ECO 202 Exam 1 Practice

consider a demand/supply framework for the market of loanable funds. graphically depict the impact of an increase to households to save more money a. explain how an increase of households to save more today affects the demand or supply curve of the loanable funds b. Graph the equilibrium real interest rates and quantity of loanable funds before and after the event. (be sure to label both axis, demand curve and supply curve) c)Explain what happens to the equilibrium real interest rate and the equilibrium quantity of loanable funds.

a) An increase of private saving increases the total saving in the economy, which is the supply for loanable funds. The supply curve will shifts to the right. b. graph c. The equilibrium real interest rate decrease and the equilibrium quantity of loanable funds increases.

Year (Nom) Min Wage CPI 1974 2.00 49.3 2017 7.25 244.3 CPI: 1982-1984=100 Formula: Value in 2017 dollar = nominal wage in 1974 * CPI in 2017/CPI in 1974 a. calculate the real minimum wage for 1974 in 2017 dollars value b. are workers better off in terms of the purchasing power of the minimum wage in 1974 or 2017? Explain why.

a. 2*(244.3/49.3) = 9.91 b. in 1974. with the real minimum wage of 1974 (9.91), you can afford more goods and services comparing to the nominal minimum wage of 2017 (7.25)

consider the following data for a closed economy: Y (GDP/total income) = 8 trillion C (Consumption) = 2 trillion G (government purchases) = 2 trillion T (tax revenue) = $6 TR (transfer payment) = $3 a. what is the private saving in the economy? b. what is the total investment? c. is the government running a budget deficit, surplus, or balanced budget?

a. private saving = total income + transfer payment - consumption - tax = 8+3-2-6=3 b. two ways to solve this: i) Y=C+I+G 8=2+I+2 I= 4 ii) total investment = total saving = private saving + public saving public saving = tax-government purchases-transfer payment = 6-2-3=1 total investment= 3+1=4 c. public saving > 0: budget surplus

Which of the following policies is designed specifically to directly promote technological change in an economy? A) government subsidization of research and development B) tax incentives to promote investment in 401K plans C) laws to strengthen property rights D) a vaccination program to combat infectious diseases

A

An example of an intermediate good would be A. the bread that goes into a sub sandwich that is sold by Quiznos B. the soda pop sold by Quiznos C. the sub sandwich sold by Quiznos D. the potato chips sold by Quiznos

A

Consider the following data for Tyrovia, a country that produces only two products: guns and butter Year Guns Produced Gun Price Butter Produced Butter Price 2007 80 $5 40 $4 2016 90 6 60 10 Nominal GDP for Tyrovia in 2016 equals A. 1,140 B. 880 C. 690 D. 560

A

Diminishing marginal returns is illustrated in the per-worker production function in the figure above by a movement from A) A to C. B) B to C. C) C to D. D) D to C.

A

Which of the following has a tendency to raise the unemployment rate? A) implementing a minimum wage in an economy B) reducing unemployment insurance in an economy C) offering wages at the market-clearing rate D) reducing labor union membership in an economy

A

Which of the following is not one of the three sources of technological change? A) additional amounts of existing capital B) better machinery and equipment C) increases in human capital D) better means of organizing and managing production

A

gross domestic product understates the total production of final goods and services because of the omission of A. the underground economy B. intermediate goods C. inflation D. exports

A

An increase in unemployment insurance payments would, in effect, ________ the amount of time spent searching for a job, which would increase ________ unemployment. A) increase; cyclical B) increase; frictional C) decrease; cyclical D) decrease; frictional

B

As the CPI (Consumer Price Index) increases, A) the level of prices in the economy may increase, decrease, or remain the same. B) the level of prices in the economy increases. C) the inflation rate in the economy will still remain the same. D) the inflation rate in the economy will fall

B

Based on the "catch-up line" drawn above, poorer countries are more likely to be at a point like ________, where growth in GDP is relatively ________, while richer countries are more likely to be at a point like ________, where growth in GDP is relatively ________. A) A; low; B; high B) A; high; B; low C) B; low; A; high D) B; high; A; low

B

Disease, poor nutrition, and substandard health care in developing nations can reduce growth in an economy by A) reducing physical capital. B) reducing human capital. C) increasing labor productivity. D) increasing technological change.

B

During a recession, spending on ________ tends to fall more dramatically than spending on ________. A) necessities; luxuries B) durable goods; nondurable goods C) nondurable goods; durable goods D) food; cars

B

If the minimum wage is set above the market wage, A) the quantity of labor supplied will be below the quantity of labor demanded. B) unemployment will rise. C) highly-skilled workers will have a harder time finding jobs. D) All of the above are correct.

B

In the long run, a country will experience an increasing standard of living only if it experiences A) a high rate of consumption. B) continuous technological change. C) a high rate of labor force growth. D) a slow rate of population growth.

B

Under the Soviet system of communism, A) managerial pay was determined by the extent to which managers could lower the per-unit costs of production. B) technological progress was slow because managers had little incentive to develop new technologies. C) competitive pressures in the Soviet Union allowed the country's technological progress to keep pace with the rest of the world. D) the per-worker production function in the Soviet Union shifted up more rapidly than production functions in other countries.

B

Which of the following could cause nominal GDP to increase, but real GDP to decrease? A. the price level rises and the quantity of final goods and services produced rises B. the price level rises and the quantity of final goods and services produced falls C. the price level falls and the quantity of final goods and services produced rises C. the price level falls and the quantity of final goods and services produced falls

B

which of the following would not be included in the expenditure category called investment expenditures? A. spending on new houses B. a purchase of shares of preferred stock C. a purchase of a copy machine by FedEx Office D. the cars held in inventory on a local Ford dealer's lot

B

A lumberjack loses his job because timber cutting restrictions were imposed by the EPA to protect the spotted owl habitat. This lumberjack would be A) frictionally unemployed. B) cyclically unemployed. C) structurally unemployed. D) seasonally unemployed.

C

An increase in the demand for loanable funds will occur if there is A) an increase in the real interest rate. B) a decrease in the real interest rate. C) an increase in expected profits from firm investment projects. D) an increase in the nominal interest rate accompanied by an equal increase in inflation.

C

Consider the following data on nominal GDP and real GDP (values are in billions of dollars): Year Nominal GDP Real GDP 2014 13,399 12,976 2015 14,078 13,254 2016 14,441 13,312 The GDP deflator for 2015 equals: A. 94.1 B. 105.1 C. 106.2 D. 108.5

C

Consider the following values of the consumer price index for 1996 and 1997: Year CPI 1996 157 1997 161 The inflation rate for 1997 was equal to A) 1.2 percent. B) 2.0 percent. C) 2.5 percent. D) 4.0 percent.

C

Deflation occurs when A) there is a sustained increase in the price level. B) there is a one-time increase in the price level. C) there is a decline in the price level. D) there is a decrease in the expected rate of inflation.

C

Legalizing all forms of illegal activities A. reduces GDP and reduces the size of the underground economy B. reduces GDP and increases the size of the underground economy C. increases GDP and reduces the size of the underground economy D. increases GDP and increases the size of the underground economy

C

Real GDP for Tyrovia for 2016 using 2007 as the base year equals A. 1,140 B. 880 C. 690 D. 560

C

What two factors are the keys to determining labor productivity? A) the business cycle and the growth rate of real GDP B) the growth rate of real GDP and the interest rate C) technology and the quantity of capital per hour worked D) the average level of education of the workforce and the price level

C

Year Real GDP (billions of 2000 $) 2013 8,700 2014 8,875 2015 9,000 2016 9,280 Using the table above, what is the approximate growth rate of real GDP from 2015 to 2016? A) 1% B) 2% C) 3% D) 4%

C

Consider the date (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals: A. 2,200 B. 1,600 C. 1,400 D. 1,200 Consumption expenditures: $800 investment expenditures: 200 government purchases: 300 exports: 100 imports: 200 wages: 800

D

Full employment is not considered to be zero unemployment, because A) some cyclical unemployment always exists. B) some people do not want a job. C) there are not enough jobs for everyone who wants one. D) people do not find jobs instantaneously.

D

Imagine that you borrow $1,000 for one year and at the end of the year you repay the $1,000 plus $100 of interest. If the inflation rate was 7%, what was the real interest rate you paid? A) 17 percent B) 10 percent C) 7 percent D) 3 percent

D

Investment, as defined by economists, would include the purchase of a A. corporate bond B. government bond C. share of stock in ExxonMobile D. computer by an accounting firm

D

Product Quantity 2011 (base year price) 2016 price Cokes 100 0.50 0.75 Hamburgers 200 2.00 2.50 CDs 10 20.00 21.00 Assume the market basket for the consumer price index has three products — Cokes, hamburgers, and CDs — with the following values in 2011 and 2016 for price and quantity: The Consumer Price Index for 2016 equals A) 75. B) 93. C) 108. D) 121.

D

Suppose the working-age population of a fictional economy falls into the following categories: 90 are retired or homemakers; 60 have full-time employment; 20 have part-time employment; 20 do not have employment, but are actively looking for employment; and 10 would like employment but do not have employment and are not actively looking for employment. The official unemployment rate as calculated by the U.S. Bureau of Labor would equal A) (20/60) × 100. B) (20/80) × 100. C) (30/80) × 100. D) (20/100) × 100.

D

Which of the following transactions represents the purchase of a final good? A. Starbucks produces coffee beans B. Delta buys a new European-made jetliner C. Apple computer buys computer processors from Intel D. Your father buys a new John Deere riding lawn mower

D

Which of the following would be the best measure of the cost of living? A) real GDP B) real GDP per person C) GDP deflator D) consumer price index

D

when the labor market is at full employment A. there is only cyclical unemployment in the economy B. there is only structural unemployment in the economy C. the unemployment rate is 0% D. there is no cyclical unemployment in the economy

D