Review of Macro Exam Multiple Choice Identify the choice that best completes the statement or answers the question 1 Consider a small economy in which consumers buy only two goods apples and pears In order to compute the consumer price index for this economy for two or more consecutive years we assume that a the number of apples bought by the typical consumer is equal to the number of pears bought by the typical consumer in each year b neither the number of apples nor the number of pears bought by the typical consumer c changes from year to year the percentage change in the price of apples is equal to the percentage change in the price of pears from year to year d neither the price of apples nor the price of pears changes from year to year 2 Changes in the producer price index are often thought to be useful in predicting changes in 3 If outsiders had more say in union contracts then it is likely that union wages would be a stock prices b c d the consumer price index the unemployment rate the rate of output of goods and services a higher so unemployment would be higher b higher so unemployment would be lower lower so unemployment would be higher c d lower so unemployment would be lower 4 After the terrorist attacks on September 11 2001 governments within the United States raised expenditures to increase security at airports These purchases of goods and services are a not included in GDP since they do not represent production b not included in GDP since the government will have to raise taxes to pay for them c d included in GDP since government expenditures are included in GDP included in GDP only to the extent that the federal government rather than state or local governments paid for them 5 When an economy is operating inside its production possibilities frontier we know that there are unused resources or inefficiencies in the economy a b all of the economy s resources are fully employed c economic growth would have to occur in order for the economy to move to a point on the d frontier in order to produce more of one good the economy would have to give up some of the other good 6 In 1931 President Herbert Hoover was paid a salary of 75 000 Government statistics show a consumer price index of 15 2 for 1931 and 214 5 for 2009 President Hoover s 1931 salary was equivalent to a 2009 salary of about a 5 507 b 1 058 388 c 1 140 000 d 15 525 000 7 Suppose that a decrease in the price of good X results in fewer units of good Y being sold This implies that X and Y are a complementary goods b normal goods inferior goods c d substitute goods 8 GDP is defined as a b c d the market value of all goods and services produced within a country in a given period of time the market value of all goods and services produced by the citizens of a country regardless of where they are living in a given period of time the market value of all final goods and services produced within a country in a given period of time the market value of all final goods and services produced by the citizens of a country regardless of where they are living in a given period of time 9 In Japan in 2000 nominal interest rates were 1 5 percent and the inflation rate was 0 5 percent The real interest rate was a 2 percent b 1 percent c 1 percent d 2 percent a 100 billion b 40 billion c 10 billion d 4 billion 10 If a small country has current nominal GDP of 20 billion and a GDP deflator of 50 what is its real GDP 11 Which of the following events would cause the price of oranges to fall a There is a shortage of oranges b An article is published in which it is claimed that tangerines cause a serious disease and oranges and tangerines are substitutes c The price of land throughout Florida decreases and Florida produces a significant proportion of the nation s oranges d All of the above are correct 12 Which of the following is not a positive statement a Higher gasoline prices will reduce gasoline consumption b Equity is more important than efficiency c Trade restrictions lower our standard of living d If a nation wants to avoid inflation it will restrict the growth rate of the quantity of money 13 Suppose a nation is currently producing at a point inside its production possibilities frontier We know that a b c d the nation is producing beyond its capacity and inflation will occur the nation is not using all available resources or is using inferior technology or both the nation is producing an efficient combination of goods there will be a large opportunity cost if the nation tries to increase production of any good 14 In a particular economy the price index was 270 in 2005 and it was 300 in 2006 Which of the following statements is correct a The economy experienced a rising price level between 2005 and 2006 b The economy experienced a higher inflation rate between 2005 and 2006 than it had experienced between 2004 and 2005 c The inflation rate between 2005 and 2006 was 30 percent d All of the above are correct 15 The economy s inflation rate is the a price level in the current period b change in the price level from the previous period c change in the gross domestic product from the previous period d percentage change in the price level from the previous period 16 One bag of flour is sold for 1 50 to a bakery which uses the flour to bake bread that is sold for 4 00 to consumers A second bag of flour is sold to a consumer in a grocery store for 2 00 Taking these three transactions into account what is the effect on GDP a GDP increases by 1 50 b GDP increases by 3 50 c GDP increases by 6 00 d GDP increases by 7 50 17 Good X and good Y are substitutes If the price of good Y increases then the a demand for good X will decrease b market price of good X will decrease c demand for good X will increase d quantity demanded of good X will increase 18 The substitution bias in the consumer price index refers to the a substitution by consumers of new goods for old goods b substitution by consumers of a smaller number of high quality goods for a larger number of low quality goods fact that consumers substitute toward goods that have become relatively less expensive c d substitution of new prices for old prices in the CPI basket of goods and services from one 19 ABC Company produces ink and sells it to XYZ Company which makes pens The ink produced by ABC year to the next Company is called …
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