ECO2013 FSU final

Bubba Bob sells his 1984 Chevrolet Camaro to his friend, Leroy Bubba Cletus, for $800, and buys a 1990 Chevrolet Beretta for $1,200. Contribution to GDP:

0

Bubba Bob buys a new carburetor for his 1984 Camaro for $100, and then installs it himself. Contribution to GDP:

100

Bubba Bob buys a used carburetor from a salvage yard for $10, and pays a mechanic $100 to install it. Contribution to GDP:

100

Suppose CPI in 2015 was 230, and CPI in 1990 was 115. The price of an economics textbook in 1990 was $50. The price of the newest version of that textbook in 2015 was $200. If the price of the textbook from 1990 had just kept up with inflation, what would its price in 2015 be? Don't enter dollar signs or commas in your answer. Just type in a number.

100.0000

José is an illegal immigrant from Guatemala. Emma is a well-paid web designer who hires José to do some remodeling on her house. She offers José $5,000, but she would have been willing to pay him $5,500 (because that's how much she values the remodeling). José accepts, but he would have been willing to do the work for $4,000 (because that is how much he would earn doing work on a different house). What are the net gains to José and Emma that they get as a result of trading? You don't need to type a dollar sign with your answer; just enter a number.

1500.0000

If GDP is $15 trillion, Consumption is $9 trillion, Government Spending is $2 trillion, Investment is $3 trillion, and Exports are $3 trillion, then imports must be $____ trillion. (enter your answer as a whole number, i.e. "3" or "27")

2.0000

It is the year 2060, and you are talking (or perhaps telepathically communicating) with your grandchildren. "Grandparental Unit" they say, "is it true that when you were in college, a gallon of gasoline cost $2.00?" "Grandchildren" you reply, "you know it is true, because by this point you have already directly downloaded the complete history of gasoline prices for the past 100 years into your cyberbrain. Still, you should not be fooled by this price, because it is nominal, not real." "Say what? Gasoline today costs $15 per gallon. That is clearly very expensive compared to gasoline when you were in college. Your cyberbrain is clearly an old, inferior model." You angrily reply "Turn your sassback unit down by 20%, grandchildren. Your parental units would not be happy to hear you talk to me that way. Besides, you must keep in mind that the Consumer Price Index was 240 when I was in college. Now it is 2400. This means that if I were to convert the 2016 price of $2.00 into year 2060 dollars, it would become..." What will you tell your grandchildren? You have the following facts: CPI in 2016 was 240. CPI in 2060 is 2400. The price of gasoline in 2016 is $2.00 per gallon. The price of gasoline in 2060 is $15 per gallon. How many dollars would you need in 2060 to buy what $2.00 would buy in 2016? Enter your answer as a number, rounded to two decimal places. Don't enter a dollar sign.

20.0000

In each of the following situations, how much do the actions taken contribute to U.S. GDP? Remember, some things aren't counted! You may assume that all the goods were produced in the U.S. Type in each answer as a number, without commas or dollar signs. For example, "10000" will be accepted by Blackboard, but "$10,000" will not. Bubba Bob pays a mechanic $200 to install a new carburetor in his 1984 Chevrolet Camaro. Of this, $100 is parts, and $100 is labor. Contribution to GDP:

200

If Nominal GDP in 2015 was $150, and Real GDP in 2015 was $75, then GDP Deflator in 2015 was

200.0000

If the Federal Reserve requires that banks hold 5% of deposits in reserve, and then the Fed injects $100 into the banking system, by how much does money supply rise in total? You may assume that banks lend out every dollar they are legally allowed to lend. Round your answer to two decimal places. Do not type a dollar sign.

2000.0000

Rooster works on a farm. Peacock works as a model. Owl works night shift security. Pigeon is actively looking for work. Seagull is living an empty, sad life, scrounging for scraps by the sea, with no job, and no plans to get one. Budgie isn't old enough to work yet. What is the unemployment rate in this economy? You may assume that this is the entire population of this country. Type in your answer as a whole number, rounded to two decimal places. Do not type the % symbol.

25.0000

The graph below shows the market for corn with a price ceiling of $6 per bushel. After the ceiling is in place, how many bushels of corn are bought and sold?

3 bushels.

After graduating from college and getting a great paying job thanks to your degree in Advanced Hyperbolic Topology, you and your significant other decide to buy a house. You shop around to several different mortgage lenders, and eventually settle on one that offers an interest rate of 4.5% per year. You go to their office to fill out the mortgage paperwork, and overhear some of the employees talking in a back room. They mention that their company is expecting inflation this year to be 1.5%. What real interest rate does this mortgage lender expect to earn?

3%

Suppose that the nation of Kerblopistan has a money supply of $1,000, a Velocity of 2, and a Real GDP of $40. What is the price level? Correct!

50.0000

Suppose the country of Notmuchistan produces the following goods each week: 5 bananas, each worth $1 3 pineapples, each worth $2 20 sharp pointed sticks, each worth $3 What is Notmuchistan's weekly Nominal GDP? (Enter your answer as a whole number, and don't use a dollar sign--just type "15" or "500" or whatever.)

71.0000

Bubba Bob sells his 1984 Chevrolet Camaro for $800, changes his name to Clarence Julien Delacroix, and buys a new Cadillac CTS-V for $80,000. Contribution to GDP:

80000

Below is the demand schedule for chicken feet, a dim sum delicacy served at some Chinese restaurants. Although some people find the texture strange, others have developed a taste for it in the past 10 years. How many millions of pounds more of chicken feet were demanded in 2011, at 50 cents per pound, than in 2001? (Don't enter a bunch of zeroes for the millions; your answer should be simple, like 6.2, or 8.1.)

9.3000

Which of the following works best as money?

A Roman denarius, which was a small silver coin that could be exchanged for goods and services across the empire and beyond.

Select which of the following scenarios describe a shift in the supply curve (and NOT a movement along the supply curve).

After discovering that flash steaming tuna first, before using mechanical processes to extract meat, removes more tuna flesh, more cans of tuna hit the shelves at all major grocers. Amplitude, a new company, decides to join the smartphone market.

Which of the following are examples of people responding to incentives according to their rational self-interest? (There may be more than one correct answer.)

Aidan, tired of being made fun of because his parents gave him a fashionable name that very quickly became dated, has his name legally changed. He pays $40 in legal fees. Anna has been playing a lot of League of Legends in her spare time, and has become so good at it that she has been offered $70,000 a year to play for a professional team. She takes the job, dropping out of college.

Monopoly/Lack of Competition

Antitrust policy used to break up big firms or prevent big firms from merging

Suppose that the rate of spending growth in an economy, LaTeX: \%\Delta M+\%\Delta V % Δ M + % Δ V , is 5%. Which of the following Dynamic Aggregate Demand curves corresponds to this rate of spending growth?

B

If the Federal Reserve wants to increase money supply, which of the following would achieve this goal?

Buying Treasury Bills from banks

Select which of the following stories describes a shift of the demand curve (and NOT a movement along the demand curve).

Buzzier, an energy drink company, notices students are desperate to stay awake in order to study during final exam week, and change their buying behavior. In the country of Stilleoersubstanse, pants that are designed to sag low are no longer in vogue after a series of tragic walking accidents, and sales fall as a result. Out-N-In, a burger joint with a cult-like national following in the U.S., sells more burgers as the price of chicken increases. After it earns 1st prize in the "whose tastebuds have been most numbed by years of eating spicy food" category of a cookoff, fans of spicy noodles buy a lot more Double Burn brand ramen noodles.

Josephine teaches economics, and makes about $110,000 per year doing so. If she couldn't teach economics, she would be doing economic consulting for a major bank for $150,000 per year. If she couldn't work as an economic consultant, she would go back to school and study history. If she couldn't do that, she would stay at home and take care of the kids (her husband currently does this, but could go back to work if she couldn't find a job she liked). Which of the following is Josephine's opportunity cost of teaching economics?

Doing economic consulting.

Each graph below shows the supply of textbooks. For each scenario below, select which graph best describes the situation. The printing press is invented.

Graph A

The graphs below depict demand curves for ramen noodles. For each scenario below, select a graph that best describes the situation. Droves of college students funnel into their respective college towns after summer vacation.

Graph A

ABC textbook company shuts down, removing the 5th biggest textbook provider from the market.

Graph B

After the first few months of college, students grow to detest ramen.

Graph B

The cost of paper, an input for textbooks, increases.

Graph B

The price of ramen decreases.

Graph C

The price of ramen increases.

Graph D

The price of textbooks falls.

Graph D

I have limited spare time, and I like to spend a lot of it reading books and listening to podcasts (particularly history podcasts). Sadly, I cannot do both at the same time. The graph below represents the number of books and podcast episodes that I could consume. The line is like a Production Possibility Frontier, though it would be more accurate to call it a Consumption Possibility Frontier. Which of the following statements are correct? You may assume that I don't want to let any of my "media consumption time" go to waste--that is, I will always want to consume as much as I can.

I could listen to 7 podcasts and read 1 book each week.

The year is 1779 in Iceland. Light sources, such as oil lamps, are precious commodities (as harnessed electricity is not yet available, and the nights are long for much of the year). The government wants to intervene in the pricing of oil lamps so that its citizens don't pay outrageous amounts of money for lighting. The currency used in Iceland at the time was the Rigsdaler. Below is a graph depicting Iceland's hypothetical supply and demand for oil lamps. If Iceland's governor chooses to set a price ceiling of 40 Rigsdaler for an oil lamp, what will occur?

Nothing will change.

Match each market failure with a government policy that might be able to address the problem. (Of course, it is not guaranteed that the government will get it right.) Negative Externality

Pigovian taxes on the harmful activity

Suppose the market for desktop computers is in equilibrium. Intel develops a new process for producing computer chips which does not improve performance, but does allow more chips to be produced at a lower cost. What happens to the equilibrium price and quantity?

Price falls, quantity rises.

Suppose the market for bread is in equilibrium. Two things then happen at the same time: Warmer-than-usual weather results in a larger harvest of wheat (which is used to make bread), and a new diet, known as the Anti-Atkins-Anti-Paleo diet sweeps the country, encouraging everyone to eat more bread. What happens to the equilibrium price and quantity of bread?

Price is indeterminate, quantity rises.

Suppose the market for tequila is in equilibrium, but then two things happen simultaneously. First, a new mixed drink using tequila, known as a "Fancy Spindiffilizer", sweeps the country. Second, an earthquake in Mexico damages several tequila production facilities. What happens to the equilibrium price and quantity of Tequila?

Price rises, quantity is indeterminate.

The Tragedy of the Commons

Privatize the overused resource, or if that is not possible, try to simulate private property using tradeable permits

A sharp increase in the price of wood causes increases in the prices of dressers and desks. What happens to the quantity of dressers and desks demanded?

Quantity demanded falls.

Due to increases in hay prices, an input for raising cattle, the price of a gallon of 2% milk increases from $2.98 to $3.25. What happens to quantity of milk demanded?

Quantity demanded falls.

Amazon is holding a buy-one-get-one-free special on MP3 albums. What happens to the quantity of MP3 albums demanded?

Quantity demanded rises.

Groupon (remember Groupon? Does anyone still use that?) has a coupon for $6 off the price of laser tag. What happens to the quantity of laser tag demanded?

Quantity demanded rises.

There is a week-long special at Safeway, where pork shoulder is on sale at $1.99 per pound, down from $3.99 per pound. What happens to the quantity of pork shoulder demanded?

Quantity demanded rises.

The price of Coca-Cola stays at 5 cents per bottle all year. What happens to the quantity of Coca-Cola bottles demanded?

Quantity demanded stays the same.

Public Good

Taxes are collected, and the revenue is used to provide a good that the market cannot

Below is the demand schedule for chicken feet, a dim sum delicacy served at some Chinese restaurants. Although some people find the texture strange, others have developed a taste for it in the past 10 years. Based on the demand schedule, you conclude:

The demand curve shifted to the right.

The graph below shows the dynamic aggregate demand curve (AD) and Solow growth curve for an economy. Suppose the rate of technology progress rises, resulting in faster long run economic growth. Which of the following is correct?

The inflation rate falls, and the economic growth rate rises.

Suppose CPI in 2015 was 230, and CPI in 1990 was 115. The price of an economics textbook in 1990 was $50. The price of the newest version of that textbook in 2015 was $200. In the previous question, you determined what the price of the textbook from 1990 would be in 2015 if it had just kept up with inflation. Given your answer to the previous question, which of the following is correct?

The textbook price has actually risen faster than inflation.

The year is 1779 in Iceland. Light sources, such as oil lamps, are precious commodities (as harnessed electricity is not yet available, and the nights are long for much of the year). The government wants to intervene in the pricing of oil lamps so that its citizens don't pay outrageous amounts of money for lighting. The currency used in Iceland at the time was the Rigsdaler. Below is a graph depicting Iceland's hypothetical supply and demand for oil lamps. If Iceland's governor chooses to set a price ceiling of 15 Rigsdaler for an oil lamp, what will occur?

There will be a shortage of oil lamps.

Suppose that the city of Halifax decrees that all restaurants located within a 15 mile radius of the University of Halifax must charge at least $10 a meal so that college students can become more refined in their dining. What is a likely result of this price floor? (Note that the last problem asked you which was not likely; this one asks which one is likely.)

There will be a surplus of food at many of the restaurants as quantity supplied exceeds quantity demanded at a price of $10 per meal.

Consider the supply curve for basketballs. Other things held constant, if the price of basketballs goes up from $7.99 to $14.99, what can we expect from suppliers of basketballs as a result?

There will be an increase in quantity supplied.

Suppose that the city of Lethbridge decrees that all restaurants located within a 15 mile radius of the University of Lethbridge can charge no more than $1 a meal so that college students can eat out economically. Which of the following is NOT a likely result of this price ceiling?

There will be food surpluses at many of the restaurants as quantity supplied exceeds quantity demanded at a price of $1 per meal.

Which of the following causes SRAS to shift?

When inflation expectations adjust.

Pollution is emitted from a power plant in Kentucky, and drifts on the wind into Canada, where it causes acid rain to fall, damaging buildings and forests. This is an example of...

a negative externality.

Consider the light from a lighthouse. Lighthouses shine light over bodies of water, so that ships do not run aground on reefs, shoals, sandbars, other dangers at sea. A ship that can see the light does not reduce the ability of other ships to see the light, and a crew that hasn't paid the lighthouse operator can't be excluded from seeing the light—anyone near the lighthouse can see the light. One could therefore argue that a lighthouse is an example of a...

a public good.

Andrew's demand for Starbucks coffee changed as a result of a(n)

change in income

A Mrs. Field's chocolate chip cookie is sold for $8.

characteristic of a black market

The web cookie, an illegal delicacy prized for its distinctive icing decorations, is sold at the bazaar.

characteristic of a black market

In economic terms, coffee and creamer (or half-and-half, or whatever you prefer) are usually considered

complements

The graph below shows another tax. This tax has been legally placed on...

consumers

Suppose the government proposes a $100 per phone tax on smartphones, arguing that the producers of smartphones can easily afford to pay it. An economist would respond that...

consumers will end up paying some of the tax, because the burden of a tax is not determined by the legal assignment of the tax.

The rate of technological progress increases, leading to faster economic growth in the long-run.

does not move

A new car sold to a nice old lady who only drives it to church on Sundays

final good

A new guitar sold by a music store to a child learning to play

final good

A pizza oven used by a restaurant to make pizza

final good

Cement purchased by a homeowner to repair a sidewalk

final good

Match the descriptions below with the appropriate term. Price Ceiling

government making it illegal to charge a price above a certain threshold

Price Floor

government making it illegal to charge a price below a certain level

In economics terms, Beanlightened coffee is a(n)

inferior good

A ton of steel that will be used to make several new cars

intermediate good

Cement purchased by a contractor to build a sidewalk for a new house

intermediate good

Flour used by a pizza restaurant to make a pizza

intermediate good

Match each good with either "final good" or "intermediate good". Cowhide, purchased by a tanner, to be made into a belt for retail sale

intermediate good

Congressman Jerk McStupidface suggests a new tax on airline tickets bought at the last minute. Thinking about people who buy airline tickets at the last minute, airlines who sell them, and the way that affects pricing currently, you can conclude that the burden of this tax is likely to fall more heavily on... Correct!

last-minute buyers of airline tickets.

Match each description below with the inflation cost that best fits it. Due to high inflation, Alejandra's Market in Venezuela has a team of three employees whose job is to update the prices of goods on the store shelves, all day, every day.

menu costs

AT&T, originally American Telephone and Telegraph, gradually gained more and more market share, particularly in long distance service, in the late 19th century. It did so by using patents (which it got from Alexander Graham Bell) to keep competitors from developing similar technology, and this worked until those patents began to expire. At that point other firms began to enter the market to compete, but AT&T aggressively bought some of these firms, which brought government scrutiny. In 1913 the government reached an agreement with AT&T: The company could not buy a phone company without also selling one. Instead of encouraging competition, however, this led to AT&T making deals with local phone companies to divide the country into territories over which AT&T or the local companies would have exclusive control. AT&T maintained complete and exclusive control over the wires that connected these local networks (this was called "long distance" service). This, combined with government-imposed prices, prevented competition from appearing in the telephone service markets. What kind of market failure best fits AT&T?

monopoly/lack of competition

The Federal Reserve increasing the rate of money supply growth

no effect

Andrew, a college student, loves drinking coffee late at night to study for exams. Having no income, he is used to buying cheap bad tasting coffee, such as Beanlightened, that he needs to grind and brew himself. The coffee tastes putrid but, with enough cream and sugar, Andrew is able to tolerate it. Occasionally, he does go out to Starbucks when he has spare money. After graduation, Andrew gets a job working at a database firm as a programmer. His income is now a healthy $75,000 a year and he decides he's had enough bad tasting coffee. He ends up buying coffee daily from Starbucks even though it costs significantly more than Beanlightened. Match each sentence beginning below with the phrase that ends it best. In economic terms, Starbucks coffee is a(n)

normal good

Fortune cookies are sold at $1.90 each.

not characteristic of a black market

In the neighborhood of Sesame Street, cookies are in particularly high demand. The demand is, in fact, so great that prices for cookies are skyrocketing, and average citizens can no longer obtain this staple food. The government is considering a price control to keep cookies affordable for its citizens. As a result of the price control, a covert bazaar for cookies arises. Assuming the price control is set at $2 per cookie, sort the following statements into whether or not they describe black market activity. Flour, an input for cookies, is sold at $3 per bag.

not characteristic of a black market

In the neighborhood of Sesame Street, cookies are in particularly high demand. The demand is, in fact, so great that prices for cookies are skyrocketing, and average citizens can no longer obtain this staple food. The government is considering a price control to keep cookies affordable for its citizens. Which kind of price control is the government considering?

price ceiling

The graph below shows a tax. This tax has been legally placed on...

producers

How, if at all, do you think these events would have affected the Solow growth curve? The 1970s oil crisis.

shifted to the left

Significant and sustained increases in marginal income tax rates.

shifted to the left

James Watt's invention of the steam engine in 1775.

shifted to the right

The Internet revolution of the 1990s.

shifted to the right

Money supply growth decreases.

shifts to the left

Velocity growth decreases.

shifts to the left

For each of the scenarios below, identify whether Dynamic Aggregate Demand shifts to the right, shifts to the left, or remains unchanged. Remember that an answer can be used more than once, and some will not be used at all. Money supply growth increases.

shifts to the right

Velocity growth increases.

shifts to the right

Due to high inflation, people in Iran make frequent trips to the bank to withdraw money for everyday transactions, instead of carrying money in their wallets.

shoeleather costs

The graph below shows the market for corn with a price ceiling of $6 per bushel. The market is not in equilibrium after the price ceiling is imposed. Rather, there is a _______ of ______ million bushels.

shortage, 4

Suppose the graph below represents the labor market for low-wage workers. A minimum wage of $14 per hour is being considered. If imposed, the minimum wage will result in a __________ of _________ workers.

surplus, 4 million

Equilibrium

the condition that occurs when the price is at just the right level to cause the quantity demanded to equal the quantity supplied

Consumer Surplus

the difference between the highest price a consumer is willing to pay for a good or service and the actual price the consumer pays

Back in the days before it was easy to lock down computers so that users couldn't screw them up, computers in computer labs tended to quickly be infected with viruses,spyware, and unnecessary programs. The failure of users to take care of these computers is an example of...

the tragedy of the commons.

Inflation has been very unpredictable lately. Because of this, Elon is reluctant to proceed with building his new factory. If he borrows a lot of money to build it, but inflation is much lower than expected, he will end up paying more than he planned. He decides not to invest in building the factory.

the uncertainty of unexpected inflation causes a reduction in investment

Out of a fear of inflation, Ron consults with a financial advisor, and then pays him to buy gold, instead of investing in stocks.

unexpected inflation causes people to use scarce resources to shield themselves from inflation