Practice Exam_1-1

Practice Exam_1-1 -...

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Unformatted text preview: Name______________________________________________ Discussion Section Instructor____________________________ Econ 102: Fall 2011 (Eudey) Practice First Exam The exam is worth 30 points. Please circle your selection in the multiple choice problems, and write your answer in the space provided for the short-answer problems. Each multiple choice question is worth 1 point. Short-answer questions are each worth from 1 to 4 points, as indicated at the start of each short-answer problem. No books or notes are allowed during the exam. 1) Gross investment is A) what is left over from total new private investment after depreciation. B) the total amount of private investment purchases, whether new or previously existing. C) the total amount of new private investment purchases. D) the wear and tear on private investment. 2) Depreciation is A) what is left over from total new private investment after use for a year. B) the total amount of private investment purchases, whether new or previously existing. C) the total amount of new private investment purchases. D) the wear and tear on private investment. 3) Transfer payments are excluded from government purchases in GDP accounting because A) they are difficult to measure. B) they are a reward to individuals who have been productive their entire lives. C) they are already included as part of investment. D) nothing is being produced in return for the payment. Write a SHORT ANSWER in the space provided 4) (1 point) Explain why the following statement is either true or false: The value of goods produced in a previous year but sold to households in the current year is added to the GDP for the current year. False, GDP is a measure of production. Since the good was produced last year, it should have been included in last years GDP. False. Goods sold to households this year increase C this year (1/2 5. point) but I falls (inventories fall) by the same amount (1/2 point) so there is no change in GDP. Write a SHORT ANSWER in the space provided 5) (4 points) Imagine that an economy produces two goods, flashlights and fishing lures. In 2009, the economy produced 100 flashlights and 50 fishing lures, and the prices of flashlights and fishing lures were $5 and $11, respectively. In 2010, the economy produced 120 flashlights and 60 fishing lures, and the prices of flashlights and fishing lures were $7 and $14, respectively. What happened to nominal GDP growth from 2009 to 2010? What happened to real GDP growth from 2009 to 2010? Nominal GDP: 2009= 1050 2010= 1680 Nominal GDP increased by 60% Real GDP: 2009= 1050 2010= 1260 Real GDP increased by 20% 6) People who are only working part-time, but want to be working full-time, are classified officially as A) unemployed and in the labor force. B) unemployed and out of the labor force. C) employed and in the labor force. D) employed and out of the labor force. Write a SHORT ANSWER in the space provided 7) (1 point) People who stopped looking for work because they could not find jobs are called ______ (what is the missing word?) discouraged 8) ________ unemployment occurs due to a mismatch between the jobs that are available and the skills of workers seeking jobs. A) Structural B) Cyclical C) Frictional D) Voluntary 9) In the United States today, economists estimate that the natural rate of unemployment is between ________ and ________ percent. A) 3; 5.5 B) 3; 4 C) 4; 6.5 D) 6.5; 7.5 Write a SHORT ANSWER in the space provided. 10) (1 point) Why is the line between frictional and structural unemployment sometimes hard to draw? ?? Answer: Suppose a highly skilled steel worker is laid off because his company shuts down its plant in his area and moves to a new location overseas. The worker would like to find a comparable job, but only low-wage, unskilled work is available in his town. Jobs are available, but not his kind of job; and the steel company will not come back. There is really no correct answer as to whether this is frictional or structural unemployment. 11) Chain-weighted price indices are constructed such that A) prices in different economies can be directly compared with one another. B) prices in different years can be directly compared with one another. C) all years' levels of GDP are directly related to a base year level of GDP. D) prices of one good can be directly compared with prices of other goods. 12) If you take out a bank loan prior to unanticipated inflation A) it will be harder for you to repay the loan because of the inflated dollar. B) you will gain at the expense of your bank. C) your bank will gain at your expense. D) neither you nor your bank will be affected, because the loan was made prior to the inflation. Write a SHORT ANSWER in the space provided 13) (1 point) Explain the difference between nominal wages and real wages. ominal wage is he physical cash that goes into your pocket. Real N wage is the amount you are making in comparison to a base year. For example, $18,000 in 1940 may be equal to $100,000 today when looking at real wages. eal wages are the wages paid to employees after being adjusted for (okay to say “changes in”) the price level, or can say real wages are the purchasing power of the nominal wage (or words to that effect). Write a SHORT ANSWER in the space provided 14) (2 points) Starting from the marginal condition that the marginal cost of an additional worker should equal the marginal benefit to the firm of hiring that work, explain why labor demand is a downward-sloping function of the real wage. When deciding how much labor to hire a company must consider deminishing returns to labor. If their marginal return of labor is too small their demand for labor decreases and therefore real wage decreases. nominal wage = p*mpl is the marginal condition equating marginal cost to the marginal benefit to the firm of an additional unit of labor (1/2 point). Dividing through both sides by P, we get w/p=mpl (1/2 point). Under the assumption of diminishing returns, mpl falls (w/p falls) as L rises, thus Labor demand rises as L falls. (1 point) Write a SHORT ANSWER in the space provided 15) (2 points) Draw a graph illustrating a labor market in equilibrium assuming that labor supply rises as real wages increase. Illustrate and explain the effect of an increase in immigration using your graph. Real Wage Demand for Labor Labor Supply New Labor Suppy Labor 16) An increase in consumption, investment, or net exports caused by a decrease in government purchases is known as A) a closed economy. B) demand-side effects. C) crowding in. D) crowding out. 17) The real business cycle school of thought is generally viewed as controversial because A) it contradicts classical economic thought. B) critics find it difficult to understand how many of the post-World War II recessions could be explained by adverse changes in technology. C) it blames unemployment on immigration. D) all of the above 18) A closed economy refers to an economy with A) no immigration. B) no international trade. C) tariffs and import quotas. D) all of the above 19) GDP per capita means GDP A) in real terms. B) adjusted for inflation. C) per person. D) all of the above 20) Suppose that real GDP starts at 100 and grows at a rate of 10 percent per year for two years. In the third year real GDP would be A) 110. B) 110.1. C) 120. D) 121. 21) Using the rule of 70, if the GDP per capita growth rate in the United States is 4.4 percent, standards of living double every A) 6.72 years. B) 15.91 years. C) 44 years. D) 65.6 years. 22) A comparison of the average growth rates across time for developed nations indicates that A) nations with lower levels of income grow more slowly than those with higher levels of income. B) nations with lower levels of income will never be as rich as nations with high levels of income. C) nations with high levels of income experience a continuously increasing growth rate. D) nations with lower levels of income grow more quickly than those with higher levels of income. 23) Gross investment minus depreciation is equal to A) gross domestic product. B) net investment. C) personal investment. D) nominal investment. Write a SHORT ANSWER in the space provided. 24) (2 points) Explain the effect of trade deficits on economic growth: when will there be an effect and when won’t there? Trade deficits involve borrowing from other areas. By creating one, a government solves its short term issue by providing more goods for consumption. However, in the long run this forces them to decrease consumption in order to pay back what they borrowed. This tends to put a hold on economic growth. Answer: (1 point) The foreign sector can affect capital deepening. An economy can run a trade deficit and import investment goods to aid capital deepening. Even though it borrows from abroad, the resulting increase in GDP and wealth will enable it to repay those borrowings. (1 point) However, an economy can also run a trade deficit because it wants to buy more consumer goods. In this case the economy is borrowing from abroad but there would be no capital deepening, just additional consumer spending. As a result there would be no increase in GDP when it comes time to repay the borrowing. 25) According to the method of growth accounting, which of the following contribute to economic growth? A) capital growth B) labor growth C) technological progress D) all of the above ...
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This note was uploaded on 01/12/2012 for the course ECON 102 taught by Professor Drozd during the Fall '08 term at Wisconsin.

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