Tag: Economics – Others

2. Activities included (and not included) in the calculation of GDPThe gross domestic product (GDP) of the United States is defined as the all in a given period of time.Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2024.
Scenario2024 GDPIncludedExcluded
The Federal Emergency Management Agency (FEMA) deposits funds into Mike’s checking account to help pay for his hurricane-related expenses.
Golden Sun Motors, a U.S. automobile company, produces a minivan at a plant in China on March 10, 2024. Golden Sun Motors imports the minivan into the United States on May 20, 2024.
Using ghost peppers from a garden on your Mississippi property, you make hot sauce in 2024. Similar sauces sell for $6 in a grocery store.
Liberty Wheels, a U.S. automobile company, produces a sedan at a manufacturing facility in Bakersfield on January 21, 2024. It sells the car at a dealership in Philadelphia on February 10, 2024.
Jack Motors, a Scottish automobile company, produces a connected SUV at a plant in Pennsylvania on December 5, 2024. Jill buys the connected SUV on December 24.
Yeast Crafters, a U.S. yeast company, produces brewer’s yeast at a plant in Wisconsin on September 13, 2024. It sells the brewer’s yeast to Hoptopia Brew Works for use in the production of a new beer that will be made in the United States in 2024. (Note: Focus exclusively on whether production of the brewer’s yeast increases GDP directly, and ignore the effect of production of the new beer on GDP.)

2. The theory of liquidity preference and the downward-sloping aggregate demand curve
Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (the Fed) fixes the quantity of money supplied. Suppose the price level increases from 90 to 105. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money.
Money DemandMoney Supply020406080100120121086420INTEREST RATE (Percent)MONEY (Billions of dollars)Money Demand Money Supply
Money Demand and Money Supply
Following the price level increase, the quantity of money demanded at the initial interest rate of 6% will be than the quantity of money supplied by the Fed at this interest rate. As a result, individuals will attempt to their money holdings. In order to do so, they will bonds and other interest-bearing assets, and bond issuers will realize that they interest rates until equilibrium is restored in the money market at an interest rate of .
Aggregate Demand040801201602002401801501209060300PRICE LEVELOUTPUT (Billions of dollars)Aggregate Demand
Aggregate Demand Curve
The change in the interest rate found in the previous task will lead to a in residential and business spending, which will cause in the quantity of output demanded in the economy.

Multiple choice questions (2 points each)
(a) Hector has a mortgage with a fixed nominal interest rate of 6% that he took out five years ago. Over the years, the inflation rate has crept up unexpectedly to its present level of 7%.
i. Hector is worse off as inflation increases, and the lender of his mortgage is better off.
ii. Hector is better off as inflation increases, and the lender of his mortgage is worse off.
iii. Both Hector and the lender are better off
iv. Both are worse off
(b) Due to the current slump, Melanie has been laid off from her programming job. Melanie’s unemployment can be characterized as
i. Cyclical unemployment
ii. Seasonal unemployment
iii. Frictional unemployment
iv. Structural unemployment
(c) You have just been awarded a cost-of-living increase tied to the CPI. The CPI has gone from 100 to 112 . If your salary is $20,000 per year before the increase, what will it be after the CPI increase is factored in?
i. $22,400
ii. $30,000
iii. $20,000
iv. $21,200
(d) Which of the following statements about inflation is true?
i. Inflation is a general fall in the level of prices
ii. Inflation discourages people from holding onto cash because cash loses value over time.
iii. Price stability is the situation when the overall level of prices changes rapidly
iv. When the economy is growing, inflation tends to decrease
(e) Adult population: 200 million Labor force: 150 million Employed persons: 138.75 million The unemployment rate is , and the labor force participation rate is,
i. 7%; 60.4%
ii. 0.7%; 99.3%
iii. 5.6%; 69.4%
iv. 7.5%; 75%

The gross domestic product (GDP) of the United States is defined as in a given period of time.
Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2024.
Scenario
2024 GDP
Included
Excluded
Wellness Wise Bistro, a U.S. health food company, produces a veggie wrap at one of its many locations throughout the region on January 18, 2024. It sells the wrap to a customer that same day.
The Federal Emergency Management Agency (FEMA) deposits funds into Mike’s checking account to help pay for his hurricane-related expenses.
Splinter Crafters, a U.S. forestry company, produces wood ships at a plant in Tennessee on September 19, 2024. It sells the wood chips to Treetop Paperworks for use in the production of paper products that will be made in the United States in 2024. (Note: Focus exclusively on whether production of the wood chips increases GDP directly, and ignore the effect of production of the paper products on GDP.)
An accountant starts a client’s 2024 tax return on April 14, 2025, finishing it just before midnight on April 15, 2025.
Maple Leaf Gearworks, a U.S. sportswear company, produces a football helmet at a plant in Canada on March 4, 2024. Maple Leaf Gearworks imports the football helmet into the United States on May 28, 2024.
Du Belgique Air, a Belgian household appliance company, produces a air fryer at a plant in New York on December 12, 2024. A chef-in-training buys the air fryer on December 24.

percent infation rate. Unemployment is at the full-employment level and the target interest rate is currently 4 percent.
If the economy is experiencing a sharp rise in inflation, as a member of the Board of Governors, you would recommend
setting the federal funds rete equal to the discount rate.
setting the federal funds rate equal to zero
increasing the federal funds rate.
decreasing the federal funds rate.
To lower the inflation rate to 4 percent, you recommend contracting the money supply.
Increasing the reserve ratio, decreasing the 106 B rate or the discount rate, or selling bonds.
decreasing the reserve ratio, the IOC: Rate, of the discount rate, or buying bonds
increasing the reserve ratio, the IOCR rate, or the discount rate, or selling bonds.
decreasing the reserve ratio, increasing the IOER rate or the discount rate. or buying bonds
The recommendations you provided above would
reduce the lending ability of the banking system, decrease the real interest rate, and increase inversmert spending. aggregate demand, and inflation.
Increase the lending abity of the banking system, decrease the real interest rate, and reduce inversment spending. aggregate demand, and inflation.
reduce the lending ability of the banking system, increase the real interest rate, and reduce investment spending, aggregane demand, and inflation.
increase the lending ability of the banking system, decrease the real interest rate, and increase investant spanding aggregate demand, and inflation.

Suppose you are an instructor of ECON 4211 interestedin the causal effect of holding review sessions on final exam performance. You devise thefollowing strategy: across a series of semesters t = 1, . . . , T , you randomize review sessions tosome semesters while in other semesters you do not hold a review session. You then recordthe final exam score Yit of student i = 1, . . . , N in semester t (for simplicity assume the samenumber of students N enroll in each semester). Let Rit = 1 if semester t had a review session,with Rit = 0 otherwise.
(a)
Consider a difference-in-differences approach which compares trends in average test scoresacross semesters (t − 1, t) where Ri,t−1 = 0 and Rit = 1 (i.e., no review session was held,and then a review session was held) to trends in test scores across semesters (t−1, t) whereRi,t−1 = 0 and Rit = 0 (i.e., no review session was held in either consecutive semester).Using potential outcomes notation, state the estimand and formalize the two key assump-tions for it to identify a causal parameter (you do not need to prove identification).
(c)
Show that randomization of Rit satisfies both sets of identifying assumptions in (a) and(b).
(d)
How would you tell Stata (or any other language) to compute standard errors in eitherestimation strategy? How concerned would you be if you only randomized review sessionsacross T = 2 semesters?
(e)
Do the two approaches in (a) and (b) identify the same causal parameter or differentcausal parameters? Explain

The gross domestic product (GDP) of the United States is defined as the all in a given period of time.Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2024.
Scenario
2024 GDP — Included
2024 GDP — Excluded
Golden Sun Motors, a U.S. automobile company, produces a minivan at a plant in China on March 10, 2024. Golden Sun Motors imports the minivan into the United States on May 20, 2024.
Liberty Wheels, a U.S. automobile company, produces a sedan at a manufacturing facility in Bakersfield on January 21, 2024. It sells the car at a dealership in Chicago on February 10, 2024.
An accountant starts a client’s 2024 tax return on April 14, 2025, finishing it just before midnight on April 15, 2025.
The Federal Emergency Management Agency (FEMA) deposits funds into Mike’s checking account to help pay for his hurricane-related expenses.
Yeast Crafters, a U.S. yeast company, produces brewer’s yeast at a plant in Wisconsin on September 13, 2024. It sells the brewer’s yeast to Hoptopia Brew Works for use in the production of a new beer that will be made in the United States in 2024. (Note: Focus exclusively on whether production of the brewer’s yeast increases GDP directly, and ignore the effect of production of the new beer on GDP.)
Du Belgique Air, a Belgian household appliance company, produces a air fryer at a plant in New York on December 5, 2024. A chef-in-training buys the air fryer on December 24.

Perspective and Efficiency:Answeer these questions very simply show each step. Consider two polluting firms. The marginal cost of abatement for firm 1 is MC_1 = e_1 + 300, and the marginal cost of abatement for firm 2 is MC_2 = 3e_2, where e_1 and e_2 are the tons of pollution abatement by firms 1 and 2, respectively. Baseline pollution levels are bl_1 = 2000 and bl_2 = 2000.
Write down two equations that ensure that the goal will be met cost-effectively. Explain in words what each equation ensures.
Solve the equations for the cost-effective abatement allocation and .
Suppose that the government wants to achieve this abatement level with a pollution tax. What tax rate (in dollars per ton) should be levied? How much tax revenue will be raised from each firm?
Suppose that the government wants to achieve the cost-effective abatement level with a cap-and-trade scheme. How many permits will be created? What will be the equilibrium market price of a permit?
Which policy (tax or cap-and-trade) will guarantee that a cost-effective allocation is reached, and why?
Calculate the total abatement cost for firm 1 and for firm 2 under the cost-effective abatement allocation. Consider the allocation e_1 = 800, e_2= 800 (which is not the cost-effective allocation). Calculate the total abatement cost under this allocation for each firm. Verify that the total abatement cost across both firms is greater than it is under the cost-effective allocation

Note: if your answer ends in a 0 , put the zero. For example P=9.80 not 9.8 .Otherwise, round all answers to the nearest 100 th place (2 decimals)
The graph below shows the budget contraints and utility curves for a consumer for two goods, memos and endos. Note that BC1 represents the initial budget constraint, and BC2 represents the new budget constraint.
If the price of a memo is $170, what is this buyer’s income?
Income = ◻
What is the initial price of an endo?
Pendo = $ ◻
What has changed to cause the new budget constraint?
The price of memos increased
Income has increased
The price of endos decreased
The price of endos increased
Income has decreased
The price of memos decreased
Correct Answer
Which of the following represents the optimal consumption bundle if a buyer has a budget constraint of BC1?
B2
B1
B3
Correct Answer
Which movement represents the substitution effect?
B1 → B2
B3 → B2
B3 → B1
Correct Answer
Are endos a normal good or an inferior good?
Hint: Be careful! While we cannot calculate an income elasticity with the information given, we can figure out whether it is normal or inferior by comparing the income effect to the substitution effect. Check your notes for which effect dominates to answer this question.
normal
inferior
Correct Answer
What is the cross-price elasticity of demand for memos and endos?
Hint: you need to calculate the percentage change in the quantity demanded of memos with respect to the percentage change in the price of endos using the midpoint method.
XED
Incorrect Answer

7. As an example of impure serial correlation caused by an incorrect functional form, let’s return to the equation for the percentage of putts made (Pi) as a function of the length of the putt in feet (Li) that we discussed originally in Exercise 3 in Chapter 1. The complete documentation of that equation is (JOHN HARVEY DELETED THE STANDARD ERRORS BECAUSE YOU DO NOT NEED THEM) P^i = 83.6 – 4.1Li (9.32) t = – 10.6 N = 19 adj-R2 = .861 DW = 0.48
Test Equation 9.32 for serial correlation using the Durbin–Watson test at the 5-percent level. (2 pts) YOUR ANSWER HERE:
Why might the linear functional form be inappropriate for this study? Explain your answer. (1 pt) YOUR ANSWER HERE:
If we now reestimate Equation 9.32 using a double-log functional form, we obtain (Bob DELETED THE STANDARD ERRORS BECAUSE YOU DO NOT NEED THEM): lnP^i = 5.50 – 0.92lnLi (9.33) t = – 13.0 N = 19 adj-R2 = .903 DW = 1.22 Test Equation 9.33 for serial correlation using the Durbin–Watson test at the 5-percent level. (1 pt) YOUR ANSWER HERE:
Compare Equations 9.32 and 9.33. Which equation do you prefer? Why? (1 pt) YOUR ANSWER HERE: