ECO 210-80 Midterm

Figure: Determining Surplus 6 (Figure: Determining Surplus 6) We can calculate the total surplus as:

$40,000.

If the amount of spending in an economy declines by $1,000 and the marginal propensity to consume is 0.8, the effect on the economy is a change of _____ in income or output.

-$5,000

The economy is probably heading into a recession when the National Activity Index equals:

-0.94.

If disposable income increases from $250 to $300 and saving increases from $40 to $50, how much is the average propensity to save?

.167

If income rises from $10,000 to $20,000 and consumption increases from $9,000 to $16,000, then the marginal propensity to consume is:

.70

Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. Ashanti's opportunity cost for each additional dog walked is:

0.5 lawns mowed.

Figure: Market for Shoes (Figure: Market for Shoes) If the price of shoes is $40 per pair, the quantity demanded will be _____ pairs of shoes.

15

At equilibrium, if spending increases by $300 and the corresponding increase in income is $1,500, what is the multiplier?

5

The table shows the production possibilities schedule for guns and butter. The opportunity cost of increasing gun production from 100 to 200 is: [Guns (hundreds) 6 5 4 3 2 1 0 Butter (tons) 0 5 10 15 20 25 30]

5 tons of butter.

Paolo can walk three dogs or mow two lawns in two hours. Ashanti can walk six dogs or mow three lawns in two hours. One can conclude that:

Ashanti has absolute advantage in dog-walking, and Paolo has comparative advantage in lawn-mowing.

When Mr. Wilson worked full time, he paid a cleaning service to have his house cleaned twice a month. Now that he is retired, Mr. Wilson does his own cleaning. What is the effect on GDP?

GDP falls as a result of this change.

If a country's population increases at a slower rate than the growth in its real GDP:

GDP per capita has increased.

Which statement about long-run economic growth is TRUE?

It is likely to occur when the capacity to produce goods and services increases.

Which of the following statements is TRUE about the National Activity Index?

Negative values mean the economy is growing more slowly than its long-term trend.

If bagels and doughnuts are substitute goods, then which of the following is likely to occur if the price of bagels is reduced?

The demand curve for doughnuts will shift to the left.

P $10 $8 $6 $4 $2 $0 Qd 3 7 10 14 20 30 Qs 20 15 10 7 3 0 Using the data for the market for lattes in the table, at a price of $6:

The price of lattes will stay the same.

Which is TRUE about specialization and exchange between two individuals?

They generally benefit the poorer individual as well as the richer individual.

Which of the following situations would MOST likely lead to an import of copper?

a comparative advantage in the production of copper by other nations

Which of the following will NOT cause the supply curve for kayaks to shift to the left?

a decrease in the price of a kayak

Which of the following would cause a decrease in the demand for coffee?

a decrease in the price of tea (a substitute for coffee)

Figure: Determining Total Surplus (Figure: Determining Total Surplus) In this graph, total surplus is shown by area:

ace.

Paying a salesperson more for increased sales is an example of:

an incentive.

Which of the following is included in gross private domestic investment?

an increase in business inventories

Which of the following does NOT increase productivity?

an increased money supply

Figure: Pork and Corn PPF (Figure: Pork and Corn PPF) Using the graph, if we are operating at the economy's potential output, then production can be at points:

c or f.

Measuring changes in a fixed basket of goods to assess changes in price is a ______ method.

cost-of-goods index

Which group is helped by inflation?

debtors

Everything else the same, if investment expenditures rise by $300 billion and imports increase by $300 billion, then GDP:

does not change.

When household debt levels rise:

families are less able to spend in the current period.

Arlina got a 5% raise while the rate of inflation was 6%. Arlina's standard of living:

fell by about 1%.

Jennifer did not work during college. She just obtained a bachelor's degree in marketing, and she is now looking for a marketing job in the retail industry. Jennifer is considered:

frictionally unemployed.

Which of the following strategies is an example of increasing the capital-to-labor ratio?

giving a construction crew more backhoes

Assume that the MPC is 0.8. Full employment is considered to be at a GDP level of $500 billion. The current GDP is $400 billion. The government is committed to a balanced budget. To achieve full employment, the government should _______ taxes by ____________ and increase government spending by ________.

increase; $100 billion; $100 billion

Increases in government spending ____ equilibrium income, and increases in taxes ____ equilibrium income.

increase; decrease

Other things equal, if a recession gets worse, the number of discouraged workers __________, and the number of those in the labor force _____________.

increases; decreases

A country operating inside of the production possibilities frontier is operating:

inefficiently but in an area that can be attained.

When a consumer's income level is low, it is MORE likely the consumer will purchase ______ goods.

inferior

Physical capital includes:

manufactured products that are used to produce other goods and services.

The extra cost associated with undertaking some action is its:

marginal cost

A change from an inefficient mix to an efficient mix of output would BEST be represented with a production possibilities frontier (PPF) as a:

movement from inside the PPF onto the PPF.

Which of the following values is an example of a nonmarket transaction NOT included in the national income and product accounts?

mowing your own lawn

The government often strictly regulates noise and chemical pollution by industry to overcome which market failure?

negative externality (external costs)

When the government chooses to use resources to build tourist centers, the chosen resources are no longer available to build highways. This BEST illustrates the concept of:

opportunity cost.

The government often provides funding for the arts when markets do not do so sufficiently. This funding is to overcome which market failure?

positive externality (external benefits)

The government's capping the price of gasoline at $2 a gallon is an example of a:

price ceiling.

A society that is able to produce goods and services at the lowest cost possible is experiencing:

production efficiency.

Which of the following items is NOT included in gross private domestic investment?

purchases of common stock

Figure: Market for Shoes (Figure: Market for Shoes) If the price of shoes is $60/pair, the _____ will be 10 pairs of shoes.

quantity demanded

Refer to the production possibilities frontiers below. Panel A illustrates _______ economic growth and Panel B illustrates _______ economic growth.

short-run; long-run.

When quantity demanded exceeds quantity supplied, a:

shortage occurs and prices are bid up toward equilibrium.

In the simple Keynesian model, the only two things you can do with your income are:

spend it and save it.

U.S. steelworkers who have lost their job to workers receiving lower wages overseas are part of ____________ unemployment.

structural

Figure: Interpreting a Market Graph (Figure: Interpreting a Market Graph) The graph represents:

the law of supply.

Which is an example of capital in the production process of an amusement park?

the roller coaster

Choosing to work an extra hour of overtime is an example of:

thinking at the margin.

Which is NOT a characteristic of a stable financial system?

unanticipated high inflation

Consumer surplus is shown graphically as the area:

under the demand curve and above the market price.

All of the following are considered human capital, EXCEPT:

working in a factory.