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QUIZ 4 Chapter 10 Question 1 GDP excludes the purchases of sliced bread by a sandwich shop, because the bread is an intermediate good in this case. A) True B) False Question 2 When real GDP increases, this implies that the production of goods and services has risen. A) True B) False Question 3 GDP is the market value of all final goods and services produced within a country in a given period of time. A) True B) False Question 4 In a simple circular-flow diagram, total income and total expenditure are A) never equal because total income always exceeds total expenditure. B) seldom equal because of the ongoing changes in an economy’s unemployment rate. C) equal only when the government purchases no goods or services. D) always equal because every transaction has a buyer and a seller. Question 5 Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced in American plants. In 2008, Quality Motors produced $25 million worth of automobiles and sold $12 million in the U.S. and $13 million in Mexico. In addition, it sold $2 million from the previous year’s inventory in the U.S. The transactions just described contribute how much to U.S. GDP for 2008? A) $12 million B) $14 million C) $25 million D) $27 million Question 6 How does U.S. gross domestic product (GDP) differ from U.S. gross national product (GNP)? A) GNP = GDP – losses from depreciation B) GNP = GDP + income earned by U.S. citizens abroad – income that foreign citizens earned in the U.S. C) GNP = GDP + transfer payments to households + – indirect sales taxes D) GNP = GDP – depreciation – retained earnings Question 7 Which of the following is included in the consumption component of U.S. GDP? A) purchases of staplers, paper clips, and pens by U.S. business firms B) purchases of natural gas by U.S. households C) purchases of newly constructed homes by U.S. households D) All of the above are correct. Question 8 During the current quarter, a firm produces consumer goods and adds some of those goods to its inventory rather than selling them. The value of the goods added to inventory is A) not included in the current quarter GDP. B) included in the current quarter GDP as investment. C) included in the current quarter GDP as consumption. D) included in the current quarter GDP as a statistical discrepancy. Question 9 In 2014, a farmer grows and sells $3 million worth of corn to Big Flakes Cereal Company. Big Flakes Cereal Company produces $8 million worth of cereal in 2014, with sales to households during the year of $7 million. The unsold $1 million worth of cereal remains in Big Flake Cereal Company’s inventory at the end of 2014. The transactions just described contribute how much to GDP for 2014? A) $3 million B) $7 million C) $8 million D) $11 million Question 10 Quality Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced in American plants. In 2010 Quality Motors produced $30 million worth of automobiles, with $17 million in sales to Americans, $9 million in sales to Canadians, and $4 million worth of automobiles added to Quality Motors’ inventory. The transactions just described contribute how much to U.S. GDP for 2010? A) $17 million B) $21 million C) $26 million D) $30 million Quiz 4 Chapter 11 Question 1 (1 point) The CPI for 2008 is computed by dividing the price of the basket of goods and services in 2008 by the price of the basket of goods and services in the base year, then multiplying by 100. A) True B) False Question 2 Bob deposits $100 in a bank account that pays an annual interest rate of 5 percent. A year later, Bob withdraws his $105. If inflation was 5 percent during the year the money was deposited, then Bob’s purchasing power has not changed. A) True B) False Question 3 If the real interest rate is 5 percent and the inflation rate is 2 percent, then the nominal interest rate is 7 percent. A) True B) False Question 4 In a period of inflation real interest rates will be greater than nominal interest rates. A) True B) False Question 5 One of the widely acknowledged problems with using the consumer price index as a measure of the cost of living is that the CPI A) fails to measure all changes in the quality of goods. B) displays a housing bias. C) accounts for changes in prices of some goods, but prices of certain goods are assumed to remain constant. D) All of the above are correct. Question 6 If the nominal interest rate is 6 percent and the rate of inflation is 2 percent, then the real interest rate is A) -4 percent. B) 3 percent. C) 4 percent. D) 8 percent. Question 7 The substitution bias in the consumer price index refers to the A) substitution by consumers toward new goods and away from old goods. B) substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods. C) substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive. D) substitution of new prices for old prices in the CPI basket of goods and services from one year to the next. Question 8 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. Question 9 The economy’s inflation rate is the A) price level in the current period. B) change in the price level from the previous period. C) change in the gross domestic product from the previous period. D) percentage change in the price level from the previous period. Question 10 Every unit of good x that is produced in the United States is exported to other countries. An increase in the price of good x shows up A) in the consumer price index and in the GDP deflator. B) in the consumer price index, but not in the GDP deflator. C) in the GDP deflator, but not in the consumer price index. D) in neither the consumer price index nor in the GDP deflator. Quiz 5 Chapter 12 Question 1 The catch-up effect refers to the idea that poor countries, despite their best efforts, are not likely ever to experience the economic growth rates of wealthier countries. A) True B) False Question 2 The same size decrease in the amount of capital stock per worker will cause output per worker to fall by more in a country with a relatively high level of capital per worker than in a country with a relatively low level of capital per worker. A) True B) False Question 3 Educational attainment tends to be A) low in countries with high population growth. B) low in countries with low population growth. C) high in countries with high population growth. D) unrelated to population growth. Question 4 Some poor countries appear to be falling behind rather than catching up with rich countries. Which of the following could explain the failure of a poor country to catch up? A) The poor country uses a lot of resources to promote free trade policies. B) The poor country has a health epidemic such as the Zika virus. C) The poor country wasted resources fighting corruption. D) The poor country heavily invests in education. Question 5 Which of the following is an example of human capital? A) The comfortable chair in your dorm room where you read economics texts B) The amount you get paid each week to work at the library C) The things you have learned this semester D) Any capital goods that require a human to be present to operate Question 6 Suppose a country increases trade restrictions. This country would be pursing A) an inward-oriented policy, which most economists believe has beneficial effects on the economy. B) an inward-oriented, which most economists believe has adverse effects on the economy. C) an outward-oriented policy, which most economists believe has beneficial effects on the economy. D) an outward-oriented policy, which most economists believe has adverse effects on the economy. Question 7 The Karmic Deed Restaurant uses all of the following to produce vegetarian meals. Which of them is an example of physical capital? A) The tables and chairs in the restaurant B) The fresh fruits, vegetables, and grains the restaurant uses to prepare its meals C) The owner’s knowledge of how to prepare vegetarian entrees D) The money in the owner’s account at the bank from which she borrowed money Question 8 Japan is A) an advanced economy, and over the past century its rate of economic growth has been higher than that of the United States. B) an advanced economy, and over the past century its rate of economic growth has been lower than that of the United States. C) a middle-income country, and over the past century its rate of economic growth has been higher than that of the United States. D) a middle-income country, and over the past century its rate of economic growth has been lower than that of the United States. Question 9 In order to promote growth in living standards, policymakers must A) protect property rights and maintain political stability. B) minimize accumulation of factors of production. C) rise taxes to increase government revenue. D) promote bureaucracy. Question 10 Malthus predicted that the power of population growth was A) greater than the power of the earth to produce subsistence. His forecast was on the mark. B) greater than the power of the earth to produce subsistence. His forecast was off the mark. C) less than the power of the earth to produce subsistence. His forecast was on the mark. D) less than the power of the earth to produce subsistence. His forecast was off the mark. Quiz 5 Chapter 13 Question 1 When an economy’s government goes from running a budget deficit to running a budget surplus, the economy’s long-run growth prospects are improved. A) True B) False Question 2 Mutual funds are a type of financial intermediary. A) True B) False Question 3 Figure 26-1 The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. Refer to Figure 26-1. What is measured along the vertical axis of the graph? A) The tax rate B) The interest rate C) The quantity of investment D) The quantity of saving Question 4 As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is A) borrowing directly. B) borrowing indirectly. C) lending directly. D) lending indirectly. Question 5 Consider a closed economy. If national saving is greater than zero, which of the following must be true? A) Either public saving or private saving must be negative. B) Y – C – G > 0 C) Investment is negative. D) Y – C – G < 0 Question 6 When the government’s budget deficit increases the government is borrowing A) less and public savings falls. B) less and public savings increases. C) more and public savings falls. D) more and public savings increases. Question 7 Table 26-1. The following table presents information about a closed economy whose market for loanable funds is in equilibrium. GDP Consumer Spending Taxes Minus Transfers Government Purchases $7.3 trillion $5.2 trillion $1.1 trillion $0.7 trillion Refer to Table 26-1. The quantity of private saving is A) $2.1 trillion. B) $1 trillion. C) $1.4 trillion. D) $6.2 trillion. Question 8 Consider the expressions T − G and Y − T − C. Which of the following statements is correct? A) Each one of these is equal to national saving. B) Each one of these is equal to public saving. C) The first of these is private saving; the second one is public saving. D) The first of these is public saving; the second one is private saving. Question 9 Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct? A) Because they have the same term to maturity the interest rates should be the same. B) Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate. C) Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate. D) It is not possible to say if one bond has a higher interest rate than the other. Question 10 Figure 26-3 The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. Refer to Figure 26-3. Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit? A) A movement from Point A to Point C B) A movement from Point B to Point A C) A movement from Point B to Point F D) A movement from Point F to Point B Quiz 6 Chapter 15 Question 1 Efficiency wages A) may increase productivity. B) will increase unemployment. C) may improve worker health. D) All of the above are correct. Question 2 Matilda just graduated from college. In order to devote all her efforts to college, she didn’t hold a job. She is going to tour around the country on her motorcycle for a month before she starts looking for work. Other things the same, the unemployment rate A) increases, and the labor-force participation rate decreases. B) and the labor-force participation rate both increase. C) increases, and the labor-force participation rate is unaffected. D) and the labor-force participation rate are both unaffected. Question 3 In June 2009 the Bureau of Labor Statistics reported an adult population of 234.9 million, a labor force of 154 million and employment of 141.6 million. Based on these numbers the unemployment rate was A) 93.3/234.9. B) 12.4/234.9. C) 93.3/154. D) 12.4/154. Question 4 Economists would predict that, other things the same, the more generous unemployment compensation a country has, the A) shorter the duration of each spell of unemployment and the higher the unemployment rate. B) shorter the duration of each spell of unemployment and the lower the unemployment rate. C) longer the duration of each spell of unemployment and the higher the unemployment rate. D) longer the duration of each spell of unemployment and the lower the unemployment rate. Question 5 Frictional unemployment is thought to explain relatively A) short spells of unemployment, as is structural unemployment. B) long spells of unemployment, as is structural unemployment. C) short spells of unemployment, while structural unemployment is thought to explain relatively long spells of unemployment. D) long spells of unemployment, while structural unemployment is thought to explain relatively short spells of unemployment. Question 6 Some individuals would like to have a job, but they have given up looking for a job after an unsuccessful search. These individuals are called A) detached workers, and they are classified by the Bureau of Labor Statistics as unemployed. B) detached workers, and they are not classified by the Bureau of Labor Statistics as unemployed. C) discouraged workers, and they are classified by the Bureau of Labor Statistics as unemployed. D) discouraged workers, and they are not classified by the Bureau of Labor Statistics as unemployed. Question 7 Suppose that roofers are not unionized. If roofers unionize, then the supply of labor in other sectors of the economy will 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. Question 8 Derrick loses his job, but does not look for work. Which of the following are consequences of this change in Derrick’s status? A) unemployment rises and the labor force is unchanged B) unemployment rises and the labor force falls C) unemployment and the labor force are unchanged D) unemployment is unchanged and the labor force falls Question 9 Table 28-7 Below is data about the labor market in the city of Productionville. Wage Quantity Demanded Quantity Supplied $8 6,000 16,000 $7 9,000 14,000 $6 12,000 12,000 $5 15,000 10,000 $4 18,000 8,000 Refer to Table 28-7. If the local government imposed a minimum wage of $7 in Productionville, how many people would be unemployed? A) 0 B) 2,000 C) 3,000 D) 5,000 Question 10 Cyclical unemployment refers to A) the relationship between the probability of unemployment and a worker’s experience level. B) year-to-year fluctuations in unemployment around its natural rate. C) changes in unemployment due to changes in the natural rate of unemployment. D) the difference between the structural and frictional unemployment rates. Quiz 6 Chapter 16 Question 1 Bank runs are only a concern under a fractional-reserve banking system. A) True B) False Question 2 Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card. A) True B) False Question 3 The money multiplier is higher when bankers are more cautious and hold excess reserves. A) True B) False Question 4 The Board of Governors A) is chaired by the U.S. Secretary of the Treasury. B) members are elected by the U.S. public. C) has 7 members. D) All of the above are correct. Question 5 Which of the following is correct? A) The Federal Reserve has 14 regional banks. The Board of Governors has 12 members who serve 7-year terms. B) The Federal Reserve has 14 regional banks. The Board of Governors has 7 members who serve 14-year terms. C) The Federal Reserve has 12 regional banks. The Board of Governors has 12 members who serve 7-year terms. D) The Federal Reserve has 12 regional banks. The Board of Governors has 7 members who serve 14-year terms. Question 6 In a system of 100-percent-reserve banking, A) banks do not accept deposits. B) banks do not influence the supply of money. C) loans are the only asset item for banks. D) banks can increase the money supply. Question 7 The interest rate the Fed charges on loans it makes to banks is called A) the prime rate. B) the federal funds rate. C) the discount rate. D) the LIBOR. Question 8 In December 1999 people feared that there might be computer problems at banks as the century changed. Consequently, people wanted to hold relatively more in currency and relatively less in deposits. In anticipation banks raised their reserve ratios to have enough cash on hand to meet depositors’ demands. These actions by the public A) would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds. B) would increase the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds. C) would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have sold bonds. D) would reduce the multiplier. If the Fed wanted to offset the effect of this on the size of the money supply, it could have bought bonds. Question 9 You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate? A) medium of exchange B) unit of account C) store of value D) liquidity Question 10 Today, bank runs are not a major problem for the U.S. banking system because A) bank runs are now illegal. B) banks now hold 100 percent of their deposits in reserve. C) banks are now all government-operated. D) the federal government now guarantees the safety of deposits at most banks.

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