Download Practice Question Set 3

Practice Question Set 3
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) The working-age population is defined as the number of
A) people over the age of 16 who are not in jail, hospital, or other institution.
B) people working full-time jobs who are over the age of 16.
C) people looking for work.
D) people who have a job.
1)
2) Which of the following is NOT included in the working-age population?
A) discouraged workers
B) retirees under the age of 55
C) people waiting to be called back to a job after being laid off
D) people in prison
2)
3) The labor force is defined as
A) all people capable of work.
B) people with full time jobs.
C) workers with jobs and unemployed workers.
D) All of the above answers are correct.
3)
4) Unemployment caused by the normal labor turnover is called ________ unemployment.
A) cyclical
B) frictional
C) part-time
D) involuntary
4)
5) Suppose the country of Tiny Town experienced frictional unemployment. This frictional
unemployment would
A) be considered a natural occurrence in a growing economy.
B) signal that the number of discouraged workers is growing.
C) signal that there are more job leavers than job losers.
D) definitely signal that the country is in a recession.
5)
6) A recent accounting graduate from a major business school is searching for a place to begin his
career as an accountant. This individual is best considered as
A) cyclically unemployed.
B) structurally unemployed.
C) seasonally unemployed.
D) frictionally unemployed.
6)
7) Students who leave school in the spring and look for work are one source of ________.
A) structural unemployment
B) cyclical unemployment
C) business -cycle fluctuations
D) frictional unemployment
7)
8) In a period of rapid, unexpected inflation, resources can be lost
A) when firms invest in research and development instead of forecasting inflation.
B) because rapid inflation almost always turns into a hyperinflation.
C) when firms use resources to forecast inflation.
D) Both answers B and C are correct.
8)
1
9) If the CPI is 120, this means that
A) prices are 20 percent higher than in the reference base period.
B) prices are 120 percent higher than in the reference base period.
C) prices are 0.12 times higher than in the reference base period.
D) the inflation rate must be positive.
10) The table below shows data regarding Germany's labor market.
Year
2006
2007
2008
Labor Force
(millions)
43.7
43.7
43.6
Number of
Employed
(millions)
39.01
39.06
39.8
9)
10)
Population
(millions)
82.3
82.2
82.1
The data show that Germany's unemployment rate in 2007 was
A) 9.8 percent.
B) 5.6 percent
C) 8.4 percent
D) More information is needed to answer this question.
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
11) What is the definition of the unemployment rate? How are part-time workers and discouraged workers
treated when calculating the unemployment rate?
Item
Loaves of bread
Jugs of soda
Item
Loaves of bread
Jugs of soda
Quantity
(2015)
20
20
Price
(2015)
$3.00
$2.00
Quantity
(2016)
22
30
Price
(2016)
$4.00
$1.50
12) The tables above give the purchases of an average consumer in a small economy. (These consumers purchase
only loaves of bread and jugs of soda.) Suppose 2015 is the reference base period.
a) What quantities are in the CPI basket?
b) What is the cost of the CPI basket using 2015 prices?
c) What is the cost of the CPI basket using 2016 prices?
d) What is the CPI in 2016?
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
13) Suppose that in 2015 a country has a population of 1 million and real GDP of $1 billion. In 2016,
the population is 1.1 million and the real GDP is $1.1 billion. The real GDP per person growth
rate is
A) zero.
B) positive.
C) negative.
D) $1000.
2
13)
14) In 2011, Armenia had a real GDP of approximately $4.21 billion and a population of 2.98 million.
In 2012, real GDP was $4.59 billion and population was 2.97 million. From 2011 to 2012,
Armenia's standard of living ________.
A) decreased
B) increased
C) did not change
D) might have increased, decreased, or remained unchanged but more information is needed
to determine which
14)
15) The best definition for economic growth is
A) a sustained expansion of production possibilities measured as the increase in real GDP
over a given period.
B) a sustained expansion of consumption goods over a given period.
C) a sustained expansion of production possibilities measured as the increase in nominal
GDP over a given period.
D) a sustained expansion of production goods over a given period.
15)
16) Over the past four decades
A) U.S. real GDP per person has increased.
B) U.S. real GDP per person has fallen below that of the other rich industrial countries.
C) the growth rate of real GDP per person in the United States has been increasing.
D) Both answers A and C are correct.
16)
17) A movement along the aggregate production function is the result of a change in
A) the quantity of labor.
B) technology.
C) interest rates.
D) capital.
17)
18) The aggregate production function relating real GDP to labor hours
A) has a positive slope and becomes steeper as employment increases.
B) has a positive slope and becomes less steep as employment increases.
C) has a negative slope.
D) has a constant slope.
18)
19) According to the law of diminishing returns, an additional unit of
A) labor decreases output.
B) labor produces less output than the previous unit.
C) capital produces more output than an additional unit of labor.
D) labor produces more output than the previous unit.
19)
20) Technological change
A) lowers the real wage rate.
C) decreases labor productivity.
20)
B) increases potential GDP.
D) has no effect on employment.
21) A recent survey by India's central bank reported that spending plans by firms on large new
projects
fell by 46 percent in the year ending March 2012, compared with the prior year. This decrease
will most directly impact
A) population growth.
B) technological change.
C) physical capital growth.
D) human capital growth.
3
21)
22) Labor productivity increases with
A) increases in capital.
C) increases in consumption expenditure.
B) increases in depreciation.
D) All of the above answers are correct.
22)
23) A worker's stock of knowledge is known as
A) human capital.
C) physical capital.
B) financial capital.
D) monetary capital.
23)
24) An assumption of classical growth theory is that when ________ the population growth rate
________.
A) the real wage rate falls; increases
B) saving declines; decreases
C) people become more skilled; decreases
D) real GDP per person exceeds the subsistence level; increases
24)
25) The assumption that population growth will lead to a fall in real GDP per person rate back to
subsistence level is
A) associated with Malthusians.
B) accepted by all economists today.
C) part of the neoclassical school of growth theory.
D) central to the new growth theory.
25)
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
Labor demand
Labor supply
(billions of
Real wage rate
(billions of
hours per
(2009 dollars)
hours per
year)
year)
0
30
6
1
25
5
2
20
4
3
15
3
4
10
2
Employment
(billions of
hours per
year)
6
5
4
3
2
Real GDP
(billions of
2009 dollars)
95
90
80
60
30
26) The first table above gives the labor demand and labor supply schedules for a nation. The second table gives
its production function.
a) What are the equilibrium real wage rate and the level of employment?
b) What is potential GDP?
4
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
27) Which of the following items are considered physical capital?
I. shares of Ford stock traded on the New York Stock Exchange
II. the Taco Bell store nearest you
III. the rental cars owned by Hertz Rental-A-Car
IV. the salaries paid to Intel executives
A) II and III
B) I and IV
C) I, II and III
27)
D) I, II and IV
28) In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the
market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new
machines. During 2015, Tim's net investment totaled
A) $200,000.
B) -$100,000.
C) $1 million.
D) -$300,000.
28)
29) In January, suppose that a share of stock in Meyer, Inc. had a price of $50 and that each share
entitled its owner to $2 of Meyer, Inc.'s profit. During the year, the price of a share of Meyer's
stock rose to $100. The interest rate paid on the share in January was ________ percent.
A) 25
B) 4
C) 2
D) 0.02
29)
30) U.S. investment is financed from
A) private saving, government budget deficits, and borrowing from the rest of the world.
B) private saving, government budget surpluses, and borrowing from the rest of the world.
C) private borrowing, government budget deficits, and lending to the rest of the world.
D) private saving and borrowing from the rest of the world only.
30)
31) Suppose Country A had net taxes of $30 million and government expenditures of $35 million. In
addition, household saving in Country A totaled $5 million while consumption was $80 million.
The government of Country A is running a budget ________ and national saving is ________
million.
A) deficit; -$5
B) surplus; $5
C) deficit; $0
D) surplus; $25
31)
32) When the inflation rate is zero, the
A) real interest rate is greater than the nominal interest rate.
B) real interest rate is less than the nominal interest rate.
C) nominal interest rate is zero.
D) real interest rate equals the nominal interest rate.
32)
33) When the inflation rate is positive, the
A) real interest rate is greater than the nominal interest rate.
B) real interest rate is less than the nominal interest rate.
C) nominal interest rate is zero.
D) real interest rate equals the nominal interest rate.
33)
34) If net taxes exceed government expenditures, the government sector has a budget ________ and
government saving is ________.
A) surplus; negative
B) surplus; positive
C) deficit; positive
D) deficit; negative
34)
5
35) The crowding-out effect refers to
A) private investment crowding out government saving.
B) government spending crowding out private spending.
C) private saving crowding out government saving.
D) government investment crowding out private investment.
35)
36) If the Ricardo -Barro effect occurs, an ________ in saving finances the government budget deficit
and the real interest rate ________.
A) decrease; increases
B) increase; falls
C) decrease; remains the same
D) increase; remains the same
36)
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
Real interest
rate
(percent per
year)
10
8
6
4
2
Loanable
funds
demanded
(trillions of
2009 dollars)
0.7
0.9
1.1
1.4
1.7
Loanable
funds
supplied
(trillions of
2009 dollars)
1.5
1.3
1.1
0.9
0.7
37) The table above shows the loanable funds supply and demand schedules.
a) What is the equilibrium real interest rate and the equilibrium quantity of loanable funds?
b) If the real interest rate is 4 percent, is there a shortage or surplus? What will happen in the market?
6
Answer Key
Testname: UNTITLED2
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)
16)
17)
18)
19)
20)
21)
22)
23)
24)
25)
26)
27)
28)
29)
30)
31)
32)
33)
34)
35)
36)
A
D
C
B
A
D
D
C
A
C
The definition of the unemployment rate is [(number of unemployed) ÷ (labor force)] × 100. In this calculation, the
labor force equals the sum of employed plus unemployed people. Part-time workers are counted as employed.
Thus part-time workers are counted in the labor force but are NOT counted as unemployed. Discouraged workers
are people who have stopped looking for work and so are not in the labor force. Hence, when calculating the
unemployment rate, discouraged workers are counted in neither the number of unemployed nor in the labor force.
a) The quantities in the CPI basket are the 2015 quantities because 2015 is the reference base period. So, the
quantities are 20 loaves of bread and 20 jugs of soda.
b) The cost of the CPI basket using 2015 prices is (20 loaves) × ($3) + (20 jugs) × ($2) = $100.
c) The cost of the CPI basket using 2016 prices is (20 loaves) × ($4) + (20 jugs) × ($1.50) = $110. Note that the
quantities used in this calculation are the quantities in the CPI basket.
d) The CPI in 2016 equals 100 times the cost of the CPI basket at 2016 prices divided by the cost of the CPI basket
at 2015 (base period) prices. The CPI equals 100 × ($110) ÷ ($100) = 110.
A
B
A
A
A
B
B
B
C
A
A
D
A
a) The equilibrium real wage rate is $15 an hour because this is the real wage rate for which the quantity of labor
demanded equals the quantity supplied. The equilibrium level of employment is 3 billion hours a year.
b) With employment equal to 3 billion hours per year, potential GDP is equal to $60 billion.
A
B
B
B
C
D
B
B
D
D
7
Answer Key
Testname: UNTITLED2
37) a) The equilibrium real interest rate is 6 percent and the equilibrium quantity of loanable funds is $1.1 trillion.
b) If the real interest rate is 4 percent, there is a shortage of loanable funds. The shortage means that the quantity
of funds demanded for investment exceeds the quantity supplied, so the real interest rate will rise to its equilibrium
of 6 percent.
8