Econ 1120-INTRODUCTORY MACROECONOMICS
MAKEUP PRELIM #1-Wissink-Fall 2015 – October 9
Clearly Print Your LAST(family) Name: ______
Clearly Print Your First Name: ______
Your Cornell NetId: ______Your Student Number: ______
There are two sections in this exam. Answer all questions.
Part I: 14 multiple choice questions @ 3 points each
Part II: 3 problems @ 16, 20 and 22 points each
TOTAL POINTS = 100, TOTAL TIME = 90 minutes.
NO QUESTIONS CAN BE ASKED DURING THE EXAM ABOUT EXAM CONTENT: If you need to use the restroom, or you need a pencil or scratch paper, or some other supply that we might have, raise your hand and wait for the proctor to come to you. Only one person can be out of the examination room at a time, and the proctor will hold onto your exam papers while you are out at the restroom.
NO CELL PHONES, NO IPODS OR SIMILAR DEVICES WITH CALCULATOR “APPS”.
NO GRAPHING CALCULATORS.
NO BOOKS. NO NOTES. NO HELP SHEETS.
NO TALKING TO EACH OTHER.
“X” the SECTION you regularly attend (that is to say, check where you will pick up your prelim):
"X" / DIS # / TA / Meeting Times / Location252, 253 / Luoyi (Roy) Su / Mondays 12:20-02:15 / Goldwin Smith G22
256, 257 / Naveen Sunder / Wednesdays 10:10-12:05 / Rockefeller Hall 102
250, 251 / Sylverie Herbert / Fridays 09:05-11:00 / Uris Hall 202
254, 255 / Tilahun Emiru / Fridays 01:25-03:20 / Rockefeller Hall 102
One more time, please…
Clearly Print Your LAST(family) Name: ______
Clearly Print Your First Name: ______
Your Cornell NetId: ______Your Student Number: ______
GRADING
MC (out 42 points)=______
Q1 (out of 16 points)=______
Q2 (out of 20 points)=______
Q3 (out of 22 points)=______
TOTAL SCORE: ______
Part I: Multiple Choice. Do them ALL.
CIRCLE the letter for your answer.
______
[1]. Which one of the following sentences is a normative statement?
A. The law of demand implies that demand curves are negatively sloped.
B. The unemployment rate was over 10% when Barack Obama took office and now it is 5.5%.
C. On average Americans pay $16,000 a year for health insurance.
D. In the last 5 years 400,000 additional children have lost health care coverage.
E. Congress and the president should increase taxes on rich people in order to provide more health care to the poor.
[2]. A careless research assistant has presented his professor with the following unlabeled equation representing the market for sunglasses: Q = 50 - 17A + 1/2B + 45C. The professor then spends numerous hours trying to figure out what the equation represents. Which one of the following is a plausible best guess?
A. It is a supply function where A represents the price of sun tan lotion – a complement in consumption to sun glasses.
B. It is a demand function where A represents the number of consumers in the market.
C. It is a supply function where C represents the cost of the sunglasses components to the sunglasses manufacturer.
D. It is a demand function where A represents the price of large-brimmed sun hats – a substitute in consumption for sun glasses.
E. It is a supply function where C represents the price of sunglasses.
[3]. Market equilibrium price will rise and the equilibrium quantity may increase, decrease, or stay the same when
A. demand and supply both increase.
B. demand increases and supply decreases.
C. demand decreases and supply increases.
D. demand and supply both decrease.
E. supply increase while demand stays constant.
[4]. Cornell Island has 30,000 square feet of land available to be rented on an annual basis. The annual demand for land rentals is given as QD = 50,000 – 5P. What is the equilibrium price in this market?
A. $30,000
B. $4,000
C. $5,000
D. $4,250
E. $3,700
[5]. The graph represents the Ithaca market for jelly beans this spring. Q is number of pounds. $ is the price per pound. Suppose the government imposes a price ceiling of $10 per pound. The consequence of this is that
A. there will be a surplus of 20 pounds of jelly beans.
B. there will be a shortage of 30 pounds of jelly beans.
C. there will be a shortage of 40 pounds of jelly beans.
D. there will be a black market price of $10 per pound of jelly beans.
E. nothing happens, since the price ceiling is not binding.
[6]. The figure with “wine” and “cars” shows the production possibility frontier for an economy that produces only those two goods. Which one of the following statements is TRUE?
A. As we go from point A to point E, the marginal opportunity cost of wine increases.
B. This production possibility frontier exhibits constant marginal opportunity costs.
C. If resources were being used efficiently, we could attain point C.
D. As we go from point A to point E, the marginal opportunity cost of cars increases.
E. An output mix between point A and point E would be best since it is a balance of wine and cars.
[7]. Which one of the following is an example of a final good or service?
A. Wheat a bakery purchases to make bread.
B. Coffee beans Starbucks purchases to make coffee.
C. Lumber purchased by a construction company that gets used in building houses.
D. A computer purchased by Ezra Smith, a new Cornell freshman.
E. Jee Hun’s time, purchased by Cornell, to be used in making intro 1120 go more smoothly for students and Prof. Wissink.
[8]. Annabel retired from the fire department. She started working an hour or two a day at a paid job in the local hospital. Annabel is
A. employed.
B. a discouraged worker.
C. unemployed.
D. not in the labor force.
E. part of structural unemployment.
[9]. Which one of the following is an example of an activity whose value will not be represented in this year’s U.S. GDP? (All transactions took place this year, unless otherwise noted.)
A. Flour made in Locke, NY and purchased by Ithaca Bakery as an ingredient for making wedding cakes in Ithaca, NY.
B. Car sun-visors made in Oulu, Finland and purchased by Ford Motor Company to install in this year’s car models being made in Detroit, Michigan.
C. Sunglasses that Mexican workers make in a factory in Texas and that you bought in July at the Ithaca Farmers Market.
D. The new 11th edition of your textbook (published and printed this year in the U.S.) which you bought to take this course, but will sell at the end of the semester.
E. The Corning glassware made in Corning, NY this year that was added to the inventory of a department store in Japan in anticipation of rising sales in Japan next year.
[10]. The value of nominal or current G.D.P. in the United States in 2014 was roughly
A. $17.35 million
B. $17.35 trillion
C. $15.96 trillion
D. $15.96 billion
E. $15.96 million
[11]. If no foreign citizens work in BadLand, but many of BadLand’s citizens work abroad, then
A. BadLand's GNP will tend to exceed its GDP.
B. BadLand's GDP will tend to exceed its GNP.
C. BadLand's GNP and GDP will tend to be equal.
D. BadLand's GDP will tend to be equal to its national saving.
E. BadLand's’s exports will be zero.
[12]. The 2002 implicit GDP deflator index in Webworld was 95 using 2001 as its base year. This means that, on average, the prices of goods and services are
A. 105% higher in year 2002 than in year 2001.
B. 5% higher in year 2002 than in year 2001.
C. 5% higher in year 2001 than in year 2002.
D. 105% higher in year 2001 than in year 2002.
E. all increasing.
[13]. Refer to the table which lists the representative consumer’s base year bundle of blueberries, pineapples and cheese. Suppose 2011 is the base year. The consumer price index in 2010 is
A. 94.2.
B. 97.4.
C. 106.1.
D. 123.0.
E. none of the above
[14]. Which one of the following is best categorized as structural unemployment?
A. Weak short term demand has caused a general economic slowdown. Because of that, Allen has temporarily lost his job at the glove factory in Gloversville, NY.
B. Dave, who works as an instructor at Greek Peak Ski Resort in Virgil, NY is out of work in the summer since there is no one to teach when there is no snow.
C. Steel worker Tom is thrown out of work by the introduction of new technology in the steel sector that now employs a more high-tech production process that will permanently requires a much smaller labor to capital ratio.
D. Joe, a computer programmer with a large bank, quit his job two months ago to look for a better paid programming position.
E. Patrick, who recently graduated from Cornell Medical School, is looking for a place to set up his practice.
Keep going……………………………..
Part II: Make sure you read and do ALL parts of each question. Show as much work as possible. TRY to get started on every question. Show us something. Write legibly and remember to label all graphs and axes in diagrams.
1. Suppose the supply and demand curves for milk in Cortland are described by the following equations (where Q is measured in gallons and P is price per gallon):
Demand: QD = 20 - 2P Supply: QS = -4.0 + 4P
a. Graph the demand and supply curves (remember to label everything in your graph including endpoints of demand and supply).
b. Determine the proper equation for the demand curve as illustrated on your graph.
c. Determine the proper equation for the supply curve as illustrated on your graph.
d. Determine the equilibrium price and quantity values and label them on your graph.
e. Suppose Brian Tobin, the mayor of Cortland, gets the local government to enact a milk price floor of $6 a gallon in the Cortland milk market. Indicate the impact of this law on your diagram and briefly discuss. Calculate any shortage/surplus due to the policy.
f. Considering demanders & suppliers in this market and the government, who “wins” and who “loses” as a consequence of this policy? Briefly defend your position.
Answer Space
Answer Space
2. Abe and Betty are the only producers/consumers in a small (American) football loving economy. Abe and Betty produce and consume only two things: NFL(National Football League) logo T-shirts and pins.
Given 60 hours of work in a week, Abe can produce a maximum of 4 T-shirts or 12 pins, or any combination along a straight line PPF between the two.
Given 60 hours of work in a week, Betty can produce a maximum of 5 T-shirts or 20 pins, or any combination along a straight line PPF between the two.
Hours Required for One Unit of OutputPerson / T-shirts / Pins
Abe / ______hours / ______hours
Betty / ______hours / ______hours
a. Fill in the missing numbers in the table.
b. Who has the absolute advantage in T-shirt production? Who has the comparative advantage in T-shirt production?
c. Assume that Abe and Betty have not taken Econ 1120, and hence don’t know the wonders of trade. That is, they insist on self-producing everything they consume. If Abe wants to consume 2 T-shirts, how many pins, at most, can Abe have per week? If Betty wants to consume 16 pins, how many T-shirts, at most, can she consume per week? When Abe and Betty do this, what is the total number of pins and total number of T-shirts made summing over the two of them?
d. Assume Abe and Betty take Econ 1120 and see the light and realize they should be efficient. Putting PINS ON THE HORIZONTAL and T-SHIRTS ON THE VERTICAL, illustrate the efficient combined production possibility frontier. For full credit, if there are any kink points in your graph, label the number of units of each task at any/all kink points. Also label the endpoints of the PPF.
e. If Abe and Betty specialize and trade with each other, what would be the bounds of an “international” exchange rate between T-shirts and Pins between Abe and Betty?
Answer Space
Answer Space
3. Consider the simple closed economy of WonderLand with only four goods: computers, bread, apples and apple juice. There is no government, and no international sector and no investment by firms. Note the following very important information:
i) Computers, bread and apple juice are final goods and final goods only.
ii) Apples are consumed by households as a final good AND used as an intermediate good by firms in the production of apple juice.
iii) It takes 2lbs of apples to make each gallon of apple juice. This is the case in both years.
iv) The apple juice industry buys all the apples it needs from the domestic apple industry.
The table below provides ALL the information you need to know on prices and total output/production in two consecutive years: 2010 and 2011.
a. Calculate nominal G.D.P. in year 2010.
b. Calculate nominal G.D.P. in year 2011
c. Calculate real G.D.P. in 2011 assuming 2010 is the base year.
d. How much did the economy grow or shrink in real terms between 2010 and 2011? Defend your answer.