ECON 1100 Midterm: Exam2C_ECON1100_Fall2013

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ECON 1100 – Global Economics (Section 10)

Exam #2 – Fall 2013 (Version C)

Multiple Choice Questions ( 2

2 points each):

1. One of the principle functions of money is that it serves as a “unit of measure.”

This role could be described by recognizing that money

A. is an asset that can be used as a means to hold wealth.

B. is used as a basic unit of measuring economic activity.

C. is an asset used as payment when purchasing goods and services.

D. None of the above answers are correct.

2. In the model of Supply and Demand, the market equilibrium

A. is an unstable outcome, which we should never expect to persist for any

extended period of time.

B. is self-enforcing, since there is upward pressure on price at prices below

the equilibrium price and downward pressure on price at prices above the

equilibrium price.

C. is unique, as a direct consequence of the Law of Supply and Law of

Demand.

D. More than one (perhaps all) of the above answers is correct.

3. “Dan’s Pappy Cola” is a small soft drink producer, operating solely within the

southeastern United States. So far this year they spent $160,000 on ingredients,

$750,000 on labor, and $90,000 on packaging for their soda. They were able to

generate a total of $1,500,000 of revenue from selling their soda. The total value

contributed to Gross Domestic Product from this economic activity is:

A. $2,500,000.

B. $1,500,000.

C. $1,000,000.

D. $500,000.

4. Alvin (who is 37 years old) is currently employed as a manager of an Italian

restaurant. After losing his job at an auto factory last year Simon (who is 64 years

old) has decided to essentially “retire early” and not actively try to find another

job. Theodore (who is 22 years old) recently graduated from college with an

economics degree and is seeking his first full time job. Which of these

individuals are currently part of the workforce?

A. Alvin, Simon, and Theodore (since each is between the ages of 18 and 65).

B. Only Alvin (but not Simon or Theodore, since they do not currently have

jobs).

C. Only Alvin and Theodore (but not Simon, since he is not actively seeking

a job).

D. Only Alvin and Simon (but not Theodore, since he has never had a full

time job before).

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5. ___________________ 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. Equilibrium GDP; Real GDP.

B. Nominal GDP; Equilibrium GDP.

C. Nominal GDP; Real GDP.

D. Real GDP; Nominal GDP.

6. The “Law of Demand”

A. drives the observations that if demand increases, equilibrium price and

equilibrium quantity will both increase.

B. implies that a demand curve should be downward sloping (i.e., negatively

sloped).

C. states that (all other factors fixed) consumers are willing and able to buy a

greater quantity of a good when its price is lower.

D. More than one (perhaps all) of the above answers is correct.

7. The unemployment rate in the U.S. reported on an annual basis has only been

above 8.0% in 7 years since the end of the Great Depression. Of these 7 years,

A. 4 of them were 2009, 2010, 2011, and 2012 (the 4 most recent years on

record).

B. the most recent year was 2006.

C. the most recent year was 1988.

D. 2 were in the 1960’s and 5 years were in the 1990’s.

For questions 8 and 9, consider a country with consumption expenditures, private

investment expenditures, government purchases, exports, and imports as summarized

in the table below (each measured in millions of dollars):

consumption

expenditures

investment

expenditures

government

purchases exports imports

$856 $148 $176 $117 $147

8. This country is running a

A. trade deficit of $30 million.

B. trade deficit of $264 million.

C. trade surplus of $30 million.

D. trade surplus of $264 million.

9. The Gross Domestic Product of this country is equal to

A. $1,444 million.

B. $1,210 million.

C. $1,150 million.

D. $826 million.

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10. Suppose that between 2012 and 2013 the Unemployment Rate decreased while

the Inflation Rate increased in Portugal. It follows that the value of the Misery

Index in 2013 ________________ the value of the Misery Index in 2012.

A. could be greater than or could be less than

B. must be greater than

C. must be less than

D. must be exactly equal to

11. A good that is used in the production process that is not (itself) a final good or

service is ___________ good.

A. an inefficient

B. a finished

C. an intermediate

D. a government

12. During the last several decades, health officials in the United States have

strengthened the case that cigarette smoking is harmful to people’s health. As a

result, there has been a significant decrease in smoking. Which of the following

is the most consistent explanation of this decrease in equilibrium quantity?

A. Cigarettes are a normal good, and as people experienced an increase in

real income their demand for cigarettes increased.

B. Tobacco companies were able to increase demand for cigarettes by way of

high profile endorsements of major professional sporting events.

C. Tobacco companies (whose primary concern is the health of their

customers) decided to produce relatively fewer cigarettes, decreasing

supply for cigarettes.

D. Consumers (concerned about their own health) decreased their demand for

cigarettes.

13. Per Capita GDP in Hong Kong is $45,900, while Per Capita GDP in Russia is

only $15,900. These values directly imply that

A. people in Russia are less intelligent than people in Hong Kong.

B. people in Hong Kong are roughly three times happier than people in

Russia.

C. the market value of goods/services produced per person is roughly three

times larger in Hong Kong than in Russia.

D. None of the above answers is correct.

14. According to the depiction provided by the expanded circular flow diagram,

government collects taxes from

A. only itself.

B. both domestic households and domestic firms (but not from any foreign

sources).

C. both foreign households and foreign firms (but not from any domestic

sources)

D. nobody.

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Document Summary

One of the principle functions of money is that it serves as a unit of measure. Dan"s pappy cola is a small soft drink producer, operating solely within the southeastern united states. So far this year they spent ,000 on ingredients, ,000 on labor, and ,000 on packaging for their soda. They were able to generate a total of ,500,000 of revenue from selling their soda. The total value contributed to gross domestic product from this economic activity is: Alvin (who is 37 years old) is currently employed as a manager of an italian restaurant. After losing his job at an auto factory last year simon (who is 64 years old) has decided to essentially retire early and not actively try to find another job. Theodore (who is 22 years old) recently graduated from college with an economics degree and is seeking his first full time job.

Related Questions

1. Consider a market in which the efficient level of trade is 7,500 units.There would be apositive Deadweight-Loss if _________ units were traded.

A.9,250. B.4,500. C.5,125. D.More than one (perhaps all) of the above answers are correct.

2. Which of the following statements is correct for the market equilibrium in the model of supply and demand?

A. Stable-- If we are there we will stay there, unless outside forces change

B. Unique-- there is one and only one equilibrium, a property which follow from the "law of demand" and "law of supply"

C. Self-enforcing-- at higher prices There is downward pressure on price; at lower prices there is a upward pressure on price-- therefore if we are at some other price, we will be pushed toward the equilibrium price.

D. All the above.

3. using the following table.

price per video game Quantity demanded per year Quantity supplied per year

$5 30 102

$4 48 84

$3 66 66

$2 84 48

$1 102 30

Beginning with Equilibrium in the table above an increase in price of $2 would:

A. Cause a shortage of 36 B. Cause a surplus of 36 C. Cause a shortage of 72 D.Cause a surplus of 72.

1) If actual (equilibrium ) real GDP is less than the full-employment, or natural, level of real GDP, then wages and other input prices are expected to:

a. fall and SRAS to shift to the left until long-run equilibrium is achieved.

b. fall and SRAS to shift to the right until long-run equilibrium is achieved.

c. rise and SRAS to shift to the left until long-run equilibrium is achieved.

d. rise and SRAS to shift to the right until long-run equilibrium is achieved.

2) In a self-regulating economy, inflationary gaps are automatically eliminated in the long run by:

a. decreases in wage rates that cause short-run aggregate supply to shift rightward.

b. decreases in wage rates that cause short-run aggregate supply to shift leftward.

c. increases in wage rates that cause short-run aggregate supply to shift rightward.

d. increases in wage rates that cause short-run aggregate supply to shift leftward.

3) Assume the economy is initially in equilibrium at the full-employment level of real GDP. If businesses and consumers become pessimistic regarding future economic conditions, ceteris paribus, the aggregate demand curve will shift to the ________, causing the level of output to ______.

a. left; fall

b. right; fall

c. left; rise

d. right; rise

4) Economists that advocate a macroeconomic policy of laissez-faire:

a. believe the economy is self-regulating only if the government intervenes to move the economy to equilibrium at natural real GDP.

b. believe the economy is self-regulating and will automatically move to equilibrium at natural real GDP in the long run.

c. also advocate central planning and government control of resources.

d. also advocate active government intervention in the economy.

5) Which of the following summarizes the process for closing a recessionary gap if the economy is self-regulating?

a. Labor shortages put upward pressure on wages, which leads to higher costs of production and a decrease in short-run aggregate supply.

b. Labor shortages put downward pressure on wages, which leads to increases in employment and spending and an increase in aggregate demand.

c. Unemployed resources put upward pressure on the price level, which leads to higher wages, increases in spending, and increases in aggregate demand.

d. Unemployed resources put downward pressure on the price level, which leads to lower costs of production and an increase in short-run aggregate supply.

cyanmallard742

CLASS NOTES ARE LOCATED WHERE IT SAYS CLASS NOTES!

During the early 1700s, a sailing ship is wrecked on an uninhabited island in the Caribbean Sea. The passengers and crew survive but lose all their possessions. There is no source of fresh water on the island, but coconut palm trees are fairly abundant, and the survivors are able to drink milk harvested from coconuts. There are no mammals living on the island, but many birds roost there, and these become a source of meat. There are a number of mango trees that provide fruit. A long, tough form of sawgrass grows in a number of different places on the island. This grass can be woven into knee-length sleeveless shirts, which are the basic type of clothing for people of both genders. The people on this island have developed a simple system of direct market exchange. Currently, two mangos trade for five coconuts, six coconuts trade for a pound of meat, and three pounds of meat trade for four shirts.

1. Use a formula that was stated in class, and in my notes, to calculate the total number of distinct relative prices in the islandâs economy. Note that when this formula is used to count relative prices, any given pair of goods is considered to have only one relative price. For example, if we count the price of a pound of meat in mangos as one relative price, then we donât count the price of mangos in pounds of meat as a second relative price.

(Class Notes: In a barter economy with markets, each good should have a market price, per unit, in terms of each of the other goods: baskets of fish per bushel of apples, bags of coconuts per bushel of apples, etc. A price of this type â units of one good per unit of the other good â is called a relative price (alternatively, a barter price). If there are different goods traded in an economy, then there turn out to be relative prices for a merchant to keep track of, in each market he visits. Each of the n goods has unit prices: one for each of the other goods. We divide by two to avoid counting reciprocal duplicates: if it costs 2 bags of coconuts to buy a bushel of apples, then it costs 1/2 bushel of apples to buy a bag of coconuts, and so on. )

2. Use the price information you are given to calculate all the distinct relative prices. Remember that the prices we are interested in are unit prices. A unit price is the price of a single unit of one good in units of another good. For each pair of goods, use the order that produces the highest unit price. In the case of coconuts and shirts, for example, if the price of a shirt in coconuts is higher than the price of a coconut in shirts, then report the first price but not the second one. Note: In calculating unit prices, donât worry about issues of divisibility. Assume that any good can be divided in any way, so that fractions or decimals can be components of unit prices.

3. For each relative price you just calculated, calculate the relative price if the order of the two items is switched. (In the scenario above, for example, you would now calculate the price of a coconut in shirts.) What very simple formula can you use to do this? Explain briefly.

4. Now suppose the people on this island start using mangos as money. The relative prices on the island do not change, and the absolute prices are consistent with them. a. Use a formula stated in class, and in my notes, to calculate the total number of absolute prices in the islandâs economy. b. Report these absolute prices.

Class Notes: ( In a monetary economy, in contrast, each good has a single absolute price (alternatively, a money price), which is its unit price in terms of money: dollars per bushel of apples, etc. If we assume that one of the n goods is used as money, then a merchant only needs to keep track of absolute prices. As long as there are more than two different goods ( ), it turns out that , and the difference between these two numbers gets very big as n gets large. Even if there are only 10 different goods, then there are 45 relative prices and only 9 absolute prices. And if there are 100 different goods, which is a more realistic number, then there are 99 absolute prices but almost 5000 relative prices.)

5. Comment briefly on the potential advantages and disadvantages of using mangos as money, using our list of the desirable properties of money as a guide.

6. Suppose you are a merchant on this island, where mangos are used as money in the market (see Item 4 above). A competing merchant who dislikes using money in transactions is willing to trade coconuts for shirts (or vice-versa) directly, at a rate of five coconuts per shirt. Explain, carefully and completely, how you could use this merchantâs willingness to trade these two goods, at this rate, in order to make a profit of one unit of money for yourself by (1) using money to buy units of a good in the market, (2) trading those units of the good to this merchant, in exchange for units of another good, and (3) selling those units in the market for money. Identify the items traded and the quantities, and verify the amount of the profit. Finally, explain what you would need to do in order to make a larger profit (double, for example).

ECON 1100 Midterm: Exam2C_ECON1100_Fall2013

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