Econ Practice Exam

Which of these graphs shows what would happen to the investment line if an investment project is expected to earn higher revenues over time?

Arrow to the right

Economic growth is likely to entail:

higher saving.

A fixed nominal interest rate of _____% with _____% inflation will yield the highest real rate of return for a lender.

8;1

Unemployment rates are usually highest for:

African American teenagers

Unanticipated inflation:

helps borrowers and hurts lenders

All else equal, a nation that has a high rate of ____ will have a high rate of ____ and therefore a high growth rate of ___ capital.

savings; investment; physical

The structurally unemployed are workers who are unemployed because:

there are more job-seekers than jobs

Diminishing returns to physical capital me a that as more physical capital is combined with a fixed amount of human capital and a fixed technology, eventually:

Additions to GDP pero worker decline

If there is a(n) ____ rise in income, a hand to mouth consumer will exhibit no change in consumption.

Announcement about a future

In 2022, the federal government announced that it would forgive part of the outstanding federal student loan balances of certain borrowers. If the government forgives student loans and pays for it by borrowing in the loanable funds market, the supply curve for loanable funds would shift to the _________, potentially resulting in _______.

Left; crowding out

Who could qualify as a "discouraged worker"?

Leonard, who thinks there are no jobs available and has given up trying to find work.

The loanable funds market is the market for:

Loans

An increase in the number of marginally attached workers tends to:

Lower the official unemployment rate.

Which of these is an investment?

Mario's builds a new house

Sources of financing of physical capital include:

foreign investment in the home country.

If the interest rate is 6% and the average inflation rate is 3.1%, what is the approximate future value of $75,000 in 20 years?

6-3.1=2.9 75,000(1+0.029)^20=$132,852

The marginal propensity to consume is:

the change in consumption divided by the change in income

A person who is NOT working or looking for work is:

not counted in the unemployment rate.

Which of these lists the functions of money?

Medium exchange, store of value, and unit of account

Discouraged workers are______.

Not working, want to work, but are not actively seeking a job.

The slope of the consumption function is the:

marginal propensity to consume

The present value of $1 realized one year from now is:

$1/(1+r)

You've graduated from college and are now working in an investment firm where you advise clients on investment decisions. Here is the information on a proposed project. How much profit does the project yield, and should your client invest in this project?

$15,000/.18=83333.33 $300,000-$83333.33=$216,667

Given an annual interest rate of 3%, the present value of a future payment of $2,080 to be paid in one year is:

($2,080/(1.03))= $2,019.42

If the labor force includes 109 million workers, 5 million people are unemployed but actively seeking work, then the unemployment rate is ____.

(5/100)x100=5%

What was Canada's labor force participation rate in March 2019?

(Labor force/ number of people of working age) x 100= 65.7%

What is Botswana's real GDP it's it's nominal GDP is $18.6 billion and the GDP deflator is 196.7?

(Nominal GDP/ GOD deflator)x100= $9.5

What was the unemployment rate in Toronto in January 2009?

(Unemployed/Labor Force)x100= 8.1%

Given an annual interest rate of 2%, the present value of a future payment of $1,500 to be paid in one year is:

1,500/(1.02)= $1,470.59

Economic growth in a country leads to a(n):

1. Increase in life expectancy. 2. Increase in real GDP in the economy.

Tendai's experiences illustrates how hyperinflation eroded which functions of money?

1. Medium of exchange 2. Unit of account 3. Store of value

What is the marginal propensity to consume?

2-1.2/2-1=.8 2.8-2/3-2=.8 0.8

When income rises from $4 billion to $8 billion, consumption rises from $4 billions to $_____ billion. The marginal propensity to consume is:

6;0.5

You're an economist producing a forecast for Moody's Analytics. Your most recent data show that investment, including inventory orders, is down in several industries. What does this MOST likely indicate about the state of the economy?

A downward fluctuation in the business cycle

A group of people moves into a forested piece of land, which has not established owner, cuts down all the trees and acquires all the lumber in the land. Thereafter, the land is farmed until all the mineral properties of the soil are depleted. Ultimately, the land becomes a barren desert property. This is an example of:

A lack of established property rights leading to the depletion of a resource.

Which event would lead to a slowdown in economic growth?

A reduction in the birth rate coupled with an increase in the retirement rate of population

The law of diminishing returns me as that:

Additional investments in physical capital do not boost output in wealthier countries with already existing large capital stocks.

A significant increase in human capital per worker, with all other factors remaining unchanged, is BEST indicated by a move from:

B to C

Based on these statistics, the level of business investment is:

Equipment+business structures+intellectual property= $8.5 billion

Unemployment due to the time workers spend in job search is ______ unemployment.

Frictional

What was this country's real GDP per person in 2010?

GPD/ population= $487.95

You poner a catering business in 2017. As social gatherings resumed after the COVID pandemic waned, you found yourself constantly short staffed. The steps you used to attract workers prior to 2020 do not attract applicants now. Almost a year passed before you finally reach your full staffing goal. You experienced the defect of:

Hysteresis

As a college freshman, Robert, who is from a wealthy family and si faces no significant credit constraints, charts out a "life plan" whereby, based on an estimate of his lifetime income, he schedules his consumption for the various stages of his life. It's likely that his ______ will be more volatile than his ______. Crucial to his plan is the time of of his _____, whereas the timing of his ____ is of little importance.

Income; consumption; consumption; income

An increase in the amount of physical capital per worker _____, whereas technological progress_____.

Moves the economy along the production function; shifts the production function up

What is Costa Rica's GDP deflator if it's nominal GDP is $60.13 billion (in current US$) and the real GDP is $49.17 billion?

Nominal/real (60.13/49.17)X100=122.3

The average price level is the:

Overall level of prices

Crowding out reduces:

Private investment

You're an intern at the Bureau of Labor statistics, preparing a quarterly report of leading indicators, in which you'll disclose the working age population. To determine the working age population, you should include:

Retirees, since retirement age varies

You're a member of the council of economic advisors, advising the current administration on the trade off of federal unemployment policies. if the government mandates raising the minimum wage, who will lie key be the most impacted?

Teenagers and other young workers in lower-paying jobs

The government enacts regulation to institute enforceable property rights for business investment. Which input in the product ion function changed, and what is the effect in economic growth in the country?

The capital stock increases, and economic growth is positively affected.

Which outcome would NOT be due to the government running budget deficits?

The total amount of borrowing increases UNT he market for loanable funds.

Which statement is an advantage to a foreign country of investment by U.S. firms?

US companies often bring new technology to the foreign countries in which they invest, raising their productivity.

Jayden has a part-time job. He would prefer to have a full time job but has been unable to find one. Jayden is classified as:

Underemployed

A downward shift in the consumption function can be caused by:

a decline in consumer wealth

A downward shift of the consumption function can be caused by:

a decrease in wealth

Unit-of-account costs:

arise from the way inflation makes money a less reliable unit of measurement

Sensing weaker future earnings, firm managers become cautious about investment. What is the effect on the loanable funds market?

d, supply in middle, decreased demand and old demand on bottom to the left

A decrease in the demand for loanable funds would MOST likely be caused by a(n):

decrease in perceived business opportunities.

The permanent income hypothesis implies that retired consumers with savings but no income will fund excess permanent consumption by:

dissaving

Unemployment insurance can lead to:

longer unemployment durations.

If a worker becomes unemployed because of an increase in the minimum wage, that worker is:

structurally unemployed

Menu costs are:

the real costs of changing listed prices

Economists observe that the official unemployment rate can understate the true level of unemployment because it only includes:

workers without jobs who have looked for work in the past four weeks

The aggregate production d until. Is represented as:

Y=f(L,H,K)

Meredith has purchased a guaranteed income certificate (GIC) in Canada. This financial instrument pays her 1% interest per year. However, inflation during the same year is 2%. What was Meredith's real interest rate in her GIC?

1%-2%=-1%

Henry Ford's $5 per day wage led to:

1. An increase in the number of workers willing to work at the Ford plant. 2. Workers who were more dedicated to their work. 3. Unemployment 4. Lower total labor costs

What can help you protect yourself from the harmful effects of unemployment?

1. Build up some savings 2. Watch for new opportunities even while you are employed. 3. Maintain a good network of friends and colleagues who might be able to refer you to new jobs. 4. Send out as many job applications as possible.

A new assemble line robot costs $1.2 million and is expected to depreciate by 10% at the end of next year. The real interest rate is 4.5% What is the user cost of the robot for one year?

1.2(.10)=.12 1.2(0.045)=.054 .12+.054=.174*1,000,000= $174,000

The table shows the prices of three common school supplies in 2018 and 2019 and the quantities of these goods sold in 2018, the base year. The school supply price index for 2019:

112,500/92,000=122.2

Meredith has purchased a guaranteed income certificate (GIC) in Candy. This financial instrument pays her 1% interest per year. However, inflation during the same year is 2%. What was Meredith's niño am interest rate in her GIC?

2%-1%=1%

You purchase a certificate of deposit-a certificate sold by a bank that has a specified term and a fixed interest rate-that pays an advertised rate of 2.25% interest per year. What is your nominal rate of return if the actual inflation rate is 1.65%?

2.25%

Which year is MOST likely to be the base year?

2016 (less amount)

The table shows consumer price index data for the United Kingdom. In which year was the inflation rate the highest?

2017

Your textbook costs $90, and you can resell it in one year for $45. If the annual nominal interest rate is 10%, then the present value of the textbook's resale value (to the nearest dollar) is:

45/(1+.1)^1=$41

You're an economist for the Organization for economic co-operation and development (OECD), using data from each country to publish and Economic Survey Overview. In Sweden, 5,609,600 people are in the labor force and 5,120,300 people are employed. How many people in Sweden are unemployed?

5,609,600-5,120,300= 489,300

If the interest rate is 5% and the average inflation rate is 1.8% what is the approximate future value of $100,000 in five years?

5-1.8=3.2 $100,000(1+.032)^5

The Table shows the salary of a worker in India. the marginal propensity to consume (MPC) is....

53,000/100,000=0.53

Credit constrains limit the:

Amount of money that people can borrow

Which is a resin that make labor force participation has declined over the last several decades in the United States?

Fewer men with families

Which of these graphs shows the correct effect on the consumption function when there is an increase in income?

Figure A= arrow to the right

The skills that workers bring to the job that contribute to economic growth are known as:

Human capital

There is a ________ relationship between the quantity of ______ and the real interest rate.

Negative; investment spending

Precautionary saving are:

Savings for emergency situations

A person who spends time looking for work is:

engaged in job search.

Hyperinflation

extremely high rates of inflation

The rational rule of consumption is to consume more today if the:

marginal benefit of a dollar of consumption today is greater than (or equal to) the marginal benefit of spending a dollar plus interest in the future.

Economists use _____ as a model to explain how savers and borrowers come together to determine the equilibrium rate of interest.

market for loanable funds

Crowding out is the:

reduction in private investment due to a rise in government spending.

Governments can save when:

taxes are greater than expenditures

What is the permanent income hypothesis?

the idea that people choose how much to consume based on their long-term average income

The law of diminishing returns states that:

when one input is held constant, while other inputs are increased, eventually output will increase by smaller and smaller amounts.

The table shows data for Central African Republic (CAR). What was the economic growth rate between 2011 and 2012

$2,343,002,553-$2,230,289,068/$2,230,289,068

I'm a simple, closed economy (no government or foreign sector), income increased from $2,000 to $3,000. If consumption increases from $1,500 to $2,100, the marginal propensity to consume is:

$3,000-$2,000= $1,000 $2,100-$1,500=$600 $600/$1000=$0.60

Total consumption in $1,400 when income is $1,600, and total consumption increases to $1,900 when income is at $2,400. What is the marginal propensity to consume?

($1,900-$1,400)/($2,400-$1,600)=0.625

If Mega Corporation borrows $9,000 and agrees to pay the lender $10,000 in one year, the annual nominal interest rate on the loan is approximately _____%.

(10,500-9,000/9,000)x100= 16.7%

What is the inflation rate between 2018 and 2019?

(110-103/103)x100=6.8%

You open an investment account that earns a nominal interest rate of 4.2% a year. The current consumer price index is 108. In one year, the consumer price index is expected to go to 112. What is your expected real rate of return?

(112-108/108)X100=3.7% 4.2%-3.7%= 0.5%

If the consumer price index is 189 in year 1 and 190 in year 2, the inflation rate between year 1 and year 2 is about:

(190-180)/180= 0.0554 x 100= 5.56%

A survey reveals that, on a small island, 40 people have jobs , 10 people are not working but are looking for jobs, and 30 people are neither working nor looking for jobs. Suppose that 10 of the 30 people who weren't working or looking for work now begin looking for work. There are now 20 people without jobs but looking for work and 40 people working. The unemployment rate:

(20/40+20)x100= 33.3%

You open an investment account that earns a nominal interest rate of 3.1% a year. The current consumer price index is 205. In one year, the consumer price index is expected to go to 203. What is your expected real rate of return?

(205-203)/205=.00975X100=0.9756 3.1-.9756=4.08%

In 2018, there were 111.01 million people aged 15 years and older in Japan. There were also 68.3 million people in the labor force. What was the labor force participation rate?

(68.3/111.01)x100=61.53%

The Republic of Livonia has an adult population of 100 million; 60% of Livonia's population is employed, and 10% of the people are unemployed. The labor force participation rate in Livonia is _______

60%+10%=70%

If the interest rate is 7% and the average inflation rate is 2.5%. What is the approximate future value of $45,000 in five years?

7-2.5=4.5=0.045 $45,000(1+0.045)^5= $56,078

You're thinking of starting a business, so you're researching the correct economic outlook to determine whether it's a good time to open a business or if negative economic conditions could dampen your success. Which favorable indicates a dynamic labor market?

A rising labor force participation rate

If you expect to get a substantial raise six months from now, and you are like most people, it will ______.

Affect your current consumption

You are comparing real GDP per person in various areas centuries ago and today, as in Figure 1 in the text. One conclusion you CANNOT draw from the data is:

Areas with the same growth rate inevitably converge to the same GDP per person

A negative shock causes a decrease in the level of technology in a country. Which production function shows the impact of this shock?

Arrow going down

If the real state market in Kyiv, Ukraine, experiences a slump, what effect does this have in the consumption friction in Ukraine?

Arrow going down

Which statement correctly describes the relationship between consumption and income?

Consumption and income are positively related

The marginal propensity to consume (MPC) equals the change in ____ divided by the change in ____.

Consumption; income

Which is NOT a reason that female labor force participation increased to 60% in the United States?

Decreased male labor force participation

When real interest rate rise, the consumption function will shift:

Downward if the substitution effect outweighs the income effect

Cyclical unemployment is unemployment

Due to a temporary downturn in the economy

Equilibrium in the loanable funds market determine the:

Equilibrium real interest rate

Dissaving is:

Excess consumption over and above income

The loanable funds model is used to examine how loans from borrowers are allocated among savers.

False

Ibraham quit his job in retail management and moved to Florida with his partner, a physician who has now opened a new practice there. He is not successful in us job search I. The first four months in his new location. Ibraham's unemployment is:

Frictional

It surprised you to read that twice as many soldiers in the American civil war died from disease as from battlefield wounds until you read that:

Fundamental improvements in medical technology had yet to be discovered

In the initial stage of the a retail development project, you determine that the upfront cost of the commercial property you want is $1.5 million. However, your realtor informs you that the price of the property has risen since your first estimate, to $1.7 million. The present value of future profits is $1.6 million. At this point, you should:

Halt the project because the marginal cost exceeds the marginal benefit

Human Capital refers to:

Improvements in labor productivity made possible by education and knowledge.

The marginal propensity to consume is the increase in consumer consumption when _____ increase(s) by $1.

Income

Suppose that roughly 8 million people in the United States unsuccessfully sought work this month, the same number as last month l, while 2 million people who were unemployed last month stopped searching for work this month. What will happen to the official unemployment rate this month, all other things equal?

It will fall because 2 million people are no longer in the labor force and so are not counted as unemployed.

From the macroeconomic perspective, investment refers to:

Purchases of capital assets that increase a nation's productivity

The minimum wage. By how much does the quantity of labor demanded fall when the government imposed a binding minimum wage if P3?

Q2-Q1

You are looking at some old family pictures and come across one of your great-grandmother, who was born 70 years before you. With an average real GDP growth rate 2% per year since she was born, you realize that

Real GDP per person is about four times larger than when she was born

Friend pay efficiency wages because such wages:

Reduce the risk that firms will lose their best workers.

According to the BLS, "Word processors and typists" is one of the most quickly declining occupations in the United States, as companies offshore or automate standard tasks. If you've worked as a typist but have difficulty finding a new job in the same career, you're experiencing:

Skills mismatch

Which country enjoyed significant catch-up economic growth in the second half of the twentieth century?

South Korea

The government passed a new initiative to provide a tax credit in research and innovation by firms. What is the impact on the production function, and what is the effect in economic growth in the country?

Technological advancement occurs, and economic growth occurs.

The production function does NOT depend on:

The amount of natural resources available

How much profit does the project yield, and should your client invest in this project?

The client is indifferent because the project does not yield any profit above the upfront cost.

one of your friends tells you they think there should be no unemployment, stating, "The U.S. administration should enact policies with the goal of the unemployment rate falling from its current rate of 4.5% to 0%." Which statement regarding your friend's viewpoint is TRUE?

The current unemployment rate is 4.5% due to structural and frictional unemployment.

Net financial inflows equal:

The goal inflow of foreign funds minus the total outflow of domestic funds.

Which price index is used to measure changed in the prices that firms pay for good and services?

The producer price index

A person without a job who is actively seeking work is considered:

Unemployed

Choose the best answer. A person who has no job but is looking for one is:

Unemployed and part for the labor force

When real interest rates rise, the consumption function will shift:

Upward if the income effect outweighs the substitution effect.

When does an anticipated change in fixture income lead to a change in consumption for consumption smoothers?

When the consumption smoother first learns of the anticipated future change in income.

An underemployed person is one who is:

Working but whose skill are not fully utilized

What is an example of macroeconomic investment?

You purchase new iMacs for your graphic design and web development teams.

Deflation is a:

a decreasing aggregate price level