First midterm exam

Principles of Macroeconomics 06E:002. AAA &SCC Instructor: Dr. Young-Sik Kim Exam 1 Name:_____________________________________________ID:_________________________________________________ Section Number:____________________________________________________________________________________ Please make sure that you fill in all information on the scranton sheet: (1) Your Name (Last, First) (2) Student ID Number (3) EXAM VERSION (4) Discussion Section Number at O and P on the scranton sheet There are 40 questions, only answers on the scranton sheet will be graded MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The study of economics arises due to A) resources. B) greed. C) scarcity. D) money. 1) Table 1-1 Hours Open Total Revenue (Dollars) 1 $35 2 60 3 80 4 92 5 100 6 105 Eva runs a small bakery in the village of Roggerli. She is debating whether she should extend her hours of operation. Eva figures that her sales revenue will depend on the number of hours the bakery is open as shown in the table above. She would have to hire a worker for those hours at a wage rate of $12 per hour. 2) Refer to Table 1-1. Using marginal analysis, determine how many hours should Eva extend her bakery's hours of operations? A) 2 hours B) 6 hours C) 5 hours D) 3 hours E) 4 hours 2) 3) Refer to Table 1-1. What is Eva's marginal benefit if she decides to stay open for two hours instead of one hour? A) $25 B) $36 C) $95 D) $60 3) A-1 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 1 4) Refer to Table 1-1. What is Eva's marginal cost if she decides to stay open for two hours instead of one hour? A) $24 B) $71 C) $36 D) $12 4) 5) The principle of opportunity cost is that A) in a market economy, taking advantage of profitable opportunities involves some money cost. B) the cost of production varies depending on the opportunity for technological application. C) taking advantage of investment opportunities involves costs. D) the economic cost of using a factor of production is the alternative use of that factor that is given up. 5) 6) The attainable production points on a production possibility curve are A) the horizontal and vertical intercepts. B) the points along the production possibilities frontier. C) the points along and inside the production possibility frontier. D) the points outside the area enclosed by the production possibilities frontier. 6) 7) The unattainable points in a production possibilities diagram are A) the points outside the production possibilities frontier. B) the points along the production possibilities frontier. C) the points of the horizontal and vertical intercepts. D) the points within the production possibilities frontier. 7) Figure 2-1 8) Refer to Figure 2-1. Point A is A) inefficient in that not all resources are being used. B) unattainable with current resources. C) technically efficient. D) the equilibrium output combination. 8) A-2 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 1 9) Refer to Figure 2-1. Point B is A) the equilibrium output combination. B) inefficient in that not all resources are being used. C) technically efficient. D) unattainable with current resources. 9) Figure 2-2 Figure 2-2 above shows the production possibilities frontier for Mendonca, an agrarian nation that produces two goods, meat and vegetables. 10) Refer to Figure 2-2. What is the opportunity cost of one pound of vegetables? A) 113 pounds of meat B) 34 pounds of meat C) 12 pounds of meat D) 1.2 pounds of meat 10) 11) Economic growth is represented on a production possibilities frontier model by the production possibility frontier A) shifting inward. B) becoming steeper. C) shifting outward. D) becoming flatter. 11) A-3 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 1 Figure 2-4 Figure 2-4 shows various points on three different production possibilities frontiers for a nation. 12) Refer to Figure 2-4. A movement from X to Y A) could be due to a change in consumers' tastes and preferences. B) is the result of advancements in plastic production technology only, with no change in food production technology. C) is the result of advancements in food production technology only, with no change in the technology for plastic production. D) could occur because of an influx of immigrant labor. 12) Table 2-2 George Jack Lawns Mowed 10 6 Gardens Cultivated 5 4 Table 2-2 shows the output per day of two gardeners, George and Jack. They can either devote their time to mowing lawns or cultivating gardens. 13) Refer to Table 2-2. Which of the following statements is true? A) Jack has an absolute advantage in both tasks. B) Jack has an absolute advantage in garden cultivating and George in lawn mowing. C) Jack has an absolute advantage in lawn mowing and George in garden cultivating. D) George has an absolute advantage in both tasks. 13) 14) Refer to Table 2-2. What is Jack's opportunity cost of mowing a lawn? A) two lawns mowed B) one and a half lawns mowed C) half a garden cultivated D) two-thirds of a garden cultivated 14) A-4 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 1 Figure 2-7 Figure 2-7 shows the production possibilities frontiers for Pakistan and Indonesia. Each country produces two goods, cotton and cashews. 15) Refer to Figure 2-7. Which country has a comparative advantage in the production of cashews? A) Pakistan B) They have equal productive abilities. C) neither country D) Indonesia 15) 16) Which of the following is not a flow in the circular flow model? A) the flow of income earned by households and the flow of expenditures incurred by households B) the flow of profit and the flow of revenue C) the flow of goods and services and the flow of resources to produce goods and services D) the flow of revenue received by producers and the flow of payments to resource owners 16) 17) Which of the following is the correct way to describe equilibrium in a market? A) At equilibrium, scarcity is eliminated. B) At equilibrium, demand equals supply. C) At equilibrium, market forces no longer apply. D) At equilibrium, quantity demanded equals quantity supplied. 17) A-5 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 1 Figure 3-2 18) Refer to Figure 3-2. If the price is $25, A) there would be a surplus of 300 units. B) there would be a shortage of 300 units C) there would be a shortage of 200 units. D) there would be a surplus of 200 units. 18) Figure 3-3 19) Refer to Figure 3-3. In a free market such as that depicted above, a shortage is eliminated by A) a price decrease, decreasing the quantity supplied and increasing the quantity demanded. B) a price decrease, decreasing the supply and increasing the demand. C) a price increase, increasing the quantity supplied and decreasing the quantity demanded. D) a price increase, increasing the supply and decreasing the demand. 19) 20) Which of the following describes a characteristic of a perfectly competitive market? A) There are many sellers but few buyers. B) There are many buyers but few sellers. C) There are many buyers and sellers. D) Equilibrium is achieved when demand for the product sold in the market equals the supply. 20) A-6 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 1 21) In recent years the cost of producing wines in the U.S. has increased largely due to rising rents for vineyards. At the same time, more and more Americans prefer wine over beer. Which of the following best explains the effect of these events in the wine market? A) Both the supply and demand curves have shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity. B) The supply curve has shifted to the left and the demand curve has shifted to the right. As a result there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price. C) The supply curve has shifted to the left and the demand curve has shifted to the right. As a result, there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity. D) Both the supply and demand curves have shifted to the right. As a result, there has been an increase in both the equilibrium price and the equilibrium quantity. 21) Figure 3-5 22) Refer to Figure 3-5. Assume that the graphs in this figure represent the demand and supply curves for bicycle helmets. Which panel best describes what happens in this market if there is a substantial increase in the price of bicycles? A) Panel (a) B) Panel (b) C) Panel (c) D) Panel (d) 22) 23) The difference between the lowest price a firm would have been willing to accept and the price it actually receives from the sale of a product is called A) price differential. B) marginal revenue. C) producer surplus. D) profit. 23) A-7 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 1 Figure 4-4 Figure 4-4 shows the market for granola. The market is initially in equilibrium at a price of P1 and a quantity of Q1. Now suppose producers decide to cut output to Q2 in order to raise the price to P2. 24) Refer to Figure 4-4. What area represents consumer surplus at P2? A) A + B B) A + B + D + F C) A D) B + C 24) 25) Refer to Figure 4-4. What area represents producer surplus at P2? A) A + B + D B) B + D + G C) B + D D) B + C + D + E 25) 26) Refer to Figure 4-4. What area represents the deadweight loss at P2? A) B + C B) G + H C) C + E + H D) C + E 26) A-8 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 1 Figure 4-6 Figure 4-6 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R0. 27) Refer to Figure 4-6. With rent control, the quantity supplied is Q1. Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest rent they can get? A) R1 B) more than R1 C) R0 D) R* 27) 28) Refer to Figure 4-6. What is the area that represents consumer surplus after the imposition of the ceiling? A) A + B+ D B) A + B + D + F + G C) A + B + D + F D) A + B + C 28) 29) Refer to Figure 4-6. What is the area that represents the portion of producer surplus transferred to consumers as a result of the rent ceiling? A) F B) D + E C) D + F D) D 29) A-9 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 1 Figure 4-9 Figure 4-9 shows the market for cigarettes. The government plans to impose a unit tax in this market. 30) Refer to Figure 4-9. How much of the tax is paid by buyers? A) $8 B) $3 C) $5 D) $4 30) 31) Suppose an excise tax of $1 is imposed on every case of beer sold and sellers are responsible for paying this tax. How would the imposition of the tax be illustrated in a graph? A) The supply curve for cases of beer would shift to the left by less than $1. B) The supply curve for cases of beer shifts to the left by $1. C) The supply curve for cases of beer would shift to the left by more than $1. D) The supply curve for cases of beer would shift to the right by $1. 31) 32) Gross Domestic Product is calculated by summing up A) the total market value of final goods and services produced in the economy during a period of time. B) the total quantity of goods and services in the economy. C) the total market value of goods and services in the economy. D) the total quantity of goods and services produced in the economy during a period of time. 32) 33) The real GDP of the U.S. in 2006 was approximately $13 trillion. This means that A) the value of output in 2006 was around $13 trillion. B) total spending in 2006 was around $13 trillion. C) total income in 2006 was around $13 trillion. D) all of the above are true. 33) A-10 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 1 Table 7-3 Consumption expenditures $800 Investment expenditures 200 Government purchases 300 Exports 100 Imports 200 Wages 800 34) Refer to Table 7-3. Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals A) $1,600. B) $2,200. C) $1,200. D) $1,400. 34) Table 7-8 Year Guns Produced Price of Guns (Dollars) Butter Produced Price of Butter (Dollars) 2000 80 $5 40 $4 2006 90 $6 60 $10 Consider the following data for a fictional economy that produces only two products: guns and butter. 35) Refer to Table 7-8. Real GDP for this fictional economy for 2006 using 2000 as the base year equals A) $560. B) $690. C) $1,140. D) $880. 35) 36) Which of the following could cause nominal GDP to decrease, but real GDP to increase? A) The price level falls and the quantity of final goods and services produced rises. B) The price level rises and the quantity of final goods and services produced rises. C) The price level falls and the quantity of final goods and services produced falls. D) The price level rises and the quantity of final goods and services produced falls. 36) 37) Imagine that you borrow $5,000 for one year and at the end of the year you repay the $5,000 plus $600 of interest. If the inflation rate was 4%, what was the real interest rate you paid? A) 12 percent B) 16 percent C) 8 percent D) 6 percent 37) 38) An increase in unemployment insurance payments would, in effect, ________ the amount of time spent searching for a job, which would increase ________ unemployment. A) decrease; frictional B) increase; cyclical C) decrease; cyclical D) increase; frictional 38) 39) An unemployment insurance program has which of the following effects? A) It increases the amount of time spent searching for a job. B) It contributes to the severity of a recession or economic downturn. C) It lowers the overall unemployment rate. D) It decreases the amount of personal income of the unemployed. 39) A-11 Principles of Macroeconomics 06E:002. AAA &SCC. Exam 1 40) Suppose that in 2008 all prices in the economy double and that all wages and salaries have also doubled. In 2008 you A) are no better off or worse off than you were in 2007 as the purchasing power of your salary has remained the same. B) cannot determine whether you are better off or worse off than you were in 2007, because the purchasing power of your salary cannot be determined. C) are better off than you were in 2007 as your salary is higher than it was in 2007 and you can now buy more goods and services. D) are worse off than you were in 2007 as you can no longer afford to buy as many goods and services. 40) A-12 Answer Key Testname: EXAM1_FALL2008 1) C 2) E 3) A 4) D 5) D 6) C 7) A 8) A 9) C 10) B 11) C 12) D 13) D 14) D 15) A 16) B 17) D 18) A 19) C 20) C 21) C 22) D 23) C 24) C 25) C 26) D 27) A 28) A 29) D 30) B 31) B 32) A 33) D 34) C 35) B 36) A 37) C 38) D 39) A 40) A A-13 mlopezda Exam1_Fall2008.tst