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ECO285 Exam 2--Spring 2005



Multiple Choice -- Enter your name above. Identify the letter of the choice that best completes the statement or answers the question. Once you have answered all of the questions, click on the "check your work" button below.
 

1. 

Helen gives up the opportunity to bake 40 cakes for each room she paints; Seymour can paint one room in the time it takes him to bake 60 cakes. The opportunity cost of a cake for Seymour is
A) painting one room   B) painting 1/40 of a room   C) painting 1/60 of a room   D) painting 2/3 of a room   E) painting 3/2 of a room
 

2. 

Assume supply increases slightly and demand increases greatly. Which of the following will happen?
A) equilibrium price falls and equilibrium quantity rises   B) equilibrium price rises and equilibrium quantity falls   C) equilibrium price rises and equilibrium quantity rises   D) equilibrium price falls and equilibrium quantity falls   E) neither equilibrium price nor equilibrium quantity changes
 

3. 

Which of the following statements is correct?
A) A budget deficit is a flow variable; debt is a stock variable.   B) A budget deficit is a stock variable; debt is a flow variable.   C) A budget deficit and the debt are both stock variables.   D) The budget deficit decreases when debt increases.   E) Debt increases when the budget deficit decreases.
 

4. 

A recession is best defined as a period during which
A) the percentage of the population employed is declining   B) employment, output, and income decline   C) the price level is declining   D) more resources are used   E) the twin deficits (budget and trade) are growing
 

5. 

Which of the following is true about U.S. business cycle activity since 1933?
A) There has been only one business cycle in the last 30 years.   B) There have been only two or three complete cycles.   C) There have been no recessions since 1979.   D) Expansions have generally lasted longer than contractions.   E) Each cycle has lasted longer than the previous one.
 

6. 

A depression can be defined as
A) a mild reduction in total production coupled with a rising unemployment rate that lasts for several years   B) a decline in total production that lasts less than six months   C) a severe fall in stock prices that causes financial panic and lasts several years   D) a severe reduction in total production coupled with high unemployment that lasts several years   E) a decline in government spending and taxes that lasts for several months
 

7. 

Stagflation is best described as
A) increasing output and decreasing prices   B) increasing output and increasing prices   C) no change in output or prices   D) decreasing output and decreasing prices   E) decreasing output and increasing prices
 

8. 

If Q is total real output, K is capital in use, and L is labor employed, the productivity of labor is measured by
A) K/L   B) L/K   C) Q/L   D) Q/K   E) (Q + K)/L
 

9. 

The difference between human capital and physical capital is that
A) human capital is used by humans whereas physical capital is not   B) only human capital increases labor productivity   C) human capital is not physical; an example of human capital is education   D) physical capital requires investment, whereas human capital does not   E) only physical capital increases labor productivity
 

10. 

An increase in the amount of capital per worker will
A) increase labor productivity but not capital productivity   B) increase capital productivity but not labor productivity   C) increase both labor and capital productivity   D) shift the per-worker production function upward   E) increase total output but not the productivity levels of individual workers
 

11. 

An improvement in the quality of capital would
A) rotate the per-worker production function upwards   B) make the per-worker production function flatter   C) shift the per-worker production function downward   D) rotate the per-worker production function downward   E) have no effect on the per-worker production function
 

12. 

A small change in the rate of productivity growth will have
A) a small impact on output in both the short run and the long run   B) a large impact on output in both the short run and the long run   C) a small impact on output in the short run but a large impact in the long run   D) a large impact on output in the short run but a small impact in the long run   E) no effect on output at all
 

13. 

Physical capital includes all of the following except
A) roads and bridges   B) machinery and factories   C) communications networks   D) high school diploma or college degree   E) a new dump truck
 

14. 

The reason that the composition of output has been considered as a possible factor contributing to the slowdown in labor productivity growth is that
A) productivity in the service sector has increased much more rapidly than it has in the goods sector   B) the service sector has grown relative to the manufacturing sector within the U.S. economy   C) the service sector has declined in importance recently   D) government regulation of industry has increased   E) the amount of output produced in the service sector has fallen
 

15. 

According to Simon Kuznets,
A) the main force behind economic growth is increases in the quantity of labor   B) the main force behind economic growth is increases in the quantity of capital   C) the main force behind economic growth is increases in the quality of inputs   D) government regulations increase labor productivity   E) government regulations decrease labor productivity
 

16. 

Which of the following is the best indicator of the standard of living?
A) nominal GDP   B) real GDP   C) real GDP per capita   D) productivity   E) productivity per unit of labor
 

17. 

In the long run, changing technology on average has led to
A) lower employment and lower wage rates   B) higher employment and lower wage rates   C) lower employment with wage rates unchanged   D) higher employment with wage rates unchanged   E) higher incomes and more leisure time
 

18. 

Which of the following would not be an expenditure on final goods and services?
A) a farmer's purchase of a pound of hamburger   B) a medical clinic's purchase of flu vaccine   C) a factory's purchase of a spot welding machine   D) the purchase of a cup of coffee at a restaurant   E) a college student's purchase of a textbook for a medieval history class
 

19. 

Rhonda sells a house she has owned for 15 years. To make it more marketable, she buys carpeting and has it professionally installed, and buys wallpaper that her daughter hangs. Which items would be included in this year's GDP?
A) the sale price of the house   B) the sale price of the house, carpeting, and wallpaper and the installation fee for the carpet   C) the sale price of the house, carpeting, and wallpaper, the installation fee for the carpet, and the opportunity cost of Rhonda's daughter's time   D) the sale price of the house, carpeting, and wallpaper, the installation fee for the carpet, and the opportunity cost of Rhonda's time   E) the sale price of the wallpaper and carpeting and the installation fee for the carpet
 

20. 

A man marries his cook. What effect does this have on GDP?
A) None, since only their legal status changes.   B) GDP decreases because her cooking was an intermediate good and is now a final good.   C) GDP decreases because there are fewer households in the economy.   D) GDP decreases unless she is still paid to cook for him.   E) GDP increases because she is cooking for two.
 

21. 

Suppose that storage costs increased, so that firms decide to hold less output in inventory, other things constant. Which of the following is true?
A) consumption spending will increase   B) consumption spending will decrease   C) investment will increase   D) investment will decrease   E) GDP for this year is not affected
 

22. 

Consumer spending in GDP measurement includes
A) spending by businesses on labor resources   B) spending by government on office buildings   C) spending by individual households on automobiles and durables   D) exchanges in business inventories   E) a firm's purchase of a radio made in Taiwan
 

23. 

Which of the following is not considered a component of investment when calculating GDP?
A) new residential construction   B) construction of new factories   C) net increases in inventory   D) purchases of corporate stock   E) production of new equipment
 

24. 

U.S. exports are
A) not included in U.S. GDP because they are consumed abroad   B) included in U.S. GDP because they are produced domestically   C) included in U.S. GDP because they represent an increase in inventories   D) included in U.S. GDP as government purchases because the government decides what goods may be exported   E) not included in U.S. GDP because they are not subject to a tariff
 

25. 

Net exports is the value of
A) exports minus the value of imports   B) imports minus the value of exports   C) imports minus tariffs   D) exports minus tariffs   E) exports plus the value of imports minus depreciation
 

26. 

Which of the following is not a component of aggregate expenditure?
A) exports   B) investment   C) imports   D) transfer payments   E) government purchases
 

27. 

The largest component of aggregate expenditure is
A) government purchases   B) transfer payments   C) imports   D) consumption   E) investment
 

28. 

Jimmy Earl, a farmer, sells $20 worth of peanuts to a factory that turns them into peanut butter, which is then sold for $45. Which of the following is true?
A) Total value added is $65.   B) The value of final sales is $65.   C) The value of final sales is $25.   D) Total value added is $25.   E) Total value added is $45.
 

29. 

Exports are an injection into the circular flow.
A) True   B) False
 

30. 

Which of the following correctly states the "leakages = injections" identity?
A) DI + NT = C + I + G + X - M   B) S + C + T = DI   C) S + C + NT = I + G + X - M   D) S + NT + M = I + G + X   E) S + NT = I + G + X - M
 

31. 

Which of the following is not a problem associated with GDP as a measure of social welfare?
A) It excludes many nonmarket activities.   B) It values all types of output equally.   C) It excludes pollution damage.   D) It excludes intermediate goods as a separate entry.   E) It excludes the value of leisure time.
 

32. 

Real US Gross Domestic Product in 2004 (in chained 2000 dollars) was close to
A)   $10 Billion   B) $100 Billion   C)   $1 Trillion   D) $10 Trillion
 

33. 

The rate of growth in US real GDP in the fourth quarter of 2004 was
A) - 7.6%   B) - 3.8%   C) 3.8%   D) 7.6%
 

34. 

The rate of inflation in the US, as measured by the CPI-U, from February 2004 to February 2005 was
A) 3%   B) 7%   C) 11%   D) 15%
 

35. 

The CPI-U (all cities, seasonally adjusted) equaled 182.3 in January 2003 and 185.9 in January 2004.
A) the rate of inflation in consumer prices was 1.02% over this 12-month period.   B) the rate of inflation in consumer prices was 2.0% over this 12-month period.   C) This is the best series to use for contract escalation.   D) Both A and C are true.
 

36. 

Which of the following is not a cost of unemployment?
A) Unemployed individuals suffer a loss of income.   B) Unemployed individuals are more likely to have emotional or psychological problems.   C) Unemployed individuals can lose their job skills over time.   D) Unemployment causes production to decrease from what it could be.   E) The opportunity cost of unemployment is a higher rate of inflation.
 

37. 

The labor force consists of all
A) the people in the economy who are not retired   B) people in the economy over 16 years of age   C) the adults in the economy between 18 and 65 years old who are able to work   D) the noninstitutionalized population over 16 in the economy who hold jobs or are looking for them   E) the citizens in the economy who are graduates of high school
 

38. 

Which of the following people is counted in the labor force?
A) Chou, who lost his job and last looked for work three months ago   B) Stephanie, who holds a Ph.D. in history, but can only find part-time employment at a fast-food restaurant   C) Jordan, who would like to work as a stockbroker but is too busy as a househusband caring for his disabled son.   D) Steffan, who thinks he could easily earn $100 thousand per year, despite the opinion of the psychiatrist at the state hospital where he is a patient   E) Monique, age 90, who is enjoying her retirement in Montana
 

39. 

People who are not currently employed, but say they want a job, are counted as unemployed only if they
A) have previously held a job   B) are actively seeking employment   C) are willing to accept a reasonable offer   D) are between 16 and 65 years of age   E) are willing to accept any offer of employment
 

40. 

Persons who are classified as marginally attached to the labor force
A) did not actively seek work in the last four weeks.   B) are counted as unemployed.   C) are counted as employed.   D) did not actively seek work in the last twelve months.
 

41. 

Persons classified as discouraged workers
A) care a subset of those marginally attached to the labor force.   B) are not counted as unemployed.   C) are not in the labor force.   D) all of the above.
 

42. 

Consider an economy made up of 100 people, 60 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The number of people in the labor force is
A) 30   B) 60   C) 85   D) 90   E) 70
 

43. 

Consider an economy with an adult population of 100, 50 of whom hold jobs, 10 of whom are looking for work, and 15 of whom are retired. The labor force participation rate is
A) 100 percent   B) 60 percent   C) 50 percent   D) 40 percent   E) 10 percent
 

44. 

Which of the following people would be counted as unemployed?
A) a retired naval officer   B) a full-time student in high school   C) a father of preschool children who does not want to work   D) an inner-city teenager who has given up looking for work after a year of trying   E) a downhill ski instructor who looks for work during the summer
 

45. 

Suppose the official unemployment rate is 10 percent. We can conclude without question that
A) the same 10 percent of the people in the economy were out of work for the entire year   B) one of every ten people in the labor force is currently unemployed   C) the same 10 percent of the people in the labor force were out of work for the entire year   D) every person in the labor force was out of work for 10 percent of the year   E) 10 percent of the people in the economy were each out of work for 10 percent of the year
 

46. 

Which of the following is not a way to become officially unemployed?
A) quit your job to look for a better job in another part of the country   B) be fired from your job   C) look for a job after being out of the labor force for five years   D) retire   E) look for a job only for the period in the summer that you are out of school
 

47. 

The US civilian unemployment rate for March 2005 was
A) 1.2%   B) 3.2%   C) 5.2%   D) 7.2%
 

48. 

The number of unemployed people in the US in March 2005 was closest to
A) 1 million    B) 4 million    C) 8 million    D) 10 million
 

49. 

The Bureau of Labor Statistics reported that the change in payroll employment in January 2005 was 124,000 persons.
A) This means that only 124,000 people were hired in January 2005.   B) This means that more than 124,000 people were hired in January 2005.   C) This means that fewer than 124,000 people were hired in January 2005.   D) None of the above are true.
 

50. 

The most important determinant of a household's consumption is
A) its disposable income   B) its total wealth   C) the number of persons in the household   D) its net wealth   E) the ratio of wage to nonwage income the household earns
 

51. 

Autonomous consumption expenditures are
A) identical to induced consumption   B) determined primarily by transfer payments   C) not influenced by disposable income   D) increasing at a decreasing rate   E) increasing at an increasing rate
 

52. 

Out of disposable income, households
A) consume and save   B) consume and invest   C) save and invest   D) consume, save, and pay taxes   E) consume, save, pay taxes, and make transfer payments
 

53. 

Suppose that when disposable income rises from $3 trillion to $3.2 trillion, consumption rises from $2.5 trillion to $2.6 trillion. What is the marginal propensity to consume?
A) 0.1   B) 0.2   C) 0.5   D) 0.8   E) 0.9
 

54. 

A decrease in net wealth will
A) increase consumption and saving at each level of income   B) increase saving and decrease consumption at each level of income   C) decrease consumption and saving at each level of income   D) increase consumption and decrease saving at each level of income   E) have no effect on consumption, since consumption is a function of income
 

55. 

An increase in the price level will
A) make the consumption function steeper   B) shift the consumption function downward   C) result in a movement upward along the consumption function   D) result in a movement downward along the consumption function   E) make the consumption function flatter
 

56. 

The non-income determinants of consumption include all of the following except
A) net wealth   B) the profitability of new investment   C) the price level   D) expectations   E) the interest rate
 

57. 

Which of the following best represents the opportunity cost of investing in capital?
A) the actual revenue stream generated by the investment   B) the expected revenue stream generated by the investment   C) the profit that investment is expected to generate   D) the market interest rate   E) the purchase price of the plant and equipment
 

58. 

Mr. Green is considering four possible investment opportunities, each of which would cost him $5,000. He expects annual returns on these investments of $600, $500, $400, and $300. If the interest rate is 7 percent, how many of these opportunities should Mr. Green undertake?
A) one   B) two   C) three   D) four   E) none
 

59. 

Which of the following would be most likely to cause a rightward shift in the investment demand curve?
A) an increase in income   B) a decline in the market rate of interest   C) an improvement in business expectations   D) an increase in the market rate of interest   E) a decrease in income
 

60. 

The Bureau of Economic Analysis reported these data for the United States in 2002. All figures are in billions of current dollars.
Disposable Personal Income
$7,120
Government Purchases of Goods and Services
$1,973
Net Exports
- $424
Consumption Spending
$7,308
Transfer Payments
$1,288
Gross Private Domestic Investment
$1,593
Using some of these figures, calculate the GDP for the United States in 2002.
A) $10,450 billion   B) $10,874 billion   C) $17,570 billion   D) $18,858 billion
 



 
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