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41 Questions
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  • 1. 
     GDP is calculated including
    • A. 

      Intermediate products but not final products.

    • B. 

      Manufactured goods but not services.

    • C. 

      Final products but not intermediate products.

    • D. 

      Only good purchased by consumers in a given year.

  • 2. 
    Net exports are defined as:
    • A. 

      Exports plus imports.

    • B. 

      Exports minus imports.

    • C. 

      Imports minus exports.

    • D. 

      exports plus imports minus tariffs

  • 3. 
    . If the United States imported $1.5 billion worth of goods and services and sold $2.9 billion worth of goods and services outside its borders, net exports would equal
    • A. 

      $-4.4 billion.

    • B. 

      $4.4 billion.

    • C. 

      $1.4 billion.

    • D. 

      $-1.4 billion.

    • E. 

      None of the above.

  • 4. 
    Which of the following is included in government purchases?
    • A. 

      Government purchases of investment goods

    • B. 

      Transfer payments.

    • C. 

      Government spending on services.

    • D. 

      All of the above are included in government purchases

    • E. 

      Both a) and c) are included in government purchases, but b) is not.

  • 5. 
     The consumer price index is used to:
    • A. 

      Track changes in the level of wholesale prices in the economy

    • B. 

      Monitor changes in the level of real GDP.

    • C. 

      C) monitor changes in the cost of living of typical households.

    • D. 

      track changes in the stock market.

  • 6. 
    6. The CPI in year 1 (the base year) equals 100 and in year 2 equals 106. It can be concluded that:   
    • A. 

      The rate of inflation from year 1 to year 2 equals +106 percent

    • B. 

      The rate of inflation from year 1 to year 2 equals +6 percent.

    • C. 

      The rate of inflation from year 1 to year 2 equals -6 percent.

    • D. 

      National income has increased by 6 percent from year 1 to year 2.

    • E. 

      National income has decreased by 6 percent from year 1 to year 2.

  • 7. 
    7. If the CPI increases from one year to the next, it can be concluded that the economy has experienced:   
    • A. 

      Growth.

    • B. 

      Stagnation.

    • C. 

      Stagflation.

    • D. 

      Inflation.

    • E. 

      Deflation.

  • 8. 
    8. If the CPI decreases from one year to the next, it can be concluded that the economy has experienced:
    • A. 

      Growth.

    • B. 

      Stagnation.

    • C. 

      Stagflation. (Low Economic growth- High Inflation rate)

    • D. 

      Inflation.

    • E. 

      Deflation

  • 9. 
    The current cost of a market basket of goods is $6,000. The cost of the same basket of goods in the base year was $4,000. The current price index is:     CPI=  Cost in current year/ cost in base year X 100        d)    133.      e)    66.7.
    • A. 

      600.

    • B. 

      160.

    • C. 

      150.

    • D. 

      133.

    • E. 

      66.7

  • 10. 
    • A. 

      80, and this indicates that the price level has decreased by 20 percent since the base year

    • B. 

      80, and this indicates that the price level has increased by 80 percent since the base year.

    • C. 

      125, and this indicates that the price level has increased by 25 percent since the base year.

    • D. 

      125, and this indicates that the price level has increased by 125 percent since the base year.

  • 11. 
    Refer to Table 10-4.  In 2008, this country’s
    • A. 

      Nominal GDP was greater than real GDP, and the GDP deflator was greater than 100.

    • B. 

      Nominal GDP was equal to real GDP, and the GDP deflator was equal to 1.

    • C. 

      Nominal GDP was less than real GDP, and the GDP deflator was less than 100

    • D. 

      Nominal GDP was equal to real GDP, and the GDP deflator was equal to 100.

  • 12. 
    Refer to Table 10-4.  In 2009, this country’s
    • A. 

      Real GDP was $660, and the GDP deflator was 113.4

    • B. 

      Real GDP was $670, and the GDP deflator was 115.2

    • C. 

      Real GDP was $660, and the GDP deflator was 115.2.

    • D. 

      Real GDP was $670, and the GDP deflator was 113.4.

  • 13. 
    13. Refer to Table 10-4.  In 2010, this country’s
    • A. 

      Real GDP was $780, and the GDP deflator was 141.0.

    • B. 

      Real GDP was $825, and the GDP deflator was 133.3.

    • C. 

      Real GDP was $780, and the GDP deflator was 133.3

    • D. 

      Real GDP was $825, and the GDP deflator was 141.0

  • 14. 
    Refer to Table 10-4.  In 2011, this country’s
    • A. 

      Real GDP was $900, and the GDP deflator was 150.2.

    • B. 

      Real GDP was $900, and the GDP deflator was 177.8

    • C. 

      Real GDP was $1065, and the GDP deflator was 177.8

    • D. 

      Real GDP was $1065, and the GDP deflator was 150.2.

  • 15. 
      15. Refer to Table 10-4.  This country’s output grew 
    • A. 

      29.9% from 2008 to 2009.

    • B. 

      33.3% from 2009 to 2010.

    • C. 

      24.3% from 2009 to 2010.

    • D. 

      15.4% from 2010 to 2011.

  • 16. 
    16. Refer to Table 10-4.  This country’s inflation rate from 2009 to 2010 was
       
    • A. 

      16.4%.

    • B. 

      24.3%.

    • C. 

      41.0%

    • D. 

      44.7%

  • 17. 
    17. Refer to Table 10-4.  This country’s inflation rate from 2010 to 2011 was
    • A. 

      15.4%.

    • B. 

      26.1%

    • C. 

      45.5%.

    • D. 

      77.8%

  • 18. 
    18.   When the consumer price index rises, the typical family
    • A. 

      Has to spend more dollars to maintain the same standard of living.

    • B. 

      Can spend fewer dollars to maintain the same standard of living.

    • C. 

      Finds that its standard of living is not affected.

    • D. 

      Can offset the effects of rising prices by saving more.

  • 19. 
    19. The CPI is more commonly used as a gauge of inflation than the GDP deflator is because
    • A. 

      The CPI is easier to measure.

    • B. 

      The CPI is calculated more often than the GDP deflator is.

    • C. 

      The CPI better reflects the goods and services bought by consumers.

    • D. 

      The GDP deflator cannot be used to gauge inflation.

  • 20. 
    Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been selected as the base year.  In 2002, the basket’s cost was $50; in 2004, the basket’s cost was $52; and in 2006, the basket’s cost was $57.25.  The value of the CPI in 2006 was Cost of basket current year/ Cost of basket previous year  X 100
    • A. 

      91.6.

    • B. 

      104.6

    • C. 

      109.2.

    • D. 

      114.5.

  • 21. 
    22.   The price index was 220 in one year and 260 in the next year.  What was the inflation rate?
    • A. 

      9.0 percent

    • B. 

      114.6 percent

    • C. 

      18.2 percent

    • D. 

      40.0 percent

  • 22. 
    For an imaginary economy, the value of the consumer price index was 140 in 2006 and 149.10 in 2007. The economy’s inflation rate for 2007 was
    • A. 

      6.1 percent.

    • B. 

      6.5 percent.

    • C. 

      9.1 percent

    • D. 

      49.1 percent.

  • 23. 
    Between October 2001 and October 2002, the CPI in Canada rose from 116.5 to 119.8 and the CPI in Mexico rose from 93.2 to 102.3.  What were the inflation rates for Canada and Mexico over this one-year period?
     
     
    • A. 

      2.8 percent for Canada and 9.1 percent for Mexico

    • B. 

      2.8 percent for Canada and 9.8 percent for Mexico

    • C. 

      3.3 percent for Canada and 9.1 percent for Mexico

    • D. 

      3.3 percent for Canada and 9.8 percent for Mexico

  • 24. 
    The price index was 128.96 in 2006, and the inflation rate was 24 percent between 2005 and 2006.  The price index in 2005 was
    • A. 

      104.

    • B. 

      104.96.

    • C. 

      152.96.

    • D. 

      159.91.

  • 25. 
    The table below pertains to Iowan, an economy in which the typical consumer’s basket consists of 3 pounds of pork and 4 bushels of corn.
    Year Price of Pork Price of Corn
    2008 $20 per pound $12 per bushel
    2009 $25 per pound $18 per bushel
      Refer to Table 11-2.  The cost of the basket in 2008 was
    • A. 

      $108.

    • B. 

      $147.

    • C. 

      $160.

    • D. 

      $224

  • 26. 
    Year Price of Pork Price of Corn
    2008 $20 per pound $12 per bushel
    2009 $25 per pound $18 per bushel
    Refer to Table 11-2.  The cost of the basket in 2009 was  
    • A. 

      $108.

    • B. 

      $147.

    • C. 

      $160.

    • D. 

      $301.

  • 27. 
    28. Refer to Table 11-2.  If 2008 is the base year, then the CPI for 2008 was
    Year Price of Pork Price of Corn
    2008 $20 per pound $12 per bushel
    2009 $25 per pound $18 per bushel  
    • A. 

      73.5.

    • B. 

      100.

    • C. 

      108.

    • D. 

      136.1.

  • 28. 
    . Refer to Table 11-2.  If 2008 is the base year, then the CPI for 2009 was
    Year Price of Pork Price of Corn
    2008 $20 per pound $12 per bushel
    2009 $25 per pound $18 per bushel  
    • A. 

      73.5

    • B. 

      100.

    • C. 

      136.1.

    • D. 

      147.

  • 29. 
    Refer to Table 11-2.  If 2009 is the base year, then the CPI for 2008 was
    • A. 

      73.5.

    • B. 

      100.

    • C. 

      108.

    • D. 

      136.1.

  • 30. 
    . Refer to Table 11-2.  If 2009 is the base year, then the CPI for 2009 was
    • A. 

      73.5.

    • B. 

      100.

    • C. 

      136.1.

    • D. 

      147.

  • 31. 
    Refer to Table 11-2.  If 2008 is the base year, then the inflation rate in 2009 was
    • A. 

      26.5 percent.

    • B. 

      36.1 percent.

    • C. 

      39 percent.

    • D. 

      47 percent.

  • 32. 
    . Refer to Table 11-2.  If 2009 is the base year, then the inflation rate in 2009 was
    • A. 

      26.5 percent.

    • B. 

      36.1 percent.

    • C. 

      39 percent.

    • D. 

      47 percent.

  • 33. 
    Which of the following is not a widely acknowledged problem with using the CPI as a measure of the cost of living?
    • A. 

      Substitution bias

    • B. 

      Introduction of new goods

    • C. 

      Unmeasured quality change

    • D. 

      Unmeasured price change

  • 34. 
    The CPI and the GDP deflator
    • A. 

      Generally move together.

    • B. 

      Generally show different patterns of movement.

    • C. 

      Always show identical changes.

    • D. 

      Always show different patterns of movement.

  • 35. 
    . In 1931, President Herbert Hoover was paid a salary of $75,000.  Government statistics show a consumer price index of 15.2 for 1931 and 214.5 for 2009.  President Hoover’s 1931 salary was equivalent to a 2009 salary of about
    • A. 

      $5,507.

    • B. 

      $1,058,388.

    • C. 

      $1,140,000.

    • D. 

      $15,525,000

  • 36. 
    You know that a candy bar cost five cents in 1962.  You also know the CPI for 1962 and the CPI for today.  Which of the following would you use to compute the price of the candy bar in today's prices?
    • A. 

      Five cents X (1962 CPI / today's CPI)

    • B. 

      Five cents X ((today's CPI - 1962 CPI)/1962 CPI)

    • C. 

      Five cents X (today's CPI / 1962 CPI)

    • D. 

      Five cents - today's CPI - five cents X 1962 CPI.

  • 37. 
    . The CPI was 172 in 2007, and the CPI was 46.5 in 1982.  If your parents put aside $1,000 for you in 1982, then how much would you have needed in 2007 in order to buy what you could have bought with the $1,000 in 1982?
    • A. 

      $270.35

    • B. 

      $1,255.00

    • C. 

      $2,698.92

    • D. 

      $3,698.92

  • 38. 
     Social Security payments are indexed for inflation using
    • A. 

      The CPI.

    • B. 

      The PPI

    • C. 

      The GDP deflator.

    • D. 

      Real interest rates.

  • 39. 
    40. If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is
    .
    d.  
    • A. 

      -5 percent.

    • B. 

      1.67 percent.

    • C. 

      5 percent.

    • D. 

      11 percent.

  • 40. 
    The consumer price index was 225 in 2006 and 234 in 2007.  The nominal interest rate during this period was 6.5 percent.  What was the real interest rate during this period?
    • A. 

      2.5 percent

    • B. 

      4.0 percent

    • C. 

      6.76 percent

    • D. 

      10.5 percent

  • 41. 
    The CPI was 120 in 2008 and 126 in 2009.  Phil borrowed money in 2008 and repaid the loan in 2009.  If the nominal interest rate on the loan was 8 percent, then the real interest rate was
    • A. 

      -2 percent.

    • B. 

      3 percent.

    • C. 

      5 percent.

    • D. 

      13 percent.