Midterm Second Examination
Economics 1101, Section 10 November 10, 2009 Name: TUiD: You have 1 hour 20 minutes to nish the exam. The exam consists of fty (50) multiple-choice questions, each worth one (1) point for a total of 50 points. If you have any doubts about any question feel free to ask the examiner. This is a closed book, closed notes exam. Use of cell-phones, internet etc. is prohibited during the exam. Any person found cheating will earn an F grade for the course.
1. In the short run, increasing real GDP requires (a) a rise in the price level. (b) increasing the quantity of labor. (c) increasing the quantity of capital. (d) increasing leisure hours. 2. When a nation devotes more time to leisure activities, (a) real GDP decreases. (b) real GDP increases. (c) opportunity costs decrease. (d) labor increases. 3. The production function shows how . . . . . . . . . varies with . . . . . . . . .. (a) leisure time; labor (b) labor; leisure time (c) real GDP; factors of production (d) labor; factors of production 4. The labor market determines all of the following EXCEPT the (a) equilibrium quantity of labor hours. (b) real wage rate. (c) price level. (d) quantity of labor hours demanded. 1
5. The quantity of goods and services that an hour of labor earns is dened as the (a) marginal product of labor. (b) money wage rate. (c) real wage rate. (d) supply of labor. 6. Full employment corresponds to (a) equilibrium in the labor market, with real GDP being equal to potential GDP. (b) labor demand being greater than labor supply and real GDP being equal to potential GDP. (c) being at the point where the marginal product of labor equals zero. (d) equilibrium in the labor market, and real GDP exceeding potential GDP. 7. A minimum wage is set by . . . . . . . . . and can lead to a . . . . . . . . . of labor. (a) the government; surplus (b) unions; shortage (c) rms; surplus (d) unions; surplus 8. The labor force is the sum of the (a) working-age population and the number of unemployed people. (b) number of employed people and the working-age population. (c) number of employed people and the number of unemployed people. (d) total population and the number of unemployed people. 9. Unemployment as measured includes the total number of people who (a) have jobs or are currently looking for jobs. (b) are available and looking for work but unable to nd employment. (c) would like to have a job but have stopped seeking work. (d) would like to have a full-time job but are working part-time. 10. Which of the following people is NOT considered unemployed in the Current Population Survey? (a) The person has just nished school and has entered the labor force to look for work. (b) The person has been laid o and is looking for a new job. (c) The person is looking for work after not doing so for a time. (d) The person is discouraged about nding a job and so does not search for work. 11. Suppose the population of Tiny Town is 100 people and the size of the labor force is 70. If 10 of these people are unemployed, the unemployment rate in Tiny Town is
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70 100 100 10 100 (b) 70 10 (c) 100 100 (d) Not enough information is available to determine the value. (a) 12. Suppose the population of Tiny Town is 100 people and the size of the labor force is 70. If 10 of these people are unemployed, the labor force participation rate in Tiny Town is 70 100 100 10 (b) 100 70 10 100 (c) 100 (d) Not enough information is available to determine the value. (a) 13. Suppose the population of Tiny Town is 100 people and the size of the labor force is 70. If 10 of these people are unemployed, and the natural rate of unemployment in Tiny Town is 20% then (a) Tiny Town is at full employment. (b) Tiny Town is above full employment rate of unemployment. (c) Tiny Town is below full employment rate of unemployment. (d) Not enough information to determine the relation. 14. Structural unemployment is the result of (a) technological change or foreign competition. (b) normal labor market turnover. (c) a slowdown in the rate of economic expansion. (d) irresponsible workers with poor work habits. 15. If a worker is temporarily laid o because the economy is in a recession, (a) frictional unemployment increases. (b) structural unemployment increases. (c) the size of the labor force rises. (d) cyclical unemployment increases. 16. The quantity of real GDP supplied depends on the (a) level of aggregate demand. (b) quantity of capital, bonds, and stocks. (c) quantity of labor, the quantity of capital, and the state of technology. 3
(d) price level, the unemployment rate, and the quantity of government expenditures on goods and services. 17. We distinguish between the long-run aggregate supply curve and the short-run aggregate supply curve. In the long run (a) technology is xed but not in the short run. (b) the price level is constant but in the short run it uctuates. (c) the aggregate supply curve is horizontal while in the short run it is upward sloping. (d) real GDP equals potential GDP. 18. Moving upward along the SAS results in a . . . . . . . . . in the price level and . . . . . . . . . in real GDP. (a) rise; an increase (b) rise; a decrease (c) fall; an increase (d) fall; a decrease 19. Which of the following shift the LAS curve rightward? (a) a decrease in the labor force (b) a decrease in the money wage (c) an increase in the price level (d) a increase in the education level of the labor force 20. With an increase in the capital stock, the short-run aggregate supply curve (a) remains as it is. (b) shifts rightward. (c) shifts leftward. (d) becomes steeper. 21. The aggregate demand curve shows (a) total expenditures at dierent levels of national income. (b) the quantity of real GDP demanded at dierent price (c) levels. that real income is directly (positively) related to the price level. (d) All of the above answers are correct. 22. Which of the following changes would NOT shift the aggregate demand curve? (a) a change in scal policy (b) a change in monetary policy (c) a change in expectations about future income (d) an increase in technology 23. If the economy is at long run equilibrium then 4
(a) real GDP equals potential GDP. (b) nominal GDP equals potential GDP. (c) real GDP cannot be equal to potential GDP. (d) real GDP can be greater than, less than, or equal to potential GDP. 24. A recessionary gap occurs when (a) nominal GDP is less than potential GDP. (b) high rates of ination occur. (c) real GDP is less than potential GDP. (d) nominal GDP is greater than potential GDP. 25. If real GDP exceeds potential GDP, (a) there is a long-run and a short-run equilibrium. (b) there is neither a long-run nor a short-run equilibrium. (c) there can be a short-run equilibrium with an inationary gap. (d) there can be a short-run equilibrium with a recessionary gap. 26. In the Keynesian model of aggregate expenditure, real GDP is determined by the (a) price level. (b) level of aggregate demand. (c) level of aggregate supply. (d) level of taxes. 27. A consumption function shows a (a) negative (inverse) relationship between consumption expenditure and saving. (b) positive (direct) relationship between consumption expenditure and price level. (c) negative (inverse) relationship between consumption expenditure and disposable income. (d) positive (direct) relationship between consumption expenditure and disposable income. 28. Disposable income is (a) income minus saving. (b) income minus taxes plus transfer payments. (c) income plus transfer payments minus consumption expenditure. (d) total income divided by the price level. 29. The slope of the consumption function is (a) less than 1. (b) 1. 5
(c) greater than 1. (d) negative. 30. The marginal propensity to save (MPS) is (a) the increase in saving per dollar increase in disposable income. (b) total saving divided by total consumption expenditure. (c) the decrease in saving that is caused by ination. (d) the decrease in saving per dollar increase in consumption expenditure. 31. The sum of planned consumption expenditure, planned investment, planned government expenditures, and planned exports is . . . . . . . . .. (a) aggregate expenditure (b) real GDP (c) autonomous expenditure (d) the expenditure approach to real GDP 32. Autonomous expenditure is not inuenced by (a) the price level. (b) the interest rate. (c) real GDP. (d) any other variable. 33. Equilibrium expenditure is dened as the level of aggregate expenditure where (a) actual aggregate expenditure equals real GDP. (b) total inventories equal zero. (c) aggregate planned expenditure equals real GDP. (d) spending equals output. Questions 34-43 are based on the following information: C I X M 34. What is the marginal propensity to consume? (a) 0.75 (b) 0.25 6 = = = = 1000 + 0.75Y 1000 2000 500 0.15Y
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(c) 0.85 (d) 0.90 35. What is the marginal propensity to save? (a) 0.75 (b) 0.25 (c) 0.85 (d) 0.90 36. What is the equilibrium level of output? (a) 10750 (b) 11000 (c) 11250 (d) 11500 37. What is the new equilibrium level of output if the government tightens its purse and reduces expenditure by 200? (a) 10750 (b) 11000 (c) 11250 (d) 11500 38. What is the size of the multiplier? (a) 1 (b) 1.5 (c) 2 (d) 2.5 Now suppose the government bans international trade. Answer questions 39-45 based on this information. 39. What is the new equilibrium level of expenditure? (a) 14000 (b) 15000 (c) 16000 (d) 17000 40. If the government increases its expenditure by 250 the new equilibrium level of expenditure is . . . . . . . . . (a) 14000 (b) 15000 7
(c) 16000 (d) 17000 41. What is the size of the multiplier? (a) 1 (b) 2 (c) 3 (d) 4 42. If actual expenditure is 15000 inventories are . . . . . . . . . (a) rising. (b) falling. (c) constant. (d) may be rising, falling, or staying constant. 43. If actual expenditure is 16000 inventories are . . . . . . . . . (a) rising. (b) falling. (c) constant. (d) may be rising, falling, or staying constant. 44. The purpose of scal policy is to (a) achieve full employment. (b) promote economic growth. (c) maintain price level stability. (d) All of the above answers are correct. 45. The largest source of government revenues is . . . . . . . . .. (a) personal income taxes (b) indirect taxes (c) corporate income taxes (d) social security taxes 46. The governments budget decit or surplus equals the (a) change in outlays divided by change in revenue. (b) average outlay divided by average revenue. (c) change in revenue minus change in outlays. (d) total tax revenue minus total government outlays. 8
47. The largest item of government outlays is . . . . . . . . .. (a) debt interest (b) transfer payments (c) expenditures on goods and services (d) debt reduction 48. According to the Laer curve, raising the tax rate (a) always increases the amount of tax revenue. (b) always decreases the amount of tax revenue. (c) does not change the amount of tax revenue. (d) might increase, decrease, or not change the amount of tax revenue. 49. The idea that a government budget decit decreases investment is called (a) government dissaving. (b) the crowding-out eect. (c) the Ricardo-Barro eect. (d) the capital investment eect. 50. The Ricardo-Barro eect holds that (a) equal increases in taxes and government expenditures have no eect on equilibrium real GDP. (b) government budget decits have no eect on the real interest rate. (c) a government budget decit crowds out private investment. (d) a government budget decit induces a decrease in saving that magnies the crowding out eect.
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