(ECON) Final Exam Review

False

In the video we watched in class, Rep. Alexandria Ocasio Cortez demonstrated how to correctly calculate unemployment rates for the United States. (True / False)

C

If the price index we are studying increased from 140 to 168, we would say the inflation rate was _________________ percent. A. 7 B. 10 C. 20 D. 28 E. 14

True

Laissez Faire means that the government does not interfere in the free operation of markets or prevent buying and selling products with very few exceptions. (True / False)

C

Most economists would agree that the Keynesian Economic Model focuses more on the ___________________ while the classical economic model is more of a ___________________ model. A. components of aggregate supply, aggregate demand focused B. long run time frame, short run time frame C. short run time frame, long run time frame D. private banking system, Federal Reserve central banks

Positive Statement

A statement of economic facts and can be tested.

Normative Statement

A statement of opinion.

E

According to Okun's Law, if the level of cyclical unemployment increased by one percent, we would expect the output gap in the United States to increase by approximately $_______________ (Use the estimate for GDP we gave in class). A. $0 B. $100 Billion C. $200 Billion D. $50 Billion E. $400 Billion

False

According to the Congressional Budget Office, if the United States raised the national minimum wage to $15 an hour, the result would be NO significant increase in unemployment in the labor market. (True / False)

True

According to the Humphrey Hawkins Act, it is equally important for the Fed to focus on price stability and full employment of labor. (True / False)

True

According to the article we discussed in class, GDP growth for 2018 was very close to 3%. This is above average economic growth for the United States over the last twenty years. (True / False)

True

According to the article we discussed in class, the current economic situation in Venezuela is very concerning, not stable, and is a good example of concerns economists think is possible when a command type economy system is present. (True / False)

A

According to the picture, what year was there a recession in our economy? A. From year 2 to year 3. B. From year 1 to year 2. C. From year 20 to year 21. D. From year 21 to year 22.

C

An increase in which of the following would do the LEAST to improve the long run condition of a nation's economy. (This is not one of the "big four!") A. The available labor supply in a country. B. The available land in a country. C. The money supply in a country. D. An increase in the technological know-how or capability of a country. E. The amount of capital available in a country.

B

At the end of 2017, the government held debt of $400 billion, collected tax revenue of $125 billion, and spent $75 billion. The national debt at the beginning of 2019 is: A. $50 Billion B. $350 Billion C. $450 Billion D. $500 Billion

False

President Trump has been less outspoken and publicly concerned about monetary policy than either President Obama or President George W. Bush were. (True / False)

False

Tuition is the single-largest opportunity cost of attending college for most students (including all implicit and explicit costs). (True / False)

D

When peoples income decreases, the ________________ demand for money ________________. A. speculative, increases B. speculative, decreases C. transaction, increases D. transaction, decreases

A

A major decrease in overall economic activity and less demand for goods and services likely to create more _________________ unemployment ceteris paribus. A. Cyclical B. Structural C. Frictional

True

A majority of trained economists (actually well over seventy percent) favor legalization of many illegal activities in the United States. The reason for this is so Real GDP in the U.S. will increase (as will the tax base in the U.S.) (True / False)

True

Adam Smith would best be classified as a market economist as opposed to a believer in a command type economy system. (True / False)

D

Because of the Substitution Bias, ___________________. A. the official unemployment rate does not fully account for how bad this problem is. B. the official unemployment rate makes this problem out to be worse than it actually is. C. the official inflation rate does not fully account for how bad this problem is. D. the official inflation rate makes this problem out to be worse than it actually is.

True

Both retired people and lenders (as opposed to borrowers) tend to suffer the most when inflation is unexpectedly high. (True / False)

C

Consider the interest rate effect, all else equal when the price level falls there is/are _____________________. A. higher interest rates and a higher quantity of aggregate demand. B. Lower interest rates and a lower quantity of aggregate demand. C. Lower interest rates and a higher quantity of aggregate demand. D. Higher interest rates and a lower quantity of aggregate demand.

C

Economics is BEST DESCRIBED as the study of ___________________________. A. how businesses produce goods and services. B. how societies fairly distribute income and wealth. C. how individuals and societies best fulfill their unlimited wants with their limited or scarce resources. D. how money is printed and circulated throughout a nation.

False

F. A. Hayek (who was portrayed in the rap video we watched) believed that the government typically does not do enough to "fix" the economy. He believed that the government should be more aggressive in implementing expansionary fiscal or monetary policies when unemployment was above the natural rate. (True / False)

B

For most students ACCORDING TO OUR LECTURE IN CLASS, what is the largest opportunity cost of attending college? A. Spending on food. B. Foregone salary from the job you could have had. C. Spending on parking. D. Aggieville spending. E. Tuition payments.

A

Given the current unemployment rate in the United States, Okun's Law would predict that the current GDP gap (or output gap) would be equal to approximately $_____________________. A. $0 B. $100 Billion C. $200 Billion D. $50 Billion E. $400 Billion

A

If Nicole can produce 300 Beers or 100 Pizzas in one day and Tyler can produce 100 Beers and 20 Pizzas in one day, then _____________ has the absolute advantage in the production of beer and _____________ has it in pizza production. A. Nicole, Nicole B. Nicole, Tyler C. Tyler, Nicole D. Tyler, Tyler

C

If Nicole can produce 300 Beers or 100 Pizzas in one day and Tyler can produce 100 Beers and 20 Pizzas in one day, then _____________ has the comparative advantage in the production of beer and _____________ has the comparative advantage in the production of pizza. A. Nicole, Nicole B. Nicole, Tyler C. Tyler, Nicole D. Tyler, Tyler

False

If as an economist you were asked to predict the health of the economy in Econland for the next two years, the best overall category of expenditures you could study would be changes in Consumption Spending (as opposed to Investment, Government, or Net Export Spending). (True / False)

A

If twenty workers "found their hope" and became job seekers who were unable to find work instead of "discouraged workers," we would see the labor force participation rate ___________________ while the unemployment rate would ___________________. A. increase, increase B. increase, decrease C. decrease, decrease D. decrease, increase

False

In the United States, for both 2017 and 2018, Government Spending (G) ranged from being between 25% - 30% of GDP using the expenditure approach to measuring GDP. (True / False)

A

Nations that have more politically independent central banks typically (choose the best answer and hold all else constant) _______________ (as or than) those countries with less politically independent central banks. A. experience lower inflation rates B. experience lower unemployment rates C. have higher levels of national debt D. do not have as free of elections

D

Refer to the picture. Panel A illustrates what happens when the government __________________ taxes which other things equal is expected to __________________ the budget deficit. A. decreases, decreases B. increases, increases C. increases, decreases D. decreases, increases

D

Refer to the picture. Panel B shows what happens in the United States when __________________. A. Consumers feel more confident about the future of the economy. B. A technological breakthrough is discovered in the U.S.. C. A natural disaster reduces the ability of the U.S. to produce agricultural products. D. The economy of Canada experiences a severe recession.

D

Referring to the graph, this society could reach point F when there is: A. An increase in the monetary price of apple pie. B. A credible new study that shows blueberries reduce the risk of a heart attack. C. An increase in the monetary price of blueberry pie. D. An increase in technology that makes pie bakers more efficient. E. A new regulation that makes pie-baking more costly.

B

Since 1948 in the U.S. the labor Force Participation Rate for women has ___________________ while for men it has __________________. A. increased, increased B. increased, decreased C. decreased, decreased D. decreased, increased E. stayed the same, decreased

B

Suppose I am at my favorite all you can eat buffet (Hu Hot). I already paid $10 for my meal. I have made two trips through the line and got my food. I should get another plate of food as long as my expected marginal benefit is above __________________. A. $-3.33 B. $0 C. $3.33 D. $5.00 E. $1.00

D

Suppose I loaned Haley $600 and she paid me $690 after one year. During this time, the inflation rate was 3%. The REAL interest rate that I collected from Haley was ________________. A. 7% B. 4% C. 18% D. 12% E. 15%

C

Suppose Nicole can produce 300 Beers or 100 Pizzas in one day and Tyler can produce 100 Beers and 20 Pizzas in one day. What is the price of one pizza that can benefit both Nicole and Tyler if they produce and trade the good they have a comparative advantage in producing? A. 1 Pizza = 1 Beer B. 1 Pizza = 2 Beers C. 1 Pizza = 4 Beers D. 1 Pizza = 9 Beers E. 1 Pizza = 15 Beers

D

Suppose Tom builds houses and is trying to decide whether or not to hire Jim to help him. Tom could hire Jim at a wage of $20 per hour to do some fairly difficult drafting work which requires some specialized skills, but it takes Jim three times as long to get a job done as it does Tom. Jim performs his work at the same level of quality that Tom is able to work at ( this level of quality has helped Tom command such high wage). Tom is currently earning $90 per hour and he has more building jobs than he is currently able to complete. Which of the following is true? A. Tom should not hire Jim because it is faster for Tom just to do this work himself. B. Tom should do the drafting work himself because he has the lower opportunity cost in doing so. C. Jim should be hired, but only if Tom pays him more than $30 an hour. D. Jim should be hired at the agreed wage of $20. E. Tom should hire any worker he can get for minimum wage instead of hiring Jim for $20 an hour.

B

Suppose X and Y are substitutes for each other for consumers. When the price of Good X increases, the BEST description of what will happen is: A. The demand for Good Y decreases. B. The demand for Good Y increases. C. The quantity demanded for Good Y decreases. D. The quantity demanded for Good Y increases.

C

Suppose in Econland Jim earns $20,000 a year and pays $5,000 in income taxes. Bill earns $40,000 a year and pays $8,000 in income taxes. George earns $100,000 a year and pays $10,000 in income taxes. The best description of the tax code in Econland is ____________________. A. Progressive B. Flat / Proportional C. Regressive D. Not enough information to determine.

A

Suppose it takes Jim 4 hours to produce a beer and 12 hours to produce pizza. I takes Melanie 2 hours to produce a beer and 2 hours to produce a pizza. Both Jim and Melanie have twenty-four hours to produce pizza and/or beer. If they use the theory about trading we discussed in class, which was popularized by David Ricardo, who should produce what so they can trade with one another? A. Melanie should produce pizza and Jim should produce beer. B. Jim should produce pizza and Melanie should produce beer. C. Jim should not be willing to trade with Melanie at any price. Melanie is not good enough at producing beer or pizza to trade with Jim. D. Melanie should not be willing to trade with Jim at any price. Jim is not good enough at producing beer or pizza to trade with Melanie.

E

Suppose that 2005 was our base year. Also suppose Econland only produces oranges and phones. In the year 2005 Econland produced 50 oranges which sold for $4 each. Econland also produced 10 phones which sold for $25 each. Suppose today oranges sell for $5 and 80 oranges are now produced in Econland. Phones sell for $30 today and 15 phones are now sold in Econland. What is the level of Real GDP in Econland today? A. $400 B. $725 C. $760 D. $850 E. $695

C

Suppose that consumers are considering buying hamburger or steak (think about which good is more of an inferior good here). Average consumer income was up 50% while good weather decreased costs of maintaining cattle for farmers and producing steak. In this case we would be certain the _________________ of steak would __________________. A. price, increase B. price, decrease C. amount sold, increase D amount sold, decrease

D

Suppose that hyperinflation exists in Econland. What function of money (that is an actual function of money) is affected the most by this hyperinflation? We would say in this case that money is a very bad __________________. (Choose your best answer.) A. Medium of Exchange B. Unit of Account C. Source of Status D. Store of Value

A

Suppose that in year one the citizens of Econland consume 20 units of Good X and 30 units of Good Y, and Good X costs $10 while Good Y also costs $10. In year two, the price of Good X increases to $14 while the price of Good Y increases to $20. In response to this, the citizens of Econland decide to purchase 25 units of each good in year two. The CPI in Econland DOES HAVE A SUBSTITUTION BIAS, JUST AS THE ACTUAL CPI DOES. Calculate the inflation rate in Econland from year on to year two WITH substitution bias present. The inflation rate is: A. 76% B. 70% C. 35% D. 60% E. 92%

B

Suppose that last year everyone in Econland was paying a flat tax of 60%. The government decided to lower the tax rate to 50% hoping to either increase tax revenue or not lose revenue. How much would the GDP of Econland have to grow in order for tax revenues to remain unchanged from last year? A. 10% B. 20% C. 30% D. 33% E. 40%

B

Suppose you come to my house and I offer you a Coke, a Diet Coke, or a Pepsi. You hate diet soda and after some though you decide to accept a Coke from me. What was the opportunity cost of you decision? A. Zero, because the Coke was free. B. The Pepsi. C. The Diet Coke. D. The Diet Coke plus the Pepsi. E. The Diet Coke minus the Pepsi.

A

Suppose that we know that the price level increased by 4 percent while Nominal GDP increased from $2,000 to $2,100. We expect that REAL GDP in Econland _______________ by _______________ percent from last year. A. increased, 1 B. increased, 5 C. increased, 9 D. decreased, 5 E. increased, 20

B

Suppose that when disposable income is $10,000 in Econland people spend $9,000 on consumption goods. When disposable income is $20,000 people spend $15,000 on consumption goods. What is the value of the Keynesian spending multiplier in Econland? You need to try to find the marginal propensity to consume and assume that there is a constant MPC in order to answer this question! A. 1.5 B. 2.5 C. 4 D. 5 E. 10

C

Suppose the Consumption Function is as follows. C = 500 + 0.9 Yd (Yd = Disposable Income). What is the value of the spending multiplier according to those economists who subscribe to the CLASSICAL economic theory? A. 10 B. 9 C. 0 D. 20 E. 5

D

Suppose the Consumption Function is as follows. C = 500 + 0.9 Yd (Yd = Disposable Income). What is the value of the tax multiplier if we assume the full multiplier Keynesian Model? A. 10 B. 9 C. 0 D. -9 E. -10

D

Suppose the government has instituted a price ceiling at $20 in the market below for tickets. What area would represent the dead-weight loss in this case? A. Area ABC B. Area DFH C. There is no dead-weight loss in this case. D. Area CGF E. Area ADF

B

Suppose the market for My Bud Beer can be described as follows. QD = 120 - 2P QS = 2P At a price of twenty dollars, there is a ____________ of My Bud Beers. A. Shortage, 20 B. Shortage, 40 C. Shortage, 30 D. Surplus, 40 E. Surplus, 20

E

Suppose the market for My Bud Beer can be described as follows. QD = 120 - 2P QS = 2P What is the equilibrium price of My Bud Beer? A. $5 B. $10 C. $15 D. $25 E. $30

C

Suppose the market for My Bud Beer can be described as follows. QD = 120 - 2P QS = 2P What is the equilibrium quantity or the amount sold of My Bud Beer? A. 50 Units B. 40 Units C. 60 Units D. 30 Units E. 20 Units

C

Suppose the supply and demand functions for My Bud Beer are as follows. QS = 6P QD = 100 - 4P Find the total CONSUMER SURPLUS in this market supposing that there is no binding price floor or ceiling. A. $150 B. $300 C. $450 D. $600 E. $750

B

Suppose the supply and demand functions for My Bud Beer are as follows. QS = 6P QD = 100 - 4P Find the total PRODUCER SURPLUS in this market supposing that there is no binding price floor or ceiling. A. $150 B. $300 C. $450 D. $600 E. $750

B

Suppose there are 800 people above the age of sixteen in Econland. There are 600 people working, 150 people actively seeking employment, 30 retired workers, and 20 discouraged workers. What is the labor force participation rate in Econland? (Round to the nearest percentage point if need be.) A. 71 Percent B. 94 Percent C. 80 Percent D. 83 Percent E. 91 Percent

A

Suppose there are 800 people above the age of sixteen in Econland. There are 600 people working, 150 people actively seeking employment, 30 retired workers, and 20 discouraged workers. What is the unemployment rate in Econland? A. 20 Percent B. 33 Percent C. 29 Percent D. 17 Percent E. 23 Percent

D

Suppose there is an increase in aggregate demand, according to the classical economic model we expect this to create ___________________ price levels in the economy and ___________________ level of output to be produced. A. higher, higher B. higher, less C. higher, the same D. the same, higher E. the same, the same

D

Suppose you have $2,000 and you invest it in an account that pays 10% interest each year, compounded annually. After three years you will have $__________________ (round to the nearest dollar). A. $2,600 B. $2,624 C. $2,642 D. $2,662 E. $2,672

True

The "Great Moderation" references the period between 1982 and 2007 where recessions in the United States were considered very mild compared to historical norms. (True / False)

True

The M2 money supply includes all currency in circulation, checkable deposits, and traveler's checks and also money market mutual funds and small certificates of deposit. (True / False)

False

The United States in 2018 experienced a balanced budget. If there was a budget deficit it was less than 1% of GDP. (True / False)

False

The current price of parking at Kansas State University is presently at the equilibrium price. A higher price would be wasteful and not reduce opportunity costs for drivers at all. (True / False)

D

The ease with which an asset can be converted to money is it ____________________. A. rigidity B. adaptability C. accessibility D. liquidity

B

The initial reason the Federal Reserve was founded and most economists believe its primary purpose to this day was to serve as a ___________________. A. Fiscal authority to tax consumers and businesses. B. Lender of last resort for commercial banks. C. Insurance agent for consumers who deal with banks. D. Printer of money.

A

The so called "Great Recession" lasted from December 2007 - July 2009. It is considered to be the worst economic slowdown to hit the United States since ____________________. A. 1939 (The end of the Great Depression) B. 1956 C. 1883 D. 1991 E. It is considered to be the worst economic slowdown in the history of the United States.

Economics

The study of how to best fulfill our unlimited wants with our limited or scarce resources.

Microeconomics

The study of individual economic concerns and questions.

Macroeconomics

The study of national and international economic questions and concerns.

C

This is typically considered to be the "least harmful" type of unemployment associated with graduates entering the work force and people voluntarily quitting their job in search of a better career fit. A. Cyclical B. Structural C. Frictional

E

Using the information in the picture, if the price of one pizza in the world market is twelve beers, how many pizzas should be produced in Econland? A. Four Pizzas B. Three Pizzas C. Five Pizzas D. One Pizza E. Two Pizzas

E

Using the information provided in the picture, suppose in Econland the most valuable bundle of goods possible was being produced and traded efficiently. How many beers could be traded for in Econland? (Price of Pizza = 12 Beers) A. 131 B. 155 C. 130 D. 120 E. 134

C

What function of money is best expressed by the fact that money prevents a double coincidence of wants. We believe that as long as there is a willing buyer (who is able to pay for a good) and willing seller that a mutually beneficial transaction will take place. A. Unit of Account B. Store of Value C. Medium of Exchange D. Source of Status

B

What is the closest estimate to the current natural rate of unemployment in the United States? A. 0% B. 4.5% C. 5.8% D. 7.1% E. 10%

E

What is the equilibrium level of output in the simple Keynesian model (fixed price model) if there are the following types of spending? Consumption = 300 + 0.80 Yd (remember disposable income is equal to income after taxes). Investment Spending = 150, Government Spending = 50, and there are no taxes or net exports. A. 300 B. 5,000 C. 500 D. 2,000 E. 2,500

B

What is the worst "lose lose" possible scenario for an economy (ceteris paribus, assume these changes are relatively close to equal in size and scope). A. A technological breakthrough in the ability to produce output. B. A loss of available land. C. A increase in government spending. D. An increase in taxes.

D

What type of tax is best described as a regressive tax? A. Federal income taxes in the United States. B. Property taxes. C. Per unit taxes on new luxury cars purchased. D. Sales taxes on things such as groceries and gasoline. E. None of these taxes are regressive.

E

What would happen in the market for SUV's (which get very poor gas mileage) if the government decided to tax the production of SUV's? (Don't violate centeris paribus!) A. The equilibrium price and the number of SUV's sold would both go up. B. The equilibrium price would go down and more SUV's would be sold. C. The equilibrium price would go down and the change in the number of SUV's sold would be unknown. D. The equilibrium price would go up and the change in the number of SUV's sold would be unknown. E. The equilibrium price would go up and fewer SUV's would be sold.

True

When the United States is a net importer of goods (net exports are negative), we expect that to be consistent with the U.S. experiencing a TRADE DEFICIT and not a BUDGET DEFICIT. (True / False)

False

When the price of a good falls, the demand (as opposed to quantity demanded) for that good increases holding all other things equal. (True / False)

D

When there is a decrease in investor confidence in a nation according to our typical short run aggregate demand model price levels tend to _________________ while the unemployment rate will tend to _________________. A. increase, increase B. increase, decrease C. decrease, decrease D. decrease, increase

A

When there is a major increase in oil prices according to our typical short run aggregate supply aggregate demand model price levels tend to ________________ while the unemployment rate will tend to ________________. A. increase, increase B. increase, decrease C. decrease, decrease D. decrease, increase

A

When there is a significantly high discouraged worker effect, __________________. A. the official unemployment rate does not fully account for how bad this problem is. B. The official unemployment rate makes this problem out to be worse than it actually is. C. The official inflation rate does not fully account for how bad this problem is. D. The official inflation rate makes this problem out to be worse than it actually is.

D

When trade is voluntary, who benefits? A. The seller. B. The buyer. C. Trade is never voluntary. D. Both the buyer and the seller. E. No one benefits.

B

When would applying the policy implications of the Laffer Curve to be expected to be more effective? Why? (Suppose this question was being asked in 2017 when the tax code was changed.) A. 1980, Oil prices were higher in 1980 B. 1980, Marginal tax rates were higher in 1980 C. 2017, Oil prices are higher now than in 1980 D. 2017, Marginal tax rates are higher now than in 1980 E. 2017, Marginal tax rates are lower now than in 1980

C

Which of the following categories is NOT a stand alone category in the Kansas State Student Price Index? This item falls under "miscellaneous" expenditures. A. Tuition B. Housing C. Gasoline / Travel Expense D. Textbooks

A

Which of the following is NOT considered part of GDP in the United States? A. When I purchased my friend's 2006 Ford Escape. B. The salary paid to a daycare worker for taking care of children in Alaska. C. When I pay Aggie Hair Shapers to cut my hair in Manhattan, KS. D. When someone pays to get their IPAD screen fixed at the local I-Pad repair shop. E. When I buy tickets to go to the Robert Earl Keene concert on Sunday night.

D

Which of the following is a MICROECONOMIC question? A. How much total output was produced in the United States last year? B. How can we best encourage economic growth? C. How can we reduce the unemployment rate among Hispanic men? D. What are the variables that determine the price of gasoline in Manhattan, Kansas? E. What determines the overall price level in the economy?

B

Which of the following is the best example of "fiat money"? A. Cigarettes B. U.S. Dollars C. Cans of Mackerel D. Gold Coins

B

Which points in the above graph represent PRODUCTIVE EFFICIENCY? A. Point A B. Point B, C, and D C. Point B, C, or D (which ever point if the most valuable) D. Point E

D

You are an economist for My Bud Beer which is considered to be a normal good. Suppose that unemployment in the U.S. is expected to increase to 20% and average incomes are expected to fall by 25%. At the same time you realize the government is preparing to tax the production of all beers including My Bud Beer. You have been asked to forecast what is going to happen to My Bud Beer prices and sales in the next year. What would be the best prediction you can possibly give? A. The price of My Bud is going to fall. B. The price of My Bud is going to increase. C. The amount of My Bud sold is going to increase. D. The amount of My Bud sold is going to fall. E. There is no way to know whether the price or amount sold of My Bud will rise or fall over the next year.

A

You have been asked to estimate the size of the economy of Econland in 21 years. The economy is currently producing a GDP of $1 million annually and you expect GDP growth to be ten percent each year for the next 21 years. What will the size of GDP be in 21 years? (Round to the nearest million and use "Rule" we talked about in class.) A. $8 Million B. $12 Million C. $16 Million D. $4 Million E. $3 Million

D

You have been offered two jobs. The first job is in Richmond, VA for $60,000 and the second job is in San Diego, CA. The regionally adjusted CPI in Richmond is 100 while the regionally adjusted CPI in San Diego is 132.3. If real wages are the only consideration and the CPI's accurately reflect the cost of living in the two cities, then you should accept any job that pays more than ______________________. A. $45,351 B. $60,000 C. $77,200 D. $79,380 E. You would probably take the job in San Diego because weather is directly correlated with real wages and the weather in San Diego is great!