Exam 2 Practice Test

Question 1

When government imposes a price ceiling or a price floor on a market…

Answer 1

price no longer serves as a rationing device.

Question 2

The minimum wage, if it is binding, raises the incomes of

Answer 2

only those workers whose jobs would pay less than the minimum wage if it didn’t exist.

Question 3

Under rent control, tenants can expect

Answer 3

lower rent and lower quality housing.

Question 4

On a graph, the area below a demand curve and above the price measures

Answer 4

consumer surplus.

Question 5

Consumer surplus

Answer 5

is the amount a consumer is willing to pay minus the amount the consumer actually pays.

Question 6

All else equal, what happens to consumer surplus if the price of a good increases?

Answer 6

Consumer surplus decreases.

Question 7

Which of the following items is the one type of household expenditure that is categorized as investment rather than consumption?

Answer 7

the purchase of a new house

Question 8

Which of the following items is counted as part of government purchases?

Answer 8

The federal government pays the salary of a Navy officer.

The state of Nevada pays a private firm to repair a Nevada state highway.

The city of Las Vegas, Nevada pays a private firm to collect garbage in that city.

ALL OF THE ABOVE

Question 9

Which of the following is included in the investment component of GDP?

Answer 9

spending on new residential construction but not spending on stocks and bonds

Question 10

When a U.S. citizen buys $500 of Chinese-made parts for a motorcycle,

Answer 10

U.S. consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains the same.

Question 11

In the economy of Talikastan in 2015, consumption was $200, exports were $150, GDP was $475, government purchases were $100, imports were $75, and investment was $100. What were Talikastan’s net exports in 2015?

Answer 11

$75

Question 12

The percentage change in the price level from one period to another is called

Answer 12

the inflation rate.

Question 13

Suppose an economy’s production consists only of corn and soybeans. In 2010, 20 bushels of corn are sold at $4 per bushel and 10 bushels of soybeans are sold at $2 per bushel. In 2009, the price of corn was $2 per bushel and the price of soybeans was $1 per bushel. Using 2009 as the base year, it follows that, for 2010,

Answer 13

nominal GDP is $100, real GDP is $50, and the GDP deflator is 200.

Question 14

Which of these events would cause the consumer price index to overstate the increase in the cost of living?

Answer 14

Car makers benefit from a new technology that allows them to sell higher-quality cars to consumers with no increase in price.

Energy prices decrease, and consumers respond by buying more gas and electricity.

A new good is introduced that renders cellular telephones inferior and obsolete.

ALL OF THE ABOVE

Question 15

Which of the following is not an example of a price index computed by the Bureau of Labor Statistics?

Answer 15

the stock price index

Question 16

Which is the most accurate statement about the GDP deflator and the consumer price index?

Answer 16

The consumer price index compares the price of a fixed basket of goods and services to the price of the basket in the base year, whereas the GDP deflator compares the price of currently produced goods and services to the price of the same goods and services in the base year.

Question 17

The price index was 120 in 2012 and 126 in 2013. What was the inflation rate?

Answer 17

5.0 percent

Question 18

Who of the following would be included in the Bureau of Labor Statistics’ “unemployed” category?

Answer 18

Miguel, who is on temporary layoff

Question 19

Who is not included in the labor force by the Bureau of Labor Statistics?

Answer 19

Lauren, who has retired and is not looking for work

Question 20

Unemployment rate formula

Answer 20

Unemployment Rate = number of unemployed (number of employed + number of unemployed) 100.

Question 21

The Bureau of Labor Statistics reported in 2005 that there were 53.23 million people over age 25 who had at least a bachelor’s degree, 40.59 million of whom were employed and 0.98 million of whom were unemployed. What were the labor-force participation rate and the unemployment rate for this group?

Answer 21

78.1% and 2.4%

Question 22

Suppose that some country had an adult population of about 50 million, a labor-force participation rate of 60 percent, and an unemployment rate of 5 percent. How many people were employed?

Answer 22

28.5 million

Question 23

A country reported a nominal GDP of $85 billion in 2010 and $100 billion in 2009. It also reported a GDP deflator of 100 in 2010 and 105 in 2009. Between 2009 and 2010,

Answer 23

real output and the price level both fell.

Question 24

As the Consumer Price Index increases, the value of money

Answer 24

falls, so people hold more money to buy the goods and services they want.

Question 25

Christopher is an unpaid, stay-at-home father who works as a volunteer at the local Habitat for Humanity chapter. Currently, Christopher is not looking for a paid job. The Bureau of Labor Statistics counts Christopher as

Answer 25

neither in the labor force nor unemployed.

Question 26

If the nominal interest rate is 4 percent and expected inflation is 2.5 percent, then what is the expected real interest rate?

Answer 26

1.5 percent

Question 27

The percentage change in the price level from one period to another is called

Answer 27

the inflation rate.

Question 28

The inflation rate in year 2 equals

Answer 28

(GDP deflator in year 1 - GDP deflator in year 2) / GDP deflator in year 1

Question 29

People who are unemployed because of job search are best classified as

Answer 29

frictionally unemployed.