INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS

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1 INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In May 2009, Ford Motor Company's sales were down 20 percent from a year earlier. These events were caused by A) an economic expansion. B) an economic recession. C) a reduction in advertising. D) declining quality of service. 1) 2) During a business cycle expansion, total production and total employment. 2) A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases 3) In calculating gross domestic product, the Bureau of Economic Analysis uses the sum of the market value of final goods and services produced. This means that the BEA A) values goods and services at their market prices, multiplies them by the quantity produced, and then adds them up. B) simply counts the total number of goods produced in the market place and then adds them up. C) simply counts the total number of goods and services produced in the marketplace and then adds them up. D) values goods at their market prices, multiplies them by the quantity produced, and then adds them up. 3) 4) Which of the following goods is directly counted in GDP? 4) A) a 12-inch Subway sandwich purchased by a student B) the plastic bags that Subway purchases to wrap its sandwiches C) the lettuce that Subway purchases for its sandwiches D) the bread that Subway purchases for its sandwiches Table 19-1 Product Quantity Price Sweatshirts 50 $35.00 Dental examinations Coffee drinks 1, Coffee beans 2, ) Refer to Table Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above table, nominal GDP for this simple economy equals A) 3,090 units. B) $7,250. C) $8,750. D) $9,750. 5) 6) The nominal GDP of the U.S. in 2010 was approximately $14.6 trillion. This means that 6) A) the value of output in 2010 was around $14.6 trillion. B) total spending in 2010 was around $14.6 trillion. C) total income in 2010 was around $14.6 trillion. D) all of the above are true. 1

2 7) The purchase of a new automobile is included in 7) A) consumption expenditures on services. B) consumption expenditures on durable goods. C) consumption expenditures on nondurable goods. D) investment expenditures. 8) The purchase by a household in China of a CD produced in the United States is included in U.S. 8) A) net exports. B) consumption expenditures. C) government purchases. D) investment expenditures. Table 19-4 Consumption expenditures $800 Investment expenditures 300 Government purchases 300 Government transfer payments 400 Exports 300 Imports 100 9) Refer to Table Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals A) $2,200. B) $2,100. C) $1,600. D) $1, ) The sum of the value added of every firm involved in producing all final goods and services gross domestic product. A) is sometimes greater than and other times less than B) is less than C) equals D) is greater than 9) 10) Table 19-5 Stage of Production Seller Buyer Price 1 Steel mill Auto manufacturer $10,000 2 Auto manufacturer Auto dealer 18,000 3 Auto dealer Consumer 25,000 Consider the table above showing three stages of production of an automobile. 11) Refer to Table The value added by the automobile dealer equals 11) A) $7,000. B) $15,000. C) $18,000. D) $25,000. Scenario 19-1 CANOES-R-US makes canoes. It buys the shell of the canoe from another firm for $300 and uses its labor and intermediate goods to make the canoe. It sells the finished canoe to a retail canoe store for $800. The retail canoe store then sells the canoe to a consumer for $1, ) Refer to Scenario The value added of CANOES-R-US for each canoe equals 12) A) $1,200. B) $800. C) $500. D) $400. 2

3 13) Refer to Scenario The value of each canoe in gross domestic product equals 13) A) $1,200. B) $800. C) $500. D) $ ) Nominal GDP is GDP in a given year 14) A) adjusted for inflation. B) valued in the prices of the base year. C) adjusted for anticipated inflation. D) valued in the prices of that year. Table 19-8 Year Guns Produced Price of Guns Butter Produced Price of Butter $5 40 $ Consider the following data for Tyrovia, a country that produces only two products: guns and butter. 15) Refer to Table Real GDP for Tyrovia for 2011 using 2005 as the base year equals 15) A) $1,140. B) $880. C) $690. D) $560. Table 19-9 Year Nominal GDP Real GDP 2008 $7,400 $7, ,813 7, ,301 8, ,760 8,516 16) Refer to Table Consider the following data on nominal GDP and real GDP (values are in billions of dollars): The base year used in calculating real GDP is A) B) C) D) ) Table Year Oranges Produced Price of Oranges Shirts Produced Price of Shirts ,800 $ $ , Consider the data shown above for Vicuna, a country that produces only two products: oranges and shirts. 17) Refer to Table Nominal GDP for Vicuna for 2009 equals 17) A) $4,920. B) $5,100. C) $5,300. D) $5, ) Suppose that nominal GDP in 2011 was less than real GDP in Given this information, we know for certain that A) real GDP in 2011 was less than real GDP in the base year. B) the price level in 2011 was less than the price level in the base year. C) the price level in 2011 was greater than the price level in the base year. D) real GDP in 2011 was greater than real GDP in the base year. 18) 3

4 19) To examine how the total production of an economy has changed over time, it would be better to examine A) nominal GDP. B) the GDP deflator. C) GDP at current prices. D) real GDP. 19) 20) If prices in the economy rise, then 20) A) the purchasing power of a dollar stays constant. B) the purchasing power of a dollar cannot be determined. C) the purchasing power of a dollar rises. D) the purchasing power of a dollar declines. 21) The GDP deflator is the 21) A) difference between real GDP and nominal GDP multiplied by 100. B) ratio of nominal GDP to real GDP multiplied by 100. C) difference between nominal GDP and real GDP multiplied by 100. D) ratio of real GDP to nominal GDP multiplied by ) The GDP deflator is a measure of the 22) A) average level of prices of intermediate goods and services in the economy. B) average level of prices of final goods and services in the economy. C) total production of the economy adjusted for inflation. D) total production of the economy unadjusted for inflation. 23) If nominal GDP exceeds real GDP for a specific year, then the GDP deflator must be 23) A) less than 100. B) less than 0. C) greater than 100. D) equal to ) The GDP deflator in year 2 is 105, using year 1 as the base year. This means that, on average, the cost of goods and services is A) 105% higher in year 2 than in year 1. B) 105% higher in year 1 than in year 2. C) 5% higher in year 1 than in year 2. D) 5% higher in year 2 than in year 1. 24) Table Year Nominal GDP Real GDP ,078 13, ,441 13,312 25) Refer to Table Consider the following data on nominal GDP and real GDP (values are in billions of dollars): The GDP deflator for 2011 equals A) B) C) D) ) The Bureau of Labor Statistics would categorize a person as if they were temporarily away from their job because they were ill. A) a discouraged worker B) out of the labor force C) unemployed D) employed 25) 26) 27) The labor force equals the number of people 27) A) unemployed. B) employed. C) employed plus unemployed. D) in the working-age population. 4

5 28) Suppose that homemakers are included as employed in the labor force statistics, rather than being counted as out of the labor force. This would A) decrease the number of persons in the labor force. B) decrease the number of persons in the working-age population. C) increase the measured unemployment rate. D) increase the measured labor force participation rate. 28) Consider the data above for a simple economy. Table 20-1 Total population 20,000 Working-age population 15,000 Employment 1,000 Unemployment ) Refer to Table The labor force participation rate for this simple economy equals 29) A) (1,100/20,000) 100. B) (1,100/15,000) 100. C) (1,000/1,100) 100. D) (1,000/15,000) ) The unemployment rate equals the number of unemployed divided by the, all times ) A) labor force B) number of employed C) working-age population D) total population 31) Suppose the labor force stays constant, and the working-age population stays constant, but a greater number of persons who were unemployed become employed. The labor force participation rate will A) decrease. B) increase. C) remain constant. D) not change in a way that can be predicted. 32) Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as A) employed. B) not in the labor force. C) unemployed. D) not in the working-age population. 31) 32) 33) A student who just graduated from college but has not found a job would most likely be 33) A) seasonally unemployed. B) frictionally unemployed. C) structurally unemployed. D) cyclically unemployed. 34) Structural unemployment is the result of 34) A) the search process of matching workers with jobs. B) the ups and downs in inflation. C) a slowdown in the economy. D) a persistent mismatch between the skills and characteristics of workers and the requirements of the jobs. 5

6 35) Full employment is not considered to be zero unemployment, because 35) A) people do not find jobs instantaneously. B) some cyclical unemployment always exists. C) there are not enough jobs for everyone who wants one. D) some people do not want a job. 36) A lumberjack loses his job because timber cutting restrictions were imposed by the EPA to protect the spotted owl habitat. This lumberjack would be A) cyclically unemployed. B) seasonally unemployed. C) frictionally unemployed. D) structurally unemployed. 37) The advice to "retrain" would be most appropriate for which of the following types of unemployment? A) cyclical unemployment B) frictional unemployment C) structural unemployment D) core unemployment 38) An increase in unemployment insurance payments would, in effect, the amount of time spent searching for a job, which would increase unemployment. A) increase; cyclical B) increase; frictional C) decrease; frictional D) decrease; cyclical 36) 37) 38) 39) Which of the following would decrease the unemployment rate? 39) A) an increase in the efficiency wage B) government aid to retrain unemployed workers C) an increase in labor union membership D) an increase in the minimum wage 40) Which of the following policies would reduce structural unemployment? 40) A) a job retraining program B) building an on-line job database that helps workers find jobs C) an increase in the minimum wage D) implementing an unemployment insurance policy 41) Which of the following policies would reduce frictional unemployment? 41) A) a job retraining program B) a decrease in the minimum wage C) building an on-line job database that helps workers find jobs D) implementing an unemployment insurance policy 42) If the price level rose in three consecutive years from 100 to 120 to 140, then the annual inflation rate over those years would A) decrease. B) increase. C) equal 20%. D) remain the same. 42) 43) Which of the following would be the best measure of the cost of living? 43) A) real GDP per person B) consumer price index C) GDP deflator D) real GDP 6

7 Table 20-3 Base Year (2006) 2011 Product Quantity Price Price Cokes 100 $0.50 $0.75 Hamburgers CDs ) Refer to Table Assume the market basket for the consumer price index has three products Cokes, hamburgers, and CDs with the following values in 2006 and 2011 for price and quantity: The Consumer Price Index for 2011 equals A) 75. B) 93. C) 108. D) ) 45) The real interest rate equals the nominal interest rate the inflation rate. 45) A) divided by B) minus C) times D) plus 46) If real GDP in a small country in 2010 is $8 billion and real GDP in the same country in 2011 is $8.3 billion, the growth rate of real GDP between 2010 and 2011 A) is 3.0%. B) is 3.6%. C) is 3.75%. D) cannot be determined from the information given. 47) If the growth rate of real GDP rises from 3% to 4% per year, then the number of years required to double real GDP will decrease from A) 23.3 years to 20.6 years. B) 11.2 years to 10.8 years. C) 28.0 years to 21.0 years. D) 23.3 years to 17.5 years. 46) 47) 48) A firm can fund an expansion of its operations by 48) A) loaning money. B) buying stock. C) issuing bonds. D) paying dividends. 49) One difference between stocks and bonds is that 49) A) stocks do not involve a promise to repay a purchaser of the stock, while bonds represent a promise to repay the purchase price of the bond. B) stocks are usually issued in electronic form, while bonds are usually issued in paper form. C) stocks represent ownership in companies, while bonds represent ownership in banks. D) stocks are financial securities, while bonds are labor market securities. 50) In a closed economy, which of the following components of GDP is not included? 50) A) net exports B) investment C) government spending D) consumption 51) In a closed economy, private saving is equal to which of the following? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers) A) Y - G - T + TR B) Y - C - T C) Y + TR - C - T D) Y - G - T 51) 7

8 52) Under which of the following circumstances would the government be running a deficit? 52) A) G = $7 trillion T = $10 trillion TR = $3 trillion B) G = $7 trillion T = $7 trillion TR = $0 C) G = $5 trillion T = $5 trillion TR = $1 trillion D) G = $5 trillion T = $7 trillion TR = $1 trillion 53) If government saving is negative, then 53) A) T > TR. B) T - TR < G. C) Y + TR < C - T. D) G > T. 54) Which of the following will increase investment spending in the economy, holding everything else constant? A) an increase in the federal government surplus B) an increase in consumer dissavings C) an increase in transfer payments D) an increase in the budget deficit 55) The demand for loanable funds is downward sloping because the the interest rate, the the number of profitable investment projects a firm can undertake, and the the quantity demanded of loanable funds. A) lower; greater; greater B) greater; greater; greater C) lower; smaller; greater D) greater; smaller; greater 56) A government budget surplus from reduced government spending (no change in net taxes) will the level of investment in the economy and the level of saving (private plus public) in the economy. A) decrease; increase B) increase; decrease C) decrease; decrease D) increase; increase 54) 55) 56) 57) Which of the following would you expect to increase the equilibrium interest rate? 57) A) a change from an income tax to a consumption tax B) an increase in the budget deficit C) an increase in the percentage of income after net taxes that households save D) a decrease in the profitability of investment projects firms are considering 8

9 Answer Key Testname: MIDTERM_SAMPLE_QTIONS 1) B 2) A 3) A 4) A 5) C 6) D 7) B 8) A 9) C 10) C 11) A 12) C 13) A 14) D 15) C 16) B 17) A 18) B 19) D 20) D 21) B 22) B 23) C 24) D 25) C 26) D 27) C 28) D 29) B 30) A 31) C 32) B 33) B 34) D 35) A 36) D 37) C 38) B 39) B 40) A 41) C 42) A 43) B 44) D 45) B 46) C 47) D 48) C 49) A 50) A 9

10 Answer Key Testname: MIDTERM_SAMPLE_QTIONS 51) C 52) C 53) B 54) A 55) A 56) D 57) B 10