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ISU ECON 102 - Practice_Exam__1-_Answer_Key

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1. GDP equals ____? A. Purchases of goods and services by a country B. Total dollar value of all final goods and services produced in a country within a given period of time C. Total goods and services sold by a country in a given period of time D. None of the above 2. Goods and services that we buy from people in other countries are called our ____? A. Terms of trade B. Balance of payments C. Imports D. Exports 3. Use the Table to answer the following question Category Number (Millions) Discouraged workers 15 Unemployed workers 40 Employed workers 100 Population (16 years and over) 225 From the table, the size of the labor force is ____? A. 100 Million B. 155 Million C. 210 Million D. 140 Million 4. Aggregate expenditures include all of the following EXPECT_____? A. Purchases of guns by the government B. Purchases of intermediate goods C. Purchases of a piece of capital equipment D. Consumption of food 5. The Labor Force participation rate measures _____? A. Amount of employed and unemployed B. Percent of the adult population that is in the labor force C. Ratio of white-collar workers to blue-collar workers D. All of the above 6. Which variable is given, or in words, which variable are we NOT trying to find? A. Exogenous B. Endogenous C. Equilibrium D. None of these7. This measures the percent change in the average level of prices from the year before? A. CPI B. Inflation rate C. Expenditure equation D. All of these do 8. What types of goods fall under Consumer consumption? A. Nondurable B. Durable C. Both A & B D. Neither A nor B 9. What would be an example of a Business Fixed Investment? A. Buying a new machine to put tires on cars in an assembly line factory B. Buying a desk for a company’s president C. Installing a new computer to a factory’s mainframe D. All of the Above 10. Who is John Maynard Keynes? A. British economist who believed the economy’s total income was determined mostly by spending of households, businesses, and government. B. American economist who found that an economy’s GDP is directly related to the amount of employed and unemployed workers C. French economist who calculated that an increase in prices would cause an increase in inflation D. None of these 11. Describe this graph in your own words. (Include GDP, historical info, etc.) *Y-axis is GDP per person Answers may very but a good description may be: This graph shows the trend of GDP per person over the last 100 years in the United States. Beginning in 1900, the GDP per person was approximately 500 and slow climbed upwards until 1929 when the Great Depression hit. That forced GDP per person to significantly drop. It only began to go back up with FDR’s work programs and the start of WWII. From about 1950 till today, GDP per person has continued to climb upwards with very little jumps downward. The innovation from technology and the growing population in the work force may have contributed to the growth of GDP per person. Today’s GDP per person is around 1500.12. Describe this graph in your own words. (Unemployed, historical data, avg. unemployed) *The Y axis is in % of Unemployed in Labor Force Answers may vary but a good description may be: The graph shows the trend of unemployment in the United States from 1900 to 2000, measuring unemployment in percents. Around 1900, the unemployment rate was around 3% and remained low until 1929 when the Great Depression hit. The Great Depression forced many people out onto the streets. FDR and WWII helped get people back into the work force. Unemployment remained low from about 1950 to early 2000, but has gone up today. The average unemployment is usually around 3% but today the United States unemployment rate is closer to 7-8%, similar to what it was in the Great Depression. This may be due to the poor economy, sending jobs overseas, and greater technological advances that replace human workers. 0200400600800100012001400160019001910192019301940195019601970198019902000Series113. Describe this graph in your own words. (Labor Force, historical info, causes, etc.) *Y-axis is in % Answers may vary but a good description may be: This graph shows compares the percent of men and women in the Labor Force from 1950 to 2005. At the start of 1950, almost 90% of the Labor Force consisted of men and very few women were in the Labor Force. However, the percent of women in the LF continued to steadily increase. The reason more women entered the LF may be from the decline in men-oriented jobs such as construction & lumberjacks; the Feminist Movement was starting to pick up making women more insight that they too could earn a living; and an increase in technology may have equaled the playing field in the sense that women could operate the same technology (i.e. a computer) as a man. In 2005, more men were found to be in the LF but the gap between men and women significantly decreased as compared to the gap in 1950. 012345678919001910192019301940195019601970198019902000Series10102030405060708090100195019551960196519701975198019851990199520002005MenWomen14. Use the following information: Country A produces milk and cookies. In Year 1, Country A produced 6 gallons of milk and 12 cookies; however, in Year 2, Country A produced 8 gallons of milk and 20 cookies. Use Year 1 as the base year. Price of cookies in year 1 was $0.50 and milk was $2.00. Year 2 milk cost $1 and cookies $.75. A) Calculate the GDP B) Calculate Nominal GDP C) Calculate Real GDP. D) Calculate GDP Deflator. E) Compute a CPI for Country A. How does the CPI change from Year 1 to Year 2? Year Price of Milk Quantity of Milk Price of Cookies Quantity of Cookies NGDP RGDP GDP Deflator CPI 1* 2 6 0.50 12 18 18 1 1 2 1 8 0.75 20 23 26 0.88 0.8315. Use the following information: The total number of workers demanded by the a company are determined by: D(W,r)= 100-W-100r where “W” is wage paid to employed workers and “r” is the rate of interest at which the company can borrow to finance their working capital. The supply of workers is determined by: S(W,c)= 10+W-10c where “c” is the cost of obtaining a training a new worker. In this model, “r” and “c” are exogenous variable. We are given that r=0.05 and c=1. A) What is the equilibrium wage and what is the equilibrium number of workers employed in the company. B) The bank decides to increase interest rates from 0.05 to 0.1.


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