Econ 102 Lecture 100 Exam I Form 0 ECON 102/100 February 17, 2004 Section Day Time Location GSI 101 F 2:30-4 B239 EH Jan 102 W 11:30-1 373 Lorch Justin 103 W 1-2:30 B239 EH Naomi 104 W 4-5:30 B239 EH Mato 105 W 2:30-4 B239 EH Mato 106 W 4-5:30 1068 EH Naomi 107 F 1-2:30 1372 EH Nalin 108 W 8:30-10 330 DENN Justin 109 F 11:30-1 205 DENN Nalin · 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 10 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. Name: (PRINT) _______________________________ UM ID #: _______________________________ Signature: _______________________________Multiple Choice: (26 questions, 3 pts each = 78 pts) Pick the best answer among the given choices. YEAR 2000 2001 2002 2003 Quantity Price Quantity Price Quantity Price Quantity PriceCoffee 180 $2 200 $3 250 $3.25 300 $3.25Jelly Belly© Jelly Beans 95 $5 100 $5.50 150 $5.75 180 $6 Economics Textbooks 8 $30 8 $30 10 $32 10 $40Wireless Internet Setup - - - - 1 $150 1 $120 The next 4 questions refer to the table above. The consumption basket for the CPI exactly mirrors the quantities produced in the year 2001. Take 2001 to be the base year. For Wireless Internet Setup, take its 2002 price as the base year price. All four goods are consumption goods and all four goods have been produced in the U.S. 1. What was the cost of the consumption basket in 2001? a) $1075 b) $1140 c) $1302.50 d) $1390 e) I do not have the necessary information to answer this question. 2. What is the CPI in 2002? a) 106.5 b) 145.7 c) 143.5 d) 117.3 e) None of the above 3. What is the GDP deflator in 2000? a) 77.3 b) 82.5 c) 100 d) 121.2 e) None of the above4. By how much did the cost of living increase between 2002 and 2003? a) 5.7 % b) 6.0 % c) 6.3 % d) The cost of living decreased due to the drop in price of Wireless Internet Setup. e) None of the above 5. In 2004, a Ford plant in southeast Michigan buys $5,000 worth of Canadian parts made in 2004, $6,000 worth of American parts made in 2003, and $14,000 worth of American parts made in 2004, and assembles a Lincoln Town Car which it sells to an airport taxi service for $42,000. What is the increase in US GDP in 2004? a) $31,000. b) $37,000. c) $42,000. d) $56,000. e) $62,000. 6. The president of Macronesia has announced that the government will be implementing the following policies: I. Subsidizing college tuition. II. Lowering the tax rates on profits of foreign firms who decide to build plants in Macronesia. III. Give monetary rewards to each person who makes an invention. Which of the above policies will lead to a long run (i.e. permanent) increase in the growth rate of GDP per capita? (Assume that Macronesia has a production function with constant returns to scale and that diminishing returns are present in capital, labor, human capital and natural resources.) a) only I b) only II c) only III d) I and II e) II and III.7. Consider an economy made up of 200 people, 90 of whom hold jobs, 10 of whom are looking for work, 10 of whom are discouraged workers, and 15 of whom are retired. The unemployment rate is approximately a) 5 percent b) 9 percent c) 10 percent d) 18 percent e) 55 percent 8. Suppose that current real GDP per capita in the country of Orcam is $8,000, whereas it is $32,000 in the country of McBusiness. The long term growth rates of real GDP per capita of Orcam and McBusiness are 4% and 2.5%, respectively. Then Orcam’s real GDP per capita will catch up with McBusiness’ in approximately a) 35 years b) 46 years c) 70 years d) 93 years e) never 9. A firm may pay efficiency wages because: a) the marginal revenue product equals the wage rate. b) it has monopsony power. c) lower wages mean lower labor costs. d) it wishes to discourage shirking. e) there is a minimum wage in the market. 10. Which of the following is false? a) the sale of stock is called equity finance; the sale of bonds is called debt finance. b) long term bonds usually pay higher rates of interest than short-term bonds. c) holding bonds is riskier than owning stocks. d) if stock prices follow a random walk, then changes in stock prices are impossible to predict from available information. e) if the efficient markets hypothesis is correct, then the best you can do is buy a diversified portfolio.11. As part of his tax cut proposal in 2001, President Bush asked for an increase in the child credit to $1,000. If this change were enacted, it would return a sizeable amount of tax money to the nation’s parents. According to the market for loanable funds theory, what would this do to the country’s interest rate and investment, respectively? a) no change; no change b) rises; falls c) falls; rises d) falls; falls e) rises; rises 12. According to the market for loanable funds model, when government purchases and taxes increase by equal amounts, the equilibrium levels of … a) both national saving and investment stay the same. b) national saving and investment both increase by the same amount as the tax increase. c) national saving and investment both decrease by the same amount as the tax increase. d) national saving and investment both decrease by less than the amount of the tax increase. e) national saving and investment both decrease by more than the amount of the tax increase. 13. Suppose that 1/4 of all unemployed find a job within a year, and that 1/12 of the employed either lose or quit their jobs in that