Econ 1A
Comparison of the minimum wage and the median wage can be used to estimate the extent to which unemployment results from minimum wage laws. All else equal, which scenario would result in the most unemployment?
A country where the minimum wage is set at 95% of the median wage.
The dynamic aggregate demand (AD) curve is modeled as a downward-sloping line. Which of the statements is the best explanation for why the dynamic AD has this shape?
A proportional increase in inflation for every decrease in the growth rate is required to keep the growth in spending constant.
Suppose that the government changes the tax code to allow additional amounts of money to be placed in 401k retirement accounts, increasing the extent to which people can delay their tax obligation (effectively, this is a tax cut on retirement savings). Show the effect by shifting the appropriate curve in the market for savings.
According to this model, what is the result?: Private investment would increase as the cost of borrowing decreased.
Match each statement with the change it describes.
Change in quantity supplied The price of lamps increases, so lamp producers increase the number of lamps they produce. Change in supply Lamps become much more profitable to make, so furniture makers make fewer tables and more lamps. Change in quantity demanded The price of lamps increases, and lamp sales in Urtown drop. Change in demand Many people are buying bigger houses, and lamps sales increase.
Changes to both the money supply and the velocity of money induce changes in aggregate demand. However, the long-run impacts of changes in these variables are different. How are the effects of an increase in the velocity of money and the effects of an increase in the money supply different?
Changes in the money supply can lead to permanent changes in aggregate demand, but changes in the velocity of money tend to have temporary changes in aggregate demand.
Index of the stock prices of thirty large firms.
DIJA
b. Move the supply and/or demand curve to illustrate how a decrease in the price of Samsung's current Galaxy smartphone impacts the market for iPhones.
Demand Lowers for IPhone The shift in b is due to a change in the price of a: substitute good.
Stone and brick are substitutes in home construction. Consider the market for bricks depicted in the graph. Suppose the price of stone increases due to new regulations for the stone quarrying industry. Illustrate the impact this will have on the market for bricks.
Demand for bricks goes up Equilibrium price: Increases Equilibrium quantity: Increases
a. Move the supply and/or demand curve to illustrate how an across-the-board cut in the price of all apps on the Apple App Store affects the market for iPhones.
Demand raises for IPhone The shift in a is due to a change in the price of a: complementary good.
In what way(s) does GDP per capita not provide an accurate representation of living standards?
GDP per capita does not measure production that occurs outside of the market economy. GDP per capita does not account for changes in environmental quality. GDP per capita does not account for how people distribute their time between work and leisure.
The U.S. GDP in 2002 was $10,642.3 billion, and the previous year the GDP was $10,286.2 billion. What was the rate of growth in GDP in 2002?
GDP2 - GDP1/GDP1 x 100 = 10,642.3 - 10,286.2/10,286.2 x 100 = 3.46%
Consider the information about the economy of Pakistan. Note that the currency of Pakistan is the rupee. The government purchases: 2.602.60 trillions of rupees. Individuals consume: 9.409.40 trillions of rupees. Individuals save: 5.565.56 trillions of rupees. Businesses invest: 1.651.65 trillions of rupees. Foreigners spend: 0.660.66 trillions of rupees to purchase Pakistani firms. Pakistan imports: 2.082.08 trillions of rupees. Pakistan exports: 1.291.29 trillions of rupees. Calculate Pakistan's GDP. Assume that the values are all current and no conversions need to be made. Give your answer in terms of trillions of rupees, and round to two decimals.
GDP= C+I+G+NX 12.86=9.40+1.65+2.60+(1.29−2.08) where C=consumption I=investment G=government purchases NX=net exports
Firms in the country of Merka, which experiences varying levels of unemployment over time, face a very competitive labor market. Classify the given events according to how each would affect Merka's unemployment rate.
Increase in the unemployment rate: increase in the minimum wage increase in unions' influence Decrease in the unemployment rate: decreased unemployment benefits introduction of employment‑at‑will doctrine
marginal benefit
Marginal benefit is the benefit received from producing a little more.
marginal cost
Marginal cost is the additional cost of producing a little more.
Includes the stock prices of firms whose shares are traded "over-the-counter."
NASDAQ Composite
The U.S. government has subsidized ethanol production since 1978. With the advent of affordable electric cars, policymakers are considering whether to allow the subsidy to expire. The accompanying graph represents the market for ethanol. Move the supply and/or demand curves to show how reducing the subsidy will affect the ethanol market.
Supply for Ethanol goes down Equilibrium price: Increases Equilibrium quantity: Decreases
A good produced in the current time period but put into a firm's inventory instead of being sold
is considered unsold inventory and counted as a part of investment in current GDP.
For each of the pairs, please select who tends to benefit more from Social Security.
men or women: women low income or high income: low married or single: married Social Security pay-as-you-go: revenue from the current Social Security tax is used to fund current payments
Assume people dislike inequality. If income inequality decreases, GDP would ______ , and living standards would ________
remain unchanged, rise
If school quality were to increase as a result of parental involvement, GDP would ________, and living standards would ________
remain unchanged, rise
If volunteers cleaned a river used for swimming, GDP would ________ and living standards would _______
remain unchanged, rise
If workers worked less but produced the same amount, GDP would _________ and living standards would ________
remain unchanged, rise
Suppose the black market shrinks because firms shift to the formal sector, but production remains the same. GDP would _______ , and living standards would ________
rise, remain unchanged
a. If unpaid housework were formalized in GDP, GDP would ___ and living standards would ____
rise, remain unchanged
Given improved production technologies, GDP would ___________ , and living standards would _________
rise, rise
If school quality increased as a result of the procurement of new equipment, GDP would _______, and living standards would _______
rise, rise
What does the investment component of GDP measure?
spending on goods to be used in future production
Many economists think that effective institutions are essential for economic growth. In this context, what are institutions?
the laws, social norms, and conventions of a culture
Real GDP per capita is NOT an adequate measure of
the well-being of each person in an economy.
c. It can be mutually beneficial for two nations to specialize in goods for which they have a comparative advantage and then trade with one another.
true
d. Countries specialize in the production of goods for which they have a comparative advantage.
true
Which of the terms acts as the "price" in the market for loanable funds?
interest rate
Suppose that a baby boom occurs between the years 2025-2030, similar to the baby boom following World War II. What do you expect to happen to the labor force participation rate in the year 2090-2100, holding all else constant?
decrease since the baby boomers will opt for more leisure.
a. The process of specialization and trade has positive net benefits and is, therefore, beneficial to everyone.
false
e. Absolute advantage is the source of the potential gains from specialization and trade.
false
The natural rate of unemployment equals
frictional unemployment plus structural unemployment.
Dynamic aggregate demand (AD) can be derived using the quantity theory of money. Label the equation so that it accurately expresses the quantity theory of money in dynamic form. Suppose that the velocity of money is stable, 4% real economic growth is occurring, the rate of inflation is 4%, unemployment is 5.3%, and the marginal propensity to save is 3%. By how much is the money supply growing? Enter your answer as a percentage.
growth in money supply + growth in velocity = inflation + real economic growth The money supply therefore grows by 8% (4% + 4%).
Rent controls are a typical example of a price ceiling. Please select all likely consequences of rent controls when the price ceiling is binding. There is more than one correct answer.
inefficient allocation of apartments shortage of affordable housing reductions in apartment quality
Absolute advantage can be determined by comparing different producers'
input requirements per unit of output.
As interest rate decreases, what happens to the quantity of loanable funds demanded?
Quantity demanded will increase.
What effect will an increase in interest rates have on the quantity of loanable funds supplied?
Quantity supplied will increase.
How, if at all, did these events affect the long‑run aggregate supply (LRAS) curve? Each phrase should be placed under the appropriate heading.
Shifted the LRAS curve to the left: - a tsunami destroying much of the existing stock of capital in Japan - the 1970s oil crisis - significant and sustained increases in income tax rates A positive real shock shifts the Solow growth curve to the right, increasing the potential growth rate, whereas a negative real shock will shift the Solow growth curve to the left, decreasing the potential growth rate.
b. A nation will not have a comparative advantage in a product if it does not also have an absolute advantage in the production of that good.
false
In the graph, demonstrate the short-run effect of an increase in the growth rate of the money supply, assuming all else remains equal.
The SRAS curve shifts to the left, and the inflation rate increases, with no change in the growth rate. Increases to the growth rate of the money supply will shift AD to the right. More money means more spending, and more spending results in an rightward shift in AD. For the long run, as consumers experience increased inflation, they will adjust their expectations of inflation. Eventually, these expectations will overcome the stickiness in wages and prices, and SRAS shifts left. More of the increase in the money supply growth will be reflected in the inflation rate and less in the growth rate.
If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act?
The business will not take out the loan.
The table contains the demand and supply schedule for apartments in a city. Suppose the city council feels that the equilibrium rent is too high and imposes a price ceiling of $750/month. Rent/month Quantity demanded Quantity supplied $1,750 300 4800 $1,500 600 2400 $1,250 1200 1200 $1,000 2400 600 $750 4800 300
The price ceiling results in a shortage The city now has a shortage or surplus of how many apartments? 4800 - 300 = 4500
Which is an issue that makes central banking difficult for the Federal Reserve Bank (the Fed)?
There is a lag between when policies are enacted and when the effects of those policies can be seen.
If the price of tennis balls goes up from $7.99 to $14.99, what can be expected from suppliers of tennis balls as a result?
There will be an increase in quantity supplied.
The country of Sabora currently bans all international trade. Sabora makes high-quality spears and is currently producing as many spears as the local population wishes to buy at $50 each. Other countries currently produce and sell spears at $125 eacg. The newly elected president of Sabora decides to allow international trade for the first time in Sabora's existence. They will begin trade next year. Saboran spear-makers will happily engage in trade. Assume there is free trade, and that Sabora will sell all the spears they make. What will happen to the quantity and price of Sabora's spears next year?
There will be movement along the supply curve. A greater quantity of spears are sold at higher price. As a result, Sabora's spear income will increase.
Wrigleyville: GDP in Millions $: 527.0 Population: 179.0 GDP per capita: Longhornland: GDP in Millions $: 3011 Population: 199 GDP per capita: Dinkytown: GDP in Millions $: Population: 301.00 GDP per capita:
What is the GDP per capita of Longhornland in U.S. dollars? Express your answer rounded to one decimal place. 3011 million dollars/199 million people= $15.1 per person What is the GDP of Dinkytown in millions of U.S. dollars? Express your answer rounded to one decimal place. 1.100 per person × 301.00 million people= 331.1 million dollars
Category Number of people Employed 5905 Unemployed 472 Not in the labor force 561
What is the total labor force? 6377 What is the labor force participation rate?: labor force/population x 100 = 91.91 What is the unemployment rate?: number employed/labor force x 100 = 7.40%
Which of the following best defines a financial intermediary?
a financial institution that transforms investor funds into financial assets
A dividend is
a portion of profits paid back to shareholders.
Juan Valdez, a coffee farmer in Colombia, sells his coffee to Cafe Emporium, a U.S. firm which specializes in gourmet coffee blends. a. What must be true of this arrangement? b. What can be inferred from the fact that Juan has voluntarily entered into a contract with Cafe Emporium?
a. When Juan and other farmers in Colombia sell their coffee beans to foreigners, their nation as a whole gains in the long run, as countries gain from trade. Juan and other farmers in Colombia who make such transactions are made better off as a result. b. Juan is better off as a result of his deal with Cafe Emporium.
A capital gain is
an increase in the value of an asset.