Question Economics 101 Last Name ___________________________________

03 Jun Question Economics 101 Last Name ___________________________________

Question
Economics 101
Last Name ___________________________________

Final Exam

TA Name and Recitation Number __________________

During this examination, students may not use notes, books, computers, programmable calculators, cell phones or any electronic device other than a simple calculator. Students may not talk with other students or look at the exam papers of other students. Once the exam begins, students may not leave the room until they finish and turn in their exams.
Honor Pledge: I have neither given nor received unauthorized aid on this examination. I know and have abided by the examination rules and instructions.
Signed: ______________________________________________________________
Instructions
1.

2.

3.

4.
5.

On the blue Scantron sheet:
a. Bubble in your last name, first name and PID.
b. Bubble in your recitation number in the sequence number area as 1017xx where xx is
determined by your section number. For example, someone in section 712 would bubble in
101712. See below for a list of section numbers.
c. Students who incorrectly bubble their name, PID, or section number are penalized 2 points.
d. Write the form color of the examination on the upper left corner of the bubble sheet. The form
is white, green, blue or yellow.
The examination includes 50 equally weighted questions. Answer all questions by marking the
bubble sheet and by circling the correct answer on the examination itself. In the case of conflict, the
Scantron answer is the official answer.
If you believe there is no right answer or more than one right answer to any question, explain your
reasoning on the back of this sheet (not the Scantron sheet). We will not consider an appeal unless
you have recorded your argument on the exam sheet during the exam period.
When you have finished the examination, sign the honor pledge. We will not consider an
examination valid unless you sign the pledge.
When you are finished, turn in the answer sheet and the examination by putting them on the correct
piles at the podium.

Economics 101.007

Final Examination, page 2

12 December 2013

1. In his Wall Street Journal article by Jon Hilsenrath on our Archive page, we learned that
real GDP grew by 1.6 percent in the third quarter of 2013 (i.e., the months of July,
August and September), but would have grown 2.7 percent in that quarter if
_____________ had not happened. What did Mr. Hilsenrath put in this blank?
a.
b.
c.
d.
e.

Super Storm Sandy.
Government waste, fraud and abuse.
Operation Twist.
Decline in government expenditure.
All of the above.

Background for questions 2, 3, 4: Matty has just come up with a great idea for a ringtone: an
instrumental version of Hark the Sound for UNC alums. Hes the only one making this product.
Here is the demand curve for the product for a year.
Price
$9
$8
$7
$6
Quantity (thousands)
3
6
9
12

$5
15

$4
18

$3
21

$2
24

2. The fixed cost of renting the taping equipment for a year is $15000, and the marginal cost
of putting the ringtone on the purchasers cellphone (including the opportunity cost of
Mattys time) is $3. If Matty follows the optimal supplier rule, how many ringtones will
he sell?
a. 6 thousand
b. 9 thousand
c. 12 thousand
d. 15 thousand
e. None of the above
3. What will Mattys total cost and profit be at P=$8?
a. $33000; $15000
b. $42000; $11000
c. $51000; $21000
d. $60000; $23000
e. None of the above
4. Matty has just discovered the reason that no one else is making this product. UNC (the
university) has a copyright (like a patent) on Hark the Sound, and will only let Matty
continue if he pays UNC a royalty each year. If UNC wished to get the highest possible
rent from its copyright, what yearly fee will it charge Matty to continue his business?
a. Equal to Mattys total revenue
b. Equal to Mattys economic profit
c. Equal to Mattys accounting profit
d. No fee
e. None of the above

Economics 101.007

Final Examination, page 3

12 December 2013

5. The optimal labor hiring rule states that a firm should continue to hire workers so long as
the ______________ of labor is greater than the _______________.
a. productivity, average total cost
b. productivity, wage
c. marginal revenue product, average total cost
d. marginal revenue product, wage
e. none of the above
6. China recently lowered its reserve requirement for banks in an attempt to stimulate
economic demand. How does this policy change affect the money supply in China?
a. it reduces bank assets.
b. it increases bank liabilities.
c. it forces banks to borrow more from other banks.
d. it forces the banks to lend more to their customers.
e. it allows banks to make more loans and thus increase deposits in
the banking system.

Money
Price index
Real GDP
Velocity

2012
$5 billion
100
$ 1 billion
20

a.
b.
c.
d.
e.

2013
$10 billion
100
???
???

7. In the table to the left you are
provided information about money
supply, velocity, real GDP and the price
index in Elbonia (they use the $ as
currency) for 2012 and 2013.
According to the quantity equation, the
real GDP and velocity can be for 2013:

$2 billion, 20
$ 1 billion, 10
$ 4 billion, 40
all of the above
none of the above

8. We have a number of readings about Bitcoins on our Archive page. When we consider
Bitcoins in those readings from the perspective of the three characteristics of money,
what do we conclude?
a. Bitcoins serve as a store of value
b. Bitcoins serve as a medium of exchange
c. Bitcoins serve as a unit of account
d. All of the above
e. Both a and b.
Background information for questions 9, 10 and 11. Youve been given the following
information about the US economy for 2014 (all in trillions of US dollars) by your boss at the
Council of Economic Advisers. Potential real GDP (Y*) = $ 22. Government expenditure (G)

Economics 101.007

Final Examination, page 4

12 December 2013

= $2. Investment expenditures (I)= $1. Tax revenues (T)= $ 1. Exports (EX)= $3.
Consumption expenditures (C) = $ 2 + .9 (Y-T). Imports (IM) = $ 3 + .1(Y-T). Consumer
prices are constant. Actual real GDP (Y) is not yet known, and its your job to discover it.
9. What is the marginal propensity to consume (MPC) in this example, and how is it related
to the income-expenditure multiplier?
a. 0.1, as the MPC rises the multiplier falls
b. 0.1, as the MPC rises the multiplier rises
c. 0.9, as the MPC rises the multiplier falls
d. 0.9, as the MPC rises the multiplier rises
e. none of the above.
10. What is the equilibrium value of real GDP that you predict?
a. $ 4
b. $ 10
c. $ 20
d. $ 22
e. none of the above
11. If the government chooses to increase both G and T by $1 trillion, what will be the
change in Y?
a. reduction of $1 trillion
b. zero effect
c. increase of $1 trillion
d. increase of $2 trillion
e. none of the above.
12. An open-market purchase is the purchase of government Treasury bills from the
___________ by the __________ for the purpose of increasing the supply of bank
reserves and the money supply.
a. public, Federal Reserve
b. government, Federal Reserve
c. public, US Treasury
d. government, US Treasury
e. none of the above
13. A fixed exchange rate is an exchange rate whose value is __________ by ____________
policy.
a. varying, private demand
b. varying, official government
c. set, private demand
d. set, official government
e. none of the above

Economics 101.007

Final Examination, page 5

12 December 2013

14. A recessionary output gap exists when ___________________ is _______ than potential
output.
a. employment, less
b. employment, more
c. actual output, less
d. actual output, more
e. none of the above
15. The fractional reserve banking system is a banking system in which required
________________ are less than _______________ .
a. liabilities, excess reserves
b. liabilities, deposits
c. bank reserves, excess reserves
d. bank reserves, deposits
e. none of the above
16. Which of the following is a component (are components) of M2 but not of M1?
a. Saving deposits
b. Small-denomination time deposits
c. Money-market mutual funds
d. All of the above
e. None of the above
Background for questions 17, 18 and 19. Consider two countries, the US and China. They
produce two goods, aircraft and televisions. The number of people that it takes to produce 1 of
each good in each country is given in the following table.
1 Aircraft

1 Television

China

100,000

100

US

750

50

Suppose for this question that there are 1 million people in China and 75,000 in the US.
17. What are the two endpoints for the production possibility curve for China?
a. 100,000 Aircraft, 100 Televisions
b. 10 Aircraft, 10,000 Televisions
c. 100 Aircraft, 1500 Televisions
d. 750 Aircraft, 50 Televisions
e. None of the above

Economics 101.007

Final Examination, page 6

12 December 2013

18. What is the opportunity cost of one aircraft for China and the US, respectively?
a. 1,000 Televisions for China, 15 Televisions for the US
b. 15 Televisions for China, 1,000 Televisions for the US
c. 1/1,000 of an aircraft for China, 1/15 of an aircraft for the US
d. 750 workers for China, 100,000 workers for the US
e. None of the above.
19. Can the two countries both benefit from international trade in these goods? If so, what
product should China export?
a. No.
b. Yes, Aircraft.
c. Yes, Televisions
d. Yes, both goods
e. Yes, neither good
20. Hot dogs and hot-dog buns are ______________________ goods because when the price
of hot dogs rises, the demand for hot-dog buns _______________________.
a. Substitute, rises.
b. Substitute, falls.
c. Complement, rises.
d. Complement, falls.
e. None of the above.
Background for questions 21, 22 and 23. The graph below illustrates the supply and
demand curves for unskilled workers in Chapel Hill in December 2013. The curve
labeled supply is the supply curve of workers, while the curve labeled demand is the
demand curve for workers. The wage is stated in dollars per hour. The horizontal axis
indicates the number of full-time workers (in thousands) either demanded or supplied at
each wage.
21. Equilibrium in the market for workers will be observed when the wage and number of
workers are:
a. 6, 8 thousand
b. 3, 10 thousand
c. 9, 6 thousand
d. 12, 4 thousand
e. none of the above.

Economics 101.007

Final Examination, page 7

12 December 2013

Wage per hour