ETP Economics Midterm Examination
1.What causes the labor demand curve to shift?
(i) changes in productivity
(ii) changes in wages
(iii) changes in output prices
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. All of the above are correct.
2.If the price of airline tickets falls, what will happen to the demand curve for flight
attendants?
a. It will shift to the right.
b. It will shift to the left.
c. The direction of the shift is ambiguous.
d. It will remain unchanged.
3.If consumers demand more genetically engineered foods, then the value of genetic
engineers' marginal product of labor will
a. rise.
b. fall.
c. remain unchanged.
d. rise or fall; either is possible.
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4.The following table shows the number of calculators that can be assembled per
week by various numbers of workers. If the price per calculator in a perfectly
competitive product market is $20, how many workers would the firm employ if
the weekly wage rate is $1000?
Quantity of
Labor
0
1
2
3
Number of Calculators
Per Week
0
60
160
240
4
5
280
300
a. 1
b. 2
c. 3
d. 4
5.A profit-maximizing, competitive firm for which the marginal product of labor is
diminishing also experiences
a. a perfectly inelastic supply of labor.
b. a perfectly elastic supply of labor.
c. a downward-sloping demand for labor.
d. an upward-sloping demand for labor.
6.Consider the labor market for heath care workers, which is in equilibrium. Because
of the aging population in the United States, the output price for health care
services has increased. Holding all else equal, what effect does this have on the
labor market for health care employees?
a. The equilibrium wage increases, and the equilibrium quantity of labor
increases.
b. The equilibrium wage increases, and the equilibrium quantity of labor
decreases.
c. The equilibrium wage decreases, and the equilibrium quantity of labor
increases.
d. The equilibrium wage decreases, and the equilibrium quantity of labor
decreases.
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7.GDP is defined as the market value of all final goods and services produced
a. by the citizens of a country, regardless of where they live, in a given period
of time; this definition focuses on GDP as a measure of total income.
b. by the citizens of a country, regardless of where they live, in a given period
of time; this definition focuses on GDP as a measure of total expenditure.
c. within a country in a given period of time; this definition focuses on GDP as
a measure of total income.
d. within a country in a given period of time; this definition focuses on GDP as
a measure of total expenditure.
8. When comparing the standard of living in two countries it is important to adjust
total output for differences in:
a. time zones
b. geographic area
c. political systems
d. population
e. elevation
9. If business inventories at the beginning of the year equal $20 billion and equal $30
billion at the end of the year, then GDP will:
a. decrease by $10 billion.
b.
c.
d.
e.
increase by $10 billion.
increase by $20 billion.
increase by $30 billion.
not change.
10. Peg's Manicure Manor did 4,000 sets of nails in the year 2006 and 4,500 sets of
nails in the year 2007. The price of a set of nails was $20 in 2006 and $22 in
2007. If the year 2006 is the base year, Peg's contribution to real GDP in 2006
was _____ and in 2007 was _____.
a.
b.
c.
d.
e.
$80,000; $88,000
$80,000; $90,000
$80,000; $99,000
$88,000; $90,000
$90,000; $99,000
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11.Which one of the following transactions in a particular year is included in gross
domestic product for that year?
a. A car is produced in the previous year and remains in inventory for the entire year
under consideration.
b. Social Security payments (社會安全給付) to retirees (退休者)
c. A stay-at-home parent performs housework that the family would otherwise have
paid a maid $20,000 a year to perform.
d. The government pays a computer services company that assisted in the delivery of
Social Security payments to retirees.
12. Which of the following transactions adds to U.S. GDP for 2006?
a. In 2006, Marvin Windows manufactures 20 windows that will eventually be
installed in an office building in Minneapolis. The windows remain in
Marvin’s inventory at the end of 2006.
b. An Irish marketing consultant works in Boston during the summer of 2006
and earns $30,000 during that time.
c. When John and Jennifer were both single, they lived in separate apartments
and each paid $750 in rent. John and Jennifer got married in 2006 and they
bought a house that, according to reliable estimates, could be rented for
$1,600 per month.
d. All of the above transactions adds to GDP for 2006.
13. If Susan switches from going to Speedy Lube for an oil change to changing the oil
in her car herself, then GDP
a. necessarily rises.
b. necessarily falls.
c. will be unaffected because the same service is produced in either case.
d. will be unaffected because car maintenance is not included in GDP.
14.Darla, a Canadian citizen, works only in the United States. The value that her labor
contributes to U.S. output is
a. included in both U.S. GDP and U.S. GNP.
b. included in U.S. GDP, but it is not included in U.S. GNP.
c. included in U.S. GNP, but it is not included in U.S. GDP.
d. included in neither U.S. GDP nor U.S. GNP.
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15.An American company operates a fast food restaurant in Romania. Which of the
following statements is accurate?
a. The value of the goods and services produced by the restaurant is included in
both Romanian GDP and U.S. GDP.
b. One-half of the value of the goods and services produced by the restaurant is
included in Romanian GDP, and the other one-half of the value is included in
U.S. GDP.
c. The value of the goods and services produced by the restaurant is included in
Romanian GDP, but not in U.S. GDP.
d. The value of the goods and services produced by the restaurant is included in
U.S. GDP, but not in Romanian GDP.
16.Unlike national income, personal income
a. includes retained earnings, corporate income taxes and social insurance
contributions, and excludes interest and transfer payments received by
households from government.
b. excludes retained earnings, corporate income taxes, social insurance
contributions, and interest and transfer payments received by households
from government.
c. excludes retained earnings, corporate income taxes and social insurance
contributions, and includes interest and transfer payments received by
households from government.
d. includes retained earnings, corporate income taxes, social insurance
contributions, and interest and transfer payments received by households
from government.
17. If a U.S. citizen buys a television made in Korea by a Korean firm,
a. U.S. net exports decrease and U.S. GDP decreases.
b. U.S. net exports are unaffected and U.S. GDP decreases.
c. U.S. net exports are unaffected and U.S. GDP is unaffected.
d. U.S. net exports decrease and U.S. GDP is unaffected.
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18. The steps involved in calculating the consumer price index, in order, are as
follows:
a. Choose a base year, fix the basket, compute the inflation rate, compute the
basket's cost, and compute the index.
b. Choose a base year, find the prices, fix the basket, compute the basket's cost,
and compute the index.
c. Fix the basket, find the prices, compute the basket's cost, choose a base year
and compute the index.
d. Fix the basket, find the prices, compute the inflation rate, choose a base year
and compute the index.
19.The table below pertains to an economy with only two goods -- books and
calculators. The fixed basket consists of 5 books and 10 calculators.
Year
2006
2007
2008
Price of books
$24
30
32
Price of calculators
$8
12
15
Refer to Table. Using 2006 as the base year, the inflation rate is
a. 13.3 percent for 2007 and 14.8 percent for 2008.
b. 35 percent for 2007 and 14.8 percent for 2008.
c. 35 percent for 2007 and 55 percent for 2008.
d. 135 percent for 2007 and 155 percent for 2008.
20.Suppose the price of gasoline increases rapidly, and that consumers respond by
buying a smaller quantity of gasoline. The consumer price index
a. reflects this price increase accurately.
b. understates the price increase due to the so-called income bias.
c. overstates the price increase due to the so-called income bias.
d. overstates the price increase due to the so-called substitution bias.
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21.An important difference between the GDP deflator and the consumer price index is
that
a. the GDP deflator reflects the prices of goods and services bought by
producers, whereas the consumer price index reflects the prices of goods and
services bought by consumers.
b. the GDP deflator reflects the prices of all final goods and services produced
domestically, whereas the consumer price index reflects the prices of some
goods and services bought by consumers.
c. the GDP deflator reflects the prices of all final goods and services produced
by a nation's citizens, whereas the consumer price index reflects the prices of
final goods and services bought by consumers.
d. the GDP deflator reflects the prices of all goods and services bought by
producers and consumers, whereas the consumer price index reflects the
prices of final goods and services bought by consumers.
22.Which of the following is a determinant of productivity?
a. human capital per worker
b. physical capital per worker
c. natural resources per worker
d. All of the above are correct.
23.Suppose that over the last ten years productivity grew faster in Oceania than in
Freedonia and the population of both countries was unchanged.
a. It follows that real GDP per person must be higher in Oceania than in
Freedonia.
b. It follows that real GDP per person grew faster in Oceania than in Freedonia.
c. It follows that the standard of living must be higher in Oceania than in
Freedonia.
d. All of the above are correct.
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24.Which of the following is consistent with the catch-up effect?
a. The United States had a higher growth rate before 1900 than after.
b. After World War II the United States had lower growth rates than
war-ravaged European countries.
c. Although the United States has a relatively high level of output per person,
its growth rate is rather modest compared to some countries.
d. All of the above are correct.
25.Municipal bonds pay a relatively
a. low rate of interest because of their high-default risk and because the interest
they pay is subject to federal income tax.
b. low rate of interest because of their low-default risk and because the interest
they pay is not subject to federal income tax.
c. high rate of interest because of their high-default risk and because federal
taxes must be paid on the interest they pay.
d. high rate of interest because of their low-default risk and because the interest
they pay is not subject to federal income tax.
26.All else equal, when people become more optimistic about a company's future, the
a. supply of the stock and the price will both rise.
b. supply of the stock and the price will both fall.
c. demand for the stock and the price will both rise.
d. demand for the stock and the price will both fall.
27.According to the definitions of national saving and public saving, if Y, C, and G
remained the same, an increase in taxes would
a. raise national saving and public saving.
b. raise national saving and raise public saving.
c. leave national saving and public saving unchanged.
d. leave national saving unchanged and raise public saving.
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28.Tom buys a bond issued by Budweiser, which uses the funds to buy new
machinery for one of its breweries.
a. Tom and Budweiser are both investing.
b. Tom and Budweiser are both saving.
c. Tom is investing; Budweiser is saving.
d. Tom is saving; Budweiser is investing.
29.Other things the same, an increase in the interest rate
a. would shift the demand for loanable funds to the right.
b. would shift the demand for loanable funds to the left.
c. would increase the quantity of loanable funds demanded.
d. would decrease the quantity of loanable funds demanded.
30.If Congress instituted an investment tax credit, the interest rate would
a. rise and saving would rise.
b. fall and saving would fall.
c. rise and saving would fall.
d. fall and saving would rise.
31.Suppose that government expenditures on goods and services increase, transfers
are unchanged, and taxes rise by less than the increase in expenditures. These
changes in the government’s budget make
a. the interest rate and the equilibrium quantity of loanable funds both fall.
b. the interest rate and the equilibrium quantity of loanable funds both rise.
c. the interest rate rise and the equilibrium quantity of loanable funds fall.
d. the interest rate fall and the equilibrium quantity of loanable funds rise.
32.A change in the tax laws which increases the supply of loanable funds will have a
bigger effect on investment when
a. the demand for loanable funds is more elastic and the supply of loanable
funds is more inelastic.
b. the demand for loanable funds is more inelastic and the supply of loanable
funds is more elastic.
c. both the demand for and supply of loanable funds are more elastic.
d. both the demand for and supply of loanable funds are more inelastic.
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33.Suppose that the interest rate is 8 percent. Consider three payment options:
1. $200 today.
2. $220 one year from today.
3. $240 two years from today.
Which of the following is correct?
a. 1 has the highest present value and 2 has the lowest.
b. 2 has the highest present value and 3 has the lowest.
c. 3 has the highest present value and 1 has the lowest.
d. None of the above is correct.
34.A risk averse person
a. has a utility curve where the slope increases with wealth, and might take a bet
with a 60 percent chance of wining $100 and a 40 per chance of losing $100.
b. has a utility curve where the slope increases with wealth, and would never
take a bet with a 60 percent chance of wining $100 and a 40 per cent chance
of losing $100.
c. has a utility curve where the slope decreases with wealth, and might take a
bet with a 60 percent chance of wining $100 and a 40 per chance of losing
$100.
d. has a utility curve where the slope decreases with wealth, and would never
take a bet with a 60 percent chance of wining $100 and a 40 per cent chance
of losing $100.
35.David increases the number of companies in which he holds stocks.
a. This reduces risk's standard deviation and firm-specific risk.
b. This reduces risk's standard deviation and market risk.
c. This raises market risk, but lowers firm-specific risk. What happens to
overall risk is unclear.
d. This raises firm-specific risk, but lowers market risk. What happens to
overall risk is unclear.
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36.Jack is a full-time unpaid homemaker not currently searching for other work. Jill is
a full-time student who is not looking for a job. Who does the BLS count in the
labor force?
a. only Jack
b. only Jill
c. both Jack and Jill
d. neither Jack nor Jill
This table shows the 2003 data for males and females ages 16 and over in the
imaginary country of Meditor.
1. Not in labor force
a. male: 45 million
b. female: 35 million
2. Unemployed
a. male: 5 million
b. female: 5 million
3. Employed
a. male: 85 million
b. female: 65 million
37.Refer to Labor Stats. What is the adult unemployment rate in Meditor?
a. 4.12%
b. 6.25%
c. 11.11%
d. 12.50%
38.Refer to Labor Stats. What is the adult female labor-force participation rate in
Meditor?
a. 4.76%
b. 38.10%
c. 66.67%
d. 80.95%
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39.Unemployment that exists because it takes time for workers to search for the job
that suits them best is
a. frictional unemployment, which partly accounts for the natural rate of
unemployment.
b. frictional unemployment, which does not help account for the natural rate of
unemployment.
c. structural unemployment, which partly accounts for the natural rate of
unemployment.
d. structural unemployment, which does not help account for the natural rate of
unemployment.
40.Providing training for unemployed individuals is primarily intended to reduce
a. frictional unemployment.
b. seasonal unemployment.
c. structural unemployment.
d. cyclical unemployment.
41.Which of the following creates unemployment by keeping wages above the
equilibrium level?
a. unions but not efficiency wages.
b. efficiency wages, but not unions.
c. neither efficiency wages nor unions.
d. both efficiency wages and unions.
42.Credit card limits are included in
a. M1 but not M2.
b. M2 but not M1.
c. M1 and M2.
d. neither M1 nor M2.
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43.The Fed can increase the money supply by conducting open market
a.
b.
c.
d.
sales and raising the discount rate.
sales and lowering the discount rate.
purchases and raising the discount rate.
purchases and lowering the discount rate.
44.In a 100-percent reserve banking system, if people decided to decrease the amount
of currency they held by increasing the amount they held in checkable deposits
a. M1 would increase.
b. M1 would decrease.
c. M1 would not change.
d. M1 might rise or fall.
45.The reserve requirement ratio is 10%. Which of the following pair of changes
would both allow a bank to lend out an additional $10,000?
a. the Fed buys a $10,000 bond from the bank or someone deposits $10,000 in
the bank
b. the Fed buys a $10,000 bond from the bank or the Fed lends the bank
$10,000
c. the Fed sells a $10,000 bond to the bank or someone deposits $10,000 in the
bank
d. the Fed sells a $10,000 bond to the bank or the Fed lends the bank $10,000
46.When the Fed decreases the discount rate, banks will
a. borrow more from the Fed and lend more to the public. The money supply
increases.
b. borrow more from the Fed and lend less to the public. The money supply
decreases.
c. borrow less from the Fed and lend more to the public. The money supply
increases.
d. borrow less from the Fed and lend less to the public. The money supply
decreases.
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47.Suppose that in a country people gain more confidence in the banking system and
so hold relatively less currency and more deposits, then bank reserves will
a. decrease and the money supply will eventually decrease.
b. decrease and the money supply will eventually increase.
c. increase and the money supply will eventually decrease.
d. increase and the money supply will eventually increase.
48.If the reserve ratio increased from 10 percent to 20 percent, the money multiplier
would
a. rise from 10 to 20.
b. rise from 5 to 10.
c. fall from 10 to 5.
d. not change.
49. The labor supply curve is backward bending if the
a. substitution effect is larger than the income effect at lower wages, but the income
effect is larger than the substitution effect at higher wages.
b. income effect is larger than the substitution effect at lower wages, but the
substitution effect is larger than the income effect at higher wages.
c. income effect is larger than the substitution effect at all wages.
d. substitution effect is larger than the income effect at all wages.
50. If a firm finds that the wage rate (W) is less than the marginal revenue product
(MRP), then to maximize its profit the firm should hire
a. no more or less labor, because profits are greatest when W < MRP.
b. less labor, which will increase the MRP.
c. more labor, which will decrease the MRP.
d. more labor, because hiring more labor will increase both W and MRP until they
are equal.
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