ECON 1002 practice exam solution new docs 2021 questions and answers

ECON 1002 practice exam solution new docs 2021 questions and answers In a market system, the allocation of scarce goods involves the consideration of  the time required to pursue an economic activity.  what must be sacrificed in using a resource for its next-best use.  identifying the possibility of professional advancement.  the dollar cost of any good or service. Suppose a city block was going to be used for a parking lot in both New York City and a small town. The opportunity cost would be  greater in New York City because the alternative uses of the block are more valuable.  greater in a small city because the alternative uses of the city block are more valuable.  lower in a small city because the alternative uses of the city block are more varied.  lower in New York City because the alternative uses of the city block are more varied. A student will decide to attend class when  there is an attendance policy.  the marginal benefit of attending exceeds the marginal cost of attending.  the marginal benefit is positive.  the marginal cost is low. Which of the following best describes the concept of utility and economic behavior?  Satisfaction from consuming goods or services  Consumers' desires for products that are useful  The trade-off between spending and saving  The effort required to generate income a. Which of the following is not a key element of the scientific method?  Formulating explanations  Determining the validity of explanations  Designing data  Testing explanations b. The scientific method is the technique used by economists to determine  the price of a product.  the way in which consumers relate to each other.  the size of government.  economic principles. Which of the following represents a positive economic statement? r  The government should extend unemployment benefits.  Taxes should not be increased since that will lower spending.  The unemployment rate is too high.  The unemployment rate is 4.8 percent. Which of the following represents a normative economic statement?  Higher taxes will lower spending.  The government ought to lower taxes so people have more money.  The government will have a larger deficit if unemployment benefits are extended.  The unemployment rate is higher than it was last year. a. Economic resources are the  technological, human, and manufactured inputs used to produce goods and services.  natural, technological, and manufactured inputs used to produce goods and services.  natural, human, and technological inputs used to produce goods and services.  natural, human, and manufactured inputs used to produce goods and services. b. Economists classify resources as  labor, land, financial capital, and entrepreneurs.  labor, land, real capital, and entrepreneurs.  labor, resources, real capital, and entrepreneurs.  labor, land, human capital, and entrepreneurs. c. Because economic resources are used to produce goods and services, they are called factors of production or inputs a. Why is money not considered to be a capital resource in economics? Money is not considered a capital resource because money is not productive Correct. b. Why is entrepreneurial ability distinct from labor even though both are considered as a category of economic resource?  Because entreprenuerial ability is not directly engaged in production  Because entreprenuerial ability is directly engaged in production c. What are the major functions of the entrepreneur? Instructions: Click in each box for a 'check-mark' for each correct answer and click again to clear the box for incorrect answers.  Make routine pricing decisionsuncheckedCorrect  InnovatecheckedCorrect  Purchase capitaluncheckedCorrect  Create market demanduncheckedCorrect  Take riskscheckedCorrect  Make decisions a. Specify the typical shapes of marginal-benefit and marginal-cost curves. The marginal benefit curve is downward Correct sloping. The marginal cost curve is upward Correct sloping. b. With these curves, the optimal allocation of resources to a particular product will occur when MB = MC Correct. c. If current output is such that marginal cost exceeds marginal benefit, should more or fewer resources be allocated to this product? Fewer Suppose that, on the basis of a nation’s production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the 1 additional industrial robot it desires but that it can get the robot from another country in exchange for 9,000 pizzas. Now consider the following statement: “Through international specialization and trade, a nation can reduce its opportunity cost of obtaining goods and thus ‘move outside its production possibilities curve.’” Which of the following explains the relationship between the situation described and the statement?  Specialization and trade have the same effect as having more and better products or discovering improved production techniques.  Specialization and trade have the same effect as having more and better resources or discovering improved production techniques.  The input gains from greater international specialization and trade are the equivalent of economic growth.  International specialization means directing domestic products to the output that a nation is highly efficient at purchasing. Studies indicate that married men on average earn more income than unmarried men of the same age and education level. From this statement, we can conclude that  if men want to achieve higher income levels, they should get married.  marriage causes higher income for married men.  there is a correlation, but marriage is not necessarily the cause of higher income for married men.  divorced men will have lower income levels than divorced women. a. The next-best thing that must be forgone in order to produce one more unit of a given product: Opportunity cost Correct. b. The pleasure, happiness, or satisfaction obtained from consuming a good or service: Utility Correct. c. The social science concerned with how individuals, institutions, and society make optimal (best) choices under conditions of scarcity: Economics Correct. d. Making choices based on comparing marginal benefits with marginal costs: Marginal analysis Correct. Explanation a. Opportunity cost b. Utility c. Economics d. Marginal analysis b. Indicate whether each of the following statements applies to microeconomics or macroeconomics: a. The unemployment rate in the United States was 5.1 percent in September 2015: Macroeconomics Correct. b. A U.S. software firm discharged 15 workers last month and transferred the work to India: Microeconomics Correct. c. An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise: Microeconomics Correct. d. U.S. output, adjusted for inflation, increased by 2.4 percent in 2014: Macroeconomics Correct. e. Last week Wells Fargo Bank lowered its interest rate on business loans by one-half of 1 percentage point: Microeconomics Correct. f. The consumer price index rose by 0.2 percent from August 2014 to August 2015: Macroeconomics Correct. c. Explanation d. a. Macroeconomics b. Microeconomics c. Microeconomics d. Macroeconomics e. Microeconomics f. Macroeconomics Suppose that you initially have $100 to spend on books or movie tickets. The books start off costing $25 each and the movie tickets start off costing $10 each. For each of the following situations, would the attainable set of combinations that you can afford increase or decrease? a. Your budget increases from $100 to $150 while the prices stay the same: Increase Correct. b. Your budget remains $100, the price of books remains $25, but the price of movie tickets rises to $20: Decrease Correct. c. Your budget remains $100, the price of movie tickets remains $10, but the price of a book falls to $15: Increase Correct. Explanation a. Increase, because a larger budget allows you to purchase not only the combinations that you could afford before but also new combinations that you could not afford before (for example, you can now afford to purchase 4 books and 5 movie tickets). b. Decrease, because certain combinations are no longer affordable (for example, you can no longer purchase 10 movie tickets with your $100 budget). c. Increase, because the lower price allows you to purchase combinations that you could not afford before (for example, you can now purchase 6 books and 1 movie ticket). Suppose that you are given a $100 budget at work that can be spent only on two items: staplers and pens. If staplers cost $10 each and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is:  10 pens.  5 pens.  4 pens.  zero pens. Explanation 4 pens: You must forgo purchasing 4 pens if you are to free up enough money (4 × $2.50 = $10) to purchase a stapler. For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. a. 3,000 units at which MC = $10 and MB = $13: More Correct. b. 11 units at which MC = $4 and MB = $3: Fewer Correct. c. 43,277 units at which MC = $99 and MB = $99: Current number Correct. d. 82 units at which MC < MB: More Correct. e. 5 units at which MB < MC: Fewer Correct. Explanation a. More, because MB > MC, the benefit of consuming one more unit exceeds the opportunity costs (scarce resources used elsewhere) of producing that additional unit. b. Fewer, because MC > MB, the opportunity costs (scarce resources used elsewhere) of producing one more unit exceed the benefit of consuming that additional unit. c. Current number, because MB = MC, there is no net gain in using scarce resources in producing and consuming one more unit. d. More, because MB > MC. (See the explanation for part a.) e. Fewer, because MB < MC. (See the explanation for part b.) How (if at all) do each of the following events affects the location of a country’s production possibilities curve? a. The quality of education increases: Curve shifts outward Correct. b. The number of unemployed workers increases: No change Correct. c. A new technique improves the efficiency of extracting copper from ore: Curve shifts outward Correct. d. A devastating earthquake destroys numerous production facilities: Curve shifts inward Correct. Explanation a. Assuming better education translates into better work skills, then productivity should rise, and this would shift the curve outward. b. This should not affect the location of the curve. Production moves inward and away from the curve. c. The curve should shift outward as more production is possible with existing resources. d. The curve should shift inward with the destruction of resources (capital). What are the two major ways in which an economy can grow and push out its production possibilities curve?  Better weather and nicer cars.  Higher taxes and lower spending.  Increases in resource supplies and advances in technology.  Decreases in scarcity and advances in auditing. Explanation The economy produces output from resource inputs like land, labor, and capital. So one major way for an economy to grow and push out its production possibilities curve is for it to obtain more resources. The second major way is to develop new and better technologies so that the economy can produce more from any given amount of resources. Janice really likes potatoes. Potatoes cost $1.00 per pound, and she has $6.00 that she could possibly spend on potatoes or other items. Suppose she feels that the first pound of potatoes is worth $1.50, the second pound is worth $1.14, the third pound is worth $1.05, and all subsequent pounds are worth $0.30. Instructions: Enter your answers as whole numbers. a. How many pounds of potatoes will she purchase? 3 pounds b. What if she only had $3.00 to spend? rev: 01_11_2019_QC_CS- 3 pounds Explanation The following table summarizes the cost and value of potatoes for Janice: Cost ($) Valu e 1st pound $1.00 $1.50 2nd pound $1.00 $1.14 3rd pound $1.00 $1.05 4th pound and up $1.00 $0.30 a. Janice will purchase potatoes until the value of potatoes is less than the cost of potatoes or until her income has been exhausted. From the table, we can see that the cost of the fourth of potatoes is greater than its value. Therefore, Janice will purchase a total of three pounds of potatoes with her original income of $6.00. b. Now assume Janice only has $3.00 to spend on potatoes. She will purchase three pounds of potatoes at a total cost of $3.00. Pham can work as many or as few hours as she wants at the college bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or other potential jobs. One potential job, at a café, will pay her $12 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours as she can work. Instructions: Enter your answer as a whole number. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore? 4 hours Explanation Pham will choose to work at the bookstore as long as the wage rate at the bookstore exceeds her other opportunities. However, if another job offers a higher wage rate, she will choose employment there. She will work until her total time allotment (for work) is exhausted. She will choose to work at the café for the full 6 hours because the wage rate at the café is $12 per hour, which is greater than the wage rate at the bookstore of $9. This leaves her with 9 hours of work time remaining. Next, she will choose to work at the garage for the full 5 hours because the wage rate here is $10, which again is greater than the bookstore wage rate of $9. After this decision, she only has 4 hours of work time remaining. She will choose to work these last 4 hours at the bookstore because the bookstore wage rate of $9 exceeds the daycare center wage rate of $8.50. Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. Candy bars cost $0.75 each while bags of peanuts cost $1.50 each. a. Complete the table below (gray-shaded cells) showing the alternative combinations of the two products that are available. b. Use the data in the table to plot a budget line in the graph. What is the opportunity cost of one more candy bar? .5 Do these opportunity costs rise, fall, or remain constant as additional units are purchased? Remain constant Correct c. Does the budget line tell you which of the available combinations of candy bars and bags of peanuts to buy? No Correct d. Suppose that you had won $30 on your ticket, not $15. Is the slope of a new budget line flatter, steeper, or the same as in the diagram above? The same Correct Has the number of available combinations increased or decreased? Increased Correct rev: 07_06_2017_QC_CS-92719, 07_11_2018_QC_CS-, 09_03_2018_QC_CS- Explanation b. The slope for the budget line, with candy bars on the horizontal axis, is – 0.5 (– Pcb/Pbp). The opportunity cost of one candy bar is 0.5 bags of peanuts. Note that the figure could also be drawn with bags of peanuts on the horizontal axis. The slope of that budget line would be – 2. The opportunity cost of one more candy bar is ½ of a bag of peanuts. The opportunity cost of one more bag of peanuts is 2 candy bars. These opportunity costs are constant. They can be found by comparing any two of the consumption alternatives for the two goods. c. The budget line does not tell you which of the available combinations of candy bars and bags of peanuts to buy. You will need to use your preference relationship for candy bars and bags of peanuts to determine which combination to buy. The budget line only tells you which combinations are feasible. d. An increase in income will cause a parallel shift outward. The slope is the same. The budget line at $30 includes greater quantities of both goods and is preferable to the original budget line. Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he is willing to trade 3 fish for every 1 coconut. a. On the diagram below, draw budget lines for trading with Friday and for trading with Kwame. Instructions: Use the tools provided 'Friday' and 'Kwame' to draw two separate budget lines representing Friday's willingness to trade and Kwame's willingness to trade. Instructions: Use decimal numbers, not fractions. Enter your response rounded to two decimal places – add a minus sign if necessary. b. What is the slope of the budget line from trading with Friday (coconuts for fish)? -1/2=-.5 c. What is the slope of the budget line from trading with Kwame (coconuts for fish)? -1/3=-.3 d. Which budget line features a larger set of attainable combinations of coconuts and fish? The budget line from trading with Kwame Correct e. If you are going to trade coconuts for fish, would you rather trade with Friday or Kwame? Kwame Explanation b. The slope of the budget line from trading with Friday equals -1/2 or -0.50. This implies that for every coconut you give up, Friday must give up two fish, or for every fish that Friday gives up, you must give up (1/2) a coconut. c. The slope of the budget line from trading with Kwame equals -1/3 or -0.33. This implies that for every coconut you give up, Kwame must give up three fish, or for every fish that Kwame gives up, you must give up (1/3) a coconut. d. The budget line from trading with Kwame features a larger set of attainable combinations of coconuts and fish. e. Because Kwame is willing to give up more fish per coconut, you can consume more of both (assuming you make a trade). This implies that you would prefer to trade with Kwame. Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): a. Show these data graphically. Instructions: Use the tool provided 'PPC' to draw a PPC curve (plot 5 points total). Upon what specific assumptions is this production possibilities curve based?  Land, labor, capital, and entrepreneurial ability  Investment, entrepreneurial ability, and full employment  Land, full employment, fixed technology, and two goods  Full employment, fixed supplies of resources, fixed technology, and two goods b. If the economy is at point C, what is the (opportunity) cost of 2 more automobiles? What is the (opportunity) cost of 6 more forklifts? Which characteristic of the production possibilities curve reflects the law of increasing opportunity costs: its shape or its length? Shape Correct c. If the economy characterized by this production possibilities table and curve were producing 3 automobiles and 20 forklifts, what could you conclude about its use of available resources? The economy is underutilizing Correctits available resources. d. Is production at a point outside the production possibilities curve currently possible? No Correct Could a future advance in technology allow production beyond the current production possibilities curve? Yes Correct Could international trade allow a country to consume beyond its current production possibilities curve? Yes Correct rev: 08_22_2017_QC_CS-96017 rev: 09_13_2017_QC_ CS-99886 Explanation b. Production Alternatives Type of Production A B C D E Automobiles 0 2 4 6 8 Forklifts Assume the economy is producing at point C. Thus, the economy is producing 4 automobiles and 21 forklifts. The cost of producing 2 more automobiles (4 automobiles to 6 automobiles) can be found by moving to point D and calculating the number of forklifts given up for the 2 additional automobiles. At point D, the economy is producing 12 forklifts, which is a loss of 9 forklifts (moving from C to D) for the 2 additional automobiles. The cost of producing one more forklift can be found in an equivalent fashion. First, we will move to point B (from point C). Here, we must give up 2 automobiles to get 6 forklifts. Increasing opportunity cost implies that we must give up more of a particular good to get an additional unit of a different good. This implies as we move along the production possibilities curve (from left to right), we must give up more automobiles to get an additional forklift. Thus, the shape of the schedule captures the increasing opportunity cost concept. This Production possibilities curve assumes that resources are not perfect substitutes and therefore there in an increasing opportunity cost. Increasing opportunity cost implies that we must give up more of a particular good to get an additional unit of a different good. This implies as we move along the production possibilities curve (from left to right), we must give up more automobiles to get an additional forklift. Thus, the shape of the schedule captures the increasing opportunity cost concept. c. The economy is underutilizing its resources (inside the PPC). d. No, the country cannot produce outside its PPC. Yes, a technological advance would shift the PPC outward, allowing the country to produce more with a given amount of inputs. Yes, by specializing in goods, we have a comparative advantage producing, so we can trade to gain access to goods beyond our own PPC. Look at the figure below. Suppose that the cost of cheese falls, so that the marginal cost of producing pizza decreases. a. Will the MC curve shift up or down? MC will shift down Correct b. Will the optimal amount of pizza increase or decrease? The optimal amount of pizza will increase Correct rev: 06_27_2017_QC_CS-92090 Explanation a. To think about cost schedules, we must think about input costs. If the cost of cheese falls, then the cost of making pizza is cheaper for all pizzas. This implies that the marginal cost schedule will shift down, reflecting the lower input cost. b. For a given marginal benefit, the optimal amount of pizza produced and sold will increase. Thus, the equilibrium price will fall. The opposite story would apply if the cost of cheese were to increase. Refer to the table below. a. Suppose improvement occurs in the technology of producing forklifts but not in the technology of producing automobiles. Draw the new production possibilities curve. Instructions: Use your mouse to click on either one or both of the endpoints of the PPC and drag inward or outward as necessary. b. Now assume that a technological advance occurs in producing automobiles but not in producing forklifts. Draw the new production possibilities curve. Instructions: Use your mouse to click on either one or both of the endpoints of the PPC and drag inward or outward as necessary. c. Now draw a production possibilities curve that reflects technological improvement in the production of both goods. Instructions: Use your mouse to click on either one or both of the endpoints of the PPC and drag inward or outward as necessary. rev: 04_04_2018_QC_CS- Explanation a. Technological advance in producing forklifts and not automobiles: This implies we can produce more forklifts with the given resources, so the schedule will shift out along the horizontal axis. b. Technological advance in producing automobiles and not forklifts: This implies we can produce more automobiles with the given resources, so the schedule will shift up along the vertical axis. c. Technological advance in producing automobiles and forklifts. This implies we can produce more forklifts and automobiles with the given resources, so the schedule will shift up and out along the vertical and horizontal axes. Indicate whether each of the following relationships is usually a direct relationship or an inverse relationship. a. A sports team's winning percentage and attendance at its home games: Direct relationship Correct. b. Higher temperatures and sweater sales: Inverse relationship Correct. c. A person's income and how often he or she shops at discount stores: Inverse relationship Correct. d. Higher gasoline prices and miles driven in automobiles: Inverse relationship Correct. Explanation a. Direct relationship, because winning teams are typically more popular. b. Inverse relationship, because with higher temperatures, people usually purchase fewer sweaters. c. Inverse relationship, because as people get richer, they typically shop less often at discount stores. d. Inverse relationship, because higher gas prices cause most people to cut back on their driving. Erin grows pecans. The number of bushels (B) that she can produce depends on the number of inches of rainfall (R) that her orchards get. The relationship is given algebraically as follows: B = 3,000 + 800R. Match each part of this equation with the correct term. a. B: Dependent variable Correct. b. 3,000: Vertical intercept Correct. c. 800: Slope Correct. d. R: Independent variable Correct. Explanation a. B is the dependent variable. b. 3,000 is the vertical intercept. c. 800 is the slope. d. R is the independent variable. Y= a + bx Y= Dependable Variable A= Vertical Intercepcion B= Slope X=Independen variable B 3000 B=3000+800R R Indicate whether each of the following relationships is an indirect (inverse) relationship or a direct relationship. a. The sale of suncreen and the number of sunny days per summer: Direct Correct b. The amount of tuition and the level of enrollment at a university: Indirect (inverse) Correct Explanation a. The sale of suncreen and the number of sunny days per summer will likely have a Direct relationship. As the number of sunny days per summer increases, so will the sale of suncreen. b. The amount of tuition and the level of enrollment at a university will likely have a Indirect (inverse) relationship. As the amount of tuition increases, the level of enrollment at a university will most likely decrease. Refer to the table and graph below: Ticket Price Attendance (Thousands) $50 0 40 4 30 8 20 12 10 16 0 20 Indicate how each of the following might affect the data shown in the table and graph above: a. GSU’s athletic director schedules higher-quality opponents.  More tickets are bought at each price; the line shifts to the left.  Fewer tickets are bought at each price; the line shifts to the right.  Fewer tickets are bought at each price; the line shifts to the left.  More tickets are bought at each price; the line shifts to the right. b. An NBA team locates in the city where GSU plays.  Fewer tickets are bought at each price; the line shifts to the right.  Fewer tickets are bought at each price; the line shifts to the left.  More tickets are bought at each price; the line shifts to the left.  More tickets are bought at each price; the line shifts to the right. c. GSU contracts to have all its home games televised.  More tickets are bought at each price; the line shifts to the left.  Fewer tickets are bought at each price; the line shifts to the right.  More tickets are bought at each price; the line shifts to the right.  Fewer tickets are bought at each price; the line shifts to the left. Explanation a. By scheduling higher-quality opponents, there will be an increase in demand. That is, more tickets will be purchased at every price. The demand schedule will shift to the right. b. If an NBA team locates in the same city, this will reduce demand because the NBA's games are likely a substitute for GSU's games. That is, fewer tickets will be purchased at every price. The demand schedule will shift to the left. c. If GSU contracts to have all its home games televised, this will reduce demand because individuals can watch the game on television. That is, fewer tickets will be purchased at every price. The demand schedule will shift to the left. The following table contains data on the relationship between saving and income. a. Rearrange the income and saving data into an ascending order of income and graph them on the accompanying grid. Instructions: Use the tool provided 'linear' to draw a single line (plot 5 points total). b. What is the slope of the line? 0.10 c. The vertical intercept? -500 d. Interpret the meaning of both the slope and the intercept. The slope shows the amount that saving will increase for every $1 increase in income. The intercept shows the amount of saving that occurs when income equals: e. Which of the following equations represents this line?  S = 500 + 0.10Y  Y = -500 + 0.10S  S = -500 + 0.10Y Correct  Y = 500 + 0.10S f. What would you predict saving to be at the $12,500 level of income? rev: 05_15_2018_QC_CS- Explanation a. To rearrange the above data into a logical order, we start with the lowest income and saving pair. We then continue with sequentially higher values of both income and saving. The reason for this ordering is that economic theory (and data) suggests that as income increases so does saving. Income per Year Saving per Year $0 $500 5,000 0 10,000 500 15,000 1,000 20,000 1,500 Graphically, we have the following: b. The slope of the saving line can be found by dividing the change in saving by the change in income between any two points. For example, we have the entry (5,000 (income), 0 (saving)) and the entry (10,000 (income), 500 (saving)). This implies that the change in saving equals 500 minus zero (= 500) and the change in income equals 10,000 minus 5,000 (= 5,000). Therefore, the slope equals (500/5,000), or 0.10. That is, for every additional dollar an individual earns (net income), he or she will save 10 cents and consume 90 cents. c. The vertical intercept equals – $500. d. This implies that if the individual does not earn an income, he or she either borrows $500 or reduces past savings (stock variable) by $500. e. The equation representing this data is: Saving = – $500 + 0.1 × Income. f. To find the predicted amount of saving for a given level of income, we substitute the income level into the equation above. For example, if income equals $12,500, then the predicted level of saving equals – $500 + 0.1 × 12,500. Thus, the predicted level of saving is $750 (= – $500 + $1,250). Construct a table from the data shown in the accompanying graph. Instructions: Enter the points shown in the graph above. b. Which is the dependent variable and which is the independent variable? Dependent variable: Exam score Independent variable: Study time c. Summarize the data in equation form (assuming a decrease from 4 hours of study time to 2 hours). Instructions: Enter your answers as whole numbers. Explanation b. The dependent variable is "Exam score" because we assume "Study time" influences your score. The more hours you spend studying will increase your exam score. This means that "Study time" is the independent variable. c. The vertical intercept for this relationship is your exam score if you choose not to study (zero hours). From the table above, this value is 10. To find the slope, we divide the change in your exam score by the change in study time for any two points. For example, we have the entry (2 (study time), 30 (exam score)) and the entry (4,50). This implies that the slope equals (50 – 30) divided by (4 – 2), which equals 20/2 (= 10). For every additional hour you spend studying, your exam score will increase by 10 points. Thus, the equation representing this relationship is: Exam score = 10 + 10 × Study time. Suppose that when the interest rate on loans is 16 percent, businesses find it unprofitable to invest in machinery and equipment. However, when the interest rate is 14 percent, $5 billion worth of investment is profitable. At 12 percent interest, a total of $10 billion of investment is profitable. Similarly, total investment increases by $5 billion for each successive 2-percentage-point decline in the interest rate. Describe the relevant relationship between the interest rate and investment in a table, on a graph, and as an equation. a. In a table: Instructions: Enter your answers as whole numbers. Begin with the highest interest rate. b. In a graph: Instructions: Use the tool provided 'Linear' to draw a single line (plot 9 points total). c. As an equation:  Interest rate = 16 - 0.40 x Investment  Interest rate = 40 - 16 x Investment  Interest rate = 40 - 1.0 x Investment  Interest rate = 16 + 0.40 x Investment Explanation a. Consider the following data as an example: Suppose that when the interest rate on loans is 16 percent, businesses find it unprofitable to invest in machinery and equipment. However, when the interest rate is 14 percent, $5 billion worth of investment is profitable. At 12 percent interest, a total of $10 billion of investment is profitable. Similarly, total investment increases by $5 billion for each successive 2-percentage-point decline in the interest rate. When the interest rate is 16 percent, investment spending will be zero. When the interest rate is 14 percent, investment spending will be $5 billion. For each successive drop of 2 percentage points in the interest rate, investment spending will increase by $5 billion. b. Graphically, we have the following relationship: c. Suppose that C = a + bY , where C = consumption, a = consumption at zero income, b = slope, and Y = income. a. Are C and Y positively related or are they negatively related? Positively related Correct b. If graphed, would the curve for this equation slope upward or slope downward? Upward Correct c. Are the variables C and Y inversely related or directly related? Directly related Correct d. What is the value of C if a = 10, b = 0.90, and Y = 400? Instructions: Enter your answer as a whole number. e. What is the value of Y if C = 400, a = 40, and b = 0.75? Instructions: Enter your answer as a whole number. Explanation a. C and Y are positively related because the slope, b, is positive by assumption. As individual income increases, the individual will spend some of this additional income on consumption. b. The curve would slope upward because the slope is positive. c. C and Y are directly related because C and Y are positively related (they move in the same direction). d. If a = 10, b = 0.90, and Y = 400, then C = 370. If a = 10 and b = 0.90, then the consumption function takes the following form: C = 10 + 0.90 × Y. If income equals 400, Y = 400. Then, consumption at this level of income equals C = 10 + 0.90 × 400 = 370. e. If C = 400, a = 40, and b = 0.75, then Y = 480. If a = 40 and b = 0.75, then the consumption function takes the following form: C = 40 + 0.75 × Y. We can solve for Y as a function of C. Step 1: 0.75 × Y = C – 40 Step 2: Y = (C/0.75) – (40/0.75) Step 3: Substitute in the value of consumption given C = 400 and Y = (400/0.75) – (40/0.75) = 480. The accompanying graph shows curve XX' and tangents at points A, B, and C. Calculate the slope of the curve at these three points. Instructions: Enter your answers as whole numbers. If you are entering a negative number, be sure to include a negative (-) sign in front of that number. Explanation To calculate the slope of the function use the "rise-over-run" approach. The "rise" is the change in the variable on the vertical axis as you move between entries (points), and the "run" is the change in the variable on the horizontal axis as you move between the same two entries (points). Point A has a slope that equals 4. To see this, we use the two entries (2, 10) and (12, 50). The "rise" equals 50 – 10 = 40. The "run" equals 12 – 2 = 10. To find the slope, we use the rule "(rise/run)," which equals (40/10) = 4. Point B has a slope equal to zero. There is no "rise" here, so we don't need coordinates to calculate this value. Point C has a slope that equals – 4. To see this, we use the two entries (16, 50) and (26, 10). The "rise" equals 10 – 50 = – 40 (note that "rise" can be negative). The "run" equals 26 – 16 = 10. To find the slope, we use the rule "(rise/run)," which equals (– 40/10) = – 4. Use the accompanying graph to answer the following questions. a. Is the slope of curve AA1 positive or negative? Positive Correct b. Does the slope increase or decrease as we move along the curve from A to A 1? Increase Correct c. Is the slope of curve BB1 positive or negative? Negative Correct d. Does the slope increase or decrease (in absolute value) as we move along the curve from B to B1? Increase Correct Explanation a. The slope of AA’ is positive (rising from left to right). b. The slope increases as we move from A to A’. c. The slope of BB’ is negative (dropping from left to right). d. The slope becomes larger, thereby increasing, in absolute value, as we move from B to B’. The study of economics is primarily concerned with Multiple Choice  keeping private businesses from losing money.  demonstrating that capitalistic economies are superior to socialistic economies.  choices that are made in seeking the best use of resources.  determining the most equitable distribution of society's output. All of the following would affect the position and shape of a nation's production possibilities curve, except Multiple Choice  the amount of labor available.  the level of unemployment.  the amount of the capital resources.  the rate of technological progress. Refer to the diagram. Arrows (3) and (4) represent Multiple Choice  goods and services, respectively.  incomes and consumer expenditures, respectively.  resources and goods, respectively.