Kentucky Community and Technical College System

ECO 201

MACROECONOMICS-TEST TWO

1)A nation's gross domestic product (GDP):

1. 1. is the dollar value of the total output produced within the borders of the nation.
   2. is the dollar value of the total output produced by its citizens, regardless of where they are living.
   3. can be found by summing C + In + S + Xn.
   4. is always some amount less than its C + Ig + G + Xn.

 

2. Net exports are negative when:
   1. a nation's imports exceed its exports.
   2. the economy's stock of capital goods is declining.
   3. depreciation exceeds domestic investment.
   4. a nation's exports exceed its imports.

 

3. Suppose that inventories were $80 billion at the end of 2000 and $70 billion at the end of 2001. For 2001, accountants would:
   1. add $10 billion to other elements of investment in calculating total investment.
   2. subtract $10 billion from other elements of investments in calculating total investment.
   3. add $40 billion (= $80/2) to other elements of investment in calculating total investment.
   4. add $35 billion (= $70/2) from other elements of investment in calculating total investment.

 

4. GDP excludes:
   1. the market value of unpaid work in the home.           B)        the production of services.

C) the production of nondurable goods.	D)	negative changes in inventories.
Real GDP measures: current output at current prices.	B)	current output at base year prices.
C) base year output at current prices.	D)	base year output at current exchange rates.

 

6. If real GDP falls from one period to another, we can conclude that:
   1. deflation definitely occurred.                              B)            inflation definitely occurred.

C) nominal GDP definitely fell.                                 D)           production of goods and services definitely fell.

 

 

Year   Units of Output Price of bagel per unit Price index (year 1 = 100) 1 10 $10 100 2 12 20 200 3 15 30 300 4 20 40 400   7.   Refer to the above data. Nominal GDP in A) $320. B) $450. C) $225. D) $800.

Use the following table to answer questions 7-8 (Note that year 1 is the base year):

 

 

 

 

 

 

 

 

year 4 is:

 

 

 

8. Refer to the above data. Real GDP in year 4 is: A) $320.                                                B)                                                $450.

C) $200.                              D)           $800.

9. The consumer price index (CPI):
   1. is an average of the prices of all consumer goods purchased each year.
   2. measures changes in the prices of a market basket of some 300 goods and services purchased by urban consumers.
   3. measures prices of goods, but not services.
   4. is also known as the GDP price index.

 

10. Real GDP per capita is found by:
    1. adding real GDP and population.                      B)            subtracting population from real GDP.

C) dividing real GDP by population.                        D)           dividing population by real GDP.

 

11. Recurring upswings and downswings in an economy's real GDP over time are called:
    1. recessions.                  B)            business cycles.

C) output yo-yos.           D)           total product oscillations.

 

12. The phase of the business cycle in which real GDP is at a minimum is called:
    1. the peak.                     B)            a recession.

C)   the trough.                  D)           the pits.

 

13. If the unemployment rate is 9 percent and the natural rate of unemployment is 5 percent, then the:
    1. frictional unemployment rate is 5 percent.
    2. cyclical unemployment rate and the frictional unemployment rate together are 5 percent.
    3. cyclical unemployment rate is 4 percent.
    4. natural rate of unemployment will eventually increase.

 

14. Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is:
    1. 3 percent.    B)            6 percent.

C) 53 percent.   D)         Not enough information given.

 

15. Dr. Pinch A Penny, an economics professor, decided to take all of year 2007 off from teaching to work running a commercial fishing boat in Alaska, a for-profit endeavor. Professor Penny did so poorly that all he caught was some blow fish and, therefore, had no income from his fishing endeavor. In 2007, Professor Penny would be officially counted as:
    1. structurally unemployed.                     B)            frictionally unemployed.

C) not in the labor force.                             D)           employed.

 

16. "For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point GDP gap occurs." This is a statement of:
    1. Taylor's rule.                               B)            Okun's law.

C) Say's law.                                     D)           Marx's communist theorem.

 

17. Inflation means that:
    1. all prices are rising, but at different rates.
    2. all prices are rising and at the same rate.
    3. prices in the aggregate are rising, although some particular prices may be falling.
    4. real incomes are rising.

 

18. If the Consumer Price index rises from 300 to 330 in a particular year, the rate of inflation in that year is:
    1. 10 percent.                 B)            33 percent.

C) 30 percent.                  D)           9.1 percent; that is, 30 divided by 330.

 

19. "Too much money chasing too few goods" best describes:
    1. the GDP gap.                              B)            demand-pull inflation.

C)   the inflation premium.           D)            cost-push inflation.

 

20. In 2007 Frank N. Stine was rewarded for his late night work and got a 6.5% pay increase, but at the same time the price level (inflation) rose by 3.5 percent. We can conclude that Mr. Stine's nominal income in 2007:
    1. rose by 3 percent.                                                    B)            rose by 10 percent.

C) rose by 6.5 percent.                                                 D)           fell by 3.5 percent.

 

21. If Casimiro Aguacate’s disposable income increases from $1,200 to $1,700 and his level of saving increases from minus $100 to a plus $100, his marginal propensity to:
    1. save is three-fifths.                 B)            consume is one-fifth.

C) consume is three-fifths.        D)           save is one-fifth.

 

22. With an MPS of .4, the MPC will be:
    1. 1.0 minus .4.                                              B)            .4 minus 1.0.

C) the reciprocal of the MPS.    D)           .4.

 

23. The average propensity to consume indicates the:
    1. amount by which income exceeds consumption.
    2. relationship between a change in saving and the consequent change in consumption.
    3. percentage of total income that will be consumed.
    4. percentage of a change in income that will be consumed.

 

24. Dissaving occurs where:
    1. income exceeds consumption.          B)            saving exceeds consumption.

C) consumption exceeds income.           D)           saving exceeds income.

 

Use the following to answer question 25. Example of what the table shows: from row one to row two total disposable income goes from 200 to 225, and total consumption goes from 205 to 225.

 

Disposable income	Consumption
$ 200	$ 205
225	225
250	245
275	265
300	285

 

25. Refer to the above data. The marginal propensity to consume is:
    1. Not enough information.                     B) .75.

C) .20.                                                                 D) .80.

 

26. Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:
    1. 5 percent.                    B)            10 percent.

C) 15 percent.                  D)           20 percent.

 

27. Assume a machine, which has a useful life of only one year, costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate of return on this machine is:
    1. 7.5 percent. B) 10 percent.                               C) 15 percent.               D) 20 percent.

 

28. The immediate determinants of investment spending are the:
    1. expected rate of return on capital goods and the real interest rate.
    2. level of saving and the real interest rate.

28. 3. marginal propensity to consume and the real interest rate.
    4. interest rate and the expected price level.
29. The equilibrium level of GDP in a private (no government) closed (no net exports) economy is where:
    1. MPC = APC.                                B)            unemployment is about 3 percent of the labor force.

C) consumption equals saving. D)           aggregate expenditures equal GDP.

 

30. The practical significance of the multiplier is that it:
    1. brings about an equality of planned investment and saving.
    2. magnifies relatively small initial changes in spending into larger changes in GDP.
    3. keeps inflation within tolerable limits.
    4. helps to stabilize the economy.

 

31. The multiplier is:
    1. 1/APS.           B) 1/APC.

C) 1/MPC.         D) 1/MPS.

 

32. The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level

are the:

1. 1. real-balances, interest-rate, and foreign purchases effects.
   2. determinants of aggregate supply.
   3. determinants of aggregate demand.
   4. sole determinants of the equilibrium price level and the equilibrium real output.

 

Use the following to answer question 33 (and pay attention to the direction of the arrows):

 

 

AS

AD2        AD1

AD1        AD2

AS1 AS2 b

a

c

Price level

AS2     AS1

 

 

3

P

 

Price level

Price level

P2                             b

 

P1                                  a               P2

P1                                                                                            P1

AD

0           Q2   Q1

Real domestic output GDP

(A)

 

0                         Q2    Q1

Real domestic output GDP

(B)

 

0                     Q1    Q2   Q3

Real domestic output GDP

(C)

 

33. Refer to the above diagrams. Assume that all curves have shifted as shown by the arrows. A recession is depicted by:
    1. panel (A) only.           B)            panel (B) only.

C) panel (C) only.           D)           panels (A) and (B).

 

34. Countries engaged in international trade specialize in production based on:
    1. relative levels of GDP.            B)            comparative advantage.

C)   relative exchange rates.        D)           relative inflation rates.

 

35. Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in the United States while the world price is $1.00 a pound. Assuming no transportation costs, the United States will:
    1. have a domestic surplus of copper.  B)            export copper.

C) import copper.                                          D)           neither export nor import copper.

 

 

36. A nation will neither export nor import a specific product when its:
    1. domestic price (no-international-trade price) equals the world price.
    2. export supply curve lies above its import demand curve.

1. 3. export supply curve is upsloping.
   4. import demand curve is downsloping.

 

37. Tariffs:
    1. may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign competition (protective tariffs).
    2. are also called import quotas.
    3. are excise taxes on goods exported abroad.
    4. are per unit subsidies designed to promote exports.

 

38. Evidence of a chronic balance of payments deficit (not trade deficit) is:
    1. a decline in amount of the nation's currency held by other nations.
    2. an excess of exports over imports.
    3. diminishing reserves of foreign currencies.
    4. an increase in the international value of the nation's currency.

 

Answer questions 39 and 40 on the basis of the following 2003 balance of payments data (+ and -) for the hypothetical nation of Zabella. All figures are in billions of dollars.

 

Current Account
1) Goods exports	+$80
2) Goods imports	-70
3) Exports of services	+20
4) Imports of services	-25
5) Net investment income	+5
6) Net transfers	-5
Capital Account
7) Foreign purchases of assets in the United States	+13
8) U.S. purchases of assets abroad	-23
Official Reserves Account
9) Official reserves	+5

 

39. Refer to the above data. Zabella's balance on goods and services shows a:
    1. $5 billion deficit.                        B)            $5 billion surplus.

C) $10 billion surplus.                   D)           $15 billion deficit.

 

40. Refer to the above data. Zabella has a balance of payments:
    1. deficit of $5 billion.                  B)            surplus of $10 billion.

C) deficit of $10 billion.                D)           surplus of $5 billion.

 

Use the following table to answer questions 41-42 (Note that year 1 is the base year):

 

Year	Units of Output	Price of bagel per unit	Price index (year 1 = 10
1	10	$10	100
2	12	15	150
3	15	20	200
4	20	25	250

41. Refer to the above data, and using year 1 as the base year. From year 3 to year 4, real GDP:
    1. went up by $50.                        B) went up by $100.

C) went up by $200.                      D) went up by $300.

 

42. Refer to the above data, and using year 1 as the base year. From year 3 to year 4, nominal GDP: