Review Questions Exam 1 Spring 2011-1

Review Questions Exam 1 Spring 2011-1 - Economics 2203...

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Economics 2203 Macroeconomics Frank and Bernanke Fourth Edition Spring 2011 Review Questions for Exam #1 (Chapters 1, 4-7) Important Notes : 1. Bring a Scantron (smaller green one). 2. Bring a calculator. Phones will have to be turned off so you many not use your phone as a calculator. Chapter 1 – Thinking Like an Economist Required analytical skills Given the appropriate data you should be able to: 1. Determine the opportunity cost of a given economic activity. 2. Use the cost benefit principle to make an optimal choice. Specific Questions 1. The terms scarcity and shortage are often misused. Distinguish between scarcity and shortage. In a market economy what is the best indicator of how scarce a good is? a. Scarcity-Insufficiency or rarity. b. Shortage-A deficiency in quantity. c. The price will rise as a product becomes more scarce. 2. What is the difference between economic cost and accounting cost? Which one should be used for decision making? a. Economic Cost-Implicit and Explicit cost b. Accounting Cost-Explicit cost c. Economic cost should be used for decision making. 3. Suppose you have a part-time job that pays $10/hr. You can work as many hours a week as you desire up to 40 hours. Attending your Econ 2203 class takes a total of 1.5 hours (time in class plus travel). What is the economic cost of your attendance? (ignore income tax) Under what conditions would it be rational for you to skip class? (hint: use the cost-benefit principle) Answer: $15 4. Suppose you are an attorney who earns $500 for each billable hour. In a typical week you generate 60 billable hours. You decide to take an Alaskan cruise which will require you to miss two weeks. You must write a check of $6,000 to pay for the cruise. What is the implicit cost of the cruise? What is the opportunity cost of the cruise? What is the total economic cost of the cruise? Answers: $60,000; $66,000; $66,000 Chapter 4 – Spending, Income, and GDP 1
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Required analytical skills Given the appropriate data you should be able to: 1. Calculate GDP using three methods: a. Market value of final goods and services. b. Expenditure c. Income. 2. Calculate nominal and real GDP for any base year you choose. 3. Calculate value added. Specific Questions 1. What are the three macroeconomic goals? Briefly explain what is meant by each. a. Full Employment i. At a given point in time we want to be using all available resources at the maximum rate. b. Stable Prices i. As the average price level we don’t want it rising or fall rapidly. c. Sustained Economic Growth i. The output of the economy is continually increasing. Measure by GDP. 2. Define GDP. Explain the four most important words/phrases in the definition, market value , final goods , country , and given period . a.
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Review Questions Exam 1 Spring 2011-1 - Economics 2203...

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