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)