Eastern Mediterranean University Department of Economics Spring Semester Econ 102 Quiz 1. Name: St. No.

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1 22nd March 2017 Eastern Mediterranean University Department of Economics Spring Semester Econ 102 Quiz 1 Duration: 50 minutes Name: St. No. Group Number 1. GDP is defined as a. the market value of all goods and services produced within a country in a given period of time. b. the market value of all goods and services produced by the citizens of a country, regardless of where they are living in a given period of time. c. the market value of all final goods and services produced within a country in a given period of time. d. the market value of all final goods and services produced by the citizens of a country, regardless of where they are living, in a given period of time. 2. GDP is not a perfect measure of well-being, because: a. It Doesn t show distribution of income b. It Doesn t include Value of almost all activity that takes place outside markets c. It Doesn t include Quality of the environment d. all the above 3. If all quantities produced rise by 10 percent, and all prices fall by 10 percent, which of the following occurs? a. Real GDP rises by 10 percent, while nominal GDP falls by 10 percent. b. Real GDP rises by 10 percent, while nominal GDP is unchanged. c. Real GDP is unchanged, while nominal GDP rises by 10 percent. d. Real GDP is unchanged, while nominal GDP falls by 10 percent. 4. Which of the following does NOT add to U.S. gross domestic product? a. Air France buys a plane from Boeing, the U.S. aircraft manufacturer. b. An American company, General Motors, builds a new auto factory in North Carolina (US). c. The city of New York pays a salary to a policeman. d. The federal government sends a Social Security check to your grandmother. 5. Which of the following is not considered as consumption? a. Your family buys a new house. b. You buy a new text book from local bookstore. c. A student pays train ticket to visit her family during semester break. d. You have your lunch at a restaurant. 1

2 6. Adam is a U.S. citizen, works only in Germany. The value he adds to production in Germany is included a. in both German GDP and U.S. GDP. b. in German GDP, but is not included in U.S. GDP. c. in U.S. GDP, but is not included in German GDP. d. in neither German GDP nor U.S. GDP. 7. During the period of recession, which of the following is correct? a. Lower income and Real GDP declines. b. Rising unemployment. c. Falling profits and Increased bankruptcies. d. All are correct. Table 1 Year Price of Sandwich Quantity of Sandwich Price of Magazine Quantity of Magazine 2006 $4 100 $ $5 120 $ $6 150 $ Refer to Table 1. Nominal GDP for 2007 is: a. $900 b. $1,100 c. $1,250 d. $1, Refer to Table 1. Using 2006 as the base year, calculate the Real GDP for a. $780 b. $1100 c. $880 d. $ Refer to Table 1. Using 2006 as the base year, calculate the GDP-deflator for a. 80 b. 115 c. 100 d. 125 Table 2. The table below pertains to an economy with only two goods - books and calculators. The fixed basket consists of 5 books and 10 calculators. Year Price of Books Price of Calculators 2006 $24 $ $30 $ $32 $ Refer to Table 2. Calculate the cost of the basket for the year 2006 a. $100 b. $150 c. $200 d. $ Refer to Table 2. Using 2006 as the base year, calculate the consumer price index (CPI) for the year a. 135 b. 270 c. 370 d Refer to Table 2. Using 2006 as the base year, calculate the inflation rate for 2008 a. 1.48% b. 4.8% c. 14.8% d. 148% 2

3 14. Let 2002 be the base year; then a. Inflation rate in 2005 = b. Inflation rate in 2005 = c. Inflation rate in 2005 = d. Inflation rate in 2005 = CPI in 2005 CPI in 2004 CPI in 2002 CPI in 2005 CPI in 2002 CPI in 2005 CPI in 2005 CPI in 2002 CPI in 2004 CPI in 2005 CPI in 2004 CPI in The CPI is a measure of the overall cost of a. inputs purchased by a typical producer. b. goods and services bought by a typical consumer. c. goods and services produced in the economy. d. stocks on the New York Stock Exchange. 16. Given that the nominal interest rate is 10% and the inflation is 5%, calculate the real interest rate. a. 15% b. 5% c. 2% d. 50% 17. The producer price index measures the cost of a basket of goods and services a. typical of those produced in the economy. b. produced for a typical consumer. c. sold by producers. d. bought by firms. 18. If the prices of Australian-made shoes imported into the United States increase, then, as a result, a. both the GDP deflator and the consumer price index increase in the USA b. neither the GDP deflator nor the consumer price index increases in the USA c. the GDP deflator increases but the consumer price index does not increase in the USA d. the consumer price index will increase, but the GDP deflator will not increase in the USA 19. By itself, a reduction in the price of large tractors imported into the United States from Russia a. decreases the GDP deflator and increases the consumer price index in the USA b. increases the GDP deflator but leaves the consumer price index unchanged in the USA c. increases both the GDP deflator and the consumer price index in the USA d. leaves both the GDP deflator and the consumer price index unchanged in the USA 20. Institutions that help to match one person's saving with another person's investment are collectively called the a. Federal Reserve system. b. banking system. c. monetary system. d. financial system. 3

4 21. The consumer price index (CPI) and the GDP deflator are two alternative measures of the overall price level. Which of the following statements about the two measures is correct? a. The CPI involves a base year; the GDP deflator does not involve a base year. b. The CPI can be used to compute the inflation rate; the GDP deflator cannot be used to compute the inflation rate. c. The CPI reflects the prices of goods and services produced domestically; the GDP deflator reflects the prices of all goods and services bought by consumers. d. The CPI reflects a fixed basket of goods and services; the GDP deflator reflects current production of goods and services. 22. Long-term bonds are a. riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. b. riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. c. less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. d. less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 23. In a closed economy, national saving equals a. investment. b. income minus the sum of consumption and government purchases. c. private saving plus public saving. d. All of the above are correct. 24. Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving? a. 1,500 and -500, respectively b. 1,500 and 500, respectively c. 1,000 and -500, respectively d. 1,000 and 500, respectively 25. Which of the following are financial intermediaries? a. banks but not mutual funds b. both banks and mutual funds c. mutual funds but not banks d. neither banks or mutual funds 26. Suppose the economy is closed and consumption is 8 million, taxes are 2 million, and government purchases are 1.75 million. If national saving amounts to 1.25 million, then what is GDP? a. 9 million b. 9.5 million c. 13 million d. 11 million 4

5 27. In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then a. the government has a budget surplus and investment is 1,000 b. the government has a budget surplus and investment is 2,000 c. the government has a budget deficit and investment is 1,000 d. the government has a budget deficit and investment is 2, Crowding out occurs when investment declines because a. a budget deficit makes interest rates rise. b. a budget deficit makes interest rates fall. c. a budget surplus makes interest rates rise. d. a budget surplus makes interest rates fall. 29. The source of the supply of loanable funds is a. saving, and the source of the demand for loanable funds is investment. b. consumption, and the source of the demand for loanable funds is investment. c. investment, and the source of the demand for loanable funds is saving. d. the interest rate, and the source of the demand for loanable funds is saving. Figure 1. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 30. Refer to Figure 1. Which of the following events could explain a shift of the demandfor-loanable-funds curve from D1 to D2? a. The tax code is reformed to encourage greater saving. b. The tax code is reformed to encourage greater investment. c. The government starts running a budget deficit. d. The government starts running a budget surplus. 5