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#### University of California, Santa Barbara - ECON 2 Midterm 1 - Version D (Winter 2015) 1)Which of the following is human capital?     a student loan understanding how to use a company's accounting software training videos for new corporate employees Online study material for macroeconomics     ____ 2

###### Economics

University of California, Santa Barbara - ECON 2

# Midterm 1 - Version D (Winter 2015)

1)Which of the following is human capital?

 a student loan understanding how to use a company's accounting software training videos for new corporate employees Online study material for macroeconomics ____ 2. Which of the following is a consequence of diminishing returns to capital? More technological knowledge increases productivity It's easier for a country to grow more quickly if it starts out relatively poorer More capital increases productivity Increasing savings leads to a decrease in the long run capital stock ____ 3. Suppose I put \$2400 in a bond that yields 4% interest one year from today.  Inflation is 5.5% anually.  What is the change in my purchasing power from today to one year from today? a. Increased by \$36 Increased by \$34 Decreased by \$36 Decreased by \$34 ____ 4. During a presidential campaign, the incumbent argues that he should be reelected because nominal GDP grew by 12 percent during his 4-year term in office.  You know that population grew by 4 percent over the period and that the GDP deflator increased by 6 percent during the past 4 years.  You should conclude that real GDP per person grew by more than 12 percent. grew, but by less than 12 percent. was unchanged. decrease ____ 5. Suppose we have monthly data on the CPI and quarterly data on the GDP. We have information only on the first two periods. We are given that the CPI increased by 0.5% from January to February, while GDP increased by 1.3% from Q1 to Q2. We would like to see if how growth and inflation rates compare.  What would be the “annualized” growth rate of each? a. CPI growth rate=6.17%; GDP growth rate=5.3% CPI growth rate=6.17%; GDP growth rate=5.2% CPI growth rate=2.02%; GDP growth rate=5.3% CPI growth rate=2.02%; GDP growth rate=5.2% ____ 6. Which of the following statements is true?
1. The GDP deflator of the base year is always 100.
2. Home production will contribute GDP.
3. Subsidies paid to veterans will increase GDP.
4. GDP is the market value of all the sales within a country.

 ____ 7. According to the UC Office of Budget Planning Analysis, annual in-state tuition for UCSB undergraduates was \$1,245 in 1984 and \$12,192 in 2014. CPI was 103.9 in 1984, 172.2 in 2000, and 236.7 in 2014. What is their equivalent value of 1984 and 2014 tuition in year 2000 dollars?  a. 1984 tuition: \$2,063; 2014 tuition: \$8,870 1984 tuition: \$751; 2014 tuition: \$16,759 1984 tuition: \$2,836; 2014 tuition: \$5,352 1984 tuition: \$5,315; 2014 tuition: \$2,646 ____ 8. One bag of flour is sold for \$1.00 to a bakery, which uses the flour to bake bread that is sold for \$3.00 to consumers.  A second bag of flour is sold for \$1 to a grocery store who sells it to a consumer for \$2.00.  Taking these four transactions into account, what is the effect on GDP? a. GDP increases by \$3.00. GDP increases by \$5.00. GDP increases by \$6.00. GDP increases by \$7.00. ____ 9.   The price of cell phones over the past 8 years has stayed pretty much the same, whereas the price of home phones has dropped by a lot. Which of the following can cause inflation rates to be biased when calculating using the CPI?   Quality bias Substitution bias Expenditure shares All of the above ____ 10. If over a short time there is an increase in the number of people retired and a decrease in the number of people working, then productivity and real GDP per person rise. rises but real GDP per person falls. falls and real GDP per person rises. and real GDP per person fall.    ____ 11. Which of the following is included in GDP calculations? Leisure time The value of clean water The cost of crime None of the above    ____ 12. Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced

in American plants.  In 2010 Quality Motors produced \$30 million worth of automobiles, with \$17 million in sales to Americans, \$9 million in sales to Canadians, and \$4 million worth of automobiles added to Quality Motors’ inventory.  The transactions just described contribute how much to U.S. GDP for 2010? a. \$17 million

1. \$21 million
2. \$26 million
3. \$30 million

13.   In 1949, Sycamore, Illinois built a hospital for about \$500,000.  In 1987, the county restored the courthouse for about \$1.7 million.  A price index for nonresidential construction was 24 in 1949, 108 in 1987, and 126.5 in 2000.  According to these numbers, the hospital cost about

1. \$2.1 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars.
2. \$2.1 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.
3. \$2.6 million in 2000 dollars, which is less than the cost of the courthouse restoration in 2000 dollars.
4. \$2.6 million in 2000 dollars, which is more than the cost of the courthouse restoration in 2000 dollars.

____ 14. In an imaginary economy, consumers buy only sandwiches and magazines.  The fixed basket consists of 20

sandwiches and 30 magazines.  In 2006, a sandwich cost \$4 and a magazine cost \$2.  In 2007, a sandwich cost \$5.  The base year is 2006.  If the consumer price index in 2007 was 125, then how much did a magazine cost in 2007? a. \$0.83

1. \$2.25
2. \$2.50
3. \$3.00

____ 15. Use below table to answer the following question

 Year Price of Fish Quantity of Fish Price of Beef Quantity of Beef 2006 \$2 3 \$2 2 2007 \$4 4 \$2 4

What is the chain weighted real GDP growth in 2007?

1. 60%
2. 50%
3. 55%
4. 40%

____ 16. A Santa Barbara coffee shop buys an espresso machine online from an Italian coffee supplies company.  When calculating the US GDP, under which of the following categories does this get accounted for? a. Imports and Consumption

1. Consumption and Investment
2. Investment and Imports
3. Imports and Exports

17.   In 2009, the imaginary nation of Mainland had a population of 6,000 and real GDP of 120,000. In 2010 the population was 6,200 and real GDP of 128,960.  Over the year in question, real GDP per person in Mainland grew by

1. 2 percent, which is high compared to average U.S. growth over the last one-hundred years.
2. 2 percent, which is about the same as average U.S. growth over the last one-hundred years.
3. 4 percent, which is high compared to average U.S. growth over the last one-hundred years.
4. 4 percent, which is about the same as average U.S. growth over the last one-hundred years.

____ 18. In the economy of Imagineland in 2014, consumption was \$3000, exports were \$400, GDP was \$6000, imports were \$600, and investment was \$1100.  What were Imagineland's government purchases in 2014? a. \$300

1. \$500
2. \$700
3. \$2100

____ 19. Suppose there is a bond that matures in two years, principal amount is \$1000, the coupon rate is 14% and the current market interest rate is 10%, what is the bond price?  a. \$984.92

1. \$1036.36
2. \$1069.42
3. \$1163.64

____ 20. Use the data in the table below to answer the following question

 Year Sherlock’s Income CPI 2013 \$60,000 232.957 2014 \$61,000 236.736

(Source: BLS) Suppose that we use CPI as the price index, which of the following is true?

1. Sherlock’s real income in 2014 was relatively higher compared to 2013
2. Sherlock’s real income in 2014 was relatively lower compared to 2013
3. Sherlock’s real income in 2014 was equivalent to his real income in 2013
4. The price level in 2014 was relatively lower compared to 2013

____ 21. Suppose you buy a bond on May 1, 2013 at a principal of \$5,000 that matures in 2 years with a coupon rate of 10%. After 1 year, on May 1, 2014, the interest rate is 5% and you decide to sell the bond. What is the price of the bond on May 1, 2014? a. \$5,500.00

1. \$5,238.10
2. \$5,000.00
3. \$4,772.23

____ 22. What is an example of Total Factor Productivity, the A in the production function?

1. Foreign investors invest in physical capital
2. A new diamond mine opens
3. Government reforms that make property rights more secure
4. An increase in the minimum wage

23.         Which of the following is NOT true of the Consumer Price Index?

1. The basket of goods is mostly the same over time
2. CPI is used to calculate Cost of Living Adjustments for Social Security payments
3. Inflation is equal to the percent change in CPI
4. Core CPI excludes housing from the basket of goods

____ 24. An increase in capital will increase real GDP per person

1. more in a poor country than a rich country.  The increase in real GDP per person will be larger if the addition to capital is from domestic rather than foreign investment.
2. more in a poor country than a rich country.  The increase in real GDP per person will be the same whether the addition to capital is from domestic or foreign investment.
3. less in a poor country than a rich country.  The increase in real GDP per person will be larger if the addition to capital is from domestic rather than foreign investment.
4. less in a poor country than a rich country.  The increase in real GDP per person will be the same whether the addition to capital is from domestic or foreign investment.

____ 25. Suppose a woman marries her butler. After they are married, her husband continues to wait on her. She continues to support him as before, but as a husband rather than as an employee. How does the marriage affect GDP measured using the income approach? a. GDP does not change

1. GDP increases
2. GDP decreases
3. Not enough information

____ 26. Which of the following will NOT improve the productivity of a manufacturing company?

2. technological advance in the industry
3. extending work hours
4. better training programs for new employees

Table 23-7

The table below contains data for the country of Togogo.  The base year is 1974.

 Year Nominal  GDP GDP Deflator 1974 \$2000 100 1975 \$3000 120 1976 \$3750 150 1977 \$6000 200

____ 27. Refer to Table 23-7.  Which of the following is not correct?

1. This economy experienced growth from 1974 to 1975.
2. This economy experienced growth from 1975 to 1976.
3. This economy experienced growth from 1976 to 1977.
4. This economy experienced inflation from 1974 to 1975, from 1975 to 1976, and from 1976 to 1977.

____ 28. Gross domestic product adds together many different kinds of goods and services into a single measure of the value of economic activity.  To do this, GDP makes use of  a. market prices.

1. statistical estimates of consumers’ value of goods and services.
2. prices based on the assumption that producers make no profits.
3. the maximum amount consumers would be willing to pay.

____ 29. Which of the following production functions exhibits constant returns to scale?

 a.
 b.
 c.
 d.

____ 30. In 2010 Molly paid \$200,000 for a house built in 2000.   She spent \$30,000 on new materials to remodel the house.  Although Molly lived in the house after she remodeled it, its rental value rose.  Which of the following contributed to real GDP in 2010?

1. the price of the house, the cost of remodeling materials, the increase in rental value
2. the price of the house and the cost of remodeling materials, but not the increase in rental value
3. the costs of the remodeling materials and the increase in rent, but not the price of the house
4. None of the above are correct.

____ 31. Using 2000 as the base year, 2001 real GDP is less than 2001 nominal GDP.  Which of the following is true?

1. Inflation in 2001 was positive
2. Inflation in 2001 was negative
3. Inflation in 2001 was zero
4. Not enough information

____ 32. The city of Ann Arbor Michigan buys a police car manufactured in Germany.  In the GDP accounts this transaction is included in

1. in government expenditures and exports.
2. government expenditures and imports.
3. exports, but not government expenditures.
4. imports, but not government expenditures.

____ 33. An increase in the price of Irish whiskey regularly purchased by Americans will be reflected in

1. both the U.S. GDP deflator and the U.S. CPI.
2. neither the U.S. GDP deflator nor the U.S. CPI.
3. the U.S. GDP deflator, but not the U.S. CPI.
4. the U.S. CPI, but not the U.S. GDP deflator.

____ 34. Suppose the price index was 105 in 2007, 115.5 in 2008, and the inflation rate was lower between 2008 and 2009 than it was between 2007 and 2008.  This means that a. the price index in 2009 was lower than 115.5.

1. the price index in 2009 was lower than 126.
2. the price index in 2009 was lower than 127.05.
3. the inflation rate between 2008 and 2009 was lower than 1.1 percent.

____ 35. In 2014, South Africa had a population of 54,000,000 and its GDP was \$340 billion.  Suppose that in 2015, South Africa's GDP per capita increases by 3%, and it's population also increases by 1.5%.  What is South Africa's GDP in 2015, rounded to the nearest billion? a. \$345 billion

1. \$348 billion
2. \$350 billion
3. \$355 billion

____ 36. Use the data in the table below to answer the following question

 Year Sherlock’s Income CPI 2013 \$60,000 232.957 2014 \$61,000 236.736

(Source: BLS) Based on the information provided, the inflation rate in 2014 was: a. 3.779%

1. 1.622%
2. 1.667%
3. 1.596%

____ 37. Workland has a population of 10,000, of whom 7,000 work 8 hours a day to produce a total of 224,000 final goods. Laborland has a population of 5,000, of whom 4,000 work 12 hours a day to produce a total of 120,000 final goods.

1. Workland has higher productivity and higher real GDP per person than Laborland.
2. Workland has higher productivity but lower real GDP per person than Laborland.
3. Workland has lower productivity but higher real GDP per person than Laborland.
4. Workland has lower productivity and lower real GDP per person than Laborland.

____ 38.

In the country of Bora Bora, there are three economic agents. One is a group of coconut pickers; second is a restaurant that makes coconut milk; and lastly there is the government. The coconut pickers collect 100 coconuts and sell 60 coconuts to the restaurant and 40 coconuts to customers at \$2 per coconut.  The pickers pay wages of \$20 and taxes of \$10. The restaurant buys 60 coconuts as noted before and has \$140 in revenue from selling coconut milk. The coconut is the only cost aside from \$20 for wages and \$10 for taxes. The government spends all its tax revenue on wages for its employees. Using the expenditure approach, what is the “consumption” of C+I+G+NX and what is the total GDP?

1. C=\$220; GDP=\$240
2. C=\$240; GDP=\$260
3. C=\$200; GDP=\$220
4. C=\$340; GDP=\$360

____ 39. Which of the following items is included in U.S. GDP?

1. goods produced by a Japanese citizen working in the United States
2. the difference in the price of the sale of an existing home and its original purchase price c. known illegal activities

d. Imports from Singapore

____ 40. In the country of Eastasia, the government reported that GDP in 2014 Q3 was \$200 and GDP in 2014 Q4 was \$220. What is the annualized growth rate of GDP in Eastasia between Q3 and Q4 2014?

1. 10%
2. 20%
3. 46%
4. 40%

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