Eco 161 FINAL EXAM TEST ANSWERS

Assuming that Figure 7.1 is a market for money that can be borrowed or saved, Box 1 is

"r" for interest rate.

If the interest rate is 10%, the present value of $100 to be paid next year is

$100/1.1.

If your grandmother gives you a high school graduation gift of $5000, and you do not spend the gift, but invest it to earn an interest rate of 6% per year compounded annually, upon your graduation from college after exactly four years, your gift will be worth

$5000 x (1.06)^4.

If a market basket was defined in 2014 and it cost $10,000 to purchase the items in that basket in 2014, while it cost $12,000 to purchase those identical goods in 2015, then the price index for 2015 is

(12000/10000)*100=120.

If the inflation rate is 2% and the real interest rate is 1%, then the nominal interest rate is around

3%

Over the last 34 years, costs of college tuition, room, and board have increased by

702%

Using Table 6.1, from the 1982-1984 base to 2002, price increased

80.9%

A lawsuit that joins together the similar concerns of many injured parties is

A class action lawsuit.

Which of the following will increase macroeconomic equilibrium prices?

A decrease in taxes

Which of the following can make the unemployment rate fall?

A decrease in the number of people who are looking for work and an increase in the number of people with jobs.

A strengthening of the dollar will immediately shift

Aggregate demand to the right

An increase in government regulation will shift

Aggregate supply to the left

A rational criminal model assumes

All of the options are correct

A strengthening of the U.S. dollar relative to the euro can cause problems for

American exports.

Use the Aggregate Supply-Aggregate Demand model to determine which of the following will lead to higher prices.

An increase in government spending

The estimated cost per crime in the U.S. are

Around $1000 when excluding "pain and suffering" and between $1000 to $10000 when including "pain and suffering."

The sport where free agency first dominated was

Baseball

If the inflation rate turns out to be greater than was is expected to be, the clear losers are

Borrowers

The suggestions that have been made to allow small-market baseball teams to compete include

Both a salary cap and revenue sharing

Interest sensitive consumption is negatively impacted by interest rates because when you

Buy something on installments (like a car), your payments are positively related to the interest rate, so a higher interest rate would mean a higher payment, and therefore, less interest sensitive consumption.

A European soccer player who has completed a contract

Can sell his services to the highest bidder because the teams from various leagues are bidding against one another

A jury award that wildly overstates non-monetary losses can harm the economy primarily because it

Causes overly-cautious buyers and sellers to avoid mutually-beneficial transactions

An increase in the interest rate will

Change neither the demand nor the supply of money; rather it will only affect the quantity demanded and quantity supplied

Enforcement of laws protecting rights to intellectual property and performance of contractual obligations is ordinarily entrusted to the

Civil court system

The proper economic method of selecting a sentence length would be to

Compare the reduction in the total cost of (marginal cost) crime being perpetrated by the offender if released a year earlier with the reduction in incarceration costs (marginal benefit) for that shorter sentence.

In measuring Gross Domestic Product, goods produced by foreign firms in the United States are

Counted, but goods produced by American firms in foreign countries are not counted

If a person is laid-off from a job and told that they will be brought back as soon as the economy picks up and demand for their product rises, then economists call this person

Cyclically unemployed

The rental market for textbooks is predicted to

Decrease royalty payments to authors.

If the poverty rate declines because of a general increase in the economic standing of lower income people, the rational criminal model would predict.

Decreased criminal

With deflation, people will

Delay their purchases of goods in hopes prices will fall further

Policies focused on putting people to work by having them construct parks would be considered

Demand-side policies

In Figure 6.1, which area represents an expansion

E

Marginal benefit - marginal cost analysis suggests that we spend too much money incarcerating

Elderly criminals.

The use of public money to attract sports is

Expanding to include spring training baseball sites

When domestic prices rise,

Exports fall.

The rationale for interest rates determining AD is, with lower interest rates,

Firms will borrow more to invest, and consumers will borrow more to buy durables

Once faculty received textbooks and choose not to use them, they are

Free to do what they wish with the book, including selling it.

Under the rational criminal model, a decrease in the legal income producing opportunities available to the population will

Increase crime.

One subject of study for macroeconomics is

Inflation

Which form of property has no physical form?

Intellectual

The interest rate at which the present value of costs equals the present value benefits is the

Internal rate of return

Policies initiatives typically associated with "supply-side economics" would include

Investment tax credits.

Suppose an apple pie sells at a grocery store for $5. Suppose that the grocery store purchased it from a baking company for $4. Suppose the baking company paid $2 for ingredients, $1 for labor, and made $1 in profit. What is the GDP contribution of the pie?

It is $5

Football franchise movement since 1970 has generally seen teams move from

Larger cities to smaller ones.

If the interest rate is positive, the present value of $1000 to be received in ten years is

Less than $1000

In higher education, the last 20 years have seen

More students become eligible for some form of aid

The economic contribution of a sports franchise to a community is roughly on the same order of magnitude as a

New Walmart Supercenter

One side effect of the increased speed with which used books circulate is

New editions come out more frequently.

The advertised interest rate is the

Nominal interest rate.

A right granted by government to an inventor to be the exclusive seller of that invention for a limited period of time is called a

Patent

College textbooks royalties are typically expressed as a

Percentage of net sales.

Estimates of the value of a college education are based on

Present value

To compare the costs of a college education, a wise student, when choosing between an expensive school with a high-expected income and a less expensive school with a lower-expected income would use the concept of

Present value.

The expected damage to innocent third parties per unit of the good produced is shown as the "external cost" in Figure 26.1. An unregulated competitive market for the product produces a quantity of Q* units, which sell for a price of P* per unit. If the competitive market price reflected the full social cost per unit of producing and consuming this product (ie., both private and external costs), the quantity produced by this competitive industry would be

Q' units

Under a reserve clause structure, the wage paid to a professional athlete is likely to be close to his

Reservation wage

The cost borne by an individual victim of theft can diverge from the social costs if the

Stolen items were covered by insurance.

In a supply and demand model for the market for money, we typically use the ______________ to look at savers' behavior

Supply curve

Examine Figure 37.1. What is the tuition and subsidy revenue per student in a market that has a subsidy equal to the external benefit?

T2

In the 1990s, President Clinton worked for

Tax credits and deductions for education.

The consumer price index is computed by

The Bureau of Labor Statistics

Dividing the number seventy-two by an interest rate yields

The Rule of 72

Whcih of the following teams is not its original franchise?

The Tennessee Titans (football)

Deflation occurs only when

The average price level (CPI) falls.

The aggregate supply-aggregate demand diagram models

The economy as a whole

Which of the following reasons offered for why crime fell in the 1990s does economist Steven Levitt suggest had no impact?

The increased use of the death penalty

The optimal level of crime control is achieved where

The marginal reduction in the expected cost of crime equals the marginal cost of prevention

Inflation is measured using _______________ in a price index.

The percentage year-to-year increase

The positive externality argument in favor of a city seeking a professional sports franchise is

There are people in the city that will be happier when the team is in the city even if they do not buy tickets

In gold and tennis, there is little concern over player strikes because

There is a direct relationship between winning and earning

If people (who used to neither borrow nor save) are now saving for their retirement, then this will cause the equilibrium interest rate

To fall

Which form of intellectual property protects a drug manufacturer against a rival stealing its brand name?

Trademark

To an economist, the question of whether the right type of criminal are in jail hinges on

Whether the jail cell would be better utilized housing someone more dangerous.