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Ec 102.01
Name:
17.03.2015
I. MID-TERM - KEY
Multiple choice questions: 0.8 points each
True-False questions: 0.5 points each
1. Classical economics is best characterized with which statement below?
a) The business cycle is a function of “animal spirits.”
b) Taking advantage of the division of labor through specialization leads to
economic growth.
c) Stable monetary policy is the key to steady economic growth.
d) Government intervention is required to “fine tune” the economy.
e) Government policy should be used to ensure that economic growth is
distributed evenly throughout society.
2. Which one of the following statements is FALSE?
a) Classical economists normally believe the economy should not be regulated by
governments.
b) Say’s Law states that supply creates its own demand.
c) Monetarists believe that the economy can be fine tuned by governments.
d) Fiscal policy concerns the levels of government spending and taxation.
e) The issuance of currency is an example of monetary policy.
3. Living standards growth may be achievable even in the absence of economic growth.
TRUE
FALSE
4. John Maynard Keynes believed that the key to increasing aggregate demand is to have
the government take a more active role in investment
TRUE
FALSE
5. How is the value-added approach to measuring GDP calculated?
a)
b)
c)
d)
e)
The difference between income and saving
The difference between income and investment
The difference between the selling price and the cost of intermediate inputs
The difference between the selling price and the value of wages
The difference between the selling price and profits
6. Which of the following identities defines GDP using the income approach?
a) GDP = National income – Net income payments from the foreign sector +
Depreciation
b) GDP = Household income + Business income + Government income – Net
income payments from the foreign sector
c) GDP = Personal Consumption – Net income payments from the foreign sector
+ Depreciation
d) GDP = National income – Net income payments from the foreign sector
e) GDP = Household income + Business income + Government income – Net
income payments from the foreign sector
7. Which of the following would be included in GDP for Turkey? Explain (1.5 points)
a)
The value of a glass of Italian wine sold at a Chinese restaurant in Istanbul to a
German tourist.
THE WINE WAS FIRST IMPORTED AND THEN SOLD TO A TOURIST IN
THE COUNTRY. THE VALUE OF WINE WILL NOT BE INCLUDED, BUT THE
VALUE OF SERVICE PROVIDED BY THE RESTAURANT WILL BE INCLUDED.
b)
The value of teaching offered by a Japanese teacher at Boğaziçi University.
INCLUDED, SINCE THE TEACHER EARNED HIS/HER INCOME IN A
DOMESTIC UNIVERSITY.
c)
Profit earnings of a Mavi Jeans shop located in New York that is transferred to
Turkey.
NOT INCLUDED, SINCE THE PROFIT IS EARNED OUTSIDE DOMESTIC
BORDERS.
8. The implicit price deflator is obtained by …
a) calculating a weighted average of the prices paid for a typical market basket of
goods.
b) dividing nominal GDP by the consumer price index.
c) dividing real GDP by the consumer price index.
d) dividing nominal GDP by real GDP.
e) subtracting real GDP from nominal GDP.
9. . If during 2015, the country of Atlantis recorded a GDP of $65 billion, interest payments
of $15 billion, imports of $13 billion, profits of $7 billion, investment spending of 14
billion, exports of $15 billion, and government evpenditures of $7 billion, consumption
spending during 2005 in Atlantis were
a) $64 billion
b) $36 billion
c) $42 billion
d) $34 billion
e) none of the above
10. Net national product is defined as …
a) GDP minus net foreign borrowing.
b)
c)
d)
e)
GDP minus net foreign lending.
GDP minus depreciation.
GDP minus net exports.
GDP minus investment.
11. The Table below shows the GDP per capita for Turkey for 2007 and 2008. Discuss the
change in the well-being of the people in Turkey between these two years. (3 points)
Per capita gross domestic product
Year
Nominal GDP per capita (TL)
2007
12 009
2008
13 370
THERE IS AN INCREASE IN THE NOMINAL GDP PER CAPITA, HOWEVER WE
DO NOT KNOW FROM THE INFORMATION GIVEN ABOVE WHETHER THERE
IS A REAL GDP PER CAPITA INCREASE OR NOT. THERE MAY WELL BE A
DECREASE IN THE REAL GDP.
REAL GDP IS BETTER THAN THE NOMINAL GDP, BECAUSE IT IS INFLATIONADJUSTED. HOWEVER, EVEN REAL GDP IS NOT A GOOD MEASURE OF
WELL-BEING. FOR WELL-BEING, WE NEED TO KNOW THE INCOME
DISTRIBUTION,
WORKING
CONDITIONS,
HEALTH
CONDITIONS,
ENVIRONMENTAL CIRCUMSTANCES, ETC.
12. The foreign sector does not contribute to the gross domestic product using the product
approach.
TRUE
FALSE
13. Suppose in Country A 135 million people is employed and the unemployment rate is
10%. How many people are in the labor force in this example?
a)
b)
c)
d)
e)
140 million
148.5 million
150 million
165 million
We don’t have enough information to determine the size of the labor force
14. Suppose Turkey enters a recession, what type of unemployment would be most likely
to rise as a result of the recession?
a)
b)
c)
d)
e)
Structural unemployment
Frictional unemployment
Sectoral unemployment
Cyclical unemployment
Efficiency unemployment
15. The introduction of compact discs made vinyl records obsolete. To the extent this
caused higher unemployment among workers who had manufactured records, which
type of unemployment was created?
a)
b)
c)
d)
e)
Frictional unemployment
Efficiency unemployment
Underemployment
Structural unemployment
Cyclical unemployment
16. Someone not currently working who has just entered the labor force after graduating
college and is actively seeking his or her first job would not be classified as
unemployed by TURKSTAT.
TRUE
FALSE
17. The sticky wage theory states that wages may stay at below-equilibrium levels for an
extended period of time, thus keeping unemployment high.
TRUE
FALSE
18. According to John Maynard Keynes, the key to reducing high levels of unemployment
was to …
a)
b)
c)
d)
set long-term employment contracts that eliminate uncertainty.
eliminate government intervention in the labor market.
increase aggregate demand.
create retraining programs so that unemployed workers can acquire new skills
as technology changes.
e) offer employees above-equilibrium wages to attract more workers.
19. TURKSTAT would classify women who work in family business but does not receive
any wages as employed.
TRUE
FALSE
20. “Discouraged” workers are a subset of those workers classified as not in the labor force
by TURKSTAT.
TRUE
FALSE
21. The increased flexibility in working arrangements in Turkey has been a result of the
advocacy of labor unions.
TRUE
22. If the consumer price index is 130, this means that:
a. Prices are 130 percent higher than in the base year.
b. Prices are 0.13 times higher than in the base year.
c. Prices are 30 percent higher than in the base year
FALSE
d. Nominal GNP must be inflated to determine the real GNP.
23. According to Turkish Statistical Institute, in January 2009, non-institutionalized
population of Turkey was 70.166 million people, of which 18.843 million was below
the age of 15. Of these, 23.523 million people were in the labor force and 19.873
million as employed. a. What would be the unemployment rate in this example? b. Find
the labor force participation rate. (1 point)
Non-institutionalized population (15+ age)70 166 – 18 843=51323
Labor Force: 23 523
Employed: 19 873
Unemployed: 3650
a. Unemployment rate = (Unemployed/Labor force)x 100 = (3650 / 23523) 100 = 15.5%
b. Labor force participation rate=(Labor force/Non-institutionalized pop (15+age)) 100
= (23523/51323)100 =45.8%
24. In the Classical model of the labor market there is no involuntary unemployment at the
equilibrium wage.
TRUE
FALSE
25. What is NAIRU? On which grounds do critics of NAIRU question this approach? (1
point)
NAIRU is non-accelerating inflation rate of unemployment. It is the lowest rate
of unemployment that can be sustained without causing rapidly rising inflation.
NAIRU is criticized on the grounds that it is neither constant nor measurable. It
is unlikely to have a static rate of unemployment that will last for long periods of
time, because different levels of factors affecting the workforce and employers
(such as the presence of unions and monopolies) can quickly shift this
equilibrium.
26. Suppose a simple economy produces three goods, hats, bread and books. In the first
year, 10 hats are produced and sold at 5 TL each. 30 units of bread are produced, and
sold at 1 TL, and 4 books are produced and sold at 3 TL each. In the second year, 12
hats are produced and sold for 6 TL each; 40 units of bread are produced and sold at 1
TL each, and 4 books are produced and sold at 4 TL each. Show your calculations. (2
pts)
i. What is nominal GDP in each of the two years?
Year 1: 10*5+30*1+4*3 =92 TL
Year 2: 12*6+40*1+4*4= 128 TL
ii. What is the growth rate of nominal GDP?
Nominal growth rate: ((128-92) /92)*100 =39%
iii. What is the real GDP in the second year, given that the first year is the base
year?
Real GDP second year= 12*5+40*1+4*3= 112 TL
iv. What is the growth of real GDP (in year 1 prices)?
Real growth rate: ((112-92)/92)*100= 22%