Econ 232 Macroeconomics Final Exam

Opportunity costs exist because the decision to engage in one activity means giving up the opportunity to engage in another activity. This is because resources are limited and cannot be used for multiple activities simultaneously. Therefore, when a choice is made, there is always a trade-off, where the benefits of the chosen activity are weighed against the benefits of the forgone activity. This concept of opportunity cost helps individuals and businesses make rational decisions by considering the potential gains and losses associated with different choices.

The nominal interest rate is calculated by dividing the interest earned by the principal amount and expressing it as a percentage. In this case, your friend borrowed $100 and paid back $110, which means she paid $10 in interest. Dividing $10 by the original loan amount of $100 gives a result of 0.1. Multiplying this by 100 gives a nominal interest rate of 10%.

Reducing automobile emissions if the costs of doing so are less than the benefits is the most efficient solution because it addresses the issue of climate change caused by automobile emissions while considering the economic aspect. By reducing emissions, the harmful effects of climate change on humans can be minimized. However, it is important to assess the costs and benefits to ensure that the actions taken are economically viable. Banning automobiles or raising emissions would not be efficient as they do not address the problem or consider the potential consequences.

The desired cash balance ratio, little k, represents the proportion of money that individuals prefer to hold as cash compared to their total income. In this case, if little k is equal to 0.2, it means that individuals prefer to hold 20% of their income as cash. Therefore, if the stock of money is $4000, it can be inferred that the total income or GDP is 5 times the stock of money, which is $20,000.

The concept of scarcity in economics implies that resources are limited in quantity, but human wants and needs are unlimited. As a result, individuals, businesses, and societies must make choices about how to allocate these limited resources among various competing uses. This involves prioritizing and deciding which needs and wants to fulfill and which to forgo. This concept of scarcity necessitates making choices among alternative uses for resources, as mentioned in the correct answer.

The price level in the current year is 1.75. This is determined by calculating the Consumer Price Index (CPI), which measures the average price change of a basket of goods and services over time. In this case, the CPI is calculated using the prices and quantities of houses, sweet tea, and eggplants in the base year and current year. The CPI is then divided by the base year CPI and multiplied by 100 to get the price level. A price level of 1.75 indicates that prices have increased by 75% compared to the base year.

The correct answer is "Only b & c". GDP does not measure value added in the case of buying a meal at Wendy's or brushing your teeth because these activities are considered household production and are not included in GDP calculations. However, the sale of illegal substances like Extacy at a rave would be included in GDP as it represents an economic transaction, even though it is illegal.

The first Law of Demand states that, ceteris paribus (all other factors remaining constant), the higher the price of a good, the lower will be the quantity demanded of that good. This means that when the price of a good increases, consumers will demand less of it. Conversely, when the price of a good decreases, consumers will demand more of it. Therefore, both statement b and c are correct as they accurately reflect the relationship between price and quantity demanded according to the Law of Demand.

A higher minimum wage (above the equilibrium wage) primarily harms those with less experience such as minority teenagers because employers may be less willing to hire them at the higher wage rate. It also makes union members better off because minimum-wage labor becomes a less attractive substitute for union labor. Additionally, a higher minimum wage primarily benefits upper-class, well-educated white people as they are least likely to lose their jobs due to the wage increase. Lastly, a higher minimum wage reduces the gains from trade in labor markets as it may lead to job losses and decreased efficiency.

If a volcano flow destroys half of the capital in Dillsboro, the production function will shift downward. This means that the economy's ability to produce goods and services will decrease. Additionally, the number of individuals working will also decrease as a result of the destruction caused by the volcano.

The correct answer is to choose option A because receiving $2400 on October 13th, 2017 and every October 13th thereafter, forever, is the most financially beneficial option. This is because the interest rate is 20%, which means that the money will grow at a rate of 20% each year. By choosing option A, the initial amount of $2400 will continue to grow exponentially over time, resulting in a higher total amount of money received compared to options B and C.

The flooding in Bozeman that destroys 30% of the capital will likely lead to an increase in the price level. This is because the destruction of capital will reduce the productive capacity of the economy, leading to higher costs of production and potentially causing businesses to pass on these increased costs to consumers in the form of higher prices. Additionally, the increase in unemployment resulting from the destruction of capital will also contribute to inflationary pressures, as fewer people are able to find employment and generate income. Therefore, both the price level and the unemployment rate are expected to increase as a result of the flooding.

Given the price level (P) is 16, the desired cash balance ratio (k) is 0.25, and the money demand equal to money supply is $1000. To find the real GDP, we can use the equation: Real GDP = (Money Demand / Price Level) * Cash Balance Ratio. Substituting the given values, we get Real GDP = (1000 / 16) * 0.25 = 62.5 * 0.25 = 250. Therefore, the real GDP is 250.

If Dillsboro passes a law making it illegal to work beyond age 45, it is likely that real wages will increase and total output will decrease. This is because the law will create a shortage of skilled and experienced workers, leading to an increase in demand for the remaining workers. As a result, their wages will increase. However, the decrease in the overall workforce due to the law will also lead to a decrease in total output, as there will be fewer workers available to produce goods and services.

The correct answer is "All of the above." This means that all the statements mentioned in the question are correct. Ideally, models should be simple in structure, meaning they should not be overly complex or convoluted. They should also be general in application, meaning they can be applied to a wide range of situations or problems. Lastly, models should be useful in prediction, meaning they should be able to accurately predict outcomes or provide valuable insights. Therefore, all three statements (simple in structure, general in application, useful in prediction) are correct when it comes to ideal models.

Based on the information provided, the correct answer is that the price level increased by .385 or 38.5%. This conclusion can be drawn because the table lists the price level and the options provided are different percentage increases. The option of a 38.5% increase aligns with the given information and is the most accurate answer.

Voluntary exchange raises our feasible options (and thus our wealth) because when individuals engage in trade, they have the opportunity to specialize in producing goods or services in which they have a comparative advantage. This specialization leads to increased efficiency and productivity, allowing for the production of more goods and services. As a result, individuals are able to expand their options and increase their overall wealth.

The cyclical unemployment is 3% because the unemployment rate in Hooville is 10% and the natural rate of unemployment is 7%. The difference between the two rates represents the cyclical unemployment, which in this case is 3%. The economic situation in Hooville is described as a down-turn because there is an increase in unemployment compared to the natural rate, indicating a decline in economic activity.

If an outbreak of amnesia causes residents in Dillsboro to forget all training related to their jobs, it is likely that the number of individuals employed will decrease. This is because without the necessary training and skills, they may no longer be qualified for their previous positions. As a result, businesses may have to let go of these individuals, leading to a decrease in employment. On the other hand, the price level is expected to increase. This is because with a decrease in the number of individuals employed, there will be a decrease in the overall supply of goods and services. As a result, the demand for these goods and services may exceed the supply, leading to an increase in prices.

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The Gini coefficient measures income inequality in a society, with a value of 0 indicating perfect equality and a value of 1 indicating maximum inequality. In this case, the Gini coefficient for Somalia is 0.30 and for New Zealand is 0.36. The lower the Gini coefficient, the more equal the income distribution. Therefore, we can conclude that both statement a and d are correct. Statement a suggests that the variation of income within New Zealand is greater than within Somalia, indicating higher income inequality in New Zealand. Statement d states that if someone prefers to live in a country with greater income equality, they would prefer Somalia over New Zealand.

An improvement in technology can cause an increase in the Long Run Aggregate Supply Curve because it leads to an increase in productivity and efficiency in the economy. With better technology, businesses can produce more output with the same amount of resources, leading to an increase in the overall supply of goods and services in the long run. This increase in supply shifts the aggregate supply curve to the right, indicating an increase in the potential output of the economy.

The correct answer is to choose A. This is because receiving $2400 every October 13th thereafter, forever, provides a higher total amount of money compared to the other options. Option B offers a one-time payment of $7200, which is less than the total amount received through option A over time. Option C offers an immediate payment of $1200, which is significantly less than the potential earnings from option A. Therefore, choosing A is the most financially advantageous choice.

GDP fails to count goods produced domestically by foreign owned factors of production because GDP only measures the value of goods and services produced within a country's borders, regardless of who owns the factors of production. This means that even if the factors of production are owned by foreign entities, as long as the goods are produced domestically, they will be included in the GDP calculation.

The labor force of Hooville is 2000 because it includes all the employed Hoos (1800) and those who are not employed but looking and available for work (200). The 400 Hoos who are not employed and not looking for nor available for work are not considered part of the labor force. Thus, the total labor force is 1800 + 200 = 2000.

The cost of going to Economics class is the value of time spent sleeping because in this scenario, the value of time spent sleeping is considered to be the opportunity cost of attending the Economics class. This means that if you choose to go to Economics class, you are giving up the value of the time that you could have spent sleeping. Therefore, the cost of attending the class is equivalent to the value of time spent sleeping.

The value of the reserves can be calculated by subtracting the currency (C) from the monetary base (B). In this case, the value of the reserves is 800 - 400 = 400.

The answer is that the probability is largest for children born in the bottom quintile because they have the most room for upward mobility. Being born in the bottom quintile means that they come from families with the lowest income and socioeconomic status. Therefore, there is a higher likelihood that they will have the opportunity to improve their economic situation and earn more than their parents.

The correct answer is that the optimal amount of air pollution occurs when the marginal costs of obtaining cleaner air equal the marginal benefits of cleaner air. This means that the costs of reducing pollution further would outweigh the benefits gained from cleaner air. In other words, it is not economically efficient to completely eliminate air pollution, as there would be diminishing returns in terms of the benefits gained compared to the costs incurred. This answer takes into account both the economic considerations and the need to balance environmental concerns with other societal needs.

The money multiplier is calculated by dividing the total money supply by the monetary base. In this case, since the total money supply is $36,000 and the monetary base is $12,000, the money multiplier would be 3. This means that for every dollar of the monetary base, there is a potential for $3 of money supply in the economy.

The unemployment rate in Hooville can be calculated by dividing the number of unemployed individuals (200) by the total number of individuals in the labor force (1800). The labor force consists of the employed individuals (1800) and the unemployed individuals (200). Therefore, the unemployment rate is (200 / 2000) * 100 = 10%.

In 2006, the GDP in Ruritania is $2000 because the transaction between Friday and RC for $2000 contributes to the total value of goods and services produced in the country. In 2007, the GDP decreases to $600 because only the transaction between Friday and RC for $2200 contributes to the GDP, while the transaction between Friday and the sale of sunscreen for $2600 does not contribute as it is an intermediate transaction. Therefore, the correct answer is $2000 and $600.

An "increase in the quantity supplied" for a good refers to a movement along the supply curve for that good. This means that as the price of the good increases, producers are willing and able to supply more of it. Additionally, an increase in the desired rate of production, due to a higher price for that good, also leads to an increase in the quantity supplied. Both of these actions result in a movement along the supply curve and an increase in the quantity supplied.

The correct answer is "Only a & b are correct." This is because if players are wearing protection on their wrists and shins, they are more likely to stand closer to the plate, increasing the chances of being hit by pitches. Additionally, they can crowd the plate and get better looks at pitches on the outside, leading to an increase in batting averages. However, there is no mention of players being worried about getting hit by pitches, so option c is not correct.

An increase in spending can cause an increase in the Aggregate Demand (AD) curve because when consumers and businesses spend more, it leads to an increase in consumption and investment, which in turn increases the overall demand for goods and services in the economy. A decrease in the reserve-to-deposit ratio can also cause an increase in the AD curve because it implies that banks are holding fewer reserves relative to their deposits, which allows them to lend out more money, leading to increased spending and aggregate demand. Therefore, both options a and c are correct in causing an increase in the AD curve.

The correct answer is "Only a and b" because the money supply includes currency that is in circulation and held by the public (a dollar bill in your pocket) as well as the reserves held by banks (a dollar bill in the possession of the University Bursar's Office). The dollar bill in the vault of the Wachovia Bank is not considered part of the money supply because it is not in circulation or held by the public.

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Rent controls, in the form of legal maximum monthly rents, can have several effects on the market for rental apartments. Firstly, they reduce the gains from trade in the market by imposing price ceilings, which can lead to shortages and reduced availability of rental units. Secondly, rent controls can increase the extent of non-price discrimination, such as racial discrimination, as landlords may have more discretion in choosing tenants. Lastly, rent controls can also reduce the incentive for landlords to invest in maintenance and improvements of their properties, as they may not be able to charge higher rents to cover these costs. Therefore, all of the above statements are correct.

An increase in the demand for shrimp could be caused by an increase in the price of scallops, a substitute for shrimp, because consumers may switch to purchasing shrimp instead of scallops due to the higher price. Additionally, a decrease in the price of cocktail sauce, a complement for shrimp, could also lead to an increase in the demand for shrimp, as consumers may be more inclined to buy shrimp if the price of the accompanying sauce is lower. However, a fall in the price of shrimp itself would not necessarily cause an increase in demand, as it could potentially indicate a decrease in consumer preference or quality perception.

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The statement is true because when nations are self-sufficient, they can produce all the goods they need. If they trade with one another, they can specialize in producing the goods they have a comparative advantage in and then trade for the goods they cannot produce efficiently. This allows for a wider range of feasible combinations of goods, making the statement true.

Lowering the reserve requirement ratio and lowering the discount rate are both expansionary monetary policy tools that can be used to stimulate the economy and increase GDP. By lowering the reserve requirement ratio, banks are required to hold less money in reserves, which increases the amount of money available for lending and stimulates economic activity. Lowering the discount rate makes it cheaper for banks to borrow money from the Federal Reserve, encouraging them to lend more to businesses and individuals. Both of these policy changes can lead to increased borrowing, spending, and investment, which can help stimulate economic growth and increase GDP.

If the interest rate is 100%, it means that the money will double in value every year. Therefore, choosing option A would mean receiving $2400 on October 13th, 2017 and then the amount would double to $4800 on October 13th, 2018, and so on. However, choosing option B would give a one-time payment of $7200 on October 13th, 2017. Since the amount doubles every year, it would take at least 3 years for option A to surpass the value of option B. Therefore, it is more advantageous to choose option B.

If Ramen Noodles are considered inferior goods, it means that as incomes rise, the demand for these noodles will decrease. This is because as people's incomes increase, they tend to purchase higher-quality and more expensive food items, leading to a decrease in the quantity demanded for Ramen Noodles. Additionally, the decrease in demand will likely result in a decrease in price as well, as producers may need to lower prices in order to maintain sales. Therefore, both the price and quantity of Ramen Noodles will decrease if incomes rise.

An increase in income could cause an increase in the demand for widgets because as people's income rises, they have more purchasing power to buy goods and services, including widgets. This leads to an increase in the demand for widgets as people are able and willing to buy more of them.

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An increase in the supply of money, ceteris paribus, will lead to higher prices in the long run. This is because when there is more money in the economy, individuals and businesses have more purchasing power, which increases aggregate demand. As demand increases, producers may raise their prices to maximize their profits. However, the increase in money supply does not affect the productive capacity of the economy, so the output remains unchanged in the long run. Therefore, the correct answer is "Higher prices but unchanged output in the long run."

The correct answer is that the U.S. is the low-cost producer of kumquats. This means that the U.S. can produce kumquats at a lower cost compared to other nations. This gives the U.S. a competitive advantage in the production of kumquats as they can offer lower prices to consumers or potentially earn higher profits.

The value of the money multiplier is determined by dividing the money supply (M) by the monetary base (B). In this case, M is given as 2400 and B is given as 800. Therefore, the money multiplier can be calculated as 2400/800, which equals 3. This means that for every unit of the monetary base, the money supply is multiplied by a factor of 3.

The Consumer Price Index (CPI) tends to overstate inflation when changes in quality are ignored and when the entire decline in price of a good before its inclusion in the index is not reflected. Ignoring changes in quality can lead to an overestimation of inflation because improvements in quality are not accounted for. Similarly, if the full decline in price before a good is included in the index is not captured, it can result in an overstatement of inflation. Therefore, the correct answer is "Only a & b".