University of California, Santa Barbara - ECON

Midterm 1 - Version A (Winter 2015)

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

  

____    3. 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%

2. 1.622%
3. 1.667%
4. 1.596%

  

____    4. Which of the following will NOT improve the productivity of a manufacturing company?

 

1. upgrading its assembly equipment
2. technological advance in the industry
3. extending work hours
4. better training programs for new employees

 

 

____	5. Which of the following statements is true? The GDP deflator of the base year is always 100. Home production will contribute GDP. Subsidies paid to veterans will increase GDP. GDP is the market value of all the sales within a country.
____	6. 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 Consumption and Investment Investment and Imports Imports and Exports
____	7. 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
____	8. 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
____	9. 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 $348 billion $350 billion $355 billion
____ 10. Using 2000 as the base year, 2001 real GDP is less than 2001 nominal GDP.  Which of the following is true? Inflation in 2001 was positive   Inflation in 2001 was negative Inflation in 2001 was zero Not enough information    ____ 11. Which of the following production functions exhibits constant returns to scale?

 

a.

b.

c.

d.

 

 

____ 12. 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

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

  

____ 13. 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%

  

____ 14. 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%

  

____ 15. 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

  

____ 16. 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

2. 1984 tuition: $751; 2014 tuition: $16,759
3. 1984 tuition: $2,836; 2014 tuition: $5,352
4. 1984 tuition: $5,315; 2014 tuition: $2,646

  

____ 17. What is an example of Total Factor Productivity, the A in the production function?

 Foreign investors invest in physical capital

A new diamond mine opens

Government reforms that make property rights more secure

An increase in the minimum wage

 

____ 18. Which of the following is included in GDP calculations?

1. Leisure time
2. The value of clean water
3. The cost of crime
4. None of the above

  

____ 19.  

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

  

____ 20.  

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?

 

1. Quality bias
2. Substitution bias
3. Expenditure shares
4. All of the above

  

____ 21. 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%

2. CPI growth rate=6.17%; GDP growth rate=5.2%
3. CPI growth rate=2.02%; GDP growth rate=5.3%
4. CPI growth rate=2.02%; GDP growth rate=5.2%

  

____ 22. Which of the following items is included in U.S. GDP?  goods produced by a Japanese citizen working in the United States the difference in the price of the sale of an existing home and its original purchase price known illegal activities Imports from Singapore

 

____ 23. 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

2. $500
3. $700
4. $2100

  

____ 24. Which of the following is human capital?

1. a student loan
2. understanding how to use a company's accounting software
3. training videos for new corporate employees
4. Online study material for macroeconomics

  

____ 25. 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.

  

____ 26. 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.

2. GDP increases by $5.00.
3. GDP increases by $6.00.
4. GDP increases by $7.00.

  

____ 27. 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.

  

____ 28. 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

2. $21 million
3. $26 million
4. $30 million

  

____ 29. The city of Ann Arbor Michigan buys a police car manufactured in Germany.  In the GDP accounts this transaction is included in  in government expenditures and exports. government expenditures and imports.

exports, but not government expenditures. imports, but not government expenditures.

 

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

 

 

____ 30. 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.

  

____ 31. 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

1. grew by more than 12 percent.
2. grew, but by less than 12 percent.
3. was unchanged.
4. decreased.

  

____ 32. 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

2. $2.25
3. $2.50
4. $3.00

  

____ 33. 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.

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