University of California, Santa Barbara - ECON 2

Spring 2015 - Midterm 1 - Version A

1)In a competitive market, the quantity of a product produced and the price of the product are determined by a. a single buyer.

 

 

	a single seller. one buyer and one seller working together. all buyers and all sellers.
____	2. Goods that go into inventory and are not sold during the current period are: counted as intermediate goods and so are not included in current period GDP. counted in current GDP only if the firm that produced them sells them to another firm.  included in current period GDP as investment. included in current period GDP as consumption.
____	3. A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. This move  necessarily raises GDP necessarily decreases GDP. doesn't change GDP because gambling is never included in GDP.  doesn't change GDP because in either case his income is include
____	4. An inflation rate calculated using the CPI shows the rate of change of  a. all prices.  the prices of all final goods and services. the prices of all final goods and services purchased by a typical consumer. the prices of all domestically produced final goods and services purchased by a typical consumer.
____	5. If the prices of Australian-made shoes imported into the United States increase,  both the GDP deflator and the consumer price index will increase.  neither the GDP deflator nor the consumer price index will increase.  the GDP deflator will increase but the consumer price index will not increase.  the consumer price index will increase, but the GDP deflator will not increase.
____	6.  Steve earns $80,000 this year, which is twice as much compared to how much he earned when he started

working 30 years ago. Suppose this year is the base year and the CPI 30 years ago was 65.  Which of the following statement is correct?

1. Steve has a higher real income this year.
2. Steve has a higher real income when he started working.  
3. Steve has the same real income compared to 30 years ago.
4. Not enough information is given to compare the real incomes.

 

 

____	7. Which of the following statements is true regarding CPI? CPI tends to underestimate the cost of living because of substitution bias. CPI is a good measurement of cost of living because it includes quality change of consumption goods. CPI covers the cost of infrastructures because they are essential to everyone. None of the statements above is correct.
____	8. Daniel owns two houses. In 2014 he rents out one house for $12,000. He lives in the other house although he could have earned $15,000 by renting it out. He also purchased a second-hand car made in 2006 using the $12,000 he got from rent. How much did Daniel’s activities mentioned above contribute to GDP in 2014? a. $12,000 $15,000 $27,000 $39,000
____	9. Which of the following affects the CPI but not the GDP deflator in the U.S.? Newly developed technology by the Department of Defense lowers the cost of missiles. Due to increasing international competition, U.S. companies had to cut the price of exporting goods. Due to unexpected extreme weather, the price of Ecuadorian banana, usually purchased by American citizens, doubled last quarter. Super computers designed for professional movie making saw its price increased because of a rise in deman
____ 10.  Jimmy rented an apartment in Isla Vista for $1000 each month. At the beginning of 2015, he decided to buy the apartment which he formerly rented for $150,000. Based on this information, what is Jimmy’s contribution to 2015 GDP? A contribution of $150,000 in investment component. A contribution of $12,000 in consumption component. A contribution of $162,000 in investment and consumption components. No contribution to GDP, since he pays no rent any more.    ____ 11. Medit ltd is a US company producing professional yoga mats. In 2014, Medit ltd produced 20 yoga mats, each worth $50. By the end of 2014, only 14 yoga mats were sold to consumers. How would this be reflected in each component of 2014 GDP?

1. Consumption would increase by $1000.
2. Consumption would increase by $700, and investment would increase by $300.
3. Consumption would increase by $700.
4. Consumption would increase by $700, and investment would decrease by $1000.

 

12.    An economy produces gummy bear and clam chowder. The price and quantity produced of each product is listed in the table.

	Bags of gummy bears		Cups of clam chowder
	Price	Quantity	Price	Quantity
2013	$2	200	$10	10
2014	$3	100	$8	30

 

Fix 2014 as the base year. What is the GDP deflator in 2013?

 

 

1. 73.53
2. 136
3. 140
4. 71.43

  

____ 13. An economy produces gummy bear and clam chowder. The price and quantity produced of each product is listed in the table. 

	Bags of gummy bears		Cups of clam chowder
	Price	Quantity	Price	Quantity
2013	$2	200	$10	10
2014	$3	100	$8	30

 

The CPI basket is defined as 5 bags of gummy bears and 1 cup of clam chowder.  Fix 2014 as the base year.  What is the CPI in 2013? a. 115

2. 87
3. 110
4. 95

  

____ 14. Due to a scarcity of resources,

1. governments should decide what should be produced
2. the government must decide how to allocate available resources
3. some members of each society must live in poverty
4. every society must choose among competing uses of available resources

 

15.            Macroeconomics is the study of

1. how wages are determined in a specific labor market
2. how to use the fewest natural resources to produce public goods
3. what is happening in the economy as a whole
4. how consumers and producers interact in individual markets

  

____ 16. The opportunity cost of any activity can be measured by the

1. value of the best alternative to that activity
2. price (or monetary costs) of the activity
3. level of technology
4. time needed to select among various alternatives

  

____ 17. In a market system, prices are determined by

1. corporate executives
2. government bureaucrats
3. supply and demand
4. total market demand

  

____ 18. Each point along the market demand curve shows

1. the quantity of the good that firms would be willing and able to supply at a specific price
2. the relationship between the price of the good and total quantity demanded at a series of prices
3. the opportunity cost of supplying a given quantity of goods to the market
4. the quantity of the good that consumers would be willing and able to purchase at a specific price

  

____ 19. Supply curves are usually assumed to slope upward because

1. profits fall as prices rise
2. a higher price leads to increases in demand
3. a higher price leads to decreases in demand
4. a higher price attracts resources from other less valued uses

 

20.            When a market is in equilibrium,

1. quantity demanded equals quantity supplied
2. quantity demanded exceeds quantity supplied
3. the demand curve is identical to the supply curve
4. the economy must be at a point along the production possibilities frontier

  

____ 21. Which of the following is the best example of an intermediate good?

1. a new fighter jet purchased by the federal government
2. tires purchased by an automobile manufacturer for installation on new cars
3. a new saw purchased by a carpenter
4. screwdrivers purchased by a homeowner for home repairs

  

____ 22. 

          A Texas oil company extracts petroleum and sells it to a refinery for $1,000. After processing, the refinery sells the gasoline to a wholesaler for $1,500, who then sells it to a gas station for $1,700. The gas station sells it to customers for $2,500. In these transactions, how much has been added to GDP?

 

1. $1,000
2. $1,500
3. $1,700
4. $2,500

  

____ 23. Which of the following would be included in a year's GDP?

1. Susan cleans the fuel injectors on her car.
2. A private individual purchases 100 shares of IBM stock.
3. A college professor purchases a new computer.
4. A timber company purchases land in Oregon.

  

____ 24. 

          If the boat industry produced $20 billion worth of boats, but $50 billion worth of boats were sold to consumers, the decrease in inventory would lead to

 

1. an increase in the nation's investment component of GDP
2. more individuals investing in the automobile market
3. a decrease in the nation's investment component of GDP
4. an overestimation of boat production

 

25.           

         Which of the following would be included in the consumption component of GDP?

 

1. Movie ticket sales
2. Purchase of a new home
3. Purchase of a baseball card collection from your friend
4. Purchase of a chain saw at an auction

  

____ 26. 

           Which of the following describes the relationship between GDP and government spending?

 

1. Government spending = GDP + consumption + private investment - exports - imports
2. Government spending = GDP - consumption - private investment + exports + imports
3. Government spending = GDP - consumption - private investment - exports + imports
4. Government spending = GDP + consumption - private investment + exports - imports

  

____ 27. 

         In macroeconomics, which of the following would be considered as investment?

 

1. The purchase of a U.S. savings bond
2. The purchase of 100 shares of Ford Motor Company stock
3. The purchase of $500 worth of gold
4. The accumulation of inventories by a firm

  

____ 28. 

         Transfer payments are

 

1. payments for goods or services that individuals provide
2. funds given to people or organizations when no good or service is received in exchange
3. included in the government purchases category of GDP
4. used to pay state employees

 

29. If imports increased by $100 million while GDP remained the same, which of the following could have occurred, all else being the same?

1. Exports decreased by $100 million.
2. Consumption increased by $100 million.
3. Government spending decreased by $100 million.
4. Net exports increased by $100 million.

  

____ 30. This year, Shirts Inc. purchased $1,000 worth of silk from the Silky Silkworm Company, $100 worth of buttons from Barney's Buttons, and $200 worth of thread from Tracy's Thread Company. Shirts Inc. sold the shirts they produced for $2,000. As a result of these transactions, how much did Shirts Inc. contribute (value added) to GDP this year?

1. $700
2. $1,300
3. $2,000
4. $3,000

  

____ 31. 

         If the CPI for 2008 was 112, the typical market basket purchased that year would cost

 

1. 12 percent more than the same market basket purchased the previous year
2. 112 percent more than the same market basket purchased the previous yea
3. 12 percent more than the same market basket purchased in the base year
4. 112 percent more than the same market basket purchased in the base year

  

____ 32. 

          The prices of which of the following goods would be included in the Consumer Price Index?

 

1. Fighter planes
2. Iron ore
3. Tennis shoes
4. IBM stock

 

33.            Prices of imported consumer goods are

1. included in the CPI
2. not included in the CPI because the goods were produced outside the country
3. not included in the CPI because different countries choose different base periods
4. not included in the CPI because import prices are not denominated in U.S. dollars

  

____ 34. 

          If the Consumer Price Index was 102.2 in 2007 and 104.9 in 2008, we can conclude that

 

1. the prices of all consumer goods were higher in 2008 than in 2007
2. the prices of all consumer goods were lower in 2008 than in 2007
3. the price level fell from 2007 to 2008
4. the price level rose from 2007 to 2008

  

____ 35. 

         Suppose that the inflation rate was 4 percent in 2002 and 3 percent in 2003. This would mean that

 

1. the price level fell from 2002 to 2003
2. the price level fell at a faster rate in 2003 than in 2002
3. the price level rose at a faster rate in 2003 than in 2002
4. the price level rose at a slower rate in 2003 than in 2002

  

____ 36. Suppose that Colleen's nominal wage rate was $20 per hour in 1998, the base year for the CPI. If the CPI in 2003 was 120.0 and her nominal wage had risen to $22 per hour, what was her real wage in 2003? a. $16.67

2. $18.33
3. $22.00
4. her real wage for 2003 cannot be determined with the information given

  

____ 37. 

         In which of the following situations would an individual experience an increase in real wages?

 

1. Receiving a 5 percent increase in nominal wages while inflation was 6 percent
2. Taking a 3 percent cut in nominal wages while deflation was 4 percent
3. Taking a 1 percent cut in nominal wages while inflation was 1 percent
4. Receiving a 3 percent increase in nominal wages while inflation was 3 percent

 

38.           

          Which of the following would be included when calculating the GDP deflator, but not the Consumer Price Index?

 

1. The price of a pair of shoes
2. The price of a used car
3. The price of a bar of soap
4. The price of an aircraft carrier

  

____ 39. Which of the following statements is true?

1. Nominal GDP = (price index ? real GDP) ? 100
2. Nominal GDP = (real GDP ? price index) ? 100
3. Real GDP = (price index ? nominal GDP) ? 100
4. Real GDP = (nominal GDP ? price index) ? 100

  

____ 40. 

         Which of the following statements is true about the behavior of the CPI?

 

1. It has risen steadily since 1960.
2. It has fallen steadily since 1960.
3. It fell during the 1960s and has risen ever since.
4. It rose sharply in the 1970s and then declined in the 1980s.