Unit 2 Final Practice MULTIPLE CHOICE Questions, Lecture notes of Microeconomics

Download Unit 2 Final Practice MULTIPLE CHOICE Questions and more Lecture notes Microeconomics in PDF only on Docsity! AP Economics Unit 2 Final Practice MULTIPLE CHOICE Questions 1) All of the following statements about GDP are true EXCEPT: A) GDP measures the value of production in a given time period B) GDP includes only goods & services that are produced within a country C) Intermediate goods are counted in calculating GDP D) Production is calculated using its market value E) The net balance of trade factors into GDP 2) In the GDP equation C+I+G+(X-M) C= A) Corporate expenditures B) Consumption by consumers C) Consumption by government D) Categorical expenditures through trade E) Capital expenditures 3) Which of the following is a negative to GDP? A) Consumption B) Investments C) Gross Income D) Imports E) Markets 4) The monetary value of the final goods and services produced in a given year using that years prices is called the A) Nominal GDP B) Real value C) Consumption Value D) Real GDP E) Multiplier 5) The I in C+I+G+(X-M) represents which of the following? A) Investment by the government into foreign countries B) Investment by individuals in the stock market C) Importation of products by foreign countries into the US D) Intermediate goods used to make final products E) The purchase of new machines & equipment by a business 6) GDP does NOT include which of the following? A) Vegetables grown and consumed at home by Mr. Kelemen B) Your parents paying for you to go to college C) A Drake student buying lunch at Hot Wok D) The US Navy buying a new F-14 fighterjet E) The salary paid to the CEO of a company 7) Which of the following would be included as a member of the labor force? A) A full time college student B) A recent high school graduate looking for a summer job C) A retired banker volunteering at the local library D) A parent who chooses to stay at home with their preschool age children E) A person convicted of a crime serving a sentence in San Quentin 8) An American computer programmer who loses their job when their company relocates to India is _____ unemployed. A) Structurally B) Seasonally C) Frictionally D) Internationally E) Cyclically 9) The labor force participation rate measures the number of people: A) In the labor force B) In the labor force as a percentage of adult population C) In the labor force as a percentage of the total population D) Who are unemployed as a percentage of the adult population E) Who are unemployed as a result of a recession 10) Which of the following would NOT be considered unemployed? (Could be more than one) A) A laid off autoworker from Michigan looking for a new job in California B) A college student home for the summer looking for a construction job C) A drama school graduate who gives up looking for acting jobs in Hollywood and moves home D) A retired engineer looking for a part-time job to supplement their income E) A middle school kid asking neighbors if they want her to mow their lawn for $5 cash Millions Civilian Adult Population 210 Adults Incapable of Working 50 Adults Not Looking for Work 60 Employed Adults 95 11) Using the information in the table above, what is the unemployment rate? A) 3% B) 5% C) 7% D) 9% E) 15% 12) The Consumer Price Index (CPI) is computed by comparing the cost of the typical market basket of goods purchased during a base year (evaluated at base year prces) with: A) The cost of the current market basket evaluated at base year prices B) The cost of the current market basket evaluate at current prices C) The cost of the same market basket evaluated at base year prices D) The cost of the same market basket evaluated at current prices E) None of the above 13) A price index in the years after the base year: A) Is never 100 B) Is always 100 C) Is always less than 100 D) Is always more than 100 E) Can be less than, greater than or equal to 100 14) If the CPI increased from 80 to 84, the rate of inflation is: A) 2% B) 4% C) 5% D) 10% E) 20% 15) Suppose the consumer price index (CPI) was 100 on January 1st, 2017 and 110 on January 1st, 2018 with no changes in nominal wages. Which of the following is definitely true about the economy between January of 2017 and January of 2018? A. The inflation rate was 10% B. The deflation rate was 10% C. Real wages increased by 10% D. There was a recession E. Nominal GDP decreased by 10% 16) Suppose that nominal GDP in a country is $6 Billion in a given year and the real GDP for that year was $3 Billion. What is the GDP price deflator? A) 100 B) 125 C) 150 D) 200 E) 250 17) Suppose nominal GDP is $7700 and the GDP deflator is 110. Real GDP is: A) $7000 B) $7590 C) $7700 D) $8470 E) $847,000 18) If real output is $4.4 trillion and nominal output is $4.84 trillion, then the GDP deflator is: A) 90 B) 95 C) 105 D) 110 E) 120 19) If prices rose by 3% and nominal GDP rose by 5%, real GDP: A) Rose by 2% B) Rose by 8% C) Fell by 2% D) Fell by 8% E) I don’t know the difference between nominal and real GDP 20) If the nominal interest rate you earned on an investment was 7% and the rate of inflation was 2.7%, the real rate of return on your investment is: A) 9.7% B) 7% C) 4.3% D) 2.7% E) I don’t know the difference between nominal and real interest rates Unit 2 Final Practice FRQ Questions 1) See chart of describing the outputs and prices in the nation of Kona to answer the questions below The nation of Kona cultivates coffee beans and cassava, from which all their consumer goods are produced. Quantity Prices Product Market Basket of Goods 2010 2015 Mocha coffee 100 cups $2.00 per cup $2.50 per cup Sweet pudding 50 quarts $1.50 per quart $2.20 per quart Cassava leaf salad 25 packages $1.00 per package $1.20 per package (a) Calculate the cost of the market basket of goods in the table in 2010 and in 2015. Show your work. (b) Use 2010 as the base year to calculate the price indices for 2010 and 2015 for the market basket of goods in the table. Show your work. (c) In order for a citizen of Kona to maintain the same standard of living between 2010 and 2015, what percentage change in nominal income would be needed? Explain. 2) Pirateland produces 2 products in their economy: milk & honey. Use the table below to answer the following questions. Year Price of Milk Quantity of Milk Produced Price of Honey Quantity of Honey Produced 2015 $1 100 $2 50 2016 $2 200 $2 100 2017 $3 300 $4 100 a) Compute the nominal GDP for 2015, 2016 and 2017 b) Using 2015 as a base year, calculate real GDP for 2016 & 2017 c) What was the GDP Deflator for 2016? What was the inflation rate for 2016? d) Was there real economic growth in Pirateland between 2015 and 2017? Why? 3) Outputs and Prices in Mikeland This Years Output This Years Prices 200 Pies $5 100 Balls $4 500 Pumpkins $2 a) Calculate this years nominal GDP b) Assume that in Mikeland, the GDP Deflator is 100 in the base year and 120 this year. Calculate the inflation rate expressed as a percentage from the base year to this year Calculate the real GDP c) Assume workers in Mikeland have received a 15% increase in their nominal wages this year. If workers face the same inflation rate calculated in part b above, what happens to their real wages? d) If the GDP deflator in Mikeland dropped unexpectedly (unexpected deflation), would borrowers who are paying back loans at fixed interest rates be better or worse off? Explain. Unit 2 Final Practice FRQ Questions KEY 1) See chart of describing the outputs and prices in the nation of Kona to answer the questions below The nation of Kona cultivates coffee beans and cassava, from which all their consumer goods are produced. Quantity Prices Product Market Basket of Goods 2010 2015 Mocha coffee 100 cups $2.00 per cup $2.50 per cup Sweet pudding 50 quarts $1.50 per quart $2.20 per quart Cassava leaf salad 25 packages $1.00 per package $1.20 per package (a) Calculate the cost of the market basket of goods in the table in 2010 and in 2015. Show your work. 2010: ($2x100=200) + ($1.5x50=75) + ($1x25=25) = $300 2015: ($2.5x100=250) + ($2.2x50=110) + ($1.2x25=30) = $390 (b) Use 2010 as the base year to calculate the price indices for 2010 and 2015 for the market basket of goods in the table. Show your work. 2010: 300/300 x100 = 100 2015: 390/300 x 100= 130 (c) In order for a citizen of Kona to maintain the same standard of living between 2010 and 2015, what percentage change in nominal income would be needed? Explain. Citizens would need a 30% increase in wages to maintain the same living standard since prices have risen 30% 2) Pirateland produces 2 products in their economy: milk & honey. Use the table below to answer the following questions. Year Price of Milk Quantity of Milk Produced Price of Honey Quantity of Honey Produced 2015 $1 100 $2 50 2016 $2 200 $2 100 2017 $3 300 $4 100 a) Compute the nominal GDP for 2015, 2016 and 2017 2015 ($1 x 100) + ($2x50) = $200 2016 ($2 x 200) + ($2x100) = $600 2017 ($3 x 300) + ($4x100) = $1300 b) Using 2015 as a base year, calculate real GDP for 2016 & 2017 2016 ($1x200) + ($2x100) = $400 2017 ($1x300) + ($2x100) = $500 c) What was the GDP Deflator for 2016? What was the inflation rate for 2016? GDP Deflator = Nominal GDP ÷ Real GDP x100 600 ÷ 400 x 100 = 150 Inflation rate = (Nominal GDP - Real GDP) ÷ Real GDP x100 (600-400) ÷ 400 x100 = 50% d) Was there real economic growth in Pirateland between 2015 and 2017? Why? Yes. Quantity of both Milk (100 to 300) and Honey (50 to 100) produced increased between 2015 and 2017.