University of California, Santa Barbara - ECON 2

Econ 2 Summer 2013B Midterm 1

1)In a simple circular-flow diagram, firms use the money they get from a sale to a.         pay wages to workers.

 

	pay rent to landlords. pay profit to the firms’ owners. All of the above are correct.
____	2. In the actual economy, goods and services are purchased by households, but not firms or the government. households and firms, but not the government. households and the government, but not firms. households, firms, and the government.
____	3. If the price of a Blu-Ray Disc player is three times the price of an MP3 player, then a Blue-Ray Disc player contributes more than three times as much to GDP as does a  MP3 player. less than three times as much to GDP as does a  MP3 player. exactly three times as much to GDP as does a  MP3 player. None of the above is necessarily correct.
____	4. One bag of oranges is sold for $6.00 to a company that turns them into juice which is sold to consumers for $12.00.  Another bag of oranges is purchased by a grocery store for $6.00 who then sells it to a consumer for $7.  Taking these four transactions into account, how much is added to GDP? $31 $25 $19 None of the above is correct.
____	5. 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 $21 million $26 million $30 million
____	6. Which of the following values would be included in U.S. GDP for 2009?

1. the rent that Sean, an American citizen, would have paid on his home in New York in

2009  had he not owned that home

2. the rent that John, an American citizen, paid on his apartment in San Francisco in 2009
3. the value of the legal services provided by Juan, an attorney and a Mexican citizen, who lived in Houston and practiced law there in 2009
4. All of the above would be included in U.S. GDP for 2009.

____	7. Which of the following transactions adds to U.S. GDP for 2010? In 2010, Ashley sells a car that she bought in 2006 to William for $5,000. An American management consultant works in Mexico during the summer of 2010 and earns the equivalent of $30,000 during that time. When John and Jennifer were both single, they lived in separate apartments and each paid $750 in rent.  John and Jennifer got married in 2010 and they bought a previously unoccupied house that, according to reliable estimates, could be rented for $1,600 per month. None of the above transactions adds to U.S. GDP for 2010.
____	8. Which of the following is included in the investment component of  GDP? spending on new residential construction and spending on stocks and bonds spending on new residential construction but not spending on stocks and bonds spending on stocks and bonds but not spending on new residential construction neither spending on stocks and bonds nor spending on new residential construction
____	9. Social Security payments are included in GDP because they represent current income. included in GDP because they represent potential consumption. excluded from GDP because they are not private pensions. excluded from GDP because they do not reflect the economy’s production.
____ 10. The U.S. government pays an economist at the U.S. Department of Commerce $50,000 in salary in 2006.  The economist then retires.  In 2007, the government pays him $30,000 in retirement benefits.  Which of the following is correct? The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is included in 2007 GDP as government purchases. The 2006 payment is included in 2006 GDP as government purchases, but the 2007 payment is not included in 2007 GDP. The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is included in 2007 GDP as government transfer payments. The 2006 payment is included in 2006 GDP as government purchases, and the 2007 payment is allocated to previous years' GDP according to the amount of work performed by the economist each year. ____ 11. In the economy of Ukzten in 2010, consumption was one-half of GDP, government purchases were $2000

more than investment, investment was one-sixth of GDP, and the value of imports exceeded the value of exports by $500.  What was Ukzten’s GDP in 2010?

1. $3000
2. $4500
3. $9000
4. $15,000

Table 23-1

The table below contains data for country A for the year 2010.

Household purchases of durable goods	$1293
Household purchases of nondurable goods	$1717
Household purchases of services	$301
Household purchases of new housing	$704
Purchases of capital equipment	$310
Inventory changes	$374
Purchases of new structures	$611
Depreciation	$117
Salaries of government workers	$1422
Government expenditures on public works	$553
Transfer payments	$777
Foreign purchases of domestically produced goods	$88
Domestic purchases of foreign goods	$120

____ 12. Refer to Table 23-1.  What were country A’s net exports in 2010?

1. - $ 32
2. $32
3. $88
4. $120

____ 13. If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same, which would rise? a.         both real GDP and nominal GDP

2. real GDP but not nominal GDP
3. nominal GDP but not real GDP
4. neither nominal GDP nor real GDP

____ 14. If in some year real GDP was $25 billion and the GDP deflator was 68, what was nominal GDP? a.     $2.72 billion

2. $17 billion
3. $36.8 billion
4. $43 billion

____ 15. Which of the following statements regarding GDP is correct?

1. GDP includes factory production, but not any harm that may be inflicted on the environment.
2. GDP accounts for all activities taking place outside markets.
3. GDP provides detailed information about the distribution of income.
4. GDP is a good measure of economic well-being for all purposes.

____ 16. The CPI is calculated

1. monthly by the Department of Commerce.
2. monthly by the Bureau of Labor Statistics.
3. quarterly by the Department of Commerce.
4. quarterly by the Bureau of Labor Statistics.

____ 17. The price index was 128.96 in 2006, and the inflation rate was 24 percent between 2005 and 2006.  The price index in 2005 was

1. 104.
2. 104.96.
3. 152.96.
4. 159.91.

____ 18. To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant? a.           substitution bias

2. introduction of new goods
3. unmeasured quality change
4. income bias

____ 19. Changes in the quality of a good

1. do not present a problem in the construction of the consumer price index.
2. present a problem in the construction of the consumer price index, and that problem is sometimes referred to as substitution bias.
3. are not accounted for, as a matter of policy, by the Bureau of Labor Statistics.
4. can lead to either an increase or a decrease in the value of a dollar.

____ 20. Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006.  The consumer price index was 177 in 2001 and 221.25 in 2006.  Ruben's 2006 salary in 2001 dollars is

1. $20,000; thus, Ruben's purchasing power increased between 2001 and 2006.
2. $20,000; thus, Ruben's purchasing power decreased between 2001 and 2006.
3. $64,000; thus, Ruben's purchasing power increased between 2001 and 2006.
4. $64,000; thus, Ruben's purchasing power decreased between 2001 and 2006.

Table 24-12.  Will’s expenditures on food for three consecutive years, along with other values, are presented in the table below.

  Year

2009    2010    2011

 

Expenditures on Food        $5,000 $5,800 $6,600

Consumer Price Index       160.0   168.0   x

____ 21. Refer to Table 24-12.  Will’s 2009 food expenditures in 2010 dollars amount to a.         $5,500.

2. $5,250.
3. $4,975.
4. $3,625.

____ 22. Social Security payments are indexed for inflation using the CPI.  A recent newspaper editorial claimed that Social Security recipients are harmed by years of low inflation because they do not receive as large an increase in their payments as they do in years of high inflation. Which of the following statements is correct? a.          The newspaper editorial is correct under all circumstances.

2. The newspaper editorial is correct if the market basket consumed by Social Security recipients is the same as the market basket used to compute the CPI.
3. The newspaper editorial could be correct if the prices of the goods consumed by Social Security recipients change at a different rate than the prices of the goods in the market basket used to compute the CPI
4. The newspaper editorial is incorrect under all circumstances.

____ 23. The nominal interest rate for a consumer loan lasting from 2007 to 2008 is 8.5 percent and the real interest rate is 4.5 percent. If the consumer price index was 200 in 2007, what would the consumer price index value be in 2008?

1. 192
2. 208
3. 209
4. 217

____ 24. In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor. What was  Alpha Cabinet Company’s productivity? a.         1 /8 cabinet per hour

2. 8  hours per cabinet
3. 40  cabinets
4. None of the above is correct.

____ 25. An understanding of the best ways to produce goods and services is called

1. human capital.
2. physical capital.
3. technology.
4. productivity.

____ 26. Suppose there are constant returns to scale. Now suppose that over time a country doubles its workers, its natural resources, its physical capital, and its human capital, but its technology is unchanged. Which of the following would double?

1. both output and productivity
2. output, but not productivity
3. productivity, but not output
4. neither productivity nor output

Scenario 25-1.   An economy’s production form takes the form Y = AF(L, K, H, N).

____ 27. Refer to Scenario 25-1. If the production function has the constant-returns-to-scale property, then it could be rewritten as

1. Y/L = AF(1, K/L, H/L, N/L)
2. Y/L = AF(L, 1, H/L, N/L)
3. Y/L = AF(L, K/L, 1, N/L)
4. Y/L = AF(L, K/L, H/L, 1)

____ 28. Economists differ in their views of the role of the government in promoting economic growth. At the very least, the government should

1. lend support to the invisible hand by maintaining property rights and political stability.
2. limit foreign investment to industries that don't already exist in the country.
3. impose trade restrictions to protect the interests of domestic producers and consumers. d.            subsidize key industries.

____ 29. Which of the following are exchanged in the market as factors of production?

1. Land, labor, and capital         c.         Final goods and services
2. All goods and services            d.         Labor and capital, but not land

____ 30. Which of the following would not be included when measuring GDP?

1. New cars sold from a dealership       c.         Bread sold by a bakery
2. Flour purchased from the grocery store to d.           Coffee beans purchased by a coffee shop make bread at home      to make coffee

____ 31. Which of the following may cause inaccuracies in the measurement of inflation when using the CPI?

1. Changing product quality       c.         The introduction of new goods
2. Substitution bias         d.         All of the above

____ 32. You borrow $6 from your roommate to buy a six-pack of beer.  By the time you are ready to pay her back the $6, inflation has pushed the price of a six-pack down to $5.40.  How might your roommate recuperate the loan in real terms?

1. Ask to be paid back the $6     c.         Charge you 10% interest
2. Ask to be paid back in the form of a d.         Either B or C six-pack

____ 33. You were earning $50,000 in 2013 when the CPI was 150.  If the CPI rises to 165 in 2014, how large of a raise do you need to be just as well-off as you were in 2013?

1. $7,500 c.         $32,500
2. $5,000 d.         $500

____ 34. Mary deposits $200 into a savings account in 2013.  In 2014 her new balance is $220.  Over the same period, the CPI has gone from 125 in 2013 to 130 in 2014.  What was Mary’s real interest rate on her savings account?

1. 14%     c.         6 %
2. 4%       d.         10 %

____ 35. Isabelle and Tyler both work at a bakery.  Isabelle works for 8 hours and produces 24 loaves of bread.  Tyler works for 10 hours and produces 29 loaves of bread.  Which of the following is true?

1. Isabelle’s productivity and output are           c.         Isabelle’s productivity is greater than greater than Tyler’s      Tyler’s but her output is less
2. Isabelle’s productivity and output are less d. Isabelle’s productivity is less than Tyler’s than Tyler’s     but her output is more

____ 36. According to Malthus, something that decreases the death rate would:

1. increase the standard of living with an         c.         decrease the standard of living with an increase in population           increase in population
2. increase the standard of living with a           d.         decrease the standard of living with a decrease in population            decrease in population

____ 37. According to Mathus, the one-child policy in China would:

1. increase the standard of living and   c.         decrease the standard of living and increase the population         increase the population
2. increase the standard of living and   d.         decrease the standard of living and decrease the population         decrease the population

____ 38. Donny bakes 100 dozen doughnuts a day using 1 mixer and 1 fryer.  His rival Sue produces 180 dozen doughnuts a day using 2 mixers and 2 fryers.  Both Donny and Sue use the same technology and the same number of workers.  Donny and Sue both increase their capital by 1 mixer and 1 fryer.  Who will benefit the most from the expansion?

1. Donny because his workers were not a         c.         They will benefit equally because they busy to start with         are purchasing the same equipment
2. Sue because she was producing more to       d.         The local weight-loss clinic

start with

____ 39. Donny bakes 100 dozen doughnuts a day using 1 mixer and 1 fryer.  His rival Sue produces 180 dozen doughnuts a day using 2 mixers and 2 fryers.  Both Donny and Sue use the same technology and the same number of workers.  Donny and Sue both increase their capital by 1 mixer and 1 fryer.  What is the most realistic expectation Sue should have about how much her production will increase?

1. more than 80 dozen   c.         about 50 dozen
2. at least 100 dozen      d.         more than 90 dozen

____ 40. Which of the following factors tend to raise labor productivity?

1. Promoting educational and work       c.         Low levels of literacy, malnutrition, and opportunities for women       lack of proper medical care
2. The best trained workers in a country           d.         None of the above

migrating to pursue better opportunities