Test 4 Economics 224 Chappell November 17, 2010 First Name Last Name Last 5 Digits of Student Number (Social Security Number): Instructions: Read These! _ You have 50 minutes to complete this test. Please enter your answers on the Scantron sheet provided, using a number 2 lead pencil. On that answer sheet fill in your name and the last 5 digits (only 5 digits please) of your student number (Social Security Number). You must also fill in the grid under your last 5 digits. Use the last 5 columns of the form when you fill in your student number. You must return both this test and the Scantron answer form, and both must have your name and student number. You may write on this test sheet, but your grade will be determined by the Scantron form. Note that the Scantron form may have answers indicated by the numbers 1, 2, 3, 4. On the test sheet, answers are indicated by the letters a, b, c, d. You should match these up in the logical way: 1 a 2 b 3 c 4 d As noted in the syllabus, calculators with the ability to store notes, store formulas, or communicate with others are prohibited. Use of mobile phones is also prohibited.
Econ 224 Test 4 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Gross domestic product is defined as a. the quantity of all final goods and services demanded within a country in a given period of time. b. the quantity of all final goods and services supplied within a country 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. Both (a) and (b) are correct. 2. For the purpose of calculating GDP, investment is spending on a. stocks, bonds, and other financial assets. b. real estate and financial assets such as stocks and bonds. c. capital equipment, inventories, and structures, including household purchases of new housing. d. capital equipment, inventories, and structures, excluding household purchases of new housing. 3. After the terrorist attacks on September 11, 2001, governments within the United States raised expenditures to increase security at airports. These purchases of goods and services are a. not included in GDP since they do not represent production. b. not included in GDP since the government collects taxes to pay for them. c. included in GDP since government expenditures on goods and services are included in GDP. d. included in GDP only to the extent that the federal government, rather than state or local governments, paid for them. 4. In the economy of Wrexington in 2008, real GDP was $5 trillion and the GDP deflator was 200. What was Wrexington s nominal GDP in 2008? a. $2.5 trillion b. $10 trillion c. $40 trillion d. $100 trillion 5. Suppose an economy produces only cranberries and maple syrup. In 2006, 50 units of cranberries are sold at $20 per unit and 100 units of maple syrup are sold at $8 per unit. In 2005, the base year, the price of cranberries was $10 per unit and the price of maple syrup was $15 per unit. For 2006, a. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 90. b. nominal GDP is $1800, real GDP is $2000, and the GDP deflator is 111.1. c. nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 90. d. nominal GDP is $2000, real GDP is $1800, and the GDP deflator is 111.1. 6. The price index was 120 in 2006 and 127.2 in 2007. What was the inflation rate? a. 5.7 percent b. 6.0 percent c. 7.2 percent d. 27.2 percent
7. Henri earned a salary of $50,000 in 2001 and $70,000 in 2006. The consumer price index was 177 in 2001 and 265.5 in 2006. Henri's 2006 salary in 2001 dollars is a. $35,000.00. b. $46,666.67. c. $61,950.00 d. $105,000.00. 8. The real interest rate tells you a. how fast the number of dollars in your bank account rises over time. b. how fast the purchasing power of your bank account rises over time. c. the number of dollars in your bank account today. d. the purchasing power of your bank account today. 9. If the nominal interest rate is 8 percent and the rate of inflation is 3 percent, then the real interest rate is a. -5 percent. b. 1.67 percent. c. 5 percent. d. 11 percent. Table 28-3 2003 Labor Data for Adults (age 16 and older) in Meditor Males not in labor force Females not in labor force Males unemployed Females unemployed Males employed Females employed 45 million 35 million 5 million 5 million 85 million 65 million 10. Refer to Table 28-3. What is the adult unemployment rate in Meditor? a. 4.2 percent b. 6.25 percent c. 6.7 percent d. 10 percent 11. Refer to Table 28-3. What is the adult labor-force participation rate in Meditor? a. 37.5 percent b. 62.5 percent c. 66.7 percent d. 95.8 percent 12. Suppose that some people are counted as unemployed when, to maintain unemployment compensation, they search for work only at places where they are unlikely to be hired. If these individuals were counted as out of the labor force instead of as unemployed, then a. both the unemployment rate and labor-force participation rate would be higher. b. both the unemployment rate and labor-force participation rate would be lower. c. the unemployment rate would be lower and the labor-force participation rate would be higher. d. the unemployment rate would be higher and the participation rate would be lower.
13. What term do economists use to describe the relationship between the quantity of inputs used and the quantity of output produced? a. production function b. input function c. capital function d. returns to scale 14. Which of the following is a determinant of productivity (i.e., output per worker)? a. human capital per worker b. physical capital per worker c. natural resources per worker d. All of the above are correct. 15. Accumulating capital a. requires that society sacrifice consumption goods in the present. b. allows society to consume more in the present. c. decreases saving rates. d. involves no tradeoffs. 16. When a large, well-known corporation wishes to borrow directly from the public, it can a. sell bonds. b. sell shares of stock. c. go to a bank for a loan. d. All of the above are correct. 17. In a closed economy, what does (Y - T - C) represent? a. national saving b. government tax revenue c. public saving d. private saving 18. The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should a. not influence the decision to build the factory because The Eye of Horus doesn't have to borrow any money. b. not influence the decision to build the factory because its stockholders are expecting a new factory. c. make it more likely that The Eye of Horus will build the factory because a higher interest rate will make the factory more valuable. d. make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher. 19. If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, a. there is a surplus and the interest rate is above the equilibrium level. b. there is a surplus and the interest rate is below the equilibrium level. c. there is a shortage and the interest rate is above the equilibrium level. d. there is a shortage and the interest rate is below the equilibrium level. 20. If the interest rate is 5 percent, what is the present value of a payment of $500 to be made one year from today? a. $457.14 b. $475.00 c. $480.77 d. None of the above are correct to the nearest cent.
21. Which of the following is a function of money? a. a unit of account b. a store of value c. medium of exchange d. All of the above are correct. Table 29-5. Bank of Kopeka Assets Liabilities Reserves $2,000 Deposits $20,000 Loans 18,000 22. Refer to Table 29-5. From the table it follows that Bank of Kopeka operates in a a. fractional-reserve banking system, since its reserves are less than its deposits. b. fractional-reserve banking system, since its reserves are less than its loans. c. 100-percent-reserve banking system, since its assets are equal to its liabilities. d. 100-percent-reserve banking system if the Fed s reserve requirement is 10 percent; otherwise, it operates in a fractional-reserve banking system. 23. Refer to Table 29-5. Assume there is a reserve requirement and the Bank of Kopeka is exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no currency. What is the money multiplier? a. 5 b. 10 c. 15 d. 20 24. The Fed s control of the money supply is not precise because a. Congress can also make changes to the money supply. b. there are not always government bonds available for purchase when the Fed wants to perform open-market operations. c. the Fed does not know where all U.S. currency is located. d. the amount of money in the economy depends in part on the behavior of depositors and bankers. 25. The money supply decreases if the Fed a. sells Treasury bonds. The larger the reserve requirement, the larger the decrease will be. b. sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. c. buys Treasury bonds. The larger the reserve requirement, the larger the decrease will be. d. buys Treasury bonds. The smaller the reserve requirement, the larger the decrease will be. 26. The Fed can directly protect a bank during a bank run by a. increasing reserve requirements. b. selling government bonds to the bank. c. lending reserves to the bank. d. doing any of the above.
Econ224Test04 Answer Section MULTIPLE CHOICE 1. ANS: C PTS: 1 DIF: 1 REF: 23-2 TOP: GDP 2. ANS: C PTS: 1 DIF: 2 REF: 23-3 TOP: Investment MSC: Interpretive 3. ANS: C PTS: 1 DIF: 2 REF: 23-3 TOP: Government purchases 4. ANS: B PTS: 1 DIF: 2 REF: 23-4 TOP: Nominal GDP 5. ANS: A PTS: 1 DIF: 2 REF: 23-4 TOP: Nominal GDP Real GDP GDP deflator 6. ANS: B PTS: 1 DIF: 2 REF: 24-1 NAT: Analytic LOC: Unemployment and inflation TOP: Inflation rate 7. ANS: B PTS: 1 DIF: 2 REF: 24-2 TOP: Comparing dollar figures 8. ANS: B PTS: 1 DIF: 1 REF: 24-2 TOP: Real interest rate 9. ANS: C PTS: 1 DIF: 2 REF: 24-2 TOP: Real interest rate 10. ANS: B PTS: 1 DIF: 2 REF: 28-1 NAT: Analytic LOC: Unemployment and inflation TOP: Unemployment rate 11. ANS: C PTS: 1 DIF: 2 REF: 28-1 TOP: Labor-force participation rate 12. ANS: B PTS: 1 DIF: 3 REF: 28-1 NAT: Analytic LOC: Unemployment and inflation TOP: Unemployment rate Labor-force participation rate MSC: Analytical 13. ANS: A PTS: 1 DIF: 1 REF: 25-2 TOP: Production function 14. ANS: D PTS: 1 DIF: 1 REF: 25-2 NAT: Analytic LOC: Productivity and growth TOP: Productivity MSC: Interpretive 15. ANS: A PTS: 1 DIF: 1 REF: 25-3
NAT: Analytic LOC: Productivity and growth TOP: Capital Saving MSC: Interpretive 16. ANS: A PTS: 1 DIF: 1 REF: 26-1 TOP: Bonds MSC: Interpretive 17. ANS: D PTS: 1 DIF: 1 REF: 26-2 TOP: Private saving 18. ANS: D PTS: 1 DIF: 3 REF: 26-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Investment Market for loanable funds 19. ANS: D PTS: 1 DIF: 2 REF: 26-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Market for loanable funds MSC: Interpretive 20. ANS: D PTS: 1 DIF: 1 REF: 27-1 TOP: Present value 21. ANS: D PTS: 1 DIF: 1 REF: 29-1 NAT: Analytic LOC: The role of money TOP: Money 22. ANS: A PTS: 1 DIF: 2 REF: 29-3 NAT: Analytic LOC: Monetary and fiscal policy TOP: Fractional-reserve banking 23. ANS: B PTS: 1 DIF: 2 REF: 29-3 NAT: Analytic LOC: Monetary and fiscal policy TOP: Money multiplier 24. ANS: D PTS: 1 DIF: 2 REF: 29-3 NAT: Analytic LOC: Monetary and fiscal policy TOP: Federal Reserve System MSC: Interpretive 25. ANS: B PTS: 1 DIF: 2 REF: 29-3 NAT: Analytic LOC: Monetary and fiscal policy TOP: Reserve requirements Money multiplier 26. ANS: C PTS: 1 DIF: 1 REF: 29-3 NAT: Analytic LOC: Monetary and fiscal policy TOP: Banks Federal Reserve System