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Econ 102, Section 100 NAME: (print) _______________________________ Exam I, Form 2 UM ID # _____________________ Econ 102/100 First Midterm Exam February 8, 2007 Section Day Time Location GSI 101 Friday 2:30-4 142 Lorch JB 102 Friday 11:30-1 269 Dennison Sue 103 Friday 1-2:30 430 Dennison Angus 104 Friday 10-11:30 B239 EH Sue 105 Friday 2:30-4 B239 EH Angus 106 Friday 10-11:30 B247 EH Omar 107 Friday 1-2:30 315 Dennison JB 108 Friday 11:30-1 455 Dennison Omar 109 Friday 11:30-1 130 Dennison Brian Instructions • Do NOT open this exam booklet until instructed to do so! • Please take a moment to complete the identification information on the scantron. Indicate your NAME, discussion SECTION number, FORM number, and UM ID number. THIS IS WORTH TWO POINTS ON THE EXAM! • The exam has 100 points and is designed to take about 60 minutes to complete. However, you’ll have approximately 80 minutes. Check that you have all xx pages of the exam. • Read the questions and these instructions carefully! • Use the space provided in this booklet and the back of the pages to work out the answers to the multiple choice problems. Use the space provided on the actual page for the short answer questions. • You can use only NON-graphing calculators. • For multiple choice questions, you get 3 points for a correct answer, 0 points for a blank, and 0 points for a wrong answer. There are NO penalties for guessing. • Sign the honor code below! Honor Code: I did not use any unauthorized aid on this exam. Signature: _____________________________________Part I: Multiple Choice: (26 questions, 3 pts each = 78 pts) Pick the best answer among the given choices. 1. Suppose GDP per worker is held constant. If demographic shifts result in a higher proportion of old people in the population, what is the effect on GDP per capita? (Assume old people do not work). a) No effect. b) Increase. c) Decrease. d) GDP per worker and GDP per capita refer to the same thing. e) Insufficient information. 2. Suppose the stocks of physical capital, human capital, natural resources, and the level of technology are all held constant. Which of the following is true? a) An increase in the labor force leads to an increase in total output and output per worker. b) An increase in the labor force leads to a decrease in total output and output per worker. c) An increase in the labor force leads to an increase in total output but a decrease in output per worker. d) An increase in the labor force leads to a decrease in total output but an increase in output per worker. e) An increase in the labor force has no effect on total output and output per worker. 3. Which of the following reasons could be put forth to argue that the Real Gross Domestic Product is not a perfect measure of the economic well-being of a country? i. It includes positive externalities such as spillovers in advertising from private firms. ii. It excludes earnings of foreign investors. iii. It overstates the impact of the underground economy. iv. It leaves out the goods and services produced within households. v. It doesn’t take into account the effects of polluting means of production. vi. Money doesn’t bring happiness. vii. It doesn’t account for leisure. a) iv, v, and vii b) i, iv, v, and vi. c) ii, iii, and vii d) iii, iv, and v e) i, ii, iv, vi, and vii. 24. Using data from the following table, compute the Real GDP for the year 2003 using the year 2005 as the base year. Quantities Item 2003 2004 2005 Shrimp 35 30 55 Shoes 4 6 6 Silverware 6 8 4 Prices Item 2003 2004 2005 Shrimp $15 $20 $25 Shoes $115 $120 $165 Silverware $40 $40 $45 a) $1805 b) $1675 c) $1225 d) $2545 e) $1765 5. Using data from the following table, compute the GDP Deflator for the year 2005 using the year 2003 as the base year. Quantities Item 2003 2004 2005 Shrimp 35 30 55 Shoes 4 6 6 Silverware 6 8 4 Prices Item 2003 2004 2005 Shrimp $15 $20 $25 Shoes $115 $120 $165 Silverware $40 $40 $45 a) 151.94 b) 65.81 c) 87.46 d) 145.55 e) 107.03 36. In which of the years below was purchasing power the highest? Use the table below which gives the nominal income and the CPI. CPI 1935 1960 1975 1990 2005 65 100 135 175 205 Nominal Income 1935 1960 1975 1990 2005 $5,360 $8,542 $14,968 $18,374 $22,531 a) 1935 b) 1960 c) 1975 d) 1990 e) 2005 Use the following information about the closed economy of Vanatu to answer questions 7 and 8: Y=$35,000 T=$5,000 C=MPC*(Y-T)+$1000-1,000r MPC=0.8 G=$6,500 I=$4000-2,000r 7. Which of the following is INCORRECT? a) Marginal propensity to save is equal to 0.2 b) The Vanatu government runs a budget deficit c) If MPC is increased to 0.85, the real interest rate will be quadrupled. d) The level of national savings is $3667. e) The level of disposable income is equal to $24,000 8. Now suppose that the government of Vanatu wants to increase spending on military services. Assume that government purchases increase by $1,500. At the same time, assume the inflation rate in Vanatu is, and remains, 10%. Then a) The nominal interest rate now is 76.7%; private savings increases b) The nominal interest rate now is 67.5%; private savings decreases c) The nominal interest rate now is 33.2%; private savings increases d) The nominal interest rate now is 43.3%; private savings decreases e) The nominal interest rate now is 57.7%; private savings increases 4Real interest rate (r) $ SLF1DLF SLF2S1=I1 S2=I2 9. Which of the following events can generate the diagram above? a) An increase in government purchases b) A revenue-neutral decrease in tax credit for personal savings c) A revenue-neutral decrease in the tax rate on interest income d) An increase in the income tax rate e) A revenue-neutral increase in investment credit 10. Which of the following statements is CORRECT? a) If JB lives in a closed economy, his savings should be equal to his investment b) If JB deposits $100 in a bank, then investment goes up by $100 for the whole economy c) It is impossible for JB to save less than he invests. d) Open economies should encourage every person to save because national savings is always equal to domestic investment, and investment can boost the economy up. e) None of the above 11. Which of the following statements about the U.S. economy is true? a) Over the last 30 years, the CPI has been less volatile than the GDP deflator. b) Over the


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U-M ECON 102 - Exam I

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