Download midterm exam i group a

EC102 NAME: _________________ Sections 04,05,06,08 ID #: ___________________ Spring 2009 MIDTERM EXAM I GROUP A March 20, 2009 1. Which of the following is not always correct in a closed economy?
A) Real GDP measures both income and expenditures.
B) Net exports equal zero.
C) Private saving equals investment.
D) All the investment spending is financed domestically.
E) National saving equals private saving plus public saving.
2. Which of the following government policies will lead to economic growth?
A) A decrease in the income tax rate
B) Investment incentives offered to businesses
C) An increase in the capital gains tax
D) all of the above
E) b and c but not a
Use the following to answer questions 3-4:
Year
2000
2001
Meat
$11 per kg
$9 per kg
Chicken
$6 per kg
$10 per kg
3. Suppose that the typical consumer basket consists of 10 kg of meat and 15 kg of chicken
and that the base year is 2000. What is the consumer price index for 2001?
A) 120
B) 240
C) 100
D) 80
E) 200
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4. (Use the table above to answer this question) What was the inflation rate in 2001?
A) 10 percent
B) 20 percent
C) 8 percent
D) 16.7 percent
E) None of the above
Use the following to answer question 5:
Table: Furniture Production Schedule
Stage of production
Timber
Milled wood
Finished wood
Assembled furniture
Retail price to consumer
Sales value of material
100
300
600
800
1200
5. (Table: Furniture Production Schedule) What is the value added at all stages of the
production process of the furniture as described in the accompanying table?
A) $2,000
B) $1,800
C) $800
D) $1,200
E) None of the above
6. Cedar Valley Furniture uses 5 workers working 8 hours to produce 160 rocking chairs.
What is the productivity of these workers?
A) 0.5 hour per chair
B) 8 hours per worker
C) 4 chairs per hour
D) 160 chairs
E) The answer depends on the amount of capital used
7. Ali buys and lives in a newly constructed home he paid $200,000 for in 2003. He sells
the house in 2004 for $225,000
A) 2004 sale does not increase 2004 GDP and does nothing to 2003 GDP.
B) The 2004 sale increases 2004 GDP by $225,000 and 2003 GDP is revised upward
by $25,000
C) The 2004 sale increases 2004 GDP by $25,000 and does nothing to 2003 GDP.
D) The 2004 sale increases 2004 GDP by $225,000 and does nothing to 2003 GDP
E) None of the above
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8. Which of the following is not a policy to stimulate technological growth?
A) government spending for R&D
B) strengthening intellectual property right protection
C) Research and Experimentation Tax Credit
D) a cut of income tax
E) support of education from the government
9. Real GDP per person is $21,000 in Aquilonia, $15,000 in Nemedia and $6,000 in Shem.
Saving per person is $2,000 in all three countries. Other things equal, we would expect
that
A) Shem will grow the fastest
B) Growth rates would depend on investment, not savings
C) Aquilonia will grow the fastest
D) Nemedia will grow the fastest
E) all three countries will grow at the same rate
10. Suppose the GDP of an economy grows at annual rate of 5%. About how many years
will it take for GDP to octuple (i.e., increase 8-fold)?
A) 112 years
B) 14 years
C) 28 years
D) 42 years
E) 56 years
11. The popular press loves to talk about new technology. What is the most important
aspect of new technology for economic growth?
A) It leads business persons to increase capital spending.
B) It leads business persons to alter the way they do business.
C) It enables people to work faster.
D) It enables scientists to discover still more new things.
E) All of the above
12. __________ is (are) what may happen when the central government needs to borrow to
finance its deficit to the detriment of private firms.
A) More unemployment
B) Higher rates of inflation
C) A lower marginal product of capital
D) Lower interest rates
E) Crowding out
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13. Consider two things that might be included in GDP: A. The estimated rental value of
owner-occupied housing, and B. Purchases of newly constructed homes
A) A is included as consumption, while B is included as investment
B) B is included as consumption, while A is included as investment
C) Both A and B are included as consumption
D) Only B is included in GDP and it is included as investment
E) Only A is included in GDP and it is included as investment
14. If there are diminishing returns to capital,
A) profits are decreasing with an increase in the amount of capital used
B) increases in the capital stock eventually decrease output
C) increases in the capital stock increase output by ever smaller amounts
D) capital produces fewer goods as it ages
E) new ideas are not as useful as old ideas
15. Growth accounting enables us to:
A) compare growth rates across countries.
B) discover how long it takes the economy to grow.
C) better calculate real GDP per capita.
D) discover the effects of technological progress on economic growth.
E) none of the above
16. If during 2005, the country of Atlantis recorded a GDP of $65 billion, interest payments
of $15 billion, imports of $13 billion, profits of $7 billion, exports of $15 billion, and
rent of $7 billion, wages during 2005 in Atlantis were
A) $64 billion
B) $36 billion
C) $38 billion
D) $34 billion
E) none of the above
17. If domestic saving is less than domestic investment, then investment is financed by
A) higher interest rates.
B) printing more money.
C) foreign saving.
D) nothing—it cannot be done.
E) an inflation tax.
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18. Investment rises and interest rates fall. Which of the following could explain these
changes?
A) The government reduced the tax rate on consumption.
B) The government increased its military spending.
C) The government instituted an investment tax credit.
D) The government went from surplus to deficit.
E) The government reduced the tax rate on savings.
19. Suppose GDP in Atlantis consists of wheat and rice. In 2002, 20 tons of wheat are sold
at $4 per ton, and 10 tons of rice are sold at $2 per ton. Suppose the price of wheat was
$2 per ton and the price of rice was $1 per ton in 2001, which is the base year. Then
nominal 2002 GDP is
A) $50, real 2002 GDP is $100, and the GDP deflator in 2002 is 200
B) $100, real 2002 GDP is $50, and the GDP deflator in 2002 is 200
C) $40, real 2002 GDP is $100, and the GDP deflator in 2002 is 50.
D) $100, real 2002 GDP is $50, and the GDP deflator in 2002 is 50
E) none of the above
20. By itself a reduction in the price of large tractors imported into Turkey from Russia will
A) make the GDP deflator increase, but the consumer price index is unchanged
B) will increase both the GDP deflator and the consumer price index
C) will not change either the GDP deflator or the consumer price index
D) make the GDP deflator decrease and the consumer price index to increase
E) none of the above
21. If the price of an asset is expected to rise in the future:
A) the market is irrational, the price of the asset would be randomly determined.
B) the price of the asset will fall today.
C) asset owners will be more willing to sell it now.
D) it will be more in demand today.
E) None of the above
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22. A German citizen buys an automobile produced in Turkey by a Japanese company. As a
result,
A) Turkey’s net exports and GDP increase, Japanese GNP increases, German
net exports decrease, and German GDP and GNP are unaffected
B) Turkey’s net exports increase, Turkey’s GNP and GDP are unaffected, Japanese
GNP increases, German net exports decrease, and German GNP and GDP are
unaffected
C) Turkey’s net exports, GNP, and GDP are unaffected, Japanese GNP increases,
German net exports decrease, and German GDP and GNP fall
D) Turkey’s net exports, GNP, and GDP increase, Japanese GDP increases, German
net exports decrease, and German GDP is unaffected.
E) None of the above
23. Suppose that in a closed economy GDP is 10,000, consumption is 6,500, and taxes are
2,000. What value of Government expenditures would make national savings equal to
1000 and at that value would the government have a deficit or surplus?
A) 4500, surplus
B) 4500, deficit
C) 2500, surplus
D) 1000, deficit
E) 2500, deficit
24. The aggregate production function is expressed as YIL = F(K/L, HIL, T). Which of the
following is represented by K/L?
A) capital per worker
B) capital productivity
C) output per worker
D) Technology
E) real GDP per worker
25. When the government runs a budget deficit, all of the following happen EXCEPT:
A) private investment spending is crowded out.
B) the government becomes a borrower in the market for loanable funds.
C) the interest rate rises.
D) the supply of loanable funds increases.
E) the total amount of borrowing decreases.
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Use the following to answer question 26:
Figure: Market for Loanable Funds
26. (Figure: Market for Loanable Funds) Other things being equal, an increase in taxes on
savings and investment income will:
A) not affect the equilibrium outcome.
B) shift supply to the left and increase the interest rate.
C) shift demand to the right and increase the interest rate.
D) shift supply to the right and decrease the interest rate.
E) shift demand to the left and decrease the interest rate.
27. Workers now are more productive than in the past because workers today:
A) are more educated and so have more human capital.
B) have more physical capital to use.
C) use more technologically advanced physical capital.
D) because of all of the above.
E) because of A and C but not B
28. Financial markets make the process of borrowing large amounts of money easier
because they simplify the negotiation process between borrowers and lenders. This is an
example of:
A) providing liquidity.
B) reducing transaction costs.
C) acting as a lender of last resort.
D) reducing risk.
E) All of the above.
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29. Investment spending refers to:
A) buying newly issued shares of stock.
B) adding to physical capital.
C) adding to one's retirement account.
D) buying stocks.
E) all of the above.
30. Which of the following is NOT included in investment spending in Turkey’s national
income accounts?
A) the purchase of stocks and bonds by a business
B) new residential construction
C) spending on inventories
D) the purchase of machinery and other productive physical capital
E) these are all included in investment spending
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Answer Key
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C
E
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D
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C
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B
A
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