Practice Questions for Module 3 and 4 PDF

Practice Questions for Module 3 and 4 This is not a sample exam. These are the questions you need practice on. The answer key is on the last page. 1. James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in w...

Practice Questions for Module 3 and 4 This is not a sample exam. These are the questions you need practice on. The answer key is on the last page. 1. James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent. How much do the housing services provided by the two houses contribute to GDP? a. $0 b. $10,000 c. $12,000 d. $22,000 2. Which of the following is included in the calculation of GDP? a. The purchase of tutoring services from a tutor who holds citizenship outside the country but resides within the country. b. The purchase of a new edition of a foreign textbook that was produced in a different nation. c. The purchase of ink and paper supplies by a textbook company for the production of new textbooks. d. The purchase of a used textbook from a friend who took the same class last year. Table 23-5 The country of Caspir produces only cereal and milk. Quantities and prices of these goods for the last several years are shown below. The base year is 2015. Prices and Quantities Quantity of Quantity of Year Price of Cereal Price of Milk Cereal Milk 2015 $4.00 100 $1.50 180 2016 $4.00 120 $2.00 200 2017 $5.00 150 $2.50 200 2018 $6.00 180 $3.50 240 3. Refer to Table 23-5. In 2016, this country’s a. real GDP was $880, and the GDP deflator was 111.4. b. real GDP was $780, and the GDP deflator was 88.6. c. real GDP was $880, and the GDP deflator was 112.8. d. real GDP was $780, and the GDP deflator was 112.8. 4. Refer to Table 23-5. In 2017, this country’s a. real GDP was $900, and the GDP deflator was 138.9. b. real GDP was $1250, and the GDP deflator was 128.0. c. real GDP was $900, and the GDP deflator was 128.0. d. real GDP was $1250, and the GDP deflator was 138.9. 5. Refer to Table 23-5. This country’s inflation rate from 2016 to 2017 was a. 25.0%. b. 23.1%. c. 26.1%. d. 18.8%. Page 1 Practice Questions for Module 3 and 4 Table 24-4 The table below pertains to Studious, an economy in which the typical consumer’s basket consists of 5 books and 10 calculators. Price of a Price of a Year Book Calculator 2012 $24 $9 2013 $30 $11 2014 $32 $12 6. Refer to Table 24-4. If 2012 is the base year, then the consumer price index was a. 100 in 2012, 123.8 in 2013, and 133.3 in 2014. b. 100 in 2012, 124.2 in 2013, and 133.3 in 2014. c. 210 in 2012, 260 in 2013, and 280 in 2014. d. 100 in 2012, 150 in 2013, and 170 in 2014. 7. Refer to Table 24-4. The inflation rate was a. 24.3 percent in 2013 and 22.5 percent in 2014. b. 23.8 percent in 2013 and 9.5 percent in 2014. c. 23.8 percent in 2013 and 7.7 percent in 2014. d. 24.3 percent in 2013 and 7.3 percent in 2014. 8. In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 237 for 2015. President Hoover’s 1931 salary was equivalent to a 2015 salary of about a. $4,965. b. $1,169,408. c. $1,057,894. d. $16,080,001. 9. Suppose in the year 2000 Ken earned $60,000 per year and that in 2015 he earned $78,000 per year. If the CPI in the year 2000 was 172.2 and in 2015 was 236.7, which of the following statements is correct? a. Ken's standard of living got better from 2000 to 2015. b. If Ken had earned $81,000 in 2015, his standard of living would have improved relative to his income in 2000. c. Ken would have needed to earn $87,000 or more in 2015 for his standard of living to have improved relative to his income in 2000. d. If Ken had earned $83,000 in 2015, his standard of living would have improved relative to his income in 2000. 10. The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $4 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion. What is investment in Growpaw? a. $5 billion b. $4 billion c. $3 billion d. $11 billion 11. The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland, Page 2 Practice Questions for Module 3 and 4 a. investment is $6 billion and consumption is $7 billion. b. investment is $6 billion and consumption is $6 billion. c. investment is $7 billion and consumption is $7 billion. d. investment is $7 billion and consumption is $6 billion. 12. Other things the same, a government budget deficit a. reduces public saving, but not national saving. b. reduces national saving, but not public saving. c. reduces both public and national saving. d. reduces neither public saving nor national saving. 13. A dairy buys $50,000 worth of milk and spend $5,000 on cartons and utilities. It sells the cartons of milk to a grocery store for $60,000 that then sells all of the cartons to consumers for $65,000. How much do these actions add to GDP? a. $55,000 b. $65,000 c. $120,000 d. None of the above are correct. 14. When a U.S. citizen buys $500 of Chinese-made parts for a motorcycle, a. U.S. consumption falls by $500, U.S. net exports decline by $500, and U.S. GDP declines by $1000. b. U.S. consumption does not change, U.S. net exports decline by $500, and U.S. GDP declines by $500. c. U.S. consumption increases by $500, U.S. net exports remain the same, and U.S. GDP increases by $500. d. U.S. consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains the same. 15. The CPI differs from the GDP deflator in that a. the CPI is a price index, while the GDP deflator is an inflation index. b. substitution bias is not a problem with the CPI, but it is a problem with the GDP deflator. c. increases in the prices of foreign produced goods that are sold to U.S. consumers show up in the CPI but not in the GDP deflator. d. increases in the prices of domestically produced goods that are sold to the U.S. government show up in the CPI but not in the GDP deflator. Scenario 24-3 Sue Holloway was an accountant in 1944 and earned $12,000 that year. Her son, Josh Holloway, is an accountant today and he earned $210,000 in 2013. The price index was 17.6 in 1944 and 218.4 in 2013. 16. Refer to Scenario 24-3. Sue Holloway’s 1944 income in 2013 dollars is a. $23,033. b. $136,909. c. $148,909. d. $240,960. 17. If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is a. -9.5 percent. b. -4.5 percent. c. 4.5 percent. Page 3 Practice Questions for Module 3 and 4 d. 9.5 percent. 18. Which of the following is an example of physical capital? a. the strength of workers b. on the job training c. financial assets like cash and bonds d. the equipment in a factory 19. Human capital is the a. knowledge and skills that workers acquire through education, training, and experience. b. stock of equipment and structures that is used to produce goods and services. c. total number of hours worked in an economy. d. same thing as technological knowledge. 20. If there are diminishing returns to capital, then a. capital produces fewer goods as it ages. b. old ideas are not as useful as new ones. c. increases in the capital stock eventually decrease output. d. increases in the capital stock increase output by ever smaller amounts. 21. The catch-up effect refers to the idea that a. saving will always catch-up with investment spending. b. it is easier for a country to grow fast and so catch-up if it starts out relatively poor. c. population eventually catches-up with increased output. d. if investment spending is low, increased saving will help investment to "catch-up." 22. We associate the term debt finance with a. the bond market, and we associate the term equity finance with the stock market. b. the stock market, and we associate the term equity finance with the bond market. c. financial intermediaries, and we associate the term equity finance with financial markets. d. financial markets, and we associate the term equity finance with financial intermediaries. 23. Long-term bonds are a. riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. b. riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. c. less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. d. less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 24. Which of the following is a financial intermediary? a. a mutual fund b. the stock market c. a U.S. government bond Page 4 Practice Questions for Module 3 and 4 d. a wealthy individual who regularly buys and holds large quantities of government bonds 25. In a closed economy, what does (Y - T - C) represent? a. national saving b. government tax revenue c. public saving d. private saving 26. Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving? a. 1,500 and -500, respectively b. 1,500 and 500, respectively c. 1,000 and -500, respectively d. 1,000 and 500, respectively 27. The supply of loanable funds slopes a. upward because an increase in the interest rate induces people to save more. b. downward because an increase in the interest rate induces people to save less. c. downward because an increase in the interest rate induces people to invest less. d. upward because an increase in the interest rate induces people to invest more. 28. In 2009, the U.S. government’s budget deficit increased substantially. Other things the same, this means the a. supply of loanable funds shifted to the right. b. supply of loanable funds shifted to the left. c. demand for loanable funds shifted to the right. d. demand for loanable funds shifted to the left. 29. A policy that induces people to save more shifts a. the supply of loanable funds and raises interest rates. b. the supply of loanable funds and reduces interest rates. c. the demand for loanable funds and raises interest rates. d. the demand for loanable funds and reduces interest rates. 30. Josh is a full-time college student who is not working or looking for a job. The Bureau of Labor Statistics counts Josh as a. unemployed and in the labor force. b. unemployed but not in the labor force. c. in the labor force but not unemployed. d. neither in the labor force nor unemployed. 31. Suppose that the adult population is 4 million, the number of unemployed is 0.25 million, and the labor-force participation rate is 75%. What is the unemployment rate? a. 6.25% b. 8.3% c. 9.1% d. 18.75% Page 5 Practice Questions for Module 3 and 4 32. Unemployment that results because the number of jobs available in some labor markets may be insufficient to give a job to everyone who wants one is called a. the natural rate of unemployment. b. cyclical unemployment. c. structural unemployment. d. frictional unemployment. 33. The natural unemployment rate includes a. both frictional and structural unemployment. b. neither frictional nor structural unemployment. c. structural but not frictional unemployment. d. frictional but not structural unemployment. 34. Unemployment insurance a. reduces search effort which raises unemployment. b. reduces search effort which lowers unemployment. c. increases search effort which raises unemployment. d. increases search effort which decreases unemployment. 35. The effects of unionization on wages in the sectors of the economy that are unionized causes the supply of labor in other sectors of the economy to a. decrease, raising wages in industries that are not unionized. b. decrease, reducing wages in industries that are not unionized. c. increase, raising wages in industries that are not unionized. d. increase, reducing wages in industries that are not unionized. 36. Efficiency-wage theory suggests that paying a. low wages might be profitable because they raise the efficiency of a firm’s workers. b. low wages might be profitable because they lower the efficiency of a firm’s workers. c. high wages might be profitable because they raise the efficiency of a firm’s workers. d. high wages might be profitable because they lower the efficiency of a firm’s workers. 37. Which of the following items is included in U.S. GDP? a. the estimated value of production accomplished at home, such as backyard production of fruits and vegetables b. the value of illegally-produced goods and services c. the value of cars and trucks produced in foreign countries and sold in the U.S. d. None of the above is included in U.S. GDP. 38. In the economy of Talikastan in 2015, consumption was $700, exports were $200, government purchases were $300, imports were $150, and investment was $400. What was Talikastan’s GDP in 2015? a. $1350 b. $1450 c. $1050 d. $1750 Page 6 Practice Questions for Module 3 and 4 39. Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds? a. The demand and supply of loanable funds would shift right. b. The demand and supply of loanable funds would shift left. c. The supply of loanable funds would shift right. d. The demand for loanable funds would shift left. 40. Which of the following events could explain a decrease in interest rates together with an increase in investment? a. The government went from surplus to deficit. b. The government instituted an investment tax credit. c. The government reduced the tax rate on savings. d. None of the above is correct. Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 41. Refer to Figure 26-3. Which of the following movements shows the effects of households’ decision to save more? a. a movement from Point A to Point B b. a movement from Point F to Point A c. a movement from Point C to Point F d. a movement from Point B to Point C Page 7 Practice Questions for Module 3 and 4 Answer Key 1. d 2. a 3. d 4. a 5. b 6. a 7. c 8. b 9. d 10. c 11. b 12. c 13. b 14. d 15. c 16. c 17. d 18. d 19. a 20. d 21. b 22. a 23. b 24. a 25. d 26. d Page 8 Practice Questions for Module 3 and 4 27. a 28. b 29. b 30. d 31. b 32. c 33. a 34. a 35. d 36. c 37. d 38. b 39. d 40. c 41. c Page 9