Homework 3
ECON 101: Principles of Economics
Due Date: June 5th 2012
1. Macroeconomists study
a. the decisions of individual households and firms.
b. the interaction between households and firms.
c. economy-wide phenomena.
d. regulations imposed on firms and unions.
2. Which of the following newspaper headlines is more closely related to what
microeconomists study than to what macroeconomists study?
a. Unemployment rate rises from 5 percent to 5.5 percent.
b. Real GDP grows by 3.1 percent in the third quarter.
c. Retail sales at stores show large gains.
d. The price of oranges rises after an early frost.
3. Gross domestic product measures
a. income and expenditures.
b. income but not expenditures.
c. expenditures but not income.
d. neither income nor expenditures.
4. For an economy as a whole, income must equal expenditure because
a. the number of firms is equal to the number of households in an economy.
b. individuals can only spend what they earn each period.
c. every dollar of spending by some buyer is a dollar of income for some seller.
d. every dollar of saving by some consumer is a dollar of spending by some other
consumer.
5. In the actual economy, goods and services are purchased by
a. households, but not firms or the government.
b. households and firms, but not the government.
c. households and the government, but not firms.
d. households, firms, and the government.
6. GDP is defined as the
a. value of all goods and services produced within a country in a given period of time.
b. value of all goods and services produced by the citizens of a country, regardless of
where they are living, in a given period of time.
c. value of all final goods and services produced within a country in a given
period of time.
d. value of all final goods and services produced by the citizens of a country,
regardless of where they are living, in a given period of time.
7. In order to include many different goods and services in an aggregate measure, GDP is
computed using, primarily,
a. values of goods and services based on surveys of consumers.
b. market prices.
c. quantities purchased by a typical urban household.
d. profits from producing goods and services.
8. If the price of a Blu-Ray Disc player is three times the price of an MP3 player, then a BlueRay Disc player contributes
a. more than three times as much to GDP as does a MP3 player.
b. less than three times as much to GDP as does a MP3 player.
c. exactly three times as much to GDP as does a MP3 player.
d. None of the above is necessarily correct.
9. Over the last few decades, Americans have chosen to cook less at home and eat more at
restaurants. This change in behavior, by itself, has
a. reduced measured GDP.
b. not affected measured GDP.
c. increased measured GDP by the value of the restaurant meals.
d. increased measured GDP by the value added by the restaurant’s preparation
and serving of the meals.
10. A professional gambler moves from a state where gambling is illegal to a state where
gambling is legal. Most of his income was, and continues to be, from gambling. His
move
a. raises GDP.
b. decreases GDP.
c. doesn't change GDP because gambling is never included in GDP.
d. doesn't change GDP because in either case his income is included.
11. Gasoline is considered a final good if it is sold by a
a. gasoline station to a bus company that operates a bus route between San Francisco
and Los Angeles.
b. pipeline operator to a gasoline station in San Francisco.
c. gasoline station to a motorist in Los Angeles.
d. All of the above are correct.
12. Grapes are considered intermediate goods
a. whether the purchaser uses them to make wine to sell or eats them.
b. if the purchaser uses them to make wine to sell others but not if the
purchaser eats them.
c. if the purchaser eats them, but not if the purchaser uses to them to make wine to
sell.
d. None of the above is correct.
13. Martin, a U.S. citizen, travels to Mexico and buys a newly manufactured motorcycle
made there. His purchase is included in
a. both Mexican GDP and U.S. GDP.
b. Mexican GDP, but it is not included in U.S. GDP.
c. U.S. GDP, but it is not included in Mexican GDP.
d. neither Mexican GDP nor U.S. GDP.
14. Which of the following items is included in U.S. GDP?
a. final goods and services that are purchased by the U.S. federal government
b. intermediate goods that are produced in the U.S. but that are unsold at the end of
the GDP accounting period
c. goods and services produced by foreign citizens working in the U.S.
d. All of the above are included in U.S. GDP.
15. The consumption component of GDP includes spending on
a. durable goods and nondurable goods, but not spending on services.
b. durable goods and services, but not spending on nondurable goods.
c. nondurable goods and services, but not spending on durable goods.
d. durable goods, nondurable goods, and services.
16. Which of the following is an example of a durable good?
a. a refrigerator
b. a quart of motor oil
c. a business suit
d. a can of soup
17. Which of the following is included in the investment component of GDP?
a. spending on new residential construction and spending on stocks and bonds
b. spending on new residential construction but not spending on stocks and
bonds
c. spending on stocks and bonds but not spending on new residential construction
d. neither spending on stocks and bonds nor spending on new residential
construction
18. A U.S. citizen buys a tea kettle manufactured in China by a company that is owned and
operated by U.S citizens. In which of the following components of U.S. GDP is this
transaction accounted for?
a. consumption and imports
b. consumption but not imports
c. imports but not consumption
d. neither consumption nor imports
19. The city of Ann Arbor Michigan buys a police car manufactured in Germany. In the GDP
accounts this transaction is included in
a. in government expenditures and exports.
b. government expenditures and imports.
c. exports, but not government expenditures.
d. imports, but not government expenditures.
20. The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a
result,
a. U.S. government purchases increase by $30,000; U.S. net exports decrease by
$30,000; and U.S. GDP is unaffected.
b. U.S. government purchases increase by $30,000; U.S. net exports are unaffected;
and U.S. GDP increases by $30,000.
c. U.S. government purchases, net exports, and GDP are unaffected.
d. U.S. government purchases are unaffected; U.S. net exports decrease by $30,000;
and U.S. GDP decreases by $30,000.
21.In the economy of Ukzten in 2010, consumption was $1000, exports were $100,
government purchases were $450, imports were $150, and investment was $350.
What was Ukzten’s GDP in 2010?
a. $1750
b. $1850
c. $1900
d. $2050
22. Table 10-2
The table below contains data for the country of Crete for the year 2010.
Total income
$5731
Household purchases of durable goods
$1108
Household purchases of nondurable goods
$702
Household purchases of non-education services
$203
Household purchases of education services
$302
Household purchases of new housing
$816
Purchases of capital equipment
$333
Inventory changes
$75
Purchases of new structures
$267
Depreciation
$401
Local government spending on goods and services
$236
State government spending on goods and services
$419
Federal government spending on goods and services
$1182
Transfer payments
$707
Foreign purchases of domestically produced goods
$217
Domestic purchases of foreign goods
$129
Refer to Table 10-2. What was Crete’s GDP in 2010?
a. $4623
b. $5731
c. $6037
d. $6839
23. Refer to Table 10-2. What was Crete’s consumption in 2010?
a. $1810
b. $2013
c. $2315
d. $3131
24. Refer to Table 10-2. What was Crete’s investment in 2010?
a. $675
b. $1090
c. $1491
d. $1793
25. Refer to Table 10-2. What were Crete’s government purchases in 2010?
a. $1130
b. $1601
c. $1837
d. $2544
26. Refer to Table 10-2. What were Crete’s net exports in 2010?
a. -$217
b. -$88
c. $88
d. $217
27. If total spending rises from one year to the next, then
a. the economy must be producing a larger output of goods and services.
b. goods and services must be selling at higher prices.
c. either the economy must be producing a larger output of goods and services,
or goods and services must be selling at higher prices, or both.
d. employment or productivity must be rising.
28. If the prices of all goods and services produced in the economy rose while the quantity
of all goods and services stayed the same, which would rise?
a. both real GDP and nominal GDP
b. real GDP but not nominal GDP
c. nominal GDP but not real GDP
d. neither nominal GDP nor real GDP
29. Which of the following statements about nominal GDP and real GDP is correct?
a. Nominal GDP is a better gauge of economic well-being than real GDP.
b. Real GDP is a better gauge of economic well-being than nominal GDP.
c. Real GDP and nominal GDP are equally good measures of economic well-being.
d. Neither nominal nor real GDP provide a measure of economic well-being.
30. The inflation rate is the
a. absolute change in real GDP from one period to another.
b. percentage change in real GDP from one period to another.
c. absolute change in the price level from one period to another.
d. percentage change in the price level from one period to another.
31. A country’s real GDP rose from 500 to 550 while its nominal GDP rose from 600 to 770.
What was this country’s inflation rate?
a. 16.7%
b. 20%
c. -14.3%
d. -20%
32. If in some year real GDP was $5 trillion and the GDP deflator was 200, what was
nominal GDP?
a. $2.5 trillion
b. $10 trillion
c. $40 trillion
d. $100 trillion
Table 10-4
The country of Caspir produces only cereal and milk. Quantities and prices of these
goods for the last several years are shown below. The base year is 2008.
Prices and Quantities
Year
Price of Cereal
Quantity of
Price of Milk
Quantity of
Cereal
Milk
2008
$4.00
90
$1.50
150
2009
$4.00
100
$2.00
180
2010
$5.00
120
$2.50
200
2011
$6.00
150
$3.50
200
33. Refer to Table 10-4. In 2008, this country’s
a. nominal GDP was greater than real GDP, and the GDP deflator was greater than
100.
b. nominal GDP was equal to real GDP, and the GDP deflator was equal to 1.
c. nominal GDP was less than real GDP, and the GDP deflator was less than 100.
d. nominal GDP was equal to real GDP, and the GDP deflator was equal to 100.
34. Refer to Table 10-4. In 2009, this country’s
a. real GDP was $660, and the GDP deflator was 113.4
b. real GDP was $670, and the GDP deflator was 115.2
c. real GDP was $660, and the GDP deflator was 115.2.
d. real GDP was $670, and the GDP deflator was 113.4.
35. Refer to Table 10-4. In 2010, this country’s
a. real GDP was $780, and the GDP deflator was 141.0.
b. real GDP was $825, and the GDP deflator was 133.3.
c. real GDP was $780, and the GDP deflator was 133.3
d. real GDP was $825, and the GDP deflator was 141.0
36. Refer to Table 10-4. In 2011, this country’s
a. real GDP was $900, and the GDP deflator was 150.2.
b. real GDP was $900, and the GDP deflator was 177.8.
c. real GDP was $1065, and the GDP deflator was 177.8.
d. real GDP was $1065, and the GDP deflator was 150.2.
37. Refer to Table 10-4. This country’s output grew
a. 29.9% from 2008 to 2009.
b. 33.3% from 2009 to 2010.
c. 24.3% from 2009 to 2010.
d. 15.4% from 2010 to 2011.
38. Refer to Table 10-4. This country’s inflation rate from 2009 to 2010 was
a. 16.4%.
b. 24.3%.
c. 41.0%.
d. 44.7%.
39. Refer to Table 10-4. This country’s inflation rate from 2010 to 2011 was
a. 15.4%.
b. 26.1%.
c. 45.5%.
d. 77.8%.
Table 10-7
The table below contains data for the country of Togogo. The base year is 1974.
Year
Nominal
GDP
GDP
Deflator
1974
$2000
100
1975
$3000
120
1976
$3750
150
1977
$6000
200
40. Refer to Table 10-7. Which of the following is not correct?
a. This economy experienced growth from 1974 to 1975.
b. This economy experienced growth from 1975 to 1976.
c. This economy experienced growth from 1976 to 1977.
d. This economy experienced inflation from 1974 to 1975, from 1975 to 1976, and
from 1976 to 1977.
41. Refer to Table 10-7. From 1975 to 1976,
a. inflation was 25% and output did not grow.
b. inflation was 25% and output grew.
c. inflation was 50% and output did not grow.
d. inflation was 50% and output grew.
42. Refer to Table 10-7. From 1976 to 1977,
a. inflation was 33.3% and output grew at a rate of 20%.
b. inflation was 33.3% and output grew at a rate of 60%.
c. inflation was 50% and output grew at a rate of 20%.
d. inflation was 50% and output grew at a rate of 60%.
43. GDP is used as the basic measure of a society's economic well-being. A better measure
of the economic well-being of individuals in society is
a. saving per person.
b. GDP per person.
c. government expenditures per person.
d. investment per business firm.
44. GDP is not a perfect measure of well-being; for example,
a. GDP incorporates a large number of non-market goods and services that are of
little value to society.
b. GDP places too much emphasis on the value of leisure.
c. GDP fails to account for the quality of the environment.
d. All of the above are correct.
45. Suppose the government passes a law eliminating holidays and, as a result, the
production of goods and services increases because people work more days per year
(and thus enjoy less leisure per year). Based on this scenario, which of the following
statements is correct?
a. GDP would definitely increase, despite the fact that GDP includes leisure.
b. GDP would definitely increase because GDP excludes leisure.
c. GDP could either increase or decrease because GDP includes leisure.
d. GDP could either increase or decrease because GDP excludes leisure.
46. Suppose the government eliminates all environmental regulations and, as a result, the
production of goods and services increases, but there is considerably more pollution.
Based on this scenario, which of the following statements is correct?
a. GDP would definitely increase, despite the fact that GDP includes environmental
quality.
b. GDP would definitely decrease because GDP includes environmental quality.
c. GDP would definitely increase because GDP excludes environmental quality.
d. GDP could either increase or decrease because GDP excludes environmental
quality.
47. Babe Ruth, the famous baseball player, earned $80,000 in 1931. Today, the best
baseball players can earn more than 400 times as much as Babe Ruth earned in 1931.
However, prices have also risen since 1931. We can conclude that
a. the best baseball players today are about 400 times better off than Babe Ruth was
in 1931.
b. because prices have also risen, the standard of living of baseball stars hasn't
changed since 1931.
c. one cannot make judgments about changes in the standard of living based on
changes in prices and changes in incomes.
d. one cannot determine whether baseball stars today enjoy a higher standard
of living than Babe Ruth did in 1931 without additional information
regarding increases in prices since 1931.
48. In the CPI, goods and services are weighted according to
a. how long a market has existed for each good or service.
b. the extent to which each good or service is regarded by the government as a
necessity.
c. how much consumers buy of each good or service.
d. the number of firms that produce and sell each good or service.
49. Between October 2001 and October 2002, the CPI in Canada rose from 116.5 to 119.8
and the CPI in Mexico rose from 93.2 to 102.3. What were the inflation rates for
Canada and Mexico over this one-year period?
a. 2.8 percent for Canada and 9.1 percent for Mexico
b. 2.8 percent for Canada and 9.8 percent for Mexico
c. 3.3 percent for Canada and 9.1 percent for Mexico
d. 3.3 percent for Canada and 9.8 percent for Mexico
Table 11-1
The table below pertains to Pieway, an economy in which the typical consumer’s
basket consists of 10 bushels of peaches and 15 bushels of pecans.
Year
Price of
Price of
Peaches
Pecans
2005 $11 per bushel
$6 per bushel
2006
$9 per bushel
$10 per bushel
50. Refer to Table 11-1. The cost of the basket in 2005 was
a. $200.
b. $210.
c. $240.
d. $245.
51. Refer to Table 11-1. The cost of the basket in 2006 was
a. $200.
b. $210.
c. $240.
d. $245.
52. Refer to Table 11-1. If 2005 is the base year, then the CPI for 2005 was
a. 83.3.
b. 100.
c. 120.
d. 200.
53. Refer to Table 11-1. If 2005 is the base year, then the CPI for 2006 was
a. 83.3.
b. 100.
c. 120.
d. 240.
54. Refer to Table 11-1. If 2006 is the base year, then the CPI for 2005 was
a. 83.3.
b. 100.
c. 120.
d. 200.
55. Refer to Table 11-1. If 2006 is the base year, then the CPI for 2006 was
a. 83.3.
b. 100.
c. 120.
d. 240.
56.
a.
b.
c.
d.
Refer to Table 11-1. If 2005 is the base year, then the inflation rate in 2006 was
16.7 percent.
20 percent.
40 percent.
44.1 percent.
57. Refer to Table 11-1. If 2006 is the base year, then the inflation rate in 2006 was
a. 16.7 percent.
b. 20 percent.
c. 40 percent.
d. 44.1 percent.
58. Assume that consumers consider rice and potatoes to be substitutes, so that when the
price of rice rises, consumers purchase less rice and more potatoes. When the CPI is
computed following the increase in the price of rice, it takes into account
a. the increase in the price of rice.
b. the decrease in the quantity of rice purchased and the increase in the quantity of
potatoes purchased.
c. Both (a) and (b) are correct.
d. None of the above is correct.
59. Babe Ruth's 1931 salary was $80,000. Government statistics show a consumer price
index of 15.2 for 1931 and 214.5 for 2009. Ruth's 1931 salary was equivalent to a
2009 salary of about
a. $5,874.
b. $822,566.
c. $1,128,947.
d. $13,560,020.
60. Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the
inflation rate is 2 percent, then after one year,
a. Sophia will have 3 percent more money, which will purchase 5 percent more
goods.
b. Sophia will have 3 percent more money, which will purchase 7 percent more
goods.
c. Sophia will have 5 percent more money, which will purchase 3 percent more
goods.
d. Sophia will have 5 percent more money, which will purchase 7 percent more
goods.
61. Who of the following is not included in the Bureau of Labor Statistics' “employed”
category?
a. those who worked in their own business
b. those who worked as unpaid workers in a family member's business
c. those waiting to be recalled to a job from which they had been laid off
d. those who were temporarily absent from work because of vacation.
62. Jai Li just lost her job, and she hasn’t yet started looking for a new one. The Bureau of
Labor Statistics counts Jai Li as
a. unemployed and in the labor force.
b. unemployed, but not in the labor force.
c. in the labor force, but not unemployed.
d. neither in the labor force nor unemployed.
63. Josh is a full-time college student who is not working or looking for a job. The Bureau of
Labor Statistics counts Josh as
a. unemployed and in the labor force.
b. unemployed, but not in the labor force.
c. in the labor force, but not unemployed.
d. neither in the labor force nor unemployed.
64. Sample Population
Person
Status
Allen
Unpaid stay at home dad. Has not looked for a job in several years.
Ben
College president.
Allison
Part-time welder. Actively looking for full time work.
Brittany
Self-employed full-time wedding singer.
Cathy
Full-time physician’s assistant.
Calvin
Retired finance professor. Last applied for work 10 weeks ago.
Diane
Laid-off fork-lift operator expecting to be recalled.
David
Works for a bicycle store. Age 70.
Evelyn
Manager of health food store.
Eli
Museum guard. Was not at work last week due to illness.
Flora
Has never been employed. Looked for a job last week.
Frank
Fired from job as an investment banker. Last looked for work three
weeks ago.
Refer to Sample Population. How many in the sample are unemployed?
a. 5
b. 4
c. 3
d. None of the above is correct.
65. Refer to Sample Population. How many in the sample are in the labor force?
a. 10
b. 9
c. 8
d. None of the above is correct.
66. Matilda just graduated from college. In order to devote all her efforts to college, she
didn’t hold a job. She is going to tour around the country on her motorcycle for a
month before she starts looking for work. Other things the same, the unemployment
rate
a. increases and the labor-force participation rate decreases.
b. and the labor-force participation rate both increase.
c. increases and the labor-force participation rate is unaffected.
d. and the labor-force participation rate are both unaffected.
67. In June 2009 the BLS reported a U.S. foreign-born population of 35.3 million. Of these,
22.7 million were employed and 1.4 million were unemployed. Based on these
numbers what were the unemployment rate and the labor-force participation rate of
the foreign-born U.S. population?
a. 1.4/35.3 and 22.7/35.3
b. 1.4/35.3 and 24.1/35.3
c. 1.4/24.1 and 22.7/24.1
d. None of the above are correct.
68. Suppose some country had an adult population of about 50 million, a labor-force
participation rate of 60 percent, and an unemployment rate of 5 percent. How many
people were unemployed?
a. 1.425 million
b. 1.5 million
c. 2.5 million
d. 5 million
Table 15-1
Labor Data for Aridia
Year
Adult population
Number of employed
Number of unemployed
2010
2000
1400
200
2011
3000
1300
600
2012
3200
1600
200
69. Refer to Table 15-1. The labor force of Aridia in 2010 was
a. 1400.
b. 1600.
c. 1800.
d. 2000.
70. Refer to Table 15-1. The labor force of Aridia in 2011 was
a. 1300.
b. 1900.
c. 2400.
d. 3000.
71. Refer to Table 15-1. The labor force of Aridia in 2012 was
a. 1600.
b. 1800.
c. 3000.
d. 3200.
72. Refer to Table 15-1. The labor force of Aridia
a. increased from 2010 to 2011 and increased from 2011 to 2012.
b. increased from 2010 to 2011 and decreased from 2011 to 2012.
c. decreased from 2010 to 2011 and increased from 2011 to 2012.
d. decreased from 2010 to 2011 and decreased from 2011 to 2012.
73. Refer to Table 15-1. The number of adults not in the labor force of Aridia in 2010 was
a. 200.
b. 400.
c. 600.
d. 1800.
74. Refer to Table 15-1. The number of adults not in the labor force of Aridia in 2011 was
a. 600.
b. 1100.
c. 1700.
d. 2400.
75. Refer to Table 15-1. The number of adults not in the labor force of Aridia in 2012 was
a. 200.
b. 1400.
c. 1600.
d. 3000.
76. Refer to Table 15-1. The number of adults not in the labor force of Aridia
a. increased from 2010 to 2011 and increased from 2011 to 2012.
b. increased from 2010 to 2011 and decreased from 2011 to 2012.
c. decreased from 2010 to 2011 and increased from 2011 to 2012.
d. decreased from 2010 to 2011 and decreased from 2011 to 2012.
77. Refer to Table 15-1. The unemployment rate of Aridia in 2010 was
a. 10%.
b. 12.5%.
c. 14.3%.
d. 80%.
78. Refer to Table 15-1. The unemployment rate of Aridia in 2011 was
a. 20%.
b. 31.6%.
c. 46.2%.
d. 63.3%.
79. Refer to Table 15-1. The unemployment rate of Aridia in 2012 was
a. 6.25%.
b. 11.1%.
c. 12.5%.
d. 56.25%.
80. Refer to Table 15-1. The unemployment rate of Aridia
a. increased from 2010 to 2011 and increased from 2011 to 2012.
b. increased from 2010 to 2011 and decreased from 2011 to 2012.
c. decreased from 2010 to 2011 and increased from 2011 to 2012.
d. decreased from 2010 to 2011 and decreased from 2011 to 2012.
81. Refer to Table 15-1. The labor-force participation rate of Aridia in 2010 was
a. 70%.
b. 77.8%.
c. 80%.
d. 87.5%.
82. Refer to Table 15-1. The labor-force participation rate of Aridia in 2011 was
a. 43.3%.
b. 54.2%.
c. 63.3%.
d. 68.4%.
83.Refer to Table 15-1. The labor-force participation rate of Aridia in 2012 was
a. 50%.
b. 53.3%.
c. 56.25%.
d. 88.9%.
84. Refer to Table 15-1. The labor-force participation rate of Aridia
a. increased from 2010 to 2011 and increased from 2011 to 2012.
b. increased from 2010 to 2011 and decreased from 2011 to 2012.
c. decreased from 2010 to 2011 and increased from 2011 to 2012.
d. decreased from 2010 to 2011 and decreased from 2011 to 2012.
85. If all workers and all jobs were the same such that all workers were equally well suited
for all jobs, then there would be no
a. cyclical unemployment.
b. frictional unemployment.
c. natural rate of unemployment.
d. structural unemployment.