Sample/practice exam, answers PDF

Preview

Summary

Practice midterm with answers...

Description

Practice(MT(Exam:(Ch.6-10((( ( Chapter(6( 1.(If(the(economy's(output(and(income(double(in(35(years,(we(can:(( A.(not(say(anything(about(the(average(annual(rate(of(growth.( B.(conclude(that(its(average(annual(rate(of(growth(is(about(5.5(percent.( C.(conclude(that(its(average(annual(rate(of(growth(is(about(2(percent.( D.(conclude(that(its(average(annual(rate(of(growth(is(about(4(percent.( 2.(The(higher(is(the(current(level(of(saving:(( A.(the(higher(is(the(current(level(of(investment(and(higher(the(future(level(of( consumption.( B.(the(lower(is(the(current(level(of(investment(and(lower(the(future(level(of( consumption.( C.(the(higher(is(the(current(level(of(investment(and(lower(the(future(level(of( consumption.( D.(the(lower(is(the(current(level(of(investment(and(higher(the(future(level(of( consumption.(

(( ( 3.(Refer(to(the(above(diagram.(Curve((a)(is(the(current(production(possibilities( frontier(for(the(economy.(Other(things(being(equal,(society's(current(choice(of(point( P(on(curve((a)(means:(( A.(more(rapid(economic(growth(compared(to(choosing(point(N.( B.(a(slower(rate(of(economic(growth(compared(to(choosing(point(N.( C.(the(same(rate(of(growth(as(would(occur(if(point(N(were(chosen.( D.(it(is(unachievable(because(it(exceeds(the(productive(capacity(of(the(economy.( (

4.(In(response(to(some(unexpected(changes(in(demand:(( A.(the(economy(could(always(adjust(its(production(level(if(the(prices(are(inflexible.( B.(the(economy(would(always(produce(less(than(what(was(expected(if(the(prices(of( goods(and(services(are(inflexible.( C.(the(economy(could(always(produce(at(its(optimal(capacity(if(the(prices(of(goods( and(services(are(inflexible.( D.(the(economy(could(always(produce(at(its(optimal(capacity(if(the(prices(of(goods( and(services(are(fully(flexible.( ( 5.(Assume(that(the(demand(for(goods(and(services(falls(across(the(entire(economy( and(for(an(extended(period(of(time.(If(the(prices(are(inflexible,(the(unintended( increase(in(business(inventories(would(force:(( A.(businesses(to(keep(the(production(at(the(existing(level.( B.(businesses(to(increase(the(level(of(production.( C.(businesses(to(lower(the(level(of(production.( D.(businesses(to(increase(the(level(of(employment.( 6.(What(is(it(called(when(a(firm(is(forced(to(cope(with(a(situation(different(than(the( one(they(were(expecting?(( A.(Risk( B.(Uncertainty( C.(Shock( D.(Upheaval( ( 7. (Last Word) Advocates for a structural solution to the Great Recession argued that A. government should cut taxes across the board to stimulate demand for goods and services. B. firms should be allowed to go bankrupt, allowing the economy to correct for resource misallocations. C. firms in financial distress should be taken over by the government and run for the public good. D. massive public works projects should be implemented to produce public capital, keep people employed, and help workers maintain job skills. ( (

Chapter(7( ( 8.(An(example(of(a(final(good(in(national(income(accounts(would(be(new:(( A.(lawn(mowers(purchased(by(Cut-rite(Mowers.( B.(flowers(purchased(by(homeowner(Lenny(Davis.( C.(chemicals(purchased(by(Green(Grass(Lawn(Care.( D.(trees(purchased(by(Wendy(Lee's(Garden(Center.( ( 9.(An(increase(in(inventories(during(2022:(( A.(will(result(in(gross(investment(being(higher(than(net(investment(by(the(amount(of( the(inventory(increase.( B.(should(be(ignored(while(calculating(GDP(for(2022.( C.(should(be(subtracted(from(GDP(calculated(for(2022.( D.(should(be(included(in(GDP(calculated(for(2022.( 10.(In(1933(net(investment(was(minus($208(million.(This(meant(that:(( A.(gross(investment(exceeded(depreciation(by($208(million.( B.(the(economy(was(expanding(in(that(year.( C.(the(production(of(1933's(GDP(used(up(more(capital(goods(than(were(produced(in( that(year.( D.(the(economy(produced(no(capital(goods(at(all(in(1933.( ( 11.(If(in(some(year(gross(investment(was($120(billion(and(net(investment(was($65( billion,(then(in(that(year(the(country's(capital(stock:(( A.(may(have(either(increased(or(decreased.( B.(increased(by($65(billion.( C.(increased(by($55(billion.( D.(decreased(by($55(billion.( ( 12.(In(an(economy,(the(value(of(inventories(fell(from($75(billion(in(2012(to($63( billion(in(2013.(In(calculating(the(total(investment(for(2013,(national(income( accountants(would:(( A.(decrease(it(by($75(billion.( B.(increase(it(by($63(billion.( C.(decrease(it(by($12(billion.( D.(increase(it(by($138(billion.( ( ( ( ( ( ( (

13.(The(following(are(national(income(account(data(for(a(hypothetical(economy(in( billions(of(dollars:(gross(investment(($320);(imports(($35);(exports(($22);(personal( consumption(expenditures(($2,460);(and,(government(purchases(($470).(What(is( GDP(in(this(economy?(( A.($3,237(billion( B.($3,263(billion( C.($3,273(billion( D.($3,290(billion( ( 14.(GDP(in(an(economy(is($4,600(billion.(Consumer(expenditures(are($3,500(billion,( government(purchases(are($900(billion,(and(gross(investment(is($400(billion.(Net( exports(are:(( A.(+$400(billion.( B.(-$400(billion.( C.(+$200(billion.( D.(-$200(billion.( ( 15.(Assume(an(economy(which(is(producing(only(one(product.(Output(and(price(data( for(a(three-year(period(are(as(follows.(( ( ( Year( 1( 2( 3(

Units/of/output 20 25 30

Price/per/unit( $4( 4( 6(

Refer(to(the(above(data.(If(year(2(is(chosen(as(the(base(year,(real(GDP(for(year(1(is:(( A.($25( B.($100( C.($50( D.($80( ( 16.(In(an(economy(experiencing(persistent(deflation:(( A.(potential(GDP(will(necessarily(exceed(actual(GDP.( B.(changes(in(nominal(GDP(may(either(overstate(or(understate(changes(in(real(GDP.( C.(changes(in(nominal(GDP(understate(changes(in(real(GDP.( D.(changes(in(nominal(GDP(overstate(changes(in(real(GDP.(

(( ( 17.(Refer(to(the(above(diagram.(The(base(year(used(in(determining(the(price(indices( for(this(economy:(( A.(cannot(be(determined(from(the(information(given.( B.(is(some(year(before(1992.( C.(is(more(recent(than(1992.( D.(is(1992.( (

(

18.(If(real(GDP(rises(and(the(GDP(price(index(has(increased:(( A.(the(percentage(increase(in(nominal(GDP(must(have(been(less(than(the(percentage( increase(in(the(price(level.( B.(nominal(GDP(may(have(either(increased(or(decreased.( C.(nominal(GDP(must(have(increased.( D.(nominal(GDP(must(have(fallen.( 19.(In(one-year(nominal(GDP(was($286(billion(and(the(price(index(was(88.(Real(GDP( in(that(year(was:(( A.($252(billion.( B.($325(billion.( C.($308(billion.( D.($262(billion.( 20.(Following(is(data(for(a(hypothetical(economy.(The(base(year(is(2002((Price(index( =(100).( ( ( Year( 2003( 2004( 2005( 2006(

Nominal/GDP $4,108(billion( 4,305(billion( 4,663(billion( 4,998(billion(

Price/index( 112 115 119 124

( ( Refer(to(the(above(data.(From(2003(to(2006,(prices(rose(by:(( A.(3(percent.( B.(7(percent.( C.(9(percent.( D.(10.7(percent.( 21.(Only(three(goods(are(produced(in(an(economy(in(the(following(amounts:(A(=(10,( B(=(30,(C(=(5.(The(current(year(per(unit(prices(of(these(three(goods(are(A(=($2,(B(=($3,( and(C(=($1.( If(the(per(unit(prices(of(the(three(goods(each(were($1(in(a(base(year(used(to( construct(a(GDP(price(index,(then(the(GDP(price(index(in(the(current(year(is:(( A.(205.5.( B.(255.5.( C.(39.3.( D.(100( ( (

22.(Which(of(the(following(is(a(shortcoming(s)(of(GDP(as(a(measure(of(total(output?(( A.(GDP(does(not(include(unpaid(work.( B.(GDP(does(not(include(activities(in(the(underground(economy.( C.(GDP(does(not(capture(the(full(value(of(improvements(in(product(quality.( D.(All(the(answer(choices(are(correct.( ( Chapter(8( ( 23.(Real(GDP(was($9,950(billion(in(Year(1(and($10,270(billion(in(Year(2.(What(was( the(approximate(rate(of(economic(growth(from(Year(1(to(Year(2?(( A.(1.6(percent( B.(2.4(percent( C.(3.2(percent( D.(4.3(percent( ( Year( Italy/(real/ China/(real Italy China/ GDP)( GDP)( (population) (population) 1( $2,000( $150,000( 200 500 2( 3(

2,100 2,200

152,000 154,000

202 210

505 508

( ( 24.(Refer(to(the(above(table.(Between(years(1(and(2,(real(GDP(grew(by(_______(percent( in(Italy:(( A.(3( B.(4( C.(5( D.(10( 25.(Assume(that(the(nominal(GDP(of(an(economy(was($350(billion(in(2016(and($375( billion(in(2017.(On(the(basis(of(this(information,(we:(( A.(cannot(make(a(meaningful(comparison(of(the(economy's(performance(in(2017( relative(to(2016.( B.(can(conclude(that(the(economy(achieved(real(economic(growth(in(2017.( C.(can(conclude(that(the(real(GDP(was(higher(in(2016(than(in(2017.( D.(can(conclude(that(the(real(GDP(was(lower(in(2016(than(in(2017( ( 26.(If(a(nation's(real(GDP(is(growing(by(3(percent(per(year,(its(real(domestic(output( will(double(in(approximately:(( A.(21(years.( B.(23(years.( C.(29(years.( D.(42(years.(

(

(( ( 27.(Refer(to(the(above(diagram.(If(the(production(possibilities(curve(of(an(economy( shifts(from(AB(to(CD,(it(is(most(likely(the(result(of(what(factor(affecting(economic( growth?(( A.(a(supply(factor( B.(a(demand(factor( C.(an(efficiency(factor( D.(an(allocation(factor( (

(( ( 28.(Refer(to(the(above(diagram.(If(the(production(possibilities(curve(for(an(economy( is(at(AB(but(the(economy(is(operating(at(point(4,(the(reasons(are(most(likely(to(be( because(of:(( A.(supply(and(environmental(factors.( B.(demand(and(efficiency(factors.( C.(labour(inputs(and(labour(productivity.( D.(technological(progress.( ( ( ( (

(( ( 29.(Refer(to(the(above(diagram.(Realized(economic(growth(is(best(represented(by(a:(( A.(shift(in(the(production(possibilities(curve(from(y(on(AB(to(X(on(CD.( B.(move(from(X(on(AB(to(y(on(CD.( C.(shift(in(the(production(possibilities(curve(from(CD(to(AB.( D.(move(from(X(to(z(along(AB.( ( The(achievement(of(full(employment(through(time(will:(( A.(diminish(labour(productivity.( B.(reduce(the(level(of(investment(as(a(percentage(of(GDP.( C.(increase(the(rate(of(growth(of(real(GDP.( D.(have(no(impact(on(the(rate(of(growth(of(real(GDP.( ( 30.(Assume(that(an(economy(has(1500(workers,(each(working(2000(hours(per(year.( If(the(average(real(output(per(worker-hour(is($20,(then(total(output(or(real(GDP(will( be:(( A.($3(million.( B.($30(million.( C.($45(million.( D.($60(million.( ( 31.(Suppose(total(output((real(GDP)(is($4000(and(labour(productivity(is(8.(We(can( conclude(that:(( A.(real(GDP(per(capita(must(be($500.( B.(the(price-level(index(must(be(greater(than(100.( C.(nominal(GDP(must(be($500.( D.(the(number(of(worker-hours(must(be(500.( ( ( ( ( (

32.(Over(the(past(half(century(the(growth(of(real(GDP(in(Canada(has(been(caused( primarily(by:(( A.(a(falling(price(level.( B.(the(reallocation(of(labour(from(manufacturing(to(agriculture.( C.(increases(in(the(productivity(of(labour.( D.(the(use(of(fewer(inputs(of(labour.( ( 33.(Other(things(equal,(in(which(of(the(following(instances(would(the(increase(in( labour(productivity(be(the(greatest?(( A.(the(stock(of(real(capital(and(inputs(of(labour(increase(proportionately( B.(the(increase(in(the(stock(of(real(capital(exceeds(the(increase(in(inputs(of(labour( C.(the(increase(in(inputs(of(labour(exceeds(the(increase(in(the(stock(of(real(capital( D.(inputs(of(labour(increase(and(the(stock(of(real(capital(remains(constant( ( 34.(What(economic(concept(would(be(most(closely(associated(with(a(situation(where( an(aluminum(plant(uses(extensive(computerization(on(the(production(line(to(reduce( per-unit(costs(of(production?(( A.(infrastructure( B.(human(capital( C.(network(effects( D.(economies(of(scale( ( Chapter(9( (

(( ( 35.(Refer(to(the(above(diagram.(The(phases(of(the(business(cycle(from(points(A(to(D( are,(respectively:(( A.(peak,(recession,(expansion,(trough.( B.(trough,(expansion,(expansion,(peak.( C.(expansion,(recession,(trough,(peak.( D.(peak,(recession,(trough,(expansion.( ( (

36.(Assuming(the(total(population(is(100(million,(the(civilian(labour(force(is(50( million,(and(47(million(workers(are(employed,(the(unemployment(rate:(( A.(is(3(percent.( B.(is(6(percent.( C.(is(7(percent.( D.(is(9(percent.( ( 37.(The(following(information(is(about(a(hypothetical(economy:( ( Full-time(employed(=(80( Part-time(employed(=(25( Unemployed(=(15( Discouraged(workers(=(5( Members(of(underground(economy(=(6( Consumer(Price(Index(=(110( ( Refer(to(the(above(information.(The(unemployment(rate(is:(( A.(18.8(percent.( B.(12.5(percent.( C.(16.7(percent.( D.(25(percent.( ( 38.(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.( ( 39.(Eckstein(has(lost(her(job(in(a(Quebec(textile(plant(because(of(import(competition.( She(intends(to(take(a(short(course(in(electronics(and(move(to(B.C.(where(she( anticipates(new(jobs(will(be(available.(We(can(say(that(Eckstein(is(faced(with:(( A.(secular(unemployment.( B.(cyclical(unemployment.( C.(structural(unemployment.( D.(frictional(unemployment.( ( 40.(Dr.(Homer(Simpson,(an(economics(professor,(decided(to(take(a(year(off(from( teaching(to(run(a(commercial(fishing(boat(in(P.E.I.(That(year,(Professor(Simpson( would(be(officially(counted(as:(( A.(structurally(unemployed.( B.(frictionally(unemployed.( C.(not(in(the(labour(force.( D.(employed.(

( 41.(Which(of(the(following(constitute(the(unemployment(occurring(when(the(natural( rate(of(unemployment(exists?(( A.(frictional(and(cyclical(unemployment( B.(structural,(seasonal(and(frictional(unemployment( C.(cyclical(and(structural(unemployment( D.(frictional,(structural,(and(cyclical(unemployment.( ( 42.(Okun's(law(indicates(that(for:(( A.(every(1(percent(that(the(actual(unemployment(rate(exceeds(the(natural( unemployment(rate,(there(is(a(generated(2(percent(GDP(gap.( B.(every(1(percent(that(the(actual(unemployment(rate(exceeds(the(natural( unemployment(rate,(there(is(a(generated(5(percent(GDP(gap.( C.(a(5(percent(GDP(gap,(there(is(a(generated(1(percent(increase(in(the(natural( unemployment(rate.( D.(a(2(percent(GDP(gap,(there(is(a(generated(2(percent(increase(in(the(actual( unemployment(rate.( ( 43.(Which(of(the(following(is(not(correct?(( A.(The(Canadian(unemployment(rates(of(male(and(female(workers(are(roughly(the( same.( B.(The(unemployment(rate(for(teenagers(is(higher(than(that(of(adults.( C.(Teenagers(experience(approximately(the(same(unemployment(rates(as(do(adults.( D.(lower-skilled(workers(are(more(vulnerable(to(unemployment(than(are(higherskilled(workers( ((

44.(“Depression(means(idleness.(And(idleness(means(loss(of(skills,(loss(of(selfrespect,(plummeting(morale,(family(disintegration,(and(sociopolitical(unrest.”(This( quote(describes(some(of(the:(( A.(consequences(of(the(hyperinflation(that(accompanies(a(recession.( B.(reasons(for(the(natural(rate(of(unemployment.( C.(noneconomic(costs(of(unemployment.( D.(characteristics(of(structural(unemployment.( ( 45.(If(the(consumer(price(index(was(170(in(one(year(and(180(in(the(next(year,(then( the(rate(of(inflation(from(one(year(to(the(next(was(approximately:(( A.(5.5(percent.( B.(5.9(percent.( C.(5.3(percent.( D.(7.2(percent.( ( ( (

46.(Real(income(can(be(determined(by:(( A.(dividing(the(price(level(by(nominal(income.( B.(inflating(nominal(income(for(inflation.( C.(dividing(the(annual(rate(of(inflation(into(the(number("70."( D.(dividing(the(nominal(income(by(the(price(index.( ( 47.(If(average(nominal(income(was(about($15,000(and(the(price(level(index(was(118,( then(average(real(income(would(be(about:(( A.($11,146( B.($12,712( C.($13,385( D.($14,249( ( 48.(In(2014,(Ortega's(nominal(income(rose(by(8(percent(and(the(price(level(rose(by(5( percent.(We(can(conclude(that(Ortega's(real(income:(( A.(fell(by(13(percent.( B.(rose(by(13(percent.( C.(rose(by(3(percent.( D.(fell(by(3(percent.( ( 49.(Unanticipated(inflation(tends(to(penalize:(( A.(people(who(save(money(in(financial(institutions.( B.(individuals(who(borrow(money(from(financial(institutions.( C.(businesses(which(borrow(money(from(financial(institutions.( D.(governments(which(have(a(progressive(personal(income(tax.( ( 50.(When(unanticipated(inflation(occurs:(( A.(both(creditors(and(debtors(benefit.( B.(both(creditors(and(debtors(are(hurt.( C.(debtors(are(hurt,(but(creditors(benefit.( D.(creditors(are(hurt,(but(debtors(benefit.( ( ( 51. (Consider This) Deflation is most likely to occur ( A. during the expansionary phase of the business cycle. B. during the recessionary phase of the business cycle. C. when the central bank imposes negative nominal interest rates. D. when the inflation premium rises above 10 percent. ( ( ( ( ( ( (

Chapter(10( ( 52.(If(the(equation(C(=(20(+(.6Y,(where(C(is(consumption(and(Y(is(disposable(income,( were(graphed:(( A.(the(vertical(intercept(would(be(+.6(and(the(slope(would(be(+20.( B.(it(would(reveal(an(inverse(relationship(between(consumption(and(disposable( income.( C.(the(vertical(intercept(would(be(negative,(but(consumption(would(increase(as( disposable(income(rises.( D.(the(vertical(intercept(would(be(+20(and(the(slope(would(be(+.6.( ( 53.(If(the(MPC(is(.8(and(the(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.( (

(( ( 54.(Refer(to(the(above(diagram.(Consumption(equals(disposable(income(when:(( A.(disposable(income(is(B.( B.(disposable(income(is(D.( C.(CD(equals(A.( D.(B(equals(CD.( ( ( ( ( ( ( ( ( ( ( (

(( ( 55.(The(equation(for(the(above(saving(schedule(is:(( A.(Yd(=(-20(+(.8S.( B.(Yd(=(20(+(.2S.( C.(S(=(20(+(.8Yd.( D.(S(=(-20(+(.2Yd.( (

(( ( 56.(Refer(to(the(above(diagram.(The(equation(for(the(saving(schedule(is:(( A.(S(=(.6Y.( B.(Y(=(60(+(.6S.( C.(S(=(60(+(.4Y.( D.(S(=(-60(+(.4Y.( ( 57.(Suppose(a(family's(consumption(exceeds(its(disposable(income.(This(means(that( its:(( A.(MPC(is(greater(than(1.( B.(MPS(is(negative.( C.(APC(is(greater(than(1.( D.(APS(is(positive.( (

( 58.(As(aggregate(income(decreases,(the(APC:(( A.(and(APS(will(both(increase.( B.(will(decrease,(but(the(APS(will(increase.( C.(will(increase,(but(the(APS(will(decrease.( D.(and(APS(will(both(decrease.( ( Refer(to(the(diagram(given(below.( (

( (( ( 59.(The(diagram(given(above(shows(consumption(schedules.(As(income(rises,(the( marginal(propensity(to(consume(remains(constant(for:(( A.(none(of(the(consumption(schedules.( B.(only(C3.( C.(only(C1,(C2,(and(C3.( D.(only(C4.( ( ( 60.(If(Smith's(disposable(income(increases(from($1,200(to($1,700(and(her(level(of( saving(increases(from(minus($100(to(a(plus($100,(it(may(be(concluded(that(her( marginal(propensity(to:(( A.(save(is(three-fifths.( B.(consume(is(one-half.( C.(consume(is(three-fifths.( D.(consume(is(one-sixth.( ( ( ( ( ( ( (

( 61.(The(diagram(below(shows(two(different(consumption(schedules.(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.( (

(( ( 62.(Refer(to(the(above(diagram.(The(marginal(propensity(to(save(is:(( A.(CD/EF.( B.(CB/CF.( C.(CB/AF.( D.(EF/CB.( ( ( ( ( (

(

(( ( 63.(Refer(to(the(above(diagram.(The(marginal(propensity(to(save(is(equal(to:(( A.(CD/0D.( B.(0B/0A.( C.(0D/0D.( D.(CD/BD.( ( 64.(Following(is(consumption(schedules(for(three(private(closed(economies.(DI( signifies(disposable(income(and(C(represents(consumption(expenditures.(All(figures( are(in(billions(of(dollars.( ( (

DI( $0( 10 20 30 40 50

(1) C( $4( 11 18 25 32 39

DI( $0( 80( 160 240 320 400

(2) C $65( 125 185 245 305 365

DI( $0( 20( 40( 60( 80( 100

(3)( C( $2( 20( 38( 56( 74( 92(

Refer(to(the(above(data.(At(an(income(level(of($40(billion,(the(average(propensity(to( consume:(( A.(is(highest(in(economy((1).( B.(is(highest(in(economy((2).( C.(is(highest(in(economy((3).( D.(cannot(be(determined(from(the(data(given.( 65.(If(a(consumption(schedule(shifts(upward,(this(me...