Download Economics 101

478178032
MAKE-UP
Econ 1120-INTRODUCTORY MACROECONOMICS
PRELIM #1-Wissink-S2015-March 4
CLEARLY PRINT YOUR NAME: ______________________________________________________________
YOUR NetId:______________________ YOUR STUDENT NUMBER:________________________________
INSTRUCTIONS and EXAM TAKING POLICY:
There are two sections in this exam. Answer all questions.
Part I: 14 multiple choice or fill in the blank questions @ 3 points each
Part II: 3 problems @ 14, 22 and 22 points each
TOTAL POINTS = 100, TOTAL TIME = 90 minutes.
NO QUESTIONS CAN BE ASKED DURING THE EXAM ABOUT EXAM CONTENT: If you
need to use the restroom, or you need a pencil or scratch paper, or some other supply that we might have,
raise your hand and wait for the proctor to come to you. Only one person can be out of the examination
room at a time, and the proctor will hold onto your exam papers while you are out at the restroom.
NO CELL PHONES, NO IPODS OR SIMILAR DEVICES WITH CALCULATOR “APPS”.
NO GRAPHING CALCULATORS.
NO BOOKS. NO NOTES. NO HELP SHEETS.
NO TALKING TO EACH OTHER.
“X” the SECTION you regularly attend (that is where you will pick up your prelim):
DIS #
TA
Meeting Times
250, 251
Ye, Lei (Sandy)
Mondays 01:25-03:20
252, 253
Kwon, Donghwee
Wednesdays 02:30-04:25
254, 255
Lamachhane, Sujan
Fridays 09:05-11:00
256, 257
Zhang, Xingtong
Fridays 01:25-03:20
One more time, please…
CLEARLY PRINT YOUR NAME: ______________________________________________________________
YOUR NetId: ___________________________
YOUR STUDENT NUMBER: ___________________________________
GRADING
MC (out 42 points)=___________________
Q1 (out of 14 points)=_________________
Q2 (out of 22 points)=_________________
Q3 (out of 22 points)=_________________
TOTAL SCORE: _____________________
478178032
Part I: Multiple Choice. Do them ALL.
CIRCLE the letter for your answer.
_____________________________________________
1. Michael runs a food stand that employs four people: Abe, Betty,
Charlie and Dave. The table shows the maximum number of
frozen bananas or corndogs that each employee can make during
one day. Each worker can do any linear combination of their
extreme values. Of the four, which worker should be the last
worker Michael would allocate to making corndogs in any given
day if Michael allocates efficiently?
A.
B.
C.
D.
E.
Abe
Betty
Charlie
Dave
They should all cooperate and share making both items at all
times.
Max number of
Bananas
Corndogs
output per day
10
10
Abe
10
20
Betty
15
5
Charlie
25
30
Dave
2. Suppose that the demand function for jelly beans, a normal
good, is typical and is written as follows:
QD = 400 - 2F + 3J – 4G. Which one of the following statements
is most likely to be TRUE?
A. Variable J could be the number of firms making jelly beans.
B. Variable J could be the price of jelly beans.
C. Variable J could be the price of an Easter basket to put the jelly
beans in.
D. Variable F could be the price of sugar used to make jelly beans.
E. Variable G could be the price of jelly beans.
3. Which one of the following is most likely to decrease the
supply of wooden rocking chairs?
A.
B.
C.
D.
E.
The price of wooden rocking chairs decreases.
Consumers’ income increases.
The cost of producing wooden rocking chairs decreases.
The price of wooden rocking chairs increases.
The cost of producing wooden rocking chairs increases.
4. For which of the following scenarios must the equilibrium
quantity of green beans necessarily increase?
A. The price of corn, a substitute in consumption for green beans
falls.
B. A new bean-eating worm is discovered which raises bean
farming production costs.
C. The price of butter, a complementary good, falls and at the
same time bean farms are finally protected from a blight that
used to kill bean plants.
D. Harvest weather conditions are too wet for good bean crops
and a new medical survey shows that bean consumption
increases life span
E. Consumers expect bean prices to fall in the future.
5. Suppose that a competitive market exists in the U.S. for both
domestically made sugar and Brazilian made sugar. Suppose the
U.S. government slaps a binding import quantity quota on
Brazilian made sugar sold in the U.S. Which one of the following
is the best prediction of the consequence of the quota?
A. The market price of U.S. made sugar falls and the market price
of Brazilian made sugar rises.
B. Only the market price for Brazilian made sugar rises.
C. The quantity exchanged in both the Brazilian made sugar
market and the U.S. made sugar market decreases.
D. Only the market price of U.S. made sugar increases.
E. The equilibrium price of both Brazilian made sugar and U.S.
made sugar increase.
6. Consider the graph. Suppose it illustrates
the situation after the government has put into
law a binding price floor. Which one of the
following statements is TRUE?
K
A.
B.
C.
D.
E.
The price floor could be L.
There will be a shortage of N-M units.
M units will be traded.
There will be a surplus of K-C units.
The regulated equilibrium occurs at point F.
J
L
M
N
7. Which one of the following is an example of a final good or
service in relationship to this year’s U.S. GDP? All transactions
took place this year, unless otherwise noted. GDP=Gross
Domestic Product.
A. Strawberries produced in Cortland, NY and purchased by
Ithaca bakery in order to make wedding cakes.
B. Car paint made in Buffalo, NY and purchased by the Ford
Motor Company to paint this year’s car models being made in
Detroit.
C. Children’s toys made in China that you bought at Walmart.
D. The used chemistry textbook (published and printed 3 years
ago) which you bought on E-Bay this year.
E. The Corning glassware made in Corning, NY this year that was
added to the inventory of a department store in Japan in
anticipation of rising sales in Japan next year.
8. Francine, a French citizen, lives in London, England and works
at a factory there making hats for the royal family. GDP=Gross
Domestic Product and GNP=Gross National Product. She earns
30,000 British pounds sterling a year for this work. Her income
would
A.
B.
C.
D.
E.
count in the U.K.’s GDP and in France’s GDP.
count in France’s GDP but not in the U.K.’s GDP.
count in France’s GNP and in the U.K.’s GDP.
count in France’s GDP and in the France’s GNP.
not count in either France’s GDP or in the U.K.’s GDP.
9. Which one of the following transactions’ value would NOT be
represented, one way or another, either in the income loop or the
expenditure loop in the calculation of U.S. GDP in 2015?
GDP=Gross Domestic Product
A. Legal fees you paid your Ithaca based attorney for work in
2015 to settle a law suit.
B. Salary paid to Finnish gas station workers by a gas station
located in Arizona in 2015.
C. Body armor made in West Virginia in 2015 and purchased by
the defense department for the military to use in Afghanistan.
D. The winter coats made in Texas in 2015 that Walmart adds to
its inventory in 2015 but is unable to sell in 2015.
E. The value of clothes you donated to the Salvation Army in
2015.
10. Which one of the following statements is FALSE?
A. One problem with any fixed-bundle price index (like the CPI)
as a measure of the cost of living is that it does not account for
substitutions that consumers might make in response to relative
price changes.
B. An overall very broad indicator of inflationary pressures in the
entire economy is the implicit GDP deflator index.
C. In general, the consumer price index somewhat understates the
impact of changes in the cost of living during times of
inflation.
D. The implicit GDP deflator can be used to convert current or
nominal values into real values.
E. The producer price index is considered to be a leading indicator
of future inflation rates.
11. Which one of the following is best categorized as structural
unemployment?
A. Weak short term demand has caused a general economic
slowdown. Because of that, Allen has temporarily lost his job
at the glove factory in Gloversville, NY.
B. Dave, who works as an instructor at Greek Peak Ski Resort in
Virgil, NY is out of work in the summer since there is no one
to teach when there is no snow.
C. Steel worker Tom is thrown out of work by the introduction of
new technology in the steel sector that now employs a more
high-tech production process that will permanently requires a
much smaller labor to capital ratio.
D. Joe, a computer programmer with a large bank, quit his job two
months ago to look for a better paid programming position.
E. Patrick, who recently graduated from Cornell Medical School ,
is looking for a place to set up his practice.
12. Nominal (or current value) GDP in the United States in 2013
was roughly
A.
B.
C.
D.
E.
$14 million
$17 trillion
$12 trillion
$17 billion
$14 billion
13. Suppose the labor market was characterized by the following
numbers last week. The number of unemployed people was
10,000. The number of employed people was 90,000. The only
change between last week and this week in the labor market is that
2,000 people who were ‘discouraged workers’ think that the
economic environment is improving and decide to re-enter the
labor force and start looking for a job. All else equal, which one of
the following must be TRUE?
A.
B.
C.
D.
The unemployment rate has increased since last week.
The unemployment rate has decreased since last week.
The labor force has decreased since last week.
The labor force participation rate has decreased since last
week.
E. None of the above are true.
Typical
Urban
Household’s
Bundle
Good A
Good B
Good C
Units in
2010
Units in
2011
Prices in
2010
Prices in
2011
5
10
20
4
12
18
$1.00
$2.00
$4.00
$2.00
$1.50
$8.00
14. This last question is a fill in the blank – all or nothing –
question. Assume 2010 is the base year. The Consumer Price
Index for 2011 based on the data in the table is (round off to
nearest whole number):
____________________
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Part II: Make sure you read and do ALL parts of each question. Show as much work as
possible. TRY to get started on every question. Show us something. Write legibly and
remember to label all graphs and axes in diagrams.
1. Suppose that the following equations describe the expected demand and supply curves for
Birkenstock sandals in Ithaca in 2015 (where Q is quantity and P is price).
DEMAND: QD = 100 – 1P
SUPPLY: QS = -20 + 2P
a. Write the equations for the inverse demand curve and the inverse supply curve (that is the
equations for what we actually graph as demand and supply).
b. Graph the demand and supply curves and determine the equilibrium price and quantity in the
market for Birkenstock sandals in Ithaca. Show on your graph. Label points and values.
c. Suppose the mayor (who hates these sandals) decides to use a quota to limit the number of pairs
of these god-awful sandals sold in Ithaca. Suggest a value for the quota that will make it binding.
d. Using the graph below and equations above and YOUR quota value, thoroughly analyze the
economic consequences of the mayor’s policy directive.
Answer Space
2. Suppose Mr. Carson has three footmen: Thomas, Alfred and Jimmy. There are two jobs that need
to be done at Downton Abbey this week: (1) polishing shoes and (2) mending vests. Each footman
works a total of 60 hours this week. Suppose the following information summarizes their individual
production functions. Assume all values are completely divisible.
Time it takes to
Thomas Alfred
Polish a pair of shoes 2 hours
Mend a vest
1 hour
5 hours
Jimmy
15 hours
10 hours 3 hours
a. Graph the individual PPFs for each of the three footmen.
b. Find each footman’s marginal opportunity cost for polishing a pair of shoes.
c. Suppose that Mr. Carson has each footman splitting his time evenly between the two tasks.
Identify each footman’s production point on your graphs in part (a). How many pairs of shoes
and vests is each footman doing? And how many pairs of shoes and vests, in total, are being
polished and mended at Downton?
d. Mrs. Hughes comes along and suggests to Mr. Carson that he is being terribly inefficient in his
allocation of tasks. Demonstrate using an efficient joint production possibility frontier that Mrs.
Hughes is correct! Show us where Mr. Carson’s aggregate production point is in your efficient
joint production possibilities frontier.
IN ALL GRAPHS PUT PAIRS OF SHOES ON THE HORIZONTAL AND NUMBER OF
VESTS ON THE VERTICAL. Thanks!
Answer Space
3. Consider the very simple closed economy of HappyLand. Only four goods are produced in
HappyLand: pizza pies, cheese, cars and wine. There is no government, and no international sector.
Note the following very important information:
i) Pizza pies, cars and wine are final goods and final goods only.
ii) Cheese is consumed as a final good AND it is used as an intermediate good by firms in
the production of pizza pies.
iii) Each pizza pie made uses up 1/2 pound of cheese.
Item
Pizzas
Pies
Price
in 2010
Quantity
in 2010
Price in
2012
Quantity
in 2012
$20
100
$25
150
600
$3
700
Cheese $4
Cars
$10000
45
$12000
50
Wine
$20
400
$25
500
The table provides ALL the information you need to know on prices and total output/production for
the purposes of calculating national income statistics. Some work space is also provided.
SHOW YOUR WORK FOR EACH PART!
a.
b.
c.
d.
Calculate nominal or current GDP in year 2010.
Calculate nominal or current GDP in year 2012.
Calculate real GDP in 2012 assuming 2010 is the base year.
How, specifically, as an economist would you address the following questions posed to you by a
TV news reporter? “Is HappyLand a strong and very happy place to live? Are the citizens of
HappyLand doing better in 2012 than in 2010 and do they have a high standard of living?”
e. What is the implicit GDP deflator index in 2012, assuming 2010 is the base year?
f. Calculate how much inflation there was between 2010 and 2012 according to the implicit GDP
deflator index, using 2010 as the base year.
g. Suppose Harry, who lives in HappyLand, has a brother named Charles. Charles graduated from
college in 2010 and was given a gift of $10,000 from his grandmother. Harry is graduating in
2012. This same grandmother intends to give him $10,000 as well. Harry feels this is not fair.
He thinks he should get more. Can you use the information from this problem to defend Harry’s
position? In fact, how much would you suggest grandma give Harry so that the gifts seem more
equal?
Answer Space
Answer Space
MAKEUP ECON 1120 S2015 PRELIM 1 Answers to multiple choice questions
1.
C. Charlie, since his MOC to make corndogs is 3 bananas, the highest of all. So use him to make corndogs last.
2
E. J has a positive sign, so as J increase, quantity demanded increase. This does not apply to: number of firms making jelly
beans (affect supply, not demand), price of jelly beans (should be reverse relationship by LoD), nor the Easter basket
(complimentary good). Price of sugar is production cost so doesn’t affect demand. So only E is correct.
3
E. When the cost of producing chairs increases, production cost increases drops, resulting in a decrease in supply. Answer A is
wrong because a change in the price will result in a change in the quantity supplied, not the supply. Answer B is wrong because
a higher income will change demand but not supply. Answer C is wrong because it results in an increase in supply. Answer D is
wrong because a change in the price will result in a change in the quantity supplied, not the supply.
4
C. Part A is incorrect. A decrease in the price of corn (a substitute in consumption for green beans) causes people to consume
more corn, and buy less green beans instead (since green beans are now relatively more pricey, compared to corn). Therefore, this
event causes the demand curve for green beans to shift to the left. The supply curve remains unchanged. As a result, the
equilibrium price and the equilibrium quantity will both decrease. Part B is incorrect. The new bean-eating worm causes the
production costs of green beans to increase-shifting the supply curve of green beans to the left. The demand curve remains
unchanged. As a result, the equilibrium quantity must decrease, and the equilibrium price must increase. Part C is correct. The
fall in the price of butter causes people to buy more butter, and hence buy more green beans as well (since they are
complementary goods). As a result, the demand curve of green beans shifts to the right. Furthermore, bean farms are protected
from blight; hence, the supply curve shifts to the right. As a combined result, the equilibrium quantity must increase. We cannot
tell what happens to the equilibrium price- this depends on the relative sizes of the shifts of the demand and the supply curves.
Part D is incorrect. Wet harvest conditions shift the supply curve to the left. The new medical survey about the life benefits of
green beans shifts the demand curve to the right. As a combined result, the equilibrium price must increase. We cannot tell what
happens to the equilibrium quantity, without knowing the relative sizes of the shifts of the curves. The equilibrium quantity might
increase or decrease, we do not know. Part E is incorrect. The expectation of lower bean prices in the future shifts the demand
curve to the left. The supply curve remains unchanged. As a result, both the equilibrium quantity and the equilibrium price must
decrease.
5
E. The binding quota on Brazilian sugar means that the price in the market will be determined by the demand curve: i.e.
consumers will be paying their maximum willingness to pay at the quantity determined by the quota. Because demand curves
slope down, this price will be higher than what consumers were previously paying for Brazilian sugar. American and Brazilian
made sugar are substitutes. An increase in the price of Brazilian sugar increases the demand for domestically made sugar.
Therefore, the demand curve for American made sugar shifts out and to the right, increasing the equilibrium market price and
quantity of American sugar. Altogether, the price of both Brazilian and American made sugar increases.
6
C.
7.
E. A and B are good examples of intermediate goods. C counts as GDP of China. D, the used textbook counts as GDP of the year
it was made.
8.
C. GDP is what is produced in the country. GNP is what’s produced by your country’s people. So Francine’s work counts
towards the UK’s GDP but not its GNP and her work counts toward the France’s GNP but not its GDP.
9.
E. Since you donated them, they did not go through a market so would not be counted in GDP.
10.
C. CPI tends to overstate inflation as CPI computation uses base year bundle. Implicit GDP Deflator Index (IGDPDI) tends to
understate inflation.
11.
C. Structural unemployment: the portion of unemployment that is due to changes in the structure of the economy that result in a
significant loss of jobs in certain industries. An introduction of new technology in production process could be a cause of
structural unemployment.
12.
B. Find the answer http://www.bea.gov or in PowerPoint for Lecture 8.
13.
A. Last week, the unemployment rate was 10,000/(10,000+90,000)*100=10%. This week, the unemployment rate is
12,000/(12,000+90,000)*100=…%. Therefore, the unemployment rate increased since last week, as a result of 2,000 people
entering the labor force.
14
176
Typical
Units in Units in Prices in Prices in BYB
Urban
2010
2011
2010
2011
2010
Household
Good A
Good B
Good C
5
10
20
4
12
18
$1
$2
$4
$2
$1.50
$8
BYB
2011
$5
$20
$80
$10
$15
$160
$105
$185
CPI
176.1905