Name: ________________________ Class: ___________________ Date: __________ ID: A1Econ 2 Winter 2014 Midterm 1Multiple ChoiceIdentify the choice that best completes the statement or answers the question. 1. Which of the following things would increase the value of Total Factor Productivity (TFP)?a. A tornado damages several pieces of new construction equipment.b. A new production method that can produce smaller, more efficient microchips.c. A company hires a large amount of workers after building a brand new factory.d. None of the above. 2. 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 is his contribution to 2012 GDP?a. $1,600b. $1,400c. $1,500d. None of the above 3. The consumer price index was 200 in 2008 and 190 in 2009. The nominal interest rate during this period was 4.5 percent. What was the real interest rate during this period?a. - 0.8%b. - 0.5%c. 9.8%d. 9.5% 4. In the Easterly podcast, William Easterly discusses that one of the problems with investments in education in poor countries is thata. we can build schools in poor countries but there is still a lack of qualified teachers and incentives to obtain schooling.b. those children who do receive the schooling will leave the country and therefore will not help its continued growthc. the government in the poor countries will not accept aid in the form of education/schooling investmentsd. None of the above 5. Your grandfather made $5/hour nominal wage in 1974. Likewise, your father made $9/hour in 1994, and you $17/hour today. If inflation is constant at +3.5% per year, or +41% per decade, who had the highest real wage?a. Grandfatherb. Fatherc. Youd. They’re all equal 6. Which of the following is included in GDP?a. the sale of stocks and bondsb. unpaid production of goods and services produced at homec. the estimated rental value of owner occupied housingd. none of the above are included in GDPID: A2 7. Suppose that the CPI in year 1 is 100 and that the CPI in year 2 is 103. Suppose also that the nominal interest rate is 5% in year 2. Approximately what is the real interest rate?a. 108%b. 5%c. 8%d. None of the above 8. In a particular production process the quantities of all inputs used double and then the quantity of output increases by less than double. This means thata. the relevant production function has the increasing returns property.b. the relevant production function has the constant returns property.c. the relevant production function has the diminishing returns property.d. no mathematical representation of the relevant production function can be formulated. 9. Which of the following ideas is NOT advocated by Lucas in his podcast?a. Sustained growth in living standards has occurred through the accumulation of physical capital.b. Economic growth is always associated with a movement out of agriculture and into the city environment.c. Globally, poverty has declined over the past half century.d. Emigration offers opportunities to get paid for skills less-valued in the home country. 10. If 2004 is the base year, then the inflation rate for 2005 equalsa.b.c.d. 11. The country of Collegetown consumes only two goods: beer and pizza. There are currently 50 people living within the nation state of Collegetown. Suppose that the price of beer is $4, the price of a slice pizza is $2, and the price of an intermediate good, a bag of flour, used to make pizza is $1. The quantities that are traded in this economy are as follows: 100 beers, 200 pizza slices and 50 bags of flour. What is the per capita GDP of this economy?a. $800b. $850c. $17d. None of the aboveID: A3Production Function for Apple Pies 12. Use the production function above to answer the following question. Let y be the output per worker and x be the capital (ovens) per worker for apple pies in the economy. Which of the following is true?a. The production function exhibits constant returns to capital at point C since it has flattened out by this point on the graph.b. The production function exhibits increasing returns to capital at point A since there are large gains to be made by adding another oven.c. Starting at C and moving to D there is a smaller increase in output per worker than starting at B and moving to C.d. Starting at C and moving to D there is a larger increase in output per worker than starting at B and moving to C. 13. Use the production function above to answer the following question. Suppose that the owner of a bakery develops a new type of oven that can bake pies twice as fast. It soon becomes the standard in the industry. How will this affect the production function y=f(x) above?a. y=f(x) will move downward since the level of TFP in the economy has decreased.b. y=f(x) will stay the same since the number of ovens and capital per worker has not changed..c. y=f(x) will move upward since the level of TFP in the economy has increased.d. None of the above. 14. GDP is not a perfect measure of well-being; for example,a. GDP excludes the value of volunteer work.b. GDP does not address the distribution of income.c. GDP does not address environmental quality.d. All of the above are correct.ID: A4Data for Country Z for 2010Household purchases of durable goods $1200Inventory $350Household purchases of foreign goods $100Household purchases of new housing $700Purchases of capital equipment $350Social Security $750Purchases of new structures $600Household purchases of nondurable goods $1750Salaries of government workers $1400Government expenditures on public works $550Household purchases of services $300Foreign purchases of domestically produced goods $50 15. Use the table for Country Z above to answer the following question. What was Country Z’s investment in 2010?a. $2,000b. $1,300c. $3,200d. None of the above 16. Use Data for Country Z in 2010 to answer the following question. Suppose that in 2011, everything remains the same for Country Z except that Government Expenditures are twice as much. What is nominal GDP in 2011?a. $7,250b. $9,300c. $9,650d. None of the above 17. According to the economic model put forth by Thomas Malthus if the population, L, is greater than the stable level of L*,a. the average product of labor is lower than that for zero