Econ 2021(4) HW-4 copy - hw hwhwhwhwhwhwhwhwhwhwhw PDF

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Econ 2021 (04)

Samah Shetta Assignment 4

Select the right answer for the following questions. Please write down your name and student ID. Name: Student ID: MCQ (60 points)

1. Recurring upswings and downswings in an economy's real GDP over time are called: A) Recessions. B) Business cycles. C) Output yo-yos. D) Total product oscillations. Answer the following question 2 on the basis of the following information about a hypothetical economy. All figures are in millions. Not in the labor force Unemployed Total population Employed Discouraged workers

45 7 145 95 3

2. The unemployment rate is: A) 2.5 percent. B) 3.2 percent. C) 5.0 percent. D) 6.9 percent. 3. The natural rate of unemployment is: A) Higher than the full-employment rate of unemployment. B) Lower than the full-employment rate of unemployment. C) That rate of unemployment occurring when the economy is at its potential output. D) Found by dividing total unemployment by the size of the labor force. 4. Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called: A) Frictional unemployment. B) Structural unemployment. C) Cyclical unemployment. D) Compositional unemployment.

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5. Alex works in his own home as a homemaker and full-time caretaker of his children. Officially, he is: A) Unemployed. B) Employed. C) Not in the labor force. D) In the labor force. 6. Official unemployment statistics: A) Understate unemployment because individuals receiving unemployment compensation are counted as employed. B) Understate unemployment because discouraged workers are not counted as unemployed. C) Include cyclical and structural unemployment, but not frictional unemployment. D) Overstate unemployment because workers who are involuntarily working part time are counted as being employed. 7. A college graduate using the summer following graduation to search for a job would best be classified as: A) Not officially a member of the labor force. B) A part of structural unemployment. C) A part of cyclical unemployment. D) A part of frictional unemployment. Answer the following questions 8- 9 on the basis of the following information for a specific year in a hypothetical economy for which Okun's law is applicable:

8. Refer to the above data. The size of the negative GDP gap as a percent of potential GDP for the above economy is: A) 6 percent. B) 9 percent. C) 12 percent. D) 15 percent. 9. Refer to the above data. The amount of output being forgone by this economy is: A) $12 billion. B) $15 billion. C) $18 billion. D) $24 billion. 10. Suppose that a person's nominal income rises by 5 percent and the price level rises from 125 to 130. The person's real income will: A) Fall by about 1 percent. B) Remain constant. C) Rise by about 4 percent. D) Rise by about 1 percent.

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11. Who is least likely to be hurt by unanticipated inflation? A) A disabled laborer who is living off accumulated savings. B) An owner of a small business. C) A secretary D) A pensioned steelworker 12. The Consumer Price Index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about: A) 6.7 percent. B) 3.4 percent. C) 1.6 percent. D) 4.1 percent. 13. If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP? A) Nominal and real GDP would both rise. B) Nominal and real GDP would both be unchanged. C) Real GDP would rise, but nominal GDP would be unchanged. D) Nominal GDP would rise, but real GDP would be unchanged. 14. Inflation measured in terms of annual changes in the CPI using a single year’s spending weights might over estimate the impact of inflation on individual’s purchasing power because it: A) Ignores the likely substitution out of relatively expensive categories. B) Ignores the effect of unemployment on aggregate demand. C) Inaccurately includes the price effects of improved production technology. D) Does all the above. 15. Why are high rates of unemployment of concern to economists? A) Higher rates of unemployment generally lead to higher inflation rates. B) Environmental destruction is more prevalent when unemployment rates are high. C) There is lost output that could have been produced if the unemployed had been working. D) All of the above are reasons why economists are concerned about high unemployment rates. 16. The three statistics that are the main focus for those measuring macroeconomic health are: A) Real GDP, inflation, and unemployment. B) Real GDP, nominal GDP, and inflation. C) Nominal GDP, unemployment, and inflation. D) Real GDP, nominal GDP, and unemployment. 17. Insufficient total spending in the economy results in A) Frictional unemployment. B) Structural unemployment. C) Cyclical unemployment. D) Natural rate of unemployment.

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18. The term "recession" describes a situation where: A) Inflation rates exceed normal levels. B) Output and living standards decline. C) An economy's ability to produce is destroyed. D) Government takes a less active role in economic matters. 19. If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the: A) Frictional unemployment rate is 5 percent. B) Cyclical unemployment rate and the frictional unemployment rate together are 5 percent. C) Cyclical unemployment rate is 4 percent. D) Natural rate of unemployment will eventually increase. 20. A lender need not be penalized by inflation if the: A) Long-term rate of inflation is less than the short-term rate of inflation. B) Short-term rate of inflation is less than the long-term rate of inflation. C) Lender correctly anticipates inflation and increases the nominal interest rate accordingly. D) Inflation is unanticipated by both borrower and lender. 21. Suppose the rate of inflation for some specific year was 10 percent. If the CPI for that year was 139.7, the previous year's CPI must have been: A) 129.7 B) 100.0 C) 153.7 D) 127.0 22. Suppose that a person's nominal income rises from $10,000 to $12,000 and the Consumer Price Index rises from 100 to 105. The person's real income will: A) Fall by about 2 percent. B) Rise by about 15 percent. C) Rise by about 25 percent. D) Fall by about 20 percent. Use the following information to answer questions 23-26:

Year 1 2 3

Alta (real GDP) $ 2,000 2,100 2,200

Zorn (real GDP) $ 150,000 152,000 154,000

Alta (population) 200 202 210

Zorn (population 500 505 508

23. Refer to the above table. Between years 1 and 2, real GDP grew by __________ percent in Alta: A) 3 percent. B) 4 percent. C) 5 percent. D) 10 percent.

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24. Refer to the above table. Between years 1 and 2, real GDP per capita grew by __________ percent in Alta: A) 3 B) 4 C) 5 D) 10 25. Refer to the above table. Between years 2 and 3: A) Alta's real GDP grew more rapidly than Zorn's real GDP. B) Real GDP fell in Zorn. C) Population growth reduced Alta's real GDP growth to zero. D) Population fell in Alta's. 26. Refer to the above table. Per capita GDP was about: A) $105 in year 3 in Alta. B) $303 in year 3 in Zorn. C) $200 in year 1 in Zorn. D) $5 in year 2 in Alta. 27. A recession is a period in which: A) Cost-push inflation is present. B) Nominal domestic output falls. C) Demand-pull inflation is present. D) Real domestic output falls. 28. The natural rate of unemployment is the: A) Unemployment rate experienced at the depth of a depression. B) Full-employment unemployment rate. C) Unemployment rate experienced by the least-skilled workers in the economy. D) Unemployment rate experienced by the most-skilled workers in the economy. 29. The aggregate cost of unemployment can be measured by the: A) Amount by which actual GDP exceeds potential GDP. B) Amount by which potential GDP exceeds actual GDP. C) Excess of real GDP over nominal GDP. D) Excess of nominal GDP over real GDP. 30. Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the GDP gap is: A) 4 percent. B) 8 percent. C) 10 percent. D) 2 percent. 31. Recently a labor union argued that the standard of living of its members was falling. A critic of the union argued that this could not possibly be true because the union had been acquiring significant increases in the nominal incomes of its members through collective bargaining. Is the critic correct? A) Yes, because when you have a large nominal income your standard of living automatically

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increases. B) No, because real income may fall if price increases are more proportionately than the increase in nominal income. C) No, because real income may fall if price increases are less proportionately than the increases in nominal income. D) Yes, because real income may fall if price increases are less proportionately than the increases in nominal income. Refer to the below data to answer question 32

32. The Marginal Propensity to Consume (MPC) is: A) 0.25. B) 0.75. C) 0.20. D) 0.80. 33. The consumption schedule is such that: A) Both the APC and the MPC increase as income rises. B) The APC is constant and the MPC declines as income rises. C) The MPC is constant and the APC declines as income rises. D) The MPC and APC must be equal at all levels of income.

34. With an MPS of 0.4, the MPC will be: A) 1.0 minus .4. B) 0.4 minus 1.0. C) The reciprocal of the MPS. D) 0.4. 35. A decline in disposable income: A) Increases consumption by moving upward along a specific consumption schedule. B) Decreases consumption because it shifts the consumption schedule downward. C) Decreases consumption by moving downward along a specific consumption schedule. D) Increases consumption because it shifts the consumption schedule upward. 36. Which one of the following will cause a movement up along an economy's saving schedule? A) An increase in household borrowing B) An increase in disposable income C) An increase in stock prices D) An increase in interest rates

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37. In the late 1990s the U.S. stock market boomed, causing U.S. consumption to rise. This is shown graphically as a: A) Shift of the consumption schedule. B) Movement along an existing consumption schedule. C) Shift of the investment schedule. D) Movement along an existing investment schedule.

38. Refer to the above graph. A shift of the consumption schedule from C2 to C1 might be caused by a: A) Recession. B) Wealth effect of an increase in stock market prices. C) An increase in interest rates. D) A decrease in interest rates. 39. The 45-degree line on a chart relating consumption and income shows: A) All points where the MPC is constant. B) All points at which saving and income are equal. C) All the points at which consumption and income are equal. D) The amounts households will plan to save at each possible level of income.

40. The consumption schedule in the above diagram indicates that: A) Consumers will maximize their satisfaction where the consumption schedule and 45° line intersect. B) Up to a point consumption exceeds income, but then falls below income. C) The MPC falls as income increases. D) Households consume as much as they earn.

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41. The consumption schedule is such that: A) Both the APC and the MPC increase as income rises. B) The APC is constant and the MPC declines as income rises. C) The MPC is constant and the APC declines as income rises. D) The MPC and APC must be equal at all levels of income. 42. If the MPC is .8 and disposable income is $200, then A) Consumption and saving cannot be determined from the information given. B) Saving will be $20. C) Personal consumption expenditures will be $80. D) Saving will be $40.

43. The above diagram shows consumption schedules for economies A and B. We can say that the: A) MPC is greater in B than in A. B) APC at any given income level is greater in B than in A. C) MPS is smaller in B than in A. D) MPC is greater in A than in B. 44. If the equation for the consumption schedule is C = 20 + 0.8Y , where C is consumption and Y is disposable income, then the average propensity to consume is 1 when disposable income is: A) $80. B) $100. C) $120. D) $160. 45. In the aggregate expenditures model, dissaving means: A) The same thing as disinvesting. B) That households are spending in excess of their current incomes. C) That saving and investment are equal. D) That disposable income is less than zero. 46. Given the consumption schedule, it is possible to graph the relevant saving schedule by: A) Subtracting the MPC from "one" at each level of income. B) Subtracting investment from consumption at each level of GDP. C) Plotting the horizontal differences between the consumption schedule and the 45-degree line. D) Plotting the vertical differences between the consumption schedule and the 45-degree line. 47. If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving

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schedule: A) Will not shift. B) May shift either upward or downward. C) Will shift downward. D) Will also shift upward. 48. Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of: A) An increase in disposable income. B) An increase in household wealth. C) An increase in personal taxes. D) The expectation of a recession. Use the following to answer question 49: Answer the next question(s) on the basis of the following data for a hypothetical economy. Disposable income $ 0 50 100 150 200

Saving $-10 0 10 20 30

49. Refer to the above data. If plotted on a graph, the slope of the saving schedule would be: A) 0.80. B) 0.10. C) 0.20. D) 0.15. Use the following to answer questions 50-51: Answer the next question(s) on the basis of the following consumption schedules for three private closed economies. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. (1) DI $ 0 10 20 30 40 50

(2) C $ 4 11 18 25 32 39

DI $ 0 80 160 240 320 400

C $ 65 125 185 245 305 365

(3) DI C $ 0 $ 2 20 20 40 38 60 56 80 74 100 92

50. Refer to the above data. The MPC: A) Is highest in economy (1). B) Is highest in economy (2). C) Is highest in economy (3). D) Cannot be calculated from the data given.

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51. Refer to the above data. At an income level of $400 billion, the average propensity to save in economy (2) is: A) 0.9125. B) 0.0725. C) 0.0875. D) 0.9305. Use the following to answer questions 52-53:

52. Refer to the above diagram. The break-even level of disposable income: A) Is zero. B) Is minus $10. C) Is $100. D) Cannot be determined from the information given. 53. (Advanced analysis): The equation for the above saving schedule is: A) Yd = -20 + .8S. B) Yd = 20 + .2S. C) S = -20 + .2Yd. D) S = 20 + .8Yd. 54. The investment-demand curve will shift to the right as the result of: A) The availability of excess production capacity. B) An increase in business taxes. C) Businesses becoming more optimistic about future business conditions. D) An increase in the real interest rate. 55. If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when: A) r falls. B) i is greater than r. C) r is greater than i. D) i rises. 56. In the aggregate expenditures model, it is assumed that investment: A) Automatically changes in response to changes in the current level of real GDP. B) Changes by less in percentage terms than changes in the level of real GDP. C) Does not respond to changes in interest rates. D) Does not change when the level of real GDP changes.

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Use the following to answer question 57:

57. Refer to the above diagrams. Curve A: A) Is an investment schedule and curve B is a consumption of fixed capital schedule. B) Is an investment demand curve and curve B is an investment schedule. C) And B are totally unrelated. D) Shifts to the left when curve B shifts upward. 58. The level of aggregate expenditures in the private closed economy is determined by the: A) Expenditures of consumers and businesses. B) Intersection of the saving schedule and the 45-degree line. C) Equality of the MPC and MPS. D) Intersection of the saving and consumption schedules. Use the following to answer questions 59-60:

C + Ig

C + Ig C $300 $200

$100 0

$100 $200 $300 GDP

59. Refer to the above diagram for a private closed economy. The equilibrium level of GDP is: A) $400. B) $300. C) $200. D) $100.

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60. Refer to the above diagram for a private closed economy. The $400 level of GDP is: A) That output at which saving is zero. B) Too high because consumption exceeds investment. C) Unstable because aggregate expenditures exceed GDP. D) Unstable because aggregate expenditures are less than GDP.

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