Principles of Macroeconomics (Econ 001) Signature:
Drake University, Fall 2005
William M. Boal Printed name:
MIDTERM EXAMINATION #3 VERSION B
"Long-Run Economic Growth and Inflation"
October 31, 2005
INSTRUCTIONS: This exam is closed-book, closed-notes. Simple calculators are permitted, but graphing
calculators or calculators with alphabetical keyboards are NOT permitted. Numerical answers, if rounded, must
be correct to at least 3 significant digits. Point values for each question are noted in brackets. Maximum total
points are 100.
I. Multiple choice: Circle the one best answer to each question. [2 pts each, 34 pts total]
(1) In August, at the beginning of this semester, we
were in the _______ quarter of 2005.
a. first.
b. second.
c. third.
d. fourth.
(2) According to the aggregate production function,
potential GDP is determined by all of the following
except
a. technology.
b. the size of the labor force.
c. the size of the capital stock.
d. total spending.
(3) Real GDP grows faster in the long run, the
higher the fraction of total spending on
a. government purchases.
b. net exports.
c. consumption.
d. investment.
(4) Suppose the capital stock at the beginning of
2005 was $9 trillion. Also suppose that during 2005,
gross investment is $1.5 trillion and depreciation is
$1.2 trillion. Then the capital stock at the beginning
of 2006 will be
a. $9.3 trillion.
b. $10.2 trillion.
c. $10.5 trillion.
d. $12.7 trillion.
(5) Investment spending is
a. negatively related to the real interest rate.
b. unrelated to the real interest rate.
c. positively related to the real interest rate.
d. cannot be determined from information given.
(6) If the interest rate falls in the United States, net
exports rise because
a. exporters can borrow money more easily.
b. the dollar appreciates.
c. the dollar depreciates.
d. consumers decrease their total spending.
(7) If a person does not have a job, and last looked
for work two weeks ago, that person would be
classified by the Bureau of Labor Statistics as
a. employed.
b. unemployed.
c. out of the labor force.
d. cannot be determined from information given.
(8) "Job rationing" theories of unemployment predict
that unemployment could be reduced if
a. workers were notified of plant closings in
advance.
b. government helped match unemployed workers
with employers.
c. wages were increased.
d. wages were reduced.
(9) Since 1700, long-run growth rates of real GDP
per capita in the fastest-growing countries have
a. remained about zero.
b. remained constant, though positive, from one
century to the next.
c. decreased from one century to the next.
d. increased from one century to the next.
