Practice Exam

Other things the same, a higher interest rate induces people to

save more, so the supply of loanable funds slopes upward.

A bond buyer is a

saver. Bond buyers may sell their bonds prior to maturity.

Whenever the price of an asset rises above what appears to be its fundamental value, the market is said to be experiencing a

speculative bubble.

When you were 10 years old, your grandparents put $500 into an account for you paying 7 percent interest. Now that you are 18 years old, your grandparents tell you that you can take the money out of the account. What is the balance to the nearest cent?

$859.09

price index was 128 in Year 2, and the inflation rate was 24 percent between Year 1 and Year 2. The price index in Year 1 was

103.2.

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?

2 percent

A University of Iowa basketball standout is offered a choice of contracts by the New York Liberty. The first one gives her $100,000 one year from today and $100,000 two years from today. The second one gives her $132,000 one year from today and $66,000 two years from today. As her agent, you must compute the present value of each contract. Which of the following interest rates is the lowest one at which the present value of the second contract exceeds that of the first?

7 percent

Which of the following bonds has the highest interest rate?

A long term and a high credit risk

Which of the following correctly identifies the flow of dollars?

A, L, N, and B

Country A had a population of 1,000, of whom 600 worked an average of 8 hours a day and had a productivity of 2.5. Country B had a population of 800, of whom 560 worked 8 hours a day and had productivity of 3.0

Country B had the higher level of real GDP and real GDP per person.

Which of the following demonstrates human capital and physical capital in that order?

For a restaurant: the chefs' knowledge about preparing food and the equipment in the kitchen

Joe and Jim purchase vegetables at a grocery store, but Jim also grows vegetables in his backyard. Regarding these two practices, which of the following statements is correct?

Only Joe's and Jim's grocery store purchases are included in GDP.

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Saving and the interest rate

Which of the following is an example of human capital?

The things you have learned this semester

GDP per person tells us the income and expenditure of the

average person in the economy.

In determining living standards, productivity plays a key role for

both nations and individuals.

An increase in the price of bread produced domestically will be reflected in

both the GDP deflator and the consumer price index.

Real GDP is the yearly production of final goods and services valued at

constant prices.

The Carters' oldest son attends Big State University. He and his parents pay all his fees and tuition. These payments count in GDP as

consumption of services.

If the price of a dress is three times the price of a pair of shoes, then a pair of shoes contributes

exactly one-third as much to GDP as does a dress.

When the consumer price index rises, the typical family

has to spend more dollars to maintain the same standard of living.

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

higher interest rates and lower investment.

If Matt's current wealth is $51,000, then

his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Matt is risk averse.

The cost of the basket

increased from Year 1 to Year 2 and increased from Year 2 to Year 3.

The introduction of the video cassette recorder in the 1970s exemplified a problem in measuring the cost of living; that problem is the problem of

introduction of new goods.

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.

During periods of deflation, the nominal interest rate will be​

lower than the real interest rate.

Stockholders of ComfortAir Corporation, an air conditioner and furnace manufacturer, are concerned that the company's executives may take on greater risks than stockholders desire. This example illustrates

moral hazard and firm-specific risk.

In a closed economy, what remains after paying for consumption and government purchases is

national saving.

Changes in real GDP reflect

only changes in the amounts being produced.

Mary Beth is risk averse and has $1,000 with which to make a financial investment. She has three options. Option A is a risk-free government bond that pays 5 percent interest each year for two years. Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years. Option C is a high-risk stock that is expected to be worth about $1,200 in four years. Mary Beth should choose

option A.

If the efficient markets hypothesis is correct, then

the stock market is informationally efficient

The rate of real economic growth is

underestimated using measures of income growth.

Indexation refers to

using a law or contract to automatically correct a dollar amount for the effects of inflation.

If the nominal interest rate is 5 percent and the real interest rate is 7 percent, then the inflation rate is

−2 percent.

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Atlas' sound finances but not the long term of the bond.

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate.

From the appearance of the utility function, we know that

Britney is risk averse

Which of the following statistics is usually regarded as the best single measure of a society's economic well-being?

Gross domestic product

Which of the following statements is correct?

Human capital per worker is a determinant of productivity.

You have a choice among three options. Option 1: receive $900 immediately. Option 2: receive $1,200 one year from now. Option 3: receive $2,000 five years from now. The interest rate is 15 percent. Rank these three options from highest present value to lowest present value.

Option 2; Option 3; Option 1

From 1960 to 1990, in which of the following countries has investment resulted in economic growth sufficiently higher than that in the United States?

South Korea

Al, Ralph, and Stan are all intending to retire. Each currently has $1 million in his retirement account. Al will earn 16% interest and retire in two years. Ralph will earn 8% interest and retire in four years. Stan will earn 4% interest and retire in eight years. Who will have the largest sum when he retires?

Stan

A country with a relatively low level of real GDP per person is considering adopting two policies to promote economic growth. The first is to decrease barriers to trade. The second is to restrict foreign portfolio investment. Which of these policies do most economists say promote growth?

The first but not the second

Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor country to catch up?

The poor country has a health epidemic such as the Zika virus.

A shift of the supply curve from S1 to S2 is called

a decrease in the supply of loanable funds.

GDP and GNP are identical when

all domestic production is by domestically owned producers and no foreign production is carried out by domestic producers.

The term economists use to describe a situation in which the economy's overall price level is rising is

inflation.

Social Security payments are indexed for inflation using

the CPI.