ECON 202 Exam 1

If a 6% decrease in price for a good results in a 2% increase in quantity demanded, the price elasticity of demand is

0.33

If a 20% increase in price for a good results in a 15% decrease in quantity demanded, the price elasticity of demand is

0.75

If a 15% increase in price for a good results in a 20% decrease in quantity demanded, the price elasticity of demand is

1.33

An economy recently reported nominal GDP of 3 trillion euro and a GDP deflator of 200. What was real GDP?

1.5 trillion euro, and real GDP is a better gauge of economic activity than nominal GDP.

A country's real GDP rose from $500 to $530 while its nominal GDP rose from $600 to $700. What was this country's inflation rate?

10.0%

A barber shop produces 192 haircuts a day. Each barber in the shop works 8 hours per day and produces the same number of haircuts per hour. If the shop's productivity is 2 haircuts per hour of labor, then how many barbers does the shop employ?

12

If nominal GDP is $12 trillion and real GDP is $10 trillion, then the GDP deflator is

120, and this indicates that the price level has increased by 20 percent since the base year.

If nominal GDP is $10 trillion and real GDP is $8 trillion, then the GDP deflator is

125, and this indicates that the price level has increased by 25 percent since the base year.

If in some year real GDP was $5 trillion and the GDP deflator was 200, what was nominal GDP?

$10 trillion

A painter pays $500 for paint he uses to repaint a house. He then presents a bill for $1200 that covers his time and expenses to the homeowner. How much do these transactions add to GDP?

$1200

If in some year nominal GDP was $28 trillion and real GDP was $32 trillion, what was the GDP deflator?

87.5

If real GDP is 5,100 and nominal GDP is 4,900, then the GDP deflator is

96.1 so prices are lower than in the base year.

If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos falls?

Both the equilibrium price and quantity would decrease.

On April 1, 2009, in the middle of a recession, the government of the province of Ontario, Canada increased the provincial minimum wage from $8.75 to $9.50. What will the likely effect of this policy be?

Both the leftward shift in the labor demand curve and the higher minimum wage will lead to an increase in the unemployment rate.

Suppose that demand for a good decreases and, at the same time, supply of the good decreases. What would happen in the market for the good?

Equilibrium quantity would decrease, but the impact on equilibrium price would be ambiguous.

Consumption is $5.5 trillion, investment is $1 trillion, government expenditures are $1.5 trillion, transfer payments are $.5 trillion, exports are $.75 trillion and imports are $1.25 trillion. What is GDP?

GDP = C + I + G + NX = $5.5 trillion + $1 trillion + $1.5 trillion + $.75 trillion - $1.25 trillion = $7.5 trillion

Nominal GDP is $15 trillion and real GDP is $10 trillion. What is the GDP deflator? Show your work.

The GDP Deflator = Nominal GDP/Real GDP = 100 x $15 trillion/$10 trillion = 150.

For a particular good, a 10 percent increase in price causes a 3 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

The relevant time horizon is short.

If the price elasticity of demand for a good is 0.8, then a 12 percent increase in the quantity demanded must be the result of

a 15 percent decrease in the price

If the price elasticity of demand for a good is 2, then a 10 percent decrease in the quantity demanded must be the result of

a 5 percent increase in the price.

A transfer payment is

a form of government spending that is not made in exchange for a currently produced good or service

The short-run effects of an increase in the saving rate include

a. a higher level of productivity. b. a higher growth rate of productivity. c. a higher growth rate of income. All of the above are correct.

Country A has real GDP per person of 100,000 while country B has real GDP per person of 200,000. All else constant, country A will eventually have a higher standard of living than country B if

a. the level of saving per person is 10,000 in country A and 10,000 in country B. b. the level of saving per person is 12,000 in country A and 15,000 in country B both are correct

If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is a. 2 b. 0.50 c. 1 d. 1.5

a. 2

in the equation Y=C+I+G+NX, a. Y represents the economy's total expenditure b. C represents household expenditure c. all of the variables are always positive numbers d. all of the above are correct

a. Y represents the economy's total expenditure

All else equal, which of the following would tend to cause real GDP per person to rise?

an increase in investment in human capital

Which of the following will not result in a leftward shift of the market demand curve for labor?

an increase in the wage rate

If nominal GDP is $10 trillion and real GDP is $12 trillion, then the GDP deflator is a. 120, and this indicates that the price level has increased by 120 percent since the base year. b. 83.33, and this indicates that the price level has decreased by 16.67 percent since the base year. c. 83.33, and this indicates that the price level has increased by 83.33 percent since the base year. d. 120, and this indicates that the price level has increased by 20 percent since the base year.

b. 83.33, and this indicates that the price level has decreased by 16.67 percent since the base year.

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.

d. all of the above are correct.

Suppose that quantity demanded falls by 30% as a result of a 5% increase in price. The price elasticity of demand for this good is: a. inelastic and equal to 0.17 b. inelastic and equal to 6 c. elastic and equal to 0.17 d. elastic and equal to 6

d. elastic and equal to 6

A recession is always associated with

declining real GDP.

The traditional view of the production process is that capital is subject to

diminishing returns, so that other things the same, real GDP in poor countries should grow at a faster rate than in rich countries.

The consumption component of GDP includes spending on

durable goods, nondurable goods, and services.

Productivity

explains most of the differences in the standard of living across countries.

Government corruption

impedes the coordinating power of markets and discourages investment.

Gross domestic product measures

income and expenditures

To determine whether a good is considered normal or inferior, one could examine the value of the

income elasticity of demand for that good.

Nathan owns a bakery that bakes only cakes. All of his bakers work 8 hours per day. In 2011, he employed 5 bakers who produced a total of 200 cakes each day. In 2012, he employed 6 bakers who produced a total of 249 cakes each day. The bakery's productivity

increased by 3.75%.

In the long run, a higher saving rate

increases the level of productivity

If the demand for software engineers __________ slower than does supply, then wages of software engineers will __________.

increases; fall

Productivity is the

key determinant of living standards, and growth in productivity is the key determinant of growth in living standards.

Human capital is

knowledge and skills that workers have acquired.

Other things being equal, a __________ supply of workers tends to __________ real wages.

larger; decrease

Gross domestic product includes all

legal final goods and services, but it excludes illegal final goods and services.

Last year a country had 800 workers who worked an average of 8 hours and produced 12,800 units. This year the same country had 1000 workers who worked an average of 8 hours and produced 14,000 units. This country's productivity was

lower this year than last year. A possible source of this change in productivity is a change in the size of the capital stock

If a country's saving rate increases, then in the long run

productivity and real GDP per person are both higher.

In a simple circular-flow diagram, firms

purchase resources from households.

A recession has traditionally been defined as a period during which

real GDP declines for two consecutive quarters.

A country reported nominal GDP of $200 billion in 2010 and $180 billion in 2009. It also reported a GDP deflator of 125 in 2010 and 105 in 2009. Between 2009 and 2010,

real output fell and the price level rose.

Accumulating capital

requires that society sacrifice consumption goods in the present

The law of supply states that, other things equal, when the price of a good

rises, the quantity supplied of the good rises.

The percentage change in the price level from one period to another is called

the inflation rate.

When consumers and businesses have greater confidence that they will be able to repay in the future, _______________________.

the quantity demanded of financial capital at any given interest rate will shift to the right.

If the supply of a product decreases, then we would expect equilibrium price

to increase and equilibrium quantity to decrease.

GDP is defined as the

value of all final goods and services produced within a country in a given period of time.

In 2010, the imaginary nation of Bovina had a population of 5,000 and real GDP of 600,000. In 2011 it had a population of 5,200 and real GDP of 636,480. During 2011 real GDP per person in Bovina grew by

2 percent, which is about the same as average U.S. growth over the last one-hundred years.

If the price elasticity of demand for a good is 2.0, then a 10 percent increase in price results in a

20 percent decrease in the quantity demanded

If in some year nominal GDP was $10 trillion and real GDP was $4 trillion, what was the GDP deflator?

250