Download Exam 1 - Brian C Jenkins

Econ 20B: Basic Economics II
Fall 2013: Jenkins
Name:
October 23, 2013
Exam 1: Version A
Instructions: Choose the best answer for each question. Mark your answers on this exam and on your
scantron sheet. You may not use any outside materials: calculators, smartphones, scratch paper, etc. There
are 40 questions.
1. GDP is defined as the market value of all:
(a) intermediate and final goods and services produced in a country over a given period of time.
(b) final goods produced domestically and abroad by the citizens of a country over a given period of
time.
(c) final goods and services produced in a country over a given period of time.
(d) intermediate and final goods and services produced domestically and abroad by the citizens of a
country over a given period of time.
2. GDP measures:
(a) the value of the goods that a country took from the rest of the world.
(b) the value of a country’s unexploited natural resources.
(c) the flow of new goods and services into the economy .
(d) the accumulated wealth of a country.
3. Which of the following transactions would be included in GDP for the U.S.?
(a) Your neighbor buys some illegal drugs.
(b) You rake the leaves in your backyard.
(c) Rey – a citizen of the Dominican Republic – buys a new car in Denver, Colorado.
(d) Jauren – a U.S. citizen – buys a rice paddle in Miyajima, Japan.
4. CD Alley is a music store in Chapel Hill, NC. Suppose that CD Alley buys a CD for $10 from a
wholesaler and then sells the same CD to a customer for $15. What is the contribution of theses
transactions to U.S. GDP?
(a) $10.
(b) $25.
(c) $5.
(d) $15.
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5. Your friend purchases a new car. To which component of GDP would this transaction contribute?
(a) Investment.
(b) Net Exports.
(c) Consumption.
(d) Government Purchases.
6. Your grandmother receives a Social Security check from the U.S. government and she uses the funds
to purchase groceries and to pay her rent. The transactions in this scenario will be reflected in which
component of GDP?
(a) Consumption.
(b) Net Exports.
(c) Investment.
(d) Government Purchases.
7. You visit the website of a French cheese maker and you purchase $200 worth of cheese that is to be
shipped from France to your house in the U.S. As a result of this transaction:
(a) French GDP rises by $200 and U.S. GDP is unchanged.
(b) French GDP rises by $200 and U.S. GDP falls by $200.
(c) French GDP falls by $200 and U.S. GDP is unchanged.
(d) French GDP falls by $200 and U.S. GDP rises by $200.
8. You purchased a new house for $125,000 in 2011. In 2012, you sold the house for $140,000. Your
transactions:
(a) contributed $140,000 to GDP in 2011 and $15,000 to GDP in 2012.
(b) contributed $140,000 to GDP in 2011 and -$15,000 to GDP in 2012.
(c) contributed $125,000 to GDP in 2011 and $140,000 to GDP in 2012.
(d) contributed $125,000 to GDP in 2011 and nothing to GDP in 2012.
9. Which of the following would be considered investment from the perspective of national income accounting?
(a) Your new employer pays you to attend a new-employee training program.
(b) You purchase a portfolio of stocks and bonds with the help of a financial planner.
(c) Your sister works a full-time job and uses part of her income to pay her college tuition.
(d) AT&T builds a new cellular phone tower.
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Use the following information to answer the next 5 questions. Consider a small economy in
which the residents only consume pizza and cola:
Pizza
Cola
Year
Price
Quantity
Price
Quantity
2010
$5
5
$1
10
2011
$10
5
$2
10
2012
$15
10
$3
20
2013
$15
20
$3
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10. What was nominal GDP in 2012
(a) $35.
(b) $70.
(c) $210.
(d) $420.
11. Using 2010 as the base year, what was real GDP in 2012?
(a) $140.
(b) $70.
(c) $35.
(d) $35.
12. Using 2010 as the base year, what was the GDP deflator for 2012?
(a) 300.
(b) 200.
(c) 100.
(d) 400.
13. Using 2010 as the base year, what was the inflation rate between 2011 and 2012 as measured by the
percentage change in the GDP deflator?
(a) 100%.
(b) 50%.
(c) 150%.
(d) 0%.
14. By what percent did the price of the average goods rise between 2010 and 2011?
(a) 300%.
(b) 100%.
(c) 200%.
(d) 50%.
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15. The CPI is a statistic that:
(a) measures how the average price of consumer goods has changed relative to a base year.
(b) measures how the average price of all goods has changed relative to the previous year.
(c) takes into account how changes in average consumer income affect the quantity of goods that
people buy each month.
(d) measures how the average price of all goods has changed relative to a base year.
16. When new goods are introduced into the CPI basket, the computed cost of living
(a) increases, so the CPI will tend to overstate the change in the cost of living if the effect of the
new good is not accounted for properly.
(b) decreases, so the CPI will tend to overstate the change in the cost of living if the effect of the
new good is not accounted for properly.
(c) decreases, so the CPI will tend to understate the change in the cost of living if the effect of the
new good is not accounted for properly.
(d) increases, so the CPI will tend to understate the change in the cost of living if the effect of the
new good is not accounted for properly.
17. If the price of military equipment purchased by the federal government increases, then
(a) the consumer price index and the GDP deflator will both be unaffected.
(b) the consumer price index will increase and the GDP deflator will be unaffected.
(c) the consumer price index will be unaffected, and the GDP deflator will increase.
(d) the consumer price index and the GDP deflator will both increase.
18. If the price of domestically produced and sold clothing increases, then
(a) the consumer price index will increase, and the GDP deflator will be unaffected.
(b) the consumer price index will be unaffected, and the GDP deflator will increase.
(c) the consumer price index and the GDP deflator will both increase.
(d) the consumer price index and the GDP deflator will both be unaffected.
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Use the following information to answer the next 3 questions. Last your you earned $50,000
in income. The CPI last year was 120 and the CPI this year is 150.
19. In percentage terms, how much higher is the average price of consumer goods this year relative to the
prices of consumer goods in the base year?
(a) 30%.
(b) 150%.
(c) 25%.
(d) 50%.
20. What was the rate of inflation between last year and this year using CPI inflation?
(a) 25%.
(b) 80%.
(c) 30%.
(d) 125%.
21. What is value of the income you earned last year in terms of today’s dollars?
(a) $65,000.
(b) $15,000.
(c) $40,00.
(d) $62,500.
22. Which of the following statements is correct?
(a) Countries with relatively high GDP per capita have relatively more productive workers.
(b) Countries with relatively high GDP per capita have relatively more hardworking workers.
(c) The only way that GDP per capita in one country can increase is if the GDP per capita of another
country decreases.
(d) Countries with more capital per capita have lower GDP per person because the capital crowds
people out of the workplace.
23. Which of the following is true about the U.S. since the end of World War 2?
(a) GDP per capita has grown at about 2% per year, but productivity has remained relatively
constant since the end of World War 2.
(b) GDP per capita and productivity have both grown at about 2% per year.
(c) GDP per capita has grown at about 2% per year but productivity has only grown at about 1%
per year.
(d) GDP per capita has grown at about 2% per year but productivity has tended to grow at about
3% per year.
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24. Cambria is a low-income country that has enjoyed very little growth in per capita income over the last
50 years. Which of the following could be a contributing factor to Cambria’s lack of economic growth?
(a) Cambria has a larger quantity of unexploited natural resources than most countries.
(b) Cambria has a weak government that provides little protection for its citizens’ property rights.
(c) Cambria has received too much foreign direct investment.
(d) The government of Cambria consistently runs either a balanced budget or a budget surplus.
25. Which of the following is physical capital?
(a) The knowledge of workers.
(b) Financial assets like cash and bonds.
(c) The strength of workers.
(d) The equipment in a factory.
26. Imogen is a landscaper. Which of the following are included in her human capital?
(a) Neither her knowledge of landscaping learned in college nor her landscaping equipment
(b) Her knowledge of landscaping learned in college and her landscaping equipment
(c) Her knowledge of landscaping learned in college, but not her landscaping equipment
(d) Her landscaping equipment, but not her knowledge of landscaping learned in college
27. The inputs into production of goods and services that are provided by nature, such as land, rivers, and
mineral deposits are called:
(a) natural resources.
(b) physical capital.
(c) technological knowledge.
(d) human capital.
28. Other things equal, which of the following would increase productivity?
(a) Neither an increase in human capital nor an increase in physical capital.
(b) An increase in physical capital but not an increase in human capital.
(c) An increase in human capital but not an increase in physical capital.
(d) An increase in either human or physical capital.
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29. Other things equal, if a country permanently increases its saving rate, then that country will experience
a temporary:
(a) increase in the growth rate of real GDP per capita.
(b) decrease in the growth rate of real GDP per capita.
(c) decrease in real GDP per capita.
(d) increase in the stock of physical capital per worker.
30. Other things equal, if a country permanently increases its saving rate, then in the long-run:
(a) both the level and growth rate of real GDP per capita are higher.
(b) the level of real GDP per capita is higher, but the growth rate of real GDP per capita is lower.
(c) both the level and growth rate of real GDP per capita are unchanged.
(d) the level of real GDP per capita is higher but the growth rate of real GDP per capita is unchanged.
Use the following information to answer the next 2 questions. Suppose that the country of
Coheed has GDP equal to $800 billion, consumption equal to $550 billion, and government purchases
equal $100 billion.
31. If the government of Coheed is running $50 billion deficit, then what is the value of the tax revenues
of the government?
(a) $50 billion
(b) -$150 billion
(c) $150 billion
(d) -$50 billion
32. What is the value of private saving in Coheed?
(a) $0
(b) -$50 billion
(c) $200 billion
(d) $150 billion
33. A financial institution through which savers can lend funds directly to borrowers is called a financial:
(a) intermediary.
(b) system.
(c) financial planner.
(d) market.
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34. In the 1800s, European residents purchased stock in American companies that then used the funds to
build railroads and factories. The Europeans who did this were engaging in:
(a) foreign indirect investment.
(b) foreign direct investment.
(c) indirect domestic investment.
(d) foreign portfolio investment.
35. The nominal interest rate is equal to 5%. If the real interest rate is equal to 3%, then what must be
the rate of inflation?
(a) -2%.
(b) 8%.
(c) 2%.
(d) 1.67%.
36. If the government were to create an incentive for private investment by reducing taxes for firms that
purchase new capital, then in the market for loanable funds,
(a) the demand for loanable funds would shift to the left.
(b) the demand for loanable funds would shift to the right.
(c) the supply of loanable funds would shift to the left.
(d) the supply of loanable funds would shift to the right.
37. Suppose the government were to create a disincentive for private saving by increasing the tax on income
earned from retirement savings. As a result,
(a) the real interest rate would decrease and investment would increase.
(b) both the real interest rate and investment would decrease.
(c) both the real interest rate and investment would increase.
(d) the real interest rate would increase and investment would decrease.
38. Which of the following represents private saving?
(a) T − G.
(b) T − G − C.
(c) Y − C − T .
(d) Y − C − G.
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39. An increase in the budget deficit:
(a) reduces private investment expenditures.
(b) may increase, decrease, or not affect investment spending.
(c) increases private investment expenditures.
(d) does not affect investment spending.
40. We observe that the real interest rate and investment have both increased. Which of the following is
best able to explain this?
(a) The government has increased its expenditures on military equipment without adjusting its tax
revenues.
(b) An increase in wealth has made households more willing to put aside funds for their retirement.
(c) The development of new technology has made borrowers more willing to borrow funds in order
to purchase new capital.
(d) The government has raised taxes without reducing government expenditures.
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Scratch Paper
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