Tutorial 6

Question 1

1. If the total price of a representative basket of goods and services was $250 in the base year and the same basket costs $300 this year, what is the CPI for this year?

a) $50
b) $550
c) 120
d) 20%

Answer 1

c

Question 2

2. In a circular-flow diagram which describes all the transactions between households, firms, investors, and the government in a simple economy, and the rest of the world (RoW), we can compute GDP:

a) by adding up the total expenditure by households, investors, the government, and RoW on final goods and services.
b) by adding up the values added by all the firms in the economy.
c) by adding up the income payments (salaries & wages, rent, interest & dividends) and profits (or losses) of all the firms.
d) either by the method described in (a) or the method described in (b).
e) either (a) or (b) or (c).

Answer 2

e

Question 3

3. When economists talk about the rate of growth in an economy, they generally refer to:

a) the absolute change in nominal GDP
b) the percentage change in real GDP
c) the absolute change in real GDP
d) the percentage change in nominal GDP
e) the percentage change in CPI

Answer 3

b

Question 4

4. Suppose a newspaper reports that “the GDP increased at an annual rate of 4% during the third quarter of 2007”. This probably means that:

a) GDP actually increased by 4% during the third quarter of 2007
b) GDP actually increased by 16% during 2007
c) GDP actually increased by 1% during the third quarter of 2007
d) GDP increased by 4% for the first three quarters of 2007

Answer 4

c

Question 5

5. If nominal GDP is $5 trillion and real GDP is $4 trillion, the price index is:

a) 0.8
b) 1.25
c) 80
d) 125

Answer 5

d

Question 6

You buy a pizza —–> ________ increases

Answer 6

consumption

Question 7

Aunt Jane buys a new house (built during this period with newly produced material) ——> ________ (dwelling investment) increases

Answer 7

investment

Question 8

The QLD government employs 50 additional doctors for regional hospitals —–> _______ increase.

Answer 8

government purchases

Question 9

Your uncle buys a new Volvo car from Sweden —-> _______ increase, net exports ______.

Answer 9

Imports; decrease

Question 10

An Australian mining company sells a million tonnes of coal to China —-> ______ increase, net exports _____.

Answer 10

Exports; increase

Question 11

People in London flock to see the latest Australian-made movie —–> _____ increase, net exports _____.

Answer 11

Exports; increase

Question 12

A New Zealand resident shops at a store in Melbourne while on holiday —> _____increase, net exports _____.

Answer 12

Exports; increase

Question 13

An Australian architect spends two months visiting historic buildings in India —–> ______ increase, net exports _______.

Answer 13

Imports; decrease

Question 14

[B] The consumer price index is used to monitor changes in:

a) the level of wholesale prices in the economy.
b) the value of real GDP.
c) the cost of living.
d) the value of the stock market.
e) the level of consumer expenditure.

Answer 14

C

Question 15

2. For any given year, the CPI is:

a) the price of the representative basket of goods and services in the given year divided by the price of the same basket in the base year, then multiplied by 100.
b) higher than the previous year.
c) the price of the representative basket of goods and services in the base year divided by the price of the same basket in the given year, then multiplied by 100.
d) the price of the representative basket of goods and services in the base year divided by the price of the same basket in the given year, then divided by 100.

Answer 15

A

Question 16

3. When the overall level of prices in the economy is increasing, we say that the economy is experiencing:

a) economic growth.
b) unemployment.
c) inflation.
d) deflation.

Answer 16

C

Question 17

[B] The inflation rate is:

a) the CPI.
b) the amount which borrowers must pay to lenders in each period.
c) the percentage change in nominal GDP from the previous period.
d) the percentage change in the price level from the previous period.
e) the percentage change in real GDP from the previous period.

Answer 17

D

Question 18

If the CPI were 120 last year and 126 this year, the inflation rate from last year to this year would be:

a) 5%
b) 6%
c) 105%
d) 1.05%

Answer 18

A

Question 19

6. If the inflation rate was 4% p.a. last year and is 2.5% this year, this means that:

a) the price level has fallen by 1.5%.
b) real GDP must have increased by 1.5%.
c) prices were rising by 4% last year but this year they are rising by 2.5%.
d) none of the above

Answer 19

C

Question 20

7. In principle, which of the goods and services produced in the economy are included as part of GDP?

a) all goods and services.
b) all final goods and services which are bought and sold in markets.
c) all final goods and services bought and sold in legal markets.
d) all intermediate goods and services.

Answer 20

C

Question 21

8. A farmer sells wheat to a miller for $100. The miller makes the wheat into flour and sells it to a baker for $200. The baker makes the wheat into bread and sells it to a grocer for $300. The grocer sells the bread to the public for $400. The effect on GDP is:

a) an increase of $1000.
b) an increase of $100.
c) an increase of $400.
d) an increase of $600.

Answer 21

C

Question 22

9. If Fred decides to have the oil in his car changed at the local garage instead of changing the oil himself as he usually does, in principle:

a) GDP will increase.
b) GDP will decrease.
c) GDP will be unaffected because the same service would be performed in either case.
d) GDP will be unaffected because only the value of the oil and filter is included in GDP

Answer 22

A

Question 23

Real GDP is:

a) the production of goods and services valued at current-year prices.
b) the production of goods and services valued at constant prices.
c) the production of goods and services valued at future-year prices.
d) the production of goods and services valued at the ratio of current-year prices to constant prices.

Answer 23

B

Question 24

If the price index is 150 and nominal GDP is $900 billion, then real GDP is:

a) $60 billion.
b) $600 billion.
c) $1,350 billion.
d) $135 billion.

Answer 24

B

Question 25

In response to anticipated demand for a new, fuel-efficient model, Toyota Australia built 10,000 cars and shipped them to dealers around the country—> _________________increases

Answer 25

investment (inventory investment)

Question 26

My neighbour buys a new Australian-made Ford Falcon from a Brisbane car dealer, who supplies it from his inventory. —» _______ increases, _______ (inventory investment) decreases

Answer 26

consumption; investment

Question 27

A family buys a new refrigerator —-> _______ increases, but ______ (inventory investment) probably decreases

Answer 27

consumption; investment