Econ exam 2

(Info given) Using the preceding question, what is the unemployment rate of Ectenia? A. 25% B. 14% C. 20% D. 32%

B. 14%

Based on question 18, What is the inflation rate in 2017? A. 40% B. 46% C. 20% D. 15% E. 36%

B. 46%

(Info given) What is the number of unemployed? A. 10 B. 20 C. 30 D. 40

A. 10 (Explanation:Unemployed should exclude the discouraged worker and full-time students!)

Which is the largest component of GDP? A. consumption B. investment C. government purchases D. net exports

A. consumption

According to the theory of efficiency wage A. firms may find it profitable to pay above equilibrium wages. B. an excess supply of labor puts downward pressure on wages. C. sectoral shifts are the main source of frictional unemployment. D. right-to-work laws reduce the bargaining power of unions.

A. firms may find it profitable to pay above equilibrium wages.

A U.S. company produces bicycle helmets some of which go into inventory, and are not sold during the current period. The helmets that go into inventory are A. included in current period GDP as inventory investment. B. counted as intermediate goods and so are included in current period GDP. C. counted as intermediate goods and so are not included in current period GDP. D. included in current period GDP as consumption.

A. included in current period GDP as inventory investment.

In a closed economy, national saving equals A. investment. B. income minus the sum of consumption and government purchases. C. private saving plus public saving. D. All of the above are correct.

A. investment.

The term inflation is used to describe a situation in which A. the overall level of prices in the economy is increasing. B. incomes in the economy are increasing. C. stock-market prices are rising. D. the economy is growing rapidly.

A. the overall level of prices in the economy is increasing.

If all quantities produced rise by 10 percent and all prices fall by 10 percent, which of the following occurs? A. Real GDP rises by 10 percent, while nominal GDP falls by 10 percent. B. Real GDP rises by 10 percent, while nominal GDP is unchanged. C. Real GDP is unchanged, while nominal GDP rises by 10 percent. D. Real GDP is unchanged, while nominal GDP falls by 10 percent.

B. Real GDP rises by 10 percent, while nominal GDP is unchanged. (Real GDP_after the changes= P1* (1+10%) Q1+P2*(1+10%) Q2=(1+10%)( P1* Q1+P2*Q2) = 110% Real GDP)

The main policy goal of the unemployment insurance system is to reduce the A. search effort of the unemployed. B. income uncertainty that workers face. C. role of unions in wage setting. D. amount of frictional unemployment.

B. income uncertainty that workers face. (Explanation: Although the UI would increase the frictional unemployment without intending to do so, its main goal is to reduce the income uncertainty of the unemployed and allow them to have more time to find a new job.)

In a competitive labor market, when the government increases the minimum wage, the result is a(n) __________ in the quantity of labor supplied and a(n) __________ in the quantity of labor demanded. A. increase, increase B. increase, decrease C. decrease, increase D. decrease, decrease

B. increase, decrease

The introduction of new goods creates a problem when measuring the CPI because A. prices of goods and services do not change in the same proportion from year to year. B. the CPI is based on a fixed basket of goods and services and does not reflect increased value as a result of a larger variety of goods. C. consumers are slow to adjust their buying patterns from year to year in response to price changes. D. substitution bias suggests consumers will not adjust consumption patterns as prices change.

B. the CPI is based on a fixed basket of goods and services and does not reflect increased value as a result of a larger variety of goods.

Angus the sheep farmer sells wool to Barnaby the knitter for $20. Barnaby makes two sweaters, each of which has a market price of $40. Collette buys one of them, while the other remains on the shelf of Barnaby's store to be sold later. What is GDP here? A. $ 40 B. $ 60 C. $ 80 D. $ 100

C. $ 80 =$40*2 (A sells wool to B, B uses wool to make sweaters and sells the sweaters to C. In this case, wool is intermediate good that is not included in the current GDP. But sweaters are FINAL GOODS! It is included in the current GDP. See slides in chapter 10, pg10.)

(Table) What is the price of one unit of carrots in year 2017? A. 2 B. 1.5 C. 0.2 D. 0.1 E. 0.5

C. 0.2

(Graph) The wedge between the two lines in figure 1 represents the inflation rate. If the nominal interest rate is 5 percent and the real interest rate is 3.5 percent. Then, the inflation rate is A. 1 percent B. 2.5 percent C. 1.5 percent D. 0 percent

C. 1.5 percent

If nominal GDP is $16 trillion and real GDP is $24 trillion this year in the U.S., compared to the base year GDP deflator which is 100, then the GDP deflator of this year is A. 150, and this indicates that the price level has decreased by 50 percent since the base year. B. 44, and this indicates that the price level has decreased by 56 percent since the base year. C. 67, and this indicates that the price level has decreased by 33 percent since the base year. D. 225, and this indicates that the price level has increased by 125 percent since the base year.

C. 67, and this indicates that the price level has decreased by 33 percent since the base year. (GDP deflator = 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃/Real GDP ∗ 100 = 16/24 ∗ 100=67

(Info given) Using the preceding question, what is the size of Ectenia's labor force?

C. 70 (Explanation: Labor force =Employed +Unemployed = 40 +20+10=70)

31. Using the preceding question, what is the L.F. participation rate of Ectenia? A. 50% B. 60% C. 70% D. 80%

C. 70%

An American buys a pair of shoes made in Italy. How do the U.S. national income accounts treat the transaction? A. Net exports and GDP both rise. B. Net exports and GDP both fall. C. Net exports fall, while GDP is unchanged. D. Net exports are unchanged, while GDP rises.

C. Net exports fall, while GDP is unchanged. (Explanation: GDP = C +I +G + (EX-IM)He/she imports a pair of shoes from Italy. Consumption increases by $$ shoesAlso, imports subtract $$ shoes (the same amount) from the GDP. Hence, Net exports fall, but GDP remains the same.)

(Graph) Which of the following would be most likely to reduce frictional unemployment? A. Less workers post their resumes at LinkedIn.com, and less employers use LinkedIn.com to find suitable workers to hire B. The government increases unemployment insurance benefits. C. Sectoral shifts become less frequent. D. A new law bans labor unions.

C. Sectoral shifts become less frequent.

You know that a candy bar cost five cents in 1962. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in today's prices? A. five cents × (1962 CPI / today's CPI) B. five cents × ((today's CPI - 1962 CPI)/1962 CPI) C. five cents × (today's CPI / 1962 CPI) D. five cents × today's CPI - five cents x 1962 CPI.

C. five cents × (today's CPI / 1962 CPI)

Kathleen is considering expanding her dress shop. If interest rates rise she is A. less likely to expand. This illustrates why the supply of loanable funds slopes downward. B. more likely to expand. This illustrates why the supply of loanable funds slopes upward. C. less likely to expand. This illustrates why the demand for loanable funds slopes downward. D. more likely to expand. This illustrates why the demand for loanable funds slopes upward.

C. less likely to expand. This illustrates why the demand for loanable funds slopes downward.

In an open economy GDP is Y= $100,000, government purchases are G = $25,000, and consumption C = $15,000, investment I= $30,000, import im=&10,000. In this economy, export amounts to A. $ 70, 000 B. $ 60, 000 C. $ 50, 000 D. $ 40, 000

D. $ 40, 000 (Y = C +I +G + (EX - IM)EX = Y-C-I-G+IM =... ... = $40,000)

By using the table in the previous question, if the market basket used to compute the CPI is 100 heads of cauliflower, 50 bunches of broccoli, and 500 carrots, Elaine calculates the cost of the market basket in year 2016, which is $325. Following the same logic, what is the cost of the market basket in year 2017? A. $560 B. $500 C. $250 D. $475 E. $325

D. $475

(Graph) Which of the following pairs of values of the consumer price index (CPI) is consistent with an inflation rate of 2% from 2013 to 2014? A. CPI in 2013 = 90; CPI in 2014 = 94.2 B. CPI in 2013 = 100; CPI in 2014 = 105 .2 C. CPI in 2013 = 110; CPI in 2014 = 107.8 D. CPI in 2013 = 110; CPI in 2014 = 112.2

D. CPI in 2013 = 110; CPI in 2014 = 112.2

What would happen in the market for loanable funds if the government increased the tax on interest income? A. The equilibrium interest rate would fall. B. The equilibrium interest rate would be unaffected. C. The effect on the interest rate is uncertain. D. The equilibrium interest rate would rise.

D. The equilibrium interest rate would rise. (Explanation: If the tax on interest income increases, it means that the interest income for the savers decreases, hence the savers will have less incentives to save money. Eventually, the supply of loanable funds will decrease, with the supply curve shifting left! This will result in a higher equilibrium interest rate!Draw the Demand and supply diagram to show yourself the changes.)

Which of the following does Not ADD to the U.S. GDP? A. Air France buys a plane from Boeing, the U.S. aircraft manufacturer B. General Motors builds a new auto factory in North Carolina C. The city of New York pays a salary to a policeman D. The federal government sends a Social Security check to your grandmother.

D. The federal government sends a Social Security check to your grandmother. (Explanation: Since the social security check is not non-market/non-production activities, D is correct answer because it does not add to the U.S. GDP.)

(Graph)What is the cyclical unemployment in the above figure? A. The shaded area, which happens irregularly. B. The red line, which fluctuates over time. C. The blue line, which is the long-term unemployment. D. The green line, which is difference between the red and blue line.

D. The green line, which is difference between the red and blue line. (Explanation: Cyclical unemployment is the deviation between the real unemployment and natural rate of unemployment.)

Which of the following items purchased by households are included in investment rather than consumption? A. only the purchase of stocks and bonds B. spending on education and the purchases of new housing C. spending on education and the purchases of stocks and bonds D. only the purchases of new houses

D. only the purchases of new houses

You know that a candy bar costs sixty cents today. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in 1962 prices? A. sixty cents × (today's CPI - 1962 CPI) B. sixty cents × (1962 CPI - today's CPI) C. sixty cents × (today's CPI / 1962 CPI) D. sixty cents × (1962 CPI / today's CPI)

D. sixty cents × (1962 CPI / today's CPI)

Based on question 17, if 2016 is the base year, what is the CPI in 2017? A. $200 B. $175 C. $95 D. $150 E. $146

E. 146