ECON 545 Week 8 Final Exam

ECON 545 Week 8 Final Exam

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1.

Question :

(TCO A) Suppose you are hired to manage a small manufacturing facility that produces Widgets.

(a.) (15 points) You know from data collected on the Widget Market that market demand and market supply have both increased recently. As manager of the facility, what decisions should you make regarding production levels and pricing for your Widget facility?

Remember that supply and demand are about the market supply and market demand, which is bigger than your own company. You are being given data on supply and demand for the whole market and are being asked what effect that has on you as a small part of that market.

(b.) (15 points) Now, suppose that following the supply and demand changes in (a), a substitute good goes up in price, and your costs of production increase. What new decisions will you make regarding production levels and pricing for your Widget facility?

2.

Question :

(TCO B) Here is some data on the demand for marshmallows:

Price Quantity

$10 100

$ 8 300

$ 6 700

$ 4 1300

$ 2 2200

(a.) (15 points) Is demand elastic or inelastic in the $6-$8 price range? How do you know?

(b.) (15 points) If the table represents the demand faced by a monopoly firm, then what is that firm’s marginal revenue as it increases output from 1300 units to 2200 units? Show all work. (Be careful here!)

3.

Question :

(TCO C) You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below.

Total Total

Workers Labor Cost Output Revenue

1 $500 100 $700

2 1000 280 1150

3 1500 440 1440

4 2000 540 1570

5 2500 600 1670

6 3000 630 1710

7 3500 640 1730

(a.) (6 points) What is the marginal product of the second worker?

(b.) (6 points) What is the marginal revenue product of the fourth worker?

(c.) (6 points) What is the marginal cost of the first worker?

(d.) (12 points) Based on your knowledge of marginal analysis, how many workers should you hire? Explain you answer.

4.

Question :

(TCO C) Answer the next questions on the basis of the following cost data for a firm in pure competition:

OUTPUT —— TFC ———- TVC

0 $100.00 0.00

1 100.00 70.00

2 100.00 120.00

3 100.00 150.00

4 100.00 200.00

5 100.00 270.00

6 100.00 360.00

(a.) (15 points) Refer to the above data. If the product price is $45 at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.

(b.) (15 points) Refer to the above data. If the product price is $75 at its optimal output, will the firm realize an economic profit, break even, or incur an economic loss? How much will the profit or loss be? Show all calculations.

5.

Question :

(TCO D) A software producer has fixed costs of $18,000 per month and her Total Variable Costs (TVC) as a function of output Q are given below:

Q TVC Price

1,000 $15,000 $25

2,000 20,000 24

3,000 30,000 23

4,000 50,000 22

5,000 80,000 20

(a.) (15 points) If software can only be produced in the quantities above, what should be the production level if the producer operates in a monopolistic competitive market where the price of software at each possible quantity is also listed above? Why? (Show all work).

(b.) (15 points) What should be the production level if fixed costs rose to $48,000 per month? Explain.

6.

Question :

(TCO F)

(a.) (20 points) Suppose nominal GDP in 1999 was $200 billion, and in 2001, it was $270 billion. The general price index in 1999 was 100 and in 2001 it was 150. Between 1999 and 2001, the real GDP rose by what percent?

(b.) Use the following scenario to answer questions (b1) and (b2).

In a given year in the United States, the total number of residents is 270 million, the number of residents under the age of 16 is 38 million, the number of institutionalized adults is 15 million, the number of adults who are not looking for work is 17 million, and the number of unemployed is 10 million.

(b1.) (5 points) Refer to the data in the above scenario. What is the size of the labor force in the United States for the given year?

(b2.) (5 points) Refer to the data in the above scenario. What is the unemployment rate in the United States for the given year?

7.

Question :

(TCO G and H)

(a.) (15 points) Suppose your local Congress representative suggests that the federal government intervenes in the gasoline market to stop runaway price increases. Would you say that this view basically supports the Keynesian or the Monetarist school of thought? Why? What position would the opposing school of thought take on this issue? (Be brief — you can answer this in 2 or 3 brief paragraphs).

(b.) (10 points) Any change in the economy’s total expenditures would be expected to translate into a change in GDP that was larger than the initial change in spending. This phenomenon is known as the multiplier effect. Explain how the multiplier effect works.

(c.) (15 points) You are told that 90 cents out of every extra dollar pumped into the economy goes toward consumption (as opposed to saving). Estimate the GDP impact of a positive change in government spending that equals $20 billion.

8.

Question :

(TCO G)

(a.) (20 points) Third National Bank is fully loaned up with reserves of $20,000 and demand deposits equal to $100,000. The reserve ratio is 20%. Households deposit $5,000 in currency into the bank. How much excess reserves does the bank now have, and what is the maximum amount of new money that can be created in the banking system as a result of this deposit? Show all work.

(b.) (20 points) What is the discount rate in the banking system? Explain how the Fed manipulates this rate to achieve macroeconomic objectives.

9.

Question :

(TCO E and I) Let the exchange rate be defined as the number of dollars per British pound. Assume there is a decrease in U.S. interest rates relative to that of Britain.

(a.) (10 points) Would this event cause the demand for the dollar to increase or decrease relative to the demand for the pound? Why?

(b.) (10 points) Has the dollar appreciated or depreciated in value relative to the pound?

(c.) (10 points) Does this change in the value of the dollar make imports cheaper or more expensive for Americans? Are American exports cheaper or more expensive for importers of U.S. goods in Great Britain? Illustrate by showing the price of a U.S. cell phone in Britain before and after the change in the exchange rate.

(d.) (10 points) If you had a business exporting goods to Britain, and U.S. interest rates fell as they have in this example, would you plan to expand production or cut back? Why?

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ECON 545 Week 7 DQ 2 Forecasting

ECON 545 Week 7 DQ 2 Forecasting

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Forecasting (graded)

Let’s discuss one of the most important areas of economics, namely the use of leading economic indicators to forecast the future direction of the macroeconomy.  What websites are helping you gain a better understanding of where the economy is heading in the next 12 months?

Let’s discuss one of the most important areas of economics, namely the use of leading economic indicators to forecast the future direction of the macroeconomy.  What websites are helping you gain a better understanding of where the economy is heading in the next 12 months?

 Now more than ever, economists, policy makers, and businessmen need to be able to form forecasts of key economic aggregates or at least be able to critically appraise forecasts of official institutions. How much of mathematics plays a part in forecasting, or does the government go by what they see?

I like to watch the GDP and determine the reasons why it has increased or decreased in a certain time period.  It is important to understand why our economy as a whole is doing better or worse.  Also by looking at the exchange rates it is interesting to find out how our dollar is doing in comparison to other countries’ currencies.

Using these websites I am able to look all this information up and just surf around for anything else I find interesting.

http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm

One of the leading indicators of how the economy might be expected to perform in the future would be that of foreign exchange rates. Exchanges rates are a leading indicator of how the monetary system in an economy is doing. If we monitor the ups and downs of the exchange rates of the US Dollar we can determine how well the economy may be. The website http://www.fxstreet.com has an area that allows you to see the forward exchanges rates for each currency. This is a great site to see how the dollar will compare to other currencies going forward.

but it is important to understand that forecast are not 100% correct, but many forecasts are excellent, and the cutting-edge econometrics (the application of statistics to economic forecasting) is a  very powerful set of tools.). It’s all part of the game that one must play in predicting the future.

ECON 545 Week 7 DQ 1 The Public Sector

ECON 545 Week 7 DQ 1 The Public Sector

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The Public Sector (graded)

What is the appropriate balance between private and public (i.e., government) activity? Think of a case where the government has intervened (or it was suggested that government intervene) in a previously private market (e.g. Chrysler, tariffs on Japanese luxury cars, the airline industry, etc). What other examples can you think of? Using a marginal benefit/marginal cost analysis, support or argue against the intervention.

What is the appropriate balance between private and public (i.e., government) activity? Think of a case where the government has intervened (or it was suggested that government intervene) in a previously private market (e.g. Chrysler, tariffs on Japanese luxury cars, the airline industry, etc). What other examples can you think of? Using a marginal benefit/marginal cost analysis, support or argue against the intervention.

 The government subsidizing the housing market in trying to help homeowner stay in their homes has not reached nearly as much of those who need it. They did the same with the banking system which only shows that their efforts are not as productive as they would like us to believe.  Government intervention in private activity does not change whether or not the funds will be mismanagement or the policies that led to the crisis in the first place will be changed; change should start at the top.

ECON 545 Week 6 Quiz

ECON 545 Week 6 Quiz

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Question:

(TCO F) The size of the labor force in a community is 800, and 720 of these folks are gainfully employed. In this community, 200 people over the age of 16 do not have a job, and are not looking for work. In addition, 100 people in the community are under the age of 16. The unemployment rate is:

2.

Question:

(TCO F) Suppose nominal GDP in 2005 was $14 trillion and in 2006 it was $15 trillion. The general price index in 2005 was 100 and in 2006 it was 103. Between 2005 and 2006 real GDP rose by what percent?

3.

Question:

(TCO F) The consumer price index was 185.2 in January of 2004, and it was 190.7 in January of 2005. Therefore, the rate of inflation in 2004 was about:

  1. (TCO E) (10 points) As the Euro appreciates in value relative to the U.S. dollar, what happens to the price of U.S. goods in Europe? What happens to the price of European goods in the U.S.?

(10 points) Why would a country (for example, China) choose to keep their currency relatively pegged to the U.S. dollar? If the U.S. dollar were to appreciate considerably against most currencies, what would be the effect on Chinese exports to countries other than the United States? (Points : 20)

4.

Question:

(TCO E) (5 points) As the Mexican Peso depreciates in value relative to the U.S. dollar, what happens to the price of U.S. goods in Mexico? What happens to the price of Mexican goods in the U.S.?

(5 points) Why would a country (for example China) choose to keep their currency relatively pegged to the U.S. dollar? If the U.S. dollar were to appreciate considerably against most currencies, what would be the effect on Chinese exports to countries other than the U.S.?

  1. (TCO E) Suppose the Indian rupee price of one British pound is 54.392 rupees for each pound. A hotel room in London costs 120 pounds, while a similar hotel room in New Delhi costs 6,500 Indian rupees. In which city is the hotel room cheaper, and by how much? (Points : 15)

5.

Question:

(TCO E) Suppose the Japanese yen price of one British pound is 163.78 yen for each pound. A hotel room in London costs 120 pounds, while a similar hotel room in Tokyo costs 20,000 Japanese yen. In which city is the hotel room cheaper, and by how much?

  1. (TCO E) Answer the next question on the basis of the following production possibilities data for Landia and Scandia:

Question:

(TCO E) Answer the next question on the basis of the following production possibilities data for Landia and Scandia:

Landia production possibilities:

ABCDE

Fish 8 6 4 2 0

Chips 0 10 20 30 40

Scandia production possibilities:

ABCDE

Fish 24 18 12 6 0

Chips 0 12 24 36 48

Refer to the above data. What would be feasible terms of trade between Landia and Scandia?

  1. (TCO F) Country A produces two goods, elephants and saddles. In the year 2006, the 100 units of elephants produced sold for $2,500 per unit and the 30 units of saddles produced sold for $200 per unit. In 2007, the 120 units of elephants produced sold for $3,000 per unit, and the 50 units of saddles produced sold for $300 per unit. Real GDP for 2007, assuming that 2006 is the base year, is ______. (Points : 15)

9) (TCO E) A Honda Accord sells for $24,000 in the United States and for SF29,500 in Switzerland. Given an exchange rate of SF1.25 = $1, how do the car prices of both countries compare?

ECON 545 Week 6 Monetary and Fiscal Policy – You Decide

ECON 545 Week 6 Monetary and Fiscal Policy – You Decide

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Week 6: Monetary and Fiscal Policy – You Decide

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Y O U D E C I D E

Scenario, Your Role, Key Players

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Click on the link to review the scenario, your role and the key players involved in this scenario. When you have finished reviewing the You Decide scenario, please return here to finish the activity below.

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Y O U D E C I D E

Activity

Your task is to take this advice and produce your own recommendation to the President. Do not simply choose one person’s advice; pick and choose from each recommendation that you receive. Be sure to list what you believe and why you believe it is sound advice from each of your colleagues along with what you disagree with and why you disagree with your colleagues. Then, produce a consolidated recommendation of your own. Your submission should be approximately one page (250 words) in length, double-spaced.

See “Due Dates for Assignments & Exams” in the Syllabus for due date information.

Submit your assignment to the Dropbox located on the silver tab at the top of this page. For instructions on how to use the Dropbox, read these Step-by-Step Instructions or watch this Dropbox Tutorial.

ECON 545 Week 6 DQ 2 Monetary Policy

ECON 545 Week 6 DQ 2 Monetary Policy

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Monetary Policy (graded)

What are the monetary policies required to fight unemployment? What about those required to fight inflation? What are some of the downside risks and potential problems involved when using monetary policy?

What are the monetary policies required to fight unemployment? What about those required to fight inflation? What are some of the downside risks and potential problems involved when using monetary policy?

ECON 545 Week 6 DQ 1 Fiscal Policy

ECON 545 Week 6 DQ 1 Fiscal Policy

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Fiscal Policy (graded)

What fiscal policies are required to fight unemployment? Which ones are required to fight inflation? What are some of the downside risks and potential problems involved when using fiscal policy?

What fiscal policies are required to fight unemployment? Which ones are required to fight inflation? What are some of the downside risks and potential problems involved when using fiscal policy?