Deardorff,_w06-F,_no_answers

Deardorff,_w06-F,_no_answers - Econ 102, Winter 2006 Final...

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Econ 102, Winter 2006 Final Exam Questions 1-2 use the data in the table below. Suppose there is a small economy. In this economy, there are 3 goods produced in 2000, 4 goods produced in 2001, and 5 goods produced in 2002 and 2003. The CPI consumption basket contains only three goods: Bottled water (50), TV sets (10) and CD players (5). Look at the following table for details of output and prices in each of the four years. 2000 2001 2002 2003 Quantities Prices Quantities Prices Quantities Prices Quantities Prices Bottled water 100 $0.50 150 $0.40 200 $0.60 250 $0.66 TV sets 10 $200 20 $300 30 $350 40 $385 CD players 5 $50 6 $60 7 $70 6 $77 Bicycles - - 10 $90 10 $100 10 $110 Air conditioners - - - - 2 $250 4 $275 1. What is the inflation rate between 2001 and 2002 in terms of the CPI? a) 16.9% b) 18% c) 21% d) 15.9% e) 14.5% 2. Using 2002 as the base year, what is the inflation rate from 2002 to 2003 in terms of the GDP deflator? (Look at the numbers, and think, before spending too much time on this.) a) 6% b) 7% c) 10% d) 25% e) 35% 1
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3. According to the “catch-up effect,” a) Goods whose prices are low tend to have higher than average rates of inflation b) Countries that start off poor tend to grow more rapidly than countries that start off rich c) An expansion of commercial bank reserves leads to increased lending as banks seek to restore their desired ratios of reserves to deposits d) A monetary expansion leads to only a small price increase in the short run, but prices then rise further in the long run e) An increase in the price level reduces real wealth, causing consumers to save more 4. Suppose that all of the following increase by 10%: technology, labor, capital, human capital, and natural resources. What will happen to productivity as a result? a) It will fall by 10% b) It will fall, by somewhere between zero and 10% c) It will remain unchanged d) It will rise by 10% e) It will rise by 50% 5. You are trying to decide whether to imitate your friends by buying a $60,000 BMW – a car that is manufactured and sold in Germany. You don’t really need one, since you already have a perfectly acceptable car that you will keep even if you buy the BMW, but you think it will look nice sitting in the street outside your student apartment. And you (or your parents) have enough money that buying it won’t cause you to cut back on any other expenses. However, you wonder (of course!) about the effect of your purchase on US GDP. Assuming that no other transactions in the US are affected by your purchase, and that it would indeed somehow get recorded in the national accounts, what would be the effect of your purchase on US GDP? a) There is no effect on US GDP b) US GDP rises by less than $60,000 c) US GDP rises by exactly $60,000 d) US GDP falls by less than $60,000 e) US GDP falls by exactly $60,000 2
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6. According to the closed economy loanable funds model, what is the impact of a simultaneous decrease in government expenditure and taxes (by equal amounts)? a)
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This test prep was uploaded on 04/02/2008 for the course ECON 102 taught by Professor Rossana during the Fall '08 term at University of Michigan.

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Deardorff,_w06-F,_no_answers - Econ 102, Winter 2006 Final...

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