ECO 102a
Fall 2014 Semester
Mulligan #1
Name: _________________________
Student ID#: ____________________
Part I: Instructions: Provide answers to the following questions. Show your work as
much as possible.
On an island live several persons who have formed their own economy. During the
year, they produced the following items:
40 units of potatoes worth $1 each
60 units of sunflowers worth $2 each
20 units of sunflower oil worth $6 each
60 units of french fries worth $2 each
Production of each unit of sunflower oil requires using up 2 units of sunflowers.
Production of each unit of French fries requires using up 1/4 unit of potatoes and
1/10 unit of sunflower oil.
The country imported one French fry cooker costing $100, which was purchased by
the French fry producer. The country also imported 30 units of ketchup that cost $1
per unit.
The country exported 10 units of potatoes and 10 units of sunflower oil.
The government purchased 2 units of sunflower oil, and 10 units of ketchup. The
government paid $20 in transfer payments, and collected $40 in taxes.
The sunflower oil company is foreign-owned, and earned $12 in profits.
1.
What was the value-added of the French fry industry?
2.
What was the value of final goods output of the sunflower oil industry?
3.
How much was government purchases?
4.
What was the country’s GDP?
5.
What was the country’s GNP?
Part II: Instructions: Select the one best response and record it directly on the
paper. You must clearly indicate which response you pick as your final answer. (If
you change your mind, erase or obliterate completely your old choice, and draw
special attention to your new choice by underlining, circling, drawing arrows, etc.)
1.
There are times when we sell our factors of production (like labor) to other
countries to help them produce output in their country. The payments we receive in
these situations is included in _____ , and results in _____.
a.
b.
c.
d.
e.
net factor payments as a minus;
our NX > 0.
transfer payments; government budget deficits
investment; investment > savings
net factor payments as a plus;
our GDP < our GNP
intermediate goods; our final goods output > our GDP
2.
If we want to compare how well-off an average person in our country was in
the most recent year to 5 years earlier, the measure that would be most correct
would be to compare:
a.
b.
c.
d.
e.
nominal GDP.
nominal interest rates.
real interest rates.
price levels.
real GDP per person.
3.
GDP is an imperfect measure of the well-being of the citizens of a country,
because:
(i) It doesn’t attempt to count the damage done to the environment through
pollution or over-exploitation of natural resources.
(ii) The wearing-out of capital equipment isn’t counted.
(iii) The improvement in the quality of products is often overlooked.
a.
b.
c.
d.
e.
only (i) is true.
only (ii) is true.
only (iii) is true.
(i), (ii), and (iii) are all true.
none of the above are true.
4.
Which of the following add up to GDP?
(i)
(ii)
(iii)
(iv)
The sum of the value-added by each industry in the country.
Consumption, Investment, Government Expenditure, Net Exports
Wages, Rents, Interest, Profits, and Net Factor Payments Received
The value of final goods output in each industry.
a.
b.
c.
d.
e.
only (i) is true.
only (ii) is true.
only (iii) is true.
(i), (ii), (iii), and (iv) are all true.
none of the options (a) through (d) is correct.
5.
Which of the following is counted as Investment according to economics?
(i)
(ii)
(iii)
(iv)
putting money in a bank account
going to graduate school to get a better job qualification
the Bookstore buying new books for next year’s classes
buying shares of Microsoft corporation
a.
b.
c.
d.
e.
only (i) is true.
only (ii) is true.
only (iii) is true.
only (iv) is true.
none of the options above is correct.
6.
Bob can produce 4 units of Beer per day, or 2 Pretzels per day. Pete can
produce 1 Beer per day or 3 Pretzels per day. They cooperate with each other to
produce beer and pretzels efficiently. The opportunity cost of the first pretzel
produced is:
a.
b.
c.
d.
e.
1/4 unit of beer.
1/3 unit of beer.
1 unit of beer.
1 day.
1/2 unit of beer.
The following text applies to the next three questions:
Our economy produces the following goods each day:
30 units of eggs worth $1 per unit
10 units of chickens worth $5 per unit
6 units of chicken nuggets worth $6 per unit
Each unit of chicken uses up 2 units of eggs, taken from the 20 units produced. Each
chicken nuggets uses up 1/2 unit of chicken, taken from the output figures described
above.
7.
The sum of the value-added per day across all 3 industries in our economy is:
a.
b.
c.
d.
e.
$120
$116
$96
$75
none of the above.
8.
The value of intermediate goods produced per day in our economy is:
a.
b.
c.
d.
e.
$50
$35
$25
$10
$0
9.
The value-added of the chicken nugget producer per day is:
a.
b.
c.
d.
e.
$50
$30
$25
$21
none of the above.
10.
What action would move a country along its Production Possibilities Frontier
but not shift the frontier?
(i)
eliminating the obvious waste of resources
(ii)
more labor available to use
(iii)
more capital
(iv)
increasing the output of one of the products at the lowest possible
opportunity cost
a.
b.
c.
d.
e.
only (i) and (ii) are true.
only (iv) is true.
only (ii) and (iii) are true.
only (ii) and (iv) are true.
only (ii), (iii), and (iv) are true.
11.
Suppose we try to increase production by doubling the number of machines
in our factory and doubling the number of workers. Output goes up, but by less than
double the original amount because the new workers aren’t as skilled or
experienced as the original workers. Then our production function:
a.
b.
c.
d.
e.
shows decreasing returns to scale.
shows increasing returns to scale.
shows constant returns to scale.
shows decreasing returns until the new workers are fully trained.
has unknown properties, because labor wasn’t really doubled.
12.
If an economy is efficient, it will produce a combination of products that is
_____ the country’s PPF. Exactly which point should be selected depends on where:
a.
b.
c.
d.
PPF.
e.
point.
outside;
inside;
on:
on;
the consumers are perfectly satisfied.
the country can set exports equal to imports.
the indifference curve crosses through the PPF.
an indifference curve touches but does not cross through the
on;
two different indifference curves both cross the PPF at one
13.
Intermediate goods are subtracted from the value of output in the industry
that produces them in the ____ method of computing GDP. Intermediate goods are
subtracted from the value of output in the industry that uses them in the ____
method of computing GDP.
a.
b.
c.
d.
e.
income
value-added
final goods
final goods
income
value-added
income
value-added
income
final goods
Output F(K,N)
Y= F(K,N)
(W/P)▪N
Labor use N
14.
In the graph above, the top (curved) line shows how much output a producer
can generate with his fixed amount of capital by adjusting the amount of labor being
used. The bottom (straight) line shows how much he must pay out to his workers in
wages. The effect of an increase in wages would be shown as:
a.
a shift of both the Y = F(K,N) line and the (W/P)▪N line to the right, and an
increase in the use of labor.
b.
a shift of the (W/P)▪N line to the right, and an increase in the use of labor.
c.
an increase in the slope of the (W/P)▪N line, and employers will respond by
choosing a smaller quantity of labor use.
d.
a decrease in the slope of the (W/P)▪N line, and employers will respond by
choosing a larger quantity of labor use.
e.
an increase in slope of both the Y = F(K,N) line and the (W/P)▪N line. It is
unclear what will happen to labor use.
15.
Sometimes a flow variable is the rate of change over time of a related stock
variable. An example of this would be that ____ measures the rate of change of
_____.
a.
b.
c.
d.
e.
investment
capital
government expenditure
government assets
wages
labor
GDP
income
value-added
production
16.
A firm that is seeking to produce at maximum profits will set the quantity of
labor it uses so that:
a.
b.
c.
d.
e.
the production function is constant returns to scale.
the marginal product of labor is equal to the real wage.
the marginal product of labor is zero.
the total cost of labor is equal to the total value of output.
none of the above.
17.
If the economy’s production function is decreasing returns to scale, then a
graph showing how much of all factors of production (land, labor, and capital) on
the X axis and output attained on the Y axis will be:
a.
a downward-sloping curve.
b.
a straight line from the origin.
c.
a line starting from the origin that curves upwards.
d.
a line starting from the origin that curves so that the slope becomes less
steep as X increases.
e.
none of the above.
18.
If labor markets worked perfectly, then every person who wanted a job at
the prevailing wage could work. The world isn’t perfect, so even when the labor
market is working as well as we can expect to work under normal circumstances,
there will be some people unemployed at any given point in time. When the labor
market is working as well as we can usually expect, we will still have ____ and ____
unemployment.
a.
b.
c.
d.
e.
frictional
cyclical
structural
cyclical
frictional
structural
short-term
long-term
none of the above
19.
Suppose a firm increases its capital over time through investment. It’s new
short-run relationship between labor used and output produced will be different
from the old relationship (before the extra capital was built and installed). Even if
the real wage is unchanged, the firm will choose a different amount of labor than
earlier. Therefore the addition of new capital would cause:
a.
b.
c.
d.
e.
20.
a.
b.
c.
d.
e.
a shift of the firm’s labor demand curve to the right.
a shift of the firm’s labor demand curve to the left.
a shift of the firm’s labor supply curve to the right.
a shift of the firm’s labor supply curve to the left.
a movement along the labor demand curve to the right.
Which of the following are flow variables?
(i) Bandwidth use (MB/sec) between midnight and 05:00 in the Residence Halls.
(ii) Sales per hour at the ABF Café
(iii) Copies of the intermediate macro text on the shelf in the Bookstore at 9:00
am on Monday, October 6.
only (i) is true.
only (ii) is true.
only (iii) is true.
only (i) and (ii) are true.
none of the above.
Part III Extra Credit (1 point if correct) – Do not waste your time on this until you are
FINISHED wasting your time on the other sections.
Below are 4 photos – one is current Fed Chair Janet Yellen. Another is former Fed
Chair Ben Bernanke. Another is Mario Draghi, head of the European Central Bank.
Another is baseball player David “Big Papi” Ortiz.
Which photo is which?
a.
b.
c.
d.
e.
(1) Ortiz; (2) Bernanke; (3) Draghi; (4) Yellen
(1) Yellen; (2) Bernanke; (3) Draghi; (4) Ortiz
(1) Bernanke; (2) Draghi; (3) Ortiz; (4) Yellen
(1) Draghi; (2) Ortiz; (3) Yellen; (4) Bernanke
(1) Draghi; (2) Yellen; (3) Bernanke (4) Ortiz