Midterm 1 Practice Multiple Choice Questions

Transcription

1 Midterm 1 Practice Multiple Choice Questions 1. To compute the value of GDP: A) goods and services are valued at market prices. B) the sale of used goods is included. C) production for inventory is not included. D) goods and services are valued by weight. 2. Assume that total output consists of 4 apples and 6 oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of GDP is: A) 10 pieces of fruit. B) $7. C) $8. D) $ Real GDP is measured in dollars time. A) current; at a point in B) current; per unit of C) constant; at a point in D) constant; per unit of 4. Assume that a tire company sells 4 tires to an automobile company for $400, another company sells a compact disc player for $500, and the automobile company puts all of these items in or on a car that it sells for $20,000. In this case, the amount from these transactions that should be counted in GDP is: A) $20,000. B) $20,000 less the automobile company's profit on the car. C) $20,900. D) $20,900 less the profits of all three companies on the items that they sold.

2 5. If nominal GDP increased by 5 percent and the GDP deflator increased by 3 percent, then real GDP by approximately percent. A) increased; 2 B) decreased; 2 C) increased; 8 D) decreased; 8 6. The national income accounts identity, for an open economy, is: A) Y = C + I + G NX. B) Y = C + I + G + NX. C) Y = C + I + G. D) Y = C + I G. 7. Nominal GDP is measured in dollars time. A) current; at a point in B) current; per unit of C) constant; at a point in D) constant; per unit of 8. If nominal GDP in 2009 equals $14 trillion and real GDP in 2009 equals $11 trillion, what is the value of the GDP deflator? A) 0.79 B) 1.03 C) 1.27 D) If the GDP deflator in 2009 equals 1.25 and nominal GDP in 2009 equals $15 trillion, what is the value of real GDP in 2009? A) $12 trillion B) $12.5 trillion C) $15 trillion D) $18.75 trillion 10. The GDP deflator is equal to: A) the ratio of nominal GDP to real GDP. B) the ratio of real GDP to nominal GDP. C) real GDP minus national GDP. D) nominal GDP minus real GDP.

3 11. The CPI is determined by computing: A) an average of prices of all goods and services. B) the price of a basket of goods and services that changes every year, relative to the same basket in a base year. C) the price of a fixed basket of goods and services, relative to the price of the same basket in a base year. D) nominal GDP relative to real GDP. 12. Unlike the GDP deflator, the CPI includes the prices of: A) goods purchased by firms. B) goods purchased by governments. C) exported goods. D) imported goods. 13. GNP equals GDP income earned domestically by foreigners income that nationals earn abroad. A) plus; plus B) minus; minus C) minus; plus D) plus; minus

4 14. The marginal product of labor is: A) output divided by labor input. B) additional output produced when one additional unit of labor is added. C) additional output produced when one additional unit of labor and one additional unit of capital are added. D) value of additional output when one dollar's worth of additional labor is added. 15. The marginal product of labor is: A) output divided by labor input. B) additional output produced when one additional unit of labor is added. C) additional output produced when one additional unit of labor and one additional unit of capital are added. D) value of additional output when one dollar's worth of additional labor is added. 16. According to the neoclassical theory of distribution, if firms are competitive and subject to constant returns to scale, total income in the economy is distributed: A) only to the labor used in production. B) partly between labor and capital used in production, with the surplus going to the owners of the firm as profits. C) equally between the labor and capital used in production. D) between the labor and capital used in production, according to their marginal productivities. 17. Which of the following is a stock variable? A) wealth B) consumption C) investment D) income 18. National saving refers to: A) disposable income minus consumption. B) taxes minus government spending. C) income minus consumption minus government spending. D) income minus investment.

5 19. An increase in the price of domestically produced capital goods will show up in: A) the CPI but not in the GDP deflator. B) the GDP deflator but not in the CPI. C) both the CPI and the GDP deflator. D) neither the CPI nor the GDP deflator. 20. In the long run, the level of national income in an economy is determined by its: A) factors of production and production function. B) real and nominal interest rate. C) government budget surplus or deficit. D) rate of economic and accounting profit. 21. If bread is produced by using a constant returns to scale production function, then if the: A) number of workers only is doubled, twice as much bread will be produced. B) amount of equipment only is doubled, twice as much bread will be produced. C) amounts of equipment and workers are both doubled, twice as much bread will be produced. D) amounts of equipment and workers are both doubled, four times as much bread will be produced. 22. In the classical model with fixed income, if the interest rate is too low, then investment is too and the demand for output the supply. A) high; exceeds B) high; falls short of C) low; exceeds D) low; falls short of 23. A cut in taxes, all else equal, will, according to the loanable funds model, lead to: A) a decrease in the real interest rate, and an increase in the equilibrium level of investment. B) a decrease in the real interest rate, and a decrease in the equilibrium level of investment. C) an increase in the real interest rate, and an increase in the equilibrium level of investment. D) an increase in the real interest rate, and a decrease in the equilibrium level of investment.

6 24. Other things equal, an increase in the real interest rate leads to: A) a decrease in the quantity of investment goods demanded. B) no change in the quantity of investment goods demanded. C) an increase in the quantity of investment goods demanded. D) sometimes an increase and sometimes a decrease in the quantity of investment goods demanded. 25. A consumer's budget constraint for two periods with positive interest rate r may be represented by the equation: A) C1 + C2 = Y1 + Y2. B) C1 + C2/(1 + r) = Y1 + Y2/(1 + r). C) C1 + C2(1 + r) = Y1 + Y2(1 + r). D) C1/(1 + r) + C2 = Y1/(1 + r) + Y In Irving Fisher's two-period consumption model, if Y1 = 20,000, Y2 = 15,000, and the interest rate r is 0.50 (50 percent), then the maximum possible consumption in period one is: A) 20,000. B) 25,000. C) 30,000. D) 35,000. Exhibit: Budget Constraint

7 27. (Exhibit: Budget Constraint) Based on the graph, if Y1 and Y2 represent income in period one and period two, respectively, at which point along the budget constraint would a consumer be a borrower in period one? A) A B) B C) C D) D 28. (Exhibit: Budget Constraint) Based on the graph, if Y1 and Y2 represent income in period one and period two, respectively, r is the interest rate, and the consumer chooses to consume combination A on the budget constraint, what will be the level of consumption in period two, C2? A) Y1(1 + r) + Y2 B) Y1 + Y2/(1 + r) C) Y1/(1 + r) + Y2 D) Y1 + Y2(1 + r) 29. In the Fisher two-period model, the consumer achieves his or her optimum combination of current and future consumption by selecting: A) any combination on his or her highest indifference curve. B) the combination on his or her highest indifference curve that is tangent to his or her budget constraint. C) any combination on his or her budget constraint. D) the combination on his or her budget constraint in which period-one consumption equals period-one income and period-two consumption equals period-two income. 30. When the consumer has chosen his or her optimal values of first-period and secondperiod consumption, the marginal rate of substitution equals: A) 1 plus the interest rate r. B) 1 minus the interest rate r. C) 1 divided by the interest rate r. D) the interest rate r. 31. A normal good is a good that: A) provides pleasure. B) would generally be owned by an average household. C) has a value greater than zero. D) is desired in larger quantities by a consumer when his or her income rises.

8 32. The Fisher two-period model shows that current consumption depends on: A) only current income. B) only future income. C) only current income and future income. D) current income, future income and the interest rate. 33. In Irving Fisher's two-period model, if the consumer is initially saving in period one and the real interest rate rises, then first-period consumption will: A) certainly fall. B) certainly rise. C) remain constant. D) either rise or fall. 34. In Irving Fisher's two-period model, if the consumer is initially a saver and the interest rate and first-period consumption increase, then we can conclude that the income effect: A) was greater than the substitution effect. B) was less than the substitution effect. C) exactly offset the substitution effect. D) and the substitution both increased consumption. 35. In Irving Fisher's two-period model, if the consumer is initially borrowing in period one and the real interest rate rises, first-period consumption will: A) certainly rise. B) certainly fall. C) remain constant. D) either rise or fall. 36. In Irving Fisher's two-period model, if the consumer is initially saving in period one and the real interest rate rises, then: A) both the income and substitution effects will make the consumer want to consume less in period one. B) both the income and substitution effects will make the consumer want to consume more in period one. C) the substitution effect will make the consumer want to consume less in period one but the income effect will make him or her want to consume more. D) the income effect will make the consumer want to consume less in period one, but the substitution effect will make him or her want to consume more.

9 37. In the Fisher two-period model, if the consumer is a saver, consumption in periods one and two are normal goods, and the income effect of an increase in interest rate is greater than the substitution effect, then saving: A) will increase. B) will decrease. C) will not change. D) may either increase or decrease. 38. If a consumer cannot borrow, then consumption in period one must be income in period(s). A) less than; one B) less than or equal to; one C) less than; one and two D) less than or equal to; one and two 39. Maria obeys the 2-period Fisher model of consumption. She earns $100 in the first period and $210 in the second period. She can borrow or lend at the interest rate r. You observe Maria consuming $150 in the first period and $150 in the second period. What is the interest rate r? A) 5% B) 10% C) 15% D) 20% 40. A policy that increases the job-finding rate the natural rate of unemployment. A) will increase B) will decrease C) will not change D) could either increase or decrease

10 41. If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be: A) B) C) D) If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the unemployment rate is approximately: A) f/(f + s). B) (f + s)/f. C) s/(s + f). D) (s + f)/s. 43. One reason for unemployment is that: A) it takes time to match workers and jobs. B) all jobs are identical. C) the labor market is always in equilibrium. D) a laid-off worker can immediately find a new job at the market wage. 44. Unemployment insurance may increase the amount of frictional unemployment by: A) making workers more frantic in their search for new jobs. B) inducing workers to accept the first job offer that they receive. C) making employers more reluctant to lay off workers. D) softening the economic hardship of unemployment. 45. If wage rigidity holds the real wage above the equilibrium level, an increase in the supply of labor will the number unemployed. A) increase B) decrease C) not change D) possibly increase, decrease, or leave unchanged

11 46. Efficiency-wage theories suggest that a firm may pay workers more than the marketclearing wage for all of the following reasons except to: A) reduce labor turnover. B) improve the quality of the firm's labor force. C) increase worker effort. D) reduce the firm's wage bill. 47. By paying efficiency wages, firms contribute to higher unemployment because they: A) increase the wage bill. B) make workers more productive. C) keep the wage below the equilibrium level. D) keep the wage above the equilibrium level. 48. The Beveridge Curve shows the relationship between and. A) labor force participation rate and the unemployment rate. B) the unemployment rate and the number of job openings. C) the labor force participation rate and the number of job openings. D) the unemployment rate and the rate of job finding. 49. If the number of employed people is 150 million, the number of unemployed is 20 million, the unemployment rate is approximately: A) 11.8% B) 13.3% C) 15% D) 20% 50. If the number of employed people is 150 million, the number of unemployed is 20 million, and the working age population is 240 million, then the labor force participation ratio is approximately: A) 54.2% B) 57.7% C) 62.5% D) 70.8%