Multiple Choice Questions in Midterm on Principles of Macroeconomics | ECON 001 | Exams Introduction to Macroeconomics

Principles of Macroeconomics (Econ 001) Signature:

Drake University, Fall 2005

William M. Boal Printed name:

MIDTERM EXAMINATION #2 VERSION B

"National Income and Product Accounts"

October 3, 2005

INSTRUCTIONS: This exam is closed-book, closed-notes. Simple calculators are permitted, but graphing

calculators or calculators with alphabetical keyboards are NOT permitted. Numerical answers, if rounded, must

be correct to at least 3 significant digits. Point values for each question are noted in brackets. Maximum total

points are 100.

I. Multiple choice: Circle the one best answer to each question. [2 pts each, 20 pts total]

(1) Over time, a graph of real GDP shows

a. short-run fluctuations.

b. long-run growth.

c. both (a) and (b).

d. neither (a) nor (b).

(2) Which of the following does not show a strong

upward trend for the U.S. in the last few decades?

a. Employment.

b. Real GDP per capita.

c. The inflation rate.

d. GDP.

(3) During normal times, actual GDP is

a. above potential GDP.

b. below potential GDP.

c. equal to potential GDP.

d. cannot be determined from information given.

(4) The inflation rate in the U.S. fell from 13.3% in

1979 to 3.8% in 1982. This is an example of

a. disinflation.

b. deflation.

c. reflation.

d. recession.

(5) Suppose a bank pays an interest rate of 5 percent

on deposits and the expected inflation rate is 3

percent. The real rate of interest is

a. 2 percent.

b. 3 percent.

c. 5 percent.

d. 8 percent.

(6) Consumption spending in the national accounts

does not include

a. purchases of new houses.

b. purchases of new cars.

c. spending on visits to doctors and dentists.

d. spending on necessities, like food.

(7) Investment spending in the national accounts

includes

a. purchases of government bonds.

b. purchases of real estate.

c. purchases of software by businesses.

d. purchases of shares of stock in corporations.

(8) Government purchases in the national accounts

includes

a. unemployment insurance benefits.

b. social security payments.

c. interest payments on the national debt.

d. maintenance of national parks.

(9) Suppose a bagel shop produces and sells $30,000

of bagels using flour and other ingredients it

purchases for $8,000; workers it hires for $15,000;

and ovens it leases for $5,000. The value added by

the bagel shop is

a. $2,000.

b. $22,000.

c. $25,000.

d. $30,000.

(10) The ratio of the cost of a typical combination of

goods purchased by a consumer in the United States,

to the cost of the same combination of goods in

China is

a. the market exchange rate.

b. the purchasing-power parity exchange rate.

c. the real interest rate.

d. net exports.

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Principles of Macroeconomics (Econ 001) Signature: Drake University, Fall 2005 William M. Boal Printed name:

MIDTERM EXAMINATION #2 VERSION B

"National Income and Product Accounts"

October 3, 2005

INSTRUCTIONS: This exam is closed-book, closed-notes. Simple calculators are permitted, but graphing calculators or calculators with alphabetical keyboards are NOT permitted. Numerical answers, if rounded, must be correct to at least 3 significant digits. Point values for each question are noted in brackets. Maximum total points are 100. I. Multiple choice: Circle the one best answer to each question. [2 pts each, 20 pts total] (1) Over time, a graph of real GDP shows a. short-run fluctuations. b. long-run growth. c. both (a) and (b). d. neither (a) nor (b). (2) Which of the following does not show a strong upward trend for the U.S. in the last few decades? a. Employment. b. Real GDP per capita. c. The inflation rate. d. GDP. (3) During normal times, actual GDP is a. above potential GDP. b. below potential GDP. c. equal to potential GDP. d. cannot be determined from information given. (4) The inflation rate in the U.S. fell from 13.3% in 1979 to 3.8% in 1982. This is an example of a. disinflation. b. deflation. c. reflation. d. recession. (5) Suppose a bank pays an interest rate of 5 percent on deposits and the expected inflation rate is 3 percent. The real rate of interest is a. 2 percent. b. 3 percent. c. 5 percent. d. 8 percent. (6) Consumption spending in the national accounts does not include a. purchases of new houses. b. purchases of new cars. c. spending on visits to doctors and dentists. d. spending on necessities, like food. (7) Investment spending in the national accounts includes a. purchases of government bonds. b. purchases of real estate. c. purchases of software by businesses. d. purchases of shares of stock in corporations. (8) Government purchases in the national accounts includes a. unemployment insurance benefits. b. social security payments. c. interest payments on the national debt. d. maintenance of national parks. (9) Suppose a bagel shop produces and sells $30, of bagels using flour and other ingredients it purchases for $8,000; workers it hires for $15,000; and ovens it leases for $5,000. The value added by the bagel shop is a. $2,000. b. $22,000. c. $25,000. d. $30,000. (10) The ratio of the cost of a typical combination of goods purchased by a consumer in the United States, to the cost of the same combination of goods in China is a. the market exchange rate. b. the purchasing-power parity exchange rate. c. the real interest rate. d. net exports.

II. Problems: Insert your answer to each question in the box provided. Feel free to use the margins for scratch workonly the answers in the boxes will be graded. Work carefullypartial credit is not normally given for questions in this section. (1) [GDP: 16 pts] Consider each of the following items. Should it be counted as part of U.S. GDP for the year 2005? If so, in which spending component of GDP—consumption (C), investment (I), government purchases (G), or net exports (X)—does it belong? (If not, draw a line through the box.) Part of U.S. GDP for 2005? (YES or NO) If yes, then which spending component? (C, I, G, or X) a. A plot of land in northern Minnesota, sold to a family planning to build a vacation home. b. A new high-speed computer, sold to a bank. c. A new high-speed computer, sold to the Department of Defense. d. A 1961 baseball card of Mickey Mantle, sold on eBay to a collector. e. A new pair of blue jeans, sold to a teenager in a shopping mall. f. A newly-built condominium, sold to a retired couple. g. A new Boeing jet, sold to an Asian airline. h. A share of newly-issued stock from a growing company, sold in an initial public offering to an investor. (2) [Components of GDP: 16 pts] The imaginary country of Metal Land has just four industries: the Aerospace Industry, the Steel Industry, the Construction Industry, and the Forks-and-Knives Industry. There are no other goods and no international trade. In a recent year:  The Aerospace Industry built $50 billion of jet aircraft for the government.  The Steel Industry produced $10 billion worth of steel for the Aerospace Industry, $20 billion worth of steel for the Construction Industry, and $30 billion worth of steel for the Forks-and-Knives Industry, for total sales of $60 billion.  The Construction Industry built $10 billion worth of factories for each industry (including itself) as well as $ 30 billion worth of apartment buildings, for total sales of $70 billion.  The Forks-and-Knives Industry produced $100 billion worth of forks and knives for consumers. a. Compute the spending components of Metal Land’s GDP. b. Compute value added by each industry in Metal Land.

Consumption (C) $ billion Aerospace Industry $ billion

Investment (I) $ billion Steel Industry $ billion

Government purchases (G)

$ billion Construction Industry^ $ billion

Total GDP (Y) $ billion Forks-and-Knives

Industry

$ billion

(6) [Inflation and the CPI: 2 pts] The federal minimum wage was $1.00 per hour and the CPI was 29.8 in January 1961, when John F. Kennedy was inaugurated. The CPI is now about 197. Compute the value of the January 1961 minimum wage in today's dollars to the nearest cent.

(7) [Inflation: 2 pts] The CPI was 184.3 in December 2003 and 190.3 in December

Compute the annual rate of inflation from December 2003 to December 2004 to

the nearest tenth of a percentage point. %

(8) [GDP and real GDP: 16 pts] In an imaginary country, only two final goods are produced—energy and other

goods—as shown in the following table.

Year Energy Other goods Price Quantity Price Quantity 2003 $6 100 $3 200 2004 $14 100 $3 300 Use the data above to complete the following table. Compute the growth rate of real GDP, the level of real GDP, and the GDP deflator using the same method used by the U.S. Bureau of Economic Analysis.

2003 2004 Growth rate

GDP (also called "nominal GDP" or "current-dollar GDP")

Real GDP (base year = 2003) $ $ %

GDP deflator or price index (base year = 2003)

III. Critical thinking: Write a one-paragraph essay answering one question below (your choice). Full credit requires correct economic reasoning, legible writing, good grammar including complete sentences, and accurate spelling. [4 pts] (1) Suppose next year fewer teenagers dropped out of high school, and more teenagers stayed in high school to complete their diplomas. Would the immediate effect be an increase in GDP, a decrease in GDP, or no change? (2) Which grows fastest: GDP, real GDP, or real GDP per capita? Justify your answer. Which question are you answering, (1) or (2)? _________. Please write your answer below: [end of exam]

Multiple Choice Questions in Midterm on Principles of Macroeconomics | ECON 001, Exams of Introduction to Macroeconomics

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Partial preview of the text

Download Multiple Choice Questions in Midterm on Principles of Macroeconomics | ECON 001 and more Exams Introduction to Macroeconomics in PDF only on Docsity!

MIDTERM EXAMINATION #2 VERSION B

"National Income and Product Accounts"

October 3, 2005

Consumption (C) $ billion Aerospace Industry $ billion

Investment (I) $ billion Steel Industry $ billion

$ billion Construction Industry^ $ billion

Total GDP (Y) $ billion Forks-and-Knives

$ billion

the nearest tenth of a percentage point. %

goods—as shown in the following table.

2003 2004 Growth rate

Real GDP (base year = 2003) $ $ %