Exam 2 / 2014 Fall. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

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1 Class: Date: Exam 2 / 2014 Fall Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Ch.10. In the economy of Ukzten in 2010, consumption was $2000, exports were $800, GDP was $4800, government purchases were $840, and investment was $1400. What were Ukzten s imports in 2010? a. -$560 b. -$240 c. $240 d. $ Ch.10. Al s Aluminum Company sells $1 million worth of aluminum to Shiny Foil Company, which uses the aluminum to make aluminum foil. Shiny Foil Company sells $4 million worth of aluminum foil to households. The transactions just described contribute how much to GDP? a. $1 million b. $3 million c. $5 million d. $4 million 3. Ch. 14. Tami knows that people in her family die young, and so she buys life insurance. Preston knows he is a reckless driver and so he applies for automobile insurance. a. The first example illustrates moral hazard, and the second illustrates adverse selection. b. These are both examples of moral hazard. c. The first example illustrates adverse selection, and the second illustrates moral hazard. d. These are both examples of adverse selection. 4. Ch.13. In a closed economy, what does (T - G) represent? a. investment b. private saving c. national saving d. public saving 5. Ch.12. The traditional view of the production process is that capital is subject to a. diminishing returns for low levels of capital, and increasing returns for high levels of capital. b. increasing returns. c. constant returns. d. diminishing returns. 6. Ch.11. If the nominal interest rate is 1.5 percent and the rate of inflation is -0.5 percent, then the real interest rate is a. -4 percent. b. -2 percent. c. 2 percent. d. 1 percent. 1

2 Table 23-5 A hypothetical country of Lahland produces only movies and popcorn. Quantities and prices of these goods for the last several years are shown below. The base year is Prices and Quantities Year Price of Movies Quantity of Movies Price of Popcorn Quantity of Popcorn 2008 $ $ $ $ $ $ $ $ Ch.10. Refer to table 23-5 What was this country s real GDP in 2010? a. $10,500 b. $10,600 c. $8,800 d. $12, Ch.10. Refer to table 23-5 What was this country s GDP deflator in 2010? a b c Ch. 15. Who of the following would be included in the Bureau of Labor Statistics unemployed category? a. Cambry, a full-time student who is not looking for work b. Eric, who is on temporary layoff c. Carson, who has retired and is not looking for work d. All of the above are correct. Table 24-1 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 10. Ch.11. Refer to Table If 2005 is the base year, then the CPI for 2006 was a b c d

3 11. Ch.11. Refer to Table If 2005 is the base year, then the inflation rate in 2006 was a. 40 percent. b percent. c percent. d. 20 percent. 12. Ch. 14. What is the present value of $1000 two years from now if the interest rate is 10%? a. $ b. $1100 c. $ d. $ Ch. 15. Who is included in the labor force by the Bureau of Labor Statistics? a. Gabe, who does not have a job, but is looking for work b. Marcus, a full-time student not looking for work c. Chris, an unpaid homemaker not looking for other work 14. Ch.13. Suppose the economy is closed and consumption is 6,500, taxes are 1,500, and government purchases are 2,000. If national saving amounts to 1,000, then what is GDP? a. 10,000 b. 11,000 c. 9,500 d. 10, Ch.10. If a U.S. citizen buys a dress made in Nepal by a Nepalese firm, then a. U.S. consumption decreases, U.S. net exports increase, and U.S. GDP increases. b. U.S. consumption increases, U.S. net exports decrease, and U.S. GDP is unaffected. c. U.S. consumption increases, U.S. net exports decrease, and U.S. GDP decreases. d. U.S. consumption decreases, U.S. net exports increase, and U.S. GDP is unaffected. 16. Ch.12. The catch-up effect refers to the idea that a. population eventually catches-up with increased output. b. if investment spending is low, increased saving will help investment to "catch-up." c. saving will always catch-up with investment spending. d. it is easier for a country to grow fast and so catch-up if it starts out relatively poor. 17. Ch. 14. What is the future value of $450 at an interest rate of 9 percent two years from today? a. $ b. $ c. $ d. $

4 Table 28-1 Labor Data for Aridia Year Adult population Number of employed Number of unemployed Ch. 15. Refer to Table The number of adults not in the labor force of Aridia in 2011 was a b c d Ch. 15. Refer to Table The unemployment rate of Aridia in 2011 was a. 20%. b. 46.2%. c. 31.6%. d. 63.3%. 20. Ch. 14. If stock prices follow a random walk, it means a. long periods of declining prices are followed by long periods of rising prices. b. stock prices are unrelated to random events that shock the economy. c. the greater the number of consecutive days of price declines, the greater the probability prices will increase the following day. d. stock prices are just as likely to rise as to fall at any given time. 21. Ch.13. Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500, consumption equals 7,000, and government purchases equal 3,000. What are private saving and public saving? a. 1,000 and 500, respectively b. 1,500 and 500, respectively c. 1,500 and -500, respectively d. 1,000 and -500, respectively 22. Ch. 15. Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called a. the natural rate of unemployment. b. cyclical unemployment. c. structural unemployment. d. frictional unemployment. 23. Ch.12. Phoenix furniture uses 10 workers, each working eight hours, to produce 80 rocking chairs. What is Phoenix s productivity? a. 10 rocking chairs per hour b. 80 rocking chairs c. 1 hour per rocking chair d. 1 rocking chair per hour 4

5 24. Ch.11. If the price of Spanish olives imported into the United States decreases, then a. neither the GDP deflator nor the consumer price index will decrease. b. the consumer price index will decrease, but the GDP deflator will not decrease. c. the GDP deflator will decrease, but the consumer price index will not decrease. d. both the GDP deflator and the consumer price index will decrease. 25. Ch.13. According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would a. leave national saving and public saving unchanged. b. raise national saving and decrease public saving. c. leave national saving unchanged and raise public saving. d. raise national saving and raise public saving. 26. Ch.12. If your firm s production function has constant returns to scale, and if you double all your inputs, then your firm's productivity will a. more than double. b. double. c. not change. d. increase but not double. 27. Ch.11. Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price index of 15.2 for 1931 and for Ruth's 1931 salary was equivalent to a 2009 salary of about a. $5,874. b. $1,128,947. c. $13,560,020. d. $822,566. Scenario An economy s production form takes the form Y = AF(L, K, H, N). 28. Ch.12. Refer to Scenario In the production function, which of the following represents technology? a. K b. A c. H d. N 29. Ch.13. If Japan goes from a small budget deficit to a large budget deficit, it will reduce a. investment and so shift the demand for loanable funds left. b. private saving and so shift the supply of loanable funds left. c. public saving and so shift the supply of loanable funds left. 30. Ch. 14. If a stock or bond is risky a. both C and D are correct. b. risk averse people will not hold it. c. risk averse people may be willing to hold it if the expected return is high enough. d. risk averse people may be willing to hold it as part of a diversified portfolio. 5