NAME: ___________________________________________________________________________

VERSION A

ECON 2101 - Principles of Macroeconomics, Fall 2009 - Test 2

MULTIPLE C OICE!TF (2.5 points each) Choose the response that best answers the question or completes the statement. Read each question and alternative responses carefully. 1. People who are in the process of chan in !obs voluntarily are included in which of the followin types of unemployment" a) Frictional unemployment b) #tructural unemployment c) Cyclical unemployment d) $one of the above 2. %f the real rate of interest is 2& and the e'pected rate of inflation is (&) what is the nominal rate of interest" a) b) c) d) (. 1 percent * percent 5 percent Nom% = Real % + in lation rate +1 percent

%f consumption of te'tboo,s and flu vaccines increases by -5 million in 2../) 01P will increase because these oods are considered beneficial to society. 2owever) if consumption of porno raphy and ci arettes increases by -5 million in 2../) 01P will decrease because society will consider itself worse off than before) ceteris paribus. a) !) 3rue Fal"e

4.

%f nominal 01P increased from 2..5 to 2..*) but when real 01P was calculated we found a negative rowth rate) we can conclude that prices increased at a hi her rate than nominal 01P from 2..5 to 2..*. a) b) #rue Nom % = Real % + in lation rate 5alse

5.

3he value of privately owned corporate stoc,s and bonds traded in a iven year is6 a) !) c) d) %ncluded in the calculation of ross private domestic investment. E$clu%e% rom t&e calculation o '()* +a"n,t t&i" on t&e practice te"t-%ncluded in the consumption component of 01P. %ncluded in the calculation of disposable income.

*.

%f the Consumer Price %nde' was 1(5.5 in one year and 14..1 in the ne't year) then the rate of inflation from one year to the ne't was6 a) !) c) d) e) 4.* percent .*/ percent 01/2*131.5*5)41.5*5 /.7 percent 5.* percent $eed more information to calculate.

7.

3he 8.#. overnment reported in 9arch 2../ that there were :1.. million people not in the labor force) 154.. million in the civilian labor force) and 14../ million employed. ;ased on these numbers) how many people are counted as unemployed" a) !) c) d) e) 5/./ million. 1.*1 million* 5a!or orce 6 employe% = 15/*2 6 1/2*7 :1.. million. 7(.. million. $eed more information to calculate.

:.

Refer to the above dia ram. 3he economy is dissavin 6 a) !) c) d) at all income levels reater than E. at income le8el 9* At 9: con"umption ; income in the amount CD. at income level E.

/.

#uppose a person<s nominal income increases by :& while the price level in the economy increases by 1.&. %n this case) the person<s real income6 a) increased by 2 percent b) increased by 1: percent c) decreased by 1: percent d) "ecrease# $% 2 percent Nom % = Real % + in lation rate

1.. =ith respect to ban, loans) unanticipated inflation tends to6 a) b) c) d) &arm len%er" an% !ene it !orro<er"* harm borrowers and lenders. benefit borrowers and lenders. harm borrowers and benefit lenders.

11. >t the full+employment unemployment rate there is only6 a) b) c) %) under+employment hidden unemployment Cyclical and frictional unemployment Frictional an% "tructural unemployment =yclical i" >ERO at ull employment

12. Consumption ? disposable income @ savin . a) !) 3rue Fal"e (i"p Income = =on"umption + "a8in?"

1(. > nation has a population of 4.. million people. Af these) :. million are in the military) in institutions) or under 1* years old. 3here are 21. million who are employed and 15 million who are unemployed. =hat is the unemployment rate" a) !) c) d) e) 4.7 percent @*A percent Bnemploye% 4 5F = 15 mill 4 CC5 mill = @*A% 7.1 percent 15.: percent $one of the above.

14. %f Bdiscoura ed wor,ersB become more hopeful about their !ob prospects and decide to resume their !ob search) the unemployment rate will fall) reflectin an improvement in the nationCs economy. a) !) 3rue Fal"e ered

15. Dconomic e'pansions are enerally led by increases in investment and production) while recessions are tri by decreases in consumer activity. a) !)

3rue Fal"e =on"umption lea%" !ot& e$pan"ion an% rece""ion 6 I %i% "e8eral "li%e" on t&i" point in =& A

1*. 3he Btwin pro$lemsB of the business cycle are6 a) !) c) d) recession and unemployment. in lation an% unemployment* inflation and deflation. recession and e'pansion. #&e"e are t&e )AR#S o t&e !u"ine"" cycle* +&y i" e$pan"ion a pro!lem--

17. 5or a nationCs real 01P per capita to increase from one year to the ne't) real 01P must increase more rapidly than nominal 01P. a) !) 3rue Fal"e Real '() mu"t increa"e a"ter t&an population

1:. 3he circular flow dia ram shows6 a) t&e lo< o e$pen%iture an% income !et<een %i erent "ector" o t&e economy b) how nominal 01P is distinct from real 01P c) the effects of inflation in a simple economy d) how prices of factors of production are determined 1/. 8sin 2..5 as the base year) real 01P in 1/45 was -2).12.4 billion) and real 01P in 1/4* was -17/2.2 billion. =hat was the rate of economic rowth between 1/45 and 1/4*" a) b) c) d) e) 3 12*7 percent 01A7C*C 6 C21C*/) 4 C21C*/ + :./ percent +12.( percent 1../ percent $one of the above.

2.. 1espite some problems with equatin 01P with economic well+bein ) real 01P per capita does imply reater economic well+bein because it tends to be positively associated with hi her standards of livin and lower infant mortality rates. a) #rue b) 5alse 21. 3he economy has an annual inflation rate of (.5&. %t will ta,e appro'imately how many years for the price level to double" a) b) c) %) (. years 1. years 25 years C2 year" A24.*5

22. 3hree equivalent ways to measure 01P are total EEEEE) total EEEEE) and total EEEEEE. a) b) c) d) profitsF productionF savin . e'penditureF incomeF profits pro%uctionD incomeD e$pen%iture investmentF consumptionF savin

2(. %n calculatin the unemployment rate) part+time wor,ers are6 a) b) c) %) 3reated the same as Bdiscoura edB wor,ers who are not actively see,in employment Counted as unemployed because they are not wor,in full+time 8sed to determine the siGe of the labor force) but not the unemployment rate =ounte% a" employe% !ecau"e t&ey are recei8in? payment or <orE

24. =hich of the followin people would be considered unemployed" a) > 55+year+old steel wor,er who was laid off 1: months a o and has iven up tryin to find a !ob. b) > student who is not wor,in durin colle e but plans to loo, for a !ob after raduation in 1ecember. c) > youn man who recently received his Ph.1. but is drivin a ta'i because of an inability to find a teachin !ob. d) >ll of the above. e) None o t&e a!o8e* 25. $et e'ports is a ne ative number when6 a) !) c) d) > nationCs imports of oods and services rise A nationF" import" o ?oo%" an% "er8ice" are ?reater t&an it" e$port" > nationCs imports of oods and services fall > nationCs e'ports of oods and services are reater than its imports

2*. %n the e'pansion phase of a business cycle6 a) b) c) d) Employment an% output !ot& increa"e Dmployment increases) but output decreases 3he inflation rate and productive capacity decrease 3he inflation rate decreases) but productive capacity increases

27. =hich of the followin would increase the investment component of 8.#. 01P" a) b) c) d) (i"ney +orl% purc&a"e" tire" or t&e parEin? lot "&uttle rom a irm in O&io* Hou purchase a vacation at 1isney =orld in 5lorida. Hou purchase shares of 1isney stoc,. StocE i" NO# in '()G > 5rench man purchases a vacation at a 1isney theme par, in 5rance.

2:. =hich of the followin purchases would be included in 01P for the year 2..:" a) 0eneral 9otors stoc, sold in 2..: b) > used 2..7 car that is resold in 2..: c) A ne< car "ol% in C22H d) 3he estimated value of ille al dru transactions in 2..: 2/. Dconomists define the Bhidden unemployedB as individuals who are see,in employment in the under round economy) such as dru dealers and prostitutes) because they cannot find le itimate !obs. a) !) 3rue Fal"e 9i%%en unemploye% = %i"coura?e% <orEer" + un%eremploye%

(.. %n 1//7 the 01P price inde' was 1*..5) usin base year 1/:2. %n 2..7 the 01P price inde' was 1:/.5) also &sin' 19(2 as t)e $ase %ear* T)&s, t)e +"P price in#e, in 19(2 isa) b) c) %) e) *..5 :/.5 12/ 122 Al<ay": al<ay": al<ay" * * *&o< many time" %i% I "ay t&at-$eed more information to calculate.

(1. 0overnment e'penditures for social security and unemployment insurance are) for 01P accountin purposes) considered transfer payments) and are not included in overnment spendin as part of 01P. a) #rue b) 5alse (2. 01P ? Consumption @ Interest @ 0overnment Purchases @ (D'ports + %mports) a) 3rue !) Fal"e S&oul% !e INVES#MEN# 0I) ((. %f nominal 01P is -4)4.. billion and the 01P price inde' is 11.) then real 01P is6 a) b) c) d) e) -4):4. billion. -()/*. billion. I/:222 !illion* //2241*1 -4)4.. billion. $one of the above

(4. =or,in as an elevator operator was a common !ob in the wor,force four decades a o) but today few such !obs remain. 3he unemployment created by the introduction of automatic elevators would be considered6 a) b) c) %) Cyclical 8p and down (haI et it") 5rictional Structural 5

(5. %f prices have risen by 5& in one year) then real 01P6 a) b) c) d) must have risen by more than 5& in that same year. must have risen by less than 5& in that same year. may &a8e increa"e% or %ecrea"e% in t&at "ame year* +e %on,t Eno< &o< output &a" c&an?e% must have risen by 5& in that same year.

(*. =hich is the primary source of 8.#. economic rowth" a) b) c) %) %ncreases in the quantity of labor %ncreases in the quantity of capital Protection from forei n producers Increa"e" in pro%ucti8ity o input" Re"pon"i!le or C4. o BS economic ?ro<t&

(7. =or,ers at a television manufacturin plant were laid off because the econom% is in recession and flat+screen 3J<s aren<t sellin well. 3he company says the plant will reopen when the economy recovers. =hat type of unemployment best describes the wor,ersC situation" a) b) c) %) 5rictional unemployment. #tructural unemployment. 5ull unemployment. =yclical unemployment* Rece""ion* Ju"ine"" =K=5ES*

(:. %nflation causes both the value of money and purchasin power to decrease. a) b) #rue 5alse

(/. Refer to the above raph. >s income rises from level 2 to level () the amount of6 a) b) c) d) =on"umption increa"e" an% t&e amount o "a8in? increa"e" Consumption increases and the amount of dissavin increases Consumption decreases and the amount of savin increases Consumption increases and the amount of savin decreases

4.. 3he value of intermediate oods are e'cluded from the measurement of 01P in order to6 a) b) c) %) 9easure 01P in constant prices. #eparate durable oods from non+durable oods. #eparate e'ports from imports. A8oi% %ou!le countin?*