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Econ 1120-INTRODUCTORY MACROECONOMICS
MAKEUP PRELIM #1-Wissink-Spring 2017 – March 8
Clearly Print Your LAST(family) Name: ______________________________________________________
Clearly Print Your First Name: ___________________________________________________
Your Cornell NetId: ___________________ Your Student Number: __________________________
There are two sections in this exam. Answer all questions.
Part I: 14 multiple choice questions @ 3 points each
Part II: 3 problems @ 16, 20 and 22 points each
TOTAL 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.
Circle the SECTION you regularly attend (that is to say, check where you will pick up your prelim):
[pic]
One more time, please…
Clearly Print Your LAST(family) Name: _______________________________________________________
Clearly Print Your First Name: ___________________________________________________
Your Cornell NetId: ___________________ Your Student Number: __________________________
GRADING
MC (out 42 points)=___________________
Q1 (out of 16 points)=_________________
Q2 (out of 20 points)=_________________
Q3 (out of 22 points)=_________________
TOTAL SCORE: _____________________
Part I: Multiple Choice. Do them ALL.
CIRCLE the letter for your answer.
_____________________________________________
[i]. Which one of the following sentences is a normative statement?
A. The law of demand implies that demand curves are negatively sloped.
B. The unemployment rate was over 10% when Barack Obama took office and now it is 5.5%.
C. Congress and the president should increase taxes on rich people in order to provide more health care to the poor.
D. In the last 5 years 400,000 additional children have lost health care coverage.
E. On average Americans pay $16,000 a year for health insurance.
[ii]. The table shows the weekly demand and supply information for chicken soup in Ithaca. The quantity actually traded in the Ithaca market will be 210 cups/week if
|Price ($/cup) |Quantity |Quantity |
| |Demanded (cups) |Supplied (cups) |
|$2.25 |0 |816 |
|$2.00 |60 |666 |
|$1.75 |135 |546 |
|$1.50 |210 |450 |
|$1.25 |310 |310 |
|$1.00 |450 |210 |
|$0.75 |585 |135 |
|$0.50 |735 |75 |
|$0.25 |900 |30 |
A. the local government enforces a price ceiling of $1.50/cup.
B. the local government allows the market to reach its natural equilibrium.
C. the local government enforces a price floor of $1.00/cup.
D. the local government enforces a price floor of $1.50/cup.
E. None of the above is correct.
[iii]. Market equilibrium price will rise and the equilibrium quantity may increase, decrease, or stay the same when
A. demand and supply both increase.
B. demand decreases and supply increases.
C. demand increases and supply decreases.
D. demand and supply both decrease.
E. supply increase while demand stays constant.
[iv]. Suppose that the demand function for glasses of freshly squeezed orange juice at a local cafe in Ithaca is as follows:
QD = 600 + 7F – 0.5J + 1.9G. Which one of the following statements is most true?
A. Variable G is most likely the price the café owner paid for the oranges wholesale.
B. Variable J could be the price of chocolate milk, a substitute in consumption for orange juice.
C. The demand for orange juice must be vertical.
D. If the orange juice market satisfies the “law of demand” then J is most likely the price of orange juice per glass.
E. Variable F is most likely the café owner’s rental cost for her cafe.
[v]. The graph represents the Cortland market for jelly beans this spring. Q is number of pounds. $ is the price per pound. Suppose the government imposes a price ceiling of $10 per pound. The consequence of this is that
A. there will be a surplus of 30 pounds of jelly beans.
B. there will be a shortage of 30 pounds of jelly beans.
C. there will be a shortage of 40 pounds of jelly beans.
D. there will be a black market price of $10 per pound of jelly beans.
E. nothing happens, since the price ceiling is not binding.
[vi]. Jim, Pam, Dwight and Kelly are asked by their boss Michael to make paper airplanes and paper hats for the upcoming company party. The table shows the maximum number of airplanes or hats that each employee can make during one hour. Workers can produce any linear combination of their extreme values. The group decides to assign the tasks efficiently. Suppose Dwight is making both airplanes and hats. Given that information, which one of the following statements is true?
| |Planes |Hats |
|Jim |30 |10 |
|Pam |20 |30 |
|Dwight |40 |40 |
|Kelly |15 |20 |
A. Jim is making only hats.
B. Pam is making only planes.
C. Kelly is making only hats.
D. Jim, Pam and Kelly are also producing some of both.
E. Everyone is making planes.
[vii]. Which one of the following is an example of a final good or service?
A. Wheat a bakery purchases to make bread.
B. Coffee beans Starbucks purchases to make coffee.
C. A computer purchased by Ezra Smith, a new Cornell freshman.
D. Lumber purchased by a construction company that gets used in building houses.
E. Jee-Hun’s time, purchased by Cornell, to be used in making intro 1120 go more smoothly for students and Prof. Wissink.
[viii]. Migration is a politically sensitive topic. Much of the discussion is centered around the effect of migrants on local labor markets. Suppose the government decides to increase the number of migrants allowed into the country. Suppose that the only effect that this has is to increase the local supply of labor in the economy. Which one of the following predictions is most correct based on the perfectly competitive model of demand and supply?
A. The equilibrium market price of labor (wages) will definitely increase and the equilibrium quantity traded (employment) could go up or down.
B. Employment will definitely increase but wages could go up or down.
C. Both wages and employment will definitely increase.
D. Both wages and employment will definitely decrease.
E. Wages will definitely decrease and employment will definitely increase.
[ix]. Assume that the U.S. economy’s production possibilities can be depicted by the figure. Which of the points would represent an efficient use of the U.S. economy’s resources?
A. I
B. II
C. III
D. All of the above
E. None of the above.
[x]. Which one of the following would not be counted in 2014's GDP, via either the income approach or the expenditure approach?
A. The 2014 salary of a used car salesman for his efforts at the used car lot in 2014.
B. The value of the car, produced in 2013, which you purchase on sale from a new car dealer in 2014.
C. The sale of an oven manufactured in 2014 and purchased in 2014 by a pizza parlor.
D. The value of a refrigerator manufactured in 2014 but not sold in 2014. It now sits in inventory.
E. Government expenditures on repairing pot holes in highways in 2014.
[xi]. If no foreign citizens work in BadLand, but many of BadLand’s citizens work abroad, then
A. BadLand's GDP will tend to exceed its GNP.
B. BadLand's GNP will tend to exceed its GDP.
C. BadLand's GNP and GDP will tend to be equal.
D. BadLand's GDP will tend to be equal to its national saving.
E. BadLand's’s exports will be zero.
[xii]. The 2002 implicit GDP deflator index in Webworld was 95 using 2001 as its base year. This means that, on average, the prices of goods and services are
A. 105% higher in year 2002 than in year 2001.
B. 5% higher in year 2002 than in year 2001.
C. 105% higher in year 2001 than in year 2002.
D. 5% higher in year 2001 than in year 2002.
E. all increasing.
[xiii]. Which one of the following is best categorized as structural unemployment?
A. Weak short term demand has caused a general economic slowdown. Because of that, Allen has temporarily lost his job at the glove factory in Gloversville, NY.
B. Dave, who works as an instructor at Greek Peak Ski Resort in Virgil, NY is out of work in the summer since there is no one to teach when there is no snow.
C. Steel worker Tom is thrown out of work by the introduction of new technology in the steel sector that now employs a more high-tech production process that will permanently requires a much smaller labor to capital ratio.
D. Joe, a computer programmer with a large bank, quit his job two months ago to look for a better paid programming position.
E. Patrick, who recently graduated from Cornell Medical School, is looking for a place to set up his practice.
[pic]
[xiv]. Refer to the table which lists the representative consumer’s base year bundle of blueberries, pineapples and cheese. Suppose 2011 is the base year. The consumer price index in 2010 is
A. 94.2.
B. 97.4.
C. 106.1.
D. 123.0.
E. none of the above.
Keep going……………………………..
Part 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.
1. Suppose the supply and demand curves for milk in Cortland are described by the following equations (where Q is measured in gallons and P is price per gallon):
Demand: QD = 18 - P Supply: QS = -6.0 + 5P
a. Graph the demand and supply curves as we have set it up in class (remember to label everything in your graph including endpoints of demand and supply).
b. Determine the proper equation for the demand curve as it is illustrated on your graph.
c. Determine the proper equation for the supply curve as it is illustrated on your graph.
d. Determine the equilibrium price and quantity values and label them on your graph.
e. Suppose Brian Tobin, the mayor of Cortland, gets the local government to enact a milk price floor of $6 a gallon in the Cortland milk market. Indicate the impact of this law on your diagram and briefly discuss. Calculate any shortage/surplus due to the policy.
f. Considering demanders & suppliers in this market and the government, who “wins” and who “loses” as a consequence of this policy? Briefly defend your position.
Answer Space
Answer Space
2. Abe and Betty are the only producers/consumers in a small (American) football loving economy. Abe and Betty produce and consume only two things: NFL (National Football League) logo T-shirts and logo pins.
Given 60 hours of work in a week, Abe can produce a maximum of 4 T-shirts or 12 pins, or any combination along a straight line PPF between the two.
Given 60 hours of work in a week, Betty can produce a maximum of 5 T-shirts or 20 pins, or any combination along a straight line PPF between the two.
|Hours Required for One Unit of Output |
|Person |T-shirts |Pins |
|Abe | | |
| |_______hours |_______hours |
|Betty | | |
| |_______hours |_______hours |
a. Fill in the missing numbers in the table.
b. Who has the absolute advantage in T-shirt production? Who has the comparative advantage in T-shirt production?
c. Assume that Abe and Betty have not taken Econ 1120, and hence don’t know the wonders of trade. That is, they insist on self-producing everything they consume. If Abe wants to consume 2 T-shirts, how many pins, at most, can Abe have per week? If Betty wants to consume 16 pins, how many T-shirts, at most, can she consume per week? When Abe and Betty do this, what is the total number of pins and total number of T-shirts made summing over the two of them?
d. Assume Abe and Betty take Econ 1120 and see the light and realize they should be efficient. Putting PINS ON THE HORIZONTAL and T-SHIRTS ON THE VERTICAL, illustrate the efficient combined production possibility frontier. For full credit, if there are any kink points in your graph, label the number of units of each task at any/all kink points. Also label the endpoints of the PPF.
e. If Abe and Betty specialize and trade with each other, what would be the bounds of an “international” exchange rate between T-shirts and Pins between Abe and Betty? For full credit you must give a brief explanation of why.
Answer Space
Answer Space
3. Consider the economy of Wistler which uses Wistler dollars ($) as their currency. The table represents total production of final goods in Wistler for the years 2008 and 2014.
IMPORTANT NOTE: The Wistler Bureau of Labor Statistics has decided that the representative urban consumer’s bundle in the base year of 2008 includes only the following: 5 apples and 10 books.
a. Fill in all the missing cells in the table and determine: i) current 2008 GDP, ii) current 2014 GDP and iii) real 2014 GDP in 2008 dollars.
b. Determine the implicit GDP deflator index for 2014 (using 2008 as the base year) - show some work.
c. Based on the implicit GDP deflator index, has there been inflation or deflation since 2008? Briefly explain and quantify how much inflation or deflation there has been.
d. Determine Wistler’s consumer price index for 2014 (using 2008 as the base year) - show some work.
e. How would your answer to part (a) for current 2008 GDP be impacted if you learned that in 2008 book manufacturers gave away 100 of the books they made to faculty members at universities, hoping to get faculty at these universities to require that students buy lots of book in the future? YOU DO NOT NEED A NUMBER, JUST A DIRECTION like up, down or stays the same. For full credit you must give a brief explanation of why.
|total number of units produced in 2008 |total number of units produced in 2014 |per unit prices in 2008 |per unit prices in 2014 |Current $ 2008 GDP |Current $ 2014 GDP |Real $ 2014 GDP
base year=2008 | |apples |100 |200 |$0.50 |$0.70 | | | | |books |300 |250 |$5.00 |$7.00 | | | | |military guns |50 |55 |$3.00 |$3.50 | | | | | | | | |Total GDP values for a(i), a(ii) and a(iii) | | | | |
Answer Space
WISSINK ANSWERS ECON 1120 S2017 MAKEUP PRELIM 1
-----------------------
[i]. C
This is the only answer that involves making a judgment about the “right” thing to do. The other answers are all “positive” predictions that do not address the appropriateness of the policy.
[ii]. D
Arguments of A and C are not binding, and thus it doesn’t affect natural equilibrium price and quantity. And in equilibrium the quantity is 310, so B is wrong. D is correct because the floor is binding and the demand curve binds the quantity traded here.
[iii]. C
When demand increases and supply decreases at the same time, price rises unambiguously. However, since they are going in the opposite direction (in terms of going right and left, which measure quantity), the effect on the equilibrium quantity is uncertain. Depending on the relative degree of shift in the demand curve and the supply curve, equilibrium quantity may increase, decrease, or stay the same.
[iv]. D
Look at the algebraic signs in front of each variable and ask yourself if they make sense given the multiple-choice options. The answer is not A because this would affect supply, not demand. Assuming chocolate milk is a substitute, we’d expect an increase in the price of that to increase the demand for OJ. Therefore B is wrong. For C to be correct, we need to know that each of F, J and G are zero, and we do not know this. E affects supply, not demand.
[v]. C
The price ceiling is set below the market equilibrium price, so it is binding (E is incorrect). A price ceiling will generate a shortage of 40 pounds since only 20 are supplied but 60 are demanded.
[vi]. C
Draw each person’s PPF and notice the following with respect to the marginal opportunity cost of hats in terms of planes: Pam’s = 2/3, Kelly’s=3/4, Dwight’s=1 and Jim’s=3. So if Dwight is doing some of both, by now you have Pam and Kelly doing only hats, and Jim doing only planes.
[vii]. C
A, B, D and E are not correct because they are used to produce some other goods or services. They are all examples of intermediate goods.
[viii]. E
The increase in supply shifts the supply curve to the right. This moves the equilibrium point down the demand curve so that wages fall and employment rises.
[ix]. B
Any point on the frontier of the PPF is an efficient allocation of resources in the economy.
[x]. B
Because the car was made in 2013 it’s in that year’s GDP calculation.
[xi]. B
GDP measures the total market value of all final goods and services produced within a given period by factors of production located within a country, whereas GNP is the market value of all final goods and services produced during a given period by factors of production owned by a country’s citizens. Because there are no foreign citizens producing in BadLand, but many of the BadLand’s citizens produce abroad, BadLand’s GNP should be greater than its GDP.
[xii]. D
The index in base year is 100. The index in year 2002 is 95. Therefore, D is correct. Webworld experienced deflation between 2001 and 2002.
[xiii]. C
Structural unemployment: the portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries. An introduction of new technology in production process could be a cause of structural unemployment.
[xiv]. A
The CPI in 2010, with 2011 as the base year, is defined as the base year bundle evaluated at 2010 prices divided by the base year bundle evaluated at 2011 prices, then multiplied by 100. [(8* 2.00) + (5 * 2.50) + (3 * 3.00)]/[(8 * 2.10) + (5 * 2.50) + (3 * 3.50)] * 100 = 94.2.
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