Answer the following questions.
1. The three central coordination problems any economic system must solve are:
[A] what to produce, why to produce, how to produce.
[B] what to produce, why to produce, for whom to produce.
[C] what to produce, how to produce, for whom to produce.
[D] what to produce, where to produce, how to produce.
2. An opportunity cost is:
[A] easily measured in dollar terms.
[B] the highest valued alternative that must be foregone whenever something is undertaken or acquire[D]
[C] only incurred when important and costly decisions are to be made.
[D] not implicit in every decision we make.
3. If at some price the quantity supplied exceeds the quantity demanded, then:
[A] a surplus exists and the price will fall over time as sellers competitively bid down the price.
[B] a shortage exists and the price will rise over time as buyers competitively bid up the price.
[C] the price is below equilibrium.
[D] equilibrium will be reestablished as the demand curve shifts to the left.
4. Macroeconomics is best suited to answer questions about:
[A] unemployment among students in this campus
[B] why rent is higher in big cities than in smaller ones
[C] how fast the overall price level will rise next year
[D] the demand for public transportation in Boston
5. An example of a good counted in this year's GDP is
[A] a share of corporate stock
[B] an acre of farmland
[C] a used car
[D] a new shirt
6. If private investment increased by $50 billion while GDP remained the same, which of the following could have occurred, all else being the same?
[A] consumption spending decreased by $50 billion
[B] exports increased by $50 billion
[C] imports decreased by $50 billion
[D] net exports increased by $50 billion
7. To combat inflation in an expansionary phase of the business cycle, the Fed should:
[A] raise the required reserve ratio.
[B] increase banks' excess reserves by reducing the discount rate.
[C] undertake expansionary monetary policy.
[D] increase the money supply.
8. Which of the following would most likely cause a recession?
[A] Government spending increases and taxes are reduced.
[B] Imports rise and exports fall.
[C] An increase in consumer confidence and expenditures spending rises.
[D] Interest rates fall and investment spending increases.
9. If an economy is at equilibrium at potential output and the AD curve shifts out, the economy will move to:
[A] an inflationary gap.
[B] a recessionary gap.
[C] a short term equilibrium.
[D] a business cycle.
10. Which of the following statements about trade restrictions is true?
[A] Tariffs are quantity limits placed on imports.
[B] Quotas are taxes governments place on imports.
[C] Trade restrictions create higher prices for consumers.
[D] Economists generally favor trade restriction policies.
Q.11. In most developing countries, there are long lines of taxis at airports, and these taxis often wait two or three hours. What does this tell you about the price in that market? Discuss using supply demand analysis. (200 words)
Q.12. Change in Income (∆Y) = $1000 billion
Change in Consumption (∆C) = $900 billion
a) What is the Marginal Propensity to Consume (MPC)?
b) What is the Multiplier?
Q.13. Are you in favor of either deficit spending on the part of government or one of a balanced federal budget and budget surpluses?
Present your argument and discuss the economic situations when your position can be successfully implemented and when it may be doomed to failure.