ECON 2020 Final Exam

Assume that the consumer price index is 124.0 for 2018 and 130.7 for 2019. What was the inflation rate between these two years?

5.40%

NOTE THAT THIS TABLE IS USED FOR MULTIPLE QUESTIONS. IT WILL HELP YOU TO COPY THE NUMBERS DOWN OR PUT THEM IN A SPREADSHEET. The table shows data from the Bureau of Labor Statistics BLS for the years before and after the Great Recession and before and during the pandemic. A-1. Employment status of the civilian noninstitutional population 16 years and over, [Numbers in thousands] What was the labor force participation rate for 2020? 63% 66% 62% 65%

62%

Unanticipated inflation:

helps borrowers and hurts lenders.

The CPI changes from 100 to 90. This means that:

there is deflation.

The United Kingdom must give up the production of 300 motorcycles to produce 15 additional convertible Jaguars with the same resources. The opportunity cost of producing 100 motorcycles is _____ convertible Jaguar(s).

5

NOTE THAT THIS TABLE IS USED FOR MULTIPLE QUESTIONS. IT WILL HELP YOU TO COPY THE NUMBERS DOWN OR PUT THEM IN A SPREADSHEET. The table shows data from the Bureau of Labor Statistics BLS for the years before and after the Great Recession and before and during the pandemic. A-1. Employment status of the civilian noninstitutional population 16 years and over, [Numbers in thousands] What was the unemployment rate in 2010? 8.1% 9.6% 3.7% 4.6%

9.6%

Expansions are periods when _____.

NOT: both real GDP and unemployment grow

The term "gains from trade" means the

NOT: higher prices that firms get when they sell abroad rather than in home markets.

Markets allocate goods to those with the:

NOT: lowest marginal cost.

Potential output is the level of real GDP that:

NOT: the economy would produce if all prices, including nominal wages, were sticky.

If a country's domestic price of lumber is below the world price of lumber, the country will likely:

export lumber.

To maximize production, people should

focus on the task in which they have a comparative advantage.

Which of the following alternatives would yield the greatest economic surplus?

the most economically efficient option

The table shows the monthly individual supply schedules for the four firms in the packed-meals market. What is the market supply at $6.75 per meal? 183,000 meals 730,000 meals 297,000 meals 895,000 meals

895,000 meals

Efficiency wages are:

NOT: above-equilibrium wages designed to encourage better performance and the source of structural unemployment.

GDP counts the dollar value of only final goods and services because:

if we counted the value of all goods, we would count inputs, such as the value of steel in a new automobile, more than once.

Because of diminishing returns to physical capital, doubling the amount of physical capital available to one worker will _____ GDP per worker by _____ a factor of 2.

increase; less than

In the United Kingdom, worries about Brexit have caused consumer confidence to fall. Holding everything else equal, this could lead to _____ in the UK economy.

insufficient demand

Which of the following occurs when lack of competition among producers is a market problem?

NOT: Overproduction leads to lower prices than would be desirable.

Andre recently moved to Boston with his partner Deja, who has a new job as an economics professor at Harvard. Andre is an experienced surgeon who is interviewing with several hospitals in Boston. Andre is:

frictionally unemployed.

When there is a shortage of highly skilled workers in a particular region:

highly skilled workers can negotiate higher salaries.

It is a beautiful afternoon, and you are considering taking a leisurely stroll through the park. Your alternatives to walking are streaming a movie that you value at $5, taking a nap that you value at $7, or reading a new book that you value at $12. What is the opportunity cost to you of taking the stroll through the park?

$12

(Figure: Market for dining in restaurants ) What happened to the demand for dining in restaurants at the beginning of the pandemic? Graph A Graph B Graph D Graph C

Graph A

Which situation is likely to lead to an increase in marginally attached workers?

a fall in the availability of jobs

The use of online banking _____ the _____ costs of high inflation.

decreases; shoe-leather

If Bishan wants to capitalize on comparative advantage in his life, then he should:

do more of what he is relatively good at and then trade for other things.

A period of rising real GDP is the _____ of the business cycle.

expansion phase

Typically, business cycles:

have short and sharp recessions, followed by long and gradual expansions.

The skills that workers bring to the job that contribute to economic growth are known as:

human capital.

Generous unemployment benefits are likely to cause a(n):

increase in the unemployment rate.

The real interest rate is the nominal interest rate _____.

less the rate of inflation

When the output gap is _____, the unemployment rate is _____ the equilibrium unemployment rate.

positive; below

In an economy whose aggregate real output is growing faster than the total population:

real GDP per capita is rising.

An example of a lagging indicator is:

unemployment insurance claims.

(Table: Peanut Butter and Jelly Prices) Use Table: Peanut Butter and Jelly Prices. Suppose a market basket consists of 20 jars of peanut butter and 10 jars of jelly. What is the value of the market basket in 2017? Price in 2017Price in 2018Price in 2019Peanut butter$1.00$1.10$1.20Jelly$2.00$2.25$2.50 $3 $40 $42 $44.50

$40

Use the table to answer the question.At what price does this market experience a shortage of 50 units?$25$55$45$50

$45

Suppose you are visiting China. The nominal exchange rate is 7.08 yuan per U.S. dollar. A meal costs 40 yuan. How much does this meal cost in U.S. dollars?

$5.65

In 1971, the cost of a four-year college degree from a public university was about $1,410. The consumer price index was 40.48 in January 1971. If the current consumer price index is 251.1, what is the approximate cost of the four-year degree in current dollars?

$8,746

During the Great Recession of 2007-2009, unemployment shot up and a lot of people lost their jobs. All over the United States, people worried about job security. Which of the following do you think happened as a result of the Great Recession?(i) Consumers ate out less often.(ii) Consumers purchased fewer higher-end vehicles.(iii) Purchases of new housing went down.(iv) Consumers took fewer vacations outside the United States.

(i), (ii), (iii) and (iv) are all correct.

You purchase a certificate of deposit that earns an advertised rate of 1.75% interest per year. What is your real rate of return if the actual inflation rate is 1.9%?

-0.15%

Refer to the following table. What was the approximate output gap in 1974? 2.1% 6.1% 3.3% -6.5%

-6.5%

(Table: Price Levels) What was the rate of inflation from 2013 to 2014? Table: Price Levels2011221.32012227.72013232.22014234.8 6.4% 4.5% 2.9% 1.1%

1.1%

(Figure: The Labor Market) Use Figure: The Labor Market. What is the size of the labor force at an efficiency wage of $16? 80,000 100,000 110,000 200,000

110,000

(Table: Peanut Butter and Jelly Prices) Use Table: Peanut Butter and Jelly Prices. Suppose a market basket consists of 20 jars of peanut butter and 10 jars of jelly. If 2017 is the base year, what is the value of the price index in 2018? Price in 2017Price in 2018Price in 2019Peanut butter$1.00$1.10$1.20Jelly$2.00$2.25$2.50 0 90 100 111.25

111.25

Figure: Productivity) Use Figure: Productivity. An improvement in technology, with everything else remaining unchanged, is shown in the diagram as a movement from: B to A. A to B. B to C. A to C.

B to C.

A hurricane is expected to hit the Carolinas. Why might the prices of batteries, candles, and bottled water rise?

Buyers will flock to purchase these items, and the excess demand will cause prices to rise.

Refer to the table below, which shows data for the United Arab Emirates (UAE). What was the economic growth rate in UAE in 2009? -15.15% 2.26% -11.27% -5.91%

NOT: -5.91%

The table shows the monthly individual demand schedules of four students for soda. What is the total monthly market demand for soda at $3.50 per can? 99 cans 148 cans 45 cans 125 cans

NOT: 148 cans

In 2017, Kenya banned the use of disposable plastic shopping bags due to concern over plastics pollution. Which graph depicts what happened in the country's market for reusable cloth bags? Graph C Graph D Graph B Graph A

Graph A

(Figure: Market for Apple Computers) Dell and Apple are competitors in the computer market. Which graph illustrates the effect of a rise in the price of Dell computers on the demand for Apple computers?

Graph D

Suppose that a bank wishes to earn a 5% real rate of return on a one-year loan but expects inflation over the course of the loan to be roughly 3%. Which statement is TRUE?

If the bank charges 8%, and the inflation rate is less than 3%, then the bank will have earned a higher real rate of return than expected.

Consider the decision to read your economics textbook. Which of the four core principles of economics applies to the notion that reading this textbook will help you to establish a solid foundation of understanding economics, which will be beneficial for future courses?

Interdependence principle

Figure: The Market for Apple Computers in the United States) Use Figure: The Market for Apple Computers in the United States. Assume that PA is the domestic equilibrium price without trade and PW is the world price. Consumer surplus without international trade would be area: W + X + Y. W. Y. W + X.

NOT: Y.

When quantity demanded exceeds quantity supplied, _____ exists.

NOT: a surplus

(Figure: Graph) Refer to the graph to answer the question.

NOT: an increase in the price of the item.

What happens to the equilibrium price and quantity when demand decreases and at the same time supply decreases, but the demand shift is smaller than the supply shift?

The equilibrium price rises, and the equilibrium quantity falls.

What happens to the equilibrium price and quantity when demand increases and at the same time supply decreases, but the demand shift is smaller than the supply shift?

The equilibrium price rises, and the equilibrium quantity falls.

(Table: Maia and Juanita's opportunity cost) The table provides data on how long it takes Maia and Juanita to mow the lawn and weed the flower beds.

The opportunity cost to Juanita of weeding is mowing 1/2 lawn for each flower bed.

Which statement about the producer price index is TRUE?

The producer price index measures the cost of a basket of goods typically purchased by producers of goods and services.

When the dollar appreciates relative to the Canadian dollar:

U.S. goods become more expensive in Canada.

Which is an example of a tariff?

a tax of 5% of the value of each Honda scooter imported from Japan

The person who can produce a product using the fewest inputs has _____ in that product.

an absolute advantage

Market failure occurs when market forces lead to:

an inefficient outcome.

Improvements in technology cause _____ the production function.

an upward shift of

To be counted as unemployed, one must:

be currently not working, actively searching for work and able to accept a job if it were offered.

The area on a market graph that lies above the price and below the demand curve from zero to the quantity purchased is equal to:

consumer surplus.

When price functions as a signal, it

creates a line of communication between buyers and sellers.

The MP curve is the:

current real interest rate as determined by monetary policy and the risk premium.

Suppose that Akemi has an accounting degree, but she lost her job two months ago when her company merged with another firm. Akemi hasn't been able to find another accounting job, so she has taken a part-time job as a sales clerk at a clothing store. The Bureau of Labor Statistics classifies Akemi as:

underemployed.

In the short run, a lower _____ rate may be achieved at the cost of _____.

unemployment; a higher unexpected inflation rate

Which item would NOT be part of GDP? used car sales new residential construction a new truck purchased by a building contractor cable TV service purchased for a home

used car sales

Double-counting would occur if:

used goods were included in the GDP calculation.

If technology advances: GDP per capita declines. physical capital becomes less productive. workers can produce more with fixed amounts of physical and human capital. human capital becomes less useful.

workers can produce more with fixed amounts of physical and human capital.

If the United Kingdom has lower interest rates relative to the United States, the supply of the pound will _____, leading to a _____ shift in the supply of the pound.

rise; right

What kind of data adjustment removes the effect of sales spikes due to the holiday season?

seasonally adjusted data

Which of the following shows the correct effect on the IS-MP framework if there is a rise in home values and wealth in the economy?

shift to the right

NOTE THAT THIS TABLE IS USED FOR MULTIPLE QUESTIONS. IT WILL HELP YOU TO COPY THE NUMBERS DOWN OR PUT THEM IN A SPREADSHEET. The table shows data from the Bureau of Labor Statistics BLS for the years before and after the Great Recession and before and during the pandemic. A-1. Employment status of the civilian noninstitutional population 16 years and over, [Numbers in thousands] What was the size of the labor force in 2010 [in thousands]? 153,124 160,742 163,539 153,889

153,889

According to recent estimates of Okun's law, if the unemployment rate fell by a full percentage point, it would most probably be attributable to a _____ in real GDP.

2% increase

Pule purchases four bottles of bathroom cleaner for $3 each. The maximum prices she would have been willing to pay for each bottle are $6 for the first bottle, $5 for the second bottle, $4 for the third bottle, and $3 for the fourth bottle. The marginal cost of producing the bottles is $2.50. What is Pule's consumer surplus on the first bottle of bathroom cleaner?

NOT: $6

Which of the following changes could create a more negative output gap in an economy?(i) The United States places additional tariffs on imports.(ii) Foreign countries place tariffs on U.S. exports.(iii) There is a reduction in availability of money or credit from banks and lenders.(iv) Consumer pessimism increases.

NOT: (ii), (iii), and (iv)

Which of these choices is correct? Holding all else equal, assuming no supply-side shock, the:

lower the unemployment rate, the higher the unexpected inflation.

How do interest rates affect consumption in the economy?

NOT: Lower interest rates encourage consumers to save more money, and thus consumption rises.

An increase in the price level that is extremely rapid (say, 400% per year) is called:

hyperinflation.

The inflation or deflation rate is:

the change in a price index divided by the initial value of the index.

Which of the following will fall when the economy is expanding?

Applications for unemployment benefits

What is the relationship between lower interest rates and aggregate expenditure?

Lower interest rates boost aggregate expenditure.

(Table: Lemonade and Cookies) Use Table: Lemonade and Cookies. Assume that an economy produces only lemonade and cookies. Nominal GDP in 2019 was: 2018 Output2018 Prices2019 Output2019 PricesLemonade200 glasses$1 per glass220 glasses$1 per glassCookies100 cookies$2 per cookie100 cookies$2.25 per cookie $400. $420. $445. $820.

NOT: $420.

Which area represents the producer surplus at the market equilibrium? H+I F+I F+G F+G+H+I

NOT: F+I

(Figure: Market for Leather Wallets) Producers of hand-made leather wallets in Italy move production to India where both leather and labor are cheaper. Which graph shows this change in the market? Graph D Graph B Graph C Graph A

NOT: Graph D

How do interest rates affect consumption in the economy?

NOT: Higher interest rates encourage consumers to increase financed purchases, and this encourages consumption.

(Figure: Market 5) The graph shows the market for teddy bears. When the market produces and sells zero teddy bears, the deadweight loss is represented by the: area between the demand and supply curves to the left of a quantity of 5. area between the demand and supply curves between quantities of 5 and 9. rectangle between prices of $6.50 and $2 and quantities of 5 and 9. rectangle between prices $6.50 and $2 and quantities of zero to 5.

NOT: area between the demand and supply curves between quantities of 5 and 9.

If a country's currency _____, other things equal, its exports will _____, and its imports will _____.

NOT: depreciates; decrease; increase

Nonfarm payroll is an important indicator because it tells you how _____ is doing.

NOT: employment within the agricultural sector

Scenario: Good A and Good B) The town of York produces two goods, good A and good B. The table presents information regarding York's production of these two goods and their prices over three years. In 2018, nominal GDP was _____ nominal GDP in _____. Year 2017Year 2018Year 2019Quantity of good A345Price of good A$500$550$550Quantity of good B101010Price of good B$2$4$5 greater than; 2018 greater than; 2017 equal to; 2019 equal to; 2017

NOT: equal to; 2019

NOTE THAT THIS TABLE IS USED FOR MULTIPLE QUESTIONS. IT WILL HELP YOU TO COPY THE NUMBERS DOWN OR PUT THEM IN A SPREADSHEET. The table shows data from the Bureau of Labor Statistics BLS for the years before and after the Great Recession and before and during the pandemic. A-1. Employment status of the civilian noninstitutional population 16 years and over, [Numbers in thousands] Between 2007 and 2010, the labor force participation rate _____ and the unemployment rate ________. decreased; decreased increased; increased increased; decreased decreased; increased

NOT: increased; increased

People buy back-up generators to be able to power their homes if the electricity goes out. Increasingly strong storms and hurricanes have led to more power outages across the country. At the same time, new technology is making these systems more efficient to produce. If these two market changes happen, we know for sure that:

NOT: the price of generators will increase.

In 2010, Eyjafjallajokull (a volcano in Iceland) erupted and created a dangerous ash cloud over Northern Europe. This led to major travel disruptions, and tourism to Iceland immediately fell by 30%. This included American tourists, some of whom cancelled their plans to visit Iceland. Which of the following would have happened in the market for the U.S. dollar?

No change in the supply for the U.S. dollar

Sunk costs are costs that

are incurred in the past and cannot be reversed.

(Figure: The Market for Grapes in California) Use Figure: The Market for Grapes in California. When the government imposes a tariff on imported grapes, the price of grapes in California rises from PW to PT, and domestic consumer surplus _____ to _____. falls; A + B falls; A+ B + C + D + E + F rises; A + B rises; A+ B + C + D + E + F

falls; A + B

Ibraham quit his job in retail management and moved to Florida with his partner, a physician who has now opened a new practice there. He is not successful in his job search in the first four months in his new location. Ibraham's unemployment is:

frictional.

Asking "One more?" allows the _____ principle to be analyzed as a simple question.

marginal

Suppose that the unemployment rate rises as the rate of unexpected inflation declines. This situation is consistent with a movement along the _____ labor market Phillips curve.

negatively sloped

Analysis based on value judgments is called _____ analysis.

normative

Employment is the total:

number of people actively working, either full time or part time.

The law of demand refers to

the inverse relationship between price and quantity demanded.