Econ152 Introduction to Macroeconomics Instructor: Leo-Rey Gordon
Exam 1 03/16/2009
Name…………………………………………..
Section 1 Multiple Choice
Instructions: Choose the best response.
1) A reason for an increase in labor productivity growth is
A) growth in the supply of labor.
B) an increase in people's human capital.
C) an increase in the population so that firms hire more workers.
D) an increase in aggregate hours.
E) a decrease in the capital stock so that firms must hire more workers
2) The commodity substitution bias is most likely to put ________ into the CPI and so ________ the inflation rate.
A) a random bias; randomly overstate or understate
B) a downward bias; understate
C) an upward bias; overstate
D) a downward bias; overstate
E) an upward bias; understate
3) The unemployment rate generally ________ during recessions and generally ________ during expansions.
A) increases; decreases
B) decreases; decreases
C) increases; does not change
D) decreases; increases
E) increases; increases
4) Where are the final goods and services produced that are included in Germany's GNP?
A) within Germany
B) anywhere, as long as they are produced using German resources
C) outside of Germany
D) anywhere, as long as they are sold to Germans
E) within Germany but only if they are produced using only German resources
5) For the purpose of calculating GDP, investment is spending on
A) stocks, bonds, and other financial assets.
B) new capital equipment, real estate and financial assets.
C) new capital equipment, and structures, including new housing.
D) capital equipment, inventories, and structures, excluding household purchases of new housing
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6) Using the information in the table above, what does net domestic product at factor cost equal?
A) $526 billion
B) $464 billion
C) $484 billion
D) $495 billion
E) $575 billion
7) If real GDP increases over time, the cost of living will
A) either remain constant or increase.
B) always decrease.
C) always remain constant.
D) always increase.
E) More information is needed to determine how the cost of living changes.
8) Which of the following is true?
A) If people expect the price of a good will rise in the future, the demand curve shifts leftward.
B) An increase in the cost of producing a good shifts the demand curve leftward.
C) If the price of a substitute rises, the demand curve shifts leftward.
D) An increase in population shifts the demand curve leftward.
E) For an inferior good, when income increases, the demand curve shifts leftward
9) Full employment is the level of unemployment that occurs
A) when frictional and structural unemployment are zero.
B) when cyclical unemployment is zero.
C) when everyone looking for a job has a job.
D) when frictional, structural, seasonal, and cyclical unemployment are zero.
E) when frictional, structural, and cyclical unemployment are zero.
10) A decrease in the price of a complement in production leads to
A) an increase in the supply of the good in question.
B) a decrease in the supply of the good in question.
C) no change in the supply of the good in question.
D) an increase in the supply of the good in question and a decrease in the quantity supplied of the good in
question.
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11) Neoclassical growth theory assumes that technological advances
A) occurs only when firms can profit from it.
B) result from chance.
C) will result in a reduction in the standard of living
D) are negative if there is a subsistence level of real income but positive otherwise.
E) will never occur.
12) The base year is 2007. A country only produces MP3 players. The price of an MP3 player in 2007 was $100. The price of an MP3 player was $90 in 2008. The quantity of MP3 players produced in 2007 was 10,000 units and in 2008 was 10,500 units. Nominal GDP in 2008 equals
A) $900,000.
B) $1,000,000.
C) $945,000.
D) $1,050,000.
E) an amount that cannot be determined without information about nominal GDP in 2008.
13) Since 1967, the number of people employed in the U.S. economy increased by almost 100 percent while the aggregate hours worked increased by only 75 percent. What explains this?
A) The number of part-time workers has increased and today is about equal to the number of full-time
workers.
B) The labor force participation rate has fallen.
C) The working-age population has increased.
D) The average hours worked per worker has decreased.
E) The unemployment rate has, on the average, increased.
14) Which of the following statements is correct about the relationship between the nominal interest rate and the real interest rate?
A) The real interest rate is the nominal interest rate times the rate of inflation.
B) The real interest rate is the nominal interest rate minus the rate of inflation.
C) The real interest rate is the nominal interest rate plus the rate of inflation.
D) The real interest rate is the nominal interest rate divided by the rate of inflation.
15) Iceland’s real GDP grows at a rate of 2.6 percent and population grows at a rate of 0.8 percent. Iceland’s real GDP per person grows at a rate of
A) 1.8 percent.
B) 2.6 percent.
C) 3.4 percent.
D) 3.0 percent.
E) 3.2 percent
16) If labor productivity is $30 per hour and there are 300 billion hours worked in a year’s time, what is real GDP?
A) 300 billion ÷ $30 = $10 billion
B) $30 × 300 billion = $9,000 billion
C) ($30 ÷ 300 billion) × 100 = $10 billion
D) (300 billion ÷ $30) × 100 = $1 trillion
E) (300 billion ÷ $30) ÷ 100 = $100 million
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17) A country reports that its actual real GDP is greater than its potential GDP. It must be that
A) an error was made when calculating actual real GDP.
B) the price level is increasing.
C) more workers decided to quit work in order to enjoy leisure time.
D) the excess by which real GDP exceeds potential GDP is only temporary and eventually real GDP will decrease to be equal to potential GDP.
E) None of the above answers
18) The Bubby Gum factory produces bubble gum. Joanne is one of the employees, and she produces 10 packs of bubble gum per hour. Joanne’s money wage rate is $12 per hour. If a packet of bubble gum sells for $1.00, then
A) Joanne is creating a $2.00 per hour loss for the firm.
B) Joanne is creating a $2.00 per hour profit for the firm.
C) the Bubby Gum company should decrease the price of the bubble gum so it sells more and makes a larger profit.
D) the Bubby Gum company should pay Joanne more.
E) The Bubby Gum company should increase its demand for labor.
19) France is considering implementing policies that will reduce the duration of job search. A possible option is for France to
A) increase the minimum wage.
B) help negotiate higher union benefits for employed workers.
C) reduce unemployment benefits.
D) require all residents between the ages of 19 and 26 to obtain a part-time or full-time job.
E) Both answers A and B are correct.
20) The unemployment rate equals
A) (number of people unemployed ÷ labor force) × 100.
B) (number of people unemployed ÷ working-age population) × 100.
C) (labor force ÷ working-age population) × 100.
D) (number of people employed - number of people unemployed) ÷ labor force × 100.
E) (number of people unemployed ÷ number of people employed) × 100.
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Section 1
Answer all Questions
1) Policy makers have been contemplating increasing the level of unemployment benefits.
Evaluate the impact of such a policy on real GDP. In your response i) Define the opportunity cost of being unemployed. (2 point) ii) If the real wage rate is $20/hr and unemployment benefits sum to $15/hr, with these numbers show how the opportunity cost of being unemployed is affected with and without unemployment benefits. That is, calculate the opportunity cost of being unemployed if there are no benefits, and calculate the opportunity cost of being unemployed if there is benefit. (2 points) iii) Describe in words and with graphs the impact of unemployment benefits on the labor market and real GDP. Your analysis should relate the labor market to the economy’s production function. (4 points)
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2) Economists support increased savings to help accumulate physical capital. i) In words and with graphs explain the impact of an increase in physical capital on real output.
Describe what happens in the labor market, and to real GDP. (4 points) ii) Extend you analysis to include your prediction on real GDP per capita based on the classical growth theory. In your response state the main assumption of the theory. Draw new graphs to show the end result. (3 points)
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