Econ 200, Spring 2012
Exercise Set 6
CHAPTER 23 GDP and ITS COMPONENTS
Marie grows vegetables in her garden to feed her family. The vegetables she grows are not
counted in GDP because
a.
it was not produced for the marketplace.
b.
it is an intermediate good which Marie will process further.
c.
the vegetables have no value.
d.
it reduces the amount of vegetables she will buy from shops.
Households’ consumption spending now is approximately what fraction of GDP in Turkey?
a.
One third
b.
One sixth
c.
Two thirds
d.
One half
The four categories of expenditures that make up GDP are consumption, investment,
a.
exports, and government purchases.
b.
imports, and government purchases.
c.
net exports, and government purchases.
d.
net exports, and government transfer payments.
If private investment increased by €50 billion while GDP remained the same, which of the
following could have occurred, all else being the same?
a.
Consumption spending decreased by €50 billion.
b.
Exports increased by €50 billion.
c.
Imports decreased by €50 billion.
d.
Net exports increased by €50 billion.
Real GDP is nominal GDP
a.
plus depreciation.
b.
adjusted for changes in the price level.
c.
minus depreciation.
d.
minus taxes.
Suppose a person marries his or her gardener and therefore no longer pays him or her for
gardening services. GDP
a.
stays the same as long as the services are still provided.
b.
increases since the services are now provided for free.
c.
decreases since there is no longer a market exchange.
d.
stays the same, since services are not included in GDP.
Table 23-1
An economy produces only two goods, oranges and DVD players. The quantities and prices
for the years 2004 and 2005 are shown in the table. The base year is 2004.
Oranges
DVD players
2004
Price
€2
€400
Quantity
5,000
1,000
2005
Price
€3
€300
Refer to Table 23-1. Nominal GDP in 2004 is
a.
€402.
b.
€12,000.
c.
€200,200.
d.
€410,000.
Refer to Table 23-1. Nominal GDP in 2005 is
a.
€18,000.
b.
€180,000.
c.
€612,000.
d.
€1,250,000.
Refer to Table 23-1. Real GDP in 2004 is
a.
€6,000.
b.
€240,000.
c.
€410,000.
d.
€612,000.
Refer to Table 23-1. Real GDP in 2005 is
a.
€6,000.
b.
€410,000.
c.
€612,000.
d.
€808,000.
Refer to Table 23-1. The GDP deflator in 2005 is about
a.
0.76.
b.
0.67.
c.
0.51.
d.
1.32.
Quantity
4,000
2,000
Refer to Table 23-1. The growth rate of nominal GDP in 2005 was about
a.
10 per cent.
b.
49 per cent.
c.
78 per cent.
d.
100 per cent.
Refer to Table 23-1. The growth rate of real GDP in 2005 was about
a.
24 per cent.
b.
50 per cent.
c.
97 per cent.
d.
125 per cent.
Refer to Table 23-1. The rate of inflation in 2005 was about
a.
-48 per cent.
b.
-24 per cent.
c.
33 per cent.
d.
67 per cent.
CHAPTER 24 COST of LIVING
Which price index measures the average price of things purchased by the typical family?
a.
GDP deflator
b.
producer price index
c.
consumer price index
d.
minimum wage
Which item would receive the most weight in the consumer price index?
a.
salt
b.
toothpicks
c.
pencils
d.
food
The good that receives the most weight in the CPI is the good that
a.
consumers buy most frequently.
b.
has experienced the greatest price increase.
c.
has the highest price.
d.
consumers spend the largest fraction of their income on.
Which of the following is a reason why the Consumer Price Index (CPI) is not calculated as a
simple average of all prices?
a.
Some goods experience large price changes and the CPI would be too variable if
computed by a simple average.
b.
Goods differ in their importance in the average consumer's budget.
c.
Some goods never experience price changes and the CPI would not be variable
enough if computed as a simple average.
d.
It would be difficult to compute a price index using a simple average of all prices.
If the price of the market basket of goods in the base year of 2004 was €20,000 and the price
of the same basket had risen to €22,000 by 2005, the CPI for 2005
a.
cannot be calculated.
b.
is €12,000.
c.
is 200.
d.
is 110.
Year
2000
2001
Peaches
$11 per bushel
$10 per bushel
Pecans
$6 per bushel
$12 per bushel
Suppose that the typical consumer basket consists of 10 bushels of peaches and 15 bushels
of pecans and that the base year is 2000. Based on the information in the table, what is the
consumer price index for 2001?
a.
$120
b.
$140
c.
$240
d.
$280
Suppose that the typical consumer basket consists of 10 bushels of peaches and 15 bushels
of pecans. Based on the information in the table, what was the inflation rate for 2001?
a.
40%
b.
25%
c.
20%
d.
None of the above is correct.
There are three goods in Vegopia: cauliflower, broccoli, and carrots. The residents of
Vegopia earn all their income from the production of these goods and spend all of their
income on these goods. In 2003 they produced and bought buy 100 heads of cauliflower for
200 dollars, 50 bunches of broccoli for 75 dollars and 500 carrots for 50 dollars. In 2004 they
buy 75 heads of cauliflower for 225 dollars, 80 bunches of broccoli for 120 dollars and 500
carrots for 100 dollars. Suppose the base year is 2003.
a) Calculate the CPI in 2003 and 2004.
b) What is the inflation rate in 2004?