Midterm 1 QUESTİONS (A)
There are 2 parts. In every part, every question is 2 point. You can’t use dictionary in the exam. You can use calculator but using cell phone will not be allowed. You can not borrow erases from each other. Please read carefully and answer the questions. Good Luck.
1. If a U.S. citizen buys a television made in Korea by a Korean firm, a. U.S. net exports decrease but U.S. GDP is unaffected. b. U.S. net exports decrease, and U.S. GDP decreases. c. U.S. net exports are unaffected, and U.S. GDP decreases. d. U.S. net exports are unaffected, and U.S. GDP is unaffected 2. Macroeconomics is best suited to answering questions about a. why rent is higher in big cities than in smaller ones b. how fast the overall price level will rise next year c. unemployment among students on this campus d. the demand for public transportation in rural areas 3. If inflation is higher than anticipated and benefits are not indexed, which group loses purchasing power? a. borrowers and lenders b. lenders and retirees c. borrowers and retirees d. only borrowers 4. The Consumer Price Index (CPI) a. measures the prices of all goods produced in the economy b. includes prices of raw materials c. includes only the prices of domestically produced consumer goods d. includes the prices of some used consumer goods5. Suppose that Wisconsin produces cheese and fish. In 2002, 20 units of cheese are sold at $5 each, and 8 units of fish are sold at $50 each. In 2001, the base year, the price of cheese was $10 per unit, and the price of fish was $75 per unit. a. Nominal 2002 GDP is $800, real 2002 GDP is $500, and the GDP deflator is 160. b. Nominal 2002 GDP is $500, real 2002 GDP is $800, and the GDP deflator is 160. c. Nominal 2002 GDP is $500, real 2002 GDP is $800, and the GDP deflator is 62.5. d. Nominal 2002 GDP is $800, real 2002 GDP is $500, and the GDP deflator is 62.5. 6. The index used to translate nominal GDP into real GDP is a. Consumer Price Index b. Wholesale Price Index c. GDP Price Index d. Producer Price Index 7. The real wage rate measures a. nominal wages after taxes b. what workers are paid in terms of this year's dollars c. what workers are paid in terms of purchasing power d. what workers have available for spending after paying their bills 8. Flour is a. always counted as an intermediate good. b. counted as an intermediate good if it is used by a company to make bread. c. counted as a final good if it is used by a consumer who bakes bread for his own consumption. d. Both b and c are correct. 9. George buys and lives in a newly constructed home he paid $200,000 for in 2003. He sells the house in 2004 for $225,0000. a. The 2004 sale does not increase 2004 GDP and does nothing to 2003 GDP. b. The 2004 sale increases 2004 GDP by $225,000 and 2003 GDP is revised upward by $25,000. c. The 2004 sale increases 2004 GDP by $225,000 and does nothing to 2003 GDP. d. The 2004 sale increases 2004 GDP by $25,000 and does nothing to 2003 GDP. 10. In computing GDP, investment is spending on a. stocks, bonds, and other financial assets. b. real estate and financial assets. c. new capital equipment, inventories, and structures, including new housing. d. capital equipment, inventories, and structures, excluding household purchases of new housing. 11. Arnold puts money into an account. One year later he checks and sees that he has 5 percent more dollars and that his money will buy 6 percent more goods. a. The nominal interest rate was 11 percent and the inflation rate was 5 percent. b. The nominal interest rate was 6 percent and the inflation rate was 5 percent. c. The nominal interest rate was 5 percent and the inflation rate was –1 percent. d. None of the above is correct. 12. The inflation rate is defined as the
a. price level.
b. change in the price level.
c. price level divided by the price level in the previous period.
d. percentage change in the price level from the previous period.
13. The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a result,
a. U.S. government purchases increase by $30,000 and U.S. net exports decrease by $30,000. U.S. GDP and GNP are unaffected.
b. U.S. government purchases increase by $30,000 and U.S. GNP increases by $30,000. U.S. GDP and net exports are unaffected.
c. U.S. government purchases, net exports, GDP, and GNP are unaffected.
d. U.S. government purchases increase by $30,000 and U.S. net exports decrease by 30,000. U.S. GNP increases by $30,000, but U.S. GDP is unaffected.
Part II
1. At the end of 2002, Tom wants to buy a used car for $ 1,000 but since he has no money, he asks his brother Bob for a loan. Tom agrees to pay Bob back after 2 years, that is at the end of 2004. Bob doesn’t ask for any interest, but he wants to be compensated for the lost in purchasing power due to inflation. The inflation rate is expected to be 5% and 4% in the first and second year of the loan respectively.
- ( 2 pt) If the expectations about inflation are correct, what is the amount that Tom will pay to Bob at the end of the loan?
- ( 2 pt) Suppose Bob doesn’t ask any compensation for the inflation, what is the value of the money he receives at the end of the loan expressed in 2002 dollars?
Suppose that, at the beginning of the loan, Tom agreed to pay $ 92 to Bob as compensation for the lost in purchasing power due to the inflation. Suppose also that the inflation during the second year is unexpectedly 6% instead of the expected 4%.
- ( 2 pt) Who looses and who benefits from this unexpectedly higher inflation rate?
- ( 2 pt) What is the value of the money that Bob receives at the end of the loan expressed in 2002 dollars?
- ( 2 pt) What is the amount that Tom should pay to Bob in order for the purchasing power of the sum lent not to change?
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