EC 202 Previous Exam Questions

Consider the data above (in billions of dollars) for an economy. Gross domestic product (in billions of dollars) for this economy equals

$1,200

Consider Noah's decision to go to college. If he goes to college, he will spend $80,000 on tuition, $15,000 on room and board, and $4,000 on books. If he does not go to college, he will earn $22,000 working in a store and he will spend $13,000 on room and board. Noah's cost of going to college is

$108,000

You are tearing down a building and find $1 in change that someone lost when working on the building 140 years ago. If, instead of being careless with the $1 in change, this person had deposited into a bank account and earned 2% interest every year for 140 years, how much would be in the account today according to the rule of 70?

$16

Yoyo's Frozen Yogurt, Inc. is thinking of building a new warehouse. They believe that this will give them $50,000 of additional revenue at the end of year one, $60,000 additional revenue at the end of two year, and $70,000 in additional revenue at the end of three years. If the interest rate is 5%, to build a warehouse now, Yoyo would be willing to pay

$160,000 but not $170,000

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

$17 trillion

If the interest rate is 7.5%, then what is the present value of $4,000 to be received in 6 years?

$2,591.85

If the CPI was 95 in 1955 and is 475 today, then $100 today purchase the same amount of goods and services as

$20.00 purchased in 1955

A steel company sells some steel to a bicycle company for $150. The bicycle company uses the steel to produce a bicycle, which it sells for $250. Both companies operate in the US. Taken together, these two transactions contribute

$250 to GDP

Suppose the Fed requires banks to hold 9% of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves

$27,000

In a small closed economy investment is $50 billion and private saving is $45 billion. What are the public saving and national saving?

$5 billion and $50 billion

Which of the following is not included in M1?

$500 in your savings account

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

$510 increase in excess reserves and $90 increase in required reserves

Suppose that a simple economy produces only four goods and services: shoes, DVDs, tomatoes, and ketchup. Assume one half of the tomatoes are used in making the ketchup and the other half of the tomatoes are purchased by households. Using the information in the above table, nominal GDP for this simple economy equals

$6,400

Megan's 2011 salary in 2013 dollars is

$67,588

If a pizza maker pays $1 for tomatoes, $1 for cheese, and $2 for sausage, all of which were produced in the US, and sells the pizza made with these ingredients for $7, then these activities contribute how much to current year GDP?

$7

In 2014, a farmer grows and sells $3 million worth of corn to Big Flakes Cereal Company. Big Flakes Cereal Company produces $8 million worth of cereal in 2014, with sales to households during the year of $7 million. The unsold $1 million worth of cereal remains in Big Flake Cereal Company's inventory at the end of 2014. The transactions just described contribute how much to GDP for 2014?

$8 million

Sari puts $100 into an account with an interest rate of 10 percent. According to the rule of 70, about how much does she have at the end of 21 years?

$800

Peg's Nail Salon did 4,000 manicures in the year 2000 and 4,500 manicures in the year 2001. The price of a manicure was $20 in 2000 and $22 in 2001. If the year 2000 is the base year, Peg's contribution to real GDP in 2001 was ____ and to nominal GDP in 2001 was _____

$90,000 and $99,000

The Labor Force Participation Rate for this economy equals

(11,000/15,000) x 100

If the local government imposed a minimum wage of $4 in Productionville, how many people would be unemployed?

0

How many in the sample are in the labor force?

10

Suppose a basket of goods and services has been selected to calculate the CPI and 2009 has been selected as the base year. In 2007, the basket's cost was $64; in 2009, the basket's cost was $68l and in 2011, the basket's cost $70. The value of the CPI in 2011 was

102.94

Assume the market basket for the consumer price index has two products- meat and potatoes- with the values in the table 2006 and 2011 for price and quantity: the CPI for 2011 equal

150

Over the last century, US real GDP per person grew at a rate of about

2 percent per year, so that is now 8 times as higher as it was a century ago

How many in the sample are unemployed?

3

What is the opportunity costs of one pound of vegetables?

3/4 pounds of meat

The nominal interest rate for 2012 is

4.47 percent

A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all that it can. This implies that is has a required reserve ratio of

5 percent

What is the inflation rate for May?

66.4%

If the inflation rate is 5% and a $1000 bank deposit increases in one year to $1120, then the real interest rate for that deposit is

7 percent

In the production function Y=A F(L, K, H, N) which symbol reflects the state of technology?

A

Which of the following is correct about Federal Reserve?

A bank's deposits at the Federal Reserve count as part of the bank's reserves. The Federal Reserve now pays interest on these deposits

If macaroni and cheese is an inferior good, than an increase in

A consumer's income will cause the demand curve for macaroni and cheese to shift to the left

A common challenge to economists is to determine whether an association between two variables reflects a casual relationship between them. Why is this such a difficult problem?

All of the above

Which of the following can explain why some countries have not experienced relatively high growth rates in real GDP per capital despite relatively low initial levels of real GDP per capita?

All of the above

In a simple circular-flow diagram, total income and total expidenture are

Always equal because every transaction has a buyer and a seller

Supply curves usually slope upward because

An increase in price gives producers incentive to supply a larger quantity

The level of real GDP per person

And the growth rate of Real GDP per person very widely across countries

Matilda just graduated from college. In order to devote all of her efforts to college, she didn't hold a job. She is going to tour around the country on her motorcycle for a month before she starts looking for work. Other things the same, the unemployment rate

And the labor-force participation rate are both unaffected

The information below for 2008 in millions was reported by the World Bank. On the basis of this information, which list below contains the correct ordering of GDP per person from highest to lowest?

Argentina, Peru, Bolivia

In a system on 100-percent-reserve banking

Banks do not influence the supply of money

Is the Fed distorting financial markets by keeping interest rates artificially low?

Believes that they are keeping the rate near the equilibrium real interest rate, nothing artificial about the rate

President Bigego is running for re-election against Senator Pander. Bigego proclaims that more people are working now than when he took office. Pander says that the unemployment rate is higher now than when Bigego took office. You conclude that

Both of them could be telling the truth if the labor force grew faster than employment

Some persons are counted as out of the labor force because they have made no serious or recent effort to look for work. However, some of these individuals may want to work even though they are too discouraged to make a serious effort to look for work. If these individuals were counted as unemployed instead of out of the labor force, then

Both the unemployment rate and labor-force participation rate would be higher

Which of the following is an example of physical capital?

Bulldozers, backhoes and other construction equipment

Suppose that an increase in capital per hour worked from $15,000 to $20,000 increases real GDP per hour worked by $500. If capital per hour worked increases further to $25,000, by how much would you expect real GDP per hour worked to increase if there are diminishing returns?

By less than $500

According to the circular-flow diagram, GDP

Can be computed as either the revenue firms receive from the sales of goods and services or as the amount that is spend on goods and services

If General Motors, a US corporation, produces automobiles in China and sells them in South Korea, the value of the automobile output is included in

China GDP

Traditionally, the Fed's primary tool to change the money supply is

Conducting open market operations

In 2010, Acme Foods produced 300,000 bags of pretzels, employing 12,000 hours of labor. In 2011, it produced 322,000 bags of pretzels, employing 14,000 hours of labor. Acme Foods productivity

Decreased by 8%

Suppose that efficiency wages become more common in the economy. Imposing efficiency wages

Decreases the quantity demanded and increased the quantity supplied of labor

Which of the following is a liability of a bank and an asset of its customers?

Deposits of its customers but not loans to its customers

Which of the following is not true about most economic models?

Economics always prefer more complex models to simpler ones

Suppose that demand for a good decreases and, at the same time, supply of a good decreases. What would happen in the market for the good?

Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous

Equilibrium Real Interest Rate

Equilibrium rate in the market for loanable funds (rate with full employment) Will be higher in rapidly growing economies reflecting high prospective return on capital investments (high demand)

Northwest Wholesale Foods sells common stock. The company is using

Equity financing and the return shareholders earn depends on how profitable the company is

Financial intermediaries are

Financial institutions through which savers can indirectly provide funds to borrowers

All of the following may create upward bias in the CPI for measuring changes in the price level, except

Food producers have been reducing the standard size of many products, such as cookies and potato chips, which the BLS has not taken into account

According to economic theory, the fact that the price of a diamond is far higher than the price of a bottle of water indicates that

For people who buy both, the marginal value of a diamond is far higher than the marginal value of a bottle of water

In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories. The Europeans who did this engaged in

Foreign portfolio investment

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries. In terminology of macroeconomics

Fran is saving; Miller is investing

Unemployment that results because it takes time for workers to search for jobs that best suit their tastes and skills is call

Frictional Unemployment

GDP is not a perfect measure of well-being, for example

GDP fails to account for the quality of the environment

Among the following, which is the best measure of how the level of well-being in a country has changed over time?

Growth rate of real GDP per person

The supply of loanable funds is upward sloping if the ____ the interest rate, the ____ the share of their incomes that households will save, and the ____ the quantity supplied of loanable funds

Higher; greater; greater

Bernake on Interest Rates

Historically low Businesses and households pay higher rates, but still low

Which is the best example of a macroeconomics question?

How does the government deficit spending affect the rate of inflation?

An increase in the price of imported coffee shows up

In the CPI, but not GDP deflator

An open-market purchase

Increases the number of dollars in the hands of the public and decreases the number of bonds in the hand of the public

When the quality of a good improves while its price remains the same, the purchasing power of the dollar

Increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for

On a production function, as capital per worker increases, output per worker

Increases. This increase is smaller at larger values of capital per worker

From 1975 to 1976,

Inflation was 25% and output did not grow

Crowding out occurs when

Investment declines because a budget deficit makes interest rates rise

An increase in quantity demanded

Is a movement downward and to the right along a demand curve

If the bank faces a reserve requirement of 6 percent, then the bank

Is in a position to make a new loan of $18,000

A barber currently cuts hair for 50 clients a week and earns a profit. He is considering expanding his operation in order to serve more clients. Should he expand?

It depends on the marginal cost of serving more clients and the marginal revenue he will earn from serving more clients

Economists face an obstacle that many other scientists do not face. What is this obstacle?

It is often impractical to perform experiments in economics

Bernake's belief on the neutrality of money over the long run

It is transitionary and limited -except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth and not by the Fed

The banking system currently has $100 billion of reserves, none of which are excess. People hold only deposits and no currency, an the reserve requirement is 10 percent. If the Fed lowers the reserve requirement to 5% and at the same time buys $10 billion worth of bonds, they by how much does the money supply change?

It rises by $1,200 billion

For economists, a positive statement

Makes a claim about how the world is

As opposed to a payments system based on barter, a payments system based on money

Makes trade less costly

Which of the following is true about the US Labor Force Participation Rate since 1950?

Male participation rates have been falling throughout this period

A movement from the curve containing points W and X to the one containing point Y

Might occur as a result of an inflow of immigrant labor

When the Fed purchases $1000 worth of government bonds from the public, the US money supply eventually increases by

More than $1000

The slope of the demand for loanable funds curve represents the

Negative relation between the real interest rate and investment

Christopher is an unpaid, stay at home father who works as a volunteer at the local Habitat for Humanity chapter. Currently, Christopher is not looking for a paid job. The Bureau of Labor Statistics counts Christopher as

Neither in the Labor Force nor Unemployed

The logic behind the catch-up effect is that

New capital adds more to production in a country that doesn't have much capital than in a country that already has much capital

Transfer payments are

Not included in GDP because they are not payments for currently produced goods or services

Assume that the graphs in this figure represent the demand and supply curves for laptop computers. Which panel best fits what happens in this market when the price of a computer hard drive, an input in the production of laptops, falls?

Panel A Shift in supply to the right

Assume that the graphs in this figure represent the demand and supply curves for frozen yogurt. Which panel describes what happens in the market for frozen yogurt when the price of ice cream, a substitute product, increases?

Panel C Shift in demand to the right

Pollution regulations may produce a cleaner environment and improved health, but they also might increase production costs leading to higher prices and lower profits for the regulated firms. This statement illustrates the principle that

People face tradeoffs

Which of the following is correct?

People working part time are counted as "employed" by the Bureau of Labor Statistics

Suppose that the federal government is concerned about obesity in the US. Congress is considering two plans. one would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. If the warning labels are successful, we could illustrate the plan as producing movement from

Point A to Point B in Panel 1 Shift left

Suppose that the federal government is concerned about obesity in the US. Congress is considering two plans. one would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. If the tax increases the cost of producing junk food, we could illustrate its effect as producing a movement from

Point A to Point C in Panel 2 Increase in quantity demanded

What would happen to the equilibrium price and quantity in the market for oak tables if the price of maple tables rises and the price of oak wood rises?

Price will rise, and the effect on quantity is ambiguous

Because different countries use different currencies, comparisons of real GDP across countries usually use the concept of "purchasing power parity". This means

Pricing the same market basket in different countries to cover other currencies to dollars

You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?

Private saving is positive; public saving is negative

What should the Fed do about interest rates?

Push them towards levels consistent with the equilibrium rate -Too high our economy would slow -Too low would lead to inflation

When economists say demand is downward sloping, they mean that

Quantity demanded is larger at lower prices, ceteris paribus

Real Interest Rate on 10-year bonds

Quite low for more than 10 years

The GDP deflator is the

Ratio of nominal GDP to real GDP multiplied by 100

Workers and management agree on a contract that give a 5% wage increase for each of the next three years. Everyone expected 3% inflation but inflation turned out to be 5% per year. Then at the end of three years

Real wages will be lower than was expected

In a production possibilities frontier diagram, points inside the frontier

Represent inefficient or wasteful allocations of resources

Which of the following statements is true about scarcity?

Scarcity refers to the situation in which unlimited wants exceed limited resources

If the federal funds rate was below the level the Federal Reserve has targeted, the Fed could move the rate back towards its target by

Selling bonds. This selling would decrease reserves

Which of the following functions of money is also a common function of most other financial assets?

Store of Value

Suppose a government that taxed all interest income change its law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

Supply of Loanable Funds to the right, causing interest rates to fall

Quote describes what? "All else equal, investor demand higher yields when inflation is high to compensate them for the declining purchasing power of the dollars with which they expect to be repaid"

The Fisher Effect

The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and

The available production technology

The principle of opportunity cost says that

The cost of doing anything is the value of what must be foregone

Hamid spends an hour studying instead of watching TV with friends. The opportunity cost to him of studying is

The enjoyment he would have received if he had watched TV with friends

Today, bank runs are not a major problem for the US banking system because

The federal government now guarantees the safety of deposits at most banks

Opportunity cost is defined as

The highest valued alternative that must be given up to engage in an activity

Table 2-5 shows one set of production possibilities. Which of the following statements is correct?

The opportunity cost of a bushel of corn increases as more corn is produced

The linear production possibilities frontier in the figure indicates

The opportunity cost of vegetables is constant

When computing the opportunity costs of attending a basketball game you should include

The price you pay for the ticket an the value of your time

The local car dealership has an increase in inventory of 100 newly produced cars in 2015. In 2016, it sells all 100 cars. Which of the following statements is correct?

The value of the cars in the inventory will be counted as part of 2015 GDP, and the value of cars sold in 2016 will not increase 2016 GDP

Suppose in 2012, you purchased a house built in 2003. Which of the following would be included in the gross domestic product for 2012?

The value of the services of the real estate agent

In economics, the cost of something is

The value of what you give up to get it

If an economy is producing efficiently, then

There is no way to produce more of one good without producing less of another good

Which of the following is true of discouraged workers, as defined by the Bureau of Labor Statistics?

They have not looked for work in the last 4 weeks, but would like a job and are available for work

Economists use the word "money"to refer to

Those assets regularly used to buy goods and services

Bernanke thinks that a premature increase in interest rates would make aggregate demand

Too low

Which of the following is an example of a normative, as opposed to positive, statement?

Universal Health Care would be good for US citizens

Value added for a firm equals its revenue from sales minus

What it pays for intermediate goods

Rachel babysits for her sister for no pay. When she babysits for someone else she charges $8 an hour. When is Rachel's babysitting included in GDP?

When she babysits for someone else, but not when she babysits for her sister

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of its assets

Will result in a 60 percent increase in owner's equity

Which of the following is not correct?

With a growth rate of about 2 percent per year, average income per person doubles about every 6o years

Other things the same, an increase in the interest rate

Would decrease the quantity of loanable funds demanded

In 2010, Hooverville consumed 205,000 tons of sugar. In 2011, sugar consumption rose to 245,000 tons. Which is the correct formula for the percentage change in sugar consumption?

[(245,000-205,000)/205,000] x 100

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because

the CPI better reflects the goods and services bought by its consumers