METU

Department of Economics
Spring 2021-2022

Course: Econ 210 Principles of Economics

Instructors: Münis Seven Ağır (Sec. 01)
Dürdane Şirin Saraçoğlu (Sec. 02)
Meltem Dayıoğlu Tayfur (Sec. 03)
Students Assistants: Chimnaz Karimli ([email protected])
Melis Uzun ([email protected])

Problem Set (Chapter 24&25)

Q1) Suppose an economy produces 3 goods: tangerines, ice-cream, and noodle. These
are all consumer goods. The total production of all goods is given in the following table
followed by their prices,

Take 2014 as the base year and take consumption in 2014 as the basket for constructing
the CPI. Using this table, answer the following questions:

i)

a) Calculate the CPI for each year.

b) Calculate the rate of inflation based on the CPI for all years (i.e., Between 2014
and 2015, 2015 and 2016, 2016 and 2017).

ii)

a) Compute the nominal GDP for each year.

b) Compute the real GDP for each year using 2014 prices.

c) Compute GDP deflators for all years.

d) Calculate the rate of inflation based on the GDP deflator for all years.
 METU
Department of Economics
Spring 2021-2022

Q2) What components of GDP (if any) would each of the following transactions affect?
Explain.

a) A family buys a new refrigerator.

b) Aunt Mary buys a new house.
c) Ankara Municipality builds a new highway.
d) Your parents buy a bottle of French wine.
e) Honda expands its factory in Marysville, Ohio.

Q3) Using the below table, calculate the value added at each stage of the production
process.

Production of Bread (in Production of Coffee

terms of 1000 TL) (in terms of 1000 TL)
Stage of Value of Value Stage of Production Value of Value
Production Sales Added Sales Added
Wheat 10 Coffee grower 15
farmer
Miller 25 Roaster 35
60 Shipper and 25
Baker
wholesaler
Starbucks Coffee in 60
Grocer 95
Xland

Q4) You are an employee of Bureau of Labour Statistics involved in the monthly survey
of households used to estimate the unemployment rate. In each of the following cases,
classify the individual as employed, unemployed, or not in the labour force. Explain your
classification.

i) During the entire week containing the 12 th of the month, Monica Geller misses
work simply because he didn’t feel like going in to work.
 METU
Department of Economics
Spring 2021-2022

ii) Phoebe Buffay is a volunteer 20 hours a week on a Rape Crisis telephone hotline.
She feels she makes an important contribution to society and would not accept a paid
job if one were offered to her.

iii) Joey Tribbiani is a successful filmstar, age 32, who has earned over $5,000,000
each year for the past five years. Currently, Joey is filming a new movie on location in
Las Vegas.

iv) Ross Geller, a full-time Ph.D student, is involved in ground breaking research in
paleontology. His dissertation advisor has already claimed that Ross’ work will
change the history of the world.

v) Chandler Bing is an executive in statistical analysis and data reconfiguration for a

large, multinational corporation. This job pays him well.

vi) Rachel Green found a job as an assistant buyer at Bloomingdale's. She has been
working for three months. Her boss pays her minimum wage.

Q5) According to cases which are given below, classify the unemployment which is
experienced by individuals as frictional, structural, or cyclical unemployment.

a) Selin who has a lot of work experience and knowledge quits his job to find better
job with higher wage:

b) Ali losses his job in factory because the factory was moved to another

city:

c) Berk cannot find a job because of the decrease in the demand for the economist

as an outcome of the recession period:

d) Elif who cannot catch up with the new technology and cannot keep pace with

the new production techniques is dismissed from his job:

 METU
Department of Economics
Spring 2021-2022

Q6) The population of the nation of Endorians is 3 million and 1.5 million of the
population are at age 16 or older. 1 million of this population are currently working
and 400.000 of the population are searching for a job. However, 40.000 have given
up searching for a job and 60.000 do not want to work. Given this information;

a) Find the number of unemployed people:

b) Find the size of labor force:

c) Find the number of discouraged workers is:

d) Calculate the unemployment rate:

e) Calculate the labor force participation rate:

f) It is determined that the natural rate of the unemployment is 6 %. What is the level
of cyclically unemployed?

Part B: Multiple Choice Questions

Q1) Macroeconomics seeks to understand

A) economic growth, business cycles, and inflation.
B) industry sales, marketing strategies and corporate growth.
C) product demand, product cost, and profit maximization.
D) public choices, private choices, and consumer maximization.

Q2) Which of the following goods is directly counted in GDP?

A) the lettuce that Subway purchases for its sandwiches
B) the bread that Subway purchases for its sandwiches
C) a 12-inch Subway sandwich purchased by a student
D) the plastic bags that Subway purchases to wrap its sandwiches

Q3)
 METU
Department of Economics
Spring 2021-2022

Refer to the table above. Suppose that a simple economy produces only four goods and
services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of
the coffee beans are used in the production of the coffee drinks. Using the information in
the above table, nominal GDP for this simple economy equals

A) 3,090 units

B) $7,250 units.

C) $8,750 units

D) $9,750 units

Please answer the next two questions referring to the table below.

Q4) The unemployment rate for this simple economy equals

A) (100/1,000) × 100
B) (100/1,100) × 100.
C) (100/15,000) × 100
D) (100/20,000) × 100

Q5) The labor force participation rate for this simple economy equals
A) (1,000/1,100) × 100
B) (1,000/15,000) × 100
C) (1,100/15,000) × 100
D) (1,100/20,000) × 100
 METU
Department of Economics
Spring 2021-2022

Q6) Suppose the labor force and the working-age population stay constant. However,
those who were once unemployed became employed. The labor force participation rate
will
A) increase
B) decrease
C) remain constant
D) not change in a way that can be predicted

Q7) In a closed economy, which of the following components of GDP is not included?
A) investment
B) government spending
C) net exports
D) consumption

Q8) In a closed economy, which of the following equations reflects investment? (Y =

GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)

A) Y-C-G

B) Y-C-T

C) Y - T + TR

D) C + G -T

Q9) The broadest measure of the price level that includes all final goods and services is

A) the producer price index.

B) the consumer price index.

C) the GDP deflator.

D) the wholesale price index.

 METU
Department of Economics
Spring 2021-2022

Q10) “CPI equals 125 in 2007 (when 2000 is the base year)” means that:

A) The inflation rate in 2007 is 125 percent.

B) The CPI equals $125 in 2007.

C) The average level of prices is 25 percent higher in 2007 than in the base year.

D) The inflation rate in 2007 is 1.25 percent.

Q11) Emily is a writer. She buys pens and paper for $20 and writes a 500-page novel
that she sells to a publishing company for $500,000. If the publisher prints 1 million
copies that sell for $25 each, what is the contribution to GDP of Emily's novel?

a) $25 million

b) $20 million

c) $500,000

d) $50,000

Q12) Nick has graduated from college and is now looking for a job, but has not yet found
one. This causes the unemployment rate to ________and the labor force participation rate
to ________.

A) increase; decrease.

B) stay the same; stay the same

C) increase; increase.

D) increase; stay the same

 METU
Department of Economics
Spring 2021-2022

Q13) The term business cycle refers to the

A) short-term ups and downs in the price level.

B) long-term trends in the price level.

C) short-term ups and downs in the level of economic activity.

D) long-term trends in the level of economic activity.

Refer to the figure below to answer questions 23, 24.

Q14) During which period of time is the economy in a recession in this business cycle?

a) The period from C to D.

b) The period from D to E.

c) The period from A to B.

d) The period from C to E.

Q15) The period from A to B is part of:

a) A contraction.

b) An expansion.

c) A depression.

d) A recession, or slump