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______________________________________ 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)