Douglas, Spring 2010 PLEDGE: I have neither given nor received unauthorized help on this exam.

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February 9, 2010

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Econ 202 Section H01 Midterm 1

Multiple Choice. 2.5 points each.
1. Jenna is searching for a job that suits her tastes about location, life style, and political views of coworkers.

Mary is looking for a job that makes best use of her skills. a. Jenna is structurally unemployed, and Mary is frictionally unemployed. b. Jenna is frictionally unemployed, and Mary is structurally unemployed. c. Jenna and Mary are both structurally unemployed. d. Jenna and Mary are both frictionally unemployed. 2. If the wage is kept above the equilibrium wage for any reason, the result is a. cyclical unemployment. b. structural unemployment. c. frictional unemployment. d. seasonal unemployment. Figure 4-4 Panel (a) Panel (b)

3. Refer to Figure 4-4. The graphs show the demand for cigarettes. In Panel (a), the arrows are consistent with

which of the following events? a. The price of cigarettes increased. b. Tobacco and marijuana are complements and the price of marijuana decreased. c. Tobacco and marijuana are substitutes and the price of marijuana increased. d. The arrows are consistent with none of these events. 4. In the economy of Wrexington in 2008, consumption was $800, GDP was $2000, government purchases were $400, and investment was $600. What were Wrexingtons net exports in 2008? a. $200 b. $1800 c. Net exports cannot be calculated from the information given. d. -$200

Econ202H01 Exam 1, Spring 2010

5. Who is not included in the labor force by the Bureau of Labor Statistics? a. Izumi, who does not have a job, but has applied for several in the last week b. Kawanari, who is on temporary layoff from his seasonal job c. Takuji, who has retired and is not looking for work but is still fit and able to work d. All of the above are in the labor force. 6. Which of the following items is included in GDP? a. the sale of used goods b. the sale of services such as those performed by a doctor c. the sale of stocks and bonds d. All of the above are included in GDP.

Douglas

Figure 4-9

7. Refer to Figure 4-9. If there is currently a shortage of 20 units of the good, then a. supply and demand will interact to make the price fall by $2 to eliminate the shortage. b. supply and demand will interact to make the price rise by $2 to eliminate the shortage. c. supply and demand will interact to make the price fall by $4 to eliminate the shortage. d. supply and demand will interact to make the price rise by $4 to eliminate the shortage.

Table 24-1 Pieway Data Year Price of Peaches 2005 $11 per bushel 2006 $9 per bushel

Price of Pecans $6 per bushel $10 per bushel

8. Refer to Table 24-1. In the country of Pieway the typical consumers market basket contains 10 bushels of

peaches and 15 of pecans. If 2005 is the base year, the inflation rate in 2006 was a. 16.7 percent. b. 40 percent. c. 20 percent. d. 44.1 percent.

Econ202H01 Exam 1, Spring 2010

Douglas

9. International studies of the relationship between GDP per person and quality of life measures such as life

10.

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expectancy and literacy rates show that larger GDP per person is associated with a. about the same life expectancy and a lower percentage of the population that is literate. b. longer life expectancy and a lower percentage of the population that is literate. c. shorter life expectancy and a higher percentage of the population that is literate. d. longer life expectancy and a higher percentage of the population that is literate. Which of the following items is counted as part of government purchases (G) in GDP? a. The federal government pays $2,000 in Social Security benefits to a retired person. b. The state of Iowa pays $1,000 to help a low-income family pay its medical bills. c. The city of Des Moines, Iowa pays $10,000 to a firm to trim trees along city boulevards. d. All of the above are correct. If one wants to know how the material well-being of the average person has changed over time in a given country, one should look at the a. growth rate of real GDP per person. b. growth rate of nominal GDP. c. level of real GDP. d. growth rate of real GDP. Suppose the price of gasoline increases rapidly and consumers respond by buying a smaller quantity of gasoline. The consumer price index a. overstates inflation due to substitution bias. b. overstates inflation due to income bias. c. understates inflation due to substitution bias. d. reflects inflation accurately. Soup is an inferior good if a. the demand for soup rises when the price of soup falls. b. the demand for soup falls when income rises. c. the demand curve for soup slopes upward. d. the demand for soup falls when the price of a substitute for soup rises. In the United States in a typical year, purchases of capital equipment, inventories, and structures are about a. 19 percent of GDP. b. 5 percent of GDP. c. 70 percent of GDP. d. 15 percent of GDP. Cyclical unemployment is closely associated with a. fluctuations in the natural rate of unemployment. b. long-term economic growth. c. short-run ups and downs of the economy. d. changes in the minimum wage. Suppose that the adult population is 4 million, the number of unemployed is 1 million, and the labor-force participation rate is 80%. What is the unemployment rate? a. 20% b. 31% c. 12.5% d. 25% Ideally, changes in the GDP deflator reflect a. only changes in prices. b. both changes in prices and changes in the amounts being produced. c. neither changes in prices nor changes in the amounts being produced. d. only changes in the amounts being produced. 3

Econ202H01 Exam 1, Spring 2010

18. In the calculation of the CPI, the price of coffee is given greater weight than the price of tea if a. the price of coffee is higher than the price of tea. b. a typical consumer buys more coffee than tea. c. it costs more to produce coffee than it costs to produce tea. d. coffee is more desirable than tea is to the typical consumer. 19. Perry accumulated a lot of mathematical skills while in high school, college, and graduate school.

Douglas

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Economists include these skills as part of Perrys a. social capital. b. human capital. c. standard of living. d. physical capital. Suppose an economy produces only eggs and ham. In 2005, 100 dozen eggs are sold at $3 per dozen and 50 pounds of ham are sold at $4 per pound. In 2004, the base year, eggs sold at $1.50 per dozen and ham sold at $5 per pound. For 2005, a. nominal GDP is $500, real GDP is $400, and the GDP deflator is 80. b. nominal GDP is $400, real GDP is $500, and the GDP deflator is 125. c. nominal GDP is $500, real GDP is $400, and the GDP deflator is 125. d. nominal GDP is $400, real GDP is $500, and the GDP deflator is 80. Other things the same, a country that increases its saving rate increases a. its future real GDP, but not its future productivity. b. neither its future productivity nor future real GDP. c. its future productivity and future real GDP. d. its future productivity, but not its future real GDP. Which of the following is included in U.S. GDP? a. the value of production by an American working in Morocco b. the value of production by a Moroccan working in the U.S. c. Both (a) and (b) are correct. d. Neither (a) nor (b) is correct. Differences in which variable best explain the large differences in living standards around the world and through time? a. productivity. b. preferences. c. population. d. prices. In the circular-flow diagram, which of the following items flows from households to firms through the markets for the factors of production? a. land, labor, and capital b. goods and services c. wages, rent, and profit d. dollars spent on goods and services Als Aluminum Company sells $1 million worth of aluminum to Shiny Foil Company, which uses the aluminum to make aluminum foil. Shiny Foil Company sells $4 million worth of aluminum foil to households. The transactions just described contribute how much to GDP? a. $5 million b. $1 million c. $4 million d. $3 million

Econ202H01 Exam 1, Spring 2010

Douglas

26. Which of the following sets of events would almost certainly cause an increase in the price of a new house? a. higher wood prices, and decreases in population b. higher wages for carpenters, and expectations of higher house prices in the future c. lower wood prices, and decreases in consumer incomes d. lower wood prices, and increases in consumer incomes 27. The average amount of goods and services produced from each hour of work is called a. per capita GDP. b. technological knowledge. c. productivity. d. GDP. 28. Which of the following statements about the CPIs base year is correct? a. The base year is always the first year listed in the data set. b. The value of the consumer price index is always 100 in the base year. c. A base year is unnecessary if there are more than 3 goods in the economy. d. The base year is always the year in which the cost of the basket was lowest. 29. When Mexico experiences investment from abroad, it experiences, as a result, a. an increase in productivity. b. lower wages for Mexican workers. c. a decrease in Gross National Product (GNP). d. None of the above is correct. 30. Efficiency-wage theory suggests that paying a. low wages might be profitable because they lower the efficiency of a firms workers. b. high wages might be profitable because they lower the efficiency of a firms workers. c. high wages might be profitable because they raise the efficiency of a firms workers. d. low wages might be profitable because they raise the efficiency of a firms workers.

Econ202H01 Exam 1, Spring 2010 25 points total. Answer in the space provided.
31. a.

Douglas Name _____________________

Suppose that an influx of foreign labor drives wages down in the apple industry. As a result, you would expect the price of apples to (RISE, FALL), and you would expect the quantity of apples sold to (RISE, FALL). Draw a graph below to illustrate. Label all curves and axes.

b.

Following the influx of foreign labor described above, in fact the price of apples fell and the quantity sold of apples fell. Circle the answer below that describes an event that, occurring simultaneously with the influx of foreign labor, could explain this change in price and quantity sold of apples. i) The price of pears, an apple substitute, increased. ii) Consumer income fell. iii) A disease destroyed 3/4 of the apple crop. iv) A new and better insect spray was developed to protect the apples, increasing yields. Explain your answer in part b, using a graph. Label all curves and axes.

c.

Econ202H01 Exam 1, Spring 2010

Douglas

EXTRA CREDIT (UP TO 5 POINTS) ANSWER BELOW. XCa. Suppose that in the country of Henrilee the minimum wage and the equilibrium wage rate for unskilled labor are both $8. Suppose that a recession in Henrilee results in a lower demand for workers. Show in a supply & demand diagram below how the number of unemployed workers is affected by the recession. Explain your graph in a sentence or two below.

XCb. The recession, combined with Henrilees minimum wage, will most likely cause unemployment to rise more among (SKILLED or UNSKILLED) workers. Explain below, using the concept of human capital and productivity, and a diagram of the labor market for, say, engineers that also shows the effect of the minimum wage.

ID: A

Econ 202 Section H01 Midterm 1 Answer Section

MULTIPLE CHOICE
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. D B A A C B B C D C A A B D C B A B B C C B A A C B C B A C

SHORT ANSWER
31. a. FALL, RISE, Graph should show a supply increase. b. ii) Consumer income fell. (Assuming apples are a normal good.)\

c. Graph should show a demand increase. XCa. S&D has wage on vertical axis, L on horizontal. Standard price floor analysis, showing QDL < QSL if wage is not allowed to fall. XCb. UNSKILLED. Diagram shows a non-binding wage floor for engineers.