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Suppose the price of a gallon of ice cream rises from $2 to $2.20 and the price of coffee rises from $2 to $3. If the CPI rises from 150 to 200, then people likely will buy
More ice cream and less coffee.
it is observed that the typical consumer market basket includes 5 rolls of toilet papers and 10 bags of black beans. In 2009, a typical consumer paid $2 for a roll of toilet paper and $4 for a bag of black beans. In 2010, a typical consumer paid $3 for a roll of toilet paper and $6 for a bag of black beans. Then we know that the market basket costs in 2009 and it costs___ in 2010. Using 2009 as the base year, the value for the CPI in 2010 is:
$50; $75; 150
Suppose that Mr. Dumas has $100,000 in a 403b account (a retirement account) in 2009. He receives a statement in 2010 stating his account balance is $165,000. What happened to the real value of his retirement investment between 2009 and 2010?
The real value has increased.
Suppose OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to develop alternative fuels for internal-combustion engines. A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines. Which problem in the construction of the CPI does this situation represent?
Substitution bias and introduction of new goods
At the time of Courtney’s 10 year high school reunion she was making $25,000 and the CPI was 70. Now that it is time for her to attend her 20 year high school reunion, Courtney’s income has risen to $65,000 and the CPI is 210. At her 20 year reunion, can Courtney rightfully brag that her nominal and real income have risen since the last time she saw her former classmates ten years ago?
No, Courtney’s real income fell although her nominal income rose during that 10 year period.
Which of the following would be example(s) of the Shoe leather cost of inflation?
The wear and tear on your car from additional trips to the bank
In year 1 the CPI is 141, and in year 2 the CPI is 150. If Dennis's salary was $75,000 in year 1, what is the minimum salary he must earn in year 2 to "more than keep up with inflation"?
$75,000 x (150/141)
Suppose that In the country of Troy, the CPI in year 1 was 100 and the CPI in year 2 was 105. Rusgis, a resident of Troy, borrowed money in year 1 and repaid the loan in year 2. If the nominal interest rate on the loan was 8 percent, then the real interest rate paid was
If the inflation rate is higher than expected in the U.S., which of the following person(s) in the U.S. would be most likely to gain?
Sarah, who borrowed $10,000 at a 6 percent interest rate from Commerce bank to purchase a HyunDai Sonata.
If the price of used cars in the U.S. decrease by 10 percent, then:
The GDP deflator will be unchanged and the CPI will decrease.
The consumer price index would be likely to reflect the prices of the following goods and services except:
Bonds of US corporations
According to lecture, in addition to Brazil, another country recently suffering from hyperinflation is
Suppose the economy includes two distinct groups of people: wage earners and goods sellers. If the price level falls by 10 percent and nominal wages remain unchanged,
income will be redistributed from goods sellers to wage earners.
Kyle purchased one share of Stryker stock for $200 in year 1 and sold that share in year 2 for $400. The inflation rate between year 1 and year 2 was 50%. If the capital gains tax is 50%, what’s Kyle’s after tax-real capital gain if the tax is on nominal gains? What is it if the tax is on real gains?
According to text or lecture, which of the following is CORRECT?
The sale of stocks to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance.
Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would likely cause:
The demand for stock of this company to decrease, so the price would fall.
Suppose that the “Dr. Lee’s Bulgogi House” stock is selling at $120 per share and it has retained earnings of $3 per share, and dividends of $4 per share. What is the price-earnings ratio and what is the dividend yield?
120/7 , 4/120
Sam is thinking of starting up a small business selling NASCAR memorabilia. He is considering setting up his business as a sole proprietorship. What is one advantage to Sam of setting up his business as a sole proprietorship?
As a sole proprietor, Sam would have both ownership and control over the business.
Suppose that Joniece owns a bond that pays $50 in coupon payments for next 3 years and $1,000 at the end of the third year. How much is a bond worth if the interest rate is 10%?
What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?
the supply of loanable funds would shift right and investment would increase.
Financial intermediaries do all of the following except one. Which is the exception?
If the demand curve for loanable funds shifts rightward from the curve shown in the figure below, the shift could be the result of:
A increase in investment tax credit.
Suppose that Austin Evan's Pizza Place incurs $800,000 per year in explicit costs and $100,000 in implicit costs. The restaurant earns $1.3 million in revenues and has $5 million in net worth. Based on this information, economic profit is __ and accounting profit is __ for Austin Evan's Pizza Place.
According to text or lecture, which of the following is FALSE?
Demand- pull inflation may occur when the cost of raw materials such as energy inputs
Which of the following statements best describe the phenomenon known as “crowding out”?
The government runs a budget deficit, increasing the interest rate and making it more expensive for the private sector to get funds for private investment.
In a closed economy, which of the following equations reflects investment? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
Suppose you open a savings account at a local bank. The bank puts together your savings with the savings of other depositors and creates a loan to a local carpenter that uses the loan to buy new tools. Which of the following statements is/are true?
You participated in the indirect finance channel. & The carpenter got his funds through the indirect finance channel.
Refer to Figure 1. Suppose that Figure 1 represents the business cycle of the US economy. Which of the following is FALSE?
During the period from E to F, the inflation rate tends to decrease.
Suppose that the U.S. Congress passes new legislation that increases incentives for U.S. residents to save. Everything else the same, and according to the analysis of the market for loanable funds, we would expected:
The interest rate to decrease
In the long run, ________ differences in economic growth rates result in ________ differences in GDP per capita.
Based on the table below, which country has a higher standard of living and why?
Country GDP Population
Sweden $3.85 9.05
Ireland $2.23 4.21
Ireland has a higher standard of living because their GDP per capita is higher.
Better health allows people to work harder, which raises a country's total income. This indicates that in effect, better health
shifts out a country's production possibilities frontier.
The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as
The health care system in Canada is referred to as ________, and is a system in which the government provides national health insurance to all Canadian residents.
a single-payer health care system.
According to text or lecture, which of the following is INCORRECT of the Patient Protection and Affordable Care Act (PPACA)??
Under the Patient Protection and Affordable Care Act (PPACA), residents who do not have health insurance will not be allowed to seek employment.
A key difficulty facing insurance companies is that people know more about their health than do insurance companies, and that those people who are seriously ill are the most likely to want to obtain health insurance. What is this phenomenon called?
In the United States, total health care spending per person has been ________, and out-of-pocket spending on health care per person has been ________.
If a doctor knows that an insurance company will pay for most of a patient's bill, the doctor has more of an incentive to require additional medical procedures and tests, even if the patient may not require them. This is an example of
the principle-agent problem.
If real GDP per capita measured in 2000 dollars was $6,000 in 1950 and $48,000 in 2010, we would say that in the year 2010, the average American could buy ________ times as many goods and services as the average American in 1950.
Countries with high rates of economic growth tend to have
A labor force that is more productive.
Sam and Carolyn face a progressive tax structure that has the following marginal tax rates: 0 percent on the first $20,000, 20 percent on the next $20,000 and 50 percent on all additional income. Sam earns $50,000 per year, and Carolyn earns $50,000 per year. If Sam and Carolyn get married, the "marriage penalty" will be
According to lecture, which of the following taxes is based on the ability-to-pay principle?
Which of the following is FALSE according to lecture?
The largest source of revenue for the federal government is the sales tax.
The amount of income tax owed by a family is
not simply proportional to its total income.
If a poor family has three children in public school and a rich family has two children in private school, the benefits principle would suggest that:
the poor family should pay more in taxes to pay for public education than the rich family.
Which of the following describes a situation where tax laws give preferential treatment to specific types of behavior?
A tax loophole
If you pay $2,000 in taxes on an income of $20,000, and a tax of $2,700 on an income of $30,000, then over this range of income the tax is
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