ECO2013 Exam 2

b

The three types of consumption are: A) compulsive, impulsive, and deliberate. B) durables, nondurables, and services. C) investments, nondurables, and services. D) investments, durables, and services.

b

The value of cars that the Ford Motor Company (aU.S.company) produces in a German plant: A) is a part of U.S. GDP. B) is a part of U.S. GNP. C) is a part of German GNP. D) is not a part of German GDP.

c

Thenaturalrateofunemployment: A) occurs when the unemployment rate is zero and everyone who is willing to work has a job. B) fluctuates with the business cycle. C) is associated with the economy's maximum sustainable output rate. D) All of the answers are correct.

c

Which of the following is NOT a factor in the production function? A) labor B) technology C) money D) capital

a

_____is are duction in the rate of inflation. A) Disinflation B) Deflation C) Hyperinflation D) The price level

b

A criticism of GDP per capita is that it: A) is hard to calculate. B) might not fully reflect the standard of living of a typical citizen. C) reduces the effect of outliers skewing averages. D) is only a hypothetical concept that cannot be measured.

b

Alternating periods of macroeconomic expansion and contraction are known as: A) hyperinflations. B) business cycles C) budget surpluses and deficits. D) trade surpluses and deficits.

c

During a typical economic recovery: A) inflation declines. B) people become pessimistic. C) unemployment decreases. D) incomes fall.

a

Gross domestic product is a measure of: A) an economy's total output. B) household production. C) the total weight of all goods produced. D) production by owners of labor and capital only.

b

If an economy's GDP will double in 25 years, then its growth rate must be about: A) 2.5%. B) 2.8%. C) 25%. D) 28%.

c

If nominal GDP in 2014 is $20,000 billion while real GDP is $16,000 billion, then the GDP deflatorin 2014 is: A) 80. B) 110. C) 125. D) 150.

a

If output equals A × (5K + 2L), what is output if A equals 2,000, capital equals 10, and labor equals 100? A) 500,000 B) 120,000 C) 50,000 D) 12,000

a

The largest component of GDP is: A) consumption expenditure. B) gross private domestic investment. C) government spending. D) net exports.

a

A legal system that enforces property rights is important to economic growth because: A) legal protection of ideas and technologies gives people who innovate the ability to protect their work. B) the legal system can help the government with tax collection. C) strong laws demonstrate commitment by legislators to economic growth. D) bankruptcy laws encourage lending.

d

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living: A) roseby1%. B) roseby2%. C) fellby3%. D) fellby1%.

a

At one time, Pittsburgh, Pennsylvania, was known for its poor air quality. Locals said that a man wearing a white shirt when he walked into the city would have a black shirt when he left. Since that time, the city has greatly reduced its air and water pollution. As a result of cleaner air and water: A) the standard of living of the citizens of Pittsburgh has increased, even though the improvement in the environment was not reflected in its GDP. B) the value of the GDP increased. C) the value of the GDP increased in the year that the improvements were made but did not change in ensuing years. D) the standard of living of the citizens of Pittsburgh did not change.

c

Developing countries can achieve higher productivity per unit of capital because they can use technologies developed by other countries. This is known as the: A) increasing returns to capital effect. B) copycat effect. C) catch-up effect. D) productivity effect.

b

Disposable personal income can be either_____or_____. A) spent; used to pay income taxes B) spent; saved C) saved; used to pay income taxes D) spent; used to pay Social Security taxes

c

GDP includes output produced _____ but it does not include output produced _____. A) outside the United States by U.S. citizens; inside the United States by foreign citizens B) outside the United States by U.S. citizens; inside the United States by U.S. citizens C) inside the United States by foreign citizens; outside the United States by U.S. citizens D) The GDP includes only goods and services produced by U.S. citizens within the United States

b

How do trends in bond interest rates help predict changes in the business cycle? A) When long-term rates are higher than short-term rates, a recession is likely. B) When long-term rates are lower than short-term rates, a recession is likely. C) When long-term rates are higher than short-term rates, a trough is present. D) When long-term rates are lower than short-term rates, an expansion is likely.

d

If personal consumption is $100, investment is $25, government purchases total $25, imports equal $20, and exports equal $10, then GDP equals: A) $160. B) $180. C) $150. D) $140.

a

If the Bureau of Economic Analysis reports that the annualized U.S. growth rate was 2.5% for the second quarter, then the actual growth rate from the first quarter to the second quarter was: A) 0.625%. B) 2.5%. C) 7.5%. D) 10%.

b

If the growth rate in an economy is 3.5%, then its GDP will double in about: A) 3.5 years. B) 20 years. C) 70 years. D) 245 years.

c

If the labor force is 20 million and the total employed is 18 million, what is the unemployment rate? A) 20% B) 18% C) 10% D) 2%

c

In the circular flow diagram, the clockwise direction shows the flow of_____,where households supply _____ and businesses supply _____. A) money; purchases of goods and services; income to households B) money; labor; goods and services C) goods and services; labor; goods and services D) goods and services; purchases of goods and services; income to households

a

In the circular flow diagram,the counterclockwise direction shows the flow of_____,where households purchase _____ and businesses provide _____. A) money; goods and services; income to households B) money; labor; goods and services C) goods and services; labor; goods and services D) goods and services; goods and services; income to households

c

Infrastructure is defined as a country's: A) private stock of capital. B) investment in human capital. C) public capital. D) financial capital.

a

John expects to get a raise equal to the increase in the consumer price index (CPI). The CPI has gone from 160 to 164. If John's salary last year was $50,000, what salary does he expect to earn this year? A) $51,250 B) $48,750 C) $52,220 D) $52,250

d

Land and natural resources include: A) the mental and physical talents of people. B) human capital. C) manufactured products that are used to produce other goods and services. D) water and minerals that come from the earth.

b

Last year, Marian earned $25,000, paid $2,000 in taxes, and saved $5,000. Marian's personal income was _____, her disposable personal income was _____, and her consumption spending was _____. A) $20,000; $18,000; $13,000 B) $25,000; $23,000; $18,000 C) $25,000; $18,000; $13,000 D) $23,000; $21,000; $18,000

c

One of the key concepts involved in the circular flow diagram is that: A) households and businesses are in conflict with each other. B) the national economy is similar to a zero-sum game. C) one person's spending is another person's income. D) the sum of the resource and product markets must equal household income.

c

Retirees and creditors: A) benefit from inflation because they are paid in cheaper dollars. B) benefit from inflation because interest rates rise. C) are hurt by inflation because their purchasing power is reduced. D) are hurt by inflation because taxes fall.

b

Rocky Gap Furniture hires ten employees working eight hours each to produce 100 rocking chairs. What is the productivity of these workers? A) 2.5 chairs per hour B) 1.25 chairs per hour C) 100 chairs D) 50 chair

a

Suppose the National Activity Index of the Federal Reserve Bank of Chicago drop sto-0.83 this month after being above +0.36 for the previous three months. This movement in the index indicates that: A) the economy has probably moved into a recession. B) the rate of economic growth has slowed, but not enough to suggest that a recession is imminent. C) the rate of economic growth has dropped below the historical trend rate of growth, and the economy has reached a trough. D) the economy is at its peak this month but will move into the recession stage in the near future.

d

Suppose the market basket of goods and services cost $3,500 in 1996 but today costs $4,250. Using 1996 as the base year, the consumer price index for today is: A) 79.6. B) 120.0. C) 82.4. D) 121.4.

b

The relationship between economic freedom and per capita GDP is: A) negative. B) positive. C) negative for advanced economies and positive for developing economies. D) positive for advanced economies and negative for developing economies.

b

To have long-term economic growth, the production function suggests: A) keeping interest rates high to encourage saving. B) increasing the availability of technology, capital, and labor. C) increasing government oversight of business decisions. D) redistributing income from the wealthy to the poor.

b

What is real GDP in 2014 dollars if nominal GDP in 2014 is $15,000 billion, the GDP deflator in 2014 is 110, and the GDP deflator in 2010 was 100? A) $9, 100 billion B) $13,636 billion C) $14,010 billion D) $16, 500 billion

d

When the economy is operating at full employment: A) the sum of frictional and cyclical unemployment is zero. B) the sum of cyclical and structural unemployment is zero. C) the sum of frictional and structural unemployment is zero. D) cyclical unemployment is zero.

c

Which equation summarizes the expenditures approach to measuring GDP? A) Y = C + S B) total spending = total income C) GDP = C + I + G + (X - M) D) GDP = net domestic product + depreciation

d

Which of the following activities is an example of a nonmarket transaction? A) hiring a maid to clean your home B) employing a lawn service worker to trim your bushes C) hiring a nanny to take care of your kids D) growing your own food in a vegetable garden

a

Which of the following describes the informal economy? A) It is largely unmeasured. B) It does not include transactions dealing with illegal goods and services. C) It does not include income earned by undocumented residents. D) It accounts for 50% of U.S. GDP.

c

Which of the following factors is NOT generally viewed by economists as critical to economic growth? A) strong and fair legal system B) stable monetary system C) access to large amounts of natural resources D) economic freedom

b

Which of the following is true about business cycles? A) They all have the same approximate length. B) Every cycle is unique. C) Each recession causes the same amount of unemployment. D) The intensity tends to be constant from recession to recession, but the duration differs.

b

Which phase of the business cycle occurs immediately before at rough? A) peak B) recession C) boom D) recovery

a

Which statement about the Rule of 70 is true? A) It is fairly accurate for small growth rates. B) It becomes more accurate over time. C) It provides an exact estimate of compounded values over time. D) It states that the number of years required for a value to double in size is 70 times the growth rate.

c

Workers who want to work but have been frustrated by the inability to find work and have stopped searching are known as: A) the invisible unemployed. B) temporary workers. C) discouraged workers. D) the disgruntled unemployed.

b

Zach has been laid off from his job as an aircraft worker . He has been actively looking for a job but has had no luck for the past six weeks. According to the Bureau of Labor Statistics, Zach is: A) employed. B) unemployed. C) a discouraged worker. D) not in the labor force.

b

_____ unemployment includes workers who voluntarily quit their jobs to search for better positions. A) Structural B) Frictional C) Seasonal D) Cyclical

d

In a simple circular flow diagram, total spending on goods and services in the product market: A) is greater than the total income earned in the resource market. B) is less than the total income earned in the resource market. C) is done by the government. D) equals the total income earned in the resource market.

b

Wages set high to discourage employee turnover are called _____ wages. A) turnover minimization B) efficiency C) productivity D) labor utilization