<A-Type Answer Sheet> -Class 7

Transcription

1 Principles of Economics II - Mid-Term Exam. Oct. 18, 2006 (Wed.) <A-Type Answer Sheet> -Class 7 Major Student Number Name A-1. 3 points each. (Total of 30 points) 1-2. ( Stock ), ( Mutual Fund ) 3-4. ( Human Capital ), ( Catch-up Effect ) 5-6. ( Efficiency Wage ), ( Budget Surplus ) 7-8. ( Market Value ), ( frictional unemployment ) ( Investment ), ( Nominal Interest rate ) A-2. 3 points each with the penalty of 1 points for wild guess!. (Total of 60 points) a c c c a a c a b a b b d c c c c b c c A-3. O, X Question: 2 points each with the penalty of 2 points for wild guess!. (Total of 20 points) x x o o x o o o o o A-4. Answer to the question using the following graph. (Total of 15 points) X, Y axis notation - 5 points Explanation on the relationship between investment tax credit, increased demand for investment expenditure, demand for loanable fund, shift in the demand for loanable fund - 5 points Proper Demand sift in the graph and the change in equilibrium - 5 points

2 A-1 1. A claim to partial ownership in a firm is ( ). 2. ( ) ( ) is a financial intermediaries that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds. 3. ( ) ( ) means the knowledge and skills that workers acquire through education, training, and experience. 4. The property whereby countries that start off poor tend to grow more rapidly than countries that start off rich is ( ) ( ). 5. Firms may keep their wages above equilibrium to increase worker productivity. Economists use this theory of ( ) ( ) to explain the some unemployment phenomenon. 6. ( )( ) is an excess of tax revenue over government spending. 7. GDP is the ( )( ) of all the final goods and services produced within a country in a given period of times. 8. ( )( ) is unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills. 9. ( ) includes spending on new equipment and structures, including households' purchases of new housing. 10. ( ) ( ) ( ) is the interest rate usually reported without a correction for the effects of inflation. A-2 1. In general, if a consumer good is produced domestically and consumed domestically, a reduction in its price will have which of the following effects? a. The consumer price index will decrease relatively more than the GDP deflator will. b. The consumer price index and the GDP deflator will decrease by the same amount. c. The consumer price index will decrease relatively less than the GDP deflator will. d. One cannot generalize about the relative decrease in the two price indices. 2. In 1931, President Herbert Hoover was paid a salary of $75,000. The price index for 1931 is 15.2, and the price index for 2001 is 177. The President s salary today is $400,000 a. President Hoover's salary equivalent in 2001 dollars is much smaller than that of the current U.S. president. b. President Hoover's salary equivalent in 2001 dollars is about the same as that of the current U.S. president. c. President Hoover's salary equivalent in 2001 dollars is much larger than that of the current U.S. president. d. One cannot make a meaningful comparison of 2001 salaries and 1931 salaries. 3. The relationship between the quantity of output created and the quantity of inputs

3 needed to create it is called a. the capital accumulation function. b. technological knowledge. c. the production function. d. human capital. 4. If a production function has constant returns to scale, output can be doubled if a. labor doubles. b. any one of the inputs doubles. c. all of the inputs double. d. None of the above are correct. 5. Over the last few decades Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, a. increased measured GDP. b. reduced measured GDP. c. did not affect measured GDP. d. affected measured GDP only to the extent that people eat more at restaurants than at home. 6. If in a given year an economy has consumption of $3000, investment of $2000, government purchases of $1500, exports of $500, imports of $600, taxes of $1200, transfer payments of $400, and depreciation of $300, then GDP will equal a. $6400. b. $7000. c. $7600. d. $8900. e. $ Suppose that Wisconsin produces cheese and fish. In 2002, 20 units of cheese are sold at $5 each, and 8 units of fish are sold at $50 each. In 2001, the base year, the price of cheese was $10 per unit, and the price of fish was $75 per unit. a. Nominal 2002 GDP is $800, real 2002 GDP is $500, and the GDP deflator is 160. b. Nominal 2002 GDP is $500, real 2002 GDP is $800, and the GDP deflator is 160. c. Nominal 2002 GDP is $500, real 2002 GDP is $800, and the GDP deflator is d. Nominal 2002 GDP is $800, real 2002 GDP is $500, and the GDP deflator is When the consumer price index rises, the typical family a. has to spend more dollars to maintain the same standard of living. b. can spend fewer dollars to maintain the same standard of living. c. finds that its standard of living is not affected. d. can offset the effects of rising prices by saving more. Use the table below to answer the following two questions. year peaches pecans 2000 $11 per bushel $6 per bushel 2001 $9 per bushel $10 per bushel 9. Suppose that the typical consumer basket consists of 10 bushels of peaches and 15 bushels of pecans and that the base year is What is the consumer price index for 2001? a. 100 b. 120

4 c. 200 d What was the inflation rate in 2001? a. 20 percent b percent c. 10 percent d. 8 percent 11. The slope of the supply of loanable funds curve represents the a. positive relation between the real interest rate and investment. b. positive relation between the real interest rate and saving. c. negative relation between the real interest rate and investment. d. negative relation between the real interest rate and saving. 12. Interest rates and investment rise. Which of the following could explain these changes? a. the government runs a larger deficit b. the government institutes an investment tax credit c. the government replaces the income tax with a consumption tax d. None of the above are correct. The following question 13. is based on the figure below which shows the effect of a minimum-wage law. 13. If there was no minimum wage and then the government instituted a minimum wage of $6, in this market a. employment would rise by 10. b. employment would fall by 20. c. unemployment would increase by 10. d. unemployment would increase by Curtis is a stockbroker. He has had several job offers, but he has turned them down because he thinks he can find a firm that better matches his tastes and skills. John is an accountant. He has looked for work for some time, but no accounting firms have job openings. a. John and Curtis are both frictionally unemployed. b. John and Curtis are both structurally unemployed. c. Curtis is frictionally unemployed, and John is structurally unemployed. d. Curtis is structurally unemployed, and John is frictionally unemployed. 15. In an economy consisting of only households and firms, GDP can be computed by a. adding up the total expenditures of households. b. adding up the total income paid by firms. c. Either a or b are correct.

5 d. None of the above are correct. 16. Risk a. can be reduced by placing a large number of small bets rather than a small number of large bets. b. can be reduced by increasing the number of stocks in a portfolio. c. Both A and B are correct. d. Neither A nor B are correct. 17. At which interest rate is the present value of $95.40 one year from today equal to $90 today? a. 4 percent b. 5 percent c. 6 percent d. 7 percent 18. If a person is risk averse, then as wealth increases, total utility of wealth a. increases at an increasing rate b. increases at a decreasing rate c. decreases at an increasing rate d. decreases at a decreasing rate [For Q19.] 19. Which of the above graphs correctly shows how risk changes as the number of corporations held in a portfolio changes? a. graph a b. graph b c. graph c d. graph d 20. Which of the following definitions is correct? a. Labor force = number of employed. b. Labor force = population number of unemployed. c. Unemployment Rate = (number of unemployed/[number of employed + number of unemployed])*100. d. Unemployment Rate = (number of unemployed/adult population)*100.

6 A-3 1. According to the efficient markets hypothesis, stocks follow a random walk so that stocks that increase in price one year are more likely to increase than decrease in the next year. 2. Full-time students, retirees, and unpaid stay-at-home fathers are counted as unemployed. 3. One reason that governments may find it useful to sponsor universities and basic research is that to a large extent knowledge is a public good. 4. If the nominal interest rate is 5 percent and the inflation rate is 2 percent, then the real interest rate is 3 percent. 5. The sooner a payment is received and the higher the interest rate, the greater the present value of a future payment. 6. A person with diminishing marginal utility of wealth is risk averse. 7. Over about the past thirty years the ratio of investment to GDP in Korea was higher than in the United States and so Korea had substantially higher growth. 8. When the government runs a budget deficit, national saving is reduced, interest rates rise, and investment falls. 9. Corporations receive no proceeds from the resale of their stock. 10.GDP does not make adjustments for things like leisure time and environmental quality. A-4 *. Using a loanable fund market model, answer the following question. (Use the graph provided at the answer sheet with attention payed to the x,y axis title.) What would happen to the loanable fund market when the government gives incentive to Investment expenditure by instituting investment tax credit? Illustrate its expected impact on financial market using the graph provided. (15 points)