Common Final Exam ECON 201 OL2 Spring 2014 I. MULTIPLE CHOICE (40 questions 2 points each). Choose the one alternative that best completes the statement or answers the question. 1) Business cycles are 1) _______ A) used to describe fluctuations in GDP. B) a description of the time required to bring a new product to market. C) the transfer of executives between firms. D) movements in stock prices. 2) If real GDP was 100 in 2011 and 104.4 in 2012, the growth rate of real GDP between 2011 and 2012 was 2) _______ A) 2.2 percent.B) 4.4 percent. C) 100 percent. D) 102.2 percent. 3) When considering imports and exports, economists include the ________ as a component of the GDP. 3) _______ A) net exports B) total imports C) gross exports D) total exports 4) Which prices are used to measure goods and services in calculating the nominal GDP? 4) _______ A) projected prices B) average prices C) current prices D) past years prices 5) Which of the following is NOT an example of private investment expenditure? 5) _______ A) using credit cards to purchase durable and nondurable goods B) new houses built during the year C) increases in inventories on goods produced during the year D) new plants and equipment added during the year 6) Which of the following is NOT a component of gross domestic product? 6) _______ A) net exports B) purchases by consumers of finished goods C) purchases by consumers of used goods D) government purchases 7) If Cassie's Coffee House purchases 33 cents worth of ingredients and spends 36 cents on wages per cup of coffee to produce an 89 cent cup of coffee, then Cassie's Coffee House's contribution to GDP is ________ per cup of coffee. 7) _______ A) 20 cents B) 33 cents C) 36 cents D) 56 cents 8) Economists define the labor force to include 8) _______ A) people who are working. B) only people who are working full time. C) people who are not working but are actively looking for a job, and people who are working. D) all individuals of working age, regardless of whether they are working or looking for a job. 9) If Sam does not have a job and is not looking for work, he is considered 9) _______ jose.king Highlight jose.king Highlight jose.king Highlight jose.king Highlight A) not in the labor force. B) unemployed. C) unemployed and in the labor force. D) unemployed and not in the labor force. 10) Suppose that the CPI in Egypt was 111 in 2011 and 122 in 2012. The inflation rate between those two years was approximately 10) ______ A) 4.8 percent.B) 5.5 percent. C) 9.9 percent. D) 11 percent. 11) In June 2012, the U.S. labor force consisted of 142,415,000 employed and 12,749,000 unemployed. The U.S. unemployment rate for June 2012 was about 11) ______ A) 7.4 percent.B) 8.2 percent. C) 9.0 percent. D) 11.2 percent. 12) Juanita quit her job to move to Santa Fe to be closer to her family. She is actively looking for a new job in Santa Fe. Juanita is con.

1. Common Final Exam ECON 201 OL2 Spring 2014
I. MULTIPLE CHOICE (40 questions 2 points each). Choose
the one alternative that best completes
the statement or answers the question.
1) Business cycles are 1) _______
A) used to describe fluctuations in GDP.
B) a description of the time required to bring a new product to
market.
C) the transfer of executives between firms.
D) movements in stock prices.
2) If real GDP was 100 in 2011 and 104.4 in 2012, the growth
rate of real GDP between 2011 and 2012 was
2) _______
A) 2.2 percent.B) 4.4 percent. C) 100 percent. D) 102.2 percent.
3) When considering imports and exports, economists include
the ________ as a component of the GDP.
3) _______
A) net exports B) total imports C) gross exports D) total
exports
4) Which prices are used to measure goods and services in
calculating the nominal GDP? 4) _______
A) projected prices B) average prices

2. C) current prices D) past years prices
5) Which of the following is NOT an example of private
investment expenditure? 5) _______
A) using credit cards to purchase durable and nondurable goods
B) new houses built during the year
C) increases in inventories on goods produced during the year
D) new plants and equipment added during the year
6) Which of the following is NOT a component of gross
domestic product? 6) _______
A) net exports
B) purchases by consumers of finished goods
C) purchases by consumers of used goods
D) government purchases
7) If Cassie's Coffee House purchases 33 cents worth of
ingredients and spends 36 cents on wages per cup of
coffee to produce an 89 cent cup of coffee, then Cassie's Coffee
House's contribution to GDP is ________ per
cup of coffee. 7) _______
A) 20 cents B) 33 cents C) 36 cents D) 56 cents
8) Economists define the labor force to include 8) _______
A) people who are working.
B) only people who are working full time.
C) people who are not working but are actively looking for a
job, and people who are working.
D) all individuals of working age, regardless of whether they
are working or looking for a job.
9) If Sam does not have a job and is not looking for work, he is
considered 9) _______

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A) not in the labor force. B) unemployed.
C) unemployed and in the labor force. D) unemployed and not
in the labor force.
10) Suppose that the CPI in Egypt was 111 in 2011 and 122 in
2012. The inflation rate between those two years
was approximately 10) ______
A) 4.8 percent.B) 5.5 percent. C) 9.9 percent. D) 11 percent.
11) In June 2012, the U.S. labor force consisted of 142,415,000
employed and 12,749,000 unemployed. The
U.S. unemployment rate for June 2012 was about 11) ______
A) 7.4 percent.B) 8.2 percent. C) 9.0 percent. D) 11.2 percent.
12) Juanita quit her job to move to Santa Fe to be closer to her
family. She is actively looking for a new job in
Santa Fe. Juanita is considered 12) ______
A) frictionally unemployed. B) not to be unemployed.
C) structurally unemployed. D) cyclically unemployed.

4. 13) Suppose that the chain-weighted index for GDP in Panama
was 180 in 2011 and 188 in 2012. The inflation
rate between those two years was approximately 13) ______
A) 1.1 percent.B) 4.4 percent. C) 8 percent. D) 10.4 percent.
14) According to Robert Solow, the production function should
be written as 14) ______
A) Y = F(K, A). B) Y = F(K, L, A). C) Y = F(A, L). D) Y =
F(K, L).
15) Suppose the growth rate of GDP in the United States is 4.2
percent. If 1.1 percent and 1.4 percent of GDP
growth are due, respectively, to capital and labor growth, the
amount resulting from technological progress is
15) ______
A) 0.3 percent.B) 1.1 percent. C) 1.4 percent. D) 1.7 percent.
16) Refer to Figure 8A.2. Compared to curve s1Y, curve s2Y
represents 16) ______
A) a decrease in depreciation. B) a decrease in capital
deepening.
C) a higher saving rate. D) a decrease in original capital stock.
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5. 17) The increase in spending that occurs because domestic
goods become cheaper relative to foreign goods
when the price level falls is known as the 17) ______
A) international trade effect. B) wealth effect.
C) interest rate effect. D) price effect.
18) Figure 9.1 shows three aggregate demand curves. A
movement from curve AD2 to curve AD1 could be
caused by a(n) 18) ______
A) increase in the price level. B) increase in the money supply.
C) increase in taxes. D) increase in government spending.
19) Assuming a long-run aggregate supply curve, a decrease in
taxes results in ________ in output and
________ in price level. 19) ______
A) a decrease; a decrease B) no change; an increase
C) an increase; no change D) no change; a decrease
20) Workers often have ________ contracts and so their wages
are ________. 20) ______
A) long-term; sticky B) long-term; flexible
C) short-term; flexibleD) short-term; sticky
21) Suppose the demand for hot dogs decreases. In the short
run, firms that produce hot dogs will experience a
fall in prices, which will induce them to 21) ______
A) decrease production and reduce the number of workers.

6. B) increase production and increase the number of workers.
C) decrease production and increase the number of workers.
D) increase production and reduce the number of workers.
22) One school of thought that emphasizes the role that taxes
play in an economy's supply of output is known as
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22) ______
A) demand-pull economics. B) supply-side economics.
C) tax-and-spend economics. D) classical economics.
23) Automatic stabilizers 23) ______
A) minimize fluctuations in the economy.
B) must be authorized by the President.
C) increase welfare payments during expansions.
D) decrease taxes during expansions.
24) The value of the multiplier ________ as the marginal
propensity to save decreases. 24) ______
A) increases B) is constant
C) decreases D) becomes negative
C = 400 + 0.75(y - T)
I = 150
G = 200
T = 160
X = 80
M = 0.15y

7. Table 11.1
25) Refer to Table 11.1. If the marginal propensity to consume
decreases to 0.05 (MPC = 0.05), what is the new
equilibrium level of output? 25) ______
A) 2,366.67 B) 3,166.67 C) 3,550.00 D) 4,750.00
26) In the late 1970s, savings and loans institutions were in
financial trouble because they 26) ______
A) had to pay high interest rates to attract depositors, but were
earning high interest rates from past investments.
B) had to pay high interest rates to attract depositors, but were
earning low interest rates from past investments.
C) had to pay low interest rates to attract depositors, but were
earning high interest rates from past investments.
D) had to pay low interest rates to attract depositors, but were
earning low interest rates from past investments.
27) Suppose George withdraws $60,000 from his bank. If the
reserve ratio is 25 percent, then this transaction
will lead to a decrease of ________ in checking account
balances. 27) ______
A) $15,000 B) $45,000 C) $90,000 D) $180,000
28) Suppose a bank has $200,000 in deposits, a reserve ratio of
10 percent, and reserves of $45,000. This bank
has excess reserves of 28) ______
A) $155,000. B) $25,000. C) $10,000. D) $5,000.
29) Given the following information about AAA bank:

8. Bank Deposits $50,000
Loans 25,000
Required Reserves 15,000
Excess Reserves 10,000
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What is the reserve ratio? 29) ______
A) 50 percent B) 30 percent C) 20 percent D) 15 percent
30) To increase the money supply using the reserve
requirements, what would the Fed typically do? 30)
______
A) reduce the reserve requirement for banks
B) let each bank get more currency from the Treasury
C) increase the reserve requirement for banks
D) make each bank set its own reserve levels
31) Selling government bonds through open market operations
allows the Federal Reserve to 31) ______
A) decrease money in the Treasury.
B) receive discounts on future sales.
C) receive a high rate of interest on the bonds.
D) decrease the money supply in the private sector.
32) What impact does the Fed's raising the interest rate have on
the money supply and on the price level?
32) ______
A) An increase in interest rates raises the money supply and
eventually reduces prices.

9. B) An increase in interest rates lowers the money supply and
raises the money demand, which will neutralize
price increases.
C) An increase in interest rates reduces the money demand
which will slow the growth in prices.
D) An increase in interest rates will increase investment
spending and GDP, which will lower prices.
33) Consider an aggregate demand / aggregate supply diagram.
The intersection of the vertical aggregate supply
curve and the aggregate demand curve determines the 33)
______
A) long-run levels of prices and output.
B) short-run level of output and the long-run level of prices.
C) short-run and long-run levels of prices and output.
D) short-run levels of prices and output.
34) In the short run, increases in the money supply increase the
level of output because 34) ______
A) prices and wages are sticky. B) interest rates are sticky.
C) demand is fixed. D) prices and wages are flexible.
35) Suppose that GDP is ________ potential output. We would
expect prices to rise, money demand to rise,
interest rates to rise, and total demand to ________. 35) ______
A) below; fall B) below; rise C) above; fall D) above; rise
36) Assume that last year's inflation rate is the same as the
expectation of inflation for the next year. According
to the expectations Phillips curve, if the inflation rate remains
constant relative to the expected rate, the
unemployment rate 36) ______
A) increases. B) does not change.

10. C) may increase or decrease. D) decreases.
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37) If the velocity of money is 2 and nominal GDP is $10
trillion, then the money supply is 37) ______
A) $0.2 trillion. B) $5 trillion. C) $8 trillion. D) $12 trillion.
38) Increases in unanticipated inflation will impact employment
levels, but once workers recognize higher
inflation rates, they will incorporate them into their
expectations of inflation. This will tend to cause 38)
______
A) the natural rate of unemployment to fall.
B) unemployment to return to its natural rate.
C) unemployment to fall below the natural rate.
D) the natural rate of unemployment to rise.
39) During recessions, unemployment ________ while the
budget deficit as a percentage of GDP ________.
39) ______
A) decreases; increases B) increases; decreases
C) increases; increases D) decreases; decreases
40) Suppose the government has a $375 billion budget deficit. If
the government creates $225 billion of new
money to finance this deficit and finances the rest by

11. borrowing, the amount borrowed from the public will be
40) ______
A) $150 billion. B) $225 billion. C) $375 billion. D) $600
billion.
II. SHORT ANSWER. (5 questions 4 points each). Please write
a separate paragraph to explain
your answer to each of the following questions.
41) Explain the connection between property rights and
economic growth. 41) _____________
42) Why is it difficult to make accurate and valid comparisons
of real GDP or GNP for different countries, and
how do the World Bank and the IMF deal with these
difficulties? 42) _____________
43) Suppose autonomous consumption increases. Explain how
this event will lead to a rise in equilibrium
output, and illustrate using a graph of the income-expenditure
model. 43) _____________
44) What is the accelerator theory of investment spending? 44)
_____________
45) Why might economic policies aimed at stabilization actually
increase the magnitudes of economic
fluctuations? 45) _____________