Ag Econ 1042
Second Exam, 140 points
March 22, 2012
Name ______KEY_________________________
11 a.m. Section
True/False – one point each
T
F
1.
Dr. Bernanke warned Congress about bad results in the short run from raising taxes
and reducing spending.
T
F
2.
A graduated income tax has marginal rates that are higher than the average or
effective rate across all income earned.
T
F
3.
The federal deficit is a measure of the debt created during a particular year.
T
F
4.
Productivity is essential for long term inflation to persist.
T
F
5.
Adjusted gross income is larger than taxable income in the U.S. tax system.
T
F
6.
A reduction in input costs will decrease supply.
T
F
7.
The U.S. has had economic growth since the middle of 2009.
T
F
8.
Expectations of citizens and firms as well as fiscal and monetary policy are items that
have a big influence on the level of aggregate demand.
T
F
9.
Increases in natural gas production have reduced natural gas prices.
T
F
10.
The opportunity cost of increased aggregate demand is the impact on the price level.
T
F
11.
Unemployment will generally increase after a decline in income and profits.
T
F
12.
Total revenue declines when price falls and demand is elastic.
T
F
13.
Incentives are provided with the hope of changing others’ behaviors.
T
F
14.
The U.S. income tax system is complicated because of the number of deductions and
credits available.
T
F
15.
Social Security payments will eventually fall to about 30% of today’s payments in
real terms, if nothing changes.
T
F
16.
Energy prices are important because energy is the second largest input or resource
used by the U.S. and most other economies.
T
F
17.
Social Security was designed to be the only retirement program needed by workers.
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T
F
18.
The business cycle measures the increase and decrease in economic growth.
T
F
19.
The circular flow model describes the flow of income that is exchanged for final
goods and factors of production.
T
F
20.
If demand is inelastic, then a price increase will benefit sellers.
T
F
21.
Current technology and resource availability are two general items that determine the
location of aggregate supply.
T
F
22.
A decrease in the rate of unemployment suggests there has been a decrease in rGDP.
T
F
23.
An increase in the minimum wage will only increase income to the entire group of
unskilled workers if demand for their services is inelastic.
T
F
24.
Real GDP has been adjusted for changes in the price level.
T
F
25.
Producer surplus is the net benefit accruing to a buyer of a good.
T
F
26.
The Social Security system will not have any dollars to distribute after the trust fund
is exhausted.
T
F
27.
An increase in the productivity of labor will likely decrease real GDP.
T
F
28.
Gross domestic product is used to measure inflation changes in the macroeconomy.
T
F
29.
Budget deficits may result from an effort to stimulate the economy in an effort to
increase current standards of living in the U.S.
T
F
30.
The current rate of unemployment, 8.3%, is rather high for the U.S. in historical
terms.
Multiple choice – two points each
__c___ 31. If a price floor is set above the equilibrium price, then
a) The quantity demanded is still equal to the quantity supplied
b) There is a shortage
c) There is a surplus
d) The price must remain below equilibrium
e) None of the above
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__d___ 32. Consumer surplus is
a) The overall value of a good to the buyer
b) The price of a good plus the opportunity cost of producing it
c) The price of the good minus the opportunity cost of producing it
d) The value of a good minus the price paid for it
e) A demand determinant
__e___ 33. The U.S. budget deficit
a) Is forecast to be smaller next year
b) Is adding to the U.S. debt
c) Should be highest during recessions
d) Is smaller than the U.S. debt
e) All of the above
__e___ 34. In the fourth quarter of 2011, U.S. real GDP increased by
a) Enough to decrease unemployment
b) Less than the growth in China
c) A rate of 3.0 percent
d) More than originally estimated
e) All of the above
__d___ 35. A balanced federal budget
a) Means the country has no debt
b) Suggest the economy is growing
c) Makes the most sense during a contraction
d) Will not cause a deficit
e) All of the above
Short answers are valued at five points each
36. How would economic growth be determined for 2010 if we know the real GDP values for
every year. Showing the formula is the easiest way to answer the question.
Economic growth = rGDP10 – rGDP09(100)
rGDP09
37. What do we call government’s effort to impact the economy by its spending and taxation?
Fiscal policy
3
38. Diagram the ideal situation for an economy from one year to the next. Think of this as what
we want to happen for the economy next year.
PL
AS
AS1
PL1
PL0
AD
0
Q0
Q1
AD1
rGDP
39. What can the government do if it wants to lower the unemployment rate in the short run?
1. increase spending
2. lower taxes
40. How is the unemployment rate measured? What two groups make up the labor force?
Unemployment rate = # unemployed (100)
# in labor force
employed, unemployed
41. What is the term for economic policies meant to offset negative changes in the economy?
Expansionary or stimulus
42. Diagram the immediate change caused by increased government spending and investment on
the overall economy.
PL
AS
PL1
PL0
AD1
AD
0
Q0 Q1
rGDP
4
43. Diagram the likely effect of an increase in personal income on the smart phone market.
P
S
P1
P0
D
0
Q0 Q1
D1
Q
44. Draw the business cycle. Be sure to specify the variables on the axes and identify recessions
and troughs.
rGDP or
Economic
Growth
Time
45. What group of workers are returning to the labor force as the economy improves? This
return slows the decline in the unemployment rate.
Discouraged workers
46. What would be the impact on aggregate demand of the federal government balancing its
budget next year. Only consider this change.
AD would decrease
47. What happened to the real wages of workers in February?
They fell
5
48. Diagram what is happening or has happened in the macroeconomy if unemployment is
falling and more people are employed.
PL
AS
AS1
PL1
PL0
AD1
AD
0
Q0
Q1
rGDP
49. List the three types of unemployment. Which is most likely to be caused by workers?
Cyclical, Structural, Frictional
Frictional
The following questions are valued at 10 points each
50. Diagram the result of the federal government enacting a minimum wage above the
equilibrium price for unskilled labor. Show final producer surplus.
a) Why will some unskilled workers be happy with the result of a higher minimum
wage?
Wages will be higher
b) Who won’t be happy with the results of a higher minimum wage?
Those with fewer hours to work or no job
P or $/Q
S
Mw
PS
D
0
Qd
Qs
Q
6
51. Current workers’ payments into Social Security can go to four places, some of which are
groups of people.
a) Where do these payments go? (who or what receives them)
Retired workers, disabled workers, dependents, social security trust fund
b) What will the payout rate be to those who retire after the trust fund is exhausted, if
nothing else changes?
≈ 76% ± 3%
c) Where is the money in the trust fund invested?
U.S. treasury bonds
d) What is a COLA?
Cost of living adjustmeent
52. What is the
a) Current unemployment rate in the U.S.? ___8.3% ±0.2%_______________
b) Current overall tax rate supporting Social Security? ___12.4%_________________
c) Economic growth rate in the U.S.? ___3.0%___________________
d) Trend for unemployment? _down___________________
e) Name of the central bank for the U.S.? _Federal Reserve_______________
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