Question 1

Suppose the real gross domestic product (GDP) equals $200 billion this year and the nominal gross domestic product (GDP) equals $300 billion. This implies that the price level has increased by _____ compared to the base year.

Accepted Answer

To calculate the percentage change in price level, we can use the GDP deflator formula:

GDP deflator = (Nominal GDP/Real GDP) x 100

Plugging in the values given:

GDP deflator = (300/200) x 100 = 150

This means that the price level has increased by 50% (from 100 in the base year to 150 in the current year). Therefore, the correct answer is C) 50%.

Question 2

Table 6.3
 $$\begin{array}{l}
\text { Table } 6.3\
\begin{array} { c c c c } 
\text { Product } & \begin{array} { c } 
\text { Quantity in } \
\text { market basket }
\end{array} & \begin{array} { c } 
\text { Price in } \
\text { base year } ( \$ )
\end{array} & \begin{array} { c } 
\text { Price in } \
\text { current year } ( \$ )
\end{array} \
\hline \text { Bread } & 10 & 1.00 & 1.50 \
\text { Milk } & 5 & 1.00 & 2.00 \
\text { Gum } & 50 & 0.20 & 0.50
\end{array}
\end{array}$$
-Refer to Table 6.3, which shows the current and base-year prices of different goods in a market basket. The market basket in the current year is _____ higher than the price of the market basket in the base year.

Accepted Answer

The total cost of the market basket in the base year is (10 * 1.00) + (5 * 1.00) + (50 * 0.20) = $20. In the current year, it is (10 * 1.50) + (5 * 2.00) + (50 * 0.50) = $40. The increase is ($40 - $20) / $20 * 100% = 100%.

Question 3

If the consumer price index (CPI) is 220 one year and 210 the next, the annual rate of inflation as measured by the CPI is approximately _____.

Accepted Answer

Inflation can be calculated by taking the difference between the two CPI values and dividing it by the initial CPI, then multiplying by 100. Using this formula, we get ((210-220)/220) x 100 = -4.5, which rounds to -4.6 percent. Therefore, the answer is B.

Question 4

Table 6.4
 $$\begin{array}{l}
\text { Table } 6.4\
\begin{array} { c c c } 
\text { Year } & \text { Price Index } & \text { Nominal GDP } \
\hline 2001 & 100 & \$ 95 \text { billion } \
2002 & 105 & \$ 110 \text { billion } \
2003 & 110 & \$ 120 \text { billion } \
2004 & 120 & \$ 125 \text { billion } \
2005 & 132 & \$ 137.5 \text { billion }
\end{array}
\end{array}$$
-Refer to Table 6.4, which shows the price indexes and the nominal gross domestic product (GDP) for an economy from 2001 to 2005. The real GDP _____ between 2001 and 2002.

Accepted Answer

To calculate the real GDP, we need to use the GDP deflator, which is the ratio of nominal GDP to real GDP, multiplied by 100. Real GDP can be calculated by dividing nominal GDP by the price index and then multiplying by 100.

Real GDP in 2001 = (Nominal GDP in 2001/Price Index in 2001) x 100 = ($95 billion/100) x 100 = $95 billion 
Real GDP in 2002 = (Nominal GDP in 2002/Price Index in 2002) x 100 = ($110 billion/105) x 100 = $104.76 billion

Therefore, the change in real GDP between 2001 and 2002 is: 
Change in real GDP = Real GDP in 2002 - Real GDP in 2001 = $104.76 billion - $95 billion 
= $9.76 billion

Since the change in real GDP is slightly less than $10 billion, the correct answer is A) increased by slightly less than $10 billion.

Question 5

If the consumer price index (CPI) is 160 one year and 175 the next, the annual rate of inflation as measured by the CPI is approximately _____

Accepted Answer

The answer of If the consumer price index (CPI) is...

Question 6

If real gross domestic product (GDP) in a particular year is $5,000 trillion and nominal gross domestic product (GDP) in that same year is $4,000 trillion, then the:

Accepted Answer

The GDP price index is calculated by dividing nominal GDP by real GDP and multiplying by 100. In this case, (4,000/5,000) x 100 = 80, which means that the GDP price index is 80. Option A is incorrect because the CPI is not given and cannot be calculated with the given information. Option B is incorrect because there is no indication of a percent change in GDP or economic activity. Option E is incorrect because the difference between real GDP and nominal GDP does not represent a growth rate, but rather a difference in price levels.

Question 7

Suppose the real gross domestic product (GDP) equals $100 billion this year and the nominal gross domestic product (GDP) is $200 billion. This implies that the price level has increased by _____compared to the base year.

Accepted Answer

The price level increase is calculated by comparing the nominal GDP to the real GDP. If the nominal GDP is $200 billion and the real GDP is $100 billion, it means the nominal GDP is twice the real GDP, indicating prices have doubled or increased by 100 percent compared to the base year.

Question 8

A family spent $6,500 for food last year and spent $6,695 this year. By how much did the cost of living increase?

Accepted Answer

The cost of living increased by $6,695 - $6,500 = $195. The percentage increase is $195 / $6,500 * 100% = 0.98%.

Question 9

If nominal gross domestic product (GDP) for a particular year is $6 trillion and real gross domestic product (GDP) for that year is $5 trillion, then the GDP price index for that year is _____

Accepted Answer

The GDP price index is calculated by dividing the nominal GDP by the real GDP and then multiplying by 100. So, ($6 trillion / $5 trillion) * 100 = 120.

Question 10

If the nominal gross domestic product (GDP) for the year 2000 was $6.2 trillion and the price index was 200, the real gross domestic product (GDP) for 2000 was _____.

Accepted Answer

Real GDP can be calculated by dividing the nominal GDP by the price index and multiplying by 100.

Real GDP = (Nominal GDP / Price index) x 100

Real GDP for 2000 = (6.2 trillion / 200) x 100 = 31 trillion / 10,000 = $3.1 trillion.

Question 11

If the nominal gross domestic product (GDP) for a year is $5.4 trillion, and the real gross domestic product (GDP) for the same year is $3.6 trillion, the GDP price index is _____

Accepted Answer

The GDP price index is calculated as (Nominal GDP/Real GDP)x100.

In this case, the GDP price index = (5.4/3.6)x100 = 150. Therefore, the correct answer is B.

Question 12

If the consumer price index (CPI) this year is 162 and last year it was 170, the inflation rate _____

Accepted Answer

The inflation rate is negative because the CPI has decreased from 170 last year to 162 this year, indicating that the average level of prices has fallen.

Question 13

The consumer price index (CPI) _____ inflation because it includes an item in the market basket only after the product becomes _____.

Accepted Answer

The CPI tends to overstate inflation because it includes an item in the market basket only after the product becomes widely used, often missing the period when prices for a new product might be falling.

Question 14

If the consumer price index (CPI) is 200 one year and 206 the next year, the annual rate of inflation as measured by the CPI is approximately _____.

Accepted Answer

The answer of If the consumer price index (CPI) is...

Question 15

In order to convert nominal gross domestic product (GDP) to real gross domestic product (GDP), we must divide _____

Accepted Answer

To convert nominal GDP to real GDP, we need to adjust for inflation using the price index (also known as the GDP deflator). We do this by dividing nominal GDP by the price index. Choice B is the only option that correctly represents this calculation.

Question 16

Experts conclude that the CPI has overestimated inflation by how much per year?

Accepted Answer

Experts have concluded that the Consumer Price Index (CPI) has historically overestimated inflation by about 1% per year due to factors like substitution bias and quality improvements not being fully accounted for.

Question 17

The GDP price index _____

Accepted Answer

The GDP price index, also known as the GDP deflator, measures the average price of all final goods and services produced in an economy, including consumer goods, investment goods, and government purchases. It is a measure of inflation or the overall price level in an economy.

Question 18

The nominal gross domestic product (GDP) for a country was $1,000 in 2003 and $1,500 in 2004. The GDP price index was 100 in 2003 and 150 in 2004. Between 2003 and 2004, real GDP _____.

Accepted Answer

The answer of The nominal gross domestic product (GDP) for...

Question 19

Problems with CPI do not include _____

Accepted Answer

The answer of Problems with CPI do not include _____
...

Question 20

If real gross domestic product (GDP) for a particular year is $5 trillion and the GDP price index for that year is 136, the nominal gross domestic product (GDP) for that year is _____.

Accepted Answer

Nominal GDP = (Real GDP / GDP Price Index) x 100. 
So, Nominal GDP = ($5 trillion / 136) x 100 = $3.676 trillion. 
Therefore, the closest answer option is C) $6.8 trillion.

Quiz 6: Tracking the U. S. Economy.