ECON TEST 3

LABOR FORCE PARTICIPATION RATE

LABOR FORCE/ADULT POPULATION

QUANTITY THEORY OF MONEY

MV=PYr (MONEY SUPPLY X VELOCITU OF MONEY=PRICE LEVEL X REAL GDP

GROWTH RATE

P2-P1/P1 X100

UNEMPLOYMENT RATE

UNEMPLOYED/LABOR FORCE X 100

If real GDP per capita is growing at an annual growth rate of 3.5%, it will double in:

70/3.5%

A minimum wage is: A. a labor market price floor. B. an employment protection law. C. a labor market price ceiling. D. the equilibrium wage in an unskilled labor market.

A

According to the quantity theory, what causes inflation in the long run? A. money supply growth B. unexpected inflation C. aggregate demand shocks D. unemployment

A

Higher implicit tax rates tend to cause labor force participation rates to: A. decrease. B. remain constant. C. behave unpredictably. D. increase.

A

If a national government improves its unemployment benefits, its unemployment rate will most likely: A. increase. B. remain the same. C. decrease. D. follow the global trend, regardless of national policy.

A

TABLE (Figure: Labor Market) Refer to the figure. If this market is initially in equilibrium when a $10 minimum wage is imposed, the quantity of labor employed will fall by: A. 20. B. 40. C. 60. D. 80.

A

TABLE (Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. All of the country's tomatoes are used in the production of pizzas. What is the GDP in this country? A. $7,200 B. $6,700 C. $6,200 D. $7,700

A

TABLE (Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of nominal GDP from 2005 to 2006 is: A. 27%. B. 21%. C. 8%. D. 16%.

A

The presence of discouraged workers causes the measured unemployment rate to be: A. understated. B. either overstated, understated, or correctly stated. C. overstated. D. correctly stated.

A

The value of volunteer services is: A. not included in GDP, but should be because a service is produced. B.included in GDP, but should not be because nothing tangible is produced. C.not included in GDP and should not be because nothing tangible is produced. D. included in GDP and should be because a service is produced.

A

When workers lose their jobs and become officially unemployed, the number of people in the labor force: A. remains constant. B. increases. C. becomes difficult to predict. D. decreases.

A

Which of the following is a case of frictional unemployment? A.Timothy is looking for a job where he can apply his expertise in computer programming. B. Tina was laid off temporarily while her company downsized. C. Thomas recently quit his job to start his own business. D.Terrance is one of more than a dozen applicants for a position teaching high school math.

A

Which of the following is the best example of frictional unemployment? Heather recently graduated with her doctorate in economics. She is searching for a job that matches her skills.

A

Which type of unemployment is likely to be higher when real GDP growth is lower? A. cyclical unemployment B. frictional unemployment C. structural unemployment D. natural unemployment

A

Decreases in the level of political stability in a country tend to: A. have no impact on per capita GDP. B. decrease per capita GDP. C. increase per capita GDP. D.increase per capita GDP at lower levels of stability, but decrease per capita GDP at higher levels of stability.

B

For a given nominal interest rate, an increase in deflation will cause the real rate of interest to: A. decrease. B. increase. C. become unpredictable. D. remain relatively constant.

B

Gross domestic product is the market value of all: A. goods and services produced within a country in a year. B. final goods and services produced within a country in a year. C. goods and services sold within a country in a year. D.final goods and services produced by a country's permanent residents, wherever located, in a year.

B

If the adult population of a country is 300 million, 100 million are employed, and 20 million are unemployed, this country's unemployment rate is: A. 9.1%. B. 16.6% C. 11%. D. 10%.

B

If you earned $10-an-hour in 2005 when the CPI was 100, and you earn $11-an-hour today when the CPI is 120, then your real wage rate has _____ since 2005. A. increased 20% B. decreased C. remained the same D. increased 10%

B

Inflation refers to an increase in the: A. average level of nominal output. B. average level of prices. C. standard of living. D. relative prices of some goods as compared to other goods.

B

Several years ago, the rising popularity of Barnes & Noble and Borders shifted workers from independent bookshops to larger chains. What type of unemployment was associated with this reallocation of the work force? A. creative destruction B. frictional unemployment C. structural unemployment D. technological substitution

B

TABLE (Figure: Labor Supply and Demand) Refer to the figure. How much will the quantity of labor employed decline as a result of the labor union's action to increase its wage demands to $11 an hour? A. 2,700 B. 700 C. 1,800 D. 1,100

B

The text states, "inflation is a type of tax." This tax refers to _____ when inflation occurs. A. a higher tax rate that the government must impose B. the lower purchasing power of money C. a higher nominal interest rate of a typical loan D.a special tax on taxpayers in order for the government to balance its budget

B

To avoid double accounting, the value of: A. both final good and intermediate goods are included in GDP. B. final goods only are included in GDP. C. neither final goods nor intermediate goods are included in GDP. D. intermediate goods only are included in GDP.

B

When an economic system changes from using a collective property rights system to something closer to private property rights, the immediate effect is: A. to increase regulation, resulting in less market activities. B. to increase investment, work effort, and productivity. C. to decrease investment, work effort, and productivity. D. less efficient organization of resources.

B

Which are immediate causes of the wealth of nations? A. customs, practices, and social norms B. technical knowledge and human capital C. institutions and incentives D. property rights and honest government

B

Which is NOT an example of physical capital? A. cell phones B. money C. computers D. tractors

B

Which of the following activities is counted as part of U.S. GDP? A. John purchases a counterfeit DVD. B. Jeff stays in a hotel in Colorado while on a skiing trip. C. Jake takes a vacation at a Caribbean resort. D. Joe watches a free video on YouTube.

B

Which of the following is (are) NOT an institution of economic growth? A. property rights B. labor unions C. competitive and open markets D. honest government

B

Which of the following is a case of cyclical unemployment? A.Grace is an accountant temporarily unemployed since tax season has ended. B.Garrett lost his job after the company closed during last year's recession. C. Glenn quit his job to move to another state. D. Gwyneth is still seeking a job that will use her skills in statistics.

B

Which of the following statements is TRUE about GDP? A.GDP includes all known goods and services in the underground economy. B. GDP does not account for the distribution of income in a country. C.GDP includes a positive adjustment for the value of leisure and well-being. D.GDP includes a negative adjustment for damage caused by pollution.

B

A bank lends money for a year at an interest rate of 9% and the inflation rate for that year turns out to be 5%. What is the bank's real rate of return for that year? A. 6% B. 14% C. 4% D. 2%

C

A set of tires installed on a vehicle in an automobile factory is counted as: A. a final good and its market price is part of GDP. B. a final good and its market price is not part of GDP. C. an intermediate good and its market price is not part of GDP. D. an intermediate good and its market price is part of GDP.

C

For most of recorded human history, real GDP per capita has: A. decreased at a modest rate. B. increased at a rapid rate. C. remained about the same. D. increased at a modest rate.

C

High and volatile inflation: A. increases the purchasing power of money and income. B. creates high supply of goods and services. C.destroys the ability of market prices to send signals about the value of resources and opportunities. D.causes the price of goods and services to deviate from the market price.

C

High-income economies generally have _____ that incentivize individuals' self-interest by using _____. A. central planners; profit-seeking motives B. institutions; legal penalties C. institutions; profit-seeking motives D. government mandates; legal penalties

C

If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be: A. 7.69%. B. 10%. C. 8.33%. D. 9.23%.

C

If the economy experiences unexpected inflation, then the real interest rate will be _____ than its equilibrium rate, and wealth will be distributed from _____. A. greater; lenders to borrowers B. less; borrowers to lenders C. less; lenders to borrowers D. greater; borrowers to lenders

C

Imagine that Jack and Jill buy $500 worth of milk and $200 worth of crayons and coloring books each year for use in their day-care business. Jack and Jill also hire a day-care attendant at a salary of $14,000 per year. If Jack and Jill sell $100,000 worth of day care to parents each year, what is the contribution to GDP by Jack and Jill's Day Care? A. $100,700 B. $114,700 C. $100,000 D. $700

C

In nations that have large underground, or illegal, sectors: A. GDP will overestimate total production in the economy. B.poverty will be significantly greater than in countries with fewer illegal market activities. C. GDP will underestimate total production in the economy. D. GDP will provide an accurate account of production in the economy.

C

Property rights encourage: A. investment in human capital. B. saving. C. saving and investment in both physical and human capital. D. investment in physical capital.

C

Real GDP for the year 2000 (measured in 2005 dollars) is equal to: A. 2000 prices × 2005 quantities. B. 2000 prices × 2000 quantities. C. 2005 prices × 2000 quantities. D. 2005 prices × 2005 quantities.

C

Suppose a country's annual growth rate of real GDP per capita is approximately 2%. By which year would the country double its real GDP per capita from $10,000 in 1950 to $20,000? A. 1970 B. 2005 C. 1985 D. 2000

C

TABLE (Table: Prices and Quantities in a 4-Good Economy) Suppose an economy produces only the four goods listed in this table. What is the GDP in this country? A. $6,200 B. $7,200 C. $7,700 D. $6,700

C

TABLE (Table: Unemployment Statistics for Country X) Using the data in the table, what is the natural unemployment rate for this country in the year 2005? A. 4.7% B. 1% C. 2.9% D. 1.9%

C

The argument that "inflation is always and everywhere a monetary phenomenon" is consistent with: A. the theory of money illusion. B. the theory of price confusion. C. the quantity theory of money. D. the Fisher effect.

C

The key reason for China's growth miracle beginning in the late 1970s was: A. the enforcement of communal property. B. increases in foreign investment from developed countries. C. the assignment of private property rights. D. pure luck.

C

The quantity theory of money implies that the money supply times the velocity of money equals: A. real GDP. B. the quantity of goods and services. C. nominal GDP. D. the price level.

C

The shift toward more of a service economy and less of a manufacturing economy in the United States has caused an increase in: A. cyclical unemployment. B. frictional unemployment. C. structural unemployment. D. seasonal unemployment.

C

Tim buys a house from Betty in 2011 for $200,000. Betty receives $185,000 and $15,000 goes to Mary, the real-estate agent. Betty originally purchased the house in 2007 for $240,000. What value is added to GDP in 2011 for this transaction? A. $185,000 B. -$40,000 C. $15,000 D. $200,000

C

When disinflation arises unexpectedly, the real interest rate will _____ the equilibrium rate, which will benefit _____. A. exceed; benefit borrowers and harm lenders B. fall short of; lenders and harm borrowers C. exceed; lenders and harm borrowers D. fall short of; borrowers and harm lenders

C

Which is NOT likely an ultimate cause of economic growth around the world? A. historical differences B. luck C. communal resources D. geographical locations

C

Which of the following best describes the effects of a major labor union that maintains a union wage above the market wage? A.The quantity of labor demanded exceeds the quantity of labor supplied, and the unemployment rate increases. B.The quantity of labor demanded exceeds the quantity of labor supplied, and the unemployment rate decreases. C.The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate increases. D.The quantity of labor supplied exceeds the quantity of labor demanded, and the unemployment rate decreases.

C

Which of the following is NOT considered a government purchase? A. salaries for public school teachers B. levees built by the Army Corps of Engineers C. unemployment checks D. new rifles for the military

C

Which of the following is TRUE in the calculation of GDP? A.GDP is positively adjusted to include production in the underground economy. B.GDP includes a positive adjustment for leisure activities, even if no purchase is required. C.GDP does not include goods and services produced privately inside the home. D.GDP is negatively adjusted to account for environmental damage caused by businesses.

C

Which of the following is a problem with deflation? A. It causes people to pay more taxes. B. Stopping it will cause a recession. C. It raises the real cost of debt repayment. D.There is no problem with deflation; falling prices are good for the economy.

C

Which of the following is an example of money illusion assuming that inflation is 5%? A.You do not receive a raise at your part-time job but cut out some expenses as you notice some prices rising. B.You receive a 10% raise at your part-time job and start spending extra money on entertainment every weekend. C.You receive a 5% raise at your part-time job and start spending extra money on entertainment every weekend. D.You receive a 5% raise at your part-time job but do not increase or decrease your spending.

C

Why could very high rates of inflation cause velocity to increase? A. The more inflation there is, the more there is to buy. B. The more people earn, the faster they spend it. C. The more money loses its value, the faster people try to spend it. D. The more people earn, the faster prices rise.

C

Why do we use the "real" prices of goods to measure how expensive things have become? A. to estimate the periods when hyperinflation has occurred B. to find out what the inflation rate has been C.to see whether there have been any changes in our purchasing power D. to find out what the current prices of goods and services are

C

A country that has enforceable property rights, a noncorrupt political system, abundant factors of production, and a change in leadership and form of government every few years should suspect that economic growth will be _____ because _____. A. high; most of the institutions needed for growth are in place B. slow; of a lack of a dependable legal system C.high; once a group comes to power all the institutions needed for growth exist D. slow; of uncertainty due to an unstable political system

D

A developing country could buy (or be given) _____ and _____ more easily than _____. A. human capital; work experience; technological knowledge B. physical capital; human capital; technological knowledge C. human capital; technological knowledge; physical capital D. technological knowledge; physical capital; human capital

D

According to the quantity theory of money, an increase in the money supply will cause the price level to: A. increase by a greater percentage than the money supply. B. increase by a smaller percentage than the money supply. C. remain relatively constant since money is neutral. D. increase by about the same percentage as the money supply.

D

Debt monetization means that a government pays off its debt by: A. borrowing from foreigners. B. raising tax revenues. C. lowering inflation. D. increasing the money supply.

D

History has shown that when collective property rights are converted to private property rights: A. productivity increases. B. investment in physical capital increases. C. work effort increases. D. work effort, investment, and productivity all increase.

D

If people expect an inflation rate of 3% and later it turns out to be 5%, then the real rate of return will be: A. 5%. B. 3%. C. greater than the equilibrium rate. D. less than the equilibrium rate.

D

If the average annual growth rate of a country increases from 2% to 4%, how much faster will its GDP double? A. 11.65 years faster B. 25 years faster C. 10 years faster D. 17.5 years faster

D

In 2010, real GDP was $13.2 trillion (using 2005 prices) and nominal GDP was $14.6 trillion. Based on the GDP deflator, prices in 2010 were about _____ than prices in 2005. A. 10.6% lower B. 9.6% higher C. 9.6% lower D. 10.6% higher

D

Structural unemployment is more persistent in France than in the United States because: A.France's labor regulations require a mandatory waiting period before a worker can reapply for a new job. B. labor unions are weaker in France than they are in the United States. C.American workers have many more job opportunities than French workers. D.French workers have less incentive to quickly seek a new position since their unemployment benefits are much higher.

D

TABLE (Table: Small-Town GDP) Which of the four towns in this table has the highest standard of living? A. Town A B. Town C C. Town D D. Town B

D

TABLE (Table: Unemployment Statistics for Country X) Using the data in the table, Country X is likely to be in a recession in: A. neither 1995 nor 2005. B. both 1995 and 2005. C. 2005. D. 1995.

D

TABLE (Table: Wheat and Corn) Consider a country that produces only wheat and corn. Based on the data in the table, the growth rate of real GDP from 2007 to 2008 (in 2005 dollars) is: A. 15.7%. B. 27%. C. 25.2%. D. 8.3%.

D

The case of hyperinflation in Zimbabwe in the late 2000s was an example of the effects of: A. amplification mechanisms. B. a lack of foreign aid. C. large rainfall shocks. D. the government monetizing its debt.

D

Using the national spending approach to measuring GDP, the social security checks the government sends retirees each month get included in GDP as part of: A. consumption. B. investment. C. government purchases. D. nothing; they are not included as part of GDP.

D

Which is NOT an example of an institution that creates incentives aligning self-interest with the interest of society? A. competitive markets B. political stability C. well-defined property rights D. low inflation

D

Which is NOT an important institution for growth? A. a dependable legal system B. free markets C. a low level of corruption D. strong regulation of religious belief

D

Which of the following elements reduces structural unemployment? A. the existence of employment protection laws B. the growth of labor unions C. the extension of unemployment benefits D. the enhancement of worker retraining programs

D

Which of the following is true of the natural unemployment rate? A. It is equal to zero when the economy is not in a recession. B. It has been fixed at 4% during the post-World War II period. C. It can change dramatically within a matter of months. D. It is higher if structural or frictional unemployment is higher.

D

Which of the following would be most effective in reducing "free riding" in a communal farming system? A. increasing physical capital B. increasing penalties for low production C. increasing supervision of workers D. assigning property rights

D

Which of these transactions occurring in 2011 would contribute to GDP for 2011? A.Sally buys $10,000 worth of U.S. government bonds as an investment. B. Mario sells his used car for a profit. C. A contractor sells a new house which was built in 2009. D. Boeing sells a 787 aircraft produced in 2011 to a Korean airline.

D

Which scenario has the greatest potential for free riding? A. secure property rights B. an unstable political system C. a dishonest government that promotes corruption D. a system in which work effort and pay are not connected

D

Which statement is TRUE about economic growth? A. Once a country starts to grow, it will continue to grow. B. All countries eventually grow rich. C.Growth is a random process; in some years a country grows and in other years it doesn't. D.A country can grow and become wealthy, never grow, or grow and then begin to stagnate.

D

HOW TO FIND NET EXPORTS

EXPORTS - IMPORTS