Econ101 s07 exam2 - Economics 101 ~ Exam#2 — Spring 2007...

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Unformatted text preview: Economics 101 ~ Exam #2 — Spring 2007 Professor Cynthia Bansak EST FORM . INSTRUCTIONS Multiple choice (2.25 points each — 90 points total.) In each question there is only one correct answer. Select the answer you believe to be most correct. 1. GDP is defined as: a) the market value of all intermediate goods and services produced within a country in a given time period. b) the market value of all final goods and services produced by a country's citizens within a given time period. (1) - the marEet value of all intermediate goods and services produced by a country's citizens within a given time period. 2. Suppose an economy's expenditures are equal to $7,000 billion. Income in the economy is .i a) less than $7,000 billion. b) more than $7,000 billion. W .. d) Somewhere between $7,000 billion and $8,000 billion. 3. An Oregon freight company buys a new truck made in Utah by a J apa'nese company. As a result W b) U.S. investment and Japanese GDP increase, but U.S. GDP is unaffected. c) U.S. investment, U.S. GDP and Japanese GDP are unaffected, because trucks are intermediate goods. d) U.S. investment, U.S. GDP, and Japanese GDP all increase. 4. Which of the following would be considered an investment expenditure? a) The Smith's buy a home built in 1990. b) The federal government iais the salary of a captain in the Air Force. d) Chairs-R—Us buys a used lathe to manufacture chairs. 5. MW I a b) the name of a variable. c) a computer address. d) the solution to an equation. 11. If Susan decides to change the oil in her car herself instead of having Speedy Lube change the oil for her, then GDl"J a) necessarily rises. w c) will be unaffected because the same service is produced in either case. (1) will be unaffected because car maintenance is not included in GDP:- - 12. The American Paper Company produces $1 million worth of paper and sells it to the College Book Corporation. The College Book Corporation prints 100,000 copies of an economics textbook for which it paid an economics professor $500,000 to write. The College Book Corporation sold the textbooks to college bookstores nationwide for $3 millionfihe college bookstores received 3A A million from students in exchange for the books:[ fiNA l/ C1}; [5 i What is the total contnbutron to GDP from the above events? f ' . a) $3 million c) $5.5 mriilon a) $8.5 million 13. As of 2006, the largest component of GDP is: a) net exports. c) government purchases. (1) investment. 14. Suppose GDP is $10 billion, consumption expenditure is $7 billion, investment is $2 billion, and government purchases of goods and services is $2 billion. Net exports of goods and services must be 010‘) 1 {x ,r 1 A,— (q .t M \l b) $2 billion. \0 '4 7.; 4’ 7 *- Z. A “A 0) $1 billion. . l‘- \- v d) -$2 billion. I , ._\ 15. If you were asked to study the quantity of output an economy produced over the past five years, you would use real GDP rather than nominal GDP because a) exports are excluded from real GDP, making it less complicated than nominal GDP. b) real GDP accounts for imports, making it more precise than nominal GDP. c) nominal GDP fails to account for transfer payments, whereas real GDP includes these payments. 20. According to the most recent GDP data release, a) 4th quarter 2006 real GDP grew 5.0 percent, while nominal GDP grew 3.5 percent. —t. . c) lst quarter 2007 real GDP grew 6.0 percent, while nominal GDP grew 3.3 percent. (1) lst quarter 2007 real GDP grew 3.5 percent, while nominal GDP grew 6.0 percent. 21. The CPI is a measure of War. b)the overall cost of inputs purchased by atypical producer. c) the overall cost of goods and services produced in the economy. d)the overall cost of stocks on the New York Stock Exchange. 22. To find the cost of the CPI basket in the current period we have to multiply the a) quantities in the CPI basket by the base period prices. ' ' ' es. c) current period quantities in the CPI basket by the base period prices. (1) current period quantities in the CPI basket by the current period prices. 23. The CPI is calculated by the Bureau of Labor Statistics on a fiequency of every a) week. c) quarter. <1) year. 24. When calculating the CPI, the Bureau of Labor Statistics - - . . _ ‘ dget. b) sums the prices of the goods and services in the average urban household consumption basket. c) weights the price of all goods and services produced in a year within a country’s borders. (1) multiplies by 100 the average price: of goods and services in the average urban consumer’s basket. 25. A country reports the total expenditures on the fixed CPI basket forthe past three years. The cost of the CPI basket in 1999 was $23,000, the cost of the CPI basket for the base period, 2000, was $23,805, and the cost of the CPI basket in 2001 was $24,500. Hence the CPI for 1999 is b) 100.0. CW ,1 5 MM 3L \QO d) 106.5. ’ .2 {x} j J W — rice 0f ark 2003 $20 ,. $20 2004 $20 _ $40 31. Use the table above to answer the following question. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 2 units of corn. What is the consumer price index for 2004 if the base year is 2003? a 100 ‘ G k . 80 £23.) _ i . . b; 83-3 (ii/(“93% _Z_[.iA_.E.)u,_W«,UQTW_m1,. TED l = w: c) “5 Q. . , r [CL + \to d) 120 (aflwwl/‘W fl 32. Which of the problems in the construction of the CPI is best represented by the constant improvements in computer hardware (like faster microprocessors)? a) outlet substitution bias b) introduction of new goods (1) commodity substitution bias e) income bias 33. If the prices of Canadian-made snowmobiles imported into the United States increase, a) both the GDP deflator and the consumer price index will increase. b) neither the GDP deflator nor the consumer price index will increase. c) the GDP deflator will increase but the consumer price index will not increase. ' Wot M 34. Which is the most accurate statement about the GDP deflator and the consumer price index? a) Both the GDP deflator and the consumer price index compare the price of a fixed basket of goods and services to the price of the basket in the base year. b)Both the GDP deflator and the consumer price index compare the price of currently produced goods and services to the price of the same goods and services in the base year. c) The GDP deflator compares the price of a fixed basket of goods and services to the price of the basket in the base year, but the consumer price index compares the price of currently produced goods and services to the price of the same goods and services in the base year. 39. Which of the following statements conceming negative real interest rates (when the real interest rate is less than zero) is correct? a) Negative real interest rates are better for savers than positive real rates. b) Negative real interest rates are worse for borrowers than positive real rates. . . . . e (1) Negative real interest rates occur when the nominal interest rate is greater than the inflation rate. 40. According to the most recent CPI release, a) both the headline and core CPI rose 0.3% due to increases in the prices of tobacco products, energy, and health care. I . . c) the headline CPI rose 0.3 % because of increases in tobacco product prices and health care costs, while the core CPI rose only 0.2 percent due to a drop in energy prices. d) None of the above are correct. 2. (5 points) Measuring the Cost of Living: . m M Answer the following questions regarding the CPI: LU‘D WK W Quantity Price Price Item (2000) _ (2000) (2001) Restaurant meals 100 $10.00 $12.00 Weeks of parking 50 $100.00 $97.50 The table above gives the purchases of a typical consumer in a country comprised of one large city. These consumers purchase only restaurant meals and parking. The year 2000 is the reference base year. 3.) Find the total cost ofth CPI basket. for 2000 and 2001. /_ ‘ , r”) 'l (M ( \001 R) Jr SM 513‘s) \‘LDO 531:3. ’ Ff \KJLD \" («c-Lit; / (/00 D (“30* “(-03 v EU‘HQU\ b) What is the CPI in 2000 and in 2001? , [ADO c) What is the inflation rate between 2000 and 2001‘? WWW WW u 0m). ’ W1“ , , lbl.7f~lt0 ‘ Wm x. [00 Wm): m M + — \ y?§: 11 O 6. The local Chevrolet dealership has an increase in inventory of 25 cars in 2003. In 2004 it sells all 25 cars. a) The value of the increased inventory will not affect 2003 GDP, but will be included in 2004 GDP. b) The value of the increased inventory will be counted as 2003 GDP and the value of the cars sold in 2004 will increase 2004 GDP. d) None of the above are correct. 7. If Nominal GDP increased from $1.0 trillion in 2000 to $1.2 in 2005, we: a) can say that output increased by 20% in the economy through that period. b) can sai that prices increased by 2.0% in the economy through that period. m d) can say that output increased by 2 0% in the economy compared to the base year. 8. Suppose you are given the following information. Spending Billions of Dollars . Spending on new structures $100 ‘ Spending on used cars $5 Spending on Social Security $60 | Spending on robots used on an $40 “ - - assembly line . Sales of exports $10 ~ N *\ Sales of imports $7 ”’ W ‘V \ GDP for the economy would be: a) $222 billion. b) $217 billion. c) $148 billion. 9. If a U.S. citizen living in the U.S. buys a television made in Korea by a Korean firm, a) U.S. net exports decrease, and U.S. GDP decreases. b) U.S. net exports are unaffected, and U.S. GDP decreases. 10. Transfer payments 3) are included in GDP because they represent income to individuals. W. Y c) are included in GDP because the income will be spent for consumption. d) are not included in GDP unless they represent unemployment compensation. \. El - k l a: .4 I ll.) \ o . ’t 1. 930 0 glib/L Sid/l it? i , 100 ml Ell ) \l r (is '1 Va Cf \ , 16. Suppose GDP consists of wheat and rice. In 2002, 20 bushels of wheat are sold N at $4 per bushel, and 10 bushels of rice are sold at $2 per bushel. lithe price of \i wheat was $2 per bushel and the price of rice was $1 per bushel in 2001 (the t L, b e year), nominal 2002 GDP is NV a, , .1 ‘ a) $100, real 2002 GDP is $50, and the GDP deflator is 50. w o“ P / a $50, real 2002 GDP is $100, and the GDP deflato; ii 335' ._, ’ Q, _ ~ "’d) $40, real 2002 GDP is $100, and the GDP deflator is 50. {90' T- I, >0 17. GDP per person is not a perfect measure of the well-being of individuals in \0/3/ society because , "'10“ a) it excludes the value of investment in real capital. , f O b) it excludes the value of money. Uitl- "i 1‘3 WW d) it excludes the role of government. This table shows data for the United States between 1960 and 2000. (When making your calculationwmember that the real and nominal GDP figures are in billions of dollars.) ‘ —--—————_______—_u—-—_———-n—_______— 1960 1970 1980 1990 2000 __....________._____,_____________________ Real GDP (Billions of 1996 dollars) $2,377 $3,578 4 $4,901 $6,708 -— Nominal GDP (Billions of current dollars) $ 527 —- $2,796 $5,803 $9,825 Real GDP Per Capita —- -l'l ‘i ’W (FJ)$21,521 $26,834 $32,579 Nominal GDP Per Capita $2,918 $5,069 $12,276 -- $34,823 Population 180,760,000 205,089,000 ,5; 1 W, , mi} 249,983,000 288,128,000 Source: Bureau of Economlc Analysis ‘ b i) Q ,3 \1 {ii i L; at 18. Using the table above, calculate the growth rate in real GDP per capita between 1970 and 1980. Hint: you will first need to compute Real GDP per capita in a no- ‘iM 251?... *5 “WW - mil ills? W 205,201,000 " , P =va ' 0‘“ I. d) lie-2% 2—————————-‘52‘” ”44‘" i‘ ‘00 W“ W i if); its 3‘ i 19. 1112006, us. nominal GDP was L33?” PM i‘ i if: :2} m D, \vi‘di i, l;- ' fl ‘9‘? 13 $331333 fl’ *Dowlil‘l‘w " 7-) 52" . (1) $132 billion. . , y i ,5 li 0M- DNIM’ ‘ll ‘1 QM” time viOD ”‘7 Nam W in Dim wait '40 W) 150 a We 7’0“ $0 \st s noel/00 ”Loci 3’1 ' ' “mm \Vl-‘liMilxl Vi ’- K Cmfi _, ” “Alix “1'00 , - W- 7:: /’< :77 tr : . I . l 64'? / "ml {: 1“ Fl M in g; "CU , - H L Y A10 26. Using the attached table (B-60), calculate the inflation rate from 1979 to 1980 using the all items CPI-U: “a I. c) 8.1% d) 3.5% 27. Consumers in Infland consume only two goods, magazines and pizzas. If they spend $50 on magazines and $90 on pizzas a month, how many magazines and pizzas are in their CPI market basket if the price of a magazine is $5 and the price of a pizza is $9. M 9 a) 7 magazines and 5 pizzas E g (i951 b) 10 magazines and 5 pizzas c) 5 ma azines and 7 i l 0 Ms l _ 28. Which change in the price index shows the greatest rate of inflation: 90 to 100, l,[email protected]£),(:_<,p s \\ 100t0110 orlSOto 160? we 4 (.3 fl 1)) 100 to 110 “9' .1 l“ 0) 150m 160 ‘ " " J _ _\ > d) All changes show the same rate ofinflation. 101;; ~10 ’io "" \ ~ 9 \ 29. Suppose that in February 2007, the producer price index increases by 2 percent. As a result, economists most likely will predict that a) GDP will increase in the next year. b) next month the producer price index will fall. 0) the exchange rate will increase in the future. We. 30. Which of the following will have the biggest impact on the CPI? b) A 4% increase in the cost of medical care c) A 4% decrease in the cost of recreation d) A 4% increase in the cost of food and beverages “Nils ”2 vmii 3‘ A; x {Win :7 fl ( V l ".r S 35. A ham and cheese sandwich at the local deli costs $3.99 in 1991. Compute the equivalent price for the ham and cheese sandwich in 2006 using the attached table (B-60) and the all items CPI-U. a) $3.26. b) $4.39. '}0\ Lo ._ (T / «a. .00 x ._. , d) $8.04. ”230 [1- 36. Mark has a two-year wage contract with his employer. Mark’s wage contract specifies a $30,000 salary for the first year, and specifies a salary increase equal to the percentage increase in the CPI during the second year. The percentage increase in the CPI during the year was 3.0 percentage points. If the CPI overstates inflation by 1.0 percentage point, at the end of the first year Mark’s salary increased by more than it would have without the upward bias. *‘ 50 \\_._l_:. g l g [I l) L) b) $60 , 0) $300 3 \ l 0 V d) $600 37. My grandmother's Social Security pension is indexed for inflation. What does this mean? b) The market basket of goods and services used to calculate the Consumer Price Index has been adjusted to reflect the purchases made by retired households. 0) Social Security taxes have been raised by an amount equal to the percentage increase in the Consumer Price Index. d) The government compares my grandmother's Social Security check against the increase in inflation, but there is no change in my grandmother's check unless Congress passes additional legislation. 38. If nominal interest rates increase from 8 percent to 10 percent while 1 flation increases fi'om 5 percent to 8 ercent. l ‘ I l l . W o. O . 4‘ (t b) the real interest rate rises from 4% to 2%. WVi’V/‘l‘m ‘5’ c) the real interest rate falls from 3% to -2%. d) the real interest rate rises from 8% to 12%. W6“. . W“ t ‘ H, \wllurrl-l \W‘l M/ V‘L «flit? QUE/i V019. \\ 9‘; _a_______________________________h__________,_____________ ___ W M W “L“: / was Short Answer Questions (5 points each -- total 10 points): 1. (5 points) GDP C i i V 9 DO Data for 2001 Data for 2002 Item Quantity Price Quantity Price-fl" Magazines Paperback , W“ t W“ —— woman r?“ mo (ll); 7 illih‘\ jf” ‘.._i3fi‘\5 \4 \J\QO ()5 1. lin.‘ it} (if! The table abOVe gives data on the production and prices in a small economy Use 2001 as the base period. a) What does real GDP equal in 2001? What does nominal GDP equal in 2001? Nominal GDP 11120012431)...“ \Qb .2 "Lg—2“ \i iUO mm Jr U Wu}: away, me __D J Real GDPin2001= \l 20X 7&- \ ' , H \ , 5‘“ H‘J _,~ b) What does real GDP equal in 2002? What does nominal GDP equal in 2002? 0307150: 4 Hui is) ‘j_ +400 .‘g- :00 H, U300 0 -> ~ Nominal GDP in 2002= U _4 0 U0 1 ULL )4 \UL) J \ RealGDPin2002= IUUXY 190x U0 UUL / \l ' i.” <1? Li 1 GDP from 2001 to 2002? CW“ ( \DV QUWhgtgis }he percentage increase in tea 7 , M j] ‘00 Percentage change 1n real GDP = __ O \00 (\V‘ 02 JD) (I d) What was the inflation rate. in 2002? {‘ ‘17-" \j <\ \ D D 30;]? / / Inflation in 2002— * W M _ \x— We ,_ ‘ ’7" “)0 at)» W0 JUL 3r 2;. ‘ 1' \ 45-1 PRICES TABLE B—60.~—Commmr prim indexer for my'or axpmdixm clam, 195 9—2006 [For all urban consumers; 1982-5441011. moot as noted] 1—. I . " other I Enoce~ 1 tion and goods collrnuni- '“d 9911011 1 Year or month ”W" ‘1 31.5 32.2 33.9 34.1 35.31 31.1[ . . 39.2 . . 40.4 . . 42.1 44.4: 43.8, 411.2 49.3: 55.51 55.1, 53.9 50.2 59.91 . 55.9 52.1 515» . 60.6 05.9 65.5 19.6 51.4 55.2 122 12.0 91.41 524 112.5 799 19.9 949 101 92.4 951 95.8 90.9 911 . 911.9 935 93.5 953 90.4 . 91.7 . 91.11 99.2 101.1 1 99.9 101.9 100.9 114.5 101.5 121.4 99.2 129.5 59.5 131.0 99.3 141.1 94.3 . 159.0 102.1 . 111.5 102.5 . 193.3 103.0 . 192.9 104.2 . . 1995 104.5 . 1 .. 205.9 105.2 . 43.0 215.4 110.1 . 44.3 224.5 111.5 .0 41.6 237.7 102.9 .1, 44.4 259.31 105.9 .5 ' 53.3 211.1 124 5 . .3 51.3 292.5 1293 . .0 52.9 293.2. 1217 . .9 51.5 299.11 1355 . .4 53.1 304.7 151 4 . .5 : 313.4 1111 . . .5 321.1 1959 . . . 5.1 . . 309.3 1519 . . - . l.? . ‘. . . 310.11 155.2 .- . . 3.5 . - 2. . 3112 150.9 194.5 190.71 190.2 123.1 194.4 1111.2 32. 112.9 311.9 110.9 194.4 191.1; 190.5 1224 194.5 112.1 32. . 112.1 312.5 1594 194.5 190.9: 190.4 119.3 195.5 111.9 32. . 112.9 312.5 111.4 195.4 191.3 190.9 113.9 1955. 114.4 32. .1 112.9 314.1 119.5 195.4 191.3. 190.9 115.9 195.9 111.1 32. 109.31 113.1 314.4 195.5 199.9 191.9 191.4 120.5 191.0 195.5 . 109.7: 115.3 315.0 209.0 199.2 192.5 192.1 122.1 199.4 194.9 109.9 115.1 315.3 204.3 191.9 192.9 1924 121.5 199.5 115.5 109.9 115.1 315.2 197.5 199.9 193.2 192.9 111.5 199.3 1711.1 109.1 115.3 311.3 190.0 139.3 194.5 194.1 114.9 200.0 115.9 109.9 115.1 199.1 194.4 194.0 115.5 . 111.9 110.2 115.1 199.9 194.5 194.0 122.0I 171.4 110.5 115.5 201.5 1942 193.1 123.41 154.1 111.1 115.9 202.5 194.11 194.2, 122.4; 151.5 111.2 115.1 202.9! 195.11 194.5 119.9; 191.3 111.2 115.9 203.5' 195.9' 195.0 113.91 199.0 111.3 115.3 2113.91 195.0l 195.5 119.1 1.935 111.3 111.5 202.9 195.1} 195.2 121.1 191.5 111.1 119.4 201.11 197.5; 191.1 123.3 111.9 1112 115.5 .5 191.2: 196.9 121.1 1139 1112 119.1 . 197.4] 1117.0 119.6 115.4 110.3 119.0 ._..___.AA_._.¥ H‘k __l._ ‘lnciudos alcoholic beverages. not shown 9903141911. zDeoembar 1997=10€L 31104139110111 10919—193 (0109111. Ileolriclly. fuel oil, eon—end 4111110941151. Motor oil, coolant 515. also included 11120th 1982. 14019-41919 I19 inning 1983 imorfirate a room 50131951511110 1110151.“ for homemmm' 90515. 51439: 19119111 9 11193 In mount 11 91111 renaming hegmnin: in 1999, uni 1091111119 and Inelhooololy changes beginning in 1999. Source: Department 01 labor, Bureau of Labor 8131151199. 299 ...
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