Explain the following statements.

Que 1.

1.

John just bought shares of stock in IBM for $10,000 and paid a $90 commission to his broker. How did this affect GDP?

A) It had no impact on GDP.

B) GDP increased by $90.

C) GDP increased by $10,000.

D) GDP increased by $9,990.

E) GDP increased by $10,090.

2.

Opportunity cost is the ____ alternative forfeited when a choice is made.

A) least-valued

B) most highly-valued

C) most convenient

D) most recently considered

3.

If there is an increase in the amount of good B foregone as every additional unit of good A is produced, the PPF between A and B would

A) be a straight line.

B) be a bowed-outward curve.

C) be a bowed-inward curve.

D) not exist.

4.

Persons who are retired or engaged in own-home housework are considered to be in which of the following categories?

A) in the civilian labor force

B) not in the labor force

C) employed

D) unemployed

5.

A recessionary gap exists if (actual) Real GDP is ____ Natural Real GDP.

A) less than

B) greater than

C) equal to

D) b and c

E) none of the above

6.

Decision making "at the margin" means making a choice based on ____ of a decision.

A) the total benefits

B) the total costs

C) comparing the total benefits and costs

D) comparing the additional benefits and costs

7.

When Claudia trades $100 for good X, economists assume that she is

A) trading something of less value to her for something of more value to her.

B) trading something of more value to her for something of less value to her.

C) trading something that gives her less utility for something that gives her more utility.

D) a and c

E) none of the above

8.

An increase in investment at a given price level

A) shifts the AD curve to the right.

B) shifts the AD curve to the left.

C) causes an upward movement along the existing AD curve.

D) causes a downward movement along the existing AD curve.

E) none of the above

9.

If the demand for a good falls by less than the supply of the good rises, then equilibrium price will ____ and equilibrium quantity will ____.

A) rise; fall

B) rise; rise

C) fall; fall

D) fall; rise

10.

The CPI was 140 in one year and 144 the following year. Approximately how much did prices rise between the two years?

A) 2.86 percent

B) 2.78 percent

C) 0.03 percent

D) 1.03 percent

E) none of the above

11.

The expenditure approach to measuring GDP sums

A) consumption, investment, government purchases, and net exports.

B) sales, revenues, income, and wages.

C) profits, compensation of employees, consumption, and investment.

D) net exports, consumption, wages, and salaries.

12.

Which of the following would not be included in the calculation of this year's GDP?

A) a headlight bulb purchased at Joe's Auto Supply by Susan to replace a burnt out bulb in her car

B) a headlight bulb purchased by Ford Motor Co. from a supplier

C) a headlight bulb produced but not sold this year and thus ending up as inventory

D) none of the above, i.e., all would be included

13.

Suppose the government decides that every family should own its own home. To bring this about, the government decides to subsidize the home-construction industry by giving the home-construction companies $10,000 for every house that they build. As a result of this,

A) the supply curve of new houses would shift leftward, since it now costs $10,000 more for builders to produce a house.

B) the demand curve for new houses would shift rightward, since now every family would want to buy a house.

C) the demand curve for new houses would shift leftward.

D) the supply curve of new houses would shift rightward, since builders would be willing to produce and sell more houses at each given price.

E) c and d

14.

Which set of changes will raise demand?

A) an increase in income (assuming demand is for a normal good), a decline in wage rates, and a rise in the per-unit tax placed on the production of a good

B) an increase in the number of buyers, a decline in the price of a substitute, and an increase in the prices of relevant resources

C) an increase in the price of a substitute, a decrease in the price of a complement, and an increase in expected (future) price

D) a decline in the number of buyers, an increase in the price of a complement, and a decline in a per-unit tax placed on the production of a good

E) none of the above

15.

Both country 1 and country 2 are located on their respective production possibilities frontiers (PPFs), but country 1 produces twice the output that country 2 produces. It follows that

A) country 1's PPF lies further to the right than country 2's PPF.

B) country 1 has a smaller population than country 2.

C) country 1 has a bigger population than country 2.

D) country 1 is efficient and country 2 is inefficient.

E) none of the above

16.

Suppose aggregate demand is too low to bring about the Natural Real GDP level. A Keynesian policy prescription would call for a(n) ____ to close this recessionary gap.

A) increase in government spending

B) decrease in government spending

C) increase in taxes

D) decrease in taxes

E) a or d

17.

The structural unemployment rate is 3.1 percent, the frictional unemployment rate is 2.1 percent, and the current unemployment rate is 4.9 percent. The economy is in

A) a recessionary gap producing less than Natural Real GDP.

B) an inflationary gap producing more than Natural Real GDP.

C) long-run equilibrium.

D) an inflationary gap producing Natural Real GDP.

E) a recessionary gap producing more than Natural Real GDP.

18.

A fall in the price level changes the purchasing power of money. This is relevant to the ____ effect.

A) international trade

B) real balance

C) aggregate demand

D) interest rate

E) aggregate supply

19.

An economic policy initiative results in the AD curve shifting to the right. As a result,

A) the price level will rise.

B) the price level will stay constant.

C) the price level will fall.

D) Real GDP will rise in the short run.

E) a and d

20.

Which of the following is consistent with the classical position on wages and prices?

A) Wages and prices are sticky in the downward direction.

B) Wages are sticky in the downward direction, but prices are flexible.

C) Wages and prices are flexible.

D) Prices are sticky in the downward direction, but wages are flexible.

21.

If the bottom half of all U.S. income tax payers were allowed to stop paying the income tax entirely and the top 50% continued to pay as they do now, tax revenues to the government would drop by about

A) 3.6 percent.

B) 10.2 percent.

C) 13.9 percent.

D) 33.3 percent.

22.

Which of the following is most nearly consistent with Say's law?

A) When a person produces one good, he or she plans to demand other goods.

B) When a person produces a good, he or she plans to sell it.

C) When a person buys a good, he or she plans to pay for it with money.

D) When a person goes to work, he or she plans to produce.

23.

The economy was at point A producing 100X and 200Y. It moved to point B where it produces 200X and 300Y. It follows that

A) point A may have been a point below the economy's PPF, while point B may lie on the PPF.

B) the economy's PPF could have shifted outward and point A was a point on the economy's old PPF.

C) the economy has moved from one point on its PPF to another point on the same PPF.

D) a or b

E) a or c

24.

The condition in an economy that makes a "rationing device" a necessity is the fact that

A) the economy is organized around free markets.

B) the economy is centrally planned by the government.

C) scarcity exists.

D) there are fewer types of goods than there are people in the economy.

25.

Expansionary fiscal policy actions include ____ government spending and/or ____ taxes, while contractionary fiscal policy actions include ____ government spending and/or ____ taxes.

A) increasing; increasing; decreasing; decreasing

B) decreasing; decreasing; increasing; increasing

C) increasing; decreasing; increasing; decreasing

D) decreasing; increasing; increasing; decreasing

E) increasing; decreasing; decreasing; increasing

26.

A price ceiling is a government-mandated

A) minimum price below which legal trades cannot be made.

B) maximum price above which legal trades cannot be made.

C) minimum price above which legal trades cannot be made.

D) maximum price below which legal trades cannot be made.

27.

In year 1 the CPI is 144.1, and in year 2 the CPI is 151. If Sarah's salary was $33,500 in year 1, what salary in year 2 would cause her to exactly "keep up with inflation"?

A) $50,585

B) $48,274

C) $40,508

D) $35,104

28.

One measure of the inflation rate is the

A) sum of the CPIs of adjacent years.

B) percentage change in the CPI of adjacent years.

C) percentage change in the Real GDP of adjacent years.

D) GDP minus the Real GDP in a year.

29.

Expansionary fiscal policy is ineffective if

A) there are idle resources in the economy.

B) the MPC is less than 0.60.

C) the government has a budget surplus.

D) there is complete crowding out.

E) a and d

30.

Suppose the economy goes from a point on its unchanging PPF to a point down and to the left of it. This could be due to

A) a gain of resources.

B) a loss of resources.

C) technological improvement in the production of both goods.

D) a new law that interferes with economic efficiency.

31.

A decrease in the price of electricity will cause

A) a movement down the SRAS curve.

B) a movement up the SRAS curve.

C) a leftward shift in the SRAS curve.

D) a rightward shift in the SRAS curve.

E) no change regarding the SRAS curve

32.

Which of the following is an example of crowding out?

A) A decrease in the rate of growth of the stock of money decreases GDP.

B) A deficit causes an increase in interest rates, which causes a decrease in investment spending.

C) An increase in tariffs causes a decrease in imports.

D) A decrease in government housing subsidies causes an increase in private spending on housing.

33.

A rightward shift in the demand curve for tennis balls could be caused by

A) a fall in the price of tennis balls.

B) a fall in the price of tennis rackets.

C) a rise in the price of tennis lessons.

D) a fall in income, assuming tennis balls are a normal good.

34.

Here is a consumption function: C = C0 + MPC(Yd). If MPC is 0.80, then we know that

A) as Yd rises by $1, Co rises by $0.80.

B) as Yd rises by $1, C rises by $0.80.

C) Yd rises by $0.80.

D) as C0 rises by $0.80, Yd rises by $1.

35.

Suppose a drop in stock prices makes people feel less wealthy. This would cause ____ the economy's AD curve.

A) movement down along

B) movement up along

C) a rightward shift of

D) a leftward shift of

36.

An economy is producing its Natural Real GDP when the rate of unemployment is equal to the ____ unemployment rate.

A) frictional

B) structural

C) sum of the frictional unemployment rate and the structural

D) seasonal

E) cyclical

37.

Who would be most likely to agree that "People do not always save more as interest rates rise"?

A) a classical economist

B) John Maynard Keynes

C) an efficiency wage theorist

D) a and b

E) a, b, and c

38.

The U.S. income tax is currently a ____ tax.

A) progressive

B) proportional

C) regressive

D) proactive

39.

The question of U.S. budget deficits and their impact on the U.S. economy is dealt with in the study of

A) microeconomics.

B) managerial economics.

C) macroeconomics.

D) consumer economics.

40.

John Maynard Keynes believed that wages may be inflexible in the downward direction. Consequently, an economy

A) could get stuck in long-run equilibrium.

B) could get stuck in a recessionary gap.

C) could get stuck in an inflationary gap.

D) would always produce more than Natural Real GDP.

E) b and c.

Que 2.

1. The following table shows the quantities of corn supplied and demanded at different prices.

Price per Ton Quantity Supplied Quantity Demanded $80 700 1,200 85 800 1,100 90 900 900 95 1,000 850

What are the equilibrium price and quantity of corn? At a price of $80, is there an excess demand or supply? By how many?

2.The table below uses data for the year 2011 provided by the Bureau of Labor Statistics and adjusted to be comparable to U.S. data. All values are in thousands. Fill in the blank entries in the table.

Country Adult Population Labor Force Employed Unemployed Unemployment Rate Labor-Force Participation Rate Japan 139,454 ? 72,510 8,500 ? ? USA 205,256 146,435 ? 11,712 ? ?

3.Compute how much each of the following items is worth in terms of 2012 dollars using 178 as the price index for 2012.

A)In 1946, the CPI was 16.7 and the price of a movie ticket was $0.30.

B)In 1952, the CPI was 25.1 and an engineer earned $40.00 a day.

C)In 1963, the CPI was 49.4 and a gallon of gas cost $0.45.

4.Assume the following open economy for Questions 1a, 1b, 1c and 1d below:

C = 200 + 0.75(Y %u2013 100)

I = 130

G = 200

X =95

M = 115

A)Determine (solve for) the equilibrium level of income or GDP (Y).

B)Determine the impact on income of a 50 increase in government spending from 200 to 250.

C)If the government seeks to increase income by 40, how much should it raise government spending?

5.Explain how the economy moves back to full employment from recession. Be sure to detail what happens to short-run aggregate supply, unemployment, equilibrium GDP and the price level.

6.Workers at a local mining company are paid $25.60 per hour, and they have incorporated a 3 percent annual raise in their contracts to account for expected inflation. Explain how unexpected inflation of 5 percent will affect the real wage and the unemployment rate.

7.If net taxes rise by $150 billion would you expect household saving to fall by $150 billion, by more than $150 billion, or by less than $150 billion?

8.The reasons why someone cannot get a job are similar to the reasons why someone cannot get a date. Using the ideas of frictionally unemployed, structurally unemployed, and cyclically unemployed, describe and explain how a student at your university might be frictionally undated, structurally undated, and cyclically undated.

9.A central concept in macroeconomics is the idea of the natural rate of unemployment. Why does it make sense to define full employment to occur when the unemployment rate equals the natural rate of unemployment, instead of when the unemployment rate equals zero? Elaborate and explain carefully.

ii.

1. Macroeconomics is the study of the: a. activities of individual units of the economy. b. decision making by households and firms. c. economy as a whole. d. interaction of firms and households in the marketplace. 2. All of the following are important macroeconomic variables except: a. real GDP. b. the unemployment rate. c. the marginal rate of substitution. d. the inflation rate. 3. The total income of everyone in the economy adjusted for the level of base year prices is called: a. a recession. b. an inflation. c. real GDP. d. a business fluctuation. 4. The inflation rate is a measure of how fast: a. the total income of the economy is growing. b. unemployment in the economy is increasing. c. the general level of prices in the economy is rising. d. the number of jobs in the economy is expanding. 5. Real GDP over time and the growth rate of real GDP a. grows; fluctuates b. is steady; is steady c. grows; is steady d. is steady; fluctuates 6. Two striking features of a graph of U.S. real GDP per capita over the twentieth century are the: a. overall upward trend interrupted by a large downturn due to the economic depression in the 1930s. b. nearly constant level with a large downturn in the 1930s. c. downward trend in the first half of the century followed by the upward trend in the second half. d. constant level in the first half of the century followed by the upward trend in the second half. 7. Recessions are periods when real GDP: a. increases slowly. b. increases rapidly. c. decreases mildly. d. decreases severely. 5 8. Deflation occurs when: a. real GDP decreases. b. the unemployment rate decreases. c. prices fall. d. prices increase, but at a slower rate. 9. The unemployment rate: a. was zero during the 1990s in the United States. b. was zero on average between 1900 and 1950 in the United States. c. has never been zero in the United States.10. In a simple model of the supply and demand for pizza, when the price of cheese increases, the price of pizza and the quantity purchased a. increases; increases b. decreases; increases c. decreases; decreases d. increases; decreases 11. Variables that a model takes as given are called: a. endogenous. b. exogenous. c. market clearing. d. macroeconomic. 12. An assumption of is more plausible for studying the short-run behavior of the economy, while an assumption of is more plausible for studying the long-run, equilibrium behavior of the economy. a. deflation; inflation b. inflation; deflation c. flexible prices; sticky prices d. sticky prices; flexible prices 13. All of the following are measures of GDP except the total: a. expenditures of all businesses in the economy. b. income from all production in the economy. c. expenditures on all final goods and services produced. d. value of all final production. 6 14. In the circular flow model, the flow of dollars from firms to households is paid and the flow of dollars from households to firms is paid a. as wages and profits; for goods and services b. for value added; as imputed values c. in current dollars; in constant dollars d. as interest and dividends; for depreciation and taxes 15. Which of the following is a flow variable? a. wealth b. the number unemployed c. government debt d. income 16. When a firm sells a product out of inventory, investment expenditures and consumption expenditures a. increase; decrease b. decrease; increase c. decrease; remain unchanged d. remain unchanged; increase 17. Imputed values included in GDP are the: a. market prices of goods and services. b. estimated value of goods and services that are not sold in the marketplace. c. price of goods and services measured in constant prices. d. price of goods and services measured in current prices