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Krugman/Wells

7. >>. Tracking the Macroeconomy. Krugman/Wells. CHECK YOUR UNDERSTANDING. Check Your Understanding 7-1 Questions 1-3. 1) Which of the following statements is true about the three methods to calculate GDP?.

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Krugman/Wells

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  1. 7 >> Tracking the Macroeconomy Krugman/Wells CHECK YOUR UNDERSTANDING

  2. Check Your Understanding 7-1Questions 1-3

  3. 1) Which of the following statements is true about the three methods to calculate GDP? • The total value added of all domestically produced final goods is less than the total spending on domestically produced final goods and services because services are not included in the value added component. • The total spending on domestically produced final goods and services is less than the total value added of all domestically produced final goods because the value added component incorporates efficiencies achieved through technology. • Total spending on domestically produced final goods and services and total factor income are equal because all spending that is channeled to firms to pay for purchases of domestically produced final goods and services is revenue for firms. • There are three methods for calculating GDP that usually produce different results.

  4. 2a) How are households NOT linked with other sectors of the economy? • They are linked to the rest of the world through exporting goods and services. • They are linked with firms through purchases from firms of final goods and services. • They are linked to the government through their payment of taxes. • They are linked to the government through their lending of funds to the government to finance government borrowing via the financial markets.

  5. 2b) The various sectors to which firms make sales are households, the government, the rest of the world and other firms. • True • False

  6. 3) Consider the table below and suppose you mistakenly believed that total value added was $30,500, the sum of the sales price of a car and a car’s worth of steel. What items would you be counting twice? • You would be counting the wage used to assemble the car twice. • You would be counting the total payment to factors twice. • You would be counting the value of steel twice. • None of the above.

  7. Check Your Understanding 7-2Question 1

  8. 1ai*) In 2006, 1,000,000 servings of french fries were sold at $0.40 each and 800,000 servings of onion rings at $0.60 each. From 2006 to 2007, the price of french fries rose by 25% and the servings sold fell by 10%; the price of onion rings fell by 15% and the servings sold rose by 5%. What was the price and quantity of french fries in 2007? • $0.65; 900,000 • $0.50; 900,000 • $0.50; 1,000,000 • $0.30; 600,000

  9. 1aii*) In 2006, 1,000,000 servings of french fries were sold at $0.40 each and 800,000 servings of onion rings at $0.60 each. From 2006 to 2007, the price of french fries rose by 25% and the servings sold fell by 10%; the price of onion rings fell by 15% and the servings sold rose by 5%. What was the price and quantity of onion rings in 2007? • $0.65; 900,000 • $0.50; 900,000 • $0.51; 840,000 • $0.45; 805,000

  10. 1ai) Nominal GDP in 2006 is _______. • $864,000 • $980,000 • $880,000 • $878,400

  11. 1aii) Nominal GDP in 2007 is _______. • $864,000 • $980,000 • $880,000 • $878,400

  12. 1aiii) Real GDP (using 2006 as a base year) in 2007 is _______. • $864,000 • $980,000 • $880,000 • $700,000

  13. 1bi*) Nominal GDP changed by ______ . • -0.18% • -1.8% • 1.6% • 1.9%

  14. 1bii*) Real GDP changed by ______ . • -0.18% • -1.8% • 1.6% • 1.9%

  15. 2. From 1990 to 2000, the price of electronic equipment fell dramatically and the price of housing rose dramatically. If 1990 is used as a base year to calculate 2007 real GDP, the price of electronics will be overstated. • True • False

  16. Check Your Understanding 7-3Questions 1-3

  17. 1. Using the table calculate the post frost price index that includes 100 oranges, 50 grapefruits, and 200 lemons. • 100 • 180 • 80 • 56

  18. 2a) A typical family owns more cars than it would have a decade ago. Over that time, the average price of a car has increased more than the average price of other goods. Using a 10-year-old market basket would underestimate inflation. • True • False

  19. 2b) Virtually no households had broadband Internet access a decade ago. Now many households have it, and the price has regularly fallen each year. Using a 10-year-old market basket would underestimate inflation. • True • False

  20. 3. The consumer price index in the US was 201.6 in 2006 and 207.3 in 2007. What is the inflation rate between 2006 and 2007? • 5.7% • 2.7% • 2.8%

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