Microsoft Word - exam1-1

# Microsoft Word - exam1-1 - 1. A fixed-weight price index...

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Page 1 1. A fixed-weight price index like the CPI ______ the change in the cost of living because it ______ take into account that people can substitute less expensive goods for ones that have become more expensive. A) overestimates; does B) overestimates; does not C) underestimates; does not D) accurately estimates; does 2. The new chain-weighted measures of real GDP are an improvement over traditional measures because the prices used to compute real GDP are: A) always from the same base year. B) chained to the CPI. C) never far out of date. D) imputed. 3. Suppose that GDP ( Y ) is 5,000. Consumption is given by the equation C = 500 + 0.5( Y - T ). Investment ( I ) is given by the equation I = 2,000 - 100 r , where r is the real interest rate in percent. Government spending ( G ) is 1,000 and taxes ( T ) is also 1,000. When a technological innovation changes the investment function to I = 3,000 - 100 r : A) I is unchanged and r rises by 10 percentage points. B) I is unchanged and r rises by 15 percentage points. C) I rises by 1,000 and r is unchanged. D) I rises by 1,000 and r rises by 10 percentage points. 4. When factor supply is fixed and quantity of the factor is graphed on the horizontal axis while factor price is graphed on the vertical axis, the factor: A) supply curve slopes up to the right. B) demand curve slopes up to the right. C) supply curve is vertical. D) supply curve is horizontal. 5. All of the following are costs of fully expected inflation except that expected inflation: A) causes lower real wages. B) leads to shoeleather costs. C) increases menu costs. D) leads to taxing of nominal capital gains that are not real.

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Page 2 6. All of the following are a flow except : A) the government debt. B) the number of new automobile purchases. C) the number of people losing their jobs. D) business expenditures on plant and equipment. 7. Assume that apples cost \$0.50 in 2002 and \$1 in 2007, whereas oranges cost \$1 in 2002 and \$1.50 in 2007. If 4 apples were produced in 2002 and 5 in 2007, whereas 3 oranges were produced in 2002 and 5 in 2007, then the GDP deflator in 2007, using a base year of 2002, was approximately: A) 1.9. B) 1.5. C) 2.0. D) 1.7. 8. Assume that apples cost \$0.50 in 2002 and \$1 in 2007, whereas oranges cost \$1 in 2002 and \$0.50 in 2007. If 10 apples and 5 oranges were produced in 2002, and 5 apples and 10 oranges were produced in 2007, the CPI for 2007, using 2002 as the base year, is: A) 0.80. B) 1.25.
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## This note was uploaded on 11/17/2009 for the course ECO 121212 taught by Professor Smith during the Spring '09 term at Culver-Stockton.

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Microsoft Word - exam1-1 - 1. A fixed-weight price index...

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