GDP, CPI, Unemployment Review

1. GDP, CPI, Unemployment Review Chaps. 23, 24 and 28

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3. 1. What does GDP measure? • Inflation • Industrial production • The final value of all goods produced in an economy • Imports - exports 10

4. 2. What measures inflation? • Real GDP • CPI • GDP deflator • Both 2 and 3 • All of the above 10

5. 3. GDP = C+G+I+Net ExportsIn our current economy, which factor contributes more to the US GDP? • C • G • I • Net X 10

6. 4. How would this transaction affect US GDP in 2014?Sale of a $40,000 new car produced in 2013, but sold in 2014. • C =+40,000 • I = +40,000 • No affect in 2014(C= + 40k, I= -40k) • G= +40k 10

7. 5. How would this transaction affect US GDP in 2014?You buy a $1000 college savings bond at your bank. • C =+1000 • I = +1000 • No affect in 2014(nothing produced) • C=+1000, I=-1000 10

8. 6. How would this transaction affect US GDP in 2014?You buy a new Schwinn (American-made) bike for $500. • C =+500 • I = +500 • No affect in 2014 • Net Export= 5000 10

9. 7. How would this transaction affect US GDP in 2014?A new Police station is built in your town for $2 million • C =+2 million • I = +2 million • G= + 2 million • No Affect in 2014 10

10. 8. This definition accurately defines which of the following?A measure of price level calculated as the ratio of nominal GDP to real GDP multiplied by 100 • CPI • GDP deflator • Real GDP • CPI deflator 10

11. 9. This definition accurately defines which of the following?The production of goods and services valued at current year prices • Recession • GDP deflator • Real GDP • Nominal GDP 10

12. 10. This definition accurately defines which of the following?Period of decline in the GDP. • Recession • Unemployment • Consumption • Inflation 10

13. 11. The CPI increased from 140 in 1995 to 150 in 1996. What does that tell you? • We are in a recession • We are experiencing inflation • Our economy is growing • Consumers are buying more stuff 10

14. 12. The CPI in 1995 = 100, the CPI in 2014 = 200, what is the value of $1000 today, measured in 1995 terms? • $100 • $500 • $1000 • $2000 10

15. 12. Your boss surprise you with a 10% raise. The CPI rose from 100 to 110. What is your real wage increase? • 0% • 10% • -10% • Can’t tell using the facts given. 10

16. 13. You earned a real rate of interest of 10%, while inflation also increased by 10%. What must have been your nominal rate of return? • 0% • 10% • 20% • Can’t tell using the facts given. 10

17. 14. If prices are rising, then 1. Real GDP will be less than nominal GDP • Real GDP will be greater than nominal GDP • Real GDP will always be equal to nominal • Can’t tell using the facts given. 10

18. 14. Which person will be most affected by periods of high inflation? 1. A person earning real wage increases 2. A person who has borrowed $ at fixed rates of interest 3. A person who has lent $ at floating rates. 4. A person who has saved money under his mattress. 10

19. 15.The following definition correctly matches which of the following words?The quantities of each item purchased by a typical consumer. 1. CPI 2. PPI 3. Cost of Living 4. Basket (of goods and services) 10

20. 16.The following definition correctly matches which of the following words?The ratio of the value of the consumer basket to the value of the basket in the base year times 100. 1. CPI 2. PPI 3. Cost of Living 4. Basket (of goods and services) 10

21. 17.The following definition correctly matches which of the following words?The percentage change in the price index 1. Standard of Living 2. Cost of living adjustment 3. Nominal Interest rate 4. Inflation 10

22. 18.The following definition correctly matches which of the following words?The inability of the CPI to account for when consumers switch to cheaper products 1. Substitution bias 2. Efficiency wages 3. Cost of living adjustment 4. Reserve rate 10

23. 19. The CPI increases from 150 to 165. What percentage increase do you need in your nominal wages to avoid suffering a decrease in real wages? 1. 1% 2. 10% 3. 15% 4. No way to tell 10

24. 19. The CPI increases from 150 to 165. What percentage increase do you need in your nominal wages to avoid suffering a decrease in real wages? 1. 1% 2. 10% 3. 15% 4. No way to tell 10

25. 20. If you lend money for 1 year at a 4% nominal rate of interest, and the CPI increases from 100 to 101, what is your real rate of interest earned on this investment? 1. 1% 2. 2% 3. 3% 4. 4% 10

26. 21. You borrow money for 30 years at a 4% fixed rate of interest to buy a house. The CPI increases at 4% per year for that entire period. Has this investment resulted in a positive real rate of return? 1. yes 2. no, you lost money 3. no, but you didn’t lose any money either 4. Impossible to tell, because homes are not part of CPI. 10

27. 22. Unemployment due to the time it takes to find another job is 1. Cyclical unemployment 2. Structural unemployment 3. Natural unemployment 4. Frictional unemployment 10

28. 23. Unemployment caused when jobs move overseas due to a change in the economy is called 1. Cyclical unemployment 2. Structural unemployment 3. Natural unemployment 4. Frictional unemployment 10

29. 24. Economists would say our labor force is “fully employed” if the unemployment rate is equal to 1. Natural unemployment rate 2. Cyclical unemployment rate 3. The labor force participation rate 4. The frictional unemployment rate 10

30. 24. If the unemployment rate is greater than the natural rate of unemployment, economists consider our economy to be experiencing… 1. Structural unemployment 2. Cyclical unemployment 3. A depression 4. Frictional unemployment 10

31. 25. Labor force = 50,000total adult population = 100,000total unemployed = 10,000What is the labor force participation rate? 1. 40% 2. 50% 3. 60% 4. 70% 10

32. 26. Labor force = 50,000total adult population = 100,000total unemployed = 10,000What is the unemployment rate? 1. 10% 2. 20% 3. 30% 4. 40% 10