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Econ test 2 review

# Econ test 2 review - Econ Test 2 Study Guide 1 A college...

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Econ Test 2 Study Guide 1. A college graduate in 1972 found a job paying \$7200. The CPI was 0.418 in 1972. A college graduate in 2000 found a job paying \$28,000. The CPI was 1.68 in 2000. The 1972 Graduates job paid less in nominal terms and more in real terms than the 2000 graduates job. 2. Deflating a nominal quantity is the process of dividing a nominal quantity by a price index in order to express the quantity in real terms. 3. If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 10% and inflation turns out to be 7% oer the life of the loan then the borrower loses and the lender gains. 4. The CPI for Planet Econ consists of only 2 items, books and hamburgers. In 2000 the base year the typical consumer purchased 10 books for \$20 each and 200 hamburgers for \$1 each. In 2003 the typical consumer purchased 12 books for \$23 each and 300 hamburgers for \$1.15 each. The consumer price index for 2003 on Planet Econ equals 1.15. 5. The CPI in 1975 equaled 0.54. The CPI in 1976 equaled 0.57. The rate of inflation between 1975 nd 1976 was 5.55%. 6. The market interest rate in Alpha is 7% and the market interest rate in Beta is 10% but the inflation rate in Alpha is 5% and inflation rate in Beta is 6%. Which of the following statements is true? Bothe the real and nominal interest rates are higher in Beta. 7. The typical family on the Planet Econ consumes 10 pizzas, 7 pairs of jeans, and 20 gallons of milk. In 2002 pizzas cost \$10 each jeans cost \$40 a pair and milk cost \$4 per gallon. In 2003 the price of pizzas went down to \$8 each while the price of jeans and milk remained the same. Between 2002 and 2003 a typical family’s cost of living decreased by 4.5 %. 8. A governments policy of providing job training for unskilled youths is an example of a policy to promote economic growth by increasing human capitol. 9. 10. For a given number of workers as the amount of capotol is increase output will increase at a diminishing rate. 11. Gamma has \$30,000 of capitol per worker while Omega has \$7500 of capitol per worker. According to the principle of diminishing returns to capitol, an additional unti of capitol will increase output less in Gamma compared to Omegam holding other factors constant. 12. If average lavor productivity increases real GDP per person may increase or decrease depending on the change in the share of population employed. 13. Most political scientists and economists agree that political instability is detrimental to economic growth. 14. Physical capitol is the factories and machinery used to priduce other goods and service. 15. The populationof Omega totals one million people of whome 30% are employed. Average output per worker in Alpha is \$30,000. Real GDP per person in Alpha totals \$9,000. 16. The principle that if the amount of labor and other inputs is held constant then the

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greater the amount of capitol in use, the less an additional unit of capitol adds to production is called the principle of diminishing returns to capital.
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