Name: ________________________ Class: ___________________ Date: __________ ID: B

Econ 2 Summer 2015 Midterm

Multiple Choice

Identify the choice that best completes the statement or answers the question.

1. A German citizen buys an automobile produced in the United States by a Japanese company. As a
result,
a. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and
German GNP and GDP are unaffected.
b. U.S. net exports increase, U.S. GDP is unaffected, Japanese GNP increases, German net exports
decrease, and German GNP and GDP are unaffected.
c. U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease,
German GNP is unaffected, and German GDP decreases.
d. U.S. net exports and GDP are unaffected, Japanese GNP increases, and German net exports,
GNP, and GDP decrease.
2. The inflation rate is defined as the
a. price level in an economy.
b. change in the price level from one period to the next.
c. price level minus the price level from the previous period.
d. percentage change in the price level from the previous period.
3. For the economy as a whole,
a. income must be greater than expenditure.
b. unemployment must rise when GDP rises.
c. expenditure must equal income.
d. consumption must be greater than investment.
4. Imagine that someone offers you $100 today or $200 in 10 years. You would prefer to take the
$100 today if the interest rate is
a. 4 percent.
b. 6 percent.
c. 8 percent.
d. All of the above are correct.
5. One way to characterize the difference between compounding and discounting is to say that
a. compounding involves the assumption that the interest rate is zero, whereas discounting
does not involve that assumption.
b. discounting involves the assumption that the interest rate is zero, whereas compounding
does not involve that assumption.
c. the process of compounding produces a future value, whereas the process of discounting
produces a present value.

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 d. the process of compounding produces a present value, whereas the process of discounting
produces a future value.
6. In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both
of these changes?
a. The demand for loanable funds shifted rightward.
b. The supply of loanable funds shifted rightward.
c. The demand for loanable funds shifted leftward.
d. The supply of loanable funds shifted leftward.
7. When a society cannot produce all the goods and services people wish to have, it is said that the
economy is experiencing
a. scarcity.
b. surpluses.
c. inefficiencies.
d. inequalities.
8. The steps involved in calculating the consumer price index and the inflation rate, in order, are as
follows:
a. Choose a base year, update the basket, find the prices, estimate the basket’s cost, compute the
index, and compute the inflation rate.
b. Choose a base year, fix the basket, find the prices, compute the inflation rate, compute the basket's
cost, and compute the index.
c. Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the
index, and compute the inflation rate.
d. Fix the basket, find the prices, compute the inflation rate, compute the basket’s cost, and choose a
base year and compute the index.
9. Estimates of the values of which of the following non-market goods or services are included in GDP?
a. Unpaid housework, but not the rental value of owner-occupied homes.
b. The rental value of owner occupied homes, but not unpaid housework.
c. Neither unpaid housework, nor the rental value of owner-occupied homes.
d. Unpaid housework and the rental value of owner-occupied homes.
10. All else equal, if there are diminishing returns, then which of the following is true if a country increases
its capital by one unit?
a. Output will rise by more than it did when the previous unit was added.
b. Output will rise but by less than it did when the previous unit was added.
c. Output will fall by more than it did when the previous unit was added.
d. Output will fall but by less then it did when the previous unit was added.
11. The market basket used to calculate the CPI in Aquilonia is 4 loaves of bread, 6 gallons of milk, 2
shirts, and 2 pairs of pants. In 2005, bread cost $1.00 per loaf, milk cost $1.50 per gallon, shirts cost
$6.00 each, and pants cost $10.00 per pair. In 2006, bread cost $1.50 per loaf, milk cost $2.00 per
gallon, shirts cost $7.00 each, and pants cost $12.00 per pair. Using 2005 as the base year, what was
Aquilonia’s inflation rate in 2006?
a. 4 percent
b. 11 percent
c. 19.6 percent

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 d. 24.4 percent
12. Productivity is the amount of goods and services
a. an economy produces. It is not linked to a nation’s economic policies.
b. an economy produces. It is linked to a nation’s economic policies.
c. produced for each hour of a worker’s time. It is not linked to a nation’s economic policies.
d. produced for each hour of a worker’s time. It is linked to a nation’s economic policies.
13. Halvorson Construction has an investment project that would cost $150,000 today and yield a
one-time payoff of $167,000 in three years. What is the highest interest rate at which
Halvorson would find this project profitable?
a. 7%
b. 6%
c. 5%
d. It is not profitable at any of these interest rates.

The table below contains data for Chereaux for the year 2015.
Table 14-1:
GDP $200
Income earned by citizens abroad $9
Income foreigners earn here $5
Losses from depreciation $6
Indirect business taxes $10
Statistical discrepancy $0
Retained earnings $8
Corporate income taxes $12
Social insurance contributions $30
Interest paid to households by government $8
Transfer payments to households from government $55
Personal taxes $60
Nontax payments to government $11

14. Refer to Table 14-1. The market value of all final goods and services produced within Chereaux in
2015 is
a. $214
b. $204
c. $230
d. $200
15. Refer to Table 14-1. Gross national product for Chereaux in 2015 is
a. $186
b. $214
c. $200
d. $204

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16. In June, employment was 9,553,800. In July it was 9,574,800. What was the monthly percent increase in
employment?
a. -0.22%
b. 0.22%
c. 21,000
d. 0.0022
17. Esmerelda worked part-time for her mother’s business without pay. Tabitha was absent from work
because she had strep throat. Who is counted as “employed” by the Bureau of Labor Statistics?
a. Esmerelda but not Tabitha
b. Tabitha but not Esmerelda
c. both Esmerelda and Tabitha
d. neither Esmerelda nor Tabitha

2009 Labor Data for Baltivia

Table 18-1:

Number of adults 20,000

Number of adults who are paid employees 8,000
Number of adults who work in their own businesses 1,600
Number of adults who are unpaid workers in a family member’s business 1,000
Number of adults who were temporarily absent from their jobs because of an earthquake 400
Number of adults who were waiting to be recalled to a job from which they had been laid off
Number of adults who do not have a job, are available for work, and have tried to find a job 200
within the past four weeks 1,400
Number of adults who do not have a job, are available for work, but have not tried to find a job
within the past four weeks 780
Number of adults who are full-time students 3,000
Number of adults who are homemakers or retirees 3,620

18. Refer to Table 18-1. How many people were employed in Baltivia in 2009?
a. 9,600
b. 10,600
c. 11,000
d. 11,200
19. Refer to Table 18-1. How many people were unemployed in Baltivia in 2009?
a. 1,400
b. 1,600
c. 2,000
d. 2,780
20. Refer to Table 18-1. How many people were in Baltivia’s labor force in 2009?
a. 11,000
b. 12,600
c. 13,380

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 d. 20,000
21. Refer to Table 18-1. What was Baltivia’s unemployment rate in 2009?
a. 12.7%
b. 8.0%
c. 15.9%
d. 22.1%
22. In 2012, the imaginary nation of Dorados had a population of 8,000 and real GDP of 3,000,000. During
the year its real GDP grew by about 2.9%. Which of the following sets of growth rates is consistent
with this growth in real GDP?
a. 2% population growth and 6% real GDP growth
b. 6% population growth and 2% real GDP growth
c. 4% population growth and 7% real GDP growth
d. 7% population growth and 4% real GDP growth
23. The amount of unemployment that an economy normally experiences is called the
a. natural rate of unemployment.
b. average rate of unemployment.
c. cyclical rate of unemployment.
d. typical rate of unemployment.
24. In June, employment was 9,553,800. In July it was 9,574,800. What was the monthly percent
increase in employment at an annual rate?

a. 0.22%
b. 2.67%
c. 2.64%
d. 2.7%
25. Suppose that you have a bond that you purchased for $1000 that yields 6% annually. What is
the future value of holding the bond for 50 years?
a. $18,420.15
b. $2,691.59
c. $54.29
d. $1050.00
26. Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable
funds, other things the same, if the Congress and President increased the maximum contribution limits to
401(k) and 403(b) tax- deferred retirement accounts?
a. the interest rate and quantity of loanable funds would increase
b. the interest rate and quantity of loanable funds would decrease.
c. the interest rate would increase and the quantity of loanable funds would decrease.
d. the interest rate would decrease and the quantity of loanable funds would increase.
27. Other things the same, if the government increases transfer payments to households, then the effect of
this on the government’s budget
a. will make investment rise.
b. will make the rate of interest rise.

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 c. will make public saving rise.
d. All of the above are correct.
28. Last year real GDP per person in the imaginary nation of Olympus was 4,250. The year before it was
4,100. By about what percentage did Olympian real GDP per person grow during the period?
a. 1.6 percent
b. 2.5 percent
c. 3.7 percent
d. 6 percent
29. You sell cupcakes. One day you double the time you spend and double all your inputs, and make twice
as many cupcakes. Your cupcake production function has
a. decreasing returns to scale.
b. zero returns to scale.
c. constant returns to scale.
d. increasing returns to scale.
A hypothetical country of Lahland produces only movies and popcorn. Quantities and prices of these
goods for the last several years are shown below. The base year is 2015 .
Table 30-1:

Year Price of Quantity of Price of Quantity of

Movies Popcorn
Movies Popcorn

2014 $10.00 500 $5 1000

2015 $11.00 600 $4 900
2016 $12.00 650 $5 950
2017 $12.00 625 $6 925

30. Refer to Table 30-1. In which year was this country’s nominal GDP highest?
a. 2014
b. 2015
c. 2016
d. 2017
31. Refer to Table 30-1. In which year was this country’s real GDP highest?
a. 2014
b. 2015
c. 2016
d. 2017
32. Refer to Table 30-1. What was this country’s GDP deflator in 2017?
a. 123.4

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 b. 116.7
c. 120.0
d. None of the above is correct.

33. As an alternative to selling shares of stock as a means of raising funds, a large company could,
instead,
a. invest in physical capital.
b. use equity finance.
c. sell bonds.
d. purchase bonds.
34. Suppose that you in one year, a bond offers to pay $1200. The current interest rate is 7%. What is the
price of the bond?
a. $1000.00
b. $1284.00
c. $1121.50
d. $934.58
35. The source of the supply of loanable funds
a. is saving and the source of demand for loanable funds is investment.
b. is investment and the source of demand for loanable funds is saving.
c. and the demand for loanable funds is saving.
d. and the demand for loanable funds is investment.
36. The CPI differs from the GDP deflator in that
a. the CPI is an inflation index, while the GDP deflator is a price 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
GDP deflator but not in the CPI.
d. increases in the prices of domestically produced goods that are sold to the U.S. government show
up in the GDP deflator but not in the CPI.
37. GDP is defined as the
a. value of all goods and services produced within a country in a given period of time.
b. value of all goods and services produced by the citizens of a country, regardless of where they are
living, in a given period of time.
c. value of all final goods and services produced within a country in a given period of time.
d. value of all final goods and services produced by the citizens of a country, regardless of where they
are living, in a given period of time.
38. Suppose that an economy produces 20,000 units of good A which sells at $3 a unit and 40,000 units of
good B which sells at $1 per unit. Production of good A contributes
a. 1/3 times as much to GDP as the production of good B.
b. 3/2 times as much to GDP as the production of good B.
c. 3 times as much to GDP as the production of good B.
d. 2/3 times as much to GDP as production of good B.

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39. Suppose you put $350 into a bank account today. Interest is paid annually and the annual
interest rate is 6 percent. The future value of the $350 after 4 years is
a. $414.09.
b. $434.00.
c. $441.87.
d. $481.24.
40. A tire manufacturer produces 400 tires valued at $20 each. Three hundred tires are sold to a tire shop,
which then sells them to households for $50 each. The remaining tires are unsold and are added to the
tire manufacturer’s inventory. How much is added to GDP?
a. $8,000
b. $15,000
c. $13,000
d. $17,000

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1. A
2. D
3. C
4. C
5. C
6. B
7. A
8. C
9. B
10. B
11. D
12. D
13. D
14. D
15. D
16. B
17. C
18. C
19. B
20. B
21. A
22. C
23. A
24. B
25. A
26. D
27. B
28. C
29. C
30. D
31. C
32. A
33. C
34. C
35. A
36. D
37. C

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38. B
39. C
40. D

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