ECO 2013 2 4 1 2013 Version B NAME CLASS DATE Econ 2013 2 S13 Exam 1 Version B Multiple Choice Identify the choice that best completes the statement or answers the question Welcome to Nellyville Below are the labor statistics for Nellyville Unless specified otherwise assume that those who are not working are actively seeking employment Also of course there are no institutionalized individuals in Nellyville Use the data below to answer the following question s Table 8 3 Population 2 3 of which are 16 or older Number of people currently working Number of people not working because they are currently on vacation Number of people not working because they are on sick leave Number of retired people who are not looking for work Number of full time moms and dads who are not looking for work Number of full time students who are not looking for work Number of people not working 4 million are too disabled to work and 6 million gave up looking for a job months ago 300 80 25 15 10 15 15 40 1 Refer to Table 8 3 What is the unemployment rate of the economy a 10 percent b 15 percent c 20 percent d 30 percent 2 High and variable rates of inflation will a distort the information delivered by market prices b encourage people to spend more time producing and less time trying to protect their wealth c decrease the risks that accompany the undertaking of long term investment projects d promote economic growth and the efficient use of resources 3 Which of the following will most likely reduce the natural rate of unemployment a b c d an increase in the minimum wage an increase in unemployment benefits an increase in the proportion of prime age workers 35 54 as a share of the labor force an increase in the labor force participation rate of teenagers 4 Bob a former grocery store checkout cashier who comes from a long line of checkout clerks and knows nothing but the art of checking out groceries is unemployed because his skills have become obsolete due to technological advances that have replaced him with a U Scan machine This is known as unemployment frictional a structural b cyclical c abnormal d 1 ECO 2013 2 4 1 2013 Version B 5 Actual GDP will be below potential GDP a when the economy is at full employment b during an economic boom c when resources are fully utilized d during a recession 6 Which of the following will be true for an economy that is operating at full employment a The rate of unemployment will be zero b The actual rate of unemployment will be equal to the natural rate c The employment population ratio will be equal to 100 percent d a and c are true but not b 7 Which of the following transactions would increase GDP a 500 bill to repair the transmission of your car a television you purchased at a garage sale a b c 100 shares of Citibank stock that you purchased assume there is no sales commission on this transaction the Social Security retirement check your grandmother received d 8 Rocky Balboa a U S citizen from Philadelphia travels to Moscow Russia to fight Ivan Drago in a boxing match Rocky Balboa s earnings from this boxing match a would count as part of U S GDP and Russian GNP b would count as part of U S GNP and Russian GDP c would count as part of U S GDP but would have no effect on Russia s GNP or GDP d would be double counted raising both U S GDP and Russian GDP 9 You want to use an economy wide measure of inflation to calculate real GDP for the year 2012 If you wanted to take 2012 nominal GDP and convert it to 1990 prices to see how much growth in real GDP has taken place over this period you would take 2012 nominal GDP and a multiply it by GDP deflator1990 GDP deflator2012 b multiply it by GDP deflator2012 GDP deflator1990 c divide it by the Consumer Price Index2012 d divide it by Consumer Price Index2012 Consumer Price Index1990 10 Given the following information about quantity purchased and the price for each good in this simple two good economy what would be the 2013 consumer price index using a 2000 base year 2000 2013 Q 8 10 Price per unit 40 00 8 00 Q 4 5 Price per unit 100 00 40 00 Economic textbooks FSU T shirts a 0 33 b 0 67 c 1 50 d 3 00 2 ECO 2013 2 4 1 2013 Version B 11 The largest component of U S GDP as measured by the expenditure approach is consumption a wages and salary earnings b c government expenditures d gross private investment 12 Falling interest rates cause the market value of previously issued bonds to a b c d rise fall remain unchanged increase during periods of inflation but decline during periods of deflation 13 Which of the following is true regarding the Aggregate Goods and Services market a The Short run Aggregate Supply SRAS curve is upward sloping because higher prices will temporarily improve profit margins because many of the cost components of firms will be fixed in the short run b The Long run Aggregate Supply LRAS curve is vertical because an increase in the price level will increase costs as much as revenues in the long run and so the profitability of firms does not change and they have no incentive to expand output c The Aggregate Demand AD curve is downward sloping for multiple reasons one of which is that at lower price levels the purchasing power of money increases causing people to purchase more d All of the above are true 14 If the United States is experiencing a trade deficit then a U S exports are greater than imports and the country s capital outflows are greater than its b U S imports are greater than exports and the country s capital outflows are greater than its c U S exports are greater than imports and the country s capital inflows are greater than its d U S imports are greater than exports and the country s capital inflows are greater than its capital inflows capital inflows capital outflows capital outflows 15 Suppose business decision makers believe that future economic conditions will decline and this reduces their desire to borrow additional funds for the purposes of investing in the expansion of their plant capacity What is the likely effect on the loanable funds market a The demand for loanable funds will increase and the interest rate will rise b The demand for loanable funds will decrease and the interest rate will fall c The supply for loanable funds will increase and the interest rate will fall d The supply for loanable funds will decrease and the interest rate will rise 16 Initially the nominal rate of interest is 8 percent and inflation is 4 percent The nominal interest rate then rises to 12 percent when the
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