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AGEC 217 Midterm Exam – An annual inflation rate

AGEC 217

MIDTERM
EXAM
October
12-18, 2016: 2024 – Do my homework – Help write my assignment online, Distance Education

There are 35 multiple choice questions on this exam, and one bonus
question. You have 1 ½ hours (90 minutes) to complete the exam. The exam is
worth 200 points. Questions 1 -7and 20-22 are worth 5 points, all others are
worth 6 points. Please use the answer sheet at the end of this exam, and fax or
scan it to Professor DeBoer. You may keep the exam questions.

1. An
annual inflation rate is measured by

a. the
percentage change in a price index from one year to the next.

b. the
annual percentage addition of goods and services to the market basket.
c. the difference between the price index in the current year and
the price index in the base year. d. the value of a “market basket” of goods
and services, compared to its value in a base year.

2. Frictional
unemployment occurs when

a. the
skills of unemployed people do not match the skills required for available
jobs, or the unemployed people are not located where the job openings are.

b.
it
takes time for workers to search for available jobs and for employers to search
for available workers.

c.
the
economy falls into recession, workers are laid off or let go, and people
entering the labor force have difficulty finding jobs.

3.
In 1988 the minimum wage was $3.35 an hour. The consumer price index was 118.3
in 1988 and 239.8 in 2016: 2024 – Do my homework – Help write my assignment online. To match its purchasing power in 1988, the minimum
wage in 2016: 2024 – Do my homework – Help write my assignment online would have had to be closest to

a. $1.40

b.
$3.35.

c.
$3.96.

d.
$6.79.

4. In 2016: 2024 – Do my homework – Help write my assignment online nominal GDP was $18,480 billion and
the GDP deflator was 111.4. Real GDP was

a. $111.4.

b.
$16,593.

c.
$18,480.

d.
$20,587.

-1-

5. The correlation coefficient between the unemployment
rate and the CPI core inflation rate for the years 1890-1921 was -0.56. For
1961-2016: 2024 – Do my homework – Help write my assignment online the correlation was 0.21. This means that

a. The
correlation coefficient supports the hypothesis that higher unemployment rates
cause decreases in the price level for both 1890-1921 and 1961-2016: 2024 – Do my homework – Help write my assignment online.

b.
The correlation coefficient supports the
hypothesis that higher unemployment rates cause decreases in the price level
for 1890-1921 butnot for 1961-2016: 2024 – Do my homework – Help write my assignment online.

c.
The correlation coefficient supports the
hypothesis that higher unemployment rates cause decreases in the price level
for 1961-2016: 2024 – Do my homework – Help write my assignment online butnot for 1890-1921.

d.
The correlation coefficient rejects the hypothesis
that higher unemployment rates cause decreases in the price level for both
1890-1921 and 1961-2016: 2024 – Do my homework – Help write my assignment online.

6.
Second shift #2 implies that an increase in the real interest rate (measured by
the interest rate spread) causes a decrease in aggregate demand, which
decreases real GDP growth. Which of the following is evidencefor
this hypothesis?

a.
A
correlation between the BAA-AAA corporate interest rate spread and real GDP
growth of0.57.

b.
A
correlation between the BAA-AAA corporate interest rate spread and real GDP
growth of0.12.

c.
A
correlation between the BAA-AAA corporate interest rate spread and real GDP
growth of -0.12.

d.
A
correlation between the BAA-AAA corporate interest rate spread and real GDP
growth of -0.57.

7.
The correlation coefficient between the BAA-AAA corporate bond interest rate
spread and the CPI core inflation rate over the 1961-2015 – Research Paper Writing Help Service period is 0.49. This
is evidence for the hypothesis from our money market model that

a. rising prices causes
an increase in money demand, increasing interest rates.

b.
rising
prices cause a decrease in money demand, decreasing interest rates.
c.
rising
prices cause an increase in money supply, increasing interest rates.
d.
rising
prices cause a decrease in money supply, decreasing interest rates.

-2-

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Use the above
diagrams to answer questions 8 through 12.

8. Suppose property taxes are one of the costs to property owners
of providing rental housing. Which of the above diagrams describes what will
happen in the market for rental housing, if the property taxdecreases?

9. Suppose the pizza restaurants near Purduedecrease the price of soft drinks and
beer, and 96% of Purdue students think pizza and drinks are complementary
goods. Which of the above diagrams describes what would happen in the market
forpizza?

10. Suppose the minimum wage increases. Consider an industry like fast
food, which employs many minimum wage workers but sells mostly to people with
higher incomes. Which of the above diagrams illustrates the effect of a minimum
wage increase in the market for fast food?

-3-

Here are some
excerpts from the article, “Could ‘The Hub Effect’ Save New Chauncey?”LafayetteJournal and Courier, October 8,
2016: 2024 – Do my homework – Help write my assignment online. Use this article and the demand/supply diagrams to answerquestions 8 to 10.Note that the City of West Lafayette wants to promote family
ownership of houses in thehistoric New Chauncey neighborhood, and discourage rentals of
those houses to students. Note also that rent is the price of living in a
rental apartment or house.

The obvious story of The Hub, a $40 million to $50 million,
599-bed high-rise housing complex half-block south of State Street and Harry’s
Chocolate Shop aimed at the Purdue student market, was in metrics too big to
miss Monday night. The place is going to stand 10 stories tall when it opens in
the fall of 2018: 2024 – Write My Essay For Me | Essay Writing Service For Your Papers Online: the first of its kind for the West Lafayette Village and the
tallest in the city outside a handful of buildings on campus.

Less obvious was a quiet theory being shared and that could be
tested soon: Will The Hub, not to mention an influx of high-density housing
projects in the Village and on the west side of campus, be the thing that
changes the face of the New Chauncey neighborhood by luring students away and
reducing demand for single-family rentals in the blocks near campus?

And would that in turn
open doors to a tight West Lafayette housing market, prompting landlords to
leave the historic neighborhood and clear the way for young families itching to
get children into West Side schools right at the time the district is getting
ready to expand its facilities?

The 2015 – Research Paper Writing Help Service Student Rental Report and Survey queried landlords about
the new competition near campus. The report indicated that landlords said they
were “in the position of finding innovative ways to stave off vacancies.” That
meant renovations, lowering rents, offering flexible lease terms.

It also meant this: “Four representatives of management companies
that specialize in rental homes near campus (typically single-family or duplex
homes) reported that the increases in units near campus over the last few years
made it more difficult to rent to the undergraduate student set in particular.”

11.
Which demand/supply diagram on p. 3 best shows what will happen in the market
forstudent
rentalapartments, as described in
this article?

a. Diagram A.

b.
Diagram
B.
c.
Diagram
C.
d.
Diagram
D.

12.
Which demand/supply diagram on p. 3 best shows what might happen to the demand
forstudentrental
houses in the New Chauncey neighborhood, according to the “theory”
in the article?

a. Diagram A.

b.
Diagram
B.
c.
Diagram
C.
d.
Diagram
D.

-4-

13.
From the point of view of Purdue students, rental houses in New Chauncey
neighborhood and rental apartments in The Hub and other high rise buildings are

a. substitutes,
so a decrease in rents for high rise apartments will increase rents for houses
in the neighborhood.

b.
substitutes,
so a decrease in rents for high rise apartments will decrease rents for houses
in the neighborhood.
c.
complements,
so a decrease in rents for high rise apartments will increase rents for houses
in the neighborhood.
d.
complements,
so a decrease in rents for high rise apartments will decrease rents for houses
in the neighborhood.

Use
these demand and supply schedules for “gizmos” (a mythical good) to answer
questions 14through
19. You may plot the curves on the price-quantity grid attached to the back of
this exam, if you find that helpful.

Column:

1

2

3

4

Quantity of gizmos

Quantity of gizmos

Quantity of

Quantity of

demanded, when

demanded, when

gizmos

gizmos

Price
of gizmos

widgets
are at

widgets
are at

supplied,

supplied,

full-price

half-price

Schedule 1

Schedule 2

$5

1200

1000

900

400

$10

1000

850

1200

700

$15

900

700

1600

1400

P $16 $12
.jpg”>
$7

$4

$2

200 400 1,200 1,500

Q

14. Consider the price and quantity data for
gizmos when widgets (another mythical good) are full price (column 1) and
businesses are on supply schedule 1 (column 3). The equilibrium price in the
gizmos market must be closest to

a.
$4

b.
$8.
c.
$12.
d.
$16.

15. Suppose the voters of Indiana passed a Constitutional
amendment fixing the price of gizmos at $10. The price could not be higher or
lower. If widgets are at full price (column 1) and businesses are on supply
schedule 1 (column 3), what would be the situation in this market?

a. The
market would be in equilibrium.

b.
The market would have a shortage of gizmos.
c.
The market would have a surplus of gizmos.

16. Suppose supply shifts to supply schedule
2 (column 4), while widgets remain at full price (column 1). Suppose the price
of gizmos is not fixed. What would happen to the equilibrium price and quantity
of gizmos in this market?

a. Price
would decrease while quantity would increase.

b.
Price would decrease and quantity would decrease.
c.
Price would increase and quantity would increase.
d.
Price would increase while quantity would decrease.

17. Which of the following changes could have caused the shift
from supply schedule 1 to supply schedule 2?

a. A
decrease in the incomes of gizmo consumers.

b.
An improvement in the technology used to manufacture gizmos.
c.
A report by scientists that gizmos cause cancer in laboratory
mice.
d.
An increase in the cost of raw materials used to manufacture
gizmos.

18. Based
on the price and quantity data in columns 1 and 2, widgets must be

a.complements
to gizmos.

b.substitutes
for gizmos.
c.unrelated
to gizmos.

19. Based
on the price and quantity data in column 1, the demand for gizmos in this
market is

a.elastic.

b.inelastic.

c.perfectly
inelastic.

-6-

And now on to
questions from Module 2. . .

20. When the money
supply decreases in the money market,

a. the
equilibrium real interest rate increases, which increases investment spending
in the goods market, increasing aggregate demand, and raising the price level
and output.

b.
the
equilibrium real interest rate increases, which decreases investment spending
in the goods market, decreasing aggregate demand, and reducing the price level
and output.
c.
the
equilibrium real interest rate decreases, which increases investment spending
in the goods market, increasing aggregate demand, and raising the price level
and output.
d.
the
equilibrium real interest rate decreases, which decreases investment spending
in the goods market, decreasing aggregate demand, and reducing the price level
and output.

21.
When aggregate demand increases in the goods market, so that equilibrium output
is more than potential output,

a. the
price level will rise in the goods market, which increases input costs, which
decreases aggregate supply, moving equilibrium output back towards potential
output.

b.
the
price level will fall in the goods market, which reduces input costs, which
increases aggregate supply, moving equilibrium output back towards potential
output.
c.
the
price level will rise in the goods market, which increases input costs, which
increases aggregate supply, moving equilibrium output farther away from
potential output.
d.
the
price level will fall in the goods market, which reduces input costs, which
decreases aggregate supply, moving equilibrium output farther away from
potential output.

22. During the Civil
War and World War I,

a. vast increases in
government military purchases increased aggregate demand.

b.
vast increases in government purchases replaced private output, decreasing
aggregate supply. c. high inflation reduced consumer spending, decreasing
aggregate demand.

d. high inflation caused businesses to
increase investment in factories, increasing aggregate supply.

23. The deflation of the 1870’s through 1890’s
favored lenders and hurt borrowers because

a. the unemployment rate kept rising.
b. the unemployment rate kept falling.

c.
the value of loan repayments kept increasing in real terms. d. the value of
loan repayments kept decreasing in real terms.

24. The Federal
Reserve was created to be a “lender of last resort” in order to

a. regulate the federal
funds market, where banks lend to other banks.

b.
sell
Treasury bonds to banks in exchange for money during banking emergencies.
c.
lend
money to speculators to prevent stock market crashes.
d.
stop
bank runs by lending banks money to pay out to depositors.

-7-

25. The Federal Reserve suddenly
increased the discount rate in January 1920.
As a result,

a. banks
stopped borrowing from the Fed and stopped lending to businesses and

consumers.
Consumption and investment spending dropped. Inflation stopped and a sharp
recession began.
b. banks
stopped borrowing from the Fed and stopped lending to businesses and
consumers. Consumption and investment spending increased. This
ended a post-war recession. c. banks started borrowing from the Fed and started
lending more to businesses and

consumers.
Consumption and investment spending dropped. Inflation stopped and a sharp
recession began.

26. In 1907 and 1908, a panic in
financial markets caused lenders to increase their reserves and lend less.
Investment spending dropped, and a recession resulted in deflation and an
increase in unemployment above 5%. Which of the following macro model changes
could represent these events?

a. A
decrease in money supply, a decrease in aggregate demand, and equilibrium
output less than potential.

b.
A
decrease in money demand, a decrease in aggregate supply, and equilibrium
output less than potential.
c.
An
increase in money supply, an increase in aggregate demand, and equilibrium
output greater than potential.
d.
An
increase in money demand, an increase in aggregate supply, and equilibrium
output greater than potential.

27. In 1918 the United States was fully engaged in
fighting World War I. The Federal government expanded its purchases of military
equipment and hired millions of soldiers. Many women entered the labor market
for the first time to work in defense factories. The newly created Federal
Reserve created large numbers of Federal Reserve notes to lend to the Federal
government, and prices rose rapidly. Which of the following macro model changes
could represent these events?

a. An
increase in aggregate supply, output below potential, a decrease in money
demand, and a decrease in money supply.

b.
An
increase in aggregate supply, output below potential, an increase in money
demand, and an increase in money supply.
c.
An
increase in aggregate demand, output above potential, a decrease in money
demand, and a decrease in money supply.
d.
An
increase in aggregate demand, output above potential, an increase in money
demand, and an increase in money supply.

-8-

Here are some
excerpts from “Here’s What’s Going Right, and Wrong, in the U.S. Economy,”New YorkTimes, July 29, 2016: 2024 – Do my homework – Help write my assignment online. And, here’s a
table of economic measurements for 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap to 2016: 2024 – Do my homework – Help write my assignment online. Read the article,interpret the measurements, and
answer questions 28 to 35.

Seven
years into the economic recovery and three months before a presidential
election, how is the United States economy doing? Two reports released on
Friday reveal the ways in which the economy is humming along brilliantly — and
the things that are very worrying.

The big headline about second-quarter
G.D.P. was that the economy grew at only 1.2 percent, far below the 2.5 percent
that analysts had forecast. But the largest component of the economy, personal
consumption expenditures, grew at a whopping 4.2 percent rate in the second
quarter. That’s evidence that a long-awaited rise in consumer spending from an
improving job market and cheaper fuel prices is finally materializing.
Americans are feeling a bit richer, and showing up in stores, restaurants and
auto dealer lots ready to spend. For the first six months of 2016: 2024 – Do my homework – Help write my assignment online, total retail
sales were up 3.1 percent over the same period of 2015 – Research Paper Writing Help Service.

The
other good news in Friday’s economic data involves wages. The employment cost
index may not get as many headlines as G.D.P., but it is an important data set
for understanding what employers are spending on employee pay and benefits. The
total number was up 0.6 percent in the second quarter and is up 2.3 percent
over the previous year. But the details of the report are more interesting. The
wages and salary component of compensation is now up 2.5 percent over the last
year; that same reading was only 2 percent in the second quarter.

Things
aren’t looking so great in the business sector. Investment in business
structures, equipment and intellectual property fell for the third consecutive
quarter. The simple fact is that consumers are driving the economic train now,
and businesses are pulling back. Eventually something will have to give —
either businesses will have to increase investment to fulfill all that consumer
demand, or weak business investment will translate into fewer jobs and weaker
consumer spending.

The
labor market, a downward blip in May aside, was quite strong through the first
half of the year, with steady growth in the number of people working and the
hours they put in. But according to the new G.D.P. numbers, the economy grew at
only a 1 percent pace over the six-month span.

Translation:
Labor productivity fell 0.6 percent in the first quarter, according to
previously released data. What drives productivity is poorly understood, so it
doesn’t lend itself to easy solutions. The Federal Reserve can’t magically flip
a switch to increase productivity. But the new data is just the latest evidence
that weak productivity growth is a grave threat to the United States’ long-term
prosperity.

-9-

Macroeconomic Indicators, U.S.

2014: 2024 – Essay Writing Service. Custom Essay Services Cheap-2016: 2024 – Do my homework – Help write my assignment online

CPI

BAA-AAA

Real
GDP

Unemploy-

Inflation

Interest Rate

Year

Growth

ment
Rate

Rate

Spread

2014: 2024 – Essay Writing Service. Custom Essay Services Cheap

2.2%

8.1%

2.1%

1.27%

2013

1.7%

7.4%

1.5%

0.86%

2014: 2024 – Essay Writing Service | Write My Essay For Me Without Delay

2.4%

6.2%

1.6%

0.69%

2015 – Research Paper Writing Help Service

2.6%

5.3%

0.1%

1.11%

2016: 2024 – Do my homework – Help write my assignment online

1.2%

4.9%

1.2%

1.07%

Assumptions relating the
data to the model:

Q on the horizontal axis of the goods market
represents real GDP. Changes along the horizontal axis represent real GDP
growth (or decline).

P on the vertical axis of the goods market
represents the inflation rate, so changes in P represent changes in the
inflation rate.
Unemployment is represented by the difference
between equilibrium output and potential output, and the unemployment rate at
potential is 5%.
Changes in r on the
vertical axis of the money market represent changes in the interest rate spread.

28.
Consider the economic measurements for the
U.S. economy shown in the table. Which of thegoodsmarketdiagrams
attached at the end of this exam best represents the changes in the U.S.
economy from

2014: 2024 – Essay Writing Service. Custom Essay Services Cheap to 2014: 2024 – Essay Writing Service | Write My Essay For Me Without Delay?

a. A

b.
B

c.
C

d.
D

e. E

29. Consider the economic measurements for the U.S.
economy shown in the table. Which of themoneymarketdiagrams
attached at the end of this exam best represents the changes in the U.S.
economy from

2014: 2024 – Essay Writing Service. Custom Essay Services Cheap to 2014: 2024 – Essay Writing Service | Write My Essay For Me Without Delay?

a. W

b.
X

c.
Y

d.
Z

-10-

30. The article uses the employment cost
index to describe what is happening to wages paid to employees. In our model,
an explanation for recent wage changes is

a.
Output was less than potential,
because rising wages were increasing business costs. Now that wages are rising
more slowly, business profits are rising and production is expanding.

b.Output
was above potential, because wages were low. Now output is falling towards
potential, because wages and other costs are rising and businesses are cutting
production.
c.
Output was less than potential, which held wages down. Now output
is approaching potential, resources are more fully employed, so wages must rise
to attract employees.
d.
Output was at potential, but now rising wages are causing consumer
spending to increase. As a result output has moved well above potential, which
is causing the inflation rate to rise.

31. The article says that “things aren’t looking so great
in the business sector.” Look at the changes in the four indicators since 2014: 2024 – Essay Writing Service | Write My Essay For Me Without Delay.
In our model, which indicator change could have caused the business sector
problems mentioned in the article?

a. The decrease in real
GDP growth.

b.
The
decrease in the unemployment rate.
c.
The
decrease in the CPI inflation rate.
d.
The
increase in the BAA-AAA interest rate spread.

32.
Consider the economic measurements for the U.S. economy shown in the table.
Which of thegoodsmarketdiagrams
attached at the end of this exam best represents the changes in the U.S.
economy from2015 – Research Paper Writing Help Service to 2016: 2024 – Do my homework – Help write my assignment online?
(Compare changes in indicators from2015 – Research Paper Writing Help Service to
2016: 2024 – Do my homework – Help write my assignment online.)

a. A

b.
B

c.
C

d.
D

e. E

33.
Consider the economic measurements for the U.S. economy shown in the table.
Which of themoneymarketdiagrams
attached at the end of this exam best represents the changes in the U.S.
economy from 2014: 2024 – Essay Writing Service | Write My Essay For Me Without Delayto 2016: 2024 – Do my homework – Help write my assignment online?
(Compare changes in indicators from2014: 2024 – Essay Writing Service | Write My Essay For Me Without Delay to
2016: 2024 – Do my homework – Help write my assignment online.)

a. W

b.
X

c.
Y

d.
Z

-11-

34.
Productivity growth depends in part on advances in technology. The article
discusses what is happening to productivity in the U.S. economy. How could we
show this in our macroeconomic model?

a. Slower
growth in aggregate demand and slower growth in potential output.

b.
Faster growth in aggregate demand and faster growth in potential
output.
c.
Slower growth in aggregate supply and slower growth in potential
output.
d.
Faster growth in aggregate supply and faster growth in potential
output.

35.
Which of the following “stories” best represents the information in the
article, the economic measurements in the table, and the analysis with the
macroeconomic model?

a. The
economy was growing rapidly and reached potential early in the decade. Now big
increases in consumer spending have pushed equilibrium output well beyond
potential. Resources were employed normally, but are now employed with
extraordinary intensity, which is causing input prices—including wages—to rise.
This is depressing productivity, which is likely to cause a decrease in
aggregate supply. Lenders were gaining confidence, which increased money
supply, but now confidence is down, and money supply is decreasing. Despite
this, business investment is increasing in response to strong consumer demand
growth.

b. Output
had been less than potential for many years, but now it’s close to potential.
Resources were not fully employed, and this held down input costs, including
wages. Slow growth in input costs allowed aggregate supply to increase. With
output at potential, though, wages have begun rising. Rising pay and lower oil
prices have caused consumers to increase their spending, increasing aggregate
demand. Lenders were gaining confidence, but these gains have slowed recently,
so money supply has stopped increasing. This has held back business investment
spending. Slower growth in productivity may slow potential output growth in the
future.

c. Output
had been less than potential for many years, and even in 2016: 2024 – Do my homework – Help write my assignment online, 7 years into the
expansion, output is still below potential. Lenders never regained their
confidence after the Great Recession, that his has depressed business
investment in buildings and equipment. Lack of investment spending has held
down aggregate demand, which has held down both inflation and wage growth.
Normally, slow growth in wages and business costs would increase aggregate
supply, pushing output to potential. But for mysterious reasons, productivity
growth has slowed, so the usual shift in aggregate supply has not occurred.

d. The
U.S. economy had been producing above potential, but now aggregate supply is
decreasing, causing output to fall to potential. Rising inflation has increased
wages and other business costs, which has depressed business investment and
productivity growth. As a result, business profits are falling. Businesses are
cutting back on production while still trying to pass on higher costs in higher
prices.
Lenders
somehow have remained optimistic, as they’ve been since the beginning of the
decade. There is money to lend, but businesses are reluctant to invest. In the
future, either businesses will decide to increase investment spending, or
consumers will reduce their spending.

-12-

36. BONUS. According
to Professor DeBoer’s interpretation, in the wizarding world of Harry Potter,

a. magic vending machines could adjust the prices of dragons liver,
newts eyes and other potion ingredients based on changes in the quantity of
gold and silver in circulation in the wizard economy.
b.
the story is an allegory for bimetallism. Wizards use coins based
on gold and silver, Harry Potter represents “everyman” stuggling against Wall
Street’s power, and Voldemort represents the evil policies of the U.S. Federal
Reserve (and the Bank of England).
c.
the fact that leprechauns can create gold means that the wizarding
world is constantly threatened with hyperinflation. This keeps interest rates
high, which means Gringotts Bank specializes in safe-keeping of assets, rather
than lending.
d.
wizards and witches could increase their wealth through gold and
silver arbitrage, but this would drain gold from the wizard world. The
bimetallic standard is maintained by allowing goblins to monopolize banking.

You may keep
the exam questions.

-13-

This page is
blank, except for this sentence.

-14-

You can tear
off this sheet for reference.

GOODS MARKET
.jpg”>

-15-

MONEY
MARKET
.jpg”>

Macroeconomic
Indicators, U.S., 2014: 2024 – Essay Writing Service. Custom Essay Services Cheap-2016: 2024 – Do my homework – Help write my assignment online

CPI

BAA-AAA

Real
GDP

Unemploy-

Inflation

Interest Rate

Year

Growth

ment
Rate

Rate

Spread

2014: 2024 – Essay Writing Service. Custom Essay Services Cheap

2.2%

8.1%

2.1%

1.27%

2013

1.7%

7.4%

1.5%

0.86%

2014: 2024 – Essay Writing Service | Write My Essay For Me Without Delay

2.4%

6.2%

1.6%

0.69%

2015 – Research Paper Writing Help Service

2.6%

5.3%

0.1%

1.11%

2016: 2024 – Do my homework – Help write my assignment online

1.2%

4.9%

1.2%

1.07%

-16-

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