EC202

002 SUM I 2008
WEEKLY EXAM 3
I. MULTIPLE CHOICE QUESTIONS (2 points for each correct answer)
Circle CLEARLY the letter corresponding to the one alternative that best completes the statement or answers the
question.
1) The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect
pure inflation, but ________ quality increases. This causes the CPI to ________ the cost of the market basket.
A) also; understate
B) also; overstate
C) not; overstate
D) not; understate
2) According to Douglass North, the Industrial Revolution occurred in England because
A) the British monarchy took control of the government and pledged not to raise taxes arbitrarily.
B) the British courts became tied to the king and began to refuse to enforce property rights.
C) the British Parliament took control of the government and could credibly commit to upholding property
rights.
D) the British Parliament instituted a command economy structure and implemented a planned economy.
3) According to the
ʺ
Rule of 70
ʺ
, how many years will it take for real GDP per capita to double when the growth
rate of real GDP per capita is 5%?
A) less than 1 year
B) 14 years
C) 35 years
D) 5 years
4) Suppose that in 2008 all prices in the economy double and that all wages and salaries have also doubled. In
2008 you
A) cannot determine whether you are better off or worse off than you were in 2007, because the purchasing
power of your salary cannot be determined.
B) are worse off than you were in 2007 as you can no longer afford to buy as many goods and services.
C) are no better off or worse off than you were in 2007 as the purchasing power of your salary has remained
the same.
D) are better off than you were in 2007 as your salary is higher than it was in 2007 and you can now buy
more goods and services.
Table 9

1
Year
Real GDP
(Billion of 2000
dollars)
2002
$8,700
2003
8,875
2004
9,000
2005
9,280
5)
Refer to Table 9

1.
Calculate the growth rate of real GDP from 2004 to 2005 using the table above.
A) 2%
B) 1%
C) 4%
D) 3%
1
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002 SUM I 2008
6) Your grandfather tells you that he earned $5,000/year in his first job in 1947. You earn $35,000/year in your first
job in 2007. You know that average prices have risen steadily since 1947. You earn
A) less than 7 times as much as your grandfather in terms of real income.
B) less than 7 times as much as your grandfather in terms of nominal income.
C) more than 7 times as much as your grandfather in terms of real income.
D) 7 times as much as your grandfather in terms of real income.
7) If the Commerce Department adjusts the growth rate of GDP downward for the first quarter of 2007, and the
Bureau of Labor Statistics adjusts the number of hours worked upward for the first quarter of 2007, what will
the Bureau of Labor Statistics do in terms of revising the figures on the growth rate of labor productivity for the
first quarter of 2007?
A) The BLS will adjust the level of labor productivity upward and the growth rate downward.
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 Spring '07
 STURGILL
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