Download Practice Test 1

Practice Test 1
1. Gross domestic product in the economy is measured by the
A) total number of goods and services produced in the economy.
B) dollar value of all final goods and services produced in the economy.
C) total number of goods produced in the economy.
D) total number of services produced in the economy.
2. A final good is one that
A) is used in the production of another good.
B) is a natural resource used to produce a good.
C) is purchased as an input in the production process.
D) is purchased by its final user.
3. How are intermediate goods treated in the calculation of GDP?
A) Their value is not counted separately, but included as part of the value of the final
good for which they are an input.
B) Their value is counted separately, and their value is also included as part of the value
of the final good for which they are an input.
C) They are included in the year that they are produced.
D) They are included only if they are imported.
4. A car that is produced in 2007 is not sold until 2008. According to the definition of GDP, in
which year's GDP should it be counted?
A) 2007
B) 2008
C) Half of the sales price will count as part of 2007 GDP and half will count as part of
2008 GDP.
D) The production cost will count as part of 2007 GDP while the sales price will count
as part of 2008 GDP.
5. Investment spending includes spending on
A) stocks
B) food
C) changes in business inventories
D) transfer payments
6. Which of the following is considered a durable good?
A) medical care
B) clothing
C) food
D) a washing machine
7. Government spending ______________ is included in gross domestic product.
A) at federal, state, and local levels of government
B) at the federal level of government only
C) at state and local levels of government only
D) on defense goods only
8. Consumption spending is $4.5 billion, gross private domestic investment is $3 billion, and
government expenditures are $2 billion. If GDP is $14 billion, which of the following could
be true regarding exports and imports in the economy?
A) Exports are $4.5 billion, and imports are $2 billion.
B) Exports are $6 billion, and imports are $8.5 billion.
C) Exports are $9 billion, and imports are $6 billion.
D) Exports are $15 billion, and imports are $10.5 billion.
9.
Product
Coke
iPods
Backpacks
Hershey bars
Quantity
10,000
2,000
4,000
8,000
Price Per Unit
$2
$150
$25
$1
Consider the table of production and price statistics for a small economy in 2008. If the economy
only produces the four goods listed below, what is GDP for 2008?
A) $428,000
B) $1,424
C) $267,000
D) $24,000
10. The balance sheet of a commercial bank reads as follows:
Assets
Liabilities and Net Worth
1. reserves
$15 million
2. property and equipment $40 million
1. demand deposits $ 20 million
2. capital stock
$ 35 million
If the reserve ratio is 15 percent, the amount of excess reserves for this bank is:
A. $3 million.
B. $5 million.
C. $17 million.
D. $ 12 million.
11. The measure of production that values production using current prices is called
A) value added GDP.
B) nominal GDP.
C) real GDP.
D) underground GDP.
12. The measure of production that values output using base year prices is called
A) real GDP.
B) nominal GDP.
C) value added GDP.
D) underground GDP.
13.
2004
2005
Nominal GDP
$10,000
$12,000
Real GDP
$9,500
$10,500
Given the information above, what can we say has happened in the economy from 2004 and
2005?
A) The price level has fallen.
B) The price level has risen.
C) The price level has remained constant.
D) Not enough information is available to determine what has happened to prices.
14.
Nominal GDP
Real GDP
2004
$10,000
$9,500
2005
$12,000
$10,500
Given the information above, calculate the GDP deflator in 2004.
A) 87
B) 114
C) 95
D) 105
15. Which of the following would reduce the labor force participation rate, all else equal?
A) an increase in the number of people in the labor force
B) an increase in the unemployment rate
C) a decrease in the unemployment rate
D) an increase in the working-age population
16. If the number employed is 190 million, the working age population is 230 million, and the
number unemployed is 10 million, then the unemployment rate is
A) 5%
B) 10%
C) 50%,
D) 5.2%
E) 8%
17. Jack just received a promotion at work and now works 50 hours per week instead of 35. As a
result,
A) the unemployment rate increased.
B) the unemployment rate decreased.
C) the labor force participation rate increased.
D) neither the unemployment rate nor the labor force participation rate changed.
18. Workers laid off as a result of a recession suffer
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) seasonal unemployment.
E) natural unemployment.
19. Jack just told his boss that he thinks his boss is an idiot. It is likely that Jack will be
experiencing ___________ unemployment in the near future.
A) permanent
B) cyclical
C) frictional
D) structural
20. Refer to the following figure.
Based on the graph of the labor market above, if a minimum wage is set at $5 per hour, which of
the following will occur?
A) The unemployment rate will rise.
B) The unemployment rate will fall.
C) The level of unemployment will rise, but the percentage of the labor force
unemployed will not change.
D) None of the above will occur.
21.
Year
2004
2005
CPI
(1982 – 1984 = 100)
$100
$120
Suppose that the data in the table above reflects the prices in the economy. What is the inflation
rate in between 2004 and 2005?
A) 2%
B) 5%
C) 20%
D) 10%
E) 12%
22. If your nominal wage rises more slowly than the price level then we can say your real wage
has ________ and the purchasing power of a dollar has __________.
A) fallen; fallen
B) fallen; risen
C) risen; risen
D) risen; fallen
23. If the nominal interest rate is 6% and the inflation rate is 9%, then the real interest rate is
A) 3%
B) -3%
C) 15%
D) 6.67%
24. You borrow $10,000 from a bank for one year at a nominal interest rate of 5%. The CPI over
that year rises from 180 to 200. What is the real interest rate you are paying?
A) 5%
B) -1.1%
C) 15%
D) -6.1%
Answer:
1. B
2. D
3. A
4. A
5. C
6. D
7. A
8. D
9. A
10. D
11. B
12. A
13. B
14. D
15. D
16. A
17. D
18. C
19. C
20. D
21. C
22. A
23. B
24. D