Download Assignment 4

Assignment 4
Course: EC205
Instructor: Timothy Hamilton
Instructions:
1. Which of the following would NOT be included in this year's GDP?
a.
The purchase of 100 shares of Harley Davidson stock.
b.
The replacement of a muffler on a 1996 Chevy.
c.
The commission charged by a real estate agent.
d.
Season tickets to the Minnesota Vikings home games.
e.
The tuition fee for a course in economics.
2. The value added at each stage of production equals
a.
the labor costs of the firm.
b.
the capital costs of the firm.
c.
the cost of the raw materials purchased by the firm.
d.
the difference between the value of a firm's product and its payments to other firms that supplied inputs used
in producing the product.
e.
the revenue received by the firm.
3. Government services, such as environmental protection, school systems, and highway maintenance,
a.
are excluded from GDP because there's no good way of estimating their value.
b.
are excluded from GDP because all such government programs involve billions of dollars of waste and
inefficiency.
c.
are included in GDP as an estimate based on equivalent costs that would be incurred by the private sector if
there were no such government services.
d.
are included in GDP as the costs incurred by governments in making such services available.
4. Suppose some lumberjacks lose their jobs because more construction companies begin to rely on alternatives to
wood for building new homes. The dismissed lumberjacks are appropriately called
a.
fully employed.
b.
discouraged workers.
c.
structurally unemployed.
d.
cyclically unemployed.
5. Suppose the United States achieves full employment next year. Which of the following would be true that year?
a.
equilibrium real GDP would equal potential real GDP.
b.
the unemployment rate would be zero.
c.
equilibrium real GDP would be less than potential real GDP.
d.
equilibrium GDP would exceed potential real GDP.
e.
Both (a) and (b).
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Assignment 4
6. The FPI (fictitious price index) stood at 200 on January 1, 1994. The rate of inflation for 1994, as measured by the
FPI, was 20%. What was the value of the FPI on December 31, 1994?
a.
250
b.
220
c.
240
d.
230
e.
None of the above.
7. If the rate of inflation for a year is 8.39% and the rate of nominal income growth is 6.03%, real income
a.
cannot be determined without knowing the base year.
b.
will remain the same.
c.
will fall.
d.
will rise.
8. The real wealth effect provides a partial explanation for why the aggregate demand curve slopes downward. Which
of the following statements best explains the real wealth effect?
a.
At a lower price level, domestically produced items are relatively less expensive than foreign goods and,
therefore, are in greater demand.
b.
At a lower price level, the real interest rate tends to be lower; thus, the quantity of investment goods
demanded is larger.
c.
At a lower price level, consumers will buy less because of a reduction in the real money supply.
d.
At a lower price level, the purchasing power of accumulated savings is larger; thus, consumers will purchase
more goods.
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Assignment 4
9.
What happens in the economy when the price level is P3?
a.
Inventories will tend to decrease, causing firms to reduce output and lower price.
b.
Inventories will tend to increase, causing firms to reduce output and lower price.
c.
Inventories will tend to decrease, causing firms to increase output and raise price.
d.
Inventories will tend to increase, causing firms to increase output and raise price.
10. A recessionary GDP gap occurs when
a.
equilibrium real GDP exceeds full-employment real GDP.
b.
potential real GDP exceeds full-employment real GDP.
c.
the price level has not caught up to the equilibrium level.
d.
nominal GDP exceeds real GDP.
e.
full-employment real GDP exceeds equilibrium real GDP.
11. An increase in aggregate demand shifts the aggregate demand curve to the ___________, causing real GDP to
___________ and the price level to ___________.
a.
left, decrease, increase
b.
right, increase, increase
c.
right, increase, decrease
d.
right, decrease, decrease
e.
right, decrease, decrease
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Assignment 4
12. An upward-sloping aggregate supply curve will shift to the right if there's
a.
an increase in the price level.
b.
an increase in demand for investment goods.
c.
a decrease in nominal (money) wages.
d.
an increase in nominal (money) wages.
e.
None of the above.
13. A massive decrease in aggregate demand plunges the U.S. economy into a recession and unemployment rates
soar to 10%. According to the classical model of macroeconomic equilibrium,
a.
the economy will stagnate in a recession unless measures are taken to increase aggregate demand.
b.
nominal wages will decline, increasing aggregate supply until full employment is restored.
c.
nominal wages will remain fixed.
d.
the aggregate supply curves will shift inward, making the recession worse.
e.
the price level won't decline.
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Assignment 4
14.
Assume that aggregate supply and aggregate demand for an economy are initially at AS1 and AD1, and that
aggregate demand then shifts to AD2. As a result,
a.
the inflationary GDP gap will be DF.
b.
the recessionary GDP gap will be BC.
c.
the price level GDP gap will be AB.
d.
the inflationary GDP gap will be BC.
e.
the inflationary GDP gap will be HK.
15. As a result of a decline in the value of the dollar on international currency markets, aggregate supply will be
expected to
a.
remain unchanged.
b.
increase only if real interest rates in the domestic economy increase.
c.
increase as a result of lower prices for imported inputs.
d.
decrease as a result of higher prices for imported inputs.
e.
decrease as a result of lower prices for imported inputs.
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