Economics 102 Name:
.
Professor
Kelly ID
#: .
Midterm # 1 Discussion
Section #:
.
March 6, 2000 TA
Name: .
Version 1
DO
NOT BEGIN WORKING
UNTIL
THE INSTRUCTOR TELLS YOU TO DO SO.
READ
THESE INSTRUCTIONS FIRST
You have 90
minutes to complete the exam, which consists of 28 multiple choice questions.
All questions are worth 3.5 points each for a total of 98 points. If you write your name, ID#, Section #, and
version number on the scantron sheet, you will get an extra 2 points. The whole exam is worth 100 points.
Please answer all questions on the scantron
sheet with a #2 pencil. Be sure to fill in the coding sheet carefully
and accurately.
How to fill in the coding sheet
:
1. Print your last
name, first name and middle initial in the spaces marked
“Last Name”, “First Name”, and “MI”. Fill in the corresponding bubbles below.
2. Print your student
ID number in the spaces marked “Identification Number”. Fill in the
bubbles.
3. Write your discussion section number under “Special Codes” spaces ABC, and fill in the bubbles.
4. Under “Special Codes” spaces D, fill in the bubble corresponding to
the “version number” at the
top of this page.
Discussion sections are as follows :
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Andrei
Shinkevich |
326 2:25 W |
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Camilo
Tovar |
321 9:55 W |
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Jaeho
Cheung |
322 11:00 W |
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327 3:30 W |
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323 9:55 F |
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324 12:05 W |
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329 11:00 F |
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325 1:20 W |
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331 11:00 R |
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332 12:05 F |
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328 8:50 R |
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334 12:05 R |
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335 1:20 R |
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330 9:55 R |
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If you have
any questions during the exam, please remain seated and raise your hand.
When you are
finished, please get up quietly and bring your code sheet and this exam booklet
to the place indicated by the instructors.
Think carefully before you answer any
questions. There are no intentional “tricks”; nor are all of the answers
intended to be obvious. Good luck!
******
VERSION #1 ******
Please
answer all questions on the scantron sheet with a #2 pencil. Be sure to fill in the coding sheet
carefully and accurately.
1. Which of the following statements is TRUE?
a)
An
efficiently operating labor market can eliminate frictional unemployment.
b)
An
effective price floor is one where the price is set at a level that is greater
than the equilibrium price.
c)
An
increase in income will increase the quantity demanded of a good.
d)
The
CPI is an accurate measure of inflation from a consumer’s point of view.
e)
b),
c), and d) are TRUE.
2. The difference between microeconomics and
macroeconomics is that:
a)
Microeconomics
studies businesses while macroeconomics studies people.
b)
Microeconomics
studies the performance of the private sector, while macroeconomics studies the
performance of the government.
c)
Microeconomics
studies what is happening in the economy now while macroeconomics studies what
happened in the past.
d)
Microeconomics
studies individual decision-makers while macroeconomics studies the economy’s
overall performance.
e)
Microeconomics
studies the behavior of small businesses while macroeconomics studies the
behavior of large corporations.
3. Suppose OPEC (Organization for Petroleum Exporting Countries) is successful in getting its members to agree to restrict their production of Petroleum products. Simultaneously, the northern part of the U.S. experiences unusually severe winter weather. Given this information we know (positively)
a)
that
the U.S. should use some of its strategic oil reserves to help low income
people in the Northeast.
b)
that
the equilibrium price and quantity in the oil market will increase.
c)
that
the equilibrium price will increase while the equilibrium quantity in the oil
market will decrease.
d)
that
the equilibrium price will increase while the equilibrium quantity in the oil
market will remain the same.
e)
that
none of the above are ALWAYS true.
Use the following information to answer the next
two questions: Suppose that there are only 10 people living on a small
island. The following people live
there.
(1) Adam
teaches preschool. He has a wife, Beth, and two sons, David and Eric.
(2) Beth
is Adam’s wife, and she does not have a job because she is very busy taking
care of two wild boys.
(3) David
is 4 years old, and he thinks he is so cute.
(4) Eric
is 2 years old, and he does not like his brother.
(5) Frank
is Adam’s brother. He was looking for a job in 1996, but he failed to find one,
so he gave up looking for work years ago. Now (3/6/2000) he lives with his
kind(?) brother.
(6) George
left his current job 2 weeks ago to move to a new job. He will begin work at
the new job next month.
(7) Harry
is a swimming instructor. It is the only skill he has. Now it is winter and he
is unemployed, because there is no indoor swimming pool on this island. He is
sure to get a job as a swimming instructor next summer.
(8) Jenny
is 23 years old. When she was 21 years old, she won the lottery, so she has
enough money for her entire life. She does not have a job and will never look
for one.
(9) Kyle
was fired from his job last month because his company bought new equipment that
could do Kyle’s job in less time. He is looking for a job.
(10) Lois
is a steelworker. She was laid off 3
month ago, because the economy is sluggish and orders for new cars are below
their usual level. She is looking for a job.
4. Which
of the following statements is TRUE?
a)
Adam
is in the Labor Force, and Beth is Not in the Labor Force.
b)
David
and Eric will be included in the government’s calculations when the government
measures the unemployment rate.
c)
Frank
is cyclically unemployed, and George is frictionally unemployed.
d)
Harry
is seasonally unemployed, and Jenny is a discouraged worker.
e)
Kyle
is frictionally unemployed, and Lois is structurally unemployed.
5. What is
the unemployment rate today (3/6/2000) on this small island?
a)
100%
b)
80%
c)
75%
d)
60%
e)
50%
Consider a simple economy in which only three
items are in the Consumer Price Index (CPI): Food, Cars, and Guns. Listed below
are the quantities and prices of these items consumed in two different years,
1995 and 1996.
|
|
1995 |
1996 |
||
|
|
Quantity |
Price/unit |
Quantity |
Price/unit |
|
Food |
10 |
$4 |
10 |
$5 |
|
Cars |
5 |
10 |
5 |
12 |
|
Guns |
2 |
5 |
6 |
10 |
6. Suppose that the base year is 1995. What is the rate of inflation from 1995 to 1996?
a)
20%
b)
30%
c)
100%
d)
120%
e)
130%
7. Suppose Bill borrows $2000 from Jane for a year at a 25% annual interest rate. Which of the following is TRUE?
a)
Bill
will pay Jane back $2250.
b)
The
nominal interest rate is always less than 25%.
c)
Regardless
of the inflation rate, the real interest rate Bill will pay is 25%.
d) If
Bill anticipates inflation will be 20%, then he expects to pay a nominal
interest rate of 45%.
e)
If
Jane thinks inflation will be 10%, then she expects to receive a real interest
rate of 15%.
8. Fun Time Toys produced $60 million worth of
toys in 1999. Because Christmas
shopping was slow, only $50 million worth was sold to consumers, and the
remaining $10 million worth of toys went into inventories. Based on this information, how was GDP
affected in 1999?
a)
$60
million was added to GDP; $50 million was classified as consumption spending
and $10 million was classified as private investment.
b)
$60
million was added to GDP; all $60 million was classified as consumption
spending.
c)
$50
million was added to GDP; all $50 million was classified as consumption
spending.
d)
$40
million was added to GDP; $50 million was classified as consumption spending
and -$10 million was classified as
private investment.
e)
$40
million was added to GDP; all $40 million was classified as consumption
spending.
Use
the following information to answer the next two questions (9 & 10):
Australia
and New Zealand can produce either steel or coal. The maximum production for
each good and the time periods for that production are given in the table.
Assume that a country produces a constant amount of any good per unit of time,
and assume that opportunity costs for either of these countries are constant.
|
|
Australia |
New
Zealand |
|
Steel
(tons) |
20
per year |
1/3
per month |
|
Coal
(tons) |
5/6
per month |
4/3
per two month period |
9. Which of the following statements is TRUE?
a)
Australia
should import coal.
b)
Australia
can benefit from trading with New Zealand, while New Zealand cannot benefit
from trading with Australia.
c)
New
Zealand can benefit from trading with New Zealand, while Australia cannot
benefit from trading with New Zealand.
d)
New
Zealand has a comparative advantage in steel production.
e)
The
opportunity cost of producing one more ton of steel in New Zealand is four tons
of coal.
10. Which of the following statements is TRUE?
I.
The
slope of the PPF of Australia is - 2 if steel is on the y-axis.
II.
The
slope of the PPF of New Zealand is - 2 if coal is on the y-axis.
III.
Australia
has an absolute advantage in steel production.
IV.
Australia
has an absolute advantage in coal production.
a)
Only
statement I and III are true.
b)
Only
statement II and III are true.
c)
Only
statement I and IV are true.
d)
Only
statement II and IV are true.
e)
All
statements are true.
11. The
largest component of GDP is:
a)
Tax
Revenue
b)
Government
Purchases of goods and services
c)
The
Nation’s Capital Stock
d)
Private
Investment Spending
e)
Private
Consumption Expenditure
Use the following information to answer the
next two questions (12 & 13):
Qs = P
Qd = 10 - P
12. Suppose that the government imposes an
excise tax of $1 per unit. Which of the
following statements is TRUE?
a)
With
this excise tax, the tax revenue is $5.5 with both producers and consumers
sharing equally the economic burden of the tax.
b)
With
this excise tax, the tax revenue is $5.5 with producers bearing a larger share
of the economic burden of the tax than consumers bear.
c)
With
this excise tax, the tax revenue is $5 with both producers and consumers
sharing equally the economic burden of the tax.
d)
With
this excise tax, the tax revenue is $4.5 with both producers and consumers
sharing equally the economic burden of the tax.
e)
With
this excise tax, the tax revenue is $4.5, but there is not enough information
to determine where the economic burden of the tax lies.
13. With the imposition of the tax, what is the
LOSS in consumer surplus?
a)
$
25/2 ( = $12.50)
b)
$
81/8 ( = $10.125)
c)
$
5/2 ( = $ 2.50 )
d)
$19/8 (= $ 2.375)
e)
$
9/4 (= $ 2.25 )
14. An
economy has full employment if:
a)
The
total unemployment rate is zero.
b)
The
GDP growth rate equals the unemployment rate.
c)
There
is no cyclical unemployment.
d)
There
is no frictional and no cyclical unemployment.
e) There
is no structural unemployment.
15. Which of the following is a Positive
statement?
a)
We
should lower the excise tax on diesel because the price of diesel per gallon is
too high.
b)
Imposing
taxes on gasoline is the fairest way to fund highway improvement.
c)
The
government should try to lower the rate of unemployment and inflation.
d)
The
president of U.S. is Hillary Clinton.
e)
It
is unfair that Goodyear sells all of its tires to GM.
Use
the following information to answer the next two questions (16 & 17):
Tech-Land
produces only three goods: CD, VHS, and DVD.
|
|
1988 |
1989 |
||
|
|
Quantity |
Price/unit |
Quantity |
Price/unit |
CD
|
7 |
$ 5 |
8 |
$ 5 |
|
VHS |
4 |
$10 |
7 |
$ 8 |
|
DVD |
1 |
$25 |
4 |
$16 |
16. Suppose that the base year is 1988. What is the growth rate of Nominal GDP from 1988 to 1989 in Tech-Land?
a)
60%
b)
83%
c)
110%
d)
160%
e)
210%
17. Suppose that the base year is 1989. The government announces that the growth rate of Real GDP was 20% from 1989 to 1990. Assume the population in Tech-Land is 10 in 1989 and in 1990. What is Real per capita GDP in 1990 in Tech-Land?
a)
10
b)
16.1
c)
19.2
d)
20
e)
24.5
The following statistics provide a summary of all economic activity in Montagna for 1998.
Gross Domestic Product: $ 9,000
Consumption: $ 5,000
Investment: $
500
Government Purchases: $ 2,500
Indirect (Sales) Taxes: $ 2,500
Imports:
$ 700
18. What is the level of Exports in this
economy?
a)
$
4200
b)
$
1700
c)
$
1000
d)
$ 700
e)
-$1800
19. Which of the following statements regarding Production Possibility Frontiers (PPF) is INCORRECT?
a)
A
linear PPF represents constant opportunity costs.
b)
A
PPF has a bowed-out shape because the opportunity cost of producing more units
of the good on the x axis increases as you move downward along the curve.
c)
When
an economy is producing efficiently, it is possible to increase production of
all goods simultaneously.
d)
The
points outside the PPF may be obtained through new technology.
e)
The
points inside the PPF are inefficient but feasible.
20. Consider the labor market. Suppose that both labor supply and labor
demand decreases. Then employment
__________, real wage ____________ and real output _________.
a)
either
decreases or increases (depends on the magnitudes of the shifts of labor supply
and labor demand), decreases, increases
b)
increases,
increases, decreases
c)
remains
stable, increases, decreases
d)
decreases,
either decreases or increases (depends on the magnitudes of the shifts of labor
supply and labor demand), decreases
e)
decreases,
remains stable, increases
Use
the following graph to answer the next two questions (21& 22):
Note: This is a sketch and is not drawn to scale.
21.
Suppose the government imposes a price ceiling of $200. Determine the price and quantity of goods
transacted in this market. Is there a
shortage or a surplus?
a)
$200,
200 units, shortage.
b)
$200,
350 units, surplus.
c)
$300,
350 units, shortage.
d)
$300,
350 units, surplus.
e)
$300,
200 units, shortage.
22.
Suppose the government decides to restrict the demand for this good with
an excise tax instead of the price floor.
In particular, the government considers that an excise tax that reduces
the quantity in equilibrium to 50 units will allow them to finance poverty
programs. In this market, the tax
revenue collected and the dead weight loss due to the imposition of this excise
tax is:
a)
$42,000,
$120,000
b)
$40,000,
$120,000
c)
$40,000,
$240,000
d)
$30,000,
$12,000
e)
$30,000,
$24,000
23. Which of the following statements regarding GDP is CORRECT?
a)
All
final goods produced by U.S. citizens are included in U.S. GDP.
b)
Sales
of stocks and bonds are included in GDP.
c)
All
final goods produced inside the U.S. are included in U.S. GDP.
d)
GDP
measures the volume of total sales in the U.S. within a given time period.
e)
GDP
does not include goods produced by non-American citizens.
Use
the following information to answer the next two questions (24& 25):
Suppose there is an economy that produces only four
goods in one year.
Paper: $
6,000
Books: $12,500
Ink: $ 3,000
Envelopes: $
4,000
The production of books requires the following
amount of intermediate goods;
Paper: $ 2,500
Ink: $ 1,500
The production of envelopes requires the following
amount of intermediate goods:
Paper: $ 3,000
24. Total
GDP for the economy described above equals:
a)
$32,500
b)
$28,500
c)
$25,500
d)
$18,500
e)
$16,500
25. The value of paper sold as a FINAL good is
a)
$6,000
b)
$4,500
c)
$3,000
d)
$2,500
e)
$ 500
26. Business
cycles are defined to be:
a)
Periods
of fluctuations in the unemployment rate.
b)
A
period of increased GDP.
c) The period between a trough and a peak.
d)
The
period between a peak and a trough.
e)
Short-run
fluctuations of GDP around its long-term trend line.
27. Suppose
you had the following information regarding the economy:
Year Nominal wage CPI
1991
$15.00
100
1992
$16.50
110
1993 $20.00 150
Which of the following best describes the behavior
of the Real wage rate?
a)
It
increased from 1991 to 1992 and increased further from 1992 to 1993.
b)
It
dropped from 1991 to 1992 and then increased from 1992 to 1993.
c)
It
increased from 1991 to 1992 and then dropped from 1992 to 1993.
d)
It
remained the same from 1991 to 1992 and then dropped from 1992 to 1993.
e)
It
increased from 1991 to 1992 and then remained the same from 1992 to 1993.
28. An
economy with two individuals, Ross and Rachel, produces 2 goods: fish and
water. The only resource in this
economy is time and each individual is endowed with 12 hours per day. Suppose Rachel spends 4 hours catching fish
and 8 hours collecting water. Ross on
the contrary spends 6 hours in each activity.
This distribution of time allows Rachel to catch 4 fish and collect 4
gallons of water per day, while Ross catches 3 Fish and collects 2 gallons of
water.
Which of the following statements is CORRECT?
a)
The
opportunity cost of 1 gallon of water for Rachel is ½ a fish.
b)
According
to the principle of an absolute advantage Rachel should do everything.
c)
Ross
has an absolute advantage collecting water.
d)
It
takes Rachel twice as much time as Ross to collect 1 gallon of water.
e)
The
information provided is not enough to determine who has an absolute advantage.