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Consumer Price Index (CPI)

1. Suppose that 1967 is the base year for the Consumer Price Index (CPI) and in 1988 the CPI is 340. What does this "340" mean?

a.) What cost $100 in 1967 will cost 340 times as much in 1988.
b.) What cost $100 in 1967 will cost $340 more in 988.
c.) What cost $100 in 1967 will cost 100/340 (or .2941) times as much in 1988(that is, it will cost $29.41 in 1988).
d.) What cost $100 in 1967 will cost $240 more in 1988.

2. Suppose the government decides that every family should own its own home. To
bring this about, the government decides to subsidize the home-construction industry by giving the home-construction companies $10,000 for every house that they build. As a result of this,

a.) the supply curve of new houses would shift leftward, since it now costs
$10,000 more for builders to produce a house.
b.) the demand curve for new houses would shift rightward, since now every
family would want to buy a house.
c.) the demand curve for new houses would shift leftward.
d.) the supply curve of new houses would shift rightward, since builders would be willing to produce and sell more houses at each given price.
e.) c and d

3. Persons who are retired or engaged in own-home housework are considered to be
in which of the following categories?

a.) in the civilian labor force
b.) not in the labor force
c.) employed
d.) unemployed

4. Gross Domestic Product (GDP) is the total market value of all

a.) final goods and services produced annually within a country's borders.
b.) final and intermediate goods and services produced annually within a country's borders.
c.) intermediate goods and services produced annually within a country's borders.
d.) final goods and services produced every two years within a country's borders.

5. It takes a U.S. worker one hour to produce one steer and one hour to produce a
Personal computer. The hours for Brazilian workers is one point five and five respectively.

a.) neither worker has comparative advantage in this case
b.) the Brizilian workers has comparative advantage in both goods
c.) the U.S. worker has absolute advantage in both goods
d.) a and b

6. Which of the following would not be included in the measurement of GDP?

a.) value of the services of a painter who paints your garage
b.) value of the services of a person who mows his or her own lawn
c.) value of the services of a maid who cleans your house
d.) value of the services of a plumber who fixes your kitchen sink

7. Suppose the total market value of all final goods and services produced this year
in economy X is $4 million. Of the $4 million worth of goods, $3 million sold and $1 million is held in inventory. For this year, the GDP for economy X is

a.) $4 million.
b.) $3 million.
c.) $1 million
d.) $7 million
e.) none of the above

8. An aggregate demand (AD) curve shows the

a.) amount of a particular good people are willing and able to buy at a
particular price, ceteris paribus.

b.) real output (Real GDP) people are willing and able to sell at different
price levels, ceteris paribus.

c.) real output (Real (3DP) people are willing and able to buy and to sell at
different price levels, ceteris paribus.

d.) real output (Real GDP) people are willing and able to buy at different
price levels, ceteris paribus.

9. As the price level rises, ceteris paribus, people holding some of their wealth in
monetary form become

a.) less wealthy and they buy less.
b.) more wealthy and they buy more.
c.) less wealthy and they but more.
d.) More wealthy and they buy less.

9. A federal budget deficit
a.) occurs when expenditures outstrip tax receipts.
b.) occurs when tax receipts outstrip expenditures.
c.) occurs when transfer payments outstrip tax receipts.
d.) is the sum total of the IOUs the federal government owes its creditors.
e.) is the sum of all past budget deficits and surpluses.

10. If consumption changes because of a change in a nonprice factor, then the
a.) economy moves from one point on an AD curve to another point on the
same curve.
b.) AD curve shifts.
c.) Economy moves from one point on an aggregate supply(AS) curve to anothet point on the same curve.
d.) AS cure shifts.
e.) none of the above.

11. The social security tax charges a constant rate on income up to a limit
(say, $70,000) and goes to zero after it reaches the limit. The tax is therefore
_________up to the limit, but ________if we compare people who earn below the
limit to those whose earnings are above the limit.

a.) progressive, regressive
b.) proportional, regressive
c.) regressive, proportional
d.) proportional, progressive

12. If the SRAS curve intersects the AD curve to left of Natural Real GDP, the
economy is

a.) in a recessionary gap.
b.) at Natural Real GDP.
c.) in an inflationary gap.
d.) at full-employment Real GDP

13. Which of the following is a correct listing of money's functions?

a.) source of credit, value of transaction costs, unit of barter
b.) medium of barer, medium of exchange, medium of transactions
c.) unit of barter, unit of account, a unit of income
d.) store of value, store of exchange, measure of account
e.) store of value, medium of exchange, unit of account

14. The requirement of a "double coincidence of wants" is the chief _________of the
___________exchange system.
a.) advantage; barter
b.) advantage; monetary
c.) disadvantage; barter
d.) disadvantage; monetary

15. Suppose the economy is at a position below the physical production possibilities
frontier but above the institutional production possibilities frontier. In response to this situation, Keynesian economists would propose that government enact ___________ fiscal policy to correct this ___________gap by ___________government purchases.

a.) expansionary; inflationary; increasing
b.) contractionary; inflationary;decreasing
c.) expansionary; recessionary;increasing
d.) contractionary; recessionary; decreasing
e.) contractionary; inflationary; increasing

Solution Preview

1. Suppose that 1967 is the base year for the Consumer Price Index (CPI) and in 1988 the CPI is 340. What does this "340" mean?

a.) What cost $100 in 1967 will cost 340 times as much in 1988.
b.) What cost $100 in 1967 will cost $340 more in 988.
c.) What cost $100 in 1967 will cost 100/340 (or .2941) times as much in 1988(that is, it will cost $29.41 in 1988).
d.) What cost $100 in 1967 will cost $240 more in 1988.
Correct as the index started at 100, not 1.

2. Suppose the government decides that every family should own its own home. To
bring this about, the government decides to subsidize the home-construction industry by giving the home-construction companies $10,000 for every house that they build. As a result of this,

a.) the supply curve of new houses would shift leftward, since it now costs
$10,000 more for builders to produce a house.
b.) the demand curve for new houses would shift rightward, since now every
family would want to buy a house.
c.) the demand curve for new houses would shift leftward.
d.) the supply curve of new houses would shift rightward, since builders would be willing to produce and sell more houses at each given price.
This policy would increase supply, but not necessarily demand (unless the home builders also lowered the price to stimulate demand).
e.) c and d

3. Persons who are retired or engaged in own-home housework are considered to be
in which of the following categories?

a.) in the civilian labor force
b.) not in the labor force
Correct
c.) employed
d.) unemployed

4. Gross Domestic Product (GDP) is the total market value of all

a.) final goods and services produced annually within a country's borders.
Correct
b.) final and intermediate goods and services produced ...

Solution Summary

Consumer Price Index (CPI), government economic policy, GDP, and other economics multiple choice questions

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