Spring 2016 Exam 1A
Econ 251 – Principles of Macroeconomics
Exam #1, Spring 2016
A
Name:
All graphs must be labeled and legible and show all work. Good luck!
Points off total score: _____
1. In which component of United States’ 2013 Gross Domestic Product (GDP), are the following accounted for? (For example, expenditures on French wine are included in import expenditures.) Spell out the name of the component for full credit. If it is not in one of the categories, then write none.
a. $8b US household expenditures on Costa Rican fruits and vegetables
b. $12b expenditures by foreign households on their children’s college education at US schools
c. Carmike Theaters that are sold to AMC Theaters in 2016
d. The Minnesota Viking’s expenditures in 2016 to build the new football stadium
e. 2016 government expenditures to hire people to collect data to create the CPI
f. Redbull’s expenditures to hire St. Paul Police to provide security at Crashed Ice
g. Initial offerings of stocks for Elio Motors in 2016
h. Capital gain tax
i. Medicaid benefits – health care benefits for families and individuals with low income
j. Condos that were built in 2015 but yet to be sold
2. Answer ONE of the following questions.
2a. As the price of apples goes up, the demand for apples goes down." The author of this statement
a. / implies that price and demand are unrelated.b. / uses the word "demand" when he should use the word "supply."
c. / uses the word "demand" when he should use the words "quantity demanded."
d. / implies that demand is a complement to price.
OR
2b. Newspaper Headline: “Oregon closes on full employment.” Does this imply Oregon has a zero unemployment rate? Explain. (1-2 sentences)
3. Identify the type of unemployment. (Spell out the word for credit.)
a. Wheat farmers who is income plummeted because of new trade agreement, quits farming and starts looking for a job.
b. University of Minnesota Duluth lays off janitors to cut losses and she is looking for another job.
c. Consultant is laid off of because of poor economic conditions have depressed markets for consultants.
4. Consumer confidence in Spain has fallen as a result of political instability, the inability of elected officials to form a coalition to govern Spain. Using AD-AS analysis, demonstrate how falling consumer confidence in Spain may affect Spain’s GDP and price level. Make corrections to the graph below so that it is an accurate depiction of the AD-AS analysis.
U.S. Consumer Confidence Market
PL
Q
5. Economic Indicators:
a. What is the appropriate statistic to use for durable goods?
Month Annual (Circle one.)
b. What is the appropriate statistic to use for business inventories?
Levels Percentage Change (Circle one.)
c. What is the appropriate statistic to use for initial jobless claims?
1week figures 4 week moving average (Circle one.)
d. Ceteris paribus, a rise in the U.K. initial jobless claims suggest the economy is …
Improving Worsening (Circle one.)
6. True False Questions
T F When the economy is producing near capacity (i.e., the PPF), then unemployment rate is low and
the inflation rate is high.
T F The number of St. Thomas Alumni is a flow variable.
T F Advancements in technology shifts the per worker function.
T F The CPI underestimates the inflation rate.
T F While in Ethiopia over J term, I ate in restaurant in Lalibela that is owned by a Scottish women.
The economic activity generate from this restaurant is then part of Ethiopia’s GDP and Scottish GNP.
7. Identify the relevant economic term(s) being discussed in each passage (1-2 words)
______Data released this week show interest rates on loansto small and medium-sized firms have been squeezed to practically identical levels in Germany and Spain. When borrowing rates are adjusted for inflation, there’s still a significantgap between economic powerhouse Germany, and former crisis spots like Spain and Italy. (WSJ 3/316)
My father was better at cooking than my mother. He really loved food. He also was an engineer so he was very handy around the house. Despite this, my mother cooked all of our meals. My parents divided up the tasks between them this way because my mother had a ______in cooking, while my father had a ______in handy work around the house.
Scientists examined whether eating the whole egg was as dangerous as smoking. The participants of the study were patients at a vascular prevention clinic. This implies that the study was based on limited sample of very unhealthy individuals and thus may not representative of the effect on the average healthy person. As a results, one should be concerned about the ______fallacy when interpreting their results.
8. Circle the appropriate bolded word(s) to complete the sentence.
In January 2014, the Venezuela government passed the Fair Prices Law that placed a cap on prices firms can charge. Assuming the price cap was set below the equilibrium, then there would be (shortage/ surplus) of goods.
Demand side management is meant to address (short/long) term economic problems, while supply side economics is meant to deal with (short/long) term problems.
Counties with (lower/higher) capital per worker benefit more from technological advances between 1965 and 1990.
9. Inflation:
Does the Federal Reserve use the core inflation rate or the regular inflation based on the CPI to gauge how much inflation there is in the economy?
CORE Regular Inflation Rate Circle one.
What is the target rate for inflation in the US? ______
ECB stands for ______
10. While attending CSI: Fort Snelling, I learned some interesting facts about economic life during the 1820s at Fort Snelling. A private was paid $5 a month, while a sergeant was paid $7. Colonel Snelling (the fort was named after him) was paid $75 a month. What is the equivalent salary for a private in today’s dollars? (Assume the CPI1820 = 10 and CPI2015= 197.) Show all work.
11. Listed below are the figures for national income accounts for the United States in the year 2013. All figures are given in nominal terms. You must show all calculations to get full credit.
Spring 2016 Exam 1A
Consumption Expenditures= $11499
Export Expenditures = $2262
Investment Expenditures = $2672
Government Expenditures = $3125
Taxes = $3001
Savings = $2383
Import Expenditures = $2756
Spring 2016 Exam 1A
a. Calculate nominal GDP.
b. Given the above figures, what is the size of the trade deficit or surplus? Also, identify if it is a deficit, surplus, or balanced.
Deficit Surplus Balanced (Circle one.)
Size: ______
c. Given the above figures, what is the size of the government budget deficit or surplus? Also, identify if it is a deficit, surplus, or balanced.
Deficit Surplus Balanced (Circle one.)
Size: ______
12. Let us learn about the labor market for Italy, a country where one of your classmates and myself will be spending out fall. According to the CIA World Factbook, the population of Italy over age 16 (and not in institutions) in 2015 was 38m people, the labor force consisted of 26m people, and the number of employed was 22.83m people.
· How many people are classified as unemployed? (Show work.)
· How many people are classified as not working and not looking for a job? (Show work.)
· How many people are classified as not working? (Show work.)
· What is the unemployment rate? (Show work.)
13. Last Tuesday, Italy decriminalized olive oil counterfeiting. This could have a negative impact on the reputation of products made in Italy and thereby reduce consumers’ willingness to purchase Italian olive oil if they are afraid that they will be sold counterfeit products. Describe how this may impact the Italian Olive Oil market.
a. Affect which side of the market? D S (Circle one.)
b. Does this increase or decrease? Increase Decrease (Circle one.)
c. Italian Olive Oil Output? Increase Decrease (Circle one.)
d. Italian Olive Oil Price? Increase Decrease (Circle one.)
14. While searching the web for current nominal GDP figures, I came across this blog.
“The economy is worse than you thought. It is bad enough that the economy sucks. This situation is made worse by easily discoverable distortions in official government statistics which downplay how much it sucks. (It's suckiness?)
Mike Shedlock alerted us to such a distortion … It seems that if you apply the Bureau of Labor Statistics official CPI-deflator to nominal GDP, instead of the BEA's own deflator, the United States is in recession right now. ...”
Please critically evaluate this blogger’s argument. (1-2 sentences)
15. Researchers in Virginia are changing how they measure the poverty rate in the state of Virginia. The official poverty measure is based solely on food costs for low-income families from the 1960s. It also uses the same income thresholds for different areas of the state. For example, a family in Arlington (a Washington DC suburb) haw3s the same poverty threshold as a similar family in southwest Virginia (rural area), where costs of living are dramatically different. … The new measure [of poverty] incorporates regional cost-of-living differences and accounts for families’ taxes, medical expenses and how government programs such as food stamps affect family resources.
Critically evaluate the decision to change how they calculate poverty rates in Virginia. (1-2 sentences)
16. A 2012 OECD report, Equity and Quality in Education: Supporting Disadvantaged Students and Schools, says that helping those in need would reduce school failure, boost economic growth and contribute to a fairer society. Today, many students lack basic skills, as measured by PISA, and one in five students on average across the OECD drops out of the education system before finishing upper secondary [ i.e., high school]. Dropout rates range from 2% in Korea to 58% in Turkey for the 25-34 years-old. [See figure below.] Leaving school this early means that students lack the skills they need in today’s job market, says the OECD.
Using a per worker function demonstrate how education boosts economic growth. Label graph clearly and provide a 1-2 sentence explanation to accompany your graph.
17. Calculate either
· RGDP in 2014 OR
· the inflation rate using consumer prices. Show work.