Name:    Principles of Macroeconomics / Exam 2 / Fall 2000 / Sondgeroth

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1.

If the CPI is 150 in one year and 165 in the next year, how much did prices rise between the two years?
 a. 100.0 percent b. 10.0 percent c. 1.00 percent d. 0.10 percent

2.

Suppose the market basket consists of 10X, 20Y, and 30Z. Current-year prices are \$2.00 for each unit of X, \$1.00 for each unit of Y, and \$1.20 for each unit of Z. Base-year prices are \$1.00 for each unit of X, Y, and Z. What is the approximate CPI in the current year?
 a. 1.23 b. 203 c. 216 d. 126

3.

Persons who are retired or engaged in own-home housework are considered to be in which of the following categories?
 a. in the civilian labor force b. employed c. not in the labor force d. unemployed

4.

In order to be classified as unemployed, a person must
 a. not have worked during the survey week, actively have looked for work within the past four weeks, and currently be available for work. b. not have worked during the survey week, and currently be available for work. c. actively have looked for work within the past six weeks. d. not have a job.

5.

The unemployment due to the time it takes for unemployed people to locate a job utilizing their transferable skills is called __________ unemployment.
 a. structural b. cyclical c. natural d. frictional

6.

"Full employment" is said to exist when the unemployment rate equals
 a. zero. b. the cyclical unemployment rate. c. the structural unemployment rate. d. the natural unemployment rate.

7.

A movie star was paid \$1 million in 1960 to do a movie. The CPI was 30.0 in 1960 and the CPI in 2000 was 165.0. Approximately how much did the movie star earn in 2000 dollars?
 a. \$6.5 million b. \$6.0 million c. \$5.5 million d. \$5.0 million e. none of the above

8.

Gross Domestic Product (GDP) is the total market value of all
 a. final goods and services produced annually within a country's borders. b. final and intermediate goods and services produced annually within a country's borders. c. intermediate goods and services produced annually within a country's borders. d. final goods and services produced every two years within a country's borders.

9.

Gross Domestic Product is computed by using
 a. costs of production. b. wholesale prices. c. previous-year prices. d. current-year prices.

10.

Macroeconomists define "consumption" as
 a. purchases by the business sector. b. wearing away and breakdown of capital goods. c. purchases by the household sector. d. the difference between imports and exports.

11.

The expenditure approach to measuring GDP sums
 a. consumption, gross private domestic investment, government purchases, and net exports. b. sales, revenues, income, and wages. c. profits, compensation of employees, consumption, and investment. d. net exports, consumption, wages, and salaries.

12.

Leisure is
 a. a good that is not counted in GDP. b. a good that is counted in GDP. c. neither a good nor a bad, and it is not counted in GDP. d. a bad as far as economists are concerned, because it is not tangible.

13.

To derive net domestic product (NDP) from gross domestic product (GDP), we must subtract
 a. imports from GDP. b. gross private domestic investment from GDP. c. depreciation or capital consumption allowance from GDP. d. inventory investment from GDP. e. the statistical discrepancy from GDP.

Exhibit 6-1

14.

Refer to Exhibit 6-1. Which of the following summations represents GDP using the expenditure approach?
 a. \$1750 + \$412 + \$200 + \$299 b. \$1750 + \$412 + \$200 - \$331 + \$299 c. \$1750 + \$412 + \$200 + \$331 + \$299 d. \$1750 + \$412 + \$200 + \$331 + \$299 - \$355 e. \$1750 + \$412 + \$200 + \$331 + \$299 - \$355 + \$188

15.

A "recession" is defined as
 a. a period of a positive frictional unemployment rate. b. two or more consecutive quarters of falling Real GDP. c. the lowest point in a business cycle. d. a period of negative inflation.

16.

Why do economists prefer to compare Real GDP figures for various years instead of GDP figures?
 a. Because when GDP in one year is higher than in another year, there is no way to tell why it is higher. Is it because output is higher, prices are higher, etc.? This is not the case with Real GDP. If Real GDP is higher in one year than in another year, it is because output is higher. b. Because when GDP in one year is higher than in another year, there is no way of knowing if the quality of goods produced is higher in one year than the other. This is not the case with Real GDP. If Real GDP is higher in one year than in another year, it is because the quality of the goods produced is higher. c. Actually the question is incorrect. Economists prefer to compare GDP figures instead of Real GDP figures. d. Because Real GDP is easier to compute than GDP. e. Because when GDP in one year is higher than in another year, there is no way to tell if the quality of life is higher in one year than the other. This is not the case with Real GDP. If Real GDP is higher in one year than in another year, it is because the quality of life is higher.

17.

A business cycle refers to the
 a. continued expansion in Real GDP. b. continued decline in Real GDP. c. recurrent swings (up and down) in Real GDP. d. period when Real GDP grows at unusually high rates. e. none of the above

18.

One of the reasons why the AD curve slopes downward is that as the
 a. price level rises, purchasing power rises. b. price level falls, purchasing power rises. c. nation's income level rises, purchasing power rises. d. nation's income level rises, purchasing power falls. e. This is a trick question, because the curve is upward sloping.

19.

Suppose a drop in stock prices makes people feel less wealthy. This would cause __________ the economy's AD curve.
 a. movement down along b. movement up along c. a rightward shift of d. a leftward shift of

20.

Changes in which of the following will not cause the AS curve to shift?
 a. the wage rate b. prices of nonlabor inputs c. the price level d. productivity e. All of the above will cause the AS curve to shift.

21.

A decrease in the price level
 a. shifts the AD curve to the right. b. shifts the AD curve to the left. c. causes an upward movement along the existing AD curve. d. causes a downward movement along the existing AD curve. e. none of the above

22.

The short-run aggregate supply curve shows the various amounts of real output that producers are willing to
 a. sell at different profit levels. b. sell at different price levels. c. buy at different income levels. d. buy at different price levels.

23.

Generally, an increase in aggregate supply is
 a. the result of an increase in the price level. b. represented by a movement along the AS curve. c. represented by a rightward shift in the AS curve. d. both a and b e. both a and C

Exhibit 8-3

24.

Refer to Exhibit 8-3. The economy is in short-run equilibrium and has an inflationary gap at point
 a. A. b. B. c. C. d. D. e. E.

25.

Refer to Exhibit 8-3. The economy is in short-run equilibrium and has a recessionary gap at point
 a. A. b. B. c. C. d. D. e. E.

26.

In a self-regulating economy, inflationary and recessionary gaps produce shifts of the
 a. AD curve that maintain the short-run equilibrium point. b. AD curve that move the economy to a long-run equilibrium point. c. SRAS curve that maintain the short-run equilibrium point. d. SRAS curve that move the economy to a long-run equilibrium point.

27.

The classical economists believed __________ determined savings, while Keynes said it was __________.
 a. interest rates; consumption habits and income b. income; investment c. investment; interest rates d. interest rates; investment

28.

Keynesian macroeconomists believe that the time it takes for falling wages and prices to eliminate a recessionary gap is __________ enough to say that the economy is __________.
 a. long; not self-regulating b. long; self-regulating c. short; not self-regulating d. short; self-regulating

29.

Keynesian economics was developed during the
 a. late 1800s. b. late 1700s. c. Great Depression. d. Panic of 1907.

30.

Keynes argued that
 a. monopolistic elements in the economy will prevent an immediate sharp fall in prices as a result of decreasing demand. b. wages and prices are not flexible in a downward direction. c. a and b d. none of the above