ECO2013-04 Fall 1997 KEY Quiz Three
[Note: questions were the same, but order of both questions and answers were scrambled on the two forms]
1. If real GDP growth is 3% and inflation is 4%, money GDP grew
a. 0.75% b. 1% c. 7% d. -1% 'Money' equals 'real' + 'inflation;' 3 + 4 = 7. 66% got it.
2. If the money interest rate is 9% and inflation is 4%, the real interest rate is
a. 13% b. 5% c. 1.8% d. -5% 'Money' equals 'real' + 'inflation;' 9 - 4 = 5. 94% got it, good.
3. If the price level increases more than expected, who is most likely to gain?
a. People who lent money b. people who borrowed money at fixed interest rates c. people who receive fixed money pensions d. people who borrowed money at variable interest rates.
If prices increase more than expected, the real purchasing power [i.e. the goods and services they can buy with it] represented by the money they have to pay back is less than they expected when they borrowed, so they gain. Not d. because the variable interest rate will tend to increase to offset the unexpected inflation. 73% right.
4. In symbols, GDP [Y] is equivalent to :
a. C + I + G
b. C + I + G + (X - M)
c. T + S + G
d. C + S + T + (X - M)
This is one you need to know; C, I, G, and (X -M) are the four categories of 'final goods.' Y is also equal to C + S + (T - P), but d. would not be right even if (X - M) was not there because G [government purchases of goods and services] is not necessarily equal to (T - P) [taxes less government transfer payments] -- the difference is the budget deficit, if there is one. 93% right, well done.
For questions 5 through 10, classify the individual described as most likely
a. structurally unemployed, b. frictionally unemployed, c. not in the labor force, or d. cyclically unemployed.
5. Mary got fired from her job with Macdonalds for giving french fries to her friends and has not yet found another job, although she is looking.
b., frictional. No suggestion this is anything other than normal labor turnover. 73% right.
6. John moved to Tallahassee when his wife entered a graduate program at FSU, but so far has not found a job yet despite looking. In Cleveland, he was a tool and die designer, but now he would do almost anything.
b., frictional. The fact that he would do something different from before rules out structural, which most of you favored, and there is nothing to really suggest this might be cyclical. 29% right.
7. Jacob moved to Atlanta in 1981, but was out of work all through 1982 despite being willing to do anything for money -- nobody seemed to be hiring then.
d., cyclical. It says that nobody was hiring (there was a recession in 1982). 72% right.
8. Because the State closed Apalachicola Bay to oystering, Fred has no work, and cannot find any because with the net ban, things are bad in Franklin County.
a., structural. In the wrong place at the wrong time. 46% correct. Cyclical requires that things are bad not just in Franklin county, but everywhere in the US.
9. Louise graduated in August, but has not yet found a job that has hours that fit with her triathlon training.
b. Frictional. She is searching for a job that meets her requirements with respect to hours, not her skills or experience. This is normal search, not a structural issue. 33% correct, more preferred structural.
10. Stanley graduated in August, and is spending the time until Christmas rewriting all his songs before moving to Nashville to try to sell them. c., not in the labor force. He's not looking for a job, nor earning money, so he is not in the labor force. 86% of you agreed.