2ndMidterm.PrinciplesofMacroeconomics.

Name___________________________________

MULTIPLECHOICE.Choosetheonealternativethatbestcompletesthestatementoranswersthequestion.
1) NominalGDPwillincrease
A) onlyifthepricelevelrises.
B) onlyifthepricelevelfalls.
C) ifeitherthepricelevelorthequantityofgoodsandservicesproducedrises(andneitherfall).
D) onlyifthequantityoffinalgoodsandservicesproducedrises.

1)

2) IfanAmericanfirmopensaproductionfacilityinIndia,thetotalvalueoftheproductionwillbe
includedinthe
A) grossnationalincomeofIndia.
B) netdomesticproductoftheU.S.
C) grossdomesticproductofIndia.
D) grossdomesticproductoftheU.S.

2)

3) ConsiderthefollowingdataonnominalGDPandrealGDP(valuesareinbillionsofdollars):

3)

Year NominalGDP RealGDP

1997
$8,318
$8,159
1998
$8,790
$8,516
1999
$9,299
$8,876
TheGDPdeflatorfor1998equals
A) 96.9.
B) 104.2.

C) 103.2.

D) 105.7.

4) RealGDPwillincrease
A) onlyifthepricelevelfalls.
B) ifeitherthepricelevelrisesorthequantityoffinalgoodsandservicesproducedrises.
C) onlyifthequantityoffinalgoodsandservicesproducedrises.
D) onlyifthepricelevelrises.

4)

Considerthefollowingdataforafictionaleconomythatproducesonlytwoproducts:orangesandshirts.
Year OrangesProduced PriceofOranges ShirtsProduced PriceofShirts
1998
1800
$0.90
100
$30
2000
2000
$1.00
110
$35
5) Refertothetableabove.RealGDPforthisfictionaleconomyfor1998using2000asthebaseyear
equals
A) $4,620.
B) $5,850.
C) $5,100.
D) $5,300.

5)

6) Refertothetableabove.NominalGDPforthisfictionaleconomyfor1998equals
A) $4,620.
B) $5,850.
C) $5,100.
D) $5,300.

6)

Considerthefollowingtableshowingthreestagesofproductionofanautomobile.
StageofProduction Seller
1
SteelMill
2
AutoManufacturer
3
AutoDealer

Buyer
AutoManufacturer
AutoDealer
Consumer

7) Refertothetableabove.Thevalueaddedbytheautomobiledealerequals
A) $7,000.
B) $25,000.
C) $18,000.

Price
$10,000
$18,000
$25,000
7)
D) $15,000.

8) Refertothetableabove.Thevalueofeachautomobileingrossdomesticproductequals
A) $18,000.
B) $7,000.
C) $15,000.
D) $25,000.

8)

9) Considerthefollowingdata(inbillionsofdollars)foraneconomy:

9)

Consumptionexpenditures
$900
Investmentexpenditures
$300
Governmentpurchases
$300
Governmenttransferpayments $400
Exports
$300
Imports
$100
Grossdomesticproduct(inbillionsofdollars)forthiseconomyequals
A) $1,700.
B) $1,400.
C) $2,200.

D) $2,100.

10) Supposethatasimpleeconomyproducesonlyfourgoodsandservices:shoes,DVDs,tomatoes,
andcatsup.Assumeonehalfofthetomatoesareusedinmakingthecatsupandtheotherhalfof
tomatoesarepurchasedbyhouseholds.

10)

Product Quantity Price

Shoes
40
$50.00
DVDs
100
25.00
Tomatoes 2,000
1.00
Catsup 300
5.00
Usingtheinformationintheabovetable,nominalGDPforthissimpleeconomyequals
A) $7,000.
B) $6,000.
C) $8,000.
D) 2,440units.
11) Forbondholders,adecreaseintheinflationrate________therealafter-taxinterestpayment
received.
A) maydecreaseormayincrease
B) doesnotchange
C) decreases
D) increases

11)

12) Supposeyouborrow$1,000ataninterestrateof12percent.Iftheexpectedrealinterestrateis5
percent,thentherateofinflationovertheupcomingyearthatwouldbemostbeneficialtoyou
wouldbearateofinflation
A) lessthan7percent.
B) equalto7percent.
C) equalto0percent.
D) greaterthan7percent.

12)

13) Therealinterestrateequalsthenominalinterestrate________theinflationrate.
A) dividedby
B) plus
C) times
D) minus

13)

14) Supposeyourgrandfatherearnedasalaryof$12,000in1961.IftheCPIis30in1961and196in
2005,thenthevalueofyourgrandfatherssalaryin2005dollarsequals
A) $40,000.
B) $23,520.
C) $62,500.
D) $78,400.

14)

Thetablebelowreportsthenominalaveragehourlyearningsinprivateindustryandtheconsumerpriceindexfor1965and
2005.
NominalAverage
CPI
Year HourlyEarnings (1982-1984=100)
1965
$2.65
32
2005
$16.15
196
15) Refertothetableabove.Therealaveragehourlyearningsfor1965in1982 -1984dollarsequal
A) $8.28.
B) $84.80.
C) $1.35.
D) $5.19.

15)

16) Assumethemarketbasketfortheconsumerpriceindexhasthreeproducts Cokes,hamburgers,

andCDswiththefollowingvaluesin2000and2006forpriceandquantity:
BaseYear
(2000)
2006
Price
Product
Quantity Price
Cokes
1000
$0.50
$0.75
Hamburgers
200
$2.00
$2.50
CDs
10
$20.00
$21.00

16)

TheConsumerPriceIndexfor2006equals
A) 93.
B) 108.

C) 75.

D) 133.

17) Whichofthefollowingwouldincreasetheunemploymentrate?
A) anincreaseinunemploymentinsurancepayments
B) adecreaseintheminimumwage
C) acutinunemploymentcompensation
D) alawmakingitillegaltoworkmorethan35hoursperweek

17)

18) Economistsconsiderfullemploymenttooccurwhen
A) frictionalunemploymentequalszero.
B) frictionalunemploymentandstructuralunemploymentequalzero.
C) allexistingunemploymentiseitherfrictionalunemploymentorstructuralunemployment.
D) everyonewhowantsajobhasajob.

18)

19) Since1950thelaborforceparticipationrateforadultmenhas________andforadultwomenhas
________.
A) increased;increased
B) decreased;decreased
C) decreased;increased
D) increased;decreased

19)

20) Supposetheworking-agepopulationofafictionaleconomyfallsintothefollowingcategories:90
areretiredorhomemakers;60havefull-timeemployment;20havepart-timeemployment;20
donothaveemployment,butareactivelylookingforemployment;and10wouldlikeemployment
butdonothaveemploymentandarenotactivelylookingforemployment.Theofficial
unemploymentrateascalculatedbytheU.S.BureauofLaborwouldequal
A) (20/60)x100.
B) (20/80)x100.
C) (20/100)x100.
D) (30/80)x100.

20)

21) IfrealGDPinasmallcountryin2005is$8billionandrealGDPinthesamecountryin2006is$8.3
billion,thegrowthrateofrealGDPbetween2005and2006
A) is3.75%.
B) is3.6%.
C) is3.0%.
D) cannotbedeterminedfromtheinformationgiven.

21)

22) AccordingtotheRuleof70,howmanyyearswillittakeforrealGDPpercapitatodoublewhen
thegrowthrateofrealGDPpercapitais5%?
A) lessthan1year
B) 14years
C) 5years
D) 35years

22)

23) Inadditiontomatchinghouseholdsthathaveexcessfundswithfirmsthatwanttoborrowfunds,
whatthreekeyservicesdoesthefinancialsystemprovideforsaversandborrowers?
A) highrisk,highprofit,andlowsavings
B) risk-sharing,liquidity,andinformation
C) information,profit,andinterest
D) bonds,stocks,andmutualfunds

23)

24) Ifgovernmentsavingisnegative,then
A) T>TR.
B) Y+TR< C- T.

24)
C) T- TR< G.

D) G>T.

25) Theresponseoffirminvestmenttoanincreaseinthegovernmentbudgetdeficitiscalled
A) privatedissaving.
B) incomeminusnettaxes.
C) expansionaryinvestment.
D) crowdingout.

25)

26) Howwouldyouexpectachangefromanincometaxtoaconsumptiontaxtoaffectthesupplyof
loanablefunds?
A) Thesupplyofloanablefundswouldbecomesteeper.
B) Thesupplyofloanablefundswoulddecrease.
C) Thesupplyofloanablefundswouldbeunaffected.
D) Thesupplyofloanablefundswouldincrease.

26)

27) Whichofthefollowingwouldencourageeconomicgrowththroughincreasesinthecapitalstock?
A) adecreaseinthegovernmentdeficit
B) anincreaseinhouseholdsavings
C) achangefromanincometaxtoaconsumptiontax
D) alloftheabove

27)

28) Inflationtendsto________duringtheexpansionphaseofthebusinesscycleand________during
therecessionphaseofthebusinesscycle.
A) decrease;increase
B) increase;decrease
C) increase;increasefurther
D) decrease;decreasefurther

28)

29) Whentheeconomyentersarecessionaryphaseofthebusinesscycle,unemploymenttendsto
A) beunchanged.
B) increase.
C) decrease.
D) changeinthesamedirectionastherateofinflation.

29)

30) Duringtheexpansionphaseofthebusinesscycle,whichofthefollowingeventuallyincreases?
A) employment
B) production
C) income
D) alloftheabove

30)

31) GrowthinrealGDPpercapitafortheworldeconomywasgreatestduring
A) thenineteenthcentury.
B) theeighteenthcentury.
C) thetwentiethcentury.
D) theseventeenthcentury.

31)

32) Supposethatanincreaseincapitalperhourworkedfrom$15,000to$20,000increasesrealGDP
perhourworkedby$500.Ifcapitalperhourworkedincreasesfurtherto$25,000,byhowmuch
wouldyouexpectrealGDPperhourworkedtoincreaseiftherearediminishingreturns?
B) bylessthan$500
A) byexactly$500
C) bymorethan$5,000butlessthan$20,000
D) bymorethan$500butlessthan$5,000

32)

33) Becauseofdiminishingreturns,aneconomycancontinuetoincreaserealGDPperhourworked
onlyif
A) thereistechnologicalchange.
B) therecontinuetobedecreasesincapitalperhourworked.
C) therearedecreasesinhumancapital.
D) theper-workerproductionfunctionshiftsdownward.

33)

34) Whenaneconomyfacesdiminishingreturns,
A) theper-workerproductionfunctionshiftstotheright.
B) theslopeoftheper-workerproductionfunctionbecomesflatterasoutputincreases.
C) theslopeoftheper-workerproductionfunctionbecomessteeperasoutputincreases.
D) theper-workerproductionfunctionshiftstotheleft.

34)

35) Governmentprovisionofwhichofthefollowingwouldhelpincreasetheaccumulationof
knowledgecapital?
A) copyrights
B) patents
C) educationsubsidies
D) Alloftheabovearecorrect.

35)

36) Apatentgrantsaninventorexclusiverightstoaproductforhowlong?
A) theliftetimeoftheproduct
B) 14years
C) 17years
D) 20years

36)

37) Basedonthecatch-uplinedrawnabove,poorercountriesaremorelikelytobeatapointlike
________,wheregrowthinGDPisrelatively________,whilerichercountriesaremorelikelytobe
atapointlike________,wheregrowthinGDPisrelatively________.
C) B;low;A;high
D) A;low;B;high
A) A;high;B;low
B) B;high;A;low

37)

38) Whichofthefollowingcanexplainwhysomecountrieshavenotexperiencedrelativelyhigh
growthratesinrealGDPpercapitadespiterelativelylowinitiallevelsofrealGDPpercapita?
A) Manyofthesedevelopingcountriesdonothaveafunctioningcourtsystemthatcanenforce
laws.
B) Countriesthatarerelativelypoorarelikelytohavealowerqualityofhealthcare.
C) Countriesthatarerelativelypooraremorelikelytoexperiencewarsandrevolutions.
D) alloftheabove

38)

39) Thepurchaseorbuildingbyacorporationofafacilityinaforeigncountryiscalled
A) foreigndirectinvestment.
B) globally-directedinvestment
C) foreignportfolioinvestment.
D) foreigncapitaldepreciation.

39)

40) Thepurchasebyanindividualorfirmofstockorbondsissuedinanothercountryiscalled
A) globalstockexchange.
B) foreignexchangearbitrage.
C) foreigndirectinvestment.
D) foreignportfolioinvestment.

40)

AnswerKey
Testname:UNTITLED1

1) C
2) C
3) C
4) C
5) D
6) A
7) A
8) D
9) A
10) A
11) D
12) D
13) D
14) D
15) A
16) D
17) A
18) C
19) C
20) C
21) A
22) B
23) B
24) C
25) D
26) D
27) D
28) B
29) B
30) D
31) C
32) B
33) A
34) B
35) D
36) D
37) A
38) D
39) A
40) D