Econ152-11 Introduction to Macroeconomics Instructor: Leo-Rey Gordon
Exam 1 01/22/2009
Name…………………………………………..
Section 1 Multiple Choice
Instructions: Choose the best response.
1) Where are the final goods and services produced that are included in Germany's GDP?
a. within Germany
b. anywhere, as long as they are produced using German resources
c. outside of Germany
d. anywhere, as long as they are produced using German labor
e. within Germany but only if they are produced using only German resources
2) One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 toconsumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactionsinto account, what is the effect on GDP?
a. GDP increases by $3.50.
b. GDP increases by $4.00.
c. GDP increases by $6.00.
d. GDP increases by $7.50.
3) For the purpose of calculating GDP, investment is spending on
a. stocks, bonds, and other financial assets.
b. real estate and financial assets.
c. new capital equipment, inventories, and structures, including new housing.
d. capital equipment, inventories, and structures, excluding household purchases of new housing
4) When the value of nominal GDP increases from one year to the next, we know that one or two things must have happened during that time?
a. the nation produced fewer goods and services and/or prices fell for goods and services.
b. Consumption expenditure increased and/or investment expenditure increased
c. Investment increased and/or payments to employees increased
d. The nation produced more goods and services and/or prices rose for goods and services
e. the value of real GDP must have increased and/or the people must be wealthier
Year Price of pork Price of corn
2005 $20 $12
2006 $25 $18
5) Suppose the basket of goods in the CPI consisted of 3 units of pork and 4 units of corn. What
is the inflation rate for 2006 if the base year is 2005?
a. 21.33 percent
b. 25.00 percent
c. 28.89 percent
d. 36.11 percent
6) Which of the following is NOT a source of bias in the CPI?
i. quality change bias
ii. new goods bias
iii. quantity change bias
a. i only
b. ii only
c. iii only
d. i and ii
e. ii and iii
7) The GDP deflator measures
a. the price level.
b. the quantity level.
c. real GDP.
d. nominal GDP.
e. the quality of the goods and services in GDP.
8) Which of the following statements is correct about the relationship between the nominal interest rate and the realinterest rate?
a. The real interest rate is the nominal interest rate times the rate of inflation.
b. The real interest rate is the nominal interest rate minus the rate of inflation.
c. The real interest rate is the nominal interest rate plus the rate of inflation.
d. The real interest rate is the nominal interest rate divided by the rate of inflation.
9) Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the loan infull, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he couldbefore he loaned Elwood the $5,000. From this we can conclude that the rate of inflation during the year was
a. 2.5 percent.
b. 6 percent.
c. 4 percent.
d. 14 percent.
10) All else equal, when people become more optimistic about a company's future, the
a. supply of loanable funds and the interest rate will both rise.
b. supply of loanable funds and the interest ratewill both fall.
c. demand for loanable funds and the interest ratewill both rise.
d. demand for loanable funds and the interest ratewill both fall.
11) The local Allied Moving Company begins 2008 with capital equal to $250,000. During 2008
the firm depreciates $150,000 worth of its capital and ends 2008 with capital equal to
$250,000. Which statement correctly summarizes Allied Moving Companyʹs investment?
a. Allied Moving Company made no capital investment during the year.
b. Allied Moving Company made no gross investment during the year.
c. Allied Moving Company made no net investment during the year.
d. Allied Moving Company made net investment of $150,000 during the year.
e. Allied Moving Company made gross investment of $250,000 during the year.
12) A promise to pay specified sums of money on specified dates is
a. a stock.
b. a bond.
c. physical capital.
d. money.
e. a person’s saving.
13) Fred is considering expanding his dress shop. If interest rates rise he is
a. less likely to expand. This illustrates why the supply of loanable funds slopes downward.
b. more likely to expand. This illustrates why the supply of loanable funds slopes upward.
c. less likely to expand. This illustrates why the demand for loanable funds slopes downward.
d. more likely to expand. This illustrates why the demand for loanable funds slopes upward.
14) If a government has a budget deficit, it will
a. borrow in the loanable funds market.
b. conduct open market operations.
c. lower the real interest rate.
d. increase its expenditures.
e. lend in the loanable funds market
15) What would happen in the market for loanable funds if the government were to increase the tax on interest income?
a. Interest rates would rise.
b. Interest rates would be unaffected.
c. Interest rates would fall.
d. The effect on the interest rate is uncertain.
16)In 2004, based on concepts similar to those used to estimate U.S. employment figures, the Italian adult non-institutionalizedpopulation was 45.020 million, the labor force was 24.065 million, and the number of peopleemployed was 22.105 million. According to these numbers, the Italian labor-force participation rate andunemployment rate were about
a. 45.1%, 8.1%
b. 45.1%, 4.4%
c. 53.5%, 8.1%
d. 53.5%, 4.4%
17) The labor force is defined as the number of people who
A) are employed plus the number of people who are unemployed.
B) are available and looking for work but are unable to find employment.
C) are 16 years and older, not in the military, or any other form of institution
D) would like to have a full-time job but are working part time.
E) are employed
18) If the market for day care workers is in equilibrium at $5.00 per hour as shown in this diagram, a minimum wage of $8.00 per hour will
a. increase unemployment by 300 workers.
b. increase unemployment by 500 workers.
c. increase unemployment by 600 workers.
d. None of the above is correct.
19) Suppose the population is 250 million people, the labor force is 150 million people, the
number of people employed is 130 million and the working-age population is 200 million
people. What is the unemployment rate?
a.48.0 percent
b.35.0 percent
c. 13.3 percent
d. 20 million
e. 15.4 percent
20) Joe has been unable to find a job because he lacks the necessary computer skills. Joe is
a. frictionally unemployed.
b. structurally unemployed.
c. seasonally unemployed.
d. cyclically unemployed.
e. skill-set unemployed.
21) Efficiency wages
a. increase frictional unemployment by keeping wages above equilibrium.
b. decrease frictional unemployment by keeping wages below equilibrium.
c. increase structural unemployment by keeping wages above equilibrium.
d. decrease structural unemployment by keeping wages below equilibrium.
22) Liquidity refers to
a. the ease with which an asset is converted to the medium of exchange.
b. a measurement of the intrinsic value of commodity money.
c. the suitability of an asset to serve as a store of value.
d. how many time a dollar circulates in a given year.
23) Savings deposits are included in
a. M1 but not M2.
b. M2 but not M1.
c. M1 and M2.
d. neither M1 nor M2.
24) If the central bank in some country lowered the reserve ratio, the money multiplier
a. would increase.
b. would not change.
c. would decrease.
d. could do any of the above.
25) A bank has $400 in checking deposits, $800 in savings deposits, $700 in time deposits, $900 in
cash loans to businesses, $300 in outstanding credit card balances, $500 in government securities,
$10 in currency in its vault, and $20 in deposits at the Fed. The bankʹs deposits that are part
of M1 are equal to
a. $1,300.
b. $400.
c. $1,210.
d. $2,800
e. $1,900.
26) The statistical discrepancy that regularly arises in national income accounting refers to the slight differencebetween
a. personal income and personal disposable income.
b. total household payments to the government and taxes paid to the government.
c. the income and expenditure approaches to the calculation of GDP.
d. the quarterly and annual approaches to the calculation of GDP.
27) Growth in the standard of living is measured by the increase in
a. real GDP.
b. the Rule of 70.
c. employment.
d. real GDP per person.
e. consumption.
28) This year, real GDP per person in Country A is eight times real GDP per person in Country
B. If Country Bʹs real GDP per person grows at a rate of 5 percent, about how many years
will it take for Country B to reach the level of real GDP per person in Country A in this year?
a. 14 years
b. 56 years
c.42 years
d.It will never reach the GDP of country A
e.This question needs more information
29) Real GDP is $9 trillion in the current year and $8.6 trillion in the previous year. The economic
growth rate between these years has been
a. $0.4 trillion.
b. 4.65 percent.
c. 5.67 percent.
d.4.4 percent
30) Classical growth theory predicts
a. a slowdown in population growth over time.
b. no long rung real economic growth.
c. sustained increases in economic growth in the long run as long as technology increases.
d. the population growth rate slows as real GDP per person rises.
e. sustained increases in the standard of living in the long run.
Section 2
Answer all questions
1) Imagine an economy in which the currency drain ratio is 30% and the required reserve ratio is 15%. If there is $300 of currency in circulation
a) What is the value of deposits in the bank? (2 points)
b) How much is held as reserves in the bank? (2 points)
c) Calculate the money multiplier. (2 points)
d) How much money is created from an increase of $100 in the monetary base? (2 points)
2)
a) Using the classical growth theory, in words and with diagrams explain the impact of an increase in labor demand on GDP per capita. (3 points)
b) “ According to the neoclassical growth theory, national incentives to save, invest, and accumulate human capital will determine the growth rate of Real GDP. ” Comment on the accuracy of the previous statement. (3 points)
3)
Year / Item / Prices ($) / Quantity2006 / Books / 10 / 3
Dvds / 8 / 5
Cereal / 5 / 6
2007 / Books / 14 / 2
Dvds / 10 / 8
Cereal / 6 / 7
2008 / Books / 12 / 4
Dvds / 12 / 5
Cereal / 8 / 7
The above table represents production and consumption in country LCG. Use 2007 as the base year to calculate
a) the CPI in 206, 2007, and 2008. (2 points)
b) the inflation rate in 2007 and 2008. (2 points)
c) the nominal and real GDP in 2008. (2 points)
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