Econ 104 midterm 2 practice questions PDF

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practice questions for midterm 2
academic year 2017/2018 spring term
prof. Lijun Zhang...

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Econ 104 midterm 2 practice questions Note: This question set does NOT contain any question from the actual midterm. 1. Which of the following best defines the natural rate of unemployment? a. It is the unemployment rate that would prevail with zero inflation. b. It is the rate associated with the highest possible level of GDP. c. It is the difference between the long-run and short-run unemployment rates. d. It is the amount of unemployment that the economy normally experiences. 2. Cyclical unemployment is closely associated with which of the following? a. long-term economic growth b. short-run ups and downs of the economy c. fluctuations in the natural rate of unemployment d. seasonal fluctuations in spending 3. Nancy is searching for a job that suits her tastes about where to live and the people she works with. Laura is looking for a job that makes best use of her skills. Contrast Nancy and Laura’s natures of unemployment. a. Nancy and Laura are both frictionally unemployed. b. Nancy and Laura are both structurally unemployed. c. Nancy is frictionally unemployed, and Laura is structurally unemployed. d. Nancy is structurally unemployed, and Laura is frictionally unemployed. 4. Which of the following is most likely to cause frictional unemployment? a. the minimum wage b. a worker leaving a job to find one with better benefits c. labour unions d. an increase in the income tax 5. When a union bargains successfully with employers, what happens to quantity of labour supplied and demanded in that industry? a. Both the quantity of labour supplied and the quantity of labour demanded increase. b. Both the quantity of labour supplied and the quantity of labour demanded decrease. c. The quantity of labour supplied increases and the quantity of labour demanded decreases. d. The quantity of labour supplied increases the quantity of labour demanded decreases. 6. What impact do employment insurance and unions have on unemployment? a. Unemployment insurance and unions both create structural unemployment. b. Unemployment insurance and unions both create frictional unemployment.

c. Unemployment insurance creates frictional unemployment and unions create structural unemployment. d. Unemployment insurance creates structural unemployment and unions create frictional unemployment. 7. Samantha, the CEO of a corporation operating in Uganda, decides to raise the wages of her workers, even though she faces an excess supply of labour. Which of the following is an expected result from her decision? a. It will increase productivity, according to the efficiency wage theory. b. It will help eliminate the excess supply of labour if she raises it sufficiently. c. It will cause unemployment to fall. d. It will decrease profits, according to the efficiency wage theory. 8. Laurie works eight hours and produces 7 units of goods per hour. Iris works six hours and produces 10 units of goods per hour. a. Laurie’s productivity and output are greater that Iris’. b. Laurie’s productivity is greater than Iris’ but his output is less. c. Iris’ productivity and output are greater than Laurie’s. d. Iris’ productivity is greater that Laurie’s but her output is less. 9. Suppose that real GDP grew more in Country A than in Country B last year. a. Country A must have a higher standard of living than country B. b. Country A's productivity must have grown faster than country B's. c. Both of the above are correct. d. None of the above are correct. 10. Which of the following statements best describes the relationship between the initial wealth and the growth rate of a country? a. Countries with the highest growth rates over the last 100 years are the ones that had the highest level of real GDP 100 years ago. b. Countries that were rich a century ago had little fluctuation around their average growth rates during the past 100 years. c. Though the catch-up effect may suggest otherwise, the data show no strong relationship between initial conditions and growth rates. d. Over the last 100 years, Japan had the highest real GDP growth rate, and now it has the highest real GDP per person. 11. In 2007 Freedonia had a population of 2700 and real GDP of about $1 080 000. In 2006 it had a population of 2500 and real GDP of about $1 000 000. What was the approximate growth rate of real GDP per person in Freedonia between 2006 and 2007? a. 0 percent b. 2.5 percent

c. 5 percent d. 7.5 percent 12. Which of the following would not be considered physical capital? a. a new factory building b. a computer used to help Mercury Delivery Service keep track of their orders c. on-the-job training d. a desk used in an accountant's office 13. Technological knowledge refers to a. human capital. b. available information on how to produce things. c. resources expended transmitting society's understanding to the labour force. d. All of the above are technological knowledge. 14. If there are constant returns to scale, how is the production function written? a. xY = 2xAF(L, K, H, N) b. Y/L = A F(xL, xK, xH, xN) c. Y/L = A F( 1, K/L, H/L, N/L) d. L = AF(Y, K, H, N) 15. If there are diminishing returns to capital, a. capital produces fewer goods as it ages. b. new ideas are not as useful as old ideas. c. increases in the capital stock eventually decrease output. d. increases in the capital stock increase output by ever smaller amounts. 16. If a country's saving rate increases, which of the following happens in the long run? a. Its productivity is higher, but real GDP per person is not higher. b. Its real GDP per person is higher, but productivity is not higher. c. Its productivity and real GDP per person are both higher. d. Neither its productivity nor real GDP per person are higher. 17. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital and so less real GDP per person. Suppose that both increase their saving rate from 3 percent to 4 percent. Which of the following will happen in the long run? a. Both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with more capital. b. Both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with less capital.

c. Both countries will have higher levels of real GDP per person, and the temporary increase in growth rate of real GDP per person will have been greater in the country with more capital. d. Both countries will have higher levels of real GDP per person, and the temporary increase in growth rate of real GDP per person will have been greater in the country with less capital. 18. Real GDP per person is $25 000 in Aquilonia, $10 000 in Nemedia, $15 000 in Shem, and $20 000 in Zexa. Saving per person is $2000 in all three countries. Other things equal, what would we expect? a. All four countries will grow at the same rate. b. Aquilonia will grow the fastest. c. Nemedia will grow the fastest. d. Shem will grow the fastest. 19. Suppose Japanese-based Sony Corporation builds and operates a new chip factory in Canada. What would the future production from such an investment do? a. increase Canadian GNP more than it would increase Canadian GDP b. increase Canadian GDP more than it would increase Canadian GNP c. not affect Canadian GNP, but it would increase Canadian GDP d. have no effect on Canadian GNP or GDP 20. Which of the following terms refers to institutions that help to match one person's saving with another person's investment? a. the Bank of Canada b. the banking system c. the monetary system d. the financial system 21. A mutual fund a. is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. b. is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. c. sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. d. is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds. 22. Which of the following terms refers to a certificate of indebtedness that specifies the obligations of the borrower to the holder? a. bond

b. stock c. mutual fund d. savings plan 23. In a closed economy, what does (T - G) represent? a. national saving b. investment c. private saving d. public saving 24. Suppose that in a closed economy GDP is 10,000, consumption is 6500, and taxes are 2000. What value of government expenditures would make national saving equal 1000? a. 2500 b. 3500 c. 7500 d. 9000 25. Consider three different closed economies with the following national income statistics. Country A has taxes of $40 billion, transfers of $20 billion, and government expenditures on goods and services of $30 billion. Country B has private savings of $60 billion, and investment expenditures of $50 billion. Country C has GDP of $300 billion, investment of $70 billion, consumption of $180 billion, taxes of $60 billion, and transfers of $20 billion. Based on this information, which country has a $10 billion deficit? a. Country A b. Country B c. Country C d. all three countries 26. If the government's expenditures exceeded its receipts, what would it most likely do? a. It would lend money to a bank or other financial intermediary. b. It would borrow money from a bank or other financial intermediary. c. It would directly buy bonds from the public. d. It would directly sell bonds to the public. 27. Assume that the bonds below have the same term and principal and that the province or local government that issues the municipal bond has a good credit rating. Which listing of bonds is ordered from the one that pays the most interest to the one that pays the least interest? a. corporate bond, municipal bond, federal government bond b. corporate bond, federal government bond, municipal bond c. municipal bond, federal government bond, corporate bond d. federal government bond, municipal bond, corporate bond

28. The source of the supply of loanable funds a. is saving and the source of demand for loanable funds is investment. b. is investment and the source of demand for loanable funds is saving. c. and the demand for loanable funds is saving. d. and the demand for loanable funds is investment.

29. Which of the following would most likely happen in the market for loanable funds if the government were to decrease the tax on interest income? a. The supply of loanable funds would increase b. The demand for loanable funds would increase. c. The supply of loanable funds would decrease. d. The demand for loanable funds would decrease. 30. If Canada decreases its budget deficit, it will increase a. private saving and so shift the supply of loanable funds right. b. investment and so shift the demand for loanable funds right. c. public saving and so shift the supply of loanable funds right. d. None of the above are correct. 31. Investment rises and interest rates fall. Which of the following could explain these changes? a. The government went from surplus to deficit. b. The government instituted an investment tax credit. c. The government reduced the tax rate on savings. d. None of the above is correct. 32. Which of the following best defines liquidity? a. It is the ease with which an asset is converted to the medium of exchange. b. It is a measurement of the intrinsic value of commodity money. c. It is the suitability of an asset to serve as a store of value. d. It refers to how many times a dollar changes hands in a given year. 33. Which of the following is a characteristic of paper money? a. It has a high intrinsic value. b. It is used in a barter economy. c. It is valuable because it is generally accepted in trade. d. It is valuable only because of the legal tender requirement.

ANSWERS 1. D 2. B 3. A 4. B 5. C 6. C 7. A 8. C 9. D 10. C 11. A 12. C 13. B 14. C 15. D 16. C 17. D 18. C 19. B 20. D 21. D 22. A 23. D 24. A 25. D 26. D 27. A 28. A 29. A 30. C 31. C 32. A 33. D...