Econ 202 Section 2 Midterm 1

Douglas, Fall 2009 September 29, 2009 A: Special Code 0000 21 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 2 Midterm 1 1. What will happen to the equilibrium price and quantity of DVD players if Blu-Ray disk players (a substitute) become cheaper at the same time that several new DVD player manufacturing companies enter the market? a. Quantity will rise and price may either rise or fall. b. Price will rise and quantity may either rise or fall. c. Price will fall and the quantity may either rise or fall. d. Quantity will fall and price may either rise or fall. 2. Marion collected Social Security payments of $220 a month in 1985. If the price index rose from 90 to 108 between 1985 and 1986 and the real value of her Social Security payments did not change, then her Social Security payments for 1986 were a. $220. b. $228. c. $238. d. $264. 3. Which of the following events will definitely cause equilibrium quantity in a market to rise? a. demand decreases and supply increases b. demand and supply both increase c. demand and supply both decrease d. demand increases and supply decreases 4. By saving more, a country a. has fewer resources for capital goods. The decrease in capital reduces productivity. b. has more resources for capital goods. The increase in capital reduces productivity. c. has fewer resources for capital goods. The decrease in capital raises productivity. d. has more resources for capital goods. The increase in capital raises productivity. 5. In the United States in 2008, government expenditures on goods and services represented approximately a. 5 percent of GDP. b. 20 percent of GDP. c. 95 percent of GDP. d. 50 percent of GDP. 6. If the nominal interest rate is 7.5 percent and the rate of inflation is -2.5 percent, then the real interest rate is a. -10 percent. b. 10 percent. c. -5 percent. d. 5 percent. 7. When it legalizes marijuana sales or prostitution, a country s measured GDP a. doesn't change because marijuana sales and prostitution are not productive. b. doesn't change because both legal and illegal market sales are measured in GDP. c. decreases because legal but harmful activities count negatively in GDP. d. increases because only legal market sales are measured in GDP. 8. What would happen to the equilibrium price and quantity sold of chicken if the price of turkey (a substitute) rises, at the same time that wages of workers in chicken processing plants fall? a. Quantity will fall and price may either rise or fall. b. Price will rise and quantity may either rise or fall. c. Price will fall and quantity may either rise or fall. d. Quantity will rise and price may either rise or fall. 1

9. Which of the following items is included in U.S. GDP? a. final goods and services that are purchased by the U.S. federal government b. goods and services produced by foreign citizens working in the U.S. c. intermediate goods that are produced in the U.S. but that are unsold at the end of the GDP accounting period d. All of the above are included in U.S. GDP. 10. A nation's standard of living is best measured by its a. nominal GDP. b. real GDP per person. c. nominal GDP per person. d. real GDP. 11. Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has a. reduced measured GDP. b. increased measured GDP because unpaid labor (mom s cooking) does not count in GDP. c. increased measured GDP because food bought at the grocery store does not count in GDP d. Two of the above answers are correct. 12. 2002 is the base year for the CPI. In 2002, the market basket s cost was $50; in 2004, the basket s cost was $52; and in 2006, the basket s cost was $54.60. The CPI in 2004 was a. 96.2. b. 102.0. c. 152.0. d. 104.0. 13. Which of the following is physical capital? a. the strength of workers b. the knowledge of workers c. financial assets like cash and bonds d. the equipment in a factory 14. In computing GDP, market prices are used to value final goods and services because a. market prices do not change much over time. b. market prices reflect the values of goods and services. c. the government sets price ceilings and price floors. d. None of the above is correct; market prices are not used in computing GDP. 15. Which of the following events would most likely cause the price of canteloupes to rise? a. Canteloupes come into season, causing a surplus of canteloupes. b. Wages of canteloupe harvesters fall. c. A new study shows that canteloupes slows the aging process. d. Two of the above answers are correct. 16. The term inflation is used to describe a situation in which a. real incomes in the economy are increasing. b. stock-market prices are rising. c. the overall level of prices in the economy is increasing. d. the economy is growing rapidly. 2

Table 23-5: The base year is 2006. Batterland produces only waffles and pancakes, in the amounts shown below. Year Price of Waffles Quantity of Waffles Price of Pancakes Quantity of Pancakes 2005 $4 100 $3 100 2006 $4 120 $6 150 2007 $6 150 $6 200 2008 $11 180 $3.75 220 17. Refer to Table 23-5. In 2007, Batterland s real GDP was a. $2100. b. $1800. c. $1620. d. $1200. 18. Refer to Table 23-5. In 2007, Batterland s GDP deflator was a. 85.7. b. 116.7. c. 100. d. This cannot be calculated from the information given. 19. Which of the following is human capital? a. textbooks b. understanding how to repair cars c. hand held power tools 20. Which of the following statements is not correct? a. The catch-up effect is based on the assumption of diminishing returns to capital. b. Peace and justice are keys to growth. c. Investment in poor countries by citizens of rich countries is one way poor countries can learn new technologies. d. Malthus argued that charity and government aid was an effective way to reduce poverty. 21. In a simple circular-flow diagram, total income and total expenditure are a. equal only when one dollar is spent on goods for every dollar that is spent on services. b. seldom equal because of the ongoing changes in an economy s unemployment rate. c. always equal because every transaction has a buyer and a seller. d. never equal because total income always exceeds total expenditure. 3

Figure 4-7. Supply and Demand for Flip-Flops (an inferior good). 22. Refer to Figure 4-7. Which of the following could cause the equilibrium price of flip-flops to fall to $15 and the equilibrium quantity to fall to 200? a. an increase in the price of rubber used to make flip-flops. b. a fall in consumer income (flip-flops are an inferior good). c. an improvement in the technology used to produce flip-flops. d. a decrease in the price of leather sandals (a substitute). 23. Refer to Figure 4-7. Suppose the price of rubber used to make flip-flops increases at the same time that consumer incomes fall, and flip flops are an inferior good. Which of the following equilibrium price and quantity combinations is most likely after both of these events have occurred? a. P=$25, Q=200. b. P=$35, Q=400, c. P=$25, Q=600. d. P=$15, Q=400. 24. In 2008, U.S. GDP was approximately a. $14.4 trillion. b. $144 billion. c. $150 trillion. d. $32.2 trillion. Figure 2-3 25. Refer to Figure 2-3. This economy has the ability to produce at which point(s)? a. C or D b. B or E only. c. B, E, or D d. A, B, D, or E 4

26. The price index was 320 in one year and 360 in the next year. What was the inflation rate? a. 40 percent b. 11.1 percent c. 12.5 percent d. 9 percent 27. Which of the following would increase productivity? a. an increase in human capital per worker b. an increase in natural resources per worker c. an increase in the physical capital stock per worker 28. What would happen to this week s equilibrium price and quantity of wheat if both sellers and buyers of wheat find out that the price is likely to rise next month? a. This week s equilibrium quantity will fall and equilibrium price may either rise or fall. b. This week s equilibrium price will fall and equilibrium quantity may either rise or fall. c. This week s equilibrium quantity will rise and equilibrium price may either rise or fall. d. This week s equilibrium price will rise and equilibrium quantity may either rise or fall. 29. In the country of Suchnott, the price of silver increased from $30 per ounce to $32 per ounce during a time when the overall price level increased by 5 percent. During this period, the real price of silver a. decreased. b. might have increased, decreased or stayed the same; more information is needed to be sure. c. stayed the same. d. increased. Figure 2-2 30. Refer to Figure 2-2. If the OUTER loop of this circular-flow diagram represents flows of dollars, then the INNER loop includes a. flows of rent payments paid to owners of land. b. flows of inputs from households to firms. c. flows of wages and salaries paid to workers. d. flows of goods and services from households to firms. 31. One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called a. unmeasured quality change. b. price-change neglect. c. substitution bias. d. relative bias. 5

32. An improvement in the production technology used by car parts firms will result in a shift of car parts a. supply, causing an increase in equilibrium price and a decrease in equilibrium quantity. b. supply, causing a decrease in equilibrium price and an increase in equilibrium quantity. c. demand, causing an increase in both equilibrium price and equilibrium quantity. d. demand, causing a decrease in both equilibrium price and equilibrium quantity. 33. What basket of goods and services is used to construct the CPI? a. only food, clothing, transportation, entertainment, and education b. the least expensive and the most expensive goods and services in each major category of consumer expenditures c. goods and services typically bought by consumers, as determined by government surveys d. a random sample of all goods and services produced in the economy 34. The real interest rate tells you a. how fast the purchasing power of your bank account rises over time. b. the purchasing power of your bank account today. c. the number of dollars in your bank account today. d. how fast the number of dollars in your bank account rises over time. 35. GDP does not reflect a. the value of goods and services produced at home. b. the quality of the environment. c. the value of leisure. 6

ID: A Econ 202 Section 2 Midterm 1 Answer Section MULTIPLE CHOICE 1. ANS: C PTS: 1 MSC: Analytical 2. ANS: D PTS: 1 NAT: Analytic 3. ANS: B PTS: 1 MSC: Applicative 4. ANS: D PTS: 1 NAT: Analytic LOC: Productivity and growth 5. ANS: B PTS: 1 MSC: Definitional 6. ANS: B PTS: 1 NAT: Analytic 7. ANS: D PTS: 1 NAT: Analytic 8. ANS: D PTS: 1 MSC: Analytical 9. ANS: D PTS: 1 NAT: Analytic LOC: The study of economics and definitions in economics 10. ANS: B PTS: 1 NAT: Analytic LOC: Productivity and growth 11. ANS: B PTS: 1 NAT: Analytic 12. ANS: D PTS: 1 NAT: Analytic 13. ANS: D PTS: 1 NAT: Analytic LOC: The study of economics and definitions in economics MSC: Definitional 14. ANS: B PTS: 1 NAT: Analytic LOC: The study of economics and definitions in economics 15. ANS: C PTS: 1 MSC: Applicative 16. ANS: C PTS: 1 NAT: Analytic LOC: Unemployment and inflation MSC: Definitional 17. ANS: B PTS: 1 NAT: Analytic 18. ANS: B PTS: 1 NAT: Analytic 19. ANS: B PTS: 1 NAT: Analytic LOC: The study of economics and definitions in economics MSC: Definitional 20. ANS: D PTS: 1 NAT: Analytic LOC: Productivity and growth 21. ANS: C PTS: 1 NAT: Analytic LOC: Understanding and applying economic models 22. ANS: D PTS: 1 MSC: Applicative 23. ANS: B PTS: 1 MSC: Applicative 24. ANS: A PTS: 1 MSC: Definitional 25. ANS: C PTS: 1 NAT: Analytic LOC: Understanding and applying economic models MSC: Applicative 26. ANS: C PTS: 1 NAT: Analytic LOC: Unemployment and inflation MSC: Applicative 1

ID: A 27. ANS: D PTS: 1 NAT: Analytic LOC: Productivity and growth 28. ANS: D PTS: 1 MSC: Applicative 29. ANS: D PTS: 1 NAT: Analytic LOC: Scarcity, tradeoffs, and opportunity cost MSC: Applicative 30. ANS: B PTS: 1 NAT: Analytic LOC: Understanding and applying economic models 31. ANS: C PTS: 1 NAT: Analytic LOC: The study of economics and definitions in economics MSC: Definitional 32. ANS: B PTS: 1 MSC: Applicative 33. ANS: C PTS: 1 NAT: Analytic LOC: The study of economics and definitions in economics 34. ANS: A PTS: 1 NAT: Analytic LOC: The study of economics and definitions in economics MSC: Definitional 35. ANS: D PTS: 1 NAT: Analytic LOC: The study of economics and definitions in economics 2

Douglas, Fall 2009 September 29, 2009 B: Special Code 0000 22 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 2 Midterm 1 1. Which of the following is human capital? a. understanding how to repair cars b. hand held power tools c. textbooks 2. In the country of Suchnott, the price of silver increased from $30 per ounce to $32 per ounce during a time when the overall price level increased by 5 percent. During this period, the real price of silver a. increased. b. might have increased, decreased or stayed the same; more information is needed to be sure. c. decreased. d. stayed the same. 3. GDP does not reflect a. the value of leisure. b. the value of goods and services produced at home. c. the quality of the environment. 4. What will happen to the equilibrium price and quantity of DVD players if Blu-Ray disk players (a substitute) become cheaper at the same time that several new DVD player manufacturing companies enter the market? a. Price will fall and the quantity may either rise or fall. b. Price will rise and quantity may either rise or fall. c. Quantity will fall and price may either rise or fall. d. Quantity will rise and price may either rise or fall. 5. By saving more, a country a. has more resources for capital goods. The increase in capital reduces productivity. b. has more resources for capital goods. The increase in capital raises productivity. c. has fewer resources for capital goods. The decrease in capital raises productivity. d. has fewer resources for capital goods. The decrease in capital reduces productivity. 6. When it legalizes marijuana sales or prostitution, a country s measured GDP a. doesn't change because both legal and illegal market sales are measured in GDP. b. doesn't change because marijuana sales and prostitution are not productive. c. increases because only legal market sales are measured in GDP. d. decreases because legal but harmful activities count negatively in GDP. 7. In computing GDP, market prices are used to value final goods and services because a. market prices reflect the values of goods and services. b. the government sets price ceilings and price floors. c. market prices do not change much over time. d. None of the above is correct; market prices are not used in computing GDP. 8. The price index was 320 in one year and 360 in the next year. What was the inflation rate? a. 12.5 percent b. 40 percent c. 11.1 percent d. 9 percent 1