ECO 212 Exam 2

Use the following table to answer the next question. GDP figures are in billions of dollars. Year Nominal GDP Real GDP Price Index 1 5,200 4,800 -- 2 5,500 -- 112 3 5,750 5,000 -- What was real GDP in year 2?

$4,911 billion

Use the following table to answer the next question. The base year is 2007. Year Hot Dogs Price Quantity Baseballs Price Quantity Bottles of Beer Price Quantity 2005 $ 2.50 100 $ 2.50 50 $1.00 100 2006 4.00 100 5.00 100 2.00 150 2007 5.00 100 5.00 100 2.00 200 2008 8.00 150 8.00 200 4.00 200 2009 10.00 200 10.00 200 4.00 250 The Consumer Price Index for the year 2008 is

171.5

If the inflation premium is 3% and the real interest on a loan is 4%, then the nominal interest rate is

7%

A nation's capital stock was valued at $300 billion at the start of the year and $350 billion at the end. Consumption of private fixed capital in the year was $25 billion. Assuming stable prices, gross investment was

75 billion

Currently, the largest component of aggregate spending in the US is?

Consumption

An increase in productivity will

Increase aggregate supply

Computation of GDP by the expenditures method would include the purchase of:

Land by the U.S. Department of Interior.

Which point or output-combination in the above graph could the nation produce only if it experienced economic growth?

Point G (it is the point to the right of the curve)

One common measure of the "standard of living" in a nation is

Real GDP per capita

Real GDP per capita

Real GDP/Population

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of

a change in real value of consumer wealth.

In the treatment of the U.S. exports and imports, national income accountants

add exports but subtract imports in calculating GDP.

The foreign purchases, interest rate, and real-balances effects explain why the

aggregate demand curve is downward-sloping.

The marginal propensity to consume (MPC) is the

amount by which consumption increases when disposable income increases by $1.

In a private closed economy, national income is $4.5 trillion and savings equals $6.4 billion. Based on this data, the marginal propensity to consume

cannot be calculated from data given

If the economy's real GDP doubles in 8 years, we can

conclude that its average annual rate of growth is 9%.

When oil and energy prices rise, the economy tends to experience

cost-push inflation.

When unexpected deflation occurs

debtors are hurt, but creditors benefit.

In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are

excluded from the labor force.

In the figure, AD1 and AS1 represent the original aggregate supply and demand curves. If Q1 is full-employment output, then AD2 and AS1 represent a(n)

expansion

Changes in the national incomes of our trading partners would directly affect our

exports

Part-time workers who want full-time work are counted as

fully employed and therefore the official unemployment rate may understate the level of unemployment.

If the expected rate of return on investment decreases, then most likely the

investment schedule will shift downward.

Graphically, cost-push inflation is shown as a

leftward shift of the AS curve.

Alpha has $40,000 of capital per worker, while Beta has $5,000 of capital per worker. In all other respects, the two countries are the same. According to the principle of diminishing returns to capital, an additional unit of capital will increase output ______ in Alpha compared to Beta, holding other factors constant.

less

Dissaving occurs when disposable income is

less than level 2 income is less than consumption.

An increase in net exports will have a greater effect on equilibrium real GDP if the

marginal propensity to save is smaller.

The labels for the axes of the aggregate demand graph should be

real domestic output on the horizontal axis and the price level on the vertical axis.

In the basic aggregate expenditures model, a decrease in autonomous expenditure

reduces equilibrium output.

John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?

the Great Depression

Nominal GDP is

the sum of all monetary transactions involving final goods and services that occur in the economy in a year.

Before the Industrial Revolution, living standards in the world

Were relatively stagnant for long periods of time.

In 2008, during the Great Recession, the federal government provided tax rebate checks to taxpayers in the hope that

consumption would increase.

The principle that if the amount of labor and other inputs is held constant, then the greater the amount of capital in use, the less an additional unit of capital adds to production is called the principle of

diminishing returns to capital.

A decrease in interest rates caused by a change in the price level would cause a(n)

increase in the quantity of real output demanded (or movement down along AD).

The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the Federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work. Which individual is frictionally unemployed?

Mollie

If the dollar appreciates in value relative to foreign currencies, aggregate demand

decreases because net exports decrease.

Use the following table to answer the next question. The base year is 2007. Year Hot Dogs Price Quantity Baseballs Price Quantity Bottles of Beer Price Quantity 2005 $ 2.50 100 $ 2.50 50 $1.00 100 2006 4.00 100 5.00 100 2.00 150 2007 5.00 100 5.00 100 2.00 200 2008 8.00 150 8.00 200 4.00 200 2009 10.00 200 10.00 200 4.00 250 Calculate the percentage change in prices from 2007 to 2009

100%

Consider two scenarios for a nation's economic growth. Scenario A has real GDP growing at an average annual rate of 2%; scenario B has an average annual growth of 8%. The nation's real GDP would double in about

36 years under scenario A, versus 9 years under scenario B.

If the Consumer Price Index was 170 in one year and 180 in the next year, then the rate of inflation is approximately

5.9% (180-170/170)

Use the following table to answer the next question. The base year is 2007. Year Hot Dogs Price Quantity Baseballs Price Quantity Bottles of Soda Price Quantity 2005 $2.00 100 $5.00 50 $2.00 100 2006 4.00 100 5.00 100 2.00 150 2007 6.00 100 5.00 100 2.00 200 2008 8.00 150 8.00 200 4.00 200 2009 10.00 200 10.00 200 4.00 250 Nominal GDP for 2009 equals

5000

Answer the next question on the basis of the following national income data for the economy. All figures are in billions of dollars. Personal consumption expenditures $400 Government purchases 128 Gross private domestic investment 88 Net exports 7 Net foreign factor income 0 Consumption of fixed capital 43 Taxes on production and imports 50 Compensation of employees 369 Rents 12 Interest 15 Proprietors' income 52 Corporate income taxes 36 Dividends 24 Undistributed corporate profits 22 Statistical discrepancy 0 The gross domestic product for the above economy is

623

Use the following table to answer the next question. The following national income data for an economy are in billions of dollars. Consumption $5,100 Investment 1,100 Transfer payments 1,050 Government purchases 1,400 Exports 850 Imports 950 Net foreign factor income 20 GDP for this economy is

7500 billion

Answer the next question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Year: 1 2 3 4 5 Units of Output: 8 10 15 18 20 Price per Unit: $2 3 4 5 6 In year 4, nominal GDP would be?

90

Use the following information to answer the next question. The following items describe the responses of four individuals to a Bureau of Labor Statistics (BLS) survey of employment. Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer. George used to work in an automotive assembly plant. He was laid off six months ago as the economy weakened. He expects to return to work in a few months when national economic conditions improve. Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills. Ricardo lost his job last year when his company downsized and laid off middle-level managers. He tried to find another job for a year but was unsuccessful and quit looking for work. Which individual(s) would be included in the calculation of the natural unemployment rate?

Molly and Jeanette

Suppose Canada has a population of 30 million people and a labor force participation rate of 2/3. Furthermore, suppose the natural rate of unemployment in Canada is 7%. If the current number of unemployed people is 1.4 million people, what can we conclude about Canada's economy?

There is no cyclical unemployment present in the economy.

If the dollar depreciates in value relative to foreign currencies, then aggregate

demand increases

An increase in the aggregate expenditures schedule

increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier.

Net foreign factor income is

the difference between the income people in a country receive from resources owned in foreign countries and the income people in foreign countries receive from resources owned domestically.

The expenditure multiplier leads to greater than one-for-one changes in output when autonomous expenditure changes because

the direct changes in expenditure change the income of producers which leads to additional changes in expenditure.