Eco202 Summer 2017, Practice questions for chapters 4 and 5.
1. Which of the following is NOT one of the four components of the expenditure side of GDP?
a. consumption
b. government transfer payments
c. private investment
d. all of the above represent a component of the expenditure side of GDP..
2. Which of the following would cause the growth in real GDP to understate the improvement in the standard of living over time?
a. if the average person increases hours worked over time.
b. if the environment is worsening over time.
c. if people increase the amount of household production over time.
d. none of the above.
Suppose that an economy produces only apples and oranges and the prices and quantities of each are given in the table below.
Year / · Price of oranges / Price of apples / Quantity of Oranges / Quantity ofApples
2013 / · 2 / 2 / 1000 / 800
2014 / · 3 / 1 / 1200 / 1000
3. Assuming that 2013 is the base year, real GDP in 2014 is _____ and nominal GDP in 2014 is _____.
a. $4200; $4800
b. $4400; $4600
c. $3800; $4600
d. none of the above.
4. Assuming that 2013 is the base year, the GDP deflator is ____ in 2013 and _____ in 2014
a. 95.6; 100
b. 100; 104.5
c. 95.6; 104.5
d. 100; 95.6
5. Suppose business inventories rise by $50 billion during 2014. This means that during 2014,
a. production exceeded sales by $50 billion in 2014
b. sales exceed production by $50 billion in 2014
90 billion
c. production exceeded sales by $50 billion in 2013
d. sales exceed production by $50 billion in 2013
To answer the next 5 questions, refer to the information for the U.S. economy provided below:
Year / Nominal GDP(in billions of $) / GDP deflator / Civilian Noninstitutionalized Working Age Population
(in 1000s) / Civilian Labor Force Pariticipation Rate /
Employed
(in 1000s)
2000 / 10,031 / 81.2 / 211,410 / 67.3 / 136,559
2013 / 16,502 / 106.2 / 244,663 / 63.7 / 143,328
2014 / 17,044 / 107.7 / 246,915 / 63.0 / 145,206
6. Based on the information provided, the size of the civilian labor force in 2014 was ____ and the number of unemployed workers was ____.
a. 147.3 million; 13.7 million
b. 155.5 million; 10.4 million;
c. 138.2 million; 10.4 million
d. 155.5 million; 13.7 million
7. Based on the information provided, the unemployment rate in 2000 was
a. 3.2% b. 4.0% c. 4.7% d. 5.9%
8. Based on the information provided, real GDP grew at an average annual rate of _____ between 2000 and 2014.
a. 1.3% b. 1.8% c. 2.2% d. 2.4%
9. Based on the information provided, the price level in 2014 is ___ percent higher than it was in 2000.
a. 33 b. 26 c. 23 d. 19
10. During an economic recession, many workers lose their jobs and begin searching for new jobs. Also, some of the unemployed become discouraged about job prospects and quit searching for jobs. As a result, during recessions,
a. the labor force participation falls, but not as much as the employment population ratio
b. the labor force participation falls by more than the employment population ratio
c. the labor force participation rate and employment population ratio both fall by the same amount
d. none of the above
11. Suppose that 1 million discouraged workers become more optimistic about the labor market and start searching for work. If these 1 million begin searching but haven’t yet found jobs, this will cause the unemployment rate to ___, the labor force participation rate to ____, and the employment population ratio to ____.
a. rise; rise; rise
b. rise; rise; not change
c. not change; rise; not change
d. none of th above
12. When comparing the standard of living across countries, which of the following would be the best measure?
a. GDP per capita after converting to a common currency with actual exchange rates
b. GDP per capita after converting to a common currency with purchasing power parity exchange rates
c. GDP after converting to a common currency with actual exchange rates
d. GDP after converting to a common currency with purchasing power parity exchange rates
Use the following information to answer the next 3 questions. Between 1964 and 2014, the consumer price index (base year 1983) rose from 31.0 to 236.1. Over the same period, average hourly earnings of production and nonsupervisory employees in the U.S. rose from $2.50 to $20.90.
13. Based on the information provided, the average annual rate of inflation between 1964 and 2014 was:
a. 2.3% b. 3.2% c. 4.1% d. 5.3%
14. Based on the information provided, to have the same purchasing power as a worker earning the average wage in 2014, a worker in 1983 would need to earn:
a. $7.27 b. $8.85 c. $9.23 d. $11.27
15. Based on the information provided, compared to the average worker in 1964, the average worker in 2014 has purchasing power that is ____
a. 5 percent higher
b. 10 percent higher
c. 5 percent lower
d. 10 percent lower
16. If the chained alternative to the CPI (the index for personal consumption expenditures) was used to compute the increase in the real wage instead of the CPI, the growth in the real wage over time would be ____ and we would get a ____ accurate estimate of how much the purchasing power of wages changed since the chained index does a better job of measuring the true growth in the cost of living.
a. smaller; less
b. smaller; more
c. larger; less
d. larger; more
17. It is well known that the growth in the CPI is a biased measure of the true growth in the cost of living. As noted in one of the assigned readings, there are proposals to eliminate some of this bias by switching to the “chained CPI”: If the switch to the chained CPI is approved, this would _____ future growth in Social Security payments and _____ future growth in federal income tax revenues.
a. decrease; increase
b. decrease; decrease
c. increase; increase
d. increase; decrease
18. If the unemployment rate is currently below the natural rate, GDP is currently (above, below) potential GDP and the economy is currently (above, below) full employment.
a. above; above.
b. above; below.
c. below; below.
d. below; above.
19. If a worker graduates from high school and begins searching for a job, she would be experiencing:
a. expansionary unemployment
b. frictional unemployment
c. structural unemployment
d. cyclical unemployment
20. If inflation turns out to be much higher than everyone had expected,
a. both lenders and borrowers would win.
b. both lenders and borrowers would lose.
c. lenders would win and borrowers would lose.
d. borrowers would win and lenders would lose.
21. Between 2000 and 2010, the U.S. capital stock (in real terms) grew from 33.1 to 40.6 trillion dollars. This implies that over this period,
a. gross investment was $7.5 trillion
b. gross investment exceeded capital consumption allowance by $7.5 trillion
c. net investment exceeded capital consumption allowance by $7.5 trillion
d. none of the above
22. The U.S. capital stock will fall over time if:
a. net investment is positive, but less than gross investment
b. capital consumption allowance exceeds gross investment
c. capital consumption allowance is negative
d. none of the above
23. Which of the following equals the expenditure side of GDP?
a. wages + rent + interest + profits + indirect business taxes.
b. consumption + investment + government purchases + net exports.
c. wages + rent + interest + profits
d. consumption + government purchases + saving + taxes.
24. Which of the following would cause the growth in real GDP to understate the improvement in the standard of living over time?
a. if the average person reduces hours worked over time.
b. if the environment is improving over time.
c. if people increase the amount of household production over time.
d. all of the above.
Suppose that an economy produces only apples and oranges and the prices and quantities of each are given in the table below.
Year / Price of oranges / Quantity of Oranges / Price of apples / Quantity of Apples2012 / 1 / 40 / 2 / 100
2014 / 3 / 50 / 4 / 150
25. Assuming that 2014 is the base year, nominal GDP in 2012 is _____ and real GDP in 2012 is _____.
a. $520; $520
b. $520; 240.
c. $240; $520
d. $240; $240
e. none of the above
26. Assuming that 2014 is the base year, the GDP deflator is ____ in 2012 and _____ in 2014.
a. 216.7; 46.2
b. 46.2; 216.7
c. 100; 46.2
d. 46.2; 100
To answer the next 3 questions, refer to the information for the U.S. economy provided below:
Year
Year / Nominal GDP(in billions of $) / Real GDP (2009 base year) / Civilian Noninstitutionalized Working Age Population
(in 1000s) /
Labor Force
(in 1000s) / Employed
(in 1000s)
2000 / 9,784 / 12,565 / 211,410 / 142,267 / 136,559
2013 / 17,376 / 15,584 / 244,663 / 155,511 / 143,196
2014 / 17,923 / 15,903 / 246,915 / 155,460 / 145,224
27. Based on the information provided, the unemployment rate in 2014 was:
a. 5.3% b. 6.6% c. 7.2% d. 10.0%
28. Based on the information provided, the GDP deflator in 2014 was
a. 88.7. b. 93.2 c. 103.4 d. 112.7
29. Based on the information provided, the average annual rate of inflation between 2000 and 2014 was
a. 2.7% b. 2.3% c. 2.1% d. 1.7%
30. As the U.S. economy recovered from the great recession, many “discouraged workers” restarted their search for jobs. When discouraged workers start searching for jobs, the unemployment rate _____ and the labor force participation rate _____.
a. falls; falls.
b. fall; rises
c. rises; rises
d. rises; falls
31. If 1 million workers retire from their jobs, the unemployment rate would ___ and the labor force participation rate would:
a. not change; fall
b. not change; not change
c. rise; fall
d. none of the above.
32. When the economy recovers from a recession, the employment-population ratio tends to
a. fall by more than the labor force participation rate
b. fall by less than the labor force participation rate
c. rise by more than the labor force participation rate.
d. rise by less than the labor force participation rate
33. Between January 2013 and December 2013, business inventories rose from 1,640 billion to $1,717 billion. Based on this, we can conclude that
a. production exceeded sales by $77 billion during 2013.
b. sales exceeded production by $77 billion during 2013.
c. expenditures on goods and services would be a $77 billion overstatement of production
d. both a and c
e. both b and c.
Use the data in the table below to answer the next 3 questions. Disposable personal income per capita is total income in the economy after taxes divided by the population. The CPI is the consumer price index.
Year / Disposable income per capita (Nominal) / CPI (1982-84=100)1970 / $4,125 / 37.9
1980 / $9,835 / 78.0
2010 / $39,477 / 217.5
34. Based on the information provided, between 1970 and 2010, the purchasing power of disposable personal income per capita
a. rose by less than 25%
b. rose by somewhere between 25 and 50%
c. rose by 50 to 100%
d. rose more than 100%
35. Based on the information provided, the average annual rate of inflation between 1980 and 2010 was
a. 2.3%
b. 3.5%
c. 4.1%
d. 4.3%
36. Based on the information provided, $20 in 1970 would purchase the same amount of goods and services as ___ in2010 (answer rounded to nearest dollar)
a. $22
b. $115
c. $117
d. $217
37. It is well known that the growth in the CPI is a biased measure of the true growth in the cost of living. As noted in one of the assigned readings, there are proposals to eliminate some of this bias by switching to the “chained CPI”: If the switch to the chained CPI is approved, this would _____ future growth in Social Security payments and _____ future growth in federal income tax revenues.
a. decrease; increase
b. decrease; decrease
c. increase; increase
d. increase; decrease
38. When the economy is at full employment,
a. there is no cyclical unemployment
b. there is no structural or cyclical unemployment.
c. there is no frictional cyclical unemployment.
d. there is no frictional or structural unemployment.
39. If a worker’s job is eliminated because his employer outsourced the work to another country, this worker would be experiencing:
a. frictional unemployment
b. structural unemployment
c. cyclical unemployment
d. technological unemployment
1 / b2 / c
3 / b
4 / b
5 / a
6 / b
7 / b
8 / b
9 / a
10 / a
11 / b
12 / b
13 / c
14 / b
15 / b
16 / d
17 / a
18 / a
19 / b
20 / d
21 / b
22 / b
23 / b
24 / d
25 / c
26 / d
27 / b
28 / d
29 / a
30 / c
31 / c
32 / c
33 / a
34 / c
35 / b
36 / b
37 / a
38 / a
39 / b
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