Download Second quiz with answers

AEM 1300
Second Quiz
July 8, 2016
NAME:
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CORNELL NET ID (Cornell Email Address)
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Signature
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Point values for each question are indicated. Total points – 20
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Part I:
Multiple Choice Questions. Circle the correct answer.
One Point Each!
1. Which of the following would be counted in the calculation of GDP?
A) Sales of goods that were produced outside our domestic borders
B) Sales of used goods
C) Transfer payments made by the government
D) Intermediate goods that are used to produce other final goods
E) The purchase of a new computer by a local firm
2. A construction company purchased ten tons of steel for use in a building project the
firm is presently under contract to complete. The value of the steel the company
purchased is:
A) Added to GNP.
B) Added to GDP.
C) Added to real GDP.
D) None of the above.
3. The interest rate on a U.S. government Treasury bill is 5.10%, and the rate of
inflation is 3.40%. The real interest rate is:
A) -1.70%
B) 1.80%
C) 1.70%
D) 0%
4. Recently, Jane has grown dissatisfied with her job and decides to try a new career in a
new city. She quits her job, and begins the process of moving and finding new
employment. Before this event, the last time she was unemployed was when her
company was forced to dismiss her and some of her coworkers during a severe
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recession. The example of Jane leaving her firm for a new career is an example of
______ unemployment, and the example of Jane being laid off during a recession is
an example of ______ unemployment.
A) frictional; cyclical
B) structural; frictional
C) natural; structural
D) cyclical; frictional
5. A student had to pay some unexpected taxes, and in a desperate attempt to raise
money ended up selling her laptop informally to a friend. The value of the laptop she
sold to her friend is:
E) Added to GDP.
F) Added to nominal GDP.
G) Added to real GDP.
H) None of the above.
Table 1.
for Questions 7 and 8
Good
Quantity Consumed
2011 Price
2012 Price
Hair Spray
5 cans
$1.50/can
$1.00/can
Gasoline
20 gallons
$4.00/gallon
$4.10/gallon
6. Suppose CPI is computed using only two goods: hair spray and gasoline. To compute
the level of the CPI index, a government agency uses the quantities and prices given
above. From 2011 to 2012, the level of CPI is:
E) Increasing.
F) Decreasing.
G) Constant.
H) Not determined by given information.
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7. Given your answer to the last question, the trend of the price level can best be
described as:
A) Inflation
B) Deflation
C) Hyperinflation
D) No Change
8. Which of the following activities affects GDP?
a) A drug dealer sells $10000 worth of illegal drugs.
b) You bought a used textbook $50 from Ebay.
c) Apple Inc. issues new shares of stock to finance the construction of a plant in
Texas.
d) General Motors buys new equipment to produce cars in Detroit,
e) None of the above.
9.
If nominal GDP has increased, then we can conclude that:
a)
Everybody in the economy is better off
b)
Price levels are higher
c)
There is more unemployment
d)
All of the above
e)
None of the above
10. GNP in Country X will be larger than GDP if
a)
Country X lets immigrants freely enter the country and they send money home
b)
Country X lets foreign companies mine gold there.
c)
Country X earns profits on stock holdings in country Y
d)
All of the above
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e)
None of the above
Part II: Essay Questions
Question 1 (6 points total)
a) What does GDP measure?
(1 point)
The total market value of all final goods and services produced within a given
period by factors of production located within a country
b) Briefly describe one of the two main approaches to measuring GDP. (1 point)
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Income approach: a method of computing GDP that measures the income–
wages, rents, interest, and profits–received by all factors of production in
producing final goods and services.
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Expenditure approach: a method of computing GDP that measures the total
amount spend on all final goods and services during a given period.
c) What is the difference between GDP and GNP? Give an example of a good or
service that would count as GDP in the US but not count as GNP (2 points)
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GDP is a territorial measure – GNP is based on factor ownership
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Examples could be a foreign owned factory, expatriate labor, etc.
d) Describe a situation where the nominal economy is growing, but the real
economy is not.
(2 points)
Price levels increase over time, but the real value of all final goods is not
increasing over time.
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Question 2 (4 points total)
http://www.nytimes.com/2013/06/08/business/employment-in-us-lags-where-it-was-in-2007.html
Employment in US lags where it was in 2007
The American economy may be the world’s biggest, but when it comes to job
creation since the recession hit at the end of 2007, it is far from a leader.
Indeed, contrary to the widespread view that the United States is an island of
relative prosperity in a global sea of economic torpor, employment in several
other nations has bounced back more quickly, according to a new analysis by
the Bureau of Labor Statistics.
The government reported Friday that the nation added 175,000 jobs in May,
continuing a 32-month run of job gains. The unemployment rate moved up
slightly to 7.6 percent, from 7.5 percent in April.
But overall employment in the United States remained 2.1 percent below
where it was at the end of 2007, according to the statistics bureau. By
comparison, over the same period, between December 2007 and March 2013,
the number of jobs was up 8.1 percent in Australia; Germany, the biggest
economy in the troubled euro zone, has managed a 5.8 percent gain in
employment. “The United States is way below where it should be,” said
Lawrence F. Katz, a professor of economics at Harvard. “We had a massive
downturn and a tepid recovery.”
a) What unemployment rate concept is Professor Katz referring to when he says:
“The United States is way below where it should be.”
Natural Rate of Unemployment: the unemployment rate that occurs as a normal
part of the functioning of the economy. Sometimes it is taken as the sum of the
frictional unemployment rate and the structural unemployment rate.
b) The labor force can be decomposed into the sum of two mutually exclusive
components. Write an equation you could use to compute the unemployment rate
in terms of these two quantities if you had the real numbers. Given what the report
says, which component is causing the unemployment rate to decline?
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-
l=u+e
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The unemployment rate is u/(u+e) , the report indicates e is growing,
causing the rate to decline.
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