Q&A Hero

Q: The level of real GDP the economy produces at full employment is A) nominal GDP. B) potential GDP. C) never reached in reality. D) called the Lucas level. E) real GDP.

Q: The level of real GDP the economy produces at full employment is called A) sustainable GDP. B) nominal GDP. C) potential GDP. D) maximum GDP. E) Lucas GDP.

Q: Which of the following would have the biggest payoff? A) restoring real GDP growth to its 1960s growth rate B) eliminating the Okun Gap C) increasing the Okun Gap D) making the Okun Gap equal the Lucas Wedge E) increasing the Lucas Wedge

Q: The Lucas Wedge is estimated to A) total over $406,000 per person as a result of the slowdown in the growth rate of real GDP. B) have reached about $13,000 per person in the last year. C) be about 2 percent of real GDP per year. D) be negative due to the severe recession in 2008-2009. E) be positive in some years and negative in others.

Q: The Lucas Wedge shows A) the negative impact a slowdown in real GDP growth has on potential GDP. B) the increased impact of government spending on real GDP. C) the negative impact inflation has on consumer spending. D) the positive impact lower taxes have on real GDP. E) whether a country needs to slow its real GDP growth rate.

Q: The Monetarist model expands the Keynesian model by proposing that A) decreases in the quantity of money lead to higher interest rates. B) the government should lower taxes promote economic growth. C) decreases in tax rates generate higher consumption. D) decreases in the growth rate of the quantity of money trigger expansions by controlling inflation. E) markets should be left alone to determine the optimal outcome.

Q: Which of the following ideas reflect the Monetarist macroeconomic model? i) The Monetarist model supports the Classical model, in general. ii) Decreases in the growth rate of the quantity of money trigger recessions. iii) Government intervention is an appropriate tool to steady the economy. A) i and ii B) i only C) i, ii and iii D) ii and iii E) i and iii

Q: According the Keynesian macroeconomic model, which of the following was responsible for starting the Great Depression? A) too little private spending B) too little government spending C) high taxes D) decreases in the quantity of money E) decreases in technology

Q: The Keynesian macroeconomic model states that A) the economy is inherently unstable and government intervention is required to maintain continued economic growth. B) markets work efficiently to produce the best macroeconomic outcomes. C) fluctuations in the quantity of money are responsible for most economic recessions. D) changes in technology generate business cycles. E) the economy is fairly stable.

Q: The Classical macroeconomic model proposes that A) government intervention is required to help the economy reach its potential. B) real GDP equals potential GDP as long as inflation equals zero. C) changes in the quantity of money are critical in driving economic growth. D) markets work efficiently to produce the best macroeconomic outcomes. E) socialism produces the most efficient economic outcomes for a society.

Q: Define the nominal wage rate and the real wage rate. Can the nominal wage rate increase faster than the real wage rate?

Q: To measure the CPI, the BLS economic assistants check the prices of A) about 8,000 goods and services every year. B) about 8,000 goods and services every month. C) about 80,000 goods and services every month. D) about 80,000 goods and services every year. E) only the goods and services whose prices have changed every month.

Q: Explain how the nominal wage rate is converted into the real wage rate. Explain why this process of conversion changes the nominal wage rate into the real wage rate.

Q: The Consumer Expenditure Survey measures A) households' spending patterns. B) the wholesale price on what consumers buy so that a markup percentage can be found. C) the maximum price buyers will pay for a good or service. D) consumers' incomes. E) the jobs at which consumers work.

Q: The table above has real and nominal GDP for two years for a foreign country.a. What does the GDP price index equal in 2010? What does the value of the GDP price index tell you about 2010?b. What does the GDP price index equal in 2011?

Q: Constructing the CPI involves which of the following stages? i. conducting the monthly price survey ii. converting the CPI to an international index iii. selecting CPI market basket A) i only B) ii only C) iii only D) i and iii E) i, ii, and iii

Q: If nominal GDP is $230 for a period and real GDP is $200 for the same period, what is the GDP price index for this period?

Q: The CPI is calculated by the Bureau of Labor Statistics on a frequency of every A) week. B) month. C) quarter. D) year. E) decade, along with the Census.

Q: For each of the following values of nominal GDP and real GDP, calculate the GDP price index. a. Nominal GDP = $600; real GDP = $800. b. Nominal GDP = $900; real GDP = $900. c. Nominal GDP = $1,200; real GDP = $1,000.

Q: For the CPI to provide an accurate measure of the prices paid by urban consumers, it is necessary to A) assign equal weights to all the goods and services included in the market basket surveyed so that nothing is over-weighted. B) have a market basket that is consistent and corresponds to what households actually purchase. C) have prices stated in dollars so consumers can compare what they spend. D) change the market basket each month to reflect the changes that consumers make. E) make certain that the incomes of the consumers surveyed do not change because such a change would affect the market basket of the goods and services they buy.

Q: Scott worked in a large foreign country. He retired in 2008 and his pension income is fixed at $1,500 per month. The table above gives the CPI in this country. What is the real monthly value of his pension in the years between 2008 and 2011?

Q: The Consumer Price Index measures the average prices paid by A) businesses for a fixed market basket of resources. B) businesses for the most frequently used basket of resources. C) urban consumers for a fixed market basket of goods and services. D) urban consumers for the goods and services that most frequently change in price. E) businesses and consumers for a market basket of goods and services.

Q: In 1979, the price of gasoline was $1.389 per gallon and the CPI was 72.6. In 2003, the price of gasoline was $1.589 per gallon and the CPI was 182.9. Find the real price of gasoline in 1979 and 2003 in terms of base period dollars.

Q: The Consumer Price Index (CPI) measures the changes of the A) prices paid by consumers for a fixed market basket of consumer goods and services. B) quantities of a fixed market basket of goods produced by businesses. C) lowest prices paid by consumers for a fixed market basket of consumer goods and services. D) prices paid by all businesses for a fixed market basket of production resources. E) prices paid by consumers and businesses for a fixed market basket of goods and services.

Q: In 1995, the CPI was 152.5 and the price of an economics textbook was $70.00 and a music CD was $16.00. If the CPI was 172.3 in 2011, what were the prices of the economics textbook and the music CD in 2011 dollars?

Q: The CPI is a measure of the A) percentage change in the price level. B) average prices of all goods. C) average prices paid by consumers for a fixed basket of goods and services. D) average prices of all goods and services produced. E) average change in the output of the goods and services purchased by a typical urban consumer.

Q: What is the difference between nominal variables and real variables? Discuss the calculations undertaken to determine the real wage rate and the real interest rate. Explain why the real wage rate and real interest rate are real variables.

Q: The Consumer Price Index is calculated by the A) Bureau of Labor Statistics. B) Department of Labor. C) Department of Commerce. D) Federal Reserve Bank of New York. E) Society for Consumer Protection.

Q: When the nominal price of a good increases over time, must its real price also increase?

Q: The CPI stands for A) Citizens Paying Index. B) Corporate Pricing Index. C) Consumer Paying Index. D) Consumer Price Index. E) Corporate/Consumer Payment Index.

Q: Explain the difference between a nominal value and a real value.

Q: What, if any, is the impact of the CPI bias on government spending and taxes?

Q: "The bias in the CPI distorts private contracts because a future payment that is linked to the CPI will be raised above the true increase in the price level." Is the previous sentence true or false?

Q: Explain the CPI bias and how it can distort private contracts and increase government outlays.

Q: What is the commodity substitution bias? What effect does it have on the CPI?

Q: "The new goods bias puts a downward bias into the CPI and its measure of the inflation rate." Is the previous sentence correct or not? Explain your answer.

Q: Is the CPI a biased measure of the inflation rate? Explain your answer.

Q: The table above gives the U.S. CPI for six years. Calculate the inflation rates between 1997 to 1998, 1998 to 1999, 1999 to 2000, 2000 to 2001, and 2001 to 2002.

Q: Last year the CPI was 177.1 and this year the CPI was 180.9. What is the inflation rate between these two years?

Q: If the CPI this year is 175.2 and next year the CPI is 176.1, what was the inflation rate over the year?

Q: The table above gives the CPI market basket for 2010 and 2011. Suppose that 2010 is the reference base period.a. What is the cost of the CPI market basket in 2010?b. What is the cost of the CPI market basket in 2011?c. What is the CPI for 2010?d. What is the CPI for 2011?

Q: The table above gives the purchases of a typical consumer in a country comprised of one large city. These consumers purchase only restaurant meals and parking. The year 2010 is the reference base period.a. Find the total cost of the CPI market basket for 2010 and 2011.b. What is the CPI in 2010 and in 2011?c. What is the inflation rate between 2010 and 2011?

Q: The table above gives the purchases of an average consumer in a small economy. (These consumers purchase only loaves of bread and jugs of soda.) Suppose 2010 is the reference base period.a. What quantities are in the CPI market basket?b. What is the cost of the CPI market basket using 2010 prices?c. What is the cost of the CPI market basket using 2011 prices?d. What is the CPI in 2011?

Q: If the base year CPI market basket costs $250 and next year the CPI market basket costs $275, what is next year's CPI?

Q: Assume that after you graduate, you move to a simple economy in which only three goods are produced and consumed: fish, fruit, and meat. Suppose that on January 1, fish sold for $2.50 per pound, meat was $3.00 per pound, and fruit was $1.50 per pound. At the end of the year, you discover that the catch was low and that fish prices had increased to $5.00 per pound, but fruit prices stayed at $1.50 per pound, and meat prices had actually fallen to $2.00. Can you say what happened to the overall CPI, in terms of whether it increased, decreased, or stayed the same? Do you have enough information to calculate the inflation rate? Note, this problem requires no calculation; just state and explain your answers.

Q: What is inflation and how is it measured using the Consumer Price Index?

Q: If you have the cost of the CPI market basket at current prices and the cost of the CPI market basket at base period prices, how do you calculate the CPI?

Q: "The market basket used to calculate the CPI is revised monthly to more accurately depict consumers' choices. The price data for the CPI are collected every month." Are the previous sentences true or false?

Q: What are the three stages of constructing the CPI?

Q: The GDP price index equalsi. nominal GDP divided by real GDP multiplied by 100.ii. a measure of the price level.iii. an average of current prices expressed as a percentage of base-year prices.A) i onlyB) ii and iiiC) iii onlyD) i and iiE) i, ii, and iii

Q: The GDP price index A) can be interpreted as 100 multiplied by real GDP divided by nominal GDP. B) is the difference between nominal GDP and real GDP. C) measures the average price level. D) can be interpreted as real GDP minus nominal GDP and the resulting difference then multiplied by 100. E) is equal to between real GDP minus nominal GDP.

Q: In the 1970s, a period of a high rate of inflation, a news magazine article listed people who were losing from inflation because their real purchasing power was falling. Those who lost the most were university professors. Which of the following explains this? A) The marginal benefit of their work was falling. B) Their wage rates did not increase as much as the CPI. C) Their wage rates increased more rapidly than the CPI. D) The professors suffered from the CPI bias. E) The professors' market basket was different than the market basket used to calculate the CPI.

Q: The trends displayed in the table can best be explained byA) the nominal wage rate has increased at a rate about equal to the inflation rate.B) the real wage rate has increased at a rate about equal to the inflation rate.C) service industries have increased as a proportion of the economy and they tend to have higher nominal wage rates.D) the inflation rate has been rising over the time period.E) None of the above can explain the trends in the figure.

Q: In the United States for the last 40 years, the nominal interest rateA) and the real interest rate both decreased in almost every year.B) and the real interest rate were both constant in almost every year.C) was constant in most years and the real interest rate fluctuated.D) exceeded the real interest rate in virtually all the years.E) exceeded the real interest rate in about one half of the years and the real interest rate was greater than the nominal interest rate in the other half of the years.

Q: You borrow at a nominal interest rate of 10 percent. If the inflation rate is 4 percent, then the real interest rate is A) the $10 in interest you have to pay. B) 16 percent. C) 2.5 percent. D) 6 percent. E) 14 percent.

Q: The real interest rate is equal to the A) nominal interest rate plus the inflation rate. B) nominal interest rate minus the inflation rate. C) nominal interest rate times the inflation rate. D) nominal interest rate divided by the inflation rate. E) inflation rate minus the nominal interest rate.

Q: Since 1981, the A) real wage rate increased steadily. B) nominal wage rate increased and the real wage rate did not change by very much. C) real wage rate increased more than the nominal wage rate. D) nominal wage rate increased at an uneven pace whereas the increase in the real wage rate was steady and constant. E) nominal wage rate and real wage rate both decreased.

Q: The average starting salary for a history major is $29,500. If the CPI was 147.5, the real salary is A) $200.00 an hour. B) $20,000. C) $35,000. D) $43,513. E) $14,750.

Q: The nominal wage rate is the A) minimum hourly wage that a company can legally pay a worker. B) average hourly wage rate measured in the dollars of a given reference base year. C) minimum hourly wage rate measured in the dollars of a given reference base year. D) average hourly wage rate measured in current dollars. E) wage rate after inflation has been adjusted out of it.

Q: Nominal GDP was $12.1 trillion and real GDP is $11 trillion. The GDP price index is ________. A) 90.1 B) 121.0 C) 1.10 D) 91.0 E) 110.0

Q: If real GDP is greater than nominal GDP then the GDP price index A) is greater than 100. B) is less than 100. C) is equal to 100. D) is either equal to or greater than 100. E) None of the above answers is correct because we need to choose a new base year.

Q: Nominal GDP is $12.1 trillion and real GDP is $11.0 trillion. The GDP price index is A) 90.1. B) 121. C) 1.10. D) 91.0. E) 110.

Q: In 1970 the CPI was 39, and in 2000 it was 172. A local phone call cost $0.10 in 1970. What is the price of this phone call in 2000 dollars? A) $1.42 B) $0.39 C) $1.72 D) $0.44 E) $0.23

Q: In 2011, apples cost $1.49 a pound. Suppose the CPI was 120 in 2011 and 140 in 2012. If there is no change in the real price of an apple in 2012, what is the price of a pound of apples in 2012? A) $2.74 B) $1.69 C) $1.66 D) $1.74 E) $1.28

Q: Looking at real and nominal interest rates in the United States since 1971, we see that the A) nominal interest rate has at times been negative. B) real interest rate has been greater than 10 percent for most years. C) real interest rate has at times been negative. D) real interest rate was above 5 percent during the low inflation of the 1970s. E) real interest is generally greater than the nominal interest rate.

Q: If we look at real and nominal interest rates in the United States since 1971, we see that A) the nominal interest rate has always been less than the real interest rate because of inflation. B) the real interest rate has almost always been less than the nominal interest rate because of inflation. C) at times the nominal interest rate has been greater than the real interest rate and at times has been less than it. D) the difference between the nominal and real interest rates has widened during the 1990s because of inflation. E) both the nominal and real interest rates were negative in the highly inflationary 1970s.

Q: The CPI was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 1.4 percent. What was the real interest rate during this period? A) 3.2 percent B) 1.8 percent C) 4.6 percent D) -3.2 percent E) -1.8 percent

Q: The table above has information about the CPI, nominal wage rate, and nominal interest rate for the country of Syldavia for the years 2010 to 2012. The reference base year is 2010. The real interest rate in Syldavia during 2012 was A) 2.8 percent. B) 5.2 percent. C) 9.0 percent. D) 0.6 percent. E) 8.4 percent.

Q: The table above has information about the CPI, nominal wage rate, and nominal interest rate for the country of Syldavia for the years 2010 to 2012. The reference base year is 2010. The real wage rate in Syldavia during 2011 was A) $14.00. B) $15.00. C) $15.79. D) $14.22. E) $14.25.

Q: The table above has information about the CPI, nominal wage rate, and nominal interest rate for the country of Syldavia for the years 2010 to 2012. The reference base year is 2011. The inflation rate in Syldavia from 2011 to 2012 was A) 8.0 percent. B) 8.4 percent. C) 3.0 percent. D) 4.0 percent. E) 10.3 percent.

Q: The table above has information about the CPI, nominal wage rate, and nominal interest rate for the country of Syldavia for the years 2010 to 2012. The reference base year is 2010. The inflation rate in Syldavia from 2010 to 2011 was A) -5.0 percent. B) 5.0 percent. C) 9.5 percent. D) 3.0 percent. E) -9.5 percent.

Q: If you have a mortgage on your house at 6 percent and the inflation rate when the mortgage was acquired was 3 percent but has since increased and is now 8 percent per year; the current real interest rate is A) 14 percent per year. B) 6 percent per year. C) 0 percent per year. D) -2 percent per year. E) 8 percent per year.

Q: If the real interest rate is 7 percent when the nominal interest is 12 rate is percent, the inflation rate is A) -5 percent. B) 5 percent. C) 19 percent. D) 1.7 percent. E) 7 percent.

Q: If the real interest rate is 5 percent when the inflation rate is 4 percent, the nominal interest rate is A) 1 percent. B) 9 percent. C) 20 percent. D) .80 percent. E) 1.25 percent.

Q: Caroline has saved $100,000 for her retirement. She earned 4 percent interest on that money during the year 2013. If the inflation rate was 1 percent in 2013, what was Caroline's real interest rate? A) $4,000 B) 4 percent C) 3 percent D) 1 percent E) 5 percent

Q: Chloe has a $15,000 personal loan at a nominal interest rate of 8 percent. If the inflation rate is 3 percent, what is the real interest rate paid on the loan? A) 8 percent B) 5 percent C) 11 percent D) 3 percent E) 2.67 percent

Q: Citicorp charges an 11 percent interest rate on all new car loans. If the inflation rate is 6 percent, Citicorp receives a real interest rate of A) 11 percent. B) 6 percent. C) 1.83 percent. D) 5 percent. E) 0.54 percent.

Q: If the bank returns $1,060 on the $1,000 deposited for a year during which inflation was 4 percent, the real interest rate is A) 6 percent. B) 10 percent. C) -2 percent. D) 2 percent. E) 16 percent.

Q: If the CPI is 170 at the beginning of the year and 181 at the end, and a bank is paying a nominal interest rate of 6 percent, we see that A) the real interest rate is negative. B) the interest nominal rate is negative. C) the real interest rate is positive and is less than 1 percent. D) the real interest rate is positive and is larger than 1 percent. E) the real interest rate is equal to zero.

Q: Which of the following is true? A) The real interest rate is always positive. B) The nominal interest rate is usually negative. C) The real interest rate can be negative. D) The real interest rate can never be zero. E) The nominal interest rate is usually less than the real interest rate.