Homework 2
EC 2305
Instructor Wunder
Name______
Part I: Multiple Choice (4 pts each)
1. Which of the following is not a variable needed to calculate GDP using the expenditure method?
a. Imports
b. Investment
c. Wages
d. Exports
e. All of the above are needed to calculate GDP using the expenditure method.
2. Which activities listed below might increase GDP?
a. A hurricane destroying New Orleans.
b. Children being put into daycare.
c. The population Increasing the amount they smoke.
d. All of the above would increase GDP.
e. Only a and c might increase GDP.
3. Which of the following is false?
a. An environmental catastrophe may increase GDP.
b. Increasing leisure time will lower GDP.
c. Economists have no way to deal with an increasing price level when comparing GDPs.
d. GDP does not measure the value in the underground economy.
e. All of the above are false.
4. Who among the following would be considered unemployed?
a. A person who had a full time job now working 1 hour a week babysitting.
b. A full time college student not looking for work.
c. A person in jail.
d. A father quitting work to stay home and take care of the children.
e. None of the above would be considered unemployed.
5. Which of the following would be considered an increase in government spending with respect to GDP.
a. An increase in payments to social security beneficiaries.
b. An increase in welfare benefits.
c. An increase in Medicare expenditures to pay for medical services.
d. An increase in the education budget to pay for more teachers.
e. Both c and d would be considered and increase in government spending with respect to GDP.
6. A person living in Michigan who is a trained nurse can’t find a nursing job. At the same time there is a major shortage of nurses in Florida. This is an example of
a. Frictional Unemployment
b. Seasonal Unemployment.
c. Voluntary Unemployment.
d. Structural Unemployment.
e. Cyclical Unemployment.
Given the following information on production and prices in a hypothetical economy answer questions 7 through 9 below. (assume that what is listed is the total amount of final goods and services produced in that economy in a given year.)
Year 2000
Good Quantity Price (in dollars)
Pizza 10 5
Coke 15 .75
Snickers 14 1
Cereal 12 3
Year 2001
Good Quantity Price (in dollars)
Pizza 11 5.25
Coke 14 1
Snickers 15 1.25
Cereal 13 2.75
Year 2002
Good Quantity Price (in dollars)
Pizza 12 5.25
Coke 15 1.25
Snickers 18 1.50
Cereal 13 2.50
7. What is Nominal GDP in the Year 2001?
a. 111.25
b. 126.25
c. 141.25
d. 119.50
e. Non of the above.
8. If the base year is 2000 then what is the percentage change in the CPI index value in the year 2002? Assume that the market basket includes 1 pizza, 1 coke, 1 snickers, and 1 cereal. (Round to the nearest whole number.)
a. 103
b. 105
c. 107
d. 109
e. 111
9. Using 2000 prices as the base year prices calculate Real GDP in the year 2002. What is GDP in 2002?
a. 128.25
b. 130.50
c. 132
d. 134.75
e. There is not enough information given.
10. Which of the following will NOT cause GDP per person to increase?
a. Increasing the supply of labor.
b. Increasing labor productivity.
c. Increasing capital to labor ratios.
d. Implementing technological improvements.
e. All of the above will increase GDP per person.
Short answer.
(10 points)
Assuming that the only activity going on in a simple economy is consumption (ie Y = C) and the consumption function for the economy takes on the following form.
C = 100 + .9Y
What will be the total level of GDP created?
Graph this economy using the Keynesian Cross. Be sure to label everything.