Question 1

Which one of the following will NOT benefit from a decrease in the rate of inflation?

Accepted Answer

A firm that has borrowed money at a fixed nominal interest rate will not benefit from a decrease in inflation because the real cost of its debt payments will increase, making it more expensive in real terms to repay the loan.

Question 2

By _____ the real value of payments that must be made, an increase in inflation typically is _____ for the borrowers in the economy.

Accepted Answer

Inflation reduces the real value of money over time, meaning the amount borrowers have to pay back is worth less in real terms. This generally benefits borrowers as they pay back less in real value than they borrowed.

Question 3

Suppose that a can of soda cost 30 cents in 1970 and the Consumer Price Index (CPI) in 1970 was 36. If the CPI in 2016 was 240, then the price of the can of soda in 2016 was:

Accepted Answer

To adjust the price from 1970 to 2016 using the CPI, you use the formula: Price in 2016 = (Price in 1970) * (CPI in 2016 / CPI in 1970). Substituting the given values: Price in 2016 = 0.30 * (240 / 36) = 0.30 * 6.67 = $2.00.

Question 4

Suppose that a can of soda cost 30 cents in 1970 and an identical can cost $2.00 in 2016. If the Consumer Price Index (CPI) in 1970 was 36, then the CPI in 2016 was:

Accepted Answer

The CPI is a measure of the average change in prices over time. To find the CPI in 2016, we use the formula: (Price in 2016 / Price in 1970) * CPI in 1970 = CPI in 2016. So, ($2.00 / $0.30) * 36 = 240.

Question 5

If the Consumer Price Index (CPI) in 2016 was120, then compared to the base year the inflation rate has been ____ percent.

Accepted Answer

The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. The base year CPI is typically set to 100. Therefore, a CPI of 120 means that there has been a 20% increase in the level of prices compared to the base year.

Question 6

If the Consumer Price Index (CPI) in 2015 was 243 and the CPI in 2016 was 248, then the inflation rate between 2015 and 2016 was _____ percent, and the inflation rate between the base year and 2016 was _____ percent.

Accepted Answer

The inflation rate from 2015 to 2016 is calculated as [(248 - 243) / 243] * 100 = 2.05%. The inflation rate from the base year (assuming a base CPI of 100) to 2016 is [(248 - 100) / 100] * 100 = 148%.

Question 7

During the great recession of 2007 to 2009, the U.S unemployment rate increased to about 10.2 percent. A big part of the increase in unemployment during this recession can be attributed to an increase in the _____ unemployment.

Accepted Answer

Cyclical unemployment is directly related to the rate of growth in the economy and occurs when there is not enough demand for goods and services in the economy to provide jobs for everyone who wants to work. During the Great Recession, the significant downturn in economic activity led to a decrease in demand for goods and services, resulting in higher cyclical unemployment.

Question 8

If an economy has a total labor force of 1,500 and there is a 5 percent unemployment rate, then how many workers are employed?

Accepted Answer

The unemployment rate is 5%, meaning 5% of the labor force is unemployed. Therefore, 95% of the labor force is employed. 95% of 1,500 is 1,425.

Question 9

Which one of the following transactions will be included in the GDP of a country?

Accepted Answer

Gross Domestic Product (GDP) measures the market value of all final goods and services produced within a country in a given period. The purchase of goods and services made in the country by people living abroad (exports) is included in GDP calculations, as it represents production within the country. Choices A, C, and D are not included in GDP calculations: A) because the purchase of stocks and bonds is a financial transaction, not a purchase of goods or services; C) because volunteer work does not involve a market transaction and is not paid for; and D) because GDP does not deduct for environmental degradation.

Question 10

If a country has a GDP of $10,000, consumer spending of $6,000, investment spending of $1,000, and government spending of $4,000, then the country's exports are _____ than the imports.

Accepted Answer

The GDP (Gross Domestic Product) is calculated as the sum of consumer spending, investment spending, government spending, and net exports (exports minus imports). Given the GDP is $10,000, consumer spending is $6,000, investment spending is $1,000, and government spending is $4,000, the sum of these components is $11,000, which is $1,000 more than the reported GDP. This means that imports exceed exports by $1,000 to balance the equation, making the correct answer that exports are $1,000 less than imports.

Question 11

If a country has a GDP of $10,000, consumer spending of $6,000, investment spending of $1,000, government spending of $4,000, and exports of $2,000, then its imports must be:

Accepted Answer

The GDP (Gross Domestic Product) of a country is calculated using the formula: GDP = C + I + G + (X - M), where C is consumer spending, I is investment spending, G is government spending, X is exports, and M is imports. Plugging in the given values: $10,000 = $6,000 + $1,000 + $4,000 + ($2,000 - M). Solving for M, we find that imports (M) must be $3,000 to balance the equation.

Question 12

If a country has a consumer spending of $6,000, investment spending of $3,000, government spending of $3,000, imports of $1,000, and exports of $2,000, then the country's GDP is:

Accepted Answer

GDP is calculated as the sum of consumer spending, investment spending, government spending, plus exports, minus imports. Therefore, GDP = $6,000 + $3,000 + $3,000 + $2,000 - $1,000 = $13,000.

Question 13

In which of the following cases can it be certain that a country's production increases?

Accepted Answer

An increase in real GDP indicates a rise in the volume of goods and services produced in a country, adjusting for inflation, which directly reflects an increase in production. Nominal GDP changes can result from price level changes rather than actual production changes.

Question 14

Which of the following statements is true?

Accepted Answer

Real GDP is adjusted for inflation and reflects the volume of production. If real GDP is constant, it means the quantity of goods and services produced in the economy remains unchanged, regardless of changes in price levels.

Question 15

If a country's real GDP is constant over time, then:

Accepted Answer

Real GDP is adjusted for inflation and reflects the value of all goods and services produced in an economy in a given year, measured in base-year prices. If real GDP is constant, it means the physical volume of production has not changed, regardless of inflation or deflation rates.

Question 16

A worker had a nominal income of $10,000 in the year 2000, and the Consumer Price Index (CPI) for the year 2000 was 100. If there was inflation of 10 percent between 2000 and 2017 and the worker's nominal income did not change, then the real income of the worker in 2017 dollars was:

Accepted Answer

The real income in 2017 can be calculated by adjusting the nominal income for the inflation rate. Since the CPI increased by 10% from 2000 to 2017, the real income in 2017 dollars would be $10,000 / (1 + 0.10) = $9,090.90.

Question 17

A worker has a nominal income of $10,000 in the year 2000, and the Consumer Price Index (CPI) for 2000 was 100. If the worker's nominal income remained unchanged in 2001 but the real income increased to $10,050, then the CPI for 2001 is _____, and there has been _____ in the economy.

Accepted Answer

Real income is calculated as (Nominal Income / CPI) * 100. If real income increases while nominal income remains the same, it means the CPI has decreased, indicating deflation. The CPI for 2001 is calculated as (10000 / 10050) * 100 = 99.50.

Question 18

A worker has a nominal income of $10,000 in the year 2000, and the CPI for 2000 was 100. If the worker's nominal income remained unchanged in 2001 but the real income increased to $10,050, then we can conclude that the economy experienced _____ percent between 2000 and 2001.

Accepted Answer

The real income increased while the nominal income remained the same, indicating that the purchasing power of the money increased, which happens during deflation. The increase from $10,000 to $10,050 is a 0.5% increase in real terms, suggesting a 0.5% deflation rate.

Question 19

For the following transactions, explain why each should or should not be included in the calculation of a U.S GDP for the year 2017.
a. a car that is manufactured in Detroit in 2017 but is exported to Canada
b. the income in 2017 of an Indian professor who teaches at a university in Texas
c. a student who purchases a used car in 2017
d. a car manufacturer that buys aluminum from a firm to use it to manufacture cars
e. the amount that the federal government spends in 2017 to aid the recovery efforts after a hurricane in Florida

Accepted Answer

The answer of For the following transactions, explain why each...

Question 20

Refer to the table Spending Data for Stewarton 2018 for fictional 2018 data for the nation of Stewarton. Use the data to calculate the GDP of Stewarton in 2018.
Table: Spending Data for Stewarton 2018

Accepted Answer

The answer of Refer to the table Spending Data for...

Quiz 13: Measuring an Economys Performance