Download Midterm #1

Econ 302
Spring 2009
Midterm #1
Name:____________________
Student ID#:_______________
Do not begin the exam until you are given instructions to do so!
Part I
(30 points possible) Solve the following problem on the second page. You may
use the back of the page if necessary. Show your work where possible.
A country produces 3 goods – food, energy, and transport. Output and price information from
2008 are:
Product
Food
Energy
Transport
Price per unit
$3
$2
$6
Output
50 units
160 units
80 units
The food industry used up 10 units of transport and 20 units of energy during the production of
food. The transport industry used up 40 units of energy, and added 10 units of energy to its
inventory during 2008. The energy industry used up 20 units of transport in the production of
energy.
The food industry paid $100 in wages to foreign workers. The energy industry paid $30 of
interest on debt to foreign debt-holders. 50 units of energy were exported, and the energy
industry spent $40 on new, imported equipment to replace old, worn-out equipment.
The government purchased 10 units of food, 20 units of transport, and 30 units of energy. It
collected $300 in taxes and made $80 of transfer payments.
All output not otherwise accounted for was consumed.
1. Compute the value of final goods output in each industry, and use these to arrive at GDP.
2. What is the value of GNP?
3. Calculate the amount of investment spending.
4. Calculate C, G, and NX.
5. Define national savings (GDP plus… minus…) and calculate it. Define the uses of national
savings and show that it is equal to national savings.
Part II
paper.
(60 points possible) Select the best answer and indicate your choice clearly on the
1.
In the labor-supply, labor-demand diagram, what would cause a shift of the labor demand
curve to the right?
(i)
(ii)
(iii)
an increase in the amount of capital installed
an improvement in technology that affects the output of the firm
an increase in the number of workers seeking jobs
a.
b.
c.
d.
e.
only (i) is true.
only (ii) is true.
only (iii) is true.
both (i) and (ii) are true.
both (ii) and (iii) are true.
2.
In a closed economy, the real interest rate is above the level that sets desired national
savings equal to desired investment. The difference between the desired national savings and
desired investment is:
a.
b.
c.
d.
e.
current account surplus
excess supply of labor.
unintended investment.
current account deficit
budget deficit
3.
In the balance of payments accounting system, all transactions that a country makes that
are related to currently-produced goods and services, and result in the spending of foreign
currency are recorded as _____ items in the _____ account.
a.
b.
c.
d.
e.
minus
current
minus
capital
plus
current
plus
capital
none of the above.
4.
Variables that are measured at a point in time are called __________, and variables that
are measured as a rate per unit of time are called ________.
a.
b.
c.
d.
e.
macroeconomic
stock
stock
flow
none of the above.
microeconomic
flow
bond
stock
5.
Gross Domestic Product is not a perfect measure of a society’s overall well-being
because:
(i)
it does not place any value on the depletion of natural resources
(ii)
the boundary between what is counted as “output” (growing vegetables for sale) and not
counted as anything (growing vegetables for one’s own use) is arbitrary.
(iii) all products with the same market value are counted as equal, even if some are clearly
more important to social well-being (health care) than others (mobile phone ring tones).
(iv)
it does not attempt to measure the sustainability of any activity on the environment or on
the human or capital resources.
a.
b.
c.
d.
e.
only (ii) and (iv) are true.
only (i) and (iv) are true.
only (ii) and (iii) are true.
only (i) and (iii) are true.
(i), (ii), (iii), and (iv) are all true.
6.
On our island, we spend time building a boat that we will sell to a foreign buyer. During
2008, we built 50% of a boat, in 2009 we will complete the work and sell it. The boat is sold in
2009 for $1000. Each year we also catch $100 worth of fish and eat them, so we don’t starve.
The amount and uses of GDP in 2008 and 2009 are:
a.
2008: GDP = 600; consumption = 100, intermediate goods = 500
2009: GDP = 600; consumption = 100, net exports = 1000
b.
2008: GDP = 100; consumption = 100.
2009: GDP = 1100; consumption = 1100
d.
2008: GDP = 600; consumption = 100, investment = 500
2009: GDP = 600; consumption = 100, investment = -500, net exports = 1000
d.
2008: GDP = 100; consumption = 100.
2009: GDP = 1100; consumption = 100; net exports = 1000
e.
none of the above.
7.
The factors of production that limit how much output can be produced in a given time
with a given technology are:
a.
b.
c.
d.
e.
land, labor, and capital.
wages, rents, interest, and profits.
consumption, investment, government expenditure, and net exports.
savings and investment.
human resources.
8.
In macroeconomics we combine the efforts of doctors, plumbers, bricklayers,
accountants, and telemarketers and call it all “labor”, and disregard any effect that might come
about because these are not the same kind of labor. We combine the contribution of printing
presses, computers, cement trucks, and hospital equipment and call it all “capital”, and disregard
any effect that might come about because cement trucks and hospital equipment are really
different things. This process is called:
a.
b.
c.
d.
e.
positive economics.
intermediate goods.
aggregation.
the invisible hand.
value-added approach.
9.
"Net Factor Payments" are used to account for the:
a.
net value of services produced in one country which are purchased by citizens of another
country.
b.
net amounts paid by one country's government to re-pay loans made by another country's
government.
c.
net payments received for land, labor, or capital belonging to citizens of one country, but
used for production in another country.
d.
value of capital goods produced by one country which are exported to another country.
e.
none of the above.
10.
For a consumer who is a net saver, a rise in the real interest rate will:
a.
increase his current savings only if the substitution effect is stronger than the income
effect.
b.
increase his expected future income.
c.
increase his current savings (or make his current savings less negative).
d.
increase his current consumption spending only if the income effect is stronger than the
substitution effect.
e.
none of the above.
11.
by:
According to Okun’s Law, a 4% increase in GDP would reduce the unemployment rate
a.
b.
c.
d.
e.
4%
6%
8%
2%
3%
12.
According to US unemployment data, most unemployed people on a given date are
experiencing ______ unemployment, and most unemployment spells are ______.
a.
b.
c.
d.
e.
long duration
short duration
long duration
short duration
none of the above.
long
short
short
long
Future Income,
Spending
F
PDIef
G
H
Cd
PDIt
Present Income, Spending
13.
To demonstrate the substitution effect of an increased real interest rate in the diagram
above:
a.
b.
c.
d.
e.
the budget line would shift to the right, but have the same slope.
the budget line would shift to the left, but have the same slope.
the budget line would rotate to become steeper, through point H.
the slope of the indifference curve would become more steep.
none of the above.
14.
Assume that present and future spending are both normal goods. For a consumer who is
initially a net saver, an increase in the real interest rate will cause:
(i)
(ii)
(iii)
an increase in current savings.
a rotation of the budget line, with point G still on the new budget line
an increase in future consumption.
a.
b.
c.
d.
e.
both (i) and (ii) are true.
both (ii) and (iii) are true.
only (iii) is true.
only (i) is true.
none of the other options (a. through d.) are true.
15.
If the real wage rate is below the level which sets labor demand equal to labor supply,
there is __________.
a.
b.
c.
d.
e.
excess supply of labor.
unintended investment.
unintended disinvestment.
a current account deficit.
none of the above.
16.
Suppose an economy’s aggregate production function can be described by the equation
F(K,N) = (3/4)K + (2/3)N, where K is the use of capital services and N is the use of labor. This
production function demonstrates:
a.
b.
c.
d.
e.
decreasing returns to scale.
increasing marginal product of labor.
diminishing marginal product of capital.
constant returns to scale.
none of the above.
17.
A worker who chooses not to participate in the labor market at the prevailing real wage
chooses to participate when the real wage offered to him rises. For this worker, the substitution
effect of the rise in real wages causes him to _____, and the income effect of the rise in real
wages _____ .
a.
b.
c.
d.
e.
increase labor supply
increase labor supply
reduce labor supply
increase labor supply
reduce labor supply
increase labor supply
reduce labor supply
has no effect
has no effect
increase labor supply
18.
Suppose residents of island A own all of the capital equipment used on island B, and in
2008 receive income of 100 dollars from renting the equipment to island B. Residents of island B
provide the labor used to produce output on island A, and receive income of 250 dollars in 2008
for this labor. If these are the only net factor payments on both islands, and both islands had GDP
of 1000 dollars in 2008, then the two islands’ GNP would be:
a.
b.
c.
d.
e.
island A – 650 dollars; island B – 1350 dollars
island A – 750 dollars; island B – 1250 dollars
island A – 1150 dollars; island B – 850 dollars
island A – 850 dollars; island B – 1150 dollars
none of the above.
19.
When the amount of output a firm can produce is graphed with output on the Y axis and
amount of labor on the X axis (capital is fixed and cannot be changed in the short term), output
rises as labor rises, but the slope of the line becomes smaller (the line becomes less steep) as the
use of labor rises. This shows:
a.
b.
c.
d.
e.
diminishing marginal product of capital.
diminishing marginal product of labor.
diminishing returns to scale.
decreasing returns to scale.
none of the above.
20.
The _______ approach to measuring economic activity measures for each producer the
difference between the value of production and the value of goods purchased from other firms
that are used up in the production of the output.
a.
b.
c.
d.
e.
value-added
final goods
income
expenditure
none of the above.
Part III
(1 point possible)
The figure on the left can be divided into 2 identical shapes with a single cut, made along the line
dividing the lightly-shaded area from the dark-shaded area. The figure on the right can also be
divided into 2 identical shapes with a single cut. Show how.