Economics 102
Practice
Questions 2
Spring 2001
I. Concepts:
Aggregation
Business cycle
From the
definition of GDP:
The total value
Of all final
Goods and
services
Produced
For the
marketplace
During a given
year
Within the nation’s
borders
Investment
Consumption
Net exports
Value added
Labor force
Full employment
Frictional
unemployment
Seasonal
unemployment
Structural
unemployment
Cyclical
unemployment
The consumer
price index
Inflation rate
Deflation
Real variable
Nominal variable
Indexation
Consumer price
index
GDP price index
II. 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. I 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.
III. 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
|
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.