Download c.both the total income in the economy and the total expenditure on

GDP & CPI Review
1. Gross Domestic Product measures:
• a.the total income in the economy, but not the
total expenditure on the economy's output.
• b.the total expenditure on the economy's output,
but not the total income in the economy.
• c.both the total income in the economy and the
total expenditure on the economy's output.
• d.neither the total income in the economy nor
the total expenditure on the economy's output.
2. Assume households purchase all
greeting cards. In calculating GDP, the
government will include the value:
• a.of all the paper as well as all the greeting cards
produced in the economy.
• b.of all the greeting cards but of none of the paper.
• c.of all of the greeting cards and any paper that is
added to inventory.
• d.of some of the greeting cards and all of the paper.
3. For the purposes of national accounting,
'Investment' can be defined as:
• a.depositing money in Certificates of Deposits
(CDs) or Money Market accounts.
• b.purchases of stocks and bonds.
• c.spending on capital equipment, inventories,
and structures.
• d.putting money away in a 401K pensions
fund system.
4. For the purpose of national accounting,
'Consumption' refers to the:
• a.spending done by households on everything
except house purchases.
• b.wear and tear through the normal use of
machinery and equipment.
• c.way Tuberculosis used to be called in the 19th
century, at the time when economists were
figuring out national accounting standards.
• d.wear and tear of highways and infrastructure
through normal use.
5.'Net Exports' are the nation's:
• a.exports minus imports of goods only.
• b.exports minus imports of goods and
services.
• c.imports minus exports of goods only.
• d.imports minus exports of goods and
services.
6.The 'Government Purchases' category of
GDP includes all government spending on
goods and services:
•
•
•
•
a.including transfer payments.
b.except transfer payments.
c.excluding local government spending.
d.excluding state government spending
7.If Nominal GDP increased from $1.0
trillion in 2000 to $1.2 in 2005, we:
• a.can say that output increased by 20% in the
economy through that period.
• b.can say that prices increased by 20% in the
economy through that period.
• c.don't have enough information from this to
determine how much output actually
increased in the economy.
• d.can say that output increased by 20% in the
economy compared to the base year.
8.If the Nominal GDP is $1.6 trillion,
and the Real GDP is $1.0 trillion, the
GDP deflator is:
•
•
•
•
a.160
b.162.5
c.164
d.137.5
9. An economy produces cheese and fish. In 2005, 20 units of
cheese are sold at $5 each, and 8 units of fish at $50 each. In
2004, the base year, the price of cheese was $10/unit and fish
$75/unit. For 2005,
• a. nominal GDP is $800, real GDP is $500 and
GDP deflator is 160
• b. nominal GDP is $500, real GDP is $800 and
GDP deflator is 160
• c. nominal GDP is $500, real GDP is $800 and
the GDP deflator is 62.5
• d. nominal GDP is $800, real GDP is $500 and
the GDP deflator is 62.5
10.To fix the basket for the CPI, the
Bureau of Labor Statistics:
• a.sets up a committee that decides, based on its
own experience, what items will be in the basket.
• b.reviews the things produced in our economy
and selects some of these to include in the
basket.
• c.reviews national expenditure patterns in the
economy, and selects a basket that reflects these
patterns.
• d.surveys a large number of consumers to find
what they buy, then fixes a basket based on its
findings.
11.Suppose the cost of the basket in 2005
was $3,300, and the cost of the basket in
the base year was $3,000. Find the CPI for
2005.
•
•
•
•
a.100
b.909
c.110
d.115
12.Suppose the CPI at the end of 2004 was
150 and the CPI at the end of 2005 was
165. Calculate the inflation rate for 2005.
•
•
•
•
a.15%
b.10%
c.65%
d.20%
13.Suppose the cost of the basket in
2005 was $4,200 and the cost of the
basket in the base year was $4,000.
•
•
•
•
a.The CPI for 2005 is 105.
b.The inflation rate for 2005 was 5%.
c.The inflation rate for 2004 was 5%.
d.We cannot discern anything from the data
provided.
14.Suppose the cost of the basket at the
end of 2002 was $5,500, and at the end of
2003 it was $5,775. If the cost of the basket
in the base year was $1,000, find the
inflation rate for 2003.
•
•
•
•
a.27.5%
b.25.0%
c.10.0%
d.5.0%
15.According to the surveys of the
Bureau of Labor Statistics, the biggest
spending item of households is:
•
•
•
•
a.food and beverages.
b.housing.
c.transportation.
d.medical care.
16.All of the following cause the CPI to
measure more inflation than there
really is, EXCEPT:
•
•
•
•
a.substitution bias.
b.introduction of new goods.
c.unmeasured quality change.
d.the steady increase in the number of
consumers.
17.Suppose the price of fish increases,
so households now buy less fish and
more chicken. This will cause the:
• a.CPI to measure more inflation than there
really is.
• b.CPI to measure less inflation than there
really is.
• c.PPI to measure less inflation than there
really is.
• d.GDP deflator to measure less inflation than
there really is.
18.Which of the following statements
is true?
• a.The GDP deflator considers only a basket of
goods, while the CPI considers everything
produced.
• b.The GDP deflator includes imports, while the
CPI does not.
• c.The GDP deflator uses a fixed bundle of goods,
while the CPI uses a changing bundle of goods.
• d.The GDP deflator measures the inflation of
everything produced in the nation, while the CPI
measures the inflation of the goods typically
bought by households.
19.If John earned $30,000 in 1990, how
much would that be worth in today's
dollars? Suppose the CPI was 160 in 1990
and is 220 today.
•
•
•
•
a.$21,818
b.$50,000
c.$41,250
d.$11,250
Tie Breakers
Answer the following questions
concisely
Short Response #1
• Explain whether this statement is true, false or
uncertain: “To ignore the production of
intermediate goods when measuring the total
product of a country means ignoring the work,
the efforts and the incomes of millions of citizens.
This is a mistake and can be rectified only by
including intermediate goods production in GDP
figures.”
– Idea behind your response: intermediate goods are
worked into the final price
– To count intermediate goods would be to double
count them
Short Response #2
• Explain the statement “A man diminishes GDP
by marrying his cook.”
– The cook is paid for a service provided
– This goes into GDP as consumption
– By getting married, the “cook” is now doing work
around her own house, excluded from GDP