VERSION: AVERSION: A Midterm 1 - Spring 2014 Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. “When workers already have a large quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity only slightly.” This statement a. is an assertion that capital is subject to increasing returns. b. is made under the assumption that the quantities of human capital, natural resources, and technology are being held constant. c. represents an unconventional view of the production process. d. All of the above are correct. ____ 2. In 2013 Sally was offered an investment opportunity with a nominal interest rate of 5%. In 2014 she is disappointed to learn that her investment has only grown at a real interest rate of 1%. If CPI in 2013 was 125 then what is CPI in 2014? a. 129 b. 130 c. 131.25 d. 126.25 ____ 3. Mr Lucas earned an annual salary of $100,000 in year 1990. His salary last year was $160,000. According to the Bureau of Statistics, the CPI for 1990 was 100 and CPI for last year was 200. Which of the following statements is true? a. Mr Lucas is better off now because his 1990 salary, adjusted by the CPI, was lower than his salary last year. b. Mr Lucas is worse off now because he earned $60,000 less last year than in 1990. c. Mr Lucas is better off now because he earned $60,000 more last year than in 1990. d. Mr Lucas is worse off now because his 1990 salary, adjusted by the CPI, was higher than his salary last year. ____ 4. Which of the following scenarios imply that CPI overstates the increase in the cost of living? (1) The price of blueberries went up in the grocery store, so Ruth replaced blueberries with raspberries, which was relatively cheaper; (2) VCRs were introduced in the late 1970s, so consumers were able to watch their favorite movies at home. (3) Zara invested in better quality of cotton to produce their signature T-shirts that were sold later in the market. a. (1) b. (1) and (2) c. (1), (2), and (3) d. None of these.VERSION: A ____ 5. Chris owns and operates a small rocking chair business. In 2012 he buys 20 logs of wood for $100 total. Using that wood he produces 10 rocking chairs, each worth $150. By the end of 2012 he has sold 7 of the rocking chairs to happy customers. The remaining 3 rocking chairs he manages to sell in 2013. What are his contributions to 2012 Consumption and Investment, respectively? a. $1,050 to C, $0 to I b. $1,050 to C, $450 to I c. $1,400 to C, $600 to I d. $1,400 to C, $0 to I ____ 6. Which of the following changes in the price index produces the greatest rate of inflation: 100 to 110, 150 to 165, or 180 to 198? a. 180 to 198 b. 100 to 110 c. 150 to 165 d. All of these changes produce the same rate of inflation. Table 23-6 The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2009. Prices and Quantities Year Price of Waffles Quantity of Waffles Price of Pancakes Quantity of Pancakes 2008 $2.00 100 $1.00 100 2009 $2.00 120 $2.00 150 2010 $2.00 150 $3.00 200 2011 $4.00 180 $3.00 220 ____ 7. Refer to Table 23-6. From 2010 to 2011, this country's real GDP grew a. 14.3%. b. 48.1%. c. 12.5%. d. 155.6%. ____ 8. Refer to Table 23-6. In 2009, this country's nominal GDP was a. $390. b. $400. c. $300. d. $540. ____ 9. According to the NYtimes article on inflation and debt, which one of these is the reason why we can’t inflate our way out of debt? a. We will import more if we are in debt b. Inflation gives us more income as prices increase c. As debt grows, we buy less so prices go down d. A lot of our debt is indexed to inflationVERSION: A ____ 10. Which of the following is included in GDP? a. unpaid production of goods and services at home b. the estimated rental value of owner-occupied housing c. the sale of stocks and bonds d. All of the above ____ 11. Suppose that the CPI is currently 200 and was 40 in 1950. Then according to the CPI, $1 in 1950 purchased the same number of goods and services as a. $4 today. b. $3 today. c. $5 today. d. None of the above. ____ 12. Suppose that Frodo and Sam have the same production technology for energy that exhibits diminishing returns to coffee. Sam has already had three cups of coffee, while Frodo has only had one. If each is equally tired right now and each has one additional cup of coffee, who will get more energy? a. They will both get the same amount of energy. b. Sam. c. Frodo. d. None of the above. Scenario 24-3 Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2008. The price index was 17.6 in 1944 and 184 in 2008. ____ 13. Refer to Scenario 24-3. In real terms, Josh Holloway’s income amounts to about what percentage of Sue Holloway’s income? a. 1750 percent b. 67 percent c. 1045 percent d. 167 percent ____ 14. Refer to Scenario 24-3. Sue Holloway’s 1944 income in 2008 dollars is a. $1,147.83. b. $113,454.55. c. $1,996,800.00. d. $125,454.55. ____ 15. Which of the following is not an example of human capital a. Government regulation of the workplace. b. Skills acquired through formal education. c. Skills acquired through work experience. d. Knowing how to read.VERSION: A ____ 16. The production function Y = (X^2 )* (X^0.5) has __________ returns to scale. a. Increasing b. Marginal c. Decreasing d. Constant ____ 17. If the CPI was 125 this year and 120 last year, then a. the price level of the CPI basket increased by 4.2 percent this year. b. the cost of the CPI basket of goods and services increased by 4.2 percent this year. c. the inflation rate for this year was 4.2 percent. d. All of the above are correct. ____ 18. The CPI is a measure of the overall cost of a. the inputs purchased by a typical producer. b. the goods and services produced in the economy. c. the goods and services purchased by a typical consumer. d. the stocks on the New York Stock Exchange. ____ 19. You make $20/hour in nominal wages today, your father made $10/hour in 1984, and your grandfather $5/hour in 1954. If inflation is 3%/year, who had the highest real wage? a. You b. Your father c. Your grandfather d. Everyone’s real wage are equal ____ 20. Economic growth can be influenced by government policies. Which of the following can