ECO2013 Exam 2 Practice

question #19 Over a five-year period GDP in a nation increased from $10 trillion to $15 trillion, while the GDP price deflator increased from 100 to 125. Approximately how much is GDP in year five, stated in terms of year-one dollars?

$12 trillion

Answer the question on the basis of the following data. All figures are in billions of dollars: 15 90 20 5 8 12 Refer to the data. GDP is:

$121

Use the following table for a hypothetical single-product economy. year, units of output, price of bagel per unit, price index (year 1 = 100). 1 10 $10 100 2 12 $20 200 3 15 $30 300 4 20 $40 400 Real GDP in year 3 is:

$150

If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by:

$20 billion

Year Alta (Real GDP) Zorn (Real GDP) Alta (Population) Zorn (Population) 1 $2,000 $150,000 200 500 2 2,100 152,000 202 505 3 2,200 154,000 210 508 Refer to the table. Per capita GDP was about:

$303 in year 3 in Zorn.

disposable income, consumption $200, $205 225, 225 250, 245 275, 265 300, 285 Refer to the given data. If disposable income was $325, we would expect consumption to be:

$305

If actual GDP is $340 billion and there is a positive GDP gap of $20 billion, potential GDP is

$320 billion.

If potential GDP is $400 billion and there is a negative GDP gap of $15 billion, actual GDP is

$385 billion.

Answer the question on the basis of the following data. All figures are in billions of dollars. Personal taxes $40 SSC 15 Taxes on production and imports 20 corporate income taxes 40 transfer payments 22 U.S. Exports 24 ect... Refer to the data. GDP is:

$417

Use the following table for a hypothetical single-product economy. year, units of output, price of bagel per unit, price index (year 1 = 100). 1 10 $10 100 2 12 $20 200 3 15 $30 300 4 20 $40 400 Nominal GDP in year 3 is:

$450.

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is

$510 billion.

Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by

$6 billion.

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Year, units of output, price per unit 1, 8, $2 2, 10, 3 3, 15, 4 4, 18, 5 5, 20, 6 Refer to the above data. If year 2 is the base year, then Real GDP in year 5 is:

$60

If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by:

$9 billion

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Year, units of output, price per unit 1, 8, $2 2, 10, 3 3, 15, 4 4, 18, 5 5, 20, 6 Refer to the above data. In year 4, nominal GDP would be:

$90

A $1 billion increase in investment will cause a

(1/MPS) billion increase in GDP.

If the marginal propensity to consume is .9, then the marginal propensity to save must be:

0.1

If the marginal propensity to consume is 0.9, then the marginal propensity to save must be

0.1.

Disposable Income Consumption $200 $205 225 225 250 245 275 265 300 285 Refer to the given data. The marginal propensity to consume is

0.80

disposable income, consumption $200, $205 225, 225 250, 245 275, 265 300, 285 Refer to the given data. The marginal propensity to consume is:

0.80

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

1.6 percent.

The multiplier can be calculated as

1/(1-MPC)

The multiplier is

1/MPS.

At an annual growth rate of 7 percent, real GDP will double in about:

10 years

In an economy, the total expenditures for a market basket of goods in year 1 (the base year) was $5,000 billion. In year 2, the total expenditure for the same market basket of goods was $5,500 billion. What was the GDP price index for the economy in year 2?

110

The unemployment rate in an economy is 7.5 percent. The total population of the economy is 250 million and the size of the civilian labor force is 180 million. The number of employed workers in this economy is

166.5 million.

If the MPC is 0.6, the multiplier will be

2.5

question #11 Use this information to answer the next question. All numbers are in millions. Population of the nation..................................125 Size of the labor force.......................................75 Number of employed workers...........................50 Number of unemployed workers.......................25 What is the unemployment rate for this nation?

33 percent.

Year Alta (Real GDP) Zorn (Real GDP) Alta (Population) Zorn (Population) 1 $2,000 $150,000 200 500 2 2,100 152,000 202 505 3 2,200 154,000 210 508 Refer to the table. Between years 1 and 2, real GDP per capita grew by approximately __________ percent in Alta.

4

year, alta (real GDP), Zorn (real GDP), alta (population), Zorn (population) 1 $2,000 $150,000 200 500 2 $2,100 $152,000 202 505 3 $2,200 $154,000 210 508 Refer to the table. Between years 1 and 2, real GDP per capita grew by approximately __________ percent in Alta.

4

Year Alta (Real GDP) Zorn (Real GDP) Alta (Population) Zorn (Population) 1 $2,000 $150,000 200 500 2 2,100 152,000 202 505 3 2,200 154,000 210 508 Refer to the table. Between years 1 and 2, real GDP grew by __________ percent in Alta.

5

question #2 The consumer price index in an economy is 180 one year and 189 the next year. The rate of inflation in the economy over that year period is:

5 percent

Answer the below question on the basis of the following information about the hypothetical economy of Scoob. All figures are in millions. Unemployed 7 Total Population 145 Employed 95 Discouraged Workers 3 The unemployment rate in Scoob is:

6.9 percent.

Over a ten-year period, the Consumer Price Index doubled. On the basis of this information and using the rule of 70, we can say that the average annual rate of inflation over this period was approximately:

7 percent

Refer to the above figures. Which of the following events would most likely result in inflation?

A shift from D2 to D3 in Figure A.

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Other things equal, the information suggests that the production capacity in economy

C is growing more rapidly than that in economy B.

If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to:

Consume is .75

Which of the following would most likely occur during the expansionary phase of the business cycle?

Demand-pull inflation.

In the expenditures approach of national income accounting, C, Ig, and G include expenditures for:

Domestically produced as well as imported goods and services

figure a has 1 Quantity and 3 prices, figure b has 3 quantities and 1 price. Refer to the figures. In terms of representing the economy,

Figure B represents the very short run, where prices are sticky, and Figure A represents the longer run.

question #12 If the price level is expected to increase by three percent next year and a key market interest rate is seven percent, the real rate of interest is:

Four percent

When local police and fire departments buy new cars for their operations, these are counted as part of:

G

Which of the following is used to measure directly the average standard of living across countries?

GDP per person

Which of the following is correct?

MPC + MPS = APC + APS.

Which of the following relations is not correct? MPS = MPC + 1. MPC + MPS = 1. APS + APC = 1. 1 − MPC = MPS.

MPS = MPC + 1.

Which of the following transactions would be included in GDP?

Peter buys a newly constructed house.

Which of the following statements best describes price flexibility in the economy?

Prices tend to be sticky in the short run but become more flexible over time.

If disposable income is $900 billion when the average propensity to consume is 0.9, it can be concluded that:

Saving is $90 billion

Refer to the graphs above. Suppose a firm is currently producing 500 computers per week and charging a price of $1000. How will the firm respond to a positive demand shock if prices are inflexible?

The firm will increase production to 650 computers per week and charge a price of $1000

figure a price 1000 and computers per week is 300, 500, 650 figure b price is 600, 1000, 1200 and computers per week is 500 Refer to the graphs above. Which of the following best represents a positive demand shock when prices are flexible?

The shift from D2 to D3 in graph B

Which of the following is correct?

Total output = worker-hours × labor productivity.

The multiplier effect indicates that

a change in spending will change aggregate income by a larger amount.

Which of the following would shift the saving schedule upward?

a decrease in wealth

A large negative GDP gap implies

a high rate of unemployment.

Net exports are negative when

a nation's imports exceed its exports.

The GDP gap measures the difference between

actual GDP and potential GDP.

Shocks to the economy occur when

actual economic events do not match what people expected.

Suppose that inventories were $40 billion in 2012 and $50 billion in 2013. In 2013, national income accountants would:

add $10 billion to other elements of investment in calculating total investment.

Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of

an increase in personal taxes.

When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift

both the consumption and saving schedules downward.

question #1 Which of the following is classified as investment in national income (GDP) accounting?

building a new factory.

The investment demand curve will shift to the right as the result of

businesses becoming more optimistic about future business conditions.

Increased present saving

comes at the expense of reduced current consumption.

Dissaving occurs where

consumption exceeds income.

The largest component of total expenditures in the United States is:

consumption.

Savings are generated whenever

current income exceeds current spending.

Which of the following types of unemployment is directly associated with insufficient overall demand for goods and services?

cyclical unemployment

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced

deflation of 3.33 percent.

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:

deflation of 3.33 percent.

Personal saving is equal to

disposable income minus consumption.

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Based on this information, positive net investment is occurring in

economy C only.

Economic growth is best defined as an increase in:

either real GDP or real GDP per capita.

Net exports are

exports less imports.

Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and will begin a better job next week with company B. Kyle will be considered as:

frictionally unemployed.

Final goods and services refers to

goods and services purchased by ultimate users, rather than for resale or further processing.

question #21 Which of the following is most important in increasing a nation's economic growth in the long run?

higher rates of technological change.

Gross domestic product (GDP) measures and reports output:

in dollar amounts.

C2 is above C1, C1 has two points a and b. Refer to the given graph. A movement from a to b along C1 might be caused by a(n)

increase in real GDP.

question #30 If income and consumption in the U.S. economy are growing faster than in the economies of the nations that are its major trading partners, U.S. imports are most likely to:

increase more than U.S. exports.

1 p 3 q Refer to the figure. Assuming this market is representative of the economy as a whole, a positive demand shock will

increase output but leave prices unchanged.

If the number of worker-hours in an economy is 100 and its labor productivity is $5 of output per worker-hour, the economy's real GDP

is $500.

A peak in the business cycle

is a temporary maximum point.

Nominal gross domestic product

measures the value of final output produced within a nation in one year, using current prices.

GDP is the:

monetary value of all final goods and services produced within the borders of a nation in a particular year.

If depreciation (consumption of fixed capital) exceeds gross domestic investment, we can conclude that

net investment is negative.

If real GDP rises and the GDP price index has increased,

nominal GDP must have increased.

National income accountants can avoid multiple counting by

only counting final goods.

The unemployment rate is the:

percentage of the labor force that is unemployed.

Labor productivity is measured by

real output per worker-hour.

C2 is above C1, C1 has two points a and b. Refer to the given graph. A movement from b to a along C1 might be caused by a(n)

recession.

Cost-push inflation:

reduces real output.

Demand shocks

refer to unexpected changes in the desires of households and businesses to buy goods and services.

If a nation's real GDP increases from 100 billion to 106 billion and its population jumps from 200 million to 212 million, it real GDP per capita will:

remain constant.

When economists refer to "investment," they are describing a situation where

resources are devoted to increasing future output.

C2 is above C1, C1 has two points a and b. Refer to the given graph. A shift of the consumption schedule from C2 to C1 might be caused by a(n)

reverse wealth effect, caused by a decrease in stock market prices.

Economic growth can best be portrayed as a

rightward shift of the production possibilities curve.

Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will

rise by about 15 percent.

Other things equal, a 10 percent decrease in corporate income taxes will

shift the investment demand curve to the right.

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called

structural unemployment

Suppose that inventories were $80 billion in 2015 and $70 billion in 2016. In 2016, national income accountants would

subtract $10 billion from other elements of investment in calculating total investment.

Which of the following is the largest contributor to the growth of labor productivity in the United States?

technological advance

The investment demand curve will shift to the right as a result of

technological progress.

If depreciation exceeds gross investment,

the economy's stock of capital is shrinking.

Economies of scale refers to

the fact that large producers may be able to use more efficient technologies than smaller producers.

The most important determinant of consumer spending is

the level of income.

Suppose total output (real GDP) is $4,000 and labor productivity is $8. We can conclude that

the number of worker-hours must be 500.

Which of the following is not economic investment?

the purchase of 100 shares of AT&T by a retired business executive

Which of the following is an intermediate good?

the purchase of baseball uniforms by a professional baseball team

question #4 The limit of total productive capacity in an economy is set by:

the quantity and quality of its productive resources.

Refer to the figures. As the economy moves from the very short run to the longer run, we would expect

the representation of the economy to move from Figure B to Figure A.

The concept of net domestic investment refers to

total investment less the amount of investment goods used up in producing the year's output.

Labor productivity is defined as

total output/worker-hours.