ECON 2105 Final Exam Study Guide - Practice Tests

Leading indicators are variables that:

tend to predict the future state of the economy.

The steady state in the Solow growth model occurs when:

investment equals depreciation.

Below is U.S. economic data for 2018. What was total spending?

$20.58 trillion

In 2004, Canada's GDP was approximately $1.13 trillion, and its population was about 32 million. What was Canada's approximate GDP per person in 2004?

$35,290

What is the nominal GDP for last year?

$4,800,000

What is the real GDP for last year using the average price level?

$4,920,000

What is the real GDP for this year using the average price level?

$5,104,500

What is the nominal GDP for this year?

$5,229,000

What is the average price level between the two years?

$61.50

You open a savings account that pays 0.75% interest a year. What is your real rate of return if the inflation rate is 1%?

-0.25%

Take a look at the IS-MP-PC model shown here. At equilibrium, unexpected inflation is:

-1%.

What was Panama's economic growth rate between 2000 and 2001?

-1.36%

Take a look at the IS-MP-PC model shown here. At equilibrium, the output gap is:

-4%.

You purchase a certificate of deposit that pays an advertised rate of 2.25% interest per year. Your real rate of return if the actual inflation rate is 1.55% is ____% [round to the nearest hundredth of a percent].

0.70

During 2000 and 2001, nominal GDP in the United States grew by 3.2%, and the rate of inflation was 2.2%. What was the growth rate of real GDP between the two years?

1%

The approximate output gap in 1999 was ________ % [round to the nearest tenth of a percent].

1.9

What is Fiji's GDP deflator if its nominal GDP is $5.48 billion (in current US$) and the real GDP is $5.21 billion?

105.2

In 2014, the action movie John Wick made about $14.5 million in its opening weekend. In 2017, John Wick: Chapter 2 made about $30.5 million in its opening weekend. The consumer price index in 2014 was 235.3. If the consumer price index in 2017 was 244.1, the first John Wick movie make in 2017 dollars was $ ______ million [round to the nearest tenth of a million].

15.0

The table shows consumer price index data for the United States. Based on this information, the rate of inflation between 1,992 and 1,993 was _____ % [round to the nearest hundredth of a percent].

2.97

Consumption is $151 billion, government expenditure is $70.2 billion, planned investment is $65.8 billion, and net exports amount to -$21 billion. Aggregate expenditure in this economy is $ _________ billion (round to the nearest tenth of a billion).

266.0

What is the growth rate of the price level between the two years rounded to the nearest percent?

5%

What is the growth rate of real GDP between the two years using the calculations form the previous two questions and rounded to the nearest percent?

4%

What is the growth rate of the quantity of barrels of oil sold between the two years rounded to the nearest percent?

4%

In December of 2018, West Virginia reported a civilian labor force of 788,429 people. The number of employed people was 747,806. The unemployment rate was _________ % [round to the nearest tenth of a percent].

5.2

In 2021, the Federal Reserve Bank (the Fed) could have raised interest rates. Suppose the equilibrium unemployment rate (i.e., natural rate of unemployment) is 3.5% and the output gap is still -4% in 2021. Using Okun's Rule of Thumb, we would expect the actual unemployment rate to be _______ percent (round to the nearest tenth of a percent).

5.5

Suppose a labor market is described by the demand equation, Qd = 200 - 3w, and the supply equation, Qs = -300 + 7w, where Qd is the quantity demanded of labor (in Million), Qs is the quantity supplied of labor (in Million), and w is the wage (in dollars). If the government institutes a minimum wage of $45, ________ Million workers will be willing to work in this market. (Round to the nearest whole million.)

50

What is the growth rate of nominal GDP between the two years using the calculations form the previous two questions and rounded to the nearest percent?

9%

Consider the following graphs, which are discussed in the textbook. Focus on the graph that looks at the relationship between GDP per person and infant deaths per 1,000 live births. What can explain this relationship?

As real GDP per person rises, maternal and fetal health increase due to better health care, education, sanitation, and nutrition.

The equation for aggregate expenditure in an open economy is:

C + I + G + NX.

Charles McCoy is a manager at a coffee shop and is making hiring decisions. With one worker, he can make 15 drinks that sell for $3 on average in a single hour. With a second worker, he can make an additional 12 drinks in a single hour. The marginal product of each additional worker decreases by three drinks with each additional hire. Assuming that workers are paid $12 per hour and work eight hours, how many employees should Charles hire for each hour?

Four

You just bought two used textbooks for $25 each. How much does GDP change because of your purchase?

GDP does not change.

The city of Vaughan in Ontario, Canada, opened a new subway line that extended the existing subway system between the greater Toronto area and the city of Vaughan. The route previously only had bus service. Which of the following graphs depicts the effect you would expect to see on the demand for bus rides on this route after the introduction of the subway?

Graph A

Which graph shows what will happen in the market for furniture if an excess supply of timber drives down wood prices?

Graph A

You are studying the demand for Minute Maid and Tropicana orange juice. Minute Maid improves the taste of its juice and people start preferring Minute Maid over Tropicana. Which graph depicts the impact of these changes on both Minute Maid and Tropicana?

Graph A shows what happens in the market for Minute Maid, and Graph B shows what happens in the market for Tropicana.

Technological advancement can be shown by which of these production functions?

Graph B

You have four friends. Which of your friends can be described as "cyclically unemployed"?

Keele, who lost her job after her company lost a lot of customers during an economic downturn

How do interest rates affect investment in the economy?

Lower interest rates lower the cost of borrowing for firms, and so investment rises.

Which indicator is a cross-check on GDP?

Real GDI

Which of the following is a broad indicator?

The consumer price index

Amul Food Factory in India makes ice cream and produces processed and condensed milk. In the factory, the firm's employees use milk and sugar. The firm runs on electricity and purchases raw milk every day. Large robotic assembly lines fill and package the ice cream containers. Large industrial freezers store the ice cream. Which of the following are variable costs for Amul Food Factory? (Select ALL that apply.)

The cost of sugar, The cost of the raw milk purchased from farmers.

The price of coffee at a local coffee shop is $2.50. Cheryl is willing to pay $8 for her first cup of coffee each day. The marginal benefit to her of each additional cup of coffee falls by $2. How many cups of coffee should Cheryl purchase?

Three

Suppose the Chinese economy is experiencing significant excess demand. Which figure shows the effect on the Phillips curve in China?

This figure

Which of the following shows the correct effect on the IS-MP framework if there is a sharp increase in loan default rates in an economy?

This figure

The key lessons from this diagram are that:

Total spending must equal total income, the market value of total output must be equal to total spending, all flows of resources are matched by flows of money.

The aggregate production function is represented as:

Y = f(L, H, K).

The movement from point S to point T is caused by

a decrease in the price of the item.

A fiscal policy contraction would lead to:

a left shift in the IS curve.

Human capital refers to improvements in:

a worker's skills, made possible by education, training, and knowledge.

Complements-in-production

allows a business to produce goods together.

Joshua Murphy is planning on studying late into the night for his economics exam. He is contemplating how many coffees to buy tonight. Joshua should not buy an additional coffee during the evening if the marginal

benefit of purchasing one more coffee is less than the marginal cost.

The cost-benefit principle states that a decision should be pursued only if the

benefits are greater than the costs.

The Rational Rule for Buyers

compares the benefit of buying an additional unit of the item to the cost of that item.

Rapid growth in poorer countries leads to:

convergence in real GDP per person between poorer countries and richer countries.

A negative supply shock causes:

cost-push inflation.

Excess demand occurs when:

demand is in excess of supply at the market price.

Demand-pull inflation is inflation resulting from:

excess demand.

Hyperinflation is:

extremely high rates of inflation.

Typically, business cycles:

have short and sharp recessions, followed by long and gradual expansions.

In the market for outputs:

households buy goods and services.

The rule of 70 tells us roughly:

how long it will take something to double if you divide 70 by its annual growth rate.

Consider the Phillips curve shown here. In region A:

inflation falls below expected inflation.

Diminishing marginal benefit:

is when buying an additional item yields a smaller marginal benefit than the previous item.

Before monetary and fiscal policy intervention in 2020, there was a spending shock and a supply shock which (select ALL that apply)

left the MP curve unchanged, shifted the IS curve down (left), shifted the PC up (left).

When inflation is higher than expected, there is redistribution from:

lenders to borrowers.

Nerida Kyle could either commute to work via Uber or purchase a new car. The average cost of her one-way Uber trip is $20. Nerida works five days a week for 50 weeks a year. Based solely on avoiding the cost of an Uber, Nerida should purchase a car if the cost of the car is _____ than _____ per week.

less; $200

Physical capital includes:

machine tools

GDP is defined as the:

market value of all final goods and services produced within a country in a given year.

During periods of high inflation, stores that publish catalogs find it necessary to revise prices and publish new catalogs _____ frequently than they did before. This is an example of _____ costs.

more; menu

The real interest rate is the:

nominal interest rate minus the rate of inflation.

Ivan has inherited his grandmother's 1963 Chevrolet Corvette, which he values at $50,000. He decides that he might be willing to sell it, so he posts it on Craigslist for $55,000. Samantha is interested and willing to pay up to $72,000 for such a car. A voluntary economic exchange _____ between Ivan and Samantha because _____ positive economic surplus from the transaction.

occurs; both Ivan and Samantha receive

When you calculate marginal costs for a seller, they should include:

only variable costs.

The Producer Price Index is an index that tracks the:

price that businesses pay over time for the inputs used in the production process.

Suppose that an economy is in a recession. You would expect to see the unemployment rate:

rise above the equilibrium unemployment rate.

According to Okun's rule of thumb, for every 1% fall in the actual output below potential output, the unemployment rate:

rises by 0.5%.

In 2022, the Federal Reserve started contractionary policy. In the IS-MP-PC framework, which curve(s) shift(s) where in response to this policy (select ALL that apply):

shifts the MP curve up, leaves the IS curve unchanged, leaves the PC unchanged.

In the Solow growth model, if a country reaches its steady state:

the economy stops growing unless something else changes.

If the frictional rate of unemployment is 1.45%, the structural rate of unemployment is 2.3%, and the total unemployment rate is 6%, then we can conclude that:

the equilibrium rate of unemployment is 3.75%.

Which of the following can be classified as technological progress?

the invention of the light bulb

When actual output is less than potential output:

the output gap becomes negative, there is insufficient demand.

An example of investment spending is:

the purchase of a freezer by an ice-cream parlor.

A constant returns to scale production function is one where increasing all inputs by a certain proportion leads to output rising by:

the same proportion.

An upward-sloping supply curve shows that

there is a positive relationship between price and quantity supplied.

If a store runs a sale on a product to clear out its stock, we can conclude that:

there was a surplus of the product in the store.

What is insufficient demand?

too much supply for too few buyers

An involuntarily part-time worker is one who:

works part-time but wants to find a full-time job.

King Taco charges the same price for everything on its menu: $5 will buy a taco, a burrito, or nachos. You buy the burrito and think that if you had not purchased the burrito, you would have purchased the taco. The opportunity cost of the burrito is:

your forgone enjoyment of the taco.