ECON 2105 Exam 2

Consider the following simple economy that produces only three​ goods: Real GDP in 2009 equals $_____ .

$6,680

The following table gives nominal and real GDP for an economy for two years. Based on the​ table, in Year​ 2, the value of the GDP deflator is _____ . ​ (Round your answer to one decimal place​.) The inflation rate between Year 1 and Year 2 is _____%. ​ (Round your answer to one decimal place​.)

116.7 6.1%

If real GDP equals​ $11,567 billion in 2006 and​ $11,916 billion in​ 2007, and assuming population is constant over those two​ years, how many years will it take for real GDP per capita to​ double? _____ years. ​(Enter your response as a real number rounded to one decimal​ place.)

23.3 years

If you were attempting to forecast the level of consumer spending by​ households, which measure of total production or total income might be most helpful in making your​ forecast? A. Disposable personal income B. Personal income C. Gross national product D. Net national product

A. Disposable personal income

What is the difference between the value of a​ firm's final product and the value added by the firm to the final​ product? A. The value of a​ firm's final product is the sale​ price; value added is the difference between the sale price and the price of intermediate goods. B. The value of a​ firm's final product is​ profit; the value added is the total cost of production. C. There is no difference between the value of a​ firm's final product and the value added by the firm to the final product. D. The value of a​ firm's final product is the difference between the sale price and the price of intermediate​ goods; value added is the sale price.

A. The value of a​ firm's final product is the sale​ price; value added is the difference between the sale price and the price of intermediate goods.

The financial system of a country is important for​ long-run economic growth because A. firms need the financial system to acquire funds from households. B. people can increase their wealth very quickly under a healthy financial system. C. firms that use the financial system predominantly are being reckless. D. most firms rely on their own retained earnings and do not use the financial system.

A. firms need the financial system to acquire funds from households.

If the GDP deflator in 2012 has a value of​ 98.0, then A. prices have decreased 2 percent between the base year and 2012. B. the inflation rate in 2012 is​ -2 percent. C. prices have increased 9.8 percent between the base year and 2012. D. the inflation rate in 2012 is 2 percent.

A. prices have decreased 2 percent between the base year and 2012.

Transfer payments are not included in GDP calculations because A. transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service. B. transfer payments come from taxes and government expenditures so they are already included in government purchases. C. transfer payments do not include movements of income between countries so they should only be included in foreign country GDPs. D. None of the above because transfer payments are included in GDP.

A. transfer payments are simply transfers of income from one group to another and not a purchase of a new good or service.

The type of inflation that is a greater problem to society is A. unanticipated​ inflation, since it causes greater redistribution of income between those making payments and those awaiting payments in the future. B. anticipated inflation because the purchasing power of the dollar falls very rapidly. C. unanticipated​ inflation, since it has some costs associated with​ it, such as menu costs. D. anticipated​ inflation, since people have to pay taxes on the higher nominal income even though the real income has not changed.

A. unanticipated​ inflation, since it causes greater redistribution of income between those making payments and those awaiting payments in the future.

How does an increase in the price level affect the quantity of real GDP supplied in the long​ run? A. In the long​ run, an increasean increase in the price level decreases​ inflation, which will decrease real GDP. B. Changes in the price level do not affect the level of GDP in the long run. C. In the long​ run, an increase in the price level increases​ inflation, which will decrease real GDP. D. In the long​ run, an increase in the price level will increase real GDP.

B. Changes in the price level do not affect the level of GDP in the long run.

Panel​ (a) above shows an idealized business cycle. Panel​ (b) shows an actual business cycle by plotting fluctuations in real GDP during the period from 1999 to 2002. Use the graphs to help determine which one of the following statements is NOT​ true: A. The recession in the early​ 2000's reached a business cycle trough in November​ 2001, when the next expansion began. B. Inconsistent movements in real GDP around the business cycle peak can mean that the beginning and ending of a recession are​ clear-cut. C. The expansion beginning from at least 1999 continued until a business cycle peak was reached in March 2001. D. An idealized business cycle has a smooth increases and decreases in GDP during the business​ cycle, while an actual business cycle is not as smooth.

B. Inconsistent movements in real GDP around the business cycle peak can mean that the beginning and ending of a recession are​ clear-cut.

Which one of the following accurately describes the relationship between frictional unemployment and job​ search? A. People are said to be frictionally unemployed when their skills do not match job requirements. B. People are said to be frictionally unemployed when they are between jobs and searching for new jobs. C. People are said to be frictionally unemployed when they are between jobs due to the seasonal variations. D. People are said to be frictionally unemployed when they are laid off because of a recession.

B. People are said to be frictionally unemployed when they are between jobs and searching for new jobs.

Which of the following events would cause a decrease in aggregate demand? A. an increase in price level B. an increase in taxes C. a decrease in taxes D. an increase in consumption

B. an increase in taxes

What index is used to measure the average prices paid by a typical​ family? An average of the prices of the goods and services purchased by a typical family is​ the: A. inflation rate index. B. consumer price index​ (CPI). C. producer price index​ (PPI). D. aggregate price level index. Suppose the​ economy's consumer price index​ (CPI) in 2008 was 185 and the CPI in 2009 was 197. The inflation rate over the period from​ 2008-2009 was equal to _____%. ​(Enter your response rounded to one decimal​ place.)

B. consumer price index​ (CPI). 6.5%

The​ 2007-2009 recession was a clear example of A. the effect of a positive supply shock on the economy. B. the effect that a decrease in aggregate demand can have on the economy. C. the effect of a shift to the left in the​ long-run aggregate supply on the economy. D. All of the above.

B. the effect that a decrease in aggregate demand can have on the economy.

The position of the​ long-run aggregate supply​ (LRAS) curve is determined by A. consumption, investment, government​ purchases, and net exports. B. the number of​ workers, the amount of​ capital, and the available technology. C. the price level and aggregate demand. D. the price​ level, the available​ technology, and​ "sticky" prices.

B. the number of​ workers, the amount of​ capital, and the available technology.

If the CPI was 207 in 2009 and 225 in​ 2013, what wage would someone who earned a​ $50,000 income in 2009 have to earn in 2013 in order to keep her purchasing power​ constant? A. $51,252 B. ​$54,348 C. $54,000 D. None of the above.

B. ​$54,348

What are the four categories of​ income? A. ​Labor, Capital, Natural​ Resources, and Entrepreneurship. B. ​Wages, Interest,​ Rent, and Profit. C. Wages, Salaries,​ Interest, and Dividends. D. ​Consumption, Investment, Government​ Purchases, and Net Exports.

B. ​Wages, Interest,​ Rent, and Profit.

At the start of the​ year, the rate of unemployment among U.S. citizens who were between 50 to 60 years old was 7 percent. At the end of the​ year, the same​ age-group reported an unemployment rate of 6 percent.​ However, a newspaper columnist claims that the falling unemployment rate is not an accurate indicator of the overall employment situation of this​ age-group. Which of the​ following, if​ true, would strengthen the​ columnist's claim? A. The number of people in this​ age-group receiving unemployment benefits from the government decreased. B. The overall unemployment in the economy decreased by 2 percent. C. Most people in this group who lost their jobs stopped actively looking for new work. D. Economic indicators show that the economy is now recovering after a prolonged recession. E. Most people in this​ age-group who lost their jobs were able to find other work.

C. Most people in this group who lost their jobs stopped actively looking for new work.

Which of the following events would cause a decrease in short−run aggregate supply​? A. an increase in the capital stock B. a decrease in consumption C. an unexpected increase in the price of oil D. an increase in the price level

C. an unexpected increase in the price of oil

How does the dynamic model of aggregate supply and aggregate demand explain​ inflation? A. by showing that if total production in the economy grows faster than total​ spending, prices will rise B. by showing that increases in labor productivity usually lead to increases in prices C. by showing that if total spending in the economy grows faster than total​ production, prices will rise D. None of the above.

C. by showing that if total spending in the economy grows faster than total​ production, prices will rise

One major component of GDP that can be negative is A. investment. B. government expenditures. C. net exports. D. consumption.

C. net exports.

From a trough to a​ peak, the economy goes through A. the recessionary phase of the business cycle. B. rising real​ GDP, but falling real GDP per capita. C. the expansionary phase of the business cycle. D. falling real GDP.

C. the expansionary phase of the business cycle.

The two key factors that cause labor productivity to increase over time are A. better environmental standards and stricter labor laws. B. the quantity of labor per hour worked and the level of technology. C. the quantity of capital per hour worked and the level of technology. D. the decline in unionization and slacking of labor laws.

C. the quantity of capital per hour worked and the level of technology.

The current GDP of USA is about​ _____________, and the current GDP per capital is about​ _____________. A. 18​ trillion; ​ 55,000k. B. ​50; 4000 C. ​18,000 billion; ​ 55,000 D. 180,000 billion; ​ 55,000k.

C. ​18,000 billion; ​ 55,000

1982 - 84 = 100 In Chapter​ 9, we see something like​ "1982 - 84​ = 100". What is​ it? A. It means that 1982 or 84 is the base year for GDP deflator calculation. B. It means that 1982 is the base year for real GDP calculation. C. It is just a​ typo: it should be 1982​ - 84​ = 1898. D. It means that CPI​ = 100 over 1982 to 84.

D. It means that CPI​ = 100 over 1982 to 84.

In an attempt to control​ inflation, the Indian central bank increased interest rates substantially. This was expected to have an adverse impact on the​ country's GDP this year. Some economists also expected a​ year-on-year decline in​ India's GNP.​ However, Indian GNP actually went up. Which of the​ following, if​ true, would best explain this​ outcome? A. Immigration from neighboring countries into India increased this year. B. India imported more goods and services this year as compared to last year. C. Aggregate consumption expenditure in India decreased this year. D. The number of Indian IT employees working on projects outside of India increased considerably this year. E. A sizeable number of Indian workers moved from the service sector to the manufacturing sector this year.

D. The number of Indian IT employees working on projects outside of India increased considerably this year.

Suppose that the inflation rate turns out to be much lower than most people expected. In that​ case, A. both borrower and lender will gain from the situation. B. both borrower and lender will lose in this situation. C. a lender will lose from the situation while a borrower will gain. D. a borrower will lose from the situation while a lender will gain.

D. a borrower will lose from the situation while a lender will gain.

In calculating the consumer price index for the​ year, the BLS uses the quantities in the market​ basket, rather than the quantities purchased during the current year. This gives rise to A. new product bias. B. an increase in quality bias. C. outlet bias. D. substitution bias.

D. substitution bias.

The Personal Income (PI) of the United States is equal to A. the market value of all final goods and services produced within the United States in a given period of time. B. the market value of all final goods and services produced by U.S. factors of production in a given period of time. C. the value of the total income received by all households in the United​ States, after personal taxes are paid. D. the value of the total income received by all households in the United States.

D. the value of the total income received by all households in the United States.

Almora, a developing open​ economy, is experiencing an economic boom since it discovered oil reserves off its coast two years ago. Bill​ Hudson, an economist with the Finance Ministry of​ Almora, said in an interview that the oil boom has improved the average standard of living in the economy. Robin Peters is an industry analyst who does not agree with​ Hudson's view. In one of his recent articles in the​ country's leading business​ daily, Robin claimed that the high rate of inflation following the boom has actually weakened the expansionary impact on the economy. 25Which of the​ following, if​ true, will support​ Robin's argument? A. The construction sector has expanded by 20 percent in the last two years. B. Employment in the​ country's oil industry reported an annual growth of 15 percent this year. C. Almora reduced its petroleum imports this year. D. ​Almora's agriculture and manufacturing sectors have become less competitive in the world market. E. The government of Almora is expected to have a budget surplus of​ $2 billion in the current financial year.

D. ​Almora's agriculture and manufacturing sectors have become less competitive in the world market.

​Ambrosia, a small country in the Mediterranean​ region, has an​ agriculture-based economy. In recent​ years, a decline in global trade barriers has led to a massive increase in agricultural production in Ambrosia. The government of Ambrosia has claimed that this expansion has increased the​ country's GDP and also improved the overall welfare of its people by increasing employment opportunities.​ However, critics of the government have claimed that this expansion has actually made the people of Ambrosia worse off. Which of the​ following, if​ true, would support the​ critics' argument? A. Increased agricultural production accounted for most of the increase in GDP. B. Domestic demand for agricultural products is relatively low in comparison to worldwide demand. C. The prices of inputs used in the production of agricultural products have declined. D. The agricultural market in Ambrosia faces limited competition from the producers in other countries. E. The expansion was made possible by an expansion of pesticide use that has damaged the natural environment.

E. The expansion was made possible by an expansion of pesticide use that has damaged the natural environment.

Consider the following data for a closed​ economy: Y​ = ​$14 trillion C​ = ​$10 trillion G​ = ​$3 trillion Spublic​ = ​$−1.0 trillion T​ = ​$4 trillion Use the data to calculate the​ following: ​(Enter your responses rounded to one decimal place.​) a. Private saving​ is: ​$_____ trillion. b. Investment spending​ is: ​$_____ trillion. c. Transfer payments​ are: ​$_____ trillion. d. The government budget balance​ is: ​$_____ trillion and as a result the government budget is in _____ .

a. $2 trillion b. $1 trillion c. $2.0 trillion d.$-1.0 trillion, DEFICIT