ECON 3305 EXAM 1

If in a given year an economy has consumption of $3000, investment of $2000, government purchases of $1500, exports of $500, imports of $600, taxes of $1200, transfer payments of $400, and depreciation of $300, then GDP will equal a. $6400. b. $7000. c. $7600. d. $8900. e. $9500

$6400

Table 11-2 year : price of pork: price of corn: 2003 --- $20 --- $20 2004 --- $20 --- $30 Refer to Table 11-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 2 units of corn. What is the consumer price index for 2004 if the base year is 2003? a. 100 b. 105 c. 115 d. 120

120

Cedar Valley Furniture uses 5 workers working 8 hours to produce 80 rocking chairs. What is the productivity of these workers? a. 2 chairs per hour. b. 1 hour per chair. c. 80 chairs. d. None of the above are correct.

2 chairs per hour

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts and 2 pants. In 2001 bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each and pants cost $10.00 per pair. In 2002 bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each and pants cost $12.00 per pair. What was the inflation rate, as measured by the CPI, for Aquilonia between 2001 and 2002? a. 30 percent b. 24.4 percent c. 21.6 percent d. It is impossible to determine without knowing the base year.

24.4 percent

A weaker demand together with a stronger supply would necessarily result in a. a lower price. b. a higher price. c. an increase in equilibrium quantity. d. a decrease in equilibrium quantity.

A lower price

Price takers refer to buyers and sellers in a. a perfectly competitive market. b. a monopolisticly competitive market. c. an oligopolistic market. d. a monopolistic market.

A perfect competitive market

How are the weights on the various goods and services in the CPI basket determined? a. All goods and services are weighted equally. b. A survey is conducted to determine how much of each good and service typical consumers purchase. c. the weights equal the ratio of expenditures on each good or service divided by the total consumption expenditures in the GDP accounts. d. Each good and service is weighted according to its price.

A survey is conducted to determine how much of each good and service typical consumers purchase.

Which goods are supposed to be included in the CPI? a. all goods and services produced in the economy b. all goods and services that typical consumers buy c. all goods and services in the consumption component of the GDP accounts d. all the goods, but not the services, in the consumption component of the GDP accounts

All goods and services that typical consumers buy

Which of the following is true? a. Buyers determine supply and sellers determine demand. b. Buyers determine demand and sellers determine supply. c. Buyers and sellers as one group determine supply. d. Buyers and sellers as one group determine demand.

Buyers determine demand and sellers determine supply.

Lead is an important input in the production of crystal. If the price of lead decreases, all else equal, we would expect the supply of a. crystal to be unaffected. b. crystal to decrease. c. crystal to increase. d. lead to increase.

Crystal to increase

Holding all else constant, a higher price for ski lift tickets would be expected to a. increase the number of skiers. b. decrease the supply of ski resorts. c. decrease the demand for other winter recreational activities. d. decrease ski sales.

Decrease ski sales

The forces that make market economies work are a. price and quantity. b. demand and supply. c. the Senate and House of Representatives. d. the Constitution and the Bill of Rights.

Demand and Supply

In a competitive market, a. only a few sellers sell the same product. b. each seller has limited control over the price of his product. c. if one buyer chooses to purchase a large quantity of the product, the price will rise. d. if one seller withholds his product from the market, prices will rise.

Each seller has limited control over the price of his product.

Social Security payments are a. included in GDP because they represent payment for work performed in the past. b. included in GDP because they represent potential consumption. c. excluded from GDP because they do not represent current government purchases of goods and services. d. excluded from GDP because they are not private pensions.

Excluded from GDP because they do not represent current government purchases of goods and services.

GDP a. includes the value of intermediate goods so we can get a measure of sales. b. excludes the value of intermediate goods because they are too difficult to measure. c. excludes the value of intermediate goods because their value is already counted in the value of final goods. d. None of the above are correct

Excludes the value of intermediate goods because their value is already counted in the value of final goods.

Productivity a. is nearly the same across countries and so provides no help explaining differences across countries in the standard of living. b. explains very little of the differences across countries in the standard of living. c. explains some, but not most of the differences across countries in the standard of living. d. explains most of the differences across countries in the standard of living.

Explains most of the differences across countries in the standard of living.

Robert works as a lawyer. a. GDP computations should be made using his income from providing legal services, not his production of legal services. b. GDP computations should be made using his production, not his income from providing legal services. c. GDP computations should include both his income and his production. d. GDP computations should include either his income or his production, but not both

GDP computations should include either his income or his production, but not both

Most, but not all, athletic apparel sold in the United States is imported from other nations. If the price of athletic apparel increases, the GDP deflator will a. increase less than will the consumer price index. b. increase more than will the consumer price index. c. not increase, but the consumer price index will increase. d. increase, but the consumer price index will not increase.

Increase less than will the consumer price index.

In the long run, a higher saving rate a. cannot increase the capital stock. b. means that people must consume less in the future. c. increases productivity. d. None of the above are correct.

Increases productivity

A nation's standard of living is determined by a. its productivity. b. its gross domestic product. c. its national income. d. how much it has relative to others.

Its productivity

The sum of all individual demand curves for a product is called a. total demand. b. consumption demand. c. summation demand. d. market demand.

Market demand

The consumer price index is used to a. track changes in the level of wholesale prices in the economy. b. monitor changes in the cost of living. c. monitor changes in the level of real GDP. d. track changes in the stock market.

Monitor changes in the cost of living.

Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of coffee rises from $2 to $2.50 . If the CPI rises from 150 to 200 people will likely buy a. more ice cream and more coffee. b. more ice cream and less coffee. c. less ice cream and more coffee. d. less ice cream and less coffee.

More ice cream and more coffee.

Suppose that lawn mowers are part of the market basket used to compute the CPI. Then suppose that the quality of lawn mowers improves while the price of lawn mowers stays the same. If the Bureau of Labor Statistics precisely adjusts the CPI for the improvement in quality, then, other things equal, a. the CPI will rise. b. the CPI will fall. c. the CPI will stay the same. d. lawn mowers will no longer be included in the market basket.

The CPI will fall.

Suppose that Wisconsin produces cheese and fish. In 2002, 20 units of cheese are sold at $5 each, and 8 units of fish are sold at $50 each. In 2001, the base year, the price of cheese was $10 per unit, and the price of fish was $75 per unit. a. Nominal 2002 GDP is $800, real 2002 GDP is $500, and the GDP deflator is 160. b. Nominal 2002 GDP is $500, real 2002 GDP is $800, and the GDP deflator is 160. c. Nominal 2002 GDP is $500, real 2002 GDP is $800, and the GDP deflator is 62.5. d. Nominal 2002 GDP is $800, real 2002 GDP is $500, and the GDP deflator is 62.5.

Nominal 2002 GDP is $500, real 2002 GDP is $800, and the GDP deflator is 62.5.

An economy's scarce resources are allocated by a. economic planners. b. producers who use resources. c. prices for resources. d. government regulation of scarce resources.

Prices for resources

Between 2000 and 2001 the debt of Bolivia rose. Other things the same, we would expect that interest rates a. and investment rose. b. rose and investment fell. c. fell and investment rose. d. and investment fall.

Rose and investment fell

One of the Ten Principles of Economics in Chapter 1 is that people face tradeoffs. The growth that arises from capital accumulation is not a free lunch: It requires that society a. conserve resources for future generations. b. sacrifice consumption goods and services now in order to enjoy more consumption in the future. c. recycle resources so that future generations can produce goods and services with the accumulated capital. d. None of the above are correct.

Sacrifice consumption goods and services now in order to enjoy more consumption in the future.

In the length of one generation, which of the following countries has gone from being among the poorest countries in the world to being among the richest? a. Chad b. Ethiopia c. India d. South Korea

South Korea

Each of the following are determinants of demand EXCEPT a. tastes. b. technology. c. income. d. the price of related goods.

Technology

Which of the following is the correct definition of GDP? a. the market value of all goods produced within a country b. the market value of all final goods and services produced by the citizens of a country c. the market value of all final goods and services produced within a country d. None of the above are correct.

The market value of all final goods and services produced within a country

If, at the current price, there is a shortage of a good, a. sellers are producing more than buyers wish to buy. b. the market must be in equilibrium. c. the price is below the equilibrium price. d. quantity demanded equals quantity supplied.

The price is below the equilibrium price.

When quantity demanded has increased at every price, it might be because a. the number of buyers in the market has decreased. b. income has increased and this good is an inferior good. c. the consumer prefers another good more than this good. d. the price of a substitute good has increased.

The price of a substitute good has increased

If the current market interest rate for loanable funds is above the equilibrium level, then a. the quantity of loanable funds demanded will exceed the quantity of loanable funds supplied and the interest rate will rise. b. the quantity of loanable funds supplied will exceed the quantity of loanable funds demanded and the interest rate will rise. c. the quantity of loanable funds demanded will exceed the quantity of loanable funds supplied and the interest rate will fall. d. the quantity of loanable funds supplied will exceed the quantity of loanable funds demanded and the interest rate will fall.

The quantity of loanable funds supplied will exceed the quantity of loanable funds demanded and the interest rate will fall.

Suppose that an apartment complex converts to a condominium where the renters are now owners of their former apartments. a. The rent was included in GDP; the purchases of the condominiums are not. b. The rent was included in GDP, and so is the purchase of the condominiums. c. The rent was not included in GDP; the purchases of the condominiums are. d. Neither the rent of the apartments nor the purchases of the condominium are included in GDP.

The rent was included in GDP; the purchases of the condominiums are not.

The local Chevrolet dealership has an increase in inventory of 25 cars in 2003. In 2004 it sells all 25 cars. a. The value of increased inventory will be counted as part of GDP in 2003, but the value of the cars sold in 2004 will not cause GDP to increase. b. The value of the increased inventory will not affect 2003 GDP, but will be included in 2004 GDP. c. The value of the increased inventory will be counted as 2003 GDP and the value of the cars sold in 2004 will increase 2004 GDP. d. None of the above are correct.

The value of increased inventory will be counted as part of GDP in 2003, but the value of the cars sold in 2004 will not cause GDP to increase.

When there is a shortage in a market, a. there is downward pressure on price. b. there is upward pressure on price. c. the market could still be in equilibrium. d. the price must be above equilibrium.

There is upward pressure on price.

Which of the following does the level of real GDP measure? a. total real income b. productivity c. the standard of living d. All of the above are correct.

Total real income

An Italian company opens a pasta company in the U.S. The profits from this pasta company are included in a. both U.S. and Italian GNP. b. both U.S. and Italian GDP. c. U.S. GDP and Italian GNP. d. U.S. GNP and Italian GDP.

U.S. GDP and Italian GNP.

Which of the following is human capital? a. breakfasts served in a company's cafeteria b. understanding how to use a company's accounting software c. training videos for new corporate employees d. All of the above are correct.

Understanding how to use a company's accounting software

If there are constant returns to scale, the production function can be written as a. xY = 2xAF(L, K, H, N). b. Y/L = A F(xL, xK, xH, xN). c. Y/L = A F( 1, K/L, H/L, N/L). d. L = AF(Y, K, H, N).

Y/L = A F( 1, K/L, H/L, N/L)