If a monopsony labor market suddenly were transformed into a perfectly competitive labor market, how would the wage and employment change? Free-Response Questions Planning time — 10 minutes Writing time — 50 minutes At the conclusion of the planning time, you have 50 minutes to respond to the following three questions. A All goods and services flow through the government in exchange for resource payments. B— Sales taxes are typical examples of regressive taxes. E Joint profit maximization costs society consumer surplus as the price rises above competitive levels. A Unemployment B Bankruptcy C Declining labor productivity D Falling real household income E Inflation 31. A A decline in the birth rate B Declining adult literacy rates C Widespread relocation of manufacturing firms to low-wage nations D National program of child immunization E A global increase in the price of crude oil 60. B marginal product of labor is at its minimum.
B —Asset demand for money is negatively related to the interest rate. What does the presence of discouraged workers do to the measurement of the unemployment rate? D there exist no barriers to entry. C Short-run aggregate supply is vertical as nominal wages quickly respond to price level changes. Part B : 4 points i. C An increase in the construction of new houses. Which of the following causes the supply curve of paper to shift to the left? Banks with many outstanding loans that are being repaid at fixed interest rates B Assume that the central bank of Argentina has the same tools of monetary policy as the Fed in the United States.
B —The gains from free trade are based on the principles of comparative, not absolute, advantage and specialization. Give a subsidy to the hog farmer. B the market price of the product to increase. You would not receive any points in B ii. B long-run profits are positive.
A Both supply and demand shift rightward. B the total benefit received from eating cake is falling. B Free trade allows each nation to consume beyond the production possibility curve. A lower price prompts a substitution effect, increasing quantity demanded of the good. If the income effect outweighs the substitution effect, we can see an upward-sloping demand curve.
It is also very tough for the reader to find all of the points. C —Increased optimism shifts investment demand to the right. The curve labeled 1 represents which of the following? E Efficiency is superior to the market economic system. C The city of Cincinnati is undertaking a huge highway construction project that strands fans in pregame traffic jams for hours. C— This is the idea of derived demand. However, be aware that every year the point allocations change and partial credit is awarded differently.
A Firms earn long-run economic profits. B An increase in the price of a substitute for this good. . B setting the price above average total cost. D Quantity rises, but the change in price is ambiguous. A An American entrepreneur founds and locates a software company in London.
Higher levels of consumer wealth and optimism would likely have which of the following changes in the market for loanable funds? Monopoly deadweight loss is the result of A setting the price above marginal cost. E expansionary monetary policy by raising the reserve ratio. B The entire consumption function would shift downward. Use the following profit matrix to respond to question 37. This results in a profit opportunity for producers to increase output. B —Falling bond prices correspond to rising interest rates, so look for the choice that increases interest rates. C— Economic growth is the result of better, or more economic, resources or more technological progress.
A The marginal propensity to consume would increase, increasing the slope of the consumption function. Multiple-Choice Questions Time—1 hour and 10 minutes 60 questions For the multiple-choice questions that follow, select the best answer and fill in the appropriate letter on the answer sheet. C a surplus in the market to be eliminated by falling prices. D shift the money supply curve to the left. E the demand for existing firms to shift leftward. B horizontal below full employment. E dollars spent on this good would decrease if demand for the good were unitary price elastic.
C increase the interest rate, increase private investment, increase aggregate demand, and increase domestic output. A Nations specialize and trade based on absolute advantage in production. B the marginal social cost exceeds the marginal social benefit. E Excess capacity is eliminated in the long run. However, beginning with the 2020 exam, rather than having a variable number of points on the free-response section of the exam, the total number of possible points for the free-response section will be set at 20: 10 points for the long question and 5 points for each short question.