Chapter 4,5,6,7 PDF

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Practice Exam for Midterm...

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1. Sam, who is 55 years old and has been a steelworker for 30 years, is unemployed because the steel plant in his town closed and moved to Mexico. Sam is experiencing: A) cyclical unemployment. B)

permanent unemployment.

C)

frictional unemployment.

D) structural unemployment.

2. Which of the following lending agreements represents the highest rate of return for a bank when it lends its money to a customer? A) a fixed interest rate of 8% with 1% inflation B)

a fixed interest rate of 11% with 5% inflation

C)

a fixed interest rate of 12% with 7% inflation

D) a fixed interest rate of 19% with 15% inflation

3. A survey reveals that on a small island initially 40 people have jobs, 10 people are looking for jobs, and 30 people are neither working nor looking for work. Suppose that 10 of the 30 people who weren't looking for work now begin looking for work. There are now 20 people looking for work and 40 people working. What happens to the unemployment rate? A) It rises to 33.3%. B)

It rises to 50%.

C)

It falls to 25%.

D) Nothing happens to the unemployment rate, because these people weren't working before and they aren't working now. 4. Last week Stephanie quit her job as a copywriter at an advertising agency. She has spent the past few days browsing the help wanted ads but hasn't found anything that matches her skills. Stephanie is best classified as: A) structurally unemployed. B)

frictionally unemployed.

C)

a discouraged worker.

D) out of the labor force.

5. Since the 1960s, nations like South Korea have been a part of the so-called East Asian economic miracle because: A) high rates of human capital growth have offset slow savings rates. B)

of high rates of national savings that offset the slower rate of technological progress. C) of high savings rates, greater quantities of physical capital per worker, and slower growth of human capital. D) of the combination of rapid technological progress, high savings rates, and rapid improvement in human capital.

6. The role of the government can explain growth differences among countries. All of the following are government actions that contribute to differences in growth EXCEPT: A) an active government role in building infrastructure. B)

significant cost sharing by the government for higher education.

C)

excessive government intervention in business practices and licensing.

D) pronounced emphasis on research and development projects.

7. Suppose that a bank wishes to make a 5% rate of return on a one-year loan but expects that inflation over the course of the loan will be roughly 3%. Which of the following is TRUE? A) As long as the bank charges a nominal interest rate of at least 5%, it will earn its expected return. B) If the bank charges an interest rate of 8% or higher, this will guarantee it to earn the expected return. C) If the bank charges 8% and the inflation rate is less than 3%, then the bank will have earned a larger rate of return than expected. D) If the bank charges 8% and the inflation rate is more than 3%, then the bank will have earned a larger rate of return than expected. 8. All else equal, a nation that has a high rate of ____ will have a high rate of _____ and therefore a higher growth rate of _____ capital. A) investment; savings; human B)

savings; investment; natural

C)

savings; investment; physical

D) savings; consumption; physical

9. Productivity declines when: A) the number of hours worked exceeds the number of workers. B)

population growth exceeds real GDP growth.

C)

the ratio of adult civilians employed outside the home rises.

D) real GDP growth exceeds the population growth.

10. In an open economy where government spending was $30 billion, consumption was $70 billion, taxes were $20 billion, and GDP was $100 billion this year, investment spending was $10 billion. As a result, there was: A) a net capital inflow of $10 billion. B)

capital inflows of $10 billion and capital outflows of $20 billion.

C)

a trade surplus of $20 billion and a financial deficit of $20 billion.

D) a net capital outflow of $10 billion.

11. All of the following scenarios are associated with government budget deficits EXCEPT: A) The government becomes a borrower in the market for loanable funds. B)

The interest rate rises.

C)

The total amount of borrowing decreases.

D) Private investment spending is crowded out.

12. Which one of the following transactions is included in a current year's GDP as investment spending? A) ABC company purchased 10,000 shares of IBM stock. B)

Ronnie bought a new BMW.

C)

Anton purchased his friend's condo.

D) Maggie bought a play-gym set for her day-care business.

13. All other things unchanged, a general decrease in the amount of government borrowing will typically: A) have no effect on the demand for loanable funds. B)

increase interest rates.

C)

shift the loanable funds demand curve to the left.

D) raise the level of demand for loanable funds.

14. In financial markets: A) households sell liabilities. B)

wealth is transformed into savings.

C)

households purchase financial assets.

D) physical assets exchange hands.

15. Which of the following would NOT be considered a government transfer? A) unemployment compensation B)

food stamps

C)

payments by the Defense Department for a new weapons system

D) Medicare benefits paid to someone who is indigent

16. The Boeing Company buys $3 million worth of steel, $2.5 million worth of computer hardware and software, and $1 million worth of mechanical tools to manufacture a certain model of aircraft. Boeing sells this particular model of aircraft at $10 million. The value added by Boeing is equal to: A) $3.5 million. B)

$16.5 million.

C)

$13 million.

D) $15.5 million.

17. Which of the following would NOT be included in this year's GDP? A) the production of a television show B)

the purchase of a new hybrid truck

C)

the hiring of a new school teacher

D) your purchase of your neighbor's house, which was built in 1994

18. Suppose that a doctor who lives alone hires the services of a maid and pays her $15,000 a year to clean his house. Suppose that he marries her the following year. Other things equal, which of the following would be true about the reported official GDP the following year? A) It would rise. B)

It would fall.

C)

It would stay the same.

D) There is not enough information to evaluate the impact that it would have on GDP.

19. Which of the following transactions would be included in the nation's gross domestic product? A) A college student buys a used textbook from his roommate. B)

A construction company purchases lumber to use in building a new house.

C)

A college student has a pizza delivered to her dorm room.

D) A group of college students volunteer to rake leaves at an assisted living facility for senior citizens.

20. Which of the following is TRUE concerning interest rates? A) The nominal interest rate can be negative. B)

The real interest rate cannot be negative.

C)

The real interest rate can only be positive.

D) The real interest rate can be zero, positive, or negative.

21. Over the past year, Eli has been working very hard. His employer has taken notice and is giving Eli a 6% raise in salary. During this past year, overall prices in the economy have increased by 4%. Given this information, Eli's real wage has: A) stayed constant. B)

increased by 6%.

C)

increased by 2%.

D) decreased by 4%.

22. Unemployment is at its natural level if there is no: A) unemployment. B)

frictional unemployment.

C)

structural employment.

D) cyclical unemployment.

23. The formula for the rule of 70, where n is number of years and r is growth rate, is expressed as: A) n × 70 = r. B)

n ÷ r = 70.

C)

r ÷ n = 70.

D) n × r = 70.

24. According to the rule of 70, if a country's real GDP per capita grows at an annual rate of 2% instead of 3%, it will take _____ for that country to double its level of real GDP per capita. A) 35 additional years B)

11.67 additional years

C)

23.3 additional years

D) 30 additional years

25. Which of the following will NOT increase labor's productivity? A) education B)

technology

C)

new capital

D) growth in the population

26. Growth accounting estimates the: A) increase in the population rate over time. B)

increase in the inflation rate over time.

C)

contribution of each major factor in the aggregate production function to economic growth. D) contribution of the technology factor in the aggregate production function to economic growth. 27. Roads, telephone lines, power facilities, and schools are examples of a nation's: A) technostructure. B)

infrastructure.

C)

physiostructure.

D) sociostructure.

28. You are given information on the consumer price index (CPI), where the values given are those for December 31 of each year. Year 1989 1990 1991 1992 1993

CPI 126.1 133.8 137.9 141.9 145.8

In which year was the inflation rate the highest? (a) 1990 (b) 1991 (c) 1992 (d) 1993 29. By Marks buys a one-year German government bond (called a bund) for $400. He receives principal and interest totaling $436 one year later. During the year the CPI rose from 150 to 162. The nominal interest rate on the bond was ___________, and the inflation rate was ___________. (a) 9%; 1% (b) 9%; –1% (c) 36%; 24% (d) 36%; 12%

30. Marvin’s Metal Company produces screws that it sells to Ford, which uses the screws as a component of its cars. In the national income accounts, the screws are classified as (a) inventory. (b) final goods. (c) capital goods. (d) intermediate goods.

Answer Key 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27.

D A A B D C C C B A C D C C C A D B C D C D D B D C B 28. A 29.A 30.D...