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Questions 1-2 Pertain to the Following Information:Consider the following table of revenue and expenses for each number of employees working at a local restaurant.EmployeesRevenueMarginal BenefitExpensesMarginal CostsProfitChange in Profit1$30$30$15$15$15$152$55$303$75$454$90$605$100$756$105$901. Fill in the table above with values for marginal benefit, marginal cost, profit, and change in profit for each employee hired. [Chapter 1]2. At what point should this restaurant stop hiring more employees and why? [Chapter 1]3. Given the production possibilities frontiers below for one individual’s production of two products—say, for example, apples and oranges—what opportunity cost behavior do each of these curves describe? Example: “Increasing opportunity cost” [Chapter 2]Question 4-8 Pertain to the Following Information:Assuming constant opportunity cost of production in a closed economy, we are told that John can produce either 40 apples or 30 oranges, while Steve can produce either 20 apples or 40 oranges.4. Construct John’s and Steve’s production possibilities frontiers using the empty graph below. [Chapter 3]5. Who has the absolute advantage in the production of apples? What about in the production of oranges? [Chapter 3]6. Who has the comparative advantage in the production of apples? What about in the production of oranges? Who would produce each product assuming both individuals completely specialize? [Chapter 3]7. Fill in the blanks. Assuming John and Steve specialize and trade, John’s ideal trade terms require the exchange of at least _____ oranges for each apple, while Steve’s ideal trade terms require the exchange of at least _____ apples for each orange. [Chapter 3]8. Let’s suppose Steve and John settle on trade terms such that they will exchange 15 apples for 15 oranges. Use the “before trade” production values indicated in the table of consumption below to determine each individual’s gains from trade. [Chapter 3]JohnSteveApplesOrangesApplesOrangesBefore Trade20151020SpecializationTradeAfter TradeGains from Trade9. In the market for goods and services, determine if each of the following variable changes will cause a change in demand, a change in supply, or a change in quantity demanded/supplied. Additionally, provide an example that may cause the indicated change in the market for goods and services. [Chapter 4]Variable ChangeChange in demand, change in supply, or change in quantity demanded/supplied?ExampleTechnology used to produce the good/serviceChange in supplyAn innovative change to corn farmers’ equipment causes the supply curve in the market for corn to shift rightward.IncomePrice of inputs for the good/servicePrice of the good/serviceConsumer interest in the good/servicePrice of related goodsNumber of firms in the marketConsumer expectations about the futureNumber of buyers in the marketSupplier expectations about the future10. Complete the following table for the market for goods and services. Draw the indicated change on the provided supply and demand curve. [Chapter 4]Change in Market for Goods and ServicesWhat Happens to the Equilibrium Price and Quantity?Picture RepresentationSupply: ↑Demand: No ChangeEquilibrium Price:Equilibrium Quantity:Supply: ↓Demand: No ChangeEquilibrium Price:Equilibrium Quantity:Supply: No ChangeDemand: ↑Equilibrium Price:Equilibrium Quantity:Supply: No ChangeDemand: ↓Equilibrium Price:Equilibrium Quantity:Supply: ↑Demand: ↑Equilibrium Price:Equilibrium Quantity:Supply: ↓Demand: ↑Equilibrium Price:Equilibrium Quantity:Supply: ↑Demand: ↓Equilibrium Price:Equilibrium Quantity:Supply: ↓Demand: ↓Equilibrium Price:Equilibrium Quantity:11. Determine whether or not each of the following transactions would be included in the United States’ GDP calculation for a given year. [Chapter 10]TransactionIncluded?TransactionIncluded?Lenovo laptops are sold to consumers at Best BuyIncludedJohn buys antique goods from an antique storeIntel computer processors are sold to Lenovo to be used in laptopsPeter mows his neighbor’s lawn for some extra cashThe government gives citizens social security paymentsAmerican citizens earn a salary while working in a German factoryA realtor collects commission for selling a house built 5 years agoMark buys apples from his local grocery storeAn American car brand produces vehicles in MexicoAndrew buys shares of Disney’s stockQuestions 12-15 Pertain to the Following Information:Suppose the table below represents a fictional economy’s entire production and sale prices for the indicated year. You may assume that 2018 is the base year.ProductPrice 2018Quantity 2018Price 2019Quantity 2019Price 2020Quantity 2020Apples$0.706000$0.756500$0.807000Oranges$0.507000$0.607500$0.708000Bananas$0.605000$0.625500$0.686000Strawberries$0.2510000$0.3011000$0.401200012. Calculate the value of Nominal GDP for 2018, 2019, and 2020. [Chapter 10]13. Calculate the value of Real GDP for 2018, 2019, and 2020. [Chapter 10]14. Calculate the GDP Deflator for 2018, 2019, and 2020. [Chapter 10]15. Calculate the inflation rate from 2018 to 2019 as well as the inflation rate from 2019 to 2020 using the GDP Deflator. [Chapter 10]Questions 16-19 Pertain to the Following Information:Consider a fictional economy consisting of only three firms.Firm A produces 1000 pounds of wheat at an input cost of $3 per pound, then sells 800 pounds of that wheat to Firm B for a $7 per pound.Firm B produces 800 pounds of flour using Firm A’s wheat at an input cost of $11 per pound (this already includes the $7 purchase price for the wheat). Firm B sells 600 pounds of flour to Firm C for $14 per pound.Firm C produces 600 pounds of bread using Firm B’s flour at an input cost of $18 per pound (this already includes the $14 purchase price for the flour). Firm C sells all 600 pounds of bread to consumers at $20 per pound.16. What is the value of consumption spending in this fictional economy? [Chapter 10]17. What is the value of investment spending in this fictional economy? [Chapter 10]18. What is the value added for each of the three firms in this fictional economy? [Chapter 10]19. Find the profit for each of the firms (only on the goods sold by each firm) in this fictional economy. [Chapter 10]Questions 20-24 Pertain to the Following Information:Suppose the table below describes the consumer basket of goods along with the prices of each of those goods for each of three years. The quantity of goods in the basket is the same for all four years.ProductQuantity of Goods in the BasketPrice 2018Price 2019Price 2020Apples6000$0.70$0.75$0.80Oranges7000$0.50$0.60$0.70Bananas5000$0.60$0.62$0.68Strawberries10000$0.25$0.30$0.4020. Calculate the value of the basket of goods for 2018, 2019, and 2020. [Chapter 11]21. Calculate the Consumer Price Index for 2018, 2019, and 2020. [Chapter 11]22. Calculate the Inflation Rate from 2018 to 2019 as well as from 2019 to 2020. [Chapter 11]23. Let’s assume that a worker makes a $60000 nominal salary in 2018. What is the real value of this same salary when measured in 2020 dollars? How much more would this worker need to make in 2020 to have the same purchasing power (in other words, the same real value for both years)? [Chapter 11]24. If the worker in Question 23 that made a $60000 nominal salary in 2018 makes a $75000 nominal salary in 2020, what is the percent change of this worker’s nominal salary? What about the percentage change in the real value of his salary? [Chapter 11]25. A bank offers a 4% yearly interest rate on all accounts. If I have $1500 in one of these accounts in 2019, and the inflation rate from 2019 to 2020 is 5%, what will be the real value of my bank account in 2020? [Chapter 11]26. Complete the following table describing a country’s yearly growth rates for several important variables. [Chapter 12]Growth Rate of Nominal GDPGrowth Rate of Inflation RateGrowth Rate of Real GDPGrowth Rate of the PopulationGrowth Rate of Real GDP/CapitaYears for Real GDP per Capita to DoubleEx: 10%3%7%3%4%17.5 years8%4%2%9%3%3.5%2%1%35 years11%2%10 yearsQuestions 27-29 Pertain to the Following Information:Consider the following demographics for a population of 300 people in a given country.50 people are younger than 16 years of age20 people are employed part-time80 people are employed full time20 people are full-time college students without jobs20 people are imprisoned60 people are retired, only 30 of whom would be able to work if offered a job tomorrow10 people are serving active duty in the military20 people are not employed and have stopped looking for work, while another 20 people are not employed and are still looking for work27. Complete the following tree diagram. [Chapter 15]28. Find the unemployment rate. [Chapter 15]29. Find the labor force participation rate. [Chapter 15]30. Consider the market for labor in a given country. As a result of pressure from workers’ unions, the government has decided to raise the minimum wage above the equilibrium wage in this country. Describe what will happen to the short-term quantity of labor supplied by households and the short-term quantity of labor demanded by firms. What is another term for what we currently observe in the market for labor in this scenario? [Chapter 15]31. There is an increase in the labor force participation rate as well as in overall economic growth. Based on this information, can we expect the equilibrium wage in the market for labor to have increased, decreased, or is it indeterminate? What about for the equilibrium quantity of labor? [Chapter 15]Questions 32-33 Pertain to the Following Information:The following table shows the balances for an individual’s accounts.AccountValueAccountValueAccountValueCash$1000Checking Account$3400Mortgage$10000Credit Card Debt$1000Student Loan Debt$20000Stocks Owned$1000House$260000Car$25000Bonds Owned$1000Savings Account$1000032. Complete the following balance sheet and calculate the value of this individual’s net worth. [Chapter 13]AssetsLiabilitiesNet Worth/Wealth: 33. Reflect the following changes in the balance sheet created in Question 32. [Chapter 13]The individual pays off their outstanding credit card debt using funds from their checking account.The individual receives a $500 check from family. They deposit $400 into savings and keep the rest as cash.The individual pays off $1000 of their student loan debt using funds from their checking account.34. Complete the following table describing various countries’ breakdowns in saving. You may assume each country has a closed economy and that the market for loanable funds for each one of these countries is at equilibrium. [Chapter 13]CountryCountry ACountry BCountry CCountry DReal GDP300060004000Consumption2400400013003000Investment300Government Spending3001300500Taxes Collected2001600Private Saving400400500Public Saving-100300National Saving300500Disposable Income2800Budget Surplus or Budget Deficit?Budget Deficit35. Suppose there is a major innovation in a piece of machinery used by many firms. These firms now desire to replace their equipment. Describe what would happen to the market for loanable funds (in terms of a shift in supply/demand curves and a change in the equilibrium interest rate and quantity of funds) as a result, all else the same. You may assume we are talking about a closed economy in this scenario. [Chapter 13]36. As a result of external pressure, a government decides to massively increase their military spending, causing the government to borrow to cover the deficit. All else the same, describe the impact this would have on the market for loanable funds (in terms of a shift in supply/demand curves and a change in the equilibrium interest rate and quantity of funds). You may assume we are talking about a closed economy in this scenario. [Chapter 13]37. Fill in the blank: As the interest rates increase, the value of national saving will __________ and the value of investment spending will __________. [Chapter 13]Questions 38-41 Pertain to the Following Information:Consider Banks A, B, C, and D within a country’s economy. We may assume that this country operates under a fractional reserve banking system.38. If the reserve ratio is 10%, and you deposit $1000 into one of these banks, the bank is required to hold __________ on reserve. [Chapter 16]39. Consider the following T-Account for Bank A before you deposit any money. [Chapter 16]AssetsLiabilitiesReserves: $250Loans: $1250Deposits: $1500Suppose the reserve ratio is 10% and you deposit $1000 into Bank A. The increase in reserves is __________, the maximum amount of extra loans that this bank can issue is __________, and the new value of the loans account for Bank A is __________ after the bank has issued their maximum value of possible loans. [Chapter 16]40. Suppose, instead, that Banks A, B, C, and D have a zero balance for all of their accounts prior to my deposit. The reserve ratio is 10%. We may assume that all banks do not keep any excess reserves on any given deposit and the public will always deposit the full value of their loans to the banking system (in other words “no cash is held by the public”). I deposit $1000 into an account with Bank A. Bank A issues loans to the public, who then deposit their cash to Bank B. Bank B issues loans to the public, who then deposit their cash to Bank C. Bank C issues loans to the public, who then deposit their cash to Bank D. By how much has the total money supply increased as a result of these transactions (including the $1000 I originally deposited)? You may use the T-Accounts below to help with this question. [Chapter 16]Bank ABank BAssetsLiabilitiesAssetsLiabilitiesReserves:Loans:Deposits:Reserves:Loans:Deposits:Bank CBank DAssetsLiabilitiesAssetsLiabilitiesReserves:Loans:Deposits:Reserves:Loans:Deposits:41. If the situation proposed in Question 40 were generalized to an infinite number of banks (rather than just four), then the money supply would increase by __________. In this case, the money multiplier is __________. [Chapter 16]42. Fill in the blanks explaining the general idea behind open market operations taken by the US Federal Reserve: When a bank has government bonds on hand, the Federal Reserve may choose to buy some of these bonds from the bank in exchange for money. This causes the bank’s value of reserves to __________ (increase/decrease), encouraging banks to __________ (increase/decrease) their amount of loans issued to the public. In this situation, banks generally expect the public—or firms, for that matter—to demand loanable funds from the banks. In order to encourage __________ (more/less) borrowing from banks, these banks may __________ (increase/decrease) their interest rates on loans. As a typical result, we can expect overall spending in the economy to __________ (increase/decrease) and GDP to __________ (increase/decrease). [Chapter 16]43. Fill in the following blanks regarding fluctuations in Real GDP: When consumer spending rises as a result of higher consumer interests in a good, we would expect firms to __________ (increase/decrease) production of that good in response. This is known as a __________ __________ (2 words). When the price of inputs for a good or service goes up, we would expect firms to __________ (increase/decrease) production of that good and to __________ (raise/lower) the prices for that good. Consumers must respond by purchasing __________ (more/fewer) goods. This is known as a __________ __________ (2 words). [Economic Fluctuations]44. Indicate whether the events below are most likely to occur as a result of an expansion or a recession in an economy’s business cycle. [Economic Fluctuations]__________: Demand for goods and services increase__________: Firms decrease production__________: Demand for labor rises__________: Unemployment rises__________: The inflation rate rises above the natural rate of inflation__________: Wages rise__________: Demand for goods and services decrease__________: Firms increase production__________: Demand for labor falls__________: Unemployment falls__________: The inflation rate falls below the natural rate of inflation 45. Compare and contrast fiscal and monetary policy. [Economic Fluctuations]46. Fill in the following blanks regarding monetary policy and open market operations: In the event of a recession, the Federal Reserve may choose to __________ (buy/sell) government bonds from banks to __________ (increase/decrease) the money supply. This would cause a __________ (increase/decrease) in interest rates and would lead to __________ (increased/decreased) consumer spending. During an expansion, if the Federal Reserve determines that the state of the US economy is unstable, they may implement gradual contractionary policy. In this case, the Federal Reserve may choose to __________ (buy/sell) government bonds to banks to __________ (increase/decrease) the money supply. This would cause a __________ (increase/decrease) in interest rates and would lead to __________ (increased/decreased) consumer spending. [Economic Fluctuations] ................
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