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Principles of Economics 2

Problem set 2

Part I. Measuring labor force participation rate and unemployment rate

Use Economically Active Population Survey (경제활동인구조사) data at http://kosis.kr


(통계청 국가통계포탈). Download the following three variables ‘Population 15 years old and
over in thousand,’ ‘Employed persons’, ‘Unemployed persons’ for total, male, and female from
2000 to 2023).

a. Calculate labor force participation rates for total, male, and female from 2000 to 2023; and
report summary statistics and draw graphs of the three variables.
b. Repeat the above question with unemployment rates

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Part II. Multiple choice questions (Chapters 25-28)

1. Which of the following is not correct?


a. Across countries there are large differences in the average income per person. These
differences are reflected in large differences in the quality of life.
b. With a growth rate of about 2 percent per year, average income per person doubles about
every 35 years.
c. The ranking of countries by average income changes very little over time.
d. In some countries real income per person has changed very little over many years.

2. The key determinant of a the standard of living in a country is


a. the amount of goods and services produced from each hour of a worker's time.
b. the total amount of goods and services produced within the country.
c. the total amount of its physical capital.
d. its growth rate of real GDP.

3. In 2007, Modern Electronics, Inc. produced 60,000 calculators, employing 80 workers, each
of whom worked 8 hours per day. In 2008, the same firm produced 76,500 calculators, employing 85
workers, each of whom worked 10 hours per day. Between 2007 and 2008, productivity at Modern
Electronics
a. decreased by 4.00 percent.
b. remained constant.
c. increased by 8.33 percent.
d. increased by 27.50 percent.

Figure 1. On the horizontal axis, K/L represents capital (K) per worker (L). On the
vertical axis, Y/L represents output (Y) per worker (L).
Y/L

K/L

4. Refer to Figure 1. Choose a point anywhere on the curve and call it point A. If the economy is
at point A in 2007, then it will definitely remain at point A in 2008 if, between 2007 and 2008,
a. the quantity of physical capital remains constant; the number of workers doubles; and
human capital, natural resources, and technology all double as well.
b. the quantity of physical capital doubles; human capital, natural resources, and technology
all double as well; and the number of workers remains constant.
c. the quantity of physical capital doubles; the number of workers doubles; and human
capital, natural resources, and technology all double as well.
d. the quantity of physical capital doubles; the number of workers doubles; and human
capital, natural resources, and technology remain constant.

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5. All else equal, if there are diminishing returns, then what happens to productivity if both capital
and labor increase?
a. Productivity will definitely fall.
b. Productivity will definitely be unchanged.
c. Productivity will definitely rise.
d. None of the above are necessarily correct.

6. Two bonds have the same term to maturity. The first was issued by a state government and the
probability of default is believed to be low. The other was issued by a corporation and the
probability of default is believed to be high. Which of the following is correct?
a. Because they have the same term to maturity the interest rates should be the same.
b. Because of the differences in tax treatment and credit risk, the state bond should have the
higher interest rate.
c. Because of the differences in tax treatment and credit risk, the corporate bond should have
the higher interest rate.
d. It is not possible to say if one bond has a higher interest rate than the other.

7. Which of the following statements is correct?


a. The total income in the economy that remains after paying for consumption and
government purchases is called private saving.
b. The sum of private saving and national saving is called public saving.
c. For a closed economy, the sum of private saving and public saving must equal investment.
d. For a closed economy, the sum of consumption, national saving, and taxes must equal
GDP.

8. Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 consumption
equals 7,500 and government purchases equal 2,000. What are private saving, public saving, and
national saving?
a. 1,500, 1,000, and 500, respectively
b. 1,000, 500, and 1,500, respectively
c. 500, 1,500, and 1,000, respectively
d. None of the above is correct.

9. The Eye of Horus incense company has $10 million in cash which it has accumulated from
retained earnings. It was planning to use the money to build a new factory. Recently, the rate of
interest has increased. The increase in the rate of interest should
a. not influence the decision to build the factory because The Eye of Horus doesn't have to
borrow any money.
b. not influence the decision to build the factory because its stockholders are expecting a new
factory.
c. make it more likely that The Eye of Horus will build the factory because a higher interest
rate will make the factory more valuable.
d. make it less likely that The Eye of Horus will build the factory because the opportunity
cost of the $10 million is now higher.

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Figure 2. The figure depicts a demand-for-loanable-funds curve and two
supply-of-loanable-funds curves.

S1 S2

Demand

10. Refer to Figure 2. Which of the following events would shift the supply curve from S1 to S2?
a. In response to tax reform, firms are encouraged to invest more than they previously
invested.
b. In response to tax reform, households are encouraged to save more than they previously
saved.
c. Government goes from running a balanced budget to running a budget deficit.
d. Any of the above events would shift the supply curve from S1 to S2.

11. An increase in the number of corporations in a portfolio from 1 to 10 reduces


a. market risk by more than an increase from 110 to 120.
b. market risk by less than an increase from 110 to 120.
c. firm-specific risk by more than an increase from 110 to 120.
d. firm-specific risk by less than an increase from 110 to 120.

12. You have a contract with someone who has agreed to pay you $20,000 in four years. She offers
to pay you now instead. For which of the following interest rates and payments would you take
the money today?.
a. 8 percent, $15,000
b. 7 percent, $16,000
c. 6 percent, $17,000
d. All of the above are correct.

13. For a risk averse person,


a. the pleasure of winning $1,000 on a bet exceeds the pain of losing $1,000 on a bet.
b. the pain of losing $1,000 on a bet exceeds the pleasure of winning $1,000 on a bet.
c. the utility function exhibits the property of increasing marginal utility.
d. the utility function gets steeper as wealth increases.

14. The problem of moral hazard arises because


a. life is full of all sorts of risks.
b. after people buy insurance, they have less incentive to be careful about their risky
behavior.
c. a high-risk person is more likely to apply for insurance than is a low-risk person.
d. insurance companies go to great effort to avoid paying claims to their policy holders.

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15. Suppose that interest rates unexpectedly rise and that Carter Corporation announces that
revenues from last quarter were down but not as much as the public had anticipated they would
be down. According to the efficient markets hypothesis, which of the these things make the price
of Carter Corporation Stock fall?
a. both the interest rate rising and the revenue announcement
b. neither the interest rate rising nor the revenue announcement
c. only the interest rate rising
d. only the revenue announcement

Table 1
Labor Data for Wrexington

Year 2004 2005 2006


Adult population 2000 3000 3200
Number of employed 1400 1300 1600
Number of unemployed 200 600 200

16. Refer to Table 1. The labor-force participation rate of Wrexington in 2006 was
a. 50%.
b. 53.3%.
c. 56.25%.
d. 88.9%.

17. Some persons are counted as out of the labor force because they have made no serious or recent
effort to look for work. However, some of these individuals may want to work even though they
are too discouraged to make a serious effort to look for work. If these individuals were counted
as unemployed instead of out of the labor force, then
a. both the unemployment rate and labor-force participation rate would be higher.
b. the unemployment rate would be higher and the labor-force participation rate would be
lower.
c. the unemployment rate would be lower and the labor-force participation rate would be
higher.
d. both the unemployment rate and labor-force participation rate would be lower.

18. The natural unemployment rate includes


a. both frictional and structural unemployment.
b. neither frictional nor structural unemployment.
c. structural, but not frictional unemployment.
d. frictional, but not structural unemployment.

19. Which of the following is not a cause of frictional unemployment?


a. the destruction of manufacturing jobs
b. a worker leaving a job to find one with better benefits
c. minimum-wage laws
d. unemployment insurance

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Figure 3

20. Refer to Figure 3. If the government imposes a minimum wage of $8, then how many workers
will be employed?
a. 200
b. 500
c. 600
d. 800

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