Multiple Choice Questions (3 points each) Please answer the questions on the green scantron.

Transcription

1 ECON , Fall 2006 EXAM #1 Multiple Choice Questions (3 points each) Please answer the questions on the green scantron. 1) Which of the following would NOT lead to a shift in demand curve for spinach: A) A newly discovered increase in the nutritional value of spinach. B) An increase in the price of broccoli, a substitute for spinach. C) Disastrous weather that destroys about half of this year s spinach crop. D) A newly discovered increase in the nutritional value of spinach. 2) During the Depression, at its worst the unemployment rate was approximately percent of the labor force. A) 50 B) 40 C) 25 D) 15 3) Over last 40 years, women labor force participation has while men s labor force participation has. A) increased; increased; B) increased; decreased; C) decreased; increased; D) decreased; decreased 4) CPI means: A) the average price levels among all goods cross different time periods. B) the cost of maintaining the same utility level across different time periods. C) the total amount of money spent by a typical family. D) the average price levels among all new goods. 5) During 60 s and 70 s, real average wage has while during 90 s real average wage has. A) increased; stayed roughly the same; B) increased; increased; C) stayed roughly the same; increased; D) stayed roughly the same; stayed roughly the same;

2 6) During the winter, the average price of natural gas typically goes up while total consumption of natural gas also goes up. Therefore, we observe a higher natural gas price is associated with a higher level of consumption. This means: A) the demand curve for natural gas is positively sloped; B) a shift in demand curve to the right; C) a shift in supply curve to the right; D) a shift in both supply and demand curve to the right. 7) Regarding the budget deficit and trade deficit: A) trade deficit > budget deficit B) budget deficit > trade deficit C) a higher trade deficit is associated with a lower budget set D) a higher trade deficit is associated with a higher budget deficit. Answer: D 8) In comparing economic growth today versus growth in the 1960s, which of the following is TRUE? I. Economic growth in the 1960s averaged about 4.4 percent a year. II. Economic growth in the 1990s has averaged about 5 percent per year. III. Economic growth slowdown occurred in the 1970s. A) I only. B) I and II. C) I and III. D) I, II and III. 9) Which of the following changes does NOT shift the short-run aggregate supply curve? A) an increase in the price level. B) an increase in technology. C) an increase in the quantity of capital. D) an increase in the money wage rate. Answer: A 10) The intertemporal substitution effect refers to substitution of A) goods for services. B) goods and services for less expensive goods and services. C) goods and services today for goods and services in the future. D) goods and services today for goods and services in past. 11) Which of the following would NOT shift the U.S. aggregate demand curve? A) a change in income in Canada. B) the quantity of capital in the United States. C) an expectation that inflation will be lower in the future. D) U.S. monetary and fiscal policy.

3 12) When the dollar depreciates, then the A) AD curve shifts rightward. B) AD curve shifts leftward. C) LAS curve shifts rightward. D) LAS curve shifts leftward. Answer: A 13) In a graph that depicts the amount of ice cream demanded as a function of ice cream prices, the following variables are endogenous variables: A) the temperature that may affect demand of ice cream. B) the price and amount of ice cream C) the amount of cold drinks and the price of code drinks D) the amount of ice cream that may be produced at a certain price. 14) which of the following always reduce equilibrium quantity: A) an increase in both demand and supply. B) a decrease in both demand and supply C) an increase in demand and a decrease in supply D) a decrease in demand and an increase in supply 15) Which of the following groups has the lowest unemployment rate? A) White teenagers. B) Black teenagers. C) College graduates, 40 years of age. D) High school graduates, 40 years of age. 16) If the price of a hot dog is $2 and the price of a hamburger is $4, A) the relative price of a hot dog is 1/2 of a hamburger. B) the money price of a hot dog is 2 hamburgers. C) the relative price of a hamburger is 1/2 of a hot dog. D) the money price of a hamburger is 2 hot dogs. Answer: A

4 Price (dollars per cellular phone) Quantity demanded (thousands ) Quantity supplied (thousands) ) Using the data in the above table, the equilibrium quantity and equilibrium price for a cellular telephone is A) 50 thousand and $100. B) 80 thousand and $80. C) 60 thousand and $50. D) 40 thousand and $20. 18) Using the data in the above table, at the price of $80 a phone, a A) shortage of 25 thousand cellular telephones occurs. B) surplus of 80 thousand cellular telephones occurs. C) surplus of 25 thousand cellular telephones occurs. D) shortage of 55 thousand cellular telephones occurs. 19) One difference between Keyesian economists and classical economists is: A) Keyesian economists are democrats while classical economists are replublicans.. B) Keyesian economists believe people are irrational while classical economists believe people are rational. C) Keyesian economists think government has an important role in economies while classical economists are not so sure. D) Keyesian economists think prices are flexible in the short while classical economists think price are sticky in the short run.

5 Quantity of beans (bushels) Quantity of carrots (bushels) ) In the table above, what is the marginal cost associated with moving from 2 bushels to 3 bushels of beans? A) 9 bushels of carrots B) 12 bushels of carrots C) 3 bushels of carrots D) 21 bushels of carrots 21) In the table above, what is the marginal cost from 5 bushels of carrots to 6 bushels of carrots? A) 1 bushels of beans. B) 4 bushels of beans. C) 1/3 bushels of beans. D) ¼ bushels of beans. Answer D 22) Missouri can produce 10,000 tons of pecans per year or 5,000 tons of pears per year. Washington can produce 12,000 tons of pecans per year or 48,000 tons of pears per year. Which of the following statements is true? A) Washington has an absolute advantage in the production of both pecans and pears. B) Washington has a comparative advantage in the production of both pecans and pears. C) Washington has a comparative advantage in producing pecans and Missouri has a comparative advantage in producing pears. D) Both answers A and C are correct. Answer: A

6 23) In the figure above, an economy would grow the slowest if it located at point A) A. B) B. C) C. D) D. Answer: D 24) In the above figure, in order for this country to move from production possibilities frontier PPF 1 to PPF 2, it might A) increase the skills and productivity of its work force. B) put all unemployed resources to work producing desired output. C) engage in exchange with other nations. D) increase the average level of prices for all goods produced and consumed. Answer: A 25) The Nobel Laureate this year, Edmund Phillips, is an economist whose mainly work is: A) On stock market. B) On international trade C) On international finance D) On aggregate labor market Answer: D

7 Essay Questions: 1. (10 points) The Market for Wapanzo Beans Quantity Demanded (millions of pounds per year) Case Case Case Price (dollars per pound) Quantity Supplied (millions of pounds per year) Case A Case B Case C $ $ $ $ $ Refer to the table above. Suppose that in normal years demand is represented by Case 2 and supply is represented by Case B. a) (4 points) In a normal year, what are the equilibrium price and quantity of wapanzo? b) (3 points) If there is a drought in the wapanzo bean growing region, what are the equilibrium price and quantity? c) (3 points) If it is discovered that wapanzo beans help prevent cancer then, what are the equilibrium price and quantity? Solutions: a) Equilibrium price = $3, quantity = 6 million pounds b) Supply curve is now in Case A. Equilibrium price = $4, quantity = 4 million pounds c) Demand curve now is in Case 1. Equilibrium price = $4, quantity = 8 million pounds

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9 2. (15 points) In 2004, consumers in a small island consumed only wine and oranges. The prices and quantities for 2004 and 2005 are listed in the table below. The reference base period for the island s CPI is a) What is the cost of the CPI basket in 2004? b) What is the inflation in 2005? c) Argue if and why the inflation you calculate from b) is biased. You may assume that at the margin, one is willing to substitute 1 apple for two oranges if that helps your analysis. (Note: this is a difficult question) Item Quantity Price Quantity Price Apples 10 $2 12 $1.8 Oranges 20 $1 16 $1.5 Solutions: a) $2 * 10 + $1 * 20 = $40 b) $1.8 * 10 + $1.5 * 20 = $48, so inflation is 20%. c) the actual amount of money spent in 2005 is: $1.8 * 12 + $1.5 * 16 = $45.6. Since at the margin, one apple is equivalent to 2 oranges, the person has given up 4 oranges for 2 apples in Therefore, his utility in 2005 is the same as his utility in However, he only needs to spend $45.6 in The CPI calculated in b) overestimate CPI.

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