EXAM 1 Sample Questions (Ch. 10-13)

ECON 202 | EXAM 1 Sample Questions (Ch. 10-13) Chapter 10: Measuring National Income Essay Question 1: Suppose the minimum wage in 1955 is $1.50 per hour, and the minimum wage in 2010 is $7.25 per hour. The Consumer Price Index (CPI) in 1955 was 32.0, while in 2010 it was 220.0. Which minimum wage has higher purchasing power? Explain. (Hint: Convert the minimum wage of 1995 into the dollar value of 2010 as we did in the class) Essay Question 2: Explain the diΛerence between Real GDP and Nominal GDP. Explain the concept of GDP DeΟator. Consider the following table. 2011 (Base Year) 2012 2013 Price Quantity Price Quantity Price Quantity Good A $30 900 $31 1000 $36 1050 Good B $100 192 $102 200 $100 205 (a) Using the above table, compute Nominal GDP in the years 2011, 2012, and 2013. (b) Using the above table, Compute Real GDP in the years 2011, 2012, and 2013. (c) Using the above table, compute GDP DeΟators in the years 2011, 2012, and 2013. Minimum wage of 1955 1.50 x 33 0 in 2010 10.31 in 2010 The minimum wage of lasshas thehigher purchasing power in today's dollars 2010 Nominal GDP is not corrected for inflation while real GDP is corrected for inflation and uses a base year for prices TheGDPdeflatoris a measure ofhow prices of allgoods services in the economy are changing over time F io 2s 13.4 836 1050 8100 205 8580,300 15 0 830 1000348100 200 15000001446,200 S YEAR 2011 YE 1 100 100 17 YEAR 2012 1 1 1.02865 2102.9 5 800 I 1028 YEAR 2013 13 3 1.0375 103.8 39 82 112

Ch. 10 Multiple Choice Questions 1. Which of the following is the correct deΞnition of Gross Domestic Product (GDP)? a. GDP is the market value of all goods & services produced within a country in a given period of time b. GDP is the market value of all Ξnal goods & services produced by the citizens of a country both in home and abroad in a given period of time c. GDP is the market value of all Ξnal goods produced within a country in a year d. GDP is the market value of all Ξnal goods & services produced within a country in a given period of time 2. In calculating GDP, which of the following items will you NOT include as a component of government spending (G)? a. Government spending on military b. Government spending on infrastructure c. Transfer payments d. Government spending on health and education 3. Suppose Mr. Johnson spends $1500 to buy a new laptop to use in his printing business. The laptop was built in Japan. Which of the following changes will happen to GDP? a. GDP will decrease because the imports will increase by $1500 b. GDP will increase because investment will increase by $1500 c. GDP will remain unchanged d. None of the above is true 4. Which of the following statements is true about real GDP and Nominal GDP? a. Real GDP increases as the quantity of goods and services increases, while nominal GDP increases if price increases b. Real GDP is corrected for price increase, while nominal GDP is not c. None of a and b d. Both a and b 5. Which of the following is true about GDP deΟator? a. GDP deΟator measures how prices of imported goods are changing over time. b. GDP deΟator measures how prices of consumer goods and services change over time c. GDP deΟator measures how prices of all goods and services produced in a country change over time d. GDP deΟator measures inΟation in the economy 6. Which of the following is NOT an example of consumption spending? a. Spending on Food b. Spending on Internet services c. Spending on clothing d. Spending on building a factory 7. Which of the following statements is correct about net exports? O O investments rise exports decreasenetexports spending I 0 O O

Chapter 11: Measuring the Cost of Living Essay Question #1 : Explain the diΛerence between CPI and GDP DeΟator. Essay Question #2 : Calculate the CPI CPI Basket: {10 lbs beef, 20 lbs chicken} The CPI basket cost $120 in 2010, the base year. A. Compute the CPI in 2011. B. What was the CPI inΟation rate from 2011–2012? Essay Question #3 : CPI – Substitution Bias CPI basket: {#10 beef, #20 chicken} 2010–11: Households bought CPI basket. 2012: Households bought {5lbs of beef, 25lbs of chicken} A. Compute the cost of the 2012 household basket . B. Compute % increase in the cost of household baskets over 2011-12. Compare to CPI inΟation rate . Essay Question #4 : CPI vs. GDP deΟator In each scenario, determine the eΛects on the CPI and the GDP deΟator. A. Starbucks raises the price of CoΛee. B. Caterpillar raises the price of the industrial tractors it manufactures at its Illinois factory. C. Armani raises the price of the Italian jeans it sells in the U.S. Essay Question #5 : Comparing tuition increases. Express the 1990 tuition Ξgures in 2010 dollars, then compute the percentage increase for all three types of schools. Which type experienced the largest increase in real tuition costs? cpt cost of basket ofgas in current yea costof the same basket in base ye x 100 n s GDPDeflator Yeomainaff x too a CPI or consumer Price Indexis a measure ofhow prices of a fixed basket's goods The GDPdeflator is ameasure ofhow prices of all goods and services inthe economy t i ii changeover time 7197100 8 0 11251 III II S t.is so qq.jp 1 7 100 X rateof increase 141955 50 1 30 1162.51 opt inflation rate from previous problem 40 CPI and GDP increase GDP increases but CPI remains unchanged CPI increases but GDP remains unchanged is see 138.9 3.184 a.at Private 9,340 x 35 7 815,585.72 811,707.28 Private 4 yr experienced the Public Myr 1,908 1.6687 83,183.89 Public 1240 906 1.6687 si su.gs tgfzg ig largest increase in tuition costs

Ch. 11 Multiple Choice Questions 1. Suppose the price of readymade garments imported from China went up. Which of the following statements is true about the eΛect of this change? a. GDP deΟator will increase b. InΟation will increase c. Both GDP and inΟation will increase d. Neither GDP deΟator nor inΟation will increase 2. Because of the substitution bias problem, InΟation actually: a. Understate the actual cost of living b. Overstate the actual cost of living c. None d. Both 3. If Starbucks increases the price of coΛee, which of the following will happen? a. GDP deΟator will increase but inΟation will remain unchanged b. Both GDP deΟator and InΟation will increase c. InΟation will increase but GDP deΟator will not increase d. None of the above 4. Consider the following table. Assume that the basket is comprised of 4 pizzas and 10 lattes. Also assume that year 2010 is our base year. Year Price of Pizza Price of Latte 2010 $10 $2.00 2011 $11 $2.50 2012 $12 $3.00 Which of the following is CPI for year 2011? a. 115 b. 110 c. 112 d. 120 5. Following the same table above, which of the following is the inΟation rate from year 2010 to year 2011? a. 15% b. 10% c. 20% d. 12% 4 840 410 820 xy 44 10 825 was figs O F Is nwo 6 60 0.15 100 154

11. Suppose the price of industrial tractor produced in Chicago increased. Then which of the following will happen? a. CPI will increase b. GDP deΟator will increase c. Both CPI and GDP deΟator will increase d. Nothing will happen 12. Suppose the minimum wage in 1964 is $1.15 and the minimum wage in 2010 is $7.25, while CPI in 1964 is 31.3 and CPI in 2010 is 220.3. Then what is the dollar value of 2010-minimum wage in 1964 in terms of purchasing power? a. $1.03 b. $1.15 c. $1.20 d. $7.25 13. Following the information in above question, which minimum wage has higher purchasing power? a. Minimum wage in 2010 b. Minimum wage in 1964 14. Which of the following is the correct relationship among the real interest rate, inΟation rate, and nominal interest rate? a. Real interest rate=Nominal interest rate-inΟation rate b. Nominal interest rate=inΟation rate + real interest rate c. Both (a) and (b) d. None of the above 15. Suppose from January through December of year 2015 you earned a nominal interest rate of 2.5% by depositing $100 into a bank. If the inΟation rate in 2015 was 1%, then what was the real interest rate you earned in 2015? a. 1% b. 1.5% c. 2.5% d. 2% 16. Following the information in the above question, how much did the purchasing power of your $100 increase throughout the year? a. 1.5% b. 2.5% c. 1% d. 3.5% O O 7 25 2 3 1.03 W O 2 St I 10 1St

Chapter 12: Production and Growth Essay Question #1 : Write down the deΞnitions of Capital, Human Capital, and Technology. Essay Question #2 : Explain the diΛerence between constant returns to scale, increasing returns to scale, and decreasing returns to scale in production function. Ch. 12 Multiple Choice Questions 1. Which of the following is the correct deΞnition of labor productivity? a. Total real GDP (Y) divided by Quantity of Labor (L) b. Total real GDP (Y) divided by Total Capital Stock (K) c. Total Quantity of Labor (L) divided by Total Capital Stock (K) d. Total Quantity of Labor (L) divided by Human Capital (H) 2. Waldo works eight hours and produces 7 units of goods per hour. Emerson works six hours and produces 10 units of goods per hour. a. Waldo’s productivity and output are greater than Emerson’s. b. Waldo’s productivity is greater than Emerson’s but his output is less. c. Emerson’s productivity and output are greater than Waldo’s. d. Emerson’s productivity is greater than Waldo’s but his output is less. 3. Which of the following is an example of capital stock? a. Heavy machines and tools used to produce goods and services (g&s). b. Knowledge and skills used to produce g&s c. Quantity of labor used to produce g&s. d. None of the above 4. Human Capital is the knowledge and skills workers acquire through education, training, and experience, while Technological Knowledge is society’s understanding of the best ways to produce G&S. a. True b. False 5. If the government of a country oΛers incentives for school attendance, then which of the following will be directly aΛected? a. Capital Stock (K) b. Labor Supply (L) c. Human Capital d. Natural Resources Capital is thestock of equipment and structure usedto produce goes denoted K productivity is higher when the average worker has more capital Human Capital is the knowledge and skills workers acquirethrough education training and experience Technology is society's understanding of the best ways to produce goes capital is machines tools equipment used in production of gas denoted K Human Capital areskills knowledgeeducation training experience Technology is the levelof utilization of technology skills of workers and social organization Constant returns to scale is changing all inputs by the same percentage causes output to change by that Percentage Decreasing returns toscale is increasing all inputs by the same percentage causes tÉÉÉÉeÉÉÉ tt less than the value ofthe increase Increasing rooms to scale is changing all inputs by the same percentage causesoutputs to increase by more than that percentage causesoutputs to change by less than NX o that percentage 856 66 O

Ch. 13 Multiple Choice Questions 1. Which of the following statements is true? a. Stocks give a Ξxed return b. Bonds give a Ξxed return c. The average return from stocks are lower than the average return from bonds d. None of the above 2. In a closed economy (NX=0), total national savings must be equal to total national investment. a. True b. False 3. If the interest rate increases, then: a. The supply of loan increases b. The demand for loan increases c. Both supply of loan and the demand for loan increases d. None of the above 4. If the US government gives tax incentives for savings, then which of the following will happen? a. The interest rate will increase b. The interest rate will decrease c. The demand for loan will increase d. The supply of loan will decrease 5. If the US government gives incentives for investment in the USA, then which of the following will happen? a. The demand for loan will increases b. The supply of loan will increase c. The demand for loan will decrease d. The interest rate will decrease 6. If the US government’s budget deΞcit increases, then which of the following will happen? a. The US interest rate will increase b. The US interest rate will decrease c. The US supply of Loan will increase d. Both b and c 7. Increase in budget deΞcit causes fall in investment. The govt borrows to Ξnance its deΞcit, leaving less funds available for investment. This is known as crowding out. a. True b. False 8. If the US government runs into a budget surplus which previously was in a deΞcit, then: a. The supply of loan curve in the USA shifts to the left b. The demand for loan curve in the USA shifts to the left c. The demand for loan curve in the USA shifts to the right d. The supply of loan curve in the USA shifts to the right X 8 o if

9. If interest rate in the USA increases, then: a. US investment decreases b. US investment increases 10. Which of the following statement is NOT true? a. The supply of loan comes from national saving b. If the government gives incentives for new investment then the demand for loan increases c. With everything else being the same, if interest rate increases, then investment decreases d. If the demand for loan increases then interest rate decreases. Hq