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201M01F - Economics 201 Fall 2001 4 NAME Robert J Gordon...

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Unformatted text preview: Economics 201 - Fall 2001 4 NAME: Robert J. Gordon \ SECTION: iMidterm Examination October 29-, 2001 Answer all questions in PEN. Write your answers in the spaces provided. There are 25 multiple choice questions, each worth 1 point. There are two short answer questions, each worth 10 points. Allocate your time accordingly. For questions 1—2, use the following table, which describes the production possibilities for Bob and Jane. Bob’s production possibilities 4 Jane’s production possibilities Production Pairs of MP3 Production Pairs of ‘MP3 3 oint Sneakers 3 layers point Sneakers players A 30 and '4 0‘ E 45 and: 0 B 20 and 20 F 30 and 5 C 10 and 40" G 15 and 10 D 0 and , 60 H 0 and: 15 ‘ 1. Suppose Jane is at point G in her production possibilities frontier. What is her opportunity cost of producing one more pair of sneakers? a. 3 MP3 players b. 1/3 MP3 players c. 3 Sneakers d. There is no opportunity cost, as point G is not efficient B . 2. Who has a comparative advantage in the production of MP3 players? a. Jane, because she has a lower opportunity cost of producing MP3 players b. Jane, because she has a lower opportunity cOst of producing sneakers c. Bob, because he has a lower opportunity cost of producing MP3 players d. Bob, because he has a lower opportunity cost of producing sneakers C 3. According to the Law of Demand, when the price of gas rises ‘ a. oil refining companies record financial losses. b. car sales increase. c. people will drive more. d. people decrease the quantity of gas demanded, perhaps by driving less. D 4. All else the same, when firms develop a technOlogical advance, there is a(n) upward movement along the supply curve; downward movement along the supply curve. leftward shift of the supply curve. rightward shift of the supply curVe. 9-9275” 5. Restaurant meals are a normal good and consumers? incomes increase Simultaneously an increase in the minimum wage increases costs for restaurants As a result of these two changes, the equilibrium price of a restaurant meal will and the equilibrium quantity will increase; change in an ambiguous direction _ increase; decrease change 1n an ambiguous direction; increase ' decrease, increase ‘ 999*?» Questions 6 and 7 refer to the following table Quantity demanded Quantity supplied: Price (millions in gallans‘ , (millions of gallons (dollars per ‘ of gasoline per of gasoline per ' mom‘hflgf, i - month - 1.90 ' 360 ' 970 1.70 420 1‘ 840 , 1.50 , 150Q , , , 720‘ 1.30 ‘ 600;. ' g 600 1.10 750?. _ ' 480 0.90 . 950i ‘ '_ ‘ 330 6.‘ If the market for gasoline 1s in equilibrium, the price of gas is a. 1 10 - b. 1.30 c. 1.50 d. ambiguous B _.___ 7. If the government imposes a price ceiling of ,1. 10,: theainountof gasoline consumed will be, a. 750 ‘ f b. 480 c. 600 d. undetermined B 8. In measuring GDP, which of the following is inCluded? a. b. c. d. D_ the value of preparing meals at home the value of stocks and bonds bought and sold the value of used goods when they are sold the value of increases in business inventories Item _ Billions of dollars Consumption expenditure LL 4,000 Net interest 300 Investment 1 ,000 Depreciation 400 60vernment purchases of goods and services 1,000 _ Net exports ‘ , - 200 9. The table. above gives data for a nation. What is the amount of the country’s GDP? a. b. C. d'. B, $6,000 billion $6,200 billion $6,600 billion $6,900 billion 10. The income approach measures GDP by summing a b c. d. D, C + I + G + NX. the total production of all final goods and services produced 1n 3.2 year within a country’s borders. the wealth of households, business and government. the incomes that firms pay households for the resources they hire. 11. Robert was researching the economic growth of a country between 2000 and 2003. Using 2000 as the base year, be calculated a twelve percent increase for real GDP and a ten percent increase for nominal GDP. His results indicate that a. b. c. d. C be. made an error when calculating nominal GDP. the quantity produced decreased over the period. prices decreased over the period. the quantity and prices both decreased over the period. 12. The measurement of GDP handles underground production by a. including the amount produced in this sector of the economy in exactly the same way that all other production is included. omitting it because underground production is difficult to measure. adding it at a fixed rate of prices. adding an estimate of it because it is difficult to precisely measure underground production. 13. After 15 years with Ford Motor Corporation Cameron loses his job. His boss explained that his position has been downsized after the technological advances in automobile production Cameron is best considered not in the labor force. frictionally unemployed. structurally unemployed, cyclically unemployed. P-PP‘F’ 14. Potential GDP is the level of output produced when the unemployment rate, is a. equal to the natural unemployment rate. b. greater than the natural unemployment rate. c. less than the natural unemployment rate. d. zero. A 15. When the unemployment-rate is greater than the natural unemployment rate, real GDP is greater than potential GDP. less than pOtential GDP. unrelated to real GDP. ‘ equal to potential GDP. 999'.” 16 If in Switzerland in January, 2001 real GDP was 175. 2 and in January, 2002 it was 175.4, then the real GDP growth rate in 2001 was a. unknown without the base period index number. b. unknown without the real prices. c. 0.1 percent. d. 0.2 percent. C 17. A change in the real wage rate measures the change in the a. price of goods and services that an hour’s work can buy. b. nominal wage of an hour’s work. c quantity of goods and services that an hour’s work can buy d. inflation rate affecting the labor market. 18. A country reports that for the yearr2001, real GDP was $3,500 billion and nominal GDP was $4,200 billion. If the country’s potential GDP is $3,900 billion, the country is a. producing at a level less than its full-emplOyment level of output. b. temporarily producing more than its long, run equilibrium level of output. c. producing at its full—employmentfevel of output. d. efficiently using all of its resources to produce output. A 19. Which of the following statements is true? a. As the real wage rate increases, the Ghensehold’s income decreases, which influences people to work more hours. , _, '_ ‘ , v b. As the real wage rate_increaSes,ithe quantity of labor demanded increases. 0. As the real wage rate increases, the ioppOrtnnity cost of not working increases. d. As the real wage rate increases,the opportunity cost of leisure time decreases. 20. If the price level increases from 110.0 to [115.0, the quantity of a. real GDP supplied will increase. b. real GDP supplied will decrease. 0. potential GDP will decrease. d. real GDP demanded will increase. A 21. According to Krugman, which period had the fastest productivity growth for the United States? 22. a. 1899-1919 b. 1919-1939 c. 1939-1959 (1. 1959—1979 c. 1979-1999 During the period 1975-95 the share of college graduates in the labor force increased, and their wages relative to high school graduates also increased; we can conclude that the following happened to the relative demand and supply curves for college graduates relative to high school graduates. a. Demand shifted right more than supply shifted right b. Supply shifted right more than demand shifted. right c. Demand shifted right more than supply shifted left ‘ d. Supply shifted right more than demand? shifted left e. a or c 23. Which factors are cited by Krugman as the unfavorable consequences of inflation ‘ a Reduced use of money ' - b Reduced real wages . Rammed after-tax real interest rate f c ' (1 stand!) e. aandc 24 EaCh of the following describes the same economic situation except one. Which one? a. Actual rate of unemployment— - natural rate of Unemployment b Actual rate of inflation: naturaI rate of inflation 6 Actual‘ real GDP: potential real GDP ~' 6 Actual rate of unemployment ~ the NAIRU .- 5,; Actual employment—full employment. ' ' CB '_._1_. 25 Krugman attributes the severe decline in real GDP in the early 19805 to which major cause? ‘ a. Tax increases by the Carter Administration b Tax Increases by the Reagan Admimstration 6 Federal Reserve monetary policy ‘ d‘ ReduCtiOns in government spending by the Reagan Administration I _ e. Higher 011 prices fiw’ ShortAnswer 1 Thesupply and demand equations in the market for beef are as 'fol‘loWsir P = 10-— 2 Qd’ P: 1 + Qs 1. Calculate the equilibrium price and quantities in the market «ferbeef Q=3',P=4:" 2. Suppose the government imposes a price floor of $5. What wrllbethe new quantity produced? Will all of it; be Consume-d? ~ . , ,: * ' - Q produced =_ 47,- Q Consumed = 2.5 3. Go back to. the situation in question 1. Now suppose that demandifer bee-f increases by 2 units at each price and'supplydeereases by 1 unit at each price. Whatarethe‘fnew equilibrium price and quantity? Qd=5-_0~.SP T—)~Qd~=7-o.5P Qs=P—,r 9, Qs=P—2 P: 4.5» , Q =25 4. Go back to the situation in question 1. Suppose the price of, steal; sauce increase. Which of the following is likely to be the new demand for beef? ‘ ‘ ‘ ‘ ' P =‘10~—2Qd P = 3-? 2 Qdk P = 10 —- Qd P = 12 — 2 Qd AnSWer:____B1 99 9‘5» 5) Graph the situation in question 1. Suppose that the price of leather increases, and plot the resulting change in the market (hint: each cow yields‘one pound ofrbeef‘and‘ one leather hide). Short Answer 2 Luxembourg is a country with a working age population of 6,000 people. The labor force is composed of 4,000 people. There are two? factories in Luxembourg. One of the factories makes shoes and employs 2,000 workers. The other factory produces-[tennis rackets and employs 1,000 workers. 1. What is the labor force participation rate in Luxembourg? _66.6%_ 2. How many- people are unemployed? _1,000_, ‘3. L What is the unemployment rate? __25 %_ January: The shoe factory has 200 workers to package the finished shoes The management decides to purchase new packaging machines and fire the 200 workers 4. What is the new unemployment rate? _30%__ 5. Does this change structural, cyclical or frictional unemployment? _structural__ M__arch: The Roland-Games Grand Slam Tennis tournament is scheduled to take place in April. The management of the tennis rackets factory expects an increase in demand and hires 500 more workers. 6. What isthe new labor force participation rate? __66.6%_, 7. What is the new unemployment rate? _17.5%_ Ilune: A brilliant entrepreneur decides to open a factory of strawberry 311111.300 skilled immigrants settle 1n Luxembourg to work 1n the new factory. 200 workers from the local population are also hired 8. What is the new working-age population? _6,300_ 9. What is the new unemployment rate? _11.63%_ October: An unfortunate fire damages the shoe factory. A French construction company sends 250- workers from Paris to rebuild it, a project that takes two weeks to complete. 10. How does this affect unemployment rate in Luxembourg? _No Change_ ...
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