ECO 230-05 Name
Exam II
Fall 2002
Rusty Smith
SECTION I: Multiple Choice (2 points each) Choose the
one best answer from the choices provided and place the letter corresponding to
that answer in the space provided to the left of the question number.
1. Gross
national product (GNP)
a. is a measure of the final market value of all final goods and
services produced by resources located within a nation minus the final
market value of all final goods and services produced by resources owned by
residents of a nation during a given year.
b. is a measure of the final market value of all final goods and
services produced by resources located within a nation during a given year
c. is directly equivalent to net national product.
d. is a measure of the final market value of all final goods and services
produced by resources owned by residents of a nation during a given year.
2. Net
exports are a positive figure when
a. a nation's imports of goods and services exceed its exports.
b. the economy's stock of capital goods is declining.
c. depreciation exceeds gross private domestic investment.
d. a nation's exports of goods and services exceed its imports.
3. Using
the expenditure approach to GDP calculation, what is actual real GDP when
consumption = $500, investment = $50, government expenditures = $100, exports =
$45, and imports = $35?
a. $660.
b. $730.
c. $650.
d. $640.
4. An
intermediate good is
a. a good that a consumer purchases and uses until they can afford
what they really want.
b. a good that is purchased by its ultimate consumer.
c. a good that can only be legally purchased by manufacturers.
d. a good that is used as an input in the production of another good
or service.
5. Say's
Law states that
a. the government should use fiscal policy in order to stabilize the
economy.
b. the aggregate supply curve is perfectly horizontal.
c. supply creates its own demand.
d. aggregate demand is inherently unstable.
6. Using
the expenditure approach, GDP is calculated by summing:
a. consumption, investment, government expenditures, and imports.
b. consumption, investment, government expenditures, and net exports.
c. profit, interest, wages, and rents.
d. consumption, depreciation, amortization, and exports.
7. The
phase of the business cycle at which real gross domestic output is at a minimum
is called
a. the trough.
b. the peak.
c. expansion.
d. recession.
8. The
"father" of the Classical school of economics is
a. John M. Keynes.
b. David Ricardo.
c. Adam Smith.
d. Thomas Keynes.
9. According
to Keynes, which of the below would be true?
a. The economy is inherently unstable.
b. Fiscal policy would only be inflationary.
c. Because wages are flexible an economy will be able to self-regulate.
d. Both “a” & “c” are true.
10. Assume the economy is experiencing an
inflationary gap. What type of fiscal
policy would a Classical economist advocate?
1.Classical
economists do not advocate the use of fiscal policy.
b. Expansionary
automatic stablizers with contractionary discretionary policy.
c. Contractionary
automatic stabilizers along with expansionary discretionary policy
d. Either “b” or
“c” would be desirable to the Classicals.
11. Jimmie is considering two jobs. All he wants to do is have the greatest
amount of purchasing power possible. He
was offered a job in Orlando, where the cost of living index is 125, earning
$50,000 per year. He was also offered a
job in Houston, where the cost of living index is 110, earning $44,000. Where should he choose to work?
a. Either job offers the same “real” wage.
b. He should work in Houston.
c. He should work in Orlando.
d. He doesn’t have enough information to decide which job offers the
higher “real” wage.
12. Which type of unemployment occurs when the
unemployed lost their jobs due to an economic downturn, but expect to be back
to work when the economy improves?
a. Cyclical
b. Frictional
c. Structural
d. Seasonal
13. Fiscal policy
a. is used to achieve specific macroeconomic goals by changing
government expenditures and taxation.
b. is used to give Americans an incentive to exercise, thus reducing
expenditures on health care.
c. is derived from the Classical economists who felt that fiscal
policy was necessary because aggregate demand could be insufficient to bring
about full employment real GDP.
d. both "a" and "c" are correct.
14. When stagflation occurs the unemployment rate and the price level .
a. increases; increases.
b. increases; decreases.
c. decreases; decreases.
d. decreases; increases.
15. Which of the following would “win” if there
was unexpected inflation?
a. Persons who save money at an interest rate less than the rate of
inflation.
b. Persons who have long-term salary contracts with COLAs.
c. Persons who borrow money at fixed interest rates less than the rate
of inflation.
d. None of the above “win” with inflation.
16. In order for an economy to officially be in a
depression
a. the unemployment rate must be twice the rate of inflation.
b. the rate of inflation must be twice the rate of unemployment.
c. real GDP must decline for at least two successive fiscal quarters.
d. there is no "official" definition of a depression.
17. Which type of unemployment does not exist when
the economy is at the natural rate of unemployment?
a. Cyclical
b. Frictional
c. Structural
d. None of the above, there is no unemployment at the natural rate of
unemployment.
18. If the economy is self-regulating, when the
economy is experiencing a recessionary gap, the economy will “correct” when
1.wage
rates rise and aggregate supply decreases in response.
2.wage
rates fall and aggregate supply decreases in response.
3.wage
rates rise and aggregate supply increases in response.
4.wage rates fall and aggregate supply increases in
response.
19. The aggregate demand curve:
a. shifts up and to the right in both Keynesian and Classical
models.
b. is perfectly vertical (in the long run) in the Keynesian model.
c. is used in macroeconomic models in showing how AD and AS determine
the price level and real GDP.
d. is characterized by all of the above.
20. Which of the following is true of a price
index?
a. The price index always = 100 in the base year.
b. A price index may overstate the actual rate of inflation.
c. A price index measures real GDP.
d. Both “a” and “b” are true.
21. A recession is officially defined as
1.8%
unemployment or higher.
2.two
successive fiscal quarters of declining real GDP.
3.less
severe than a depression but longer lasting.
4.three
successive fiscal quarters of declining real GDP.
22. Assume the CPI was 105 in
1999 & 108 in 2000. If nominal
income was $42,000 in 1999, what would nominal income have to be in 2000 for
“real” income to be the same in both years?
a. $42,000
1.$40,000
c. $43,200
d. $45,360.
23. Which of the following is the “consumption
function” discussed in class?
a. C = Yd - Savings.
b. C = a + (b*Yd).
c. Y = C + I + G + Xn.
d. C = Y - T + MPC.
24. When the MPC is .75, the MPS = :
a. .25.
b. 1.25
c. 4
d. Not enough information is present to calculate the MPS.
25. The unemployment rate
a. measures the percentage of the labor force that is officially
considered "unemployed".
b. measures the percentage of persons in the working age population
who actually participate in the labor force.
c. will increase whenever unemployed persons become discouraged
workers.
d. both “a” & “c” are true.
SECTION II Short
Answer/Problems
Use the information provided
to answer the following questions, points as indicated.
1. Identities- Briefly (but completely) define/describe five
of the following seven terms or concepts.
Write “omit” beside the two you choose not to answer. If you answer all seven, I will only grade
the first five. Use graphs if
necessary. (20 points)
Marginal Propensity to
Consume-
Frictional unemployment-
Say’s Law (and the author,
and the meaning)-
Gross Domestic Product-
Transfer Payments-
Cost-Push Inflations
(Describe and graph)-
Underemployment-
2. Define the business cycle. Identify the five parts of the business
cycle and briefly explain each of them.
Also “draw” the business cycle and label an example of each “part”. (10 points)
3.
Use the following table
to answer parts a through d. (11
points)
|
Product |
Quantity |
Price 1998 |
Price 1999 |
Price 2000 |
|
Doritos |
10 |
$1.50 |
$2.00 |
$2.00 |
|
Milk |
8 |
$2.00 |
$2.25 |
$2.50 |
|
Tacos |
12 |
$0.75 |
$1.00 |
$1.00 |
|
Twinkies |
25 |
$1.00 |
$0.80 |
$1.20 |
a) Assume the
preceding is a representative market basket and calculate the price index for
the following given years, with the base year in parenthesis.
1998
(Base=1999)-
1999
(Base=1999)-
2000
(Base=1999)-
b) Calculate the
percentage change in the price level between 1998 and 2000 and indicate if
inflation or deflation existed.
c) When price
index numbers indicate inflation they could be misleading. Explain two ways in which a price index
might be misleading and the manner in which this information might skew a price
index.
4)
Using the price index
numbers you calculated in part “a”, if your real income was $35,000 in 1998, what was
your nominal income in 1998?
5)
Assume
that real income was the same in 1998 as it was in 2000. If nominal income was $80,000 in 1998, what
was nominal income in 2000?
4.
Answer
parts "a" through "f" concerning unemployment statistics
using the following information. The
individual parts do not affect each other (forget part “c” ever happened when
answering part “d” and part “e”, etc.).
(14 points)
|
Adults |
Institutionalized |
Working |
Retired |
Not Working, but Seeking Work |
Discouraged Workers |
|
1,000 |
80 |
760 |
50 |
45 |
55 |
a. The unemployment rate is .
b. The labor force participation rate is .
c. If 20 of the discouraged workers started searching for jobs, the
unemployment rate would equal .
d. If 15 of the unemployed were to quit actively searching for
employment, the labor force participation rate would equal .
5.Assume
a liberal judge released 50 of the institutionalized people from prison. If 25 of these people searched for jobs and
25 of them became discouraged workers, the unemployment rate would
equal___________ and
the labor force participation rate would equal .
f. Fully explain
how the treatment of discouraged workers affects the validity of unemployment
statistics.
