Midterm I - Midterm 1 March 1, 2010 Econ 2006 Spring 2010...

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Unformatted text preview: Midterm 1 March 1, 2010 Econ 2006 Spring 2010 Instructor: Shahram Amini 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 E D D E B C B A D A A C C B D C A C C C A D D D D C D C C D C E D A E C E C D B 1 1. Over the long term, the U.S. economy has grown dramatically because of all of the following, except: a. Increase in the amount of resources b. Improvements in the rules of the game c. Increase in the quality of resources d. Better technology e. Increase in the amount of money printed 2. Which is true of John Maynard Keynes? a. He believed that serious economic contractions were natural phases in an otherwise healthy system. b. He provided a model that closely resembled that of Adam Smith. c. He advocated a decrease in the money supply to stabilize the economy. d. He argued that increased government demand should offset reduced private sector demand to prevent depression. e. He advocated tax increases to balance the federal government's budget during the Great Depression. 3. Suppose the economy is initially in equilibrium and then an energy shock occurs, such as when OPEC raised oil prices. Which of the following is likely to result? a. Both the price level and aggregate output will rise. b. Both aggregate output and the price level will fall. c. Employment will rise. d. Stagflation. e. The price level will fall. 4. The phase of the business cycle characterized by rising output is called a(n) a. b. c. d. e. peak recession depression trough expansion 5. The two phases of the business cycle are a. b. c. d. e. high economic growth and low economic growth expansion and contraction expansion and depression high inflation and low inflation potential economic growth and actual economic growth 2 6. If Q is total real output, K is capital in use, and L is labor employed, the productivity of labor is measured by a. K/L b. L/K c. Q/L d. Q/K e. (Q + K)/L 7. The slope of the per‐worker production function diminishes as the amount of capital per worker increases. This is a reflection of the law of a. increasing marginal returns b. diminishing marginal returns c. constant marginal returns d. first diminishing then increasing marginal returns e. demand 8. An improvement in the quality of capital would a. rotate the per‐worker production function upward b. make the per‐worker production function flatter c. shift the per‐worker production function downward d. rotate the per‐worker production function downward e. have no effect on the per‐worker production function 9. According to Nobel prize winner Simon Kuznets, the greatest increase in output and economic growth comes from changes in the a. quantities of resources b. quantities of natural resources (land) c. quantities of labor d. qualities of resources e. quantities of capital 10. An increase in the amount of capital per worker is called a. capital deepening b. marginal capital c. per‐worker production function d. human capital e. diminishing marginal returns from capital 3 11. In 2007, the imaginary nation of Freedonia had a population of 2,700 and real GDP of 16,200,000. In 2008 it had a population of 2,500 and real GDP of 14,640,000. What was the growth rate of real GDP per person in Freedonia between 2007 and 2008? a. b. c. d. ‐2.4 percent ‐0.7 percent 4.4 percent 5.2 percent 12. In GDP measurement, Investment spending includes a. spending by individual households on automobiles and durable goods b. spending by businesses on labor resources c. changes in business inventories d. spending by government on salaries e. spending by households on stocks and bonds 13. Which of the following is not considered a component of government purchases in calculating GDP? a. the cost of a new federal prison b. the cost of building a new road c. unemployment compensation payments d. payments made to plow public roads after a snowstorm e. the cost of police protection 14. Use the following data to calculate GDP: consumption = $2,000; gross investment = $600; government purchases = $500; net exports = ‐$40; transfer payments = $340. a. GDP = $2,720 b. GDP = $3,060 c. GDP = $3,140 d. GDP = $3,400 e. GDP cannot be determined due to insufficient data 15. The largest component of aggregate expenditure is a. government purchases b. transfer payments c. imports d. consumption e. investment 4 16. Which of the following would not be included in the measurement of GDP? a. the spark plugs you bought to tune up your car at home b. the government hiring a public relations consultant c. any improvements in product or service quality not reflected in a higher price d. winning a brand new Chevy truck in a contest e. sales of U.S. beef to Scotland 17. Given the following hypothetical data: C = $3,000; I = $1,200; G = $2,000; X ‐ M = ‐$500; depreciation = $200; transfer payments = $800, net domestic product is a. $5,500 b. $5,700 c. $6,200 d. $6,400 e. $6,900 18. The consumer price index measures changes in a. the prices of all goods and services b. the prices of goods that are sold c. the total cost of a specific market basket of consumer goods and services d. the total costs of all goods and services e. the total costs of goods and services purchased by firms 19. One bag of flour is sold for $1.00 to a bakery, which uses the flour to bake bread that is sold for $3.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP? a. b. c. d. GDP increases by $2.00. GDP increases by $3.00. GDP increases by $5.00. GDP increases by $6.00. 5 20. Consider two cars manufactured by Chevrolet in 2007. During 2007, Chevrolet sells one of the two cars to Sean for $24,000. Later in the same year, Sean sells the car to Kati for $19,000. The second automobile, with a market value of $30,000, is unsold at the end of 2007 and it remains in Chevrolet’s inventory. The transactions just described contribute how much to GDP for 2007? a. b. c. d. $24,000 $43,000 $54,000 $73,000 21. In the equation Y = C + I + G + NX, a. b. c. d. Y represents the economy’s total expenditure. C represents household expenditures on services and durable goods. all of the variables are always positive numbers. All of the above are correct. 22. Which of the following is included in the investment component of GDP? a. b. c. d. households’ purchases of newly constructed homes net additions to firms’ inventories firms’ purchases of capital equipment All of the above are correct. 23. A transfer payment is a payment made by a. b. c. d. consumers, but not in exchange for a tangible product. firms, but not in exchange for capital equipment. foreigners, but not in exchange for a domestically‐produced good or service. government, but not in exchange for a currently produced good or service. 6 24. If a U.S. citizen buys a television made in Korea by a Korean firm, then a. b. c. d. U.S. net exports decrease and U.S. GDP decreases. U.S. net exports are unaffected and U.S. GDP decreases. U.S. net exports are unaffected and U.S. GDP is unaffected. U.S. net exports decrease and U.S. GDP is unaffected. 25. In the economy of Wrexington in 2008, consumption was $3000, exports were $400, GDP was $5000, imports were $600, and investment was $1100. What were Wrexington’s government purchases in 2008? a. b. c. d. $300 $500 $700 $1100 26. The GDP deflator is the ratio of a. b. c. d. real GDP to nominal GDP multiplied by 100. real GDP to the inflation rate multiplied by 100. nominal GDP to real GDP multiplied by 100. nominal GDP to the inflation rate multiplied by 100. 27. Frictional unemployment is joblessness a. b. c. d. e. related to changes in weather and similar factors arising from a mismatch between available jobs and workers' skills resulting from macroeconomic fluctuations that is short‐term and is experienced by people who are between jobs that is caused by structural changes in the economy 7 Table 10­2 The table below contains data for the country of Wrexington for the year 2008. Household purchases of durable goods $1293 Household purchases of nondurable goods $1717 Household purchases of services $301 Household purchases of new housing $704 Purchases of capital equipment $310 Inventory changes $374 Purchases of new structures $611 Depreciation $117 Salaries of government workers $1422 Government expenditures on public works $553 Transfer payments $777 Foreign purchases of domestically produced goods $88 Domestic purchases of foreign goods $120 28. Refer to Table 10­2. What was Wrexington’s GDP in 2008? a. b. c. d. $6359 $7136 $7253 $8147 8 Table 10­5 The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2006. Year Price of Waffles Quantity of Waffles Price of Pancakes Quantity of Pancakes 2005 $2 100 $1 100 2006 $2 120 $2 150 2007 $3 150 $3 200 2008 $4 180 $3 220 29. Refer to Table 10­5. In 2005, Batterland’s real GDP was a. b. c. d. $300. $390. $400. $540. 30. Refer to Table 10­5. In 2007, Batterland’s GDP deflator was a. b. c. d. 66.7 100 129.6 150 31. Dennis is an excellent typist. However, because he has been unable to adapt to his company's new computer system, he has lost his job. He is currently seeking another secretarial position, but it is likely that he will have to acquire new skills to become employable as a secretary again. Dennis would best be described as a. b. c. d. e. frictionally unemployed seasonally unemployed structurally unemployed cyclically unemployed not in the labor force 9 32. Which of the following categories of unemployment arises from macroeconomic causes? a. b. c. d. e. temporary unemployment underemployment structural unemployment frictional unemployment cyclical unemployment 33. Full employment occurs when a. b. c. d. e. everyone has a job everyone who wants a job has one there is no frictional unemployment there is no cyclical unemployment there is no structural, frictional, and seasonal unemployment 34. The presence of involuntary part‐time workers a. b. c. d. e. causes the official unemployment rate to underestimate actual unemployment causes the official unemployment rate to overestimate actual unemployment has no effect on the accuracy of the official unemployment rate is accounted for in the official unemployment rate is insignificant in the U.S. economy and thus is no cause for concern 35. Suppose U = the number of adults who are unemployed; E = the number of adults who are employed; and NLF = the number of adults not in the labor force. Which expression would equal the labor force participation rate (times 100)? a. U/(U + E) b. E/(U + E) c. U/(U + E + NLF) d. E/(U + E + NLF) e. (U + E)/(U + E + NLF) 36. The difference between demand‐pull inflation and cost‐push inflation is that a. demand‐pull inflation is caused by movements of the aggregate supply curve; cost‐ push inflation is caused by changes in firms' costs of production b. cost‐push inflation is caused by movements of the aggregate demand curve; demand‐ pull inflation is caused by cyclical activity in the economy c. demand‐pull inflation is caused by movements of the aggregate demand curve; cost‐ push inflation is caused by movements of the aggregate supply curve d. demand‐pull inflation is caused by government deficit spending; cost‐push inflation is caused by firms e. demand‐pull inflation is caused by foreign demand; cost‐push inflation is caused by domestic production problems 1 0 37. What was the result of increased oil prices during the 1970s? a. Aggregate demand decreased, causing cost‐push inflation. b. Aggregate demand increased, causing demand‐pull inflation. c. Aggregate supply increased, causing demand‐pull inflation. d. Aggregate supply increased, causing cost‐push inflation. e. Aggregate supply decreased, causing cost‐push inflation. 38. If the nominal interest rate is 6 percent and the inflation rate is 8 percent, a. the real interest rate is 10 percent b. the real interest rate is 2 percent c. the real interest rate is ‐2 percent d. the real interest rate is ‐10 percent e. there is insufficient information to determine the real rate of interest 39. Raul borrowed $1,000 from Marta for a year and agreed to repay her $1,050 at the end of the year. If the inflation rate was 3 percent, what is the real rate of interest Marta received? a. 10 percent b. 5 percent c. 3 percent d. 2 percent e. ‐2 percent 40. Suppose some country had an adult population of about 50 million, a labor‐force participation rate of 60 percent, and an unemployment rate of 5 percent. How many people were employed? a. b. c. d. 1.5 million 28.5 million 30 million 47.5 million 1 1 ...
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