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ECO 181 Mid-term Exam (Version 1) Question 1 If the Consumer Price Index (CPI) overstates the true rate of inflation, the use of the CPI to adjust nominal incomes results in A. understating gains in real incomes. B. overstating gains in real incomes. C. an accurate statement of gains in real incomes. D. nominal values equaling real values. E. an arbitrary redistribution of income. Question 2 If, in a given period, the rate of inflation turns out to be lower than lenders and borrowers anticipated, the effect is that A. the real payments by the borrowers will be lower than expected. B. the nominal income of lenders will be higher than expected, but their real income will be lower than expected. C. the nominal income of the lenders will be as expected, but their real income will be higher than expected. D. both the nominal and real income of lenders will be higher than expected. E. the real income of lenders will be higher than expected, but their nominal income will be lower than expected. Question 3 The CPI for a given year measures the cost of living in that year relative to A. what it was in the base year. B. what it was in the previous year. C. the cost of the basic goods and services need to sustain a typical household. D. the amount spent on goods and services by the randomly selected families in the Consumer Expenditure Survey. E. the cost of the basic goods and services in the base year. Question 4 If the Consumer Price Index is 135 at the end of 2001 and, at the end of 2002, it is 142, then during 2002 the economy experienced A. deflation. B. inflation. C. hyperinflation. D. indexing. E. deflating. Question 5 If on the day you were born, your parents deposited $1,000 into a saving account that would earn an annual compound interest rate of 5 percent, what would the value of the account be on your 20th^ birthday?
A. $1,100.
B. $2,653.
C. $3,325,256.
D. $1,500.
E. $1,050.
Question 6 The faster the rate of technological change, the A. lower the rate of growth in productivity. B. lower the rate of economic growth. C. higher the rate of unemployment. D. higher the rate of productivity. E. higher the rate of capital accumulation. Question 7 The scarcity principle implies that the cost of a higher economic growth rate is A. less future capital accumulation. B. less current consumption. C. greater future capital consumption. D. greater current consumption. E. greater future consumption. Question 8 An increase in the price of Tomko toothpaste, a substitute for Durrell toothpaste, will cause A. the quantity of Durrell toothpaste demanded to increase. B. the quantity of Tomko toothpaste demanded to increase. C. the demand for Tomko toothpaste to decrease. D. the demand for Tomko toothpaste to increase. E. the demand for Durrell toothpaste to increase. Question 9 In a free market, if the price of a good is below the equilibrium price, then A. government needs to set a higher price. B. suppliers, dissatisfied with growing inventories, will raise the price. C. demanders, wanting to ensure they acquire the good, will bid the price higher. D. government needs to set a lower price. E. suppliers, dissatisfied with growing inventories, will lower the price. Question 10 If, when the price of X increases, the demand for Y increases, we can conclude that A. X and Y are complements. B. X and Y are substitutes. C. X and Y are normal. D. X and Y are inferior. E. X and Y are superior.
the third year. The CPI is 1.00 in the first year, 1.07 in the second year, and 1.15 in the third year. What dollar wage must be paid in the third year? A. $10. B. $10. C. $11. D. $12. E. $12. Question 16 Suppose that the CPI does indeed overstate the rate of inflation. When the CPI increases by 5% and household incomes increase by 5%, we should conclude that the real incomes of households: A. increased. B. stayed constant. C. decreased. D. increased at the same rate as inflation. E. increased more slowly than inflation. Question 17 Two types of bias that tend to cause the CPI to overstate the “true” rate of inflation are the bias and the bias. A. substitution; quality adjustment B. price; quantity C. aggregation; price D. quality adjustment; price adjustment E. new product; aggregation Question 18 Suppose the value of the CPI is 1.10 in year 1, 1.21 in year 2, and 1.331 in year 3. Assume also that the price of computers increases by 3% between year 1 and year 2, and by another 3 % between year 2 and year 3. The price level is increasing, the inflation rate is , and the relative price of computer is. A. increasing; increasing B. constant; increasing C. constant; decreasing D. increasing; decreasing E. decreasing; decreasing Question 19 If workers and employers agree to a three-year wage contract expecting 5% inflation and inflation turns out to be 3%, then: A. workers gain; employers gain B. workers gain; employers lose C. workers lose; employers gain D. workers lose; employers lose E. neither workers nor employers are affected by the unexpectedly low inflation.
Question 20 If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 7% and inflation turns out to be 10% over the life of the loan, then the borrower and the lender. A. gains; gains B. gains; loses C. is not affected; gains D. loses; gains E. loses; loses Question 21 The market interest rate in Alpha is 7% and the market interest rate in Beta is 10%, but the inflation rate in Alpha is 5% and inflation rate in Beta is 6%. Which of the following statements is true? A. The real interest rate is higher in Alpha, but the nominal interest rate is higher in Beta. B. The real interest rate is lower in Alpha, but the nominal interest rate is lower in Beta. C. Both the real and nominal interest rates are higher in Alpha. D. Both the real and nominal interest rates are higher in Beta. E. The real and nominal interest rates are the same in Alpha and Beta. Question 22 Real GDP per person equals average labor productivity: A. times one minus the unemployment rate. B. minus the share of population employed. C. times the labor force participation rate. D. divided by the labor force participation rate. E. times the share of population employed. Question 23 The population of Alpha totals one million people of whom 40 percent are employed. Average output per worker in Alpha is $20,000. Real GDP per person in Alpha totals: A. $8, B. $12, C. $20, D. $28, E. $8 billion Question 24 Mike and Tom debone chicken breasts for Ted’s Chicken Co. Mike is new and can only debone 30 chicken breasts per hour by hand, while Tom’s experience allows him to debone 60 chicken breasts per hour by hand. Ted buys one new machine that can debone 100 chicken breasts per hour. Both Mike and Tom work the same 40 hours per week, but one of them is assigned to operate the machine instead of deboning the chicken breasts by
Question 27 As a result of a war in the country of Omega refugees flee to the country of Alpha to seek employment. Holding other factors constant, the influx of refugees will _____ the real wage in Alpha and ____ employment in Alpha. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase E) decrease; not change Question 28 The demand for labor depends on ______ and _______. A) the supply of labor; the marginal product of labor B) the supply of labor; the price of output produced C) the rate of price inflation; the price of the output produced D) the rate of price inflation; the marginal product of labor E) the marginal product of labor; the price of output produced Question 29 If the price of TVs produced by the XYZ-TV Company falls from $1,000 to $ A) supply of labor to the XYZ-TV Company increases. B) supply of labor to the XYZ-TV Company decreases. C) demand for labor by the XYZ-TV Company increases. D) demand for labor by the XYZ-TV Company decreases. E) marginal product of labor employed by the XYZ-TV Company decreases. Question 30 The following table provides information about production at the XYZ-TV Company. N u m b e r o f T V s P r o d u c e d M a r g i n a l V a l u e o f W o r k e r s P r o d u c t M a r g i n a l P r o d u c t 0 0 - - - - 1 3 5 3 5 $ 3 5 , 0 0 0 2 6 8 3 3 $ 3 3 , 0 0 0 3 9 9 3 1 $ 3 1 , 0 0 0 4 1 2 8 2 9 $ 2 9 , 0 0 0 5 1 5 5 2 7 $ 2 7 , 0 0 0 How many workers will the XYZ-TV Company hire if the going wage for TV production workers is $30,000? A) 1 B) 2 C) 3 D) 4 E) 5
Question 31 Holding other factors constant, if the education and skills of the typical worker in an economy increases, then the real wages of workers will _____ and employment of workers will _____. A) increase; increase B) increase; decrease C) decrease; not change D) decrease; decease E) decrease; increase Question 32 The demand for labor in a certain industry is ND^ = 300 - 3w, where ND^ is the number of workers employers want to hire and w is the real wage measured in dollars per day. The supply of labor in the same industry is NS^ = 100 + 2w, where NS^ is the number of people willing to work. If the minimum wage is $50 per hour, how many workers will be unemployed? A) 10 B) 20 C) 30 D) 40 E) 50 Question 33 The introduction of word processing software that increases the demand for workers with computer skills relative to those without such skills is an example of: A) increasing reservation prices. B) skill-biased technological change. C) the diminishing marginal product of labor. D) the diminishing marginal product of capital. E) globalization.
1 A 2 C 3 A 4 B 5 B 6 D 7 B 8 E 9 C 10 B 11 B 12 D 13 B 14 C 15 D 16 A 17 A 18 C 19 B 20 B 21 D 22 E 23 A 24 B 25 C 26 B 27 D 28 E 29 D 30 C 31 A 32 E 33 B
