Which of the following would be studied in … · Which of the following would be studied in macroeconomics? ... d.the impact of a tax reduction on the ... A decrease in the price

6/30/2015 Krugman/Wells Macroeconomics 3e LaunchPad Exam One

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1. Which of the following would be studied in macroeconomics?

a. the change in automobile sales due to a change in the price of automobiles

b. recessions

c. the unemployment of workers displaced by technological change in the typesetting industry

d. the impact of a tax reduction on the profits of an individual business

2. The student center on campus has burritos, bagels, or burgers for lunch, and they all cost the same. Youdecide to have a burger today, but if they were out of burgers, you would have bought a bagel. Youropportunity cost is:

a. your enjoyment of the burrito.

b. your enjoyment of the bagel.

c. your enjoyment of the bagel and burrito.

d. your enjoyment of the burger.

3. A choice made ________ is a choice whether to do a little more or a little less of something.

a. at the front end

b. at the margin

c. ceteris paribus

d. in the beginning

4. You decide whether to eat one more slice of pizza based on how hungry you feel. This statement bestrepresents this economic concept:

a. the real cost of something is what you must give up to get it.

b. resources are scarce.

c. “How much” is a decision at the margin.

d. there are gains from trade.

5. Scarcity in economics means:

a. Shortages exist in nearly all markets.

b. There must be poor people in rich countries.

c. The wants of people are limited.

d. We do not have sufficient resources to produce all the goods and services we want.



6. A friend comes up to you and offers to give you a free ticket to the local professional team's baseballgame that night. You decide to attend the game. The game takes five hours and costs you $15 fortransportation. If you had not attended the game, you would have worked at your parttime job for $8 anhour. What is the cost to you of attending the game?

a. $55

b. $40

c. The cost is zero—the ticket is free.

d. $65

7. You can spend $100 on either a new economics textbook or a new CD player. If you choose to buy thenew economics textbook, the opportunity cost is:

a. $100.

b. both the $100 and the your enjoyment of the new CD player.

c. impossible to determine.

d. your enjoyment of the new CD player.

8. A decrease in the price of a good will result in:

a. an increase in the quantity supplied.

b. an increase in the quantity demanded.

c. an increase in supply.

d. an increase in demand.

9. Good X and good Y are substitutes. Holding all other things constant, this means that when the price ofgood X increases, the:

a. demand for good Y will decrease.

b. demands for both good X and good Y will both increase.

c. demand for good X will increase.

d. demand for good Y will increase.



10. Figure: The Market for Candy

Reference: Ref 320

(Figure: The Market for Candy) Look at the figure The Market for Candy. A surplus of the good willexist at a price of:

a. P3.

b. P1.

c. There are no surpluses in this market.

d. P2.

11.

Reference: Ref 319

(Table: Competitive Market for Good Z) Look at the table Competitive Market for Good Z. If thecurrent price of good Z is $15, there will be:

a. a shortage of 20 units.

b. excess supply of 25 units.

c. excess demand of 25 units.

d. a surplus of 45 units.



12. Suppose the demand curve for good Z is downward sloping. If the price of good Z decreases becauseof a shift in the supply of good Z, this will cause:

a. a movement along the demand curve of good Z.

b. an increase in the demand for good Z.

c. fewer people to purchase good Z.

d. no effect on the quantity demanded of good Z.

13. Suppose people expect the price of MP3 players to rise next year. As a result of this expectation,people will most likely:

a. purchase the same amount of MP3 players, since this expectation will have no effect onconsumers this year.

b. decide to wait and purchase the MP3 players next year.

c. observe higher prices for MP3 players this year.

d. purchase fewer MP3 players this year.

14. An increase in the price of sugar (an ingredient for soft drinks) and an increased concern about toothdecay caused by the consumption of soft drinks will result in which of the following in the soft drinkmarket?

a. There will be a decrease in both equilibrium price and quantity.

b. There will be an increase in both the equilibrium price and quantity.

c. Equilibrium quantity will increase, but equilibrium price may decrease, increase, or stay thesame.

d. Equilibrium quantity will decrease, but equilibrium price may decrease, increase, or stay thesame.

15. A negative relationship between the quantity demanded and price is called the law of:

a. demand.

b. increasing returns.

c. market clearing.

d. supply.

16. Which of the following examples illustrates the law of demand?

a. Oil companies drill for new sources of oil because oil prices are higher.

b. Consumers buy more personal computers because prices have fallen.

c. Fewer people play golf because incomes are lower.

d. An increase in tuition encourages more students to enroll in college because the quality ofeducation has risen.



17. Figure: Shifts in Demand and Supply II

Reference: Ref 314

(Figure: Shifts in Demand and Supply II) Look at the figure Shifts in Demand and Supply II. Thegraph shows how supply and demand might shift in response to specific events. Suppose consumerincomes decrease. Which panel best describes how this will affect the market for used clothing, aninferior good?

a. panel B

b. panel D

c. panel A

d. panel C



18. Figure: Shifts in Demand and Supply II

Reference: Ref 314

(Figure: Shifts in Demand and Supply II) Look at the figure Shifts in Demand and Supply II. Thegraph shows how supply and demand might shift in response to specific events. Suppose computermonitors' price decreases. Which panel best describes how this will affect the market for computerdesktop machines?

a. panel B

b. panel A

c. panel C

d. panel D



19. Figure: Shifts in Demand and Supply III

Reference: Ref 315

(Figure: Shifts in Demand and Supply III) Look at the figure Shifts in Demand and Supply III. Thefigure shows how supply and demand might shift in response to specific events. Suppose scientistsdiscover that eating asparagus slows down the aging process. Which panel best describes how this willaffect the market for asparagus?

a. panel C

b. panel A

c. panel D

d. panel B

20. Which of the following is an example of a black market?

a. the oil market

b. the purchase of an inferior radio at a department store

c. a tenant in a rentcontrolled apartment subletting at a higher rent

d. waiting in line during the gasoline shortages of the 1970s

21. The total amount of the good that can be transacted under a quantity control is called the

a. ceiling price.

b. quota limit.

c. demand price.

d. supply price.



22.

Reference: Ref 428

(Table: The Market for Acupuncture) Look at the table The Market for Acupuncture. In an effort toregulate this market, the town requires each acupuncture therapist to purchase a license. Initially, thegovernment issues only enough licenses to provide for 20 treatments per month. This quota creates aquota rent equal to:

a. $50.

b. $200.

c. $150.

d. $100.



23. Figure: The Shrimp Market

Reference: Ref 430

(Figure: The Shrimp Market) Look at the figure The Shrimp Market. If the government imposes aquota limiting sales of shrimp to 250 pounds, it would have the same effect as a price ________ of________.

a. The answer cannot be determined from the information provided.

b. floor; $10

c. floor; $17.50

d. floor; $7.50



24. Figure: CircularFlow Model

Reference: Ref 71

(Figure: CircularFlow Model) What is GDP in this economy?

a. $400

b. $100

c. $600

d. $500




Reference: Ref 71

(Figure: CircularFlow Model) If the circularflow model is in equilibrium (the sum of money flowinginto each box is equal to the sum of the money flowing out of that box), which of the following islikely to happen if there is an increase in investment spending?

a. a decrease in the inflation rate Incorrectb. an increase in the unemployment rate

Incorrectc. a decrease in the nominal GDP

Incorrectd. an increase in the nominal GDP

Correct



26.

Reference: Ref 319

(Table: Competitive Market for Good Z) Look at the table Competitive Market for Good Z. Theequilibrium price and quantity in this market are, respectively:

a. $20 and 60 units.

b. $5 and 40 units.

c. $15 and 20 units.

d. $10 and 30 units.




Reference: Ref 315

(Figure: Shifts in Demand and Supply III) Look at the figure Shifts in Demand and Supply III. Thefigure shows how supply and demand might shift in response to specific events. Suppose a wet andsunny year increases the nation's corn crop by 20%. Which panel best describes how this will affect themarket for corn?

a. panel A

b. panel C

c. panel B

d. panel D




Reference: Ref 315

(Figure: Shifts in Demand and Supply III) Look at the figure Shifts in Demand and Supply III. Thefigure shows how supply and demand might shift in response to specific events. Suppose thetechnology for producing snowboards improves. Which panel best describes how this will affect themarket for winter parkas, a complement of snowboards?

a. panel C

b. panel D

c. panel A

d. panel B



29.

Reference: Ref 411

(Table: Market for Butter) Look at the figure Market for Butter. If the government imposes a pricefloor of $0.90 per pound of butter, the quantity of butter actually purchased will be:

a. 9.0 million pounds.

b. 10.5 million pounds.

c. 10.0 million pounds.

d. 1.5 million pounds.

30. A price floor is a ________ set ________ the equilibrium price.

a. maximum price; below

b. minimum price; at

c. minimum price; above

d. maximum price; above

31. If the economy grew at a 3% rate this year and average prices increased ______, people would bebetter off this year than last year.

a. 3% Incorrectb. faster than 10%

Incorrectc. less than 3%

Correctd. faster than 3%

Incorrect



32. In Europe the minimum wage has led to:

a. widespread evasion of the minimum wage law in the black market for labor.

b. lower unemployment, especially among young workers.

c. a proliferation of large companies in Italy.

d. European governments hiring the surplus of workers.

33. Which of the following would be classified as consumption?

a. a storage facility for a moving company Incorrectb. a dump truck purchased by a demolition company

Incorrectc. a new car purchased by an employee of a company for personal use

Correctd. a new computer purchased by Federal Express for one of its corporate executives

Incorrect




Reference: Ref 71

(Figure: CircularFlow Model) What is disposable income in this economy?

a. $400 Correctb. $500

Incorrectc. $100

Incorrectd. $0

Incorrect

35. In 2011, consumption spending is $7,000, government purchasing is $2,000, and investment spendingis $1,500. If GDP for 2011 is $10,300, then:

a. exports are $500 and imports are $300. Incorrectb. exports are $400 and imports are $200.

Incorrectc. exports are $600 and imports are $800.

Correctd. exports are $100 and imports are $200.

Incorrect



36.

Reference: Ref 75

(Table: Furniture Production Schedule) What is the total value added at all stages of the productionprocess of the furniture as described in the accompanying table?

a. $800 Incorrectb. $1,800

Incorrectc. $2,000

Incorrectd. $1,200

Correct

37. If real GDP rises while nominal GDP falls, then prices on average have:

a. Real GDP cannot rise when nominal GDP falls.

b. fallen.

c. stayed the same.

d. risen.

38. Consider an economy that produces only two goods: DVDs and DVD players. If 10 DVDs are sold at$20 each and 5 DVD players are sold at $100 each, then nominal GDP is:

a. $900. Incorrectb. $100.

Incorrectc. $1,100.

Incorrectd. $700.

Correct



39. Consider an economy that produces only two goods: DVDs and DVD players. Last year, 10 DVDswere sold at $20 each and 5 DVD players were sold at $100 each, while this year 15 DVDs were soldat $10 each and 10 DVD players were sold at $50 each. Real GDP this year using last year as the baseyear is:

a. $700. Incorrectb. $300

Incorrectc. $100.

Incorrectd. $1,300.

Correct

40. You are a college student and not working or looking for work. You are:

a. not part of the labor force. Correctb. unemployed.

Incorrectc. in the labor force but not employed.

Incorrectd. not described by any of the above.

Incorrect

41. Suppose there are 70 million people in the labor force, of whom 60 million are employed. Theunemployment rate is:

a. 7%. Incorrectb. impossible to calculate.

Incorrectc. 10%.

Incorrectd. 14.28%.

Correct



42. Jim has a parttime job and would prefer to have a fulltime job but has been unable to find fulltimework. Jim is classified as:

a. an underemployed worker. Correctb. a discouraged worker.

Incorrectc. an unemployed worker.

Incorrectd. out of the labor force.

Incorrect

43. The natural rate of unemployment is:

a. equal to the sum of frictional and structural unemployment. Correctb. cyclical unemployment less frictional unemployment.

Incorrectc. equal to the sum of frictional and cyclical unemployment.

Incorrectd. the rate of unemployment that exists during recessions.

Incorrect

44. An increase in the price level that is extremely rapid (say 400% per year) is called:

a. deflation. Incorrectb. hyperinflation.

Correctc. hyperdeflation.

Incorrectd. inflation.

Incorrect



45. What was the primary reason that explain why the price of legal marijuana was three times as high asthe price of illegal marijuana?

a. Because adolescence could not buy legal marijuana.

b. Because legal stores have to pay their workers a higher minimum wage.

c. Because the State had not granted enough licenses to retailers, thus restricting supply.

d. Because legal marijuana is a higher quality.

46. John Maynard Keynes believed that the:

a. government should actively try to mitigate the effects of recessions by using fiscal and monetarypolicies. Correctb. government should intervene only when there is a boom but let the recession run its course.

Incorrect

c. government should not use fiscal and monetary policies, as these policies have longtermadverse effects on the economy. Incorrectd. government should not interfere with the economy and should let the economy selfcorrect.

Incorrect

47. An economic expansion in the United States is typically associated with:

a. an increase in the poverty rate. Incorrectb. a decrease in corporate profits.

Incorrectc. a falling inflation rate.

Incorrectd. a falling unemployment rate.

Correct



48. For the past several months, per capita output has increased, but at a slower and slower rate. Over thesame period, the unemployment rate has been falling, but it appears to have leveled off and may soonrise. Where in the business cycle is the economy?

a. the businesscycle peak Correctb. an expansion

Incorrectc. a recession

Incorrectd. the businesscycle trough

Incorrect

49. Per capita economic growth is:

a. economic expansion over the business cycle.

b. economic growth per person.

c. economic growth per unit of capital.

d. sustained increase in aggregate output.

50. With inflation:

a. the economy must be contracting. Incorrectb. all prices must be increasing.

Incorrect

c. overall prices are increasing, although some prices may be increasing and some may bedecreasing. Correctd. the economy must be producing at full employment.

Incorrect



51. Deflation:

a. is caused by changes in interest rates. Incorrectb. can result in an increase in employment.

Incorrectc. raises the cost of making purchases and sales for which cash is required.

Incorrectd. encourages people to hold cash rather than invest in new factories and productive assets.

Correct

52. When an economy's overall production grows faster than its population, it is referred to as:

a. the paradox of thrift. Incorrectb. deflation.

Incorrectc. an increase in nominal GDP.

Incorrectd. longrun growth per capita.

Correct

53. Changing the level of government spending is an example of:

a. monetary policy. Incorrectb. exchange rate policy.

Incorrectc. fiscal policy.

Correctd. interest rate policy.

Incorrect



54. When the Great Depression reached its trough in 1933, the unemployment rate was approximately:

a. 50%. Incorrectb. 10%.

Incorrectc. 25%.

Correctd. 5%.

Incorrect

55. The sequence of business cycle phases is:

a. businesscycle peak, expansion, businesscycle trough, recession. Incorrectb. businesscycle peak, recession, businesscycle trough, expansion.

Correctc. businesscycle peak, expansion, recession, businesscycle trough.

Incorrectd. businesscycle peak, businesscycle trough, expansion, recession.

Incorrect

56. Why do economists bother to compute real GDP? Why can't we just compare nominal GDP from oneyear to the next?

Correct Answer: Nominal GDP shows the value of a nation's output of goods and services in a givenyear, but part of that value is determined by the prices of those goods and services. If those pricesincrease, nominal GDP will increase, even if output levels stay the same. Real GDP computes thevalue of goods and services produced during a year using prices from a reference year, or base year.This way we can see whether the nation's output changed, holding prices constant.



57.

Reference: Ref 722

(Table: Muffin Price Index) A college town has many small coffee shops, and each coffee shop offers avariety of muffins for sale. As an economics project you have been assigned to create a muffin priceindex (MPI). The accompanying table summarizes price data for recent years. The base year is 2009.Use these data to compute the MPI for each year.

Correct Answer: The first step is to calculate the cost of the market basket of muffins in the base year2009. The cost of muffins in 2009 = 4 × $1.10 + 1 × $1.10 + 2 × $1.25 = $8. Now using the marketbasket quantities in 2009 and prices in 2010, we compute the cost of muffins in 2010 as: = 4 × $1.15 +1 × $1.10 + 2 × $1.45 = $8.60. The MPI in 2010 is = (8.60/8) × 100 = 107.5.Following the same steps for 2011, the cost of muffins in 2011 is: = 4 × $1.25 + 1 × $1.20 + 2 × $1.50= $9.20. The MPI in 2011 is = (9.20/8) × 100 = 115.



58. How would each of the following events affect the supply of compact cars?a) The price of steel rises.b) The production technology for car manufacturing improves.c) The price of sport utility vehicles falls.

Correct Answer: a) Steel is an important input in car production. Higher steel prices would shift thesupply curve to the left.b) Better production technology would shift the supply curve to the right.c) Producers would see less profit in producing sport utility vehicles, so the supply of compact carswould shift to the right.



59.

Reference: Ref 722

(Table: Muffin Price Index) A college town has many small coffee shops, and each coffee shop offers avariety of muffins for sale. As an economics project you have been assigned to create a muffin priceindex (MPI). The accompanying table summarizes price data for three years. The base year is 2009.Use these data to compute the rate of inflation in the MPI between:a. 2009 and 2010.b. 2008 and 2011.

Correct Answer: a. The first step is to calculate the cost of the market basket of muffins in the baseyear 2009. The cost of muffins in 2009 is 4 × $1.10 + 1 × $1.10 + 2 × $1.25 = $8. The MPI in the baseyear is 100. Now using the market basket quantities in 2009 and prices in 2010, we compute the cost ofmuffins in 2010 as 4 × $1.15 + 1 × $1.10 + 2 × $1.45 = $8.60. The MPI in 2010 is (8.60 / 8) × 100 =107.5. Thus the rate of inflation is (107.5 – 100)/100 = 0.075, or 7.5%.b. The rate of inflation between 2010 and 2011 is the percentage change in the MPI between the twoyears: (115 – 107.5) / 107.5 = 0.07, or 7%.



60. Suppose the business cycle is indicating economic expansion. Predict how the economic indicators ofreal gross domestic product (GDP), the unemployment rate, and the inflation rate are moving.

Correct Answer: When the economy is expanding, the nation's output is rising because consumers arespending more of their income on goods and services (and income is rising). The unemployment rate isfalling because firms are hiring workers to produce those goods and services. The inflation rate isrising because consumers have more money to spend, thus pushing up the overall price level.

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Which of the following would be studied in … · Which of the following would be studied in macroeconomics? ... d.the impact of a tax reduction on the ... A decrease in the price