ECONOMICS 353 (SECTION 1) L. Tesfatsion/Spring 02
EXERCISE SET 1: 6 POINTS TOTAL DUE: Tuesday, January 29, 9:30 A.M.
*IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS*
*INSTRUCTIONS:*
(1) Please FILL IN YOUR NAME, BIRTH DATE, AND ID (SOC SEC) No. on Side 1
of your bubble sheet and write "353 EXERCISE 1" in the top margin of Side 1.
(2) Use a #2 pencil# to MARK YOUR ANSWERS on Side 1 of the bubble sheet to
the following six multiple choice questions.
(3) Please note that these six questions continue onto the back side of
this question sheet. Each question is worth 1 point.
Q1. The key difference between nominal GDP (gross domestic product) and real
GDP for the United States is that
A. Nominal GDP includes financial assets whereas real GDP includes only
real assets.
B. Nominal GDP includes production outside the borders of the U.S.
whereas real GDP does not.
C C. Real GDP is corrected for possible changes in prices whereas nominal GDP
is not.
D. Nominal GDP is the initial measure of output and real GDP is the
final revised measure of output.
E. None of the above
Q2. A "recession" is defined to be a period of time during which________
and an "expansion" is defined to be a period of time during which __________.
A. the current account is in deficit; the current account is in surplus.
B. real wages are low; real wages are high.
C C. real GDP is declining; real GDP is increasing.
D. the real money supply is low; the real money supply is high.
Q3. The "aggregate price level" for an economy over some time period is the
____________ and the "inflation rate" is the _________________.
A. average cost of assets in the economy over this time period; the
capital gain or loss on these assets from one period to the next.
B B. average price of goods and services in the economy over this time period;
percent change in the aggregate price level from one period to the next.
C. value of all goods and services produced in the economy during this
time period; percent change in this value from one period to the next.
D. sum of all prices in the economy during this time period; difference
in this sum from one time period to the next.
Q4. The U.S. inflation rate measured in terms of the U.S. GDP deflator can
deviate significantly from the U.S. inflation rate measured in terms of the
U.S. Consumer Price Index (CPI) when __________ because ____________ .
A A. the price of U.S. imports sharply changes; the GDP deflator only
accounts for the prices of goods and services included in GDP, hence
domestically produced, whereas the CPI takes into account spending
both on imports and on domestically produced goods and services.
B. interest rates change; the GDP deflator takes into account purchases
of financial assets as well as purchases of goods and services whereas
the CPI only takes into account purchases of goods and services.
C. the money supply changes; the GDP deflator is corrected for price
changes whereas the CPI is not.
D. sales tax rates are increased; the GDP deflator excludes sales tax
payments whereas the CPI does not.
Q5. According to U.S. time series data presented in Mishkin (Chapter 1):
A. Over 1980-2000, the exchange rate of the U.S. dollar was abnormally stable.
B. Over 1980-2000, U.S. stock prices dramatically increased.
C. Over 1980-2000, there was a strong positive association between the
aggregate price level (GDP deflator) and the M2 money supply.
D. All of the above.
E E. Only B and C.
Q6. In order to obtain a reasonable prediction regarding whether the current U.S.
recession will come to a quick end, it is particularly important to consider
characteristics of the current U.S. economy that
A. include both nominal and real variables.
B B. indicate prospects for an increased demand for goods and services as well
as an increased supply.
C. correctly indicate the current level of output.
D. indicate whether or not there is a "New Economy" in the U.S.
