ECON 104 Sample Test CH4&5

ECON 104 Sample Test CH4&5 - MACROECONOMICS — ECON...

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Unformatted text preview: MACROECONOMICS — ECON 104 — Name # George Mason University Last Name, First Name Not Student ID SAMPLE TEST — Spring 2004 - Section 004 — 7:20 to 10:000 PM Thursday — Instructor: EC Holt 19 February 2004, Chapter 4 —5When you are finished, sign pledge below and turn in both this test and your Scantron. Honor Pledge: I have neither given nor received aide on this exam. Signed: (Student‘s Signature) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) If the rest of the world lends to the US. economy, A) the U.S. government has a budget surplus. B) US. imports are less than US. exports. C) U3. imports exceed US. exports. D) the U.S. government has a budget deficit. 2) National saving equals A) household saving e business saving. B) household saving + business saving + government saving. C) household saving + business saving + net taxes — government purchases of goods and services. D) Both answers B and C are correct. 3) If our exports are $1.2 billion and our imports are $1.7 billion, A) US. national saving is too B) the US. is lending to the rest of the world. C) US. investment must decrease. D) the US. is borrowing from the rest of the world. 4) A feature of a stock variable and a flow variable is that A) a stock is a quantity that exists at a point in time and a flow is a quantity per unit of time. B) a stock is a quantity per unit of lime and a flow is a quantity that exists at a point in time. C) a stock only measures the value of goods and services produced in a. country during a given time period. D) an example of a stock variable is real GDP and an example of a flow variable is consumption expenditure. 5) At the beginning of the year, your wealth is $10,000. During the year, you have an income of $80,000 and you spend $90,000 on consumption. You pay no taxes. Your wealth at the end of the year is A) $100,000.00. B) $20,000.00. C) $90,000.00. D) $0. 6) Depreciation A) does not change the level of capital in the economy. B) is also known as capital consumption. C) is the decrease in the capital stock because of wear and tear. D) Both answers B and C are correct. 7) At the beginning of the year, Tom's Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new madiines. Tom's net investment for the year totaled A) 6 machines. B) 1 machine. C) 3 machines. D) 2 machines. 8) GDP equals net domestic product plus A) retained earnings. B) depreciation. C) transfer payments and business transfers. D) indirect business taxes and personal taxes. 9) Let C represent consumption expenditure,S saving, I gross private domestic investment,G governinent purchases of goods and services, andNX net exports of goods and services. Then GDP equals A)C+I+G~NX. B)C+S+G+NX. C)C+S+G—NX. D)C+I+G+NX. 10) The largest component of GDP is A) government purchases of goods and services. B) gross private domestic investment. C) personal consumption expenditures. D) net exports of goods and services. 11) An example of "investment" in the national income accounts is the purchase of A) a US. government bond. B) a new van by a potter, who packs it with his wares and travels to art shows. C) a 100—year—old house that was just put on the protected historic sites list in the year in question. D) 100 shares of Canadian stock on the New York Stock Exchange- 12) All of the following are included in gross private domestic investment expenditureEXCEPT a A) business's purchase of another company's stock. B) business's purchase of a fleet of cars. C) a retail store‘s purchase of shoes to add to its inventory. D) household's purchase of a new house. 13) Transfer payments are not part of government purchases of goods and services because transfer payments A) do not represent the purchase of a final good or service. B) are not always spent on goods produced in the US. C) are not predictable given the nature of their appropriation and allocation. D) The premise of the question is incorrect because transfer paymentsire part of government purdiases of goods and services. 14) The approach to GDP that sums compensation of employees, rental income, corporate profits, net interest, proprietors' income, depreciation, and indirect taxes and subtracts subsidies is the A) opportunity cost approach. B) expenditure approach. C) income approach. D) added cost approach. 15) An indirect tax is a tax paid by consumers A) when they purchase goods and services. B) that is a percentage of the value of their real property. C) to a state or local government. D) on unearned income (as opposed to wages and salaries). 16) The GDP deflator equals 100 times A) nominal GDP divided by real GDP. B) net domestic product divided by gross domestic product. C) gross domestic product divided by net domestic product. D) real GDP divided by nominal GDP. 17) Suppose that nominal GDP per person is $17,000 in 2002, the 1998 GDP deflator is 100, and the 2002 GDP deflator is 90. The approximate real GDP per person in 2002 is ‘ A) $17,000. B) $15,300. C) $32,300. D) $18,889. 18) Because pollution reduces economic welfare, real GDP A) overstates economic welfare. B) decreases as pollution increases. C) increases to take into account the expenditures that will be made in the future to clean up the pollution. ' D) understates economic welfare. 19) A popular Working definition of a recession is A) the lower turning point of a business cycle. B) a period during which real GDP increases for at least two successive quarters. C) the upper turning point of a business cycle. D) a period during which real GDP decreases for at least two successive quarters. 20) A peak is the A) upper turning point of a business cycle when an expansion ends. B) lower turning point of a business cycle when a recession ends. C) upper turning point of a business cycle when a recession ends. D) lower turning point of a business cycle when an expansion ends. Real GDP (trillions of 1995 doilars) Time 21) In the above figure, a recession begins at point and an expansion begins at point A) int: _ B) Etc C) tub D) d;c 22) The working—age population is defined as the number of A) people working fullelime jobs who are over the age of 16. B) people who have a job. C) people looking for work. D) people over the age of 16 who are not in jail, hospital, or other institution. 23) Suppose the working age population in Tiny Town is 100 people If 25 of these people a.rd\lOT in the labor force, the equals A) labor force; 75 B) unemployment rate; 25 f 100 x 100 C) unemployment rate; 25/ 125 x 100 D) labor force; 25/100 x 100 24) The population of Tiny Town is 100 people and the labor force is made up of ’75 people. If 5 of these people are unemployed, the unemployment rate is A) 5/ 80 x 100. B) 5175 x 100. C) 5/ 100 x 100. D) There is not enough information provided to calculate the unemployment rate. 25) The labor force participation rate is the ratio of A) (the labor force divided by the working—age population) multiplied by 100. B) (the number of unemployed divided by the labor force) multiplied by 100. C) (the labor force divided by the total population) multiplied by 100. D) (the number of unemployed divided by the working—age population) multiplied by 100. 26) The employment—to—population ratio is the ratio of the number of A) (unemployed people divided by the working age population) multiplied by 100. B) (employed people divided by the total population) multiplied by 100. C) (employed people divided by the working—age population) multiplied by 100. D) (unemployed people divided by the total population) multiplied by 100. 27) Based on the following data for the country of Tiny Town, the employment—to—population ratio equals 100 times: Population = 200 Working age population == 100 Labor Force 2 90 Number of employed persons 2 75 A) 75/100. 13) 90/100. C) 90/200. D) 75/200 28) Over the last 20 years, statistics show that real wages have grown slowly. This slowdown mainly reflects A) a decrease in the unemployment rate. B) an increase in the labor force. C) a decrease in the labor force. D) slower productivity growth. 29) Frictional unemployment A) is unemployment associated with the changing of jobs in a changing economy. B) is unemployment associated with declining industries. C) includes discouraged workers. D) is voluntary part—time unemployment. 30) Structural unemployment is A) associated with the normal changing of jobs in a dynamic economy. B) associated with the general decline of specific industries. C) almost always short-term in nature. D) associated with the general downturns in the economy. 31) If a worker is temporarily laid off because the economy is in a recession, A) cyclicai unemployment increases. B) the size of the labor force rises. C) structural unemployment increases. D) frictional unemployment increases. 32) If a market basket of goods cost $200 in the reference base period and $450 in a later year, the CPI in the later year equals A) 250. B) 300. C) 225. D) 450. Inflation rate Period (percent) ONU1VP-DJNH 33) In the table above, what inflation rate belongs in space E? A) 6.8 percent B) -4.0 percent C) 8.3 percent D) 17.0 percent so Accelerate eep rates low for “a considerable pe- iod.” although Fed officials don’t see an nminent need to raise interest rates, hey didn’t want the commitment to pre— rent that if circumstances change. The node rate can‘t stay at 1% “indefinitely,” ind “eventually” must rise to a “neutral level," Mr. Greenspan said. A key source of uncertainty at the Fed is how much productivityfor outputper worker‘will grow, which will determine how many unemployed workers will be put back to work, and how much labor costs and prices will rise. Nonfarm pay— rolls have fallen by 2.2 million since J anu- ary 2001, a third of that since the reces- sion officially ended in November of that year. (A separate Survey of households shows job gains in that period, but Mr.‘ Greenspan said the payroll count is more reliable.) While FOMC members don‘t re, lease a forecast of productivity or jobs, private economists say that other FOMC forecasts are consistent with productiv- ity growth this year of about 3%, a re- markably brisk pace but down from 5% last year. Mr. Greenspan said the recent excepe tional productivity growth has held back employment by enabling employers to meet rising demand with fewer workers. The loss of jobs due to higher productiv- ity, he said, makes more acute the loss of jobs “as a result of imports, whether it‘s goods or services or outsourcing or what- ever." Mr. Greenspan said it is “utterly in- conceivable" that productivity growth, which topped 5% last year, can continue at that rate. As businesses run out of unused labor-saving technology to ex— ploit, it “is going to slow down signifi- cantly” and “yon will begin to create sig- nificant job growth.” Rep. Barbara Lee, a California Demo crat, asked what legislators could do to help young people, especially minorities, when they graduate and can’t find jobs. lvir. Greenspan answered: “Ii jobs are not available, you have a hopeless task. rl‘he only way that you have possibilities of success is if you have an economy in which jobs are growing and opportuni- ties are growing." Mr. Greenspan’s warnings on the bud- get deficit were more urgent than in pre- vious remarks. He said the huge current- account deficit—the shortfall on trade and investment income between the U.S. and the rest of the world—makes it even more imperative to cut the budget defi- cit. He said that would minimize the harm if foreign investors cut back on their purchases of U.S. stocks and bonds, which finance the currentuaccount deli cit. But he refused to endorse higher taxes as a way to contain the deficit, as many Democrats have. “The longereterm problem 15 on the expenditure side,” he told Rep. Barney Frank. a Massachu- setts Democrat. The U.S. can‘t pay for current Medicare and Social Security commitments to future retirees “without a significant increase in tax rates,” Mr. Greenspan said. journal tints: WSJ.com subscrib- ers can listen to a conference call ma elf: Mimi-nos. at CAPETAL o ' U.S. to Rest of the none: it? l—iE U.S. IS behaving like a fam- ily with a welluworn, low-interest- rate MasterCard. For years, the U.S. has been con- suming more than it produces. (That’s what it means to import more from the rest of the world than one exports.) And it has been invest- ing more than it saves. {That‘s why it depends on foreigners sending an— other 315 billion of their savings ev- ery day.) Despite the strains of a jobless re- covery, this is a good life. The U.S. buys lots from the rest of the world, and the rest of the world lends the U.S. the money to make the pur— chases—more every yeareat today’s very low interest rates. For a considerable period now, economists—think of them as new tional credit counselors—have been warning that this can’t go on forever. Foreigners won’t keep devoting larger shares of their sa ’— ings to U.S. stocks, bonds and compa- nies, just as there is a limit to how much _ MasterCard allows any one family to borrow. Sure, this could continue for years. But the dollar’s re- cent slide is a sign that countries are . skittish about putting much more money into the U.S. Too often, though, the dollar is seen as the is— sue, rather than a symptom. Yes, the weak dollar is hard on Eu- ropean exporters, and makes life eas- ier for U.S. manufacturers. Yes, it’s bad for Americans eyeing trips to Paris. and good for Germans who long for the Florida sun. and, yes, fi- nancial markets fixate on whether con— claves of big—country finance ministers do or don‘t want to nudge the dollar. % UT THE iSSUE is how U.S., Eu- I rope and Asia can find a wayw short of a wrenching crisis—t0 wean the U.S. economy from a growing ad— diction to foreigners’ savings and the rest of the world from an unhealthy dependence on American consumers. The world economy is out of whack. To set it right, the U.S. needs to buy more homemade Fords and fewer imported ’ibyotas, so that it re- lies less on credit from Japan and oth- ers. And Europe and Asia need to buy more U.S.rmade wares and rely less on exports to stoke their economies. Someday, that’s going to happen. The question is how painful it will be. Right now, the global economy is trying to adjust by pushing down the dollar. Recognizing that, George W. Bush’s administration is acquiescing. Economic textbooks say the weaker dollar should make imports more are pensive in the U.S. [so Americans will buy fewer of them and more homemade goods) and make U.S. ex— ports cheaper abroad (so other na— tions will buy more from the U.S.). Things aren’t working quite the way the textbooks predict. First, too much of the dollar’s decline is being absorbed by the euro and not enough by the yen (because the Japanese in- terfere in currency markets) or the yuan (because the Chinese won’t let it move) or other Asian currencies (be- cause their governments watch the yen and the yuan). Second, prices of imports in the U.S. and prices of U.S. exports elsewhere aren't responding quickly to changing exchange rates, which has markets betting the dollar ' will have to keep sliding. I R Ul“, REMEMBER, the dollar isn’t the issue; it’s a symptom. Gov- ernment economic policies could help if they could get European and Japa— nese consumers to buy more and get Americans—both cit- izens and govern— menteto save more so the U.S. doesn’t need so much for- eign credit. Unfortunately, as one German official bluntly puts it, “it is as hard to get Germans to spend as it is to get Ameri— cans to save.” There is a pain— ful way to right the Graham Rounileu I world economy: a financial-market crisis. The dollar takes a sharp plunge. Stock and bond markets fol- low. With deficit angst running high and finally pushing up interest rates, the presidenteeither President Bush . or a successorirallies Congress to an emergency deficit—reduction pack— age. That’s likely to mean the U.S. economy falters. But it will import less (because the U.S. buys less from l abroad in a recession) and save more. (that‘s what reducing the deit- cit does). What might a pain~prevention ap- proach look like? A lower dollar, but not just against the euro. Lower Euro- pean Central Bank interest rates. Ag- gressive moves in Europe and Japan to further deregulate their economies so their peoples can benefit more from changing technologies. Credible moves in the U.S. to reduce huge, fu- ture deficits threatened by the retire- ment of the populous generation born after World War ll, even if that = means raising taxes. And smarter ef- forts to hone America’s competitive edge, particularly by better educating its children and training its workers. The benefits are pricsless: A healthier global economy that deliv- l ers more goods and services to all economies. Until then, there's always MasterCard. { ___________—————‘—" Email me tit” capitai@ws§.eom. See questions and answers Tuesday at ‘ Whicom/Ela pitalEerlange. Answer Key Testname: HEADERTEST.TST -'~ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) C 2) D 3) D 4) A 5) D 5) D 7) B 8) )3 _ 9) D g 6 /K 10) c V ‘2‘ A 11) B )4 \i,\ ' -, x 12) A ‘_ k 13) A t 1" 14) C Cu"). ‘ I 15) A aim ,/ 16)A I F\;;"\ . I] 17) D - A} ' - ' ‘1': = “- JP“; 18) A V\ 19) D \ 20) A 21) C a 22) D L' 23) A 24) B 25) A 26) C 27) A 28) D 29) A 30) B 31) A 32) C 33) A ...
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ECON 104 Sample Test CH4&5 - MACROECONOMICS — ECON...

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