Practice Questions 2-
I. True/False and explain:
1. One of the macro economics goals is to have rapid growth.
2. In an economy with inflation a larger nominal GDP always means real growth.
3. In an economy with inflation a larger real GDP always means real growth.
4. In an economy without inflation a larger nominal GDP always means real growth.
5. Output and unemployment are inversely related, when the unemployment rate is larger, the GDP is larger.
6. Microeconomics never uses aggregation.
7. While measuring production we count every good or service produced in the economy, including both final and intermediate goods and services.
8. When someone buys a used car, since it cost him/her some money, then it has to be part of GDP.
9. If I pay my son for washing my car that is part of GDP, but if I wash it myself, it is not.
10. If I take the same car to the carwash to be washed then this would be included in GDP.
11. If I am a US resident, even if I work in South Africa, my production will be part of US GDP.
12. If I work in South Africa, even if I am a US resident, my production will be part of the South African GDP.
13. If I am a US resident, even if I work in South Africa, my production will be part of the US GNP.
14. If I work in South Africa, even if I am a US resident, my production will be part of the South African GNP.
15. If a statistician is working for a survey center, then we can measure his production and his work will be part of GDP.
16. If a statistician works as a consultant, then, since he is not producing any type of goods his work won't be part of GDP.
17. If a 14 year old boy is working for pay, then he is part of the labor force.
18. If a 16 year old boy is working for pay, then he is part of the labor force.
19. If a 16 year old student is working for pay, then he is part of the labor force.
20. If a 16 year old student is not working now, then he is part of the labor force.
21. If the unemployment rate is 6% and in fact there are 6 million of unemployed people, then there are 94 million employed people.
22. Some countries are very worried because they cannot achieve 0 % employment rate.
23. Some countries are very worried because they cannot achieve 0 % cyclical employment rate.
24. The Consumer Price Index uses the same basket of goods and services over time.
25. The Consumer Price Index includes goods and services purchased not only by consumers but also by businesses.
26. If the CPI (base 1983} for 1999 is 168 that means that consumers in 1999 needed 68% more money to buy exactly the same basket of goods and services as they did in 1983.
27. If the CPI (base 1983} for 1999 is 168 that means that consumers in 1999 were spending 68% more.
28. If the nominal wages are today 12% greater than last year and the inflation rate during the same period was 10%, then the real wage is approximately 2% larger.
29. The real interest rate is the nominal interest rate plus the inflation rate.
30. The way to compute the CPI contradicts economic theory.
II. Short Answer Problems:
1. Suppose that the economy of Springfield is a closed economy composed of only two firms. Mr. Cake produces cake and Mr. Pizza produces pizza. Use the following information to answer this question.
|
Year
|
Mr. Cake's Production
|
Price of Cakes
|
Mr. Pizza's Production
|
Price of Pizzas
|
|
1999
|
100
|
20
|
150
|
10
|
|
2000
|
100
|
22
|
170
|
12
|
|
2001
|
120
|
22
|
180
|
15
|
a. Calculate the nominal GDP for this economy for the given years.
b. Calculate the rate of change on the nominal GDP from 1999 to 2000 and from 2000 to 2001.
c. Calculate the CPI for 1999, 2000, and 2001 using 1999 as the base year.
d. Using the CPIs found in (d), calculate the real GDP for each year.
e. Calculate the rate of change on the real GDP from 1999 to 2000 and from 2000 to 2001.
2. Suppose the information below represents an average family in the US.
|
Year
|
Husband wage
|
Wife wage
|
CPI Base 1983
|
|
1999
|
110
|
120
|
175
|
|
2000
|
110
|
100
|
180
|
|
2001
|
120
|
120
|
200
|
a. Calculate nominal income in 1999, 2000 and 2001.
b. Calculate the rate of change in nominal income from 1999 to 2000 and from 2000 to 2001.
c. Using a simple price index (like the process used for the CPI) and 1999 as your base year, calculate a price index for 1999, 2000, and 2001.
d. Using the index numbers calculated in (c), calculate the real income for this family in 1999, 2000, and 2001.