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    Quiz Economics

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    Sankar Adhikari
    This document contains a quiz with 5 questions on macroeconomic concepts. [1] Question 1 asks students to identify true or false statements about potential GDP, inflation, trade deficits, investment and GDP weighting. [2] Question 2 asks students to define the CPI and PCE indexes and explain their differences. [3] Question 3 presents a scenario about lender interest rates and inflation expectations to calculate nominal interest rates.

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    Quiz Economics

    Uploaded by

    Sankar Adhikari
    24 views4 pages
    This document contains a quiz with 5 questions on macroeconomic concepts. [1] Question 1 asks students to identify true or false statements about potential GDP, inflation, trade deficits, investment and GDP weighting. [2] Question 2 asks students to define the CPI and PCE indexes and explain their differences. [3] Question 3 presents a scenario about lender interest rates and inflation expectations to calculate nominal interest rates.

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    Econ-quiz

    Original Title

    Quiz-Economics

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    This document contains a quiz with 5 questions on macroeconomic concepts. [1] Question 1 asks students to identify true or false statements about potential GDP, inflation, trade deficits, investment and GDP weighting. [2] Question 2 asks students to define the CPI and PCE indexes and explain their differences. [3] Question 3 presents a scenario about lender interest rates and inflation expectations to calculate nominal interest rates.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    24 views4 pages

    Quiz Economics

    Uploaded by

    Sankar Adhikari
    This document contains a quiz with 5 questions on macroeconomic concepts. [1] Question 1 asks students to identify true or false statements about potential GDP, inflation, trade deficits, investment and GDP weighting. [2] Question 2 asks students to define the CPI and PCE indexes and explain their differences. [3] Question 3 presents a scenario about lender interest rates and inflation expectations to calculate nominal interest rates.

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    © All Rights Reserved
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    Download as pdf or txt
    of 4

    QUIZ 1: Macro – Winter 2011

    Name: ______________________

    State your assumptions.

    You must always show your thinking to get full credit.

    Questions 1

    Determine whether the following statements are true or false (give a very brief explanation). (5
    pt.; 1- each)

    a. Potential GDP is real GDP after the economic fluctuations have been removed.

    b. The US inflation rate has become lower on average but more volatile in the last 20
    years.

    c. The trade deficit is equal to the government budget deficit plus investment less
    private domestic saving.

    d. It will always be the case that investment equals private saving plus government
    surplus plus capital inflow from abroad.

    e. The importance of different goods in GDP is determined by their relative price: for
    example, the production of one ounce of gold counts much more in GDP than the
    production of one ounce of steel.
    Question 2

    What is the CPI? (1 pt.) What is the PCE? (2 pt.) Explain their essential differences. (2 pt.)
    [In class we discussed their difference and so does one of your readings: the article “Fighting
    America’s Inflation Flab” (from October of 2000 Economist)]

    Question 3

    Suppose that expected inflation between today (time 0) and a year from now (time 1) is 3%
    for lender A. Lender B disagrees and estimates it at 5%. Both A and B agree that real interest
    rates should be 2% on the type of loans they offer. What are the respective nominal interest
    rates they charge? (2 pt.) Suppose now that you want to take a loan and your expectation
    about inflation is 4%. Which lender would you contact for your loan and why? (3 pt.)
    [Note: Use the approximation formula (the one given in class when discussing inflation).
    Show your work including formula used.]
    Question 4

    What is GNP? (2 pt.) The output of a Toyota plant in Alabama in 2007 would accrue as part
    of: (i) USA 2007 GNP; (ii) USA 2007 GDP; (iii) JAPAN 2007 GNP; (iv) JAPAN 2007 GDP.
    (3 pt.)
    [For simplicity assume that Toyota plants only employ capital as a factor of production – i.e.
    no labor].

    Question 5

    Below are the nominal sales for a fictitious company during the previous six years (in billions):

    2000 $1.532 2001 $1.517 2002 $1.433


    2003 $1.554 2004 $1.594 2005 $1.649

    Below are the June CPI figures for all U.S. urban consumers between the years of 2000 and 2005.
    You are to deflate all nominal variables in the economy by the appropriate June CPI figures for
    each year. The base year for the current CPI is 1982-1984 (the actual base year is not important
    for this analysis – but if it makes you feel better you can think of it as being July of 1983).

    2000 1.722 2001 1.778 2002 1.797


    2003 1.837 2004 1.893 2005 1.941

    i. In 2005 dollars, what are the real sales for this company in 2000? --- 5 points
    (carry decimals out three decimal places)
    ii. In 2005 dollars, what was the real change in sales for this company between 2000 and
    2002? (Use the exact formula – carry decimals out 3 places) --- 5 points.

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