Macroeconomics Final Exam
Suppose U.S. Exports are $1.42 trillion, and imports are $2.13 trillion. Capital Inflow is $1.44 trillion. What is Capital Outflow, in trillions of dollars?
.73
The Chicago Booth School of Business surveyed a diverse array of highly respected economists (the IGM Economic Experts Panel) on steel and aluminum tariffs. The survey statement was "Imposing new US tariffs on steel and aluminum will improve Americans' welfare." What percent of economists agreed?
0%
Germany and Turkey are two countries, each producing two goods: Germs and Turkey Sandwiches. The opportunity cost for Germany to produce 1 Germ is 2 Turkey Sandwiches. The opportunity cost for Turkey to produce 1 Germ is 4 Turkey Sandwiches. What terms of trade would allow both Germany and Turkey to benefit from trade?
1 Germ for 3 Turkey Sandwiches would work, but so would 1 Germ for 2.5 Turkey Sandwiches, or 1 Germ for 3.5 Turkey Sandwiches.
The opportunity cost for the U.S. to produce 1 ton of rice is 10 hamburgers. The opportunity cost for Japan to produce 1 ton of rice is 5 hamburgers. Which of the following terms of trade would benefit both countries (assuming they specialized according to comparative advantage and traded)?
1 rice to 7 hamburgers
If velocity grows at 1% per year, the inflation rate is 2% per year, and the economy grows at 3% per year, then the money supply growth rate must be...
1% per year
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.
Which of the following would not be something the Fed would do to decrease money supply?
Buy Treasury Bills.
If the Federal Reserve wants to increase money supply, which of the following would achieve this goal?
Buying Treasury Bills from banks
Which of the following is correct?
Changes in money supply growth can change inflation in the long run, but cannot change the economic growth rate.
The price of a gallon of gasoline in 1975 was $0.53. In 2014 the price of gasoline was $3.55. In 1975 CPI was 53.8. CPI in 2014 was 234. Which of the following is correct?
On average, you would need $2.31 in 2014 to buy what $0.53 would buy in 1975. Therefore, the price of gasoline has risen in real terms.
Which of the following are reasons why fiscal policy might be effective? I.Crowding out II. The Keynesian multiplier is large. III. Automatic stabilizers IV. Time lags
II and III
Suppose Puerto Rico is allowed to leave the U.S. and become an independent nation. Which of the following is correct?
If Puerto Rico's government imposes tariffs on goods from the U.S. and other countries, it will collect tax revenue If Puerto Rico's government imposes tariffs on goods from the U.S. and other countries, total surplus will fall
Which of the following statements about exchange is false?
If one trading partner gains, the other must lose.
Liquor stores in Tennessee lobby the state legislature, asking that wine shipments from out-of-state be made illegal. They argue that if consumers are allowed to buy wine from out-of-state, many in-state employees of liquor stores will lose their jobs. What would an economist likely say in response to this argument?
If people out-of-state can distribute wine at a lower price than people in-state, the consumers of this state will benefit from lower wine prices. Resources that are no longer used producing goods for which Tennessee does not have comparative advantage can be reallocated to those industries in which Tennessee does have a comparative advantage, making Tennesseans wealthier. While it is easy to see the jobs destroyed by out-of-state wine sellers, it is harder to see the jobs that are never allowed to exist because the workers are in wine sales instead of something else.
Which of the following do you think best describes the relationship between inflation and economic growth in the short run?
If people spend faster, this causes firms to grow faster, and puts upward pressure on inflation.
Which of the following does the law of demand specifically imply?
If the product price increases, quantity demanded will decrease
If a small country opens up to trade, which of the following will happen?
If the world price is lower than the domestic price, total surplus will increase.
When compared to native-born Americans, how likely are illegal immigrants to commit state and local crimes? (I'm leaving out federal crimes because the numbers are harder to work out there, but if it makes you feel better, federal crimes are somewhere between 3% and 10% of total crimes).
Illegal immigrants are less than half as likely to commit crimes at the state and local level as native-born Americans.
Select which of the following stories describes a shift of the demand curve (and NOT a movement along the demand curve).
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. 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. 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.
You are given a choice between two investments. Investment A pays an interest rate of 5%. Investment B pays an interest rate of 20%. Which investment is likely to be riskier, other things equal?
Investment B
In Europe during the 14th century, the Black Plague killed 24 million people or close to 37 percent of the population. How would this affect the production possibilities curves for the countries of Europe at that time?
The production possibilities curves for these countries would have shifted inward.
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.
Consider the demand curve for blue jeans. The price of blue jeans goes down. Ceteris paribus, which of the following will occur?
The quantity of blue jeans demanded rises.
Suppose the price of one year's tuition at FSU rises from $5,000 to $15,000. Which of the following will occur, ceteris paribus?
The quantity of students who choose to attend FSU will fall.
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
Suppose the new Star Wars theme park opens at Disney World. People from around the world including Japan travel to Disney World to see it. What happens?
The supply of foreign currency rises, and the dollar appreciates relative to the Yen.
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.
Suppose the market for coffee is in equilibrium. A blight strikes coffee plants in South America, killing many of them, making coffee beans more scarce. What happens in the market for coffee (the drink not the bean)?
The supply shifts to the left, price rises, quantity falls.
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.
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.
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?
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.
If the Japanese government imposes tariffs on imported foreign rice, the result will be...
a decrease in Japanese exports and/or a decrease in foreign capital inflow
If we observe a decrease in the price of a good and a decrease in the amount of the good bought and sold, this could be explained by
a decrease in the demand for the good
An increase in the price of metal raises the cost of manufacturing dishwashers. As a result, the market changes to a new equilibrium because of
a leftward shift in the supply curve for dishwashers
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
"An 10% increase in the minimum wage will increase unemployment by 1%. This statement is...
a positive economic statement.
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
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
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.
Suppose the government of North Korea decides to recognize and enforce private property rights and allow goods and services to flow into and out of the country. What will happen to the Solow Growth Curve?
It will shift to the right
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.
What percentage of the U.S. federal government's budget goes to foreign aid?
Less than 1%
Which of the following would not work as a form of money?
Live goldfish in an easy-to-carry bowl
Mateo values his camper at $4,000, and Nicole values it at $9,000. If Nicole buys it from Mateo for $7,000, which of the following is true?
Mateo gains $3,000 of value, and Nicole gains $2,000 of value
Do dollars that leave the circular flow come back?
Mostly yes, because taxes are spent, saved funds are borrowed, and dollars that leave due to capital outflow or imports come back due to capital inflow and exports.
Country A's Nominal GDP was 500 last year, and its Nominal GDP is 1000 this year. Country B's Nominal GDP was 250 last year, and its Nominal GDP is 1000 this year. Country A experienced an inflation rate of 100% last year. Country B experienced an inflation rate of 300% last year. Which of the following is correct?
Neither country grew in real terms last year.
Research by economists on laws restricting gun availability, or permitting concealed carry, has found that:
Neither of the above.
Suppose the economy is in a long run equilibrium, but two things happen at the same time: The money supply growth rate rises by 2%, and the growth rate of velocity falls by 2%. What happens?
Nothing happens.
Your friend knows a guy at Twitter who says they have some top-secret projects in the works that will make the company tons of money. He's planning to buy as much Twitter stock as he can during the IPO (initial public offering) because the stock price will rise quickly when these projects are announced. He will then sell the stock and make a hefty profit. This is...
a way to make large profits probably illegal insider trading
An increase in supply will cause
an increase in quantity demanded
You have probably heard that there is a gender pay gap, and that women earn around 79 cents for every dollar earned by men. When one controls for age, experience, education, and other individual characteristics, the gender pay gap shrinks to...
around 99 cents on the dollar
If a person's income goes up, and that person buys more chicken sandwiches, then we can conclude that for this person...
chicken sandwiches are a normal good.
If a small country opens to trade, and the world price is higher than the domestic price...
consumers are worse off, producers are better off total surplus rises
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.
A country's output in 2013 consists of 20 sandwiches (each worth $20), 5 sweaters (each worth $100), and a sculpture (worth $100). This country's GDP* for 2013 is... *Technically, I'm asking you for Nominal GDP, but we haven't talked about that yet. This note is for later, when you're studying this for your exam.
$1,000
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.
$1,500
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
The price of a dozen eggs in 1975 was $0.77. The price of a dozen eggs today is $3.05. GDP Deflator in 1975 was 34.46. GDP Deflator today is 116.44. If you use GDP deflator to bring the price of eggs from 1975 into 2013 dollars, you find that the $0.77 from 1975 is worth...
$2.60 today, which means that the real cost of buying eggs has increased.
Suppose I buy a book for $20. I was willing to pay $30 for it, and the bookstore would have been willing to sell it for as little as $10 (the amount for which they could sell it wholesale). What is the total gain to both sides?
$20
If the marginal propensity to consume is 0.5, how much money does the government have to spend to cause GDP to rise by $500 billion?
$250 billion
You sell your friend your old iPhone for $300, but you would have been willing to sell it for $250. Your producer surplus is...
$50
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.
If you are willing to pay $80 for your textbook, but you find a used copy for $20, your consumer surplus is...
$60
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
If Dynamic Aggregate Demand shifts to the left because of a decrease in consumer and investment spending, the government could provide fiscal stimulus by...
cutting taxes raising spending cutting taxes and raising spending
Which of the following kinds of unemployment falls when a recession ends?
cyclical unemployment
What happens when a tax on a good that is (legally speaking) paid by consumers results in...
deadweight loss tax revenue reduced quantity supplied and quantity demanded
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
Last year, 1,000 cases of bottled water were sold at $5; this year, 1,200 cases were sold at $7. These data could be explained by the
demand curve shifting to the right, with no change in supply.
Structural unemployment is a result of
difficulties in matching qualified workers with available jobs
If two countries specialize according to comparative advantage and trade, they will both
end up with more stuff
If the equilibrium price of broccoli is $2 per pound, and a price floor is imposed at $3 per pound, the result will be...
All of the above.
Select which of the following scenarios describe a shift in the supply curve (and NOT a movement along the supply curve).
Amplitude, a new company, decides to join the smartphone market. 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.
Which of the following most clearly suggests an improvement in a country's standard of living?
An increase in Real Per Capita GDP
A new hormone will increase the amount of milk each cow produces. If this hormone is adopted by many dairies, what will be the effect on the milk market?
An increase in supply, lower equilibrium price, and higher equilibrium quantity
If the economy is in long run equilibrium with 6% inflation and 3% economic growth, and the Federal Reserve permanently decreases the rate of money supply growth, the long run result will be...
An inflation rate less than 6%, and economic growth rate of 3%.
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.
If a price ceiling is imposed on flu shots below the equilibrium price of flu shots, the result will be...
shortage.
The oil crisis of the 1970s resulted in an increase in inflation rates and a lower rate of economic growth. This combination is known as...
stagflation
When individuals are unemployed because they lack the qualifications to fill available jobs, this is called
structural unemployment
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
Which of the following is not an example of a central bank?
the Wells Fargo bank (headquartered in San Francisco)
A tax on a good that is (legally speaking) paid by consumers results in...
the demand curve shifting to the left.
If the GDP deflator in 2011 was 130 compared to a value of 100 during the 2005 base year, this would indicate that
the general level of prices during 2011 was 30 percent higher than during 2005
A country opens to trade, but imposes a tariff on imports. If the world price of a good is greater than the domestic price, the result will be:
the government collects no tariff revenue.
If you are offered a choice of two investments, with one offering an interest rate of 6% per year, and the other an interest rate of 2% per year, it is probably the case that...
the investment offering a higher interest rate is riskier
Saccharin and aspartame are both low-calorie substitutes for sugar. If saccharin is found to cause cancer,
the price of aspartame will increase.
Consider the supply curve for potatoes. If the price of potatoes falls, then...
the quantity supplied will fall.
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
Public restrooms tend to be disgusting, because the people who use them have little incentive to treat them well. That is, any effort they make to keep the bathroom clean will mostly be costly to them, and the benefits will mostly go to other users. This is an example of the market failure known as...
the tragedy of the commons
The opportunity cost of going to college is
the value of the best opportunity a student gives up to attend college
The opportunity cost of an action is
the value of the best opportunity that must be sacrificed in order to take the action.
You are a factory worker and you lose your job. You hear in the news that the U.S. has imported more from China this year than last year. You conclude that you have lost your job to China. The problem with your conclusion is...
two events may have happened around the same point in time, but that doesn't mean one event caused the other.
Which of the following goods (or services) is likely to have inelastic supply?
Housing in a city with strict zoning laws that make starting new construction difficult
If Real GDP for 2007 was $15 trillion, and Nominal GDP for 2007 was $10 trillion, then GDP Deflator for 2007 was...
66.7
If GDP in China is growing at 7% per year, then GDP will double in about...
10 years
A country has a population of 200 people. 150 of them are non institutionalized civilian adults. Of these, 90 are employed, and 10 are unemployed. What is the unemployment rate?
10%
CPI was 400 last year, and this year it is 440. What was the inflation rate over the last year?
10%
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?
100
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.
2
If the money supply is $10 trillion, the velocity of money is 3, and real GDP is $15 trillion, then the price level must be...
2
If the opportunity cost of producing 4 pages of chemistry homework is 2 pages of math homework, then the opportunity cost of producing one page of math homework is...
2
The required reserve ratio is 50%, and banks loan out all money they are legally allowed to loan. The money multiplier must be...
2
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.
2,000
A country has a population of 200 people. 150 of them are non institutionalized civilian adults. Of these, 90 are employed, and 10 are unemployed. What is the labor force participation rate?
66.7%
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?
71
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?
20
If Nominal GDP in 2015 was $150, and Real GDP in 2015 was $75, then GDP Deflator in 2015 was
200
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.
25
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%
If the inflation rate is expected to be 6%, and a bank charges an 9% interest rate on a mortgage, the bank expects to receive a real interest rate of...
3%
You work for a mortgage company, making home loans. The lender expects to earn a real interest rate of 3%, and the expected inflation rate is 2%. What nominal interest rate should you charge for home loans?
5%
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?
50
GDP calculated using the income approach is the same as GDP calculated using the expenditure approach because...
A dollar spent by one person is a dollar of income to someone else.
Which of the following is least likely?
A politician who considers the effect of a policy change today on citizens in 20 years, when the demographics of the population will have changed.
A student asks some questions in class, taking on all the costs of being embarrassed and coming up with the questions. This student could ask more questions, but doesn't, because most of the benefits of asking questions go to the students who are too shy or timid to ask questions. What sort of market failure is this?
A positive externality
Which of the following goods would be counted in GDP?
A sandwich from Subway (Eat Fresh!).
Which of the following is commodity money?
A silver denarius minted in Roman Syria in 335 C.E.
Which of the following is most likely to contribute to economic growth?
A stable, predictable legal system (i.e., rule of law)
The point of Steven Landsburg's "Iowa Car Crop" parable is...
A tax on imports from Japan is also a tax on farmers in Iowa that export to Japan.
Which of the following are examples of people responding to incentives according to their rational self-interest?
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.
Equilibrium is efficient because...
All of the above.
If the surgeon general announces that wearing shoes is bad for your posture, which of the following will occur?
Demand for shoes will shift to the left.
Suppose the market for bus transportation is in equilibrium. Due to discriminatory policies on the part of bus companies, customers decide to boycott them (i.e., many customers refuse to take the bus). What happens in the market for bus transportation?
Demand shifts to the left, price falls, quantity falls.
The market for car loans is in equilibrium, but then Tesla Motors releases its new Model 3, a low cost, family friendly, long-range electric car. Everyone wants one. What happens in the market for car loans?
Demand shifts to the right, interest rates rise, quantity of funds loaned out rises.
The country of Catland can produce up to 10 units of Frisky Scampering (FS), and up to 2 units of Warm Cuddling (WC). Dogistan can produce up to 12 units of FS, and up to 3 units of WC. Which of the following is correct?
Dogistan has the lowest opportunity cost of producing WC. Catland has the lowest opportunity cost of producing FS.
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
Suppose demand increases and (at the same time) supply decreases. Which of the following will happen?
Equilibrium quantity will rise, fall, or stay the same and equilibrium price will increase.
Suppose demand decreases and (at the same time) supply increases. Which of the following will happen?
Equilibrium quantity will rise, fall, or stay the same while equilibrium price will decrease.
One bag of flour is sold for $1.50 to a bakery, which uses the flour to bake bread that is sold for $4.00 to consumers. A second bag of flour is sold to a consumer in a grocery store for $2.00. Taking these three transactions into account, what is the effect on GDP?
GDP increases by $6.00
Which of the following is likely to harm economic growth?
High tariffs to protect domestic jobs from foreign competition
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 potato chips is in equilibrium, and then two things happen at the same time: The price of potatoes (which are used to make potato chips) goes up, and a big sporting and social event occurs. Eating lots of potato chips is traditional at this big sporting event. Which of the following is correct?
Price rises, quantity is indeterminate.
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.
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
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
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.
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.
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
Which of the following meets the requirements for a public good?
The light from a lighthouse
A price ceiling is a price control such that...
The market price may not go above the ceiling.
Which of the following is not a problem with GDP as a measure of economic well-being?
Real GDP does not control for inflation
Which of the following is the best choice for measuring improvements the average person's standard of living?
Real GDP per capita
Which of the following are leakages from the circular flow of income?
Savings, taxes, and imports
Which of the following industries has not received tariff protection from foreign competition in the past two decades?
Software development
At the end of the fiscal year, the Army has $2 billion left over in its budget for ammunition, and plenty of ammunition stockpiled. What are the officials in charge most likely to do?
Spend the $2 billion on additional ammunition, which they will add to the stockpile.
Which of the following statements about financial assets is correct?
Stock prices change frequently due to changes in expected future profits.
Gold, silver, stone, copper, and bronze coins, and even cowrie shells (small seashells) have been used as money. Iron, however, was only rarely used as money, because of how it interacts with moisture. Which of the characteristics of money does it fail to satisfy?
Store of value
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 the price of cotton yarn (which is used to make t-shirts) goes up, which of the following will happen in the market for t-shirts?
Supply will shift to the left, and price will rise.
If the economy falls into a recession, which of the following policies could restore a long-run equilibrium?
The Federal Reserve could increase the rate of money supply growth The government could increase spending The government could reduce taxes
In The Petition of the Candlemakers, Frédéric Bastiat argues that the government of France should impose trade barriers against which foreign competitor?
The Sun
Which of the following arguments against trade is stated correctly? (I'm not asking if they are good arguments; I'm asking which one is stated correctly.)
The U.S. should prevent dumping of cheap products; otherwise foreign firms would drive domestic firms out of business and jack up prices.
Producer Surplus is...
The area above the supply curve and below the price.
A tornado destroys several carpet factories in North Georgia. Which of the following occurs?
The carpet supply curve shifts to the left.
Consumer Surplus is...
The difference between what consumers are willing to pay and what they actually pay.
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.
A country has 250 non institutionalized civilian adults, 25 of which are unemployed, and 175 of which are employed. Which of the following is correct?
The labor force participation rate is 80%, and the unemployment rate is 12.5%
Which of the following is true?
To remain in office, a politician must try to enact policies that gain him votes for his reelection and increase the support coming from contributors.
Which of the following causes SRAS to shift?
When inflation expectations adjust.
Suppose that pollution taxes on power generation are likely to fall upon both many producers (in the form of lower profits) and many consumers (in the form of higher prices for electricity). Which category does this policy likely fall into?
Widespread Costs, Widespread Benefits
Which of the following does not contribute to GDP?
You lose $50 playing cards with friends
In which of the following scenarios are you most likely to carefully consider your choice of computer, buying no more and no less than you need?
You pick a computer, and then you must buy it with your own money
The Federal Reserve is...
a central bank, with the responsibility for controlling the money supply.
A country opens to trade. If the world price of a good exceeds the domestic price, the result will be...
exports.
If GDP Deflator was 120 last year, and is 107 this year, then the price level has...
fallen.
In The Iowa Car Crop, Steven Landsburg argues that importing cars from Japan and exporting wheat from Iowa is analogous to...
growing cars in Iowa.
A country with a comparative advantage in producing a good...
has the lowest opportunity cost of production.
In the simple Circular Flow Diagram we saw in class,
household expenditures become revenue for firms, which they spend on costs and profits, which become income for households. households buy goods and services, which are produced by firms, using resources the firms purchase from households. the fact that income equals expenditure can be seen visually.
A country opens to trade. If the world price of a good is less than the domestic price, the result will be...
imports
A point inside the production possibilities curve represents a combination of goods that is
inefficient
Which of the following goods is likely to have elastic demand?
interior decorating services
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...
last-minute buyers of airline tickets
Deadweight loss represents...
lost consumer and producer surplus.
If the Federal Reserve increases money supply growth, the immediate result will be...
lower interest rates and more spending
Which of the following would most likely increase the supply of beef?
lower prices of grains used to feed cattle
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
30% of workers have contracts with their employer that guarantee them a 2% cost of living adjustment for the next year. This means that for the next year, the economy must be in the...
short run
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
If a price floor is set below the equilibrium price, the result will be...
no change at all.
What is the title of the person in charge of making sure market prices reach equilibrium, so that there is not too much or too little of any good or service?
none of the above
Market Failures...
occur when actions that are rational for individuals lead to collectively irrational outcomes. occur when individuals' pursuit of their own self interest results in failure to achieve an efficient outcome can sometimes be corrected by government policy, at least in theory.
The value of the best thing you give up to get something is...
opportunity cost
Relative to a competitive situation, if a market lacks competition, economic theory suggests that
output will be lower and price higher
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
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.
Suppose the price of raspberries is $10 per pound, but then falls to $8 per pound. The Law of Demand states that...
quantity demanded will rise.
If %ΔM = 5%, and %ΔV = 0%, but then the growth rate of velocity rises to 2%, the Dynamic Aggregate Demand curve will...
shift to the right.
