ECON 2 Test 1

GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000. Refer to Scenario 1. For this economy, investment amounts to

$12,000.

In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007? a. $1.87 b. $2.08 c. $2.32 d. $3.00

$2.08

Assuming the market for loanable funds is in equilibrium, use the following numbers to determine the quantity of loanable funds supplied. GDP $8.7 trillion Consumption Spending $3.2 trillion Taxes Net of Transfers $2.7 trillion Government Purchases $3.0 trillion a. $2.2 trillion b. $2.5 trillion c. $3.9 trillion d. $5.2 trillion

$2.5 trillion

In the economy of Ukzten in 2010, consumption was $5300, GDP was $8800, government purchases were $1800, imports were $500, and investment was $2000. What were Ukzten's exports in 2010? a. -$800 b. -$300 c. $200 d. $300

$200

The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. Year Price of Peaches Price of Pecans 2005 $11 per bushel $6 per bushel 2006 $9 per bushel $10 per bushel Refer to Table 1. The cost of the basket in 2005 was

$200.

James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP?

$22,000

Table 1 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. Year Price of Peaches Price of Pecans 2005 $11 per bushel $6 per bushel 2006 $9 per bushel $10 per bushel Refer to Table 1.The cost of the basket in 2006 was

$240.

GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000. Refer to Scenario 13-1. For this economy, government purchases amount to

$38,000.

GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000. Refer to Scenario 13-1. For this economy, taxes amount to

$41,000.

A farmer sells $50,000 of apples to individuals who take them home to eat and $75,000 of apples to a company that uses them all to produce cider. How much of the farmer's sales will be included as apples in GDP? a. $0 b. $50,000 c. $75,000 d. $125,000

$50,000

Table 2. Megan's salary for three consecutive years, along with other values, are presented in the table below. Year 2008 2009 2010 Salary $60,000 $65,000 $72,000 Consumer Price Index 200.0 212.0 233.2 Real Interest Rate 3.0 percent 3.6 percent 3.3 percent Refer to Table 2. Megan's 2008 salary in 2010 dollars is

$69,960.

In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor. What was Alpha Cabinet Company's productivity? a. 1/8 cabinet per hour b. 8 hours per cabinet c. 40 cabinets d. None of the above is correct.

1/8 cabinet per hour

The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. Year Price of Peaches Price of Pecans 2005 $11 per bushel $6 per bushel 2006 $9 per bushel $10 per bushel Refer to Table 1. If 2005 is the base year, then the CPI for 2005 was

100.

The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. Year Price of Peaches Price of Pecans 2005 $11 per bushel $6 per bushel 2006 $9 per bushel $10 per bushel Refer to Table 1. If 2005 is the base year, then the CPI for 2006 was

120.

Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the loan in full, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him than he could before he loaned Elwood the $5,000. From this, we can conclude that the rate of inflation during the year was a. -4 percent. b. 4 percent. c. 6 percent. d. 14 percent.

14 percent.

A country's real GDP rose from 500 to 550 while its nominal GDP rose from 600 to 770. What was this country's inflation rate? a. 16.7% b. 20% c. -14.3% d. -20%

16.7%

Last year real GDP in the imaginary nation of Oceania was 561.0 billion and the population was 2.2 million. The year before, real GDP was 500.0 billion and the population was 2.0 million. What was the growth rate of real GDP per person during the year? a. 12 percent b. 10 percent c. 4 percent d. 2 percent

2 percent

Table 1 The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. Year Price of Peaches Price of Pecans 2005 $11 per bushel $6 per bushel 2006 $9 per bushel $10 per bushel Refer to Table 1. If 2005 is the base year, then the inflation rate in 2006 was

20 percent.

The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. Year Price of Peaches Price of Pecans 2005 $11 per bushel $6 per bushel 2006 $9 per bushel $10 per bushel Refer to Table 1. If 2006 is the base year, then the inflation rate in 2006 was

20 percent.

If the consumer price index was 88 in 2009, 95 in 2010, and 100 in 2011, then the base year must be a. 2009. b. 2010. c. 2011. d. The base year cannot be determined from the given information.

2011.

The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, 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 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia's inflation rate in 2006? a. 4 percent b. 11 percent c. 19.6 percent d. 24.4 percent

24.4 percent

If the inflation rate is 2 percent and the real interest rate is 3 percent, then the nominal interest rate is a. 5 percent. b. 1 percent. c. 1.5 percent d. 0.67 percent.

5 percent.

If the consumer price index was 100 in the base year and 107 in the following year, then the inflation rate was a. 1.07 percent. b. 7 percent. c. 10.7 percent. d. 107 percent.

7 percent.

Suppose that an economy produces 40,000 units of good A which sells at $4 a unit and 20,000 units of good B which sells at $5 per unit. Production of good A contributes a. 2 times as much to GDP as the production of good B. b. 8/5 times as much to GDP as the production of good B. c. 5/4 times as much to GDP as the production of good B. d. 4/5 times as much to GDP as production of good B.

8/5 times as much to GDP as the production of good B.

The table below pertains to Pieway, an economy in which the typical consumer's basket consists of 10 bushels of peaches and 15 bushels of pecans. Year Price of Peaches Price of Pecans 2005 $11 per bushel $6 per bushel 2006 $9 per bushel $10 per bushel Refer to Table 1. If 2006 is the base year, then the CPI for 2005 was

83.3.

Table 2. Megan's salary for three consecutive years, along with other values, are presented in the table below. Year 2008 2009 2010 Salary $60,000 $65,000 $72,000 Consumer Price Index 200.0 212.0 233.2 Real Interest Rate 3.0 percent 3.6 percent 3.3 percent Refer to Table 2. The nominal interest rate for 2009 is

9.60 percent.

Natural resources a. are inputs provided by nature. b. include land, rivers, and mineral deposits. c. take two forms: renewable and nonrenewable. d. All of the above are correct.

All of the above are correct.

Country A has a population of 1,000, of whom 800 work 8 hours a day to make 128,000 final goods. Country B has a population of 2,000, of whom 1,800 work 6 hours a day to make 270,000 final goods. a. Country A has higher productivity and higher real GDP per person than country B. b. Country A has lower productivity and lower real GDP per person than country B. c. Country A has higher productivity, but lower real GDP per person than country B. d. Country B has lower productivity, but higher real GDP per person than country B.

Country A has lower productivity and lower real GDP per person than country B.

Real GDP per person is $30,000 in Country A, $20,000 in Country B, and $11,000 in Country C. Saving per person is $1,000 in all three countries. Other things equal, we would expect that a. all three countries will grow at the same rate. b. Country A will grow the fastest. c. Country B will grow the fastest. d. Country C will grow the fastest.

Country C will grow the fastest.

Adam and Doug both build birdhouses. Adam works 20 hours a week and produces 12 bird houses. Doug works 30 hours a week and produces 15 bird houses. Which of the following is correct? a. Adam's production and productivity are higher than Doug's. b. Adam's production is higher than Doug's, but Doug's productivity is higher than Adam's. c. Doug's production is higher than Adam's, but Adam's productivity is higher than Doug's. d. Doug's production and productivity are higher than Adam's.

Doug's production is higher than Adam's, but Adam's productivity is higher than Doug's.

Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP? a. Sam's and Ellen's. b. Sam's but not Ellen's. c. Ellen's but not Sam's. d. Nether Sam's nor Ellen's.

Ellen's but not Sam's.

Martin, a U.S. citizen, travels to Mexico and buys a newly manufactured motorcycle made there. His purchase is included in a. both Mexican GDP and U.S. GDP. b. Mexican GDP, but it is not included in U.S. GDP. c. U.S. GDP, but it is not included in Mexican GDP. d. neither Mexican GDP nor U.S. GDP.

Mexican GDP, but it is not included in U.S. GDP.

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,500, consumption equals 7,500, and government purchases equal 2,000. What is national saving? a. -500 b. 0 c. 2,000 d. None of the above is correct.

None of the above is correct.

Assume an economy experienced a positive rate of inflation between 2003 and 2004 and again between 2004 and 2005. However, the inflation rate was higher between 2004 and 2005 than it was between 2003 and 2004. Which of the following scenarios is consistent with this assumption? a. The CPI was 100 in 2003, 110 in 2004, and 105 in 2005. b. The CPI was 100 in 2003, 120 in 2004, and 135 in 2005. c. The CPI was 100 in 2003, 105 in 2004, and 130 in 2005. d. The CPI was 100 in 2003, 90 in 2004, and 88 in 2005.

The CPI was 100 in 2003, 105 in 2004, and 130 in 2005.

On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. Refer to Figure 2. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1 to D2?

The tax code is reformed to encourage greater investment.

Which of the following is not an example of a nondurable good? a. a loaf of bread b. a pair of jeans c. a microwave d. a pound of bacon

a microwave

Which of the following is a financial intermediary? a. a mutual fund b. the stock market c. a U.S. government bond d. a wealthy individual who regularly buys and holds large quantities of government bonds

a mutual fund

What would happen in the market for loanable funds if the government were to increase the tax on interest income? a. Interest rates would rise. b. Interest rates would be unaffected. c. Interest rates would fall. d. The effect on the interest rate is uncertain.

a. Interest rates would rise.

Refer to Figure 1. Which of the following events would shift the supply curve from S1 to S2? a. In response to tax reform, firms are encouraged to invest more than they previously invested. b. In response to tax reform, households are encouraged to save more than they previously saved. c. Government goes from running a balanced budget to running a budget deficit. d. Any of the above events would shift the supply curve from S1 to S2.

b. In response to tax reform, households are encouraged to save more than they previously saved.

Table 1 The country of Caspir produces only cereal and milk. Quantities and prices of these goods for the last several years are shown below. The base year is 2008. Prices and Quantities Year Price of Cereal Quantity of Cereal Price of Milk Quantity of Milk 2008 $4.00 90 $1.50 150 2009 $4.00 100 $2.00 180 2010 $5.00 120 $2.50 200 2011 $6.00 150 $3.50 200 Refer to Table 1. In 2011, this country's a. real GDP was $900, and the GDP deflator was 150.2. b. real GDP was $900, and the GDP deflator was 177.8. c. real GDP was $1065, and the GDP deflator was 177.8. d. real GDP was $1065, and the GDP deflator was 150.2.

b. real GDP was $900, and the GDP deflator was 177.8.

GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000. Refer to Scenario 1. This economy's government is running a

budget surplus of $3,000.

The inflation rate is calculated a. by determining the change in the price index from the preceding period. b. by adding up the price increases of all goods and services. c. by computing a simple average of the price increases for all goods and services. d. by determining the percentage increase in the price index from the preceding period.

by determining the percentage increase in the price index from the preceding period.

Changes in nominal GDP reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced.

c. both changes in prices and changes in the amounts being produced.

Kathleen is considering expanding her dress shop. If interest rates rise she is a. less likely to expand. This illustrates why the supply of loanable funds slopes downward. b. more likely to expand. This illustrates why the supply of loanable funds slopes upward. c. less likely to expand. This illustrates why the demand for loanable funds slopes downward. d. more likely to expand. This illustrates why the demand for loanable funds slopes upward.

c. less likely to expand. This illustrates why the demand for loanable funds slopes downward.

A larger budget deficit a. raises the interest rate and investment. b. reduces the interest rate and investment. c. raises the interest rate and reduces investment. d. reduces the interest rate and raises investment.

c. raises the interest rate and reduces investment.

Table 2. Megan's salary for three consecutive years, along with other values, are presented in the table below. Year 2008 2009 2010 Salary $60,000 $65,000 $72,000 Consumer Price Index 200.0 212.0 233.2 Real Interest Rate 3.0 percent 3.6 percent 3.3 percent Refer to Table 2. Suppose the consumer price index for 2010 is not necessarily 233.2. If the nominal interest rate for 2010 is 7.3 percent , then the consumer price index for 2010 is, in fact,

c. 220.48

Which of the following is not included in GDP? a. carrots grown in your garden and eaten by your family b. carrots purchased at a farmer's market and eaten by your family c. carrots purchased at a grocery store and eaten by your family d. None of the above are included in GDP.

carrots grown in your garden and eaten by your family

A U.S. citizen buys a tea kettle manufactured in China by a company that is owned and operated by U.S citizens. In which of the following components of U.S. GDP is this transaction accounted for? a. consumption and imports b. consumption but not imports c. imports but not consumption d. neither consumption nor imports

consumption and imports

Which of the following lists correctly identifies the four expenditure categories of GDP? a. consumption, government purchases, investment, net-exports b. consumption, investment, depreciation, net-exports c. consumption, saving, investment, depreciation, d. consumption, government purchases, investment, savings

consumption, government purchases, investment, net-exports

If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is a. 104.1 so prices are higher than in the base year. b. 104.1 so prices are lower than in the base year. c. 96.1 so prices are higher than in the base year. d. 96.1 so prices are lower than in the base year.

d. 96.1 so prices are lower than in the base year.

If a U.S. citizen buys a television made in Korea by a Korean firm, then a. U.S. net exports decrease and U.S. GDP decreases. b. U.S. net exports are unaffected and U.S. GDP decreases. c. U.S. net exports are unaffected and U.S. GDP is unaffected. d. U.S. net exports decrease and U.S. GDP is unaffected

d. U.S. net exports decrease and U.S. GDP is unaffected.

Macroeconomists study a. the decisions of individual households and firms. b. the interaction between households and firms. c. economy-wide phenomena. d. regulations imposed on firms and unions.

economy-wide phenomena.

For an economy as a whole, income must equal expenditure because a. the number of firms is equal to the number of households in an economy. b. individuals can only spend what they earn each period. c. every dollar of spending by some buyer is a dollar of income for some seller. d. every dollar of saving by some consumer is a dollar of spending by some other consumer.

every dollar of spending by some buyer is a dollar of income for some seller.

Social Security payments are a. included in GDP because they represent current income. b. included in GDP because they represent potential consumption. c. excluded from GDP because they are not private pensions. d. excluded from GDP because they do not reflect the economy's production.

excluded from GDP because they do not reflect the economy's production.

Which of the following examples of household spending is categorized as investment rather than consumption? a. expenditures on durable goods such as automobiles and refrigerators b. expenditures on intangibles items such as medical care c. expenditures on new housing d. All of the above are correct.

expenditures on new housing

Table 2. Megan's salary for three consecutive years, along with other values, are presented in the table below. Year 2008 2009 2010 Salary $60,000 $65,000 $72,000 Consumer Price Index 200.0 212.0 233.2 Real Interest Rate 3.0 percent 3.6 percent 3.3 percent Refer to Table 2. Suppose the consumer price index for 2010 is not necessarily 233.2. Then Megan's 2010 salary represents more purchasing power than her 2008 salary as long as the consumer price index for 2010 is a. greater than 240.00. b. less than 240.00. c. greater than 233.33. d. less than 233.33.

less than 240.00.

For a given year, productivity in a particular country is most closely matched with that country's a. level of real GDP over that year. b. level of real GDP divided by hours worked over that year. c. growth rate of real GDP divided by hours worked over that year. d. growth rate of real GDP per person over that year.

level of real GDP divided by hours worked over that year.

The primary economic function of the financial system is to a. keep interest rates low. b. provide expert advice to savers and investors. c. match one person's consumption expenditures with another person's capital expenditures. d. match one person's saving with another person's investment.

match one person's saving with another person's investment.

DP excludes most items that are produced and sold illegally and most items that are produced and consumed at home because a. the quality of these items is not high enough to contribute value to GDP. b. measuring them is so difficult. c. the government wants to discourage the production and consumption of these items. d. these items are not reported on income tax forms.

measuring them is so difficult.

The Economic Development Minister of a country has a list of things she thinks may explain her country's low growth of real GDP per person relative to other countries. She asks you to pick the one you think most likely explains her country's low growth. Which of the following contributes to low growth? a. poorly enforced property rights b. outward-oriented trade policies c. policies that permit foreign investment d. All of the above are correct.

poorly enforced property rights

For an imaginary closed economy, T = $5,000; S = $11,000; C = $50,000; and the government is running a budget deficit of $1,000. Then a. private saving = $10,000 and GDP = $54,000. b. private saving = $10,000 and GDP = $58,000. c. private saving = $12,000 and GDP = $67,000. d. private saving = $12,000 and GDP = $72,000.

private saving = $12,000 and GDP = $67,000.

Consumption consists of spending by households on goods and services, with the exception of

purchases of new houses.

If Congress instituted an investment tax credit, the interest rate would a. rise and saving would rise. b. fall and saving would fall. c. rise and saving would fall. d. fall and saving would rise.

rise and saving would rise.

The supply of loanable funds would shift to the right if either a. tax reforms encouraged greater saving or the budget deficit became smaller. b. tax reforms encouraged greater saving or investment tax credits were increased. c. the budget deficit became larger or investment tax credits were increased. d. the budget deficit became larger or tax reforms discouraged saving.

tax reforms encouraged greater saving or the budget deficit became smaller.

The term inflation is used to describe a situation in which a. the overall level of prices in the economy is increasing. b. incomes in the economy are increasing. c. stock-market prices are rising. d. the economy is growing rapidly.

the overall level of prices in the economy is increasing.

Figure 1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. Refer to Figure 1. What is measured along the vertical axis of the graph?

the real interest rate

Which of the following is considered human capital? a. the comfortable chair in your dorm room where you read economics texts b. the amount you get paid each week to work at the library c. the things you have learned this semester d. any capital goods that require a human to be present to operate

the things you have learned this semester

Ralph is a plumber. Which of the following are included in his physical capital? a. the knowledge he learned on the job, and the tools he uses b. the knowledge he learned on the job, but not the tools he uses c. the tools he uses, but not the knowledge he learned on the job d. neither the knowledge he learned on the job nor the tools he uses

the tools he uses, but not the knowledge he learned on the job