ECON 2010- Peng

Which of these is the best example of frictional unemployment?

A. John, a coal miner, was laid off because of a lack of demand for workers in his industry. He is looking into new opportunities in computer programming, but they require him to gain some new skills.
B. Heather recently graduated with her doctorate in economics. She is searching for a job that matches her skills.
C. Peter, a highly skilled construction worker, lost his job when the recession began. He is looking for work, but demand in the construction industry is still low.
D. Allison, a recent high school graduate with high aspirations, is seeking a job as the CEO of a Fortune 500 company.

b

A worker repairing VHS cassette players was laid off because most of their customers have started using DVD players and streaming services. This worker is now:
A. discouraged worker
B. frictionally unemployed
C. cyclically unemployed
D. structurally unemployed

d

Consider countries A and B. In country A, the minimum wage is 30% of the median wage, and in country B, the minimum wage is 60% of the median wage. As a result, the minimum wage will affect more workers in country ___ and create more unemployment in country ___.
A. A; A
B. A; B
C. B; B
D. B; A

c

Suppose that Congress decided to exempt seniors from paying income tax on labor income. What would happen to the labor force participation rate for seniors?
A. It would increase.
B. It would decrease.
C. It would remain the same.
D. It is impossible to tell

a

As a result of the changing variety and quality of goods that the typical consumer purchases each year, many economists argue that the consumer price index might:
A. have to be abandoned in favor of a better measure of inflation.
B. not be as good a measure of inflation as the GDP deflator is.
C. underestimate inflation.
D. overestimate inflation.

d

The price level at the end of 2011 minus the price level at the end of 2010 is the ____ for the year 2011.
A. inflation rate
B. change in the price level
C. change in gross national product
D. consumer price index

b

If the price level in the year 2000 is 100, and the price level in the year 2001 is 110, what is the inflation rate in 2001?
A. 100%
B. 110%
C. 10%
D. 9%

c

An associate professor of physics gets a $200 a month raise. With their new monthly salary they now buy more goods and services than they could last year.
A. Their real and nominal salary have risen.
B. Their real and nominal salary have fallen.
C. Their real salary has risen and their nominal salary has fallen.
D. Their real salary has fallen and their nominal salary has risen.

a

To compare the $1-an-hour wage your grandfather earned in 1950 with the $8-an-hour you earn today, you would need to:
A. simply compare $1-an-hour to $8-an-hour.
B. add the inflation rates in each year since 1950 until today and add this to your grandfather’s wage.
C. calculate real wages in both 1950 and today.
D. calculate your grandfather’s nominal wage in 1950 and compare it to your wage today.

c

In a small economy, the quantity of money circulating in the economy is $2.5 million. Real GDP for the current year is $5 million, and the average price level is 2. What is the velocity of money?

A. 4.0
B. 2.0
C. 2.5
D. 5.0

a

If the money supply, the velocity of money, and the price level are fixed, then increases in real GDP:
A. are impossible because real GDP must also be fixed.
B. cause the money supply, the velocity of money, and the price level to increase together.
C. cause the money supply, the velocity of money, and the price level to decrease together.
D. occur without changes in the other variables.

a

Suppose that the average level of prices increased from 100 to 110 between 2007 and 2008, and from 110 to 115 between 2008 and 2009. Between 2008 and 2009, there was:
A. deflation
B. hyperinflation
C. disinflation
D. inflation in the real price of everything

c

When the expected rate of inflation is higher than the actual rate of inflation, wealth is:
A. redistributed at all.
B. redistributed from borrowers to lenders.
C. redistributed from lenders to borrowers.
D. not redistributed at all.

b

Suppose your employer cuts your pay 5% when the economy is experiencing overall deflation of 5%. If in response you also reduce your consumption by 5%, then economists would say that:
A. you made a rational decision.
B. you are exhibiting money illusion.
C. your real wage decreased by 5%.
D. the quantity theory of money held.

b

A bank lends money for a year at an interest rate of 7%, and the inflation rate for that year turns out to be 5%. What is the bank’s real rate of return for that year?
A. 2.0%
B. 3.5%
C. 6.0%
D. 12.0%

a

What happens to workers who contract for cost-of-living allowances of 10% a year when the inflation rate falls to 4%?
A. They lose purchasing power.
B. They are paying an inflation tax.
C. They become more costly to employ and may lose their jobs.
D. They must be suffering from money illusion.

c

If spending in an economy increases by 3% and real GDP increases by 1%, the result will be:
A. a recession.
B. inflation.
C. a positive supply shock.
D. war.

b

If spending growth is 6% and inflation is also 6%, this means that:
A. real gross domestic product did not increase.
B. economic growth was 12%.
C. more money is chasing an increased number of goods.
D. a positive supply shock occurred.

a

Suppose a doctor spends half of the year in the United States and the other half in Canada and works in both places. How is the doctor’s production allocated between U.S. and Canadian GNP?
A. Half counted in each
B. Depends on where doctor is a permanent resident
C. Full amount counted in both
D. Based on where services are produced

b

Suppose you spent $10,000 in 2016 remodeling your house, which you originally built for $200,000 in 2000. As a result, GDP in 2016 would:
A. not change
B. increase by $10,000
C. increase by $200,000
D. increase by $210,000

b

Which of these would be included in 2017’s GDP?
A. resale of a house built in 2015
B. sale of bonds
C. sale of stocks
D. real estate agent’s commission on resale

d

Which of these goods is a finished good that would be counted in GDP in the year it is produced?
A. tomatoes used by an Italian restaurant
B. wood used for making furniture
C. an oven for installation in a bakery
D. a computer chip used in a laptop

c

Birmingham Steel sells steel to Winston Golf Club Manufacturers for $300,000. Winston sells its golf clubs to Academy Sports for $1,000,000. Academy Sports sells these golf clubs to consumers for $1,500,000. How much is added to GDP?

A. $1,000,000
B. $1,500,000
C. $2,500,000
D. $2,800,000

b

Intel sells computer chips to Hewlett-Packard for $1,500,000. Hewlett-Packard uses the computer chips to make computers and sells the computers to Best Buy for $4,300,000. Best Buy sells these computers to consumers for $5,500,000. How much is added to GDP?

A. $4,300,000
B. $5,500,000
C. $9,800,000
D. $3,000,000

b

Tim buys a house from Betty in 2017 for $200,000. Betty receives $185,000 and $15,000 goes to Mary, the real estate agent. Betty originally purchased the house in 2007 for $240,000. What value is added to GDP in 2017 for this transaction?

A. $40,000
B. $15,000
C. $185,000
D. $200,000

b

According to the national spending approach, which of these is counted in investment?

A. A restaurant buys a new wood-fired oven for baking pizzas.
B. A college graduate buys a new car after graduating.
C. A student pays for tuition at a university.
D. A retiree buys newly issued U.S. government bonds.

a

Which of these government outlays is a transfer payment that would NOT be included in GDP?

A. The Veteran’s Administration pays a doctor to care for a wounded veteran.
B. The National Security Agency builds a new building for its headquarters.
C. The Social Security program sends a monthly payment to a senior citizen.
D. The Defense Department buys a new aircraft carrier.

c

The portion of women in the workforce has nearly doubled since 1950. As a result, fewer mothers are providing home and child care services. How has this trend affected GDP?

A. This trend has had no predictable effect on GDP.
B. The GDP in 1950 is underestimated relative to today.
C. The GDP in 1950 is overestimated relative to today.
D. The share of GDP attributable to women has declined.

b

Jane and Bob purchase avocados at a grocery store, but Bob also grows avocados in his backyard. Regarding these two practices, which of the following statements is correct?

A. Only Jane’s grocery store purchases are included in GDP.

B. Only Jane’s and Bob’s grocery store purchases are included in GDP.

C. Jane’s and Bob’s grocery store purchases are included in GDP. The avocados from Bob’s backyard garden are included at their market value.

D. Jane’s and Bob’s grocery store purchases are included in GDP. The avocados from Bob’s backyard garden are included at their market value, if Bob provides this information.

b

Suppose the country of Wakanda only produces one style of good, Vibranium. Last year, nominal GDP was $50,000, and this year it is $200,000. What can be definitively concluded?

A. Output in Wakanda quadrupled.

B. The rate of unemployment decreased.

C. The standard of living in Wakanda increased.

D. None of the statements is necessarily true.

D

The 2003 Iraq War destroyed large amounts of capital. Later, insurgent activity continued to destroy capital and created instability in the government. Today, hostilities have waned, and the government has become more stable. According to the catch-up effect, over the next few years we would expect to see growth rates in Iraq ______ those of high-income countries with similar institutions, followed by growth rates that are ______ the growth rates in those countries.

A. higher than; much higher than
B. lower than; similar to
C. higher than; similar to
D. similar to; lower than

c

Countries that have been bombed extensively in a war typically have a(n) ______ marginal product of capital in the aftermath of conflict.

A. lower
B. higher
C. unchanged
D. zero

b

Suppose a country’s output level is 800. It invests in an additional unit of capital, which increases output by 2 units. If the country then increases investment in capital by 1 more unit, the expected additional increase in output will be ______ due to ______.

A. greater than 2 units; increasing marginal returns
B. greater than 2 units; decreasing marginal returns
C. less than 2 units; increasing marginal returns
D. less than 2 units; decreasing marginal returns

d

When a country has a large amount of capital stock, its annual investment in new capital needs to be ______ if it wants to maintain the same level of capital stock because of ______.

A. small; depreciation
B. large; depreciation
C. zero; increasing returns to scale
D. large; increasing returns to scale

b

Pharmaceutical companies tend to concentrate on drugs for common diseases because:

A. more people can be helped.
B. spillovers are smaller.
C. they are more likely to be granted patents.
D. potential profits are larger.

d

Which do economists define as saving?

A. General Motors issues corporate bonds.
B. Microsoft sells stock at an initial public offering.
C. Sandra purchases a certificate of deposit from a bank.
D. Andrea finances her new car through an auto loan.

c

To start a business delivering documents, you need to purchase cell phones, bicycles, and desks.

A. These purchases are called capital investment. Raising the funds to purchase them makes you a borrower.
B. These purchases are called capital investment. Raising the funds to purchase them makes you a saver.
C. These purchases are called consumption. Raising the funds to purchase them makes you a saver.
D. These purchases are called consumption. Raising the funds to purchase them makes you a borrower.

a

Which BEST represents time preference?

A. Sarah is spending $20,000 per year on tuition and other expenses to attend college with the hope of earning a higher income in the future.
B. Max saves $300 per month from his paychecks for retirement.
C. Alex smokes a pack of cigarettes per day even though he knows that he may face poor health down the road because of his smoking habit.
D. Thomas invests money in Apple today, which Apple subsequently uses to fund additional investments that raise firm value and benefit future shareholders.

c

Which is NOT an example of a major reason that funds are borrowed to make large investments in physical capital and human capital?

A. A woman uses her entire savings for a down payment and borrows to cover the cost of equipment and a factory building to produce a good she has recently developed. She did not have the funds to produce the goods without the loan.
B. Rather than raising taxes today to pay for a new bridge that will facilitate transportation and economic growth, the government borrows to cover the cost of the bridge with plans to repay the loan later with additional tax revenue.

C. A student borrows to cover university tuition with the expectation that his loan payments can be made with future earnings that will be higher due to his investment in human capital.

D. A woman chooses to borrow funds to buy a new car rather than choosing to withdraw funds from her savings to pay in cash.

d

If individuals become more impatient, what will happen in the market for loanable funds?

A. The supply of loanable funds will decrease, interest rates will fall, and the quantity of savings and borrowing will increase.
B. The supply of loanable funds will increase, interest rates will rise, and the quantity of savings and borrowing will decrease.
C. The supply of loanable funds will increase, interest rates will fall, and the quantity of savings and borrowing will increase.
D. The supply of loanable funds will decrease, interest rates will rise, and the quantity of savings and borrowing will decrease.

d

When individuals become more willing to save because their incomes have increased, the interest rate ______ and the quantity of borrowing and lending ______.

A. increases; increases
B. increases; decreases
C. decreases; decreases
D. decreases; increases

d

An increase in the expected future returns on investment leads to an increase in the current level of investment projects undertaken, the loanable funds market will experience an increase in the ______ of loanable funds and a(n) ______ in equilibrium interest rates.

A. demand for; increase
B. supply of; increase
C. demand for; decrease
D. supply of; decrease

a

If the supply of loanable funds decreases and the demand for loanable funds decreases at the same time, interest rates will:

A. increase.
B. decrease.
C. remain the same.
D. increase, decrease, or remain the same.

d

An investment tax credit results in a(n):

A. increase in the demand for loanable funds and an increase in the interest rate.
B. increase in the demand for loanable funds and a decrease in the interest rate.
C. decrease in the supply of loanable funds and an increase in the interest rate.
D. decrease in the supply of loanable funds and a decrease in the interest rate.

a

Government budget deficits occur because the government increases the demand for loanable funds, drives up interest rates, and causes:

A. saving to rise.
B. saving to fall.
C. consumption and private investment to rise.
D. consumption and private investment to fall.

d

A corporation is planning to construct new offices, but it has limited funds. The corporation is likely to:

A. supply loanable funds by selling bonds.
B. supply loanable funds by buying bonds.
C. demand loanable funds by selling bonds.
D. demand loanable funds by buying bonds.

a

If the Apple corporation sells a bond, it is:

A. borrowing directly from the public.
B. borrowing indirectly from the public.
C. selling shares of ownership directly to the public.
D. selling shares of ownership indirectly to the public.

a

Katherine is considering expanding her jewelry shop. If interest rates fall, she is

A. more likely to expand. This illustrates why the supply of loanable funds slopes downward

B. less likely to expand. This illustrates why the supply of loanable funds slopes upward.

C. more likely to expand. This illustrates why the demand for loanable funds slopes downward.

D. less likely to expand. This illustrates why the demand for loanable funds slopes upward.

c

Who is considered unemployed?

A. Julia, a full-time college student, has a part-time job.
B. Jason, a full-time caregiver, was searching for a part-time position two months ago, but hasn’t since.
C. Javier, a retired college professor, does community volunteer work.
D. John, on temporary layoff from his work, awaits recall.

d

In the late 1990s, the rising popularity of Barnes & Noble and Borders shifted workers from independent bookshops to larger chains. What type of unemployment was associated with this reallocation of the workforce?

A. frictional unemployment
B. technological substitution
C. creative destruction
D. structural unemployment

a

which of these is the best measure of a country’s standard of living?

a. nominal GDP

b. real GDP

c. nominal GDP per capita

d. real GDP per capita

d. Real GDP per capita

A set of tires installed on a vehicle pproduced by an automobile factory is counted as a(n):

• finished good, and its market price is part of GDP

• finished good, and its market price is not part of GDP

• intermediate good, and its market price is part of GDP

• intermediate good, and its market price is not part of GDP

• intermediate good, and its market price is not part of GDP

When a German firm produces a vehicle in the United States, the production is part of:

• U.S. GDP but not GNP.

• U.S. GNP but not GDP.

• both U.S. GDP and GNP.

• neither U.S. GDP nor GNP.

• U.S. GDP but not GNP.

The value of a car produced and sold in 2015 and sold again in 2017 is included in:

• 2015’s GDP only

• 2017’s GDP only

• both 2015’s GDP and 2017’s GDP

• neither 2015’s nor 2017’s GDP

• 2015’s GDP only

The value of production by a U.S. worker employed by a firm located in Canada is included in:

• Canada’s GDP only

• U.S. GDP only

• GDP for both Canada and the United States.

• neither country’s GDP

Canada’s GDP only

The computation of GDP avoids double counting of output because ____ are included

• only finished goods

• only intermediate goods

• both finished and intermediate goods

• finished, intermediate, and used goods.

• only finished goods

the main differenence between GDP and GNP is that GDP includes the output produced ______ and GNP includes the output produced _____.

• by the country’s labor and capital regardless of location; within the geographical boundaries of the country

• within the geographical boundaries of the country; by the country’s labor and capital regardless of location

• for inputs and finished products; for inputs only

• for inputs only; for inputs and finished products

• within the geographical boundaries of the country; by the country’s labor and capital regardless of location

If a French citizen designs a custom-sewn garments in Canada, the value of the design work is included in:

• Canada’s GDP and France’s GNP

• Canada’s GNP and France’s GDP

• Canada’s GNP but not France’s GNP

• the GDP of both Canada and France

Canada’s GDP and France’s GNP

What are the components of the national spending approach to splitting GDP?

• consumption expenditures, transfer payments, and government investment

• private investment, sale of new and used goods, net exports, and transfer payments

• consumption, investment goods, government purchases, and net exports

• wages, rent, interest, and profit

• consumption, investment goods, government purchases, and net exportsWhich

Which of these represents the national spending approach to splitting GDP?

• Y= C+G+NX-M

• Y= C+I+G

• Y=C+I+G+NX

• Y=C+I+G-NX

• Y=C+I+G+NX

Economists call household spending on finished goods and services:

• net exports

• government purchases

• investment

• consumption

• consumption

Economists call private spending oln the tools, plant, and equipment used to produce future output:

net exports

government purchases

investment

consumption

investment

Economists call spending by all levels of government on finsihed goods nad services:

net exports

government purchases

investment

consumption

government purchases

Economists call the alue of exports minus imports:

net exports

government purchases

investment

consumption

net exports

Which of these activities is counted as part of U.S. GDP?

• John purchases a counterfeit DVD.

• Joe watches a free video on YouTube

• Jake takes a vacation at a Caribbean resort.

• Jeff stays in a hotel in Colorado while on a skiing trip

• Jeff stays in a hotel in Colorado while on a skiing trip

Nonmarket production is not counted in GDP because these activities:

• are not priced

• are considered intermediate goods

• do not contribute to economic activity

• happen inside the home

• are not priced

Factors of production that contribute to growth in per capita GDP include:

• proximal and ultimate factors of production

• physical capital, human capital, and technological knowledge

• organization of resources

• institutions

• physical capital, human capital, and technological knowledge

Which is NOT a factor of production

incentives

human capital

physical capital

technological knowledge

incentives

Countries with high per capita GDP have institutions that make it in people’s self-interest to invest in:

Physical capital

human capital

technology

all the factors of production

all the factors of production

Which of these defines the “rules of the game” that structure economic incentives?

institutions

economic laws

factors of production

technical knowledge

institutions

A country is experiencing _________ growth when its GDP is growing due to increases in its capital stock and putting into use ideas developed earlier.

catching-up

cutting-edge

constant

infinte

catching-up

A country is experiencing _________ growth when its GDP is growing due to the development and adoption of new ideas that increase productivity.

catching-up

cutting-edge

constant

infinte

cutting-edge

The reason that the United States has experienced sustained economic growth for over 200 years is mostly due to:

• timely replacement of physical capital

• continued advances in technological knowledge

• strategic government planning

• steady increases in population

• continued advances in technological knowledge

In economics, investment refers to the:

Purchase of new capital goods

purchase of stocks and bonds

amount of personal savings in a bank

fund used to settle a debt

Purchase of new capital goods

Which did economists consider an investment?

the construction of a new factory

Which should lead to an increased rate of economic growth due to increased development of new ideas?

increased population, increased wealth, and larger markets

Governments can play a role in supporting the production of new ideas by:

protecting intellectual property

What slows economic growth as prosperity increases?

diminishing marginal product of human and physical capital

The primary driver of long-run economic growth is:

new ideas

The principle of diminishing returns to capital implies that a country that loses much of its capital during a war will:

experience a faster growth rate than before the war

borrowers ________ and savers _________.

demand loans; supply savings

_______ demand(s) funds to borrow, whereas _______ supply (supplies) the funds.

investors; savers

If the supply of loanable funds decreases, the interest rate _______ and the amount of funds borrowed ________.

rises; decreases

If the demand for the loanable decreases, the interest rate ________ and the amount of funds borrowed ________.

falls; decreases

Who of these would be considered unemployed?

Janice, who graduated from the university in May, is waiting for her new job to start in July.

The labor force consists of:

employed workers adults who do not have jobs but who are looking for work.

The labor force is made up of:

employed and unemployed workers.

Adults who do not have job but whoa re looking for work are:

unemployed

The unemployed in a country are all of the:

adults who are not employed and who are actively looking for work.

Frictional unemployment is:

Short-term unemployment due to the normal difficulties of matching employers and employees

The persistent, long-term unemployment caused by long-lasting shocks or permanent feature of an economy is called:

structural unemployment

Minimum wage laws and union tend to:

raise wages and raise unemployment

Structural unemployment is both _______ and _______.

persistent; long term

What impact do unions tend to have on wages of union employees?

Union tend to push wages higher

Unemployment correlated with the ups and downs of the business cycle is called:

cyclical unemployment

_______ occurs when the amount of money in an economy increases more rapidly than output.

inflation

Inflation occurs when the growth in ________ exceeds the growth in ________.

the money supply; output

Inflation is:

an increase in the average level of prices

A real price is:

a price that has been corrected for inflation

Two of the challenges the U.S. Bureau of Labor Statistics faces when computing the consumer price index are:

new goods and better-quality goods