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Economics – Dr. Sauer

Homework #5 (40 points) ????Add in world market questions??? And inelastic supply questions??? More questions about the podcasts themselves.

Please indicate your answers on a scantron sheet. It is okay to work on your homework in groups, but each person must submit answers individually. 1. TRUE or FALSE The fundamental disagreement between Keynes and Hayek has to do with to what extent the government can and should steer the economy. 2. Which of the following would Keynes likely NOT agree with? a. When the economy is not doing well, the government should stimulate it using fiscal or monetary policy. b. Aggregate Demand is comprised of spending by households, business investment by firms, and spending by the government. c. The market does not need government intervention. d. A war can stimulate an economy because government spending increases. 3. TRUE or FALSE Keynes’ theory on government and the economy is the correct one.

4. Which of the following would Hayek likely agree with? a. When the economy is not doing well, the government should stimulate it using fiscal or monetary policy. b. Inflation is not to be worried about in the short run. c. Over-consumption is what leads an economy into trouble. d. When the government tries to steer markets, things get worse. 5. Which of the following transactions does not take place in the markets for factors of production in the circular-flow diagram? a. a landowner leases land to a farmer b. a farmer hires a teenager to help with harvest c. a construction company rents trucks for its business d. a woman buys corn for dinner 6. A model that shows how dollars, inputs, and outputs flow through markets among households and firms is called the a. aggregate demand and aggregate supply diagram. b. circular-flow diagram. c. demand and supply diagram. d. comparative advantage model. 7. TRUE or FALSE Aggregate Demand comes from household spending, firm investment spending, government spending, and net exports. 8. TRUE or FALSE Aggregate Supply will increase (shift to the right) when the price of oil rises. 9. Suppose that there is a stock market crash and many individuals lose money and firms are not in a position to undertake capital investment. According to the model of Aggregate Supply and Demand we would expect a. higher inflation and higher unemployment. b. higher inflation and lower unemployment. c. lower inflation and higher unemployment. d. lower inflation and lower unemployment. 10. Suppose that unemployment is high, inflation is low, and a national election is near. We might expect a. the Fed will raise interest rates to stimulate the economy. b. Congress will lower taxes to stimulate the economy. c. the Fed will lower taxes to stimulate the economy. d. Congress will lower interest rates to stimulate the economy. 11. TRUE or FALSE The rice panic was due to a physical shortage of rice in the world.

12. The key to stopping the rice panic was a. increasing the production of rice.

b. managing people’s expectations. c. implementing controls on the price of rice. d. rationing rice. 13. TRUE or FALSE Governments intervening in the rice markets will likely prevent another rice fiasco. 14. A price ceiling on avocados would have the effects of a. lowering the price of avocados and causing a shortage. b. lowering the price of avocados and causing a surplus. c. raising the price of avocados and causing a shortage. d. raising the price of avocados and causing a surplus. 15. TRUE or FALSE Economists are generally not in favor of price controls.

16. Which of the following is the most likely explanation for the imposition of a price floor on the market for corn? a. Policymakers have studied the effects of the price floor carefully, and they recognize that the price floor is advantageous for society as a whole. b. Buyers and sellers of corn have agreed that the price floor is good for both of them and have therefore pressured policy makers into imposing the price floor. c. Buyers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor. d. Sellers of corn, recognizing that the price floor is good for them, have pressured policymakers into imposing the price floor. __________________________________________________________________________________________________ 17. Refer to the graph.
20 18 16 14 12 10 8 6 4 2 Demand 2 4 6 8 10 12 14 16 18 20 Quantity Price Supply

Which of the following statements is not correct? a. When the price is $10, quantity supplied equals quantity demanded. b. When the price is $6, there is a surplus of 8 units. c. When the price is $12, there is a surplus of 4 units. d. When the price is $16, quantity supplied exceeds quantity demanded by 12 units.

18. Refer to the graph above. For a price ceiling to be effective in this market, it would have to be set at a. any price below $10. b. a price between $6 and $10. c. a price between $10 and $16. d. any price above $10. ___________________________________________________________________________________________________ 19. The minimum wage is an example of a a. price ceiling. b. price floor. c. wage subsidy. d. tax. 20. A minimum wage that is set above a market's equilibrium wage will result in an excess a. demand for labor, that is, unemployment. b. demand for labor, that is, a shortage of workers. c. supply of labor, that is, unemployment. d. supply of labor, that is, a shortage of workers. 21. TRUE or FALSE Economists agree that economic growth is destroying the world.

22. Refer to the graph.

The industry creates a. positive externalities. b. negative externalities. c. no externalities. d. no equilibrium in the market. 23. Refer to the graph above. Without any government intervention, the equilibrium price and quantity are a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively. 24. Refer to the graph above. The socially optimal price and quantity are a. $1.90 and 38 units, respectively. b. $1.80 and 35 units, respectively. c. $1.60 and 42 units, respectively. d. $1.35 and 58 units, respectively. _______________________________________________________________________________________________ 25. Refer to the graph below. To internalize the externality in this market, the government should a. impose a tax on this product. b. provide a subsidy for this product. c. forbid production. d. produce the product itself.

__________________________________________________________________________________________________

26. A tax imposed on the sellers of a good will raise the a. price paid by buyers and lower the equilibrium quantity. b. price paid by buyers and raise the equilibrium quantity. c. effective price received by sellers and lower the equilibrium quantity. d. effective price received by sellers and raise the equilibrium quantity. 27. A tax on sellers will shift the a. demand curve upward by the amount of the tax. b. demand curve downward by the amount of the tax. c. supply curve upward by the amount of the tax. d. supply curve downward by the amount of the tax. ____________________________________________________________________________________________________ 28. Refer to the graph.
Price 15 12

S2 S
1

What is the amount of the tax per unit? a. $1 b. $2 c. $3 d. $4

8

9 6 3

Demand
40 80 105 120 160 Quantity

29. Refer to the graph above. How is the burden of the tax shared between buyers and sellers? Buyers bear a. three-fourths of the burden, and sellers bear one-fourth of the burden. b. two-thirds of the burden, and sellers bear one-third of the burden. c. one-half of the burden, and sellers bear one-half of the burden. d. one-fourth of the burden, and sellers bear three-fourths of the burden. 30. Refer to the graph above. In the after-tax equilibrium, how much revenue does the government collect from the tax on this good? a. $210 b. $345 c. $420 d. $480 ___________________________________________________________________________________________________ 31. Which of the following was NOT an obstacle that needed to be overcome to implement the US income tax? a. Figuring out the logistics of the tax like how much the tax would be, who would pay the tax, how it would be collected, etc.. b. The US Constitution did not allow for an income tax and so the tax was challenged and brought to the Supreme Court. c. The states opposed the Federal government collecting taxes because they would then be able to collect less. d. Getting the information to the average American on how to pay taxes and convincing them it was a good idea. 32. TRUE or FALSE The US income tax was first proposed and implemented in 1913. 33. TRUE or FALSE Before having an income tax, the US government collected its revenue primarily through tariffs.

34. When the US income tax was first implemented, a. it was levied on only the wealthy which were a very small portion of the population so it was easy for the Bureau of Internal Revenue to audit each tax return individually. b. it was levied on only the wealthy and the tax returns were all made public so individuals would end up monitoring

each other for compliance. c. it was levied on all but the poorest workers. d. it was levied on all workers. 35. The 1943 short Disney film did NOT use which of the following tactics? a. It portrayed that paying taxes was patriotic. b. It portrayed that paying taxes was a way to fight the Axis Powers. c. It portrayed that paying taxes would fund the munitions factories. d. It portrayed that paying taxes would fund education. ____________________________________________________________________________________________________ 36. In 1864, President Lincoln was paid a salary of $25,000. In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 47 for the year 1864, 15.2 for the year 1931, and 218 for the year 2010. President Hoover’s 1931 salary was equivalent to a 2010 salary of about a. $5,229. b. $1,075,658. c. $1,140,000. d. $16,350,000.

___________________________________________________________________________________________________ 37. Which of the following is a Colorado state tax? a. Medicare Tax. b. Payroll Tax. c. Sales Tax. d. Motor Vehicle Registration Tax. 38. TRUE or FALSE The marginal tax rate is the total taxes paid, divided by total income. ___________________________________________________________________________________________________ 39. Here are the IRS tax brackets for a single person for 2011: Marginal Tax Tax Bracket Rate over but not over 10% $0 $8,500 15% $8,500 $34,500 25% $34,500 $83,600 28% $83,600 $174,400 33% $174,400 $379,150 35% $379,150 Suppose an individual’s Gross Income is $200,000, their Adjusted Gross Income is $170,000. The total amount this individual owes in federal income taxes is roughly a. $66,000. b. $56,100. c. $41,200 d. none of the above.

__________________________________________________________________________________________________ 40. For the taxes owed you computed in question number 39, what is this individual’s marginal tax rate and average tax rate? a. marginal tax rate = 33%, average tax rate = 20.6%. b. marginal tax rate = 33%, average tax rate = 24.2%. c. marginal tax rate = 28%, average tax rate = 20.6%. d. marginal tax rate = 28%, average tax rate = 24.2%.

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