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Unformatted text preview: TEMPLE UNIVERSITY ECON 1101 MIDTERM III Fall 2010 Professor Ulu Name: ___________________ ID #:______________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) According to new growth theory ________. 1) _______ A) knowledge is subject to the law of diminishing returns B) growth rates and income levels per person around the globe will converge C) knowledge does not experience diminishing returns D) ever-advancing productivity keeps the rate of return below the target rate of return 2) If the CPI is 120, this means that 2) _______ A) prices are 20 percent higher than in the reference base period. B) the inflation rate must be positive. C) prices are 0.12 times higher than in the reference base period. D) prices are 120 percent higher than in the reference base period. 3) Unemployment caused by changes in technology is called ________ 3) _______ unemployment. A) techno B) structural C) frictional D) cyclical 4) Saving by households 4) _______ A) increases when the real interest rate falls. B) is unaffected by the real interest rate. C) increases when the real interest rate rises. D) decreases when the real interest rate rises. 5) The law of diminishing returns states that 5) _______ A) output increases at a decreasing rate as more labor is added to a fixed amount of capital. B) as both labor and capital are increased, output increases at a slowing rate. C) output increases at a constant rate as more labor is added to a fixed amount of capital. D) output decreases at a constant rate as more labor is added to a 1 fixed amount of capital. If the CPI last year is 178.2 and this year is 182.1, the inflation rate is 6) A) always 100 in the base period. B) 0.02 percent. C) 2.19 percent. D) 3.9 percent. 7) Suppose the CPI last year is 121 and the CPI this year is 137. The correct method to calculate the inflation rate is A) 137 × 121 = 258. B) (137/121) × 100 = 113.2. C) (137 - 121)/100 = 0.16. D) [(137 - 121)/121] × 100 = 13.2. 8) The time spent on job search rises when ________. A) more young people enter the labor force. B) unemployment compensation increases C) unemployment compensation decreases D) the efficiency wage rate is lowered 9) The classical dichotomy is a discovery that states A) throughout the business cycle, the forces that determine the real variables are independent of those that determine the nominal variables. B) real and nominal variables are actually the same thing. C) only nominal variables cause business cycles. D) when the economy is at full employment, the forces that determine the real variables are independent of those that determine the nominal variables. 10) Which of the following ideas apply to the neoclassical growth theory? I. Technological change results from chance. II. Growth in real GDP stops if technology stops advancing. A) both I and II B) I only C) II only D) neither I nor II 11) In the market for loanable funds, if the actual interest rate is higher than the equilibrium interest rate, there is a A) surplus of labor B) shortage of loanable funds C) surplus of loanable funds D) surplus of GDP 12) The law of diminishing returns indicates that A) as the quantity of inputs increase, output decreases. B) as the quantity of one input increases, output increases by successively small increments, ceteris paribus. 6) _______ 7) _______ 8) _______ 9) _______ 10) ______ 11) ______ 12) ______ 2 C) as the quantity of one input increases, output decreases. D) as the quantity of one input decreases, other inputs will increase, and so will output. 13) Substitution bias in the CPI refers to the fact that the CPI A) takes into account the substitution of goods by consumers when relative prices change. B) substitutes relative prices for absolute prices of goods. C) takes no account of the substitution of goods by consumers when relative prices change. D) substitutes quality changes whenever they occur without taking account of the cost of the quality changes. 14) An example of the new goods bias in the CPI is the A) introduction of hybrid automobiles, vehicles that were not made until recently. B) switch from traditional car dealerships to low-cost Internet car buying services. C) introduction of higher quality brakes as standard equipment on new cars. D) decreasing popularity of SUVs as the price of gasoline has risen. 15) The consumer price index (CPI) A) is the ratio of the average price of a typical basket of goods to the cost of producing those goods. B) measures the increase in the prices of the goods included in GDP. C) compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period. D) compares the cost of the typical basket of goods consumed in period 1 to the cost of a basket of goods typically consumed in period 2. 16) In the labor market, increases in labor productivity ________ the real wage rate and ________ employment. A) lowers; increases B) raises; decreases C) lowers; decreases D) raises; increases 17) The bias in the CPI typically A) cannot be measured or estimated. B) about half the time overstates and about half the time understates the inflation rate. C) understates inflation. D) overstates inflation. 18) The relationship between the unemployment rate and the natural unemployment rate is that the unemployment rate A) equals the natural rate. B) is always below the natural rate. 13) ______ 14) ______ 15) ______ 16) ______ 17) ______ 18) ______ 3 C) is always above the natural rate. D) fluctuates about the natural rate. 19) In the above figure, at the real wage rate of $50 A) there is a shortage of 100 billion hours per year. B) there is a surplus of 100 billion hours per year. C) there is shortage of 20 billion hours per year. D) there is a surplus of 60 billion hours per year. Wage rate (dollars per hour) 22 23 24 25 26 27 Labor supply (hours) 900 910 920 930 940 950 19) ______ Labor demand (hours) 940 930 920 910 900 890 20) ______ 20) Using the data in the above table, suppose that the minimum wage is $23 per hour. Then A) there will be higher unemployment than if there was not a minimum wage. B) the wage is prevented from going higher than $23 per hour. C) the minimum wage has no effect because it is below the equilibrium wage. D) the labor market cannot reach the equilibrium it would reach without the minimum wage. 21) The demand for labor curve 21) ______ 4 A) is downward sloping because marginal product of labor diminishes as more workers are employed. B) is upward sloping and the supply curve of labor is downward sloping. C) is upward sloping because marginal product of labor diminishes as more workers are employed. D) shifts rightward when the real wage rate rises. Price index Inflation rate (percent) 100 2 117 A 3 125 B 4 120 C 5 D 8.3 6 150 E 22) In the table above, what inflation rate belongs in space C? 22) ______ A) 8.3 percent B) 17.0 percent C) -4.0 percent D) 6.8 percent 23) An assumption of classical growth theory is that when ________ the 23) ______ population growth rate ________. A) the real wage rate decreases; increases B) the real wage rate exceeds the subsistence real wage rate; increases C) saving declines; decreases D) people become more skilled; decreases 24) Real GDP at full employment is 24) ______ A) only theoretical because it is never actually reached. B) called potential GDP. C) reached only when the unemployment rate is 0 percent. D) called the natural rate of GDP. 25) Suppose a nationʹs population grows by 2 percent and, at the same time, 25) ______ its GDP grows by 5 percent. Approximately how fast will real GDP per person increase? A) 2 percent per year B) 5 percent per year C) 3 percent per year D) 10 percent per year Year 1 5 In the above figure, a decrease in the real interest rate will result in a movement from point E to 26) A) point H. B) point G. C) point F. D) point I. 27) Neoclassical growth theory predicts that Chinaʹs economic growth rate will ________. A) continue at around 10 percent a year B) always remain above the U.S. economic growth rate C) decrease when the interest rate increases D) eventually converge to the U.S. economic growth rate. 28) The type of unemployment created by the normal rate of reentry and entry into the labor force is A) structural unemployment. B) frictional unemployment. C) cyclical unemployment. D) seasonal unemployment. 29) The CPI basket contains 400 oranges and 800 pens. In the base year, the price of an orange is $1.00 and the price of a pen is $0.75. This year, urban consumers each buy 300 oranges at $2.00 each and 850 pens at $1.00 each. The CPI this year is ________. A) 1.60 B) 160 C) 62.5 D) 140 30) In neoclassical growth theory, technological change ________. A) occurs by chance B) is influenced by population growth C) is influenced by the rate of economic growth D) occurs at a steady rate 26) ______ 27) ______ 28) ______ 29) ______ 30) ______ 6 ...
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This note was uploaded on 04/12/2011 for the course ECON 1101 taught by Professor Rappoport during the Spring '08 term at Temple.
- Spring '08