Ag Econ 1042
First Exam, 140 points
February 16, 2012
Name _____KEY_____________________
8 a.m. Section
True/False – one point each
T
F
1.
Consumption is the smallest component of rGDP.
T
F
2.
A bond is a debt instrument that has a set payback at a specific time in the future.
T
F
3.
Increasing the current minimum wage in the US. would likely increase unemployment
but its impact on income is unclear depending on the elasticity of labor demand.
T
F
4.
A price rise for an inelastic good such as flour will reduce the revenue of sellers.
T
F
5.
The Federal Reserve or FED is the central bank of the U.S.
T
F
6.
A decrease in the price of wheat will increase the supply of wheat.
T
F
7.
Inflation is currently not the primary concern of the Federal Reserve.
T
F
8.
Inflation is a general increase in the price level and it is measured by using a price index.
T
F
9.
Producer surplus is the value received by a seller in excess of the seller’s marginal cost.
T
F
10.
Price supports tend to cause shortages.
T
F
11.
Using the expenditures approach, consumption is the smallest component of GDP.
T
F
12.
John Maynard Keynes believed that the government had a role in supporting the
economy.
T
F
13.
Interest rates are essentially the rental price of money.
T
F
14.
If the equilibrium price and quantity for hotel rooms increase at the same time, the
demand curve has shifted right or increased.
T
F
15.
Own-price elasticity of demand is the same as the slope of the demand curve.
T
F
16.
The law of demand implies that as the price of pencils fall, a larger quantity of pencils
will be purchased.
T
F
17.
An economy that develops and uses new technology will experience economic growth
but incurs an opportunity cost.
1
T
F
18.
When Andrea had a substantial increase in income, she reduced the amount of donuts she
purchased. For Andrea, donuts appear to be a normal good.
T
F
19.
A decline in the price of personal computers at the same time the quantity sold increases
suggests an increase in the demand for personal computers is greater than the supply.
T
F
20.
If apple juice prices rise every time orange juice prices rise, they are probably substitutes.
T
F
21.
If the own price elasticity of backpacks is four, a one percent increase in price will
reduce the quantity demanded by four percent.
T
F
22.
When demand is elastic, a decrease in price will reduce total revenue.
T
F
23.
Social Security will have nothing to pay future retirees.
T
F
24.
Own price elasticity of demand is determined by the number of sellers.
T
F
25.
Real GDP has been adjusted for changes in the price level.
Multiple choice – two points each
__a___ 26. Market supply and demand curves are similar in that both
a. Describe the behavior of market participants
b. Involve the willingness and ability of a buyer to buy a good or service
c. Involve the willingness and ability of a supplier to sell a good or service
d. Have the same slope
e. All of the above
__c___ 27. If the productivity of inputs used to produce a good increases,
a. The quantity supplied increases
b. The quantity supplied decreases
c. Supply increases
d. Supply decreases
e. Demand increases
__e___ 28. Which of the following does not correctly describe market equilibrium?
a. The quantity demanded equals the quantity supplied
b. Buyers and sellers have reached a compromise
c. There is no shortage or surplus
d. Demand intersects supply
e. None of the above
2
__b___ 29. If there is a shortage in a market, then the
a. Price is too high
b. Price must rise to restore equilibrium
c. Supply curve must shift to eliminate the shortage
d. Price must fall to restore equilibrium
e. None of the above
__e___ 30. U.S. real GDP is
a. A measure of output
b. A measure of income
c. A measure of an economy’s size
d. Adjusted for price changes
e. All of the above
Short answers are valued at five points each
31. Why do reduced cheeseburger prices cause an increase in the quantity demanded of French
fries?
They are complements
32. Diagram the result of income increasing in the housing market.
$/Q
S
P1
P0
D
0
Q0 Q1
D1
Q
33. How does a government’s deficit differ from a government’s debt?
Deficit is annual; debt is the total owed
3
34. What is Mr. Bernanke’s goal when he warns Congress about imminent tax increases and
reductions in government spending?
Economic growth or lower unemployment
35. Diagram the impact on the clothing market due to increasing income. Indicate final
consumer surplus.
$/Q
S
CS
P1
P0
D
0
Q0
Q1
D1
Q
36. What needs to happen before the unemployment rate will fall more than it has already fallen
during the last year?
Economic growth
37. List the four components of GDP and indicate which is the largest.
Consumption (largest) or consumer spending
Government expenditures
Investment
Net Exports
38. What is the primary goal of macroeconomic policy?
Economic growth or ↑ GDP
39. Retail sales increased in January. What is the component of GDP that would include most
retail sales?
Consumption
4
40. If a firm wants to increase revenue, when does lowering price achieve this?
When demand is elastic
41. What does an increase in rGDP tell us?
The economy is growing or more output or more income
42. Diagram the market situation for cotton in 2011. Cotton’s price fell as world income
increased.
S
$/Q
S1
P0
P1
D
0
Q0
Q1
D1
Q
43. Social Security:
a) Has a payroll tax of ____12.4%__________ to pay its cost.
b) Pays out to three groups of people. Name them.
Retirees
Disabled
Dependents of above
5
The following questions are valued at 10 points each
44. Provide the word or phrase that best fits with the following statements.
a) Designed motivating factor
Incentive
b) The output level that corresponds to revenue maximization
MR = 0 or Ep = 1
c) Net benefit to consumers
Consumer surplus
d) Used to measure economic growth
rGDP
e) The best foregone option
Opportunity cost
45. Fill in the blanks below:
a) rGDP increased ____2.8%____________ in the fourth quarter.
b) The current unemployment rate in the U.S. is __8.3%___________
c) The unemployment rate is _____________ 0-2%
any answer ok
d) Keynes believed __government________________ has a role in impacting the
macroeconomy.
e) China’s economy is expected to grow __more_____________ than the U.S.
6
46. Diagram the situation where new technology increases gas production faster than demand
for gas increases. Show final consumer and producer surplus. What does the diagram say
about the profitability of businesses? Nothing
$/Q
S0
S1
CS
P0
P1
D0
0
Q0
Q1
D1
Q
47. Diagram the impact of instituting an effective minimum wage. Show final consumer and
producer surplus as well as surplus production caused by the minimum wage.
a) What has to be true for the revenue workers receive to increase in total?
Demand is inelastic
b) How does the higher price of labor affect the demand for labor?
No change or lower Qd
$/Q
S
surplus
CS
Mw
P0
PS
D
0
Qd
Q0
Qs
Q
7
Qs – Qd = surplus