Macroeconomics Exam 1

What social problems have been linked to higher rates of unemployment?

-higher crime rates -public unrest -higher rates of theft -higher rates of depression Money impacts ones self image/self worth, and when people are in need of money they act irrationally

The collective willingness of a society to pay for a unit of a public good...

... is the total sum of the prices all individuals in a society are willing to pay for the unit.

Identify the two major types of non-production transactions that are not included in GDP.

1.) Purely financial transactions ( no good or service is being made) 2.) Secondhand sales ( the good or service has already been sold)

GDP is composed of...

-government purchases -personal consumption -gross investment -net exports(exports-imports)

Equilibrium price in a market is

when product demanded in a time period equals product supplied in the same period

Jennifer buys a piece of costume jewelry for $33 for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences: a. consumer surplus of $3, and Nathan experiences a consumer surplus of $3 b. producer surplus of $9 and Nathan experiences a consumer surplus of $3 c. producer surplus of $9, and Nathan experiences a producer surplus of $12 d. consumer surplus of $9, and Nathan experiences a producer surplus of $3 e. consumer surplus of $12, and Nathan experiences a producer surplus of $3

d. consumer surplus of $9, and Nathan experiences a producer surplus of $3

Charlie is willing to pay $12 for a T-shirt that is priced at $10. If Charlie buys the T-shirt, then his consumer surplus is : a. more than $10 b. $12 c. $22 d. $120 e. $2

e. $2

What are the three primary measures used in macroeconomics to assess the performance of the economy?

1.) Real GDP (final price of goods produced, with inflation factored in) 2.) Unemployment( amount of people looking for work) 3.) Inflation (rise in price level)

Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories increased by $10 billion. GDP in year 2 is: A) 210 B) 200 C) 190 D) 180

A) 210

If in some year gross investment was $240 billion and net investment was $200 billion, then in that year the country's capital stock: A) increased by $200 billion B) increased by $40 billion C) decreased by $40 billion D) may have either increased or decreased

A) increased by $200 billion ( net investment = capital stock)

Answer this question based on the given information for an economy in some year. 1.) Dollar value of resource extraction activity = $20 billion 2.) Dollar value of production activity = $50 billion 3.) Dollar value of distribution activity = $90 billion 4.) Dollar value of final output = $160 billion Gross output for this economy equals A) $300 billion B) $320 billion C) $260 billion D) $160 billion

B) $320 billion ( gross output = add everything)

Suppose a firm is currently producing 500 computers per week and charging a price of $1,000. What happens to the firm's inventory of computers if there is a negative demand shock and prices are flexible? A) The firm's inventory will decrease by 150 computers per week. B) The firm's inventory will not change. C) The firm's inventory will increase by 350 computers per week. D) The firm's inventory will increase by 200 computers per week.

B) The firm's inventory will not change

Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's produced 10,000 large pepperoni pizzas (identical to last years pizzas) but sold them for $12 each. Based on this information, we can conclude that Harry's production of large pepperoni pizzas A) decreased real GDP. B) did not change real GDP. C) did not change nominal GDP. D) increased real GDP.

B) did not change real GDP

Higher rates of unemployment are linked with A) greater political stability. B) higher crime rates. C) less crime. D) better mental health.

B) higher crime rates

Suppose a family's income increases by 5 percent at the same time that inflation is 6 percent. Then the A) purchasing power of their income will increase by 6%. B) family's standard of living will decrease. C) purchasing power of their savings will increase by 11%. D) family's standard of living will increase.

B. family's standard of living will decrease.

Assume that a manufacturer of stereo speakers purchases $30 worth of components for each speaker. The completed speaker sells for $70. The value added by the manufacturer for each speaker is: A) $70 B) $30 C) $40 D) $100 E) $2,100

C) $40

Arthur sells $100 worth of cotton to Bob. Bob turns the cotton into cloth, which he sells to Camille for $300. Camille uses the cloth to make prom dresses that she sells to Donita for $500. Donita sells the dresses for $900 to kids attending the prom. The total contribution to GDP of this series of transactions is: A) $1,800 B) $800 C) $900 D) $1,700

C) $900 (only factors in the final product/price of a good)

Suppose a firm is currently producing 500 computers per week and charging a price of $1,000. How will the firm respond to a negative demand shock if prices are inflexible? A) The firm will keep production at 500 computers. B) The firm will increase the price to $1,200. C) The firm will keep the price at $1,000. D) The firm will reduce the price to $600.

C) The firm will keep the price at $1,000.

A business buys $5,000 worth of inputs from other firms in order to produce a product. The business makes 100 units of the product and each of them sells for $60. The value added by the business to these products is: A) $1,500 B) $6,00 C) $5,00 D) $1,000

D) $1,000

Suppose a small economy produces only smart TVs. In year one, 100,000 TVs are produced and sold at a price of $1,200 each. In year two, 125,000 TVs are produced and sold at a price of $1,000 each. As a result, A) nominal GDP decreased. B) real GDP decreased. C) real GDP stayed the same. D) real GDP increased.

D) real GDP increased.

If an economy wants to increase its current level of investment, it must A) sacrifice future consumption. B) offer more stocks and bonds to financial investors. C) print more money. D) sacrifice current consumption.

D) sacrifice current consumption

Explain what is and is not included in the "government purchases" of a nations GDP.

Is: goods and services purchased to provide public goods, publicly owned capital, investments in research and development Is Not: transfer payments ( ie. social security, medicare)

Amanda buys a ruby for $330 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $190. Amanda experiences: a. consumer surplus of $10, and Tony experiences a producer surplus of $140 b. producer surplus of $10, and Tony experiences a consumer surplus of $190 c. producer surplus of $200, and Tony experiences a consumer surplus of $10 d. consumer surplus of $10, and Tony experiences a consumer surplus of $150 e.consumer surplus of $670, and Tony experiences a producer surplus of $200

a. consumer surplus of $10, and Tony experiences a producer surplus of $140

Suppose product Z is an input in the production of product X. Product X in turn is a substitute for product Y. An increase in the price of Z can be expected to : a. increase the demand for Y b. decrease the demand for Y c. have no effect on the demand for product Y d. decrease the supply of Y e. increase the supply of Y

a. increase the demand for Y