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NAME: _______________________________________ UFID: ________________________________________ ECO 2013 PRINCIPLES OF MACROECONOMICS MIDTERM 2 Form Code: A READ THE FOLLOWING INSTRUCTIONS!! There are 40 questions on this exam. Each question is worth 2.5 points. It is your responsibility to ensure that your exam has all 40 questions. You have 75 minutes (from the time the Proctors announce the start of the exam) to finish. Be sure to complete your Scantron answer sheet properly. This includes filling in all the bubbles for your name and UFID and signing the Scantron. Grades that must be entered manually due to an incorrectly completed answer sheet will be penalized 5 percentage points. You may fill in your name and UFID while waiting to start the exam. Answers marked on the Scantron answer sheet are final. If you forget to bubble in an answer or mistakenly bubble in the wrong one, that is your responsibility. You may use a 3x5 inches notecard. It may be printed on both sides, but cannot have any foldout portions. Aside from your notecard, this test is closed book/closed notes. You may use a four-function or scientific calculator during the exam. As specified in the syllabus and in class, all other devices (including PDAs and Smartphones) are strictly forbidden. 228600231775By signing the scantron form, you agree that you will abide by the University of Florida’s Student Honor Code, that you will not accept or provide help that has not been expressly permitted by Professor Knight or the TA team, and that you understand that failure to comply with these policies will result in disciplinary action. 00By signing the scantron form, you agree that you will abide by the University of Florida’s Student Honor Code, that you will not accept or provide help that has not been expressly permitted by Professor Knight or the TA team, and that you understand that failure to comply with these policies will result in disciplinary action. The answer key and your grades will post in Canvas within four days of this exam date. All emails should be directed to the grader. 1. Gross Domestic Product is calculated as the ____ of all final goods and services ____. A. market value; produced within the country B. production cost; produced by the country’s firms C. production cost; produced within the country D. market value; produced by the country’s firms 2. Heineken, a Dutch beer brewer, produces beer in Thailand. The beer that it produces at this brewery enters in the ____ GDP and the ____ GNP. A. Dutch; Dutch B. Dutch; Thai C. Thai; Dutch D. Thai; Thai 3. When calculating GDP according to the Income Approach, the value of net taxes enters ____, because adding up only the total income earned by all factors of production gives net domestic income at A. positively; market prices B. negatively; factor prices C. positively; factor prices D. negatively; market prices 4. When calculating GDP using the income approach, the depreciation of physical capital enters _____, because ______. A. negatively; depreciation is a decrease of the physical capital stock B. positively; depreciated physical capital is replaced C. negatively; depreciated physical capital is replaced D. positively; depreciation is a decrease of the physical capital stock 5. Purchases of used goods produced during the previous year _____ included in GDP calculations, because… A. are; that would lead to double counting within the current year’s GDP figures. B. are not; that would lead to double counting within the current year’s GDP figures. C. are; the goods in question were not produced in the current year. D. are not; the goods in question were not produced in the current year. 6. Which of the following BEST describes why imports enter negatively in U.S. GDP calculations under the Expenditure Approach? A. Imports are not produced by American workers. B. Imports compete with American produced goods. C. Imports are considered physical capital, and removing them avoids double counting. D. Imports appear in other components of Aggregate Expenditure, but represent production that does not occur in the U.S. 7. The existence of household production and underground economic activity implies that traditional GDP calculations ____ the true value of production in the economy, because household production and underground economic activity ____ included in traditional GDP calculations. A. understate; are B. understate; are not C. overstate; are D. overstate; are not For Questions 8 & 9, refer to the table below. Category Value Compensation to Employees $105 million Investment $22 million Proprietors’ Income $28 million Imports $7 million Corporate Profits $19 million Net Taxes $12 million Rental Income $15 million Net Interest $36 million 8. Net Domestic Income at Factor Prices is ____. A. $192 million B. $194 million C. $203 million D. $210 million E. $213 million 9. Net Domestic Income at Market Prices is ____. A. $180 million B. $198 million C. $191 million D. $204 million E. $215 million 10. When calculating GDP, economists use the market value of all final goods and services produced. The use of market values is used in order _____. A. to avoid double counting. B. to equate quantity supplied and quantity demanded C. to adjust for inflation D. to appropriately include different goods and services 11. When calculating GDP using the Expenditure Approach, the production of physical capital ___ directly, because it ____ a component of another final good. A. does not enter; is B. does not enter; is not C. enters; is D. enters; is not 12. Suppose that Real GDP is growing at 3.25% per year, and that the population is growing at 0.75% per year. This implies that Real GDP per person is growing at an approximate rate of ____ and will double in approximately ____ years. A. 2.5% per year; 28 years B. 2.5% per year; 17.5 years C. 4.0% per year; 28 years D. 4.0% per year; 17.5 years 13. Gross depreciation and net depreciation are related, but distinct, topics. The value of ____ captures the change in the size of the physical capital stock, and the value of ____ identifies how much new physical capital was constructed. A. gross depreciation; gross depreciation B. gross depreciation; net depreciation C. net depreciation; gross depreciation D. net depreciation; net depreciation 14. Suppose that a DVD player repairperson becomes unemployed due to the popularity of streaming services, because their skillset becomes obsolete. The DVD player repairperson is _____. A. cyclically unemployed B. frictionally unemployed C. structurally unemployed D. seasonally unemployed 15. True or False: All individuals aged 65 and above are NOT in the labor force. A. True B. False 16. For which of the following reasons does the unemployment rate understate the problem of joblessness in the economy? i. because some part-time workers prefer full-time work. ii. because older workers have higher unemployment rates than youth. iii. because some workers have given up searching for a job. A. only i B. only ii C. i and ii D. i and iii E. All of the above For Questions 17-19, refer to the table below. Labor Market Category Number of People Population 200,000 Working-Age Population 150,000 Employed 115,000 Labor Force 125,000 17. Refer to the macroeconomic data provided above. What is the unemployment rate? All answers are rounded to the nearest tenth of a percent. A. 5.0% B. 6.7% C. 7.2% D. 8.0% E. 9.3% 18. Refer to the macroeconomic data provided above. What is the labor force participation rate? All answers are rounded to the nearest tenth of a percent. A. 62.5% B. 68.3% C. 75.0% D. 76.7% E. 83.3% 19. Refer to the macroeconomic data provided above. What is the employment-to-population rate? All answers are rounded to the nearest tenth of a percent. A. 57.5% B. 63.4% C. 72.8% D. 76.7% E. 92.0% 20. True or False: Unexpected inflation generates to a redistribution of wealth from lenders to borrowers. A. True B. False 21. The Consumer Price Index (CPI) is calculated based on prices at traditional “brick and mortar” retailers. This approach relates to which of the CPI biases below? A. new goods bias B. quality change bias C. commodity substitution bias D. outlet substitution bias Use the table below to answer questions 22 and 23. Year Price Index Inflation Rate 2017 250 --- 2018 262 A 2019 B 4.2% 22. In the table above, what inflation rate belongs in space A? A. 3.7% B. 4.1% C. 4.5% D. 4.8% E. 5.2% 23. In the table above, what price index belongs in space B? A. 267 B. 273 C. 276 D. 279 E. 281 24. Which of the following does NOT increase the productivity of labor? A. increases in the number of workers B. technological advances C. human capital growth D. physical capital growth E. All of the above increase the productivity of labor 25. Suppose that the productivity of labor increases. As a result, the _____ curve shifts _____, and the wage rate _____. A. demand for labor; rightward; increases B. supply of labor; rightward; increases C. demand for labor; leftward; decreases D. supply of labor; leftward; increases 26. The loanable funds market is? ____. A. the same as the loan market B. the aggregate of all the individual financial markets C. the aggregate of the bond and stock markets D. the market set up by banks to provide loans to households and businesses 27. True or False: If the nominal interest rate is 4.5%, and the inflation rate is 2.1%, the real interest rate is 6.6%. A. True B. False 28. The three main types of markets for financial capital are _____. A. loan markets, bond markets, and stock markets B. commercial banks, loan markets, and mutual funds C. bond markets, stock markets, and mutual funds D. investment banks; mutual funds, and stock markets E. insurance companies, investment banks, and mutual funds 29. Consider the demand for loanable funds. When the interest rate falls, ____ investment projects are profitable, leading to a(n) ____ in the quantity of loanable funds demanded. A. less; decrease B. less; increase C. more; decrease D. more; increase 30. Suppose that the wealth of households increases. In the market for loanable funds, the ___ shifts to the left, and the equilibrium real interest rate ____. A. demand for loanable funds; falls B. demand for loanable funds; rises C. supply of loanable funds; falls D. supply of loanable funds; rises 31. True or False: If disposable income were zero, consumer spending would also be zero, because consumers could not afford to purchases any goods or services. A. True B. False 32. The multiplier is greater than 1, because the change in autonomous expenditure leads to ____. A. more saving B. more investment C. less consumption D. more induced expenditure 33. Suppose that the marginal propensity to save is 0.2, and that there are no taxes or imports in the economy. A ____ increase in autonomous spending will lead Real GDP to increase by $60 billion. A. $12 billion. B. $15 billion C. $60 billion D. $300 billion E. None of the above 34. Which components of aggregate expenditure are influenced by Real GDP? A. investment, exports, and imports B. consumption expenditure and imports C. consumption expenditure, government expenditure, investment and imports D. consumption expenditure, investment and imports For Questions 35 & 36, refer to the graph below. 35. Refer to the graph above. Suppose that the economy is initially in short-run macroeconomic equilibrium where Real GDP is $12 trillion. Which of the following events would lead AD to shift left and Real GDP to decrease to $11 trillion? A. a reduction in the capital gains tax rate B. an increase in government spending on infrastructure C. a strengthening of the domestic currency D. a reduction in the real interest rate E. a fall in the price level 36. Refer to the graph above. Suppose that the economy was initially in short-run macroeconomic equilibrium where Real GDP is $12 trillion. After Aggregate Demand shifts left, and Real GDP decreases to $11 trillion, the _____ curve will shift to the _____ in the long-run. A. Aggregate Demand; right B. Short-Run Aggregate Supply; left C. Long-Run Aggregate Supply; left D. Short-Run Aggregate Supply; right For Question 37, refer to the graph below. 37. Suppose that the economy is currently at Point C. There is a(n) _____ gap of _____. A. inflationary; $0.5 trillion B. inflationary; $13.5 trillion C. recessionary; $0.5 trillion D. recessionary; $13.5 trillion 38. Suppose that there is an unplanned increase in inventories. This implies that aggregate expenditure is _____ than real GDP, and that real GDP is _____ its equilibrium level. A. less; below B. less; above C. greater; below D. greater; above 39. Suppose that Aggregate Expenditures in the economy are greater than Real GDP. This implies that actual Real GDP is _____ than the equilibrium level of Real GDP, and Real GDP should be expected to _____. A. less; fall B. greater; rise C. greater; fall D. less; rise 40. True or False: Marshmello and Bastille’s hit song “Happier” is about the feeling of finishing a Macroeconomics exam. All answers to this question will be accepted. A. True B. False