Introduction to Macroeconomics Economics 19900 FIRST HOUR EXAMINATION

Allen R. Sanderson Autumn 2007

Name (Please Print): ______________________________________

[42 Points Possible]

Part I. Multiple Choice. Circle letter corresponding to your answer. One point each; 20 points total. 1. A consumer price index of 200 in 2007, with a base year of 1982-84, would mean that: a. the cost of a representative good would have cost $200 in 1982, 1983 and 1984. b. the cost of a typical market basket of goods equals $200 outside right now. c. the cost of a market basket of goods approximately doubled in the last 23-25 years. d. the standard of living for Americans is twice as high now as it was 23-25 years ago. e. the standard of living for Americans today is lower than it was in the early 1980s. Adam Smith’s invisible hand directs economic activity via: a. the legal system and government regulation. b. exploitation of natural resources and workers. c. the political process. d. private property. e. prices. Formally, or traditionally, we measure recessions by looking at: a. declines in nominal GDP. b. a slowing down of the growth rate in real GDP. c. increases in the unemployment rate. d. decreases in the GDP deflator. e. decreases in real GDP. In our GDP accounts, consumption consists of spending by households on goods and services, with the exception of: a. items not made in the U.S. b. higher education expenses, like tuition and fees, paid to private institutions. c. intangible services. d. the purchase of new homes. e. the estimated value of owner-occupied housing. Which of the following is usually regarded as the best single measure of economic well-being? a. the unemployment rate (or the employment rate) b. price stability c. real GDP d. the international trade deficit e. the size of the public sector and whether or not the government is running a deficit The CPI is a measure of: a. the overall cost of goods and services bought by the typical consumer. b. changes in the standard of living in our economy. c. the goods and services produced by our economy in a given year. d. the price of a random selection of goods and services produced in the U.S. at various points in time. e. the rate of change in the cost of nominal GDP.

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6%.60. 104. and 2002 is chosen as the base year.60. The largest source of revenue for the U. 2. 12. Inc. c. $7 million. b. it doesn’t account adequately for substitutions on the part of consumers when relative prices change. d. c. is very likely to become a discouraged worker. it fails to account for the introduction of new goods. b. 54. $5 million. Evidence indicates that the typical person who becomes unemployed in the U. The claim that all citizens should make an “equal sacrifice” to support government programs is usually associated with: a. 6.S. the benefits-received principle. less expensive.7. c.6%. federal government is for national defense. e. it doesn’t include the prices of imported goods that U. d.2%. 14. in 2007: a. and in 2006 the total outlay for it would have been $54. d. c. it fails to capture well the changes in the quality of goods. outlets or sources where consumers can buy from. b. 4. in 2004 it would have cost $52. 9. $8 million Which of these changes in the price index represents the greatest rate of inflation? a. c. d.S. 11. $4 million. 150 to 158. $3 million. which uses the aluminum as the chief input in making aluminum foil. 106 to 112. horizontal equity. b. will find another job within two months. e.60. impossible to determine without knowing the base year. b. e. will do so by quitting his or her last job. e. About 20 percent of the U. government’s receipts come from individual and corporate income taxes. it doesn’t include new. proportional or flat tax rates. 10. 112 to 118.S. 9.S.S. c. 8. should be considered or treated as cyclically unemployed. Suppose a representative market basket of goods was chosen to calculate the CPI. homeland security and the war on terrorism. ABC. The largest expenditure category for the U. federal government collects a higher percentage of citizens’ incomes in taxes than is true of most countries. The U. d.2%.S. federal government is borrowing (that is deficit spending). 106. Acme Aluminum Company sells $1 million worth of aluminum ore to ABC Foil Company. In 2002 the basket’s total cost was $50. sells $3 million in foil to Wal-Mart. 2 . the principle of tax incidence. 200 to 210. 156.60. b.15%. e. 109. e. 13. Which of the following statements is correct? a. How much do the above transactions contribute to GDP? a. the ability-to-pay principle. Sales taxes and property taxes are the two most important revenue sources for state and local governments. which in turn sells it to customers/households for $4 million. d. c.60. d. The value of the CPI for 2006 was: a. consumers buy from abroad. especially from China. will leave the labor force and never return. The annual inflation rate for the economy above over this four-year period was approximately: a. c. b. All of the following are acknowledged problems in using the CPI to measure the cost of living except: a. d. b. 1. e. e.20 .

d. the unemployment we would expect if everyone who wanted a job had one. b. we refer to this as: a. computes and reports the CPI. For people 20 and over. d. intermediate goods. 20. produces data on the length of the average work week and duration of unemployment. neutrality. the GDP deflator. c. d. but it has been falling over time. For people 20 and over. the exchange-rate adjustment. 17. the unemployment rate that would prevail with zero inflation. one that cannot be influenced by public policy. indexation. women have similar unemployment rates to those of men. acts as one of the principal statistical arms (or wings) for the Department of Labor. The value of total income for an economy ___________ the value of total production or output. Problem. e. Fill in the blank and explain. When some dollar amount is automatically corrected and/or adjusted for inflation by law or contract. b. Part II. stocks (rather than flows). the unemployment rate of African-Americans is about double that of whites. equals b. b. then. the economist’s notion of full employment. Which of the following statements is incorrect? a. 18. the CPI will rise by _______ percent.15. disinvestment. is < than (because of government spending on goods and services) e. a. d. e. Short Answer. The labor force participation rate of the U. Graphing and Essay Questions. e. gathers data on unemployment and employment. The BLS does all of the following except: a. determines the timing for the onsets and conclusions of recessions. c. is < than (because of profits and depreciation) d. nominal GDP (as opposed to real GDP).S. ceteris paribus. 1. 16. (2 points) 3 . b. White males have the highest labor force participation rates of any group. b.. adult population is now almost 90 percent. the underground economy. Adults have lower unemployment rates than do teenagers (16-19 years of age). purchasing power parity. is < than (because of imports and exports) Goods that are used as inputs by other producers are called or referred to as: a. basically the same as what one calls frictional unemployment. 22 Points Total. If the cost of housing increases by 10 percent. e. d. e. c. c. The natural rate of unemployment is: a. 19. c. is > than (because of double-counting) c.

. the world’s richest man. (At his height. gross domestic product.” Discuss this sentence from a December 16.S.5% of the U. What types of taxes or tax systems impose the smallest deadweight losses? (2 points) 3. (3 points) 4 . Rockefeller’s wealth was equal to 2. In a recent front-page story in The Wall Street Journal on Mexico’s Carlos Slim. (2 points) 4. to $160 billion. his fortune represents 7% of the country’s annual economic output. . “Americans are spending more than ever on their drinks.2. John D. 2006. the article said: “In all. with sales of spirits.)” Discuss. article from The New York Times. . wine and beer increasing 47 percent from 1995 to 2005.

5 50 years ago. which the bookstore had purchased from another U of C student for $30. How much. Suppose you bought a used copy of Mankiw/Parkin at our University / B&N bookstore for $50. if anything at all. Arthur Frommer published the first edition of his now-famous travel guide: “Europe on $5 a day.” What should he have entitled his 2007 edition? Why? (2 points) 6. Why could the CPI and GDP deflator diverge? (2 points) 7. How about our GNP? (3 points) 5 . of your purchase price contributes to this year’s GDP? Why/Explain.

casual conversation. (3 points) 9. (3 points) 6 . Words used in Economics 199 might not always means the same thing in English (that is. or by ordinary people who speak English but not Economics.8. newspaper/broadcast accounts.” Discuss. “The reasons why someone cannot get a job are similar to the reasons why someone cannot get a date. Name a few from this section of the course and discuss briefly the difference(s).

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