Week 5 In Class: GDP and CPT

The table below contains data for the country of Wrexington for the year 2008.

Item / Amount / C, I, G, NX?
Household purchases of durable goods / $1293
Household purchases of nondurable goods / $1717
Household purchases of services / $301
Household purchases of new housing / $704
Purchases of capital equipment / $310
Inventory changes / $374
Purchases of new structures / $611
Depreciation / $117
Salaries of government workers / $1422
Government expenditures on public works / $553
Transfer payments / $777
Foreign purchases of domestically produced goods / $88
Domestic purchases of foreign goods / $120

23. If total spending rises from one year to the next, then

a. / the economy must be producing a larger output of goods and services.
b. / goods and services must be selling at higher prices.
c. / either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both.
d. / employment or productivity must be rising.

____ 24. The inflation rate in year 2 equals

a. / .
b. / .
c. / .
d. / .

The table below contains data for the country of Dachsland, which produces only pretzels and books. The base year is 2005.

Year / Price
of
Pretzels / Quantity
of
Pretzels / Price
of
Books / Quantity of
Books
2005 / $4.00 / 90 / $1.50 / 150
2006 / $4.00 / 100 / $2.00 / 180
2007 / $5.00 / 120 / $2.50 / 200
2008 / $6.00 / 150 / $3.50 / 200

____ 26. Refer to Table 23-4. In 2006, Dachsland’s

a. / nominal GDP was $585, real GDP was $660, and the GDP deflator was 88.6.
b. / nominal GDP was $585, real GDP was $670, and the GDP deflator was 87.3.
c. / nominal GDP was $760, real GDP was $660, and the GDP deflator was 115.2.
d. / nominal GDP was $760, real GDP was $670, and the GDP deflator was 113.4.

____ 27. Refer to Table 23-4. Dachsland’s output grew

a. / 29.9% from 2005 to 2006.
b. / 33.3% from 2006 to 2007.
c. / 24.3% from 2006 to 2007.
d. / 15.4% from 2007 to 2008.

____ 30. Suppose that twenty-five years ago a country had nominal GDP of $1,000, a GDP deflator of 200, and a population of 100. Today it has nominal GDP of $3,000, a GDP deflator of 400, and population of 150. What happened to the real GDP per person?

a. / It more than doubled.
b. / It increased, but it less than doubled.
c. / It was unchanged.
d. / It decreased.

____ 2. Which of the following is correct?

a. / The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers.
b. / The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers.
c. / The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers.
d. / The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

6. Which of the following changes in the price index produces the greatest rate of inflation: 100 to 110, 150 to 165, or 180 to 198?

a. / 100 to 110
b. / 150 to 165
c. / 180 to 198
d. / All of these changes produce the same rate of inflation.

____ 20. Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2006 salary in 2001 dollars is

a. / $20,000; thus, Ruben's purchasing power increased between 2001 and 2006.
b. / $20,000; thus, Ruben's purchasing power decreased between 2001 and 2006.
c. / $64,000; thus, Ruben's purchasing power increased between 2001 and 2006.
d. / $64,000; thus, Ruben's purchasing power decreased between 2001 and 2006.

____ 23. If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is

a. / -2 percent.
b. / 0.4 percent.
c. / 2 percent.
d. / 12 percent.

____ 24. Maxine deposits $100 in a bank account that pays an annual interest rate of 20%. A year later, after Maxine has accumulated $20 in interest, she withdraws her $120. Maxine’s purchasing power

a. / did not change if the inflation rate was 0%.
b. / decreased if the inflation rate was -2%.
c. / increased if the inflation rate was 5%.