2nd Midterm. Principles of Macroeconomics.Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Nominal GDP will increase A) only if the price level rises. B) only if the price level falls. C) if either the price level or the quantity of goods and services produced rises (and neither fall). D) only if the quantity of final goods and services produced rises. 1) 2) If an American firm opens a production facility in India, the total value of the production will be included in the A) gross national income of India. B) net domestic product of the U.S. C) gross domestic product of India. D) gross domestic product of the U.S. 2) 3) Consider the following data on nominal GDP and real GDP (values are in billions of dollars): 3) Year Nominal GDP Real GDP 1997 $8,318 $8,159 1998 $8,790 $8,516 1999 $9,299 $8,876 The GDP deflator for 1998 equals A) 96.9. B) 104.2. C) 103.2. D) 105.7. 4) Real GDP will increase A) only if the price level falls. B) if either the price level rises or the quantity of final goods and services produced rises. C) only if the quantity of final goods and services produced rises. D) only if the price level rises. 4) Consider the following data for a fictional economy that produces only two products: oranges and shirts. Year Oranges Produced Price of Oranges Shirts Produced Price of Shirts 1998 1800 $0.90 100 $30 2000 2000 $1.00 110 $35 5) Refer to the table above. Real GDP for this fictional economy for 1998 using 2000 as the base year equals A) $4,620. B) $5,850. C) $5,100. D) $5,300. 5) 6) Refer to the table above. Nominal GDP for this fictional economy for 1998 equals A) $4,620. B) $5,850. C) $5,100. D) $5,300. 6) 1 440 units.000 $25. 8) 9) Consider the following data (in billions of dollars) for an economy: 9) Consumption expenditures $900 Investment expenditures $300 Government purchases $300 Government transfer payments $400 Exports $300 Imports $100 Gross domestic product (in billions of dollars) for this economy equals A) $1.000.700. If the expected real interest rate is 5 percent. DVDs.000. D) $2.000 $18.000 7) D) $15.000.000. tomatoes.000. 11) For bondholders.000 1. Price $10. B) equal to 7 percent. D) 2. 10) Product Quantity Price Shoes 40 $50.000. B) $7. B) $6. B) $1.00 DVDs 100 25.100.00 Tomatoes 2. D) greater than 7 percent.000.000. Assume one half of the tomatoes are used in making the catsup and the other half of tomatoes are purchased by households. C) $18. nominal GDP for this simple economy equals A) $7. C) $15.000. 10) Suppose that a simple economy produces only four goods and services: shoes. A) may decrease or may increase B) does not change C) decreases D) increases 11) 12) Suppose you borrow $1. a decrease in the inflation rate ________ the real after-tax interest payment received. and catsup. 12) 13) The real interest rate equals the nominal interest rate ________ the inflation rate.00 Using the information in the above table.000.200. C) $2. B) $25.000. C) $8. The value of each automobile in gross domestic product equals A) $18. A) divided by B) plus C) times D) minus 13) 2 . Stage of Production Seller 1 Steel Mill 2 Auto Manufacturer 3 Auto Dealer Buyer Auto Manufacturer Auto Dealer Consumer 7) Refer to the table above. The value added by the automobile dealer equals A) $7.Consider the following table showing three stages of production of an automobile.400. then the rate of inflation over the upcoming year that would be most beneficial to you would be a rate of inflation A) less than 7 percent.00 Catsup 300 5. C) equal to 0 percent. D) $25.000 at an interest rate of 12 percent. 8) Refer to the table above. 18) 19) Since 1950 the labor force participation rate for adult men has ________ and for adult women has ________. A) increased. D) $78.000. 20 have part-time employment. decreased C) decreased. 60 have full-time employment.15 196 15) Refer to the table above. The real average hourly earnings for 1965 in 1982 -1984 dollars equal A) $8.65 32 2005 $16. B) $23. Bureau of Labor would equal A) (20/60) x 100.28. C) $62.000 in 1961. If the CPI is 30 in 1961 and 196 in 2005.00 16) The Consumer Price Index for 2006 equals A) 93. C) (20/100) x 100. and 10 would like employment but do not have employment and are not actively looking for employment.400. hamburgers. 14) The table below reports the nominal average hourly earnings in private industry and the consumer price index for 1965 and 2005. D) everyone who wants a job has a job. then the value of your grandfatherʹs salary in 2005 dollars equals A) $40.50 CDs 10 $20. The official unemployment rate as calculated by the U. 20) 3 . decreased 19) 20) Suppose the working-age population of a fictional economy falls into the following categories: 90 are retired or homemakers. B) frictional unemployment and structural unemployment equal zero. 20 do not have employment.75 Hamburgers 200 $2.80.00 $2. increased B) decreased. D) 133. B) 108. B) $84.00 $21. increased D) increased. B) (20/80) x 100.520.35. C) all existing unemployment is either frictional unemployment or structural unemployment. but are actively looking for employment. C) $1. D) $5.500. 17) Which of the following would increase the unemployment rate? A) an increase in unemployment insurance payments B) a decrease in the minimum wage C) a cut in unemployment compensation D) a law making it illegal to work more than 35 hours per week 17) 18) Economists consider full employment to occur when A) frictional unemployment equals zero.19. and CDswith the following values in 2000 and 2006 for price and quantity: Base Year (2000) 2006 Price Product Quantity Price Cokes 1000 $0.50 $0. D) (30/80) x 100. 15) 16) Assume the market basket for the consumer price index has three products Cokes. Nominal Average CPI Year Hourly Earnings (1982-1984 = 100) 1965 $2.14) Suppose your grandfather earned a salary of $12.S. C) 75. C) is 3. 25) 26) How would you expect a change from an income tax to a consumption tax to affect the supply of loanable funds? A) The supply of loanable funds would become steeper. D) crowding out. stocks.T. B) income minus net taxes.21) If real GDP in a small country in 2005 is $8 billion and real GDP in the same country in 2006 is $8. and low savings B) risk-sharing.6%. D) change in the same direction as the rate of inflation. 25) The response of firm investment to an increase in the government budget deficit is called A) private dissaving. then A) T > TR. and interest D) bonds. 29) 30) During the expansion phase of the business cycle. unemployment tends to A) be unchanged. C) decrease. D) cannot be determined from the information given. profit. D) The supply of loanable funds would increase. increase further D) decrease.TR < G. B) The supply of loanable funds would decrease. and information C) information. C) expansionary investment. high profit.0%. 26) 27) Which of the following would encourage economic growth through increases in the capital stock? A) a decrease in the government deficit B) an increase in household savings C) a change from an income tax to a consumption tax D) all of the above 27) 28) Inflation tends to ________ during the expansion phase of the business cycle and ________ during the recession phase of the business cycle.75%. what three key services does the financial system provide for savers and borrowers? A) high risk. B) increase. decrease further 28) 29) When the economy enters a recessionary phase of the business cycle. D) G > T. 21) 22) According to the ʺRule of 70ʺ. how many years will it take for real GDP per capita to double when the growth rate of real GDP per capita is 5%? A) less than 1 year B) 14 years C) 5 years D) 35 years 22) 23) In addition to matching households that have excess funds with firms that want to borrow funds. C) The supply of loanable funds would be unaffected.3 billion. and mutual funds 23) 24) If government saving is negative. decrease C) increase. 24) C) T . B) Y + TR < C . which of the following eventually increases? A) employment B) production C) income D) all of the above 30) 4 . B) is 3. the growth rate of real GDP between 2005 and 2006 A) is 3. increase B) increase. liquidity. A) decrease. 000 32) 33) Because of diminishing returns.000. D) the per-worker production function shifts downward. an economy can continue to increase real GDP per hour worked only if A) there is technological change. 33) 34) When an economy faces diminishing returns.000 D) by more than $500 but less than $5. D) the per-worker production function shifts to the left. If capital per hour worked increases further to $25. 31) 32) Suppose that an increase in capital per hour worked from $15. C) there are decreases in human capital.000 but less than $20.31) Growth in real GDP per capita for the world economy was greatest during A) the nineteenth century. 35) 36) A patent grants an inventor exclusive rights to a product for how long? A) the liftetime of the product B) 14 years C) 17 years D) 20 years 36) 5 . D) the seventeenth century. A) the per-worker production function shifts to the right.000 to $20.000 increases real GDP per hour worked by $500. C) the twentieth century. by how much would you expect real GDP per hour worked to increase if there are diminishing returns? B) by less than $500 A) by exactly $500 C) by more than $5. B) there continue to be decreases in capital per hour worked. 34) 35) Government provision of which of the following would help increase the accumulation of knowledge capital? A) copyrights B) patents C) education subsidies D) All of the above are correct. B) the slope of the per-worker production function becomes flatter as output increases. C) the slope of the per-worker production function becomes steeper as output increases. B) the eighteenth century. 37) Based on the ʺcatch-up lineʺ drawn above. low B) B. B) globally-directed investment C) foreign portfolio investment. B. D) foreign capital depreciation. B) foreign exchange arbitrage. poorer countries are more likely to be at a point like ________. C) foreign direct investment. low 37) 38) Which of the following can explain why some countries have not experienced relatively high growth rates in real GDP per capita despite relatively low initial levels of real GDP per capita? A) Many of these developing countries do not have a functioning court system that can enforce laws. C) B. high. D) foreign portfolio investment. low. A. low. high. D) all of the above 38) 39) The purchase or building by a corporation of a facility in a foreign country is called A) foreign direct investment. B) Countries that are relatively poor are likely to have a lower quality of health care. B. 39) 40) The purchase by an individual or firm of stock or bonds issued in another country is called A) global stock exchange. while richer countries are more likely to be at a point like ________. where growth in GDP is relatively ________. high D) A. A. 40) 6 . C) Countries that are relatively poor are more likely to experience wars and revolutions. where growth in GDP is relatively ________. high A) A. Answer Key Testname: UNTITLED1 1) C 2) C 3) C 4) C 5) D 6) A 7) A 8) D 9) A 10) A 11) D 12) D 13) D 14) D 15) A 16) D 17) A 18) C 19) C 20) C 21) A 22) B 23) B 24) C 25) D 26) D 27) D 28) B 29) B 30) D 31) C 32) B 33) A 34) B 35) D 36) D 37) A 38) D 39) A 40) D 7 .