. and sold in the U.S.
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