econ problem set 1

Jasmine's Manicure Manor did 4,000 sets of nails in 2019 and 4,500 sets of nails in 2020. The price of a set of nails was $20 in 2019 and $22 in 2020. If 2019 is the base year, Jasmine's contribution to real GDP in 2019 was ______ and in 2020 was _____.

$80,000; $90,000

Which of the following statements is normative?

Large budget deficits should be avoided.

The fictitious country Alpha has a population of 20 million people, of which 10 million are counted as workers. The value of Alpha's output in the year 2019 was $184 billion.

a. The value for Alpha's output per capita in 2019 is $ 9,200 b. The value for Alpha's average labor productivity in 2019 is $ 18,400

If Country A and Country B have the same population size, then the standard of living in these two countries can still be different depending on

the relative sizes of total output.

An economy produces only 1,000,000 computers valued at $2,000 each. Of these, 200,000 are sold to consumers, 300,000 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 the investment component of GDP?

$0.8 billion

The Hatfields and the McCoys both earn $50,000 per year in real terms in the labor market, and both families are able to earn a 25 percent real interest rate on their savings. Assume that all interest is paid out as income in the following year. In the year 2010, both families began to save. The Hatfields saved 8 percent of their income each year; the McCoys saved 10 percent. In 2010, the Hatfields consumed ______ more than the McCoys; in 2011, the Hatfields consumed ______ than the McCoys.

$1,000; about $800 more

If in the economy, business saving equals $240 billion, household saving equals $15 billion, and government saving equals −$150 billion, what is the value of national saving?

$105 billion

A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract. The CPI is 1.00 in the first year and 1.07 in the second year. What dollar wage must be paid in the second year?

$11.02

A labor contract provides for a first-year wage of $10 per hour, and specifies that the real wage will rise by 3 percent in the second year of the contract and by another 3 percent in the third year. The CPI is 1.00 in the first year, 1.07 in the second year, and 1.15 in the third year. What dollar wage must be paid in the third year? Multiple Choice

$12.20

Pat earns $1,000 per week and spends $850 per week on living expenses, puts $50 in a savings account, and buys $100 worth of shares in a stock mutual fund. Pat's savings are _____, and Pat's saving rate is _____.

$150; 15 percent

A labor contract provides for a first-year wage of $15 per hour, and specifies that the real wage will rise by 2 percent in the second year of the contract. The CPI is 1.00 in the first year and 1.09 in the second year. What dollar wage must be paid in the second year?

$16.68

An economy produces only 1,000,000 computers valued at $2,000 each. Of these, 200,000 are sold to consumers, 300,000 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?

$2.0 billion

In Econoland in 2005, people with incomes between $20,000 and $30,000 paid 12 percent of their income in taxes and people with incomes between $30,001 and $40,000 paid 15 percent. In 2005, the CPI in Econoland equaled 1.20, and it increased to 1.26 in 2006. If the government of Econoland wants to keep households with a given real income from being pushed up into a higher tax bracket by inflation, the $20,000-to-$30,000 bracket will be changed in 2006 to

$21,000 to $31,500.

An economy produces only 500,000 tables valued at $100 each. Of these, 100,000 are sold to consumers, 200,000 are sold to businesses, 100,000 are sold to the government, and 50,000 are sold abroad. No tables are imported. At the end of the year, the table manufacturers hold the unsold tables in inventory. What is the value of the investment component of GDP?

$25 million

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 and 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?

$27.47

In 2019, Janice Quinn sells a five-year-old car to Used Car, Incorporated for $4,000. In the same year, Used Car, Incorporated resells the car to Hilda Goner for $4,750. What is the contribution of these transactions to GDP in the year 2019?

$750

Lao and Lamar fill egg cartons with eggs. Lao just started the job and can fill only 25 cartons an hour. Lamar has significant on-the-job experience and can fill 50 cartons an hour. Both Lao and Lamar work 50 hours a week. Lao's average weekly productivity is ______ cartons; Lamar's average weekly productivity is ______ cartons; and as a team their average weekly productivity is ______ cartons.

1,250; 2,500; 1,875

Data for an economy shows that the unemployment rate is 10 percent, the participation rate 80 percent, and 200 million people 16 years or older are not in the labor force. How many people are in the working-age population in this economy?

1.0 billion

Based on the information in the table, what is the unemployment rate? Population 16 and older1,000,000 Participation Rate80% Employed Workers720,000

10.0 percent

If the annual real rate on a 10-year inflation-protected bond equals 1.9 percent and the annual nominal rate of return on a 10-year bond without inflation protection is 4.4 percent, what average rate of inflation over the 10 years would make holders of inflation-protected bonds and holders of bonds without inflation protection equally well off?

2.5 percent

If the annual real interest rate on a 10-year inflation-protected bond equals 1.5 percent and the annual nominal rate of return on a 10-year bond without inflation protection is 4.2 percent, what average rate of inflation over the ten years would make holders of inflation-protected bonds and holders of bonds without inflation protection equally well off?

2.7 percent

On January 1, 2018, Anna invested $5,000 at 5 percent interest for one year. The CPI on January 1, 2018 stood at 2.37. On January 1, 2019, the CPI was 2.40. The real rate of interest earned by Anna was ______ percent.

3.7

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

300 million

Jim and Denise are the only two cashiers employed at a retail store. Each of them works the same 40 hours per week and each can check out 30 customers per hour by manually entering the price of each product purchased into the cash register. The store owner replaces the old cash registers with new ones that automatically scan product prices into the register. With the new cash registers, Jim and Denise can each check out 60 customers per hour. Their average labor productivity as a team before the new cash registers were introduced was ______ customers per hour and ______ customers per hour after the new machines were installed.

30; 60

In a small town of 100 people, there are 10 children under 16, 10 retired people, 60 people with full-time jobs, 3 people with part-time jobs, 3 full-time students over 16, and 4 full-time homemakers. The remaining people did not have jobs but wanted them. How many people are in the labor force of this town?

73

Tamika is lending Juan $1,000 for one year. The CPI is 1.60 at the time the loan is made, and they both expect it to be 1.68 in one year. If Tamika and Juan agree that Tamika should earn a 3 percent real return for the year, the nominal interest rate on this loan should be ______ percent.

8

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

800; 1,600; 1,200

In a small town of 100 people, there are 10 children under 16, 10 retired people, 60 people with full-time jobs, 3 people with part-time jobs, 3 full-time students over 16, and 4 full-time homemakers. The remaining people did not have jobs but wanted them. What is the participation rate in this town?

81.1 percent

Given the following data for the economy, compute the value of GDP. Government purchases of goods and services10 Consumption expenditures70 Exports5 Imports12 Change in inventories −7 Construction of new homes and apartments 15 Sales of existing homes and apartments 22 Government payments to retirees 17 Business fixed investment 9

90

In 2018, the fictitious country, "Alpha" had an unemployment rate of 12.9% 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 2018: Which of the following statements correctly describes how the economic situation of Alpha in 2018 compares with the economic situation in the United States over the past 50 years:

Both the inflation rate and the unemployment rate were lower in the United States in 2018. The U.S. unemployment rate has consistently been lower than 12.9%, but the U.S. inflation rate has been both higher and lower than 6.1%.

George and John, stranded together on an island, use clamshells for money. Last year George caught 300 fish and 5 wild boars. John grew 100 bunches of bananas. In the two-person economy that George and John set up, fish sell for 3 clamshells each, boars sell for 10 clamshells each, and bananas go for 10 clamshells per bunch. George paid John a total of 30 clamshells for helping him to dig bait for fishing, and he also purchased five of John's mature banana trees for 30 clamshells each. What is the GDP of George's and John's island in terms of clamshells?

GDP: 1,950

Which of the following hypotheses is a plausible explanation for why U.S. households save so little?

Government assistance to the elderly has reduced the need for life-cycle saving.

Over the next 50 years the Japanese 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 Japan, assuming that average labor productivity continues to grow? What are the implications of these population changes for total output and average living standards in Japan, assuming that average labor productivity stagnates?

Increased productivity may keep total output from diminishing due to fewer workers, which might lead to an improvement in average living standards. Fewer workers and constant labor productivity must diminish total output, but average living standards could still increase or stay constant if there is a smaller population sharing that ouput

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; 110

Which of the following is a liability of a family?

Mortgage

The value of output was $1,000 billion in Northland and $2,000 billion in Southland. The population of Northland was 50 million and the population of Southland was 120 million. There were 30 million employed workers in Northland and 75 million employed workers in Southland. Average labor productivity was higher in _________ and the standard of living was _______.

Northland; higher in Northland

This chapter states that most economists would probably maintain that new technologies are the single most important source of productivity improvement, hence, economic growth in general. Which of the following is correct regarding advances in basic science translating into improvements in standards of living?

Poor countries do not benefit from new scientific knowledge to the same degree that rich countries do, since they lack the resources required to widely apply the knowledge in a beneficial way.

The towns of Sawyer and Thatcher each have a labor force of 1,200 people. In Sawyer, 100 people were unemployed for the entire year, while the rest of the labor force was employed continuously. In Thatcher, every member of the labor force was unemployed for 1 month and employed for 11 months. a. What is the average unemployment rate over the year in each of the two towns? b. What is the average duration of unemployment spells in each of the two towns? c. In which town do you think the costs of unemployment are higher?

Sawyer: 8.3 Thatcher: 8.3 Sawyer: 12 Thatcher: 1 sawyer

The value of output was $100 billion in Northland and $200 billion in Southland. The population of Northland was 50 million and the population of Southland was 30 million. There were 30 million employed workers in Northland and 20 million employed workers in Southland. Average labor productivity was higher in ______ and the standard of living was ________.

Southland; higher in Southland

Steve uses $300 from his paycheck to pay off his credit card balance. Based on this information

Steve's saving has increased by $300.

The government is considering a policy to reduce air pollution by restricting the use of "dirty" fuels by factories. In deciding whether to implement the policy, how, if at all, will the likely effects of this policy impact real GDP?

The cost of implementing pollution-reducing improvements will decrease real GDP due to the closing of some "dirty" factories, while the value of cleaner air will have no direct impact on real GDP.

Which of the following is a nominal quantity?

The current price of a barrel of oil

The market interest rate in Alpha is 7 percent, and the market interest rate in Beta is 10 percent; the inflation rate in Alpha is 3 percent, and inflation rate in Beta is 8 percent. Which of the following statements is true?

The real interest rate is higher in Alpha, but the nominal interest rate is higher in Beta.

Which of the following statements is positive?

When the Federal Reserve increases the money supply, interest rates decrease.

Consider the table below containing data for two hypothetical nations, Alpha and Beta, for the years 1999 and 2019.

Which of the following statements are true for nations Alpha and Beta: Living standards increased in both nations b. Is it possible for average living standards to rise during a period in which average labor productivity is falling? Yes, if the nation experiences increased employment relative to population

Skyler is downloading labor market data for the most recent month, but her connection is slow. So far this is all she has been able to get: Unemployment rate 5.9% Participation rate 62.5% Not in the labor force 63 million

Working-age population: 168 Labor force: 105 Number of employed workers: 98.8 Number of unemployed workers: 6.2

Hester's Hatchery raises fish. At the end of the current season she has 1,000 fish in the hatchery. She can harvest any number of fish that she wishes, selling them to restaurants for $5 apiece. Because big fish make little fish, for every fish that she leaves in the hatchery this year, she will have two fish at the end of next year. The price of fish is expected to be $5 each next year as well. Hester relies entirely on income from current fish sales to support herself. a. How many fish should Hester harvest if she wants to maximize the growth of her stock of fish from this season to next season? b. How many fish should Hester harvest if she wants to maximize her current income? c. Hester is unlikely to harvest either all or none of her fish, but instead will harvest some and leave the rest to reproduce. All of the following explain the logic behind Hester's thought process except:

a. 0 fish b. 1,000 fish c. having a very low or zero income in either year is acceptable to Hester

Identify for each topic whether it would be studied by a macroeconomist or a microeconomist: a. The worldwide operations of General Motors. b. The effect of government subsidies on sugar prices. c. Factors affecting average wages in the U.S. economy. d. Inflation in developing countries. e. The effects of tax cuts on consumer spending.

a. A microeconomist b. micro c. macro d. macro e. macro

a. Which of the following is not an important factor in the determination of labor productivity? b. Economists believe that recent growth in U.S. labor productivity is mainly due to:

a. Economic fluctuations and unemployment b. rapid technological progress and increased investment in new information and communication technologies

Consider the values of the CPI (multiplied by 100) for each year from 2000 to 2010 in the table below. A report found that the real entry-level wage for college graduates declined by 5 percent between 2003 and 2010. The nominal entry-level wage in 2010 was $14.35 per hour.

a. The real entry-level wage in 2010 was $ 8.74 .b. The real entry-level wage in 2003 was $ 9.20 .c. The nominal entry-level wage in 2003 was $ 12.56

How would each of the following likely affect the real wage and employment of unskilled workers on an automobile plant assembly line?a. Demand for the type of car made by the plant increases. b. A sharp increase in the price of gas causes many commuters to switch to mass transit. c. Robots are introduced to most basic assembly-line tasks.

a. The real wage and employment increase. b. the real wage and employment decrease c. The real wage and employment decrease

The following information is for the fictitious nation Alpha: Working-age population = 1 million Labor force = 600,000 Number Employed = 570,000

a. The unemployment rate for Alpha is 5 b. The labor force participation rate for Alpha is 60

Identify the most likely purpose of each the following types of savings accounts: a. A college fund account b. An account established in the name of a grandchild c. A "rainy day" account: d. A retirement account e. An account earmarked for the down payment on a house: f. An emergency account:

a. life cycle b. bequest c. precautionary d. life cycle e. life cycle d. precautionary

Ellie and Vince are trying to decide whether to purchase a new home. The house they want is priced at $200,000. Annual expenses such as maintenance, taxes, and insurance equal 4 percent of the home's value. If properly maintained, the house's real value is not expected to change. The real interest rate in the economy is 6 percent, and Ellie and Vince can qualify to borrow the full amount of the purchase price (for simplicity, assume no down payment) at that rate. Ignore the fact that mortgage interest payments are tax-deductible in the United States .a. Ellie and Vince would be willing to pay $1,500 monthly rent to live in a house of the same quality as the one they are thinking about purchasing. Should they buy the house? b. Ellie and Vince would be willing to pay $2,000 monthly rent to live in a house of the same quality as the one they are thinking about purchasing. Should they buy the house? c. Ellie and Vince would be willing to pay $1,500 monthly rent to live in a house of the same quality as the one they are thinking about purchasing. Now assume the real interest rate in the economy is 4 percent rather than 6 percent, and Ellie and Vince can qualify to borrow the full amount of the purchase price (for simplicity, assume no down payment) at that rate. Should they buy the house? d. Assume that Ellie and Vince would be willing to pay $1,500 monthly rent and that the real interest rate is 6 percent. If the developer offers to sell Ellie and Vince the new house for $150,000, should they buy the house? e. Home-building companies dislike high interest rates because they

a. not b. buy c. buy d. buy e. raise the price of borrowing and discourages people from borrowing for a new home

For each of the following scenarios state whether the following individuals are more likely to be structurally unemployed, frictionally unemployed, or cyclically unemployed: a. An assembly line worker replaced by a machine. b. A construction worker laid off during a recession. c. A bank teller replaced by a computer. d. A computer technician who moves to find a new job in California. e. A textile worker laid off due to a temporary decrease in demand.

a. s b. c c. s d. f e. c

For each of the following scenarios state whether the unemployment is frictional, structural, or cyclical. a. Ted lost his job when the steel mill closed down. He lacks the skills to work in another industry and so has been unemployed over a year. b. Alice was laid off from her job at the auto plant because the recession reduced the demand for cars. She expects to get her job back when the economy picks up. c. Tao looked for a job for six weeks after finishing college. He turned down a couple of offers because they didn't let him use the skills he had acquired in college but now he has a job in the area that he trained for.

a. structural b. cyclical c. frictional

If there is a floor on wages created by a minimum wage, union contracts, or other factors, then a decline in the marginal productivity of low-skilled workers will ______ the demand for low-skilled workers and ______ the number of unemployed workers.

decrease; increase

If household saving decreases by $4 million, business saving increases by $4 million, and the government budget deficit decreases by $4 million, then private saving ______ and public saving ______.

does not change; increases

The introduction of a new technology that raises the marginal product of new capital will

increase real interest rates and the equilibrium quantity of saving supplied and demanded.

Holding other factors constant, if Congress passes a 5% investment tax credit under which a firm receives $5 in tax refunds from the government for every $100 it spends on new capital equipment, then the real interest rate will ______ and the equilibrium quantity of national saving and investment will _____.

increase; increase

The typical family on the Planet Econ consumes 10 pizzas, 7 pairs of jeans, and 20 gallons of milk. In 2019, pizzas cost $10 each, jeans cost $40 per pair, and milk cost $3 per gallon. In 2020, the price of pizzas increased to $14 each, while the price of jeans and milk remained the same. Between 2019 and 2020, a typical family's cost of living

increased by 9 percent.

In Econland population increased from 1 million to 1.1 million, the number of employed workers increased from 500,000 to 600,000, but average labor productivity decreased from $20,000 per worker per year to $18,000 per worker per year. Total output in Econland _____ and the average standard of living _____.

increased; decreased

in Econland population increased from 1 million to 1.1 million, the number of employed workers increased from 500,000 to 600,000, but average labor productivity decreased from $20,000 per worker per year to $19,000 per worker per year. Total output in Econland _____ and the average standard of living _____.

increased; increased

Labor unions contribute to structural unemployment by

keeping wages above the market-clearing level.

Based on the accompanying table and assuming that returns to capital are positive but diminishing, then total packages wrapped when a fourth machine is installed must be ______ packages. Number of (Identical) Machines 1, 2, 3 Total Packages Wrapped 10,000, 13,000, 15,000

less than 17,000

If both the lender and borrower agree on an 8 percent interest rate, both expect a 4 percent inflation rate, and inflation turns out to be 4 percent, then ______ by the inflation.

neither the borrower nor the lender is hurt

Among economists today, the most widely accepted cause of the Great Depression is

poor economic policymaking.

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.

The ______ is the rate of change of the _______.

rate of inflation; CPI

The fictitious country "Alpha" has a population of 30 million people, of which 20 million are employed workers. The real GDP of Alpha is $18,600 million. Find the average labor productivity and the share of the population that is employed.

the average labor productivity of Alpha is $ 930.00 The share of the population that is employed is 66.67

On January 1, 2008, Edwardo invested $10,000 at 5 percent interest for one year. The CPI on January 1, 2008 stood at 1.60. On January 1, 2009, the CPI was 1.76. The real rate of interest earned by Edwardo was ______ percent.

−5