ECON 010 - Principles of Macroeconomics Drake University, Spring 2022 William M. Boal

EXAMINATION 1

### Version A

I. Multiple choice [1 pt each: 20 pts total]

(1)b. (2)d. (3)b. (4)c. (5)c. (6)a. (7)c. (8)d. (9)a. (10)b.
(11)c. (12)c. (13)b. (14)d. (15)a. (16)c. (17)d. (18)b. (19)b. (20)b.

II. Problems

(1) [Using slopes: 2 pts]

1. increase.
2. 8 units.

(2) [Percent changes: 2 pts]

1. increase.
2. 3 percent.

(3) [Percent change: 2 pts] \$21 million.

(4) [Marginal cost: 6 pts]

1. \$3.59 .
2. \$1.00 .
3. \$1.20 .

(5) [Economic capital: 6 pts] Economic capital includes factories, buildings, machinery, equipment, vehicles, computers, and software: goods that help produce more goods. Note that economic capital is NOT the same as financial capital.

1. no.
2. no.
3. yes.
4. yes.
5. no.
6. yes.

(6) [Production functions: 7 pts]

• Average product = total output/total input = 5, 4, 3 trees per worker.
• Marginal product = Δ output/Δ input = 5, 3, 1 trees per worker.
• YES, because MP decreases as the number of workers increases.

1. 2 motorcycles.
2. 3 motorcycles.
3. 1/2 pickup truck.
4. 1/3 pickup truck.
5. Country A (because it has the lower opportunity cost of producing pickup trucks).
6. Country B (because it has the lower opportunity cost of producing motorcycles).
7. ... if Country B produces and exports five motorcycles to Country A, which produces and exports 2 pickup trucks in return.
8. Trade must be plotted on graph. Must show production before trade (on PP curve) and consumption after trade (outside PP curve) for each country.

(8) [Shifts in demand and supply: 15 pts] Full credit requires graphs showing new demand or supply curve(s).

1. Demand shifts right, supply unchanged, equilibrium price increases, equilibrium quantity increases.
2. Demand unchanged, supply shifts left, equilibrium price increases, equilibrium quantity decreases.
3. Demand shifts right, supply shifts left, equilibrium price increases, equilibrium quantity cannot be determined.

(9) [Market equilibrium, price controls: 12 pts]

1. \$8.
2. 130 million.
3. 110 million.
4. 140 million.
5. excess supply.
6. 30 million.

III. Critical thinking [4 pts]

(1) The output of a campus dining hall is prepared meals. The labor inputs include cooks, servers, dishwashers, and managers. The economic capital inputs include ovens, stoves, dishwashers, refrigerators, and other equipment. The materials inputs include purchased raw food items, paper goods, and electricity.

(2) Restaurant meals are expensive on Valentine's Day and cheap the day after because of shifts in demand. Demand for restaurant meals shifts right on Valentine's Day, as more people want to eat out on that day, causing equilibrium price and quantity both to increase. Demand then shifts back left again the day after. (Full credit requires supply-and-demand graph. All curves and axes must be labeled. Graph should show rightward shift in demand on Valentine's Day and resulting increase in equilibrium price.)

### Version B

I. Multiple choice [1 pt each: 20 pts total]

(1)d. (2)d. (3)a. (4)b. (5)a. (6)c. (7)a. (8)a. (9)b. (10)d.
(11)a. (12)d. (13)c. (14)d. (15)c. (16)d. (17)d. (18)d. (19)a. (20)a.

II. Problems

(1) [Using slopes: 2 pts]

1. decrease.
2. 12 units.

(2) [Percent changes: 2 pts]

1. increase.
2. 7 percent.

(3) [Percent change: 2 pts] \$18 million.

(4) [Marginal cost: 6 pts]

1. \$2.89 .
2. \$1.50 .
3. \$1.30 .

(5) [Economic capital: 6 pts] Economic capital includes factories, buildings, machinery, equipment, vehicles, computers, and software: goods that help produce more goods. Note that economic capital is NOT the same as financial capital.

1. yes.
2. yes.
3. no.
4. no.
5. yes.
6. yes.

(6) [Production functions: 7 pts]

• Average product = total output/total input = 2, 3, 4 trees per worker.
• Marginal product = Δ output/Δ input = 2, 4, 6 trees per worker.
• NO, because MP increases as the number of workers increases.

1. 2 motorcycles.
2. 1 motorcycle.
3. 1/2 pickup truck.
4. 1 pickup truck.
5. Country B (because it has the lower opportunity cost of producing pickup trucks).
6. Country A (because it has the lower opportunity cost of producing motorcycles).
7. ... if Country A produces and exports three motorcycles to Country B, which produces and exports 2 pickup trucks in return.
8. Trade must be plotted on graph. Must show production before trade (on PP curve) and consumption after trade (outside PP curve) for each country.

(8) [Shifts in demand and supply: 15 pts] Full credit requires graphs showing new demand or supply curve(s).

1. Demand unchanged, supply shifts left, equilibrium price increases, equilibrium quantity decreases.
2. Demand shifts left, supply unchanged, equilibrium price decreases, equilibrium quantity decreases.
3. Demand shifts left, supply shifts left, equilibrium price cannot be determined, equilibrium quantity decreases.

(9) [Market equilibrium, price controls: 12 pts]

1. 5 percent.
2. \$160 billion.
3. \$170 billion.
4. \$150 billion.
5. excess demand.
6. \$20 billion.

III. Critical thinking

Same as Version A.