Econ Final
39. Ruben earned a salary of $60,000 in 2001 and $80,000 in 2006. The consumer price index was 177 in 2001 and 221.25 in 2006. Ruben's 2001 salary in 2006 dollars is
$75,000; thus, Ruben's purchasing power increased between 2001 and 2006.
40. According to the classical model, which of the following would double if the quantity of money doubled?
both prices and nominal income
102. The purchase of rice produced this period is included in GDP if the rice is
used in a meal a restaurant sells during the same period they buy the rice
78. In the economy of Talikastan in 2015, consumption was two-thirds of GDP, government purchases were $1000 more than investment, investment was one-ninth of GDP, and the value of exports exceeded the value of imports by $500. What was Talikastan's GDP in 2015?
$13,500
80. Gross national product for Chereaux in 2015 is
$204 ( GDP $200 + $9 - $5)
13. The CPI was 172 in 2007, and the CPI was 46.5 in 1982. If your parents put aside $1,000 for you in 1982, then how much would you have needed in 2007 in order to buy what you could have bought with the $1,000 in 1982?
$3,698.92 formula for cpi (172/46.5) = 3.69... increase.
33. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. Year 2009 2010 2011 Expenditures on Food $5,000 $5,800 $6,600 Consumer Price Index 160.0 168.0 x Suppose the consumer price index is 15.5 percent higher in 2011 than in 2009. Then Will's food expenditures for 2010 in 2011 dollars amount to
$6,380.
23. AA Appliances sells refrigerators. In 2015 it added $100,000 to its inventory. $10,000 of this addition was from used refrigerators, and the remaining $90,000 was from their purchases of newly manufactured refrigerators. How much of AA's inventory is included in 2015 GDP?
$90,000
104. An increase in the minimum wage
. increases structural unemployment.
44. Refer to Figure 5-5. Using the midpoint method, between prices of $20 and $30, price elasticity of demand is about For example, if price increased from 10 dollars to 12 dollars, the percentage change, as usually defined, would be: (12 - 10) / 10 = 2/10 = 20 percent.
0.33
8. Suppose the price elasticity of supply for minivans is 0.3 in the short run and 1.2 in the long run. If an increase in the demand for minivans causes the price of minivans to increase by 5%, then the quantity supplied of minivans will increase by about
1.5% in the short run and 6% in the long run.
89. Suppose the market consists of Adam, Barb, and Carl. If the price falls by $2, the quantity demanded in the marker increases by
10 units
73. In one day Madison Laundry washed 4,000 pounds of laundry with 5 workers who each worked 8 hours. What was its productivity?
100 pounds of laundry per hour
32. Which of the following changes in the price index produces the greatest rate of inflation: 106 to 112, 112 to 118, or 118 to 124? (ex: ending # - Beginning # divided by Beginning #
106 to 112
53. Refer to Figure 2-6. The opportunity cost of this economy moving from point I to point H is
120 blankets.
69. Refer to Figure 2-5. The opportunity cost of this economy moving from point A to point B is
20 dryers
77. The opportunity cost of one sofa is highest when the economy produces
24 sofas
70. The consumer price index was 120 in 2013 and 126 in 2014. The nominal interest rate during this period was 8 percent. What was the real interest rate during this period?
3 percent
110. According to the traditional view of the production function, which of the following values of the additions to output per worker would be consistent with moving from 5 to 6, and then from 6 to 7, and then from 7 to 8 units of capital per worker in that order?
40, 34, 32
88. At the equilibrium wage, how many workers are unemployed?
5,000
84. The Bureau of Labor Statistics reported in 2005 that there were 59.98 million people over age 25 whose highest level of education was a high school degree or equivalent, 36.40 million of whom were employed and 1.93 million of whom were unemployed. What were the labor-force participation rate and the unemployment rate for this group?
63.9% and 5.0% (labor force is number of people who can work out of all the people 36.40+1.93 million)(unemployment rate is # of people unemployed divided by labor force)
36. Which of the following is not correct? a. The model of aggregate demand and aggregate supply is used by most economists to analyze short-run fluctuations. b. During a recession firms cut back production and workers are laid off. c. A recession is a period of declining real incomes and declining unemployment. d. A depression is a severe recession.
A recession is a period of declining real incomes and declining unemployment.
86. Which of the following shifts both the short-run and long-run aggregate supply right?
An increase in capital stock
87. If WarmWear, a U.S.manufacturer of winter clothing, opens a new factory in Austria, then
Austrian GNP increases by less than Austrian GDP, because GDP includes income earned by foreigners working in Austria.
35. The production of methamphetamine (meth) is a social problem in the Midwest. Iowa is considering two potential programs: Operation Methbust would increase the number of sheriffs' deputies to search out and destroy methamphetamine labs. Operation Say No to Meth would increase the training required of public school teachers so that they could better educate students about the health risks of using meth. Assuming that each program were successful, which of the following statements is correct?
Both Operation Methbust and Say No would reduce the equilibrium quantity of meth; Operation Methbust would increase the equilibrium price, whereas Say No would reduce the equilibrium price of meth.
112. Of Social Security benefits and federal income tax brackets, which is indexed?
Both are indexed.
93. The Bureau of Labor Statistics produces data on unemployment and other aspects of the labor market from a regular survey of households called the
Current Population Survey
20. Which of the following do unions not cause?
Frictional unemployment
58. GDP is used as the basic measure of a society's economic well-being. A better measure of the economic well-being of individuals in society is
GDP per person.
47. The First Bank of Fairfield Assets Liabilities Reserves $1,000 Deposits $8,000 Loans 7,000 Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be
IDK
90. When price is between $5 and $9, demand is
IDK
19. Suppose that during the Great Depression long-run aggregate supply shifted left. To be consistent with what happened to the price level and output, what would have had to happen to aggregate demand?
It would have to have shifted left by more than aggregate supply.
5. Graph: N,O,P below curve L,M on curve Q above curve Efficient production is represented by which point(s)?
L,M
59. Suppose that garbage collectors and landscaping workers have no unions. Now suppose that garbage collectors form unions. What does this do the labor supply and wages of landscaping workers?
Labor supply increases, and wages decrease.
1. The primary economic function of the financial system is to
Match one person's saving with another person's investment.
21. Suppose that when the average college student's income is $10,000 per year, the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80. Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie, the quantity demanded of Sue's Subs increases from 80 to 100. Suppose also that when the average student's income increases to $12,000 per year, the annual quantity demanded of Patty's Pizza increases from 50 to 60. What can you deduce about the type of good Patty's Pizza is and about the relationship between Patty's Pizza and Sue's Subs?
Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes.
51. Refer to Figure 4-6. Suppose that the federal government is concerned about obesity in the United States. Congress is considering two plans. One would require "junk food" producers to include warning labels on all junk food. The other would impose a tax on all products considered to be junk food. We could illustrate the tax as producing a movement from
Point A to Point B in Panel 1 graph on quiz solutions
12. The Economy in 2008 In the first half of June 2008 the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. Refer to The Economy in 2008. In the short run the increased prices of world commodities
Raised both the price level and output.
118. Which of the following is not an example of a natural experiment an economist might use to evaluate a theory?
Students in a principles of microeconomics course are asked to play a game with classmates to determine what decisions they make under certain circumstances
24. Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely?
The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond.
18. Consider three different closed economies with the following national income statistics. Country A has taxes of $40 billion, transfers of $20 billion, and government expenditures on goods and services of $30 billion. County B has private savings of $60 billion, and investment expenditures of $40 billion. Country C has GDP of $300 billion, investment of $90, consumption of $180 billion, taxes of $60 billion and transfers of $20 billion. From this information, we know that
The government budget deficit is equal in all three countries.
49. Production Possibilities for Footville Shoes Socks 800 0 600 400 400 700 200 900 0 1000 Refer to Table 2-3. Which of the following statements is correct?
The opportunity cost of an additional 200 shoes increases as more socks are produced.
54. Suppose the quality of beef changes over time, but the quality change goes unmeasured for the purpose of computing the consumer price index. In which of the following instances would the bias resulting from the unmeasured quality change be least severe?
The quality of beef deteriorates and beef becomes more expensive relative to other goods.
56. Which of the following is not a reason perfect competition is a useful simplification, despite the diversity of market types we find in the world?
There are many buyers and many sellers in all types of markets.
3. An economist working for the Central Bank of Fredonia estimates a Phillips curve for Fredonia and reports the following points on the estimated curve. Which of the following is correct?
These points are consistent with the theoretical short-run Phillips curve, but not the long-run Phillips curve.
25. When an American household purchases a bottle of Italian wine for $100,
U.S. consumption increases by $100, U.S. net exports decrease by $100, and U.S. GDP does not change.
63. A German citizen buys an automobile produced in the United States by a Japanese company. As a result,
U.S. net exports and GDP increase, Japanese GNP increases, German net exports decrease, and German GNP and GDP are unaffected.
101. Which of the following involves financial intermediation?
a bank makes a loan
30. Suppose a basket of goods and services has been selected to calculate the CPI and 2012 has been chosen as the base year. In 2012, the basket's cost was $80.00; in 2013, the basket's cost was $84; and in 2014, the basket's cost was $87.60. The value of the CPI was
a. 100 in 2012. b. 105 in 2013. c. 109.5 in 2014. All of the above are correct.
16. Which of the following statements is correct? a. NASDAQ is an important stock exchange in the United States. b. The demand for a corporation's stock is largely based on people's perception of the corporation's profitability in the future. c. Compared to the Standard & Poor's 500 Index, the Dow Jones Industrial Average incorporates the stock prices of a much smaller number of corporations.
a. NASDAQ is an important stock exchange in the United States. b. The demand for a corporation's stock is largely based on people's perception of the corporation's profitability in the future. c. Compared to the Standard & Poor's 500 Index, the Dow Jones Industrial Average incorporates the stock prices of a much smaller number of corporations. All of the above are correct.
42. Graph: K under curve F,I,H,J On curve G above curve If this economy moves from point F to point G, then which of the following statements is correct?
a. This economy has moved from a point of inefficient production to a point of efficient production. b. This economy has experienced economic growth. c. This economy has experienced an increase in employment. None of the above is correct.
117. Which of the following is a store of value?
a. currency b. U.S. government bonds c. fine art d. All of the above are correct
10. Which of the following is a determinant of productivity?
a. human capital per worker b. physical capital per worker c. natural resources per worker All of the above are correct.
31. According to the Phillips curve, policymakers could reduce both inflation and unemployment by
a. increasing the money supply. b. increasing government expenditures. c. raising taxes. None of the above is correct.
68. In the long run, if there is an increase in the money supply growth rate, which of the following curves shifts right?
a. the short-run and the long run Phillips curves b. the short-run but not the long run Phillips curve c. the long-run but not the short-run Phillips curve neither the short-run nor the long-run Phillips curves
107. A basic principle of economics is that a country's standard of living depends on its
ability to make goods and services
27. Other things the same, an increase in the amount of capital firms wish to purchase would initially shift
aggregate demand right.
17. If a study by medical researchers finds that eating brown rice causes weight loss while eating white rice causes weight gain, then we likely would see
an increase in demand for brown rice and a decrease in demand for white rice.
98. Which of the following events could explain the shift of the aggregate-supply curve from AS1 to AS2?
an increase in the world price of oil
74. Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time : What happens to the price level and real GDP in the short run?
both the price level and real GDP fall
99. A budget deficit
changes the supply of loanable funds
14. Economists speaking like scientists make
claims about how the world is. and/or positive statements
96. Which of the following effects results from the change in the interest rate created by an increase in government spending?
crowding out but not the investment accelerator
82. If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year, the sacrifice ratio is
d. 5 (sacrifice ratio = percentage of fallen points divided by change in inflation percentage)
26. You have been asked by your economics professor to graph the market for lumber and then to analyze the change that would occur in equilibrium price as a result of recent forest fires in the west. Your first step would be to
decide whether the fires affected demand or supply.
94. Marcus says that he would smoke one pack of cigarettes each day regardless of the price. If he is telling the truth, Marcus's
demand for cigarettes is perfectly inelastic
11. Monetary neutrality means that a change in the money supply
does not change real GDP. Most economists think this is a good description of the economy in the long run but not the short run.
97. There was hyperinflation during the
early part of the current century in Zimbabwe
48. Graph: Slope going from top left corner (A) through middle(B) to the bottom right corner(C). Y-axis is price, X-axis is quantity and slope line is demand.
elastic section of the demand curve.
41. At the equilibrium price, the quantity of the good that buyers are willing and able to buy
exactly equals the quantity that sellers are willing and able to sell.
57. What do we call financial institutions through which savers can indirectly provide funds to borrowers?
financial intermediaries
64. If aggregate demand shifts right then in the short run
firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the right.
67. Economists make assumptions to
focus their thinking on the essence of the problem at hand.
79. In the 1800s, Europeans purchased stock in American companies that used the funds to build railroads and factories. The Europeans who did this engaged in
foreign portfolio investment
55. You watch a lot of HGTV during your summer vacation, and you notice that most housing buyers list granite countertops in their "must have" lists when buying a new or existing house. You expect the demand for
granite countertops to shift to the right.
81. Countries with low GDP per person tend to have
higher rates of infant mortality (or anything that's bad in a country )
38. Nathan owns a bakery that bakes only cakes. All of his bakers work 8 hours per day. In 2011, he employed 5 bakers who produced a total of 200 cakes each day. In 2012, he employed 6 bakers who produced a total of 249 cakes each day. The bakery's productivity
increased by 3.75%.
92. In the fourteenth century it is estimated that deaths resulting from the bubonic plague reduced the population by about a third. Assuming diminishing returns, the decrease in population should have
increased productivity and real GDP per person.
66. "When workers have a relatively small quantity of capital to use in producing goods and services, giving them an additional unit of capital increases their productivity by a relatively large amount." This statement
is consistent with the view that capital is subject to diminishing returns.
34. The equation, Unemployment rate = Natural rate of unemployment - a × (Αctual inflation - Expected inflation),
is the equation of the short-run Phillips curve.
43. The economy is in long-run equilibrium when Senator Soldout argues that the Fed should do more to fight unemployment. He argues that if the Fed increased the money supply faster, more workers would find jobs. The Senator's argument
is true for the short run but not the long run.
9. Classical economist David Hume observed that as the money supply expanded after gold discoveries
it took time for prices to rise; in the meantime output was higher.
62. Suppose the price for one gallon of gasoline rises from $3.50 to $4.00 and the price of one gallon of milk rises from $3.00 to $3.20. If the CPI rises from 120 to 132, then people likely will buy
less gasoline and more milk.
6. In the United States, real interest rates were
low in the 1970s and high in the 1990s
61. Suppose researchers at the University of Wisconsin discover a new vitamin that increases the milk production of dairy cows. If the demand for milk is relatively inelastic, the discovery will
lower both price and total revenues.
2. Economists make assumptions to
make a complex world easier to understand.
83. According to liquidity preference theory, an increase in the price level shifts the
money demand curve rightward, so the interest rate increases.
85. Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the
money supply to fall. To reduce the impact of this the Fed could raise the discount rate.
29. The table below pertains to Wrexington, an economy in which the typical consumer's basket consists of 20 pounds of meat and 10 toys. Year Price of Meat Price of a Toy 2004 $3 per pound $2 2005 $1 per pound $7 2006 $4 per pound $5 The inflation rate was
positive in 2005 and positive in 2006.
75. The slope of the demand for loanable funds curve represents the
negative relation between the real interest rate and investment
120. The residents of Ireland earn $200 million of income from abroad. Residents of other countries earn $300 million in Ireland. Therefore, Ireland's
net factor payments from abroad are negative, and its GDP is larger than its GNP
4. The tool most often used by the Fed to control the money supply is
open market operations.
28. If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?
output but not the price level
111. By not taking into account the possibility of consumer substitution, the CPI
overstates the cost of living.
91. A high demand for a company's stock is an indication that
people are optimistic about the company's future
103. The inflation rate is the
percentage change in the price level from one period to another
22. When drawing a demand curve,
price is measured along the vertical axis, and quantity demanded is measured along the horizontal axis.
114. When supply and demand both increase, equilibrium
price may increase, decrease, or remain unchanged.
119. On a bank's T-account, which are part of the bank's assets?
reserves but not deposits made by its customers
60. When the Federal Reserve decreases the Federal Funds target rate, the lower rate is achieved through
sales of government bonds, which reduces interest rates and causes people to hold more money. (maybe)
106. When the price of a good is higher than the equilibrium price
sellers desire to produce and sell more than buyers wish to purchase
15. If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by
selling bonds. This selling would reduce money supply (reserves?)
50. If Martina's income increases and, as a result, she chooses to buy more lattés per month at each price, then her demand curve will
shift to the right. change in income causes shift
113. Cyclical unemployment is closely associated with
short-run ups and downs of the economy
71. At the price of $12, there is
shortage of 4 units
100. Average income has been stagnant for many years in
some Sub-Saharan African countries.
52. When the money market is drawn with the value of money on the vertical axis, a decrease in the money supply leads people to
spend less so the value of a dollar rises.
46. The amount of unemployment varies
substantially over time and across countries.
95. A problem that the Fed faces when it attempts to control the money supply is that
the Fed does not control the amount of money that households choose to hold as deposits in banks.
37. The production possibilities frontier is a graph that shows the various combinations of output that an economy can possibly produce given the available factors of production and
the available production technology.
76. Which of the following is an example of physical capital?
the equipment in a factory
108. According to liquidity preference theory, if the price level decreases, then
the interest rate falls because money demand shifts left.
72. In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?
the interest rate rises and aggregate supply is relatively steep
109. In which case below is the real interest rate the highest?
the nominal interest rate = 2% and inflation = -1% Real interest Rate= Nominal - Inflation
45. Which of the following adjust to bring aggregate supply and demand into balance?
the price level and real output
105. When the price of a good or service changes
there is a movement along a given demand curve.
7. Samuelson and Solow argued that a combination of low unemployment and low inflation
was impossible given the historical data as summarized by the Phillips curve.
65. Refer to Figure 4-24. All else equal, the premature deaths of thousands of turkeys would cause a move from
x to y.