Econ 106 - Test 2

Refer to Figure 26-2. Which of the following events would shift the demand curve from D1 to D2?

Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories.

Harry spent $39,000 in 2009 and $42,000 in 2014 on goods and services. The consumer price index was 220 for 2009 and 231 for 2014. Harry's 2014 spending in 2009 dollars is about a. $40,000. b. $44,100. c. $37,838. d. $40,091.

a. $40,000. 2009 Spending =$42000 (220/231)

Cleo promises to pay Jacques $1,000 two years from today. If the interest rate is 4 percent, then how much is this future payment worth today? a. $924.56 b. $931.44 c. $937.87 d. None of the above are correct to the nearest cent.

a. $924.56

If the nominal interest rate is 4 percent and the real interest rate is 7 percent, then the inflation rate is a. -3 percent. b. 0.75 percent. c. 3 percent. d. 11 percent.

a. -3 percent.

Refer to Figure 28-3. At the equilibrium wage, how many workers are unemployed? a. 0 b. 4,000 c. 5,000 d. 8,000

a. 0

For an imaginary economy, the value of the consumer price index was 138.75 in 2016, and the inflation rate was 10 percent between 2015 and 2016. The consumer price index in 2015 was a. 126.1. b. 128.8. c. 148.8. d. 152.6.

a. 126.1.

Your accountant tells you that if you can continue to earn the current interest rate on your balance of $800 for the next two years you will have $898.88 in your account. If your accountant is correct, then what is the current interest rate? a. 6 percent b. 7 percent c. 8 percent d. 9 percent

a. 6 percent

Which of the following changes in the price index produces the greatest rate of inflation: 80 to 100, 100 to 120, or 150 to 170? a. 80 to 100 b. 100 to 120 c. 150 to 170 d. All of these changes produce the same rate of inflation.

a. 80 to 100 [(CPI YR2 - CPI YR1)/CPI YR 1] x100

Consumer price index = (Price of basket of goods and services in current year / Price of basket in base year ) x 100 a. True b. False

a. True

Most job search in the U.S. economy takes place without intervention by the government. a. True b. False

a. True

Public policy, without intending to do so, can increase frictional unemployment. a. True b. False

a. True

The amount of unemployment that a country typically experiences is a determinant of its standard of living. a. True b. False

a. True

The assumption of a closed economy a. applies to the world economy. b. applies to most national economies. c. requires us to assume that the government's budget is always balanced. d. All of the above are correct.

a. applies to the world economy.

Suppose that an American opens and operates a candy factory in Finland. This is an example of

a. foreign direct investment. American saving is used to finance Finish investment.

Most, but not all, athletic apparel sold in the United States is imported from other nations. If the price of athletic apparel increases, the GDP deflator will a. increase less than will the consumer price index. b. increase more than will the consumer price index. c. not increase, but the consumer price index will increase. d. increase, but the consumer price index will not increase.

a. increase less than will the consumer price index.

An increase in capital will increase real GNP per person a. more in a poor country than a rich country. The increase in real GNP per person will be larger if the addition to capital is from domestic rather than foreign investment. b. more in a poor country than a rich country. The increase in real GNP per person will be larger if the addition to capital is foreign rather than from domestic investment. c. less in a poor country than a rich country. The increase in real GNP per person will be larger if the addition to capital is from domestic rather than foreign investment. d. less in a poor country than a rich country. The increase in real GNP per person will be larger if the addition to capital is foreign rather than from domestic investment.

a. more in a poor country than a rich country. The increase in real GNP per person will be larger if the addition to capital is from domestic rather than foreign investment.

Other things the same, an increase in taxes with no change in government purchases makes national saving a. rise. The supply of loanable funds shifts right. b. rise. The demand for loanable funds shifts right. c. fall. The supply of loanable funds shifts left. d. fall. The demand for loanable funds shifts left.

a. rise. The supply of loanable funds shifts right.

If the CPI was 110 this year and 100 last year, then a. the cost of the CPI basket of goods and services increased by 10 percent this year. b. the price level increased by 110 percent this year. c. the inflation rate for this year was 10 percent higher than the inflation rate for last year. d. All of the above are correct.

a. the cost of the CPI basket of goods and services increased by 10 percent this year.

Collective bargaining refers to a. the process by which the government sets exemptions from the minimum wage law. b. setting the same wage for all employees to prevent conflict among workers. c. firms colluding to set the wages of employees below equilibrium. d. the process by which unions and firms agree on the terms of employment.

a. the process by which the government sets exemptions from the minimum wage law.

Refer to Figure 26-2. What is measured along the horizontal axis of the graph? a. the quantity of loanable funds b. the size of the government budget deficit or surplus c. the real interest rate d. the nominal interest rate

a. the quantity of loanable funds

According to 2014 data on the U.S. population, which of the following groups of adults of prime working age (ages 25-54) had the highest labor-force participation rate? a. white males b. white females c. black males d. black females

a. white males

Refer to Table 24-15. The inflation rate in 2015 was approximately a. ​41%. b. ​70%. c. ​140%. d. ​240%.

a. ​41%.

Suppose you purchase a savings bond today for $25. In seven years you may cash in the savings bond for $50. What is the approximate interest rate paid by the savings bond? a. 5% b. 10% c. 15% d. 20%

b. 10%

A certain production process requires only two types of inputs — capital and labor. In 2006, 100 units of labor and 50 units of capital were employed, and 100 units of output were produced. In 2013, 112 units of labor and 56 units of capital were employed. If the production process displays constant returns to scale, then how many units of output were produced in 2013? a. 100 b. 112 c. 124 d. 144

b. 112

From 2013 to 2014, the CPI for medical care increased from 150 to 159. What was the inflation rate for medical care? a. 5.7 percent b. 6.0 percent c. 9.0 percent d. 59.0 percent

b. 6.0 percent

In 1974, one could buy a theater ticket for $1.25. Today the same theater ticket costs $6.50. Which pair of CPIs would imply that the cost in today's dollars was the same for both tickets? a. 60 in 1964 and 390 today b. 75 in 1964 and 390 today c. 80 in 1964 and 404 today d. 95 in 1964 and 475 today

b. 75 in 1964 and 390 today

Adults who were waiting to be recalled to a job from which they had been laid off are included in the Bureau of Labor Statistics' "employed" category. a. True b. False

b. False

Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds. a. True b. False

b. False

Financial markets are important for bringing equilibrium to the loanable funds market, but do not affect the efficient allocation of scarce resources in the long-run. a. True b. False

b. False

From the standpoint of the economy as a whole, the role of insurance is to greatly reduce or eliminate the risks inherent in life. a. True b. False

b. False

If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006. a. True b. False

b. False

If the value of the consumer price index is 110 in 2005 and 121 in 2006, then the inflation rate is 11 percent for 2006. a. True b. False

b. False [ (121-110) / 110] X100 = 10%

Which of the following is not correct? a. China allows only one child per family and couples that violate this rule are subject to substantial fines. b. In developed countries, population growth is consistently about 3 percent per year; in developing countries it is consistently about 5 percent per year. c. Educational attainment tends to be lowest in countries with the highest population growth. d. Economists generally believe that a country that decreases a high population growth rate can increase its economic growth rate.

b. In developed countries, population growth is consistently about 3 percent per year; in developing countries it is consistently about 5 percent per year.

Which of the following is correct? a. In unionized industries, wages are below the level that would prevail in competitive markets. b. The introduction of a union in an industry increases the quantity of labor demanded in that industry, causes some workers in that industry to be unemployed, and increases wages in the rest of the economy. c. Critics argue that the allocation of labor resulting from unions is both inefficient and inequitable. d. All of the above are correct

b. The introduction of a union in an industry increases the quantity of labor demanded in that industry, causes some workers in that industry to be unemployed, and increases wages in the rest of the economy.

The goal of the consumer price index is to measure changes in the a. costs of production. b. cost of living. c. relative prices of consumer goods. d. production of consumer goods.

b. cost of living.

Which of the following is generally an opportunity cost of investment in human capital? a. future job security b. forgone present wages c. increased earning potential d. All of the above are correct.

b. forgone present wages

Suppose Turkey increases its saving rate. In the long run a. the growth rates of productivity and real GDP per person increase. b. productivity and real GDP per person increase. c. the growth rate of productivity increases, and real GDP per person increases. d. productivity increases, and the growth rate of real GDP per person increases.

b. productivity and real GDP per person increase.

An important difference between the GDP deflator and the consumer price index is that

b. the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.

A person who is risk averse might accept a 50% chance of losing $100 today in exchange for a 50% chance of winning $125 in two years if the interest rate was a. 9% but not 10% b. 10% but not 11% c. 11% but not 12% d. None of the above is correct; a risk averse person would not accept any of the above bets.

c. 11% but not 12%

If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is a. 3.5 percent. b. 5 percent. c. 9 percent d. 7 percent

c. 9 percent

Last year the imaginary country of Basova had a population of 10,000, 6,000 people worked 8 hours a day, and produced a real GDP of $30,000,000. The imaginary country of Andovia had a population of 12,000, 8,000 people worked 8 hours a day, and produced a real GDP of $38,000,000. Which of the following is correct? a. Basova had higher productivity and higher real GDP per person. b. Andovia had the higher productivity and higher real GDP per person. c. Basova had the higher productivity while Andovia had the higher real GDP per person. d. Andovia had the higher productivity while Basova had the higher real GDP per person.

c. Basova had the higher productivity while Andovia had the higher real GDP per person.

Which of the following is not correct? a. The higher average return on stocks than on bonds comes at the price of higher risk. b. Risk-averse persons will take the risks involved in holding stocks if the average return is high enough to compensate for the risk. c. Insurance markets reduce risk, but not by diversification. d. Risk can be reduced by placing a large number of small bets, rather than a small number of large bets.

c. Insurance markets reduce risk, but not by diversification.

Olga owns her own business. Sven is an unpaid worker in his family's business. Who is included in the Bureau of Labor Statistics' "employed" category? a. only Olga b. only Sven c. both Olga and Sven d. neither Olga nor Sven

c. both Olga and Sven

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 x (1962 CPI / today's CPI) b. five cents x ((today's CPI - 1962 CPI)/1962 CPI) c. five cents x (today's CPI / 1962 CPI) d. five cents x today's CPI - five cents x 1962 CPI.

c. five cents x (today's CPI / 1962 CPI)

If the supply for loanable funds shifts to the left, then the equilibrium interest rate a. and quantity of loanable funds rises. b. and quantity of loanable funds falls. c. rises and the quantity of loanable funds falls. d. falls and the quantity of loanable funds rises

c. rises and the quantity of loanable funds falls.

If the supply for loanable funds shifts to the left, then the equilibrium interest rate a. and quantity of loanable funds rises. b. and quantity of loanable funds falls. c. rises and the quantity of loanable funds falls. d. falls and the quantity of loanable funds rises.

c. rises and the quantity of loanable funds falls.

If the budget deficit increases then a. saving and the interest rate rise. b. saving rises and the interest rate falls. c. saving falls and the interest rate rises. d. saving and the interest rate fall.

c. saving falls and the interest rate rises.

The CPI for all goods and services excluding food and energy is called a. a hedonic price index. b. the CPI basis. c. the ​core CPI. d. the producer price index.

c. the ​core CPI.

To maintain their standard of living, most people rely on a. government assistance. b. their personal savings. c. their labor earnings. d. rental income.

c. their labor earnings.

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, a. there is a surplus so interest rates will rise. b. there is a surplus so interest rates will fall. c. there is a shortage so interest rates will rise. d. there is a shortage so interest rates will fall.

c. there is a shortage so interest rates will rise.

Refer to Figure 28-4. If the government imposes a minimum wage of $16, how many workers will be unemployed? a. 0 b. 4,000 c. 8,000 d. 12,000

d. 12,000

Suppose you win a small lottery and you are given the following choice: You can receive an immediate payment of $5,000 or (2) two annual payments, each in the amount of $2,700, with the first payment coming one year from now, and the second payment coming two years from now. You would choose to take the two annual payments if the interest rate is a. 2 percent, but not if the interest rate is 3 percent. b. 3 percent, but not if the interest rate is 4 percent. c. 4 percent, but not if the interest rate is 5 percent. d. 5 percent, but not if the interest rate is 6 percent.

d. 5 percent, but not if the interest rate is 6 percent.

In 2016 the Bureau of Labor Statistics reported that there were 62.2 million people over age 25 whose highest level of education was a high school degree or equivalent. Of these, 33.7 million were employed and 1.8 million were unemployed. What were the labor-force participation rate and the unemployment rate for this group? a. 54.2% and 2.9% b. 54.2% and 5.1% c. 57% and 2.9% d. 57% and 5.1%

d. 57% and 5.1%

In one year, you meet 52 people who are each unemployed for one week and eight people who are each unemployed for the whole year. What percentage of the unemployment spells you encountered was short term, and what percentage of the unemployment you encountered in a given week was long term? a. 52% was short term; 13.3% was long term b. 52% was short term; 88.9% was long term c. 86.7% was short term; 13.3% was long term d. 86.7% was short term; 88.9% was long term

d. 86.7% was short term; 88.9% was long term

Refer to Figure 27-4. From the appearance of Alex's utility function, we know that a. if Alex owns a house, then he definitely would buy fire insurance provided the cost of the insurance was reasonable. b. Alex would voluntarily exchange a portfolio of stocks with a high average return and a high level of risk for a portfolio with a low average return and a low level of risk. c. Alex is risk averse. d. Alex is not risk averse.

d. Alex is not risk averse.

Frictional unemployment can be the consequence of a. workers leaving existing jobs to find ones they like better. b. one industry declining while another is growing. c. changes in the working conditions offered by competing firms. d. All of the above are correct

d. All of the above are correct

A person who is counted as "unemployed" by the Bureau of Labor Statistics a. is also in the labor force. b. must have recently looked for work or be on temporary layoff. c. must be at least 16 years old. d. All of the above are correct.

d. All of the above are correct.

Which is the most accurate statement about the GDP deflator and the consumer price index?

The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving. a. True b. False

a. True

If the price of domestically produced power tools increases, then

a. the consumer price index and the GDP deflator will both increase.

Suppose that over the past year, the nominal interest rate was 5 percent, the CPI was 150.3 at the end of the year, and the CPI was 144.2 at the beginning of the year. It follows that

a. the dollar value of savings increased at 5 percent, and the purchasing power of savings increased at 0.8 percent.

The labor-force participation rate measures the percentage of the

a. total adult population that is in the labor force.

When looking at a graph of nominal and real interest rates you notice the graph for nominal rates and the graph for real rates cross each other many times. From this you conclude

a. consumer prices sometimes rose and sometimes fell in the time frame represented on the graph.

Changes in the products for which a nation has a comparative advantage create sectoral shocks leading to an increase in frictional unemployment. a. True b. False

a. True

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

b. is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.

The present value of a future payment to be received in three years is $1,000. If the interest rate is 5%, what is the amount that will be paid in three years? a. $1,150.00 b. $1,157.63 c. $1,215.51 d. $1,250.00

b. $1,157.63

Measured in 2014 dollars, real GDP per person in the United States in 2014 was about a. $37,000. b. $56,000. c. $57,000. d. $67,000.

b. $56,000.

Refer to Table 28-6. What is the U-3 measure of labor underutilization? a. 4.7% b. 6.2% c. 7.0% d. 10.9%

b. 6.2%

On a production function, as capital per worker increases, output per worker a. increases. This increase is larger at larger values of capital per worker. b. increases. This increase is smaller at larger values of capital per worker. c. decreases. This decrease is larger at larger value of capital per worker. d. decreases. This decrease is smaller at larger value of capital per worker.

b. increases. This increase is smaller at larger values of capital per worker.

Suppose the price of a six-pack of cola rises from $3 to $3.75 and the price of a pack of mints rises from $1.25 to $1.75. If the CPI rises from 140 to 182, then people likely will buy a. more cola and more mints. b. more cola and fewer mints. c. less cola and more mints. d. less cola and fewer mints

b. more cola and fewer mints.

If natural resources had become scarcer, then we would expect their a. prices to have risen more than inflation as they have. b. prices to have risen more than inflation, but they have not. c. known quantities to have fallen as they have. d. known quantities to have fallen but they have not.

b. prices to have risen more than inflation, but they have not.

In 2009, the U.S. government's budget deficit increased substantially. Other things the same, this means the a. supply of loanable funds shifted to the right. b. supply of loanable funds shifted to the left. c. demand for loanable funds shifted to the right. d.demand for loanable funds shifted to the left.

b. supply of loanable funds shifted to the left.

The notion that our ability to conserve natural resources is growing more rapidly than their supplies are dwindling is supported by the fact that a. most economists do not regard the availability of natural resources as a determinant of productivity. b. the quantity of natural resources does not enter into any production function. c. inflation-adjusted prices of most natural resources have been stable or fallen over time. d. inflation-adjusted prices of most natural resources have risen over time.

c. inflation-adjusted prices of most natural resources have been stable or fallen over time.

The idea of insurance a. would not appeal to a risk-averse person. b. is, other things the same, to reduce the probability of a fire, accident, or death. c. is to share risk. d. is to provide a sure thing, not a gamble.

c. is to share risk.

In the 19th century John Deere took out a patent on a newly designed plow that incorporated steel to make plowing faster. Many farmers bought plows from his company and he made millions. This example shows that patents turn an idea into a a. public good. b. societal good. c. private good. d. normal good.

c. private good.

Which of the following is the correct formula for calculating the labor force participation rate?

d. (labor force /adult population) x 100

The effects of unionization on wages in the sectors of the economy that are unionized causes the supply of labor in other sectors of the economy to

d. increase, reducing wages in industries that are not unionized.

Lucy quit her job because she was unhappy at work. Genevieve was fired because she frequently surfed the Internet rather than working on her assigned tasks. Who is eligible for unemployment insurance benefits? a. both Lucy and Genevieve b. Lucy but not Genevieve c. Genevieve but not Lucy d. neither Lucy nor Genevieve

d. neither Lucy nor Genevieve

A measure of the volatility of a variable is its a. present value. b. future value. c. return. d. standard deviation.

d. standard deviation.

Other things the same, an increase in the interest rate a. would shift the demand for loanable funds to the right. b. would shift the demand for loanable funds to the left. c. would increase the quantity of loanable funds demanded. d. would decrease the quantity of loanable funds demanded.

d. would decrease the quantity of loanable funds demanded.