Principle of Macroeconomics, Summer B 2017 Exam one

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1 Principle of Macroeconomics, Summer B 2017 Exam one Name: (Please write your answer in the last page) Pather ID: 1) When goods and services are produced at the lowest possible cost, occurs. A) allocative efficiency B) productive efficiency C) equity D) efficient central planning 2) Human capital refers to A) the money people have. B) the machines workers have to work with. C) the accumulated skills and training workers have. D) the wealth people have. 3) The production points on a production possibilities frontier are the points along and inside the production possibilities frontier. A) attainable B) unattainable C) productively efficient D) allocatively efficient 4) Over the past several decades there has been rapid growth in international trade. This growth has been due to all but one of the following factors. Which factor has not contributed to the growth of international trade? A) the spread of reliable communications B) a change in the tariffs charged on many goods C) a reduction in shipping costs D) favorable changes in government policies 5, If Brazil has a comparative advantage relative to Cuba in the production of sugar cane, then A) the average cost of production for sugar cane is lower in Brazil than in Cuba. B) the implicit costs of production for sugar cane are lower in Brazil than in Cuba. C) the opportunity cost of production for sugar cane is lower in Brazil than in Cuba. D) the explicit cost of production for sugar cane is lower in Brazil than in Cuba. 6, International trade A) harms consumers but helps exporting firms. B) helps consumers but harms exporting firms and their workers. C) helps consumers but hurts firms that are less efficient than their foreign competitors. D) helps consumers and firms that compete with their foreign competitors. 7) In the circular flow model, households A) sell goods and services in the input market. 1

2 B) and firms spend earnings from resource sales on goods and services in the factor market. C) hire resources sold by firms in the factor market. D) spend earnings from resource sales on goods and services in the product market. 8) Economic growth is represented on a production possibilities frontier model by the production possibilities frontier A) shifting outward. B) shifting inward. C) becoming steeper. D) becoming flatter. 9) The recession of would most likely be represented in a production possibilities frontier graph by A) a point inside the frontier. B) a point outside the frontier. C) a point on the frontier. D) an intercept on either the vertical or the horizontal axis. The following table shows the output per week of two people, Minnie and Mickey. They can either devote their time to making hats or making shoes. Table 1 Minnie Mickey Hats Shoes ) Refer to Table 1. Which of the following statements is true? A) Mickey has an absolute advantage in making both products. B) Minnie has an absolute advantage in making both products. C) Minnie has an absolute advantage in making hats and Mickey in making shoes. D) Minnie has an absolute advantage in making shoes and Mickey in making hats. 11) Refer to Table 1. What is Minnie's opportunity cost of making a hat? A) 1/5 of a shoe B) 1/4 of a shoe C) 4 shoes D) 10 shoes 12) Refer to Table 1. Which of the following statements is true? A) Minnie has a comparative advantage in making both products. B) Mickey has a comparative advantage in making both products. C) Minnie has a comparative advantage in making hats and Mickey in making shoes. D) Mickey has a comparative advantage in making hats and Minnie in making shoes. 13) The phrase "demand has increased" means that A) a demand curve has shifted to the left. B) there has been an upward movement along a demand curve. C) there has been a downward movement along a demand curve. D) a demand curve has shifted to the right. 2

3 14) If in the market for bananas the supply curve has shifted to the right, then A) the supply of bananas increased. B) the quantity of bananas supplied has increased. C) the supply of bananas has decreases. D) the quantity of bananas supplied has decreased. 15) Farmers can plant either corn or soybeans in their fields. Which of the following would cause the supply of soybeans to increase? A) an increase in the price of soybeans B) a decrease in the price of corn C) an increase in the demand for corn D) an increase in the price of soybean seeds Figure 1 16) Refer to Figure 1. If the price is $25, A) there is a surplus of 300 units. B) there is a shortage of 300 units. C) there is a surplus of 200 units. D) there is a shortage of 200 units. Figure 2 17) Refer to Figure 2. The graph in this figure illustrates an initial competitive equilibrium in the market for motorcycles at the intersection of D1 and S1 (point A). If the price of motorcycle engines increases, and the wages of motorcycle workers increase, how will the 3

4 equilibrium point change? A) The equilibrium point will move from A to E. B) The equilibrium point will move from A to B. C) The equilibrium point will move from A to C. D) The equilibrium will first move from A to B, then return to A. Table 2 Product Quantity Price Sweatshirts 50 $35.00 Dental examinations 40 $75.00 Coffee drinks 1,000 $4.00 Coffee beans 2,000 $ ) Refer to Table 2. Suppose that a simple economy produces only four goods and services: sweatshirts, dental examinations, coffee drinks, and coffee beans. Assume all of the coffee beans are used in the production of the coffee drinks. Using the information in the above table, nominal GDP for this simple economy equals A) 3,090 units. B) $7,250. C) $8,750. D) $9,750. Table 3 Consumption expenditures $ 400 Investment expenditures $ 800 Government spending $ 400 Government transfer payments $ 400 Exports $ 200 Imports $ ) Refer to Table 3. Consider the data above (in billions of dollars) for an economy: Gross domestic product (in billions of dollars) for this economy equals A) $2,300. B) $2,200. C) $1,700. D) $1,500. Table 4 Year Guns Produced Price of Guns Butter Produced Price of Butter $5 40 $ ) Refer to Table 4. Consider the above data for Tyrovia, a country that produces only two products: guns and butter. Real GDP for Tyrovia for 2016 using 2007 as the base year equals 4

5 A) $1,140. B) $880. C) $690. D)$560 21) Refer to Table 4. Nominal GDP for Tyrovia in 2016 equals A) $1,140. B) $880. C) $690. D) $560. Table 5 Total population 20,000 Working-age population 15,000 Employment 1,000 Unemployment ) Refer to Table 5. Consider the data above for a simple economy. The unemployment rate for this simple economy equals A) (100/1,000) 100. B) (100/1,100) 100. C) (100/15,000) 100. D) (100/20,000) ) Refer to Table 5. The labor force participation rate for this simple economy equals A) (1,000/1,100) 100. B) (1,000/15,000) 100. C) (1,100/15,000) 100. D) (1,100/20,000) ) Assume the average annual CPI values for 2015 and 2016 were and 215.3, respectively. What was the percent increase in the CPI between these two years? A) 0.96 B) 1.04 C) 3.86 D) ) The advice to "keep searching, there are plenty of jobs around here for which you are qualified," would be most appropriate for which of the following types of unemployment? A) frictional unemployment B) structural unemployment C) cyclical unemployment D) seasonal unemployment 26) If we want to use a measure of inflation that foreshadows price changes before they affect prices at the retail level, we would base our measure of inflation on A) the household price index. B) the consumer price index. C) the GDP deflator. D) the producer price index 27) During the Great Depression, cyclical unemployment increased as the recession continued. This increase in cyclical unemployment A) increased the natural rate of unemployment. B) decreased the natural rate of unemployment. 5

6 C) had no effect on the natural rate of unemployment. D) could have increased or decreased the natural rate of unemployment. 28) Unemployment arising from a persistent mismatch between the skills and characteristics of workers and the requirements of jobs is called A) frictional unemployment. B) structural unemployment. C) cyclical unemployment. D) seasonal unemployment. 29) Sarah is a full-time student who is not looking for work. What kind of unemployment is Sarah experiencing? A) cyclical B) structural C) frictional D) Sarah is not experiencing unemployment of any kind, because she is not currently part of the labor force. 30) A tariff A) makes domestic consumers better off. B) makes both domestic producers and consumers better off. C) makes everyone worse off. D) makes domestic producers better off. 6

7 Exam one answer sheet Name: Pather ID: Bonus part: (Two points) Please briefly discuss the benefits and costs of free trade. 7