D) $5,850 E) None of the above are correct.

04 Jun D) $5,850 E) None of the above are correct.

Question
1. Fill in the table below. The current wage is $90 and the price of output (Q) is $20. Each box is worth ½ of a point. Enter whole numbers only (no commas, no decimals, no dollar signs) and if a value is negative, be sure to enter the negative sign.

L Q MPL MRP Marginal Profit Total Profit

0 0 – – – – – – – – – – – – – – – – – – – – – 0

1 8

2 20

3 28

4 35

5 41

6 45

2.

Use the table from question 1 to complete the next six questions. Enter the correct values in the boxes below. Enter only whole numbers (no commas, no decimals, no dollar signs). Each fill-in-the-blank below is worth 3 points.

This profit maximizing firm will hire workers.

3.

This profit maximizing firm will produce units of output.

4.

This firm’s maximum profit equals .

5.

Now suppose that the wage rises to $125. You will need to recalculate the values from the table, given this new wage, to answer the questions below.

This profit maximizing firm will now hire workers.

6.

This profit maximizing firm will now produce units of output.

7.

This firm’s maximum profit now equals .

8.

Use the following information to answer the next nine questions. Each fill-in-the-blank is worth 3 points.

If your answer is in decimal form, enter it with 2 decimal places. For example, if your answer is .4, enter it into the fill-in-the-blank as .40, or if your answer is 1.4, enter it into the fill-in-the-blank as 1.40. If there are no decimals in your answer, you will simply enter the number; so if your answer is 2, enter 2 with no decimals. Do not use commas.

Suppose the economy is characterized as follows:

AE = C + I + G + (X-M)

C = 700 + .75(Y – T) – 30 (r)

I = 500 – 50(r)

G = 250

X- M = -25

T = 80

r = 5

Price level P is fixed at 1 (P=1)

Use the information above to get expressions for the consumption function and the AE equation.

The vertical intercept for the consumption function is .

9.

The slope of the consumption function is .

10.

The vertical intercept of the AE equation is .

11.

The slope of the AE equation is .

12.

Equilibrium output is equal to .

13.

Equilibrium consumption is equal to .

14.

Suppose the Consumption function changes to C=600 +.75(Y-T) – 30(r).

The new value of equilibrium output is .

15.

The new value of equilibrium consumption is .

16.

The Consumption function is still C=600 +.75(Y-T) – 30(r). The Keynesian spending multiplier in this economy is .

17.

Use the following information to answer the next four questions. Each multiple choice question is worth 3 points.

mm = money multiplier = .8

MB = monetary base = 2000

Money Demand: Md = P X [ a0 + .5 (Y) – 200 (i) ]

where: a0 = 800, Y = 2800

For simplicity we hold the price level fixed at 1 and assume that inflationary expectations are fixed at 2%. Y is also held constant in this problem.

What is the equilibrium interest rate (i)?

A) .33%

B) 2%

C) 2.5%

D) 3%

E) None of the above are correct

18.

Suppose a0 falls to 400. What is the new equilibrium interest rate?

A) 1%

B) 2%

C) 2.5%

D) 3%

E) None of the above are correct

19.

Suppose that the Fed wanted to keep interest rates constant at their initial level (the value you found in #1). What would the Fed have to do in terms of open market operations to achieve this?

A) 400 in open market sales

B) 400 in open market purchases

C) 500 in open market sales

D) 500 in open market purchases

E) 1200 in open market sales

20.

Given the interest rate you found in #18, what is the ex-ante real interest rate?

A) -1%

B) 0%

C) 1%

D) 2%

E) None of the above are correct

21.

Suppose the price index in State College, PA is 151 and 275 in New York City (as always, we assume the basket is exactly the same in both locations). Suppose also that you are currently making $75,000 in State College. What income do you need to be offered in New York City to maintain the exact same purchasing power that you currently have in State College? Round your answer to the nearest dollar.

A) $34,791

B) $197,250

C) $136,589

D) $91,500

E) None of the above are correct

22.

Given equation Y=500+.4Y, what does Y equal?

A) 200

B) 312.5

C) 800

D) 1250

E) None of the above are correct

23.

Economists assume that individuals

A) behave in unpredictable ways

B) will never take actions to help others

C) prefer to live in a society that values fairness above all else

D) are rational and respond to incentives

24.

Which of the following is a positive economic statement?

A) The standard of living in the United States should be higher.

B) If the price of iPhones falls, a larger quantity of iPhones will be purchased.

C) The government should revamp the health care system.

D) The U.S. government should not have bailed out U.S. auto manufacturers.

25.

In one hour of labor input, South Korea can produce either 100 computer chips or 50 bed linens. In the U.S., in one hour of labor input, either 150 computer chips or 100 bed linens can be made. Select the correct response below.

A) S. Korea has a comparative advantage in bed linen manufacturing.

B) The U.S. has an absolute advantage in computer chips manufacturing.

C) The U.S. has a comparative advantage in computer chip manufacturing.

D) S. Korea has an absolute advantage in bed linen manufacturing.

E) All of the above are correct

26.

The extra cost associated with undertaking an activity is called

A) net loss.

B) marginal cost.

C) opportunity cost.

D) foregone cost.

27.

Jen makes $16 per hour and Sammie makes $20 per hour. Both Jen and Sammie like to eat hamburgers that cost $4 each. Select the correct answer below.

A) Sammie’s real wage is equal to 4 hamburgers

B) Sammie’s real wage is higher than Jen’s real wage

C) Jen’s real wage is higher than Sammie’s real wage

D) Jen and Sammie’s real wages are equal

E) Jen’s real wage is equal to 5 hamburgers.

28.

In May 2009, Ford Motor Company’s sales were down 20 percent from a year earlier. These events were caused by

A) an economic recession.

B) an economic expansion.

C) a reduction in advertising.

D) declining quality of service.

29.

Product Quantity Price

Sweatshirts 50 $35.00

Dental examinations 40 75.00

Coffee drinks 1000 4.00

Chewing gum 2000 0.50

Refer to the table above. Suppose that a simple economy produces only sweatshirts, dental examinations, coffee drinks, and chewing gum. Using the information in the above table, nominal GDP for this simple economy equals:

A) 3,090 units

B) $7,250

C) $8,750

D) $9,750

E) None of the above are correct

30.

Year Oranges Produced Price of Oranges Shirts Produced Price of Shirts

2009 1800 $0.90 110 $30.00

2011 2000 1.00 110 35.00

Consider the data shown above for Vicuna, a country that produces only two products: oranges and shirts.

Refer to Table above. Real GDP for Vicuna for 2011 using 2009 as the base year equals

A) $4,920

B) $5,100

C) $5,650

D) $5,850

E) None of the above are correct.

31.

The labor force equals the number of people

A) employed

B) unemployed

C) employed plus unemployed

D) in the working-age population

32.

A consumer price index of 160 in 1996 with a base year of 1984 would mean that the cost of the market basket

A) equaled $160 in 1996.

B) equaled $160 in 1984.

C) rose 160% from the cost of the market basket in the base year.

D) rose 60% from the cost of the market basket in the base year.

33.

On the long-run aggregate supply curve,

A) a decrease in the price level decreases the level of potential GDP.

B) a decrease in the price level increases the aggregate quantity of GDP supplied.

C) a decrease in the price level decreases the aggregate quantity of GDP supplied.

D) a decrease in the price level has no effect on the aggregate quantity of GDP supplied.

34.

An increase in the interest rate causes

A) a movement up along the money demand curve.

B) a movement down along the money demand curve.

C) the money demand curve to shift to the left.

D) the money demand curve to shift to the right.

35.

If the economy is slipping into a recession, which of the following would be an appropriate fiscal policy?

A) an increase in the money supply and a decrease in interest rates

B) a decrease in government purchases

C) a decrease in taxes

D) a decrease in oil prices

36.

All economic questions arise from the fact that resources are scarce.

A) True

B) False

37.

An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point inside the frontier.

A) True

B) False

38.

If the GDP deflator is equal to 100, then for that year nominal GDP is equal to real GDP.

A) True

B) False

39.

If inflationary expectations are increasing, we would expect that the nominal interest rate would also be increasing, holding all else constant.

A) True

B) False

40.

A firm should hire additional units of labor as long as the wage is less than or equal to the marginal revenue product of that additional unit of labor.

A) True

B) False

41.

The sensitivity parameter in the consumption function that measures how sensitive consumption is to changes in consumer confidence is referred to as the marginal propensity to consume.

A) True

B) False

42.

Suppose the value of the US dollar changes from $1 = 1.2 euros to $1 = 1.30 euros. This being the case, imports from the US to Europe, have become less expensive to European citizens, all else constant.

A) True

B) False

43.

The largest component of household sector wealth is wealth in the stock market.

A) True

B) False

44.

In order to reduce the federal funds rate the Fed would conduct open market sales.

A) True

B) False

45.

Federal government expenditures on transfer payments have decreased from nearly 70% in the 1960s to about 46% in 2010.

A) True

B) False

46.

Keynes believed that it was the responsibility of the government to use its powers to increase production, incomes and jobs.

A) True

B) False

47.

If savings exceeds investment then the country is running a trade surplus.

A) True

B) False