Principles of Macroeconomics (Econ 001) Signature:
Drake University, Fall 2005
William M. Boal Printed name:
MIDTERM EXAMINATION #2 VERSION A
"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. long-run growth.
b. short-run fluctuations.
c. both (a) and (b).
d. neither (a) nor (b).
(2) Which of the following shows a strong upward
trend for the U.S. in the last few decades?
a. The unemployment rate.
b. Real GDP per capita.
c. The inflation rate.
d. The interest rate.
(3) At the peak of a business cycle, actual GDP is
a. above potential GDP.
b. below potential GDP.
c. equal to potential GDP.
d. cannot be determined from information given.
(4) In recent years, Japan experienced a negative
inflation rate of around -1%. 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 2
percent. The real rate of interest is
a. 2 percent.
b. 3 percent.
c. 5 percent.
d. 7 percent.
(6) Consumption spending in the national accounts
includes
a. purchases of new houses.
b. purchases of used cars.
c. spending on visits to doctors and dentists.
d. purchases of government bonds for retirement
accounts.
(7) Investment spending in the national accounts
does not include
a. purchases of new factories.
b. purchases of new homes.
c. purchases of software by businesses.
d. purchases of shares of stock in corporations.
(8) Government purchases in the national accounts
do not include
a. pay for members of the armed services.
b. social security payments.
c. school construction.
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 $5,000; workers it hires for $15,000;
and ovens it leases for $3,000. The value added by
the bagel shop is
a. $7,000.
b. $22,000.
c. $25,000.
d. $30,000.
(10) The rate at which you can buy euros with your
dollars is called
a. the market exchange rate.
b. the purchasing-power parity exchange rate.
c. the real interest rate.
d. net exports.
