Econ 111 Test #2 questions with
complete solutions
Goods that go into inventory and are not sold during the current period are.. - correct answer
✔✔included in the current period GDP as inventory investment
The steps involved in calculating the consumer price index, in order, are as follows: - correct
answer ✔✔fix the basket, find the price, compute the baskets cost, choose a base year and
compute the index
Refer to the chart above. Supposed the typical consumer basket consists of 10 bushels of
peaches and 15 bushels of pecans. Using 2012 as the base year, the CPI for 2013 is... - correct
answer ✔✔120 and he inflation rate between 2012 and 2013 is 20%
Which of the following is included in the investment component of the US GDP? - correct
answer ✔✔Purchases of computes and office equipment by the US business firms
Which of the following agencies calculates the GDP? - correct answer ✔✔the Bureau of Labor
Services
The consumer price index (CPI) and the GDP deflator are two alternative measures of the
overall price level. Which of the following statements about the two is correct? - correct answer
✔✔The CPI basket includes imported goods; the GDP deflator reflects the prices of goods and
services produced domestically
Crowding out occurs when investment declines because... - correct answer ✔✔a government
budget deficit makes interest rates rise by shifting the supply of the loanable funds too the left
, An increase in the price of milk produced domestically will be reflected in... - correct answer
✔✔both the GDP deflator and the CPI
If Congress instituted an investment tax credit, the interest rate would... - correct answer
✔✔rise and saving would rise
Which of the following expressions must be equal to national savings for a closed economy? -
correct answer ✔✔Y-C-G
Transfer payments are... - correct answer ✔✔not included in GDP because they are not
payments for currently produced goods or services
If the nominal interest rate is 10% and the inflation rate is 4%, the the real interest rate is... -
correct answer ✔✔6% (nom-inf)
One problem with the CPI stems from the fact that consumers, over time, tend to buy larger
quantities of goods that have become relatively less expensive and smaller quantities of goods
that have become relatively more expensive. The problem is called... - correct answer
✔✔substitution bias
Consider three items that might be included in the GDP: (1) the estimated rental value of
owner-occupied housing and (2) the purchases of newly constructed houses and (3) the rental
of an apartment. How are these three items accounted for when the GDP is calculated? -
correct answer ✔✔Item (1) and item (3) are included in the consumption component of GDP,
while item (2) is included in the investment component of GDP
How is the real rate of interest determined? - correct answer ✔✔The real rate interest rate is
determined by the equilibrium of the supply and demand for loanable funds
Which of the following occurs when the Ford Motor Company removes a 2013 Ford Taurus from
inventory and sells it to an American household for $22,000? - correct answer ✔✔US
complete solutions
Goods that go into inventory and are not sold during the current period are.. - correct answer
✔✔included in the current period GDP as inventory investment
The steps involved in calculating the consumer price index, in order, are as follows: - correct
answer ✔✔fix the basket, find the price, compute the baskets cost, choose a base year and
compute the index
Refer to the chart above. Supposed the typical consumer basket consists of 10 bushels of
peaches and 15 bushels of pecans. Using 2012 as the base year, the CPI for 2013 is... - correct
answer ✔✔120 and he inflation rate between 2012 and 2013 is 20%
Which of the following is included in the investment component of the US GDP? - correct
answer ✔✔Purchases of computes and office equipment by the US business firms
Which of the following agencies calculates the GDP? - correct answer ✔✔the Bureau of Labor
Services
The consumer price index (CPI) and the GDP deflator are two alternative measures of the
overall price level. Which of the following statements about the two is correct? - correct answer
✔✔The CPI basket includes imported goods; the GDP deflator reflects the prices of goods and
services produced domestically
Crowding out occurs when investment declines because... - correct answer ✔✔a government
budget deficit makes interest rates rise by shifting the supply of the loanable funds too the left
, An increase in the price of milk produced domestically will be reflected in... - correct answer
✔✔both the GDP deflator and the CPI
If Congress instituted an investment tax credit, the interest rate would... - correct answer
✔✔rise and saving would rise
Which of the following expressions must be equal to national savings for a closed economy? -
correct answer ✔✔Y-C-G
Transfer payments are... - correct answer ✔✔not included in GDP because they are not
payments for currently produced goods or services
If the nominal interest rate is 10% and the inflation rate is 4%, the the real interest rate is... -
correct answer ✔✔6% (nom-inf)
One problem with the CPI stems from the fact that consumers, over time, tend to buy larger
quantities of goods that have become relatively less expensive and smaller quantities of goods
that have become relatively more expensive. The problem is called... - correct answer
✔✔substitution bias
Consider three items that might be included in the GDP: (1) the estimated rental value of
owner-occupied housing and (2) the purchases of newly constructed houses and (3) the rental
of an apartment. How are these three items accounted for when the GDP is calculated? -
correct answer ✔✔Item (1) and item (3) are included in the consumption component of GDP,
while item (2) is included in the investment component of GDP
How is the real rate of interest determined? - correct answer ✔✔The real rate interest rate is
determined by the equilibrium of the supply and demand for loanable funds
Which of the following occurs when the Ford Motor Company removes a 2013 Ford Taurus from
inventory and sells it to an American household for $22,000? - correct answer ✔✔US
