Let’s consider some data on consumption and disposable income from the Federal Reserve Database (measured in billions of dollars)

Federal Reserve Database

1. Suppose the consumption function is: C = a1 Yd + a2 WRE/S + a3CC Where all the a’s (the sensitivity parameters) are greater than zero. Initial conditions: Let a1 = 0.60, a2 = 0.04, a3 = 0.5, WRE/S = 18,000: CC = 90 Solve for C in terms of Yd. Select the correct equation below.

2. Use the equation you found in #1 and let Yd = 2000. C is equal to

3. Suppose that the stock market rallies so that WRE/S increases to 22,000. Additionally, consumer confidence (CC) rises to 100. Re-solve for C in terms of Yd. Select the correct equation below.

4. Now suppose disposable income (Yd) falls due to a tax increase (Uncle Sam is trying to balance the budget) to 1800. Solve for the level of consumption using the equation you found in #3. Consumption (C) is equal to

5. Now we will calculate the level of consumption that would have occurred if Uncle Sam did not raise taxes. In other words, use the equation you found in question 3, but keep Yd at its original value of 2000. Consumption (C) is equal to

6. Look at the consumption values you calculated in #2 and #4. The percent change in consumption between those values is

7. Use the table below for questions 7 & 8. Let’s consider some data on consumption and disposable income from the Federal Reserve Database (measured in billions of dollars)

8. The percent change in real disposable between 1/1/90 and 4/1/13 is

9. Given equation Y=330+.8Y, what does Y equal?

10. Use the following information to answer questions 10 – 14. Suppose South Korea can produce 100 computer chips with 10 hours of labor input and 50 bed linens with 6 hours of labor input. The US can produce 100 computer chips with 8 hours of labor input and 50 bed linens with 4 hours of labor input.

The opportunity cost of producing 100 computer chips for South Korea is:

11. The opportunity cost of producing 50 bed linens for South Korea is:

12. The opportunity cost of producing 100 computer chips for the US is:

13. The opportunity cost of producing 50 bed linens for the US is:

14. Using comparative advantage, which country should import bed linens?

15. Marginal analysis involves undertaking an activity

16. Which of the following statements is true about scarcity?

17. Economists assume that individuals

18. Which of the following is a normative economic statement?

19. Which of the following is a positive economic statement?

20. Jen makes $12 per hour and Sammie makes $20 per hour. Both Jen and Sammie like to eat hamburgers that cost $5 each. Select the correct answer below

21. Examining the conditions that could lead to a recession in an economy is an example of a macroeconomics topic

22. Every individual, no matter how rich or poor, is faced with making trade-offs

23. When voluntary exchange takes place, only one party gains from the exchange

24. A college must decide if it wants to offer more Internet-based classes. This decision involves answering the economic question of “what to produce.”

25. One desirable outcome of a market economy is that it leads to a more equitable distribution of income

26. An economic model is a simplified version of reality used to analyze real-world economic situations

27. The decisions Apple makes in determining production levels for its iPhone is an example of a macroeconomics topic

28. Economic resources are also called factors of production

29. A curved line has slope values that change at every point

30. A straight line has a slope of zero

31. If a country is producing efficiently and is on the production possibilities frontier, the only way to produce more of one good is to produce less of the other

32. If a country produces only two goods, then it is not possible to have a comparative advantage in the production of both those goods

33. Any output combination outside a production possibility frontier is associated with unused or underutilized resources

34. An increase in the labor force shifts the production possibility frontier inwards over time

35. If Sanjaya can shuck more oysters in one hour than Tatiana, then Sanjaya has a comparative advantage in shucking oysters

36. The basis for trade is comparative advantage, not absolute advantage

37. In a two-good, two country world, if one country has an absolute advantage in the production of both goods, it cannot benefit by trading with the other country

38. For a person to have a comparative advantage in producing a product, she must be able to produce that product at a lower opportunity cost than her competitors

39. It is possible to have a comparative advantage in producing a good or service without having an absolute advantage

40. An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point inside the frontier

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