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1 Name: Instructor: Murat F. Iyigun SSN: ECON 2012: Principles of Macroeconomics Spring 2004 Midterm I A
2 INSTRUCTIONS In each question there is only one correct answer. Select the answer you believe to be most correct. Each correct answer is worth 2.5 points. 1. Which of the following equations is correct? a. Labor force = number of employed. b. Labor force = population - number of unemployed. c. Unemployment Rate = (number of unemployed adult population) x 100. d. Unemployment Rate = (number of unemployed labor force) x Robin lives on a deserted island. If she spends 8 hours fishing, she catches 24 fish. Her productivity of fishing is a. 192 fish. b. 1/3 hour per fish. c. 3 fish per hour. d. The answer cannot be computed using the information provided. 3. The labor-force participation rate is defined as follows: a. (Labor Force Adult Population) x 100. b. (Adult Population Labor Force) x 100. c. (Employed Adult Population) x 100. d. (Employed Labor Force) x The BLS recently reported that there were million people over age 16 who had at least a bachelor s degree. Of this number million were in the labor force and were employed. What was the labor-force participation rate and the unemployment rate for this group? a. about 98 percent and 1.49 percent b. about 80 percent and 1.85 percent c. about 79 percent and 1.89 percent d. None of the above is correct. 5. Rick loses his job and immediately begins looking for another. Ceteris paribus, a. the unemployment rate is unaffected, and the labor-force participation rate increases. b. the unemployment rate decreases, and the labor-force participation rate is unaffected. c. the unemployment rate increases, and the labor-force participation rate decreases. d. the unemployment rate increases, and the labor-force participation rate is unaffected.
3 6. The local Chevrolet dealership has an increase in inventory of 22 cars in In 2001 it sells all 22 cars. a. The value of the increased inventory will be counted as part of GDP in 2000, but the value of the 22 cars sold in 2001 will not cause 2001 GDP to increase. b. The value of the increased inventory will not affect 2000 GDP, but the sale of the cars in 2001 will cause 2001 GDP to increase. c. The value of the increased inventory will be counted as part of GDP in 2000 and the value of the 22 cars sold in 2001 will cause 2001 GDP to increase. d. Since the cars were not sold in 2000, they will not be included as part of 2000 GDP, and since they were not produced in 2001, they will not be included as part of 2001 GDP. 7. If the nominal interest rate is 5% and the rate of inflation is 10%, the real interest rate is a. 5%. b. 50%. c. 15% d. 5%. 8. The statistic used to convert dollar amounts into meaningful measures of purchasing power is called a. the GDP deflator. b. the wholesale price index. c. the consumer price index. d. the producer price index. 9. In the CPI, goods and services are weighted according to a. whether the goods and services are necessities or luxuries. b. the levels of production of the goods and services in the domestic economy. c. a random weighting scheme. d. how much consumers buy of each item. 10. The price index in 2001 is 120, and in 2002 the price index is 126. What is the inflation rate? a. 5 percent b. 6 percent c. 26 percent d. The inflation rate is impossible to determine without knowing the base year.
4 11. Which change in the price index shows the greatest rate of inflation: 100 to 110, 150 to 165, or 180 to 198? a. 100 to 110 b. 150 to 165 c. 180 to 198 d. All changes show the same rate of inflation. 12. The substitution bias in the consumer price index refers to a. the substitution of new goods for old goods in the purchases of consumers. b. the fact that consumers substitute toward goods that have become relatively less expensive. c. the substitution of new prices for old prices in the basket of goods from one year to the next. d. the substitution of quality for quantity in consumer purchases over time. 13. Unmeasured quality change is a problem in the CPI because a. if the quality of a good deteriorates, the purchasing power of a dollar decreases even if the price of the good remains the same. b. the Bureau of Labor statistics does not attempt to account for quality changes that affect the standard of living. c. if the quality of a good improves, the purchasing power of a dollar increases even if the price of the good remains the same. d. a and c 14. In the production possibilities frontier shown, the shift of the frontier from A to B was most likely caused by which of the following? a. more capital available in the economy b. more labor available in the economy c. a general technological breakthrough d. technological improvement in the production of clothing
5 15. In the production possibilities frontier shown, what is the opportunity cost to society of the movement from point D to point B? a. 750 pretzels b. 500 pretzels c. 250 pretzels d. 150 pretzels 16. In the production possibilities frontier shown, what is the opportunity cost to society of moving from point C to point E? a. 150 pretzels b. 300 potato chips c. a and b d. zero 17. In the production possibilities frontier shown, the movement from point C to point E was most likely caused by a. an increase in society s preference for pretzels. b. a decrease in society s preference for potato chips. c. unemployment. d. a and b Production Possibilities for Tuneland
6 Cars Toys The reference table shows the production possibilities for Tuneland. What is the opportunity cost to Tuneland of increasing the production of cars from 30 to 40? a. 200 toys b. 250 toys c. 450 toys d. It is impossible to tell what the opportunity cost is without knowing production costs for cars and toys. 19. In the table showing the production possibilities for Tuneland, what is the opportunity cost of increasing the production of toys from 450 to 600? a. 30 cars b. 20 cars c. 10 cars d. It is impossible to tell what the opportunity cost is without knowing production costs for cars and toys. 20. Based on the table showing the production possibilities for Tuneland, what is the most accurate statement about the opportunity cost of producing an additional 10 cars in Tuneland? a. The opportunity cost of an additional 10 cars is 100 toys. b. The opportunity cost of an additional 10 cars is 200 toys. c. It is impossible to determine the opportunity cost of an additional 10 cars. d. The opportunity cost of an additional 10 cars increases as more cars are produced. 21. Both Tom and Jerry work eight hours a day. Tom can produce six baskets of goods per hour while Jerry can produce just four baskets of the same goods per hour. It follows that Tom s a. productivity is greater than Jerry s. b. output is greater than Jerry s. c. standard of living is higher than Jerry s. d. All of the above are correct. 22. If nominal GDP is $7.5 trillion and the GDP deflator is 150, then real GDP is a. 5 trillion b. 8 trillion c trillion d trillion
7 23. According to the graph, equilibrium price and quantity are a. $7, 20. b. $7, 60. c. $5, 40. d. $3, According to the graph, at a price of $7, a. there would be a shortage of 40 units. b. there would be a surplus of 40 units. c. there would be a surplus of 20 units. d. the market would be in equilibrium. 25. According to the graph, at a price of $3, a. there would be a shortage of 40 units. b. there would be a surplus of 40 units. c. there would be a surplus of 20 units. d. the market would be in equilibrium. 26. GDP includes the value of final goods and not intermediate goods because a. the value of intermediate goods is already included in the value of final goods. b. the value of intermediate goods is too difficult to measure. c. the value of intermediate goods is measured by GNP. d. the value of intermediate goods depends on the number of separate production processes.
8 27. Which list includes all the categories into which the BLS divides the adult population? a. employed or unemployed b. discouraged workers, employed, or unemployed c. employed, unemployed, or not in the labor force d. discouraged workers, employed, or not in the labor force 28. The natural rate of unemployment is a. zero percent. b. the rate associated with the highest possible level of GDP. c. the amount of unemployment that the economy normally experiences. d. the difference between the long-run and short-run unemployment rates. 29. In the circular-flow diagram shown, which arrow shows the flow of goods and services? a. A b. B c. C d. D 30. In the circular-flow diagram shown, which arrow shows the flow of spending by households?
9 a. A b. B c. C d. D 31. In the circular-flow diagram shown, which arrow shows the flow of the factors of production? a. A b. B c. C d. D 32. In the circular-flow diagram shown, which arrow shows the flow of income payments? a. A b. B c. C d. D
10 The next four questions are based on the following information: Dawna has the option of staying in her current job in Denver at an annual income of $20,000, or transferring to Washington, D.C. at an annual income of $30,000. The cost of living index in Denver is 90 and the cost of living index in Washington is In which job will the purchasing power of Dawna's income be higher? a. Denver b. Washington c. either they both have the same purchasing power d. it is impossible to determine with the information given 34. What is the purchasing power of the Denver income in Washington, D.C. dollars? a. $30,000 b. $27,000 c. $20,000 d. $15,000 e. none of the above 35. What is the purchasing power of the Washington income in Denver dollars? a. $40,000 b. $30,000 c. $27,000 d. $20,000 e. none of the above 36. What is the ratio of the purchasing power of the Washington, D.C. income to the purchasing power of the Denver income? a. 2:1 b. 3:2 c. 1:1 d. 10:9 e. none of the above
11 37. Kay loses her job and decides to sit around home for a few months. Ceteris paribus, a. the unemployment rate is unaffected, and the labor-force participation rate increases. b. the unemployment rate increases, and the labor-force participation rate decreases. c. the unemployment rate increases, and the labor-force participation rate is unaffected. d. the unemployment rate increases, and the labor-force participation rate increases. 38. Ann has just finished school and is looking for a job, but has not yet found one. As a result, a. the unemployment rate is unaffected, and the labor-force participation rate increases. b. the unemployment rate increases, and the labor-force participation rate decreases. c. the unemployment rate increases, and the labor-force participation rate is unaffected. d. the unemployment rate increases, and the labor-force participation rate increases. 39. Jeff has just finished school, but has not yet begun to look for a job. As a result, a. the unemployment rate is unaffected, and the labor-force participation rate is unaffected b. the unemployment rate increases, and the labor-force participation rate decreases. c. the unemployment rate increases, and the labor-force participation rate is unaffected. d. the unemployment rate increases, and the labor-force participation rate increases. 40. Suppose that some people report themselves as unemployed when, in fact, they are working in the underground economy. If these persons were counted as employed, a. both the unemployment rate and labor-force participation rate would be higher. b. both the unemployment rate and labor-force participation rate would be lower. c. the unemployment rate would be higher and the labor-force participation rate would be lower. d. None of the above are correct.
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