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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 C) never far out of date.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: 5. All of the following are costs of fully expected inflation except that expected inflation:

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Page 2 6. All of the following are a flow except : 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.
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