29 Dec expectations about

ECON312N Principles of Economics

Week 6 Homework

Question 1

All of the following can create a bias in the CPI EXCEPT the

new goods bias.

commodity substitution bias.

outlet substitution bias.

GDP price index bias.

quality change bias.

Question 2

Demand-pull inflation is an inflation that starts because _____.

of labor productivity growth

real GDP increases

aggregate supply decreases

aggregate demand increases

Question 3

If firms’ expectations about the future become pessimistic so that they think future profits will be lower, then

aggregate demand increases and the AD curve shifts rightward.

the quantity of real GDP demanded decreases, and there is a movement up along the AD curve.

the aggregate demand curve does not shift, but potential GDP decreases.

the quantity of real GDP demanded increases, and there is a movement down along the AD curve.

aggregate demand decreases and the AD curve shifts leftward.

Question 4

The PCE price index is an average of the current prices of? _____ included in the consumption expenditure component of? GDP, expressed as a percentage of? _____ year prices.

capital? goods; base

labor and? capital; past

the goods and? services; base

food and? energy; current

Question 5

If the bank returns $1,060 on the $1,000 deposited for a year during which inflation was 4 percent, the real interest rate is

-2 percent.

6 percent.

16 percent.

2 percent.

10 percent.

Question 6

Item Quantity (2013) Price (2013) Quantity (2014) Price (2014)

Magazines 400 $5.00 450 $4.50

Movie tickets 50 $6.00 200 $8.00

Pizzas 100 $10.00 120 $10.50

The data in the table above shows the consumption by families in an economy. The year 2013 is the reference base period.

Based on the table above, the cost of the base period market basket in the base period is

$4,885.

$3,300.

$21.00.

$3,250.

$4,650.

Question 7

The main sources of cost-push inflation are increases in

the money wage rate and aggregate demand.

government expenditure and the quantity of money.

the money wage rate and the price of raw materials.

the real wage rate and the price of raw materials.

the quantity of money and the real wage rate.

Question 8

The table gives the aggregate demand and aggregate supply schedules for a nation.

Based on the table above, equilibrium real GDP is

$6 trillion.

$9 trillion.

$7 trillion.

$10 trillion.

$8 trillion.

Question 9

A technological advance ________ potential GDP, ________ aggregate supply, and shifts the aggregate supply curve ________.

decreases; increases; rightward

decreases; decreases; leftward

increases; increases; rightward

increases; decreases; leftward

increases; increases; leftward

Question 10

If for a given year nominal GDP is $2,000 billion and real GDP is $1,500 billion, then the GDP price index is

133.

1.33.

0.75.

750.

100.

Question 11

As more people in India have access to higher education? ______ and in the long run? ______.

the money wage rate? rises; aggregate supply decreases but potential GDP remains unchanged

human capital? increases; both potential GDP and aggregate supply increase

human capital? increases; aggregate supply increases but potential GDP remains unchanged

the money wage rate? rises; both potential GDP increases and aggregate supply decreases

human capital? increases; aggregate demand? increases, which increases potential GDP

Question 12

If the GDP price index is 125 and nominal GDP is $130 billion, then real GDP equals ________ billion.

$9.6

$162.50

$104.00

$96

$1.04

Question 13

A tax increase

increases the quantity of real GDP demanded and there is a movement down along the AD curve.

increases aggregate demand and the AD curve shifts rightward.

does not shift or lead to a movement along the aggregate demand curve.

decreases the quantity of real GDP demanded and there is a movement up along the AD curve.

decreases aggregate demand and the AD curve shifts leftward.

Question 14

An increase in government expenditure on goods and services

shifts the aggregate demand curve rightward.

shifts the aggregate demand curve leftward.

shifts the aggregate supply curve leftward and decreases potential GDP.

has no effect on the aggregate supply or aggregate demand.

shifts the aggregate supply curve leftward but does not change potential GDP.

Question 15

If the costs of production increase, there is

an increase in the quantity of real GDP supplied and a movement up along the AS curve.

a decrease in the quantity of real GDP supplied and a movement down along the AS curve.

a decrease in aggregate supply and the AS curve shifts leftward.

a decrease in aggregate supply and the AS curve shifts rightward.

an increase in aggregate supply and the AS curve shifts rightward.

Question 16

If potential GDP increases, then the

real wage rate increases.

aggregate demand curve shifts rightward.

aggregate supply curve shifts rightward.

real wage rate falls.

aggregate supply curve shifts leftward.

Question 17

Which of the following statements illustrates monetary policy?

The Fed has raised the federal funds rate by 0.3 percent.

Some US firms have scrapped outsourcing to China due to rising labor costs.

The US public? debt-to-GDP ratio in 2011 was about 100 percent.

The US government has increased its spending to boost demand.

Question 18

Which of the following statements illustrates fiscal policy?

A stronger dollar has lowered US exports.

The US government has proposed a hike in the corporate tax rate.

The Fed has increased its reserve requirement.

A rise in the expected future profits has increased US investments.

Question 19

If the aggregate demand curve and the aggregate supply curve intersect at a level of real GDP more than potential GDP, there is

a below-full employment equilibrium.

a falling price level.

a recessionary gap.

a rising real GDP.

an inflationary gap.

Question 20

The CPI is a measure of the

average prices paid by consumers for a fixed basket of goods and services.

average change in the output of the goods and services purchased by a typical urban consumer.

average prices of all goods.

percentage change in the price level.

average prices of all goods and services produced.

Question 21

Item Quantity (2013) Price (2013) Quantity (2014) Price (2014)

Magazines 400 $5.00 450 $4.50

Movie tickets 50 $6.00 200 $8.00

Pizzas 100 $10.00 120 $10.50

The data in the table above shows the consumption by families in an economy. The year 2013 is the reference base period.

Based on the table above, between 2013 and 2014, the inflation rate in this country was

-2.5 percent.

-1.5 percent.

105.1 percent.

2.5 percent.

98.5 percent.

Question 22

If your nominal income is $75,000 and your real income in base year prices is $60,000, what is the CPI?

250

80

100

200

125

Question 23

Changes in which of the following do NOT shift the AS curve?

i. the price level

ii. potential GDP

iii. the money wage rate

ii only

iii only

i, ii, and iii

i and ii

i only

Question 24

In the figure above, the economy is at an equilibrium with real GDP of $16 trillion and a price level of 110. At this point there is

a recessionary gap.

a full-employment equilibrium.

an inflationary gap.

an above full-employment equilibrium.

price stability.

Question 25

Item Quantity (2013) Price (2013) Quantity (2014) Price (2014)

Magazines 400 $5.00 450 $4.50

Movie tickets 50 $6.00 200 $8.00

Pizzas 100 $10.00 120 $10.50

The data in the table above shows the consumption by families in an economy. The year 2013 is the reference base period.

Based on the table above, the CPI for 2013 is

100.

5.0%.

105.1.

98.5.

102.5.

Question 26

The change reflected in the above figure might be a result of

an increase in the money wage rate.

a decrease in the money wage rate.

an increase in the real wage rate.

a rise in the price level.

a decrease in the real wage rate.

Question 27

If a country is trying to recover from a recent recession, it is unlikely their government officials will decide to ________ because it would ________.

lower interest rates; decrease aggregate demand

institute a tax cut; increase aggregate demand

increase taxes; increase aggregate demand

raise interest rates; decrease aggregate demand

raise interest rates; increase aggregate demand

Question 28

Which of the following does NOT affect potential GDP?

the quantity of land and natural resources

the quantity of capital and human capital

the quantity of money

the amount of entrepreneurial talent available

the quantity of labor employed

Question 29

Core inflation

is equal to a chained-CPI.

is equal to PCEPI.

includes current prices of goods and services from the consumption expenditure component of GDP.

excludes prices of food and energy.

two of the above answers are true

Question 30

A change in any of the following factors EXCEPT ________ shifts the aggregate demand curve.

the foreign exchange rate

monetary and fiscal policy

foreign income

expectations about the future

the money wage rate