Economics 111 (1 to 12)
Midterm Exam
Fall 2000
Your Name: ______________________________________________________
Sections:
1-2, Lindon Fairweather;
3, 4, 11, Alakh Singh;
5-6, Hulya Varol;
7-9, Anasusa Bhattacharya;
10, 12, Xuedong Tian
Name of your section leader
and/or section number:______________________________________
Part 1 is 4 essay-definitions for a total of 16 points (4 each). Part 2 is 5 problems/graphs
for a total of 34 points. Part 3 is 20 multiple choice questions for a total of 50 points (2.5
each).
Answer Sheet for Part 3: Multiple Choice Questions:
Please fill in the SINGLE BEST correct answer below:
7. _______
8. _______
9. _______
10. _______
11. _______
12. _______
13. _______
14. _______
15. _______
16. _______
17. _______
18. _______
19. _______
20. _______
21. _______
22. _______
23. _______
24. _______
25. _______
26. _______
Part 1: Essays-Definitions Total points 16 (4 points each). On the attached blank
pages please discuss, define and describe FOUR the following. Only the first 4
answers will count. Please clearly number each answer, and make sure your name
is on the top of the page.
1a. Opportunity cost
1b. Positive economics
1c. Common stock
1d. GDP deflator
1e. Demand - pull inflation
1f. Disposable income
1g. Depreciation
Part 2: Problems and Graphs 34 Points (3.1 or 6.2 points each) Please answer
these problems on the space provided below, or on the attached paper. Clearly
number all answers. Label your axis and curves.
Show ALL OF YOUR WORK to possibly receive partial credit, if your final
answer is wrong.
2. The table below gives data for country B. Use the data to calculate the consumer price index
in the current year.
The consumer price index for country B is ________________ .
Product
Bread
Milk
Quantity in
Market Basket
10
5
Price in
base year
Price in
current year
$1.00
0.50
$1.50
2.00
3. Suppose that you are given the demand and supply curves for Pizza Hut pizza in Storrs.
On the attached pages answer the following questions.
a. Draw the starting supply and demand curves for this market, assuming that this market is at
equilibrium. Label the curves “D” and “S” and label equilibrium price “P 1” and equilibrium
quantity “Q1.”
b. If the price of Domino’s pizza decreases, what happens to Pizza Hut pizza’s equilibrium price
and quantity. Start with the initial equilibrium from part a. Show in the same graph for part a,
and explain in words. Label the new curve(s) “D2 ” and “S2” and label the new equilibrium
price “P2” and equilibrium quantity “Q2.”
c. In a second graph, redraw the initial equilibrium of part a. Now suppose that there is a new
machine that makes pizza dough faster and cheaper. Show in this second graph, and explain
in words, what happens to the Pizza Hut pizza market? Label the new curve(s) “D 3 ” and “S3”
and label the new equilibrium price “P 3” and equilibrium quantity “Q3.” Do not include the effect
of Domino’s pizza in this graph.
4. Answer the following questions using the table below.
Gross Investment
Depreciation
Net exports
Transfer Payments
Consumption
Government Purchases
Net Earnings of
American Resources Abroad
$70
30
-10
50
300
60
10
a. What is the Gross Domestic Product (GDP)? _______________
b. There are two approaches for calculating GDP. With the numbers given above, you used the
____________________________ approach to calculate GDP.
The alternative approach to calculate GDP is __________________________.
5. MPC and MPS
a. Consumption is increased by $10 billion when real disposable income increases by $15 billion.
The value of the marginal propensity to consume (MPC) is _____________________ .
b. The algebraic relationship between the MPC and the marginal propensity to save (MPS)
is that mps = ________________ . The numerical value of the MPS is __________________ .
6. Simple Spending Multiplier: Suppose that the MPC is 0.8 and that $8 trillion of real GDP is
currently being demanded. Then there is .04 Trillion dollars of new investment in the economy.
a. The equation for the multiplier is ________________, and its numerical value is ___________.
b. The resulting change in GDP is ___________________ trillion dollars.
Please show the steps you used to get to your answer.
Part 3: Multiple Choice Questions Total 50 points (2.5 points each). Please answer
these questions on the front answer sheet of the exam. Choose the SINGLE BEST
answer.
7. As the general price level increases, the amount of goods and services that consumers,
businesses, and governments desire will change. How will this be illustrated?
a. a leftward movement of the aggregate demand curve
b. a rightward movement of the aggregate demand curve
c. a movement up along the aggregate demand curve a.
d. a movement down along the aggregate demand curve
e. a shift in the aggregate supply curve
8. Macroeconomics is best described as the study of
a.
b.
c.
d.
e.
the behavior of large firms in the marketplace
the economic behavior of individual decision makers
the behavior of the economy as a whole
how to use the fewest natural resources to produce goods and services
government's role as a stabilizing influence on the economy
9. Opportunity cost exists because
a.
b.
c.
d.
e.
the level of technology is fixed at any one time
the law of comparative advantage is working
resources are scarce but wants are unlimited
the value of lost opportunities varies from person to person
efficiency is measured by the monetary cost of an activity
10. When drawing a production possibilities frontier, all of the following are usually assumed
except one. Which is the exception?
a.
b.
c.
d.
e.
The quantity of resources is rapidly growing.
Technology is fixed.
Resources can be shifted between production of the two goods.
The production possibilities frontier is drawn for a particular time period.
Resources are fully and efficiently employed.
11. Households are referred to as suppliers when they supply
a.
b.
c.
d.
e.
goods and services to firms and governments
resources to firms and governments
tax payments to governments
the demand for only what firms supply or make available
money to firms in exchange for goods and services
12. Which of the following best describes the aggregate expenditure line?
a.
b.
c.
d.
e.
C
C
C
C
C
+
+
+
+
+
I + G + (X - M)
S + G + (X - M)
I + G + (X + M)
I + T + (X - M)
I + T + (X + M)
13. Which is true of John Maynard Keynes?
a.
b.
c.
d.
e.
He believed that serious economic contractions were natural phases in an
otherwise healthy system.
He provided a model that closely resembled that of Adam Smith.
He advocated a decrease in the money supply to stabilize the economy.
He argued that increased government demand should offset reduced private
sector demand to prevent depression.
He advocated tax increases to balance the federal government's budget during
the Great Depression.
14. Which of the following people is LEAST LIKELY to be hurt by inflation?
a.
b.
c.
d.
e.
a salesperson who works on commission
a retired couple living on a pension
an individual who works under a labor contract calling for a fixed wage for the
next three years
an individual who contracts to lend money for a fixed rate of interest for the next
three years
an individual working at the minimum wage (which seldom changes)
15. Which of the following is NOT true about GDP
a. it includes only final goods and services
b. it reflects production in a particular year
c. it can be measured by total spending by each group in society
d. it includes transfer payments
16. Which of the following would shift the consumption function upward?
a. a decrease in disposable income
b. an increase in disposable income
c. an increase in the rate of interest
d. an increase in net wealth
17. Structural unemployment refers to unemployment resulting from
a. people giving up looking for a job
b. being in the wrong geographical location
c. taking the time to find the best job
d. an increase in demand for labor for the holidays
e. a recession in the economy
18. Labor productivity is measured as
a. the value of total output times total employment
b. total output of all workers employed
c. total output divided by the number of units of labor employed
d. total labor input divided by output
e. units of labor per units of capital
19. Consider an economy consisting of 100 people, 60 of whom hold jobs, 10 of whom
are looking for work, 15 of whom are under the age of 16, and 15 of whom are retired.
The number of people in the labor force is
a. 30
b. 60
c. 85
d. 90
e. 70
20. In the income-expenditure framework, if planned aggregate expenditures are greater than
real GDP,
a.
b.
c.
d.
e.
the price level will fall
consumption must fall
inventories will increase
inventories will decrease
consumption will decrease
21. Which of the following is NOT true about a change in the price level?
a.
b.
c.
d.
e.
It
It
It
It
It
will
will
will
will
will
shift the aggregate demand curve.
shift the aggregate expenditure curve.
result in a new value of equilibrium real GDP demanded.
change the real value of dollar-denominated assets.
shift the consumption function.
22. Which of the following would NOT be considered a cost of unemployment?
a.
b.
c.
d.
e.
loss of self-respect by those who are unemployed
waste of the economy's resources
negative psychological effects on those who have lost their jobs
higher rates of inflation
loss of income by those who are unemployed
23. During which of the following decades was inflation most rampant in the United States?
a.
b.
c.
d.
e.
1920s
1930s
1950s
1970s
1980s
24. If the expected rate of inflation is 4 percent and the nominal interest rate is 9 percent, the
expected real interest rate is
a.
b.
c.
d.
e.
13 percent
-5 percent
9 percent
-13 percent
5 percent
25. GDP has problems as a measure of social welfare for all of the following reasons EXCEPT ?
a.
It excludes many nonmarket activities.
b.
It values all types of output equally.
c.
It excludes pollution damage.
d.
It excludes intermediate goods as a separate entry.
e.
It excludes the value of leisure time.
26. Which of the following would tend to shift the investment function upward?
a.
higher interest rates
b.
gloomy sales expectations
c.
a cut in corporate taxes that raises after-tax profits
d.
a decrease in the marginal propensity to consume
e.
an increase in aggregate income
Answer Key
1.
>
a
8.
>
c
TOPIC: Microeconomics and Macroeconomics
MA_5e01 Ch 1 #54 (MC #54)
DIF: 1
>
b
TOPIC: Rational Self-Interest
MA_5e01 Ch 1 #62 (MC #62)
DIF: 3
>
c
TOPIC: Opportunity Cost
MA_5e02 Ch 2 #1 (MC #1)
3.
4.
DIF: 3
5.
>
a
TOPIC: Efficiency and the Production Possibilities Frontier
MA_5e02 Ch 2 #100 (MC #100)
DIF: 3
>
b
TOPIC: The Household
MA_5e04 Ch 4 #2 (MC #2)
DIF: 3
b
TOPIC: Kinds of Firms
MA_5e04 Ch 4 #68 (MC #68)
DIF: 3
6.
7.
>
8.
>
d
TOPIC: The Age of Keynes: After the Great Depression to the
Early 1970s
MA_5e05 Ch 5 #103 (MC #103)
DIF: 3
>
d
TOPIC: Unemployment
MA_5e07 Ch 7 #4 (MC #4)
9.
DIF: 5
10.
>
e
TOPIC: The Meaning of Full Employment
MA_5e07 Ch 7 #84 (MC #84)
DIF: 5
>
d
TOPIC: A Historical Look at Inflation and the Price Level
MA_5e07 Ch 7 #133 (MC #133)
DIF: 1
11.
12.
>
e
TOPIC: Anticipated versus Unanticipated Inflation
MA_5e07 Ch 7 #151 (MC #151)
DIF: 3
>
a
TOPIC: Why is Inflation So Unpopular?
MA_5e07 Ch 7 #194 (MC #194)
DIF: 3
>
d
TOPIC: Limitations of National Income Accounting
MA_5e08 Ch 8 #110 (MC #110)
DIF: 3
>
c
TOPIC: From Micro to Macro
MA_5e09 Ch 9 #125 (MC #125)
13.
14.
15.
DIF: 3
16.
>
d
TOPIC: The Components of Aggregate Expenditure
MA_5e10 Ch 10 #6 (MC #6)
DIF: 3
>
a
TOPIC: Quantity of Real GDP Demanded
MA_5e10 Ch 10 #19 (MC #19)
DIF: 3
18.
a
TOPIC: Deriving the Aggregate Demand Curve
MA_5e10 Ch 10 #102 (MC #102) DIF: 5
17.
>