B 1. The primary determinant of a country's standard of living is the country's ability to prevail over foreign competition. the country's ability to produce goods and services. the total supply of money in the economy. d. the average age of the country's labor force. 2. Economists sometimes give conflicting advice because Graduate students in economics are encouraged to argue with each other. Economists have different values and scientific judgment. Economists acting as scientists do not like to agree with economists acting as policy advisers. B d. Economics is more of a belief system than a science. 3. Which of the following is a positive, as opposed to a normative, statement? The US Department of Justice should allow a merger between AT&T and T-Mobile because it would have little effect on consumers. Antitrust laws should be used to prevent further concentration in the wireless telephone service market. The US Department of Justice sued AT&T to block its merger with T-Mobile. d. The wireless telephone service market is too highly concentrated. 4. Which of the following is a correct statement about production possibilities frontiers? An economy can produce only on the production possibilities frontier. An economy can produce at any point inside or outside a production possibilities frontier. An economy can produce at any point on or inside the production possibilities frontier, but not outside the frontier. An economy can produce at any point inside the production possibilities frontier, but not on or outside the frontier. 5. Suppose you decide to attend a Denver Nuggets basketball game. When computing the opportunity cost of attending this basketball game, you should include a.) the price you pay for the ticket and the value of your time. b. the price you pay for the ticket, but not the value of your time. c. the value of your time, but not the price you pay for the ticket. neither the price of the ticket nor the value of your time. A d. D 6. Suppose that an economy can only produce two goods. The economy's production possibilities frontier would be bowed outward if Figure 1 Music the more resources the economy uses to produce one good, the more resources it has available to produce the other good. the economy is self-sufficient instead of interdependent and engaged in trade. the rate of tradeoff between the two goods being produced is constant. d. the rate of tradeoff between the two goods being produced depends on how much of each good is being produced. D Kim 8 Music Makeup 12 3 Kanye Use Figure 1 to answer questions 7 through 10. Assume that Kim and Kanye both have the same production inputs and can produce either music or makeup. Figure 1 shows the PPFs for Kim and Kanye. Makeup 7. Refer to Figure 1. Who has the absolute advantage in music production? Who has the absolute advantage in makeup production? a. Kim has the absolute advantage in music production and Kanye has the absolute advantage in makeup production. b. Kim has the absolute advantage in both music production and makeup production. c. Kanye has the absolute advantage in both music production and makeup production. d.) Kanye has the absolute advantage in music production and Kim has the absolute advantage in makeup production. kanye Music Kim MU B 4x = 84 Y= x x=24 8. Refer to Figure 1. Who has the comparative advantage in music production? Who has the comparative advantage in makeup production? a. Kim has the comparative advantage in music production and Kanye has the comparative advantage in makeup production. Kim has the comparative advantage in both music production and makeup production. Kanye has the comparative advantage in both music production and makeup production. kanye 12x 34 Figure 2 d. Kanye has the comparative advantage in music production and Kim has the comparative advantage in makeup production. - yy= 4x 9. Refer to Figure 1. What is Kim's opportunity cost of producing one unit of makeup? What is Kanye's opportunity cost of producing one unit of makeup? P* Y= MU X= Kim's opportunity cost of producing 1 unit of makeup is 2 units of music. Kanye's opportunity cost of producing 1 unit of makeup is 1/4 of a unit of music. G Kim's opportunity cost of producing 1 unit of makeup is 1/2 of a unit of music. Kanye's opportunity cost of producing 1 unit of makeup is 4 units of music. Kim's opportunity cost of producing 1 unit of makeup is 2 units of music. Kanye's opportunity cost of producing 1 unit of makeup is 4 units of music. d. Kim's opportunity cost of producing 1 unit of makeup is 1/2 of a unit of music. Kanye's opportunity cost of producing 1 unit of makeup is 1/4 of a unit of music. Market for Coffee 10. Suppose Kim and Kanye decide to specialize and trade along the lines of comparative advantage. Which of the following terms of trade (meaning which exchange rate) could make both Kim and Kanye better off than they were without trade? 1 unit of makeup for 15 units of music. b. 1 unit of makeup for 5 units of music. 1 unit of makeup for 1 unit of music. d. 1 unit of makeup for 1/5 of a unit of music. x 4x by 2y D Use Figure 2 to answer questions 11 through 13. Figure 2 shows supply and demand in the market for coffee. Assume that the market for coffee is perfectly competitive. Firms Household 11. Refer to Figure 2. Suppose that the price of coffee beans (an input for coffee) decreases. Holding all else constant, what will happen to the equilibrium price and quantity of coffee? Equilibrium price and quantity will both decrease. Equilibrium price and quantity will both increase. Equilibrium price will decrease and equilibrium quantity will increase. d. Equilibrium price will increase and equilibrium quantity will decrease. a. b. 12. Refer to Figure 2. Suppose that a tax cut effectively increases the income of people that buy coffee. Coffee is a normal good. Holding all else constant, what will happen to the equilibrium price and quantity of coffee? Equilibrium price and quantity will both decrease. Equilibrium price and quantity will both increase. c. Equilibrium price will decrease and equilibrium quantity will increase. Equilibrium price will increase and equilibrium quantity will decrease. d. 13. Refer to Figure 2. Suppose that the price of coffee beans decreases and that a tax cut effectively increases the income of people that buy coffee. Coffee is still a normal good. Holding all else constant, what will happen to the equilibrium price and quantity of coffee? a. There will be an ambiguous change in equilibrium quantity and equilibrium price will decrease. There will be an ambiguous change in equilibrium quantity and equilibrium price will increase. c. There will be an ambiguous change in equilibrium price and equilibrium quantity will decrease. d. There will be an ambiguous change in equilibrium price and equilibrium quantity will increase. 14. According to the circular-flow diagram GDP a. can be computed as the total income paid by firms or as expenditures on final goods and services can be computed as the total income paid by firms, but not as expenditures on final goods and services. can be computed as expenditures on final goods and services, but not as the total income paid by firms. cannot be computed as either total income paid by firms or expenditures on final goods and services. 15. Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. Holding all else constant, how would you expect this change in behavior to affect GDP? This change would increase GDP. b. This change would not affect GDP. c. This change would decrease GDP. d. This change could increase, decrease, or have no effect on GDP. DEF Nom 16. Suppose that GDP is $100m. If investment is $25m, government purchases are $20m, exports are $25m, and imports are $20m, what is the value of consumption? A Y= C = J = 25 Table 1 A W B Real 100 $50m b. $45m c. $40m d. $10m 17. Which 280 200 of the following economy-wide measures is GDP equal to? a. Total income. 18. GDP is not a perfect measure of well-being; for example, A. b. Total income + total saving. c. Total income-total government expenditures. d.) Total income-total imports. GDP incorporates a large number of non-market goods and services that are little value to society. GDP place too much emphasis on the value of leisure. GDP fails to account for the quality of the environment. d. All of the above are correct. Year 2014 (base year) 2015 2016 2017 Price of Quantity of Price of Kiwis Kiwis Apricots $1 50 $2 40 $3 70 100 Use Table 1 to answer Questions 19 through 24. Table 1 reflects prices of goods and services a fictional economy that produces only two goods, kiwis and apricots. $700 and 200. $350 and 100. $350 and 200. $1 $2 $3 100 $140 $4 $5 19. Refer to table 1. In 2015, this country's a. Nominal GDP was greater than real GDP, and the GDP deflator was greater than 100. B. Nominal GDP was equal to real GDP, and the GDP deflator was equal to 100. Nominal GDP was less than real GDP, and the GDP deflator was less than 100. Nominal GDP was less than real GDP, and the GDP deflator was greater than 100. 280 G-20 Nx=5 20. Refer to table 1. In 2016, the values of real GDP and the GDP deflator were respectively: $700 and 100. 700 nominal 700 2015 Nominal Quantity of Apricots 100 80 140 150 Real 200 350 2016 35 Nominal 21. Refer to Table 1. What was country's inflation rate from 2016 to 2017, as calculated by the GDP deflator? a. 62.5% b. 31.25% c. 50% d. 14.29% 22. Suppose that the basket of goods used to calculate the CPI is fixed at 5 units of kiwis and 10 units of apricots. 2014 remains the base year. What was the value of the CPI in 2016? a. 50 b. 100 C. 150 d. 200 23. Again, suppose that the basket of goods used to calculate the CPI is fixed at 5 units of kiwis and 10 units of apricots. 2014 remains the base year. What is the nation's inflation rate from 2016 to 2017, as measured by the CPI? a. 60% b. 30% C. 80% d. 40% 24. Now suppose that the basket of goods used to calculate the CPI is fixed at 10 units of kiwis and 5 units of apricots. 2014 remains the base year. What is the nation's inflation rate from 2016 to 2017, as measured by the CPI? a. 75% b. 37.5% c. 25% d. 12.5% 25. Suppose that in 2016 the nominal interest rate was 15% and the inflation rate was 10%. What was the real interest rate in 2016? a. 10 % b. 5% c. -5% d. -10 %