ECON 2500 Practice for Final Exam with Elaine Peterson

Use separate sheets of paper as needed to answer. Please be sure to put your name on your answer sheets and the part of the exam you are answering and the number of the question you are answering. Note there are 4 parts and each part is worth 25 points.

 

Part I: Please explain the following briefly:
1. What is the difference between empirical and theoretical economics?
2. Is water scarce?
3. What are the functions of money?
4. What is the misery index?
5. Assume that food, clothing, and shelter are goods which constitute a "market basket" of goods and services used to compute a GDP price deflator and that 1989 is the base year.
Using the information below, what is the GDP price deflator in 1996?

Good

Quantity in 1989

Quantity in 1996

Price in 1989

Price in 1996

Food

5

4

$3

$2

Clothing

3

4

$7

$8

Shelter

8

9

$8

$5

6. What is the government expenditures multiplier?
7. How many Federal Reserve Banks are there?
8. How has Depository Institutions Deregulation and Monetary Control Act of 1980 changed the US Banking System?

For questions 9 & 10,
Suppose the production possibilities for the US and South Korea are:

US

South Korea

Goods

A

B

C

D

Goods

A

B

C

D

Radios

10

8

6

4

Radios

30

24

18

12

Chairs

0

4

8

12

Chairs

0

4

8

12

9. What is the opportunity cost of a radio in the US?
10. What good should each country tend to specialize in and why?

Part II: Using separate diagrams for each of the following, with supply & demand clearly labeled, depict the effect on the equilibrium price and quantity of the good that will be produced & sold.
1) The effect of an increase in the cost of cream on the ice cream market.
2) The effect of an increase in the number of teenagers on the market for roller blades.
3) The effect of an increase in the price of Toyotas on the market for Hondas.
4) The effect of a fall in the price of hamburger on the market for hamburger buns.

Also use separate appropriately & clearly labeled diagrams for each of the following:
5) The effect of an increase in government spending on the aggregate expenditures model.
6) A typically shaped production possibilities curve for an economy producing consumer goods and capital goods before and after a period of substantial growth.
7) A recessionary gap.
8) Short run and long run Phillips curves.
9) The effect of technological change over time on the aggregate demand and aggregate supply model.
10) The difference in AS according to Keynesians, Monetarists, and Rational Expectations Theorists.
 



Part III: Choose the best answer.
1. The scarcity problem :
    a) persists only because countries have failed to achieve continuous full employment.
    b) persists because material wants exceed available productive resources.
    c) has been solved in all industrialized nations.
    d) has been eliminated in affluent societies such as the United States and Canada
    e) is very likely to be solved in the next century.

2. The notion of opportunity cost is :
    a) the monetary price of any productive resource.
    b) the amount of labor that must be used to produce one unit of any product.
    c) the ratio of the prices of imported goods to the prices of exported goods.
    d) the amount of one product that must be given up to produce one more unit of another product.
    e) convex to the origin.

3. Given the following Consumption schedule what is MPC?

Disposable Income

Consumption

100

95

125

110

150

125

175

140

200

155

 a) 1/5           b) 3/5         c) 25         d) .20         e) 4%        

4. The US economy is an example of:
    a) pure capitalism.                     b) a command economy.                       c) a socialist economy.
    d) a mixed economy.                e) communism.

5. The 3 largest sources of tax revenue for the Federal government in descending order are:
    a) sales, payroll, and personal income taxes.
    b) personal income, property, and payroll taxes.
    c) personal income, payroll, and corporate taxes.
    d) payroll, personal income, and corporate taxes
    e) import tariffs, property, and sales taxes.

6. If a natural resource such as oil or lead becomes increasingly scarce:
    a) its price will rise, signaling greater conservation in its use and a more intensive technological search for substitutes
    b) its price will rise, signaling a more intensive use of the resource and a more intensive technological search for substitutes.
    c) its price will fall, signaling greater investment in equipment used in the exploration and extraction of that resource.
    d) none of the above will occur.
    e) all of the above will occur
 


7. Critics of the doomsday models:
    a) question the assumptions made concerning the exponential growth of industrial output and population.
    b) contend that technological progress is constantly increasing the supplies of economic resources.
    c) argue that changes in market prices signal greater conservation in the use of scarce resources.
    d) believe increases in prices of scarce resources encourage development of substitutes.
    e) make all of the above arguments.

8. In which of the following periods was the growth of labor productivity most rapid?
    a) 1948-1966     b) 1966-1973     c) 1973-1981     d) 1981-1990

9. During the 1970s R&D expenditures:
    a) made no contribution to economic growth.
    b) declined as a percentage of GDP.
    c) were constant as a percentage of GDP.
    d) grew as a percentage of GDP
    e) caused GDP to decline.

10. Depreciation of the dollar will:
    a) increase the prices of the goods Americans import, but decrease the prices to people abroad of the goods Americans export.
    b) decrease the prices of the goods Americans import, but increase the prices to people abroad of the goods Americans export.
    c) increase the prices of both American imports and exports.
    d) decrease the prices of both American imports and exports.
    e) tend to lead to reduced exports.

Part IV: Choose 2 of the following essay questions and give thorough answers.
1. As a careful economist interested in examining changes in well being what would you recommend we look at besides GDP? Be sure to relate your answer to some of what does and does not get included in GDP.

2. Why are Tariffs good or bad and how does this relate to NAFTA?

3. Compare and contrast Keynesianism with monetarism and rational expectations theory.

4. What are the different types of unemployment, discuss their relative importance and alternative policies that might be undertaken to try to reduce each.

5. Describe Keynes' reaction to classical economics and how this relates to the times in which he lived.

6. What do "doomsday" modelers argue we should do? What do their critics say? What do you think based on the arguments of both sides?

7. Why might it not be desirable to balance the Federal Budget annually?