ECO121

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STUDENT INFORMATION
Name: BÙI THỊ THU HƯỜNG Roll number: HS170958
Room No: BE119 Class: MKT1813

FOR TEACHER ONLY

MARK MARKED BY Signature of Proctor
(NAME AND SIGNATURE)

Quizz 01
Multiple choices

QN=1 (17719) When an economist points out that you and millions of other people are
interdependent, he or she is referring to the fact that we all111
a. rely upon the government to provide us with the basic necessities of life.
b. rely upon one another for the goods and services we consume.
c. have similar tastes and abilities.
d. are concerned about one another’s well-being.

QN=2 (17723) When each person specializes in producing the good in which he or she has a
comparative advantage, total production in the economy11
a. falls.
b. stays the same.
c. rises.
d. may fall, rise, or stay the same.

QN=3 (17730) Assume for Namibia that the opportunity cost of each hut is 200 bowls. Then
which of these pairs of points could be on Namibia's production possibilities
frontier?1111
a. (200 huts, 30,000 bowls) and (150 huts, 35,000 bowls)
b. (200 huts, 40,000 bowls) and (150 huts, 30,000 bowls)
c. (300 huts, 50,000 bowl) and (200 huts, 60,000 bowls)
d. (300 huts, 60,000 bowls) and (200 huts, 80,000 bowls)

QN=4 (17733) Suppose that a worker in Boatland can produce either 5 units of wheat or 25
units of fish per year, and a worker in Farmland can produce either 25 units of
wheat or 5 units of fish per year. There are 30 workers in each country. No
trade occurs between the two countries. Boatland produces and consumes 75
units of wheat and 375 units of fish per year while Farmland produces and
consumes 375 units of wheat and 75 units of fish per year. If trade were to
occur, Boatland would trade 90 units of fish to Farmland in exchange for 80
units of wheat. If Boatland now completely specializes in fish production, how
many units of fish could it now consume along with the 80 units of imported
wheat?222
a. 490 units
b. 500 units
c. 610 units
d. 660 units

QN=5 Refer to Figure 3-7. The opportunity cost of 1 bowl for Juba is
(17761) 22

a. 1/4 cup.
b. 2/3 cup.
c. 3/2 cups.
d. 4 cups.

QN=6 (17718) People who provide you with goods and services22
a. are acting out of generosity.
b. do so because they get something in return.
c. have chosen not to become interdependent.
d. are required to do so by the government.

QN=7 (17732) Suppose that a worker in Cornland can grow either 40 bushels of corn or 10
bushels of oats per year, and a worker in Oatland can grow either 5 bushels of
corn or 50 bushels of oats per year. There are 20 workers in Cornland and 20
workers in Oatland. If the two countries do not trade, Cornland will produce
and consume 400 bushels of corn and 100 bushels of oats, while Oatland will
produce and consume 60 bushels of corn and 400 bushels of oats. If each
country made the decision to specialize in producing the good in which it has a
comparative advantage, then the combined yearly output of the two countries
would increase by3333
a. 280 bushels of corn and 450 bushels of oats.
b. 340 bushels of corn and 500 bushels of oats.
c. 360 bushels of corn and 520 bushels of oats.
d. 360 bushels of corn and 640 bushels of oats.

QN=8 Refer to Figure 3-3. Enid has an absolute advantage in the production of
(17758) 3

a. burritos and a comparative advantage in the production of tacos.

b. burritos and a comparative advantage in the production of burritos.
c. neither good and a comparative advantage in the production of tacos.
d. neither good and a comparative advantage in the production of burritos.

QN=9 (17728) By definition, imports are33

a. people who work in foreign countries.
b. goods in which a country has an absolute advantage.
c. limits placed on the quantity of goods leaving a country.
d. goods produced abroad and sold domestically.
QN=10 Refer to Table 3-11. Assume that Falda and Varick each has 1 hour available. If each person
(17755) divides their time equally between the production of wheat and cloth, then total production is
44

a. 4 bushels of wheat and 7.5 yards of cloth.

b. 7 bushels of wheat and 13.5 yards of cloth.
c. 8 bushels of wheat and 15 yards of cloth.
d. 14 bushels of wheat and 27 yards of cloth.

QN=11 Refer to Table 3-5. Spain should export

(17752) 44

a. cheese and import bread.

b. bread and import cheese.
c. both goods and import neither good.
d. neither good and import both goods.

QN=12 Refer to Table 3-6. The opportunity cost of 1 dress for Carlos is
(17739) 4444
a. 1/2 quilt.
b. 2 hours of labor.
c. 2 quilts.
d. 45 hours of labor.

QN=13 Refer to Table 3-4. The opportunity cost of 1 pound of potatoes for the farmer is
(17749) 5555

a. 1/5 pound of meat.

b. 2 hours of labor.
c. 5 pounds of meat.
d. 5 hours of labor.

QN=14 Refer to Table 3-2. At which of the following prices would both Aruba and Iceland gain from
(17736) trade with each other?
555
a. 2 radios for 4 coolers
b. 2 radio for 6 coolers
c. 2 radio for 10 coolers
d. Aruba and Iceland could not both gain from trade with each other at any price.

QN=15 Refer to Figure 3-4. If Perry and Jordan each spends all their time producing the good in
(17740) which they have a comparative advantage and trade takes place at a price of 1 novel for 7
poems, then
66

a. Perry and Jordan will both gain from this trade.

b. Perry will gain from this trade, but Jordan will not.
c. Jordan will gain from this trade, but Perry will not.
d. neither Perry nor Jordan will gain from this trade.

QN=16 Refer to Figure 3-6. Daisy has an absolute advantage in the production of
(17760) 6666
a. both goods and a comparative advantage in the production of pies.
b. both goods and a comparative advantage in the production of tarts.
c. neither good and a comparative advantage in the production of pies.
d. neither good and a comparative advantage in the production of tarts.

QN=17 (17720) What must be given up to obtain an item is called777

a. out-of-pocket cost.
b. comparative worth.
c. opportunity cost.
d. absolute value.

QN=18 Refer to Figure 3-5. Puneet has an absolute advantage in the production of
(17759) 777
a. purses and Chirag has an absolute advantage in the production of wallets.
b. wallets and Chirag has an absolute advantage in the production of purses.
c. both goods and Chirag has an absolute advantage in the production of neither good.
d. neither good and Chirag has an absolute advantage in the production of both goods.

QN=19 (17725) Adam Smith88

a. and David Ricardo both opposed free trade.
b. opposed free trade, but David Ricardo supported it.
c. supported free trade, but David Ricardo opposed it.
d. and David Ricardo both supported free trade.

QN=20 Refer to Table 3-11. Varick has a comparative advantage in the production of
(17756) 8

a. wheat.
b. cloth.
c. both goods.
d. neither good.

QN=21 (17731) Suppose that a worker in Radioland can produce either 4 radios or 1 television
per year, and a worker in Teeveeland can produce either 2 radios or 4 televisions
per year. Each nation has 100 workers. Also suppose that each country
completely specializes in producing the good in which it has a comparative
advantage. If Radioland trades 100 radios to Teeveeland in exchange for 100
televisions each year, then each country's maximum consumption of new radios
and televisions per year will be99
a. 100 radios, 300 televisions in Radioland and 300 radios, 100 televisions in
Teeveeland.
b. 300 radios, 100 televisions in Radioland and 100 radios, 300 televisions in
Teeveeland.
c. 200 radios, 100 televisions in Radioland and 100 radios, 200 televisions in
Teeveeland.
d. 300 radios, 100 televisions in Radioland and 100 radios, 400 televisions in
Teeveeland.

QN=22 Refer to Table 3-1. What is Sardi’s opportunity cost of producing one bushel of corn?
(17735) 9999

a. 3/5 pound of pork

b. 6/5 pounds of pork
c. 4/3 pounds of pork
d. 5/3 pounds of pork

QN=23 Refer to Table 3-5. The opportunity cost of 1 unit of cheese for Spain is
(17750) 9999
a. 1/2 unit of bread.
b. 2 hours of labor.
c. 2 units of bread.
d. 4 hours of labor.

QN=24 (17742) Refer to Figure 3-9. If Uzbekistan and Azerbaijan switch from each country
dividing its time equally between the production of bolts and nails to each
country spending all of its time producing the good in which it has a
comparative advantage, then total production will increase by10
a. 5 bolts and 10 nails.
b. 15 bolts and 40 nails.
c. 20 bolts and 50 nails.
d. 30 bolts and 80 nails.

QN=25 Refer to Table 3-9. Barb has an absolute advantage in

(17754) 10101010

a. both setting up and testing computers and a comparative advantage in setting up computers.
b. both setting up and testing computers and a comparative advantage in testing computers.
c. neither setting up nor testing computers and a comparative advantage in setting up computers.
d. neither setting up nor testing computers and a comparative advantage in testing computers.

QN=26 (17722) Which of the following is not correct?1010

a. The producer who requires a smaller quantity of inputs to produce a good is said
to have an absolute advantage in producing that good.
b. The producer who gives up less of other goods to produce Good X has the
smaller opportunity cost of producing Good X.
c. The producer who has the smaller opportunity cost of producing a good is said
to have a comparative advantage in producing that good.
d. The gains from specialization and trade are based not on comparative advantage
but on absolute advantage.

QN=27 (17727) Which of the following is not correct?1111

a. Economists are generally united in their support of free trade.
b. The conclusions of Adam Smith and David Ricardo on the gains from trade have
held up well over time.
c. David Ricardo argued that Britain should not restrict imports of grain.
d. Economists’ opposition to trade restrictions is still based largely on the principle
of absolute advantage.

QN=28 (17726) Which famous economist developed the principle of comparative advantage as
we know it today?11111111
a. Adam Smith
b. David Ricardo
c. John Maynard Keynes
d. Milton Friedman

QN=29 (17747) A country that currently does not trade with other countries could benefit
by111111
a. restricting imports and promoting exports.
b. promoting imports and restricting exports.
c. restricting both imports and exports.
d. not restricting trade.

QN=30 Refer to Figure 3-3. If Enid must work 0.25 hour to produce each taco, then her production
(17757) possibilities frontier is based on how many hours of work?
11111111
a. 40 hours
b. 100 hours
c. 400 hours
d. 1600 hours

QN=31
(17744) If the production possibilities frontier is bowed outward, then “?” could be1212

a. 50.
b. 75.
c. 100.
d. 125.

QN=32 (17729) By definition, exports are1212

a. limits placed on the quantity of goods brought into a country.
b. goods in which a country has an absolute advantage.
c. people who work in foreign countries.
d. goods produced domestically and sold abroad.

QN=33 Refer to Table 3-6. Assume that Hilda and Carlos each has 90 hours available. Originally, each
(17738) person divided their time equally between the production of quilts and dresses. Now, each
 person spends all their time producing the good in which they have a comparative advantage. As
a result, the total output of dresses increased by
13131313

a. 3.5.
b. 4.5.
c. 5.5.
d. 9.0.

QN=34 Refer to Table 3-2. Aruba’s opportunity cost of one cooler is

(17737) 13131313

a. 0.4 radio and Iceland’s opportunity cost of one cooler is 0.25 radio.
b. 0.4 radio and Iceland’s opportunity cost of one cooler is 4 radios.
c. 2.5 radios and Iceland’s opportunity cost of one cooler is 0.25 radio.
d. 2.5 radios and Iceland’s opportunity cost of one cooler is 4 radios.

QN=35 (17745) Absolute advantage is found by comparing different producers’131313

a. opportunity costs.
b. payments to land, labor, and capital.
c. input requirements per unit of output.
d. locational and logistical circumstances.

QN=36 Refer to Figure 3-4. The opportunity cost of 1 novel for Jordan is
(17741) 131313
a. 1/3 poem.
b. 3 poems.
c. 4 poems.
d. 12 poems.

QN=37 Refer to Table 3-5. England has a comparative advantage in the production of
(17751) 14

a. cheese and Spain has a comparative advantage in the production of bread.

b. bread and Spain has a comparative advantage in the production of cheese.
c. both goods and Spain has a comparative advantage in the production of neither good.
d. neither good and Spain has a comparative advantage in the production of both goods.

QN=38 (17724) Two people can benefit from specialization and trade by obtaining a good at a
price that is14
a. lower than his or her opportunity cost of that good.
b. the same as his or her opportunity cost of that good.
c. higher than his or her opportunity cost of that good.
d. different than his or her opportunity cost of that good.

QN=39 (17746) For two individuals who engage in the same two productive activities, it is
impossible for one of the two individuals to15151515
a. have a comparative advantage in both activities.
b. have an absolute advantage in both activities.
c. be more productive per unit of time in both activities.
d. gain from trade with each other.

QN=40 Refer to Table 3-7. Korea should specialize in the production of

(17753) 15

a. cars and import airplanes.

b. airplanes and import cars.
c. both goods and import neither good.
d. neither good and import both goods.

QN=41 Refer to Table 3-1. At which of the following prices would both Sardi and Tinaka gain from
(17734) trade with each other?
15151515

a. 6 bushels of corn for 10.5 pounds of pork

b. 12 bushels of corn for 19 pounds of pork
c. 24 bushels of corn for 34 pounds of pork
d. Sardi and Tinaka could not both gain from trade with each other at any price.
QN=42 (17721) The opportunity cost of an item is1616
a. the number of hours that one must work in order to buy one unit of the item.
b. what you give up to get that item.
c. always less than the dollar value of the item.
d. always greater than the cost of producing the item.

QN=43 (17743) When can two countries gain from trading two goods?16
a. (i) when the first country can only produce the first good and the second country
can only produce the second good
b. (ii) when the first country can produce both goods, but can only produce the
second good at great cost, and the second country can produce both goods, but
can only produce the first good at great cost
c. (iii) when the first country is better at producing both goods and the second
country is worse at producing both goods
d. Two countries could gain from trading two goods under all of the conditions in
(i), (ii), and (iii).

QN=44 Refer to Table 3-3. Assume that Zimbabwe and Portugal each has 180 machine minutes
(17748) available. If each country divides its time equally between the production of toothbrushes and
hairbrushes, then total production is
16

a. 24 toothbrushes and 12 hairbrushes.

b. 48 toothbrushes and 24 hairbrushes.
c. 96 toothbrushes and 48 hairbrushes.
d. 720 toothbrushes and 1440 hairbrushes.

QN=45 (17763) If an economy’s GDP falls, then it must be the case that the economy’s1616
a. income falls and saving rises.
b. income and saving both fall.
c. income falls and expenditure rises.
d. income and expenditure both fall.

QN=46 (17778) Which of the following topics are more likely to be studied by a
macroeconomist than by a microeconomist?161616
a. the effect of taxes on the prices of airline tickets, the profitability of automobile-
 manufacturing firms, and employment trends in the food-service industry
b. the price of beef, wage differences between genders, and antitrust laws
c. how consumers maximize utility, and how prices are established in markets for
agricultural products
d. the percentage of the labor force that is out of work, and differences in average
income from country to country

QN=47 (17787) The value of the housing services provided by the economy's owner-occupied
houses is17171717
a. included in GDP, and the estimated rental values of the houses are used to place
a value on these housing services.
b. included in GDP, and the actual mortgage payments made on the houses are
used to estimate the value of these rental services.
c. excluded from GDP since these services are not sold in any market.
d. excluded from GDP since the value of these housing services cannot be
estimated with any degree of precision.

QN=48 (17783) Which of the following items is counted as part of government

purchases?17171717
a. (i) The federal government pays the salary of a Navy officer.
b. (ii) The state of Nevada pays a private firm to repair a Nevada state highway.
c. (iii) The city of Las Vegas, Nevada pays a private firm to collect garbage in that
city.
d. All (i), (ii), and (iii) are correct.

QN=49 (17764) Gross domestic product is defined as17171717

a. (i) the quantity of all final goods and services demanded within a country in a
given period of time.
b. (ii) the quantity of all final goods and services supplied within a country in a
given period of time.
c. (iii) the market value of all final goods and services produced within a country
in a given period of time.
d. Both (i) and (ii) are correct.

QN=50 (17779) Spots, Inc. produces ink and sells it to Write on Target, which makes pens. The
ink produced by Spots, Inc. is called1717
a. an inventory good.
b. a transitory good.
c. a preliminary good.
d. an intermediate good.

QN=51 Refer to Table 23-5. In 2007, Batterland’s nominal GDP was

(17770) 171717
a. $300.
b. $390.
c. $400.
d. $540.

QN=52 (17765) The consumption component of GDP includes spending on181818

a. durable goods and nondurable goods, but not spending on services.
b. durable goods and services, but not spending on nondurable goods.
c. nondurable goods and services, but not spending on durable goods.
d. durable goods, nondurable goods, and services.

QN=53 (17768) Suppose an economy’s production consists only of corn and soybeans. In 2005,
20 bushels of corn are sold at $4 per bushel and 10 bushels of soybeans are sold
at $2 per bushel. In 2004, the price of corn was $2 per bushel and the price of
soybeans was $1 per bushel. Using 2004 as the base year, it follows that, for
2005,18181818
a. nominal GDP is $50, real GDP is $100, and the GDP deflator index is 50.
b. nominal GDP is $50, real GDP is $100, and the GDP deflator index is 200.
c. nominal GDP is $100, real GDP is $50, and the GDP deflator index is 50.
d. nominal GDP is $100, real GDP is $50, and the GDP deflator index is 200.

QN=54 (17788) Which of the following statements is correct?181818

a. The value of intermediate goods is always included in GDP.
b. The value of intermediate goods is included in GDP only if those goods were
produced in the previous year.
c. The value of intermediate goods is included in GDP only if those goods are
added to firms’ inventories to be used or sold at a later date.
d. The value of intermediate goods is never included in GDP.

QN=55 (17775) A good is produced by a firm in 2010, added to the firm’s inventory in 2010,
 and sold to a household in 2011. It follows that1919
a. the value of the good is added to the investment category of 2010 GDP and
added to the investment category of 2011 GDP.
b. the value of the good is added to the investment category of 2010 GDP and
subtracted from the investment category of 2011 GDP.
c. the value of the good is subtracted from the investment category of 2010 GDP
and added to the investment category of 2011 GDP.
d. the value of the good is subtracted from the investment category of 2010 GDP
and subtracted from the investment category of 2011 GDP.

QN=56 (17782) GDP is defined as191919

a. the market value of all goods and services produced within a country in a given
period of time.
b. the market value of all goods and services produced by the citizens of a country,
regardless of where they are living, in a given period of time.
c. the market value of all final goods and services produced within a country in a
given period of time.
d. the market value of all final goods and services produced by the citizens of a
country, regardless of where they are living, in a given period of time.

QN=57 (17784) In the economy of Wrexington in 2008, consumption was 60% of GDP,
government purchases were $212, imports were $67 and 67% of the value of
exports, investment was one-half of the value of consumption. What was
Wrexington’s GDP in 2008?19
a. $1450
b. $1790
c. $2450
d. $2790

QN=58 (17790) Net exports equal191919

a. exports plus imports.
b. exports minus imports.
c. imports minus exports.
d. GDP minus imports.

QN=59 (17791) A German citizen buys an automobile produced in the United States by a
Japanese company. As a result,191919
a. U.S. net exports increase, U.S. GDP is unaffected, Japanese GNP increases,
German net exports decrease, and German GNP and GDP are unaffected.
b. U.S. net exports and GDP increase, Japanese GNP increases, German net
exports decrease, and German GNP is unaffected, and German GDP decreases.
c. U.S. net exports and GDP increase, Japanese GNP increases, German net
exports decrease, and German GNP and GDP are unaffected.
d. U.S. net exports and GDP are unaffected, Japanese GNP increases, and German
net exports, GNP, and GDP decrease.

QN=60 Refer to Table 23-5. In 2008, Batterland’s real GDP was

(17769) 2020

a. $100.
b. $390.
c. $400.
d. $540.

QN=61 (17780) In 2007, Corny Company grows and sells $2 million worth of corn to Tasty
Cereal Company, which makes corn flakes. Tasty Cereal Company produces $6
million worth of corn flakes in 2007, with sales to households during the year of
$4.5 million. The unsold $1.5 million worth of corn flakes remains in Tasty
Cereal Company’s inventory at the end of 2007. The transactions just described
contribute how much to GDP for 2007?2020
a. $4.5 million
b. $6 million
c. $6.5 million
d. $8 million

QN=62 The information below was reported by the World Bank. On the basis of this information, which
(17781) list below contains the correct ordering of GDP per person from highest to lowest?
20

a. Kenya, Tanzania, Zimbabwe

b. Tanzania, Kenya, Zimbabwe
c. Zimbabwe, Kenya, Tanzania
d. Zimbabwe, Tanzania, Kenya

QN=63 (17777) Def01 stands for GDP deflator in year 1. Def02 stands for GDP deflator in year
2. The inflation rate in year 2 equals212121
a. 100*(Def02-Def01)/Def01.
b. 100*(Def02-Def01)/Def02.
c. 100*(Def01-Def02)/Def01.
d. 100*(Def01-Def02)/Def02.

QN=64 (17762) Macroeconomists study212121

a. the decisions of households and firms.
b. the interaction between households and firms.
c. economy-wide phenomena.
d. regulations on firms and unions.

QN=65 (17767) Suppose there are only two firms in an economy: Cowhide, Inc. produces leather
and sells it to Couches, Inc., which produces and sells leather furniture. With
each $1,000 of leather that it buys from Cowhide, Inc., Couches, Inc. produces a
couch and sells it for $3,000. Neither firm had any inventory at the beginning of
2009. During that year, Cowhide produced enough leather for 20 couches.
Couches, Inc. bought 80% of that leather for $16,000 and promised to buy the
remaining 20% for $4,000 in 2010. What was the economy's GDP for the
2009?212121
a. $48,000
b. $52,000
c. $64,000
d. $68,000

QN=66 (17774) Household spending on education is counted in which component or

subcomponent of GDP?212121
a. consumption of durable goods
b. consumption of nondurable goods
c. consumption of services
d. investment

QN=67 (17776) Which of the following statistic is usually regarded as the best single measure of
a society’s economic well-being?21
a. the unemployment rate
b. the inflation rate
c. gross domestic product
d. the trade deficit

QN=68 (17773) Quality Motors is a Japanese-owned company that produces automobiles; all of
its automobiles are produced in American plants. In 2007, Quality Motors
produced $20 million worth of automobiles, with $12 million in sales to
Americans, $6 million in sales to Canadians, and $2 million worth of
automobiles added to Quality Motors’ inventory. The transactions just
 described contribute how much to U.S. GDP for 2007?2222
a. $12 million
b. $14 million
c. $20 million
d. $34 million

QN=69 (17789) What word do economists use to refer to the purchase of goods that will be used
in the future to produce more goods and services?222222
a. capital
b. consumption
c. investment
d. costs

QN=70 (17785) In the economy of Wrexington in 2008, nominal GDP was $20 billion and the
GDP deflator ratio was 500. What was Wrexington’s real GDP in 2008?2222
a. $2.5 million
b. $10 million
c. $40 million
d. $100 million

QN=71 Refer to Table 23-6. Which of the following is not correct?

(17766) 2222

a. This economy experienced growth from 1974 to 1975.

b. This economy experienced growth from 1975 to 1976.
c. This economy experienced growth from 1976 to 1977.
d. This economy experienced inflation from 1974 to 1975, from 1975 to 1976, and from 1976 to
1977.

QN=72 (17786) If you buy a burger and fries at your favorite fast food restaurant,22222222
a. then neither GDP nor consumption will be affected because you would have
eaten at home had you not bought the meal at the restaurant.
b. then GDP will be higher, but consumption spending will be unchanged.
c. then GDP will be unchanged, but consumption spending will be higher.
d. then both GDP and consumption spending will be higher.
QN=73 (17771) A transfer payment is232323
a. a payment for moving expenses a worker receives when he or she is transferred
by an employer to a new location.
b. a payment that is automatically transferred from your bank account to pay a bill
or some other obligation.
c. a form of government spending that is not made in exchange for a currently
produced good or service.
d. the benefit that a person receives from an expenditure by government minus the
taxes that were collected by government to fund that expenditure.

QN=74 (17772) When economists talk about growth in the economy, they measure that growth
as the232323
a. absolute change in nominal GDP from one period to another.
b. percentage change in nominal GDP from one period to another.
c. absolute change in real GDP from one period to another.
d. percentage change in real GDP from one period to another.

QN=75 (17802) Suppose a basket of goods and services has been selected to calculate the CPI
and 2002 has been selected as the base year. In 2002, the basket’s cost was $50;
in 2004, the basket’s cost was $52; and in 2006, the basket’s cost was $54.60.
The value of the CPI in 2004 was23
a. 96.2.
b. 102.0.
c. 104.0.
d. 152.0.

QN=76 (17807) In computing the consumer price index, a base year is chosen. Which of the
following statements about the base year is correct?23232323
a. The base year is always the first year among the years for which computations
are being made.
b. It is necessary to designate a base year only in the simplest case of two goods; in
more realistic cases, it is not necessary to designate a base year.
c. The value of the consumer price index is always 100 in the base year.
d. The base year is always the year in which the cost of the basket was highest
among the years for which computations are being made.

QN=77 (17800) In 1949, Sycamore, Illinois built a hospital for about $500,000. In 1987, the
county restored the courthouse for about $1.7 million. A price index for
nonresidential construction was 24 in 1949, 108 in 1987, and 126.5 in 2000.
According to these numbers, the hospital cost about232323
a. $2.1 million in 2000 dollars, which is less than the cost of the courthouse
restoration in 2000 dollars.
b. $2.1 million in 2000 dollars, which is more than the cost of the courthouse
restoration in 2000 dollars.
c. $2.6 million in 2000 dollars, which is less than the cost of the courthouse
restoration in 2000 dollars.
d. $2.6 million in 2000 dollars, which is more than the cost of the courthouse
restoration in 2000 dollars.

QN=78 (17806) The CPI is more commonly used as a gauge of inflation than the GDP deflator is
because2424
a. the CPI is easier to measure.
b. the CPI is calculated more often than the GDP deflator is.
c. the CPI better reflects the goods and services bought by consumers.
d. the GDP deflator cannot be used to gauge inflation.

QN=79 (17817) Table 24-3

The table below pertains to Studious, an economy in which the typical
consumer’s basket consists of 5 books and 10 calculators.

Refer to Table 24-3. The cost of the basket

242424

a. increased from 2006 to 2007 and increased from 2007 to 2008.

b. increased from 2006 to 2007 and decreased from 2007 to 2008.
c. decreased from 2006 to 2007 and increased from 2007 to 2008.
d. decreased from 2006 to 2007 and decreased from 2007 to 2008.

QN=80 (17799) The economy's inflation rate is the24

a. price level in the current period.
b. absolute change in the price level from the previous period.
c. change in the gross domestic product from the previous period.
d. percentage change in the price level from the previous period.

QN=81 (17792) When the consumer price index rises, the typical family24
a. has to spend more dollars to maintain the same standard of living.
b. can spend fewer dollars to maintain the same standard of living.
c. finds that its standard of living is not affected.
d. can offset the effects of rising prices by saving more.

QN=82 (17796) Table 24-1

The table below pertains to Pieway, an economy in which the typical
consumer’s basket consists of 10 bushels of peaches and 15 bushels of pecans.
 Refer to Table 24-1. If 2005 is the base year, then the CPI for 2005 was
25252525

a. 83.3.
b. 100.0.
c. 120.0.
d. 200.0.

QN=83 (17801) The consumer price index was 225 in 2006 and 236 in 2007. The nominal
interest rate during this period was 6.5 percent. What was the real interest rate
during this period?252525
a. 1.6 percent
b. 4.9 percent
c. 6.82 percent
d. 11.4 percent

QN=84 (17820) Scenario 24-4

Quinn has job offers in Wrexington and across the country in Charlieville. The
Wrexington job would pay a salary of $50,000 per year, and the Charlieville job
would pay a salary of $40,000 per year. The CPI in Wrexington is 150, and the
CPI in Charlieville is 90.

Refer to Scenario 24-4. If Quinn only cares about maximizing her purchasing
power, then she should252525
a. take the Charlieville job.
b. take the Wrexington job.
c. take either job because they both have the same purchasing power.
d. The answer cannot be determined from the information given because a salary is
not the same as purchasing power.

QN=85 (17805) Economists use the term inflation to describe a situation in which2525
a. some prices are rising faster than others.
b. the economy's overall price level is rising.
c. the economy's overall price level is high, but not necessarily rising.
d. the economy's overall output of goods and services is rising faster than the
 economy's overall price level.

QN=86 (17803) Most, but not all, athletic apparel sold in the United States is imported from
other nations. If the price of athletic apparel increases, the GDP deflator
will26262626
a. increase less than will the consumer price index.
b. increase more than will the consumer price index.
c. not increase, but the consumer price index will increase.
d. increase, but the consumer price index will not increase.

QN=87 (17814) The price of domestically produced DVD players increases dramatically,
causing a 1 percent increase in the CPI. The price increase will most likely
cause the GDP deflator to increase by2626
a. (i) more than 1 percent.
b. (ii) less than 1 percent.
c. (iii) 1 percent.
d. None of (i), (ii), and (iii) is correct; this particular price increase will not affect
the GDP deflator.

QN=88 (17813) The price index was 120 in 2006 and 127.2 in 2007. What was the inflation
rate?26262626
a. 5.7 percent
b. 6.0 percent
c. 7.2 percent
d. 27.2 percent

QN=89 (17809) The GDP deflator reflects the262626

a. level of prices in the base year relative to the current level of prices.
b. current level of prices relative to the level of prices in the base year.
c. level of real output in the base year relative to the current level of real output.
d. current level of real output relative to the level of real output in the base year.

QN=90 (17793) In the CPI, goods and services are weighted according to26262626
a. how long a market has existed for each good or service.
b. the extent to which each good or service is regarded by the government as a
necessity.
c. how much consumers buy of each good or service.
d. the number of firms that produce and sell each good or service.

QN=91 (17798) The consumer price index tries to gauge how much incomes must rise to
maintain2626
a. an increasing standard of living.
b. a constant standard of living.
c. a decreasing standard of living.
d. the highest standard of living possible.

QN=92 (17795) The real interest rate tells you26262626

a. how fast the number of dollars in your bank account rises over time.
b. how fast the purchasing power of your bank account rises over time.
c. the number of dollars in your bank account today.
d. the purchasing power of your bank account today.

QN=93 (17815) The CPI was 120 in 2000 and 132 in 2001. Dorgan borrowed money in 2000
and repaid the loan in 2001. If the nominal interest rate on the loan was 12
percent, then the real interest rate was2727
a. 2 percent.
b. 10 percent.
c. 12 percent.
d. 22 percent.

QN=94 (17804) The consumer price index is used to27

a. convert nominal GDP into real GDP.
b. turn dollar figures into meaningful measures of purchasing power.
c. characterize the types of goods and services that consumers purchase.
d. measure the quantity of goods and services that the economy produces.

QN=95 Table 24-2

(17816) The table below pertains to Iowan, an economy in which the typical consumer’s
basket consists of 3 pounds of pork and 4 bushels of corn.

Refer to Table 24-2. The cost of the basket in 2008 was

2727

a. $108.
b. $147.
c. $160.
d. $224.

QN=96 (17810) Indexation refers to27272727

a. a process of adjusting the nominal interest rate so that it is equal to the real
interest rate.
b. using a law or contract to automatically correct a dollar amount for the effects of
inflation.
c. using a price index to deflate dollar values.
d. an adjustment made by the Bureau of Labor Statistics to the CPI so that the
 index is in line with the GDP deflator.

QN=97 (17808) In an imaginary economy, consumers buy only sandwiches and magazines. The
fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich
cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is
2006. If the inflation rate in 2007 was 16 percent, then how much did a
magazine cost in 2007?28282828
a. $1.87
b. $2.08
c. $2.32
d. $3.00

QN=98 (17811) The consumer price index is used to28

a. monitor changes in the level of wholesale prices in the economy.
b. monitor changes in the cost of living over time.
c. monitor changes in the level of real GDP over time.
d. monitor changes in the stock market.

QN=99 (17819) Scenario 24-3

Grant Gant was a doctor in 1944 and earned $12,000 that year. His daughter,
Gretta Gant, is a doctor today and she earned $210,000 in 2005. The price index
was 17.6 in 1944 and 184 in 2005.

Refer to Scenario 24-3. Grant Gant’s 1944 income in 2005 dollars is282828
a. $1,147.83.
b. $113,454.55.
c. $125,454.55.
d. $1,996,800.00.

QN=100 (17794) Scenario 24-1

The price tag on a tennis ball in 1975 read $0.10, and the price tag on a tennis
ball in 2005 read $1.00. The CPI in 1975 was 52.3, and the CPI in 2005 was
191.3.

Refer to Scenario 24-1. The price of a 1975 tennis ball in 2005 dollars is282828
a. $0.03.
b. $0.27.
c. $0.37.
d. $1.00.