Midterm 1 QUESTİONS (A)

  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.  A nation’s standard of living is measured by its 

 a. real GDP. 

 b.  real GDP per person. 

 c. nominal GDP. 

  d.  nominal GDP per person. 

2. Over the last few decades Americans have chosen to cook less at home and eat more at restaurants. This change in  behavior, by itself, 

  a.  increased measured GDP. 

  b. reduced measured GDP. 

  c.  did not affect measured GDP. 

  d.  affected measured GDP only to the extent that people eat more at restaurants than at home. 

3.  Which of the following is correct? 

  a.  The value of all intermediate goods and final goods are included in GDP. 

  b.  The value of intermediate goods is included in GDP only if they were produced in the previous year. 

  c.  The value of intermediate goods is included in GDP only if they are purchased by firms rather than households. 

  d.  The value of intermediate goods is not included in GDP. 

4.  The local Chevrolet dealership has an increase in inventory of 25 cars in 2003. In 2004 it sells all 25 cars. 

  a.  The value of increased inventory will be counted as part of GDP in 2003, but the value of the cars sold in 2004  will not cause GDP to increase. 

  b.  The value of the increased inventory will not affect 2003 GDP, but will be included in 2004 GDP. 

  c.  The value of the increased inventory will be counted as 2003 GDP and the value of the cars sold in 2004 will  increase 2004 GDP. 

  d.  None of the above are correct. 

5.  U.S. GNP is calculated from U.S. GDP by 

  a.  including income earned by foreigners in the United States and excluding income earned by U.S. citizens abroad. 

  b.  including income earned by U.S. citizens abroad and excluding income earned by foreigners in the U.S. 

  c.  including income earned by foreigners in the United States. 

  d.  excluding income earned by U.S. citizens abroad. 

6.  If in a given year an economy has consumption of $3000, investment of $2000, government purchases of $1500, exports of $500, imports of $600, taxes of $1200, transfer payments of $400, and depreciation of $300, then GDP will  equal 

 a. $6400. 

 b. $7000. 

 c. $7600. 

 d. $8900. 

7. If the GDP deflator is 200 and nominal GDP is $10,000 billion, then real GDP is 

 a. $5,000 billion. 

 b. $2,000 billion. 

 c. $50 billion. 

  d.  None of the above are correct

8.  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. 

9. Macroeconomics is best suited to answering questions about

      a.  unemployment among students on this campus

     b.  why rent is higher in big cities than in smaller ones

     c.  how fast the overall price level will rise next year

     d.  the demand for public transportation in rural areas

10. The formula for determining a real variable is real variable =

     a.  (nominal variable/100) ´ CPI

     b.  (nominal variable ´ CPI)/100

     c.  (nominal variable/price index) ´ 100

     d.  (nominal variable/price index) + 100

11. 7. 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

12. Which of the following is a definition for inflation?

     a.  an increase in the value of the dollar over time

     b.  an increase in the overall price level

     c.  an increase in the price of a good or service

     d.  it takes fewer dollars to purchase other currencies

     e.  a decrease in the overall price level

13. Lorrie will receive a nominal wage increase of 10 percent this year. The inflation rate was 5 percent last year and is predicted to be 8 percent this year. If the economic forecast is correct, her real wage this year

     a.  will increase by approximately 2 percent

     b.  will increase by approximately 8 percent

     c.  will increase by approximately 5 percent

     d.  will remain the same

     e.  cannot be calculated without knowing the number of dollars by which her wage increases

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.

1. ( 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. ( 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%.

3. ( 2 pt) Who looses and who benefits from this unexpectedly higher inflation rate?

4. ( 2 pt) What is the value of the money that Bob receives at the end of the loan expressed in 2002 dollars?

5. ( 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?