NORTH CAROLINA CENTRAL UNIVERSITY
School of Business
ECON 2200
Practice Questions Exam 1I
Fall 2022
Date: 9/22/22
Answer key
Practice Questions for Exam 2
ECON 2200
Date: 9/22/22 (answer key)
Extra credit
1. Briefly describe two limitations of national income accounting.
Answer:
(Any two of the following):
1. GDP measures neither happiness nor welfare.
2. There are two types of measurement errors associated with GDP calculations: 1) GDP figures do
not include the underground economic activity and 2) adjusting GDP figures for inflation involves
using arbitrarily chosen base years.
2. A given basket of goods cost $600 in 2005; $800 in 2006; and $875 in 2007. Construct a price index
for all three years using 2006 as a base year.
Answer:
For 2005: (600/800) × 100 = 75.
For 2006: (800/800) × 100 = 100.
For 2007: (875/800) × 100 = 109.
3. When computer manufacturers overcame the enormous 13,000 Chinese character barrier by creating a
workable keyboard through voice and handwriting recognition, PCs became more accessible to the
Chinese. What was the predicted effect of the events on equilibrium price and quantity of PCs sold in
China?
A. Price and quantity fell.
B. Price fell and quantity rose.
C. Price rose and quantity fell.
D. Price and quantity rose.
4. Fluctuations around the long-term growth rate are called:
A. recessions.
B. depressions.
C. expansions.
D. business cycles.
5. A recession is often considered to be:
A. an economic downturn that persists for more than two consecutive quarters of the year.
B. an economic downturn that persists for more than four consecutive quarters of the year.
C. any period of more than six months in which unemployment is rising.
D. any period when the unemployment rate exceeds 6%.
6. Most economists agree that during a depression:
A. economic policy should be used to improve economic conditions.
B. economic policy is ineffective.
C. economic policy is counterproductive.
D. the demand for output is excessive.
During a depression, economic conditions are so poor that most economists agree that macroeconomic
policy should be used to improve the situation. This is not the case in many recessions.
Seee the definition of recession in the textbook.
7. Economists call the measure of GDP, after the effects of inflation have been removed:
A. nominal GDP.
B. GNP.
C. per capita GDP.
D. real GDP.
Real GDP is nominal GDP without the effects of inflation.
8. Inflation is undesirable because it:
A. always makes the nation poorer.
B. redistributes income from those who can raise prices to those who cannot.
C. distorts the information value of prices.
D. makes everyone worse off.
Inflation distorts the information value of prices by making it more difficult to identify relative price
changes. Inflation redistributes income from those who cannot raise their prices to those who do and can
raise their prices.
9. Which of the following would increase this year's GDP?
A. A mother quits her job to take care of her newborn child.
B. A commission charged by your broker when you sold 100 shares of Borden stock.
C. A $10,000 inheritance from Aunt Mary.
D. Receipts from a yard sale.
The commission that the dealer receives is a part of GDP because that is the value added as a result of an
economic activity. The others are non-market activities or transfers of financial assets and are not counted
in GDP.
The aggregate accounting identity is the accounting equality of output (production) and income.
10. Which of the following equations is the correct equation for GDP?
A. GDP = C + I + G.
B. GDP = C + I + G + X + M.
C. GDP = C + I + G - X - M.
D. GDP = C + I + G + X - M.
The sum of consumption (C), investment (I), government purchase (G), and net exports (X-M) equals
total expenditure or GDP.
11. For the purposes of calculating GDP using the expenditure approach, which of the following
payments is not included in the government purchases component?
A. social security payments.
B. the wages paid by a local government to its road crew.
C. the wages paid by a state government to the workers in its welfare department.
D. the federal government's purchase of a submarine from a shipbuilder.
Transfer payments are spent and included in consumption or saved and channeled to investment.
12. Refer to the table above. What is the economy's GDP?
A. $6.5 trillion
B. $7.1 trillion
C. $6.7 trillion
D. $6.1 trillion
GDP = Consumption + Investment + Government Purchases + Exports - Imports.
13. Real GDP can be used to accurately measure:
A. economic welfare over time.
B. the size of an economy's underground economy.
C. the change in market production over time.
D. the change in market prices over time.
Real GDP measures market activity, not human happiness, so it is not a good measure of welfare. It also
excludes price changes and the underground economy.
True/ false Questions:
14. Inflation redistributes income from people who do not raise their prices to people who do raise their
prices.
TRUE
15.1 Fill in the blanks in the table below.
Country
Nominal
GDP growth
Population
growth
Svea
5%
3%
Bonifay
2%
1%
0%
2%
7%
0%
−1%
13
Chaires
Drifton
5%
Estiffanulga
7%
%
1
3
%
Real GDP
growth per capita
Inflation
%
3%
Answer: Explanation:
The equation used in the text to calculate the real GDP per capita growth rate is:
Real GDP per capita growth rate = Nominal GDP growth rate – Inflation rate – Population growth rate
Country
Nominal
GDP growth
Population
growth
Inflation
Real GDP
growth per capita
Svea
5%
3%
5% – 3% – Inf. = –1%
Inflation = 3%
–1%
Bonifay
2%
1%
0%
2% – 1% – 0%
Real GDP = 1%
Chaires
Nom. GDP – 2% – 7% = 4%
Nom. GDP growth = 13%
2%
7%
4%
Drifton
5%
0%
−1%
5% – 0% – (–1%)
Real GDP = 6%
Estiffanulga
7%
7% – Pop. – 3% = 3%
Population = 1%
3%
3%
16. For each growth rate below, use the rule of 70 to calculate how long it will take incomes to double.
Instructions: Round your answers to one decimal place.
Years for incomes to
double
a. 4 percent
17.5 ± .1
b. 7 percent
10.0 ± .5
c. 2.5 percent
28.0 ± 1
d. 10 percent
7.0 ± .5
e. 3 percent
23.3 ± .1
revised jrl 09112012
Explanation:
To find the time to double, simply take 70 and divide by the growth rate to find the number of years to
double.
a. 4.0 percent
b. 7.0 percent
c. 2.5 percent
d. 10.0 percent
e. 3.0 percent
Years for incomes to
double
70/4 = 17.5 years
70/7 = 10.0 years
70/2.5 = 28.0 years
70/10 = 7.0 years
70/3 = 23.3 years
NORTH CAROLINA CENTRAL UNIVERSITY
School of Business
ECON 2200
Practice Questions Exam 1I
Fall 2022
Date: 9/22/22
Answer key
Practice Questions for Exam 2
ECON 2200
Date: 9/22/22
Extra credit
1. Briefly describe two limitations of national income accounting.
2. A given basket of goods cost $600 in 2005; $800 in 2006; and $875 in 2007. Construct a price index
for all three years using 2006 as a base year.
3. When computer manufacturers overcame the enormous 13,000 Chinese character barrier by creating a
workable keyboard through voice and handwriting recognition, PCs became more accessible to the
Chinese. What was the predicted effect of the events on equilibrium price and quantity of PCs sold in
China?
A. Price and quantity fell.
B. Price fell and quantity rose.
C. Price rose and quantity fell.
D. Price and quantity rose.
4. Fluctuations around the long-term growth rate are called:
A. recessions.
B. depressions.
C. expansions.
D. business cycles.
5. A recession is often considered to be:
A. an economic downturn that persists for more than two consecutive quarters of the year.
B. an economic downturn that persists for more than four consecutive quarters of the year.
C. any period of more than six months in which unemployment is rising.
D. any period when the unemployment rate exceeds 6%.
6. Most economists agree that during a depression:
A. economic policy should be used to improve economic conditions.
B. economic policy is ineffective.
C. economic policy is counterproductive.
D. the demand for output is excessive.
During a depression, economic conditions are so poor that most economists agree that macroeconomic
policy should be used to improve the situation. This is not the case in many recessions.
Seee the definition of recession in the textbook.
7. Economists call the measure of GDP, after the effects of inflation have been removed:
A. nominal GDP.
B. GNP.
C. per capita GDP.
D. real GDP.
Real GDP is nominal GDP without the effects of inflation.
8. Inflation is undesirable because it:
A. always makes the nation poorer.
B. redistributes income from those who can raise prices to those who cannot.
C. distorts the information value of prices.
D. makes everyone worse off.
Inflation distorts the information value of prices by making it more difficult to identify relative price
changes. Inflation redistributes income from those who cannot raise their prices to those who do and can
raise their prices.
9. Which of the following would increase this year's GDP?
A. A mother quits her job to take care of her newborn child.
B. A commission charged by your broker when you sold 100 shares of Borden stock.
C. A $10,000 inheritance from Aunt Mary.
D. Receipts from a yard sale.
The commission that the dealer receives is a part of GDP because that is the value added as a result of an
economic activity. The others are non-market activities or transfers of financial assets and are not counted
in GDP.
The aggregate accounting identity is the accounting equality of output (production) and income.
10. Which of the following equations is the correct equation for GDP?
A. GDP = C + I + G.
B. GDP = C + I + G + X + M.
C. GDP = C + I + G - X - M.
D. GDP = C + I + G + X - M.
The sum of consumption (C), investment (I), government purchase (G), and net exports (X-M) equals
total expenditure or GDP.
11. For the purposes of calculating GDP using the expenditure approach, which of the following
payments is not included in the government purchases component?
A. social security payments.
B. the wages paid by a local government to its road crew.
C. the wages paid by a state government to the workers in its welfare department.
D. the federal government's purchase of a submarine from a shipbuilder.
Transfer payments are spent and included in consumption or saved and channeled to investment.
12. Refer to the table above. What is the economy's GDP?
A. $6.5 trillion
B. $7.1 trillion
C. $6.7 trillion
D. $6.1 trillion
GDP = Consumption + Investment + Government Purchases + Exports - Imports.
13. Real GDP can be used to accurately measure:
A. economic welfare over time.
B. the size of an economy's underground economy.
C. the change in market production over time.
D. the change in market prices over time.
Real GDP measures market activity, not human happiness, so it is not a good measure of welfare. It also
excludes price changes and the underground economy.
True/ false Questions:
14. Inflation redistributes income from people who do not raise their prices to people who do raise their
prices.
TRUE
An example is the lender who lends money but then experiences unexpected inflation. The rate of return
on the loan is lower than desired and the borrower can repay the loan with dollars that are worth less than
before.
15.1 Fill in the blanks in the table below.
Country
Nominal
GDP growth
Population
growth
Svea
5%
3%
2%
1%
0%
2%
7%
0%
−1%
Bonifay
Chaires
Drifton
Estiffanulga
13
%
5%
7%
1
Inflation
3
%
Real GDP
growth per capita
%
3%
Answer: Explanation:
The equation used in the text to calculate the real GDP per capita growth rate is:
Real GDP per capita growth rate = Nominal GDP growth rate – Inflation rate – Population growth rate
16. For each growth rate below, use the rule of 70 to calculate how long it will take incomes to double.
Instructions: Round your answers to one decimal place.
Years for incomes to
double
a. 4 percent
17.5 ± .1
b. 7 percent
10.0 ± .5
c. 2.5 percent
28.0 ± 1
d. 10 percent
7.0 ± .5
e. 3 percent
23.3 ± .1
revised jrl 09112012