Economics 100
Second Exam
Student name ______________________
Each of the following multiple-choice questions is worth 3 points. There are a total of 90 points on the exam. Please use a pencil to fill in the bubble sheets with the correct answers.
Please place your last name, then your first name, in the blank above and on the bubble sheet. On the bubble sheet be sure that your name is printed and the bubbles filled in with last name first.
1. Suppose that current unemployment rate is 5 percent. One hundred thousand individuals enter the labor market during the next month. Twenty thousand find jobs.
What will happen to the unemployment rate if there are no other changes? a. the unemployment rate does not change b. the unemployment rate falls c. the unemployment rate rises d. one cannot tell
2. My next door neighbor purchased two nonrefundable tickets to the Dixie Chicks for a total of $100. She can sell the tickets on eBay for a total of $300. If she and her boyfriend go to the concert, they will give up playing poker with her friends. Their cost of going to the concert is the enjoyment of poker plus: a.
zero, as she has already purchased the tickets and the price is a sunk cost. b.
$100 c.
$200 d.
$300 e.
$400
3. Suppose that the CPI has increased at an annual rate of 5 percent for the last 10 years.
Average income has increased at an annual rate of 7 percent for the last 10 years. Over that period real income has: a.
increased at an annual rate of 12 percent. b.
increased at an annual rate of 2 percent. c.
decreased at an annual rate of 12 percent. d.
decreased at an annual rate of 2 percent.
"I pledge my honor that I have neither given nor received aid on this examination."
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4. The CPI was equal to 150 in 1990. It is now equal to 200. Suppose the price of a new car is $40,000. What is the price in 1990 dollars? a.
one cannot tell without knowing the base year. b.
$40,000 c.
$30,000 d.
$20,000 e.
$15,000
5. From 1950 to 1960, suppose that GDP increased by 60 percent. The overall level of prices increased by 30 percent. Population increased by 10 percent. Real GDP per capita: a.
increased by 60 percent b.
increased by 20 percent c.
decreased by 10 percent d.
decreased by 20 percent e.
decreased by 50 percent
6. Which of the following is most likely to increase the rate of economic growth the most?
Assume that all increases are of identical amounts. a.
an increase in consumption b.
an increase in investment c.
an increase in government spending d.
an increase in exports e.
a decrease in imports
7. An increase in income in Europe with no changes in prices will do which of the following? a.
not change U.S. imports and decrease U.S. exports b.
increase U.S. imports and increase U.S. exports c.
not change U.S. imports and increase U.S. exports d.
increase U.S. imports and not change U.S. exports e.
decrease U.S. imports and not change U.S. exports
8.
A fall in spending in the economy is most likely to affect which of the following? a.
income, but not output and employment b.
output, but not income and employment c.
income and output, but not employment d.
employment, output, and income e.
employment and output, but not income
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9.
If interest rates increase what will happen to investment spending and real GDP? a.
investment spending will increase and real GDP will increase by an even larger amount. b.
investment spending will decrease and real GDP will decrease by an even larger amount. c.
investment spending will increase and real GDP will increase by an identical amount. d.
investment spending will decrease and real GDP will increase by an identical amount. e.
investment spending will not change and real GDP will increase.
10. If the demand for fuel efficient automobiles increases and at the same time changes in technology lowers the cost of producing the automobiles, which of the following will happen? a.
prices will increase b.
prices will decrease c.
prices will not change d.
one cannot tell
11. What will happen to the number of cars produced in the above question? a.
quantities will increase b.
quantities will decrease c.
quantities will not change d.
one cannot tell
12. An increase in government spending combined with no other changes will do which of the following? In an economy with high saving rates, the total change in real GDP will be a(n)
__________ and be _________than the total change in real GDP in an economy with low saving rates. a.
decrease; greater b.
decrease; less c.
the same as d.
increase; greater e.
increase; less
13. Suppose that the price levels abroad increase. What will happen to our exports and to our imports if that is the only change? Our exports will ______ and our imports will
_____. a.
increase; increase b.
increase; decrease c.
decrease; increase d.
decrease; decrease
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14.
Suppose that a government increases income taxes from 20 percent of all income to 25 percent of all income. In addition, the increases in current and future tax revenues are spent on government goods and services. What will happen as a result? a.
the spending multiplier will increase b.
the spending multiplier will decrease c.
the spending multiplier will not change d.
one cannot tell what will happen to the spending multiplier
15. What will be the effect of a decrease in the average price of houses on homeowners’ consumption spending? What will be the effect of a decrease in the average price of stocks on stockowners’ consumption spending? a.
decrease; decrease b.
decrease; no change c.
no change; decrease d.
no change; no change
(8 points)
16. What influences the level of consumption spending in an economy? Why?
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(8 points)
17. What influences the level of investment spending in an economy? Why?
(6 points)
18. What is wrong with inflation in an economy?
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(8 points)
19. Suppose that an economy is at full employment. What would you suggest is necessary for increased future growth in the economy? Why?
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(15 points)
20. Suppose that an economy is far below full employment output. Current spending is equal to current output. Government spending decreases by $50 billion. Explain the process by which the economy adjusts to an equilibrium. In the process, explain exactly what determines the size of the changes and why.
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