# The housing component of the CPI basket is approximately

1-The housing component of the CPI basket is approximately _______ %.A- 70%B- 40%C- 20%D- 2%2-Consumption, as a fraction of GDP, is approximately ________ %.A- 70%B- 40%C- 2%D- 20%3- The long-run rate of real per capita output in the U.S. is approximately ________ %.A- 40%B- 70%C- 20%D- 2%4- Suppose that IBM opens a computer programming office in Bangalore (India). This is an example of:A. foreign direct investmentB. the “brain drain”C. capital immobilityD. foreign portfolio investment5- Suppose that a nation experiences 1% deflation and their nominal interest rate is 1.5%. What is that nation’s real interest rate?A. -0.5%B. 2.5%C. -2.5%D. 0.5%6- In a small closed economy, suppose that GDP equals $100 million, workers receive $70 million in wages, and landlords receive $10 million in rental payments. What is the value of total payments to capital holders (i.e. profits)?A. $30 millionB. $0C. $20 millionD- $ 10 Million7- The 1970 Plymouth Hemi Cuda had an original sticker price of $3,164. The CPI in 1970 is 38.8 and the current CPI is 236.7. What is the sticker price of the Hemi Cuda adjusted for inflation?A. $19,302B. $519C. $18,651D. $29,4178- If the price index is 80 in year 1, 100 in year 2, and 93 in year 3, then the economy experiencedA. 25 percent inflation between years 1 and 2, and 7 percent inflation between years 2 and 3B. 20 percent inflation between years 1 and 2 ,and 7 percent inflation between years 2 and 3C. 20 percent inflation between years 1 and 2, and 7 percent deflation between years 2 and 3D. 25 percent inflation between years 1 and 2, and 7 percent deflation between years 2 and 39- The ‘catch-up’ hypothesis is based on the assumption that if all inputs are held constant, capital is subject toA. constant returnsB. diminishing returnsC. increasing returnsD. diminishing returns for low levels of capital, and increasing returns for high levels of capital10- Which of the following bonds has the greatest credit risk?A. AAA-rated municipal bondsB. Corporate bonds issued by Apple Computer Corp.C. U.S. government bondsD. Junk bonds11- ACME Pumps had a price to earnings (PE) ratio of 15, paid a dividend of $1, and retained earnings of $1 a share. What was the price of a share of its stock? (Hint: the PE ratio equals the current stock price divided by total earnings (which equal retained earnings plus dividends))A. $45B. $15C. $60D. $3012- If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied (hint: draw the supply-and-demand loanable funds diagram)A. there is a shortage and the interest rate is below the equilibrium levelB. there is a surplus and the interest rate is above the equilibrium levelC. there is a shortage and the interest rate is above the equilibrium levelD. there is a surplus and the interest rate is below the equilibrium level13- If Canada increases its budget deficit, it will decreaseA. public saving and so shift the supply of loanable funds leftB. investment and so shift the demand for loanable funds leftC. none of these are correctD. private saving and so shift the supply of loanable funds left14- Using the rule of 70, how many years does it take for an investment to double in value if it earns 3.5% per year?A. 15 yearsB. 14 yearsC. 20 yearsD. 35 years15- Use the information in the table to answer the following questions. Answers are rounded so choose the closest value.Note* Nominal and Real GDP are in billions of Dollars.YearNominal GDP (current)Real GDP ($2000)DeflatorInflation (%)200510,000200610,7505.0%20075,221215.252.5%16.1 What is the value of Nominal GDP in 2007 (round to the nearest dollar)? (check phone for picture)A. 11,570B. 11,500C. 11,239D. 11,28816.2 What is the value of the Deflator in 2006 (round to one decimal point)?A. 100B. 210C. 105D. 20516.3 What is the value of the Deflator in 2005 (round to one decimal point)?A. 200B. 100C. 105D. 21016.4 What is the value of Real GDP in 2005 (round to the nearest dollar)?A. 10,000B. 5,119C. 4,500D. 5,00016.5 What is the value of Real GDP in 2006 (round to the nearest dollar)?A. 5,000B. 5,119C. 4,500D. 10,23817- Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices a brand-new flavor of soda that she has never tried, so she decides to buy the new soda product instead. To which problem in the construction of the CPI is this situation most relevant?A. Substitution biasB. Introduction of new goodsC. Unmeasured quality changeD. Income effect18- Suppose OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. An electric engine is developed which is cheaper to build and operate than gasoline engines. Which problem in the construction of the CPI does this situation represent?A. Both substitution bias and the introduction of new goodsB. Introduction of new goodsC. Substitution biasD. Income effect19- In the United States, if the price of imported coffee increases sharply, theA. Neither the CPI nor GDP deflator are affectedB. GDP deflator rises much more than does the CPIC. GDP deflator and the CPI rise by about the same amountD. CPI rises much more than does the GDP deflator20- The nominal interest rate tells youA. How fast the number of dollars in your bank account rises over timeB. The number of dollars in your bank account todayC. How fast the purchasing power of your bank account rises over timeD. The purchasing power of your bank account today21- A nation’s standard of living is best measured by itsA. Real GDPB. Nominal GDP per personC. Real GDP per personD. Nominal GDP22- Dilbert’s Incorporated produced 6,000,000 units of software in 2005. At the start of 2006 pointy-haired boss raised employment from 10,000 total annual hours to 14,000 annual hours and production was 7,000,000 units. Based on these numbers what happened to productivity?A. It stayed the sameB. It rose by about 40%C. It fell by about 16.7%D. It rose by about 16.7%23- According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes wouldA. Lower private saving and raise public savingB. Raise both private and public savingC. Raise private saving and lower public savingD. Lower private and public saving24- Following the advice of Milton Friedman, the former Soviet republic of Estonia has a 0% tax on corporate profits that are re-invested in Estonia. What impact do you expect this will have on Estonia’s capital stock and overall level of productivity in the long-run?A. The capital stock will rise and productivity will fallB. The capital stock will fall and productivity will fallC. The capital stock will fall and productivity will riseD. The capital stock will rise and productivity will rise25- Consider two house hunters: George and Mike. Assume that George earns $150,000 per year and Mike earns $50,000 per year, and that both men are initially debt-free. George purchases a $500,000 house with a 10% down-payment ($50,000) and a $450,000 mortgage. Mike purchases a more modest home for $177,778 with a 10% down-payment ($17,778) and a $160,000 mortgage. Based on this scenarioA. none of these are correctB. George has more debt (expressed both in dollars and as a fraction of his income)C. Mike has less debt (in dollars) but more debt as a fraction of his incomeD. Mike and George have the same debt (expressed as a fraction of their income)26- In the U.S., what is the largest source of funds for business?A. Stock issuesB. BondsC. Loans from financial institutionsD. Government loans27- At the end of World War II, U.S. government debt was approximately what fraction of GDP?A. 50%B. 75%C. 100%D. 150%

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