Macro Midterm #1 - Practice

E

. While doing Planet Express' taxes Hermes Conrad finds that it's owner, Professor Farnsworth, made an accounting profit of $200,000. If instead of owning Planet Express the Professor worked full-time at Mars University he would have earned $200,000 over the same period of time. Which of the following statements is true? A. Professor Farnsworth's economic profit is $0. B. Professor Farnsworth's economic profit is $200,000. C. If the Professor could have earned a lower salary at Mars University his economic profit would be larger. D. If the Professor could have earned a lower salary at Mars University his economic profit would be smaller. E. Both A and C are correct

B

As an economy nears the end of a recession, households and firms _______ their debt, which drives _________ interest rates (because banks are no longer so desperate for deposits), which inspires _________ borrowing. A. Decrease, up, decreased B. Decrease, down, increased C. Increase, down, increased D. Increase, up, increased E. None of the above.

C

Demand for North Carolina peaches, a normal good, is elastic. What happens to consumer expenditure if the price of North Carolina peaches falls from $15 to $10 per bushel? A. Total expenditure decreases. B. Total expenditure is constant. C. Total expenditure increases. D. It depends upon the price elasticity of supply. E. It is ambiguous because a change in price is a movement along the demand curve.

E

Economic efficiency A. is a market outcome in which the sum of consumer surplus and producer surplus is at a maximum. B. is a market outcome in which the marginal benefit to consumers of the last unit produced is equal to its marginal cost of production. C. is a market outcome in which deadweight loss is larger when demand is more inelastic because marginal benefit will be further from marginal cost. D. A, B, and C are all true. E. Both A and B are true.

C

Economists reason that the optimal decision is to continue any activity up to the point where the A. marginal benefit is exhausted or equals zero. B. marginal benefit is greater than marginal cost. C. marginal benefit equals the marginal cost. D. marginal cost is minimized or equals zero. E. None of the above.

B

GDP can be calculated as: A. C + I + G + X + M B. C + I + G + X - M C. C - I + G + X + M D. C + I + G - X + M E. None of the above.

B

Gross domestic product (GDP) is a measure of A. the total dollar value of all transactions occuring within the economy during a given year. B. the market value of all final goods and services produced in a given year, within the borders of a nation. C. the revenue received by firms for producing goods and services in a given year. D. the total dollar value of sales of all final goods and services in a given year, regardless of the origin of the nation providing the goods and services. E. the level of a nation's accumulated wealth.

C

Real GDP is equal to potential real GDP. This implies that A. the actual unemployment rate will be zero. B. the natural rate of unemployment will be zero. C. cyclical unemployment will be zero. D. frictional unemployment will be zero. E. None of the above.

E

Refer to Figure 2. If the government sets a price floor of P1 then consumer surplus is equal to ________ and deadweight loss is equal to ___________. A. A + C + H; D + I B. L + C + H; D + I C. A; D + I D. L; D + I E. A + C + D; zero, there is no deadweight loss.

B

Refer to Figure 3. The market was initially in equilibrium at (Q*, $1.00). The government then imposed a $0.25 tax per unit on producers who responded by decreasing their quantity supplied at any given price. At the new equilibrium consumers pay Pconsumers pay, producers must write a check for $0.25 per unit to the government and thus take home Pproducers receive. Which of the following statements is false? A. If demand were relatively more elastic, the burden of the tax would fall more heavily on producers. B. If demand were relatively more inelastic, the burden of the tax would fall more heavily on producers. C. If supply were relatively more inelastic, the burden of the tax would fall more heavily on producers. D. If supply were relatively more elastic, the burden of the tax would fall more heavily on consumers. E. Both C and D are true.

A

Suppose that nominal GDP in 2014 was more than real GDP in 2014. Given this information we know for certain that A. the price level in 2014 was more than the price level in the base year. B. real GDP in 2014 was more than real GDP in the base year. C. real GDP in 2014 was less than real GDP in the base year. D. the price level in 2014 was less than the price level in the base year. E. real GDP in 2014 would have been greater than nominal GDP in 2014 if we had multiplied real GDP in 2014 by the price level for 2014.

A

Suppose that you have two investment options: 1) a United States Treasury Bond that pays the riskfree rate of interest, r, and 2) a corporate bond issued by Turbo Corp. that pays i, a rate of return higher than the risk-free rate, i > r. What would happen to the price that you would be willing to pay today, PV, for the slightly riskier corporate investment if the United States government decided to increase the risk-free rate of interest? (Hint: Assume that the face value, or future value (FV), of the bond, and the time to maturity are constant. The only variable that changes is the opportunity cost of investment.) A. The price you would be willing to pay would decrease. B. The price you would be willing to pay would increase. C. The price you would be willing to pay would stay constant. D. It would depend on the elasticity of demand for bonds. E. None of the above.

E

Suppose the labor demand and labor supply curves for log-cutting labor in Figure 1 are D2 and S1 respectively. The minimum wage is $7.50 per hour. If a the pneumatic log-cutting capital used by the laborers breaks causing the demand curve for labor to shift to D1 the log-cutting firm will A. employ 5,000 labor hours per week at $7.50 per hour. B. increase its wage to $8.50 per hour and employ 4,500 hours of labor per week. C. employ 4,000 labor hours per week at $6.00 per hour. D. employ 6,000 labor hours per week at $8.50 per hour. E. employ 9,000 hours at $10.83 per hour.

C

The current equilibrium price and quantity of red grapes available in the market are PG* and QG* respectively. The equilibrium price and quantity of red wine are PW* and QW* respectively. Red grapes are an input into the production of red wine, a normal good. Suppose that the price of red grapes falls and at the same time as a medical study comes out reporting that excessive red wine consumption (not grape consumption) is beneficial for your health. Use supply and demand graphs to illustrate the change in prices and quantities in the markets for red grapes and red wine. What happens in the market for red wine? A. The equilibrium price increases and the equilibrium quantity increases. B. The equilibrium price increases and the change in equilibrium quantity is ambiguous. C. The change in equilibrium price is ambiguous and the equilibrium quantity increases. D. The market falls out of equilibrium into a shortage. E. None of the above.

D

The economy A. models how to firms maximize revenue using scarce resources. B. requires that economic agents equate marginal benefit and marginal cost. C. is the study of the choices people make to attain their goals, given their scarce resources. D. is the mechanism through which scarce resources are organized to satisfy the unlimited desires of people living together in a society. E. None of the above.

D

The natural rate of unemployment is defined as A. Frictional unemployment plus cyclical unemployment B. Structural unemployment plus cyclical unemployment C. Unemployment caused by contraction in real GDP plus unemployment caused by shifts in the pattern of hiring in specific industries. D. Unemployment caused by workers leaving jobs they are unsuited for plus unemployment caused by shifts in the pattern of hiring in specific industries. E. None of the above.

A

There are three processes needed to create brand name athletic shirts. The following describes the production process for a single shirt. First, crude oil and natural gasses must be extracted from the ground and refined into polyethylene terephthalate (PET). The PET can be sold as an intermediate product for $15. Second this PET must be spun into thread and woven into fabric. The fabric can be sold for $20. Third, the fabric must be cut and sewn into a shirt. A single shirt can be sold for $25. If the economy consists of only four shirts, which of the following is true? A. GDP = $100, Value Added from spinning and weaving = $5 B. GDP = $100, Value Added from spinning and weaving = $20 C. GDP = $60, Value Added from spinning and weaving = $20 D. GDP = $60, Value Added from spinning and weaving = $15 E. GDP = $25, Value Added from spinning and weaving = $5

A

Unemployment due to the length of time it takes to find employment upon entering the labor force or being voluntarily between jobs is called A. frictional unemployment. B. natural unemployment. C. necessary unemployment. D. structural unemployment. E. critical unemployment.

B

What is the difference between the supply or money or loanable funds and quantity supplied of money or loanable funds? A. Supply is a point on the line, quantity supplied is the entire line. B. Supply is the entire line, quantity supplied is a point on the line. C. Supply refers to the price but quantity supplied refers to the entire line. D. Quantity supplied is a point on the line referring to the X-axis, supply is a point on the line referring to the Y-axis. E. There is no difference.

B

When the government imposes price floors or price ceilings, A. some people win, some people lose, and there is an increase in economic efficiency. B. some people win, some people lose, and there is a loss of economic efficiency. C. everyone wins, goods and services distribution is more just, and there is an increase in economic efficiency. D. everyone wins, goods and services distribution is more just, and there is a lost of economic efficiency. E. economic efficiency is depicted as a movement along supply and demand curves.

B

Which of the following can increase the opportunity cost of attending college? A. A increase in the cost of renting an apartment. B. A increase in the wages and job opportunities available to high school graduates. C. A increase in the price of groceries. D. An decrease in salaries offered to civil engineers. E. All of the above.

A

Which of the following does not shift the demand curve for pizza? A. A change in the price of pizza. B. A change in the number of buyers in the market. C. A change in consumers' income or wealth. D. A change in tastes and preferences E. None of the above.

D

Which of the following is a difficulty in measuring unemployment? A. Distinguishing between unemployed persons and those who are not in the labor force. B. Distinguishing between unemployed persons and those who are unofficially employed in the black market. C. Distinguishing between part-time employees who would prefer to work more hours from those who are content with part-time employment. D. All of the above. E. None of the above

A

Which of the following statements about limited liability is/are true? A. Limited liability is the legal provision that shields owners of a corporation from losing more than they have invested in the firm. B. Limited liability describes the difficulty the sole proprietorships and partnerships have in raising outside funds. C. Limited liability occurs when geographically dispersed shareholders must hire outside managers to oversee the day-to-day operations of a firm. D. Limited liability is the term used to describe how the total revenue, from a good or service with inelastic demand, would decrease when price decreases. E. None of the above.

E

Which of the following would be included in the United States GDP in 2015? A. The purchase of a 2013 Chevrolet Silverado by a recent NC State graduate. B. The value of household production by stay at home parents in North Carolina. C. There is no positive adjustment for leisure and well-being. D. All of the above are included. E. All of the above are excluded.