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ECON312N Principles of Economics Week 6 Quiz Question 1 In 2010, the GDP price index was 101.2 and real GDP was $14.8 trillion. In 2011, nominal GDP was $15.5 trillion and real GDP was $15.0 trillion. Calculate the increase in nominal GDP and the increase in the GDP price index in 2011. The percentage increase in nominal GDP in 2011 is The percentage increase in the GDP price index in 2011 is Question 2 The change in potential real GDP and aggregate supply shown in the graph above can be a result of a decrease in the money wage rate. a decrease in the money price of oil. an increase in the quantity of capital. a fall in the price level. an increase in the real wage rate. Question 3 Marla is an associate at JCPenney who wants to work 40 hours week but works 25 hours a week because sales at JC Penney are slow. Marla works part time for _______ reasons. Joe is a server at Olive Garden who wants to work 40 hours a week but works 15 hours a week because the number of patrons at Olive Garden has decreased. Joe works part time for _______ reasons. ?economic; noneconomic ?economic; economic ?noneconomic; noneconomic ?noneconomic; economic Question 4 Which of the following is true? To be classified as employed, you must be a full-time worker at a paid job. To be classified as employed, you must work at least 1 hour per week at a paid job or 15 hours or more as an unpaid worker in your family business. To be classified as employed, you must work at least 20 hours per week at a paid job. If you are not working and turn down a job offer in the previous week, you are no longer classified as unemployed. Part-time workers are all those who work less than 40 hours per week. Question 5 Based on the figure above, in which quarter or quarters did a recession occur? between 2013, 2nd quarter to 2014, 2nd quarter between 2014, 1st quarter to 2014 2nd quarter after 2013, 2nd quarter in 2013, 2nd quarter between 2012, 2nd quarter to 2013, 2nd quarter and also between 2014, 2nd quarter to the end of the figure Question 6 The table above has information about the CPI, nominal wage rate, and nominal interest rate for the country of Syldavia for the years 2010 to 2012. The reference base year is 2010. The real interest rate in Syldavia during 2012 was 0.6 percent. 9.0 percent. 2.8 percent. 5.2 percent. 8.4 percent. Question 7 When an American college student in Davis, California spends $200 on a pair of Louis Vuitton jeans (a famous French brand), U.S. consumption ________, U.S. net exports ________, and U.S. GDP ________. increases by $200; decreases by $200; does not change does not change; increases by $200; increases by $200 increases by $200; does not change; increases by $200 does not change; does not change; does not change does not change; decreases by $200; decreases by $200 Question 8 If the GDP price index is 125 and nominal GDP is $130 billion, then real GDP equals ________ billion. $162.50 $9.6 $104.00 $1.04 $96 Question 9 Data for 2009 Data for 2010 The table above gives the production and prices for a small nation that produces only bread and soda. The base year is 2009. What is nominal GDP in 2009? $410 $450 $900 $460 $550 Question 10 The government passes a law which doubles the wages of all workers. Aggregate supply will ________, and real GDP will ________, and the price level will ________. increase; increase; remain the same. remain the same; increase; increase. decrease; increase; increase. decrease; decrease; increase. increase; remain the same; increase. Question 11 The following are groups of individuals in the population: 1. Individuals who are under 16 2. Individuals in institutional care 3. Individual in the armed forces 4. Individuals working for pay at a fulltime job 5. Individuals who are employed 6. Individuals not employed but were available for work and were looking for work 7. Individuals not employed and looking for work Using the table above, the Current Population Survey classifies the group of individuals obtained by adding groups 5 and 6 as unemployed. the labor force. the working age population. employed. discouraged workers. Question 12 An increase in the price of oil ________ aggregate supply, shifting the aggregate supply curve ________ and potentially bringing the ________ phase of the business cycle. decreases; rightward; recession decreases; rightward; expansion increases; rightward; expansion decreases; leftward; recession increases; rightward; recession Question 13 Phillip is a 22-year old who has no job and is available for work, but has not actively looked for a job in the last month. The Current Population Survey identifies Phillip as ________, ________ the labor force, and ________ the working-age population. not unemployed; not part of; not part of not unemployed; not part of; part of not unemployed; part of; part of unemployed; part of; part of unemployed; part of; not part of Question 14 An increase in investment ________ aggregate demand, the aggregate demand curve shifts ________ and the economy is in the ________ phase of the business cycle. decreases; rightward; expansion increases; rightward; recession increases; rightward; expansion decreases; leftward; recession increases; leftward; recession Question 15 Using the information in the table above, what does GDP equal? $650 billion $350 billion $380 billion $365 billion GDP cannot be calculated without information on the amount of investment. Question 16 The tables show the quantities of the goods that Harry bought and the prices he paid during two consecutive weeks. Week 1 Item Quantity Price (per unit) Coffee 5 cups $3.00 iTunes songs 5 $1.00 Gasoline 10 gallons $2.00 Week 2 Item Quantity Price (per unit) Coffee 4 cups $3.25 iTunes songs 10 $1.00 Gasoline 10 gallons $3.00 Harry’s CPI market basket contains the goods he bought in Week 1. Calculate Harry’s CPI in Week 2. What was his inflation rate in Week 2? Question 17 Using the table above, the working-age population is 170 million. 195 million. 155 million. 220 million. 250 million. Question 18 If a wealthy woman marries her butler, quits paying him and does not hire a new butler, then GDP definitely decreases. GDP either does not change or increases. GDP definitely does not change. GDP definitely increases. There is not enough information given to reach a conclusion. Question 19 Negative interest rates The Federal Reserve has held interest rates close to zero percent for the past seven years. Even with low inflation, “real” interest rates have been negative. Source: San Diego Union Tribune, February 5, 2016 Explain why with a zero interest rate, even low inflation makes the real interest rate negative. Can the real interest rate exceed the nominal interest rate? When the nominal interest rate equals zero, the real interest rate equals _______. the inflation rate minus 1 percent the negative of the inflation rate the negative of the CPI the CPI minus 1 percent the inflation rate minus 1 percent Question 20 Economists look to expand GDP to include the quality of life Robert Kennedy, when seeking the Democratic presidential nomination in 1968, remarked that GDP measures everything except that which makes life worthwhile. Source: The New York Times, September 1, 2008 Which items did Robert Kennedy probably think were missing? Robert Kennedy probably thought that? _______ were missing from the measure of GDP. the production of Americans who were discriminated against the labor and capital required to campaign for President policing and Secret Service protection political freedom and social justice Question 21 A rise in the price level brings a ________ in the buying power of money that ________ consumption expenditures and causes the quantity of real GDP demanded to ________. fall; decreases; decrease rise; increases; increase fall; increases; increase rise; decreases; decrease fall; decreases; increase Question 22 The main sources of bias in the CPI are? ______. new goods? bias, quality change? bias, commodity substitution? bias, and outlet substitution bias new goods? bias, commodity substitution? bias, and lifestyle bias designer name bias and generic product bias big box store? bias, corner store? bias, mall? bias, and brand name bias Question 23 The table shows some data for an economy. In 2015 Item Quantity Price Apples 60 $0.50 Oranges 80 $0.25 In 2016 Item Quantity Price Apples 160 $1.00 Oranges 220 $2.00 If the base year is 2015, calculate the economy’s nominal GDP and real GDP in 2016. Nominal GDP in 2016 is $ Real GDP in 2016 is $ Question 24 Item Quantity (2013) Price (2013) Quantity (2014) Price (2014) Magazines 400 $5.00 450 $4.50 Movie tickets 50 $6.00 200 $8.00 Pizzas 100 $10.00 120 $10.50 The data in the table above shows the consumption by families in an economy. The year 2013 is the reference base period. Based on the table above, the CPI for 2014 is 102.5 percent. 5.0 percent. 100 percent. 105.1 percent. 98.5 percent. Question 25 Item Quantity (2013) Price (2013) Quantity (2014) Price (2014) Magazines 400 $5.00 450 $4.50 Movie tickets 50 $6.00 200 $8.00 Pizzas 100 $10.00 120 $10.50 The data in the table above shows the consumption by families in an economy. The year 2013 is the reference base period. Based on the table above, the cost of the base period market basket in 2013 is $4,650. $3,300. None of the above answers is correct. $4,885. $3,885. Question 26 Potential GDP is the amount of real GDP that the economy would produce if the unemployment rate was zero. the amount of real GDP that the economy would produce if all unemployment was cyclical unemployment. the amount of real GDP that the economy would produce if it were at full employment of all resources. the value of the maximum amount of output that can be produced at any given time. another name for real GDP. Question 27 A new technology is discovered which results in all new cars producing 50 percent less pollution. Which of the following is true? GDP will decrease. GDP increases anytime pollution is reduced. GDP will increase to reflect the fact that the air we breathe is cleaner. GDP will increase if there is an increase in the production cost and price of the car. Real GDP increases because the air is cleaner, but nominal GDP does not change since air is free. Question 28 Production by Honda, a Japanese firm, in the United States is included in ________ GDP and production by Nike Corporation, a U.S. firm, in Vietnam is included in ________ GDP. U.S. and Japanese; U.S. and Vietnamese U.S.; Vietnamese Japanese; U.S. Japanese; Vietnamese U.S.; U.S. Question 29 The expenditure approach to measuring GDP is done by using data on only consumption expenditure, investment, government expenditure on goods and services, and net exports of goods and services. consumption expenditure and investment. wages, rent, interest, and profit. consumption expenditure, investment, and government expenditures. consumption expenditure. Question 30 In the figure above, the economy is at an equilibrium with real GDP of $16 trillion and a price level of 110. At this point there is a full-employment equilibrium. price stability. an inflationary gap. an above full-employment equilibrium. a recessionary gap. Question 31 If average annual tuition at public 4-year colleges was $1,908 in 1990, when the CPI was 130.7, and $8,655 in 2012 when the CPI was 229.6, then the real cost of annual tuition rose by 75.7 percent during that period. fell by 354 percent during that period. rose by 354 percent during that period. rose by 158 percent during that period. fell by 158 percent during that period. Question 32 The table above gives data for the nation of Pearl, a small island in the South Pacific. The economy is at full employment when real GDP is $25 billion. $31 billion. $34 billion. $28 billion. $22 billion. Question 33 Using the table above, the unemployment rate is 5.13 percent. 6.45 percent. 5.88 percent. 6.90 percent. 5.71 percent. Question 34 If European economies enter a recession, U.S. aggregate demand decreases and the U.S. AD curve shifts leftward. U.S. aggregate demand increases and the U.S. AD curve shifts rightward. U.S. aggregate demand decreases and the U.S. AD curve shifts rightward. the quantity of real GDP demanded in the United States decreases and there is a movement down along the U.S. AD curve. the quantity of real GDP demanded in the United States increases and there is a movement up along the U.S. AD curve. Question 35 House GOP changes course on infrastructure House Republicans abandoned plans to slash U.S. infrastructure spending and now say they are trying to find ways to pay for a multiyear highway-construction program, which will exceed $300 billion. Source: The Wall Street Journal, September 30, 2011 Explain the effect of the government’s increased expenditure on infrastructure on U.S. aggregate demand and aggregate supply. The government’s increased expenditure on infrastructure ______ in the short run and ______ in the long run. increases aggregate demand and aggregate? supply; increases potential GDP increases aggregate demand with no change in aggregatein ? supply; increases potential GDP and aggregate supply increases aggregate demand with no change in aggregatein ? supply; does not impact the U.S. economy does not impact the U.S.? economy; does not impact the U.S. economy does not impact the U.S.do ? economy; increases potential GDP and aggregate supply Question 36 Facebook is the reason for the productivity slowdown, no, really Facebook’s WhatsApp is free and it sells no advertising. So WhatsApp’s value of production in GDP is zero. Assume that WhatsApp’s services are produced by 300 people all of whom earn $100,000 a year. By this measure, WhatsApp’s value of production in GDP is $30 million. Source: Forbes, February 13, 2016 What are the two approaches to measuring GDP described in the news clip? Why is one of these measures of the contribution of WhatsApp to GDP wrong? The two approaches to measuring GDP described in the news clip are the? _______. production approach and the wage approach expenditure approach and the income approach expenditure approach and the production approach advertising approach and the income approach Question 37 Because of the existence of the aggregate demand multiplier, a $10 billion change in expenditure changes the slope of the aggregate demand curve so it is steeper. shifts the aggregate demand curve by less than $10 billion. shifts the aggregate demand curve by more than $10 billion. changes the slope of the aggregate demand curve so it is less steep. shifts the aggregate demand curve by $10 billion. Question 38 The table shows some of the items in Northland’s National Income and Product Accounts in 2016. em Amount (billions of dollars) Consumption expenditure 885 Wages 815 Government expenditure 350 Interest, rent, and profit 400 Indirect taxes less subsidies 165 Depreciation 200 Investment 300 Net exports 35 What was Northland’s GDP as measured by the income approach in 2016? Northland’s GDP as measured by the income approach in 2016 is $ 1580 billion. Answer 1: 1580 Question 39 Sherri lives in Canada and is considering buying a new sofa. If the price level in Canada falls and the price level in the United States does not change, Canadian manufactured sofas are relatively less expensive, so Sherri will likely purchase a Canadian manufactured sofa. more expensive, so Sherri will likely purchase a U.S. manufactured sofa. Both answers B and D could be correct depending on whether U.S. manufactured sofas were initially more expensive or less expensive than Canadian sofas. more expensive, so Sherri will likely purchase a Canadian manufactured sofa. less expensive, so Sherri will likely purchase a U.S. manufactured sofa. Question 40 John has been laid off from his job because of a general downturn in the economy. John’s unemployment is best classified as full. structural. avoidable. frictional. cyclical.

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