Sapling: Practice Exam 1

Information concerning the fictitious small island nation of Llamalandia is given in the table below. Use the information in the table to answer the related questions. For the percentages, round your answers to two decimal places Number of employed people: 205,715 Number of unemployed people: 25,773 Total population over age 16: 535,999

1. What is the size of the labor force? employed + unemployed = labor force 205715 + 25773 = 231, 488 2. How many people are out of the labor force? total pop. over age 16 - labor force = out of the labor force 535999 - 231488 = 304, 511 3. What is the unemployment rate? Unemployed/labor force x 100 = unemployment rate 25773/ 231488 x 100 = 11.134% 4. What is the total labor force participation rate? labor force/ pop. over age 16 x 100 = participation rate 231488/ 535999 x 100 = 43.1881

The chart below gives prices and output information for the country of Utopia. Use this information to calculate real and nominal GDP for both years. Use 2001 as the base year. Year 2000 2001 Price Quantity Price Quantity Ice Cream $7.00 600 $3.00 400 Blue Jeans $70.00 20 $20.00 90 Laptops $300.00 5 $300.00 5

2000 nominal GDP = $7100 2001 nominal GDP = $4500 2000 real GDP = $3700 2001 real GDP = $4500

Below is a table of GDP and population for several imaginary countries. Using this information, please answer the questions that follow. If there is not enough information to answer a question, please enter -11. Country GDP in mill Pop in mill GDP per capita Wrigleyville 505.0 281.0 __________________ Longhornland 2529 161 __________________ Dinkytown ______________ 195.00 1.000

A. What is the GDP per capita of Longhornland in U.S. dollars? (Express your answer rounded to one decimal place.) 2529/ 161 = $15.7 per person Answer: $15.7 B. What is the GDP of Dinkytown in millions of U.S. dollars? (Express your answer rounded to one decimal place.) GDP per capita x population = GDP of Dinkytown 1.000 x 195.00 = $195.0 million dollars Answer: $195.0

Given the following information about the economy of Pakistan, calculate Pakistan's GDP. Note that the currency of Pakistan is the Rupee. Assume that the values are all current and no conversions need to be made. The Government Purchases: 2.80 Trillions of Rupees Individuals Consume: 11.40 Trillions of Rupees Individuals Save: 4.91 Trillions of Rupees Businesses Invest: 1.30 Trillions of Rupees Foreigners spend: 0.66 Trillions of Rupees to purchase Pakistani firms. Pakistan Imports: 2.07 Trillions of Rupees Pakistan Exports: 1.25 Trillions of Rupees

Answer: 14.68 Trillions of Rupees GDP = C + I + G + NX Where: C=consumption, I=investment, G=government purchases, NX = net exports (sometimes called trade balance as X - M where X is exports and M is imports). When answering a question like this, identify the value of each variable (C, I, G, and NX), replace each variable with its value, and solve. More specifically: 14.68= 11.40 + 1.30 + 2.80 + (1.25 - 2.07) In this question, savings and foreign purchases of businesses were distractors. Since GDP is a measure of the production of an economy, we only include final goods and services. While savings and foreign investment are important to any economy, they are not final goods and services.

In the boxes below, please place the items into the bin it belongs to when calculating Gross Domestic Product (GDP). Either Consumption, Investment, Government, or Net Exports (or Trade Balance). If it is not included in GDP, leave it unplaced.

Consumption: - ice cream - a domestically manufactured personal computer - cab fare for personal use - 55 cent tacos - A Super Bowl ticket bought new from the NFL Investment: - A domestically manufactured business computer. Government: - A public school teacher's salary Net Exports: -An exported doll house ****Not included in GDP**** - The purchase of company stock - Social security payments - Babysitting paid for in cash and unreported

In the sorting boxes below, please place the items into the correct box based on if they will increase inflation or increase unemployment according to Keynes. If it does not change either, or it decreases both, please leave it unplaced. You may assume that the economy starts at full employment.

Increases Inflation: - interest rates decrease - increase in government spending - people expect their incomes to rise in the future - taxes decrease Increases Unemployment: - the housing bubble bursts! - Suze Orman convinces everyone to save more - taxes increase - future returns for corporate office space decrease - foreign incomes decrease

The following people spent their money during different time periods. Label each of their scenarios as to whether they bought their goods during a time of inflation, deflation, or price stability.

Peter is a compulsive gamer. He decides to buy World of Warcraft, all of its expansions, Starcraft 2, a PS3, a Wii, and an Xbox 360 since prices in general have been rising at an alarming rate. (INFLATION) Melissa decides to start her own personal library and chooses to amass a private collection of books and magazines about world religions, cooking, comics, and economics. As she reads an issue of The Economist, she discovers overall price levels have changed only 0.01% in the past 2 years and decides it doesn't matter whether she starts the project now or later. (PRICE STABILITY) Linda postpones her wedding even though most food prices and most service prices were dropping this year, which would help keep the cost of the wedding down. (DEFLATION) Out of these individuals, whose money gained the most value during their time period? Answer: Linda

Calculate the natural rate of unemployment given the numbers in the table below. Labor Force 280,000 Unemployed 44,500 Frictional 23,500 Structural 11,000 Cyclical 10,000

The natural rate of unemployment = 12.32% Is this economy at full employment? Answer: No

The Japanese car maker Honda owns production facilities in Marysville, Ohio. If the cars made there are sold exclusively in the United States, in which category would the cars be counted?

U.S. GDP

Match the definition with the correct type of unemployment. Not all terms will be used.

Unemployment caused by recessions. (CYCLICAL UNEMPLOYMENT) Unemployment that normally occurs due to turnover as workers switch jobs. (FRICTIONAL UNEMPLOYMENT) The unemployment that still exists when the economy is operating at its full potential. (NATURAL UNEMPLOYMENT)

Use the information below to calculate the Consumer Price Index and the inflation rate. The base year is 1975. Round answers to two decimal places as needed. Market Basket Quantity 1975 Prices 1976 Prices Dozen Eggs 25 0.90 1.50 Calculator 18 13.00 16.00 Microwave Oven 6 160 200

What is the Consumer Price Index for 1975? Answer: 100 What is the Consumer Price Index for 1976? Answer: 125.40 What is the inflation rate for 1976? Answer: 25.40

Refer to the data in the corresponding table to answer the following three questions. Year Nominal Interest Real Interest Inflation Rate 2008 7% ___________ 5% 2009 3% 3% ____________ 2010 ________ 7% 3%

What was the Real Interest Rate in 2008? Answer: 2% What was the Inflation Rate in 2009? Answer: 0% What was the Nominal Interest Rate in 2010? Answer: 10%