1. ECON 100 Lecture 25
Monday, May13

3. The Dude’s friend, Walter Sobchak (played by the great John Goodman) from The Big Lebowski.
REVIEW

4. Course/Instructor evaluation surveys

5. MIDTERM 2 TOMORROW Tuesday May 14
6 30 PM

6. Extra office hours for the exam
Monday (today) – Tuesday (tomorrow) 9 30 – and – 15 30

7. Midterm 2 topics GDP Cost of living, CPI, Inflation Unemployment
Production and growth
The financial system: saving and investment
The open economy
Lecture note slides for Midterm 2: LN 17 – 24. You will be tested on the material covered in the lectures and lecture note slides.

8. Classrooms according to last names

9. The exam will start at 18 30
Short 60 minute exam and very easy
Multiple choice %
Short answer questions 0-10%

10. INFORMATION FOR COURSE EVALUATIONS

11. 9 30 section Murat Usman Econ 100 Lec 3 Spring 2013
Course unique number 20066

12. 11 00 section Murat Usman Econ 100 Lec 4 Spring 2013
Course unique number 20067

13. Multiple Choice questions
Midterm #2 Spring 2012
Multiple Choice questions

14. the capital, owned and used by humans.
1 Human capital is
the capital, owned and used by humans.
the amount of physical capital per person in the economy.
the capital that has been produced by humans.
the knowledge and skills that individual people have.
ANSWER D

15. in the percentage of the labor force that is employed.
2 If we want to know how the material well-being of the average person has changed over time, the correct measure is the growth
rate of real GDP.
rate of nominal GDP.
in the percentage of the labor force that is employed.
rate of per capita real GDP.
ANSWER D

16. 3 Jai Li lost her job. She is not looking for a new job. Jai Li is
unemployed and in the labor force.
unemployed, but not in the labor force.
in the labor force, but not unemployed.
neither in the labor force nor unemployed.
ANSWER D

17. $4 trillion and $1 trillion $4 trillion and $5 trillion
4 In a closed economy GDP is $11 trillion, consumption is $7 trillion, net taxes are $3 trillion and the government’s budget surplus is $1 trillion. The private savings and national savings are
$4 trillion and $1 trillion
$4 trillion and $5 trillion
$1 trillion and $1 trillion
$1 trillion and $2 trillion
ANSWER D

18. 5 Which item receives the most weight in the consumer price index?
salt
toothpicks
pencils
food
ANSWER D

19. 6 The inflation rate is defined as the
cost of inflation.
cost of borrowing.
percentage change in real GDP from the previous period.
percentage change in the average price level from the previous period.
ANSWER D

20. 7 An increase in the capital stock makes labor productivity to
decrease and the standard of living to increase.
decrease and the standard of living to decrease.
increase while the standard of living remains constant.
increase and the standard of living to increase.
ANSWER D

21. 8 The GDP deflator differs from the CPI because the GDP deflator includes goods a country __________, while the CPI includes goods the country __________.
imports; exports
exports; imports
buys; sells
consumes; produces
ANSWER B

22. it was not produced for the marketplace.
9 Marie grows vegetables in her garden to feed her family. The vegetables she grows are not counted in GDP because
it was not produced for the marketplace.
it is an intermediate good which Marie will process further.
the vegetables have no value.
it reduces the amount of vegetables she will buy from shops.
ANSWER A

23. 10 The government budget deficit is
the difference between government purchases and government revenues from bonds and taxes.
caused by a lack of business sector investment.
created when the government expenditures is bigger than taxes.
caused by leakages in the economy.
ANSWER C

24. 11 As opposed to a closed economy, in an open economy:
trade is only beneficial to the relatively larger economy.
the exchange rate is determined by the government.
there is trade in goods, services, and financial assets with other countries.
specialization in activities with a comparative advantage is not possible.
ANSWER C

25. exports, and government purchases. imports, and government purchases.
12 The four categories of expenditures that make up GDP are consumption, investment,
exports, and government purchases.
imports, and government purchases.
net exports, and government purchases.
net exports, and government transfer payments.
ANSWER C

26. caused slower world economic growth.
13 Historical evidence indicates that scarcity of natural resources has
caused slower world economic growth.
nearly stopped economic growth in most countries throughout the world.
not limited economic growth.
Increased economic growth, especially in high-growth countries.
ANSWER C

27. 14 Economists say that investment occurs when
someone buys shares on the London or Paris or Frankfurt Stock Exchange, or any other stock exchange.
someone buys a government bond.
a firm increases its capital stock.
a government buys goods from another country
ANSWER C

28. 15 The nominal GDP, as opposed to the real GDP, is:
inversely affected by inflation.
the GDP that has been adjusted for changes in prices over time.
an accurate indicator of the general cost of living.
the GDP that has not been adjusted for changes in prices over time.
ANSWER D

29. Consumption spending decreased by €50 billion.
16 If investment increased by €50 billion while GDP remained the same, which of the following could have occurred, all else being the same?
Consumption spending decreased by €50 billion.
Exports increased by €50 billion.
Imports decreased by €50 billion.
Net exports increased by €50 billion.
ANSWER A

30. decreases and the labor-force participation rate is unaffected.
17 If an unemployed person quits looking for work, then, other things the same, the unemployment rate
decreases and the labor-force participation rate is unaffected.
is unaffected and the labor-force participation rate decreases.
and the labor-force participation rate are both unaffected.
and the labor-force participation rate both decrease.
ANSWER D

31. Problem #1 GDP, nominal and real; GDP Deflator
Midterm #2 Spring 2012
Problem #1
GDP, nominal and real; GDP Deflator

32. Quantity of sandwiches
Year
Price of sandwiches
Quantity of sandwiches
Price of magazines
Quantity of magazines
2006 $4
100 $2
150
2007 $5
$2,5
200
2008 $6 $3
Compute the Nominal GDP for 2006, 2007, and 2008.

33. To compute (calculate) the nominal GDP 2006
add them up = $4x100 + $2x150 = $700
multiply P and Q
multiply P and Q
Year
Price of sandwiches
Quantity of sandwiches
Price of magazines
Quantity of magazines
2006 4
100 2
150
2007 5
2,5
200
2008 6 3
The Nominal GDP for 2006 is $700.

34. To compute (calculate) the nominal GDP 2007
add them up = $5x100 + $2,5x200 = $1000
multiply P and Q
multiply P and Q
Year
Price of sandwiches
Quantity of sandwiches
Price of magazines
Quantity of magazines
2006 4
100 2
150
2007 5
2,5
200
2008 6 3
The Nominal GDP for 2007 is $1000.

35. To compute (calculate) the nominal GDP 2008
add them up = $6x150 + $3x200 = $1500
multiply P and Q
multiply P and Q
Year
Price of sandwiches
Quantity of sandwiches
Price of magazines
Quantity of magazines
2007 5
100
2,5
200
2008 6
150 3
The Nominal GDP for 2008 is $1500.

36. Using 2006 as the base year, compute the real GDP for 2006, 2007, and 2008.

37. To compute (calculate) the real GDP 2006
add them up = $4x100 + $2x150 = $700
multiply P and Q
multiply P and Q
Year
Price of sandwiches
Quantity of sandwiches
Price of magazines
Quantity of magazines
2006 4
100 2
150
2007 5
2,5
200
2008 6 3
The real GDP for 2006 is $700.

38. To compute (calculate) the real GDP 2007
add them up = $4x100 + $2x200 = $800
multiply P and Q
multiply P and Q
Year
Price of sandwiches
Quantity of sandwiches
Price of magazines
Quantity of magazines
2006 4
100 2
150
2007 5
2,5
200
2008 6 3
The real GDP for 2007 is $800.

39. To compute (calculate) the real GDP 2008
add them up = $4x150 + $2x200 = $1000
multiply P and Q
multiply P and Q
Year
Price of sandwiches
Quantity of sandwiches
Price of magazines
Quantity of magazines
2006 4
100 2
150
2007 5
2,5
200
2008 6 3
The real GDP for 2008 is $1000.

40. Using 2006 as the base year, compute the GDP deflator for 2006, 2007, and 2008

41. nominal GDPT GDP deflatorT = 100 x real GDPT nominal GDP2008
YEAR
GDPnominal
GDPreal
GDP_Def
2006
700
700/700 = 100
2007
1000
800
1000/800 = 125
2008
1500
1500/1000 = 150
GDP deflatorT = 100 x
nominal GDPT
real GDPT
GDP deflator2008 = 100 x
nominal GDP2008
real GDP2008

42. Problem #2 Unemployment
Midterm #2 Spring 2012
Problem #2
Unemployment

43. Unemployment and Employment Data (all figures are in millions)
Employed 95 (working, part-time, full-time) Unemployed 5 (not working but looking for work) Not in the labor force 60 (not working and not looking for work) Calculate the adult population, the labor force, the unemployment rate, and the labor force participation rate. Adult population: = 160 LF: 95+5=100 UE rate: 5/100 = 5% LF participation rate: 100/160 = 62,5%

44. Problem #3 Cost of living and inflation
Midterm #2 Spring 2012
Problem #3
Cost of living and inflation

45. The consumption basket for the average consumer in the Republic of Funland contains 10 hamburgers and 20 movie tickets. The table shows their prices for The base year is 2004.

46. The average consumer consumes 10 hamburgers and 20 movie tickets
Year
Hamburgers
Movie tickets
2004
$10 $5
2005 $6
2006
$14 $8

47. How much did the basket (10 hamburgers and 20 movie tickets) cost in 2004? $10x10
Year
Hamburgers
Movie tickets
2004
$10 $5

48. How much did the basket (10 hamburgers and 20 movie tickets) cost in 2004? $10x10 + $5x20
Year
Hamburgers
Movie tickets
2004
$10 $5

49. How much did the basket (10 hamburgers and 20 movie tickets) cost in 2004? $10x10 + $5x20 = $200
Year
Hamburgers
Movie tickets
2004
$10 $5

50. Cost of the basket in year T
What is the CPI in 2005? (base year 2004)
CPI in Year T = 100 x
Cost of the basket in year T
Cost of the basket in base year

51. 10 burgers, 20 tickets
Year
Hamburgers
Movie tickets
Cost of the Basket
2004
$10 $5
$10x10 + $5x20 = $200
2005 $6
2006
$14 $8
$10x10 + $6x20 = $220
$14x10 + $8x20 = $300

52. Year Cost of the Basket CPI 2004
10 burgers, 20 tickets
Year
Burgers
Movie tickets
Cost of the Basket
CPI
2004
$10 $5
$10x10 + $5x20 = $200
2005 $6
$10x10 + $6x20 = $220
2006
$14 $8
$14x10 + $8x20 = $300
($200/$200)x100 = 100
($220/$200)x100 = 110
($300/$200)x100 = 150

53. What is the inflation rate from 2005 to 2006?
CPI in 2005 = 110 CPI in 2006 = 150 Rate of inflation = % change in CPI from 2005 to 2006 [ (CPI in 2006 – CPI in 2005)/CPI in 2005 ]x100 [ (150 – 110)/110 ]x100 = [40/110]x100 = 36%

54. INFORMATION FOR COURSE EVALUATIONS

55. 9 30 section Murat Usman Econ 100 Lec 3 Spring 2013
Course unique number 20066

56. 11 00 section Murat Usman Econ 100 Lec 4 Spring 2013
Course unique number 20067