ECON 2030 Final Exam

If tortilla chips are an inferior good, when incomes rise, the equilibrium price will _____, and the equilibrium quantity will _____.

decrease; decrease.

When the price level increases and incomes remain constant, _____.

real income decreases

If money income remains constant while the price level doubles:

real income will fall.

Cyclical unemployment is a result of _____.

recessions and economic downturns

It is certain that the equilibrium quantity will fall when:

the supply curve and the demand curve both shift to the left.

(Scenario: Good A and Good B) The town of York produces two goods, good A and good B. The table presents information regarding York's production of these two goods and their prices over three years. In 2018, nominal GDP was _____ nominal GDP in _____. Year 2017 Year 2018 Year 2019 Quantity of good A 3 4 5 Price of good A $500 $550 $550 Quantity of good B 10 10 10 Price of good B $2 $4 $5

greater than; 2017

An example of an intermediate good is:

steel purchased by aircraft manufacturers.

Which statement is positive? Which statement is normative? I. Government spending on defense was $500 billion in 2019. II. The federal government should spend more on defense to protect us from our enemies.

I is positive; II is normative.

Which federal agency calculates and reports the official unemployment rate?

Bureau of Labor Statistics

In the market for fresh coffee, a normal good, which of the following will shift the demand curve to the right?

Incomes rise.

_____________, that is, decisions by an individual about what to do and what not to do, is the basis for economics.

Individual choice

A busy mechanic needs to decide whether to stay at the garage and work on one more car or to go meet his wife for dinner. This is an example of:

marginal analysis.

The student center on campus has tacos, nachos, or club sandwiches for lunch, and they all cost the same. You decide to have a club sandwich today, but if they were out of club sandwiches, you would have had nachos. Your opportunity cost of buying a club sandwich is your foregone enjoyment of the:

nachos.

For a production possibility frontier with constant opportunity costs, the slope of the production possibility frontier will be:

negative.

If a market is in equilibrium:

no individual will be better off doing something different.

If nominal GDP increases from one year to the next, _____ must have risen.

real GDP or prices or both

$(Table: Price and Output Data) Use Table: Price and Output Data. The value of year 2's output in real dollars is: ​ Year Output Price per Unit 1 2 $2 2 3 $4 3 base 4 $5 4 6 $6 5 7 $9 ​

$15.

Which question is MOST appropriate to the study of MACROECONOMICS?

How does the aggregate price level affect overall consumer spending?

A jobless recovery occurs when GDP is _____, and unemployment is _____.

growing at a below-average rate; rising

If a country runs a trade surplus, its investment spending is probably:

low relative to its savings.

(File upload question) ​In each case, draw a supply-and-demand model to analyze how the following events change the positions of supply and/or demand curve in the product market. How would each event affect market outcome (equilibrium price/quantity). 1. Assuming that tickets to an MLB game are normal goods, what is the effect of an increase in the incomes of MLB fans? 2. The price of mozzarella cheese rises. How does it affect the equilibrium price and quantity of pizza? 3.The bubonic plague, a deadly infectious disease, breaks out in London. How does it affect the equilibrium price and quantity in the market for Shakespeare's plays? Instruction: 1) Please type your answers of changes in market out (P and Q) for part 1), 2) and 3) into the text box below; if this part is missing, you get a zero even if you upload the correct supply and demand diagrams. 2) Use the "Mid1_File Upload Question" link to upload your answers for question 33. If your answers in 1) and 2) are inconsistent, it may be considered cheating, please provide me a valid excuse.

1. Price increases and quantity decreases 2. Price increases and quantity decreases 3. Price and quantity decrease (drastically) Got 15/15 pts

The consumer price index in 1979 was 72.6. In 1980, it was 82.4. What was the rate of inflation from 1979 to 1980?

13.5%

In the ancient country of Roma, only two goods, spaghetti and meatballs, are produced. There are two tribes in Roma, the Tivoli and the Frivoli. By themselves, the Tivoli each month can produce either 50 pounds of spaghetti and no meatballs, or 30 pounds of meatballs and no spaghetti, or any combination in between. The Frivoli, by themselves, each month can produce 30 pounds of spaghetti and no meatballs, or 40 pounds of meatballs and no spaghetti, or any combination in between. 1. Assume that all residents' skills/technique is fixed. Draw the two PPF for the two tribes (set horizontal axis the production of meatballs). 2. What is the opportunity cost of 1 spaghetti in Tivoli? What is the opportunity cost of 1 meatball in Frivoli? 3. Which tribe has the comparative advantage in spaghetti production? In meat-ball production? 4. In A.B. 100 the Tivoli discover a new technique for making meatballs that doubles the quantity of meatballs they can produce each month. After the innovation, which tribe now has an absolute advantage in producing meatballs? In producing spaghetti? Which has the comparative advantage in meatball production? In spaghetti production? Instruction: 1) Please type your answers of part 2), 3) and 4) into the text box below; 2) Use the "Mid1_File Upload Question" link to upload your answers for question 32. If your answers in 1) and 2) are inconsistent, it may be considered cheating, please provide me a valid excuse

2. The OC of 1 spaghetti in Trivoli is 0.6 meatballs. The OC of 1 meatball in Frivoli is 0.75 spaghetti. 3. The Trivoli has the comparative advantage in spaghetti. The Frivoli has the comparative advantage in meatballs. 4. The Trivoli has both the absolute and comparative advantage of both the spagetti and the meatballs. Got 13/15 pts

(Figure: The Demand and Supply of Quinoa) Use Figure: The Demand and Supply of Quinoa. What is the equilibrium quantity of quinoa in each period?

6,000 bushels

If the price level at the end of year 1 is 150, and the price level at the end of year 2 is 160, the inflation rate in year 2 is _____%.

6.7

(Table: Price and Output Data) Use Table: Price and Output Data. Between years 2 and 3, nominal GDP increased by: ​ Year Output Price per Unit 1 2 $2 2 3 $4 3 base 4 $5 4 6 $6 5 7 $9

67%.

(Figure: The Labor Market) Use Figure: The Labor Market. What will be the level of employment if firms decide to pay an efficiency wage of $16?

80,000

(Figure: Shifts in Demand and Supply IV) Use Figure: Shifts in Demand and Supply IV. The figure shows how supply and demand might shift in response to specific events. Suppose the Surgeon General announces that eating potato chips causes heart disease. Which panel BEST illustrates how this announcement will affect the market for potato chips?

A

(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose a heat wave destroys one-quarter on the nation's potato crop. Which panel BEST illustrates how this event will affect the market for french fries?

C

Part A: Kelli is a server at a casual restaurant in a small town. In each of the following situations, explain Kelli's type of unemployment. a. The local economy is in a minor recession and the restaurant lays Kelli off. The owner assures her that she will be rehired when business picks up again. b. A large factory, the major employer in the town, permanently closes, and this hurts all restaurants in town. The restaurant fires Kelli because the owner can only afford to stay open on the weekends. c. Kelli is dissatisfied with her schedule at the restaurant and quits her job. She is qualified to work at other restaurants and immediately begins to send her résumé to restaurants all over town. Part B: (Keep 2 decimal places.) Compute the labor force, u-rate (in percentage), adult population, and labor force participation rate (in percentage) using this data: Adult population of Economy A # of employed 151.1 million # of unemployed 7.8 million not in labor force 94.5 million

PART A a. cyclical b. structural c. frictional PART B labor force = 158.9 million u-rate = 4.9% adult population = 253.4 million labor force participation rate = 62.7% 13/13 pts

You decide to join the football team, but this means you can't join the basketball team, as the practices for the two teams occur at the same time. Which economic principle does this statement BEST represent?

The true cost of something is its opportunity cost.

A contraction in the business cycle is:

a recession.

(Keep 2 decimal places.) Eastland College is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you, the Economics Department's star student, to create an index of textbook prices. The average student purchases two English, three math, and three economics textbooks per year. The prices of these books are given in the accompanying table. 2012 2013 2014 English textbook $100 $110 $114 Math textbook 140 144 148 Economics textbook 160 180 200 a) Using 2014 as a base year, create a price index (CPI) for these books for all years. b) Calculate the average annual inflation rate using the price index from 2012 to 2013.

a. cost 2012 = 2(100) + 3(140) + 3(160) = 1100 cost 2013 = 2(110) + 3(144) +3(160) = 1192 cost 2014 = 2(114) + 3(148) + 3(200) = 1272 CPI 2012 = 1100 / 1272 x 100 = 86.5 CPI 2013 = 1192 / 1272 x 100 = 93.7 CPI 2014 = 100 b. (93.7-86.5)/86.5 x 100 = 8.3 12/12 pts

(Keep 2 decimal places.) Exhibit: Quantity Consumed and Price of Good ​ Base Year Later Year Price of good 100 200 Quantity of good A 100 200 Price of good B 100 100 Quantity of good B 100 100 In the exhibit, the citizens of country XYZ come to desire more of good A. As a result, the quantity and price of the good both rise. a. Compute nominal GDP in the base year and later year. b. Compute real GDP in the base year and later year. c. Compute GDP deflator for both years. Inflation rate? d. Compute the real GDP growth rate

a. good a NGDP base = p x q = 100 x 100 = 10,000 good b NGDP base = 10,000 good a NGDP later = p x q = 200 x 200 = 40,000 good b NGDP later = 10,000 b. good a RGDP base = NGDP = 10,000 good b RGDP base = NGDP = 10,000 good a RGDP later = 100 x 200 = 20,000 good b RGDP later = NGDP = 10,000 c. good a deflator base = NGDP / RGDP x 100 = 10,000 / 10,000 = 100 good b deflator base = 100 good a deflator later = 40,000 / 20,000 = 200 good b deflator later = 100 inflation rate good a = 100% inflation rate good b = 0% d. the real GDP growth rate increased for good a only ONLY 3/12 pts

Would each of the following transactions be counted in the GDP of the United States? What components of GDP (if any) would each of the following transaction affected? And by how much? What is the effect on GDP? a. Coca-Cola spends $2 million to builds a new bottling plant in the United States. b. Delta sells one of its existing airplanes to Korean Air for $0.7 million. c. Ms. Moneybags spend $1000 to buy an existing share of Disney stock. d. A California winery produces a bottle of Chardonnay and sells it for $80 to a customer in Montreal, Canada.

a. yes, goods and services. there would be an increase by 2 million dollars b. no c. yes, investment spending. there would be an increase of $1000 d. no ONLY 7/12 pts

When individuals or countries directly exchange goods they have for goods they want, they are engaging in _____ .

barter

Recessions are periods when ___ _.

both output and employment fall

Which decision is an example of marginal analysis?

deciding whether to eat one more taco

Suppose Texas decides to produce only two goods, salsa and cowboy hats. If Texas is producing on its production possibility frontier, as salsa production increases, the production of cowboy hats will:

decrease at some rate.

The keto diet is sweeping through the United States. The key to the diet is to eat large amounts of red meat (beef) but no carbohydrate-rich foods or poultry. As Americans switch to the new diet, we can expect a(n) _____ in the _____ poultry, leading to a shift to the _____ of the _____ curve for poultry and _____ poultry prices.

decrease; demand for; left; demand; lower

(Scenario: Linear Production Possibility Frontier) Use Scenario: Linear Production Possibility Frontier. If Smallville's labor resource decrease by 40 hours, the opportunity cost of producing shirts: Scenario: Linear Production Possibility Frontier Smallville has a linear production possibility frontier, and it produces pants and cowboy hats with 80 hours of labor. The table shows the number of hours of labor necessary to produce one pair of pants or one cowboy hat. Number of hours of labor to produce on pair of pants 4 Number of hours of labor to produce one cowboy hat 2

does not change.

If output and employment both rise over several quarters, then the economy is in a(n):

expansion.

(Table: Production Possibilities Schedule II) Use Table: Production Possibilities Schedule II. The production of 14 cell phones and 1 computer per period would result in: Table: Production Possibilities Schedule II Alternatives A B C D E Computers 0 1 2 3 4 Cell phones 20 18 14 8 0

some unused or inefficiently used resources.

(Figure: Computers and Speedboats II) Use Figure: Computers and Speedboats II. Point F is:

unattainable, all other things unchanged.

The Bureau of Labor Services calculates U-6. This statistic measures the:

underuse of labor, including discouraged workers, marginally attached workers, and underemployed workers.

The unemployment rate is the ratio of all people who are:

unemployed to those in the labor force.

Economic models:

vary greatly in their assumptions and simplifications.

(Table: Per Capita GDP) Use Table: Per Capita GDP. If 2016 is the base year, real GDP in 2019 was: ​ Year Nominal GDP Price Level Population 2016 $3,000 100 5 2019 $8,000 200 10

$4,000.

Choose three terms, and define the economic terms. 1. Circular-flow diagram 2. Define Factors of production. What are the three factors? 3. Law of demand 4. Production possibility frontier

1. A circular flow diagram represents the transactions in an economy by flows around a circle. It includes housegolds, firms, factor markets, and goods/services markets. 2. The law of demand says that when all other things are equal and the price of a good rises, the quantity demanded of that good falls (and vice versa). 3. The PPF is a model that shows the combinations of two goods that are possible for society to produce at full employment.

You read in the newspaper that the consumer price index for 2019 is 120. You conclude that a typical market basket in 2019 would have cost _____ more than the same market basket purchased in _____.

20%; the base year

During the Great Depression, the U.S. unemployment rate was as high as _____%.

25

Which of the following illustrates consumption expenditure?

Stephanie buys a laptop for her brother.

Which statement is TRUE regarding an inferior good?

When income decreases, demand increases.

In the absence of a minimum wage, efficiency wages, or labor unions, a decline in the demand for labor will likely result in _____ if wages are flexible.

a lower level of employment but likely no change in the unemployment rate

In a situation in which there are technological improvements, we generally see:

a shift in the production possibility frontier outward.

If France gives up three high speed trains for each ton of cheese it produces, while Canada gives up seven high speed trains for each ton of cheese it produces, then France has a comparative advantage in _____ production and should specialize in _____.

cheese; cheese

The natural rate of unemployment:

equals the actual rate of unemployment when cyclical unemployment equals zero.

(Figure: The Business Cycle) The movement from point B to point C is called a(n):

expansion.

Among the tools available to macroeconomic policy makers is:

fiscal policy, to influence overall spending.

In the markets for goods and services:

households buy goods and services.

A supply schedule shows:

how much of a good or service would be supplied at different prices.

For consumers, hot dogs and hamburgers are substitutes. A rise in the price of hot dogs causes a _____ in the equilibrium price of hamburgers and a _____ in the equilibrium quantity of hamburgers.

rise; rise

The national income and product accounts keep track of:

sales and investment spending by businesses.

(Figure: The Demand and Supply of Quinoa) Use Figure: The Demand and Supply of Quinoa. A price of $4 in this market would result in a _____ of _____ bushels per period.

shortage; 4,000

Consider two competing motorcycle manufacturers, Ducati and Yamaha. If Ducati lowers the price of its motorcycles, we can expect:

the demand curve for Yamahas to shift to the left, lowering the price of Yamahas.

A sushi chef prepares a California roll for a customer. Which of the following factors is physical capital?

the knife use to cut the sushi

Opportunity cost is:

the value of the best alternative forgone in making a choice between alternatives..