SL 151 Name
______________________________________ CM _____
Bremmer I November
8, 2002
3dd
In-Class Exam - - Chapters 7, 8, 11-3, 15
Part I.
Multiple Choice (3 points each). For each question, indicate the best answer
in the space provided.
___ 1. If a large number of students graduate from
college, which category of unemployment would increase?
A. seasonal unemployment D. frictional
unemployment
B. structural unemployment E. They will have no effect on unemployment.
C. cyclical unemployment
___ 2. The official measure of unemployment may
underestimate actual unemployment because:
A. individuals who are unable to work are not
included.
B. some individuals who should be receiving
unemployment benefits do not receive them.
C. people may lie when reporting they are
looking for jobs.
D. the population sample employed by the Labor
Department is too small to be representative.
E. the treatment of involuntary part-time
workers and discouraged workers is misleading.
___ 3. In GDP accounting, which of the following
would be defined as investment?
A. the purchase of a U.S. saving bond D. the purchase of $500 worth of gold
B. the accumulation of inventories by a firm E. the deposit of $100 into a savings account
C. the purchase of 100 shares of Ford stock
___ 4. Real GDP is nominal GDP
A. plus depreciation. D. minus taxes.
B. adjusted for changes in the price level. E. minus inflation.
C. minus depreciation.
___ 5. Everything else held constant, who is least
likely to lose from an unexpected increase in inflation?
A. a homeowner scheduled to make fixed nominal
mortgage payments
B. a retired person whose pension payments are
fixed in dollars
C. a person with a large amount of money
deposited in a savings account
D. a bank scheduled to receive fixed nominal
mortgage payments
E. a consumer who spends extra time shopping
for the lowest prices
___ 6. If the price level rose from 254 in year 1
to 289 in year 2, then the annual rate of inflation for this economy in year 2
would be:
A. 35 percent. B. 89 percent. C. 13.8 percent. D. 11.3 percent. E. 154
percent.
___ 7. In a perfectly competitive, constant-cost
industry, the short-run industry supply curves have:
A. positive slopes,
and the long-run industry supply curve is also positively sloped.
B. zero slopes, as does the long-run industry
supply curve.
C. positive slopes; but, the long-run industry
supply curve has a negative slope.
D. positive slopes; but, the long-run industry
supply curve is a horizontal line with zero slope.
E. negative slopes; but, the long-run industry
supply curve has a positive slope.
___ 8. Assume the identical firms in a
decreasing-cost industry are incurring short-run losses. If this persists, in the long run:
A. firms will enter the industry and input pries
will increase.
B. firms will exit the industry and input
prices will decrease.
C. firms will enter the industry and input
prices will decrease.
D. firms will exit the industry and input
prices will increase.
E. firms will exit the industry, but input pries
will remain unchanged.
___ 9. Assume every one of the identical firms in
a perfectly competitive, increasing-cost industry are
earning economic profits in the short-run.
In the long run, you would expect:
A. the short-run industry supply curve to increase.
B. the ATC, AVC, and the MC curves of the
typical firm to shift up.
C. firms to charge a price that is greater than
price they charged when they earned economic profits.
D. All of the above.
E. Only A and B.
___ 10. If the fixed cost of a monopolist decreases,
then a profit-maximizing monopolist will:
A. increase price and increase output.
B. decrease price and decrease output.
C. increase price and decrease output.
D. decrease price and increase output.
E. neither change its
price nor change its output.
___ 11. In the long run, a monopolist=s economic profit:
A. must be positive. D. may be
positive, negative, or zero.
B. must be zero. E. must be zero or positive.
C. must be negative.
___ 12. In the short run, a profit-maximizing
monopolist will:
A. never shut down.
B. produce in the inelastic portion of its
demand curve.
C. produce that output where P = MC.
D. will always shut down if P < ATC.
E. will produce if P > AVC.
___ 13. Given the short-run, Keynesian macro model
discussed in class, it
was assumed that:
A. wealth was the major determinant of
household spending.
B. prices, wages, and the interest rate were
flexible in the short run.
C. the economy would always be at
full-employment output in the short-run.
D. markets would self-correct in the short run
and no government intervention was necessary.
E. some components of GDP were Aautonomous@ and
therefore were not affected by the level of real GDP.
___ 14. Given the short-run macro model, if the
short-run equilibrium level of GDP is less than the full-employment level of
real GDP then:
A. the economy is experiencing an inflationary
(or expansionary) gap.
B. a decrease in government spending on goods
and services and an increase in lump sum taxes would help return the economy to
full employment in the short run.
C. the current unemployment rate is less than
the natural rate of unemployment.
D. it will take an increase in government
spending that is larger than the desired change in income to restore the
economy to full-employment in the short run.
E. None of the above.
___ 15. Given the short-run, Keynesian macro model, if
an initial increase in autonomous investment of $30 caused equilibrium real GDP
to increase by $120, what is the value of the mpc?
A. 0.80
B. 0.75
C. 0.60
D. 0.50
E. 0.25
Part II. Short Answer (55 points).
Give concise, but complete, answers for each of the following
questions. When appropriate, use math,
graphs, or equations to help explain your answers. Label all graphs. Show your work for partial credit.
1. Assume a
perfectly competitive, increasing-cost industry composed of identical firms is
in long-run equilibrium. Using two
graphs - - one showing the market demand and supply curves and the other
showing the average cost curves of the typical firm - - illustrate and describe
the short-run and long-run effects of a decrease in demand. Show the long-run industry supply curve on
your graph and explain how it was obtained.
Your answer must have both a graph and a written explanation. (20 points)
2. Below is the demand curve and the total cost schedule of a pure
monopolist. (20 points)
|
Demand
Curve |
|
Total
Cost Schedule |
|||||
|
Price |
Quantity Demanded |
Total Revenue |
Marginal Revenue |
|
Output |
Total Cost |
Marginal Cost |
|
$18 |
0 |
|
|
|
0 |
$100 |
|
|
17 |
10 |
|
|
|
10 |
130 |
|
|
16 |
20 |
|
|
|
20 |
160 |
|
|
15 |
30 |
|
|
|
30 |
190 |
|
|
14 |
40 |
|
|
|
40 |
220 |
|
|
13 |
50 |
|
|
|
50 |
250 |
|
|
12 |
60 |
|
|
|
60 |
280 |
|
|
11 |
70 |
|
|
|
70 |
310 |
|
|
10 |
80 |
|
|
|
80 |
340 |
|
|
9 |
90 |
|
|
|
90 |
370 |
|
|
8 |
100 |
|
|
|
100 |
400 |
|
A. In the spaces
provided, indicate the total revenue, the marginal revenue, and the marginal
cost for each output. (6 points)
B. Using your results in the Table, determine the monopolist=s profit-maximizing price and output. What are the firm=s profits at this output level? (6 points)
C. Suppose the government imposes a $4 per unit
excise tax on the monopoly. What happens
to the monopolist=s profit-maximizing price and output? What happens to the level of the firm=s profits? (8
points)
3. Given the
short-run Keynesian model discussed in class, assume the economy is in
short-run equilibrium at full-employment output. Also assume the marginal propensity to
consume is 0.60. (15 points)
A. Given
favorable business conditions, assume firms= expect an increase in profits and autonomous
investment increases by $20 billion.
What is the change, if any, in the short-run equilibrium level of
GDP? ( 3
points)
B. Given your
answer in part (A) above, assume the government does nothing. What should happen to prices in the long
run? Explain. (6 points)
C. Given your
answers in part (A), how should the government alter lump sum taxes to insure
full employment output? (6 points)