Econ 216, Principles of Macroeconomics
Exam #1, Fall 2015
Stonebraker
Name _______________________________
1. (8%) Draw typically shaped supply and demand curves for charcoal and show what, if anything, will
happen to the equilibrium price and quantity of the charcoal if the price of charcoal grills rises. Label
clearly and explain.
2. (17%) Suppose a worker in Gabon can produce either 80 units of good X or 10 units of good Y in a day
while a worker in Morocco can produce either 30 units of X or 2 units of Y in a day.
a. If specialization is not possible, what is the opportunity cost in Gabon of producing one unit of good
X?
b. If specialization is possible, in which good should Gabon specialize? In which should Morocco
specialize? Why?
c. Identify a mutually beneficial ratio at which Gabon and Morocco can trade X for Y and explain
clearly how the trade ratio you choose can benefit both countries.
3. (2%) What is allocative efficiency?
4.
(8%) Draw and label a production-possibilities frontier for an economy producing only capital goods or
consumption goods. Pick a point on the curve that would create strong economic growth and explain.
Is this a point which very poor countries are likely to choose? Why or why not?
5. (7%) Has the price of education risen faster than, slower than, or at about the same rate as most other
prices over time? Clearly explain why.
6. (30%) True-False. Explain every answer. The explanation is more important than the true-false choice.
T
F
Economic growth has been slowed during recent decades because we have begun running out of
needed natural resources.
T
F
A decrease in the price of blueberries will shift the demand curve for blueberries to the left.
T
F
If prices have been rising since the base year, nominal GDP will be higher than real GDP.
T
F
An increase in the rate of unemployment will cause an economy’s production-possibilities
frontier to shift down and to the left.
T
F
The marginal benefit of having children has been falling over time as countries become richer.
7. (6%) If an economy produces more and more units of an item, will the opportunity cost of producing an
additional unit rise, fall, or stay the same? Why? Explain the logic.
8. (5%) Explain the substitution bias of the Consumer Price Index
9. (7%) Suppose the current CPI is 165.
a. What does that mean? Explain.
b. If something cost $40 in the past when the CPI was 70, what would be an equivalent price today?
Show your work.
10. (3%) If you start with $500 today and earn 4% interest per year, how much will you have after 5 years?
Write down the formula with the appropriate numbers, but do not calculate the actual answer.
11. (7%) Given the data below, calculate GDP using the expenditures approach. Show your work.
Business plant/equipment: 130
Consumption: 540
Exports: 25
Government spending on goods/services: 240
Government transfer spending: 110
Imports: 40
Inventory increase: 10
Profits: 160
Residential housing: 70
Wages: 670