Econ 102 Old Exam Questions

Mary buys a packet of tomato seeds from her local garden store. She grows the tomatoes and consumes them at home. The packet of seeds _ in GDP; the tomatoes she consumes __ in GDP a. counts counts b. counts do not count c. does not count counts d. does not count do not count

b. counts do not count

Henry Ford's description of the "$5 day" as his best cost cutting move ever: a. does not make good economic sense b. is based on the productivity effects of paying above market wages c. fails to take into account increased costs of worker turnover d. proves that foreign made automobiles are better

b. is based on the productivity effects of paying above market wages

Fiscal deficits can affect long run standards of living through what chain a. s up r down I up K/L up Y/L up Y/pop up b. s down r up I down K/L down Y/L down Y/pop down c. s down r down I up K/L up Y/L up Y/pop up d. s down r up I up K/L up Y/L up Y/pop up

b. s down r up I down K/L down Y/L down Y/pop down

Consider two equally risky bonds both of which have a face value of $1000 and a coupon rate of 8%. interest rates are expected to remain at 10% for at least the next 2 years. One bond matures in one year, and the other bond matures in 2 years. Which of the following is true? a. the price of both bonds must be equal b. the price of the one-year bond must be greater than the price of the two-year bond c. the price of the two-year bond must be greater than the price of the one-year bond d. the one-year bond will sell for more than its face value

b. the price of the one-year bond must be greater than the price of the two-year bond

You paid $100 in 2005 for a 2-year, $100 face value bond with a 10% coupon rate. The bond's payments are not indexed to inflation. if you held that bond to maturity, your real rate of return on that bond was: a. lower than 10% b. negative

both

Mitt claims that $100 saved for two years if the interest rate is 10% has a future value greater than $120. Rick claims that the present value of $120 in two years if the interest rate is 10% is less than $100

both Mitt and Rick are correct

Mr. O claims that more people are working now than when he took office. Mr. R claims that the unemployment rate is higher now than it was when Mr. O took office. You can conclude that:

both gentlemen could be correct if the labor force grew faster than did employment

Moldavia is a closed economy in long-run equilibrium. The congress of Moldavia cuts taxes and government spending by equal amounts. The tax cut goes towards an expansion of the investment tax credit. As a result of these changes

both the real interest rate and the level of I increase

Which of the following BEST describes structural UE? a. UE from workers temporarily between jobs b. UE in excess of the natural rate of UE c. UE resulting from prevailing wages in excess of their equilibrium levels d. UE resulting from sectoral shifts in the economy

c. UE resulting from prevailing wages in excess of their equilibrium levels

Nominal interest rates in the economy are 4%. a 2 year, $100 FV bond is currently selling for $120. Which of the following must be true? a. it can't be a zero coupon bond b. its coupon rate must exceed its rate c. a and b d. neither a or b

c. a and b

What is the largest component of US aggregate expenditure? a. net exports b. government spending c. consumption d. investment

c. consumption

Increased deficit spending by the government will cause the most crowding out of private investment when the supply of loanable funds is __ and the demand for loanable funds is _____ a. elastic elastic b. elastic inelastic c. inelastic elastic d. inelastic inelastic

c. inelastic elastic

Which of the following would lead us to expect convergence in GDP per capita across countries? a. high levels of investment are associated with high GDP per capita b. many poor countries maintain barriers to trade c. poor countries have less capital per worker d. poor countries have failed to adopt the technology of rich countries

c. poor countries have less capital per worker

The supply curve for loanable funds: a. is downward sloping because an increase in the interest rate reduces private savings b. downward sloping because an increase in the interest rate reduces private investment c. upward sloping because an increase in the interest rate increases private savings d. upward sloping because an increase in the interest rate increases private investment

c. upward sloping because an increase in the interest rate increases private savings

Understand ing PDV helps you understand a. why you carry an umbrella when there is a threat of rain b. why national savings declines when the budget deficit increases c. why people try to postpone paying their taxes d. why the price of gas tends to increase in the summer

c. why people try tp postpone paying their taxes

Edwin's utility as a function of his wealth takes the following form: U=W1/2 He is offered a lateral that pays him either $4 or $16 with equal probability; If offered an alternative payment of $10 with certainty, he would choose the ______, because he is _________

certain payment, risk-averse

According to the efficient markets hypothesis

changes in stock prices are impossible to predict from public informaiton

Jerry wants to buy and operate an ice cream truck, but doesn't have the financial resources to start the business. She borrows $3000 from her friend Pay, to whom she promises an interest rate of 65 and gets another $10,000 from her friend Chris to whom she promises a quarter of her profits. Which of the following statements best describes this situation?

chris is a shareholder, and pat is a bondholder

The success of diversification in minimizing risk is dependent on ____, because _____

correlation of returns; investors can often find different assets whose returns are not perfectly, positively coorelated

the federal reserve buys $1 million worth of government bonds in an open market operation. ceteris paribus, total bank reserves will not increase if which of the following increases by $1

currency held by the public

an increase in the inflation rate causes an equal increase in the nominal interest rate. Which of the following is true? 1. the demand curve for loanable funds shifts to the left 2. the NPV of IBM's proposed new factory investment falls 3. the price of the regular (non inflation-indexed) 10 year treasury note falls a. 1, 2, 3 b. 2 c. 1, 2 d. 3

d. 3

Which of the follow may NOT raise a country's standard of living? a. increases in human capital investment b. increases in labor productivity c. increases in total factor productivity d. increases in population growth

d. increases in population growth

As a result of greater access to the internet, Moldavia increases the speed with which unemployed workers are matched with suitable jobs. This access thus: a. increases the natural rate of UE b. does not affect the natural rate of US but does reduce the rate of structural UE c. does not affect the natural rate of US but does reduct the rate of frictional US d. none of the above

d. none of the above

Which of the following best describes cyclical unemployment? a. unemployment that results from a long-lasting mismatch between the skills demanded by employers and those possessed by potential employees b. unemployment that results from Pat falling off his bike c. unemployment that results from workers temporarily between jobs d. unemployment in excess of the natural rate of UE

d. unemployment in excess of the natural rate of UE

a collapse of the European financial markets would ___ US net capital outflow and push the US current account towards a ________

decrease, deficit

Bank of America's new "purchase only" debit cards allow their users immediate access to checking account deposits for purchases only. For a given stock of currency and bank reserves, the introduction of these debit cards can be expected to ______ the amount of currency held by the public and ______ the M1 money supply

decrease, increase

a given increase in government spending will cause the smallest amount of crowding out if private savings is interest rate _______ and investment is interest rate _______-

elastic, inelastic

Ceteris paribus, if the market interest rate rises form 5% to 6%, the present discounted value of any capital asset should ____ the farther the expected asset's revenue extend into the future

fall by more

The benefit of diversification when constructing a portfolio is that it can eliminate

firm-specific risk

an open economy in South America begins with balanced trade (NX=0). If the European Union passes na investment tax credit, what would be the LR impact on that South American country's economy?

foreign goods would become more expensive relative to the South American country's goods and the current account would go into surplus

Because capital is subject to diminishing returns, higher saving and investment does not lead to higher

growth in the long run

a country with a trade surplus in a given year

has accumulated foreign assets that year

Which of the following is a correct statement about the relationship among a bond's price, its coupon rate, its face value, and its yield

if a bond is selling for its face value, its yield must be equal to its coupon rate

according to our equation for long-run growth in labor productivity, an equal, 1% increase in the rates of growth of total factor productivity, the capital stock, and the labor force will cause the rate of growth of labor productivity to:

increase by 1%

According to our macroeconomic growth equation, a 1% increase in the rate of capital accumulation and a 1% increase in the rate of total factor productivity growth will

increase the rate of growth of real output by more than 1% and increase the rate of growth of labor productivity by more than 1%

according to our macroeconomic growth equation, an increase only in the rate of population growth will:

increase the rate of growth of real output, but decrease the rate of growth of labor productivity

the federal reserve buys a $100 bond from Penelope, who keeps the $100 in her purse. As a result of this transaction, the monetary base __ and the M1 money supply _____

increases increases

in out three market model of the LR open economy, a tariff

increases the real exchange rate in the LR

The government increases its purchases without raising taxes. According to the loanable funds model:

investment and public savings will fall, but private savings will rise

The government decreases its purchases without changing taxes. According to the loanable funds model

investment and public savings will rise, but private savings will fall

If a bond is currently selling for less than its face value,

its yield to maturity will exceed its coupon rate

if a bond is currently selling for less than its face value,

its yield to maturity will exceed its coupon rate

a given increase in the government budget deficit causes ____ crowding out in open economies than in closed economies because it __ real interest rates by ____

less, increases, less

Zoe is risk-averse. She is offered a lottery with a 50% chance of winning $20 and a 50% chance of losing $10. if offered a certain payment of $5, she would prefer the lottery if offered a certain payment of $10, she would prefer the lottery

neither

An American buys a pair of shoes manufactured in Italy. How do the U.S. national income accounts treat the transaction?

net exports falls, while GDP is unchanged

for an economy experiencing both deflation and recession

nominal GDP is falling and nominal interest rates are lower than real interest rates

which of the following will increase the monetary base in the economy? a Jimmy deposits $500 from his pocket into his checking account at Bank of America b. the state of California sells $20 million in new bonds to finance its budget deficit the US treasury sells $300 billion in new bonds to finance its budget deficit

none of the above

On the same day interest rates unexpectedly rise, the ABC CO. announces that revenues fell by less than the public had expected they would. According to the efficient markets hypothesis, which of these events would cause ABC Co. stock to rise in value that day?

only the revenue announcement

government spending increases by 100 with no change in taxes. Equilibrium investment will decrease by 100. If with respect to the real interest rates the supply of loanable funds is _____ and the demand for loanable funds is

perfectly inelastic, unit elastic

In a closed economy, you observe a government budget deficit and a positive level of investment. Therefore,

public saving is negative but private saving is positive

the government collects more in tax revenue than it spends. Households spend more than their after-tax income. These two statements imply

public saving is positive, but private saving is negative

Zoe holds most of her wealth in US treasury bonds. She is most likely to favor an open market _____ by the Fed and a _____ in the budget deficit

purchase, decrease

interest rates affect NX through which chain?

r up NCO down E up NX down

a country is experiencing both recession and inflation. Which of the following is necessarily true

real GDP is falling more quickly than nominal GDP

a county is experiencing both real economic growth and deflation. Which of the following is necessarily true?

real GDP is rising faster than nominal GDP

if all quantities produced raise by 10% and all prices fall by 10%, which of the following occurs?

real GDP rises by 10% and nominal GDP is unchanged

to lower the long run price level, the federal reserve should

sell bonds to the public

Moldavia experiences an increase in the price of a good produced at home only for exports. As a result of this price change, its CPR would ____ and its GDP deflator would ______

stay the same, rise

Economic instability outside of the US will ceteris paribus

strengthen the US dollar

IF Suze Orman's popular TV show on personal finance convinces more Americans of the importance of saving for retirement, the ____curve of loanable funds will shift, driving the equilibrium interest rate_____-

supply, down

if the required reserve ratio is 0.2 and a bank has $100 million in checking deposits and $40 million in treasury bonds, it must hold reserves of at least

$20 million

What is the approximate value of GDP for the US economy?

$20 trillion

Last summer, Randy lost his job as a result of the trade tariff war. Two months ago, randy ended his search for a new job and has not looked for work since that time. Which of the following is lower today than two months ago as a result of Randy's actions? 1. the UE rate 2. the employment/pop ratio 3. The LF participation rate

1 and 3

An Italian citizen buys a pair of shoes manufactured in the US and has them shipped to her in Rome. How would the national income accounts in the two countries treat this transaction?

GDP and net exports would rise only in the US

who is the current chair of the Board of Governors of the Federal Reserve System in the US

Gerome Powell

Which of the following best describes frictional unemployment?

UE caused by some workers being temporarily between jobs

Ceteris paribus, which of the following will result in the largest increase in productivity growth?

a 1% increase in the total factor productivity growth rate

which of the following combinations unambiguously results in a drop in the measured unemployment rate?

a decrease in the labor force participation rate and an increase in the employment-population ratio

which of the following is not consistent with the effects of capital flight from a given country?

a fall in total demand for loanable funds in that country

"a higher minimum wage lowers labor turnover, which raises productivity..." Professor Romer is implying here that

a higher minimum wage acts in part line an efficiency wage

if purchases of Moldavian assets by foreigners exceed the purchases of foreign assets by Moldavians, then Moldavia has

a negative net capital outflow and a trade deficit

which of the following changes would decrease the present value of a future payment? a. a decrease in the size of the payment b. an increase in the time until the payment is made c. an increase in the interest rate

all of the above

which combination of events would cause the greatest appreciation of the country's currency in the long run?

an increase in the budget deficit and an increase in import tariffs by the home country

an open market operation cannot achieve which of the following effects?

an increase in the long run real GDP growth

Penelope deposits $1000 in her savings account, and a year later her account balance is $1100. Meanwhile, the CPI over the year rises from 100 to 104. In this case, the nominal rate is ______ percent and the real interest rate is ______ percent

10, 6

Old Man Perrywinkle's Social security check is indexed to the CPI inflation rate. If his check in 2015 was $100, he should expect a check of __in 2016 and _______ in 2017. Between 1996 and 2017, consumer prices have_____

125, 150 tripled

in 2010, county X's GDP per capita was $40,000 (in constant dollars) and growing at about 5% per year. Country Y's GDP per capita was $20,000 and growing at about 10 per year. if these growth rates continue, ow long will it take Country Y to catch up to country X?

14 years

Inflation is 3%. Bond payments are not indexed to inflation.. If you pay $80 today fo a one-year, zero coupon bond with a face value of $100, what is your real yield on that bond if you hold it to maturity?

22%

Which of the following offers might a risk-averse individual accept? 1. a 50% change of losing $100 and a 50% chance of winning $100 2. a 50% change of losing $100 and a 50% chance of winning $75 3. a 50% change of losing $75 and a 50% chance of winning $100

3 only

national data for a closed economy with no international trade show the following: C=10 I=4 G=6 T=5 Based on this information, national savings for this economy is:

4 billion

Which of the following does not add to US GDP

The federal government sends a Social Security check to your grandmother.

Today, Penelope visits the Ford dealership in Green Bay and buys a 2018 Ford F-150 from its inventory. Which of the following will increase in 2019 as a result of her purchase? a. consumption only b. consumption and GDP c. investment and GDP d. consumption, investment, and GDP

a. consumption only

A reduction in the taxes on interest income balanced by an equal reduction in government spending will ____ private savings and _____ national savings a. increase increase b. increase decrease c. decrease increase d. decrease decrease

a. increase increase

if the efficient markets hypothesis is correct a. index funds should typically outperform managed funds, and usually do b. index funds should typically outperform managed funds, and usually do not c. mutual funds should typically outperform index funds, and usually do d. mutual funds should typically outperform index funds, and usually do not

a. index funds should typically outperform managed funds, and usually do

The countries of Haiti and the Dominican Republic share the tropical island of Hispaniola. GDP per capita in Haiti is $1300, which GDP per capita in Dominican Republic is $6900. How might a macroeconomist best explain this difference

a. institution

A developing country may catch up to ta developed country in its level of GDP per capita for all of the following reasons except: a. small stock of physical capital b. limited private property right protection c. high rates of malaria and AIDS d. high trade tariffs

a. small stock of physical capital

In a country with an adult population of 100 people, 50 people are in the labor force, and 25 people are employed. Which of the following statements is correct? a. the labor force participation rate the the unemployment rate are equal b. the labor force participation rate is greater than the unemployment rate c. the labor force participation rate is smaller than the unemployment rate d. none of the above

a. the labor force participation rate the the unemployment rate are equal

This Malthusian prediction has been proven wrong largely because of: a. total factors of productivity growth b. increase in labor force participation rate among farmers c. the establishment of the US, which has much farmland d. reductions in world population figures since Malthus's time

a. total factors of productivity growth

A Wisconsin military equipment manufacturer raises the price of helicopters it sells to the US army. As a result of this price hike,

the GDP deflator rises, but the CPI is unchanged

if the required reserve ratio is %10 and banks hold excess reserves of %10, then by how much would the money supply (M1) change if the fed bought a $10,000 bond on the open market

the M1 money supply would increase by $50,000

when the federal reserve conducts open market purchases,

the federal reserve buys treasury securities from the public, and the money supply increases

Investment falls and the real interest rates fall. Which of the following could explain these changes?

the government repeals an investment tax credit

according to the theory of the purchasing power parity, a change in the ratio of price levels in two countries affects

the nominal exchange rate but not the real exchange rate

In a country with constant velocity, which of the following would NOT be affect in the LR by an increase in the rate of money growth

the real interest rate

Penelope quits her job and decides to travel rather than look for a new job over the foreseeable future. Ceteris paribus,

the unemployment rate increases but the labor force participation rate decreases

Bill, a strapping 35 year-old, lost his job a few weeks ago and has decided today, having not found a new job, to end his job search. Last week, Bill was ______, and today he is ______

unemployed, out of the labor force

Which of the following best describes structural unemployment?

unemployment that results from a long-lasting mismatch between the skills demanded by employers and those possessed by potential employees

Throughout U.S. history, what has been the most common cause of substantial increases in government debt?

wars

Which of the following topics is more likely to be studied by a microeconomist than by a macroeconomist

why the wages differ across industries

for an economy in which net exports are not zero, which of the following identities is not correct?

y=c+i+g