Economics 101



Econ 1120 - INTRODUCTORY MACROECONOMICSPRELIM #1 – Wissink - S2016 - March 8________________________________________ ____________________________________Your LAST (FAMILY) NAME Your First (given) nameYour NetId:_________________ Your Student Number:________________________________Instructions and Exam Taking Policy:There are two sections in this exam. Answer all questions.Part I: 14 multiple choice/fill in the blank questions @ 3 points eachPart II: 3 problems @ 14, 22, and 22 points eachTotal Points = 100, Total Time = 90 minutes.NO QUESTIONS CAN BE ASKED DURING THE EXAM ABOUT EXAM CONTENT: If you need to use the restroom, or you need a pencil or scratch paper, or some other supply that we might have, raise your hand and wait for the proctor to come to you. Only one person can be out of the examination room at a time, and the proctor will hold onto your exam papers while you are out at the restroom.NO CELL PHONES, NO IPODS OR SIMILAR DEVICES WITH CALCULATOR “APPS”.NO GRAPHING CALCULATORS.NO BOOKS. NO NOTES. NO HELP SHEETS.NO TALKING TO EACH OTHER.Check the TA’s name for the section you regularly attend (that is, where you will pick up your prelim): DIS #TAMeeting TimesLocation250, 251Qilu YuM 8:00am-9:55amRockefeller 103252, 253Jose LopesW 2:30pm-4:25pmBaker Lab 119254, 255Sujan LamichhaneF 9:05am-11:00amGoldwin Smith G64256, 257Nobu KanazawaF 1:25pm-3:20pmRockefeller 102One more time, please…_____________________________________ _________________________________Your LAST (FAMILY) NAME Your First (given) nameYour NetId:_________________ Your Student Number:________________________________GRADINGMC/FIB (out 42 points) =___________________Q1 (out of 14 points) =__________________Q2 (out of 22 points) =__________________Q2 (out of 22 points) =__________________TOTAL SCORE: =_____________________left0Part I: Multiple Choice and Fill In The Blank Questions. Do them ALL.Circle the letter for your answer or fill in the answer in the blank provided.020000Part I: Multiple Choice and Fill In The Blank Questions. Do them ALL.Circle the letter for your answer or fill in the answer in the blank provided.323342073787000. The figure with “wine” and “cars” shows the production possibility frontier for an economy that produces only those two goods. Which one of the following statements is true?As we go from point A to point E, the marginal opportunity cost of wine increases.This production possibility frontier exhibits constant marginal opportunity costs.If resources were being used efficiently, we could attain point C.As we go from point A to point E, the marginal opportunity cost of cars increases.An output mix between point A and point E would be best since it is a balance of wine and cars.. Two friends, Tyrion and Jorah, decide to open up a blacksmith store. They both work ten hours per day. It takes Tyrion 20 minutes to make a sword, and 4 minutes to make a goblet. It takes Jorah 5 minutes to make a sword, and 6 minutes to make a goblet. Which one of the following statements is true?Tyrion has a comparative advantage in the production of swords.Tyrion has an absolute advantage in the production of both goods.Jorah has a comparative advantage in the production of swords.Jorah has an absolute advantage in the production of goblets.Tyrion and Jorah would be unable to mutually benefit based on the theory of comparative advantage.. Which one of the following will increase the supply of popcorn at baseball stadiums this summer?A decrease in the price of hot pretzels, a substitute in consumption for popcorn.A decrease in the price of popcorn popping oil, an input.An increase in the price of un-popped corn kernels, an input.An increase in the price of popcorn.An increase in the income of baseball fans.. Suppose that the demand function for cups of coffee at a local cafe in London is as follows: QD = 600 + 7F – 0.5J + 1.9G.Which one of the following statements is most true?Variable G is most likely the price the coffee shop owner paid for her coffee beans.Variable J could not be the price of tea, which is a substitute for coffee.The demand for coffee must be vertical.If coffee satisfies the “law of demand” then F is most likely the price of coffee per cup.Variable F is most likely the price of donuts – since everyone in London likes to eat a donut with their coffee.. Consider the market for Greek style yogurt. Recent TV advertisements for Greek yogurt during broadcasts of the Super Bowl have been very successful in making people like the stuff. At the same time new technology in the dairy industry dramatically lowers the cost of raw milk sold to people who make yogurt products. Which one of the following statements is correct concerning the Greek style yogurt market?Both equilibrium price and equilibrium quantity will increase as a consequence of these events.Both equilibrium price and equilibrium quantity will decrease as a consequence of these events.Equilibrium price will increase and equilibrium quantity will decrease as a consequence of these events.Equilibrium price might increase or might decrease and equilibrium quantity might also increase or decrease as a consequence of these events.Equilibrium quantity will definitely increase but we don’t know what will happen to equilibrium price as a consequence of these events.. As measured by the U.S. government, GDP tends to understate the true social value of output produced by the economy to the extent that itexcludes environmental degradation caused by increased output production.excludes value added from the underground economy, such as trade in illegal drugs and prostitution.includes transactions that do not take place in organized markets, such as home-cooked meals.excludes the value of the wages paid to government employees.includes transfer payments to low income people.. Which one of the following is an example of a final good or service in relationship to this year’s U.S. GDP? All production and transactions took place this year, unless otherwise noted. GDP=Gross Domestic Product.Apples produced last year in Cortland and sold this year at Wegmans.Flour made in New Hope, NY and purchased by Ithaca Bakery to make cakes and bread.Children’s toys made in China that you bought at Walmart.The used economics textbook (published and printed 3 years ago) which you bought on E-Bay this year.The Corning glassware made in Corning, NY this year that was added to the inventory of a department store in Japan in anticipation of rising sales in Japan next year.. Jacques, a French citizen, lives in London, England and works at a factory there making dresses for the royal family. GDP=Gross Domestic Product and GNP=Gross National Product. He earns 30,000 British pounds sterling a year for this work. His income wouldcount in the U.K.’s GDP and in France’s GDP.count in France’s GDP but not in the U.K.’s GDP.count in France’s GNP and in the U.K.’s GDP.count in France’s GDP and in the France’s GNP.not count in either France’s GDP or in the U.K.’s GDP.. Wayne worked at Sears in Ithaca. Sears closed. Wayne has lost his job. He started looking for another job immediately and continues to actively search every day. He still has no job. When Wayne went from working for Sears to not working for Searsthe labor force decreases.the labor force increases.the unemployment rate increases.the unemployment rate remains constant.the labor force participation rate changes.TABLE A. Refer to Table A. Assume that this economy produces only two final goods Good X and Good Y. The value for this economy's nominal GDP in year 1 isA. $110.B. $130.C. $140.D. $160.E. $100.. Refer to Table A. Assume that this economy produces only two final goods Good X and Good Y. If year 1 is the base year, the value for this economy's implicit GDP deflator index in year 2 isA. 108.2.B. 92.4.C. 924.D. 100.E. 1.08.. Flossie lost her job months ago. At first she actively looked for work, but over the last 15 weeks she has stopped looking for anything. When she is polled by the Department of Labor Flossie truthfully reports this information. Flossie would now be officially consideredone of the frictionally unemployed.no longer in the labor force.no longer in the population.lazy.in the labor force but unemployed.. Nominal (or current value) GDP in the United States in 2014 was roughlyA. $14.0 millionB. $17.3 trillionC. $15.9 trillionD. $17.3 billionE. $14.0 billionTABLE BTypical Urban Household’s Bundle for Purposes of CPIUnits in 2010Units in 2016Prices in 2010Prices in 2016Good A108$1.00$2.00Good B210$2.00$1.00Good C1512$4.00$6.00. This last question is a fill in the blank – all or nothing – question. Refer to Table B. Assume 2010 is the base year. The Consumer Price Index for 2016 based on the data in the table is (round off to nearest whole number):Answer: ___________________ 0457200Part II: Make sure you read and do ALL parts of each question. Show as much work as possible. TRY to get started on every question. Show us something. Write legibly and remember to label all graphs and axes in diagrams.020000Part II: Make sure you read and do ALL parts of each question. Show as much work as possible. TRY to get started on every question. Show us something. Write legibly and remember to label all graphs and axes in diagrams."Cornell Slope Day 2016" party hats are sold in a perfectly competitive market.The supply and demand curves for these party hats are characterized by:QD = 100 - 10P (demand)QS = -20 + 10P (supply)Carefully graph the supply and demand curves for hats. Be sure to label both axes and both curves and label the price-intercepts.What are the equilibrium price and quantity in this market? Illustrate and label the values in the graph by P* and Q*, respectively.Now suppose that the new Cornell provost decides to impose a price ceiling of $2/hat on this market since he doesn’t want Cornell students to have to pay too much for these hats. Analyze the likely impact of this policy using your graph, the stated demand and supply equations. In your opinion, is this policy a good or bad idea? Defend.ANSWERSANSWERSSheldon, Leonard and Raj can do two and only two things with their 400 hours of work each month: do lab experiments (E) or make science fiction movies (M). All units are infinitely divisible.In a month’s work time Sheldon can do 40 lab experiments and make 0 science fiction movies, or 40 science fiction movies and 0 lab experiments, or any linear combination of these two extremes.Leonard is different. He can do 60 science fiction movies and do 0 lab experiments, or 44 science fiction movies and 32 lab experiments, or any linear combination between these two points. However, once he reaches 32 lab experiments he gets bored. Beyond the point of making 44 science fiction movies and 32 lab experiments it takes him 2 movies to do each additional lab experiment.Raj is similar to Leonard. He can create 25 science fiction movies and do 0 lab experiments, 15 science fiction movies and 30 lab experiments, or any linear combination between these two points. However, once he gets to 30 lab experiments, he also tires, and from this point on, each lab experiment costs him 3 science fiction movies.Putting number of science fiction movies on the vertical axis and number of lab experiments on the horizontal axis, graph the individual production possibility frontiers for Sheldon, Leonard and Raj in three separate graphs.Imagine a world with only 2 people- Sheldon and Leonard. In this situation, suppose you start out with no lab experiments. How many science fiction movies are being made? Whom would you ask to do the first lab experiment in this world? Whom would you ask to do the last lab experiment in this world?The public relations team wants to determine the efficient joint production possibilities frontier in a world with all three people. Putting number of science fiction movies on the vertical axis and number of lab experiments on the horizontal axis, construct/graph the efficient joint production possibilities frontier. For full credit make sure to label numerical values at endpoint on the joint PPF and at any kink spots on the joint PPF. Also label the steepness of any segments on your joint PPF.ANSWERS:ANSWERS:Assume the following is a description of everything you need to know (and possibly more) about the economy of Ivyland in 2015. Ivyland’s currency is the dollar. Note that all dollar amounts are in millions of current 2015 dollars. Any expenditure items NOT listed can be assumed to have a value of $0.$2000=Personal consumption expenditures$650=Government consumption and gross investment plus government transfer payments to low income people$80=Government transfer payments to low income people$300=Gross private domestic investment excluding changes in business inventories$50=Net private domestic investment excluding changes in business inventories$100=Gross investment via change in business inventories$250=Depreciation or capital consumption allowance$200=Exports$190=Imports$500=Profits$5000=WagesCalculate the value of current/nominal 2015 GDP using the expenditure approach. Show some work.If real 2015 GDP in 2008 dollars is reported to be $2,000 million, what is the implicit GDP deflator index (base year = 2008)?Based on the implicit GDP deflator index, what is the average annual amount of inflation since the base year?Suppose your sibling’s salary upon graduation from Yale in 2008 was $40,000. You graduated in 2015 and took a job with a starting salary of $65,000. Suppose the jobs are – for all intents and purposes – identical, except for starting salary. Who did better “money-wise”, you or your sibling? Defend your position.The rest of the questions for this problem can be answered with no reference back to the numbers given.Briefly but concisely identify two important ways in which the Consumer Price Index (CPI) differs from the implicit GDP deflator index.Identify and briefly discuss two reasons why the way in which we calculate nominal GDP might misrepresent its true value as an indicator of social welfare.ANSWERS:ANSWERS: ................
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