29 Jan If your nominal income

Week 6 Homework

Question 1

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.

the goods and? services; base

food and? energy; current

capital? goods; base

labor and? capital; past

Question 2

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

$21.00.

$3,300.

$4,650.

$3,250.

$4,885.

Question 3

The main sources of cost-push inflation are increases in

the quantity of money and the real wage rate.

the real wage rate and the price of raw materials.

government expenditure and the quantity of money.

the money wage rate and aggregate demand.

the money wage rate and the price of raw materials.

Question 4

Which of the following statements illustrates fiscal policy?

A stronger dollar has lowered US exports.

The Fed has increased its reserve requirement.

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

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

Question 5

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

102.5.

5.0%.

100.

98.5.

105.1.

Question 6

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

i. the price level

ii. potential GDP

iii. the money wage rate

i only

iii only

i, ii, and iii

ii only

i and ii

Question 7

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

decreases; increases; rightward

increases; increases; leftward

increases; decreases; leftward

increases; increases; rightward

decreases; decreases; leftward

Question 8

Which of the following statements illustrates monetary policy?

The US government has increased its spending to boost demand.

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 Fed has raised the federal funds rate by 0.3 percent.

Question 9

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

foreign income

the money wage rate

expectations about the future

monetary and fiscal policy

the foreign exchange rate

Question 10

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

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.

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

aggregate demand increases and the AD curve shifts rightward.

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

Question 11

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

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

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

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; aggregate supply decreases but potential GDP remains unchanged

Question 12

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

a decrease in the real wage rate.

an increase in the real wage rate.

a rise in the price level.

an increase in the money wage rate.

a decrease in the money wage rate.

Question 13

A tax increase

increases aggregate demand and the AD curve shifts rightward.

decreases aggregate demand and the AD curve shifts leftward.

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.

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

Question 14

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

$1.04

$162.50

$104.00

$96

$9.6

Question 15

If potential GDP increases, then the

real wage rate falls.

aggregate demand curve shifts rightward.

real wage rate increases.

aggregate supply curve shifts rightward.

aggregate supply curve shifts leftward.

Question 16

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.

98.5 percent.

-2.5 percent.

105.1 percent.

-1.5 percent.

Question 17

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

raise interest rates; increase aggregate demand

increase taxes; increase aggregate demand

institute a tax cut; increase aggregate demand

lower interest rates; decrease aggregate demand

raise interest rates; decrease aggregate demand

Question 18

Core inflation

two of the above answers are true

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

excludes prices of food and energy.

is equal to PCEPI.

is equal to a chained-CPI.

Question 19

An increase in government expenditure on goods and services

has no effect on the aggregate supply or aggregate demand.

shifts the aggregate demand curve leftward.

shifts the aggregate supply curve leftward and decreases potential GDP.

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

shifts the aggregate demand curve rightward.

Question 20

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

an above full-employment equilibrium.

a recessionary gap.

price stability.

a full-employment equilibrium.

an inflationary gap.

Question 21

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

750.

133.

0.75.

1.33.

100.

Question 22

The CPI is a measure of the

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

average prices of all goods and services produced.

percentage change in the price level.

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

average prices of all goods.

Question 23

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

aggregate demand increases

of labor productivity growth

real GDP increases

aggregate supply decreases

Question 24

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

commodity substitution bias.

outlet substitution bias.

GDP price index bias.

new goods bias.

quality change bias.

Question 25

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

Based on the table above, equilibrium real GDP is

$10 trillion.

$9 trillion.

$7 trillion.

$6 trillion.

$8 trillion.

Question 26

Which of the following does NOT affect potential GDP?

the amount of entrepreneurial talent available

the quantity of capital and human capital

the quantity of money

the quantity of labor employed

the quantity of land and natural resources

Question 27

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

10 percent.

16 percent.

2 percent.

6 percent.

-2 percent.

Question 28

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.

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

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.

Question 29

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

a recessionary gap.

a falling price level.

an inflationary gap.

a rising real GDP.

a below-full employment equilibrium.

Question 30

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

125

200

250

100

80