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ECO 2013 /70 Name: _____________________ Date: _________________ Practice Midterm A. Multiple-Choice Question [2 points each] 1) The opportunity cost of going to school rather than working is the cost of _______ A) food. B) health care. C) housing. D) foregone earnings.right1714500 2) Point C in the PPF figure is _______ A) an attainable production combination with unused resources. B) an unattainable production combination. C) a production combination that can be attained once resources are fully used. D) More information is needed to determine which of the above answers is correct. 3) Table 1 left635000 Robinson Crusoe divides his time between catching fish and gathering fruit. Part of his production possibilities frontier is given in Table 1. Mr. Crusoe, while lonesome, is efficient and always stays on his PPF. Mr. Crusoe is consuming 20 pounds of fish. Then he decides to slowly become a vegetarian and decrease his consumption of fish to 9 pounds. This decision means that Mr. Crusoe will _______ A) incur an opportunity cost of 9 pounds of fruit. B) incur an opportunity cost of 20 pounds of fish. C) be able to enjoy a gain of 9 pounds of fruit. D)incur an opportunity cost of 9 pounds of fish. 4) Consider the market for smart phones. Which of the following shifts the demand curve rightward? A) An increase in the price of smart phones. B) A decrease in the price of smart phones. C) An increase in the price of land-line phone service, a substitute for smart phones. D) A decrease in the number of smart phone buyers. 5) Lesley buys 6 cappuccinos per week when her income is $900 per week and buys 8 cappuccinos per week when her income is $1100 per week. For Lesley, cappuccinos are a(n) _______ good. A) normal B) inferior C) substitute D) complement 6) David takes 10 minutes to process a customer, and 20 minutes to stock the shelves. Danny takes 15 minutes to process a customer, and 15 minutes to stock the shelves. Which of the following statements is true? A) David has an absolute advantage in performing both tasks. B) Danny has an absolute advantage in performing both tasks. C) David has an absolute advantage in processing customers but not in stocking shelves. D) Danny has an absolute advantage in processing customers but not in stocking shelves. 7) A reduction in the cost of cable TV subscriptions will ______ the _______ for televisions. A) increase; supply B) increase; demand C) decrease; supply D) decrease; demand 8) One bag of coffee beans is sold for $7 to a café that uses it to brew coffee which it sells to customers for a total of $15. The second bag of coffee beans is sold directly to Joan for $9, who uses it to brew coffee for her family every morning. What is the contribution to GDP from the purchases of coffee beans and coffee? A) $7 B) $9 C) $15 D) $24 9) AI’s 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) $1 million B) $3 million C) $4 million D) $5 million 10) Your economics professor offers 10 points extra credit if you attend a review session before your next exam. This extra credit is an example of _______. A) a decrease in marginal benefit to attend the review session B) an increase in marginal cost to attend the review session C) a rational choice D) an incentive to attend the review session right76200011) Which figure shows the effect if research is published claiming that eating pizza is healthy? A) Figure A B) Figure B C) Figure C D) Figure D 12) If the CPI is 200 in year 1980 and 300 today, then $600 in 1980 is equivalent to _____ today. A) $500 B) $600 C) $700 D) $900 13) Where are the final goods and services produced that are included in Germany’s GDP? A) within Germany B) outside of Germany. C) anywhere, as long as they are produced using German labor. D) within Germany but only if they are produced using only German resources. 14) The CPI was 225 in 2008 and 232.2 in 2009. The nominal interest rate during this period was 1.4 percent. What was the real interest rate during this period? A) 3.2 percent B) 1.8 percent C) -3.2 percent D) -1.8 percent 15) The difference between nominal GDP and real GDP is _______ A) the indirect taxes used in their calculations. B) the prices used in their calculations. C) that nominal GDP includes net exports of goods and services and real GDP includes net imports. D) that real GDP includes the depreciation of capital and nominal GDP does not. 16) The value of used goods _____ counted as part of GDP ______. A) are; as long as they are classified as consumption goods B) are; as long as they are classified as investment goods C) are not; because they were counted during the period when they were counted as new goods. D) are not; because most fall in value and would cause a decrease in the value of GDP 17) If we want to examine how price changes affect the overall economy, the _______ is the better measure. A) real GDP B) nominal GDP C) GDP deflator D) CPI Use the following table to answer the next two questions: 18) According to the table, the unemployment rate in this economy is equal to _______ A) 4.9 percent. B) 7.8 percent. C) 8.5 percent. D) 63.4 percent. 19) According to the table, the labor force participation rate in this economy is equal to ____ A) 4.9 percent. B) 7.8 percent. C) 8.5 percent. D) 63.4 percent. 20) The working-age population can be divided into two groups, _______ A) people in the labor force and people looking for work. B) people in the labor force and people with a job. C) people looking for work and those in the armed forces. D) people in the labor force and people who are not in the labor force. 21) During healthy economic periods, cyclical unemployment ______ A) rises. B) will equal structural unemployment. C) will equal frictional unemployment. D) falls toward zero. 22) Which of the following is an example of structural unemployment? A) Chad graduates with his master’s degree in economics and is searching for an analyst job in Oklahoma. B) Edith has decided to retire after 35 years of working at the state prison. C) Jasmine loses her job as a newspaper editor because the publication has gone digital. D) Raymond loses his job as a steel worker because the economy is in a downturn. B. True-False Question ____ 23. [1.5 pts] Real interest rate can be positive or negative. ____ 24. [1.5 pts] Illegal production (for example, gambling) is included in GDP. Justification: Illegal production does not have a market value, so it is not included in GDP. ____ 25. [1.5 pts] If a country has an absolute advantage of producing a good, then it should focus on the production of that good and then trade. Justification: change “an absolute advantage” into “a comparative advantage”. ____ 26. [1.5 pts] If the CPI was 100 in the period of 1982–1984, then this period was the base period. C. Problem-Solving Question 27. [3 pts]. In the economy of Ukzten in 2010, GDP was $8000, consumption was $4000, government purchases were $1500, exports were $200, and imports were $700. What was Ukzten’s investment? 28. [4 pts]. Suppose the population is 300 million people, the labor force is 200 million people, the number of people employed is 185 million, and the working-age population is 170 million people. What is the unemployment rate? 29. [7 pts]. Pick ONE: either A or B. Don’t do both!!! Choice A Suppose an economy produces only green peppers and red peppers. In 2009, the base year, it produced 100 green peppers and 50 red peppers and sold them at prices of $2 per green pepper and $3 per red pepper. In 2010, it produced 150 green peppers and 60 red peppers and sold them at prices of $2 per green pepper and $4 per red pepper. I) [1.5 pts] Calculate the nominal GDP in 2010. II) [1.5 pts] Calculate the real GDP in 2010. III) [1 pt] Calculate the GDP deflator in 2010. IV) [2 pts] What does this number tell you? [Hint: you need to compare the GDP deflator in 2010 with the GDP deflator in the base year.] V) [1 pt] Calculate the inflation rate in 2010. Choice B A Consumer Expenditure Survey in Sparta shows that people buy only orange juice and cloth. The typical consumer’s basket consists of 10 bottles of orange juice and 5 yards of cloth. The base year is 2012. Year Price of orange juice Price of cloth 2012 $2 $5 2013 $3 $6 2014 $4 $8 I) [1.5 pts] Calculate the cost of CPI basket in 2012. II) [1.5 pts] Calculate the cost of CPI basket in 2013. III) [1 pt] Calculate the CPI in 2013. IV) [2 pts] What does this number tell you? [Hint: you need to compare the CPI in 2013 with the CPI in the base year.] V) [1 pt] Calculate the inflation rate in 2013. 30. [5pts] Question: The Trump Administration argues that the China-US trade war is good for Americans. Do you agree or disagree (at least 80 words)?