Macroeconomics Machine-graded Assessment Items Module: Macroeconomic Measures of Performance

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1 Macroeconomics Machine-graded Assessment Items Module: Macroeconomic Measures of Performance Machine-graded assessment question pools are provided for your reference and are organized by learning outcome. It is your responsibility to handle this material securely and appropriately, with proper security to prevent the quiz questions and answers from being widely available and searchable via the Internet. Send any comments or feedback to Evaluate macroeconomic performance using indicators that include output measures, unemployment, and inflation Short Title: Macroeconomic Measures of Performance Define the term economic indicator Short Title: Economic Indicators Economic indicators: are data or statistics used to judge the current or future health of the economy* are largely collected and released by government or non- profit groups* enable analysis of economic performance* permit determination of business cycles* // Content page - Reading: Macroeconomic Perspective, Policy Implications of the Neoclassical Perspective The three types of economic indicators are: Leading, coincident, lagging indicators* Future, current, past indicators Forecast, performance, resultant indicators When quarterly data is annualized: it is divided by four. it is multiplied by four so that it can be reported at an annual rate.* there are projections made of future trends based upon the past. // Content Page Reading: Measuring Total Output One of the leading economic indicators, that is known to foretell an expansion is: Inflation. falling property values. falling number new federal unemployment claims.* rising price for precious metals.

2 // Content Page Readings: The Macroeconomic Perspective; Reading: Unemployment The economic indicators used to determine how the economy is doing are: measures of aggregate production* measures of employment and unemployment* measures of inflation* // Content Page Reading: The Macroeconomic Perspective Economic indicators that measure aspects of the aggregate economy include: GDP* Inflation* Dow Jones industrial average Spending in a macroeconomy includes: consumer durables.* import spending by its households. business investment in capital goods.* // Content Page Reading: The Macroeconomic Perspective Which of the following are flows, not stocks? The interest that you get from that loan you made* Your income* Your wealth The value of your home // Content Page Reading: The Macroeconomic Perspective; Reading: Measuring Total Output Which of the following measures is a macroeconomic flow? consumer wealth total export sales* total import spending* business inventories // Content Page Reading: Measuring Total Output The macro economy includes: all buying and selling all production all consumption 6.1.a.0 Identify the major economic indicators used to assess the state of the macroeconomy Short Title: Major Macroeconomic Indicators 6.1.a.1 In the US, information about employment or unemployment is collected and published by Bureau of Employment U.S. Department of Labor / Bureau of Labor Statistics* US. Commerce Department

3 When a pair of jeans is sold to the end user, it: adds to consumer spending.* detracts from business inventories.* represents investment. // Content Page Reading: The Macroeconomic Perspective 6.1.a.1 In the US, the Index of Leading economic Indicators is calculated and published by Bureau of Employment U.S. Department of Commerce* US. Department of Labor / Bureau of labor Statistics // Content Page Reading: The Macroeconomic Perspective 6.1.a.2 Which economic indicators are tracked/published by the U.S. Department of Commerce: Personal Income* Gross Domestic Product* Home Sales* Home Construction* Inventories* Business Sales* Rental Vacancy Rates* Home Ownership* Unemployment Rates Employment Rates Tax Rates Tariff Rates // Content page - Reading: The Macroeconomic Perspective 6.1.a.3 Which economic indicators are tracked/published by the US. Department of Labor Consumer Price Index* Producer Price Index* Consumer Expenditures* Unemployment* Employment* National Compensation* Wages* Productivity* Home Ownership Personal Income Rental Vacancy Rates // Content page - Reading: The Macroeconomic Perspectives Gross private domestic investment does NOT include: inventory added to the warehouse. spending on capital goods. spending to maintain the value of existing capital goods, including housing. spending on consumer durable goods.* // Content Page Reading: Calculating GDP

4 When the amount that other nations spend on American output is less than the amount that Americans spend on foreign output,: a trade surplus exists. a trade deficit exists.* net exports are positive. // Content Page Reading: Alternative Ways to Measure the Economy Explain GDP, including what it measures and what it excludes Short Title: Components of GDP Which of the following captures all the components of GDP? C + I + G C + I + G + M C + I + G + (X M)* // Content page - Reading: Calculating GDP Which of the following is most likely to contribute to economic growth as measured by GDP per capita? the imposition of tariffs and quotas on imported goods increased capital formation* rapid population growth* an increase in marginal tax rates // Content page - Reading: Measuring Total Output Intermediate goods eventually show up in GDP calculations indirectly as: durable goods spending. depreciation of fixed capital. value added to final goods.* purchases out of inventories. // Content Page Reading: Calculating GDP Final goods or services used to compute GDP refer to: the sum of all wages paid to laborers. the factors of production used to produce output. goods and services purchased by the ultimate users.* the value of outstanding shares of stock of manufacturing firms. // Content page - Reading: Measuring Total Output Which of the following is part of GDP? The purchase of your grandfather s old car by a neighbor. The purchase of a snow plough by the city of Minneapolis.* The unsold additions to inventory at an appliances store.* The purchase of a loaf of bread by a consumer* // Content page - Reading: Measuring Total Output // Updated 10/29/2015 answer choices edited Two major components of the GDP in terms of value in the US are consumer goods and? agricultural goods durable goods investment expenditures* // Content page - Reading: Measuring Total Output

5 Of the spending listed, the two sources most sensitive to business cycles are and. (select two) durables* business investment spending* non- durables exports // Content Page - Reading: Measuring Total Output What is investment used for? buying stocks building bridges* military spending // Content Page Reading: Link It Up on Measuring Total Output What is investment used for? Immediate satisfaction of wants. Improving productivity.* The production of capital goods.* Depleting inventories. // Content Page Reading: Link It Up on Measuring Total Output Which of the following is included in GDP? The payments for a chiropractor s services.* Cash paid to a babysitter that is not reported to the tax authorities. Your friend changes your brake pads for free. The fees for legal services rendered by your lawyer.* // Content page - Reading: Measuring Total Output Which of the following is included in GDP calculations? Cash received from a yard sale. ebay s commission for selling your used iphone.* The university tuition paid to enroll in a course.* The milk that is purchased by Ben & Jerry s in order to make their ice cream. // Content page - Reading: Measuring Total Output // Updated 10/29/2015 answer choices edited Which of the following is included in GDP? Revenue from the sale of a three- year old car. The fees charged for a stockbroker s services.* The tickets to a football game that were bought but never used.* // Content page - Reading: Measuring Total Output // Updated 10/29/2015 answer choices edited GDP does NOT directly include: the value of goods produced domestically and sold abroad. the value of intermediate goods sold during a period.* the value of services rendered during a period. the value of final goods and services produced, but not sold, during a period.

6 // Content page - Reading: Measuring Total Output Gross Private Domestic Investment (I) includes: the amount spent on new factories and machinery.* the amount spent on stocks and bonds. the amount spent on consumer durable goods the amount spent maintaining the nation s stock of capital equipment* // Content page - Reading: Measuring Total Output // Updated 10/29/2015 question and answer choices edited Fill in the blanks. GDP is a measure of societal well- being, because it. good : takes into account employment, production, and income levels good : omits the cost of keeping the environment clean bad : omits the cost of keeping the environment clean* bad : takes into account employment, production, and income levels // Content page - Reading: Measuring Total Output GDP is a controversial measure of national output because of what it includes and what it does not include. Test your understanding of GDP s limitations by identifying what GDP takes into account: spending on public goods.* returns to factors of production.* spending on used goods. income for those engaged only in the underground economy. // Content Page Reading: Calculating GDP Fill in the blanks. The expenditure approach to measuring GDP is the sum of and the income approach captures. consumption, investment, government, and net exports : personal disposable income, rent, interest, and profit wages, rent, interest, and profit : consumption, investment, government, and net exports consumption, investment, government, and net exports : wages, rent, interest, and profit* // Content page - Reading: Measuring Total Output In measuring GDP as sum of all incomes earned in production, we should include: wages and salaries* interest payments* purchases of used goods American purchases of foreign output // Content Page Reading: Calculating GDP A business cycle reflects changes in economic activity, particularly real GDP. The stages of a business cycle (in sequential order) are: trough, peak, expansion, recession contraction, recession, expansion, boom expansion, peak, recession, trough* // Content page - Reading: Measuring Total Output The United States will have a trade deficit as long as:

7 spending on the American economy is greater than what it can produce. spending by American households, businesses, and government is greater than GDP.* spending on the American economy is less that what it can produce. imports are greater than exports.* // Content Page - Reading: Measuring Total Output 6.2.a.0 Explain the expenditure approach to calculating GDP Short Title: Expenditure Approach to Calculating GDP 6.2.a.1 When calculating the GDP using the expenditure approach, what must happen to exports of a nation? They must be ignored, because they are not bought in the domestic market. They must be added to the other components of GDP.* They must be subtracted, because they are included in the consumption of a foreign country. They must be subtracted if foreign firms buy the exports for investment purposes. When calculating GDP as the sum total of all spending, the components of spending should include: purchases of consumer durables.* savings. government transfer payments. government purchases of labor, goods, and services.* // Content page - Reading: Calculating GDP 6.2.a.2 Which of the following would be included in the computation of GDP in a particular year? Government expenditure on public schools* Social security payments to retirees An increase in inventories* // Content page - Reading: Calculating GDP 6.2.a.3 GDP measured from the expenditure side include(s): Spending on capital goods* Tax payments Foreign spending on American output* Purchases of public goods and services* // Content page - Reading: Calculating GDP // Udpated 10/29/2015 answer choices edited Which of the following components of GDP has the largest immediate impact on GDP. Changes in 1. government spending 1. consumption spending* 1. business investment 1. services provision 6.2.b.0 Explain the national income approach to calculating GDP Short Title: National Income Approach to Calculating GDP 6.2.b.1 are now the largest single component of the supply side of GDP, representing over half of GDP. Durable goods Services* Nondurable goods

8 Structures // Content page - Reading: Calculating GDP Over the past 50 years, one component of spending has steadily gained: durable goods services* nondurable goods structures // Content page - Reading: Calculating GDP 6.2.b.2 The labor component of the national income approach to calculating GDP includes: Salaries* Wages* Health benefits* Retirement benefits* Unemployment Insurance* Hours worked Productivity Per capital labor data // Content page - Reading: Calculating GDP // Removed 9/18/2015 Financial investment can be distinguished from private investment by the fact that: financial investment always involves the creation of new capital. private investment always adds to the capital stock of the nation.* financial investment involves risk; private investment does not. // Content page - Reading: Calculating GDP When calculating GDP, investment refers to the: purchase of stocks and bonds and trading financial assets. amount of new capital goods sold in a given year. purchase of new capital goods like real estate, equipment, and inventories.* // Content page - Reading: Calculating GDP 6.2.b.3 Proponents of supply side approaches to economic growth will likely make the following statements? Tax reductions for consumers allow them to spend and save more, thereby increasing business investment. Favorable taxes for innovations by business owners decrease worker productivity and elevate citizen reliance on government support. Tax breaks to businesses increase employment and the production of more goods and services. Newly hired workers earn high incomes, and increase spending thereby benefitting other workers.* Government spending translates into higher levels of employment, production, incomes, and spending. // Content page - Reading: Measuring Total Output; Reading: Calculating GDP In calculating GDP, which component of spending must be subtracted from total spending to account for the fact that not all private or public spending by U.S. households is directed to U.S. businesses? domestic depreciation

9 export import* // Content Page Reading: Alternative Ways to Measure the Economy Describe the relationships among GDP, net domestic product, national income, personal income, and disposable income Short Title: GDP and Income Which of the following best describes economic growth? An increase in real personal income* A reduction in real personal income A decrease in real GDP over time An increase in nominal GDP over time // Content page - Reading: Alternative Ways to Measure the Economy Disposable Income refers to a households Consumption and savings* Income minus net taxes* Entertainment, spending, and consumption Credit card debt service and housing // Content page - Reading: Alternative Ways to Measure the Economy; Reading: Gross National Product What makes up the difference between net national product and gross domestic product? To arrive at Net National Product, start with GDP, then: add income receipts from rest of the world.* add income payments to the rest of world. subtract income payments to rest of the world.* subtract depreciation.* add depreciation. // Content Page Reading: Alternative Ways to Measure the Economy If depreciation equals $36 billion, GDP equals $240 billion, and national income is $225 billion, then what is the Net National Product? $204 billion* $189 billion $276 billion $361 billion // Content page - Reading: Alternative Ways to Measure the Economy Royal Caribbean Cruise Lines estimates that they will need to spend $80 million this year just to maintain their capital stock (a fleet of cruise ships) and offset depreciation. If Royal Caribbean behaves as the typical business does, as the macroeconomy encounters a recession, it will spend: $80 million on maintenance and also purchase a new ship. $80 million on maintenance, but will not add to its capital stock. less than $80 million on maintenance, perhaps deactivating some ships.* // Content Page Reading: Alternative Ways to Measure the Economy Explain how the unemployment rate is calculated

10 Short Title: The Unemployment Rate Calculate the unemployment rate based on the following data for a country: Population: 200, Employed workers: 140, Labor Force: 160, Discouraged workers: % %* % % // Content page - Reading: Calculating Unemployment If out of 125 people in the labor force, the number of employed workers is 100 and number of unemployed workers is 25, then the unemployment rate is 20%* 10% 30% 25% // Content page - Reading: Calculating Unemployment // Updated 10/29/2015 question and answer choices edited What is the formula with which to calculate the official unemployment rate? The number in the labor force divided by the population The number of unemployed workers divided by the sum of employed and unemployed workers* The number of discouraged workers divided by the number of civilian workers The number of people seeking work divided by the number quitting their jobs // Content page - Reading: Calculating Unemployment Reginald looked for work for six months but could not find a job to his liking. He now spends his time at the beach. For purposes of employment he is considered: out of the labor force.* unemployed. employed in the underground economy. underemployed. // Content page - Reading: Calculating Unemployment If the number of employed persons in a country equals 24 million, the number of unemployed persons equals 8 million, and the number of persons over age 16 in the population equals 40 million, the unemployment rate equals: 32% 25%* 20% 8% // Content page - Reading: Calculating Unemployment Calculation of the unemployment rate requires data on Percent of the adult population in the labor force who are unemployed.* Percent of the adult population who are unemployed. Percent of the adult population not in the labor force. // Content page - Reading: Calculating Unemployment 6.4.a.0 Critique the unemployment rate as a measure of the unemployment problem Short Title: Critiquing the Unemployment Rate 6.4.a.1 If the unemployment rate is 8 percent, then this means:

11 8 percent of the population is unemployed. 8 percent of the labor force is unemployed.* the number of unemployed persons equals 8 percent of the employed persons. // Content page - Reading: Difficulties Measuring Unemployment 6.4.a.2 Which of the following could cause unemployment? a depression* a prolonged war competition* // Content page - Reading: Difficulties Measuring Unemployment Some critics of the unemployment rate say that it under- reports the actual unemployment problem by: overlooking people who are working in the informal (underground) economy. not capturing instances when skills are underutilized by the workplace.* considering discouraged workers to be out of the labor force.* including people who are working in the informal (underground) economy. // Content Page Reading: Criticisms of Measuring Unemployment 6.4.a.3 Complete the following sentence. Calculations of the official unemployment rate exclude: labor force employed discouraged workers* unemployed, but seeking work // Content page - Reading: Criticisms of Measuring Unemployment Identify and differentiate between the different types of unemployment Short Title: Types of Unemployment Bill is a construction worker who was laid off because the market for new homes has been adversely affected in the recession. Bill s unemployment experience is referred to Cyclical unemployment* Seasonal unemployment Frictional unemployment Structural unemployment // Content page - Reading: Types of Unemployment Fill in the blank. If the print media is taken over by the electronic media, thereby causing employees in the print media industry to be permanently laid off, unemployment would increase. Cyclical Seasonal Frictional Structural* // Content page - Reading: Types of Unemployment When the macroeconomy is experiencing a higher than natural rate of unemployment, it must be because: potential real GDP is less than current real GDP. current real GDP Is less than potential real GDP.* wages cannot adjust downward quickly and easily.* wages respond instantaneously to labor market shifts. // Content Page Reading: Changes in Unemployment Over the Long Run

12 A contraction in the business cycle is likely to result in which form of unemployment increasing? frictional cyclical* seasonal structural // Content page - Reading: Changes in Unemployment Over the Short Run // Updated 10/29/2015 question edited Which form of unemployment suggests workers need to seek education and training and to update their skill sets? Functional Cyclical Structural* Seasonal // Content page - Reading: Types of Unemployment Employment generally during recessions and during expansions. falls : rises* rises : falls rises : rises // Content page - Reading: Patterns of Unemployment When prices do not respond quickly to bring forces of supply and forces of demand to the equilibrium point, they are called: sticky prices.* market prices. market structure prices. // Content page - Reading: Changes in Unemployment over the Short Run Which types of unemployment exist at all times, and determine the natural rate of unemployment? I. frictional unemployment II. structural unemployment III. cyclical unemployment 1. I & II* 1. II & III 1. I & III // Content page - Reading: Types of Unemployment Which types of unemployment exist at all times and determine the natural rate of unemployment? Frictional unemployment and structural unemployment.* Structural unemployment and cyclical unemployment. Frictional unemployment and cyclical unemployment. // Content page - Reading: Types of Unemployment Frictional unemployment occurs because it takes for people to find jobs. time* money resources // Content page - Reading: Types of Unemployment

13 The idea that firms will get the most for their money when they pay wages higher than the equilibrium wage is called: efficiency- wage theory.* optimal- wage theory. equilibrium- wage theory. // Content page - Reading: Changes in Unemployment over the Short Run // Updated 10/29/2015 question edited A welder who quits his job and moves from Pittsburgh to Madison to try to get a better welding job is said to be: frictionally unemployed.* underemployed. cyclically unemployed. structurally unemployed. // Content page - Reading: Types of Unemployment If a nation s labor force receives a significant influx of young workers: the natural rate of unemployment is likely to increase.* the natural rate of unemployment is likely to decrease. the natural rate of unemployment is unlikely to change frictional unemployment will likely decrease to zero. // Content page - Reading: Changes in Unemployment over the Long Run Workers hired during the US holiday season lower: cyclical unemployment * the natural rate of unemployment seasonal unemployment* frictional unemployment // Content Page Reading: Changes in Unemployment Tom graduated from college in June but was still looking for work in August. This is an example of: structural unemployment. frictional unemployment.* cyclical unemployment. // Content page - Reading: Types of Unemployment Explain the concept of a price index and explain how price indices are derived Short Title: Price Indexes When Anders took out his first two- year membership with Maxima Gym in 2004, the fee was $ He renewed his membership three times: in 2006 for $580.00, in 2008, for $600.00, and again in 2010, for $ What is the overall rate of inflation for Anders s gym membership? 8.6% 5.4% 7.87% 16.66%* // Content page - Reading: Price Indexes In only one year the consumer price index goes up from 150 to 450. This means that: the inflation rate was less than 200%. the inflation rate was over 200%. prices doubled.

14 prices tripled.* // Content Page Reading: Price Indexes Inflation can be calculated in terms of how the overall cost of changes over time. all goods a basket of goods * all goods and services all services // Content page - Reading: Price Indexes One factor that complicates the calculation of the inflation rate is: substitution (quality/new product) bias.* preferential bias. complementary product bias. consumer behavior bias. // Content page - Reading: Price Indexes // Updated 10/29/2015 question and answer choices edited If you have $100 cash and the price level rises two percent, then which of the following statements is true? The value of $100 is more in terms of what it can purchase. The value of $100 is less in terms of what it can purchase.* The value of $100 is the same in terms of what it can purchase. // Content page - Reading: Price Indexes You loan $100 to a friend for one year, during which the CPI rose by 3%. Your friend, in gratitude for your loan, repays you $103 at the end of the year. She has repaid you: more, in terms of purchasing, than what she borrowed less, in terms of purchasing power, that what she borrowed the same, in terms of purchasing power, as what she borrowed.* // Content Page Readings: Price Indexes; Reading: The CPI and the PCE 6.6.a.0 Define the consumer price index and the producer price index Short Title: Consumer Price Index vs. Producer Price Index 6.6.a.1 The percentage change in the price level from one time period to the next, will be the. inflation rate* price index rate consumer price index producer price Index // Content page - Reading: The CPI and PCE 6.6.a.2 Which is the largest expenditure category in the US CPI? apparel entertainment housing* transportation // Content page - Reading: Changes in the Cost of Living 6.6.a.3 The Producer Price Index is based on prices paid for supplies and inputs by: consumers

15 producers of goods and services* government the small business sector // Content page - Reading: Changes in the Cost of Living 6.6.a.4 Which of the following is the name used to describe the price index that consists of intermediate goods and finished goods? Producer Price Index * Consumer Price Index Employment Cost Index Processing Price Index // Content page - Reading: Changes in the Cost of Living 6.6.b.0 Calculate a price index number given a basket of goods & services and the nominal price of each in a base year and at some later time Short Title: Calculating Price Indexes 6.6.b.1 If the price index moves from 107 to 110, the rate of inflation is: 3% 30% 28% Less than 3%* // Content page - Reading: Tracking Inflation // Updated 10/29/2015 answer choice edited A student of economics wants to compare total oil production in his state to what it was 40 years ago. All oil records are nominal: expressed in the dollars with the value that they had at that time. Oil output went from $250 billion to $300 billion over a period of time when the GDP deflator went up by 20% to reflect higher prices in general. During this period of time, state oil output in real terms: Decreased. did not change.* increased. // Content Page Reading: Computing the Level of Inflation ; Reading: Tracking Inflation 6.6.b.2 An analyst needs to adjust the nominal GDP for the years 2000 and 2010 into real terms. The nominal GDP in 2000 was $672 billion and $1,690 billion for 2010; the real interest rate was 6.79% in 2000 and 3.71% in 2010; the 2000 deflator was 24 and 51 in What is the growth rate of real GDP? 96.00%* 38.58% % 70.61% // Content page - Reading: Price Indexes; Reading: The CPI and PCE; Reading: How Changes in the Cost of Living Are 6.6.b.3 In Fairwind Country, there are only 4 goods: tourism, popcorn, carrots, and berries. The following chart shows the prices and quantities of these 4 categories in 1985, 2005, and The average family purchased the following market basket : 2 units tourism, 25 units popcorn, 10 units carrots, and 15 units berries. Use 1985 as the base year. Calculate the market basket values for 1985, 2005, and

16 P Q P Q P Q Tourism $ $ $ Popcorn $ $ $ Carrots $ $ $ Berries $ $ $ : $67,750; 2005: $92,563; 2015: $139, : $106,641; 2005: $159,750; 2015: $278, : $280, 2005: $485, 2015: $670* 1985: $1235, 2005: $1576; 2015: $2, : $130, 2005: $185, 2015: $270 // Content page - Reading: How Changes in the Cost of Living Are Measured 6.6.b.4 In Fairwind Country, there are only 4 goods: tourism, popcorn, carrots, and berries. Using the data in the following table, please calculate the CPI values for 2005 and 2015, using 1985 as a base year. The CPI basket includes 500 units of tourism, 600 units of popcorn, 1500 units of carrots and 1250 units of berries. (Please round to the nearest whole number) P Q P Q P Q Tourism $ $ $ Popcorn $ $ $ Carrots $ $ $ Berries $ $ $ : 137, 2015: :137, 2015: : 128, 2015: 176 * 2005: 128, 2015: : 142, 2015: : 142, 2015: 146 In Fairwind Country, there are only 4 goods: tourism, popcorn, carrots, and berries. Using the data in the following table, please calculate the CPI values for 2005 and 2015, using 1985 as a base year. The average family purchased the market basket indicated by the columns "Items" and "Quantity." Items Quantity Year: 1985 Year: 2005 Year: 2015 Price Amount Spent Price Amount Spent Price Amount Spent

17 Tourism 2 $ $ $ Popcorn 25 $4.00 $5.00 $7.00 Carrots 10 $0.75 $2.25 $3.50 Berries 15 $1.50 $2.50 $4.00 Total 2005:137, 2015: : 128, 2015: 176 * 2005: 128, 2015: : 142, 2015: 208 // NEW // Content Page Reading: How Changes in the Cost of Living Are Measured in- the- cost- of- living/ Define the rate of inflation; Explain how the rate of inflation is calculated Short Title: Rate of Inflation If the Consumer Price Index was at the end of last year and at the end of this year, the country experienced which of the following? An inflation rate of 3.59 percent. An inflation rate of 3.72 percent. A deflation rate of 3.59 percent.* A deflation rate of 3.72 percent. // Content page - Reading: Computing the Rate of Inflation If the Consumer Price Index was 120 at the end of last year and 125 at the end of this year, Americans experienced which of the following? Inflation* Deflation A decrease in the purchasing power of a dollar* A rise in the purchasing power of a dollar // Content page - Reading: Introduction to Inflation // Updated 10/29/2015 question and answer choices edited Inflation: is an increase in the cost of a given basket of goods.* means that the price of every good and service is rising. reduces the real value of anything expressed in dollars.* can occur even when many goods are falling in price.* // Content page - Reading: Changes in the Cost of Living; Reading: Price Indexes // Updated 10/29/2015 answer choices edited Identify the consequences of price instability (i.e., inflation) Short Title: Consequences of Price Instability During the 1970s when inflation accelerated, middle- class Americans benefited primarily because nominal wages fell. the value of their mortgage debts decreased in real terms.*

18 inflation always benefits the middle class. // Content page - Reading: Why Care About Inflation // Updated 10/29/2015 answer choices wording improved Inflation makes certain things less valuable in real terms, including: anything expressed in dollars.* real estate and precious metals. a fixed monthly pension payment.* your full college scholarship. // Content page - Reading: The Confusion over Inflation // Updated 10/29/2015 question and answer choices edited The redistribution of purchasing power due to unexpected inflation benefits: Elderly persons on pensions with cost- of- living adjustments. Home buyers with adjustable rate mortgages. Students with fixed- rate educational loans.* Lenders. // Content page - Reading: Why Care About Inflation // Updated 10/29/2015 answer choices edited Inflation increases uncertainty in the markets because: sellers raise the prices of their products very gradually and predictably. consumers must put more effort into shopping to find the best price. * it is more difficult to stay aware of how one product compares in cost to another.* // Content page - Reading: Why Care About Inflation; Reading: The Confusion over Inflation // Updated 10/29/2015 question and answer choices edited Use a price index to translate between real and nominal data Short Title: Price Indexes and Real Data David s pay last year was $100,000. His pay this year increased to $115,000. The consumer price index increased from 100 to 115 over the same time period. What has happened to David s real income from last year to this year? David s real income is unchanged. * David s real income increased. David s real income decreased. // Content Page Reading: Computing Real Values Using Price Indexes Kim s nominal income is $75,000. If the consumer price index is 75, Kim s real income is $ 100,000 * $ 56,250 $ 75,075 // Content page - Reading: Computing Real Values Using Price Indexes Julie received a 10% wage increase while consumer prices rose by 3%. How much did Julie s real wage increase in nominal and real terms? 10% nominally, but only 3% in real terms 7%*in real terms, but 10% nominally* 13% nominally, but 10% in real terms 3% in real terms, but 10% nominally // Content page - Reading: Computing Real Values Using Price Indexes // Updated 10/29/2015 question and answer choices edited

19 Define the GDP price index (also known as the GDP deflator or the Implicit Price Deflator) Short Title: Defining the GDP Price Index If the nominal GDP is $3 trillion and the GDP deflator is 120, then what is the real GDP? $2.5 trillion* $0.25 trillion $4 trillion $400 trillion // Content page - Reading: The Implicit Price Deflator Which of the measures below describes a basket of goods comprised of all the components of GDP? Consumer Price Index Core CPI GDP Deflator* // Content page - Reading: The Implicit Price Deflator // Updated 10/29/2015 question and answer choices edited The GDP deflator is a price index that includes the following components of GDP: Consumption Consumption plus Investment but not Exports Consumption, Investment plus Exports minus Imports Consumption, Investment, Government plus Exports minus Imports* // Content page - Reading: How Changes in the Cost of Living Are Measured Alex wants to measure the nominal 1998 GDP of $993 billion in 2008 dollars. From the data he gathered, he knows the deflator for 1998 is 30 and for 2008, it is 74, and that real interest in those years was 6.23% and 3.21% respectively. If he avoids making a misleading calculation, what will the value be? $430 billion $835 billion $2,063 billion $2,449 billion* // Content page - Reading: Price Indexes and the Implicit Price Deflator In the base year in a small island macroeconomy, nominal GDP was $400m. In a later year when the general level of all prices was twice as high, nominal GDP reached $1000m. Between the base year and the later year: there was real GDP growth, but by less than 100%.* there was real GDP growth by more than 100%. real GDP declined. inflation occurred.* // Content Page Reading: Introduction to Inflation Differentiate between nominal GDP and real GDP Short Title: Nominal and Real GDP Which of the following statements regarding nominal GDP is accurate? The expenditure approach to GDP includes disposable income. Nominal GDP presents a dollar amount adjusted for inflation Nominal GDP is the value of final goods and services produced in an economy at a point in time Nominal GDP:

20 is sensitive to changes in prices.* is sensitive to changes in real output.* can be meaningfully compared from one year to the next without price level data. // Content Page - Reading: Real GDP Which of the following best defines real GDP? Real GDP is defined as the total dollar value of final goods and services produced within a country in one year before adjustment for inflation. Real GDP is defined as the current total dollar value of final goods and services produced within a country. Real GDP is defined as the total dollar value of final goods and services produced within a country in one year after adjustment for inflation.* // Content page - Reading: Real GDP The distinction between real GDP and nominal GDP is important to determine which of the following? The change in economic welfare. The growth in the government sector. The change in real GDP per person. The change in real output produced.* // Content page - Reading: Converting Nominal to Real GDP // Updated 10/29/2015 answer choices edited The difference between nominal GDP and real GDP is: nominal GDP measures actual productivity nominal GDP adjusts for inflation real GDP adjusts for inflation* real GDP excludes imports and exports // Content page - Reading: Converting Nominal to Real GDP The following table shows the production within a very small country s economy in two consecutive years. What was the real GDP for the base year of 2017? Year Item Quantity Produced Price Per Unit 2017 Oranges 1000 pounds $ Haircuts 2000 haircuts $ Oranges 1500 pounds $ Haircuts 3000 pounds $7.50 $11,000* $12,500 $16,500 // Content page - Reading: Converting Nominal to Real GDP // Updated 10/29/2015 question edited The following table shows the production of a country s economy in two consecutive years. What was the real GDP for year 2018? Year Item Quantity Produced Price Per Unit 2017 Oranges 1000 pounds $1.00

21 2017 Haircuts 2000 haircuts $ Oranges 1500 pounds $ Haircuts 3000 pounds $7.50 $16,500 $15,000 $23,250* $22,500 // Content page - Reading: Converting Nominal to Real GDP // Updated 10/29/2015 question and answer choices edited The following table shows Tropicalia Äôs production in two consecutive years. The rate of (real) GDP growth in year 1998 relative to year 1997 is Year Item Quantity Produced Price Per Unit 1997 Oranges 1000 pounds $ Haircuts 2000 haircuts $ Oranges 1500 pounds $ Haircuts 3000 pounds $ % % 1. 20% // Content page - Reading: Converting Nominal to Real GDP The national debt doubled in nominal terms during a time when the GDP Deflator increased from 200 to 300. This implies that the national debt: is smaller in real terms. has increased in real terms, but it has less than doubled.* has more than doubled in real terms. // Content Page Reading: Converting Nominal to Real GDP 6.11.a.0 Use the GDP price index to compute real GDP from nominal GDP Short Title: Converting Nominal to Real GDP 6.11.a.1 If Nominal GDP = $4.5 trillion and the GDP deflator is 150, then real GDP is equal to: $3 trillion.* $4.3 trillion. $6 trillion. // Content page - Reading: Converting Nominal to Real GDP // Updated 10/29/2015 question and answer choices edited 6.11.a.2 Suppose the European Union has a Real GDP of 12.2 trillion Euros, and their GDP deflator is 125. What is the European Union s nominal GDP? trillion Euros * trillion Euros

22 trillion Euros // Content page - Reading: Converting Nominal to Real GDP 6.11.a.3 If Nominal GDP is $17,000 billion and the GDP deflator is 0.75, then Real GDP is: $22.67 billion * $12.75 billion $16.50 billion // Content page - Reading: Converting Nominal to Real GDP Measure the distribution of income using the Lorenz curve Short Title: The Lorenz Curve What is the image below? (img: us- west- 2.amazonaws.com/oerfiles/Assessments/economics/gates- outcome- 6- lorenz.png) income curve inequality curve Lorenz Curve* // Content page - Reading: The Lorenz Curve The image below shows: the inequality of the American capitalist system. distribution of income among groups of people.* the impact on unions on wage earners.

23 // Content page - Reading: The Lorenz Curve A Lorenz curve refers to a graphic illustration of the share of population on the and the cumulative percentage of total income received on the. horizontal axis : vertical axis* left quintile : right quintile vertical axis : horizontal axis // Content page - Reading: The Lorenz Curve Incomes rise for low- income and high- income workers, but rise more for the high- income earners. How will this change affect income inequality? 1. poverty falls, inequality rises* 1. poverty rises, inequality falls 1. no change // Content page - Reading: The Lorenz Curve When real incomes rise for the rich more rapidly than they rise for those with lower incomes? Poverty falls but inequality rises.* Poverty rises but inequality falls. The Lorenz curve will reflect the change with a greater bow. * The Lorenz curve will reflect the change with a smaller bow. // Content page - Reading: The Lorenz Curve A Lorenz curve shows: what percentage of a population has incomes below the poverty line. how a population s total income is distributed in relative terms among its members.* how income mobility has changed over time. // Content page - Reading: The Lorenz Curve // Updated 10/29/2015 answer choices edited

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