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Exam 2: The Data of Macroeconomics

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Question 41

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The CPI is a:

A) Laspeyres price index.
B) Paasche price index.
C) Laspeyres quantity index.
D) Paasche quantity index.

E) A) and D)
F) C) and D)

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Question 42

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A woman marries her butler. Before they were married, she paid him $60,000 per year. He continues to wait on her as before (but as a husband rather than as a wage earner) . She earns $1,000,000 per year both before and after her marriage. If GDP were changed so that it truly measured the sum of all final economic activity, the marriage would:

A) decrease GDP.
B) increase GDP.
C) leave GDP unchanged.
D) first decrease and then increase GDP.

E) B) and C)
F) C) and D)

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Question 43

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The core inflation rate:

In the national income accounts, goods bought for future use are classified as which type of expenditure?

Exhibit: Quantity Consumed and Price of Good $\begin{array} { l c c } & \text { Base Year } & \text { Later Year } \\\text { Price of good A } & 100 & 200 \\\text { Quantity of good A } & 100 & 200 \\\text { Price of good B } & 100 & 100 \\\text { Quantity of good B } & 100 & 100\end{array}$ In the exhibit, the citizens of country XYZ come to desire more of good A. As a result, the quantity and price of the good both rise. a. Compute nominal GDP in the base year and later year. b. Compute real GDP in the base and later years (in base-year prices). c. Compute the GDP deflator in the later year, using your answers to parts a and $b$ . d. Compute a fixed-weight price index for the later year, using the base-year quantities as weights. e. Which price index rises faster, the GDP deflator (Paasche) index or the fixed-weight index (Laspeyres) index?

In computing GDP,

One senator criticizes the government for making an inadequate effort to stimulate the economy based on data from the BLS establishment survey that shows the number of jobs in the economy has fallen. Another senator counters that the number of employed workers in the economy has increased over the same period, based on the BLS household survey. Explain how both senators can be correct.

All of the following are a flow except:

The largest component of national income is:

If nominal GDP increased by 5 percent and the GDP deflator increased by 3 percent, then real GDP ______ by ______ percent.

Sam wants a loan from Dean. While discussing the interest, Dean told Sam that he will give him two options. Which one should Sam choose and why? The options are: a. Sam will pay the nominal interest of 8 percent per annum. b. Sam will pay real interest of 4 percent per annum.

"I like eating mangoes daily, but when their price rises, I switch to mango juice." Does this statement support the fact that CPI overstates inflation? (Assume mango is included in the goods basket used to calculate the CPI, but the mango juice is not included.)

City A has a total population of 10 million, of which 70 percent are adults. Assume that 20 percent of the adult population is not looking for a job and 60 percent of the remaining adult population is employed. Compute: a. Labor-force participation rate b. Unemployment Rate

Assume that a rancher sells McDonald's a quarter-pound of meat for $1 and that McDonald's sells you a hamburger made from that meat for $2. In this case, the value included in GDP should be:

If GDP (measured in billions of current dollars) is $5,465 and the sum of consumption, investment, and government purchases is $5,496, while exports equal $673, imports are:

When prices of different goods are increasing by different amounts, the price index that will rise the fastest is:

There are a number of measures of aggregate economic activity, such as GDP, GNP, national income, personal income, and disposable personal income. Each of these measures can be a good indicator depending on the issue under consideration. For each of the following issues, give your reasons for selecting one of the measures just mentioned as the best indicator to use in studying the issue: a. the proportion of income households save; b. the relative share of earnings going to labor versus capital; c. the total output of final goods and services.

If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP deflator grew by approximately ______ percent.

The labor force equals the:

If the adult population equals 250 million, of which 145 million are employed and 5 million are unemployed, the labor force participation rate equals ______ percent.