Which are the answers1. According to our text an increase in a countrys capacity to produce in the long run (outward shift of the production possibilities curve) is caused by: 2. Consider the following grading system for a hypothetical economics class. Students earn a letter grade depending on how many course points they earn (i.e. higher than 90 is an A etc.). There is no required redistribution of grades but students with a higher letter grade may voluntarily give up a letter grade to students with a lower letter grade. In terms of income distribution which economic system is most comparable to the grading system described above? 3. Which of the following is an example of the fallacy of composition? 4. Which of the following is an example of a positive economic statement? 5. Lets assume that you have only two “production possibilities” this semester: credits earned at a college and earnings from a job. Lets assume that you are working at your potential and your current optimal choice is to earn $20000 from your job and take 12 credit hours in college. In the future you want to take 10 credit hours in college? What can you conclude about this choice? 6. Lets say you are studying vanilla ice cream as a consumer product. According to the theory of demand and supply how will the equilibrium price and quantity change if consumer incomes rise considerably? Select the price and quantity changes as a result of this change. 7. Let´s assume that the minimum wage in a certain area is $7.00 and lets assume that the lowest wage that businesses pay workers in this free market is $9.00 (assume that this is the going market wage that all businesses pay for unskilled minimum wage workers). Given these conditions and assuming no other changes in the economy what does the theory of demand and supply predicts regarding what will happen to unemployment if the minimum wage is raised from $7.00 to $10.00? 8. Which is NOT true about the U-3 unemployment statistic? 9. Government price controls such as rent controls and minimum wages: 10. Lets assume that the cost of producing decreases so that supply increases. Lets also assume that changing consumer preferences for this product have increased the demand for this product. What can you conclude about consumer surplus and producer surplus in the free market for this product after these two changes? 11. The following five products are produced in an economy in year Q: Corn – 8 dozens of ears @ $5 per dozen sold as a final product to consumers. Tractors – 1 @ $1000 sold as a final product to farmers producing the corn. Ovens – 2 @ $200 each sold as a final product to bakers producing the bread. Bread – 40 loaves @ $1 per loaf sold as a final product to consumers. Dough to make the 40 loaves of bread – 5 bags @ $2 each sold as an intermediate product to bakers producing the bread. During this same year depreciation of the capital goods (the tractor and the ovens) amounts to a total of $300. Assuming no other production what is this economy’s Gross Domestic Product in year Q? 12. Which of the following is included in the calculation of Gross Domestic Product for year X? 13. Which is NOT a type of unemployment? 14. If production of final goods and services increases from year 1 to year 2 and prices decrease from year 1 to year 2 then we can conclude that: 15. When prices ___?___ from one year to the next then nominal GDP in the latter year is ___?___ than real GDP. 16. Imagine a progressive taxation structure for taxable income as follows: $0-$16500: 10.0%; $16501-$42750: 20.0%; $42751-$85500: 27.5%; $85501-$126000: 31.5%; and $126001+: 35.0% For an individual with $141750 in taxable income the correct tax liability and effective tax rate equals: 17. Which of these following statements is NOT true? 18. John Maynard Keynes was an economist who believed that: 19. Industries which sell luxury products and services such as jewelry and expensive vacations suffer mostly from which kind of unemployment during recessions? 20. The unemployment rate as reported by the newspapers radio and television is measured by: 21. According to our text and according to classical economists: 23. According to our text: 24. During a recession Keynes recommends: 25. According to the Keynesian model if a country experiences a recessionary gap of $100 billion and the MPC is .8 which of the following do we need to get back to full employment? 26. Classical economists criticized Keynesian discretionary fiscal policy because they believed that lags in policy could be counter-effective to the success of fiscal policy. Which of the following best describes the information lag as discussed in Unit 6? 27. Most state and local governments single largest expenditure is: 28. According to Classical economic thought falling (equilibrium) prices occur when: 29. As part of the immigration debate some people observe that illegal immigrants pay little or no federal taxes because they get paid under the table and dont pay any income taxes. Which tax system proposes to eliminate or significantly lessen this disadvantage? 30. If a country with a progressive income tax system approves a 10% tax cut to all income earners then: 31. When the money supply remains constant then the absolute (nominal) dollar value of average incomes in the economy: 32. Which of the following is a harmful effect of inflation? 33. A falling price level is a symptom of an unhealthy economy if prices have fallen due to _________. It is symptom of a healthy economy if prices have fallen due to _________. 34. According to Keynes an increase in the money supply will: 35. If the total money supply is $800 during period 1 and the economy produces a total of 20 products what is the average equilibrium price of each product during period 1? If during period 2 the total money is $900 and total production remains the same what is the average equilibrium price during period 2? 36. Which budget policy is economically most beneficial for a country according to our text? 37. According to our text in the long run federal deficits lead to: 38. If a government runs a deficit then unless it is in a default state it can obtain this borrowed money from: 39. Why is the budget philosophy Keynes supports politically difficult to achieve? 40. Lets say that in year 1 our government spending is $300 and our revenue is $200. In year 2 our government spending is $450 and our revenue is $500. In year 3 our government spending is $550 and our revenue is $550. Assuming no other deficits and surpluses what is our governments national debt/surplus? 41. According to Classical and Austrian school economists an increase in the money supply will: 42. If a bank has $6000 in demand deposits the reserve requirement is 10 percent and it has not made any loans it can maximally loan out: 43. If the Federal Reserve sells $4000 in the open market and the reserve requirement is 25% then: 44. The main difference between the main three money supply measures (M1 M2 M3) is that: 45. A small business transfers $1000 from its checking account to its Money Market Mutual fund account. This has the following effect: 46. The capital account includes several accounts dealing with: 47. Lets assume that the Japanese Yen has decreased in value relative to most other foreign currencies. Which of the following is the most logical explanation for this decrease? 48. If a countrys currency depreciates then ceteris paribus the prices of its exports (the goods it sells to other countries): 49. A U.S. importer faces a price of 100 Mexican pesos per one bottle of Mexican wine. If the value of the U.S. dollar equals 4 Mexican pesos per dollar then the price of the bottle of wine to the U.S. importer is _______ in year 1. If the value of the U.S. dollar changes to 5 Mexican pesos the following year then the price of a bottle of wine is _______. Consequently the U.S. importer faces a _______ price due to the __________ of the dollar. 50. Many economists and politicians view a trade deficit as harmful to a countrys economy. Which of the following is a reason why this does NOT necessarily have to be the case?