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Unformatted text preview: Multiple Choice (25 points) SOLUTIONS (In this section each question is worth 1 point) 1. Suppose the GDP of an economy grows at annual rate of 5%. About how many years will it take for GDP to double? (a) 0.14 (b) 7 (c) 14 (d) 28 2. Suppose the GDP of an economy grows at annual rate of 5%. About how many years will it take for GDP to octuple (i.e., increase 8-fold)? (a) 28 (b) 42 (c) 56 (d) 112 The next three questions consider the economy of Hamsterdam (population 10). Cedric and McNulty work as police detectives. Prez works as a teacher. Bubbles has a part-time job as a police informant but is still seeking full-time employment. Bodie and DAngelo, are old enough to be working, but instead just spend all day sitting around on a couch because they dont think they could actually get a job even if they tried. Barksdale does not want a real job because he makes a lot of money selling things on the street illegally. Namond recently finished school and is seeking a job. Randy is in elementary school and doesnt have a job. Stringer runs his own businessa copy shop. 3. What is the size of the labor force in Hamsterdam? (a) 5 (b) 6 (c) 9 (d) 10 4. How many discouraged workers are there in Hamsterdam? (a) 2 (b) 3 (c) 4 (d) 5 5. What is the unemployment rate in Hamsterdam? (a) 1/6 (b) 4/9 (c) 1/2 (d) 3/5 6. A bond is: (a) share of ownership in a company. (b) a promise to pay interest each year and to repay the principle on a specified date. (c) a liquid asset since it is a standardized product with a market in which the owner can sell it. (d) both b and c. 7. An illiquid asset: (a) can not be sold. (b) provides the owner no return or income. (c) is a tangible asset. (d) can not quickly be converted into cash. 1 The next two questions consider the following aggregate production function Y L = T r K L where Y is real GDP, L is the number of workers, K is physical capital, and T is the state of technology. 8. Suppose the level of technology is 15, capital per worker is 400, and there are 100 workers. What is real GDP in this economy? (a) 3,000 (b) 6,000 (c) 30,000 (d) 60,000 9. Holding the level of technology constant, real GDP per worker has returns to scale in capital per worker. (a) constant (b) decreasing (c) increasing (d) no 10. The lecture pointed out that the rate of return on higher education is higher in Britain than the United States because: (a) The British invented the English language (b) The British government pays tuition for all university students (c) British college students attend for three years compared to four in the U.S. (d) The British government subsidizes fellowships for the smartest students 11. Consider the market for loanable funds. A decrease in savings by the private sector will shift the supply of loanable funds to the: (a) left and increase the interest rate....
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- Winter '08