Econ 202 Midterm 2
You bought stock in 2010 for $100 and you sold it in 2012 for $200. You used a broker to sell the stock for you, and he charged you $20. This transaction contributed ________ to GDP.
$20
If the face value of a one-year bond with no coupon is $6,000 and it has an interest rate of 10%, what would its initial purchase price be?
$5,454.55
Consumers in Thuban only purchase cupcakes and gems. The quantities of 2013 serve as the basket of goods for calculating the CPI. What is the total cost of this CPI basket in 2014?
$54
Stocks vs. Bonds
- Stocks are almost always more risky - Stocks have higher return rate
James has worked for the same company his entire life. His current income is $100,000 per year. When he was originally hired, he made $25,000 per year. The company has given James a consistent raise of 3.5% every year. How long has James been with the company?
40 years
Suppose a country is producing $10 million of real GDP. If the economy grows at 5 percent per year, approximately how many years will to take for real GDP to grow to $80 million?
42
Again using the quantities of 2013 as the CPI basket, what is the measured inflation rate between 2013 and 2014 in Thuban?
50%
Stocks
A stock in a company represents a parital ownership of the company.
Which of the following statements about bonds is TRUE?
Bond interest rates rise with increased default risk.
Coupon
Bonds typically pay interest (usually annually or semiannually) before they reach maturity. These payments are known as coupons.
Structural unemployment
Caused by changes in the industrial makeup/structure of the economy.
Suppose real GDP for the country of Chertan is $13 trillion in 2007, $14 trillion in 2008, $15 trillion in 2009, and $16 trillion in 2010. Over this time period, the rate at which real GDP is growing is
Decreasing
How to find the growth rate of real GDP per capita
GDP= GDP2-GDP1/GDP1 x100
We are interested in long-term growth primarily because it brings
Higher standards of living
Thomas Malthus was wrong about: I. war, famine, and disease historically acting as checks to overpopulation. II. the capacity for improved technology to increase productivity (including agricultural productivity) III. the trend of birth rates when societies become more wealthy
II and III
Which of the following items are considered physical capital? I. shares of Ford Motor Company stock traded on the New York Stock Exchange II. the Taco Bell store nearest you III. the rental cars owned by Hertz Rental-A-Car IV. the salaries paid to Intel executives
II and III.
To calculate the unemployment rate, which of the following are necessary pieces of information?
II and IV
Which of the following is true regarding the effect expected future income has on saving? I. As expected future income increases, saving in the present increases. II. Young people typically save very little. III. Middle-aged people, earning higher incomes, are not very big savers relative to retired workers or those in their early 20s.
II only
When it is difficult and inconvenient to fire employees, firms take ____________ to make hires, which increases ____________ unemployment.
Longer; Frictional
If an economy experiences economic growth, does that mean that everyone in that economy will be better off?
No, it means that the average person is better off.
In the beauty-contest (i.e., number-guessing) game
Submitting 66 2/3 is always a better strategy than submitting 88.
The study of macroeconomics as its own field within economics began during
The Great Depression
Suppose that you took out a $1000 loan in January and had to pay $75 in annual interest. During the year, inflation was 6 percent. Which of the following statements is correct?
The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent.
Maturity
The price of a bond at the end of its payment (with interest)
Frictional Unemployment
delay in matching jobs and workers
How to find economic growth
economic growth= nominal GDP - price level - population
How to find employment rate
er=e/e+u
Direct financing
go directly to whose saving, through buying bonds
Suppose a firm has an investment project which will cost $200,000 and result in $30,000 profit in one year. The firm definitely will not undertake the project if the interest rate is ________.
greater than 15 percent.
Indirect financing
how households and small/medium firms borrow money: banks are intermediaries
The quantity of funds saved by households
increases when the real interest rate rises
How to find inflation rate
inflation rate= (price2-price1/price1) x100
How to find interest rate
interest rate= face value-initial price/initial price
A computer company builds a new factory. This is included in the ________ category of GDP.
investment
Nominal GDP
is GDP measured is current dollars, or the current dollars, or the current prices we are paying for things. Includes all the components of GDP valued at their current prices.
Real GDP
is an attempt to isolate the change in the amount of actual goods and services produced from changes in the nominal figure due to price changes.
Cyclical unemployment
is caused by rescission and is not controllable/open ended
How to find labor force participation rate
labor force p rate= (labor force/ population) x100
In the above figure, the demand for loanable funds curve is drawn for the average expected profit. If the real interest rate is constant at 6 percent and the expected profit falls, the amount of loanable funds demanded will be
less than $450 billion.
If you have $1,000 of money in a savings account with a 1% interest rate and the price level falls 2%, your
money is worth more in terms of what it can purchase.
real interest rate
nominal interest rate - inflation rate
How to find present value
present value= future value/(1+rate)^time(yrs)
How to find the CPI price index
price index= (basket price/basket price in base year) x 100
Which of the following is an example of an institution that promotes economic growth?
private property rights
How to find real GDP
real GDP= (nominal GPD/price level) x 100
What is the fisher equation
real interest rate= nominal interest rate - inflation rate or nominal interest rate= real interest rate + inflation rate
In the above figure, technological progress that increases the productivity of capital and expected profit will
shift the demand for loanable funds curve rightward.
Suppose the population of Zaurak is initially 100,000 people, 50,000 of whom are employed and 10,000 of whom are unemployed. If a nearby river overflows and kills all 20,000 of the long-ago retired residents of Zaurak
the unemployment rate of Zaurak stays the same.
How to find unemployment level
u= e/(1-ur) -e
How to find unemployment RATE
unemployment rate= (# employed/labor force) x 100
How to find unemployment rate
unemployment rate= u/u+e
Yield Curve
The yield curve is a graph that shows the relationship between the term, and the yield of bonds issued by the same entity.
Consider the fictional country of Altair, for which over the last year the inflation rate was 1.3% and the population growth rate was 0.8%. If over the same period the growth rate of nominal GDP was 3.4%, what was the growth rate of real per capita GDP?
There *is* enough information to answer the question, but the correct answer does not appear.
In the above figure, the economy is at point a on the initial demand for loanable funds curve DLF0. What happens if the real interest rate rises?
There is a movement to a point such as b on the demand for loanable funds curve DLF0.
Suppose that in 2009 the country of Denebola has a population of 1 million and real GDP of $1 billion. In 2010, the population is 1.1 million and the real GDP is $1.1 billion. The growth rate of real GDP per person is
Zero
What is a bond?
a promise from a government or a firm to repay a loan, with interest paid at fixed intervals.
Ford Motor Company produces 2,500,000 cars this year and only sells 2,450,000. The 50,000 cars that are not sold _______ listed in ________ category of GDP.
are; the investment
