Reference no: EM131025698
Second Midterm Exam-
BINARY QUESTIONS:
1) The existence of an "underground economy" causes measured GDP to overestimate actual output.
a. True.
b. False.
2) In periods of rising prices:
a. Real GDP will grow faster than nominal GDP.
b. Nominal GDP will grow faster than real GDP.
3) At the end of 2002 the CPI (base 1990) in Spain was 156. The inflation rate in 2002 was 4%. The CPI (base 1990) at the end of 2001 was:
a. 150
b. 145
4) The Nominal Wage in Yourland was $10 at the end of 2001 and $10.5 at the end of 2002. The inflation rate was 4% in 2002. From this information, we can argue that:
a. The real wage increased during 2002.
b. The real wage decreased during 2002.
5) One of the reasons the aggregate production function shows diminishing returns to labor is that as the number of workers increases:
a. The quantity of land and capital in the economy decreases.
b. The quantity of land and capital per worker decreases.
6) Fiscal Policies in the Classical model
a. Could be quite useful when the economy is in a recession.
b. Are unnecessary, because the economy will achieve the full employment level of output and employment automatically.
7) Consider the demand for loanable funds by the businesses in the country of Simpleland. If the real interest rate is 10%, the quantity of funds demanded is $5 million. If the real interest rate decreases to 5%, the quantity of funds demanded will be:
a. More than $5 million.
b. Less than $5 million.
8) In the short-run Keynesian model, in periods of recession the economy is in disequilibrium.
a. True.
b. False.
9) Autonomous consumption is the level of household expenditure when income minus taxes is zero.
a. True.
b. False.
MULTIPLE CHOICE QUESTIONS:
10) The city of Wondertown has a population of 100,000 individuals; 60,000 of them are employed, 10,000 are unemployed and the rest are not in the labor force. Suppose that some of the employed individuals decide to accept their admission offer to the local Graduate School. Since all Graduate Programs are very hard, they quit their jobs and start devoting all of their time to study. If everything else in Wondertown remains unchanged, we can argue that:
a. The labor force participation rate does not change while the unemployment rate decreases.
b. The labor force participation rate decreases while the unemployment rate does not change.
c. The labor force participation rate decreases while the number of unemployed individuals does not change.
d. Both the labor force participation rate and the unemployment rate decrease.
answer the next question using the information below:
The demand and the supply of labor in the country of Simpleland are:
LS = 4w - 10
LD = 80 - 2w
The aggregate production function is:
Real GDP (in billions) = 60 - 2500/ 200 + Quantity of Labor
11) The real GDP corresponding to the full employment level of output is:
a. $10 billion.
b. $40 billion.
c. $50 billion.
d. $100 billion.
12) Which of the following does not affect the level of GDP in the United States?
a. Mitsubishi Corporation of America builds a car in Normal, Illinois, and ships it to Japan for sale.
b. Phoebe and Rachel quit running in Central Park and join a health club to run on treadmills.
c. Dissatisfaction with public school education has led many parents to try home schooling for their children. Hence, many parents cut back on their jobs outside the home in order to spend time teaching their children at home.
d. A mechanic purchases $70 worth of bolts to be used in his garage.
13) At the end of 2001 the nominal wage in Myland was $12.5. The inflation rate in 2002 was 5%. We also know that the real wage decreased by 4% in 2002. What is the nominal wage in Myland at the end of 2002?
a. $13.65
b. $13.50
c. $13
d. $12.60
Answer the next two questions using the information below:
Consider an economy described by the following parameters:
G=1000
X-M=50
I=1400
T=500
C=2000+0.9(Y-T)
Where G is government expenditure, (X-M) is net exports, I is the level of planned investment, T are lump-sum taxes on income, C is household consumption and (Y-T) is disposable income.
14) The level of autonomous consumption and the MPC in this economy are, respectively:
a. 2000 and 0.9.
b. 1550 and 0.9.
c. 1450 and 9.
d. 1550 and 0.1.
15) The equilibrium level of income is:
a. $35,500.
b. $40,000.
c. $30,500.
d. $40,500.
16) The reduction of structural unemployment in the United States economy may require the government to:
a. Open more job information centers.
b. Raise the minimum wage.
c. Implement an expansionary economic policy.
d. Increase spending on job training programs.
Answer the next three questions using the information below:
Consider the following information about the country of Simpleland
G = $600
T = $800
I = $1000 - 5000 iR
S = $320 + 1000 iR
(Hint: in this problem, the real interest rate is written as a decimal: e.g., if the real interest rate is 10%, it is written as iR=0.10).
17) What is the equilibrium real interest rate?
a. 4%
b. 6%
c. 8%
d. 10%
18) In equilibrium, what is the amount of injections in this economy?
a. $2,000
b. $1,500
c. $1,200
d. $1,000
19) Suppose that the government decides to increase G by $120. Assuming that aggregate income does not change, which of the following is the most plausible effect of this policy?
a. The rise in G partially crowds out private sector spending. Indeed, because of the increase in the equilibrium interest rate, private investment increases by $100.
b. The rise in G completely crowds out private sector spending. Indeed, because of the increase in the equilibrium interest rate, investment decreases by $120.
c. The rise in G partially crowds out private sector spending. Indeed, because of the increase in the equilibrium interest rate, private consumption increases by $20 and private investment decreases by $ 100.
d. The rise in G completely crowds out private sector spending. Indeed, because of the increase in the equilibrium interest rate, private consumption decreases by $20 and private investment decreases by $ 100.
20) The short-run Keynesian model is in equilibrium when:
a. There is no unemployment.
b. There is no cyclical unemployment.
c. The level of inventories is constant and equal to zero.
d. Aggregate expenditure equals aggregate production.
21) In the year 2003, a computer maker, Finecomputer, produced $50 billion worth of computers but consumers bought $60 billion from Finecomputer, $10 billion of which came from inventory stock from the previous year. According to the expenditure approach, this economic activity by Finecomputers increased GDP by:
a. $50 billion.
b. $60 billion.
c. $40 billion.
d. $10 billion.
22) Which of the following policies is most likely to push both labor productivity and economic growth?
a. The government approves a policy that offers low interest loans to firms that invest in R&D activities and capital stock accumulation. The aim of this policy is to increase the aggregate level of output at each level of employment.
b. The government approves a policy that pushes discouraged workers to enter the labor force by offering a free job searching service.
c. The government approves a fiscal policy that stimulates firms to hire new workers.
d. The government approves a reduction in college tuition that encourages a lot of young people to go to the University instead of looking for a job.
23) The CPI (base 2000) in Yourland is 120 at the end of 2002 and 126 at the end of 2003. What is the CPI (base 2002) at the end of 2003?
a. 100
b. 102.5
c. 105
d. 110
24) Productivity refers to:
a. The output produced per worker during the specified time period.
b. The worker's income growth per year.
c. GDP per capita.
d. The nation's total output divided by the total labor force.
25) Which of the following is not true? A difference between the long-run Classical Model and the short-run Keynesian Model is that:
a. While an increase in savings is always good in the long-run, it might create a recession in the short-run.
b. In the Classical Model the economy operates automatically at potential GDP while this is not true in the Keynesian model.
c. In contrast to the long-run Classical Model, in the short-run Keynesian Model there is always need for government intervention in order to maintain full employment.
d. In contrast to the Keynesian Model, in the Classical Model government policy is ineffective.
Answer the next two questions using the information below:
|
Real interest rate
(percent per year)
|
Planned Investment
(billions of
2003 dollars)
|
Private saving
(billions of
2003 dollars)
|
Net taxes
(billions of 2003 dollars)
|
Government purchases
(billions of 2003
dollars)
|
|
2
|
600
|
200
|
400
|
200
|
|
4
|
500
|
300
|
400
|
200
|
|
6
|
400
|
400
|
400
|
200
|
|
8
|
300
|
500
|
400
|
200
|
|
10
|
200
|
600
|
400
|
200
|
26) When the real interest rate is 8%, then the
a. Total supply of funds is equal to $500 billion and budget surplus is $200 billion.
b. Total supply of funds is equal to $700 billion and budget deficit is $200 billion.
c. Total supply of funds is equal to $700 billion and budget surplus is $200 billion.
d. Total supply of funds is equal to $500 billion and budget deficit is $200 billion.
27) The equilibrium interest rate is
a. 4 %
b. 6 %
c. 8 %
d. 2 %
28) In the classical view, the labor market
a. Does not experience frictional or structural unemployment.
b. Automatically achieves full employment on its own.
c. Needs government action to ensure full employment.
d. Experiences cyclical unemployment.
29) According to the Quantitative Theory of Money, which of the following situations is going to cause a generalized increase the price level?
a. Because of a change in the level of technology, the full employment level of output increased. At the same time, the Monetary Authorities decreased the amount of money in circulation, while the ratio of money to income that the public desires did not change.
b. Because of a change in the level of technology, the full employment level of output increased. The supply of money and the ratio of money to income that the public desires did not change.
c. The ratio of money to income that the public desires increased, while the full employment level of output and the supply of money did not change.
d. The Monetary Authorities increased the amount of money in circulation and, at the same time, the ratio of money to income the public desires decreased. The full employment level of output did not change.