Download Midterm 2 - Fall 2013

ECON 201: Introduction to Macroeconomics
Second Midterm
November 11, 2013
NAME: _________________________________
Circle your TA’s name:
Arjada
Samir
Circle your section time:
11 a.m.
4 p.m.
INSTRUCTIONS:
1) The midterm is worth 60 points in total: 30 points for the multiple choice questions (Part
A), and 30 points for the analytical problems (Part B).
2) Write your answers for part A (the multiple choice section) in the blanks below. You
won’t get credit for circled answers in the multiple choice section. There is no penalty to
guessing, so be sure to answer all of them.
3) Place all of your answers for part B in the space provided.
4) You must show your work for part B questions. There is no need to explain your answers
for the multiple choice questions.
5) Calculators are permitted. Books, notes, reference materials, etc. are prohibited.
6) You must leave your answer sheet stapled to your questions. Do not pull the exam apart.
Each student must turn in the entire exam stapled together and will not receive credit if
any pages are missing.
PART A – MULTIPLE CHOICE QUESTIONS
Answer multiple choice questions in the space provided below. PLEASE USE CAPITAL
LETTERS.
1
7
13
19
25
2
8
14
20
26
3
9
15
21
27
4
10
16
22
28
5
11
17
23
29
6
12
18
24
30
Page 1
PART A – MULTIPLE CHOICE QUESTIONS
1. If a country has a population of 1,000, an area of 100 square miles, and a GDP of $5 million,
then its GDP per capita is:
A) $500.
B) $5,000.
C) $50,000.
D) $5 million
2. An increase in the number of discouraged workers in the economy tends to:
A) raise the official unemployment rate.
B) lower the official unemployment rate.
C) lower the number of people who are frictionally unemployed.
D) increase the number of people who are structurally unemployed.
3. There are two countries on a peninsula. The first has a real GDP per capita annual growth rate
of 2% and its neighbor to the south has an annual growth rate of 5%. How much sooner will the
country in the south double its GDP per capita than its neighbor in the north?
A) 5 years
B) 10 years
C) 15 years
D) 21 years
4. Which of the following would cause the relative wage of skilled compared to unskilled
workers to decrease:
A) Skill-biased technical change
B) Increased demand for manual workers
C) Immigration of unskilled workers from Mexico
D) Effective implementation of border controls that keep Mexicans out
E) A) and C)
F) B) and D)
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5. Which of the following is NOT a part of GDP?
A) new residential construction.
B) used car sales.
C) a new truck purchased by a building contractor.
D) telephone services purchased for a home.
6. The official unemployment rate reported by the government may tend to understate the
amount of unemployment because it:
A) includes discouraged workers in the calculations.
B) excludes discouraged workers who are not actively seeking employment.
C) includes people over 65 who aren't retired in the calculations.
D) excludes teenagers from the calculations.
7. Which of the following represents an outflow of funds from a domestic economy?
A) household saving
B) government tax collections
C) government transfer payments
D) imports
8. The Boeing Company buys $3 million worth of steel, $2.5 million worth of computer
hardware and software, and $1 million worth of mechanical tools to manufacture a certain model
of aircraft. Boeing sells this particular model of aircraft at $10 million. The value added by
Boeing is equal to:
A) $3.5 million.
B) $16.5 million.
C) $13 million.
D) $15.5 million.
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9. The Arcadia Entertainment Co. produced 200,000 DVDs of the movie Pulp Fiction in 1994.
Only 40,000 copies remained unsold at the end of 1994. As a result:
A) only 160,000 DVDs should be included in GDP in 1994 as consumption expenditure.
B) all 200,000 DVDs will be included in GDP in 1994, 160,000 as consumption
expenditure and 40,000 as investment expenditure
C) only 160,000 DVDs are included in GDP of 1994; the remaining 40,000 are counted
in GDP of 1995.
D) all 200,000 DVDs are initially counted in 1994 GDP as consumption expenditure, but
they will be subtracted and added to 1995 GDP as the merchandise gets sold.
10. The term human capital describes:
A) improvement made possible by better machines and the equipment available.
B) improvement in the technology available to the work force.
C) improvement in a worker's skills made possible by education, training and knowledge.
D) improvement in the robotics technology that can substitute for a human worker
11. The sequence of business cycle phases is:
A) business-cycle peak, business-cycle trough, expansion, recession.
B) business-cycle peak, expansion, business-cycle trough, recession.
C) business-cycle peak, recession, business-cycle trough, expansion.
D) business-cycle peak, expansion, recession, business-cycle trough.
12. The equation that breaks GDP down by the four sources of aggregate spending is:
A) GDP = C + I + G + X + IM.
B) GDP = C + I + G – X – IM.
C) GDP = C + I + G – X + IM.
D) GDP = C + I + G + X – IM
13. The key indicator of inflation emphasized in this course is the rate of inflation of the:
A) Consumer Price Index
B) Producer Price Index
C) GDP Deflator
D) Median Consumer Price Index
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14. Which of the following will NOT increase labor's productivity?
A) education
B) technology
C) new capital
D) growth in the population
15. If the population and GDP increase by the same percentage, then real GDP per capita:
A) stays the same.
B) increases.
C) decreases.
D) may change, but one cannot be sure of the direction.
16. When hyperinflation forces Pedro to change the price stickers on the books in his bookstore
very frequently to keep up with the aggregate price level, economists say that Pedro is
experiencing a:
A) shoe-leather cost.
B) menu cost.
C) unit-of-account cost.
D) debt deflation.
17. The economy hit bottom in mid-2009 and has been recovering for the past four years, but at
an unusually slow pace. The lectures have emphasized that the best measure of this poor
performance is:
A) The unemployment rate
B) The employment-population ratio
C) The employment rate
D) Monthly change of payroll employment
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18. Which of the following is an example of investment spending?
A) The owner of a Domino's Pizza store has employed two students to deliver pizzas.
B) The manager of a local Domino's Pizza store has taken some cash to the bank to make
a deposit.
C) A local Domino's Pizza store has purchased a new pizza oven.
D) The owner of the Domino's Pizza store has used some of her salary to buy shares of
stock in the Domino's corporation.
19. If private saving increases:
A) the demand for loanable funds will increase, interest rates will increase, and the
amount of borrowing will increase.
B) the demand for loanable funds will decrease, interest rates will decrease, and the
amount of borrowing will decrease.
C) the supply of loanable funds will increase, interest rates will decrease, and the
amount of borrowing will increase.
D) the supply of loanable funds will decrease, interest rates will increase, and the
amount of borrowing will decrease.
20. Controlling interest rates is an example of:
A) fiscal policy.
B) tax policy.
C) monetary policy.
D) exchange rate policy.
21. Technological progress allows workers to produce more:
A) because it increases the amount of physical capital available.
B) because it increases the amount of human capital available.
C) even when the amount of physical capital and human capital do not change.
D) only if the amount of physical capital grows at the same rate.
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22. The lecture discussion of long-run growth contrasted the performance of India and China.
Which point was the main one made in lectures?
A) China developed extensive abilities in call centers and computer software, but India
did not.
B) China encouraged foreign investment; India discouraged it with regulations
C) China’s dictatorship encouraged inefficient state-owned monopolies, whereas the
Indian democratic political system fostered innovative free competition.
D) China switched to natural gas to reduce pollution in generating electricity, while India
continued to use high-polluting coal.
23. The government saves when it:
A) has a balanced budget.
B) has a budget deficit.
C) has a budget surplus.
D) borrows by selling bonds.
24. The interest rate is 5% in the market for loanable funds. Investors wish to borrow $100
million and savers wish to save $125 million at this interest rate. We would expect:
A) the interest rate to fall, as there is a shortage of loanable funds.
B) the interest rate to rise, as there is a surplus of loanable funds.
C) the interest rate to rise, as there is a shortage of loanable funds.
D) the interest rate to fall, as there is a surplus of loanable funds.
25. Intermediate goods are not counted in the calculation of GDP because:
A) to do so involves double counting.
B) these goods are not produced for the market.
C) these goods are produced in the underground economy.
D) these goods involve financial transactions.
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26. Anna recently moved to Boston in order for her husband Joe to begin a new job as an
economics professor at Harvard. Anna is an experienced surgeon who is interviewing with
several hospitals in Boston. Anna is:
A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) counted as employed, since she is likely to receive a job offer soon.
27. An intermediate good would be:
A) a new boat purchased by a professor to be used on vacation.
B) lumber used to build a house.
C) payments to military personnel.
D) a professor's salary.
28. What did NOT happen in the U.S. economy of 2002-2007?
A) Increase in household net worth due to increase in assets
B) Increase in household net worth due to decrease in liabilities
C) Decrease in household net wealth due to decrease in assets
D) Decrease in household net worth due to increase in liabilities
Use the following table to answer questions 29 and 30:
Table: Investment Projects
29. If the market interest rate is 17%, the amount of investment demanded is:
A) $200.
B) $800.
C) $1,000.
D) $2,000.
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30. If the market interest rate declines from 15% to 11%, then the amount of investment
demanded will increase by:
A) $200.
B) $1,000.
C) $2,000.
D) $2,200.
Answer Key
1. B
2. B
3. D
4. F
5. B
6. B
7. D
8. A
9. B
10. C
11. C
12. D
13. C
14. D
15. A
16. B
17. C
18. C
19. C
20. C
21. C
22. B
23. C
24. D
25. A
26. A
27. B
28. A
29. B
30. D
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PART B – SHORT ANSWER QUESTIONS
PROBLEM 1: 8 points (0.5 points per blank)
Complete the blanks using the following table. Round all values to the nearest two decimal
places, including percentages. That is, answers should look like 13,300.72 or 29.87%.
2012
Price
Quantity
42
75
2013
Price
Quantity
Cheese
Olives
Nominal GDP
14
4
1. 888
Real GDP in 2012
prices
Real GDP in 2013
prices
GDP Deflator with
base year 2012
GDP Deflator with
base year 2013
4. 888
5. 1050
6. 16.76%
7. 987
8. 1095
9. 10.38%
10. 104.29
11. 4.20%
100
12. 89.97
11
7
2. 1095
55
70
Annual
Percentage
Change Between
2012 - 2013 using
the LN formula
3. 20.95%
100
13. 10.57%
14. (0.5 pt) What is the growth rate in chain-weighted GDP?____13.57%_
15. (1 pt) What is the growth rate in chain-weighted GDP deflator?____7.38%_
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PROBLEM 2: 7 points
Solve this problem using the LN formulas shown in class. We will not accept solutions that
involve other methods.
You have the following information, regarding Hogwarts, Duckburg and Jungleland in 2013
2013
Initial GDP
Growth rate per year
Hogwarts
Duckburg
Jungleland
1000
1600
878
5%
4%
3%
A) (2 pt.) How long will it take until Duckburg’s GDP increases by 90%?
ln(1.9)/0.04=16.05 years
B) (3 pt.) How long will it take until Hogwarts and Duckburg have the same GDP?
Answer: ln(1000)+0.05s=ln(1600)+0.04s
0.01s=ln(1600)-ln(1000)
s=47 Years
C) (2 pt.) When will Hogwarts and Jungleland have the same GDP?
Answer: Never
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PROBLEM 3: 9 points
You have the following information, regarding the residents of country A
Age
Have a job and
not looking
for another
one
Don’t have a
job and are
not looking
for one
Total
<10
25
25
10-15
100
100
Have a job but
looking for
another job
Don’t have a
job but are
looking for
one
16-20
200
50
100
50
400
21-30
120
100
180
100
500
31-50
80
150
40
30
300
51-70
150
70
130
30
380
>70
50
30
50
40
170
Total
600
400
500
375
1875
A) (1 pt.) What is the size of the labor force in this economy?
LF = 600+400+500=1500
B) (1 pt.) Calculate the Labor Force Participation Rate for this economy. Report as a
percentage to two decimal places.
LFPR=1500/(1875-100-25) = 85.71%
C) (1 pt.) Calculate the Unemployment Rate for this economy. Report as a percentage to
two decimal places.
UR=500/1500 = 33.33%
D) (1 pt.) What is the Employment-Population Ratio?
EPR=1000/1750=57.14%
E) (1 pt.) What is the unemployment rate for people aged 21-50?
UR(21-50)=(180+40)/(120+100+180+80+150+40)=32.84%
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F) 50 people that were under 16, turned 16. Assume that nothing changed with respect to
the other people, i.e., those who were working kept their jobs and those who were
looking for jobs kept looking for jobs.
a. (2 pt.) The labor force participation rate is now 85%. How many people, from the
50 that turned 16, did not work and did not look for a job?
0.85=(1500+50-X)/1800
X=20
b. (2 pt.) The unemployment rate is now 33.66%. How many people out of those
who turned 16, found jobs?
0.3366=(500+30-F)/(1500+30)
F=15
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PROBLEM 4: 6 points
A) (2 pt.) You have the following information:
National Saving
Government Spending
GDP
$55 million
$18 million
$120 million
Consumption is _____________ $47 million
B) (2 pt.) You have the following information:
Consumption
GDP
Transfers
Government Spending
$20 million
$100 million
$3 million
$75 million
National Saving is _______________ $5 million
C) (2 pt.) You have the following information:
Net Capital Inflow
National Saving
Private Saving
$7 million
$5 million
$2 million
Investment is _______________ $12 million
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