Econ 205 Final

Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1 is the base year. What is real GDP for year 1, year 2, year 3?

$12, $16, $20

Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1 is the base year. What is nominal GDP for year 1, year 2, year 3?

$12, $20, $30

Assume a closed economy (no international trade) has government spending of $200 billion, taxes of $150 billion, and investment spending of $250 billion. Calculate the level of private savings.

$300 billion

A profit-maximizing firm in a perfectly competitive market is currently producing 500 units of output, at a price of $40 and total cost of $1000. At this current level of output, marginal cost is _______, and average total cost is_________.

$40, $2

Which of the following is true? (Problem set 4)

- GDP = C + I + G + (exports-imports) - GDP = C + S + T - GDP is a measure of final goods and services produced within an economy

Which of the following is an international institution devoted to promoting global economic growth?

- IMF - World Bank - GATT/WTO

Which of the following is correct? (Problem Set 6)

- Physical capital represents the stock of plant and equipment used to produce goods and services - Human capital represents the knowledge and skills workers acquire through education, training, and experience - Students enroll in college to obtain greater human capital

Which of the following is true? (Problem set 5)

- The National Bureau of Economic Research is the agency which reports real GDP and when the economy is in an official recession - The Bureau of Labor Statistics is the agency which reports the CPI and the inflation rate - a recessionary economy is one where real GDP is declining

Suppose Ford, an American automobile producer, opens a plant in Canada. Which of the following is true?

- The cars Ford produces at the Canadian plant are a part of U.S. GNP - The cars Ford produces at the Canadian plant are a part of Canadian GDP

Which of the following will promote economic growth within a nation?

- a policy to promote an increase in savings - a policy to promote and protect patents and intellectual property - a policy to promote general levels of health

Which of the following may lead to an increase in interest rates?

- an increase in the federal budget deficit - an increase in investment spending - a decrease in private savings

Why does a policy to promote free trade lead to economic growth?

- our trading partners use dollars obtained in the purchase of U.S. goods to invest in U.S. physical assets - our trading partners use dollars obtained in the purchase of U.S. goods to invest in U.S. financial assets - foreign direct investment and foreign portfolio investment into the U.S. leads to more jobs in the U.S. in addition to lower interest rates to incentivize further investment

A significant long-run difference between monopoly and perfect competition is that

- there's free entry and exit in a perfectly competitive market, while barriers to entry exist in a monopolized market. - the monopolist controls market supply, while the perfectly competitive firm's influence on market supply is imperceptible. - the demand curve for the monopolist is the market demand curve, while the demand curve faced by the perfectly competitive firm is perfectly elastic.

Suppose your bank pays you a nominal interest rate of 2% on your savings. If the current rate of inflation is 1%, what is the rate of real interest you earn on your savings?

1%

Consider an economy that produces only chocolate bars. In year 1, the quantity produced is 3 bars and the price is $4. In year 2, the quantity produced is 4 bars and the price is $5. In year 3, the quantity produced is 5 bars and the price is $6. Year 1 is the base year. What is the GDP Deflator for year 1, year 2, year 3?

100, 125, 150

A small nation produces and consumes only cookies and milk. In Year 1, the nation consumes 10 units of cookies at $40 apiece, and 30 units of milk at $10 apiece. In Year 2, the nation consumes 12 units of cookies at $60 apiece, and 50 units of milk at $12 apiece. Assume Year 1 is the base year. The value of the GDP deflator in Year 2 is ______, and the annual rate of inflation (annual percentage increase in GDP deflator) in Year 2 according to the GDP deflator is _______.

134.69, 34.69%

A small nation produces and consumes only cookies and milk. Assuming that the average market basket of goods contains 1 box of cookies and 3 containers of milk, calculate the CPI for Year 2. Assume Year 1 is the base year. Year 1: $40 for cookies; $10 for Milk Year 2: $60 for cookies; $12 for Milk The value of the CPI in Year 2 is ______, and the annual rate of inflation (annual percentage increase in CPI) in Year 2 is _______.

137.14, 37.14%

Suppose GDP is $8 trillion, taxes (T) is $1.5 trillion, private savings is $0.5 trillion, and public savings is $0.2 trillion. Assuming this economy is closed (no international trade), calculate consumption (C), government purchases (G), national savings (NS), and investment (I).

C=$6 trillion, G= $1.3 trillion, NS= $0.7 trillion, I= $0.7 trillion

Which economic statistic best measures well-being among nations?

GDP per capita

In the long-run equilibrium of a perfectly competitive market with identical firms, what are the relationships among price P, marginal cost MC, and average total cost ATC?

P = MC and P = ATC

What is the relationship between price P, marginal revenue MR, and marginal cost MC for a profit maximizing monopolist?

P > MR and MR = MC

What is the name of our federal agency responsible for enforcing regulations in financial markets?

Securities and Exchange Commission

Suppose you are a U.S. citizen living in North Carolina, and you purchase a Maserati produced in Italy. How does your purchase affect U.S. GDP?

U.S. GDP will be unchanged

Which most likely has a greater effect on the U.S. CPI: a 10% increase in the price of chicken or a 10% increase in the price of caviar? Why?

a 10% increase in the price of chicken since chicken would be a greater component of the average consumer's market basket

Which of the following is true regarding a monopoly?

a monopoly is a socially inefficient market structure since the quantity in the market is too low and price too high

If the federal government collects more in tax revenue than it spends, and households consume more than they receive in disposable income, then

private saving is negative, but public saving is positive

Suppose the pretzel market is perfectly competitive and in its long run equilibrium. If then there is a new process that reduces the costs for each firm in the industry, short run economic profits will be _________, though in the long run economic profit will be _____ as firms _______ the industry.

positive, zero, enter

Suppose the DeBeers company is a monopolist in its market to sell diamonds. Also suppose this year the company earns economic profits. This implies that the price of diamonds will

exceed both the marginal cost and average cost of producing diamonds.

The existence of economic losses in a perfectly competitive market induces firms to __________ the market, which shifts the market supply curve to the__________ and __________ market price.

exit, left, increases

In recent decades Americans have increased their purchase of stocks in foreign-based companies. The Americans who bought these stocks were engaged in

foreign portfolio investment

Suppose you take a job today in the financial industry earning an annual salary of $90,000. Also suppose your mom had that same job in the year 2000, earning $60,000 per year. If the CPI was 200 in the year 2000, and today's CPI is 300, which of the following is true?

in real terms, your salary today is equal to your mom's 2000 salary

When a monopolist practices price discrimination

it charges different consumers different prices for the same good

A competitive firm maximizes profit by choosing the quantity at which

marginal cost equals price

A perfectly competitive firm's short-run supply curve is its _________ cost curve above its _________ cost curve.

marginal, average variable

If a perfectly competitive market is one of constant costs, this implies the long run market supply curve is

perfectly elastic

List the four determinants of labor productivity.

physical capital per worker, human capital per worker, natural resources per worker, technological knowledge per worker

Financial markets and financial intermediaries are different types of financial institutions. Two types of financial markets are ______ and ______, two types of financial intermediaries are ______ and _______

stock market and bond market, banks and mutual funds

If a popular show on personal finance convinces Americans to save more for retirement, the ______ curve for loanable funds would shift, driving the equilibrium interest rate ______.

supply, down

Because consumers can sometimes substitute cheaper goods for those that have risen in price,

the CPI can slightly overvalue inflation

If the price of imported French wine rises, is the CPI or GDP deflator in the U.S. affected more? Why?

the CPI since it would not be a part of the GDP deflator- imported goods are not included in GDP

If the government attempts to break up a natural monopoly to enforce competition in a market,

the average cost of producing the good will increase.

Suppose the market for building new homes is perfectly competitive and one of constant costs. If the demand for new homes increases,

the price to build a new home will go up in the short run, but not in the long run

Suppose a Japanese company opens a factory in South Korea

this is an example of foreign direct investment and will lead to increased GDP in South Korea

Does a college education increase productivity? If so, why?

yes, it leads to an increase in human capital