Deck 2: Measuring the Macroeconomy

Question 1

Real GDP is calculated by

A) adding up all the goods and services produced in the economy, valued in current year market prices.
B) adding up all the goods and services produced in the economy, valued in base year market prices.
C) adding up all the final goods and services produced in the economy, valued in current year market prices.
D) adding up all the final goods and services produced in the economy, valued in base year market prices.

Answer 1

adding up all the final goods and services produced in the economy, valued in base year market prices.

Question 2

Okun's Law is a relationship between

A) the unemployment rate and GDP.
B) the exchange rate and net exports.
C) the inflation rate and the unemployment rate.
D) the unemployment rate and real GDP.

Answer 2

the unemployment rate and real GDP.

Question 3

Which of the following is not one of the six key variables in macroeconomics?

A) real GDP
B) the interest rate
C) the price of computers
D) the exchange rate

Answer 3

the price of computers

Question 4

Which of the following is not one of the six key variables in macroeconomics?

A) real GDP
B) the price of apples
C) the unemployment rate
D) the exchange rate

Question 5

Which of the following is not one of the six key variables in macroeconomics?

A) the cost of education
B) the interest rate
C) the inflation rate
D) the exchange rate

Question 6

Which of the following is not one of the six key variables in macroeconomics?

A) real GDP
B) the interest rate
C) the level of the stock market
D) the price of new houses

Question 7

Which of the following is not one of the six key variables in macroeconomics?

A) real GDP
B) the inflation rate
C) the price of computers
D) the unemployment rate

Question 8

Real GDP

A) is the principal measure of material well-being and economic productivity.
B) is the principal measure of how far production is falling short of potential output.
C) is the proportional rate of change of the price level.
D) is the principal determinant of the level of investment, and a principal determinant of future economic growth.

Question 9

The unemployment rate

A) is the principal measure of material well-being and economic productivity.
B) is the principal measure of how far production is falling short of potential output.
C) is the proportional rate of change of the price level.
D) is the principal determinant of the level of investment, and a principal determinant of future economic growth.

Question 10

The inflation rate

A) is the principal measure of material well-being and economic productivity.
B) is the principal measure of how far production is falling short of potential output.
C) is the proportional rate of change of the price level.
D) is the principal determinant of the level of investment, and a principal determinant of future economic growth.

Question 11

The real long-term interest rate

A) is the principal measure of material well-being and economic productivity.
B) is the principal measure of how far production is falling short of potential output.
C) is the proportional rate of change of the price level.
D) is the principal determinant of the level of investment, and a principal determinant of future economic growth.

Question 12

The stock market

A) is the principal measure of material well-being and economic productivity.
B) is the principal measure of how far production is falling short of potential output.
C) summarizes into one single index a large number of influences on investment.
D) is the principal determinant of the level of investment, and a principal determinant of future economic growth.

Question 13

The exchange rate

A) is the principal measure of material well-being and economic productivity.
B) is the principal measure of how far production is falling short of potential output.
C) summarizes into one single index a large number of influences on investment.
D) determines the relative price of foreign-made goods in terms of home-produced goods.

Question 14

Real GDP is composed of

A) consumption spending, investment spending, government purchases and transfer payments, and net exports.
B) consumption spending, investment spending, government purchases, net exports, minus depreciation.
C) consumption spending, investment spending, government purchases, and net exports.
D) consumption spending, savings, government purchases, and net exports.

Question 15

An individual in Europe wishing to invest in the United States would need to _____________ in the foreign exchange market.

A) sell dollars and buy euros
B) buy dollars and sell euros
C) buy dollars and sell pesos
D) sell euros and sell dollars

Question 16

An individual in the United States wishing to invest in Europe would need to _____________ in the foreign exchange market.

A) sell dollars and buy euros
B) buy dollars and sell euros
C) buy dollars and sell pesos
D) sell euros and sell dollars

Question 17

If the nominal dollar price of the euro decreases by 10% (from $1.00 to $.90) and the ratio of the price level in Europe to the price level in the U.S. increases by 20%, the real dollar price of the euro will

A) increase.
B) decrease.
C) stay the same.
D) increase and then decrease.

Question 18

If the risk premium associated with holding stocks increases, we would initially expect

A) the price of stocks to increase.
B) the price of bonds to decrease.
C) the price of stocks to decrease.
D) the exchange rate to decrease.

Question 19

If the risk premium associated with holding stocks decreases, we would initially expect

A) the price of stocks to increase.
B) the price of bonds to increase.
C) the price of stocks to decrease.
D) the exchange rate to decrease.

Question 20

If the real interest rate increases, we would initially expect

A) the price of stocks to decrease.
B) the price of bonds to increase.
C) the price of stocks to increase.
D) the exchange rate to decrease.

Question 21

If the real interest rate decreases, we would initially expect

A) the price of stocks to decrease.
B) the price of bonds to decrease.
C) the price of stocks to increase.
D) the exchange rate to decrease.

Question 22

If investors become optimistic and expect that long-term earnings will increase, we would initially expect

A) the price of stocks to decrease.
B) the price of bonds to increase.
C) the price of stocks to increase.
D) the exchange rate to decrease.

Question 23

If investors become pessimistic and expect that long-term earnings will decrease, we would initially expect

A) the price of stocks to decrease.
B) the price of bonds to decrease.
C) the price of stocks to increase.
D) the exchange rate to decrease.

Question 24

If the risk premium associated with holding stocks increases at the same time that investors become more pessimistic and expect that long-term earnings will decrease, we would

A) initially expect the price of stocks to increase.
B) initially expect the price of bonds to decrease.
C) initially expect the price of stocks to decrease.
D) be unable to determine the impact on the price of stocks would unless we knew the relative magnitudes of the changes.

Question 25

If the risk premium associated with holding stocks increases at the same time that investors become more optimistic and expect that long-term earnings will increase, we would

A) initially expect the price of stocks to increase.
B) initially expect the price of bonds to decrease.
C) initially expect the price of stocks to decrease.
D) unable to determine the impact on the price of stocks unless we knew the relative magnitudes of the changes.

Question 26

If the risk premium associated with holding stocks decreases at the same time that investors become more pessimistic and expect that long-term earnings will decrease, we would

A) initially expect the price of stocks to increase.
B) initially expect the price of bonds to decrease.
C) initially expect the price of stocks to decrease.
D) be unable to determine the impact on the price of stocks unless we knew the relative magnitudes of the changes.

Question 27

If the risk premium associated with holding stocks decreases at the same time that investors become more optimistic and expect that long-term earnings will increase, we would

A) initially expect the price of stocks to increase.
B) initially expect the price of bonds to increase.
C) initially expect the price of stocks to decrease.
D) be unable to determine the impact on the price of stocks unless we knew the relative magnitudes of the changes.

Question 28

If the risk premium associated with holding stocks decreases at the same time that the real rate of interest decreases, we would

A) initially expect the price of stocks to increase.
B) initially expect the price of bonds to decrease.
C) initially expect the price of stocks to decrease.
D) be unable to determine the impact on the price of stocks unless we knew the relative magnitudes of the changes.

Question 29

If the risk premium associated with holding stocks decreases at the same time that the real rate of interest increases, we would

A) initially expect the price of stocks to increase.
B) initially expect the price of bonds to decrease.
C) initially expect the price of stocks to decrease.
D) be unable to determine the impact on the price of stocks unless we knew the relative magnitudes of the changes.

Question 30

If the risk premium associated with holding stocks increases at the same time that the real rate of interest increases, we would

A) initially expect the price of stocks to increase.
B) initially expect the price of bonds to decrease.
C) initially expect the price of stocks to decrease.
D) be unable to determine the impact on the price of stocks unless we knew the relative magnitudes of the changes.

Question 31

If investors become more optimistic and expect that long-term earnings will increase at the same time that the real rate of interest decreases, we would

A) initially expect the price of stocks to increase.
B) initially expect the price of bonds to decrease.
C) initially expect the price of stocks to decrease.
D) be unable to determine the impact on the price of stocks unless we knew the relative magnitudes of the changes.

Question 32

If investors become more pessimistic and expect that long-term earnings will decrease at the same time that the real rate of interest decreases, we would

A) initially expect the price of stocks to increase.
B) initially expect the price of bonds to decrease.
C) initially expect the price of stocks to decrease.
D) be unable to determine the impact on the price of stocks unless we knew the relative magnitudes of the changes.

Question 33

If investors become more pessimistic and expect that long-term earnings will decrease at the same time that the real rate of interest increases, we would

A) initially expect the price of stocks to increase.
B) initially expect the price of bonds to increase.
C) initially expect the price of stocks to decrease.
D) be unable to determine the impact on the price of stocks unless we knew the relative magnitudes of the changes.

Question 34

The real value of the stock market sums up all of the following information except

A) the current level of earnings, or profits.
B) the desire of businesses to purchase capital goods.
C) whether investors are pessimistic or optimistic.
D) attitudes toward risk.

Question 35

The real value of the stock market sums up all of the following information except

A) the current level of earnings, or profits.
B) whether investors are pessimistic or optimistic.
C) the level of savings in the economy.
D) attitudes toward risk.

Question 36

If the inflation rate, as measured by the CPI, over the past year was 4%, a basket of goods and services that cost _____ a year ago would be equivalent to _______ at the current price level.

A) $20,000, $21,000
B) $10,000, $10,400
C) $20,000, $20,400
D) $10,000, $10,800

Question 37

If the inflation rate, as measured by the CPI, over the past year was 5%, a basket of goods and services that cost _____ a year ago would be equivalent to _______ at the current price level.

A) $20,000, $20,500
B) $10,000, $11,000
C) $20,000, $21,000
D) $10,000, $10,800

Question 38

If the inflation rate, as measured by the CPI, over the past year was 3%, a basket of goods and services that cost _____ a year ago would be equivalent to _______ at the current price level.

A) $30,000, $30,900
B) $20,000, $20,900
C) $30,000, $33,000
D) $10,000, $10,600

Question 39

If the inflation rate, as measured by the CPI, over the past year was 4%, a basket of goods and services that cost _____ a year ago would be equivalent to _______ at the current price level.

A) $100,000, $140,000
B) $50,000, $50,400
C) $50,000, $52,000
D) $100,000, $100,400

Question 40

The CPI, which is a Laspeyres index, suffers from what economists call substitution bias. Thus, it tends to ______ the rate of inflation.

A) overstate
B) understate
C) not affect
D) none of the above

Question 41

The GDP deflator, which is a Paasche index, tends to ______ the rate of inflation.

A) overstate
B) understate
C) not affect
D) none of the above

Question 42

If the CPI changes from 106 in one year to 110 the next, the rate of inflation over that time period is

A) 4%.
B) 216%.
C) 103.77%.
D) 3.77%.

Question 43

If the CPI changes from 150 in one year to 160 the next, the rate of inflation over that time period is

A) 10%.
B) 106.66%.
C) 6.666%.
D) .06666%.

Question 44

If the CPI changes from 120 in one year to 132 the next, the rate of inflation over that time period is

A) 12%.
B) 10%.
C) 110%.
D) 1.10%.

Question 45

If the CPI changes from 120 in one year to 126 the next, the rate of inflation over that time period is

A) 5%.
B) 6%.
C) 105%
D) 1.05%.

Question 46

The labor force is composed of those who are

A) employed plus those that are not working.
B) employed plus those who are looking for work.
C) unemployed plus those who are looking for work.
D) employed plus those who would like to work but have given up looking for work.

Question 47

Times of high and rising unemployment tend to be unusually difficult for which of the following groups of workers?

A) Married men, spouse present.
B) teenagers and African-Americans.
C) whites.
D) women who maintain families.

Question 48

Suppose that real GDP is $8 trillion and the unemployment rate is 5.5%. If, over the next year, potential output grows by 2.5 percent and the unemployment rate decreases by 1 percentage point to 4.5%, real GDP will increase to

A) $8.20 trillion.
B) $8.08 trillion.
C) $8.28 trillion.
D) $8.40 trillion.

Question 49

Suppose that real GDP is $10 trillion and the unemployment rate is 5.5%. If, over the next year, potential output grows by 2.5 percent and the unemployment rate decreases by 1 percentage point to 4.5%, real GDP will increase to

A) $10.25 trillion.
B) $10.1 trillion.
C) $10.5 trillion.
D) $10.7 trillion.

Question 50

Which of the following is not a reason that Okun's Law coefficient is greater than one?

A) technological change occurs.
B) the unemployment rate does not count discouraged workers.
C) average hours of work per week increase as the economy comes out of a recession.
D) when business returns to normal, firms initially ask existing employees to work longer hours.

Question 51

If nominal GDP in 1998 was $8.7599 trillion; gross private domestic investment spending was $1.5312 trillion; government purchases were $1.5297 trillion; exports were $.9663 trillion; and imports were $1.1159 trillion, the level of consumption expenditures would be

A) $5.8486 trillion.
B) $3.6168 trillion.
C) $5.5494 trillion.
D) $5.6990 trillion.

Question 52

Which of the following is not in GDP but should be?

A) the value of intermediate goods.
B) production that takes place in the household.
C) depreciation.
D) sales of capital goods.

Question 53

Since 1948, the labor force participation rate has been

A) increasing for males and decreasing for females.
B) increasing for both males and females.
C) decreasing for males and increasing for females.
D) decreasing for both males and females.

Question 54

If nominal GDP was $10 trillion and the GDP deflator was 125, real GDP would be

A) $80 billion ($.08 trillion).
B) $1250 trillion.
C) $9.75 trillion.
D) $8 trillion.

Question 55

If real GDP was $10 trillion and the GDP deflator was 125, nominal GDP would be

A) $1250 trillion.
B) $12.50 trillion.
C) $9.75 trillion.
D) $8 trillion.

Question 56

Residential structures are a component of

A) consumption expenditures.
B) investment expenditures.
C) government expenditures.
D) net exports.

Question 57

Products that are in the process of production but are not finished and sold by the end of the year are counted as

A) a component of consumption expenditures.
B) a component of investment expenditures.
C) a component of government expenditures.
D) a component of net exports.

Question 58

Which of the following would not be considered a component of government expenditures?

A) Construction of a public school.
B) Construction of a public highway.
C) The purchase of a military aircraft.
D) A Social Security check sent to an individual.

Question 59

To calculate per capita real GDP, one should

A) divide real GDP by the number of employed persons.
B) divide real GDP by the labor force.
C) divide real GDP by the population.
D) divide real GDP by the number of households.

Question 60

Stock prices are not likely to increase if

A) investors expect long-run earnings to increase.
B) investors come to accept a higher level of risk.
C) investors become more risk averse.
D) interest rates decrease.

Question 61

Economists care about the real value of stocks because

A) stock market prices tend to be a good forecaster of future investment spending.
B) students are interested in the stock market.
C) stock market prices are a reflection of the prices of goods and services.
D) stock market prices are a good predictor of beef prices.

Question 62

If nominal GDP is equal to $10.5 trillion and real GDP is equal to $9 trillion, the GDP deflator is equal to

A) 1.5
B) 1.167
C) .857
D) 11.67

Question 63

NDP (Net Domestic Product) is a measure of the nation's output level that

A) includes gross investment spending and excludes government spending.
B) includes net investment spending and excludes depreciation.
C) includes net investment spending and excludes change in business inventories.
D) includes gross investment spending and excludes net exports.