1-The housing component of the CPI basket is approximately _______ %.

A- 70%

B- 40%

C- 20%

D- 2%

2-Consumption, as a fraction of GDP, is approximately ________ %.

A- 70%

B- 40%

C- 2%

D- 20%

3- The long-run rate of real per capita output in the U.S. is approximately ________ %.

A- 40%

B- 70%

C- 20%

D- 2%

4- Suppose that IBM opens a computer programming office in Bangalore (India). This is an example of:

**A.** foreign direct investment

**B.** the "brain drain"

**C.** capital immobility

**D.** foreign portfolio investment

5- Suppose that a nation experiences 1% deflation and their nominal interest rate is 1.5%. What is that nation's real interest rate?

**A.** -0.5%

**B.** 2.5%

**C.** -2.5%

**D.** 0.5%

6- In a small closed economy, suppose that GDP equals $100 million, workers receive $70 million in wages, and landlords receive $10 million in rental payments. What is the value of total payments to capital holders (i.e. profits)?

**A.** $30 million

**B.** $0

**C.** $20 million

**D-** $ 10 Million

7- The 1970 Plymouth Hemi Cuda had an original sticker price of $3,164. The CPI in 1970 is 38.8 and the current CPI is 236.7. What is the sticker price of the Hemi Cuda adjusted for inflation?

**A.** $19,302

**B.** $519

**C.** $18,651

**D.** $29,417

8- If the price index is 80 in year 1, 100 in year 2, and 93 in year 3, then the economy experienced

**A.** 25 percent inflation between years 1 and 2, and 7 percent inflation between years 2 and 3

**B.** 20 percent inflation between years 1 and 2 ,and 7 percent inflation between years 2 and 3

**C.** 20 percent inflation between years 1 and 2, and 7 percent deflation between years 2 and 3

**D.** 25 percent inflation between years 1 and 2, and 7 percent deflation between years 2 and 3

9- The ‘catch-up’ hypothesis is based on the assumption that if all inputs are held constant, capital is subject to

A. constant returns

B. diminishing returns

C. increasing returns

D. diminishing returns for low levels of capital, and increasing returns for high levels of capital

10- Which of the following bonds has the greatest credit risk?

A. AAA-rated municipal bonds

B. Corporate bonds issued by Apple Computer Corp.

C. U.S. government bonds

D. Junk bonds

11- ACME Pumps had a price to earnings (PE) ratio of 15, paid a dividend of $1, and retained earnings of $1 a share. What was the price of a share of its stock? (Hint: the PE ratio equals the current stock price divided by total earnings (which equal retained earnings plus dividends))

A. $45

B. $15

C. $60

D. $30

12- If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied (hint: draw the supply-and-demand loanable funds diagram)

A. there is a shortage and the interest rate is below the equilibrium level

B. there is a surplus and the interest rate is above the equilibrium level

C. there is a shortage and the interest rate is above the equilibrium level

D. there is a surplus and the interest rate is below the equilibrium level

13- If Canada increases its budget deficit, it will decrease

A. public saving and so shift the supply of loanable funds left

B. investment and so shift the demand for loanable funds left

C. none of these are correct

D. private saving and so shift the supply of loanable funds left

14- Using the rule of 70, how many years does it take for an investment to double in value if it earns 3.5% per year?

A. 15 years

B. 14 years

C. 20 years

D. 35 years

15- Use the information in the table to answer the following questions. Answers are rounded so choose the closest value.

Note* Nominal and Real GDP are in billions of Dollars.

Year | Nominal GDP (current) | Real GDP ($2000) | Deflator | Inflation (%) |

2005 | 10,000 | |||

2006 | 10,750 | 5.0% | ||

2007 | 5,221 | 215.25 | 2.5% |

16.1 What is the value of Nominal GDP in 2007 (round to the nearest dollar)? (check phone for picture)

A. 11,570

B. 11,500

C. 11,239

D. 11,288

16.2 What is the value of the Deflator in 2006 (round to one decimal point)?

A. 100

B. 210

C. 105

D. 205

16.3 What is the value of the Deflator in 2005 (round to one decimal point)?

A. 200

B. 100

C. 105

D. 210

16.4 What is the value of Real GDP in 2005 (round to the nearest dollar)?

A. 10,000

B. 5,119

C. 4,500

D. 5,000

16.5 What is the value of Real GDP in 2006 (round to the nearest dollar)?

A. 5,000

B. 5,119

C. 4,500

D. 10,238

17- Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices a brand-new flavor of soda that she has never tried, so she decides to buy the new soda product instead. To which problem in the construction of the CPI is this situation most relevant?

A. Substitution bias

B. Introduction of new goods

C. Unmeasured quality change

D. Income effect

18- Suppose OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. An electric engine is developed which is cheaper to build and operate than gasoline engines. Which problem in the construction of the CPI does this situation represent?

A. Both substitution bias and the introduction of new goods

B. Introduction of new goods

C. Substitution bias

D. Income effect

19- In the United States, if the price of imported coffee increases sharply, the

A. Neither the CPI nor GDP deflator are affected

B. GDP deflator rises much more than does the CPI

C. GDP deflator and the CPI rise by about the same amount

D. CPI rises much more than does the GDP deflator

20- The nominal interest rate tells you

A. How fast the number of dollars in your bank account rises over time

B. The number of dollars in your bank account today

C. How fast the purchasing power of your bank account rises over time

D. The purchasing power of your bank account today

21- A nation's standard of living is best measured by its

A. Real GDP

B. Nominal GDP per person

C. Real GDP per person

D. Nominal GDP

22- Dilbert’s Incorporated produced 6,000,000 units of software in 2005. At the start of 2006 pointy-haired boss raised employment from 10,000 total annual hours to 14,000 annual hours and production was 7,000,000 units. Based on these numbers what happened to productivity?

A. It stayed the same

B. It rose by about 40%

C. It fell by about 16.7%

D. It rose by about 16.7%

23- According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would

A. Lower private saving and raise public saving

B. Raise both private and public saving

C. Raise private saving and lower public saving

D. Lower private and public saving

24- Following the advice of Milton Friedman, the former Soviet republic of Estonia has a 0% tax on corporate profits that are re-invested in Estonia. What impact do you expect this will have on Estonia’s capital stock and overall level of productivity in the long-run?

A. The capital stock will rise and productivity will fall

B. The capital stock will fall and productivity will fall

C. The capital stock will fall and productivity will rise

D. The capital stock will rise and productivity will rise

25- Consider two house hunters: George and Mike. Assume that George earns $150,000 per year and Mike earns $50,000 per year, and that both men are initially debt-free. George purchases a $500,000 house with a 10% down-payment ($50,000) and a $450,000 mortgage. Mike purchases a more modest home for $177,778 with a 10% down-payment ($17,778) and a $160,000 mortgage. Based on this scenario

A. none of these are correct

B. George has more debt (expressed both in dollars and as a fraction of his income)

C. Mike has less debt (in dollars) but more debt as a fraction of his income

D. Mike and George have the same debt (expressed as a fraction of their income)

26- In the U.S., what is the largest source of funds for business?

A. Stock issues

B. Bonds

C. Loans from financial institutions

D. Government loans

27- At the end of World War II, U.S. government debt was approximately what fraction of GDP?

A. 50%

B. 75%

C. 100%

D. 150%

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