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Introduction to Economics

by: Erna Gislason

Introduction to Economics ECON 101

Erna Gislason
GPA 3.63

Michael Salemi

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Michael Salemi
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This 6 page Study Guide was uploaded by Erna Gislason on Sunday October 25, 2015. The Study Guide belongs to ECON 101 at University of North Carolina - Chapel Hill taught by Michael Salemi in Fall. Since its upload, it has received 137 views. For similar materials see /class/228681/econ-101-university-of-north-carolina-chapel-hill in Economcs at University of North Carolina - Chapel Hill.


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Date Created: 10/25/15
The nal exam in Econ 101008 will take place at noon on December 12 2008 in our regular classroom Carroll 111 The examination will include questions from all parts of our course but will include more questions from the topics covered by lectures l9 and 2129 To prepare for the examination we recommend that you review the questions from midterm examinations one and two and work through the following 28 questions that cover lectures l9 and 2129 Assume normal shapes to demand and supply schedules and no external effects unless instructed otherwise 1 Which of the following correctly describes the relationship between productivity growth unemployment and the economy s production possibilities frontier PPF A An increase in productivity moves the economy from inside the production possibilities set to its frontier B An increase in productivity shifts the economy from the production possibilities frontier to a point outside the production possibilities set C An increase in unemployment shifts the economy further inside its production possibilities set D An increase in unemployment shifts the economy from a point outside the production set back to the production possibilities frontier If the CPI in Tar Heel Land is 100 in 2005 098 in 2006 and 102 in 2007 then A Tar Heel Land experienced in ation in 2006 and de ation in 2007 B Tar Heel Land experienced de ation in 2006 and in ation in 2007 C Tar Heel Land experienced a small rate of in ation in 2006 and 2007 D Prices in Tar Heel Land rose by 4 percent between 2005 and 2007 The following table reports transactions that occurred in Small Land in 2006 Nominal GDP in Small Land in 2006 is 7 A 170 B 320 C 370 D 520 For years the citizens of Small Land had experienced an annual in ation rate of 3 percent and had come to think of 3 percent as the normal rate of in ation Then in 2006 the rate of in ation rose to 6 percent Which of the following statements correctly describes the winners and losers from in ation in 2006 No one bene ted because the rise in in ation created dead weight loss Small Land debtors bene ted at the expense of Small Land creditors Small Land savers bene ted at the expense of Small Land investors Small Land workers bene ted at the expense of Small Land employers powgt Consider the following national accounts data for Tar Heel Land If real GDP is measured in 2005 dollars then in 2007 in Tar Heel Land real GDP is and nominal GDP is A 1540 1540 B 1540 1694 C 1761 1540 D 1694 1694 Which of the following statements about labor productivity in the United States is correct A Growth in labor productivity is less important than growth in the participation rate in accounting for increases in output per capita Growth in labor productivity began slowing in 1990 and has remained low since High labor productivity in the US is partly attributable to quantity and quality of education received by students in the US D Cross country data on the amount of time spent in school by students of various nations shows that education is a weak factor in accounting for labor productivity B C At each family gathering your grandfather points out that when he was a boy the price of a loaf of bread was ten cents He decries the fact that the price of bread today is more than two dollars a loaf and concludes that times are bad Which of the following is a response to your grandfather that is well reasoned economically Bread today is better and the higher price today re ects the improved quality B Today our nation is consuming a larger fraction of GDP than it was when your grandfather was a boy C In ation makes it impossible to compare the price of bread today with the price of bread when your grandfather was a boy D Today the ratio of the price of bread to the hourly wage is smaller than it was when your grandfather was a boy The following table contains data for the consumer price indeX and the nominal rate of interest in Small Land in year 1 through year 4 Year Consumer Price IndeX Nominal Interest Rate percent 100 12 2 1 10 15 3 120 13 4 115 8 The real rate of interest in year 3 in Small Land was 77 85 percent 130 percent 172 percent Cannot be determined from the available data powgt Suppose your friend Jan asks to borrow 100 today Jan agrees to pay you back in one year Jan agrees to pay you 10300 plus one eXtra dollar for each percent of in ation that occurs in the coming year Jan always keeps promises Should you accept Jan s offer A It depends on the value to you of your neXt best use of the 100 B Yes because you experience no in ation risk from this loan C No because you care about the real rate of interest rather than the nominal rate D It depends on your estimate of the in ation rate over the coming year An increase in the real rate of interest causes an 7 high real rate implies that 7 7 in private investment because the A Increase rms will earn high real returns on their investment projects B Decrease rms will earn high real returns on their investment projects C Increase rms can earn a high return by lending their funds to others D Decrease rms can earn a high return by lending their funds to others Suppose an increase in government spending on military equipment leads to an increased government budget de cit If no other changes occur there will be an 77777 in national saving and an 777 in the real interest rate Increase Increase B Increase Decrease C Decrease Decrease D Decrease Increase If people in the United States are less patient than people in Japan the typical US person will save 7 at a given real interest rate If technological innovation causes Japanese capital to be more productive than US capital the typical Japanese rm will demand 7777 funds for investment at a given interest rate More More B More Less C Less More D Less Less One reason that aggregate demand is inversely related to the real rate of interest is that Investment rises when returns are high B Government spending falls when the real rate rises C Increasing the real rate implies that the economy can buy less D Consumption falls when the real rate rises Which of the following will unambiguously cause the real rate of interest to fall Households reduce saving and there is an increase in US exports B Firms think investment is less pro table and government increases its budget de cit C The Federal Reserve buys government bonds and household saving increases D The Federal Reserve sells government bonds and household saving increases Which of the following would increase potential output in the short run A A decrease in the unemployment rate from 6 to 5 B An increase in the real rate of interest C An increase in government spending on social programs D An increase in the number of persons in the labor supply Suppose the new US Congress balances the Federal budget with a mixture of taX increases and spending cuts As a result the real rate of interest will i i and the new level of investment will A Increase Increase B Increase Decrease C Decrease Decrease D Decrease Increase According to our macroeconomic model which of the following shocks would be least likely to increase the rate of in ation Assume no change in Federal Reserve policy A surprising increase in consumer spending B An increase in the taX on corporate pro ts C A fall in the value of the dollar D A surprising slowdown in the growth rate of potential output Which of the following best eXplains the inverse relationship between the unemployment rate and the in ation rate When resources are not used the opportunity cost of those resources increases and so does the in ation rate B A high in ation rate raises capital investment and lowers the unemployment rate C An increase in the unemployment rate causes the price of substitute inputs to increase and results in in ation D When aggregate demand is very high unemployment is low wages rise rapidly and in ation increases Which of the following best eXplains why increasing the interest rate will help to lower the in ation rate A higher interest rate will iii Lower imports B Lower eXpenditures on capitalbuilding projects C Raise the level of saving D Raise government spending on roads bridges and infrastructure Suppose the country Poor Land has experienced a high unemployment rate for many years Which of the following would be a policy that might lower unemployment To lower unemployment the policy authority should 7 A Raise the taX rate on corporate pro ts B Raise the Federal Funds rate C Lower taxes on imported goods D Lower the Federal Funds rate The i 7 independent is a central bank the lower the in ation rate the nation eXperiences because 777 A More the central bankers are immune from political pressure B Less Congress and the central bankers work together to keep prices in line C More Congress and the central bankers work together to keep prices in line D Less the central bank is more sensitive to economic problems Between September and November of 2008 the Federal Reserve was iii government bonds and the federal funds rate Selling Increasing Buying Increasing Buying Decreasing Selling Decreasing UOF N Use the following diagram to answer the next two questions The diagram depicts an economy in equilibrium at real GDP Y0 and real interest rate r0 Real GDP Y Yo The proper Federal Reserve policy given the pictured situation is An increase in the Federal Funds rate B A decrease in the Federal Funds rate C An increase in government spending D A decrease in government spending The Federal Reserve may be unwilling to raise the interest rate by enough to return the economy to potential output because it fears a 7 s oc to 777 that will cause 7 7 Positive potential output in ation B Negative aggregate expenditure unemployment C Positive aggregate expenditure in ation D Negative potential output unemployment The 1960 s was a high growth decade The Federal Reserve forecast that the same high growth was possible for the 1970 s When growth was slower than expected the Fed lowered interest rates to stimulate the economy The result was an increase in the in ation rate Which of the following correctly uses our macroeconomic model to explain the in ation of the 1970 s The Fed thought that potential output was 777 than it turned out to be and thus the Fed provided 7777 economic stimulus A Higher Too much B Higher Too little C Lower Too much D Lower Too little The Lemons Model explains how A Asymmetric information decreases the average quality of goods for sale B People with lower quality goods are more likely to sell them C Reservation prices for used goods are lower D All of the above The subprime mortgage crisis was triggered by 7 A A decrease in US stock prices B An increase in the mortgage default rate C A decrease in US housing prices D An increase US interest rates 28 The following table contains data on the population of the United States between 1950 and 2046 The ata for iture years are projections Population of United States 450000000 400000000 350000000 300000000 250000000 200000000 150000000 100000000 50000000 0 Population oowwwoowooltr mmmmhmmmmo mmmmmmmmmc HHHHHHHHHN 2040 2046 The data in the chart imply a growth rate in population of about percent per year between 1950 and 2046 in the United State A 12 B 18 C 25 D 28


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