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EXAM_1_SPRING_2006

EXAM_1_SPRING_2006 - 0 1 Economics 51D Economic Principles...

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Unformatted text preview: 0/ 1. Economics 51D: Economic Principles Dr. Lori Leachman EXAMINATION 1 February 9, 2006 1) In a capitalistic system resources and goods and services are primarily allocated by price while some government entity typically determines a number of these things in a socialistic system. 2) Conservative economists would be more likely to support elements of central planning in a market based system than would liberal economists a. both 1) and 2) are true b. both 1) and 2) are false c. l) is true an 2) is false d. 2) is true and l) is false If the inflation rate is 3 percent and the nominal wage is frozen for one year, by how much will the real wage change? It will decrease by about 3 percent It will not change ' It will increase by 3 percent It will triple We do not have enough information to determine this answer 9999‘s» Which of the following would be included in a year’s GDP? Susan cleans the fuel injectors on her car A private individual purchases 100 shares of IBM stock You wash your own laundry rather than asking the Blue Devil service A consumer buys an antique desk A college professor purchases a new computer 9999‘?” As a large number of students graduate from college, which category of unemployment would increase? seasonal unemployment structural unemployment frictional unemployment cyclical unemployment they will have no effect on unemployment 9999‘s» . A recent study found that it was cheaper to buy a chicken dinner from Kentucky Fried Chicken than it was to prepare it at home. The researcher included all costs including the imputed value of time involved to prepare the meal at home. This study illustrates the: a. Value of marginal analysis b. Law of increasing costs 0. Difference between real costs (which include opportunity costs) and money COStS d. Concept of non—homogeneity of resources . Most economists make the following fundamental indictment of inflation, that a. It always causes all workers to lose purchasing power b. It steals from the rich to aid the poor c. It steals from the poor to aid the rich d. It redistributes income in an arbitrary way 1) When actual GDP falls below potential GDP, inflationary pressure is rising as the business cycle moves into a recession 2) The intent of discretionary countercyclical policy is to enhance swings in the business cycle so that expansions are bigger and last longer. a. Both 1) and 2) are true b. Both 1) and 2) are false c. 1) is true, 2) is false d. 2) is true, 1) is false 1) The production function will reflect the nature of the returns to scale in a production process. When it reflects increasing returns to scale the industry is more likely to be characterized by oligopolies or monopolies and hence is subject to antitrust scrutiny. 2) Real GNP accounting with the expenditure approach accurately reflects the level of wellbeing and output produced in an economy a. 1) is true and 2) is false b. l) is false and 2) is true 0. Both 1) and 2) are false d. Both 1) and 2) are true 1) Generally speaking, the pricing mechanism has dealt with the issue of scale by setting either a zero or an infinite price, but nothing in between 2) A sustainable scale for a society would be a rate of economic growth consistent with the environment’s ability to renew the resources used a. Both 1) and 2) are true b. Both 1) and 2) is false c. 1) is true, 2) is false (1. 2) is true and 1) is false 10.1) Liberal Economists believe that markets always operate efficiently and effectively and therefore, the role of government should be kept to a minimum. 2) According to Merchantilist philosophy, trade is a zero sum game where one country benefits at the expense of another. a. Both 1) and 2) are true b. Both 1) and 2) is false c. 1) is true, 2) is false d. 2) is true and 1) is false 11. The core problem faced by all economic systems is that scarcity forces each of us to make choices the government must intervene to allocate scarce resources of allocating unlimited resources it needs to maximize each household’s material standard of living 9.0.6:» 12. A microeconomist might study which of the following? how inflation changes over time for several countries how money supply aggregates are measured economic growth in less-developed countries in Africa the relationship between aggregate income and aggregate personal consumption 6. why wages for females are lower than for males in a particular labor market 9.qu 13. Suppose that the following headlines appeared in a newspaper. Which would most clearly represent a macroeconomic issue? a. “Central Bank Raises Interest Rates” b. “Auto Dealership to Cut Prices” c. “Funny’s Freeze Dried Prunes to Lay Off 50 Workers” (1. “United Workers Union to Strike April 15” e. “Brazilian Coffee Bean Crop Falls by 10 Percent” Table l. h sics Score 14. Grant has 4 hours of time to divide between studying for a physics exam and a geology exam. Table 1 shows his estimates of the grades (on a scale of 0 to 100) that he could earn from studying a particular number of hours on each subject. If he plans on spending two hours studying each subject, what would be his opportunity cost of an additional hour studying physics? a. 10 points on his geology exam b. 20 points on his geology exam c. 80 points on his geology exam (1. 25 points on his physics exam e. 85 points on his physics exam 00 L11 -b 15. Specialization and exchange result in a. lower production levels than would otherwise be possible higher living standards than would otherwise be possible more down—time as workers switch activities more frequently the assignment of workers to activities according to their preferences self—sufficiency 09.0.0“ 16. If Indiana has an absolute advantage over Maine in producing both corn and ball bearings, then Indiana should produce both corn and ball bearings there are no benefits possible from specialization Maine should produce ball bearings and Indiana should produce corn Indiana should produce ball bearings and Maine should produce corn they still may benefit from specialization, but more information is needed to determine which state should specialize in each 09.0.65» Table 2. —__ Pails Fetched er Hour Boards Sawed oer Hour 0 17. Using the information in Table 2, Jill’s opportunity cost of fetching each additional pail is a. 2boards sawed b. 1/2ofaboardsawed c. 8 boards sawed d. 1/5 of a board sawed e. 10 boards sawed 18. Given the output possibilities in Table 2, a. Jack has absolute advantage in everything b. Jill has comparative advantage in sawing boards c. the opportunity cost of fetching a pail of water for Jack is 1/2 of a board sawed d. all of the above e. a and c only 19. Given the output levels in Table 2, a. the opportunity cost of sawing a board for Jill is 2 pails of water b. Jack should specialize in fetching water and Jill in sawing boards. c. If both Jack and Jill specialized and traded, the range of terms of trade for a pail of water is 1/2 sawed board < pail water < 2sawed boards (1. all of the above e. b and c only 20. If a society is currently producing on its PPC and decides to produce more health care services a. the opportunity costs of an additional health care service will rise b. the new output mix would enhance human capital accumulation the new output mix would be an effective growth promoting production choice for an LDC . all of the above b and c only Exam 1— Econ 51 Sp. ‘06 1.) In the beginning of the course we had a brief discussion of the two broad categories of macro-policy, who does them and what the instruments are. a.) Below list the 2 types of discretionary policy and what agency(ies) of government does each. b.) Again list each type of policy. Link them to the combination of instruments for each that would be expansionary. Finally, indicate if each policy is actually expansionary at the present time. c.) Below list the four goals of government and for each indicate which type of policy is more targeted to achieving each goal. 2.) In class we discussed the production function and its link to the PPC. a.) What are the 2 critical elements embodied in the production function? (hint— not the input resources) b.) Why do rich countries have production functions and PPCs that are so much greater than those of the poorer, slower growing economies? c.) If the production function is characterized by decreasing returns to scale I what is the most likely market structure that will result? (1.) Assume that we live in a 2 good, no money economy characterized by the various output combinations listed below. To the right fill in the Marginal Rate of Transformation of capital goods into consumption goods. Capital goods Cons. Goods MRT 0 lmil ‘ 4000 800,000 7000 600,000 1 9000 400,000 9750 200,000 10,000 0 e.) If the output mix is 5000 units of capital good and 500,000 units of 1 consumption goods what is the problem plaguing this economy? f.) If the output mix is 800,000 units of consumption goods and 4000 units of capital goods what is the most likely economic problem plaguing this J economy? I g.) if an economy whishes to consume beyond their PPC how would they do it? 3.) List the 4 sectors of the economy used to calculate GDP by the expenditure approach and give 1 reason why each is important. 4.) a.)Explain why Deflation can be a good or bad. b.) what are the 2 types of inflation and what price index yields the most accurate measure of each? 5.) In class we discussed the various types of unemployment. List the 2 types that are problematic below and give a policy that could be used to address each. 6.) In class we have discussed the fact that government becomes involved in the economy as a “regulator” for a number of reasons. 2‘ a.) list 2: i b.) What is the measure that government uses to assess market concentration? c.) List two anti—competitive practices that firms might engage in which anti— trust policy aims to prohibit. 7.) a.)Explain the difference between absolute and comparative advantage and why comparative advantage is more realistic. b.) Why do small countries typically gain more from trade than large countries do (regardless of how much more choice they may gain)? 0.) Throughout the 2nd half of the 19908 (and continuing today) the US has experienced record trade deficits. Give 2 reasons why. 8.)In class we have linked the business cycle to the 4 objectives of government. Below, list each phase, link it to what is happening to GDP and note the economic status of the economy regarding the 4 objectives of government. 1- 9.) Estimates from the Congressional Budget Office indicate that the US is on track to run a budget deficit of approximately $360bil for the 2006 fiscal year. Is such a fiscal policy more consistent with the conservative or liberal economic view? Explain. EC: 1.) What is the primary economic (not political) reason for the significant stock market sell off in January? (lpt) 2.) In the fall GM announced that they will lay off 30,000 workers on ’06. This announcement has been followed by a similar announcement from Ford indicating that they will reduce their workforce by 28% in ’06. Clearly the unemployment rate will rise as a by—product. Recall how the unemployment rate is calculated. Over time how will we know the type of unemployment we are dealing with and hence the right policy mix to address it? (3pts) 3.) a.) In ’06 the congressional budget office is projecting a fiscal deficit of $360bil primarily due to 2 things. What are they? (2pts) b.) By 2016 they are projecting either a small surplus or deficits approaching $400bil. What accounts for this difference?(2pts) 4.) The last week of January the government published its growth figures for 2005. (2pt8) a.) Was growth strong in the final quarter of ’05? b.) What was the approximate annual growth rate for ’05? ...
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