Macroeconomics Exam 2

Which of the following statements is true of frictionless labor markets?

In such markets, firms can instantly hire and fire workers.

The development of genetically modified soybean seeds such as Roundup Ready seeds lowered tillage costs for soybean growers. How will this technological advance affect the supply of soybeans?

Increase in supply

You read a newspaper report that compares wages paid to employees at Starbucks in India and in the United Kingdom. At the time, 1 pound was equal to 87 rupees. The report says that Starbucks baristas in India are paid a mere 56 pence an hour, which is lower than the cheapest coffee that Starbucks sells in the United Kingdom. A friend of yours who read the report is appalled by this information and thinks that Starbucks ought to raise its salaries substantially in India. Is your friend necessarily correct?

No, the flaw in the report is that it converts the wages paid in India to pounds using the current exchange rate, but does not account for the cost of living (or the prices of goods) in India.

How would a decrease in demand affect the equilibrium price in a market?

The equilibrium price decreases.

Suppose you are comparing the income per capita in the United States and Ghana. You try two approaches. In the first approach, you convert the Ghana values into U.S. dollars using the current exchange rate between the U.S. dollar and the Ghanaian cedi. In the second approach, you also convert both values to U.S. dollars using the purchasing power parity-adjusted exchange rate.

The second approach, because it takes into account the relative costs for each country.

The GDP of a small country with a population of 200,000 is $56,000,000. The income per capita in the country is ________.

$280

The average income per capita in a country in its own currency is 75,000 units. If U.S. $1 is worth 20 units of its currency, the income per capita in the country in dollars is ________.

$3,750

Refer to the table above. What will be the value of the GDP of the country if the country runs a trade surplus of $30,000 next year, everything else remaining unchanged?

$378,000

Refer to the scenario above. Why might policy makers in Country Y most likely introduce policies that require unemployed workers to participate in job training programs?

To mitigate the social costs of unemployment.

Which of the following statements is true?

All else being equal, the incentive to look for a job is lower for an individual with a lower opportunity cost of time.

Which of the following would be excluded when calculating the Consumer Price Index (CPI) but included when calculating the GDP deflator?

An ambulance

Scenario: John is looking to buy a house in Bozeman. He has about $120,000 in savings, and the house he is interested in costs $300,000. When he approaches Boze Bank, the same bank at which all of his five brothers have accounts, he learns that he can borrow at a nominal interest rate of 5 percent. Inflation is 2 percent for 2 years after he buys the house and then increases to 3 percent. Assume that Boze Bank is the only bank in Bozeman and John's five brothers contribute a significant amount to the bank's total savings. Refer to the scenario above. If John takes a loan to cover the difference between the cost of the new house and his savings and makes annual payments of $50,000, how much will John owe after 3 years? Hint: Use the price (interest rate) relevant in the credit market.

$41,251

If an individual borrows $100 at an annual rate of interest of 5 percent, how much interest will he have to pay at the end of 1 year?

$5

Refer to the table above. What is the labor force participation rate?

51.4 percent

The currency used in Spain is the euro, and the currency used in the U.S. is the dollar. Which of the following will lead to a decrease in the value of Spain's income per capita in dollars?

A decrease in the dollar per euro exchange rate

Which of the following is likely to shift the credit demand curve of a computer manufacturer to the left, assuming all else equal?

A decrease in the scale of production

Why is it essential to differentiate between real and nominal growth rates of GDP?

B and C only

1)Why do economists study perfectly competitive markets even though few, if any, markets in the real world are perfectly competitive?

Because the perfectly competitive market is a good approximation to many markets in the real world and helps us understand how real markets work.

A firm's value added refers to the dollar value of ____________.

a firm's sales revenue minus the firm's purchases of intermediate products from other firms.

Productivity varies across countries because ___________.

all of the above.

The willingness to pay for a commodity ________.

decreases as consumption of the commodity increases

Other things remaining the same, a leftward shift in the supply curve will lead to a(n) ________.

increase in the equilibrium price and a decrease in the equilibrium quantity

In 2007, an unseasonably dry spring led to a sharp decline in the quantity harvested of black morels, a wild mushroom found throughout the upper Midwest. Due to the scant harvest, the price of black morels rose from $9 per pound to nearly $45 per pound. In 2008, slightly abovenormal rainfall levels led to a large black morel harvest. Assuming that the demand for black morels did not change from 2007 to 2008, we would expect the 2008 black morel supply to ________ and the equilibrium price of black morels to ________.

increase; fall

Which one of the sets of terms given below would correctly complete the following definition of GDP? "Gross Domestic Product is the ____ value of the ____ goods and services produced _____ of a country during a particular period of time."

market; final; within the borders

Rapid unemployment increases ________.

may happen in one area but not in adjacent areas

A person is officially unemployed if three conditions are satisfied: he or she ________.

meets all the above conditions

When the credit demand curve is relatively steep, the quantity of credit demanded is ________.

not very sensitive to changes in the real interest rate

A country's gross national product would exceed its gross domestic product when the ___________.

production of domestically-owned factors operating abroad exceeds the production of foreign-owned factors operating in the United States.

Assuming all else equal, if a household is pessimistic about future income, it is likely to cause a(n) ________ the current credit supply curve of the household.

right shift of

If a firm introduces technology that substitutes capital for labor, ________ the labor demand curve of the firm, assuming all else equal.

there will be a left shift of