FALL 2021 FINAL REVIEW

Which of the following would increase the investment component of U.S. GDP?

a laundry in Seattle purchases a new clothes-washing machine produced in the U.S.

If you use $1,000 to purchase silver bullion, which you plan to keep in a safe, you are using money as:

a medium of exchange

A firm should shut down if its total revenue is less than its ________ even when the firm produces the level of output at which price equals marginal cost.

variable cost

If bank reserves are 200, the public holds 400 in currency, and the desired reserve/deposit ratio is 0.20, the deposits are ________ and the money supply is ________.

1,000; 1,400

Refer to the figure below. The equilibrium price is ________, and the equilibrium quantity is ________.

$6; 4

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: If the oranges were grown and the jam produced in the year 2015, but the marmalade was sold at The Corner Store in the year 2016, what is the contribution of these transactions to GDP in the year 2016?

$0.50

Suppose a jar of orange marmalade that is ultimately sold to a customer at The Corner Store is produced by the following production process: What is the value added of Citrus Growers Inc.?

$0.75

Suppose that Tom bought a bike from Helen for $195. If Helen's reservation price was $185, and Tom's reservation price was $215, the seller's surplus from this transaction was:

$10

Assume an economy produces only hamburgers and hotdogs and the base year is 2005. Given the data in the table above, what is the value of real GDP in 2006?

$10,000

Suppose Sarah owns a small company that makes wedding cakes. The table below shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $125 each, then at her profit-maximizing level of output, Sarah's profit will be ________ per day.

$105

You have two options for how to spend the afternoon. You can either go see a movie with your roommate or work as a tutor for the Math Department. From experience, you know that going to see a movie gives you $20 worth of enjoyment, and with your student discount, a movie ticket only costs $12. If you spend the afternoon working as a math tutor, you will get paid $45. On a typical day, you wouldn't be willing to spend the afternoon working as a math tutor for less than $35. What is your opportunity cost of seeing a movie this afternoon?

$12

Refer to the table below. The marginal cost of the 3rd unit of this activity is:

$20

In 2015, Pete Rich purchases a 1642 painting by Rembrandt for $20 million. He also pays a one percent commission to the auction house that sold the painting. What is the contribution of these transactions to GDP in the year 2015?

$200,000

Bob's Barber Shop cut 3,000 heads of hair in 2014 and 3,100 in 2015. The price of a haircut was $7 in 2014 and $8 in 2015. If 2014 is the base year, what was Bob's contribution to real GDP in 2015?

$21,700

The country of Southland produced $2,000 billion of output in one year. The population of Southland was 100 million, of whom 60 million were employed. What was average labor productivity in Southland?

$33,333

For a given seller, the figure below shows the relationship between the number of units produced and the opportunity cost of producing an additional unit of output. What is this seller"s reservation price for the 250th unit?

$4

For the Fall semester, you had to pay a nonrefundable fee of $600 for your meal plan, which gives you up to 150 meals. If you eat all of the meals, your average cost for a meal is:

$4

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 ________.

$530 billion; $4,230 billion

John is trying to decide how to divide his time between his job as a stocker in the local grocery store, which pays $7 per hour for as many hours as he chooses to work, and cleaning windows for the businesses downtown. He makes $2 for every window he cleans. John is indifferent between the two tasks, and the number of windows he can clean depends on how many hours he spends cleaning in a day, as shown in the table below: A second hour cleaning windows will yield additional earnings of ________.

$8

The CPI in 1930 equaled 0.17. The CPI in 1931 equaled 0.15. The rate of inflation between 1930 and 1931 was ________ percent.

-11.8

Refer to the figure below. What is the price elasticity of demand when the price of rice is $3 per pound?

0.5

Suppose that the total expenditures for a typical household in 2010 equaled $2,500 per month, while the cost of purchasing exactly the same items in 2015 was $3,000. If 2010 is the base year, the CPI for 2010 equals:

1.00

A consumer expenditure survey reports the following information on consumer protein spending: Using 2005 as the base year, by how much does a "cost of protein" index increase between 2005 and 2006?

13.4 percent

The following table provides data for an economy in a certain year. Given the data in the table, compute the value of GDP.

150

Based on the information in the table, how many people are out of the labor force?

200,000

If the price of cheese falls by 1 percent and the quantity demanded rises by 3 percent, then the price elasticity of demand for cheese is equal to:

3

Suppose the total benefit of watching 1 baseball game is 100, the total benefit of watching 2 games is 120, and the total benefit of watching 3 games is 125. In this case, the marginal benefit of watching the 3rd game is:

5

Fran runs a doughnut shop in a tiny 3-person town. The table below shows the quantity demand by the three townspeople at various prices. When the price of a doughnut is 50 cents, what is the market demand for doughnuts?

9 doughnuts

Given the following data for the economy, compute the value of GDP.

90

Forest lives in complete isolation in Montana. He is self-sufficient and feeds himself through hunting, fishing, and farming. Which of the following statements about Forest is true?

Forest has to make trade-offs

Which of the following is likely to have the highest price elasticity of demand?

Nike running shoes

The adding up of individual economic variables to obtain economy wide totals is called:

aggregation

What might cause a demand curve to shift to the right?

an increase in the price of a substitute

Which of the following is likely to lead to a decrease in the demand for tennis balls?

an increase in the price of tennis racquets

Satellite TV is a close substitute for cable TV. In the 1990's, small satellite TV units were developed that made it less costly for individual consumers to subscribe to satellite TV service. This caused the price elasticity of demand for cable TV service to:

become more elastic

You are trying to decide whether to purchase the latest Harry Potter book online or borrow it from the library. There is no charge for borrowing a book from the library, but going to the library takes more time than ordering a book online. Regardless of how you get the book, its benefit to you is the same. If the cost of buying the book online is $13, then you should:

borrow the book from the library if the cost of doing so (in terms of the extra time it takes) is less than $13

Bank reserves are:

cash and similar assets held to meet depositor withdrawals or payments

The two main responsibilities of the Federal Reserve System are to ________ and to ________.

conduct monetary policy; oversee financial markets

The four components of aggregate expenditures are:

consumption, investment, government spending, and net exports

The M1 measure of money consists of the sum of:

currency, checking deposits, and travelers' checks

If banks' desired reserve ratio increases from 0.10 to 0.15, the public still desires to hold the same amount of currency, and the Fed takes no actions, the money supply will:

decrease

Suppose that the equilibrium price of T-shirts increases and the equilibrium quantity of T-shirts decreases. This is best explained by a(n):

decrease in the supply of T-shirts

Inflation makes it difficult to distinguish relative price changes from changes in the general level of prices. Consequently, inflation ________ the efficiency of the market system.

decreases

In 1929, the CPI equaled 0.171 and in 1930, the CPI equaled 0.167. These data provide evidence of a period of:

deflation

To aggregate 300 tons of steel, 5,000 bushels of wheat, and 1 million barrels of crude oil, economists add together the ________ of the three products.

dollar value

Suppose Mary is willing to pay up to $15,000 for a used Ford pick-up truck. If she buys one for $12,000, her ________ would be ________.

economic surplus; $3,000

When the price of NBA tickets is $25 each, 30,000 tickets are sold. After the price rises to $30 each, 20,000 tickets are sold. At the original price, the demand for NBA tickets is:

elastic

If price is above the equilibrium price, then there will be:

excess supply

The consolidated balance sheet of the all banks in Macroland is presented below: Based on this balance sheet the banking system of Macroland can be described as a(n) ________ banking system.

fractional-reserve

If an increase in the price of good X leads to a decrease in the demand for good Y, then:

good X and good Y are complements

When government revenue exceeds government spending, the nation has a:

government budget surplus

Major macroeconomic questions include all of the following EXCEPT:

how do monopoly firms set prices and determine quantities to produce?

The most important challenge facing a firm in a perfectly competitive market is deciding:

how much to produce

An open-market purchase of government securities by the Fed will:

increase bank reserves, and the money supply will increase

To ensure that a nominal payment represents a constant level of purchasing power over time, one should:

increase it by a percentage equal to the rate of inflation for that year

The price of a gallon of gasoline was $0.35 in 1972 when the CPI equaled 0.418. The cost of a gallon of gasoline was $2.25 in 2005 when the CPI equaled 1.68. The real cost of a gallon of gasoline between 1972 and 2005:

increased

If average labor productivity increases while population and the number of employed workers remain constant, then total output:

increases

Two methods used to adjust nominal values for inflation are:

indexing and deflating

If the price of textbooks increases by one percent and the quantity demanded falls by one-half percent, then demand for textbooks is:

inelastic

Which of the following is NOT true of a demand curve?

it reflects sellers' reservations prices

The Cost-Benefit Principle indicates that an action should be taken if, and only if:

its benefits exceed its costs

The following table shows the relationship between the speed of a computer's CPU and its benefits and costs. Assume that all other features of the computer are the same (that is, CPU speed is the only source of variation), and only the CPU speeds listed below are available for purchase. Choosing a 3.5GHz computer would be irrational because:

its marginal benefit is less than its marginal cost

GDP excludes important factors that affect people's well-being, such as the value of:

leisure time

Suppose Sarah owns a small company that makes wedding cakes. The table below shows how Sarah's total cost varies depending on the number of wedding cakes she makes each day. If the market for wedding cakes is perfectly competitive, and wedding cakes sell for $95 each, then at her profit-maximizing level of output, Sarah will earn a ________ of ________ per day.

loss; $15

When the actual reserve/deposit ratio exceeds the desired reserve/deposit ratio banks:

make more loans

________ policy focuses on the nation's money supply, while ________ policy aims at changing the underlying structures or institutions of the economy.

monetary; structural

Suppose 30 employee-hours can produce 50 units of output. Assuming the law of diminishing marginal returns is present, to produce 100 units of output would require:

more than 30 additional employee-hours

Which of the following is NOT a characteristic of a market in equilibrium?

neither buyers nor sellers want the price to change

An editorial in the paper argues that a person only should be allowed to attend school if the marginal cost of educating that person is less than the marginal benefit of educating that person. The writer's reasoning is an application of:

normative economics

The number of unemployed divided by the labor force equals the:

unemployment rate

The standard of living in an economy is best measured by:

output per person

Average consumption in an economy is best measured by ________, while average productivity in an economy is best measured by ________.

output per person; output per worker

The unemployment rate is the:

percentage of the labor force that is out of work

If Country A and Country B have the same total output, then the standard of living in these two countries can be different depending on:

population size

"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

Assume that each day a firm uses 13 employee-hours and an office to produce 100 units of output. The price of each unit output is $5, the hourly wage rate is $10, and rent on the office is $200 per day. Each day the firm earns a ________ of ________.

profit; $170

An increase in consumers' demand for espresso will lead to an increase in ________, while an increase in the number of firms producing espresso will lead to a(n) ________.

quantity supplied; increase in supply

A measure of GDP in which quantities produced are valued at the prices of a fixed base year is called:

real GDP

The value added by any firm equals the firm's ________ from selling the product minus ________.

revenue; the cost of inputs purchased from other firms

The law of demand indicates that as the cost of an activity:

rises, less of the activity will occur

In an open-market sale the Federal Reserve ________ government bonds and the supply of bank reserves ________.

sells; decreases

When a government moves from a centrally planned economy to a market economy, this is an example of ________ policy.

structural

According to the Cost-Benefit Principle, you should spend an additional hour studying for an exam if, and only if,:

the benefits of studying for an additional hour exceed the costs of studying for an additional hour

The price elasticity of demand is a measure of:

the change in quantity demanded of a good that results from a change in its price

Suppose that a new drug has been approved to treat a life-threatening disease. The demand for that drug is shown on the graph below. Prior to approval of this drug, the only treatment for this condition was any one of several non-prescription, or over-the-counter, pain relievers. The demand for one brand of the several non-prescription pain relievers is also shown on the graph. Demand for the new drug is ________ while demand for one brand of the over-the-counter pain relievers is ________.

the line labeled A; the line labeled B

The opportunity cost of an activity includes the value of:

the next-best alternative that must be foregone

Alex received a four-year scholarship to State U. that covered tuition and fees, room and board, and books and supplies. If Alex becomes a full-time student, then:

the opportunity cost of attending State U. includes the money Alex could have earned working for four years

The price elasticity of supply at a point is:

the percentage change in quantity supplied divided by the percentage change in price

When a market is in equilibrium:

there is neither excess demand nor excess supply

Refer to the figure below. If the current market price were $20:

there would be an excess demand of 25 units

Suppose that the total production of an economy consists of 10 oranges and 5 candy bars, each orange sells for $0.20, and each candy bar sells for $1.00. Which expression of the output of this economy is most consistent with the concept of GDP?

this economy produces $7.00 worth of food