Introduction to Macroeconomics 2011-2012, Semester 2 Class Test 1 (trial)

1. Which of the following statistics is the best single measure of an economys well-being? a. the unemployment rate b. the inflation rate c. GDP d. the trade deficit In a. b. c. d. an economy consisting of only households and firms, GDP can be computed by adding up the total expenditures of households. adding up the total income paid by firms. Either a or b are correct. None of the above are correct.

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Over time people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example people eat at restaurants relatively more and prepare their own meals at home relatively less. By itself this change would a. make GDP fall over time. b. not make any change in GDP over time. c. make GDP rise over time. d. change GDP, but in an uncertain direction. The local Chevrolet dealership has an increase in inventory of 25 cars in 2010. In 2011 it sells all 25 cars. a. The value of increased inventory will be counted as part of GDP in 2010, but the value of the cars sold in 2011 will not cause GDP to increase. b. The value of the increased inventory will not affect 2010 GDP, but will be included in 2011 GDP.

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c. The value of the increased inventory will be counted as 2010 GDP and the value of the cars sold in 2011 will increase 2011 GDP. d. None of the above are correct. 5. In a. b. c. d. computing GDP, investment is spending on stocks, bonds, and other financial assets. real estate and financial assets. new capital equipment, inventories, and structures, including new housing. capital equipment, inventories, and structures, excluding household purchases of new housing.

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If a U.S. citizen buys a television made in Korea by a Korean firm, a. U.S. net exports decrease, and U.S. GDP decreases. b. U.S. net exports are unaffected, and U.S. GDP decreases. c. U.S. net exports are unaffected, and U.S. GDP is unaffected. d. U.S. net exports decrease but U.S. GDP is unaffected. Which of the following statements about GDP is most accurate? a. Nominal GDP values production at current prices, while real GDP values production at constant prices. b. Nominal GDP values production at constant prices, while real GDP values production at current prices. c. Nominal GDP values production at market prices, while real GDP values production at the cost of the resources used in the production process. d. Nominal GDP consistently underestimates the value of production, while real GDP consistently overestimates the value of production. Suppose that Wisconsin produces cheese and fish. In 2011, 20 units of cheese are sold at $5 each, and 8 units of fish are sold at $50 each. In 2001, the base year, the price of cheese was $10 per unit, and the price of fish was $75 per unit. a. Nominal 2011 GDP is $800, real 2011 GDP is $500, and the GDP deflator is 160. b. Nominal 2011 GDP is $500, real 2011 GDP is $800, and the GDP deflator is 160. c. Nominal 2011 GDP is $500, real 2011 GDP is $800, and the GDP deflator is 62.5.

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d. Nominal 2011 GDP is $800, real 2011 GDP is $500, and the GDP deflator is 62.5. 9. Which statement represents most correctly the relationship between nominal GDP and real GDP? a. Nominal GDP measures base-year production using base-year prices, while real GDP measures current production using current prices. b. Nominal GDP measures current production using base-year prices, while real GDP measures current production using current prices. c. Nominal GDP measures current production using current prices, while real GDP measures current production using base-year prices. d. Nominal GDP measures current production using current prices, while real GDP measures baseyear production using base-year prices. If a country reported nominal GDP of 100 billion in 2011 and 75 billion in 2010 and reported a GDP deflator of 125 in 2011 and a deflator of 120 in 2010 then from 2010 to 2011 real output a. and prices both rose. b. rose and prices fell. c. fell and prices rose. d. and prices both fell. The GDP deflator can be used to identify the a. increase in nominal GDP that is due to an increase in prices rather than an increase in production . b. increase in real GDP that is due to an increase in prices rather than an increase in production. c. increase in the cost of living for typical U.S. consumers. d. reduction in government spending required to balance the federal budget. Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. a. Therefore, GDP is not a useful measure of society's welfare. b. However, GDP is still a useful measure of society's welfare because providing these other attributes is the responsibility of government. c. However, GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare. d. However, GDP is still the best measure of societys welfare because these other values cannot actually be measured. GDP a. includes the value of intermediate goods so we can get a measure of sales. b. excludes the value of intermediate goods because they are too difficult to measure. c. excludes the value of intermediate goods because their value is already counted in the value of final goods. d. None of the above are correct. Flour is a. always counted as an intermediate good. b. counted as an intermediate good if it is used by a company to make bread. c. counted as a final good if it is used by a consumer who bakes bread for his own consumption. d. Both b and c are correct. Goods that go into inventory and are not sold during the current period are a. counted as intermediate goods and so are not included in current period GDP. b. counted in current GDP only if the firm that produced them sells them to another firm. c. included in current period GDP as inventory investment. d. included in current period GDP as consumption. 16. The price index is 180 in one year and 210 in the next. What was the inflation rate? a. 16.7 percent b. 14.3 percent c. 11.1 percent d. None of the above are correct. An inflation rate calculated using the CPI shows the rate of change of a. all prices. b. the prices of all final goods and services. c. the prices of all consumer goods.

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d. the prices of some consumer goods. 18. a. b. c. d. 19. If the prices of Australian-made shoes imported into the United States increase, both the GDP deflator and the consumer price index will increase. neither the GDP deflator nor the consumer price index will increase. the GDP deflator will increase but the consumer price index will not increase. the consumer price index will increase, but the GDP deflator will not increase. Of the following, which makes up the largest category of consumer spending in Vietnam? a. food and beverages b. transportation c. housing d. apparel

20. You bake cookies. One day you double the time you spend, double the number of chocolate chips, flour, eggs, and all your other inputs, and bake twice as many cookies. Your cookie production function has a. decreasing returns to scale. b. zero returns to scale. c. constant returns to scale. d. increasing returns to scale. 21. A government can encourage growth and, in the long run, raise the economy's standard of living by encouraging a. population growth. b. consumption. c. saving and investment. d. spending. 22. The traditional view of the production process is that capital is subject to a. constant returns. b. increasing returns. c. diminishing returns. d. diminishing returns for low levels of capital, and increasing returns for high levels of capital. Suppose that in a closed economy GDP is equal to 10,000, taxes are equal to 2,500 Consumption equals 6,500 and Government expenditures equal 2,000. What are private saving, public saving, and national saving? a. 1500, 1000, 500 b. 1000, 500, 1500 c. 500, 1500, 1000 d. None of the above are correct.

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24. Henry buys a bond issued by Ralston Purina, which uses the funds to buy new machinery for one of its factories. a. Henry and Ralston Purina are both investing. b. Henry and Ralston Purina are both saving. c. Henry is investing; Ralston Purina is saving. d. Henry is saving; Ralston Purina is investing. 25. Other things the same, countries that tax saving less will have a. lower interest rates and higher investment than other countries. b. lower interest rates and lower investment than other countries. c. higher interest rates and higher investment than other countries. d. higher interest rates and lower investment than other countries.