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Midterm Exam (open book): due by 6/30

ECON 2307-VC01                                                                                              Summer 2019

Dr. Gim

Name:                                                                  .

*Please remember that this is an exam.  Students are not allowed to seek assists from anyone, but can open the textbook, lecture notes, and other materials.  Create your answer file (1 page, doc, or docx, answers only), and submit by 6/30 in the Blackboard (= where you found the exam). Do not email your exam answers to me. Your exams should be recorded in the blackboard.

Multiple Choice Questions: Choose the best answer for each question. 4 points each.

1. In the circular-flow diagram,

a.profit flows from households to firms.
b.labor flows from households to firms.
c.services flow from households to firms.
d.All of the above are correct.

2. Refer to the Figure.  If this economy devotes all of its resources to the production of notepads, then it will produce

a.0 notepads and 40 lamps.
b.35 notepads and 20 lamps.
c.70 notepads and 0 lamps.
d.70 notepads and 40 lamps.

3.  Refer to the Table below.  Assume that Zimbabwe and Portugal each has 180 machine minutes available.  If each country divides its time equally between the production of toothbrushes and hairbrushes, then total production is

a.24 toothbrushes and 12 hairbrushes.
b.48 toothbrushes and 24 hairbrushes.
c.96 toothbrushes and 48 hairbrushes.
d.720 toothbrushes and 1440 hairbrushes.

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes at a constant rate.

 Machine Minutes Needed to Make 1
ToothbrushHairbrush
Zimbabwe310
Portugal56

4.  The producer that requires a smaller quantity of inputs to produce a certain amount of a good, relative to the quantities of inputs required by other producers to produce the same amount of that good,

a.has a low opportunity cost of producing that good, relative to the opportunity costs of other producers.
b.has a comparative advantage in the production of that good.
c.has an absolute advantage in the production of that good.
d.should be the only producer of that good.

5. Janet bought flour and used it to bake bread she ate.  ABC Bakery bought flour which it used to bake bread that customers purchased.   In which case will the flour be counted as a final good?

a.Janet’s purchase and ABC Bakery’s purchase.
b.ABC Bakery’s purchase but not Janet’s purchase.
c.Janet’s purchase but not ABC Bakery’s purchase.
d.Neither Janet’s purchase nor ABC Bakery’s purchase.

6.  One bag of oranges is sold for $6.00 to a company that turns them into juice which is sold to consumers for $12.00.  Another bag of oranges is purchased by a grocery store for $6.00 who then sells it to a consumer for $7.  Taking these four transactions into account, how much is added to GDP?

a.$31
b.$25
c.$19
d.None of the above is correct.

7.  A newspaper article informs you that most businesses reduced production in the last quarter but also sold from their inventories during the last quarter. Based on this information GDP likely

a.increased.
b.decreased.
c.stayed the same.
d.may have increased, decreased, or stayed the same.

8.  Which of the following is included in U.S. GDP?

a.the value of production by a Singaporean working in the U.S.
b.the value of production by an American working in Singapore
c.Both (a) and (b) are correct.
d.Neither (a) nor (b) is correct.

9.  Qu – Motors is a Japanese-owned company that produces automobiles; all of its automobiles are produced in American plants.  In 2015 Qu – Motors produced $30 million worth of automobiles, with $17 million in sales to Americans, $9 million in sales to Canadians, and $4 million worth of automobiles added to Quality Motors’ inventory.  The transactions just described contribute how much to U.S. GDP for 2015?

a.$17 million
b.$21 million
c.$26 million
d.$30 million

10. Foreign citizens earn more income in Ireland than Irish citizens earn in foreign countries.

a.Ireland’s net factor payments from abroad are positive, and its GDP is larger than its GNP.
b.Ireland’s net factor payments from abroad are positive, and its GNP is larger than its GDP.
c.Ireland’s net factor payments from abroad are negative, and its GDP is larger than its GNP.
d.Ireland’s net factor payments from abroad are negative, and its GNP is larger than its GDP.

11.  The inflation rate is calculated

a.by determining the change in the price index from the preceding period.
b.by adding up the price increases of all goods and services.
c.by computing a simple average of the price increases for all goods and services.
d.by determining the percentage increase in the price index from the preceding period.

12.  The price index was 120 in 2006 and 127.2 in 2007.  What was the inflation rate?

a.5.7 percent
b.6.0 percent
c.7.2 percent
d.27.2 percent

13.  Suppose that the prices of dairy products have risen relatively less than prices in general over the last several years.  To which problem in the construction of the CPI is this situation most relevant?

a.substitution bias
b.introduction of new goods
c.unmeasured quality change
d.income bias

14.  The introduction of a new good

a.increases the cost of maintaining the same level of economic well-being.
b.decreases the cost of maintaining the same level of economic well-being.
c.has no impact on the cost of maintaining the same level of economic well-being.
d.may increase or decrease the cost of maintaining the same level of economic well-being, depending on how expensive the new good is.

15.  The GDP deflator reflects the

a.level of prices in the base year relative to the current level of prices.
b.current level of prices relative to the level of prices in the base year.
c.level of real output in the base year relative to the current level of real output.
d.current level of real output relative to the level of real output in the base year.

16.  In 1969, Malcolm bought a Pontiac Firebird for $2,500.  If the price index was 36.7 in 1969 and the price index was 180 in 2009, then what is the price of the Firebird in 2009 dollars?

a.$509.72
b.$6,866.49
c.$9,761.58
d.$12,261.58

17.  In one day Alpha Cabinet Company made 40 cabinets with 320 hours of labor. What was  Alpha Cabinet Company’s productivity?

a.1/8 cabinet per hour
b.8 hours per cabinet
c.40 cabinets
d.None of the above is correct.

18.  Miller’s Dairy produces 960 gallons of milk per day.  Each milker at the dairy works 8 hours per day and produces the same number of gallons of milk per hour.  If the Dairy’s productivity is 12 gallons of milk per hour of labor, then how many milkers does the shop employ?

a.8
b.10
c.80
d.120

19.  Thomas received patents on many of his inventions. While the patents existed, his ideas were

a.public goods and proprietary knowledge.
b.public goods but not proprietary knowledge.
c.private goods and proprietary knowledge.
d.private goods but not proprietary knowledge.

20.  Which of the following statements is true?

a.The quantity of natural resources per worker can influence productivity.
b.Technological knowledge and human capital are closely related.
c.Over long periods of time, the prices of most natural resources are stable or falling, relative to other prices.
d.All of the above are correct.

21. We associate the term debt finance with

a.the bond market, and we associate the term equity finance with the stock market.
b.the stock market, and we associate the term equity finance with the bond market.
c.financial intermediaries, and we associate the term equity finance with financial markets.
d.financial markets, and we associate the term equity finance with financial intermediaries.

22. If the government’s expenditures exceeded its receipts, it would likely

a.lend money to a bank or other financial intermediary.
b.borrow money from a bank or other financial intermediary.
c.buy bonds directly from the public.
d.sell bonds directly to the public.

23. Which of the following is correct?

a.Joan takes some of her income and buys mutual fund shares. Joan’s purchase will be included in the investment category of GDP.
b.If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share are $5, and the dividend per share is $2, then the P/E ratio is 11.
c.In order to use equity finance, a firm must sell about equal values of stocks and bonds.
d.None of the above is correct.

24. The future value of a deposit in a savings account will be smaller

a.the longer a person waits to withdraw the funds.
b.the lower the interest rate is.
c.the larger the initial deposit is.
d.All of the above are correct.

25. If you put $125 into an account that paid 3.25 percent interest, then how much money would you have in the account after 20 years?

a.$285.83
b.$236.98
c.$202.04
d.$145.65

[End of the Exam]

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