Download EXAM II from ECON 2105, SUMMER 2005

Exam II
NAME (PRINT):
Answer questions 1-3 by selecting from the list of terms below
a)
b)
c)
d)
e)
f)
g)
Gross Domestic Product
Gross National Product
Net National Product
National Income
Personal Income
Disposable Income
None of the above
1)
The market value of all goods and services produced in the economy (within
the boundaries of the country) during a period of one year
2)
The market value of all final goods and services produced by the factors of
production owned by the country during a period of time, such as one year
3)
The market value of all final goods and services produced in the economy
(within the boundaries of the country) during a period of one year minus the
value of the depreciation of the capital stock.
4)
Which of the following statements is correct?
a)
the entire value of the output produced by a Nissan factory located in
the US will be counted towards the US GNP
b)
the entire value of the output produced by a Nissan factory located in
the US will be counted towards the US GDP
c)
The entire value of the output produced by a Nissan factory located in
the US will be counted towards the GDP of Japan
d)
None of the above
5)
Which of the following statements is correct?
a)
a stock dividend (distribution of profits to the owners of capital)
received by a US resident from a telecommunication company that
operates exclusively in Russia will be counted towards the US GNP
b)
a stock dividend (distribution of profits to the owners of capital)
received by a US resident from a telecommunication company that
operates exclusively in Russia will be counted towards the US GDP
c)
a stock dividend (distribution of profits to the owners of capital)
received by a US resident from a telecommunication company that
operates exclusively in Russia will be counted towards the US GDP
and the US GNP
d)
none of the above
6)
Which of the following statements is incorrect?
a)
Real GDP factors out inflation and allows us to track changes in output
only
b)
If we select 1990 as the base year for the computation of Real GDP
and in the years 1991-1995 the economy experiences deflation, then
the Nominal GDP for those years will have a greater value than the
Real GDP computed using the 1990 dollars
c)
Nominal GDP is measured in current dollars, the dollars of the time
period for which the measurement is made, and hence does not factor
out inflation
d)
The growth rate in the nominal GDP is equal to the growth rate in real
GDP plus the growth rate of prices
e)
If we select 1990 as the base year for the computation of Real GDP
and in the years 1991-1995 the economy experiences deflation, then
the Nominal GDP for those years will have a lower value than the Real
GDP computed using the 1990 dollars
7)
If you invest 1000 dollars into a CD account that pays 3% interest, and the
rate of inflation is 2%, then
a)
the real rate of return is -1%
b)
the real rate of return is +1%
c)
the real rate of return is -2%
d)
the real rate of return is +3%
8)
Which of the following is an example of structural unemployment?
a)
an auto worker who loses his job due to the decline in demand for cars
in a recession
b)
an agricultural worker who becomes unemployed at the end of harvest
season
c)
a textile worker who looses her job due to the fact that the textile
industry is moving overseas
d)
none of the above
9)
Which of the following statements about natural unemployment is correct?
a)
When the unemployment rate is equal to the natural unemployment
rate, the rate of inflation is constant
b)
When the unemployment rate is equal to the natural unemployment
rate, the rate of inflation is declining
c)
When the unemployment rate is equal to the natural unemployment
rate, the rate of inflation is increasing
d)
Natural unemployment rate has no relationship to the rate of inflation
or the behavior of inflation
e)
When the unemployment rate is equal to the natural unemployment
rate, the rate of inflation is ZERO
10)
Which of the following will not cause an acceleration in the rate of inflation
a)
an increase in the costs of natural resources
b)
an increase in the unemployment rate above the natural rate of
unemployment
c)
a reduction in the value of the domestic currency (exchange rate)
d)
an acceleration in the gap in the wage growth rate and productivity
growth rate, where the wage growth rate is the highest of the two
11)
Unanticipated inflation can do all of these except….
a)
cause menu costs
b)
redistribute wealth from borrowers to lenders
c)
reduce the standard of living of those with fixed incomes
d)
none of the above
12)
Which of the following is not a symptom of upcoming recession?
a)
a rapid accumulation of business inventories
b)
an increase in domestic fixed non-residential investment
c)
a decline in worker-hours used in the manufacturing sector
d)
a drop in non-defense capital goods orders
13)
Which of the following statements is incorrect?
a)
in a prolonged recession labor force participation rate may decline
b)
if an unemployed worker stops looking for work due to the fact that he
perceives the probability of finding a job being very low, then that
worker becomes a discouraged worker
c)
an increase in the number of discouraged workers can cause a
reduction in the unemployment
d)
the size of the discouraged worker phenomenon is likely to decline
during the course of an economic expansion.
e)
None of the above (“at least one of the statements a-d is incorrect”)
14)
A recession in the US, all else held constant, is likely to cause
a)
an economic slowdown in China
b)
an increase in the world price of oil
c)
an increase in the US Gross Domestic Private Investment
d)
none of the above
15)
During the second half of the 1990’s inflation in the US was unusually low in
part because of
a)
very low unemployment rate
b)
stock market boom
c)
Weaknesses in other major economies (Japan, EU and etc.) and strong
US dollar
d)
none of the above
16)
Which of the following transactions will enter the GDP for the current year
a)
a purchase of a used car
b)
a purchase of stock in Ford corporation through NYSE
c)
a purchase of a 3 credit hour class from GSU
d)
none of the above
17)
Which of the following statements is incorrect?
a)
The CPI measures inflation as it is felt by an average consumer
b)
The PPI measures inflation as it is felt by an average producer
c)
A core index excludes energy and food products
d)
Inflation is measured as the rate of change in the price index, and
hence the percentage change in the CPI represents the rate of inflation
e)
Since inflation is a measure of growth in the average of all prices,
inflation is always uniform, as all sectors of the economy experience it
at the same rate
18)
Which of the following statements does not support the Keynesian Theory
a)
An economy can have a short-run equilibrium that is different from its
long-run equilibrium
b)
in the short-run an economy can experience underproduction
c)
all prices are very flexible, including input costs
d)
none of the above
19)
Which of the following statements about the treatment of housing in the GDP
computation is false?
a)
owner occupied housing will be counted in the GDP using an imputed
rent measure, and that will enter into the consumption component of
the GDP
b)
when a new house is built it enters into the GDP for the year when it
was built, into the consumption component of the GDP
c)
none of the above
20)
The last recession in the US was caused by a drop in which component of the
GDP?
a)
Consumer spending
b)
Gross Domestic Private Investment
c)
Government spending
d)
Net exports
e)
None of the above
21)
The largest component of the US GDP is
a)
Consumption spending
b)
Gross Domestic Private Investment
c)
Government Spending
d)
Net Exports
e)
Change in money supply
True/False
22)
Classical economic reasoning suggests that recessionary pressure caused by a
decline in spending will translate into inflation
23)
If an economy experiences inflation, then its nominal GDP is growing faster
than its real GDP
24)
The more uncertainty there exists about the future inflation, the less likely the
borrowers and lenders are to agree on an interest rate
25)
In the US the unemployment statistics and the employment statistics are
obtained from two different surveys, and it is possible to observe a drop in the
unemployment while the number of jobs is not increasing. An optimist could
argue that the unemployment decline takes place because the jobs are created
by newly emerging firms which are not yet included in the survey, or by selfemployed. A pessimist could argue that the reduction in the unemployment is
due to the individuals leaving the labor force.
26)
The stock market does not generate wealth but simply transfers it, and hence
fluctuations in the stock market have no real effect on the economy.
27)
Recession is defined as two or more consecutive quarters of negative growth
in nominal GDP
28)
When the unemployment rate is equal to the Natural unemployment rate, the
rate of inflation is exactly zero, all else held constant
29)
Value added is equal to the change in the value of the product as it goes
through the production stage
30)
In countries with low labor force participation rates more domestic activities
may be included in the reported GDP than in countries with high labor force
participation rates
31)
In the US every adult (16 and older) who is not disabled or institutionalized is
counted in the labor force
32)
In Keynesian view a delay in the transition of savings into investment can
cause a decline in the level of economic activity and move the economy into a
recession
33)
Classical economic thinking suggests that the economy always gravitates to,
or is operating at its capacity level
34)
The business cycle model suggests that early in the recession, right at its start,
inflation can still be on the rise since the labor market remains too tight
35)
A country that has been a net borrower of foreign capital in the past is more
likely to have the GNP level that is greater than the GDP level
Bonus (each question has the value of ½ of a standard question above): Note that if you
attempt to answer the questions below and fail to provide a correct answer, half of the
credit for each attempted question (1/4 of the credit for the standard test question) will be
deducted from your grade. A correct answer will give you a full credit for the question
(1/2 of the credit for the standard test question).
I
At the start of the 1990’s the Natural unemployment rate in the US was thought to
be around 6%. Today, many economists argue that that figure may be closer to 4.5%.
What do you think is the natural rate of inflation for the modern US economy (note, the
question asks you for the Natural rate of inflation, not Targeted by the monetary authority
rate of inflation)?
II
Just last week the Federal Funds Rate in the US was changed. What is the current
level of the Federal Funds Rate?
And as always, thanks for taking the test!