ECON 201: Introduction to Macroeconomics Professor Robert Gordon Midterm Exam 2: February 22, Circle your section time: 9:00 am 3:00 pm

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1 ECON 201: Introduction to Macroeconomics Professor Robert Gordon Midterm Exam 2: February 22, 2016 NAME Circle your section time: 9:00 am 3:00 pm Directions: This test is in two parts, a multiple choice question part and a short-answer part. Use this answer packet to complete the exam. Calculators are permitted. Books, notes, reference materials, etc. are prohibited. Good luck! Part 1: Referring to the questions in the Multiple Choice Questions Packet, choose the one alternative that best completes the statement or answers the question. Each question is worth one point. There is no penalty to guessing, so be sure to answer all of them. Write your answers in the following table using capital letters

2 Part 1: 1. Long-run economic growth is best measured by: A) a sustained rise in the production of goods and services. B) the growth of the money supply. C) trade surpluses in the long run. D) the rate of private saving. 2. Inflation affects people adversely because: A) nominal income falls. B) purchasing power tends to increase. C) the budget deficit increases. D) it causes money to lose its value over time. 3. One of the issues of importance to macroeconomists is: A) the behavior of individuals and their allocation of income. B) how firms determine the profit-maximizing level of output. C) understanding how living standards change over time. D) the behavior of individual markets. 4. If a country runs a trade deficit, its investment spending is probably: A) above its level of saving. B) less than its level of saving. C) equal to its level of saving. D) equal to zero. 5. Measures of national happiness often include which of the following?: A) level of technology B) life expectancy C) financial wealth. D) human capital 6. The course packet article on Economic Data Don t Tell Full Story states that the following are true of young people in recent years except A) moved in with parents. B) average wealth lower than in 1989 C) spent.more on cars D) experienced foreclosures.

Use the following to answer question 5: Figure: Circular-Flow Model 7. (Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. What are net exports? A) $0 B) $30 C) $60 D) $100 8.

3 Use the following to answer question 5: Figure: Circular-Flow Model 7. (Figure: Circular-Flow Model) Look at the figure Circular-Flow Model. What are net exports? A) $0 B) $30 C) $60 D) $ Crowding out results in a(n): A) decrease in private investment spending resulting from government deficit spending. B) increase in accumulation of physical capital, which leads to higher economic growth. C) increase in private investment spending resulting from government deficit spending. D) increase in consumption spending as a result of higher investment spending. 9. Disposable income in a particular period is: A) total earned income. B) earned income plus government transfer payments. C) earned income plus government transfer payments less taxes. D) earned income plus government transfer payments less taxes and savings.

4 10. Included in GDP is the dollar value of: A) a used car sold during the period. B) a new car imported during the period. C) a new car exported during the period. D) 100 shares of General Motors stock bought by a retiree. 11. If both aggregate output and the aggregate price level increase: A) real GDP will increase faster than nominal GDP. B) nominal GDP will increase faster than real GDP. C) it makes no difference to real or nominal GDP. D) real GDP and nominal GDP will increase faster than the price level. 12. The largest component of U.S. GDP is value added in: A) household production. B) business production. C) government production. D) production of goods sold overseas. 13. The unemployment rate equals the number divided by the number times 100. A) unemployed; employed B) unemployed; population C) employed; labor force D) unemployed; labor force 14. An increase in the number of discouraged workers in the economy tends to: A) raise the official unemployment rate. B) lower the official unemployment rate. C) lower the number of people who are frictionally unemployed. D) increase the number of people who are structurally unemployed. 15. The natural rate of unemployment: A) would increase if a larger percentage of the labor force were over 25 years old. B) would increase if union membership fell. C) would increase if unemployment benefits were increased. D) will always remain fixed.

5 16. Suppose that a country has a progressive income tax code, and taxable income is calculated in nominal terms but the schedule of income tax rates is NOT indexed to inflation. An individual whose income keeps up with inflation over time will pay: A) the alternative minimum tax. B) a lower percentage of income in taxes over time. C) the same percentage of income in taxes over time. D) a higher percentage of income in taxes over time. 17. A bank makes a loan for one year. The nominal annual interest rate is 7.5%. The real rate is 4%. Over the course of the year, overall prices increase by 4%. This rate of inflation hurt the because the actual rate of inflation was than the anticipated rate. A) borrower; lower B) borrower; higher C) lender; higher D) lender; lower 18. If output is growing at 5% annually, how many years will it take for output to quadruple? A) 14 years B) 10 years C) 20 years D) 28 years 19. Diminishing returns to physical capital implies that when the human capital per worker and the state of technology remain fixed, each successive increase in physical capital leads to productivity. A) a smaller increase in B) a larger increase in C) a decrease in D) negative 20. Those who have looked for work in the past year but not in the past four weeks are counted as A) the long-term unemployed.. B) the short-term unemployed C) the labor force D) the marginally attached workers.

6 21. Before the twentieth century, the most important determinant of productivity was: A) technology. B) natural resources. C) physical capital. D) human capital. 22. Long-run economic growth has been mostly dependent on: A) rising productivity. B) a low unemployment rate. C) an increase in the population, which eventually leads to an increase in the labor population. D) countries following the rule of From 2010 to 2011 nation A's real GDP increased from $100 billion to $106 billion and its population grew from 50 million to 51 million. Its annual growth rate in real GDP per capita was approximately: A) 1%. B) 3%. C) 4%. D) 6%. 24. The course packet reading identified job categories where employers were struggling to find sufficient workers ( help wanted ). Which occupation does not have a shortage of job applicants? A) short-distance truck drivers. B) long-distance truck drivers C) registered nurses D) carpenters. 25. Investment spending in macroeconomics refers to: A) buying stocks. B) buying newly issued shares of stock. C) adding to physical capital. D) adding to one's retirement account. 26. When exports are greater than imports, this implies that A) national saving is greater than investment. B) national saving is smaller than investment C) private saving is greater than government saving D) private saving is smaller than government saving

7 27. The government can increase savings by: A) taxing more than it spends. B) spending more than it taxes. C) increasing inflation. D) increasing the deficit. 28. The present value of a future payment if the. A) decreases; interest rate increases B) increases; future payment decreases C) decreases; interest rate decreases D) increases; stock market falls 29. When interest rates increase, the demand for commercial and residential real estate will and the price of real estate will. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease 30. Which of the following symbols represent the government budget deficit: A) T + TR G B) G + T + TR C) G T + TR D) T - TR + G

8 Part 2: Solve the following problems in the provided space. Show all your work clearly. Problem 1 (8 points) Complete the blanks using the following table. Round all values to the nearest two decimal places, including percentages. That is, answers should look like 13, or 29.87%. (Parts 1-13: 0.5 points per blank bonus for no mistakes) Annual Percentage Change between Price Quantity Price Quantity Amazon Echo (LN formula) Oculus Rift Nominal GDP Real GDP in 2014 prices Real GDP in 2015 prices GDP Deflator with base year 2014 GDP Deflator with base year What is the percentage growth rate in chain-weighted GDP deflator? (1 point) -6.5

9 Problem 2 (10 points) Imagine that you are the chief executive officer of Apple Inc. The following table presents monthly sales figures of recent versions of Apple Watch: January 2015 July 2015 Apple Watch Sport Apple Watch Edition Assume that sales will continue to grow at the rates observed between and Use the LN formulas shown in class. 1. Calculate the average annual sales growth rate of Apple Watch Sport. (1.5 point) % 2. Calculate the average annual sales growth rate of Apple Watch Edition. (1.5 point) 81.09% 3. How many years would it take for the sales of Apple Watch Sport to shrink in half? (2 points) 100*Ln(1/2)/ = How many years would it take for the sales of Apple Watch Edition to reach ? (2 points) 100*Ln(225000/50000)/81.09 = After how many years will the sales of the two watches equate? (3 points)

10 Problem 3 (8 points) Age Full Time workers Part Time workers Don t have a job but are looking for one Don t have a job and are not looking for one Total < > Total Calculate the Labor Force Participation Rate for this economy. Report as a percentage to two decimal places. (1 point) 73.16% 2. Calculate the Unemployment Rate for this economy. Report as a percentage to two decimal places. (1 point) 32.37% 3. What is the Employment to working age Population Ratio? Report as a percentage to two decimal places. (1 point) 49.47% 4. What is the Unemployment Rate for people aged 21-50? Report as a percentage to two decimal places. (1 point) 30.12%

11 5. The economy was hit by a recession, caused by a burst of a housing bubble, and many people lost jobs. Some of them, discouraged by prospects of the prolonged lack of demand for labor, immediately stopped looking for any job. Chairperson of the Council of Economic Advisers, Christina Romer, needs your help so that the government can use fiscal policy to extend direct help to those people. She asked you to calculate the number of people who lost their job. So far you only have managed to estimate that the employment to working age Population Ratio is 40%. (4 points) X new unemployed, Y new out of labor force EWAP = 0.4 = EM /POP>16 = (EM-X-Y)/POP>16 X+Y = EM - 0.4*POP>16 = = 90 (this is how many people lost jobs) Problem 4 (4 points) 1. You have the following information: Taxes $55 million Private Saving Consumption GDP $55 million $18 million $100 million Transfers are (2 points) $28 million 2. You have the following information: Export Investment Import Government Spending $20 million $10 million $9 million $15 million Net capital inflow is (2 points) $-11 million

12 Answer Key 1. A 2. D 3. C A B C 7. A 8. A 9. C 10. C 11. B 12. B 13. D 14. B 15. C 16. D 17. C 18. D 19. A 20. D 21. B 22. A 23. C 24. A 25. C 26. A 27. A 28. A 29. D 30. C

ECON 201: Introduction to Macroeconomics Professor Robert Gordon Midterm Exam 2: November 7, 2016

ECON 201: Introduction to Macroeconomics Professor Robert Gordon Midterm Exam 2: November 7, 2016 NAME Circle the TA session you attend: Bence - 3PM Bence - 4PM Cagri - 3PM Cagri - 4PM Chris - 3PM Chris