Assignment 1: Macroeconomic Data & Growth

DSME 1040C
Economics for Business Studies II
Assignment 1

This assignment is due by 5pm, Feb 10 (F). Please put your answer sheet (attached at the back)
into the designated drop-box at 2/F, CYT. Attempt ALL questions. Late submission will lead to a
deduction in points.

Multiple Choice
Identify the choice that best completes the statement or answers the question.

1. Which of the following statistics is usually regarded as the best single measure of a societys economic
well-being?
a. the unemployment rate
b. the inflation rate
c. gross domestic product
d. the trade deficit
2. GDP is defined as the
a. value of all goods and services produced within a country in a given period of time.
b. value of all goods and services produced by the citizens of a country, regardless of where
they are living, in a given period of time.
c. value of all final goods and services produced within a country in a given period of time.
d. value of all final goods and services produced by the citizens of a country, regardless of
where they are living, in a given period of time.
3. Gasoline is considered a final good in the U.S. if it is sold by a
a. gasoline station to a bus company that operates a bus route between San Francisco and
Los Angeles.
b. pipeline operator to a gasoline station in San Francisco.
c. gasoline station to a motorist in Los Angeles.
d. All of the above are correct.
4. Which of the following transactions adds to U.S. GDP for 2014?
a. In 2014, Marvin Windows manufactures 20 windows that will eventually be installed in an
office building in Minneapolis. The windows remain in Marvins inventory at the end of
2014.
b. An Irish marketing consultant works in Boston during the summer of 2014 and earns
$50,000 during that time.
c. When Tim and Tina were both single, they lived in separate apartments and each paid
$600 in rent. Tim and Tina got married in 2014 and they bought a previously unoccupied
house that, according to reliable estimates, could be rented for $1,550 per month.
d. All of the above transactions add to U.S. GDP for 2014.
5. For the purpose of calculating GDP, investment is spending on
a. stocks, bonds, and other financial assets.
b. real estate and financial assets such as stocks and bonds.
c. capital equipment, inventories, and structures, including household purchases of new
housing.
d. capital equipment, inventories, and structures, excluding household purchases of new
housing.
6. During the third quarter of this year a firm produces consumer goods and adds some of those goods to its
inventory. During the fourth quarter of this year, the firm sells the goods at a retail outlet, with the result
that the value of its inventory at the end of the fourth quarter is smaller than the value of its inventory at
the end of the third quarter. These actions affect which component(s) of fourth-quarter GDP?
a. they increase consumption and have no effect on investment
b. they increase consumption and decrease investment
c. they have no effect on either consumption or investment
d. they have no effect on consumption and decrease investment
7. In the economy of Ukzten in 2015, consumption was 60% of GDP, government purchases were $212,
imports were $67 and 67% of the value of exports, investment was one-half of the value of consumption.
What was Ukztens GDP in 2015?
a. $1450
b. $1790
c. $2450
d. $2790
8. Suppose an economy produces only iPhones and bananas. In 2010, 1000 iPhones are sold at $300 each
and 5000 pounds of bananas are sold at $3 per pound. In 2009, the base year, iPhones sold at $400 each
and bananas sold at $2 per pound. For 2010,
a. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 76.83.
b. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 130.16.
c. nominal GDP is $315,000, real GDP is $410,000, and the GDP deflator is 130.16.
d. nominal GDP is $410,000, real GDP is $315,000, and the GDP deflator is 76.83.

Table 23-6

The table below contains data for the country of Batterland, which produces only waffles and pancakes.
The base year is 2009.

Prices and Quantities

Year Price of Quantity of Price of Quantity of
Waffles Waffles Pancakes Pancakes
2008 $2.00 100 $1.00 100
2009 $2.00 120 $2.00 150
2010 $2.00 150 $3.00 200
2011 $4.00 180 $3.00 220
9. Refer to Table 23-6. In 2009, this country's nominal GDP was
a. $300.
b. $390.
c. $400.
d. $540.
10. Refer to Table 23-6. In 2009, this country's real GDP was
a. $100.
b. $390.
c. $400.
d. $540.
11. Much of macroeconomics attempts to explain
a. changes in the price of oil and gasoline.
b. long-run growth and short-run fluctuations in real GDP.
c. changes in the growth rate of state government spending.
d. changes in the prices and quantities of individual goods and services.
12. Otherwise legal transactions that go unreported or unrecorded are called
a. the underground economy.
b. the shadow economy.
c. the informal economy.
d. All of the above are correct.
13. The CPI is a measure of the overall cost of the goods and services bought by
a. a typical consumer, and the CPI is computed and reported by the Department of the
Treasury.
b. typical consumers and typical business firms, and the CPI is computed and reported by the
Department of the Treasury.
c. a typical consumer, and the CPI is computed and reported by the Bureau of Labor
Statistics.
d. typical consumers and typical business firms, and the CPI is computed and reported by the
Bureau of Labor Statistics.
14. The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:
a. Choose a base year, update the basket, find the prices, estimate the baskets cost, compute
the index, and compute the inflation rate.
b. Choose a base year, fix the basket, find the prices, compute the inflation rate, compute the
basket's cost, and compute the index.
c. Fix the basket, find the prices, compute the basket's cost, choose a base year and compute
the index, and compute the inflation rate.
d. Fix the basket, find the prices, compute the inflation rate, compute the baskets cost, and
choose a base year and compute the index.
15. If the consumer price index was 88 in 2009, 95 in 2010, and 100 in 2011, then the base year must be
a. 2009.
b. 2010.
c. 2011.
d. The base year cannot be determined from the given information.

Table 24-2
 The table below pertains to Iowan, an economy in which the typical consumers basket consists of 3
pounds of pork and 4 bushels of corn.

Year Price of Price of

Pork Corn
2014 $20 per pound $12 per bushel
2015 $25 per pound $18 per bushel

16. Refer to Table 24-2. If 2015 is the base year, then the CPI for 2015 was
a. 73.5.
b. 100.
c. 136.1.
d. 147.

Table 24-6. The table below applies to an economy with only two goods hamburgers and hot dogs.
The fixed basket consists of 4 hamburgers and 8 hot dogs.

Year Price of hamburgers Price of hot dogs

2009 $5.00 $3.00
2010 5.50 3.30
2011 5.61 3.63

17. Refer to Table 24-6. If the base year is 2010, then the economys inflation rate in 2010 is
a. 8 percent.
b. 10 percent.
c. 10.91 percent.
d. 11.11 percent.
18. Assume that consumers consider rice and potatoes to be substitutes, so that when the price of rice rises,
consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the
price of rice, it takes into account
a. the increase in the price of rice.
b. the decrease in the quantity of rice purchased and the increase in the quantity of potatoes
purchased.
c. Both (a) and (b) are correct.
d. None of the above is correct.
19. By not taking into account the possibility of consumer substitution, the CPI
a. understates the cost of living.
b. overstates the cost of living.
c. may overstate or understate the cost of living, depending on how quickly prices rise.
d. may overstate or understate the cost of living, regardless of how quickly prices rise.
20. In the United States, if the price of imported oil rises so that the prices of gasoline and heating oil rise,
then the
a. GDP deflator rises much more than does the consumer price index.
b. consumer price index rises much more than does the GDP deflator.
c. GDP deflator and the consumer price index rise by about the same amount.
d. consumer price index rises slightly more than does the GDP deflator.
21. Which is the most accurate statement about the GDP deflator and the consumer price index?
 a. The GDP deflator compares the price of a fixed basket of goods and services to the price
of the basket in the base year, whereas the consumer price index compares the price of
currently produced goods and services to the price of the same goods and services in the
base year.
b. The consumer price index compares the price of a fixed basket of goods and services to
the price of the basket in the base year, whereas the GDP deflator compares the price of
currently produced goods and services to the price of the same goods and services in the
base year.
c. Both the GDP deflator and the consumer price index compare the price of a fixed basket of
goods and services to the price of the basket in the base year.
d. Both the GDP deflator and the consumer price index compare the price of currently
produced goods and services to the price of the same goods and services in the base year.
22. The primary purpose of measuring the overall level of prices in the economy is to
a. allow for the measurement of GDP.
b. allow consumers to know what kinds of prices to expect in the future.
c. allow for the comparison of dollar figures from different points in time.
d. allow for the comparison of dollar figures from the same point in time.
23. Wilson is offered a job in Kansas City that pays $50,000 and a job in Dallas that pays $60,000. Which
pair of CPIs would ensure that the two salaries have the same purchasing power?
a. 80 in Kansas City and 100 in Dallas
b. 125 in Kansas City and 150 in Dallas
c. 100 in Kansas City and 124.5 in Dallas
d. 100 in Kansas City and 140 in Dallas
24. If the nominal interest rate is 7 percent and the real interest rate is -2.5 percent, then the inflation rate is
a. -9.5 percent.
b. -4.5 percent.
c. 4.5 percent.
d. 9.5 percent.
25. Jake loaned Elwood $5,000 for one year at a nominal interest rate of 10 percent. After Elwood repaid the
loan in full, Jake complained that he could buy 4 percent fewer goods with the money Elwood gave him
than he could before he loaned Elwood the $5,000. From this, we can conclude that the rate of inflation
during the year was
a. -4 percent.
b. 4 percent.
c. 6 percent.
d. 14 percent.
26. Country A experienced a growth rate of real GDP per person of 4 percent per year throughout the 1900s.
In view of other countries experiences during this time country As growth was
a. exceptionally high.
b. moderately high.
c. moderately low.
d. exceptionally low.

27. Which of the following is indicated by the data on real income per person for various countries over the
past 100 or so years?
 a. If, in a relatively poor country, real income per person had grown by 3.5 percent per year
for the last 100 years, it would be a relatively rich country today.
b. Rich countries became richer and poor countries became poorer.
c. In the United States, real income per person today is about four times as high as it was 100
years ago.
d. All of the above are correct.
28. The one variable that stands out as the most significant explanation of large variations in living standards
around the world is
a. productivity.
b. population.
c. preferences.
d. prices.
29. Productivity is the
a. key determinant of living standards, and growth in productivity is the key determinant of
growth in living standards.
b. key determinant of living standards, but growth in productivity is not the key determinant
of growth in living standards.
c. not the key determinant of living standards, but growth in productivity is the key
determinant of growth in living standards.
d. not the key determinant of living standards, and growth in productivity is not the key
determinant of growth in living standards.
30. Natural resources
a. are inputs provided by nature.
b. include land, rivers, and mineral deposits.
c. take two forms: renewable and nonrenewable.
d. All of the above are correct.
31. An economys production function includes three inputs, labor, land and capital. If the economys labor
force doubled and all other inputs stayed the same, then real GDP would
a. stay the same.
b. increase by exactly 50 percent.
c. increase by exactly 100 percent.
d. increase, but not necessarily by either 50 percent or 100 percent.
32. Other things the same, if a country raises its saving rate, when is growth of real GDP per person higher?
a. as the economy moves toward the long run and in the long run.
b. as the economy moves toward the long run, but not in the long run.
c. in the long run, but not as the economy moves toward the long run.
d. neither as the economy moves toward the long run, nor in the long run.
33. In recent decades Americans have increased their purchase of stocks of foreign-based companies such as
Sony and Toyota. The Americans who have bought these stocks were engaged in
a. foreign portfolio investment.
b. indirect domestic investment.
c. foreign direct investment.
d. foreign indirect investment.
34. When a country removes trade barriers and imports appliances and exports engineering services,
a. its growth slows.
b. its productivity decreases.
 c. it is essentially transforming engineering services into appliances.
d. its economic well-being decreases while that of the country that sells appliances increases.
35. The president of a poor country has announced that he will implement the following measures which he
claims are designed to increase growth: 1. Reduce corruption in the legal system; 2. Reduce reliance on
market forces because they allocate goods and services in an unfair manner; 3. Restrict investment in
domestic industries by foreigners because they take some of the profits out of the country; 4. Encourage
trade with neighboring countries; and 5. Increase the fraction of GDP devoted to consumption. How many
of these measures will have a positive effect on growth?
a. 1
b. 2
c. 3
d. 4
36. Who in the adult population is counted as employed in U.S. labor statistics?
a. people who are temporarily absent from their job and people who work without pay in a
family members business
b. people who are temporarily absent from their job but not people who work without pay in
a family members business
c. people who work without pay in a family members business but not people who are
temporarily absent from their job
d. neither people who are temporarily absent from their job nor people who work without
pay in a family members business

Sample Population

Person Status
Allen Unpaid stay at home dad. Has not looked for a job in several years.
Ben College president.
Allison Part-time welder. Actively looking for full time work.
Brittany Self-employed full-time wedding singer.
Cathy Full-time physicians assistant.
Calvin Retired finance professor. Last applied for work 10 weeks ago.
Diane Laid-off fork-lift operator expecting to be recalled.
David Works for a bicycle store. Age 70.
Evelyn Manager of health food store.
Eli Museum guard. Was not at work last week due to illness.
Flora Has never been employed. Looked for a job last week.
Frank Fired from job as an investment banker. Last looked for work three weeks ago.

37. Refer to Sample Population. How many in the sample are in the labor force?
a. 10
b. 9
c. 8
d. None of the above is correct.
38. In June 2015, Island X reported an adult population of 234.9 million, a labor force of 154 million and
employment of 141.6 million. Based on these numbers the unemployment rate was
a. 93.3/234.9.
b. 12.4/234.9.
c. 93.3/154.
 d. 12.4/154.
39. In 2009, the Swedish adult non-institutionalized population was 7.568 million, the labor force was 4.888
million, and the number of people employed was 4.486 million. According to these numbers, the
Swedish labor-force participation rate and unemployment rate were about
a. 64.6% and 8.2%.
b. 64.6% and 5.3%.
c. 59.3% and 8.2%.
d. 59.3% and 5.3%.

Table 28-2

2014 Labor Data for Baltivia

Number of adults 20,000

Number of adults who are paid employees 8,000
Number of adults who work in their own businesses 1,600
Number of adults who are unpaid workers in a family members business 1,000
Number of adults who were temporarily absent from their jobs because of an 400
earthquake
Number of adults who were waiting to be recalled to a job from which they had been 200
laid off
Number of adults who do not have a job, are available for work, and have tried to find a 1,400
job within the past four weeks
Number of adults who do not have a job, are available for work, but have not tried to 780
find a job within the past four weeks
Number of adults who are full-time students 3,000
Number of adults who are homemakers or retirees 3,620

40. Refer to Table 28-2. What was Baltivias unemployment rate in 2014?
a. 8.0 percent
b. 12.7 percent
c. 15.9 percent
d. 22.1 percent

Labor Force Statistics by Age.

Suppose people in the adult population in a small country are classified based on their age.

Labor Force Status less then 55 55 and older

Number employed 400,000 100,000
Number unemployed 25,000 7,000
Number in Population 600,000 200,000

41. Refer to Labor Force Statistics by Age. Suppose that the natural rate of unemployment is 5% for those
under 55 and 3% for those 55 and older. The cyclical unemployment rate for those under 55 is
a. .88% which is greater than the cyclical unemployment rate for those 55 and older.
b. .88% which is less than the cyclical unemployment rate for those 55 and older.
c. -.83% which is greater than the cyclical unemployment rate for those 55 and older.
d. -.83% which is less than the cyclical unemployment rate for those 55 and older.
42. In the U.S., the BLS counts discouraged workers as
a. employed. Including them as employed makes the unemployment rate lower than
otherwise.
b. unemployed. Including them as unemployed makes the unemployment rate higher than
otherwise.
c. out of the labor force. If the were counted as unemployed the unemployment rate would
be higher.
d. None of the above is correct.
43. The BLS classifies people who would like to work but have given up looking for a job as
a. unemployed. If they were classified as out of the labor force, the reported unemployment
rate would be larger.
b. unemployed. If they were classified as out of the labor force, the reported unemployment
rate would be smaller.
c. out of the labor force. If they were classified as unemployed, the reported unemployment
rate would be larger.
d. out of the labor force. If they were classified as unemployed, the reported unemployment
rate would be smaller.
44. Which of the following is not a cause of frictional unemployment?
a. the destruction of manufacturing jobs
b. a worker leaving a job to find one with better benefits
c. minimum-wage laws
d. unemployment insurance

Figure 28-1

wage
S
9
8

7
6

5
4
3
D
2

10 20 30 40 50 60 70 80 90 hundreds
of workers

45. Refer to Figure 28-1. If the government imposes a minimum wage of $4, then how many workers will
be unemployed?
a. 0
b. 3000
c. 4000
d. 7000
 Questions from Class Discussion & Supplementary Readings

46. Keqiang index is an indicator to measure

a. Total output
b. Price level
c. Trade balances
d. Unemployment

47. Deflation occurs when

a. Price level decreases
b. Inflation rate decreases
c. Price level is negative
d. None of the above

48. The US unemployment rate reached a daunting height of 10% in 2009. It has dropped steadily to around
5% in late 2016. Yet the impressive 5% feels like a lie for many Americans. Which of the followings is a
possible reason?
a. Minimum wage has increased at a faster pace
b. US labor force participation rate remained unchanged during the same period
c. US labor force participation rate generally increased during the same period
d. US labor force participation rate generally decreased during the same period

49. Deflation occurred in

a. the US in the 1930s
b. Japan in the 1990s
c. Hong Kong after 1997, when the Asian financial crisis broke out
d. All of the above

50. A full-time student in the U.S. is regarded as

a. Employed
b. Unemployed
c. Not in the labor force
d. Young and institutionalized
 DSME 1040C
Economics for Business Studies II
Assignment 1

Name: __________________________ Student ID: _____________________

1 11 21 31 41
2 12 22 32 42
3 13 23 33 43
4 14 24 34 44
5 15 25 35 45

6 16 26 36 46
7 17 27 37 47
8 18 28 38 48
9 19 29 39 49
10 20 30 40 50