Econ 201M - Midterm Exam

Setting government spending and taxes in an effort to change overall spending in an economy is use of:

fiscal policy.

Those who believe in the classical model suggest that expansionary policies would result in increases in:

the aggregate price level with no change in output.

Macroeconomics focuses on:

the economy as a whole

When a chef prepares a dinner for a customer, which factor is physical capital?

the oven

A shift of the demand curve for thin-crust pizza would NOT be caused by a change in:

the price of thin-crust pizza.

Efficiency wages encourage:

workers to stay in their current job.

When hyperinflation forces Pedro to change the price stickers on the books in his bookstore very frequently to keep up with the aggregate price level, economists say that Pedro has a:

menu cost.

In constructing a model, economists:

might use a computer simulation.

A simplified version of reality that is used to clarify economic situations is called a(n):

model.

The statistics and data on unemployment are gathered and reported:

monthly.

The inflation-adjusted measure of aggregate output typically used by economists is called:

real gross domestic product.

A period of falling real GDP is a(n) ________ in the business cycle.

recession

If the real interest rate is 4% and the inflation rate is 1%, then the nominal interest rate is 5%.

True

Table: Labor Force Data The data in the table is as follows. Total Population, 200 million. Population age 16 and older, 150 million. Employed, 97 million. Use Table: Labor Force Data. Suppose the labor force participation rate is 70%. The labor force is equal to _____ million.

105

Table: Real and Nominal Output The table has three columns depicting Year, Units of Output, and Price per Unit (in dollars). The data is as follows. Row 1: 1, 40, 1. Row 2: 2, 30, 2. Row 3: 3, 50, 2. Row 4: 4, 70, 4. Row 5: 5, 60, 6. Row 6: 6, 60, 8. Use Table: Real and Nominal Output. Assuming year 3 is the base year, the change in real output between years 3 and 4 is an increase of: 100%. 200%. 140%. 40%.

40%

If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then the natural rate of unemployment is:

5%

(Table: Production Possibilities Schedule I) Use Table: Production Possibilities Schedule I. The opportunity cost of producing the fourth unit of consumer goods is _____ units of capital goods. The image shown in the table is titled Production Possibilities Schedule I. The first row head of the table depicts Alternative presenting the values A, B, C, D, E, and F, from left to right. The second row head of the table depicts Consumed goods per period presenting the values 0, 1, 2, 3, 4, and 5. The third row head of the table depicts Capital goods per period presenting the values 30, 28, 24, 18, 10, and 0.

8

Which statement illustrates the law of demand?

Consumers buy more personal computers because prices have fallen.

The peak of the business cycle provides evidence that the recession is over.

False

When the rate of inflation is high, people usually transfer money from interest-bearing accounts into checking accounts more often than when inflation is low. This is an example of a menu cost.

False

Firms supply goods and services in the product markets.

True

The problem of scarcity is confronted by:

all societies.

Raclette is a popular wintertime dish in Switzerland. It is essentially melted Raclette cheese over boiled new potatoes. If the price of Raclette cheese decreased, we would expect to see:

an increase in demand for new potatoes.

A choice made _____ is a choice whether to do a little more or a little less of an activity.

at the margin

Table: Real and Nominal Output The table has three columns depicting Year, Units of Output, and Price per Unit (in dollars). The data is as follows. Row 1: 1, 40, 1. Row 2: 2, 30, 2. Row 3: 3, 50, 2. Row 4: 4, 70, 4. Row 5: 5, 60, 6. Row 6: 6, 60, 8. Use Table: Real and Nominal Output. Nominal output in year 3 is:

$100.

If, during 2010, the Republic of Sildavia recorded investment spending of $3 billion, government purchases of $3 billion, consumer spending of $7 billion, imports of $5 billion, government transfers of $1 billion, and exports of $3 billion, Sildavia's GDP in 2010 was:

$11 billion.

Figure: The Labor Market The horizontal axis represents Quantity of labors (in thousands) and the vertical axis represents Wage rate. Both axes have a kink in the region between the origin and their first value. Four points, 80, 100, 110, and 200 are marked on the horizontal axis and three coordinates (in dollars) 14, 15, and 16 are marked on the vertical axis. Dotted lines are marked from each of these points, vertical and horizontal, respectively. A line marked S with a positive slope is drawn across the graph diagonally. Another line marked D with a positive slope is drawn across the graph touching the point (200, 0) on the horizontal axis. The lines S and D intersect at (100, 15). Use Figure: The Labor Market. The equilibrium wage rate is:

$15.

When the economy suffers a downturn and the incomes of many people decrease, vacationers are more likely to take car trips than to fly. Which statement provides one possible explanation for this phenomenon?

Air travel is a normal good and travel by car is an inferior good.

When an economy is operating between a trough and a peak of the business cycle, it is in:

An expansion.

Which statement BEST exemplifies the law of demand?

As the price of a car rental rises, fewer cars are rented.

Which question is the MOST appropriate to the study of MACROECONOMICS?

How does the aggregate price level affect overall consumer spending?

Figure 7-1: Circular-Flow Model) The circular flow model has four major sectors: Households, Firms, Government, Rest of World, and two markets: Factor markets and Goods and services markets. Households receive Wages, dividends, interest, rent equal to 500 dollars from the Firms through Factor Markets. Households make Consumer spending equal to 400 dollars toward the Goods and services and Taxes equal to 100 dollars to the Government. The Government makes Government purchases of goods and services equal to 100 toward Goods and services markets. The Goods and Services markets pay Imports equal to 30 dollars to the Firm. The Rest of the World pay Exports equal to 30 dollars to the Goods and Services markets. Use Figure 7-1: Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is a decrease in consumer spending, holding everything else constant, which outcome is likely to occur?

Not - an increase in the inflation rate Not - an increase in nominal GDP Maybe - an increase in real GDP

Which transaction will be included in the official measurement of GDP?

Sean bought a new truck.

The central mission of modern macroeconomics is to prevent:

a deep recession like the Great Depression.

One normally expects that unemployment increases while aggregate output and aggregate incomes decrease during:

a recession.

Which factor can BEST be considered to be a resource used in the production of computers? money from investors taxes on the profits from the sale of the computers computer engineers wages of computer engineers

computer engineers

The law of demand implies that:

consumer will buy more at lower prices.

If goods A and Z are complements, an increase in the price of good Z will:

decrease the demand for good A.

Last month, Brent lost his job at the auto parts factory because the factory relocated to Asia. Brent and his former coworkers have been looking for similar jobs, but they have found no openings. In Brent's town, the _____ labor has _____.

demand for; fallen

The law of demand is illustrated by a demand curve that is:

downward sloping.

Per capita economic growth is:

growth per person.

Manny is attending college and majoring in economics. By doing so, Manny is improving his:

human capital.

The law of demand states that, other things equal, as the price:

increases, the quantity demanded will decrease.

An economic model:

is a simplified version of reality used to understand real-world economic conditions.

If wages grew at 5% last year and average prices grew at 3%, then the average worker:

is better off.

A nation's exports minus its imports:

is net exports.

Purchases of imported products are:

not a part of the GDP calculation.

The inflation rate is the:

percentage change in the price level from one year to the next.

Economic models are:

potentially useful in forming economic policy.

Which factor is NOT an example of a resource?

production