GDP Concepts and Inflation Overview

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Questions and Answers

If 2012 is the base year, what was the consumer price index in 2013?

124.2 (correct)

133.3

123.8

150.0

What was the inflation rate in 2014 based on the provided data?

9.5 percent (correct)

22.5 percent

7.3 percent

24.3 percent

What is the equivalent salary in 2015 of President Hoover's 1931 salary of $75,000?

$1,057,894

$1,169,408 (correct)

$4,965

$16,080,001

Which statement about Ken's income from 2000 to 2015 is correct?

Ken needed to earn $87,000 or more in 2015 for improvement in standard of living. Signup and view all the answers

What is the level of investment in the country of Growpaw?

$5 billion Signup and view all the answers

What is Cedarland's GDP if its government purchases amount to $5 billion and private saving is $5 billion?

$17 billion Signup and view all the answers

Based on the CPI values, what could Ken's income be in 2015 for him to have a worsened standard of living compared to 2000?

$60,000 Signup and view all the answers

If the inflation rate was 24.3 percent in 2013, what was the percentage increase in prices from 2012 to 2013?

24.3 percent Signup and view all the answers

What is the contribution of the housing services provided by James's two houses to GDP?

$22,000 Signup and view all the answers

Which transaction is included in the GDP calculation?

Ink and paper supplies by a textbook company Signup and view all the answers

What was the real GDP of Caspir in 2016?

$880, and the GDP deflator was 111.4 Signup and view all the answers

What was the real GDP of Caspir in 2017?

$1250, and the GDP deflator was 128.0 Signup and view all the answers

What was the inflation rate in Caspir from 2016 to 2017?

26.1% Signup and view all the answers

What is the price of milk in Caspir for the year 2018?

$3.50 Signup and view all the answers

Which year had the highest price for cereal in Caspir?

2018 Signup and view all the answers

What was the quantity of cereal produced in Caspir in 2016?

120 Signup and view all the answers

How much do the actions of the dairy add to GDP if it buys $50,000 worth of milk and spends $5,000 on cartons and utilities, selling the final product for $65,000?

$120,000 Signup and view all the answers

What is the effect on U.S. GDP when a U.S. citizen buys $500 of Chinese-made parts for a motorcycle?

U.S. consumption does not change, U.S. net exports decline by $500, and U.S. GDP declines by $500. Signup and view all the answers

In comparing the CPI and the GDP deflator, which option is correct?

Increases in the prices of foreign produced goods sold to U.S. consumers show up in the CPI but not in the GDP deflator. Signup and view all the answers

If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, what is the inflation rate?

4.5 percent Signup and view all the answers

How much is Sue Holloway’s 1944 income valued in 2013 dollars if she earned $12,000 in 1944 and the price index was 17.6 in 1944 and 218.4 in 2013?

$148,909 Signup and view all the answers

What happens to public saving when there is a government budget deficit?

Reduces both public and national saving. Signup and view all the answers

What is the total value added to GDP when a dairy's activities are taken into account?

$120,000 Signup and view all the answers

Which statement correctly explains the relationship between U.S. consumption and net exports when purchasing foreign goods?

U.S. consumption increases, but net exports decline. Signup and view all the answers

What does the natural unemployment rate include?

Both frictional and structural unemployment Signup and view all the answers

How does unemployment insurance affect job search efforts?

Reduces search effort which raises unemployment Signup and view all the answers

What happens to the supply of labor in non-unionized sectors when wages are increased in unionized sectors?

Decreases, raising wages in industries that are not unionized Signup and view all the answers

According to efficiency-wage theory, what is a potential benefit of paying high wages?

They raise the efficiency of a firm’s workers Signup and view all the answers

Which item is included in U.S. GDP?

None of the above is included in U.S. GDP Signup and view all the answers

What was Talikastan’s GDP in 2015 given the economic parameters?

$1450 Signup and view all the answers

What would be the effect on the market for loanable funds if an investment tax credit were repealed?

The demand for loanable funds would shift left Signup and view all the answers

Which event could explain a decrease in interest rates along with an increase in investment?

Increase in government spending while holding taxes constant Signup and view all the answers

What does (Y - T - C) represent in a closed economy?

private saving Signup and view all the answers

In a closed economy with a GDP of 15,000, government purchases of 3,000, consumption of 10,500, and taxes of 3,500, what are private saving and public saving?

1,500 and -500, respectively Signup and view all the answers

How does the supply of loanable funds behave?

upward because an increase in the interest rate induces people to save more Signup and view all the answers

What effect does an increased government budget deficit have on the demand and supply of loanable funds?

supply of loanable funds shifted to the left Signup and view all the answers

What is the result of a policy that induces people to save more?

the supply of loanable funds and reduces interest rates Signup and view all the answers

How does the Bureau of Labor Statistics classify Josh, a full-time college student who is not working or looking for a job?

neither in the labor force nor unemployed Signup and view all the answers

Given an adult population of 4 million, with 0.25 million unemployed and a labor-force participation rate of 75%, what is the unemployment rate?

9.1% Signup and view all the answers

What type of unemployment occurs when the number of jobs does not meet the demand for work in certain labor markets?

structural unemployment Signup and view all the answers

Study Notes

GDP and its components

GDP includes the market value of all final goods and services produced within a country in a given period of time.
Housing services provided by owner-occupied homes are included in GDP, even though no money changes hands.
Intermediate goods (such as ink and paper for textbooks) are not included in GDP.
GDP includes the purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country.
GDP does not include the purchase of a used textbook from a friend.

Real vs. Nominal GDP

Real GDP is the value of goods and services produced in a given year using the prices of a base year.
Nominal GDP is the value of goods and services produced in a given year using the prices of that year.
The GDP deflator is a measure of the price level for all goods and services produced in an economy.

Inflation

Inflation is an increase in the overall price level.
The inflation rate is the percentage change in the price level from one period to the next.
CPI (Consumer Price Index) is a measure of the overall cost of the goods and services bought by a typical consumer.
Substitution bias is a problem with the CPI because it does not take into account consumers' ability to substitute away from goods whose prices have risen.

Saving and Investment

Public saving is the amount of tax revenue the government collects that is not spent on government purchases.
Private saving is the amount of income that households and firms save.
National saving is the sum of public saving and private saving.
A government budget deficit (government spending exceeds tax revenue) reduces public saving and national saving.
A government budget surplus (tax revenue exceeds government spending) increases public saving and national saving.
In a closed economy, national saving equals investment.
Trade with other countries can affect the relationship between saving and investment.

The Market for Loanable Funds

The market for loanable funds is the market where savers supply funds and borrowers demand funds.
The interest rate is the price of loanable funds.
Policies that induce people to save more shift the supply of loanable funds to the right.
Policies that induce people to borrow more shift the demand for loanable funds to the right.

Unemployment

The labor force is the total number of people who are either employed or unemployed but actively seeking work.
The unemployment rate is the percentage of the labor force that is unemployed.
The natural rate of unemployment is the unemployment rate that exists when the economy is at full employment.
The natural rate of unemployment includes frictional unemployment (due to temporary job transitions) and structural unemployment (due to a mismatch between the skills of workers and the skills needed by employers).

The Role of Unions

Unions can affect the labor market by raising wages in the sector of the economy that is unionized.
This can lead to higher unemployment in the unionized sector.
Efficiency-wage theory suggests that paying high wages can be profitable for firms because it can increase worker productivity.

GDP Calculation

GDP can be calculated using the expenditure approach, which adds up the spending on goods and services by households, firms, the government, and foreigners.
GDP can also be calculated using the income approach, which adds up the income earned by factors of production.
GDP excludes production that is not traded in the market.

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Description

This quiz covers essential concepts related to Gross Domestic Product (GDP), its components, and the differences between real and nominal GDP. Additionally, it explores the concept of inflation and its impact on the economy. Test your knowledge of these fundamental economic principles.