ECON-B 252 Practice Exam 1

The long-run aggregate supply will increase when 1. international trade barriers are removed. 2. the price level increases. 3. labor supply decreases. 4. tax rates increase.

international trade barriers are removed.

To encourage economic development a country should do all of the following EXCEPT 1. invest in human capital. 2. establish a system of property rights. 3. allow creative destruction to run its course. 4. limit the amount of imports allowed into the country.

limit the amount of imports allowed into the country.

A worker who decides to quit their job and go to law school full time is considered to be 1. not in the labor force 2. discouraged 3. unemployed 4. employed

not in the labor force

Which of the following is an assumption of the Classical Model? 1. The price level is fixed. 2. Pure competition does not exist. 3. Government intervention should be minimal. 4. People are motivated by self-interest.

people are motivated by self-interest

In the absence of well-defined property rights, we would likely find 1. people with less incentives to take risks. 2. higher economic growth rates. 3. increases in investment activity. 4. people with more incentives to take risks.

people with less incentives to take risks.

Which of the following is an important factor affecting positive economic growth? An increase in Choose all that apply. 1. technology 2. consumer spending 3. productivity 4. government purchases 5. education

technology, productivity, education

Indirect Business Taxes $1,200 Corporate Profits $1,500 Proprietors' Income $640 Rental Receipts $175 Net Interest Income $650 Depreciation $1,775 Wage and Salary Income $8,200 According to the above table, net domestic product is $ Just enter a value. Do not include a "$."

12,365

If households receive $200 in net interest income, wages equal $9,300, rental receipts on land are $700, total business profits before taxes are $1,500, depreciation is $1,800, and indirect business taxes are $1,200, then Gross Domestic Product is $ Just enter a value. Do not include a "$."

14,700

If consumption expenditures are $100 million, net private domestic investment is $50 million, imports are $20 million, exports are $10 million, government spending on goods and services is $40 million, Social Security spending is $15 million, capital consumption allowance equals $25 million and sales of existing homes equals $40 million, then GDP equals $____ million. Just a enter value. Do not include the "$"

205

If a country's real GDP is $23,000 billion and that country's population is 820 million, then real Gross Domestic Product per capita is $ Round your final answer two decimal points.

28,048.78

Suppose two countries have a per capita real GDP of $25,000 in 2019. Econoland has a growth rate of 4 percent and Macropolis has a growth rate of 5 percent. By 2022, the per capita real GDPs for Econoland is $_____ and for Macropolis is $_____. Round your final answer to two decimal points. Just enter a value. Do not include a "$" sign. Include a comma for values greater than 999. For example, 12,345 or 9,876.01

28,121.60 28,940.63

If consumer spending is $20,000, gross private domestic investment is $9,500, government purchases are $11,000, exports are $2,000, imports are $3,000, depreciation is $1,900, and indirect business taxes are $1,200, then Gross Domestic Product is $ Just enter a value. Do not include a "$."

39,500

Suppose net domestic product is $4.8 billion, net income earned abroad is $0.7 billion, other business income adjustments net of indirect business taxes and transfers are $0.4 billion, and personal income taxes are $0.8 billion. Then, national income equals $____ billion. Just enter a value. Do not include the "$". Round to the nearest decimal

5.9

Employment: 138,381 Unemployment: 15,340 Adult Population: 236,743 Based on the information above, calculate the Labor Force Participation Rate. (Round the answer two decimal points but do NOT include the "%" sign)

64.93

Employment: 138,381 Unemployment: 15,340 Adult Population: 236,743 Based on the information above, calculate the Unemployment Rate. (Round the answer two decimal points but do NOT include the "%" sign)

9.98

Which of the following causes a movement along the per-worker production function? 1. An increase in the amount of capital. 2. A decrease in productivity. 3. An increase in consumer spending. 4. An increase in technology.

An increase in the amount of capital.

Using prices and quantities, what is the formula for real Gross Domestic Product (GDP)? Real GDP =

Base Year Price * Current year Quantity

During the course of a year, the labor force consists of the same 1,450 people. Of these, 55 lack skills that employers desire and hence remain unemployed throughout the year. At the same time, every month during the year, 27 different people become unemployed, and 27 other different people who were unemployed find jobs. Also, 12 different people are unemployed due to seasonal factors. 15 people are unemployed due to the overall decline in the economy. Based on this information, the actual unemployment rate is ______%. The natural rate of unemployment is _____. Just enter a value. Do not include a "%." Round the answer to two decimal points.

7.52 6.48 DON'T SUBTRACT the 27

If households receive $200 in net interest income, wages equal $9,500, rental receipts on land are $700, total business profits before taxes are $2,000, depreciation is $1,900, and indirect business taxes are $1,200, then Gross Domestic Product is $ Just enter a value. Do not include a "$."

15,500

Employment: 138,381 Unemployment: 15,340 Adult Population: 236,743 Based on the information above, the Civilian Labor Force is ______ and the Non-Labor Force is ______ . Make sure to include a comma "," for values greater than 999. For example, 12,345.

153,721 83,022

After four years, if Country X's average annual growth rate is 8.6 percent and the initial real GDP was $2,756.0 million, then the real GDP will be $_____ million. Just enter a value. Do not include the "$". Make sure to include a comma "," for values greater than 999. Round to the nearest decimal. For example, 1,001.4 or 12,345.7

3,833.5

If the nominal interest rate is 9 percent and the anticipated inflation rate is 4 percent, then the real interest rate is ____ percent. Just enter a value. Do not include the "%" or "percent".

5

Which of the following are one of the stages of economic development? Choose all that apply. 1. Manufacturing 2. Information 3. Agricultural 4. Services 5. Technological

manufacturing, agricultural, services

Compared to the perfectly competiitve firm, in the long-run, the monopolistically competitive firm ______ 1. marks up the price 2. has excess capacity 3. produce at the minimum point of its long-run ATC curve

marks up the price, has excess capacity

In order to protect your nominal income from inflation, you should always ask for a(n)

COLA

What is the formula for a price index? The Current Price Index = (should be current market basket) 1. Current Year Price * Base Year Quantity 2. Base Year Price * Base Year Quantity 3. Base Year Price * Current year Quantity 4. Current year Price * Current Year Quantity

Current Year Price * Base Year Quantity

Which of the following are characteristics of a monopolistically competitive firm? Choose all that apply 1. monopolistically competitive firms collude (work together) 2. the firms produce identical products 3. monopolistically competitive firms advertise 4. there are minimal barriers to entry

monopolistically competitive firms advertise, there are minimal barriers to entry

An increase in the price level causes a _______ the Aggregate Demand curve. 1. movement up along 2. movement down along 3. leftward shift of 4. rightward shift of

movement up along

According to the circular flow model, the total expenditure and total income 1. measure intermediate and final goods. 2. only flow between households and government. 3. must equal each other. 4. are greater than total product.

must equal each other

The best measure of long-run economic growth adjusts 1. nominal GDP for inflation and population 2. nominal GDP for population 3. real GDP for the base year 4. nominal GDP for inflation

nominal GDP for inflation and population

Which of the following is a cost of long-run economic growth? An increase in Choose all that apply. 1. living standards. 2. pollution. 3. leisure time. 4. income inequality.

pollution, income inequality

Long-run economic growth is represented by 1. actual nominal GDP 2. potential real GDP 3. potential nominal GDP 4. actual real GDP

potential real GDP

The Long-Run Aggregate Supply curve represents 1. nominal GDP 2. actual unemployment 3. potential real GDP 4. actual real GDP

potential real GDP

To prevent frictional unemployment, we would have to 1. make sure everyone went to college. 2. prevent people from leaving their jobs before finding another job. 3. make sure that market demand for goods is stable over time. 4. eliminate the business cycle.

prevent people from leaving their jobs before finding another job.

Which of the following is a determinant of long-run economic growth? 1. consumer spending 2. productivity 3. number of resources 4. technology 5. education 6. saving 7. government spending

productivity, number of resources, technology, education, saving SPENT

The determinants (factors) affecting the Long-run Aggregate Supply curve are 1. productivity 2. saving 3. technology 4. education 5. number of resources 6. business spending 7. government purchases

productivity, spending, technology, education, number of resources SPENT

Which of the following is an assumption of the Classical Model? 1. prices are inflexible 2. pure competition exists 3. wages and prices are flexible 4. people are motivated by self-interest 5. people are fooled by the money illusion

pure competition exists, wages and prices are flexible, people are motivated by self-interest

Which of the following will result in secular deflation, holding all else constant? A ____ shift of the _____.

rightward long-run aggregate supply

Which of the following factors affect the Long-Run Aggregate Supply curve? Choose all that apply. 1. Saving 2. Labor and Physical Capital 3. Consumption 4. Net Exports 5. Government Purchases 6. Technology 7. Productivity 8. Investment 9. Human Capital

saving, labor and physical capital, technology, productivity, human capital SPENT

What are the types of unemployment?

seasonal, frictional, structural, cyclical

Using the AD-LRAS model, a decrease in capital accumulation and an increase in business taxes causes the Long-Run Aggregate Supply curve to _____ and the Aggregate Demand curve to ____ , respectively.

shift left shift left

Which one of the following is true? 1. Economies with sophisticated credit markets, such as the United States, have no need for saving. 2. Saving enables economic growth by providing for investment in the capital stock. 3. Saving deters economic growth, because it takes money out of circulation and people spend less. 4. International comparisons have found no relationship between the rate of saving and the level of per capita real GDP.

Saving enables economic growth by providing for investment in the capital stock.

Which of the following is not included in GDP? 1. You pay rent to your landlord. 2. An automobile dealer's inventory of cars declines over the last month. 3. The government purchases new U.S. Postal Service trucks. 4. You win $20 in a poker game and don't report the income.

You win $20 in a poker game and don't report the income.

An increase in consumer spending causes the [Select: "Aggregate Demand", "Long-Run Aggregate Supply"] curve to shift to the [ Select: "left", "right"].

aggregate demand right

Which of the following is a key to economic development? 1. allow foreign direct investment 2. establish a system of property rights 3. promote protectionism 4. encourage saving and investment 5. discourage entrepreneurship 6. develop a healthy and education population

allow foreign direct investment, establish a system of property rights, encourage saving and investment, develop a healthy educated population

What could cause a decrease in the price level and simultaneously an increase in GDP similar to the 1920s in the United States? 1. an increase in productivity. 2. a decrease in interest rates. 3. a decrease in consumer confidence. 4. an increase in interest rates.

an increase in productivity.

In the long run, a monopolistically competitive firm's price equals 1. its average total cost but not its marginal cost. 2. its average total cost and its marginal cost. 3. neither marginal cost nor its average total cost. 4. its marginal cost but not its average total cost.

its average total cost but not its marginal cost.

Which of the following is a benefit of long-run economic growth? An increase in Choose all that apply. 1. pollution 2. income inequality 3. leisure time 4. living standards

leisure time, living standards

All the following are assumptions of the classical model EXCEPT 1. pure competition exists. 2. buyers and sellers react to nominal money prices rather than to relative prices. 3. wages and prices are flexible. 4. people are motivated by self-interest.

buyers and sellers react to nominal money prices rather than to relative prices.

When the economy is experiencing a contraction, there is an increase in _____ unemployment.

cyclical

Many economists argue that real GDP is not a good measure of economic well-being because it 1. overvalues the increases in nonmarket transactions. 2. excludes Social Security payments made to retirees. 3. includes the taxes we pay to the federal government. 4. excludes the environmental quality of life.

excludes the environmental quality of life.

The period between the business cycle trough and business cycle peak is called a(n) 1. recession 2. depression 3. expansion 4. recovery

expansion

Which of the following factors affect the Aggregate Demand curve? Choose all that apply. 1. Exports 2. Government Purchases 3. Consumption 4. Labor Force 5. Saving 6. Investment 7. Technology 8. Education 9. Productivity 10. Imports

exports, government purchases, consumption, investment, imports C,I,G,NX

Which of the following is a determinant (factor) affecting the Aggregate Demand curve? 1. technology 2. government purchases 3. net exports 4. consumer spending 5. business spending 6. saving

government purchases, net exports, consumer spending, business spending C,I,G,NX

A 0.5 percent change in the growth rate 1. does not affect long-run real GDP. 2. has a small effect on long-run real GDP over time. 3. has a significant effect on long-run real GDP over time. 4. has a significant effect on long-run real GDP immediately.

has a significant effect on long-run real GDP over time.

According to the text, data supports the conclusion that lower trade barriers 1. increases the unemployment rate. 2. help to increase welfare payments. 3. decrease the standard of living in the country. 4. help boost per capita real Gross Domestic Product (GDP) growth

help boost per capita real Gross Domestic Product (GDP) growth

Suppose Country A and Country B each have the same real Gross Domestic Product (GDP), equal to $440 billion. Country A has 100 million people and Country B has 175 million people. In this situation, per capita real Gross Domestic Product (GDP) is 1. the same in both countries. 2. an irrelevant factor. 3. higher in Country A. 4. higher in Country B.

higher in Country A.

According to the LRAS/AD model, a reduction the amount of oil (a resource) will cause a(n) [Select: "increase", "decrease", "no change"] in the equilibrium price level and a(n) [Select: "decrease", "no change", "increase"] in equilibrium real GDP.

increase decrease

Using the AD-LRAS model, a decrease in capital accumulation cause the price level to _____ and potential real GDP to _____.

increase decrease

Using the AD-LRAS model, which of the following causes the price level to decrease and real potential GDP to increase? A(n) 1. decrease in interest rates. 2. increase in household taxes. 3. increase in productivity. 4. decrease in the labor-force participation rate.

increase in productivity

The duration of unemployment tends to 1. increase when employment increases. 2. increase when business activity decreases. 3. stay consistently the same over long periods of time. 4. increase when the labor force shrinks.

increase when business activity decreases.

In the LRAS/AD model, if consumer spending increases, then the equilibrium price level will _______ and equilibrium real GDP will ________

increase, remain unchanged

The real output of the economy under conditions of full employment 1. is long-run aggregate supply. 2. is short-run aggregate supply. 3. is aggregate demand. 4. happens only when there is no inflation.

is long-run aggregate supply.

In the early 1900s, Henry Ford revolutionized the automotive manufacturing industry by instituting the assembly line. What impact did the assembly line method for producing automobiles have on the per-worker production function for Ford? 1. It shifted up. 2. It shifted down. 3. It became flatter. 4. It became linear.

it shifted up

The aggregate demand curve will shift to the left if 1. government expenditures increase. 2. a reduction in the price level pushes down borrowing costs. 3. the national incomes of our trading partners decrease. 4. people are more optimistic about their future.

the national incomes of our trading partners decrease.

All of the following explain the downward slope of the aggregate demand curve EXCEPT 1. the availability of foreign substitute goods. 2. the effect of changing interest rates on the quantity demanded of interest-rate-sensitive goods. 3. the presence of unused production capacity and unemployment. 4. changes in the stock of real wealth held by individuals.

the presence of unused production capacity and unemployment.

What is the formula for measuring the expenditure approach to measuring GDP (Y)?

Y = C + I + G + exports - imports

Suppose education spending makes up 20 percent of the Consumer Price Index (CPI), and that the prices for education rise faster than the rest spending on all other items in the economy. On average an IU student spends 40 percent of her income on education. For the average IU student, the CPI 1. is a good measure of inflation since the bias inherent in the CPI is offset by the increased emphasis on education for the average IU student. 2. overstates the inflation rate because the average IU student is not typical of the average consumer in the country as a whole. 3. understates the inflation rate because the CPI always understates inflation. 4. understates the inflation rate because of the importance of education for the average IU student.

understates the inflation rate because of the importance of education for the average IU student.

What is the formula for measuring the income approach to measuring GDP (Y)? Y =

wages + rent + interest + profit + depreciation + indirect business taxes

What is the formula for the unemployment rate? The unemployment rate =

(unemployed/labor force)*100

A country's growth rate is 4.0%. If the growth rate of capital accounts for 2.1%, the labor force growth rate accounts for 0.9%, and the growth rate of technology accounts for 0.6%, then the growth rate in productivity for this country is Round your answer one decimal point. Do NOT include the "%" sign.

0.4

A country's growth rate is 4.0%. If the growth rate of capital accounts for 2.1%, the labor force growth rate accounts for 0.8%, and the growth rate of technology accounts for 0.5%, then the growth rate in productivity for this country is Round your answer one decimal point. Do NOT include the "%" sign.

0.6

During the course of a year, the labor force consists of the same 1,450 people. Of these, 55 lack skills that employers desire and hence remain unemployed throughout the year. At the same time, every month during the year, 27 different people become unemployed, and 27 other different people who were unemployed find jobs. Also, 12 different people are unemployed due to seasonal factors. 15 people are unemployed due to the overall decline in the economy. Based on this information, the cyclical unemployment rate is ______%. Just enter a value. Do not include a "%." Round the answer two decimal points.

1.03

The real rate of interest equals 8%, and the expected rate of inflation equals 2%. The nominal rate of interest is ____. Do NOT include the "%" sign.

10

Which of the following is a key to economic development? Choose all that apply. 1. Restricting trade. 2. Allowing for creative destruction. 3. Developing an educated population. 4. Establishing a system of property rights.

Allowing for creative destruction., Developing an educated population., Establishing a system of property rights.

Which of the following will cause an increase in economic growth? 1. A reduction in the unemployment rate 2. A reduction in labor force participation 3. An increase in human capital 4. A reduction in the stock of physical capital

An increase in human capital

100 142.11

Assume the base year is 2015. Based on the information above, the price index for 2015 is ____ and the price index for 2018 is ____. Round the answer two decimal points.

Which of the following statements is NOT true about inflation? 1. During an inflationary period, the prices of some goods will increase while the price of some goods will decrease. 2. Inflation is a sustained increase in the average prices of goods in the economy. 3. When there is inflation, the purchasing power of a dollar decreases. 4. During an inflationary period, the prices of all goods will increase.

During an inflationary period, the prices of all goods will increase.

Which of the following people would be considered unemployed? 1. Abe, who is retired 2. Edna, who lost her job as a teacher and is currently searching for a new job 3. Homer, who lost his job at the power plant and is not looking for work 4. Lenny, who is working part time at a fast food restaurant

Edna, who lost her job as a teacher and is currently searching for a new job

An increase in long-run economic growth is illustrated by the _______ curve shifting _______. 1. Long-Run Aggregate Supply; left 2. Production Possibilities; outward 3. Production Possibilities; inward 4. Long-Run Aggregate Supply; right

Long-Run Aggregate Supply; right

In the long run, perfect competitors and monopolistic competitors earn zero economic profit. How are they different? 1. Perfectly competitive firms produce along the ATC curve, monopolistically competiitve firms do not 2. Monopolistically competitive firms have excess capacity, perfectly competitive firms do not 3. Perfectly competitive firms can enter or leave the market, monopolistically competitive firms can not. 4. Monopolistically competitive firms mark up their products, perfectly competitive firms do not. 5. Monopolistically competitive firms can price discriminate, perfectly competitive firms can not

Monopolistically competitive firms have excess capacity, perfectly competitive firms do not

Which of the following would be included when calculating Gross Domestic Product? 1. The purchase of a used $10,000 automobile 2. A Social Security check for $800 3. None of the options are correct. 4. The purchase of a previously owned house for $70,000

None of the options are correct

128.57

Refer to the above table. Assume the market basket for the consumer price index has two products — meat and potatoes — with the following values in 2004 and 2009 for price and quantity: The Consumer Price Index for 2009 equals ____ . Just enter a value. Round to two decimal points.

5,677.5 5,011.2

Refer to the above table. Nominal GDP in 2006 is $____ and real GDP in 2008 $____ . Just enter a value. Do not include the "$". Make sure to include a comma "," for values greater than 999. Round to one decimal point. For example, 1,001.1 or 12,345.0.

2,740

Refer to the table above showing data for an economy that produces only the goods shown. If 2015 is the base year, Nominal GDP for 2015 is

6,635

Refer to the table above showing data for an economy that produces only the goods shown. If 2015 is the base year, Nominal GDP for 2017 is

3,420

Refer to the table above showing data for an economy that produces only the goods shown. If 2015 is the base year, Real GDP for 2016 is

4,140

Refer to the table above showing data for an economy that produces only the goods shown. If 2015 is the base year, Real GDP for 2017 is

24.82

Refer to the table above showing data for an economy that produces only the goods shown. If 2015 is the base year, then the growth rate in Real GDP between 2015 and 2016 is Round the answer two decimal points but do NOT include the "%" sign.

51.09

Refer to the table above showing data for an economy that produces only the goods shown. If 2015 is the base year, then the growth rate in Real GDP between 2015 and 2017 is Round the answer two decimal points but do NOT include the "%" sign.

109.34

Refer to the table above. Consider the following data on nominal GDP and real GDP (values are in billions of dollars). The GDP deflator (price level) for 2014 equals Round the answer two decimal points.

2.89 1.40

Refer to the table above. The inflation rates for 2006 to 2007 is ____ and 2007 to 2008 is ____ ,respectively. Just enter a value. Do not include the "%" or "percent." Round the values two decimal points. For example, if the answer is 99.557% , then enter 99.56.

What happens to monopolistically competitive firm's curves in the long run if it earns positive economic profit? 1. The firm's supply curve increases 2. The firm's supply curve decreases 3. The firm's demand curve increases 4. The firm's demand curve decreases 5. The firm's marginal cost and marginal revenue curve decreases

The firm's demand curve decreases Explanation: the firm earns zero economic profit in the long-run. Therefore, the demand curve would decrease.

Why would a monopolistically competitive firm advertise? 1. Consumers like advertising 2. All firms must keep a market presence 3. It's a necessary cost of business 4. To promote societal interest

To promote societal interest

A welder loses his job when the factory is replaced with a hospital looking for specially trained nurses. This is an example of structural unemployment.

True

According to the Circular Flow Model, in every exchange the buyer pays the same amount than the seller receives.

True

10740.43

Using the data in the above table, if 2009 is the base year, then the real GDP for year 2005 is $_____ billion. Just enter a value. Do not include the "$". Make sure to include a comma "," for values greater than 999. Round to two decimal points. For example, 1,001.12 or 12,345.70.

Is it possible for the unemployment rate to rise at the same time that the number of people working increases? 1. Yes, if labor force growth outpaces growth in the number of people working 2. No 3. Yes, if the new workers are employed less than full time 4. Yes, if established workers keep their jobs but no longer have the option of working overtime

Yes, if labor force growth outpaces growth in the number of people working

Is it possible to see gains in a nation's real standard of living without any positive economic growth? 1. No. Without economic growth a nation's standard of living cannot improve. 2. Yes, but only if a nation trades more with other countries. 3. Yes. If workers can produce the same level of output in fewer work hours, leisure time gains could push up the real standard of living. 4. Yes, but only if the government prints more money so people feel wealthier.

Yes. If workers can produce the same level of output in fewer work hours, leisure time gains could push up the real standard of living.

Long-run economic growth is typically associated with a country's 1. standard of living 2. short-run output 3. business cycle 4. total spending

standard of living