Question 1

The GDP deflator, which is a Paasche index, tends to ______ the rate of inflation.

Accepted Answer

The GDP deflator, being a Paasche index, tends to understate the rate of inflation because it uses the current year's basket of goods and services, which can shift consumption away from goods that have become relatively more expensive.

Question 2

If the CPI changes from 106 in one year to 110 the next, the rate of inflation over that time period is

Accepted Answer

The rate of inflation is calculated as the percentage change in the CPI, which is (110 - 106) / 106 * 100 = 3.77%.

Question 3

If the CPI changes from 150 in one year to 160 the next, the rate of inflation over that time period is

Accepted Answer

The rate of inflation is calculated by the formula [(New CPI - Old CPI) / Old CPI] * 100. So, [(160 - 150) / 150] * 100 = 6.666%.

Question 4

If the CPI changes from 120 in one year to 132 the next, the rate of inflation over that time period is

Accepted Answer

The rate of inflation is calculated as the change in CPI divided by the initial CPI, then multiplied by 100 to convert it to a percentage. Here, it is ((132 - 120) / 120) * 100 = 10%.

Question 5

If the CPI changes from 120 in one year to 126 the next, the rate of inflation over that time period is

Accepted Answer

The rate of inflation is calculated as the percentage change in the CPI, which is (126 - 120) / 120 = 0.05, or 5%.

Question 6

The labor force is composed of those who are

Accepted Answer

The labor force includes all those who are employed as well as those who are unemployed but actively looking for work.

Question 7

Times of high and rising unemployment tend to be unusually difficult for which of the following groups of workers?

Accepted Answer

Times of high and rising unemployment disproportionately affect teenagers and African-Americans due to various factors including lower levels of experience, education, and systemic biases in hiring practices.

Question 8

Suppose that real GDP is $8 trillion and the unemployment rate is 5.5%. If, over the next year, potential output grows by 2.5 percent and the unemployment rate decreases by 1 percentage point to 4.5%, real GDP will increase to

Accepted Answer

The answer of Suppose that real GDP is $8 trillion...

Question 9

Suppose that real GDP is $10 trillion and the unemployment rate is 5.5%. If, over the next year, potential output grows by 2.5 percent and the unemployment rate decreases by 1 percentage point to 4.5%, real GDP will increase to

Accepted Answer

The potential output growth of 2.5 percent on a $10 trillion GDP results in a $250 billion increase, making the new potential GDP $10.25 trillion. However, the decrease in the unemployment rate from 5.5% to 4.5% indicates an economy growing faster than its potential, suggesting actual GDP will increase beyond the potential output growth. Therefore, the closest estimate given the options is $10.5 trillion, acknowledging both the potential growth and the implied additional growth from reduced unemployment.

Question 10

Which of the following is not a reason that Okun's Law coefficient is greater than one?

Accepted Answer

Okun's Law describes the relationship between unemployment and GDP, suggesting that a 1% increase in unemployment results in a greater than 1% decrease in GDP. Technological change, unlike the other options, does not directly relate to the dynamics between unemployment and output that Okun's Law addresses. It can lead to productivity improvements that might not immediately reflect in employment levels, thus not fitting the rationale behind why Okun's Law coefficient is greater than one.

Question 11

If nominal GDP in 1998 was $8.7599 trillion; gross private domestic investment spending was $1.5312 trillion; government purchases were $1.5297 trillion; exports were $.9663 trillion; and imports were $1.1159 trillion, the level of consumption expenditures would be

Accepted Answer

Nominal GDP is calculated as the sum of consumption (C), investment (I), government purchases (G), and net exports (exports minus imports). Using the formula GDP = C + I + G + (Exports - Imports), we can solve for C: $8.7599 trillion = C + $1.5312 trillion + $1.5297 trillion + ($.9663 trillion - $1.1159 trillion). Solving for C gives us $5.8486 trillion.

Question 12

Which of the following is not in GDP but should be?

Accepted Answer

Production that takes place in the household, such as cooking, cleaning, and childcare, contributes to the economy but is not counted in GDP because these services are not sold in the market.

Question 13

Since 1948, the labor force participation rate has been

Accepted Answer

Since 1948, the labor force participation rate has been decreasing for males and increasing for females. This trend reflects various social, economic, and demographic changes, including increased female participation in higher education and the workforce, and shifts in the types of industries and jobs that dominate the economy.

Question 14

If nominal GDP was $10 trillion and the GDP deflator was 125, real GDP would be

Accepted Answer

Real GDP is calculated by dividing nominal GDP by the GDP deflator (then multiplied by 100). So, $10 trillion / 1.25 = $8 trillion.

Question 15

If real GDP was $10 trillion and the GDP deflator was 125, nominal GDP would be

Accepted Answer

Nominal GDP is calculated by dividing the real GDP by the base year GDP deflator and then multiplying by 100. In this case, ($10 trillion / 125) * 100 = $12.50 trillion.

Question 16

Residential structures are a component of

Accepted Answer

Residential structures are considered a part of investment expenditures in national accounts, as they represent spending on housing that will be used for future production or services.

Question 17

Products that are in the process of production but are not finished and sold by the end of the year are counted as

Accepted Answer

Products that are in the process of production but not finished by the end of the year are considered inventory, which is counted as a component of investment expenditures in national accounts. This includes goods in process, raw materials, and finished goods that have not yet been sold.

Question 18

Which of the following would not be considered a component of government expenditures?

Accepted Answer

Government expenditures typically include spending on goods and services that the government consumes within the current period or invests in as infrastructure, such as schools, highways, and military equipment. Social Security checks, however, are considered transfer payments rather than expenditures on goods or services, as they transfer income from the government to individuals without directly purchasing goods or services.

Question 19

To calculate per capita real GDP, one should

Accepted Answer

Per capita real GDP is calculated by dividing the real GDP by the total population of a country, to get the average economic output per person.

Question 20

Stock prices are not likely to increase if

Accepted Answer

Investors becoming more risk-averse means they are less likely to invest in stocks, which can lead to a decrease in stock prices as demand for stocks falls.

Quiz 2: Measuring the Macroeconomy