Spring 2017Exam 1A

Econ 251 – Principles of Macroeconomics

Exam #1, Spring 2017

A

Name:

All graphs must be labeled and legible and show all work. Good luck!

Points off total score: _____

  1. In which component of ITALY’s2016 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.Initial offerings of stocks for Prada in 2016

b.Property taxes on the UST Rome Campus building

c.Medicaid benefits – health care benefits for families and individuals with low income

d.Unsold designer bags produced in 2015 but yet to be sold

e.Expenditures by UST CORE students (residents of Italy) on Spanish fruit

f.Sales of Italian Olive Oil to American buyers living in the US

g.Alitalia (Italian Airline) expenditures in 2016 to build a new terminal at the Rome airport

h.City of Rome’s government expenditures on renovating the Spanish Steps.

i.Expenditures by UST CORE students (residents of Italy) on a weekend trip to Florence, Italy

j.Expenditures by the Mafia on illegal activities

  1. Identify the relevant economic term(s) being discussed in each passage (1-2 words)

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 householdtasks 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.

When the inflation rate is near ______, one would expect the Federal Reserve to ______interest rate.

A Rome CORE student said to me that he “debated whether to go to a concert last summer but decided against it because the ticket price was equivalent to flight to London from Rome and would rather travel”. The ______of attending the concert was too high for him.

BLS stands for ______

Italy is the 8th largest economy in the world. Its GDP is equivalent to the size of Texas, Oklahoma and New Mexico combined. But, Italy has twice the population. This implies that Italy is less ______than the combined economy of Texas, Oklahoma and New Mexico.

  1. Identify the type of unemployment. (Spell out the word for credit.)
  1. Cab driver loses her job because driverless carspermanently reduces the demand for cab drivers.
  1. Philadelphia imposed tax on sugary drinks sold within its boundaries and people responded to the tax hike buying their soda outside the city limits. Grocery stores laid off some cashiers to make up for lost profits from this excise.
  1. Consultant is laid off of because of poor economic conditions have depressed markets for consultants.
  1. The drop in BRITISH consumer confidence in February is the biggest monthly drop in two decades. Using AD-AS analysis, demonstrate how drop in consumer confidence in the UK may affect UK’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

  1. Economic Indicators:
  2. What is the appropriate statistic to use for durable goods?

Month Annual (Circle one.)

  1. What is the appropriate statistic to use for initial jobless claims?

1week figures 4 week moving average (Circle one.)

  1. Ceteris paribus, a rise in the U.K. initial jobless claims suggest the economy is …

ImprovingWorsening(Circle one.)

  1. Which indicator should we use to make predictions about the future economy? Circle one.
  2. housing market (a leading indicator)
  3. currency strength (a lagging indicator)
  1. True False Questions

T F The number of page views on the Economics Department Facebook page since it was created is a

a flow variable.

T F Advancements in technology shifts the per worker function.

T F Suppose a country produces 100 items. If the price of 99 of these items increase, then the price

Level must have increased.

T F Japan’s economic growth between 1965 and 1990 s mainly due to efficiency gains.

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.

T F Recessions have gotten shorter over the years, while expansions have gotten longer.

  1. Circle the appropriate bolded word(s) to complete the sentence.

In the late 19 century, the price of bread in New York City was controlled, set at a predetermined price above the market price. This policy acted as a (price ceiling/ price floor) and led to a (shortage/ surplus) of bread.

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.

Assume tea and coffee are substitutes. If the price of tea rises, then (quantity demanded/demand) of coffee (rises/falls).

  1. Mexican gas prices rose 20 percent in January 2017. The two biggest exports for Mexico are vehicles and electronic equipment. Assume these are the only two good produced by Mexico. Draw a PPF for Mexico. Show how the rise in gas prices affect Mexico’s PPF.
  1. Listed below are the figures for national income accounts for Tommieville. All figures are given innominalterms. You must show all calculations to get full credit.

Spring 2017Exam 1A

Consumption Expenditures= $14000

Export Expenditures = $2300

Investment Expenditures = $2800

Government Expenditures = $3100

Taxes = $3000

Savings = $2500

Import Expenditures = $3500

Spring 2017Exam 1A

a. Calculate nominal GDP.

b. Given the above figures, what is the sizeof 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: ______

  1. While in Rome, I visited Bosnia- Herzegovina, a former republic of Yugoslavia across the Adriatic Sea. It is very beautiful place to visit especially for adventure travelers and history buffs. Let us now learn about its labor market. According to the CIA World Factbook, the population of Bosnia- Herzegovina over age 16 (and not in institutions) in 2015 was 2.8m people, the labor force consisted of 1.48m people, and the number of employed was 840,000 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.)

11.“The agriculture and construction industries have relied on immigrants for decades to do tough, low-paying jobs U.S. citizens often avoid, from picking berries to slicing up hogs to erecting framing for houses. Many of these workers are undocumented. … Labor-strapped American employers increasingly rely on immigrants—including those in the U.S. illegally—to counter the trend of an aging native-born population. If millions of illegal immigrants were deported, “you would have massive labor shortages,” said University of Michigan labor economist Donald Grimes.” Source: “Immigrant Crackdown Worries Food and Construction Industries” WSJ 2/22/17)

Describe how the tightening of immigration enforcement is expected to affect the US agricultural market.

a. Affect which side of the market?DS(Circle one.)

b. Does this increase or decrease?IncreaseDecrease(Circle one.)

c. US Agricultural Output?IncreaseDecrease(Circle one.)

d. US Agricultural Price?IncreaseDecrease(Circle one.)

  1. Answer ONE of the following set of questions:

A. “The U.S. economy was able to create more jobs than expected [in January], without a commensurate rise in wages, suggests that we’re further from ‘full employment’ than many bulls were hoping.” —Matt Weller, Faraday Research (Source: WSJ 2/3/17)

What is full employment referring to? Does that mean that the unemployment rate is zero? Explain (1-2 sentences)

B. “The more aggressive fiscal policy is, the more aggressive the Fed will be,” said Nomura economist. (WSJ 2/21/17)

  • What do they mean by aggressive fiscal policy? (1 sentence)
  • What do they mean by aggressive monetary policy? (1 sentence)
  1. Answer TWOof the following questions based on current events talked in class.
  1. The benefits of NAFTA are ______across areas, but the losses generated from NAFTA are ______in some areas.
  1. The U6 measure of unemployed is the most expansive measure of unemployment and currently equals 9.4%. This measure of unemployment equals the # of people unemployed (based on official rate/standard rate) plus ______and ______.
  1. Economists believe the US economy is currently producing
  2. significantly below the PPF
  3. below but near the PPF
  4. on the PPF
  5. above the PPF
  1. ______expenditures drives the Mexican economy. Exports expenditures (are/are not) a large part of the US economy.
  1. Give two reasons why NAFTA cannot be entirely to blame for the macroeconomic challenges that hit the U.S. economy listed above.

14. Answer ONE of the following set of questions:

A. Productivity

How does increasing productivity affect total unemployment in the short-run? Explain why.(1-2 sentences)

How does increasing productivity affect total unemployment in the long-run? Explain why.(1-2 sentences)

B. 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.