ECON FINAL EXAM

Mary buys three goods: A, B, and C. When her income rises she buys less of good A and more of goods B and C. When the price of good C rises she buys more of good B and less of good A. Which goods are complements?

A and C

A change in which factor does not cause a shift of the supply curve?

A change in the price of the good.

Consider the market for gasoline. Which of the following shifts the supply curve for gasoline rightward?

A decrease in the price of a resource used to produce gasoline, such as crude oil.

To calculate GDP using the income approach we would add up:

wages + interest + rent + profits.

John works part-time for a moving company and earns a total of $250 each weekend. Next weekend a friend invited him on a rafting trip that will cost him a total of $300. If he goes on the trip he will not be able to work. What is John's explicit cost of going on the trip? What is John's implicit cost of going on the trip? What is John's opportunity cost of going on the trip?

-$300 -$250 -$550

Consider the following information about nominal GDP (NGDP) and real GDP (RGDP), all measured in billions of dollars. Year NGDP RGDP 2010 125 125 2011 140 130 The GDP deflator had a value of _____ in 2011. The inflation rate between 2010 and 2011 was _____ %. Round answers to two decimal places.

-107.69 (nominal GDP/real GDPx100) 140/130x100= 107.69 -7.69 (107.69-100)/100x100=7.69 or just look that it's the base year so CPI is 100

The Bureau of Labor Statistics (BLS) announced that of all Americans aged 16 and older: 150 million were employed, 10 million were looking for jobs, 30 million were stay at home spouses, 10 million were full time students with no job, 40 million were retired but still capable of working. The adult population was _____ million and the labor force was _____ million. Enter whole numbers.

-240 (150+10+30+10+40=240) -160 (150 employed +10 looking for jobs=160)

Combinations Cars Tons of Cotton A 0 1500 B 100 1300 C 200 1000 D 300 600 E 400 0 If the economy is producing at point B then the opportunity cost of producing one more car is _____. If the economy is producing at point D then the opportunity cost of producing one more car is _____. This economy has _____ opportunity cost.

-3 -6 -increasing

Bob grows tomatoes on his 5 acre farm. This year he sells his entire crop to Pat's Pasta Sauce for $2,000. Pat uses the tomatoes to make tomato sauce, and he sells his tomato sauce to Sam's Spaghetti Shack for $5,000. Sam uses the sauce to make spaghetti dinners and sells those to consumers for $9,000. As a result of these transactions GDP increases by $_____ . The value added by Bob is $_____ . The value added by Pat is $_____ . The value added by Sam is $_____ .

-9000 -2000 -3000 -4000

Which counts in the government spending category of GDP? Check all that apply. -A city pays $4 million for garbage service -The government mails out $30 million in tax rebates -Florida pays $21 million to build a road -North Carolina pays $2 million to unemployed workers

-A city pays $4 million for garbage service -Florida pays $21 million to build a road

What counts in the investment category of GDP? Check all that apply. -A firm buys a new printer for the office -A restaurant buys chicken to use in the daily special -Sam uses money from his savings account to buy stock in FirmX -The Jones family buys a newly constructed house

-A firm buys a new printer for the office -The Jones family buys a newly constructed house

Sean can brew 6 gallons of root beer in an hour or he can make 4 pizzas in an hour. Barbara can brew 7 gallons of root beer in an hour or she can make 5 pizzas in an hour. Who has absolute advantage in making pizza? Who has comparative advantage in making pizza?

-Barbara -Barbara

What counts in the consumption category of GDP? Check all that apply. -Barbara gets her teeth cleaned at the dentist -Bob buys a T-shirt made in Vietnam at the UCF bookstore -George buys a used textbook from a friend -Jordan saves $100 from his last paycheck

-Barbara gets her teeth cleaned at the dentist -not sure what else

Suppose you are told the following: Consumption spending is $1,200 Investment spending is $800 Government spending is $700 Net export spending is -$400 Potential output is $2,200 •Is this economy in a recession or expansion? •Over the long run would you expect prices to increase or decrease? •What is the Federal Reserve most likely to do? Buy or sell government bonds?

-Expansion because output = C+I+G+NX = $2,300 -increase because sales are higher than average -sell bonds to increase interest rates and reduce spending to reduce inflationary pressure

Consider the circular flow model that illustrates the links between firms and households as they interact in the product and factor markets. For each of the transactions below, enter F if the transaction illustrates a flow from a firm to a household or enter H if the transaction illustrates a flow from a household to a firm. Jack is paid $300 by her employer. Brian receives a cup of coffee from the Starbucks employee. John works an 8-hour day at his company. Bill spends $100 at the mall.

-F -F -H -H

Which of the following can lead to an increase in real output? Check all that apply. -There are more factories producing goods -There has been an increase in inflation -There has been an increase in average labor productivity -The labor force increases

-There are more factories producing goods -There has been an increase in average labor productivity -The labor force increase

When people buy durable goods such as cars, this counts in what category of GDP? When firms buy durable goods such as cars, this counts in what category of GDP? When firms buy new tires for their delivery trucks, this counts in what category of GDP?

-consumption -investment -investment

•If the lower taxes increase investment spending and this increases the growth rate of output (production of goods/services) in the economy:

-interest rate goes up -An increase in the demand for labor will increase wages

Consider the winter activity of skiing. Assume that the rental cost of ski equipment is $100 and the lift ticket costs $75. If you go skiing, you would wear the ski jacket you purchased last year for $125. If you do not go skiing, you could either work at your part-time job, which would earn you $100, or study at the library, which you value at $60. Suppose you were planning to spend the day at work. What is included in the opportunity cost of going skiing in this case? Enter Y if the item is included or N if it is not. 1. The rental cost of ski equipment 2. The cost of the lift ticket 3. The value of your time spent studying 4. The cost of the ski jacket you purchased last year 5. The wages you forgo by going skiing

1. Y 2. Y 3. N 4. N 5. Y

The price of gas in 1987 was $1.10 per gallon and in 2006 it was $2.07. The price index in 1987 was 116 and in 2006 it was 209. Based on this information, calculate the 1987 real price of gas measured in 2006 dollars. Enter a number rounded to two decimal places.

1.98 (209-116)/(116)=0.801724 1.801724x$1.10=$1.98

Consider the following information about an economy: Consumption spending $65,000 Taxes $30,000 Investment spending $18,000 Government spending $20,000 Government transfer payments $6,000 Imports $10,000 Exports $8,000 What was the value of GDP?

101,000

There are 12 million workers in Canada and each of these workers can produce either 5 cars or 50 bushels of wheat in a year. The Opportunity Cost of producing a car in Canada is _____ bushels of wheat and the opportunity cost of producing a bushel of wheat in Canada is _____ cars. Suppose Canada completely specializes in wheat production and trades 100 million bushels of wheat in exchange for 6 million cars with the United States. After trade Canada can consume _____ million cars and _____ million bushels of wheat.

10; .10 6.00; 500.00

With her resources Sally can produce 7 bushels of tomatoes or 14 bushels of apples. What is her opportunity cost of producing 6 bushels of tomatoes? Round your answer to two decimal places.

12 apples

John has 5 hours per day to allocate to work and wants to earn as much income per day as possible. He can work for a landscaper and earn $10 per hour or he can work for a farmer picking lemons. The table below shows how many baskets of lemons John can pick depending on how many hours he devotes to the activity per day. Hours Total Lemons 1 16 2 29 3 38 4 44 5 48 Assume that John can earn $1 for each basket of lemons. How should John divide his 5 hours of work per day?

2 hours on the lemons and 3 with the landscaper

John is a farmer who grows apples. In the current year John sells 56 pounds of apples directly to consumers for $2.19 per pound, and then he sells his remaining 100 pounds of apples to Betty's Pie Company for $1.25 per pound. Betty's pie company makes 200 pies with the apples and sells them all for $14 each. What is the value of GDP in this simple economy? Enter a number rounded to two decimal places.

2,922.64 56x2.19=122.64 14x200=2800 2800+122.64= 2922.64

In 1988 the value of RGDP was $8,950.99 billion and the population was 304.14 million. What was the value of real GDP per capita? Round to the nearest whole number. Do not enter a dollar sign.

29,431 real GDP per capita=real GDP/population 8,950,990,000,000/304,140,000= 29,431

GDP increased from $15.48 trillion to $16 trillion. What was the growth rate of GDP? Enter a number rounded to two decimal places. Do not enter any other characters.

3.36 (16-15.48)/15.48x100=3.36

Juanita earned $51,854 at her job 10 years ago and today she earns $70,815. She is better off in real terms today as long as the inflation rate was less than ___ percent across the ten-year period. Enter a number rounded to two decimal places.

36.57 (70,815-51,854)/(51,854)x100

Diane, Jane, and Martha have a business where they mow lawns and wash cars. Each works 8 hours a day. In one hour, Diane can either mow 2 lawn or wash 3 cars; Jane can either mow 2 lawn or wash 2 car; and Martha can either mow 3 lawns or wash 2 car. If they need to mow a total of 24 lawns per day then they can wash at most _____ cars. If they instead need to mow a total of 30 lawns per day then they can wash at most _____ cars.

40; 34 (i think)

You have a job earning $51,956 per year. If the CPI increases from 113 to 133 then how much of a raise do you need in order to avoid experiencing a decrease in your purchasing power? Round to the nearest whole number.

9,196 (133-113)/113=0.1769911504 0.1769911504x51,956=9195.75

A country aims to double real GDP per capita in the next 10 years. This means that on average real GDP per capita must grow at what rate per year? Enter a number rounded to two decimal places such as 2.34. Do not enter a percent sign.

7

There are 65 unemployed people, 1,244 employed people, the adult population is 1,625, and the population is 1,929. What is the labor force participation rate? Enter a number (measured in percentage terms) rounded to two decimal places. Do not enter a % sign.

80.55 labor force participation rate= labor force/adult populationx100 1244+65=1309 1309/1625x100=80.55

The price of gas rises during the summer because more people take vacations and so they drive more miles. In the market for gas, this is best represented by:

An upward movement along the supply curve.

Mary buys three goods: A, B, and C. When her income rises she buys less of good A and more of goods B and C. When the price of good C rises she buys more of good A and less of good B. Which goods are normal?

C and B

True or False: There can be no gains from trade between two countries if one of them has an absolute advantage in the production of all goods.

False

In Lima one worker can produce either 2 bushels of corn of 6 pounds of tomatoes in one day. In Puma one worker can produce either 3 bushels of corn or 12 pounds of tomatoes in one day. If the two countries decide to specialize and exchange with each other then we can expect 1 bushel of corn to trade for:

Between 4 and 9 pounds of tomatoes. L 1 corn 3 tomatoes P 1 corn 4 tomatoes needs at least 4

True or False: When a country opens to trade, people working in industries producing goods that the country exports are harmed by the trade.

False

True or False: When two countries decide to engage in specialization and trade, the prices of all goods sold in each country will fall.

False

Suppose you observe that the price of ice cream has gone up. Which of the following would be a valid explanation of the increase in the price of ice cream?

It is summertime.

Suppose Jake and Tim can both produce two goods: football helmets and baseball bats. Which of the following is not possible?

Jake has a comparative advantage in producing both goods.

In which of the following situations would an individual be most harmed by a positive rate of inflation?

Joe is a minimum wage earner and the minimum wage has not changed for the last five years.

Assume the GDP deflator falls from 162 to 157. This means that

The average price level has fallen

Each point on the supply curve represents

The lowest price sellers are willing to charge for a good.

Suppose students like to eat pepperoni pizza, bean and rice burritos, and hamburgers (made from beef) from the food establishments on campus. Which of the following is most likely to increase the quantity of hamburgers sold?

The price of pepperoni increases.

In 1977 a good sold for $1.20 and the price index was 59. In 2010 the same good sold for $4.80 and the price index was 242. Based on this information:

The real price of the good was lower in 2010.

True or False: Two individuals can benefit from specialization and trade if they agree upon a price that lies between their opportunity costs of producing the good.

True

Suppose you observe that the price of hamburgers (a normal good) has gone up. Which of the following would not be a valid explanation of the increase in the price of hamburgers?

a popular new diet claims beef is bad for you

Which of the following would cause an increase in the long run equilibrium interest rate in a closed economy?

an increase in consumer confidence

Which of the following would cause a leftward shift of the demand curve?

an increase in the price of a complementary good

An increase in the wages the firm must pay to its employees causes a(n)

leftward shift of the supply curve.

•What does the Fed do if it wants to increase the money supply?

buy government bonds

According to the circular flow diagram, households are _____ in the market for goods and services and are _____ in the market for factors of production.

buyers; sellers

If there is an increase in demand and an increase in supply then we can expect equilibrium price to _____ and equilibrium quantity to _____.

cannot be determined?; increase (unsure of first answer)

A decrease in the demand for labor can be expected to cause _____ in the equilibrium wage and _____ in the equilibrium quantity labor employed, all else the same.

decrease; decrease

An increase in supply can be expected to _____ equilibrium price and _____ equilibrium quantity.

decrease; increase

Based on the information below, the standard of living _____ and the cost of living _____. Please enter increased or decreased in each blank. Year 1 Year 2 Nominal GDP 342 billion 369.36 billion Real GDP 312 billion 324.48 billion Population 52 million 57.2 million

decreased; increased

Given the information in the table below, at a price of $20, there will be an ____ equal to ____ units in this market. P QD QS 5 200 140 10 180 150 15 160 160 20 140 170 25 120 180

excess supply : 30

When full time students with no job graduate from college and begin looking for work they are counted as:

unemployed and part of the labor force

In the market for a particular good there is an excess supply at the current price. Which of the following is likely to occur?

firms will have an incentive to lower the price of the good

Suppose one observes that when the price of good X increases, the demand for good Y decreases. One must conclude that

goods X and Y are complements.

What causes shifts in the demand curve?

income, prices of related goods, tastes, expectations, number of buyers

When the Fed sells bonds, what happens to the interest rate?

increase

All else the same, when the population in the country decreases then we can expect the equilibrium wage to ____ and the equilibrium level of employment to _____.

increase; decrease

An increase in demand can be expected to _____ equilibrium price and _____ equilibrium quantity.

increase; increase

In the current time period, firms sold a greater number of items than they produced. This means:

inventory investment has a negative value.

According to the law of demand there is a(n)

inverse relationship between price and quantity demanded.

A country should specialize in producing the goods for which

it has a comparative advantage.

A decrease in demand shifts the demand curve to the ____

left

Bob earns a salary of $75,000 per year. His company has been struggling over the past three years so none of the employees have received a pay raise. At the same time, the inflation rate has been positive during each of the three years. Bob's real salary is ____ his nominal salary and this means Bob feels like he can buy _______ goods/services than he could three years ago.

less than; fewer

Suppose that real GDP increases from $19.2 trillion to $21.7 trillion. We can conclude that:

people in the U.S. produced more goods and services between the two time periods.

According to the supply/demand model:

price will rise if quantity supplied is less than quantity demanded.

Suppose the GDP deflator has a value of 156. This means:

prices are on average 56 percent higher than they were in the base year.

An increase in demand shifts the demand curve to the _____

right

•The bank has deposits of $4,000, total reserves of $450, and excess reserves of $50. What is the required reserve ratio?

rrr= 400/4000 or 10%

•What does the Fed do if it wants to increase the interest rate?

sell government bonds

Transfer Payments are:

spending that transfers resources from the government to individuals.

The price of a good has gone down. What would be a good explanation of this?

the cost of a key input used to produce the good has declined.

A price index measures:

the current cost of a fixed quantity of goods divided by the base cost of a fixed quantity of goods.

Kurt decides to spend 2 hours working rather than hanging out with his friends. He earns $10 per hour for work. His opportunity cost of working is

the enjoyment he would have gotten from hanging out with his friends.

A campus organization provides a free lunch to all students. In this case

the explicit cost of eating lunch is zero.

To compare the well being of people in two different countries it is best to compare

the value of GDP per capita in each country.

Suppose that the equilibrium price of coffee decreases but the equilibrium quantity of coffee sold stays the same. The best explanation for these observations is

there has been a decrease in demand and an increase in supply of coffee.

what is a supply shock?

•A change in production cost such as oil prices increase

what is a demand shock?

•A change in spending such as consumers become more confident and increase consumption spending

Reduce the corporate income tax - how will this affect the interest rate?

•If firms pay less tax then they have an incentive to increase investment spending to increase production and profit •The increase in investment spending will increase the demand for funds and increase the interest rate

If the budget deficit increases then this could lead to crowding out. what does this mean?

•National saving (supply of funds) will fall and interest rates will rise. Investment spending will fall

•Corporate income taxes fall and this increases the budget deficit - how will this affect the interest rate?

•The increase in the deficit will reduce national saving •The interest rate will increase as the government tries to borrow more funds