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2nd Midterm. Principles of Macroeconomics. Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Nominal GDP will increase A) only if the price level rises. B) only if the price level falls. C) if either the price level or the quantity of goods and services produced rises (and neither fall). D) only if the quantity of final goods and services produced rises.
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2) If an American firm opens a production facility in India, the total value of the production will be will be included in the A) gross national income of India. B) net domestic product of the U.S. C) gross domestic product of India. D) gross domestic product of the U.S.
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3) Consider the following data on nominal GDP and real GDP (values are in billions in billions of dollars):
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Year 1997 1998 1999
Nominal GDP $8,318 $8,790 $9,299
Real GDP $8,159 $8,516 $8,876
The GDP deflator for 1998 equals A) 96.9. B) 104.2.
C) 103.2.
D) 105.7.
4) Real GDP will increase A) only if the price level falls. B) if either the price level rises or the quantity of final goods and services produced rises. C) only if the quantity of final goods and services produced rises. D) only if the price level rises.
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Consider the following data for a fictional economy that produces only two products: oranges and shirts. Year 1998 2000
Oranges Produced Price of Oranges 1800 $0.90 2000 $1.00
Shirts Produced Price of Shirts 100 $30 110 $35
5) Refer to the table above. Real GDP for this fictional economy for 1998 using 2000 as the base the base year equals A) $4,620. B) $5,850. C) $5,100. D) $5,300.
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6) Refer to the table above. Nominal GDP for this fictional economy for 1998 equals A) $4,620. B) $5,850. C) $5,100. D) $5,300.
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Consider the following table showing three stages of production of an automobile. Stage of Production Seller Buyer Price 1 Steel Mill Auto Manufacturer $10,000 2 Auto Manufacturer Auto Dealer $18,000 3 Auto Dealer Consumer $25,000 7) Refer to the table above. The value added by the automobile dealer equals A) $7,000. B) $25,000. C) $18,000.
7) D) $15,000.
8) Refer to the table above. The value of each automobile in gross domestic product equals A) $18,000. B) $7,000. C) $15,000. D) $25,000.
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9) Consider the following data (in billions of dollars) for an economy:
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Consumption expenditures $900 Investment expenditures $300 Government purchases $300 Government transfer payments $400 Exports $300 Imports $100 Gross domestic product (in billions of dollars) for this economy equals A) $1,700. B) $1,400. C) $2,200.
D) $2,100.
10) Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and catsup. Assume one half of the tomatoes are used in making the catsup and the other half of tomatoes are purchased by households. Product Shoes DVDs Tomatoes Catsup
Quantity 40 100 2,000 300
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Price $50.00 25.00 1.00 5.00
Using the information in the above table, nominal GDP for this simple economy equals A) $7,000. B) $6,000. C) $8,000. D) 2,440 units. 11) For bondholders, a decrease in the inflation rate ________ the real after -tax interest payment received. A) may decrease or may increase B) does not change C) decreases D) increases
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12) Suppose you borrow $1,000 at an interest rate of 12 percent. If the expected real interest rate is 5 percent, then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation A) less than 7 percent. B) equal to 7 percent. C) equal to 0 percent. D) greater than 7 percent.
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13) The real interest rate equals the nominal interest rate ________ the inflation rate. A) divided by B) plus C) times D) minus
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14) Suppose your grandfather earned a salary of $12,000 in 1961. If the CPI is 30 in 1961 and 196 in 2005, then the value of your grandfather s salary in 2005 dollars equals A) $40,000. B) $23,520. C) $62,500. D) $78,400.
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The table below reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2005. Nominal Average CPI Year Hourly Earnings (1982 1984 1965 $2.65 32 2005 $16.15 196 -
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15) Refer to the table above. The real average hourly earnings for 1965 in 1982 -1984 dollars equal A) $8.28. B) $84.80. C) $1.35. D) $5.19.
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16) Assume the market basket for the consumer price index has three products Cokes, hamburgers, and CDswith the following values in 2000 and 2006 for price and quantity: Base Year (2000) 2006 Product Quantity Price Price Cokes 1000 $0.50 $0.75 Hamburgers 200 $2.00 $2.50 CDs 10 $20.00 $21.00
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The Consumer Price Index for 2006 equals A) 93. B) 108.
C) 75.
D) 133.
17) Which of the following would increase the unemployment rate? A) an increase in unemployment insurance payments B) a decrease in the minimum wage C) a cut in unemployment compensation D) a law making it illegal to work more than 35 hours per week
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18) Economists consider full employment to occur when A) frictional unemployment equals zero. B) frictional unemployment and structural unemployment equal zero. C) all existing unemployment is either frictional unemployment or structural unemployment. D) everyone who wants a job has a job.
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19) Since 1950 the labor force participation rate for adult men has ________ and for adult women has ________. A) increased; increased B) decreased; decreased C) decreased; increased D) increased; decreased
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20) Suppose the working-age population of a fictional economy falls into the following categories: 90 are retired or homemakers; 60 have full-time employment; 20 have part-time employment; 20 do not have employment, but are actively looking for employment; and 10 would like employment but do not have employment and are not actively looking for employment. The official unemployment rate as calculated by the U.S. Bureau of Labor would equal A) (20/60) x 100. B) (20/80) x 100. C) (20/100) x 100. D) (30/80) x 100.
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21) If real GDP in a small country in 2005 is $8 billion and real GDP in the same country in 2006 is $8.3 billion, the growth rate of real GDP between 2005 and 2006 A) is 3.75%. B) is 3.6%. C) is 3.0%. D) cannot be determined from the information given.
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22) According to the Rule of 70 , how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%? A) less than 1 year B) 14 years C) 5 years D) 35 years
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23) In addition to matching households that have excess funds with firms that want to borrow funds, what three key services does the financial system provide for savers and borrowers? A) high risk, high profit, and low savings B) risk -sharing, liquidity, and information C) information, profit, and interest D) bonds, stocks, and mutual funds
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24) If government saving is negative, then A) T > TR. B) Y + TR < C - T.
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C) T - TR < G.
D) G
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25) The response of firm investment to an increase in the government budget deficit is called A) private dissaving. B) income minus net taxes. C) expansionary investment. D) crowding out.
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26) How would you expect a change from an income tax to a consumption tax to affect the supply of loanable funds? A) The supply of loanable funds would become steeper. B) The supply of loanable funds would decrease. C) The supply of loanable funds would be unaffected. D) The supply of loanable funds would increase.
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27) Which of the following would encourage economic growth through increases in the capital stock? A) a decrease in the government deficit B) an increase in household savings C) a change from an income tax to a consumption tax D) all of the above
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28) Inflation tends to ________ during the expansion phase of the business cycle and ________ during the recession phase of the business cycle. A) decrease; increase B) increase; decrease C) increase; increase further D) decrease; decrease further
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29) When the economy enters a recessionary phase of the business cycle, unemployment tends to A) be unchanged. B) increase. C) decrease. D) change in the same direction as the rate of inflation.
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30) During the expansion phase of the business cycle, which of the following eventually increases? A) employment B) production C) income D) all of the above
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31) Growth in real GDP per capita for the world economy was greatest during A) the nineteenth century. B) the eighteenth century. C) the twentieth century. D) the seventeenth century.
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32) Suppose that an increase in capital per hour worked from $15,000 to $20,000 increases real GDP per hour worked by $500. If capital per hour worked increases further to $25,000, by how much would you expect real GDP per hour worked to increase if there are diminishing returns? A) by exactly $500 B) by less than $500 C) by more than $5,000 but less than $20,000 D) by more than $500 but less than $5,000
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33) Because of diminishing returns, an economy can continue to increase real GDP per hour worked only if A) there is technological change. B) there continue to be decreases in capital per hour worked. C) there are decreases in human capital. D) the per-worker production function shifts downward.
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34) When an economy faces diminishing returns, A) the per-worker production function shifts to the right. B) the slope of the per-worker production function becomes flatter as output increases. C) the slope of the per-worker production function becomes steeper as output increases. D) the per-worker production function shifts to the left.
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35) Government provision of which of the following would help increase the accumulation of knowledge capital? A) copyrights B) patents C) education subsidies D) All of the above are correct.
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36) A patent grants an inventor exclusive rights to a product for how long? A) the liftetime of the product B) 14 years C) 17 years D) 20 years
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37) Based on the catch -up line drawn above, poorer countries are more likely to be at a point like ________, where growth in GDP is relatively ________, while richer countries are more likely to be at a point like ________, where growth in GDP is relatively ________. A) A; high; B; low B) B; high; A; low C) B; low; A; high D) A; low; B; high
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38) Which of the following can explain why some countries have not experienced relatively high growth rates in real GDP per capita despite relatively low initial levels of real GDP per capita? A) Many of these developing countries do not have a functioning court system that can enforce laws. B) Countries that are relatively poor are likely to have a lower quality of health care. C) Countries that are relatively poor are more likely to experience wars and revolutions. D) all of the above
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39) The purchase or building by a corporation of a facility in a foreign country is called A) foreign direct investment. B) globally -directed investment C) foreign portfolio investment. D) foreign capital depreciation.
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40) The purchase by an individual or firm of stock or bonds issued in another country is called A) global stock exchange. B) foreign exchange arbitrage. C) foreign direct investment. D) foreign portfolio investment.
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Answer Key Testname: UNTITLED1
1) C 2) C 3) C 4) C 5) D 6) A 7) A 8) D 9) A 10) A 11) D 12) D 13) D 14) D 15) A 16) D 17) A 18) C 19) C 20) C 21) A 22) B 23) B 24) C 25) D 26) D 27) D 28) B 29) B 30) D 31) C 32) B 33) A 34) B 35) D 36) D 37) A 38) D 39) A 40) D
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