ECON 2203 Exam 1

A closed economy has income of $1,000, government spending of $200, taxes of $150, and investment of $250. What is private saving? A. $400 B. $200 C. $100 D. $300

$300 Y=C+I+G C=Y-I-G C=1000-250-200 C=1000-450 C=550 S= (Y-C-T) + (T-G) Private Savings = Y-C-T = 1000 - 550 - 150 = 700

If the CPI is 200 in the year 1980 and 300 today, then $600 in 1980 has the same purchasing power/worth as __________ today. A. $900 B. $700 C. $500 D. $400

$900 Worth Today = amount in 1980 x (CPI today/CPI 1980) = $600 x (300/200) = $900

Consider a closed economy with GDP = $4.6 trillion, Consumption = $3.3 trillion, Government purchases = $1.2 trillion, and Taxes = $0.9 trillion. For this economy, public saving is equal to ______ and the government is running a budget _____.

-$0.3 trillion; deficit

Suppose that a country imports $90 million worth of goods and services and exports $80 million worth of goods and services. What is the value of net exports?

-$10 million NX= net exports = X-M = Exports - Imports = 80 - 90 = -10

If a bank is paying an interest rate of 7.63% and inflation runs 7.92%, then the real interest rate is about ____%. (Round to two decimal places and write your answer as a percentage, i.e. write 5.27 for 5.27%).

-.29 The Fisher equation give an easy relationship between nominal and real interest rates: real rate = nominal rate - inflation

Approximately what percent of U.S. workers are directly affected by the minimum wage? A. 1 B. 25 C. 12 D. 6

1

If the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate if purchasing power parity holds?

1/2 pound per dollar if PPP holds then pounds per $ = price in pounds/price in $ = 50/100 = 1/2

If a cup of coffee costs 2 euros in Paris and $6 in New York and purchasing-power parity holds, what is the exchange rate? A. 3 euros per dollar B. 1/4 euros per dollar C. 1/3 euros per dollar D. 4 euros per dollar

1/3 euros per dollar

The population of Ectenia is 100 people: 40 full-time workers, 20 part-time workers, 10 looking for a job, 10 discouraged, 10 Students, 10 retired. What is the number of unemployed? A. 30 B. 10 C. 20 D. 40

10

The world's rich countries, such as the United States and Germany have income per person that is about ____ times income per person in the world's poor countries, such as Pakistan and India A. 4 B. 2 C. 10 D. 30

10

If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio, Brazil costs 20 reals, then how many dollars does it take to buy a meal in Rio?

10 2 real per $ is the same exchange rate as $0.5 per real. so 20 real = 20 real x $0.5/real = $10

The state of Avaria has an adult population of 222 million people with 110 million employed, 19 million unemployed. What is the unemployment rate for Avaria?

14.73 Labor Force = Employed + Unemployed Unemployment rate = 100 x (unemployed/labor force)

In the United States, unionized workers are paid about _________ percent more than similar nonunion workers A. 2 B. 5 C. 40 D. 15

15

Over the past century, real GDP per person in the United States has grown about _____ percent per year, which means it doubles about every _____ years. A. 5,35 B. 2, 35 C. 2, 14 D. 5, 14

2, 35

An economy produces 10 cookies in year 1 at a price of $2 per cookie and 12 cookies in year 2 at a price of $3 per cookie. From year 1 to year 2, real GDP increases by A. 80% B. 70% C. 50% D. 20%

20%

Consider earning a salary of $1,378 a year in 1940. Government statistics show a consumer price index of 13.4 for 1940 and 259.5 for 2020. What would be the equivalent salary in 2020 (rounded to the nearest dollar)?

26,686 Salary in 2020 = Salary in 1940 x ( CPI in 2020 / CPI in 1940 )

A good in the U.S. costs $20. The same good costs 150 pesos in Mexico. If the nominal exchange rate is 10 pesos per dollar, what is the real exchange rate?

4/3 so the good is more expensive in the U.S. real exchange rate = cost in US/cost in Mexico using the same currency = Pe/P* = 20*10/150 = 200/150 = 4/3. This is greater than 1, and since the U.S. cost was in the numerator, it is more expensive in the U.S. You can also see this because 4/3 says that you can swap one U.S. good for 4/3 of the same good in Mexico, meaning one U.S. good is more expensive

Consider a closed economy with GDP = $22 trillion, Consumption = $16 trillion, Government purchases = $1 trillion, and Taxes = $1.4 trillion. What is the investment in the economy?

5 Investment = Y-C-G

A country has consumption of $624 billion, Investment of $133 billion, Exports of $128 billion, Imports of $148 billion and GDP of $1,242 billion. What is the country's Government spending?

505 billion GDP= C + I + G + X - M G= GDP - C - I- X + M

The state of Bandorra has an adult population of 308 million people with 150 million employed, 27 million unemployed. What is the labor force participation rate?

57.47 Labor Force = Employed + Unemployed LFPR= 100 x (Labor force/Adult population)

You deposit $2,000 in a savings account, and a year later you have $2,100. Meanwhile, the consumer price index rises from 200 to 204. In this case, the nominal interest rate is _____ percent, and the real interest rate is _____ percent. A. 3; 5 B. 5; 1 C. 1; 5 D. 5; 3

5; 3 nominal rate= (2,100-2,000)/2000= 5% inflation rate= (204-200)/200=. 2% Real= nominal - inflation = 5% - 2% = 3%

What is the labor force based on the previous question information? A. 60 B. 50 C. 70 D. 80

70 40 full time workers + 20 part-time workers + 10 looking for a job

Consider a closed economy with GDP = $48 trillion, Consumption = $28 trillion, Government purchases = $10 trillion, and Taxes = $11.8 trillion. What is the amount of private savings in the economy?

8.2 Private Savings = Y - C - T

Adam and Doug both build birdhouses. Adam works 30 hours a week and produces 15 birdhouses. Doug works 20 hours a week and produces 12 birdhouses. Which of the following is correct?

Adam's production is higher than Doug's, but Doug's productivity is higher than Adam's

Which of the following items plays a role in determining productivity? A. Natural resources B. Technological Knowledge C. Physical Capital D. All of these impact productivity

All of these impact productivity

The dollar-yen exchange rate falls from 100 to 80 yen per dollar. At the same time, the price level in the United States rises from 180 to 200, and the price level in Japan remains the same. As a result, A. American goods have become more expensive relative to Japanese goods B. American goods have become less expensive relative to Japanese goods C. Relative price of American and Japanese goods has not changed D. Both American and Japanese goods have become relatively less expensive

American goods have become less expensive relative to Japanese goods

The main advantage of mutual funds is that they provide A. an easy way to hold a diversified portfolio B. an asset that is widely used at the medium of exchange C. return insured by the government D. a way to avoid fluctuations in stock and bond prices

An easy way to hold a diversified portfolio

If a nation's currency doubles in value on foreign exchange markets, the currency is said to ________, reflecting a change in the ________ exchange rate. A. Depreciate, nominal B. Appreciate, real C. Depreciate, real D. Appreciate, nominal

Appreciate, nominal

Betty is on a temporary layoff and is not looking for a job while she waits to be called back to work. Jim lost his job months ago and is currently looking for a new job. Who will count as unemployed by the BLS?

Betty and Jim Temporary layoffs (Betty) with recall are considered unemployed even if not looking for a job, so both are considered unemployed

Bob had his hours reduced at work due to a weak economy. Jenny is 14 years old and earns money babysitting her cousin. Who will count as employed by the BLS?

Bob only Bob is employed, but Jenny is not considered part of the labor force since she is under 16 years old

The inflation rate you are likely to hear on the nightly news is calculated from

CPI

Because consumers can sometimes substitute cheaper goods for those that have risen in price, A. CPI overstates inflation B. GDP deflator understates inflation C. CPI understates inflation D. GDP deflator overstates inflation

CPI overstates inflation

Domestic savings must equal domestic investment in A. Open, but not closed economies B. Closed, but not open economies C. Neither closed nor open economies D. Both closed and open economies

Closed, but not open economies

When considering the financial system, which of the following would economists classify as investment?

Company sells bonds to finance the building of a new factory.

Which events could explain a decreased shift of demand of loanable funds? A. Government starts running a budget surplus B. Congress does not renew tax credits for corporate investment C. Reduction in the tax rate on savings D. Government starts running a budget deficit

Congress does not renew tax credits for corporate investment.

The theory of purchasing-power parity says that higher inflation in a nation causes the nation's currency to ______, leaving the _______ exchange rate unchanged A. Depreciate, real B. Depreciate, nominal C. Appreciate, real D. Appreciate, nominal

Depreciate, real

The Bureau of Labor Statistics does make adjustment for quantity changes in products. Any unmeasured improvements in quality will result in the CPI understating the rate of inflation.

Does; understating

Sale of stocks is issuing equity and the sale of bonds is issuing debt

Equity; Debt

For an economy as a whole, income must equal expenditure because

Every dollar of spending by some buyer is a dollar of income for some seller

Other things equal, relatively poor countries tend to grow

Faster than relatively rich countries; this is called the catch-up effect

If an American-based firm opens and operates a new clothing factory in Honduras, then it is engaging in

Foreign Direct investment

The CPI measures approximately the same economic phenomenon as A. Unemployment Rate B. Nominal GDP C. Real GDP D. GPD deflator

GDP Deflator

When the Japanese car maker Toyota expands one of its car factories in the United States, what is the likely impact of this event on the gross domestic product and gross national product of the United States? A. GDP rises and GNP falls B. GNP rises and GDP falls C. GDP and GNP both rise, but GDP rises more D. GDP and GNP both rise, but GNP rises more

GDP and GNP both rise, but GDP rises more

If a Pennsylvania gun manufacturer raises the price of rifles it sells to the U.S. Army, its price hikes will increase A. Both CPI & GDP deflator B. Neither C. CPI but not GDP deflator D. GPD deflator, but not CPI

GDP deflator, not CPI

Which of the following is included in the calculations of U.S. GDP?

Goods a firm produces but does not sell that year

Largest component in the basket of goods and services used to compute the CPI is A. Medical Care B. Apparel C. Food and Beverages D. Housing

Housing

The main reason the cost of living varies across regions of the country is differences in the price of A. Clothing B. Housing C. Medical Care D. Food

Housing

GDP is an imperfect measure of economic well-being because it...? A. is not correlated with other measures of quality of life B. ignores the environmental degradation from economic activity C. includes physical goods produced but not intangible services D. excludes goods and services provided by the government

Ignores the environmental degradation from economic activity.

Foreign-produced goods and services that are purchased domestically are called

Imports

The main policy goal of unemployment insurance is to reduce the A. amount of frictional unemployment B. role of unions in wage setting C. search effort or the unemployed D. income uncertainty that workers face

Income uncertainty that workers face

Suppose that roofers are not unionized. If roofers unionize, then the supply of labor in other sectors of the economy will A. Increase; raising wages in industries that are not unionized B. Decrease; reducing wages in industries that are not unionized C. Decrease; raising wages in industries that are not unionized D. Increase, reducing wages in industries that are not unionized

Increase, reducing wages in industries that are not unionized.

Over the past century, _______ has experienced particularly strong growth, and _______ has experienced particularly weak growth A. Canada, Japan B. United Kingdom, Canada C. Japan, Canada, D. Japan, United Kingdom

Japan, United Kingdom

If the U.S. dollar appreciates and prices remain the same at home and abroad, foreign goods become _______ expensive relative to American goods, pushing the U.S. trade balance toward A. Less, deficit B. Less, surplus C. More, deficit D. More, surplus

Less, deficit

Country A and country B are the same except country A currently has more capital. Assuming diminishing returns, if both countries increase their capital by 100 units and other factors that determine output are unchanged, then

Output in country A increases by less than in Country B Diminishing returns refers to - increase in production you get from more capital is less the more capital you have to begin with (holding all else same)

Which of the following is included in the consumption component of U.S. GDP? A. Purchase of U.S. Produced cell phones by Korean households B. Purchase of natural gas by U.S. households C. Purchases of staplers, paper clips, and pens by U.S. business firms D. Purchases of newly constructed homes by U.S. households

Purchases of natural gas by U.S households

Thomas Robert Malthus believed that population growth would A. Spread the capital stock too thinly across the labor force, lowering each workers productivity B. Put stress on the economy's ability to produce food, dooming humans to remain in poverty C. Eventually decline to sustainable levels, as birth control improved and people had smaller families D. Promote technological progress, because there would be more scientists and inventors

Put stress on the economy's ability to produce food, dooming humans to remain in poverty

A nation's standard of living is most commonly measured by its

Real GDP per person

If all quantities produced rise by 5% and all prices fall by 5%, which of the following describes what occurs? A. Real GDP is unchanged, while Nominal GDP falls by 5% B. Real GDP is unchanged, while Nominal GDP rises by 5% C. Real GDP rises by 5%, while Nominal GDP is unchanged. D. Real GDP rises by 5%, while nominal GPD falls by 5%

Real GDP rises by 5%, while Nominal GDP is unchanged. Only quantities produced is changed in real GDP, which means if amount produced increased so will real GDP. Both prices and quantities can change in nominal GDP, which means that an increase in quantities and decrease in price counteract each other, keeping nominal GDP unchanged.

If purchasing- power parity holds, then the value of the

Real exchange rate is equal to one

If country has Y > C + I + G, then

S > I and it has a trade surplus. Lecture 6, slide 19 for summary of relationships. Y = C + I + G + NX, When a country has a trade surplus, it will have saving greater than investment and a net capital outflow where the extra saving is invested in other countries.

Carly wants to buy and operate an ice-cream truck but doesn't have the financial resources to start the business. She borrows $20,000 from her friend Freddie, to whom she promises an interest rate of 7 percent, and gets another $30,000 from her friend Sam, to whom she promises a third of her profits. What best describes this situation? A. Sam is stockholder, Freddie is bondholder B. Freddie is stockholder, Sam is bondholder C. Sam is stockholder, Carly is bondholder D. Freddie is stockholder, Carly is bondholder

Sam is stockholder, Freddie is bondholder

Which of the following is an example of direct finance? A. All of these are B. Sandy buys a US government bond at the US treasury bond auction C. Liz purchases shares in a mutual fund D. John buys a share of Apply stock through his online brokerage account

Sandy buys a US government bond at the US treasury bond auction

One of the unintended consequences of unemployment insurance is that it reduces the A. amount of frictional unemployment B. role of unions in wage setting C. search effort or the unemployed D. income uncertainty that workers face

Search effort or the unemployed

Most spells of unemployment are _______ and most unemployment observed at any given time is _______ term

Short; Long

The Karmic Deed Restaurant uses all of the following to produce vegetarian meals. Which of them is an example of physical capital?

Tables and chairs in the restaurant

If the price of Korean television sets imported into the US increases, what direct impact does this have on the GDP deflator and the CPI?

The CPI with increase, but the GPD deflator will increase

Which of the following does not help reduce frictional unemployment

Unemployment insurance

GDP is defined as the

`value of all final goods and services produced within a country in a given period of time

Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar

appreciates so US goods become more expensive relative to foreign goods a dollar now busy more euro, so the dollar has appreciated (it is worth more). As the dollar is worth more it makes foreign goods relatively cheaper and domestic goods relatively more expensive

Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example, busy people with high incomes, rather than cleaning their own houses, hire people to clean their houses. By itself, this change has

caused GDP to rise

U4 measure of labor utilization ________ include discourages workers and the official unemployment rate _________. This means the U4 measure will be __________ than the official rate

does; does not; higher

When a firm pays an efficiency wage, it may A. experience declines in worker quality B. have trouble attracting enough workers C. have to monitor its workers more closely D. find that its workers quit less frequently

find that its workers quit less frequently

According to the theory of efficiency wages A. firms may find it profitable to pay above-equilibrium wages B. an excess supply of labor puts downward pressure on wages C. right-to-work laws reduce the bargaining power of unions D. sectoral shifts are the main source of frictional unemployment

firms may find it profitable to pay above-equilibrium wages

Natural rate of unemployment is composed of

frictional and structural unemployment

Consider and amount of money on deposit in a bank savings account. The nominal interest rate measures

growth in the amount of money

Because capital is subject to diminishing returns, higher saving and investment does not lead to higher A. income in the short run B. growth in the short run C. income in the long run D. growth in the long run

growth in the long run

As a percentage of U.S. GDP, today exports are _______ and imports are _____ than were in 1950 A. lower, higher B. higher, higher C. higher, lower D. lower, lower

higher, higher`

Increases in the amount of human capital in the economy tend to ________ real incomes because they increase the ________ of labor. A. increase, bargaining power B. Decrease, bargaining power C. increase, productivity D. decrease, productivity

increase, productivity

In a competitive labor market, an increase in the minimum wage results in a(n) _________ in the quantity of labor supplied and a(n) ___________ in the quantity of labor demanded A. decrease; increase B. increase; decrease C. increase; increase D. decrease; decrease

increase; decrease

Suppose the government were to replace the income tax with a consumption tax so that earnings on savings was no longer taxed. The results would be that

interest rate would decrease, and investment would increase. increase the after-tax return consumers get from saving, which will ake saving more attractive and hence increase saving. Increase in saving will increase the supply of loanable funds, shifting the supply to the right

Bill, who lives in the U.S., buys a $800 laptop manufactured in China and a $400 chair made in the U.S. for his small business. The impact of these on U.S. investment and GDP is that A. investment increases by $1,200 and GDP increases by $400 B. Investment increases by $1,200 and GDP increases by $1,200 C. investment increases by $400 and GDP increases by $400 D. investment increases by $400 and GDP increases by $1,200

investment increases by $1,200 and GDP increases by $400 Both of those are spending by a business on goods and services so that is $1,200 of investment, however the $800 is also an import so the net impact on GDP is only $400.

The demand for loanable funds comes from national _____ and the supply of loanable funds from _____.

investment; saving

Introduction of new goods

is a problem for the CPI, since the basket of goods is fixed and the grater variety for new products would make money more valuable than indicated by the CPI

A bond tends to pay a high interest rate if it is A. short-term bond rather than long-term B. issued by the federal government rather than a corporation C. Municipal bond exempt from federal taxation D. issued by a corporation of dubious credit quality

issued by a corporation of dubious credit quality

If a country has a trade surplus

it has positive net exports and positive net capital outflow. trade surplus means positive net exports. it is always the case that NX = NCO, so positive net exports = positive net capital outflow

Most economists are _____ that natural resources will eventually limit economic growth. As evidence, they not that the prices of most natural resources, adjusted for inflation, have tended to ____ over time A. not concerned, rise B. concerned, fall C. concerned, rise D. not concerned, fall

not concerned, fall

Changes in real GDP reflect

only changes in amounts being. produced

In European nations unions A. conspire with firms to keep wages below competitive levels. B. social clubs without any economic impact C. play a much larger role than they do in the United States D. considered cartels in violation of antitrust laws.

play a much larger role than they do in the United States

In an open economy, national saving equals domestic investment A. minus the net exports of goods and services B. plus the net outflow of capital C. minus foreign portfolio investment D. plus the government's budget deficit

plus the net outflow of capital

If the government collects more in tax revenue than it spends and households consume more than they get in after-tax income, then A. private and public savings are both negative B. private saving is negative and public saving is positive C. private saving is positive, public saving is negative D. private and public savings are both positive

private saving is negative and public saving is positive T > G = positive C > Income = negative

Productivity is the amount of goods and services

produced for each hour of a worker's time. It is linked to a nation's economic policies.

If the value of a nation's imports exceeds the value of its exports, which of the following is NOT true? A. domestic investment is greater than the national saving B. the nation is experiencing a net outflow of capital C. Net exports are negative D. GDP < Consumption + investment + government purchases

the nation is experiencing a net outflow of capital

If the interest rate is such that there is a shortage of loanable funds, that means

the quantity of loanable funds demanded > quantity of loanable funds supplied, and the interest rate will rise.

Which is an example of human capital?

things you have learned this semester