ECON 102 Midterm 2
Of the following sequences of price levels, which CORRECTLY represents a 5 percent inflation rate?
100, 105, 110.25, 115.76
If the price level last year was 220 and this year is 250, what is the inflation rate between the two years?
13.6 percent
The information in the table above gives the 2012 reference base period CPI basket and prices used to construct the CPI for a small nation. It also has the 2013 prices. What is the value of the CPI for 2013?
140
In the above table, the number of marginally attached workers is
15 million
If the CPI at the end of last year was 100 and the CPI at the end of this year was 115, the inflation rate was
15 percent
In 2012, consumers in Dexter consumed only books and pens. The prices and quantities for 2012 and 2013 are listed in the table above. The reference base period for Dexter's CPI is 2012. What is the CPI in 2013?
169
If real GDP per person is growing at 4 percent per year, approximately how many years will it take to double?
17.5
In a country with a working-age population of 300 million, 230 million workers are employed and 40 million workers are unemployed. What is the labor force participation rate?
90 percent
The above table shows answers given by people interviewed in a government survey of households. Which individuals are considered to be a part of the labor force?
A, B, and C
During the last 50 years, which of the following had the lowest level of real GDP per person?
Africa
Suppose real GDP for a country is $13 trillion in 2015, $14 trillion in 2016, $15 trillion in 2017, and $16 trillion in 2018. Over this time period, the real GDP growth rate is
decreasing
The gaps between the United States and the Asian countries of Honk Kong, Singapore, Korea and China have been
decreasing
Which of the following statements is INCORRECT?
The working age population includes everyone over the age of 16
If Ford sells 200 Explorers for a total of $400,000 to Germany, while the United States imports 100 BMWs for a total of $500,000 from Germany
U.S. GDP decreases because net exports are negative
Which of the following decreases the official U-3 unemployment rate?
Workers leave the labor force
Suppose the CPI last year is 121 and the CPI this year is 137. The CORRECT method to calculate the inflation rate is
[(137 - 121)/121] × 100 = 13.2
Which of the following is NOT a final good?
a new car sold to Avis for use in their fleet of rental cars
Which of the following is NOT considered to be in the labor force?
a person who is not working and who has not tried to find a job
The best definition for economic growth is
a sustained expansion of production possibilities measured as the increase in potential GDP over a given period
Gross investment is equal to
depreciation plus net investment
The decreasing slope of a production function reflects
diminishing returns
Gross domestic product can be calculated
either by valuing the nation's output of goods and services or by valuing the income generated in the production process
The employment-to-population ratio is equal to the number of
employed people divided by the working-age population then multiplied by 100
The five categories of income used in the income approach to the measurement of GDP are
employee compensation, net interest, rental income, corporate profits, and proprietor's income
The percentage of the people of working age who have jobs is called the ________.
employment-to-population ratio
Gross domestic product is a measure of the total value of all
final goods and services produced in an economy over a period of time
The factor market can best be described as where
firms buy the services of labor, land and capital
Which of the following is a final good?
flour purchased at the store to bake cookies
The relationship between the unemployment rate and the natural unemployment rate is that the unemployment rate
fluctuates about the natural rate
Business cycles
follow a pattern of trough, expansion, peak and recession
When a person reenters the labor force and looks for a job after spending time at home raising a child
frictional unemployment increases
When a student finishes college and begins looking for work
frictional unemployment increases
Because of a bank merger, Ms. Davis lost her position as Vice President and had to seek work with other banks. Ms. Davis has the skills necessary to find a new job, thus she is best considered as
frictionally unemployed
Catherine quit her job in order to look for a new one; therefore, she is best considered as
frictionally unemployed
Structural unemployment
generally lasts longer than frictional unemployment
The circular flow model shows that consumer goods and services produced by business firms are sold in the
goods market
If a nation's population grows, then
growth in real GDP per person will be less than the growth of real GDP
We are interested in long-term growth primarily because it brings
higher standards of living
In the above figure, flow B represents ________.
household purchases of goods and services
Real GDP per person in the country of Flip is $10,000, and the growth rate is 10 percent a year. Real GDP per person in the country of Flap is $20,000 and the growth rate is 5 percent a year. When will real GDP per person be greater in Flip than in Flap?
in 15 years
The approach to GDP that sums compensation of employees, rental income, corporate profits, net interest, proprietors' income, depreciation, and indirect taxes and subtracts subsidies is the
income approach
Proprietors' income is a component of which approach to measuring GDP?
incomes approach
Labor productivity increases with
increases in capital
Technological change
increases potential GDP
The tables above show the labor market and the production function schedule for the country of Pickett. An increase in population changes the labor supply by 20 billion hours at each real wage rate. Potential GDP ________.
increases to $18 trillion
If Frito Lay, an American snack company, opens a new manufacturing facility in Mexico and produces snacks which are distributed in South America, then Mexico's GDP ________ and U.S. GDP
increases; does not change
An expansion
is defined as a period of real GDP increases
The natural unemployment rate ________.
is the unemployment rate when there is no cyclical unemployment
Moving along the aggregate production function shows the relationship between ________, holding all else constant.
labor input and real GDP
According to the law of diminishing returns, an additional unit of
labor produces less output than the previous unit
If capital per worker rises
labor productivity increases
A decrease in population shifts the
labor supply curve leftward
In the equation, GDP = C + I + G + X - M, G refers to
local, state, and federal government expenditure on goods and services, but does not include transfer payments.
Gross domestic product (GDP) measures the
market value of final goods and services produced in the economy in a given time period
Potential GDP
measures the maximum amount of production that can be produced while avoiding shortages of labor, capital, land, and entrepreneurship that would bring rising inflation
A higher saving rate leads to faster growth because
more saving produces greater additions to capital per hour of labor, raising real GDP per person.
The country of Kemper is on its aggregate production function at point W in the above figure. If the population increases with no change in capital or technology, the economy will
move to point such as X
Real GDP decreases during
the movement from peak to trough
When cyclical unemployment increases and other things remain the same, ________.
the natural unemployment rate does not change
A movement along the aggregate production function is the result of a change in
the quantity of labor
The circular flow diagram shows that
the total amount of income generated by the economy equals the total purchases of final goods and services
Which labor market statistic tends to rise during recessions and fall during expansions?
the unemployment rate
Comparing aggregate expenditure and aggregate incomes shows that
they are equal
Net investment is the
total amount of gross investment minus depreciation
The cost of inflation to society includes
unpredictable changes in the value of money
A peak is the
upper turning point of a business cycle when an expansion ends
The Consumer Price Index is a measure of the average of the prices paid by ________ for a fixed basket of consumer goods and services.
urban consumers
Which of the following is a component of the incomes approach to GDP?
wages and salaries
Recessions are commonly defined to occur
when growth in real GDP is negative for two consecutive quarters
The labor force is defined as
workers with jobs and unemployed workers
Suppose that in 2015 a country has a population of 1 million and real GDP of $1 billion. In 2016, the population is 1.1 million and the real GDP is $1.1 billion. The real GDP per person growth rate is
zero
The use of purchasing power parity prices
accounts for differences in the prices of the same goods in different countries when measuring real GDP
Neoclassical growth theory predicts that
advances in technology increase the productivity of capital, which leads to an increase in investment and rising real GDP per person
An observer of the economy notices that over the past 12 months the unemployment rate has fallen from 7.0 percent to 6.5 percent. During the same time, the rate of growth in real GDP has been positive. From this information we might conclude that
an expansion is occurring in the economy
Saving and investment that increase a nation's capital lead to
an increase in labor productivity
A ton of coal purchased by your local utility to burn to make electricity would be best described as
an intermediate good
The official U-3 unemployment rate includes the total number of people who
are available and looking for work but unable to find employment.
The labor force is defined as the number of people who
are employed plus the number of people who are unemployed
In computing GDP, it is essential to
avoid double counting
The view that population growth occurs when real GDP per person exceeds the amount necessary to sustain life is part of the ________.
classical growth theory
The consumer price index (CPI)
compares the cost in the current period to the cost in a reference base period of a basket of goods typically consumed in the base period
The income approach to measuring GDP sums together
compensation of employees, rental income, corporate profits, net interest, proprietors' income, indirect taxes paid, and depreciation and subtracts subsidies paid by the government
Auto and steel workers commonly experience this type of unemployment in a recession
cyclical unemployment
Bill is a high-school dropout who lost his job in a fast food restaurant when the economy plunged into a recession. After 8 months, Bill is still looking for work. He is an example of
cyclical unemployment
The unemployment rate is at the natural unemployment rate when
cyclical unemployment equals zero
A recession causes a decrease in the demand for housing, resulting in substantial layoffs in the construction industry. The people laid off are considered
cyclically unemployment
Cyclical unemployment ________.
decreases during an expansion
If capital per hour of labor decreases, real GDP per hour of labor
decreases for a given level of technology
At the end of last year, the CPI equaled 120. At the end of this year, the CPI equals 132. What is the inflation rate over this year?
10 percent
In 2011, Armenia had a real GDP of approximately $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. Armenia's real GDP per person in 2012 was
$1,545
During 2014, the country of Economia had a real GDP of $115 billion and the population was 0.9 billion. In 2013, real GDP was 105 billion and the population was 0.85 billion. In 2014, real GDP per person was
$128
The tables above show the labor market and the production function schedule for the country of Pickett. Potential GDP is ________.
$14 trillion
Using the information in the table above, calculate the value of GDP.
$140 million
The above table shows some national income accounting data for a nation. In this nation, gross domestic product is equal to ________ billion.
$2,800
Using the data in the above table, gross domestic product as calculated by the income approach equals ________.
$2,925
If imports are $100 million less than exports, government expenditures are $500 million, consumer expenditures are $1 billion, and gross investment spending is $500 million, then GDP is
$2.1 billion.
Using the data in the above table, net private domestic investment equals
$210
The above table shows some (but not all) national income accounting data for a hypothetical country. According to these data, the value of GDP is ________ billion.
$2100
Using the information in the table above, calculate gross domestic product
$4,690 billion
In 2012, consumers in Dexter consumed only books and pens. The prices and quantities for 2012 and 2013 are listed in the table above. The reference base period for Dexter's CPI is 2012. What is the cost of the CPI basket in 2013?
$540
Using the data in the above table, what is the GDP?
$8,403 billion
The real wage rate equals
(money wage rate)/(price level)
If the CPI was 122.3 at the end of last year and 124.5 at the end of this year, the inflation rate over these two years was
1.8 percent
If the basket of goods and services used to calculate the CPI cost $200 in the reference base period and $450 in a later year, the CPI for the latter year equals
225
Suppose a nation's population grows by 2 percent and, at the same time, its GDP grows by 5 percent. Approximately how fast will real GDP per person increase?
3 percent per year
During 2013, the country of Economia had a real GDP of $115 billion and the population was 0.9 billion. In 2012, real GDP was 105 billion and the population was 0.85 billion. Economia's growth rate of real GDP per person is
3.4 percent
Slowdonia's current growth rate of real GDP per person is 2 percent a year. How long will it take to double real GDP per person?
35 years
Using the information in the above table, the unemployment rate is
4.3 percent
Slowdonia's current growth rate of real GDP per person is 1 percent a year. Approximately how long will it take to double real GDP per person?
70 years
If the number of people unemployed is 100, the number of people employed is 1000, and the working-age population is 1400, then the labor force participation rate is
78.6 percent
In an economy, 23 million people are employed and 2 million are unemployed, and there are 5 million part-time workers who would prefer full-time work. What is the unemployment rate?
8 percent
In 2011, Armenia had a real GDP of $4.21 billion and a population of 2.98 million. In 2012, real GDP was $4.59 billion and population was 2.97 million. What was Armenia's economic growth rate from 2011 to 2012?
9.0 percent
Which of the following statements regarding U.S. economic growth is NOT correct?
The growth rate of real GDP per person accelerated between 1973 to 1984
In the above figure, consumption expenditure is shown by flow
B
The relationship between real GDP and potential GDP is that
real GDP fluctuates about potential GDP
Which of the following statements regarding human capital is INCORRECT?
Education is the only vehicle for the creation of human capital because training simply reinforces what has already been learned
Choose the best statement
GDP equals aggregate expenditure and equals aggregate income
If the price level increases and workers' money wage rates remain constant,which of the following will occur? I. II. III.
I and II
Which of the following statements is CORRECT? I. Higher savings rates can stimulate economic growth. II. Limiting international trade can stimulate economic growth.
I only
Which of the following ideas apply to the neoclassical growth theory? I. II. III.
I, II and III
According to the Economic Times (09/2012), Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has averaged 7 percent growth in GDP since 1997. Which of the following is TRUE?
India's PPF has been shifting rightward since 1997
The best example of a frictionally unemployed individual is
Mary who quit her job to find work closer to her home
Which of the following people would be counted as is employed in the Current Population Survey?
Rich, who is working 20 hours a week but wants a full-time job
The country of Kemper is on its aggregate production function at point W in the above figure. The government of Kemper passes a law that makes 4 years of college mandatory for all citizens. After all citizens have their education, the economy will
move to point such as Z
Which of the following is NOT a component of the incomes approach to GDP?
net exports
Gross investment equals
net investment + depreciation
The biases in the CPI include the
new goods, quality change, and substitution biases
Personal consumption expenditures include all of the following EXCEPT spending on
new housing
Frictional unemployment comes about because of
normal labor market turnover
The word "final" in the definition of GDP refers to
not counting intermediate goods or services
Full-time students and prisoners are ________.
not in the labor force
The bias in the CPI typically
overstates inflation
Factors that influence labor productivity include ________.
physical capital, human capital, and technology
In the above figure, which point represents the under use of resources?
point G
An increase in labor productivity relates to
producing the same output with fewer labor hours
Which of the following is NOT included in real GDP?
production that takes place in the underground economy
If workers' money wage rates increase by 5 percent and the price level remains constant, workers'
quantity of labor supplied will increase
In the post-World War II period, considerable growth in total production took place in the United States. But at the same time, businesses were dumping their waste into the Great Lakes with minimal cost to themselves, significantly polluting the bodies of water as a result, this occurrence is an example where
real GDP gives an overly positive view of economic welfare
Labor productivity is defined as
real GDP per hour of labor
Which of the following is used to calculate the standard of living?
real GDP/population
The quantity of labor demanded depends on the
real wage rate not the money wage rate
Which of the following are parts of the business cycles?
recession and expansion
Which of the following best represents an indirect tax?
sales taxes paid on goods and services
The first step in measuring the CPI is to
select the market basket
The circular flow shows that the household sector earns its income by
selling factors of production
Unemployment caused by changes in technology is called ________ unemployment.
structural
According to the Economic Times (09/2012), Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has averaged 7 percent growth in GDP since 1997. Based on this story, it is most likely that the slowdown reflects a
temporary business cycle slowdown
Classical growth theory proposes that real GDP growth is ________ and that real GDP per person will ________ the subsistence level.
temporary; temporarily be above
If a rich country grows at a faster rate than a poor one, then
the gap in their standard of living will widen over time
