Download Economics 211 Macroeconomic Principles

Economics 211
Exam #1
Macroeconomic Principles
Time: 1h 15m
Date:
26 - 27 September 2012
Name ___________________________________
Instructor: Brian B. Young
The value of this exam is 100 points plus 5
points for the Bonus Question.
Please show your work where appropriate!
Multiple Choice
2 points each
#1
One reason the demand for Apple iPhones might increase is a
a. decrease in price of Apple iPhones.
b. decrease in price of Samsung Galaxies.
c. very successful advertising campaign for Apple iPhones.
d. poor quality performance record for Apple iPhones.
#2
Because of the circular flows of expenditure and income in the economy, total ____ equals total
____ equals total ____.
a. expenditure; investment; income
b. expenditure; income; value of production
c. consumption; total expenditure; value of production
d. investment; income; consumption
#3
When supply decreases, there is a
a. movement down along the supply curve.
b. rightward shift of the entire supply curve.
c. leftward shift of the entire supply curve.
d. movement up along the supply curve.
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#4
The law of supply states that, other things remaining the same, if the price of a good rises, then
the
a. supply increases.
b. supply decreases.
c. quantity supplied decreases.
d. quantity supplied increases.
#5
The demand curve illustrates the law of demand because when the price increases, the
a. demand increases.
b. demand decreases.
c. quantity demanded decreases.
d. quantity demanded increases.
#6
In Lower Slobbovia, the national price index is measured with a base year of 1999. By the year
2004, the price index had risen to 200.00. Estimate the average annual rate of inflation over the
period 1999 to 2004.
a. 20%
b. 25%
c. 14.87%
d. 7.43%
#7
Economists use the term full employment to refer to an economy where
a. unemployment is less than or equal to 5%.
b. there is no cyclical unemployment.
c. 100% of the labor force is gainfully employed.
d. everyone who wants a job can get one.
#8
Potential GDP is the level of real GDP that would occur if an economy
a. is at a peak in the business cycle.
b. exports at least as much as it imports.
c. is at full employment.
d. pays a wage that is higher than the equilibrium wage.
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#9
The price of a General Electric jet engine purchased by Boeing would be included in
a. the CPI.
b. the PCE deflator.
c. the GDP deflator.
d. none of the above is correct because a GE jet engine is not a final good.
#10
Hot dogs and hot dog buns are complements. If the price of a hot dog falls, then
a.
the demand for hot dogs will increase.
b.
the demand for hot dog buns will decrease.
c.
the quantity demanded of hotdogs will decrease.
d.
the demand for hot dog buns will increase.
#11
A price ceiling set above the equilibrium price leads to
a.
a shortage.
b.
a surplus.
c.
an increase in the quantity bought and sold.
d.
no change in either the equilibrium price or the equilibrium quantity
#12
A price floor set above the equilibrium price results in
a.
a shortage.
b.
a surplus.
c.
an increase in the quantity bought and sold.
d.
no change in either the equilibrium price or the equilibrium quantity.
#13
To be considered unemployed, a worker must have had
a. no employment during the week before the survey and be actively looking for a job.
b. part-time employment while actively looking for a full-time job.
c. no employment during the week before the survey and be actively looking for a job
while a student.
d. no employment during the day before the survey and be actively looking for a job.
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#14
Toyota’s output at its Kentucky plant is
a. included in U.S. GNP and partially in Japan’s GDP.
b. included in U.S. GDP and partially in Japan’s GNP.
c. included in U.S. GNP and U.S. GDP.
d. included in Japan’s GNP and GDP.
#15
Workers in the United States pay 1.35 percent of their earnings and employers also pay 1.35
percent of the worker’s earnings as a Medicare tax. Which of the following is definitely
true?
a. The incidence of the Medicare tax is shared equally by the workers and the employers ..
b. Employers pay the full amount of the tax.
c. Workers pay the full amount of the tax.
d. More information is needed to determine the incidence of the tax.
#16
Imposing a sales tax on a product has an effect that is similar to which of the following?
a. a decrease in consumers’ preferences for the good
b. an increase in the costs of production
c. an increase in demand for the good
d. a decrease in people’s willingness to work.
#17
One means of lowering the stated unemployment rate would be to
a. draft unemployed persons into military service.
b. put unemployed persons in prison until the economy improves.
c. make it so difficult to find a job that the unemployed will stop looking.
d. All of the above would lower the reported unemployment rate.
#18
Which of the following statements is correct for the United States?
a. Real hourly wages peaked in the 1970’s.
b. Income and wealth inequality have increased over the past three decades.
c. The federal budget deficit has increased substantially over the past decade.
d. All of the above are true.
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#19
Which of the following statements is true?
a. The nominal interest rate can be negative but the real rate of interest can never be
less than zero.
b. The real interest rate can be negative but the nominal rate of interest can never be
less than zero.
c. The real interest rate can be negative but the nominal rate of interest is almost never
less than zero.
d. The nominal interest rate is usually less than the real interest rate.
#20
The rapid decrease in the labor force participation rate over the past 12 years can be mostly
attributed to which of the following:
a. Structural unemployment—job seekers don’t have the skills employers demand.
b. Demographics—baby boomers are retiring in large numbers.
c. Poor labor market—discouraged workers have left the labor force in droves.
d. Both demographics and a poor economy have played a significant role in driving
down the labor force participation rate.
#21
During a recession, when unemployment increases, a country is likely to produce a
combination of goods and services illustrated by a point
a. inside its production possibilities frontier.
b. on its production possibilities frontier.
c. outside its production possibilities frontier.
d. either inside or outside but definitely not on its production possibilities frontier.
#22
In the real world, opportunity costs
a. increase because resources are not all equally productive at all activities.
b. are constant because resources are not all equally productive at all activities.
c. decrease because resources are not all equally productive at all activities.
d. are sometimes decreasing and sometimes increasing.
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#23
As an economic expansion approaches its peak, it is very likely that real GDP will
a. exceed nominal GDP.
b. exceed potential GDP.
c. equal nominal GDP.
d. None of the above answers is correct.
#24
If the economy is fully employed, which of the following is true?
a. The price level equals 100.
b. Real and nominal GDP are equal.
c. Real and potential GDP are equal.
d. The unemployment rate is zero.
#25
In the absence of external intervention, when the quantity supplied is greater than the quantity
demanded, there is a
a. shortage and the price will fall.
b. shortage and the price will rise.
c. surplus and the price will rise.
d. surplus and the price will fall.
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Short Answer
10 points each
#1:
When the expected future price of a good rises, the supply curve shifts to the left and the
demand curve shifts to the right at the same time. What happens to the equilibrium price after
the shifts? What happens to the equilibrium quantity after the shifts? Is it always possible to
determine the direction of change in both the equilibrium price and quantity or is more
information necessary? Use supply and demand curves to graphically explain your answer.
#2
Why is depreciation (capital consumption) accounted for when using the income approach to
calculating GDP and, yet, not accounted for when using the expenditure approach to GDP?
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#3
“When the unemployment rate goes down, the economy must be improving.” Explain why the
preceding statement may not always be accurate.
#3
The residents of Goober Gulch, New Mexico have never been happier! Money Magazine has
recently named Goober Gulch “America’s Most Abysmal Community” and, fortunately for the
Gulchers, no one in town really knows what “abysmal” means. Life is not always a party in
Goober Gulch, though. Of the 10,000 residents of G.G., 7500 are 16 years old or older, 500 are
active duty military, 200 are locked up in jail, 200 reside in the local lunatic asylum, and 1600
are retired. Of the remaining 5000 residents, 2500 have either full-time or part-time jobs, 500 are
searching for work, and 2,000 spend their time either at home raising children or at the local
bars drinking Pabst Blue Ribbon. What is the labor force participation rate in Goober Gulch?
What is the unemployment rate in Goober Gulch?
#4
The table below gives data on the production and prices in a small economy. Use 2003 as the
base period.
Item
Hot dogs
Pepsi
a.
b.
c.
d.
Data for 2003
Quantity
Price
4
2
$1.50
$1.00
Data for 2004
Quantity
Price
6
3
$1.75
$1.25
What does nominal GDP equal in 2003?
What does real GDP equal in 2003?
What does nominal GDP equal in 2004?
What does real GDP equal in 2004?
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#5
The following is a supply and demand schedule for ethylene glycol:
Price ($/gallon)
3.50
3.00
2.50
2.00
1.50
1.00
0.50
Quantity
supplied
(1000’s
gls./day)
16
14
12
10
8
6
4
Quantity
demanded
(1000’s
gls./day)
4
5
6
7
8
9
10
a. What is the equilibrium price and quantity for ethylene glycol?
b. Suppose that the government places a tax of $1.50 on each gallon of ethylene glycol.
What is the new equilibrium price and quantity for ethylene glycol?
c. Who bears most of the burden of the new tax, the buyers or the sellers?
d. How much revenue does the government collect each day from the tax?
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Bonus Question
5 points
Suppose that used cars are an inferior good. Further, suppose that the economy is transitioning
from a period of expansion into a period of recession. In the market for used cars:
1. Which curve(s) shift? Demand shifts to the right / Demand shifts to the left / Supply
shifts to the right / Supply shifts to the left.
2. Graph the situation in the market for used cars:
P
Q
3. As a result of the reduction in income due to the recession,
a. the price of used cars will increase / decrease / can’t tell
b. the quantity of used cars sold will increase / decrease / can’t tell
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