1.Part 1: 20 questions worth 3 points each for a total of 60 points.
FOR FILL-IN-THE-BLANK questions: If your answer is in decimal form, round to 2 decimal places. For example, if your answer is .412, enter it into the fill-in-the-blank as .41, or if your answer is 1.415, enter it into the fill-in-the-blank as 1.42. If there are no decimals in your answer, you will simply enter the number; so if your answer is 2, enter 2 with no decimals. Do not enter any extra spaces, do not enter $ or % symbols.


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 = .5, WRE/S = 18,000: CC = 90 Solve for C in terms of Yd. Select the correct equation below.

A) C = 720 + .60 Yd
B) C = 765 + .60 Yd
C) C = 765 + .64 Yd
D) C = 90 + .60 Yd
E) None of the above are correct
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.

A) C = 720 + .65 Yd
B) C = 880 + .60 Yd
C) C = 765 + .64 Yd
D) C = 930 + .60 Yd
E) None of the above are correct
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 %

NOTE: There is no graphing component to be collected for this homework. However, you should be comfortable graphing the equations you found in #1 and #3. You should also be able to plot the points you found in #2, #4 and #5.

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)

Real Personal Consumption Expenditures Real Disposable Personal Income
January 1, 1990 5658.8 6376.6
April 1, 2013 10690.9 11591.4


The percent change in consumption between 1/1/90 and 4/1/13 is %.

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?
A) 183.33
B) 412.5
C) 1650
D) 264
E) None of the above are correct
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:

A) 83.33 Bed Linens
B) 100 Bed Linens
C) 60 Computer Chips
D) 50 computer Chips
11.The opportunity cost of producing 50 bed linens for South Korea is:

A) 83.33 Bed Linens
B) 100 Bed Linens
C) 60 Computer Chips
D) 50 computer Chips
12.The opportunity cost of producing 100 computer chips for the US is:

A) 83.33 Bed Linens
B) 100 Bed Linens
C) 60 Computer Chips
D) 50 computer Chips
13.The opportunity cost of producing 50 bed linens for the US is:

A) 83.33 Bed Linens
B) 100 Bed Linens
C) 60 Computer Chips
D) 50 computer Chips
14.Using comparative advantage, which country should import bed linens?

A) United States
B) South Korea
C) Both countries have a comparative advantage in computer chips, so both should import bed linens
D) Both countries have a comparative advantage in bed linens, so both should import bed linens
15.Marginal analysis involves undertaking an activity
A) until its marginal costs start declining
B) only when its marginal benefits are positive
C) until its marginal benefits equal marginal costs
D) only if its marginal costs are greater than its marginal benefits
16.Which of the following statements is true about scarcity?
A) Scarcity refers to the situation in which unlimited wants exceed limited resources
B) Scarcity is not a problem for the wealthy
C) Scarcity is only a problem when a country has too large a population
D) Scarcity arises when there is a wide disparity in income distribution
17.Economists assume that individuals
A) behave in unpredictable ways
B) will never take actions to help others
C) prefer to live in a society that values fairness above all else
D) are rational and respond to incentives
18.Which of the following is a normative economic statement?
A) Rising global demand for coal has led to increases in the price of coal
B) With rising mortgage rates and rising unemployment rates, the number of unsold homes has increased
C) The state of Texas is considering increasing funds for light-rail development to promote the use of public transportation
D) Pharmaceutical manufacturers should not be allowed to patent their products so prescription drugs would be more affordable
19.Which of the following is a positive economic statement?
A) The standard of living in the United States should be higher
B) If the price of iPhones falls, a larger quantity of iPhones will be purchased
C) The government should revamp the health care system
D) The U.S. government should not have bailed out U.S. auto manufacturers
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
A) Sammie's real wage is equal to 4 hamburgers
B) Jen's real wage is higher than Sammie's real wage
C) Jen's real wage is equal to 5 hamburgers
D) Jen and Sammie's real wages are equal
E) Sammie's real wage is equal to 100 hamburgers