Economics Final Exam

Suppose the interest rate is 9%, compounded annually. If you deposit $5,000 today, how much will you have in 10 years?

$11,836.82

If U.S. GDP is $18 trillion, Investment spending is $2.5 trillion, Government spending is $4.5 trillion, and Net Exports is -$0.5 trillion (note that's negative half a trillion dollars), then Consumption spending must be...

$11.5 Trillion.

Suppose the Fed sells $100 million of U.S. securities to the public. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a

$500 million decrease.

Assume that between 1999 and 2009 nominal GDP increased from $7 trillion to $12 trillion and that the GDP deflator rose from 100 to 150. Which of the following expresses GDP for 2009 in terms of 1999 prices?

$8.0 trillion

This is a multiple answer question, which means that there may be more than one correct answer. Select all the answers that are correct. Which of the following is an example of a person responding to incentives?

-As a result of an increase in her pay, Maria chooses to take a lighter course load in college, and work more hours at her job. -As a result of an increase in gas prices, Donna begins carpooling to work with her friends.

Figure 4-3 indicates the demand (D) and supply (S) for the rental housing market in a large city. If the government imposed a price ceiling of a, which of the following would be true?

-The quantity of rental housing demanded would be t. -The quantity of rental housing supplied would be r. -There would be a shortage of rental housing.

This is a multiple answer question, which means that there may be more than one correct answer. Select all the answers that are correct. Which of the following are examples positive economic statements?

-The unemployment rate is 4%. -A decrease in the price of gasoline will cause the quantity supplied to fall, ceteris paribus.

When a market is in equilibrium...

-quantity supplied equals quantity demanded. -the price is at the intersection of supply and demand. -total surplus is maximized.

U.S. Nominal GDP in 2014 was $17,419,000. U.S. Real GDP in 2014 was $16,150,000. GDP Deflator in 2014 was therefore

107.8

If Singapore's economic growth rate is 4.5%, Singapore's GDP will double in...

15.56 years.

The population of Leon County is 280,000 people. Of these, 250,000 are noninstitutionalized civilian adults. 140,000 people in Leon County are employed, and 7,000 are unemployed. The Labor Force Participation Rate in Leon County is...

58.8%

The market for gasoline is in equilibrium, but the government decides that people are using too much of it, producing too much pollution and too many greenhouse gases. The government therefore imposes taxes on consumers of gasoline. The result will be...

A decrease in price, and a decrease in quantity.

In Figure 1 above, the demand curve has shifted to the left, reducing the price and changing consumer and producer surplus. Which of the following is correct?

A is Producer Surplus, B and F are Consumer Surplus, and C and G are nothing.

Which of the following is an important ingredient of efficient economic organization?

Competitive markets.

The market for horse-drawn carriages is in equilibrium, but then the automobile is invented. What happens in the market for horse-drawn carriages?

Demand falls, price falls, quantity falls.

Two studies published in the New England Journal of Medicine link the risk of breast cancer to alcohol consumption. Young women who have nine drinks per week were reportedly 150 percent more likely to develop breast cancer. According to economic analysis, how would this information affect the market for alcohol?

Demand will decrease, placing downward pressure on price.

Which of the following is a shortcoming of GDP?

GDP excludes nonmarket transactions.

The nation of Goldbug has a rapidly growing economy, and the velocity of money is not changing, but the inflation rate is negative. You can conclude from this that...

Goldbug's money supply must be growing slower than its real GDP.

Which of the following is not a cost of anticipated inflation?

Goods and services get more expensive.

The Consumer Price Index differs from GDP Deflator in which of the following ways? I. CPI looks at only a "basket" of goods typically purchased by households, while GDP Deflator considers all goods in GDP. II. CPI fully accounts for improvements in product quality, while GDP Deflator does not. III. CPI holds quantities from a base year constant, while GPD Deflator holds prices from a base year constant.

I and III

Suppose the price of a bunch of bananas in 1990 was $2, and today the same bunch would cost $5. CPI in 1990 was 130. CPI today is 240. You conclude that...

If the price of bananas had kept up with inflation, they would cost only $3.69, so bananas have become more expensive in real terms.

If Taco Bell's food is an inferior good for you, this means that...

If your income falls, you will eat more food from Taco Bell

During the boom phase of a business cycle, which of the following usually occurs?

Inflation rises, unemployment falls, economic growth rises

Which of the following is an example of frictional unemployment?

Josephus has recently left a job as military historian and is now looking for work writing books on ancient Roman history.

Noah values his car at $10,000, and Emily values it at $14,000. If Emily buys it from Noah for $11,000, which of the following is true?

Noah gains $1,000 of value, and Emily gains $3,000 of value.

The market for chicken sandwiches is in equilibrium, and then two things happen at the same time. First, a blizzard blows through the Southeast, depositing so much snow that buildings housing chickens collapse, killing many chickens. Second, the price of french fries, which are usually consumed with chicken sandwiches, goes up. What happens in the market for chicken sandwiches?

Price is indeterminate, quantity falls.

After a hurricane in Florida knocked out the regional water supply for several days, the demand for bottled water increased sharply. In a market economy, how will this increase in demand affect the equilibrium price and quantity of bottled water?

Price will increase, and quantity will increase.

The market for wired earbuds is in equilibrium, and then two things happen at the same time. First, smartphone manufacturers begin producing phones without headphone jacks (so that wired earbuds can no longer be used with the phone). Second, the price of magnets (an input for producing earbuds) rises. Which of the following will occur in the market for wired earbuds?

Quantity falls, price is indeterminate

The market for mangoes is in equilibrium, and then two things happen at the same time. First, the FDA releases a new study showing that eating mangoes will reduce your chances of getting heart disease significantly. Second, a new fertilizer makes it possible to grow mangoes in cooler climates than was previously possible. Which of the following will occur in the market for mangoes?

Quantity rises, price is indeterminate

Suppose that the Federal Reserve wants to decrease the money supply. Which of the following policies would achieve this goal?

Raise the Discount Rate.

Which of the following is the best choice for measuring improvements the average person's standard of living?

Real GDP per capita

South Korea's population is 50 million people, and its Real GDP is $1,410,000,000,000 ($1.41 trillion). Spain's population is 47 million people, and its Real GDP is $1,380,000,000,000 ($1.38 trillion). Which of the following is correct?

Spain's Real Per Capita GDP is $29,362, which is higher than South Korea's Real Per Capita GDP of $28,200.

It is the year 49 A.D. and Emperor Claudius of Rome has conquered part of Britannia, taking control of its silver mines, which soon begin to produce silver. The silver is shipped to Rome (instead of going to local chieftains as it did before). What effect should this have on the market for silver in Rome?

Supply rises, driving prices down and quantities up.

If Honda (a Japan-based firm) produces a car in Ohio and exports it to Japan, in which country's GDP will the car be counted?

The GDP of the United States because that is where it was built

Producer Surplus is...

The difference between what producers are paid, and the marginal cost of production.

The reporter on one broadcast network says 2011 GDP increased to an all-time high. Commenting on the same figure, a second reporter says GDP in 2011 was less than in 2010. Which of the following explanations is consistent with the statements of both reporters?

The first reporter was referring to nominal GDP, and the second was referring to real GDP.

Suppose the price of FSU branded t-shirts rises. Ceteris paribus, which of the following will occur?

The quantity of FSU branded t-shirts supplied will rise.

Marcus clears 100 acres of land by cutting down all the trees and burning the remaining vegetation. He then sells the cleared land to Juanita, who builds a dirt bike racing course on the site. As a result of the clearing of the land, a large bear finds itself homeless, leaves the area, and wanders to a town a few miles away, eating anyone it finds to satiate its hunger and rage. Which of the following is correct?

The rampaging bear is a negative externality, so society may not be better off.

How would a decrease in the price of the feed grains used to feed cattle affect the market for beef?

The supply of beef would increase, decreasing beef prices.

The loanable funds market is in equilibrium. Due to a change in tax law, many workers increase the amount of their income that they devote to retirement savings (and consume less). What happens?

The supply of loanable funds shifts to the right, and interest rates fall.

How will an increase in lumber prices influence the home construction market?

The supply of newly constructed homes will decrease.

Given the demand and supply conditions shown in Figure 4-4, what will happen as the result of imposing a price ceiling of a?

There will be a shortage of the product.

The problem with unanticipated inflation is...

Unanticipated inflation makes it hard to plan for the future, which makes people reluctant to undertake risky long-term investments.

Which of the following does not contribute to GDP?

You lose $50 playing cards with friends.

The Federal Reserve is...

a central bank, with the responsibility for controlling the money supply.

The Law of Demand is...

a general tendency in human behavior.

Which of the following would most likely cause the production possibilities curve for breadfruit and fish to shift outward from AA to BB in Figure 2-2?

a major technological advance

An asteroid is hurtling toward the earth, and deflecting it will require a very large expenditure of resource--probably more than any one country can afford to spend. The asteroid will probably destroy most life on earth. The United Nations tries to persuade the 20 wealthiest nations to pool their resources to build an asteroid defense system, but the citizens of each nation refuse to let their governments participate. They argue that if even a nation that doesn't contribute still benefits from asteroid defense. This is an example of...

a public good.

Suppose the market for wheat is in equilibrium. A price ceiling imposed above the equilibrium wheat price will result in...

a shortage of wheat. a surplus of wheat. a new equilibrium. None of these are correct

When economists say that equilibrium is efficient, they mean that...

all units of output that have a marginal benefit greater than marginal cost have been produced and consumed.

Refer to Figure 4-17. Suppose a price floor of $7.00 is imposed. As a result,

buyers' total expenditure on the good decreases by $20.00.

The Efficient Markets Hypothesis implies that you should not try to buy and sell individual stocks based on stories in the news or personal research because...

by the time you collect new information and act on it, stock prices have already adjusted and you cannot profit from the information.

Because of the free-rider problem,

competitive markets will tend to undersupply public goods.

A hurricane has just torn across Florida, doing a lot of damage in Tallahassee and knocking out power. As a result, the demand for generators rises, driving up the price. People selling generators at these high prices are accused of "price gouging" and exploiting a natural disaster for profit. The legislature in Tallahassee votes to impose a $200 price ceiling on generators. Assuming that this is a binding price ceiling, the result will be...

deadweight loss and a shortage of generators.

When an economist says "nothing is free", the economist means that...

every time you decide to do one thing, you give up the opportunity to do something else.

Discouraged workers are workers who...

have given up looking for work because they believe there are no good jobs for them.

A new law requiring plumbers to pass strict certification tests that reduce the number of plumbers would

increase the wage rate of plumbers.

A point inside the production possibilities curve represents a combination of goods that is

inefficient

Public choice theory indicates that the behavior of people in government

is best understood by applying the same principles we use to predict the behavior of people in the private sector.

According to the circular flow model, if the loanable funds markets and foreign exchange markets are in equilibrium, then...

leakages will equal injections.

Despite being a college graduate, Ethan cannot name any of his representatives in Congress and he has no idea which issues are being debated and voted on this week in Congress. According to public choice analysis, Ethan is

making a rational personal choice because knowing these things gives him little personal benefit.

Which of the following is the most liquid form of money?

money in a checking account

According to the law of supply,

more of a good will be offered by suppliers as the price rises.

Which of the following is not a government policy that would increase a country's unemployment rate?

openness to imports of foreign goods and services

For most people, ramen noodles are an inferior good. Suppose the market for ramen noodles is in equilibrium, and then two things happen at the same time. First, the incomes of consumers rise. Second, a technological improvement at noodle factories allows them to produce more noodles at a lower cost. What happens to the price and quantity of noodles?

price falls, quantity is indeterminate

The market for printed economic textbooks is in equilibrium. As incomes rise, students buy fewer printed textbooks, and buy more e-books instead. You can conclude (ceteris paribus) that...

printed textbooks are inferior goods.

Abigail wishes to spend more time this week studying for her classes. Using the idea of a production possibilities curve, and assuming Abigail is currently spending all of her time efficiently, Abigail can spend more time studying this week only if

she spends less time doing other things.

For most people, "feature phones" (also called "dumbphones") are an inferior good. Suppose that, as a result of the government shutdown, millions of people experience a reduction of their income. Demand for feature phones...

shifts to the right.

After the collapse of the Soviet Union, some housing complexes, which had been operated by the government, were handed over to the families that lived in them. This sounds like it would benefit these families, but there was a problem: The families were considered to all jointly own the entire building. This means that no family could sell their unit without permission from all the other owners. The other owners wouldn't consent to letting a family sell without asking for something in return, which made sales unprofitable. As a result, people were stuck with their apartments, and the apartments were stuck with their people--the apartments couldn't be sold, torn down, or changed. There were simply too many people with the right to say "no". This is a market failure known as...

the Tragedy of the Anticommons

Economics is primarily the study of

the choices we must make among alternatives because of scarcity.

Suppose prices for new homes have risen and sales of new homes have also risen. We can conclude that

the demand for new homes has risen.

When the loanable funds and foreign exchange markets are in equilibrium,

the leakages from the circular flow will equal the injections into it.

Other things constant, as the price of a resource increases,

the quantity of the resource demanded falls.

Your car is in the shop (or maybe you don't own one), and you need to go to the store. You consider paying $30 for an Uber driver to take you, but a friend offers to take you for free instead, and you take her up on her offer. The effect of this on GDP is...

zero, because the free ride is nonmarket production.