ECON2030 Final Exam; Stern

Suppose in 2018, the Real GDP per capita in Belgium is $46, 875. If the Belgian economy is growing at the 0.3% (or 0.003 in the decimal form) average annual growth rate, what will Belgium's Real GDP per capita be in 2028?

$48,300

Emily is a famous novelist. She buys pens and paper for $20 and writes a novel that she sells to a publishing company for $500,000. If the publisher prints 1 million copies that sell for $25 each, what is Emily's value added?

$499,980

According to the Quantity Theory of Money, if the money supply is currently $400 billion, the velocity of money is 2, and the price level is 1.6, how much is real GDP?

$500 billion

The CPI in 1990 was 131, and the CPI in 2008 was 215. If your mom earned a salary of $40,000 in 1990, what would be her salary measured in 2008 dollars?

$65,649

The CPI in 1980 was 82, and the CPI in 2006 was 202. If your uncle earned a salary of $30,000 in 1980, what would be his salary measured in 2006 dollars?

$73,902

If Real GDP per capita in Ireland is estimated to be $7,400 in 2018, what will Real GDP per capita be in 2023 if Real GDP per capita grows at an annual rate of 2.8%?

$8,496

If you are having trouble finding a job because of a recession in the economy, we would say that you are

cyclically unemployed

An economy can improve its standard of living by

increasing the amount of capital available per hour worked

Assume the required reserve ratio, rr, is 50%. What will happen to the money supply, M, if the Feds sell $100 million in government bonds?

it will go down by $200 million

Assume the required reserve ratio, rr, is 40%. What will happen to the money supply, M, if the Fed sells $100 million in government bonds?

it will go down by $250 million

Assume the required reserve ratio, rr, is 40%. What will happen to the money supply, M, if the Fed buys $100 million in government bonds?

it will go up by $250 million

Developing countries with low saving rates and poor levels of health and education are likely to experience

low rates of growth in Real GDP per capita

The purchase by the German government of an airplane produced in the U.S. is included in U.S.

net exports

If you transfer all of your cash to your checking account, then initially, M1 will ___________ and M2 will ______________.

not change; not change

If your withdraw $100 from your checking account at Auburn Bank and hold it as cash, them M1 will ______________ and M2 will ______________.

not change; not change

A full- time student who is not working is categorized as

not in the labor force

The increase in quality bias in the consumer price index refers to the idea that price increases in the CPI reflect pure inflation, but _____________ quality increase. This causes the CPI to _____________ the cost of the market basket.

not; overstate

What are the goals of the Monetary Policy?

price stability, economic growth, high employment, and stability of financial markets

Assume the required reserve ratio, rr, is 25%. What does the Fed have to do to decrease the money supply, M, by $100 million?

sell $25 million in government bonds

If a teenager lost her job delivering newspapers to her neighbors because the newspaper publisher switched to the on-line only format, then she is

structurally unemployed

How do decreases in spending on the war in Syria (essentially government purchases) affect the AD curve?

they will shift the AD curve to the left

How do increases in spending on the war in Syrias (essentially government purchases) affect the AD curve?

they will shift the AD curve to the right

Scarcity refers to the situation in which

unlimited wants exceed limited resources

The LRAS curve is

vertical

Suppose Real GDP was $8 million in some small country in 2018, consumption was $6 million, investment was $2 million, government purchases were $1 million and imports were $3 million. How much were exports in this country in 2018?

$2 million

Emily is a famous novelist. She buys pens and paper for $20 and writes a novel that she sells to a publishing company for $500,000. If the publisher prints 1 million copies that sell for $25 each, what is the publisher's value added (for all 1 million copies)?

$24,500,000

Suppose Real GDP was $10 million in some small country in 2018, consumption was $6 million, investment was $2 million, government purchases were $1 million and imports were $2 million. How much were exports in this country in 2018?

$3 million

According to the Quantity Theory of Money, if the money supply is currently $200 billion, the velocity of money is 1.5, how much is nominal GDP?

$300 billion

Suppose real GDP was $10 million in some small country in 2018, consumption was $6 million, investment was $2 million, government purchases were $1 million and imports were $3 million. How much were exports in this country in 2018?

$4 Million

Using the quantity equation, if the velocity of money grows at 4%, the money supply grows at 16%, and real GDP grows at 5%, then the inflation rate will be

15%

In 2017, Peelville consumed 30,000 bananas. In 2018, banana consumption rose to 35,000. Calculate the percentage change in banana consumption.

16.67%

According to the Quantity Theory of Money, if the money supply grows at 7%, Real GDP grows at 5%, and the velocity of money is constant, then the inflation rate will be

2%

If the CPI was 215 in 2008 and it was 131 in 1990, what was the average inflation rate over this 18- year period?

2.8%

In 2015, Smileytown consumed 50,000 tubes of toothpaste. In 2016, toothpaste consumption rose to 62,000 tubes. Calculate the percentage change in toothpaste consumption.

24%

If the price of pineapple juice was $4.50 a gallon and it is now $5.75 a gallon, what is the percentage change in price?

27.8%

Suppose Real GDP grows by 6% this year. If both capital and labor increase by 3%, how much is technological progress?

3%

Suppose labor productivity grows by 6% this year. If the capital-to- labor ratio increases by 9%, how much is technological progress?

3%

If the labor- force participation rate (LFPR) is 80%, the unemployment rate (UR) is 15%, and the number of employed (E) is 204 million, what is the working- age population (WAP)?

300 million

According to the "Rule of 70", how many years will it take for Real GDP per capita to double when the growth rate of Real GDP per capita is 2%?

35 years

Suppose the working- age population (WAP) is 600 million, the labor- force participation rate (LFPR) is 75%, and the unemployment rate is 20%. How many people are employed in this economy?

360 million

Suppose the working- age population is (WAP) is 600 million, the labor- force participation rate (LFPR) is 75%, and the unemployment rate is 20%. How many people are employed in this economy?

360 million

Suppose in a small economy, the unemployment rate (UR) is 20%. if 240 million people in this economy are currently employed (E) and the labor- force participation rate (LFPR) is 80%, what is the working-age population (WAP) in this economy?

375 million

According to the Quantity Theory of Money, if the money supply grows at 6%, Real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be

4%

Suppose Real GDP grows by 7% this year. If both capital and labor increase 3%, how much is technological progress?

4%

If Real GDP per capital in a small country is $8,000 in 2018, and if Real GDP per capita is $12,000 in 2028, what is the average annual percentage change in the growth rate of GDP per capita between 2018 and 2028?

4.1%

If the money in your savings account at Keystone bank doubles between 2010 and 2025, what is the average annual interest rate that Keystone bank is paying on saving accounts?

4.7%

If the money in your savings account at Keystone bank doubles between 2018 and 2033, what is the average annual interest rate that Keystone bank is paying on saving accounts?

4.7%

If the number employed (E) is 190 million, the number unemployed (U) is 10 million, and the working- age population (WAP) is 250 million, then the labor- force participation rate (LFPR) is

80%

If the number employed (E) is 190 million, the number unemployed (U) is 10 million, and the working- age population is (WAP) is 250 million, the the labor- force participation rate (LFPR) is

80%

An example of an intermediate good would be: a) the bread that goes into a sub sandwich that is sold at Quiznos b) the potato chips sold at Quiznos c) a sub sandwich sold by Quiznos d) the soda pop sold by Quiznos

A

Which of the following goods is directly counted in GDP? a) a 12- inch Subway sandwich purchased by a student b) the lettuce that Subway purchases for its sandwiches c) the plastic bags that Subway purchases to wrap its sandwiches d) the bread that Subway purchases for its sandwiches

A

Which of the following is a normative statement? a) the price of milk it too high b) when the price of milk rises , the quantity of milk purchased falls c) when the price of milk rises, the cost of milk-based products rises d) the current high price of milk is the result of reduced worldwide supply

A

Which of the following transactions would take place in the "underground economy"? a) john makes chain-link belts and necklaces and sell them at a local flea market for cash to avoid paying taxes b) matt bought an iPad for $499 but decided to sell it on eBay instead of keeping it c) paul buys 15 gallons of gasoline for $3.29 a gallon, not realizing that $1.50 per gallon of that price goes to the government as a tax revenue d) elizabeth tells her mother she's going to work but really goes to see a movie

A

Which statement demonstrates that economic agents respond to incentives? a) soda drinkers purchase more soda from the grocery store that sells soda at a lower price than other rival grocery stores in the area b) homeowners do not take steps to increase security even though they believe it is more costly to allow burglaries than to install security monitoring equipment c) manufacturers produce less of a particular cell phone when its selling price rises

A

Which statement demonstrates that economic agents respond to incentives? a) soda drinkers purchase more soda from a grocery store that sells soda at a lower price than other rival grocery stores in the area b) homeowners take a step to increase security because they believe it is more costly to allow burglaries than to install security monitoring equipment c) manufacturers produce less of a particular cell phone when its selling price rises

A & B

Which of the following statements demonstrates that economic agents respond to incentives? a) consumers rent more kayaks from a vendor that rents kayaks at a lower price than other rival kayak vendors along Waikiki beach b) department store take steps to increase security because they believe it is more costly to allow shoplifting that to install expensive security monitoring equipment c) farmers produce more cotton when its selling price rises

A, B, & C

Which of the following headlines would be more closely related to what macroeconomists study that macroeconomists study? a) avocado prices ride sue to a late frost in California b) Real GDP grow by 2.3% in the second quarter c) the United Auto Workers sign a contract raising wages and benefits 7% over the next 3 years d) Airlines raise ticket prices in response to rising fuel costs

B

Which of the following is a Microeconomics question? a) Why do economies experience periods of recession? b) How will Apple decide on a selling price for the iPad? c) Will government intervention lower the unemployment rate? d) Why has growth in the economy slowed down over the past decade?

B

Which of the following is a normative economic statement? a) better awareness of health risks has decreased tobacco use b) tobacco products should be banned in all public spaces c) a reduction in tobacco subsidies has caused the price of tobacco to increase d) the increase in tobacco taxes has caused an increase in the price of cigarettes

B

Which of the following scenarios would you prefer as a borrower? a) Nominal interest rate is 10%, inflation is 5% b) Nominal interest rate is 15%, inflation is 12% c) Nominal interest rate is 7%, inflation is 3% d) Nominal interest rate is 9%, real interest rate is 6%

B

Which of the following scenarios would you prefer as a borrower? a) Nominal interest rate is 10%, inflation is 5% b) Nominal interest rate is 9%, inflation is 6% c) Nominal interest rate is 7%, inflation is 3% d) Nominal interest rate is 9%, real interest rate is 6%

B

Which of the following statements is a Macroeconomics question? a) What factors determine the price of iPhones? b) What determines the unemployment rate? c) What determines the wages and benefits of flight attendants? d) How is the production quantity of digital cameras determined?

B

Which of the following will raise consumer expenditures? a) an increase in the price level b) an increase in expected future income c) an increase in interest rates d) an increase in income taxes

B

Suppose in 2018, you purchase a Ford car made in 2016. Which of the following will be included in the GDP for 2018? a) the price of the car in 2018 b) the price of the car in 2016 c) the fees that you paid to your local Ford dealership d) the price of the car in 2016 minus the price of the car in 2018

C

Which of the following is likely to increase measured GDP? a) a greater number of women decide to stay at home and provide day care for their children under age 5 b) more people decide to do their own lawn maintenance and give up using a professional service c) marijuana becomes legal to grow and sell in all 50 states d) tax rates increase and more people attempt to underreport their income for tax purposes

C

Which of the following is true about CPI? a) it filters out the part of the price increases that occurs because of quality improvements in products. b) it frequently updates the price changes of new products added to the market basket, as these have a tendency to fall c) it assumes that consumers purchase the same amount of each product in the market basket each month d) it accounts for people switching to goods whose prices have fallen

C

Which of the following would be the best measure of the cost of living? a) real GDP b) CPI c) real GDP per capita d) GDP deflator

C

Which of the following would you expect to result in faster economic growth? a) a decrease in the stock of capital per worker b) a decrease in research and development spending c) the invention of new computers that increase labor productivity d) a decrease in the average level of education in the economy

C

Which of the following best describes the "wealth effect"? a) when the price level falls, the nominal value of household wealth falls b) when the price level falls, the nominal value of household wealth rises c) when the price level falls, the real value of the house hold wealth falls d) when the price level falls, the real value of household wealth rises

D

Which of the following can explain why some countries have NOT experienced relatively high growth rates in Real GDP per capita despite relatively low initial levels of Real GDP per capita? a) countries that are relatively poor are likely to have a lower quality of health care b) countries that are relatively poor are more likely to experience wars and revolutions c) many of these developing countries do not have a functioning court system that can enforce laws d) all of the above

D

Which of the following is a positive economic statement? a) the government should ban diesel engines in automobiles b) foreign citizens should not be allowed to work without a work visa c) people should use public transportation more often d) due to a decrease in state funding, university tuition has risen

D

Which of the following is a positive economic statement? a) the government should close income tax loopholes b) everyone should live at the same standard of living c) U.S. firms should not be allowed to outsource production of goods and services d) if the price of gasoline rises, a smaller quantity of it will be bought

D

Which of the following is an example of a worker experiencing cyclical unemployment? a) a United Airlines pilot loses her job because she does not get alone with her co-workers b) a computer programmer loses her job because it is outsourced to India c) a worker quits his job at the Post Office to find more interesting work d) an employee is laid off because the economy is suffering a recession

D

Which of the following transactions represents the purchase of a final good? a) Starbucks purchases coffee beans b) Delta buys a new European- made jetliner c) Apple computer buys computer processors from Intel d) your father buys a new John Deere riding lawn mower

D

Which of the following would you expect to result in faster economic growth? a) a decrease in the stock of capital per worker b) a decrease in research and development spending c) a decrease in the average level of education in the economy d) the invention of new computers that increase labor productivity

D

Monetary Policy refers to the actions the

Federal Reserve takes to manage the money supply and interest rates to pursue it macroeconomic policy objectives

Zane's Vanes is a service that restores old weather vanes. Zane has just spent $125 purchasing a 1920s- era weather vane which he expects to restore and sell for $500 once the work is completed. After having spent $125, Zane realizes that he will need to spend an additional $200 on materials to complete the restoration. Alternatively, he can sell the weather vane without restoring it for $200. What should he do?

He should see the weather vane back to the party he purchased it from and cut his losses

If your parents buy you a brand- new condo in Auburn this year, this purchase will be included in

Investment Expenditures

The "International Trade" effect states that

an increase in the price level will lower net exports

Assume the required reserve ration, rr, is 25%. What does the Fed have to do to increase the money supply, M, by $500 million?

buy $125 million in government bonds

Assume the required reserve ratio, rr, is 25%. What does the Fed have to do to increase the money supply, M, by $100 million?

buy $25 million in government bonds

Economics is the study of the _____________ people make to attain their goals, given their _____________ resources.

choices; scarce

In a market economy, who decides what goods and services will be produced?

consumers and producers

Higher personal income taxes

decrease AD

An increase in taxes will ___________ consumption spending, and a decrease in transfer payment will ____________ consumption spending.

decrease; decrease

If you transfer all of your cash to your savings account, then initially, M1 will _____________ and M2 will _______________.

decrease; not change

Legalizing all forms of illegal activities

increases GDP and reduces the size of the underground economy

Marla is an architect who is designing a home for Chuck. Chuck is paying Marla $150 per hour to design his new home. When Chuck and Marla get married, Marla continues to work on designing the home, but she no longer charges Chuck for her work. As a result, GDP ______________ because __________________.

falls; Marla's architectural design services are no longer bought by Chuck once they're married but are considered to be a part of "household production"

A U.S. dollar is a

fiat money

The natural rate of unemployment is the summation of

frictional and structural unemployment

The advice to "keep searching, there are plenty of jobs around here for which you are qualified", would be most appropriate for which of the following types of unemployment?

frictional unemployment

"Household Production" refers to

goods and services people produce for themselves

The construction of a new highway is included in

government purchases

A decrease in taxes will __________ consumption spending, and an increase in transfer payments will ___________ consumption spending.

increase; increase

In March 2009, the Seattle Post- Intelligencer newspaper converted to an online- only format. In making this transition, it laid off 145 of its 165 employees. The laid- off employees who were not able to find jobs at another newspaper due to a permanent decline in business in the newspaper industry would be considered

structurally unemployed

When the prices of gasoline rises, some consumers begin riding their bikes more frequently or riding the bus instead of driving their cars. The fact that the CPI does not fully account for such changes in consumer behavior is called

substitution bias

By definition, economics is the study of

the choices people make to attain their goals, given their scarce resources

The LRAS curve will shift to the right if

the economy experiences a large population growth

The LRAS curve will shift to the right if

the economy experiences technological change

Consider two countries, Alpha and Beta. In Alpha, Real GDP per capita is $6,000. In Beta, Real GDP per capita is $9,000. What does the theory of "Global Convergence" predict about the growth rates in Real GDP per capita across these two countries?

the growth rate of Real GDP per capita should be higher in Alpha than it is in Beta

Consider two countries, Alpha and Beta. In Alpha, Real GDP per capita is $9,000. In Beta, Real GDP per capita is $6,000. Based on the Theory of Global Convergence, what would you predict about the growth rates in Real GDP per capita across these two countries?

the growth rate of Real GDP per capita will be lower in Alpha than it is in Beta

Investment spending, I, will increase when

the interest rate falls

Investment spending, I, will decrease when

the interest rate increases

The major shortcoming of a barter economy is

the requirement of a double coincidence of wants

Lionel's Lawn Care is a company that maintains residential yards. Lionel's cost for his standard package of mowing, edging, and trimming is $15, and he charges $25 for this service. For a total price of $40, Lionel will also trim shrubs, a service that adds an additional $10 to the cost of the standard package. Should Lionel continue to offer the shrub- trimming service?

yes, his marginal benefit is greater than his marginal cost