Question 1

If the CPI in year 2 equals 110 and the CPI in year 3 equals 121, it can be concluded that consumer prices:

Accepted Answer

The answer of If the CPI in year 2 equals...

Question 2

Suppose nominal GDP is $14 trillion and the GDP deflator is 122 .5.Given this information, what is real GDP?

Accepted Answer

Real GDP can be calculated using the formula: Real GDP = Nominal GDP/GDP deflator. 
Substituting the values, we get, 
Real GDP = 14 trillion/122.5 
Real GDP = 11424000000000/122.5 
Real GDP = $93.15 trillion/100 
Real GDP = $11.4 trillion.

Question 3

Suppose both nominal GDP and real GDP increase.It can be concluded that:

Accepted Answer

If both nominal GDP (which includes changes in price levels) and real GDP (which adjusts for inflation) are increasing, it means that output has increased. The increase in nominal GDP may be due to an increase in prices, but the fact that real GDP is also increasing indicates that there has been actual growth in the economy. Therefore, the correct answer is A) output rose.

Question 4

If the percent change in nominal GDP is 6% and the percent change in real GDP is 2%, inflation is:

Accepted Answer

Inflation is calculated as the percent change in nominal GDP minus the percent change in real GDP, which is 6% - 2% = 4%.

Question 5

The relationship between real GDP and nominal GDP can be expressed by:

Accepted Answer

The correct answer is B because the percent change in real GDP is equal to the percent change in nominal GDP minus inflation.

Question 6

Assuming food and beverages make up about 15% of total expenditures and food and beverage prices rise by 10% while the other components of the price index remain constant, approximately by how much will the price index rise?

Accepted Answer

The answer of Assuming food and beverages make up about...

Question 7

If the percent change in real GDP is 5% and inflation rate is 1%, what is the percent change in nominal GDP?

Accepted Answer

The percent change in nominal GDP is the sum of the percent change in real GDP and the inflation rate, which is 5% + 1% = 6%.

Question 8

If the price of clothing (which accounts for 5% of total expenditures in the CPI basket), rises by 10% in one year while the prices of all other goods remain constant, by how much will the CPI rise?

Accepted Answer

The CPI will rise by 0.5% because clothing accounts for 5% of the CPI basket, and a 10% increase in clothing prices results in a 0.5% increase in the overall CPI (0.05 * 10% = 0.5%).

Question 9

Suppose that both nominal GDP and prices double.We can conclude that real output:

Accepted Answer

The answer of Suppose that both nominal GDP and prices...

Question 10

If the price of housing (which accounts for 40% of total expenditures in the CPI basket), rises by 10% in one year while the prices of all other goods rises by 27%, by how much will the CPI rise?

Accepted Answer

The CPI rise is a weighted average of the price increases. Housing accounts for 40% of the CPI, so its contribution to the CPI increase is 0.4 * 10% = 4%. The remaining 60% of the CPI basket rises by 27%, contributing 0.6 * 27% = 16.2%. Therefore, the total CPI increase is 4% + 16.2% = 20.2%, which rounds to 20%.

Question 11

If the United States CPI was 37 in 1973 and in 2016 it was 215 .3.By what percent did prices increase in the United States between 1973 and 2016? (Not the annual rate of change, but total.)

Accepted Answer

To calculate the percent increase, we can use the formula:

Percent increase = ((new value - old value) / old value) * 100

Plugging in the values, we get:

Percent increase = ((215.3 - 37) / 37) * 100
Percent increase = 478.3%
Rounding to the nearest whole number gives us a percent increase of 482%, which means the best choice is C.

Question 12

Which of the following provides the closest measure of the rate of change in the prices paid by households?

Accepted Answer

The PCE (Personal Consumption Expenditures) deflator measures the change in prices paid by households for goods and services, making it the closest measure of the rate of change in the prices paid by households. The BLS (Bureau of Labor Statistics) deflator and PPI (Producer Price Index) measure changes in prices for different sectors of the economy, while the GDP (Gross Domestic Product) deflator measures changes in the overall price level of goods and services produced within a country.

Question 13

If real GDP has increased by 3% and nominal GDP has increased by 5%, then:

Accepted Answer

The difference between the nominal GDP growth rate (5%) and the real GDP growth rate (3%) is typically attributed to inflation, which in this case is 2%.

Question 14

One reason economists have begun focusing on the Personal Consumption Expenditure measure for inflation is that the PCE deflator:

Accepted Answer

The PCE deflator allows for a changing basket of goods, meaning it adjusts the items included in the basket based on consumption patterns. This makes it a more accurate measure of inflation than other measures, such as the Consumer Price Index, which have a fixed basket of goods. The PCE deflator does not take into account the exchange rate value of the dollar (A), weight food more (B), or include the price of assets such as stock portfolios (D).

Question 15

If nominal GDP increased from $4 billion to $5 billion while real GDP increased from $3 billion to $4 billion, it follows that:

Accepted Answer

The answer of If nominal GDP increased from $4 billion...

Question 16

If the price of housing (which accounts for 40% of total expenditures in the CPI basket), rises by 5% in one year while the prices of all other goods remain constant, by how much will the CPI rise?

Accepted Answer

The CPI will rise by 2% because housing accounts for 40% of the CPI basket, and a 5% increase in housing prices will contribute 0.05 * 40% = 2% to the overall CPI.

Question 17

The price index that measures the average rate of change in the prices received by domestic producers of goods and services is called the:

Accepted Answer

The PPI (Producer Price Index) measures the average rate of change in the selling prices received by domestic producers for their output. This index focuses on the prices of goods and services sold by producers, while the CPI (Consumer Price Index) measures changes in the prices paid by consumers for goods and services. The GDP deflator and PCE deflator are both measures of inflation, but they are broader measures that include both consumer and producer prices.

Question 18

If the percent change in nominal GDP is 5% and inflation is 3%, the percent change in real GDP is:

Accepted Answer

The percent change in real GDP is equal to the percent change in nominal GDP minus the inflation rate. So, if the percent change in nominal GDP is 5% and inflation is 3%, the percent change in real GDP is 5% - 3% = 2%.

Question 19

Real GDP is calculated by:

Accepted Answer

Real GDP is adjusted for price changes by dividing nominal GDP by the appropriate price index. This results in a measure of GDP that is adjusted for inflation and provides a more accurate picture of the economy's production level. The equation is Real GDP = Nominal GDP / Price Index.

Question 20

If the percent change in nominal GDP is 3% and inflation is 4%, the percent change in real GDP is:

Accepted Answer

The percent change in real GDP is calculated by subtracting the inflation rate from the percent change in nominal GDP. Here, 3% - 4% = -1%.

Quiz 25: Measuring and Describing the Aggregate Economy