Izmir University of Economics Name Surname: Department of

Izmir University of Economics
Department of Economics, Spring 2014
ECON 100 – Principles of Economics
Name Surname:
Student ID #:
Final Exam
Note: The duration of the exam is 90 minutes. Good luck!
Part1: Each question is worth 2 points. The whole section is worth 40 points. Choose the one
alternative that best completes the statement or answers the question.
1. Which of the following is a topic studied in Macroeconomics?
A) the functioning of individual industries
B) aggregate behavior of households and industries
C) the behavior of individual households
D) the decision-making behavior of individual business firms
2. A period of very rapid increase in the overall price level is known as
A) stagnation.
C) stagflation.
B) hyperinflation.
D) depression.
3. In a business cycle, a trough represents the end of
A) an expansion.
B) an inflation.
C) a peak
D) a recession.
4. Legalizing all forms of illegal activities would
A) reduce measured GDP.
B) reduce the size of the underground economy and increase measured GDP.
C) increase the size of the undergorund economy and reduce measured GDP.
D) reduce both the underground economy and measured GDP.
5. GDP is not a perfect measure of social welfare and the societyʹs economic well-being because
A) it does not say anything about the distribution of income.
B) GDP accounting rules do not adjust for production that causes negative externalities.
C) it does not include all economic activities in the economy.
D) all of the above
6. Mustafa has just graduated from college and is now looking for a job, but has not yet found one.
This causes the unemployment rate to ________ and the labor -force participation rate to
________.
A) increase; decrease
B) stay the same; stay the same
C) increase; increase
D) increase; stay the same
7. An auto worker in İzmit who loses her job because the company relocated the plant to another
country represents an example of
A) frictional unemployment.
C) cyclical unemployment.
B) structural unemployment.
D) natural unemployment.
8. If Didem is paid an interest rate of 4% on his savings, but the inflation rate is 7%, the
real interest rate Didem earns is
A) 4%.
B) -3%.
C) -7%.
D) 28%.
9. In the circular flow diagram, households ________ goods and services and ________ labor.
A) demand; demand B) supply; demand C) demand; supply D) supply; supply
10. If real GDP decreases from Year 1 to Year 2, we can conclude that
A) production levels are lower in Year 2 than in Year 1.
B) price levels are lower in Year 2 than in Year 1.
C) there is less unemployment in Year 2 than in Year 1.
D) we need more information before commenting.
11. Money’s prime function is as
A)
B)
C)
D)
the standard for credit transactions.
the medium of exchange.
a store of value.
a unit of account.
12. Jack is saving money to buy a new game console. Money is functioning as a
A) medium of exchange.
B) store of value.
C) unit of account.
D) standard of deferred payment.
13. Financial intermediaries earn a profit
A) from the spread between the interest rate they pay on deposits and the interest rate they receive
on loans.
B) by charging the government for their services.
C) and receive compensation by the government because their services are so valuable.
D) according to how much the Central Bank pays them.
14. CPI tells us ________.
A) the price level in a given period expressed as a percentage of the price level in the base period,
which is by definition equal to zero.
B) the inflation rate in a given period compared to the inflation rate in the base period, which is by
definiton equal to zero.
C) the price level in a given period expressed as a percentage of the price level in the base period,
which is by definition equal to 100
D) the inflation rate in a given period compared to the inflation rate in the base period, which is by
definition equal to zero.
15. Households make saving decisions by considering all of the following factors except
A) expected future income
B) expected profit
C) disposable income
D) default risk
16. If the CPI in 2004 was 100 and the CPI in 2005 was 115, the inflation rate was
A) 1.5 percent
B) 115 percent C) 100 percent D) 15 percent
17. A cyclical unemployment ____ during expansions and ____ during recessions.
A) decreases; decreases
B) increases; decreases
C)
C) decreases; increases
D) increases; increases
18. In the above figure, a decrease in the real interest rate will result in a movement from point E to
A) point F
B) point G
C) point H
D) Point I
19. In the above figure, an increase in the expected profit will result in a movement from point E to
A) point F
B) point G
C) point H
D) Point I
20. In the global loanable funds market,
A)
B)
C)
D)
interest rates for all types of loans will be equal
safer loans will have higher real interest rates than riskier loans
loans of equal risk will have equal interest rates
riskier loans will have lower real interest rates than safer loans
Part 2: Answer all of the questions. This section is worth 60 points. Read the questions carefully,
and show all your work where asked, otherwise you will not be given full credit for the question.
1) (14 points, 2 points each) Examine the following list of goods and services. Which goods and
services should be included in Freedonian GDP in 2012, which should be excluded, and why?
a) 2,500 hamburgers produced in 2012.
b) 2 Freedonian Drof automobiles, sold in 2012, produced in 2011.
c) 3 Freedonian Drof automobiles, sold in 2013, produced in 2012.
d) 3 American-built Fords produced in 2012 and sold in 2012.
e) Welfare benefits for Freedonian citizens.
f)
625 pounds of beef used in hamburgers.
g) Wages of hamburger employees.
2) (15 points, 5 points each) The country of Old Jersey produces milk and butter, and it has
published the following macroeconomic data, where quantities are in gallons and prices are
dollars per gallon.
a) Calculate the nominal GDP for each year.
b) What is the Real GDP in Year 2 (Base Year is Year 1)?
c) Using Year 1 as the base year, what is the growth rate of real GDP from Year 1 to Year 2?
3) (15 points, 5 points each) The country of Hope has published the following macroeconomics
data.
Table 1
Employed
Unemployed
Not in the Labor Force
240,000
100,000
160,000
a) Refer to table 1 and calculate labor force and labor force participation rate
b) What is the unemployment rate according to the table 1?
c) Suppose that 10000 unemployed people who have been actively looking for a job get
discouraged because of lack of new job positions and stop looking for work. Calculate the
new labor force and unemployment rate after this discouraged worker effect.
4) (16 points, 8 points each) The table below shows an economy’s demand for loanable funds
schedule and supply of loanable funds schedule, when the government’s budget is balanced.
Real interest rate
(percent per year)
4
5
6
7
8
9
10
Loanable funds demanded
(billions of 2006 euros)
1750
1700
1650
1600
1550
1500
1450
Loanable funds supplied
(billions of 2006 euros)
1650
1700
1750
1800
1850
1900
1950
a) What are the real interest rate, the quantity of investment, and the quantity of private
saving, when the government’s budget is balanced?
b) Now suppose that the government has a budget deficit of €100 billion. What are the real
interest rate, the quantity of investment, and the quantity of private saving? Show your work.

Download Report