Econ 2010 Final

Amy's Card shop receives a shipment of Valentine's Day cars in December 2017. Amy pays the wholesale distributor, a total of $500. In February 2018, she sells the card for a total of $700. What are the contributions of these transactions to GDP in the years 2017 and 2018?

$500 for 2017 and $200 for 2018 2017- pays 500 2018-sells for 700;700-500=200

Real GDP in the 3rd Quarter of 2020 was $18.584 trillion, Potential RGDP was 19.268 trillion. The Output Gap is

-3.55% R-P/P *100 18.584-19.268/19.268* 100

Which of the following falls under the field of macroeconomics? 1) Effect of tax cuts on the unemployment rate. 2) Effect of hurricane Laura on the oil refineries. 3) Are US households saving enough for retirement? 4) Microsoft's dominance in the operating systems market.

1 and 3 Macro- general Micro- specific

Dave's Mirror Company expects to sell $1,000,000 worth of mirrors and to produce $1,250,000 worth of mirrors in the coming year. The company purchases $300,000 worth of new equipment during the year. Sales for the year turn out to be $900,000. Actual investment by Dave's Mirror Company equals ______ and planned investment equals _______.

1,250,000-1,000,000=250000 300,000+250,000=550,000 1,000,000-900,000= 100,000 100,000+550,000=650,000

The CPI in 1974 equaled 0.49. The CPI in 1975 equaled 0.54. The rate of inflation between 1974 and 1975 was ______ percent.

10.2 Rate of inflation: CPI of recent year- CPI older year/ CPI of older year X 100 0.54-0.49/0.49 X 100

Data for an economy show that the unemployment rate is 6 percent, the participation rate 60 percent, and 200 million people 16 years or older are not in the labor force. How many people are employed in this economy?

100-60=40 (not participating) 0.40x=200mil =500 mil (WAP) 500-200=300 (labor force) 300 *.06 = 18 mil 300mil -18mil=282 mil

What is Jordan's wealth? Exam 2 # 17

109,000 add all assets and liabilities then subtract

Exam 2 #11 High Tech, Inc. produces plastic chairs that sell for $10 each. The following table provides information about how many plastic chairs can be produced per hour.

2

According to the Taylor rule, if there is a recessionary gap of 2 percent of potential output and inflation is 4 percent, what real interest rate will the Fed set?

2% r = 0.01 + 0.5 (output gap as a percent of potential GDP) + 0.5 (inflation rate). Substituting into the equation r = 0.01 + 0.5 (-0.02) + 0.5 (0.04) = 0.01 - 0.01 + 0.02 = 0.02, or 2 percent.

Real GDP per person in both Alpha and Omega is equal to $2,000. Over the next 100 years, real GDP per person grows at a 1 percent annual rate in Alpha and at a 2 percent annual rate in Omega. After 100 years, real GDP per person in Alpha is ______ smaller than real GDP per person in Omega.

2000(1+0.01)^100 2000(1+0.02)^100 14489-5410=9080

In Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the desired reserve/deposit ratio is 10 percent. If the Central Bank prints an additional 200 econs and uses this new currency to buy government bonds from the public, the money supply in Macroland will increase from ______ econs to ______ econs, assuming that the public does not wish to change the amount of currency it holds.

2000+(300/.10)=5000 2000+(500/.10) = 7000

Fred and Barney fill egg cartons with eggs. Fred just started the job and can fill only 20 cartons an hour. Barney has the significant on-the-job experience and can fill 40 cartons an hour. Fred works 40 hours a week while Barney works 30 hours a week. As a team, their average hourly productivity during the week is ______ cartons.

2000/(30+40)70

Government survey takers determine that typical family expenditures each month in the year designated as the base year are as follows:• 20 pizzas, $10 each• Apartment rent, $600 per month• Gasoline and car maintenance, $100 per month• Phone service (basic service plus 10 long-distance calls), $50 per month In the year following the base year, the survey takers determine that pizzas have risen to $11 each, apartment rent is $640, gasoline and maintenance costs are $100, and phone service has dropped in price to $40. What is the CPI in the subsequent year?

20X10+750=950 20X11+780=1000 1000/950=1.05 CPI: current/base

exam 3 #23 graph Based on the figure and starting from an initial short-run equilibrium where output equals 20,000, if autonomous consumption spending increases by 1,000, then the new short-run equilibrium output (Y) is equal to:

24,000

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Induced expenditure equals:

290+0.75y 0.75y

Exam 2 #12 For simplicity, assume that labor is the only input and the hourly wage for workers is $70. Suppose labor productivity (Chairs produced per hour) increases by 50% (ie. 1 worker now produces 15 chairs and so on...). How many workers will be hired?

3

What were the U.S. unemployment rates for (a) March 2020 (b) April 2020 (c) August 2020?

3.4, 14.7, 8.4

Exam 2 # 22 Private saving equals ____; public saving equals ______; national saving equals ____.

800,200,1000 Private: GDP-T-Transfer Public: T-GP-Transfer NS: Pr+Pu GDP=C+I+G+NX

Fred and Barney fill egg cartons with eggs. Fred just started the job and can fill only 20 cartons an hour. Barney has significant on-the-job experience and can fill 40 cartons an hour. Both Fred and Barney work 40 hours a week. Fred's average weekly productivity is ______ cartons; Barney's average weekly productivity is ______ cartons; and as a team their average weekly productivity is ______ cartons.

800; 1,600; 1,200 20X40=800 40X40=1600 add them 2400/2=1200

Worldwide, 30 year old men have spent 10 years in school, on average. How many years have women of the same age spent in school?

9 years

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The vertical intercept of the expenditure line is:

900+0.80y 900

The value of output was $1,000 billion in Northland and $2,000 billion in Southland. The population of Northland was 100 million and the population of Southland was 120 million. There were 40 million employed workers in Northland and 85 million employed workers in Southland. Average labor productivity was higher in _________ and the standard of living was _______.

ALP: Output/Workers STDL: Output/Population North: Alp: 1000/40=25 South Alp: 2000/85=23.5 North STDL: 1000/100=10 South STDL: 2000/120=16.7 ALP higher in North; STDL higher in South

If Bountiful Orchard grows $100,000 worth of peaches, sells $50,000 worth of peaches to consumers and uses the rest to make jam that is sold to consumers for $100,000, Bountiful Orchard's contribution to GDP is:

Add what she sells: 50,000+100,000=150,000

In which of the following situations would GDP not change? A) As domestic consumers buy fewer tobacco products, tobacco manufacturers instead sell their products, at the same price, to foreign buyers. B) Domestic consumers begin to buy less imported wine, and instead spend just as much money on domestically produced wine. C) Without reducing the number of automobiles sold, domestic automobile producers decide to reduce the number of automobiles they produce, rather than producing cars that would end up as unsold inventory. D)More and more domestic consumers opt to build a new home, rather than spending the same money on an already existing home.

As domestic consumers buy fewer tobacco products, tobacco manufacturers instead sell their products, at the same price, to foreign buyers. *When domestically produced goods go out of the country as exports opposed to being sold within the country, there is no effect on GDP.

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T ) - 300rI P= 200 - 400rG = 200NX = 10T = 150 Given the information about the economy above, what would be the impact on autonomous expenditures of a one-percentage-point increase in the real interest rate (r )?

Autonomous expenditures would decrease by 7 units. -700(.01)=-7

Explanations for the high saving rate in China consistent with the life-cycle reason for saving include:

China's social safety net provides most people little in the way of retirement income.

Exam 1 #14 For this economy that produces just sailboats and coconuts, and with 2005 as the base year, real GDP in 2015 was approximately ______ times that in 2005.

First note that in order to find real GDP, we must use the prices from the base year in both commutations. So real GDP in 2005 was: (15 sailboats × $500) + (2,000 coconuts × $1) = $9,500. Real GDP in 2015 was (10 sailboats × $500) + (2,400 coconuts × $1) = $7,400. Thus, real GDP in 2015 was 0.78 times that ($7,400 / 9,500) in 2005. GDP- Keep base price 0.78

Exam 1 #7 Given the following data for the economy, compute the value of GDP.

GDP= C+I+G+NX =70+(-7+15+9)+10+(5-12) =90

Over the next 50 years, the Chinese population is expected to decline, while the fraction of the population that is retired is expected to increase sharply. What are the implications of these population changes for total output and average living standards in China, assuming that average labor productivity continues to grow?

Increased productivity may keep total output from diminishing due to fewer workers, which might lead to an improvement in average living standards.

If an automobile manufacturer pays $200 for a car windshield, $400 for four car tires, $100 for a car radio, and sells cars made with these parts for $20,000, then each car the automobile manufacturer sells contributes how much to GDP?

Just the value of the final good, the $20,000 car, is included in GDP.

The consumer price index for Planet Econ consists of only two items: books and hamburgers. In 2015, the base year, the typical consumer purchased 10 books for $30 each and 50 hamburgers for $2 each. In 2017, the typical consumer purchased 15 books for $30 each and 40 hamburgers for $3 each. The consumer price index for 2017 on Planet Econ equals (up to two decimal places):

Keep Quantity base year for CPI 2015: 10 X 30 = 300 50 X 2 = 100 300 +100 = 400 2017: 10 X 30 = 300 50 X 3 = 150 300 + 150 = 450 450/400 =1.125

If real GDP equals 3,500, nominal GDP equals 5,250, and the price level equals 1.5, then what is velocity if the money stock equals 2,100?

M X V =P X Y 2100v=5250 V=2.5

exam 3 #2 Based on the following information, the value of the M1 measure of the money supply is ______ and the value of the M2 measure of the money supply is ______.

M1- Currency+Demand deposits+Traveler's checks+Other checkable deposits =530 bil M2- M1 + everything else 4230 bil

Mike and Tom debone chicken breasts for Ted's Chicken Co. Mike is new and can only debone 60 chicken breasts per hour by hand, while Tom's experience allows him to debone 120 chicken breasts per hour by hand. Ted buys one new machine that can debone 100 chicken breasts per hour. Both Mike and Tom work the same 40 hours per week, but one of them is assigned to operate the machine instead of deboning the chicken breasts by hand. To obtain maximum average hourly productivity, ______ is assigned to use the machine and their combined average hourly productivity as a team is ______ chicken breasts.

Mike (produces the least) 120+100=220/2=110

Which country has adopted the gold standard?

No country in the world uses the gold standard.

According to Okun's law, when cyclical unemployment increases from 2 to 3 percent, the recessionary gap widens from ______.

Okun's law: (y-y*/y*)X 100=-2(u-u*) cyclical: (u-u*) -2(2)=-4 -2(3)=-6

A country's domestic supply of saving, domestic demand for saving for purposes of capital formation, and supply of net capital inflows are given by the following equations: S = 1,600 + 2,000r I = 2,000 − 4,000r KI = -200 + 6,000r Calculate the equilibrium real interest rate and capital inflows.

S+KI=I; plug in KI r=5%, KI=100

In a certain economy, the components of planned spending are given by: C = 500 + 0.8 (Y - T) - 300r I P = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, what would be the impact on short-run equilibrium output of a one-percentage-point increase in the real interest rate, assuming the income-expenditure multiplier equals 5?

Short-run equilibrium output would decrease by 35 units. 5 X -700(.01) =-35

An economy produces only 1,200,000 computers valued at $2,000 each. Of these, 300,000 are sold to consumers, 400,000 are sold to businesses, 300,000 are sold to the government, and 100,000 are sold abroad. No computers are imported. At the end of the year, the computer manufacturers hold the unsold computers in inventory. What is the value of GDP?

Since all of the computers are sold domestically or held in inventory, and because no computers are imported, the value of GDP is the number of computers times their market value. That is 1,200,000 × $2,000= $2,400,000,000, or $2.4 billion.

In 2017, the fictitious country, "Alpha" had an unemployment rate of 2% and an inflation rate of 6.1%. Which of the following statements correctly describes how the economic situation of Alpha compares with the economic situation in the United States in 2017:

The inflation rate was lower in the United States than Alpha in 2017, while the unemployment rate was higher in the United States

Exam 1 #12 Suppose a jar of DeLux popcorn that is ultimately sold to a customer at Friendly Groceries is produced by the following production process:

The value added of the Fulton Family Farm is computed by subtracting the cost of purchased inputs from the revenues. So value added is $0.50 - 0.00 = $0.50.

Which of the following countries has experienced hyperinflation recently?

Venezuela Very large rates of inflation and breakdown of the currency is called "hyperinflation."

Which of the following is a stock?

Wealth is a stock variable because it is measured at a specific time, such as today or on the first day of the year. stock-measured at one specific time flow-measured over a period of time

In a certain economy, the components of planned spending are given by: C = 500 + 0.8(Y - T) - 300r I P = 200 - 400r G = 200 NX = 10 T = 150 Given the information about the economy above, which expression gives autonomous expenditures?

[790 − 700r ] PAE = 500 + 0.8(Y − 150) − 300r + 200 − 400r + 200 + 10. Autonomous expenditures are those expenditures that are independent of Y: [790 − 700r ].

Zero lower bound refers to:

a level below which the Fed cannot further reduce short-term interest rates.

f planned aggregate expenditure (PAE ) in an economy equals 2,000 + 0.8Y and potential output (Y*) equals 11,000, then this economy has:

a recessionary gap. y=2000+0.8y y=10,000 10,000<11,000 so recessionary gap

Which of the following is an example of structural unemployment? a. As the demand for fossil fuels waned, Mia lost her job at the oil rig. She does not have the skills to work in another industry and has been unemployed for over a year. b. Cody was laid off from his job with the airline because the recession has reduced the demand for airline travel. He expects to get his job back when the economy picks up. Cyclical c. Alex, a software engineer, lost his job when the internet startup he worked for went bankrupt. He interviewed with five companies in the area before taking a job with another firm in the industry. Frictional d. Julie had a job as an engineer, but quit when her partner was transferred to another state. She looked for a month before finding a new job that she liked. Frictional

a. As the demand for fossil fuels waned, Mia lost her job at the oil rig. She does not have the skills to work in another industry and has been unemployed for over a year.

Contrary to behavior that would be required to eliminate output gaps, many firms in the economy:

adjust their prices only periodically.

store of value

an item that people can use to transfer purchasing power from the present to the future

medium of exchange

anything that is used to determine value during the exchange of goods and services

The vertical intercept of the consumption function equals ______ and the slope equals _____.

autonomous consumption; the mpc

Changes in consumption and investment spending due to changes in the real interest rate alter:

autonomous expenditures.

Which of the following activities is most likely to be counted in GDP? a) Fran volunteers at the local veteran's hospital twice a month. b)Stu gave $5 to a homeless man he met in the park. c)Gail buys paper and crayons to donate to poor children in need of school supplies. d)Bud works hard five hours each week to make sure that his lawn always looks nice.

c)Gail buys paper and crayons to donate to poor children in need of school supplies. Buying from stores-included in GDP

Since the Fed faces uncertainty regarding effects of its policies, the Fed usually proceeds:

cautiously with only small changes in the interest rate.

If the Federal Reserve wants to decrease the money supply, it should:

conduct open-market sales.

Since the early 1970s, in the United States the real wages of the least-skilled, least educated workers have ______ and the wages of best-educated, highest skilled workers have ______.

declined; increased

Holding other factors constant, if employers automatically enroll employees in retirement savings programs in order to overcome psychological barriers to saving, then the real interest rate will ______ and the equilibrium quantity of saving and investment will ________.

decrease; increase An increase in, or rightward shift of, the supply of savings will decrease real interest rates while the quantity of saving and investment will increase.

In an open economy, a decrease in the government's budget deficit will ______ the domestic real interest rate and ______ the level of capital investment in the country, holding other factors constant.

decrease; increase draw graph

Initially, workers in the shoe industry and the computer industry earn the same wage. Reductions in trade barriers give domestic consumers access to cheaper shoes produced abroad, which causes domestic shoe prices fall. At the same time, foreign consumers purchase more computers, raising the relative price of computers. As a result of these changes, the demand for labor in the shoe industry ______ and the demand for labor in the computer industry ______.

decreases; increases if price goes up demand goes up; if price goes down demand goes down

In Macroland there is $10,000,000 in currency. The public holds half of the currency and banks hold the rest as reserves. If banks' desired reserve/deposit ratio is 10 percent, deposits in Macroland equal ______ and the money supply equals _______.

deposit/ deposit ratio 5 mil/.10 = 50 mil 50 mil + 5 mil = money supply 50,000,000; 55,000,000

The principle that if the amount of labor and other inputs is held constant, then the greater the amount of capital in use, the less an additional unit of capital adds to production is called the principle of:

diminishing returns to capital.

In an open economy, domestic investment equals:

domestic saving plus net capital inflows.

Short-run equilibrium output is the level of output at which actual output:

equals planned aggregate expenditure.

Recessions tend to be ______ by ______ the rate of inflation.

followed; a decrease in

If a borrower and lender agree to an interest rate on a loan when inflation is expected to be 7 percent and inflation turns out to be 10 percent over the life of the loan, then the borrower ______ and the lender ______.

gains; loses

The manufacturing share of total employment in the US

has been declining since the 1950's

A nation's standard of living, as measured by real GDP per person, increases:

if either average labor productivity and/or the share of population employed increase.

When a U.S. restaurant purchases French wine and the French wine company uses the proceeds to buy U.S. government debt, U.S. ______ and there is a capital ______ the United States.

imports increase; inflow to

exam 2 #18 Suppose that Jordan receives an inheritance of $50,000. If he uses that money to pay off his mortgage, his wealth would_____; if he puts that money in his checking account, his wealth would_____;

increase to $159,000; increase to $159,000

in Macroland, currency held by the public is 2,000 econs, bank reserves are 300 econs, and the desired (and current) reserve/deposit ratio is 15 percent. If commercial banks borrow 100 econs in reserves from the Central Bank through discount window lending, then the money supply in Macroland will ______, assuming that the public does not wish to change the amount of currency it holds.

increase to 4,667 econs 2000+400/.15=4,667

Holding other factors constant, if new technology becomes available that allows machines to produce manufactured goods more quickly and with fewer defects, then the real interest rate will ______ and the equilibrium quantity of national saving and investment will ____.

increase; increase A new, better technology increases business investment and shifts the demand for investment to the right, causing higher interest rates and the quantity of national savings and investment to increase.

The price of a gallon of gasoline at the pump increased by 5 percent at the same time that the inflation rate was also 5 percent. The nominal price of gasoline _____, and the real price of gasoline _____.

increased; did not change The price of gasoline at the pump increased at the same rate as the general price level, thus while the nominal price increased, the real price was unchanged.

Forward guidance refers to:

information that a central bank provides to the financial markets regarding its expected future monetary policy path

Katarina's income increases by $100. She decides to use $50 to pay off her credit card debt, and the remaining amount towards consumption. As a result, her:

liabilities will decrease and her wealth will increase.

You use $1,000 to purchase bitcoin because you are convinceid its the future of money. You are using dollars as _________ and bitcoin as ___________.

medium of exchange; store of value.

"U.S. exports will increase as a result of joined CAFTA," is an example of a ______ statement, while "The U.S. should join CAFTA," is an example of a _____ statement.

positive; normative P= facts N= suggestion

Joe's Taco Hut can purchase a delivery truck for $20,000 and Joe estimates it will generate a net income (after taxes, maintenance and operating costs) of $2,000 per year. He has no other opportunities. He should:

purchase the truck if the real interest rate is less than 10 percent. $2,000/$20,000 = 0.10.

A report indicated that the average real wage in manufacturing declined by 2 percent between 1990 and 2000. If the CPI equaled 1.30 in 1990, 1.69 in 2000, and the average nominal wage in manufacturing was $35 in 2000, what was the average nominal wage in manufacturing in 1990?

real: Nom/CPI nom: real * CPI *(20.7/98)= 21.13 Answer: 27.47

During the pandemic average weekly wages in the US

rose because low wage workers were laid off.

In the long run the real interest rate is determined by ______, and in the short-run the Federal Reserve can control the real interest rate by setting the nominal interest rate if inflation adjusts _____.

saving and investment; slowly

Technological change that substitutes automated checkout machines for cashiers, while simultaneously increasing the demand for computer scientists to program these machines is

skill-biased

All of the following would be included in planned aggregate expenditure EXCEPT: -purchases of services provided by government employees. -planned changes in inventories. -sales to foreigners of domestically-produced goods. -social security payments

social security payments

bank reserves

the currency banks hold in their vaults plus their deposits at the Federal Reserve

For the past half century, the Federal Reserve has expressed policy in terms of a target value for:

the federal funds rate.

The demand for labor depends on ______ and _______. VMPL=P X MPL

the marginal product of labor; the price of output produced

Two countries, Alpha and Beta, have the same levels of nominal and real GDP. Each dollar in Alpha is used more frequently than each dollar in Beta. Therefore, it must be the case that ______ in Alpha than in Beta.

the money stock is smaller In this case, both countries have the same PY. In Alpha, V is larger than it is in Beta. Therefore, M has to be smaller in Alpha than Beta

The main difference between regular open-market operations and quantitative easing (QE) is:

the type and term of the financial assets targeted.

In the short run, ______ determines output, and in the long run ______ determines output.

total spending; potential output

If workers and employers agree to a three-year wage contract under the expectation of 5 percent inflation, and inflation turns out to be 3 percent, then:

workers gain and employers lose. workers= lenders employees= borrowers high inflation-bad for lender; good for borrower low inflation- good for lender; bad for borrower

If planned aggregate spending in an economy can be written as PAE = 15,000 + 0.6Y − 20,000r, and potential output equals 34,000, what real interest rate must the Federal Reserve set to bring the economy to full employment?

y=15,000+0.6y-20,000r y-0.6y=15,000-20,000r 0.4y=15,000-20,000r 0.4(34,000)=15,000-20,000r 13600=15,000-20,000r 20,000r=1400 r=7%

Net exports plus net capital inflows equal:

zero

The real rate of return on holding cash is equal to:

zero minus the inflation rate Cash has a nominal return of 0 percent. Thus, the real return to holding cash is zero minus the inflation rate.