ECON 1000 (Fall 2016 Section 03) Exam #2B

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1 ECON 1 (Fall 216 Section 3) Exam #2B Multiple Choice Questions: (3 points each) 1. I am taking of the exam. B. Version B 2. In most markets Total Social Surplus is equal to A. Total Expenditures Paid by Buyers minus Total Revenues Received by Sellers. B. Total Expenditures Paid by Buyers plus Total Revenues Received by Sellers. C. Total Consumers Surplus minus Total Producers Surplus. D. Total Consumers Surplus plus Total Producers Surplus. 3. In 215, Real Per Capita GDP in the United States was the value of Real Per Capita GDP in the United States in A times larger than B times larger than C. 8.3 times larger than D. 1.2 times larger than 4. The Great Misery refers to the period of time when A. abnormally high inflation rates were realized in the early 195s through the early 196s. B. the sum of the unemployment rate and inflation rate was 12.5 or higher for 116 consecutive months from November 1973 through June C. Bill Clinton was President, when the value of the Dow Jones Industrial Average decreased in value by 76.4% over an eight year period. D. Barack Obama was initially President, when the unemployment rate was above 25% for 19 consecutive months from February 29 through August Qihong was born in China. Throughout his entire life he has excelled academically. After earning a Master s degree from the China University of Mining and Technology in Beijing, he came to the United States to pursue a PhD. Upon completion of his PhD he was hired by a prestigious research university in Oklahoma, where he works to this day. This story provides an illustration of the A. brain drain. B. vicious cycle of poverty. C. open-ended fallacy. D. catch-up effect. 6. provides a measure of the total value of all final goods/services produced within an economy in a given period of time, with all goods/services valued according to current period prices, whereas provides a measure of the total value of all final goods/services produced within an economy in a given period of time, with all goods/services valued according to a single set of common, constant prices. A. Nominal GDP; Real GDP. B. Real GDP; Nominal GDP. C. Surplus GDP; Deadweight GDP. D. LDC GDP; IAC GDP.

2 7. Consider an outcome for which Amy loses $4, Butch gains $2, and Candice gains $1. Based upon this information, it appears as if this is a environment. A. absolute-sum B. positive-sum C. zero-sum D. negative-sum 8. Consider two countries that each have a Per Capita GDP of $1, in 216. Country A realizes a constant 4% increase of Per Capita GDP per year, while Country B realizes a constant 8% increase of Per Capita GDP per year. Given these rates of increase, in 252 (i.e., 36 years in the future), Per Capita GDP in Country B will be Per Capita GDP in Country A. A. 2 times greater than B. 4 times greater than C. 8 times greater than D. 32 times greater than 9. Market Failure is defined as a situation in which A. voluntary trade makes both buyers and sellers worse off. B. the sum of gains and losses over all people in society is positive in value. C. a seller has substantial control over the price of the good that she sells. D. the free market outcome is inefficient, in that there is a positive Deadweight Loss at the free market level of trade. 1. The vicious-cycle-of-poverty A. is apparently true, since every country that was poor a century ago is still poor today. B. conjectures that poor countries will remain poor since they do not have sufficient resources available to make the investments in capital which are necessary for economic growth. C. suggests that countries with high levels of corruption can more easily realize economic growth. D. has no merit whatsoever, since even poor societies typically have an overabundance of financial capital and natural resources. For questions 11 and 12, consider a society with an adult population categorized as follows: Type A Type B Type C Type D Do you currently have a job? Yes Yes No No Are you currently seeking a job? No Yes Yes No Number of People of this type 1,44, 36, 2, 4, 11. There are people in the labor force of this society. A. 2,4, B. 2,, C. 1,8, D. 1,5, 12. This society s Unemployment Rate is. A. 1% B. 2% C. 25% D. 28%

3 13. Ilan Moschidae owns Nikola Motors, a company that produces electric cars. He has exploited his political connections in order to get legislators in his state to give Nikola Motors an interest free loan to build a new factory. This appears to be an example of A. crony capitalism. B. the vicious-cycle-of-poverty. C. hyperinflation. D. the open-ended fallacy. 14. Around the time of the Cuban Revolution in 1953, Real Per Capita GDP in Puerto Rico and Cuba were roughly equal to each other (standing at about $2,). By 28, Real Per Capita GDP was in Cuba and in Puerto Rico. A. $32,745; $66,612. B. $27,281; $26,984. C. $8,985; $774. D. $3,746; $15,74. For Questions 15 and 16, consider a society facing the tradeoffs between Consumption Goods and Capital Goods which are illustrated by the Production Possibilities Frontiers below. The curve labeled 1998 PPF illustrates the PPF of this society in In 1998 this society chose Point A on this curve. As a result, by 216 the society faced the PPF labeled 216 PPF A. If they had instead chosen Point C in 1998, then they would have realized 216 PPF C by 216. Capital Goods 216 PPF C 216 PPF A 1998 PPF C B Consumption Goods 15. The outward shift of the PPF (from 1998 PPF to 216 PPF A ) which occurred between 1998 and 216 directly illustrates A. economic growth. B. deadweight loss. C. a trade surplus. D. a trade deficit. 16. If this society had instead chosen Point B in 1998, then the relevant PPF in 216 would likely lie somewhere in the graph above. A. below the curve labeled 1998 PPF (i.e., closer to the origin) B. between the curves labeled 1998 PPF and 216 PPF A C. between the curves labeled 216 PPF A and 216 PPF C D. beyond the curve labeled 216 PPF C (i.e., even further from the origin) A

4 17. Focusing on GDP Growth Rates between 197 and 214, grew at an average rate of 9.29% per year over this entire 45 year period. A. Japan B. China C. The United States D. The European Union 18. In Country X the current Unemployment Rate is 12% and the current annual Inflation Rate is 4%. It follows that the current value of the Misery Index is. A. 12 x 4 = 48 B = 16 C = 8 D. 12/4 = Government Spending as a Percentage of GDP in the United States is projected to A. remain at roughly 4% for the next several years. B. increase to roughly 65% by 22. C. increase to 5% by 218 and then decrease to 3% by 22. D. decrease to less than 25% by Which of the following scenarios illustrates the Free Rider Problem? A. Charles lives in a town with a public library that is funded entirely by voluntary contributions. Charles regularly takes his kids to the library to check out books, even though nobody from his household ever volunteers time or gives money to the library. B. Amy manages the only gas station in a rural town. In order to maximize her profit, she charges a price above her marginal costs of production. C. Michael grew up in Mexico. After earning a medical degree at a prestigious school in Chicago he decided to practice medicine in the U.S. instead of moving back to Mexico. D. At the risk of potentially alienating some of his firm s customers with different political views, John Mackey (Co-Founder and Co-CEO of Whole Foods Market) endorsed Gary Johnson for President. For questions 21 and 22, consider a country with consumption expenditures, private investment expenditures, government purchases, and net exports as summarized in the table below (each measured in billions of Euros): Consumption Expenditures Investment Expenditures Government Purchases Net Exports Given that Net Exports are 18, which of the following are possible values for Exports and Imports? A. Exports of 12 and Imports of 6. B. Exports of 68 and Imports of 5. C. Exports of 82 and Imports of 1. D. More than one (perhaps all) of the above answers is correct. 22. For this country, Gross Domestic Product is equal to A. 712 billion. B. 894 billion. C. 912 billion. D. 93 billion.

5 23. A good is Non-Excludable if A. consumption by one person does not diminish the quantity/quality of consumption by others. B. consumption by one person does diminish the quantity/quality of consumption by others. C. it is difficult (or very costly) to prevent consumption by those who do not pay for the good. D. it is easy (or relatively costless) to prevent consumption by those who do not pay for the good. 24. Per Capita GDP in the United States is approximately $56,3. This value is the corresponding level of Per Capita GDP in the European Union as a whole, which is approximately. A. about 9.8% less than; $62,45. B. roughly equal to; $54,975. C. about 48.9% greater than; $37,8. D. about 18.9% greater than (i.e., more than double); $26,95. For questions 25 and 26 refer to the graph below, which illustrates Marginal Benefits and Marginal Costs for society when varying percentages of the population have access to Good Y. Under current, existing government policies and market conditions, 79% of the population has access to this good. $ MB Marginal Costs (MC) MC Marginal Benefits (MB) % of Population with Access At the current outcome (i.e., when 79% of the population has access to the good) A. Deadweight Loss is positive due to too much consumption. B. Deadweight Loss is positive due to too little consumption. C. Deadweight Loss is negative due to too little consumption. D. Deadweight Loss is zero, since the efficient level of consumption is realized. 26. David is running for Congress. A central theme of his campaign is that we need universal access to Good Y (i.e., we should strive for 1% of the population being able to consume the good). He justifies this position by correctly noting that Total Benefits always increase when more people have access to the good. David s position provides an illustration of A. deflation. B. capital flight. C. a zero-sum outcome. D. the open-ended fallacy.

6 27. As depicted in the Expanded Circular Flow Diagram, government collects taxes from A. only itself. B. both foreign households and foreign firms (but not from any domestic sources). C. both domestic households and domestic firms (but not from any foreign sources). D. None of the above answers are correct (since the Expanded Circular Flow Diagram does not provide an illustration of the role of government in the economy). 28. Jane is a citizen of England, but lives, works, and attends school in the United States. Last year she went on vacation to Mexico during Spring Break. In order to pay for her college tuition, she works part time at a dance studio in Acworth. Last year she provided dance instruction services valued at $14,25. The value of these services would be included in the calculation of GDP for A. England (since she is a citizen of England). B. Mexico (since that is where she went to relax on vacation, which was a necessary activity for her to be able to work hard in school and on the job throughout the rest of the year). C. the United States (since that is where the production took place). D. England, Mexico, and the United States (since she has an economic tie to each of the three countries). 29. The Catch-up effect conjectures that, all other factors fixed, A. the only way for firms in high tech industries to catch-up to their competitors is to invest large amounts of resources in research and development. B. the growth rates of less developed countries will exceed growth rates of developed countries, so that the gap in GDP between less developed and developed countries will decrease over time. C. a win-win outcome can possibly be realized in a positive-sum environment (but can never be realized in a zero-sum environment or negative-sum environment). D. the global economy is rigged against new entrants, in that there is no way for poor countries to catch-up with rich countries. For question 3 refer to the graph below, which illustrates Supply and Demand for Corn in 216. price Supply a 5.15 b e h c f g Demand 216 d quantity 4,5 11,25 15,75 3. At the market equilibrium, Total Consumers Surplus is equal to, Total Producers Surplus is equal to, and Deadweight Loss is equal to. A. areas (a)+(b) ; area (c) ; areas (e)+(f) B. areas (a)+(b)+(e) ; areas (c)+(f) ; zero C. areas (a)+(b)+(c)+(e)+(f) ; areas (d)+(g) ; zero D. areas (a)+(b)+(c)+(e)+(f) ; areas (d)+(g) ; area (h)

7 31. Focusing on the Unemployment Rate in the United States (reported on a monthly basis) since January 1948, the longest stretch of time for which the realized rate was 8% or higher was A. the 12 month period from March 1957 through February B. the 94 month period from July 1989 through April C. the 43 month period from February 29 through August 212. D. None of the above answers are correct (since the Unemployment Rate has never reached 8% in any single month since January 1948). For Questions 32 and 33, consider a monopolist facing Demand and with Marginal Costs and Marginal Revenue as illustrated below. $ a b Marginal Costs of Production c d e f 8.5 g 5. h Demand quantity Marginal Revenue 2,5 4,13 4, To maximize profit, this firm should charge a price of and sell units. A. $28.6; 4,98. B. $19.1; 2,5. C. $13.75; 4,13. D. $8.5; 2, When this monopolist sets the price and sells the quantity which maximizes her profit, Deadweight Loss is equal to. A. area (g) B. areas (a)+(b)+(c)+(d)+(e). C. areas (e)+(f). D. areas (e)+(f)+(g)+(h).

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