Econ 203
If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 7% and inflation turns out to be 10% over the life of the loan, then the borrower____and the lender____
gains; loses
A year's tuition at a state university cost $250 in 1972 when the CPI equaled 0.418. The cost of a year's tuition at the same state university cost $3000 in 2015 when the CPI equaled 1.68. The real cost of tuition between 1972 and 2015:
increased.
If the price of motel rooms increases by 10% while the prices of other goods and services increase by 5 % on average, the relative price of motel rooms has:
increased.
Suppose that the CPI does indeed overstate the rate of inflation. When the CPI increases by 5% and household incomes increase by 5%, we should conclude that the real incomes of households actually:
increased.
The increasing availability of temporary job placement agencies and online job services has____the efficiency of matching workers and jobs and ____the natural rate of unemployment in the United States.
increased; reduced
Based on the table below, if the production process described below is subject to diminishing returns to capital, then total packages wrapped when a fourth machine is installed must be less than____packages
15,000
If the frictional rate of unemployment equals 3 percent, the structural rate of unemployment equals 4 percent, and the cyclical rate of unemployment equals -2 percent, then the natural rate of unemployment equals:
7%
Mike and Tom debone chicken breasts for Ted's Chicken Co. Mike is new and can only debone 30 chicken breasts per hour by hand, while Tom's experience allows him to debone 60 chicken breasts per hour by hand. Ted buys one new machine that can debone 100 chicken breasts per hour. Both Mike and Tom work the same 40 hours per week, but one of them is assigned to operate the machine instead of deboning the chicken breasts by hand. To obtain maximum average hourly productivity, ____ is assigned to use the machine and their combined average hourly productivity as a team is ____ chicken breasts
Mike; 80
The money supply in Macroland is currently 2,500, bank reserves are 200, currency held by public is 500, and banks' desired reserve/deposit ratio is 0.10. Assuming the values of the currency held by the public and the desired reserve/deposit ratio do not change, if the Central Bank of Macroland wishes to increase the money supply to 3,000, then it should conduct an open-market ____ government bonds to/from the public.
purchase of 50
Inflation in the health-care sector apparently is overstated because the CPI does not adequately adjust for _____ changes.
quality
In the year, 2015 Janice Quinn sells a five-year-old car to Used Car, Inc. for $3,000. In the same year, Used Car, Inc. resells the car to Ima Goner for $3,500. What is the contribution of this transaction to GDP in the year 2015?
$0
What is the value added of Citrus Growers Inc.?
$0.75
Fred purchases a bond, newly issued by the Big Time Corporation, for $10,000. The bond pays $400 to its holder at the end of the first, second, and third years and pays $10,40 upon its maturity at the end of four years. The principal amount of this bond is ____, the coupon rate is____, and the term of this bond is____.
$10,000; 4%; four years
Sydney purchases a newly-issued, two-year government bond with a principal amount of $10,000 and a coupon rate of 6% paid annually. One year before the bonds matures (and after receiving the coupon payment for the first year), Sydney sells the bond in the bond market. What price (rounded to the nearest dollar) will Sydney receive for his bond if the prevailing interest rate is 5%?
$10,095
Jordan's wealth is _____, the value of Jordan's assets is _____ and the value of Jordan's liability is _____.
$109,000; $213,000; $104,000
If total government tax collections equal $200 billion, transfer payments equal $75 billion, and government interest payments equal $10 billion, then net taxes equal:
$115 billion.
A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract and by another 3 percent in the third year. The CPI is 1.00 in the first year, 1.07 in the second year, and 1.15 in the third year. What dollar wage must be paid in the third year?
$12.20
Pat earns $25,000 per year (after taxes), and Pat's spouse, Chris, earns $35,000 (after taxes). They have two pre-school-aged children. Childcare for their children costs $12,000 per year. Given that Chris doesn't want to stay home with the kids, regardless of what Pat does, Pat should stay home with the kids if, and only if, the value of Pat spending more time with the kids is greater than:
$13,000 per year.
A labor contract provides for a first-year wage of $15 per hour, and specifies that the real wage will rise by 2 percent in the second year of the contract. The CPI is 1.00 in the first year and 1.09 in the second year. What dollar wage must be paid in the second yer?
$16.68
If the oranges were grown and the jam produced in the year 2015, but the marmalade was sold at The Corner Store in the year 2016, what is the contribution of these transactions to GDP in the year 2015?
$2.00
What is the sum of the value added of all the firms?
$2.50
In the year 2006, Pete Rich purchases a painting done by Rembrandt in 1642 for $20 million. He also pays a one percent commission to the auction house that sold the painting. what is the contribution of this transaction to GDP in the year 2006?
$200,000
In 1998, average labor productivity in the U.S. was $66,381 per worker and 48.9% of the population was employed. What is the per capita GDP in 1998?
$32,460.
Chris earns $1,500 per week and spends $1,000 per week on living expenses, puts $200 in a savings account, and buys $300 worth of shares in a stock mutual fund. Chris's saving is ____ and Chris's saving rate is _____.
$500; 33.3%
You expect a share of EconNews.Com to sell for $65 a year from now and to pay a $2 dividend per share in one year. What should you pay (rounded to the nearest dollar) for the stock today if you require an 8% return?
$62
Joy's Java Café needs $4,000 cash per day for customer transactions. Joy has a choice between going to the bank first thing on Monday morning to withdraw $20,000 - enough cash for the whole week - or going to the bank first thing every morning for $4,000 each time. Joy puts the cost of going to the bank at $3 per trip. Assume that funds left in the bank earn precisely enough interest to keep their purchasing power unaffected by inflation. Joy's Java Cafe is open 5 days a week for 50 weeks each year. When the inflation rate is 10% Joy goes to the bank everyday instead of once a week. Joy's annual shoe leather costs of inflation equal _____.
$750
In Macroland, a country that operates according to Okun's law, potential GDP equals $10 trillion, the actual rate of unemployment is 8 percent, and the natural unemployment rate is 6 percent. What is real GDP in Macroland?
$9.6 trillion
What is the total contribution of the above GDP?
$[(0.50-0)+(2.50-0.50)+(4.00-2.50)]=$4
Which of the turning points are peaks?
(A), (C), and (E)
The CPI in 1930 equaled 0.17. The CPI in 1931 equaled 0.15. The rate of inflation between 1930 and 1931 was ____ percent.
-11.8
On January 1, 2014, Anna invested $5,000 at 5% interest for one year. The CPI on January 1, 2014 stood at 1.60. On January 1, 2015, the CPI was 1.68. The real rate of interest earned by Anna was ____ percent.
0
If the annual real rate of return on a 10-year inflation -protected bond equals 1.5 percent and the annual nominal rate of return on a 10-year bond without inflation protection is 4.2 percent, what average rate of inflation over the ten years would make holders of inflation-protected bonds and holders of bonds without inflation protection equally well off?
2.7%
If the money supply grows by 5 percent per year, velocity grows by 1 percent per year, and real GDP grows by 3 percent per year, then the rate of inflation is approximately _______ percent per year.
3
Using 2005 as the base year, by how much does a "cost of entertainment" index increase between 2005 and 2006?
3.86%
Private saving is _____; public saving is ________; and national saving is ______.
800; 200; 1,000
Ex-post (in an accounting sense), Savings _____ equals Investment. However, ex-ante, ______ savings may very well be different from _______ investment. It is the ______ which adjusts to make desired savings equal to desired investment.
always; desired; desired; real interest rate
Growth in the share of population employed in the United States is likely to decline in the future because:
an increasing proportion of those currently employed will be retiring.
Entrepreneurs contribute to increased average labor productivity in each of the following ways EXCEPT by:
assigning workers to jobs.
Empirical studies indicate that the maximum amount of air pollution occurs _______ levels of real GDP per person.
at intermediate
Two countries, Alpha and Beta, are otherwise identical except that each dollar in Alpha is used more frequently than each dollar in Beta. For this to be true it must be the case that____In alpha than in Beta, holding other factors equal. (hint: the two countries have the same nominal GDP, real GDP and price levels).
the money stock is smaller
The opportunity cost of an activity includes the value of:
the next-best alternative that must be foregone.
As coffee becomes more expensive, Joe starts drinking tea, and therefore quantity demanded for coffee decreases. This is called:
the substitution effect.
If the Consumer Price Index increased from 1.52 to 1.65, then it must be the case that _____ relative to prices in the base year.
the weighted average level of prices rose
If the output gap equals -$200 million, then
there is a recessionary gap.
If the output gap equals $200 million, then
there is an expansionary gap
Last summer, real estate prices in your town soared. You started noticing more "For Sale" signs in your neighbors' yards. You conclude that:
when housing prices rose, they started to exceed some of your neighbors' reservation prices.
Countries A and B are identical in all respects except that there is more air and water pollution in A that in B. Then the level of GDP (calculated using the same method as we do here in the US)
will be the same in both countries.
The rise in average living standards experienced by most industrialized countries:
has been more rapid since 1950 than before 1950.
If a bank's desired reserve/deposit ratio is .33 and it has deposit liabilities of $100 million and reserves of $50 million, it:
has too many reserves and will increase its lending.
Economics is best defined as the study of:
how people make choices in the face of scarcity and the implications of those choices for society as a whole.
Governments contribute to increased average labor productivity in each of the following ways EXCEPT by:
imposing taxes on wages.
Educational services provided by public schools are:
included in GDP at cost
National defense services provided by the military are:
included in GDP at cost.
You can spend $5 for lunch and you would like to have two double cheeseburgers. When you get to the restaurant, you find out the price for double cheeseburger has increased from $2.50 to $2.99. You decide to have just one double cheeseburger for lunch. This is best described as a(n):
income effect.
When Federal Reserve actions cause interest rates on newly issued bonds to decrease from 6% to 5%, the prices of existing bonds:
increase.
If the total expenditures of a typical family equaled $35,000 per year in 2010 and the exact same basket of goods and services cost $40,000 in the year 2015, the family's cost of living:
increased by 14 percent.
The current price of a stock increases when:
interest rates decrease.
In the base year, real GDP ______ nominal GDP.
is equal to
Fred and Wilma just had a baby girl and want to make sure they save enough in the future to send her to college. This is an example of the ____ motive for saving.
life-cycle
If average labor productivity increases, real GDP per person:
may increase or decrease depending on the change in the shore of population employed.
The supply of saving equals desired (or, ex-ante) _____ and the demand for saving equals desired (or, ex ante) _____.
national saving; investment
Velocity is determined by:
payments methods and technology.
Economic activity moves from a period of expansion to a _______ and then moves into a period of _______ until it reaches a _____.
peak, recession; trough
The costs of economic growth include current consumption sacrificed for:
physical capital formation, acquiring new human capital, and research and development into new technologies.
If the actual rate of unemployment equals the natural rate of unemployment, then:
potential output equals real GDP.
When economists use market values to aggregate output, they sum the:
price times the quantity of each item produced.
When recessions are the result of slowing growth in potential output, the government's best response is a policy to:
promote saving and investment.
Comparisons of economic activity over time should be made using:
real GDP.
Crowding out is the tendency for increased government deficits to:
reduce investment spending.
If all prices, including the price of beef, increase by 3%, then the relative price of beef____and there____inflation
remained constant; is
Holding other factors constant, a decrease in the tax rate on the revenue generated by capital will:
shift the investment graph to the right; raise the equilibrium real rate of interest and increase investment in equilibrium.
Changes in the growth rate of potential output and deviations of actual output from potential output are two logical explanations for:
short-term economic fluctuations.
Arthur is an unskilled worker, who is currently unemployed. He has been offered a minimum wage job paying $40 a day, but he is currently receiving unemployment insurance benefits of $50 a day, so he chooses not to accept the minimum wage job and to continue looking for a better job. Arthur is____ unemployed
structurally
Most economists agree that ______ is/are the single most important source of productivity improvements.
technological advances
Two possible explanations for the decline in the natural rate of unemployment in the United States over the past twenty years are:
the changing age structure of the population and more efficient labor markets.
What might cause a demand function to shift to the right?
An increase in the price of a substitute.
If GDP is calculated by adding up the market value of goods and services produced, then more expensive items:
Receive a higher weighting than cheaper items
Which of the following is an example of investing in physical capital?
a firm purchases new equipment for a manufacturing process.
Based on the following information, what is the unemployment rate?
10.0%
The consumer price index for Planet Econ consists of only two items: books and hamburgers. In 2000, the base year, the typical consumer purchased 10 books for $25 each and 25 hamburgers for $2 each. In 2005, the typical consumer purchased 1 books for $30 each and 30 hamburgers for $3 each. The consumer price index for 2005 on Planet Econ equals:
1.25
Suppose that the equilibrium price of rice falls and the equilibrium quantity falls. Which of the following best fits the observed data?
A decrease in demand with supply constant.
Which of the following is an example of investing in human capital?
A firm pays for workers to take college classes.
Which of the following is an example of a final good?
A new computer sold to a business firm.
The value of intermediate goods are excluded from the measurement of GDP in order to:
Avoid double counting
Which of the following would increase the investment component of U.S. GDP?
Disney World purchases tires for the monorail from a firm in Ohio.
Which of the following transactions would be included in the GDP of the United States?
Honda produces cars in Ohio.
Which of the following periods was a recession?
July 1953 through May 1954
Which of the following is an example of the life-cycle motive for saving?
Pat puts $400 per month in his 401(k) retirement account.
Due to the fact that Curly used his frequent flyer miles to fly to visit Moe, Curly told Moe that it didn't cost him anything to visit. Is Curly correct?
No, because Curly could have used his frequent flyer miles to go somewhere else instead.
Which of the following is a flow?
Saving, Consumption, and Income
Where Y is GDP, C is consumption, I is investment, T is net taxes, and G is government spending, if there is no trade, then private saving equals:
Y-T-C
Industrial production, total sales, nonfarm employment, and after-tax household income are examples of _____ indicators of economic activity.
coincident
According to Okun's Law, each extra percentage point of ___ unemployment is associated with a ____ percentage point increase in the output gap, measured in relation to potential output.
cyclical; 2
If banks' desired reserve ratio increases from .10 to .15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:
decrease
In Macroland there is $1,000,000 in currency that can either be held by the public or used by banks as reserves. Banks' desired reserve/deposit ratio is 10%. If the public of Macroland decides to hold more currency, increasing the proportion they hold from 50% to 75%, the money supply in Macroland will ______.
decrease.
Two groups of workers not counted as unemployed in the official unemployment statistic are____
discouraged and involuntary part-time
If Alex uses $800 from her checking account to pay her credit card balance, her wealth:
does not change
Suppose that the extra cost to Tim of a third glass of soda is zero because he's at a restaurant that gives free refills. According to the Cost-Benefit Principle Tim should:
drink a third glass of soda if the extra benefit of doing so is positive.
Two reasons savers keep deposits at banks are to:
earn a return on their savings and to facilitate making payments.
If firms maintain preset prices in the short run, then the primary cause of outputs gaps is changes in:
economywide spending.
