Answer key to sample problems for test 1

Here is the key to the sample problems for test one. Pay attention to some of the comments since they are probably worthy of some explanation, especially since these problems are drawn from past tests and may not accurately reflect our class discussions.

1-A, 2-C, 3-D, 4-D, 5-B, 6-A, 7-D,
8-A, 9-A, 10-B, 11-C*, 12-A*, 13-B, 14-B,
15-B, 16-C**, 17-C**, 18-B, 19-D, 20-A,
21-D, 22-D, 23-D, 24-C, 25-C, 26-A,
27-B, 28-C, 29-D***, 30-A, 31-B, 32-B, 33-B,
34-C, 35-C, 36-B, 37-B, 38-C,
39-D, 40-D, 41-C, 42-D,
43-A, 44-B, 45-A, 46-B,
47-B, 48-A, 49-D, 50-D****,
51-B, 52-B, 53-B, 54-D, 55-D, 56-B,
57-C, 58-A, 59-C, 60-A or D.*****

Sometimes I make typos on these keys so if you think anything is wrong please email or IM me. I'll check it out.

The comments below refer to the key above.

*11 and 12 use the terms "government transfers". Although I did not discuss it in class you should have picked this up in the readings. What is a government transfer? It is a payment made to someone (a household or a firm) for which NO good or service is rendered in return. A subsidy to a business is a transfer payment. Food stamps are a transfer payment. The "economic stimulus checks" many of us got this summer are transfer payments. Why don't we count those? Because the spending gets picked up in some other category (if we spent our checks on clothes, it would be consumption, unless we bought them from China then it would be an import). In sum: GDP does NOT count government transfers. It counts only its spending on goods and services.

**16 and 17. Given the wording of these problems, using terminology like "market basket" may be confusing. That is because this terminology is used to describe calculating a price index like the Consumer Price Index (CPI). That discussion is a later chapter. So you should ignore those problems. In an updated version of the sample test, I crossed those problems out. Although you may be able to figure them out. For this first test, any references to inflation will come in the GDP deflator terminology.

***29. I don't like the wording of this problem. I think C is the best answer, but A may also be acceptable. So if A and C are possible answers, then the correct response would be D. I'll try to keep from having unclear phrasing.

**** 50. D is the answer. C would suggest that the opportunity cost is decreasing. But we know a bowed out PPF shows increasing opportunity cost. If there was an alternative, say, E, that says "decrease at an increasing rate" it would be the best answer. Here, D is the best.

*****60. The Taylor text separates the financial market and the resource market. However, in class, I combined the two. If I were to give you this problem I'd have to accept both A and D. If it was just Taylor, it would be A. If it was just me, it would be D.