MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1)

Beautiful Boating purchases five new boats at $200 thousand each to rent to vacationing fishermen. The firm sells its old boats to the public for $500 thousand. The net increase in GDP of these transactions was

A)

B)

C)

D)

$1,250,000.

$1,500,000.

$ 500,000.

$1,000,000.

2)

One reason that firms hire labor at the point where w = MPL is A)

B)

C)

D)

if w > MPL, the cost (w) of hiring additional workers is less than the benefits (MPL) of hiring them, so they should hire more workers.

if w < MPL, the cost (w) of hiring additional workers equals the benefits (MPL) of hiring them, so they have the right number of workers.

if w < MPL, the cost (w) of hiring additional workers exceeds the benefits (MPL) of hiring them, so they should hire fewer workers.

if w > MPL, the cost (w) of hiring additional workers exceeds the benefits (MPL) of hiring them, so they should hire fewer workers.

3)

A winter ice storm has paralyzed the entire east coast, reducing productivity sharply. This supply shock shifts the marginal product of labor curve

A)

B)

C)

D)

down and to the left, raising the quantity of labor demanded at any given real wage. up and to the right, reducing the quantity of labor demanded at any given real wage. up and to the right, raising the quantity of labor demanded at any given real wage. down and to the left, reducing the quantity of labor demanded at any given real wage.

2

BUAD 350-Midterm #1 Sample

4)

If Jeff's wage rate rises, he decides to work more hours. From this, we can infer that A)

B)

C)

D)

Jeff is a nitwit.

for Jeff, the substitution effect is less than the income effect. for Jeff, the substitution effect is greater than the income effect. for Jeff, the substitution effect is equal to the income effect.

5)

A person is more likely to increase labor supply in response to an increase in the real wage, the __________ is the income effect and the __________ is the substitution effect. A)

B)

C)

D)

larger;

smaller;

larger;

smaller;

smaller

larger

larger

smaller

6)

Suppose the marginal product of labor is MPL = 200 - 0.5L where L is aggregate employment. The aggregate quantity of labor supplied is 300 + 8w, where w is the real wage. What is the equilibrium real wage?

A)

B)

C)

D)

15

5

20

10

7)

What is the participation rate if the population is 125 million, 100 million people are employed, and 4 million are unemployed?

A)

B)

C)

D)

80%

75%

83%

67%

3

BUAD 350-Midterm #1 Sample

8)

With a nominal interest rate of 4%, an expected inflation rate of 3%, and interest income taxed at a 25% rate, what is the expected after-tax real interest rate? A)

B)

C)

D)

1%

0%

2%

3%

9)

Calculate the user cost of capital of a machine that costs $5,000 and depreciates at a 25% rate, when the expected real interest rate is 5%.

A)

B)

C)

D)

$1500

$5000

$150

$500

10)

You are trying to figure out how much capacity to add to your factory. You will increase capacity as long as

A)

C)

the expected marginal product of capital is greater than or equal to the current marginal product of capital.

the expected marginal product of capital is greater than or equal to the expected marginal product of labor.

the expected marginal product of capital is greater than or equal to the user cost of capital.

D)

the expected marginal product of capital is positive.

B)

4

BUAD 350-Midterm #1 Sample

11)

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:

Good

Milk

Butter

1991

Quantity Price

500

$2.00

2,000

1.00

1992

Quantity Price

900

$3.00

3,000

2.00

Between 1991 and 1992, nominal GDP grew by

A)

B)

C)

D)

83.3%.

60.0%.

65.5%....