Econ 202 Midterm Questions
Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years? a. $100(1 + .04 × 10) b. $100(1 + .0410) c. $100(1 + .04)10 d. $100 × 10 × (1 + .04)
$100(1+.04)^10
A company sells steel to a scooter company for $150. The scooter company uses the steel to produce a scooter, which it sells for $290. Taken together, these two transactions contribute a. between $290 and $440 to GDP, depending on the profit earned by the bicycle company when it sold the bicycle. b. $140 to GDP. c. $150 to GDP. d. $290 to GDP.
$290 to GDP
Suppose you put $125 into a bank account today. Interest is paid annually and the annual interest rate is 4.75 percent. The future value of the $125 after 19 years is a. $236.78. b. $370.88. c. $301.88. d. $51.76.
$301.88.
Price index was 128 in Year 2, and the inflation rate was 19.6 percent between Year 1 and Year 2. The price index in Year 1 was a. 108.4. b. 64.0. c. 107.0. d. 12.8.
107.0
If the price index was 90 in Year 1, 100 in Year 2, and 95 in Year 3, then the economy experienced a. 10 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3. b. 10 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3. c. 11.1 percent inflation between Years 1 and 2, and 5 percent inflation between Years 2 and 3. d. 11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.
11.1 percent inflation between Years 1 and 2, and 5 percent deflation between Years 2 and 3.
Alana put $475 in the bank one year ago and forgot about it. Today, the bank sent Alana a statement indicating that she now has $489.25 in her account. What interest rate did Alana earn? a. 2 percent b. 3 percent c. 4 percent d. 5 percent
3 percent
Tyler puts $450 into an account when the interest rate is 8 percent. Later he checks his balance and finds he has about $612.22. How long did Tyler wait to check his balance? a. 4 years b. 5 years c. 3 years d. 6 years
4 years
Suppose that some country had an adult population of about 59 million, a labor-force participation rate of 72.9 percent, and an unemployment rate of 2.3 percent. How many people were employed? a. 1.0 million b. 137.2 million c. 42.0 million d. 59 million
42.0 million
A University of Iowa basketball standout is offered a choice of contracts by the New York Liberty. The first one gives her $100,000 one year from today and $100,000 two years from today. The second one gives her $132,000 one year from today and $66,000 two years from today. As her agent, you must compute the present value of each contract. Which of the following interest rates is the lowest one at which the present value of the second contract exceeds that of the first? a. 7 percent b. 8 percent c. 9 percent d. 10 percent
7 percent
Suppose your uncle offers you $100 today or $136 in 5 years. You would prefer to take the $100 today if the interest rate is a. 6 percent. b. 7 percent. c. 4 percent. d. 5 percent.
7 percent
Other things the same, which of the following would increase productivity? a. An increase in physical capital but not an increase in human capital b. An increase in human capital but not an increase in physical capital c. An increase in either human or physical capital d. Neither an increase in human capital nor an increase in physical capital
An increase in either human or physical capital
Country K had a population of 1,400, of whom 350 worked an average of 8 hours a day and had a productivity of 44. Country L had a population of 2,500, of whom 1,250 worked 6 hours a day and had productivity of 41. a. Country K had the higher level of real GDP and real GDP per person. b. Country L had the higher level of real GDP and real GDP per person. c. Country L had the higher level of real GDP and Country K had the higher level of real GDP per person. d. Country K had the higher level of real GDP and Country L had the higher level of real GDP per person.
Country L had the higher level of real GDP and real GDP per person.
Country Y has a population of 1,500, of whom 375 work 7 hours a day to make 128,000 final goods. Country Z has a population of 2,200, of whom 880 work 5 hours a day to make 384,000 final goods. a. Country Y has lower productivity but higher real GDP per person than country Z. b. Country Y has higher productivity but lower real GDP per person than country Z. c. Country Y has higher productivity and higher real GDP per person than country Z. d. Country Y has lower productivity and lower real GDP per person than country Z.
Country Y has lower productivity and lower real GDP per person than country Z.
Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that a. GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare. b. GDP is still a useful measure of society's welfare because providing these other attributes is the responsibility of government. c. GDP is not a useful measure of society's welfare. d. GDP is still the best measure of society's welfare because these other values cannot actually be measured.
GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare
Which of the following statistics is usually regarded as the best single measure of a society's economic well-being? a. Gross domestic product b. The size of the government surplus c. The producer price index d. The GDP deflator
Gross domestic product
Which of the following best illustrates diversification? a. Instead of holding only the stocks of companies engaged in the banking business, a person decides to hold stock in a number of different companies producing different goods and services. b. A person decides to purchase only stocks that have paid high dividends in the past. c. After selling stock, corporate management spends funds on projects with greater risks than shareholders had anticipated. d. A company that produces many different products decides to produce fewer.
Instead of holding only the stocks of companies engaged in the banking business, a person decides to hold stock in a number of different companies producing different goods and services.
Which of the following is correct? a. Nominal and real interest rates do not always move together. b. Nominal and real interest rates always move together. c. Nominal and real interest rates always move in opposite directions. d. Nominal and real interest rates never move together.
Nominal and real interest rates do not always move together
Which of the following is a source of market risk? a. When a paper producer has declining sales, it is likely that so will other paper producers. b. Holding stocks in many companies carries the risk of a reduced average return. c. Real GDP varies over time and sales and profits move with real GDP. d. If stockholders become aggravated with the way a CEO runs a company, the price of that company's stock might fall in the stock market.
Real GDP varies over time and sales and profits move with real GDP
Each day Sasha works 6 hours and produces 7 units of goods and services. Clara works 10 hours each day and produces 9 units of goods and services. It follows that a. Sasha's income per hour will be higher than Clara's. b. Clara's productivity is higher than Sasha's. c. Sasha's productivity is higher than Clara's. d. Sasha's income per day will be higher than Clara's.
Sasha's productivity is higher than Clara's.
Which of the following statements is correct? a. The GDP deflator better reflects the goods and services bought by consumers than does the CPI. b. The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP deflator is not a measure of the inflation rate. c. Compared to the CPI, the GDP deflator is the more common gauge of inflation. d. The CPI can be used to compare dollar figures from different points in time.
The CPI can be used to compare dollar figures from different points in time.
In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes? a. The demand for loanable funds shifted leftward. b. The demand for loanable funds shifted rightward. c. The supply of loanable funds shifted rightward. d. The supply of loanable funds shifted leftward.
The supply of loanable funds shifted rightward.
What basket of goods and services is used to construct the CPI? a. A random sample of all goods and services produced in the economy b. The least expensive and the most expensive goods and services in each major category of consumer expenditures c. Only food, clothing, transportation, entertainment, and education d. The goods and services that are typically bought by consumers as determined by government surveys
The goods and services that are typically bought by consumers as determined by government surveys
Which of the following items is the one type of household expenditure that is categorized as investment rather than consumption? a. The purchase of stocks and bonds b. Spending on education c. The purchase of a new house d. The purchase of durable goods such as stoves and washing machines
The purchase of a new house
Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate? a. The real interest rate is the nominal interest rate divided by the rate of inflation. b. The real interest rate is the nominal interest rate plus the rate of inflation. c. The real interest rate is the nominal interest rate minus the rate of inflation. d. The real interest rate is the nominal interest rate times the rate of inflation.
The real interest rate is the nominal interest rate minus the rate of inflation.
Which of the following is an example of human capital? a. The things you have learned this semester b. The comfortable chair in your dorm room where you read economics texts c. The amount you get paid each week to work at the library d. Any capital goods that require a human to be present to operate
The things you have learned this semester
National saving is a. the total income in the economy that remains after paying for consumption and government purchases. b. the total income in the economy that remains after paying for consumption. c. equal to private saving minus public saving. d. always greater than investment for a closed economy.
The total income in the economy that remains after paying for consumption and government purchases
If the consumer price index was 93 in Year 1, 97 in Year 2, and 100 in Year 3, then the base year must be a. Year 2. b. Year 1. c. Year 3. d. the base year cannot be determined from the given information.
Year 3
If Year 1 is the base year and Year 2 is the following year, then the inflation rate in Year 2 equals a. [(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100. b. [(CPI in Year 1 − CPI in Year 2)/CPI in Year 2] × 100. c. [(CPI in Year 2 − CPI in Year 1)/CPI in Year 2] × 100. d. [(CPI in Year 1 − CPI in Year 2)/CPI in Year 1] × 100.
[(CPI in Year 2 − CPI in Year 1)/CPI in Year 1] × 100
Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market? a. An increase in the supply of or an increase in the demand for loanable funds b. A decrease in the supply of or a decrease in the demand for loanable funds c. A decrease in the supply of or an increase in the demand for loanable funds d. An increase in the supply of or a decrease in the demand for loanable funds
an increase in the supply of or a decrease in the demand for loanable funds
GDP per person tells us the income and expenditure of the a. average person in the economy. b. poorest person in the economy. c. richest person in the economy. d. entire economy.
average person in the economy.
When the consumer price index falls, the typical family a. can offset the effects of rising prices by saving more. b. can spend fewer dollars to maintain the same standard of living. c. has to spend more dollars to maintain the same standard of living. d. finds that its standard of living is not affected.
can spend fewer dollars to maintain the same standard of living
To open a print shop you need printers, computers, and furniture. Economists call these expenditures a. capital investment. b. personal saving. c. business consumption expenditures. d. investment in human capital.
capital investment
If the natural rate of unemployment is 4.7 percent and the actual rate of unemployment is 5.5 percent, then by definition there is a. cyclical unemployment amounting to 0.8 percent of the labor force. b. search unemployment amounting to 0.8 percent of the labor force. c. frictional unemployment amounting to 0.8 percent of the labor force. d. structural unemployment amounting to 0.8 percent of the labor force.
cyclical unemployment amounting to 0.8 percent of the labor force.
Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then the a. demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. b. supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. c. supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. d. demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
If there is a shortage of loanable funds, then the quantity of loanable funds a. demanded is greater than the quantity of loanable funds supplied and the interest rate will rise. b. demanded is greater than the quantity of loanable funds supplied and the interest rate will fall. c. supplied is greater than the quantity of loanable funds demanded and the interest rate will rise. d. supplied is greater than the quantity of loanable funds demanded and the interest rate will fall.
demanded is greater than the quantity of loanable funds supplied and the interest rate will rise.
The traditional view of the production process is that capital is subject to a. diminishing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries. b. increasing returns, so that other things the same, real GDP in poor countries should grow at a slower rate than in rich countries. c. diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries. d. increasing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.
diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.
Joshua is working from home for a start-up company developing mobile apps. The Bureau of Labor Statistics counts Joshua as a. employed. b. not in the labor force. c. unemployed. d. marginally attached worker.
employed
Northwest Wholesale Foods sells common stock. The company is using a. debt financing and the return shareholders earn depends on how profitable the company is. b. equity financing and the return shareholders earn is fixed. c. equity financing and the return shareholders earn depends on how profitable the company is. d. debt financing and the return shareholders earn is fixed.
equity financing and the return shareholders earn depends on how profitable the company is
9. The dictator of Turan has recently begun to arbitrarily seize farms belonging to his political opponents, and he has given the farms to his friends. His friends don't know much about farming. The courts in Turan have ruled that the seizures are illegal, but the dictator has ignored the rulings. Other things equal, we would expect that the growth rate in Turan will a. fall temporarily, but will return to where it was when the new owners learn how to farm. b. increase because the total amount of human capital in the country will increase as the new owners learn how to farm. c. not be affected unless widespread civil disorder or civil war results. d. fall and remain lower for a long time.
fall and remain lower for a long time.
Financial intermediaries are a. financial institutions through which savers can indirectly provide funds to borrowers. b. the same as financial markets. c. individuals who make profits by buying a stock low and selling it high. d. a more general name for financial assets such as stocks, bonds, and checking accounts.
financial institutions through which savers can indirectly provide funds to borrowers.
Institutions that help to match one person's saving with another person's investment are collectively called the a. banking system. b. Federal Reserve system. c. monetary system. d. financial system.
financial system
Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called a. the natural rate of unemployment. b. cyclical unemployment. c. structural unemployment. d. frictional unemployment.
frictional unemployment
The CPI and the GDP deflator a. generally move together. b. always show different patterns of movement. c. generally show different patterns of movement. d. always show identical changes.
generally move together.
A transfer payment is a payment made by a. consumers, but not in exchange for a tangible product. b. firms, but not in exchange for capital equipment. c. foreigners, but not in exchange for a domestically produced good or service. d. government, but not in exchange for a currently produced good or service.
government, but not in exchange for a currently produced good or service.
The real interest rate tells you a. the purchasing power of your bank account today. b. the number of dollars in your bank account today. c. how fast the number of dollars in your bank account rises over time. d. how fast the purchasing power of your bank account rises over time.
how fast the purchasing power of your bank account rises over time
A policy that increases saving will a. improve economic growth and health outcomes. b. worsen economic growth and health outcomes. c. worsen economic growth, but improve health outcomes. d. improve economic growth but worsen health outcomes.
improve economic growth and health outcomes
All else equal, if there are diminishing returns, then a. old ideas are not as useful as new ones. b. capital produces fewer goods as it ages. c. increases in the capital stock eventually decrease output. d. increases in the capital stock increase output by ever smaller amounts.
increases in the capital stock increase output by ever smaller amounts
The CPI differs from the GDP deflator in that a. increases in the prices of domestically produced goods that are sold to the U.S. government show up in the CPI but not in the GDP deflator. b. increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator. c. substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator. d. the CPI is a price index, while the GDP deflator is an inflation index.
increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator.
The term economists use to describe a situation in which the economy's overall price level is rising is a. growth. b. inflation. c. recession. d. expansion.
inflation
Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium a. interest rates rise and the equilibrium quantity of loanable funds fall. b. interest rates fall and the equilibrium quantity of loanable funds rise. c. interest rates and the equilibrium quantity of loanable funds fall. d. interest rates and the equilibrium quantity of loanable funds rise.
interest rates rise and the equilibrium quantity of loanable funds fall.
The value of goods added to a firm's inventory in a certain year is treated as a. investment, since GDP aims to measure the value of the economy's production that year. b. consumption, since the goods will be sold to consumers in another period. c. intermediate goods, and so is not included in that year's GDP. d. spending on durable goods, since the goods could not be inventoried unless they were durable.
investment, since GDP aims to measure the value of the economy's production that year.
The source of the supply of loanable funds a. and the demand for loanable funds is investment. b. is investment and the source of demand for loanable funds is saving. c. and the demand for loanable funds is saving. d. is saving and the source of demand for loanable funds is investment.
is saving and the source of demand for loanable funds is investment
Katleen is considering expanding her dress shop. If interest rates rise she is a. less likely to expand. This illustrates why the demand for loanable funds slopes downward. b. more likely to expand. This illustrates why the demand for loanable funds slopes upward. c. less likely to expand. This illustrates why the supply of loanable funds slopes downward. d. more likely to expand. This illustrates why the supply of loanable funds slopes upward.
less likely to expand. This illustrates why the demand for loanable funds slopes downward.
Other things the same, when the interest rate rises, people would want to lend a. more, making the supply of loanable funds decrease. b. less, making the quantity of loanable funds supplied decrease. c. less, making the supply of loanable funds increase. d. more, making the quantity of loanable funds supplied increase.
more, making the quantity of loanable funds supplied increase
If there is a shortage of loanable funds, then a. neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium. b. the supply for loanable funds shifts right and the demand shifts left. c. neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. d. the supply for loanable funds shifts left and the demand shifts right.
neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium
The labor force equals the a. number of people employed. b. number of people employed plus the number of people unemployed plus teenagers between ages 14 and 16 who work at least 10 hours a week. c. number of people employed plus the number of people unemployed. d. adult population.
number of people employed plus the number of people unemployed.
An increase in the government's budget surplus means public saving is a. negative and increasing. b. positive and decreasing. c. negative and decreasing. d. positive and increasing.
positive and increasing
Productivity is the amount of goods and services a. an economy produces. It is not linked to a nation's economic policies. b. produced for each hour of a worker's time. It is linked to a nation's economic policies. c. an economy produces. It is linked to a nation's economic policies. d. produced for each hour of a worker's time. It is not linked to a nation's economic policies.
produced for each hour of a worker's time. It is linked to a nation's economic policies
A recession has traditionally been defined as a period during which a. nominal GDP declines for four consecutive quarters. b. real GDP declines for four consecutive quarters. c. real GDP declines for two consecutive quarters. d. nominal GDP declines for two consecutive quarters.
real GDP declines for two consecutive quarters
Suppose that a new government is elected in Eurnesia. The new government takes steps toward improving the court system and reducing government corruption. The citizens of Eurnesia find these efforts credible and outsiders believe these changes will be effective and long lasting. These changes will probably raise a. real GDP per person and productivity in Eurnesia. b. neither productivity nor real GDP per person in Eurnesia. c. productivity but not real GDP per person in Eurnesia. d. real GDP per person but not productivity in Eurnesia.
real GDP per person and productivity in Eurnesia.
If the supply for loanable funds shifts to the left, then the equilibrium interest rate a. and quantity of loanable funds rises. b. rises and the quantity of loanable funds falls. c. and quantity of loanable funds falls. d. falls and the quantity of loanable funds rises.
rises and the quantity of loanable funds falls.
If over a short time there is an increase in the number of people retired and a decrease in the number of people working, then productivity a. rises but real GDP per person falls. b. and real GDP per person fall. c. falls and real GDP per person rises. d. and real GDP per person rise.
rises but real GDP per person falls.
Other things the same, a higher interest rate induces people to a. invest less, so the supply of loanable funds slopes downward. b. invest more, so the supply of loanable funds slopes upward. c. save more, so the supply of loanable funds slopes upward. d. save less, so the supply of loanable funds slopes downward.
save more, so the supply of loanable funds slopes upward
Given that Sarah's income exceeds her expenditures, Sarah is best described as a a. borrower or as a supplier of funds. b. saver or as a supplier of funds. c. borrower or as a demander of funds. d. saver or as a demander of funds.
saver or as a supplier of funds
A bond buyer is a a. borrower. Bond buyers may sell their bonds prior to maturity. b. saver. Bond buyers may sell their bonds prior to maturity. c. saver. Bond buyers must hold their bonds until maturity. d. borrower. Bond buyers must hold their bonds until maturity.
saver. Bond buyers must hold their bonds until maturity
At the broadest level, the financial system moves the economy's scarce resources from a. the rich to the poor. b. savers to borrowers. c. financial institutions to business firms and government. d. households to financial institutions.
savers to borrowers
The key determinant of the standard of living in a country is a. the total amount of its physical capital. b. the amount of goods and services produced from each hour of a worker's time. c. its growth rate of real GDP. d. the total amount of goods and services produced within the country.
the amount of goods and services produced from each hour of a worker's time
In the long run, the unemployment rate equals a. the economic rate of unemployment. b. the difference between frictional and structural unemployment. c. the sum of the structural and natural rate of unemployment. d. the natural rate of unemployment.
the natural rate of unemployment
Sasha is on temporary layoff. The Bureau of Labor Statistics counts Sasha as a. unemployed and not in the labor force. b. employed and in the labor force. c. unemployed and in the labor force. d. employed and not in the labor force.
unemployed and in the labor force.
Cyclical unemployment refers to a. the difference between the structural and frictional unemployment rates b. changes in unemployment due to changes in the natural rate of unemployment. c. year-to-year fluctuations in unemployment around its natural rate. d. the relationship between the probability of unemployment and a worker's experience level.
year-to-year fluctuations in unemployment around its natural rate.