Final Practice Multiple Choice Multiple Choice Identify the letter of the choice that best completes the statement or answers the question. ____ 1. The goal of macroeconomics is a. to explain how economic changes affect prices of particular goods. b. to devise policies to deal with market failures such as externalities and monopoly. c. to explain changes that affect households and firms in general. d. None of the above are correct. ____ 2. GDP is computed using market prices as the value of final goods and services because a. market prices don't change much, so it is easy to make comparisons between years. b. if market prices are out of line with how people value goods, the government sets ceilings and floors on them. c. market prices reflect the value of goods and services. d. None of the above are correct; the government does not use market prices to compute GDP. ____ 3. Roommates Grace and Kelly are sharing household chores and think they have an even exchange. Other things the same, if instead they paid each other for the chores the other did GDP would a. rise. b. fall. c. be unaffected because paid or not, household chores are not included in GDP. d. be unaffected because paid or not, household chores are included in GDP. ____ 4. A movie company makes 500,000 DVDs of one of its latest releases. It sells 300,000 of them before the end of the second quarter, and holds the others in its warehouse. a. Since the DVDs will eventually be bought by consumers, they are included as consumption in the second quarter. b. Since the DVDs were not purchased this quarter, they will be counted as an increase in third-quarter GDP. c. The DVDs will be counted as a change in inventory in the second quarter and so will be included in second-quarter GDP. d. The DVDs will be counted as a change in inventory in the second quarter, and when sold in the third quarter will raise GDP. ____ 5. Which of the following is included in GDP? a. the sale of stocks and bonds b. the estimated rental value of owner occupied housing c. unpaid production of goods and services at home d. All of the above are correct. ____ 6. In the nation of Ophelia, quarterly GDP is always higher in the second quarter than in other quarters. In order to account for this predictable jump in GDP, Ophelia's government statisticians will a. make sure to account for inventory changes during the second quarter. b. report real GDP, not nominal GDP. c. focus on GNP rather than GDP during the second quarter. d. make a seasonal adjustment for the second quarter data. ____ 7. Government purchases include spending on goods and services by a. the federal government only. b. state and federal governments only. c. local, state and federal governments. d. local and state governments, but not the federal government. ____ 8. Real GDPa. evaluates current production at current prices. b. evaluates current production at the prices that prevailed in some specific year in the past. c. is not a valid measure of the economy's performance, since prices change from year to year.d. is a measure of the value of goods only, hence, it excludes the value of services. ____ 9. Which of the following statements about GDP is most accurate? a. Nominal GDP values production at current prices, while real GDP values production at constant prices. b. Nominal GDP values production at constant prices, while real GDP values production at current prices. c. Nominal GDP values production at market prices, while real GDP values production at the cost of the resources used in the production process. d. Nominal GDP consistently underestimates the value of production, while real GDP consistently overestimates the value of production. ____ 10. Suppose GDP consists of wheat and rice. In 2002, 20 bushels of wheat are sold at $4 per bushel, and 10 bushels of rice are sold at $2 per bushel. If the price of wheat was $2 per bushel and the price of rice was $1 per bushel in 2001, the base year, nominal 2002 GDP is a. $100, real 2002 GDP is $50, and the GDP deflator is 50. b. $50, real 2002 GDP is $100, and the GDP deflator is 200. c. $100, real 2002 GDP is $50, and the GDP deflator is 200. d. $40, real 2002 GDP is $100, and the GDP deflator is 50. ____ 11. The GDP deflator can be used to identify the a. increase in nominal GDP that is due to an increase in prices rather than an increase in production. b. increase in real GDP that is due to an increase in prices rather than an increase in production.c. increase in the cost of living for typical U.S. consumers. d. reduction in government spending required to balance the federal budget. ____ 12. The CPI is a measure of the overall cost of a. inputs purchased by a typical producer. b. goods and services bought by a typical consumer. c. goods and services produced in the economy. d. stocks on the New York Stock Exchange. Use the table below to answer the following questions. Table 24-1 year peaches pecans 2000 $11 per bushel $6 per bushel 2001 $9 per bushel $10 per bushel ____ 13. Refer to Table 24-1. Suppose that the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans and that the base year is 2000. What is the consumer price index for 2001? a. 100 b. 120 c. 200 d. 240 Use the following information to answer the following questions. In the country of Shem, the CPI is calculated using a market basket consisting of 5 apples, 4 loaves of bread, 3 robes and 2 gallons of gasoline. The per-unit prices of these goods have been as follows:Table 24-3 Year Apples Bread Robes Gasoline 1999 $1.00 $2.00 $10.00 $1.00 2000 $1.00 $1.50 $9.00 $1.50 2001 $2.00 $2.00 $11.00 $2.00 2002 $3.00 $3.00 $15.00 $2.50 ____ 14. Refer to Table 24-3. For the CPI, the base year is a. the benchmark against which other years are compared, and it changes each year. b. the benchmark against which other years are compared, and it changes occasionally. c. the year the CPI first appeared. d. always 1989. ____ 15. From October 2001 to October 2002 the CPI in Canada rose from 116.5 to 119.8. In Mexico it rose from 97.2 to 102.3. What were the inflation rates for Canada and Mexico? a. 3.3 percent and 6.7 percent b. 3.3 percent and 5.1 percent c. 2.8 percent and 6.7 percent d. 2.8 percent and 5.2 percent ____ 16. An inflation rate calculated using the CPI shows the rate of change of a. all prices.