Short Answer:
1) Labor Market and Unemployment
(i) Draw the labor demand curve and labor supply curve and designate the equilibrium (need to show which is labor demand and which is labor supply curve).
(ii) Assume a better education system increases the productivity of all the workers. Show the change of equilibrium real wage rate and labor quantity (aggregate labor hours).
(iii) Assume URfrictional=2%, URstructural=3% and URcyclical=4%. Is this this labor market in the equilibrium? Explain your answer.
(iv) Assume URfrictional=2%, URstructural=3% and URcyclical=4%. What is unemployment rate if the labor market is in the equilibrium?
(v) Assume URfrictional=2%, URstructural=3% and URcyclical=4%. Is this economy full-employed? Explain your answer.
(vi) Draw the aggregate production function to show how real GDP changes as the quantity of labor changes when all other influences on production remain the same.
(vii) Assume a better education system increases the productivity of all the workers. Draw the change in aggregate production function.
2) The Loanable Funds Market
Using the graph to show the change of equilibrium real interest rate and quantity of loanable funds if (i) Firms expected lower profit in the future; (ii) Banks become cautious so that they can only lend money to people with excellent credit history.
(iii) Assume the global loanable funds market is competitive and free. If U.S. real interest rate is higher relative to most of the other countries, will U.S. be the international borrower or lender? Explain you answer. Answer: International net borrower. Borrowers prefer lower r, thus some US borrowers will try to borrow in foreign LF Market; Lenders prefer higher r, thus US lenders will stay in US LF Market and won’t try to lend in foreign LF Market. Therefore, US will be borrowing more from the rest of the world than it is lending to the rest of the world.
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UNEMPLOYMENT
1) A person quits her job in order to spend time looking for a better-paying job. This type of unemployment is an example of A) frictional unemployment. B) cyclical unemployment. C) seasonal unemployment. D) structural unemployment.
2) Which of the following will absolutely increase during a recession? I. Cyclical unemployment II. Frictional unemployment III. The natural unemployment rate IV. Unemployment rate A) I only B) I and III C) I, II and III D) I, II and IV
LABOR MARKET
3) The factor market can best be described as where A) households buy goods and services. B) firms buy goods and services. C) firms buy the services of labor, land and capital. D) governments sell goods and services.
4) The relationship between the labor employed by a firm and the real wage rate is shown by A) supply of labor curve. B) supply of jobs curve. C) demand for jobs curve. D) demand for labor curve.
5) The quantity of labor demanded depends on the A) money wage rate B) inflation adjusted wage rate C) price of output not the money wage rate nor the real wage rate. D) money wage rate AND the real wage rate.
6) Which of the following is TRUE regarding the labor market? I. The labor supply curve slopes upward because firms maximize profits as they hire more workers. II. If the real wage rate falls, the quantity of labor firms demand increases. III. The demand for labor curve slopes downward because as the real wage rate falls, workers demand to work fewer hours. A) I and II B) I and III C) II only D) I, II and III
7) The labor force participation rate A) does not change when the real wage rate changes. B) decreases as the real wage rate rises. C) increases as the real wage rate increases. D) has an inverse effect of the supply of labor.
8) As the real wage rate increases, the A) quantity of labor supplied increases. B) supply of labor curve shifts rightward. C) supply of labor curve shifts leftward. D) quantity of labor supplied increases and the supply of labor shifts rightward.
9) At the full-employment equilibrium in the labor market A) there is no unemployment. B) there are no job vacancies. C) there is neither a shortage nor a surplus of labor. D) the money wage rate equals the real wage rate.
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ECONOMIC GROWTH
10) The best definition for economic growth is A) a sustained expansion of production possibilities measured as the increase in real GDP over a given period. B) a sustained expansion of production possibilities measured as the increase in nominal GDP over a given period. C) a sustained expansion of consumption goods over a given period. D) a sustained expansion of production goods over a given period.
11) If a nation’s population grows, then A) growth in real GDP per person will be less than the growth of real GDP. B) there can be no economic growth. C) growth in real GDP per person will be greater than the growth of real GDP. D) there must be an increase in real GDP per person.
12) Which of the followings are the factors that can change the aggregate production? I, Demand; II, Supply; III, Technology; IV, Capital input; V, Labor input A) I and II B) I , II and III C) III, IV and V D) All of them
13) Which of the following about economic growth is correct? A) Capital quantity growth, labor quantity growth and technology innovation can provide sustainable growth B) Only capital quantity growth, labor quantity growth can provide sustainable growth C) Capital quantity growth and labor quantity growth don’t have diminishing marginal effect D) Technology innovation can provide sustainable growth because it doesn’t have diminishing marginal effect
14) Moving along the aggregate production function (curve) shows the relationship between ________, holding all else constant. A) capital input and real GDP B) labor input and real GDP C) labor input, capital input and real GDP D) technology and real GDP
15) Using the Rule of 70, if China’s current growth rate of real GDP per person was 7 percent a year, how long would it take the country’s real GDP per person to double? A) 35 years B) 14 years C) 10 years D) 49 years
16) Which of the followings is right about economic growth? A) Economic growth causes the outward shift of the PPF B) An expansion of a movement from inside the PPF to its boundary means economic growth C) A higher RGDP must imply economic growth D) All of them above
17) Economic growth is measured by A) changes in real GDP. B) changes in nominal GDP. C) changes in the employment rate. D) All of the above
18) Which of the following about economic growth is correct? A) Printing out more money causes economic growth B) A higher price level causes economic growth C) A lower price level causes economic growth D) Price level or the amount of money cannot directly cause economic growth
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LOANABLE FUNDS MARKETS
19) The term “capital,” as used in macroeconomics, refers to A) the plant, equipment, buildings, and inventories of raw materials and semi-finished goods. B) financial wealth. C) the sum of investment and government purchases of goods. D) investment.
20) Which of the following items are considered physical capital? I. shares of Ford stock traded on the New York Stock Exchange II. the Taco Bell store nearest you III. the rental cars owned by Hertz Rental-A-Car IV. the salaries paid to Intel executives A) II and III B) I and IV C) I, II and III D) I, II and IV
21) In January 2015, Tim’s Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim’s net investment totaled A) $1 million. B) -$300,000. C) $200,000. D) -$100,000.
22) The ________ interest rate equals the ________ interest rate minus ________. A) nominal; real; depreciation B) nominal; real; the inflation rate C) real; nominal; depreciation D) real; nominal; the inflation rate
23) U.S. investment is financed from A) Household saving, government budget surpluses, and borrowing from the rest of the world. B) Household saving, government budget deficits, and borrowing from the rest of the world. C) Household borrowing, government budget deficits, and lending to the rest of the world. D) Household saving and borrowing from the rest of the world only.
24) Suppose that you took out a $1000 loan in January and had to pay $75 in annual interest. During the year, inflation was 6 percent. Which of the following statements is CORRECT? A) The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent. B) The nominal interest rate is 7.5 percent and the real interest rate is 13.5 percent. C) The real interest rate is 7.5 percent and the nominal interest rate is 1.5 percent. D) The real interest rate is 6 percent and the nominal interest rate is 7.5 percent.
25) If people expect an inflation rate of 3.3 percent, and the real interest rate is 3 percent, the nominal interest rate equals A) 0.3 percent. B) 8.6 percent. C) 6.3 percent. D) 9.9 percent.
26) If the inflation turns out to be higher than people have expected, then A) both borrowers and lender will be better off B) both borrowers and lender will be worse off C) borrowers will gain and lenders will lose D) lenders will gain and borrower will lose
27) Other things remaining the same, the greater the expected profit A) the less the amount of investment. B) the greater the amount of investment. C) the steeper is the investment demand curve. D) the flatter is the investment demand curve