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University of California, Santa Barbara ECON 2 1)Your friend Adam’s real wage was constant at $15/hr in 2014 and 2015

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University of California, Santa Barbara

ECON 2

1)Your friend Adam’s real wage was constant at $15/hr in 2014 and 2015. On the other hand your nominal wage was $20/hr in both 2014 and 2015. Suppose the annual inflation rate between 2014 and 2015 was 2%. If 2014 is the base year, who has the higher real wage in 2015, Adam or yourself?

 

1. 1. Adam
   2. yourself
   3. both have the same amount of real wage
   4. need additional information to make the comparison
2. Which of the following affect the value of GDP?

 

1. 1. The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country.
   2. The purchase of a new edition of a foreign textbook that was produced in a different nation.
   3. The purchase of ink and paper supplies by a textbook company for the production of new textbooks.
   4. The purchase of a used textbook from a friend who took the same class last year.

 

3. Charlie owns and operates a bicycle factory in the US. In 2015, he bought $1000 worth of raw materials within the US, and he is able to produce 10 units of bicycles each worth $300. By the end of 2015, Charlie was able to sell 3 units of bicycles and stored the rest in his warehouse for future sale to customers. If the inflation rate in 2015 is 10%, what is Charlie's real contribution to 2015 GDP if we take 2014 to be the base year?

 

3. 1. 2700
   2. 810
   3. 2727
   4. 300
4. Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital and so less real GDP per person. Suppose that both increase their saving rate from 3 percent to 4 percent. In the long run

 

1. 1. both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with more capital.
   2. both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with less capital.
   3. both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with more capital.
   4. both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

 

 

 

5. If the best educated and most skilled persons leave a country, then in the short term this country’s human capital per worker

 

1. 1. and physical capital per worker will increase.
   2. and physical capital per worker will decrease.
   3. will increase but physical capital per worker will decrease.
   4. will decrease but physical capital per worker will increase.

 

6. According to the Bob Lucas podcast, what is most true of sources of innovation?

 

1. 1. Innovation is driven by entrepreneurs on the ground who are trying to improve a product for their customers
   2. Innovation is driven by careful monetary policy, which is crucial in preventing recessions and allowing managers to divert more resources to research and development
   3. Innovation is driven by the highly-educated elite of a country who possess the skills to improve existing standards of living
   4. None of the above

       Scenario 1: Data for Economy Z, and the base year is 2010.

	Total Production
	Pancakes		Wine		Cars
Year	Price	Quantity	Price	Quantity	Price	Quantity	Population
2010	$7	120	$20	38	$150	6	100
2011	$5	200	$25	50	$180	8	120

 

7. Based on Scenario 1, what is the GDP deflator of 2011?

 

1. 1. 102.5
   2. 107.5
   3. 120.6
   4. 114.3

 

8. Based on Scenario 1, what is the annual average growth rate of real income per capita of Economy Z from 2010 to 2011?

 

1. 17%
2. 10%
3. 20%
4. 24%

 

 

9. The mayor of Desperate Gulch, Lucky Luke, announces that the income of the Gulch (as measured by their real GDP) increased from $175 in June 2015, to $182 in July 2015. If the Gulch’s income keeps increasing by the same percentage every month, what is the annualized growth rate of real GDP in Desperate Gulch?

 

9. 1. 60.10%
   2. 32.45%
   3. 15.43%
   4. 7.27%
10. Productivity is the amount of goods and services

 

1. 1. an economy produces for each worker. It is not linked to a nation’s economic policies.
   2. an economy produces for each worker. It is linked to a nation’s economic policies.
   3. produced for each hour of a worker’s time. It is not linked to a nation’s economic policies.
   4. produced for each hour of a worker’s time. It is linked to a nation’s economic policies.

 

11. According to the Angus Deaton podcast, the current health care system in the United States can be characterized as all of the following EXCEPT:

 

1. 1. A system which exacerbates inequality in the United States.
   2. A system which has increased overall life expectancy.
   3. A system which gives incentives to drug companies to maintain high drug and cancer treatment prices.
   4. A system which has not addressed obesity as a cause of an increase in the mortality rate.

 

12. Which of the following is an example of human capital?

 

1. 1. California student loan
   2. Understanding how to use the latest version of Microsoft Office
   3. Training videos for new teaching assistants
   4. Newly purchased Mac computers in the department of economics

 

Scenario 2: Family A’s Expense Statement of December, 2015.

Purchase of a newly constructed house	$12,000
A second-hand car	$7,500
A new computer produced in Japan	$370
Local mechanic’s car maintenance bill	$190

 

 

 

13. Based on Scenario 2, what is Family A’s contribution to 2015 GDP?

 

13. 1. 12,190
    2. 7,690
    3. 12,560
    4. 8,060
14. If the number of workers in an economy doubled, all other inputs stayed the same, and there were constant returns to scale, productivity would

 

1. 1. fall to less than one-half of its former value.
   2. fall, but it would still be greater than one-half of its former value.
   3. stay the same.
   4. rise but less than double.

 

15. According to the Michael Madison Miller podcast, what are the long term effects of food aid going to the developing world from the United States?

 

1. 1. Food aid goes to subsidizing local farmers, resulting in more diverse and stronger local markets
   2. Food aid leads to higher demand for local agriculture products.
   3. Food aid leads to mass displacement of local farmers to urban areas.
   4. None of the above.

 

16. According to the William Easterly podcast, what is most true of World Bank funding to developing nations?

 

1. 1. Researchers at the World Bank know what poor individuals in developing nations want and need, but political corruption in developing countries prevents funds from getting to these individuals.
   2. Researchers at the World Bank do not know what poor individuals in developing nations want and need, nor do their funds reach these individuals because of political corruption.
   3. The World Bank has been fairly successful at designing proper mechanisms to deliver aid to the people who need it, but there is a lack of support from the developed world to fund these operations.
   4. The World Bank has been fairly successful at designing proper mechanisms to deliver aid to the people who need it, but there is a lack of support from the developing world whose governments are corrupt.

 

17. If the price of a dress is three times the price of a pair of shoes, then a pair of shoes contributes

 

1. 1. exactly one-third as much to GDP as does a dress.
   2. more than one-third as much to GDP as does a dress.
   3. less than one-third as much to GDP as does a dress.
   4. exactly one-fourth as much to GDP as does a dress.

       

Scenario 3: The table below contains data for Cashaynia for the year 2016.

 

GDP	$200
Income earned by citizens abroad	$9
Income foreigners earn here	$5
Losses from depreciation	$6
Indirect business taxes	$10
Statistical discrepancy	$0
Retained earnings	$8
Corporate income taxes	$12
Social insurance contributions	$30
Interest paid to households by government	$8
Transfer payments to households from government	$55
Personal taxes	$60
Nontax payments to government	$11

 

18. Refer to the table in Scenario 3. Net national product (NNP) for Cashaynia in 2016 is

 

1. 1. $194.
   2. $196.
   3. $198.
   4. $204.

 

19. In a hypothetical world, citizens only consume two types of goods apples and oranges, the fixed bundle equals 5 units of apples and 10 units of oranges.

 

In 2010, the price for a unit of apple is $1, and the price for a unit of orange is $2.

In 2012, the price for a unit of apple is $2, and the price for a unit of orange is $1.

 

Which of the following is the CPI in 2010 using 2012 as base year?

 

19. 1. 125
    2. 100
    3. 80
    4. 50
20. Which of the following is not correct?

 

1. 1. The consumer price index gives economists a way of turning dollar figures into meaningful measures of purchasing power.
   2. The consumer price index is used to monitor changes in the cost of living over time.
   3. The consumer price index is used by economists to measure the inflation rate.
   4. The consumer price index is used to measure the quantity of goods and services that the economy is producing.

 

 

21. The logic behind the catch-up effect is that

 

1. 1. workers in countries with low incomes will work more hours than workers in countries with high incomes.
   2. the capital stock in rich countries deteriorates at a higher rate because it already has a lot of capital.
   3. new capital adds more to production in a country that doesn't have much capital than in a country that already has much capital.
   4. None of the above is correct.

 

22. When the consumer price index rises, the typical family

 

1. 1. has to spend more dollars to maintain the same standard of living.
   2. can spend fewer dollars to maintain the same standard of living.
   3. finds that its standard of living is not affected.
   4. can offset the effects of rising prices by saving more.

 

23. The price index was 136 in one year and 142 in the next year. What was the inflation rate between the two years?

 

1. 1. 1.04 percent
   2. 4.41 percent
   3. 6.00 percent
   4. 42.00 percent

 

24. GDP per capita is a better measure in terms of showing how well-off a country’s citizens are. How is GDP per capita calculated?

 

1. 1. Dividing GDP by employment and hourly earnings
   2. Dividing GDP by population
   3. Multiplying GDP by unemployment
   4. Multiplying GDP by population and hourly earnings

 

25. Changes in the producer price index are often thought to be useful in predicting changes in

 

1. 1. stock prices.
   2. the consumer price index.
   3. the unemployment rate.
   4. the rate of output of goods and services.

 

 

 

26. The Malthusian Model illustrates the relationship between population and a country’s income level. Which of these ideas does NOT fit with Malthus’s theory?

 

1. 1. Reproductive rates in low income countries are higher than in high income countries
   2. An increase in population cannot create a permanent increase in the average standard of living
   3. On average, people with higher incomes will have more children than those with lower incomes
   4. Population’s exponential growth will always outpace food production.

 

27. Which of the following is NOT true when an Egyptian firm purchases a cement mixer from Slovakia?

 

1. 1. Egyptian investment increases
   2. Egyptian net exports decrease
   3. Egyptian GDP increases
   4. Slovakian GDP increases

 

28. Which of the following is included in the Investment Account in GDP:

 

28. 1. A household’s purchase of a new house
    2. Investing in the stock market
    3. Paying monthly rent to live in an apartment in IV
    4. All of above
29. Thomas Malthus’s predictions turned out to be wrong due to

 

1. 1. technological advances such as those during the Industrial Revolution.
   2. smaller populations now than in the time of Malthus.
   3. the effects of brain-drain.
   4. unlimited natural resources.

 

30. A company has a production function Y=A f(L, K) that exhibits constant returns to scale. This company originally has a labor force of 20 employees. The company hires 20 more employees, and doubles its capital. What will happen to the company’s output?

 

1. 1. Output will exactly double
   2. Output will increase by more than 100% but less than 200%
   3. Output will decrease by 50%
   4. Output will increase by less than 100%

 

31. Complete the sentence: A nation can see a sustained increase in real GDP through increases in ______?
    1. price level of domestically produced goods and services
    2. total factor productivity
    3. population growth rate
    4. cost of domestically produced intermediate goods

 

32. Which one of the following cases would be included in U.S. GDP for 2015?

 

1. 1. The rent that Brian, an American citizen, would have paid on his home in Santa Barbara in 2015 had he not owned that home.
   2. In February 2015, Dirk sold a 2005 Honda Accord to Kevin.
   3. In March 2015, Daniel ate onions that he harvested from his backyard garden in 2014.
   4. The rent that Anna, an American citizen, paid on her apartment in France in 2015.

 

33. Elizabeth just received her Ph.D. in economics and has two competing job offers. The first is in Washington, D.C. and pays a salary of $200,000. She has a similar job offer in Austin, TX that pays $90,000. Which pair of CPIs would make the two salaries have the same purchasing power?

 

1. 1. 70 in Washington, D.C. and 42 in Austin, TX
   2. 140 in Washington, D.C. and 70 in Austin, TX
   3. 180 in Washington, D.C. and 81 in Austin, TX
   4. 210 in Washington, D.C. and 150 in Austin, TX

 

34. The value of the housing services provided by the economy's owner-occupied houses is

 

1. 1. included in GDP, and the estimated rental values of the houses are used to place a value on these housing services.
   2. included in GDP, and the actual mortgage payments made on the houses are used to estimate the value of these rental services.
   3. excluded from GDP since these services are not sold in any market.
   4. excluded from GDP since the value of these housing services cannot be estimated with any degree of precision.

 

35. In May 2015, a U.S. firm decides to open a plant in Belgium that produces chocolate. The resulting chocolate bars are then exported to many countries, including the U.S., China, Norway, and Germany. The chocolate bars enter these countries in July 2015 and are bought by consumers. The chocolate bars are:

 

1. 1. Included in the GDP of the U.S. and the GNP of Belgium
   2. Included in the CPI of China and the GNP of Belgium
   3. Included in the GNP of the U.S. and the GDP of Belgium
   4. Included in the CPI of Belgium and the GNP of China

 

36. Babylonia has 1000 workers, each is working 6 hours a day. The country produced 35,000 apples in 2010. In 2011, 200 workers immigrated to Babylonia, each is also working 6 hours a day. The production of apples increased to 50,000 in 2011. What is the growth rate of productivity?
    1. 5.4%
    2. 7%
    3. 14.8%
    4. 19%
37. Complete the sentence: According to the economic model put forth by Thomas Malthus, if the population L is less than the stable level of L*, the average product of labor is _____ than when population is at L*and the population _____ towards L*.

 

1. 1. higher; increase
   2. lower; increase
   3. higher; decrease
   4. lower; decrease

 

38. Recently, imported gasoline prices reached their lowest point since the 1990s. An economist calculating the inflation rate using either CPI or GDP deflator should expect the reduction in imported gasoline prices to translate to

 

1. 1. lower CPI, but not GDP deflator
   2. higher CPI and lower GDP deflator
   3. both CPI and GDP deflator are lower
   4. both CPI and GDP deflator remain the same

 

Scenario 4: The table below lists annual consumer price index and inflation rates for a country over the period 2005-2010. Assume the year 2005 is used as the base year.

 

Year	Consumer Price Index	Inflation Rate
2005	100
2006	115	B
2007	125	C
2008	140	D
2009	A	10%
2010	160	E

 

 

39. Refer to Scenario 4. What belongs in space C?

 

39. 1. 120
    2. 25%
    3. 8.7%
    4. 12%
40. Refer to Scenario 4. What belongs in space A?

 

1. 1. 14
   2. 150
   3. 144
   4. 154