Econ Exam One Review
10) Refer to Figure 3-7. Assume that the graphs in this figure represent the demand and supply curves for women's clothing. Which panel best describes what happens in this market when the wages of seamstresses rise? A) Panel (a) B) Panel (b) C) Panel (c) D) Panel (d)
Answer: B
11. When there is excess supply of a product in a market, a. price will tend to rise. b. price must be above the equilibrium price. c. producers will expand output and sales will rise. d. price must be below the equilibrium price.
Answer: B
12) Households ________ final goods and services in the ________ market. A) purchase; factor B) purchase; product C) sell; factor D) sell; product
Answer: B
15) When lumber from Brazilian forests is used by a U.S.-owned company to produce furniture in Canada, the value of the furniture produced will be counted as a final good in A) U.S. GDP. B) Canada's GDP. C) Brazil's GDP. D) Brazil's GNP.
Answer: B
18) Which of the following is counted in GDP? A) the value of goods and services produced in the underground economy B) the cost of a speed boat purchased by drug smugglers C) the value of do-it-yourself work D) the value of leisure
Answer: B
19) If GDP calculations included measurements of pollution and environmental damage, GDP values would most likely be A) greater than their values without these measurements. B) less than their values without these measurements. C) unchanged from their values without these measurements. D) meaningless, since GDP values without these measurements would no longer be of value.
Answer: B
25) Which of the following is counted in GDP? A) the value of goods and services produced in the underground economy B) the cost of a speed boat purchased by drug smugglers C) the value of do-it-yourself work D) the value of leisure
Answer: B
33) If Samantha quits her job voluntarily and actively searches for other work, then she is considered A) structurally unemployed. B) frictionally unemployed. C) cyclically unemployed. D) not to be unemployed.
Answer: B
36) Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to understate the true extent of joblessness? A) inflation B) discouraged workers C) people employed in the underground economy D) unemployed persons falsely report themselves to be actively looking for a job
Answer: B
2) Suppose that when the price of strawberries decreases, Simone increases her purchase of whipped cream. To Simone A) strawberries and whipped cream are complements. B) strawberries and whipped cream and substitutes. C) strawberries and whipped cream are normal goods. D) strawberries are a normal good and whipped cream is an inferior good.
Answer: A
3) Consider the market for cellular phones. Which of the following shifts the demand curve leftward? A) studies showing using cellular phones can cause brain cancer B) a decrease in the price of cellular phones C) a decrease in the quantity demanded of cellular phones D) an increase in the services provided by cellular phones, such as text messaging E) an increase in the price of cellular phones
Answer: A
30) Assume that consumers consider rice and potatoes to be substitutes, so that when the price of rice rises, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account a. the increase in the price of rice. b. the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased. c. Both (a) and (b) are correct. d. None of the above is correct.
Answer: A
32) Amy is working part-time. Tavaris is on temporary layoff. Who probably is included in the Bureau of Labor Statistics' "employed" category? a. only Amy b. only Tavaris c. both Amy and Tavaris d. neither Amy nor Tavaris
Answer: A
40) Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has increased 15 percent, so she decides to buy some peppermint tea instead. To which problem in the construction of the CPI is this situation most relevant? A) substitution bias B) introduction of new goods C) unmeasured quality change D) income effect
Answer: A
43) The Bureau of Labor Statistics would categorize a person as ________ if they were temporarily away from their job because they were ill. A) employed B) unemployed C) a discouraged worker D) out of the labor force
Answer: A
45) A textile firm closes a plant in Massachusetts and transfers production to a plant in South Carolina, where the firm can take advantage of cheaper labor. The plant supervisor at the Massachusetts plant is given the opportunity to move to South Carolina to become the plant supervisor at that plant. He turns down this opportunity because of family obligations. While he is searching for a new job he would be classified as A) structurally unemployed. B) cyclically unemployed. C) frictionally unemployed. D) not in the labor force because he turned down the opportunity to relocate.
Answer: A
5) If a firm has an incentive to increase supply now and decrease supply in the future, the firm expects that the A) price of its product will be lower in the future than it is today. B) price of its product will be higher in the future than it is today. C) price of inputs will be lower in the future than they are today. D) demand for the product will be lower in the future than it is today.
Answer: A
7) Which of the following would cause both the equilibrium price and equilibrium quantity of potatoes (assume that potatoes are an inferior good) to decrease? A) an increase in consumer income B) a freeze that sharply reduces potato output C) a decrease in consumer income D) a technological advancement that results in a bumper crop of potatoes
Answer: A
Table 8-17 2006 2013 Product Quantity Price Quantity Price Movies 20 $6.00 30 $7.00 Burgers 100 2.00 90 2.50 Bikes 3 1,000.00 6 1,100.00 A very simple economy produces three goods: movies, burgers, and bikes. The quantities produced and their corresponding prices for 2006 and 2013 are shown in the table above. 16) Refer to Table 8-17. What is nominal GDP in 2006? A) $3,320 B) $3,690 C) $6,360 D) $7,035
Answer: A
Table 8-2 Product Quantity Price Shoes 40 $60.00 DVDs 100 18.00 Tomatoes 2,000 1.00 Ketchup 300 4.00 27) Refer to Table 8-2. Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above table, nominal GDP for this simple economy equals A) $7,400. B) $6,400. C) $5,800. D) 2,440 units.
Answer: A Explanation: Nominal GDP = sum (price x quantity) = (40x60) + (100x18) +(2000x1) + (300x4) = 2400 + 1800+ 2000 + 1200 = 7400
30) Assume that consumers consider rice and potatoes to be substitutes, so that when the price of rice rises, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account a. the increase in the price of rice. b. the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased. c. Both (a) and (b) are correct. d. None of the above is correct.
Answer: A Babe Ruth's earning of 1931 at 2012's dollar= 80,000x (Price Level in 2012/Price Level in 1931)
1) A(n) ________ is represented by a leftward shift of the demand curve while a(n) ________ is represented by a movement along a given demand curve. A) decrease in demand; increase in demand B) decrease in demand; increase in quantity demanded C) increase in demand; decrease in quantity demanded D) decrease in quantity demanded; decrease in demand
Answer: B
8) Prices of California Merlot wine (assume that this is a normal good) have risen steadily in recent years. Over this same period, prices for French oak barrels used for wine storage have dropped and consumer incomes have risen. Which of the following best explains the rising prices of California Merlots? A) The supply curve for Merlot has shifted to the right while the demand curve for Merlot has shifted to the left. B) The demand curve for Merlot has shifted to the right more than the supply curve has shifted to the right. C) The demand curve and the supply curve for Merlot have both shifted to the left. D) The supply curve for Merlot has shifted to the right more than the demand curve has shifted to the right.
Answer: B
Labor Data for Aridia Year 2010 2011 2012 Adult population 2,000 3,000 3,200 Number of employed 1,400 1,300 1,600 Number of unemployed 200 600 200 35) Refer to Table 28-2. The unemployment rate of Aridia in 2010 was a. 10%. b. 12.5%. c. 14.3%. d. 80%.
Answer: B
Refer to the information provided in Table 6.1 below to answer the questions that follow. Table 6.1 22) Refer to Table 6.1. The value of gross domestic product in billions of dollars is a. 3,000. b. 3,075. c. 3,125. d. 3,750.
Answer: B
Refer to the information provided in Table 6.2 below to answer the questions that follow. Table 6.2 23) Refer to Table 6.2. The value for gross domestic product in billions of dollars is A) 2,900. B) 3,140. C) 3,440. D) 3,650.
Answer: B
Table 8-16 2012 2013 Nominal GDP $10,000 $12,000 Real GDP 9,500 10,500 17) Refer to Table 8-16. Given the information above, what can we say has happened in the economy from 2012 to 2013? A) The price level has fallen. B) The price level has risen. C) The price level has remained constant. D) Not enough information is available to determine what has happened to prices.
Answer: B Explanation: GDP Deflator for 2012 = (Nominal GDP /Real GDP) X100 = (10000/9500) X100 = 105.26 GDP Deflator for 2013 = (Nominal GDP /Real GDP) X100 = (12000/10500) X100 = 114.28 We can see that the GDP deflator increased from 2012 to 2013. Since GDP deflator is a measurement of price, it implies that price level has increased from 2012 to 2013.
Table 8-29 Billions of Dollars GDP $5,250 Transfer Payments 50 Retained earnings 700 Depreciation 1,250 14) Refer to Table 8-29. Based on the table above, what is national income for this economy? A) $4,700 billion B) $4,000 billion C) $3,150 billion D) $2,450 billion
Answer: B Explanation: GNP = GDP + Income from abroad from citizens - income of non-citizens living inside the country = 5250 + 0 -0 = 5250 NNP = GNP - Depreciation = 5250 - 1250 = 4000 National Income = NNP -Statistical Discrepancy = 4000 - 0 = 4000
20) To calculate GDP using the value-added method, one would add up A) the market value of final goods and services produced during a particular period. B) only the value added by the underground economy. C) the value added by each firm involved in the production of final goods and services. D) the market value of intermediate goods and services produced during a particular period.
Answer: C
24) Which of the following would increase GDP? a. You buy 100 shares of Wal-Mart stock. b. Your car is destroyed by a fire, and you purchase a two-year-old car to replace it. c. Your car is damaged by a fire, and you hire a mechanic to repair it. d. Your car is damaged by a fire, and you reduce the number of hours you work to repair the car yourself.
Answer: C
26) An example of an intermediate good would be A) a new car. B) a used car. C) the rims on a new car. D) new rims to replace old rims on a used car.
Answer: C
34) Refer to Figure 28-4. If the government imposes a minimum wage of $6, how many workers will be unemployed? a. 0 b. 2,000 c. 4,000 d. 6,000
Answer: C
37) Labor unions cause unemployment because the union contract wage is set A) below the market wage, causing a shortage of labor. B) below the market wage, causing a surplus of labor. C) above the market wage, causing a surplus of labor. D) above the market wage, causing a shortage of labor.
Answer: C
39) The economy is in a recession and the housing market is in a slump. As a result of this, a real estate firm lays off half of its real estate agents. This is an example of A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) natural unemployment.
Answer: C
4) Which of the following would cause a decrease in the supply of milk? A) an increase in the price of cookies (assuming that milk and cookies are complements) B) a decrease in the price of milk C) an increase the price of a product that producers sell instead of milk D) an increase in the number of firms that produce milk
Answer: C
42) Someone who is available for work but has not actively looked for work in the previous four weeks would be classified as A) employed. B) unemployed. C) not in the labor force. D) not in the working-age population.
Answer: C
9) An article in the Wall Street Journal in early 2001 noted two developments in the market for laser eye surgery. The first development concerned side effects from the surgery, including blurred vision. The second development was that the companies renting eye-surgery machinery to doctors had reduced their charges. In the market for laser eye surgeries, these two developments A) decreased demand and decreased supply, resulting in a decrease in the equilibrium quantity and an increase in the equilibrium price of laser eye surgeries. B) decreased demand and increased supply resulting in an increase in both the equilibrium quantity and the equilibrium price of laser eye surgeries. C) decreased demand and increased supply, resulting in a decrease in the equilibrium price and an uncertain effect on the equilibrium quantity of laser eye surgeries. D) decreased demand and increased supply, resulting in a decrease in both t
Answer: C
29) Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and 229.6 for 2012. Ruth's 1931 salary was equivalent to a 2012 salary of about a. $5,296. b. $1,128,421 c. $1,208,421 d. $17,152,000
Answer: C Explanation: Babe Ruth's earning of 1931 at 2012's dollar= 80,000x (Price Level in 2012/Price Level in 1931) = 80,000 (229.6/15.2) =1208421.052632
Table 24-3 The table below pertains to Iowan, an economy in which the typical consumer's basket consists of 4 pounds of pork and 3 bushels of corn. Year Price of Pork Price of Corn 2012 $20 per pound $12 per bushel 2013 $25 per pound $18 per bushel 28) Refer to Table 24-3. If 2012 is the base year, then the inflation rate in 2013 was a. 24.7 percent. b. 54.0 percent. c. 32.8 percent. d. 38.0 percent.
Answer: C Explanation: Cost of the basket in 2012 price = 20x4 + 12x3 = 80 + 36 = 116 Cost of the basket in 2013 price = 25x4 + 18x3 = 100 + 54 = 154 CPI of 2012 = (116/116) x100 = 100 CPI of 2013 = (154/116) x100 = 132.75 Inflation Rate in 2013 = {(132.75 - 100)/100}x100 = 32.75 = 32.8
13) Which of the following is a flow in the circular flow model? A) the flow of goods and services from households to firms B) the flow of profit and the flow of revenue C) the flow of income earned by firms and the flow of expenditures earned by households D) the flow of revenue received by firms and the flow of payments to resource owners
Answer: D
31) The natural rate of unemployment is the a. unemployment rate that would prevail with zero inflation. b. rate associated with the highest possible level of GDP. c. difference between the long-run and short-run unemployment rates. d. amount of unemployment that the economy normally experiences.
Answer: D
38) The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but ________ quality increases. This causes the CPI to ________ the cost of the market basket. A) also; understate B) also; overstate C) not; understate D) not; overstate
Answer: D
41) Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because A) new goods and services are always of higher quality than existing goods and services. B) new goods and services cost less than existing goods and services. C) new goods and services cost more than existing goods and services. D) when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.
Answer: D
44) A man is fired from his job because he was late for work too many times. While he is searching for another job he would be classified as A) not in the labor force because his employer had a legitimate reason for firing him. B) structurally unemployed. C) cyclically unemployed. D) frictionally unemployed.
Answer: D
46) Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid? A) 17 percent B) 10 percent C) 7 percent D) 3 percent
Answer: D
6) Refer to Figure 3-4. If the current market price is $15, the market will achieve equilibrium by A) a price increase, increasing the supply and decreasing the demand. B) a price decrease, decreasing the supply and increasing the demand. C) a price decrease, decreasing the quantity supplied and increasing the quantity demanded. D) a price increase, increasing the quantity supplied and decreasing the quantity demanded.
Answer: D
Refer to the information provided in Table 6.3 below to answer the questions that follow. Table 6.3 21) Refer to Table 6.3. The value for gross domestic product in billions of dollars is a. 485. b. 680. c. 685. d. 710.
Answer: D