Download Sample Midterm 2_Solutions2011

THE SAMPLE EXAM
1.
The labor force equals the
A. number of people who are employed.
B. number of people employed plus the number of people
unemployed.
C. number of people who are unemployed.
D. adult population.
2. Which of the following is counted as
unemployed according to official statistics?
A.
B.
C.
D.
George, a full-time student who is not looking for work
Larry, who has retired (emekli) and is not looking for work
Mary, who is waiting for her new job to start
All of the above would be counted as unemployed.
3. Sam just lost his job, but isn't yet looking
for a new one. Sam is
A. counted as unemployed and part of the labor force.
B. counted as unemployed, but not part of the labor force.
C. not counted as unemployed, but counted as part of the
labor force.
D. not counted as unemployed or counted as part of the labor
force.
4.
For the economy as a whole
A. expenditure exceeds (is greater than) income because
of taxes.
B. income must equal expenditure.
C. income exceeds expenditure because of saving.
D. expenditure exceeds income because of the
government budget deficit.
5. Gross Domestic Product is defined as the
market value of
A. all final goods and services produced by a country’s citizens
in a given period of time.
B. every good and service produced within a country in a given
period of time.
C. all final goods and services produced within a country in a
given period of time.
D. all goods and services produced by a country’s citizens in a
given period of time.
6. An American company has a fast-food
store in İstanbul. The value of the goods and
services produced in the store are included
A.
B.
C.
D.
in both Turkish GDP and U.S. GDP.
in U.S. GDP, but not Turkish GDP.
partly in Turkish GDP and partly in U.S. GDP.
in Turkish GDP, but not U.S. GDP.
7. The four components of GDP are
consumption,
A.
B.
C.
D.
money supply, government purchases, and exports.
investment, transfer payments, and imports.
investment, government purchases, and net exports.
investment, government purchases, and foreign exchange
8.
A.
B.
C.
D.
Productivity is the
growth rate of real GDP.
average amount a worker produces per hour.
level of real GDP.
None of the above is correct.
9. The productivity of U.S. workers is higher than
that of workers in many countries that have less
capital. Which of the following arguments concerning
these facts is logically consistent?
A. If U.S. workers have more capital, they should have lower
productivity.
B. Productivity in the United States is higher because the
United States has more workers than those countries having
low productivity.
C. The United States could have greater productivity because
its workers have both more human capital and more physical
capital per worker.
D. None of the above is logically consistent.
10. Which of the following is human capital?
A.
B.
C.
D.
a company’s cafeteria
the exercise equipment in a company’s gym
employees’ knowledge of the production process
All of the above are correct.
11. Which of the following would increase
productivity?
A.
B.
C.
D.
an increase in the amount of equipment per-worker
an increase in the knowledge and skills of workers
an increase in the number of employed workers
All of the above are correct.
12. The CPI is a measure of the overall cost of
A.
B.
C.
D.
producer inputs.
personal imports.
goods and services bought by a typical consumer.
goods and services produced in the economy.
13. Most, but not all, soccer balls used in the
United States are imported from other nations. If
the price of soccer balls increases, the GDP deflator
will
A.
B.
C.
D.
increase, but the consumer price index will not increase.
increase less than the consumer price index.
increase more than the consumer price index.
not increase, but the consumer price index will increase.
14. Which of the following is the most accurate
(correct, precise) statement about the relationship
between the nominal interest rate and the real
interest rate?
A. The real interest rate is the nominal interest rate minus the
rate of inflation.
B. The real interest rate is the nominal interest rate minus the
price level.
C. The real interest rate is the nominal interest rate times the
price level.
D. The real interest rate is the nominal interest rate times the
expected price level divided by the current price level.
15. In 1970 Professor Fellswoop made
$12,000, in 1980 he earned $24,000, in 1990 he
earned $36,000. The CPI was 40 in 1970, 60 in
1980, and 100 in 1990. Given this information
we can say that in terms of 1999 dollars,
Professor Fellswoop’s salary was highest in
A. 1970, and lowest in 1980.
B. 1990, and lowest in 1980.
C. 1980, and lowest in 1970.
D. 1990, and lowest in 1970.
• Short answer questions
1) The GDP of Farmistan has only two goods :
milk and honey. Prices are quoted in US dollars.
YEAR
1
2
Price of
Milk
2
4
Quantity
of Milk
10
15
Price of
Honey
5
4
Quantity
of Honey
20
30
Milk
Honey
year
P
Q
P
Q
1
$2
10
$5
20
2
$4
15
$4
30
Compute nominal GDP in each year:
Increase:
Year 1: $2 x 10 + $5 x 20
= $120
Year 2: $4 x 15 + $4 x 30
= $180
50%
Pizza
Latte
year
P
Q
P
Q
1
$10
$2
10
20
2
$4
15
$2.00
$5
$4
30
Compute real GDP in each year, using year 1 as the base year:
Increase:
Year 1: $2 x 10 + $5 x 20
= $120
Year 2: $2 x 15 + $5 x 30
= $180
50.0%
• GDP deflator for year t =
[nominal GDP in year t]
[real GDP in year t]
Nominal
GDP
Real
GDP
GDP deflator
1
$120
$120
100
2
$180
$180
100
year
2) The statistics for the country of Absurdistan in year 2007
show that there were 15 people who are unemployed, and 45
people who were employed. The adult population of the
country in that year was 80. Use this information to calculate
a. the labor force
b. the labor force participation rate
c. the unemployment rate
Adult population: 80
Employed: 45
Employed: 15
a. Labor force is unemployed + employed: 45+15 = 60
b. Labor force participation rate is labor force divided by adult
population : 60/80 = 75%
c. the unemployment rate unemployed divided by labor force
: 15/60 = 25%
3) The consumption basket of the typical consumer in the Fun
Republic contains 10 hamburgers and 15 movie tickets. The table
(see next slide) shows their prices for 2004 – 2006.
The base year is 2004.
10 hamburgers, 15 movie tickets
Year
Hamburgers
Movie tickets
2004
$5
$10
2005
$7
$12
2006
$7
$16
How much did the basket cost in 2004?
Answer: 10x5 + 15x10 = 200
10 hamburgers, 15 movie tickets
Year
Hamburgers
Movie tickets
2004
$5
$10
2005
$7
$12
2006
$7
$16
What is the CPI in 2005?
Basket costs 10x7 + 15x16 = 310.
CPI(2005) = (310x100)/200 = 155
10 hamburgers, 15 movie tickets
Year
Hamburgers
Movie tickets
2004
$5
$10
2005
$7
$12
2006
$7
$16
What is the inflation rate from 2004 to 2005?
Inflation = [(155 – 100)/ 100]x100 = 55%
4) Explain the effects of an increase in the government
(public) deficit on the capital markets (market for loanable
funds). How are the real interest rate and investment affected
by this? Draw a graph and explain your answer. Do not forget
to label the axes.
Interest
Rate
S2
Supply, S1
1. A budget deficit
decreases the
supply of loanable
funds . . .
6%
5%
2. . . . which
raises the
equilibrium
interest rate . . .
Demand
0
€800
€1,200
Loanable Funds
(in billions of euros)
3. . . . and reduces the equilibrium
quantity of loanable funds.
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