1 Name: ________________________ Class: ___________________ Date: __________ ID: B Econ 2 Summer 2015 Midterm Multiple Choice Identify the choice that best completes the statement or answers the question. 1. A German citizen buys an automobile produced in the United States by a Japanese company. As a result, a. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. b. U.S. net exports increase, U.S. GDP is unaffected, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected. c. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, German GNP is unaffected, and German GDP decreases. d. U.S. net exports and GDP are unaffected, Japanese GNP increases, and German net exports, GNP, and GDP decrease. 2. The inflation rate is defined as the a. price level in an economy. b. change in the price level from one period to the next. c. price level minus the price level from the previous period. d. percentage change in the price level from the previous period. 3. For the economy as a whole, a. income must be greater than expenditure. b. unemployment must rise when GDP rises. c. expenditure must equal income. d. consumption must be greater than investment. 4. Imagine that someone offers you $100 today or $200 in 10 years. You would prefer to take the $100 today if the interest rate is a. 4 percent. b. 6 percent. c. 8 percent. d. All of the above are correct. 5. One way to characterize the difference between compounding and discounting is to say that a. compounding involves the assumption that the interest rate is zero, whereas discounting does not involve that assumption. b. discounting involves the assumption that the interest rate is zero, whereas compounding does not involve that assumption. c. the process of compounding produces a future value, whereas the process of discounting produces a present value.2 d. the process of compounding produces a present value, whereas the process of discounting produces a future value. 6. In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes? a. The demand for loanable funds shifted rightward. b. The supply of loanable funds shifted rightward. c. The demand for loanable funds shifted leftward. d. The supply of loanable funds shifted leftward. 7. When a society cannot produce all the goods and services people wish to have, it is said that the economy is experiencing a. scarcity. b. surpluses. c. inefficiencies. d. inequalities. 8. The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows: a. Choose a base year, update the basket, find the prices, estimate the basket’s cost, compute the index, and compute the inflation rate. b. Choose a base year, fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and compute the index. c. Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate. d. Fix the basket, find the prices, compute the inflation rate, compute the basket’s cost, and choose a base year and compute the index. 9. Estimates of the values of which of the following non-market goods or services are included in GDP? a. Unpaid housework, but not the rental value of owner-occupied homes. b. The rental value of owner occupied homes, but not unpaid housework. c. Neither unpaid housework, nor the rental value of owner-occupied homes. d. Unpaid housework and the rental value of owner-occupied homes. 10. All else equal, if there are diminishing returns, then which of the following is true if a country increases its capital by one unit? a. Output will rise by more than it did when the previous unit was added. b. Output will rise but by less than it did when the previous unit was added. c. Output will fall by more than it did when the previous unit was added. d. Output will fall but by less then it did when the previous unit was added. 11. The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2 shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost $6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was Aquilonia’s inflation rate in 2006? a. 4 percent b. 11 percent c. 19.6 percent3 d. 24.4 percent 12. Productivity is the amount of goods and services a. an economy produces. It is not linked to a nation’s economic policies. b. an economy produces. It is linked to a nation’s economic policies. c. produced for each hour of a worker’s time. It is not linked to a nation’s economic policies. d. produced for each hour of a worker’s time. It is linked to a nation’s economic policies. 13. Halvorson Construction has an investment project that would cost $150,000 today and yield a one-time payoff of $167,000 in three years. What is the highest interest rate at which Halvorson would find this project profitable? a. 7% b. 6% c. 5% d. It is not profitable at any of these interest rates. The table below contains data for Chereaux for the year 2015. Table 14-1: GDP $200 Income earned by citizens abroad $9 Income foreigners earn here $5 Losses from depreciation $6 Indirect business taxes $10 Statistical discrepancy $0 Retained earnings $8 Corporate income taxes $12 Social insurance contributions $30 Interest paid to households by government $8 Transfer payments to households from government $55 Personal taxes $60 Nontax payments to government $11 14. Refer to Table 14-1. The market value of all final goods and services produced within Chereaux in 2015 is a. $214 b. $204 c. $230 d. $200 15. Refer to Table 14-1. Gross national product for Chereaux in 2015 is a. $186 b. $214 c. $200 d. $2044 16. In June, employment was 9,553,800. In July it was 9,574,800. What was the monthly percent increase in employment? a. -0.22% b. 0.22% c. 21,000 d. 0.0022 17. Esmerelda worked part-time for her mother’s business without pay. Tabitha was absent from work because she had strep throat. Who is counted as “employed” by the Bureau of Labor Statistics? a. Esmerelda but not Tabitha b. Tabitha but not