Chapter 11
A measure of the overall cost of a basket of goods and services purchased by a typical consumer is the
a.GDP deflator.
b.Producer Price Index (PPI).
c.Real Wage.
d.Consumer Price Index (CPI).
D. Consumer Price index
Productivity
a. is nearly the same across countries, and so provides no help explaining differences in the
standard of living across countries.
b. explains very little of the differences in the standard of living across countries.
c. explains some, but not most of the differences in the standard of living across countries.
d. explains most of the differences in the standard of living across countries
d. explains most of the differences in the standard of living across countries
Y = C + I + G represents GDP in a closed economy, whereas Y = C + I + G + NX represents GDP in an open economy.
True
False
True
an open economy, Y = C + I + G + NX. A closed economy, however, does not engage in international trade, and imports and exports are exactly zero (NX = 0), which implies Y = C + I + G.
Inflation can only be measured by the consumer price index and not by the GDP deflator.
True
False
False
the CPI is used more frequently when examining changes in prices for consumer goods.
Which of the following accurately describes the difference between foreign direct investment and foreign portfolio investment?
a.Foreign portfolio investment assumes an investment that is owned and operated by a foreign entity, whereas foreign direct investment assumes investment into a domestically owned and operated business.
b.Foreign direct investment assumes an investment that is owned and operated by a foreign entity, whereas foreign portfolio investment assumes investment into a domestically owned and operated business.
c.Foreign direct investors have a right to a portion of the profit that the corporation earns, whereas portfolio investors own profits earned by the business they invested in.
d.When foreigners directly invest in a country, they do so to stimulate the country's economy, all their profit will stay and be re-invested in the country, whereas foreign portfolio investment assumes that investors will move additional income back to their home country in the form of profit.
b.Foreign direct investment assumes an investment that is owned and operated by a foreign entity, whereas foreign portfolio investment assumes investment into a domestically owned and operated business.
A capital investment that is owned and operated by a foreign entity is called foreign direct investment, whereas an investment that is financed with foreign money but operated by domestic residents is called foreign portfolio investment. Therefore, foreign direct investors own profits earned by the business they invested in, whereas portfolio investors have a right to a portion of the profit that the corporation earns
according to the definitions of private and public saving, if Y, C, and G remained the same, a decrease in taxes would
a.raise both private saving and public saving.
b.reduce public saving and raise private saving.
c.reduce both private and public saving.
d.raise public saving and reduce private saving.
b.reduce public saving and raise private saving.
A tax cut reduces public saving (T – G). Private saving, (Y - T – C), might increase because of lower T, but as long as households respond to the lower taxes by consuming more, C increases, so private saving rises by less than public saving declines.
If the quality of a good improves while its price remains the same, then the purchasing power of a
dollar
a. rises and the cost of living increases.
b. rises and the cost of living decreases.
c. falls and the cost of living increases.
d. falls and the cost of living decreases.
A. rise and the cost of living decreases
Which of the following is measured by the growth rate of real GDP per person?
a.Growth rate of nominal GDP.
b.Changes in the level of well-being in a country.
c.Foreign direct investment.
d.Human capital.
b.Changes in the level of well-being in a country.
The data on real GDP per person show that living standards vary widely from country to country.
We associate the term debt finance with
a. the bond market, and we associate the term equity finance with the stock market.
b. the stock market, and we associate the term equity finance with the bond market.
c. financial intermediaries, and we associate the term equity finance with financial markets.
d. financial markets, and we associate the term equity finance with financial intermediari
a. the bond market, and we associate the term equity finance with the stock market.
The GDP Deflator reflects
a. the prices of all final goods and services currently produced domestically, as does the CPI.
b. the price of a fixed basket of goods and services purchased by a typical consumer, as does
the CPI.
c. the prices of all final goods and services currently produced domestically, while the CPI
reflects the price of a fixed basket of goods and services purchased by a typical consumer.
d. the price of a fixed basket of goods and services purchased by a typical consumer, while
the CPI reflects the prices of all final goods and services produced domestically
c. the prices of all final goods and services currently produced domestically, while the CPI
reflects the price of a fixed basket of goods and services purchased by a typical consumer.
In Germany, real GDP per person was $2,422 in 1870 and $50,369 in 2017. The growth rate was 2.09% per year. Which of the following is true?
a.Each year, for 147 years, real GDP per person increased by 2.09%
b.The growth rate of 2.09% per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over the period.
c.The growth rate of 2.09% per year accounts for short-run fluctuations around the long-run trend.
d.2.09% per year is an average rate of growth for real GDP per person, actual growth in each year was much lower.
D.
real GDP per person, beginning at $2,422, were to increase by 2.09% for each of 147 years, it would end up at $50,369. Of course, real GDP per person did not rise exactly 2.09% every year: Some years it rose by more, other years it rose by less, and in other years it fell. The growth rate of 2.09% per year ignores short-run fluctuations around the long-run trend and represents an average rate of growth for real GDP per person over many years.
Consider a closed economy, in which S = (Y – T – C) + (T – G) holds. What does this identity imply if the government's tax revenue is equal to its expenditures?
a.Public saving is equal to investment.
b.After paying their taxes and paying for their consumption, households have nothing left.
c.Private saving is equal to government expenditures.
d.National saving and private saving are equal.
d.National saving and private saving are equal.
In a closed economy, when taxes equal government spending, public saving is zero and national saving equals private saving
Suppose the consumer price index is 89 in 2012, 94 in 2014, 100 in 2016, and 103 in 2018. If Social Security Benefits were $1,000 in 2018 and we index them for inflation, the Social Security benefits would have been ________ in 2012.
a.$1,000
b.$970.87
c.$864.08
d.$886.04
C. 864.08
In 2018, real GDP in an imaginary economy was $1 billion and the population was 1 million. In 2019, real GDP was $1.2 billion and the population increased to 1.1 million. What was the growth rate of real GDP per person during the year?
a.9%
b.10%
c.-9%
d.-10%
A. 9%
In 2018, real GDP per capita was $1 billion/2 million = $1,000. In 2019, it is $1.2 billion/1.1 million = $1,090.9. The rate of growth is calculated as 100 * ((GDP per person in 2019 - GDP per person in 2018)/ GDP per person in 2018) = 100*(($1,090.9 - $1000)/ $1000) = 9%.
In a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?
a.$5 trillion and $1 trillion, respectively
b.$2 trillion and $3 trillion, respectively
c.$5 trillion and $3 trillion, respectively
d.$2 trillion and $1 trillion, respectively
d.$2 trillion and $1 trillion, respectively
In a closed economy, private saving is (Y - T - C) = ($12 trillion – $3 trillion – $7 trillion) = $2 trillion. National saving is a sum of private saving (Y - T - C) and public saving (T - G), which is -$1 trillion. Thus S = $2 trillion + (-$1 trillion) = $1 trillion.