Macroeconomics Answers

QUESTION 19

In some cases, markets:

1. Can produce public goods.
2. Can prohibit public goods.
3. Are wholesome.
4. Satisfy everyone in society.
5. Make everyone happy.

QUESTION 20

All patents and copyrights:

1. Belong to a single person.
2. Are the property of the U.S. Government.
3. Discourage innovation.
4. Are scheduled to end someday.
5. Will continue indefinitely.

QUESTION 21

A patent should cover a long enough period of time:

1. For the cows to come home.
2. For the inventor to earn a good return.
3. For the fish to swim.
4. Before taking the product away from society.
5. For society to enjoy the costs of the product.

QUESTION 22

The benefits of technology spillovers:

1. Do not really exist.
2. Cannot exist in theory.
3. Will be overproduced by the market.
4. Are shared evenly.
5. Are not shared equally.

QUESTION 16

A problem with direct government support of research and development is:

1. That the U.S. Constitution strictly prohibits it.
2. That the U.S. Constitution requires it in all cases.
3. That it is unconstitutional.
4. That it involves only private decision-making.
5. That it involves political decisions about which projects are worthy.

QUESTION 17

Government policies can increase the incentives to innovate, such as:

1. Government assistance with the costs of R&D.
2. Guaranteeing intellectual property rights.
3. Cooperative research ventures between universities and companies.
4. All of the above.
5. None of the above.

QUESTION 18

The appropriate public policy response to a positive externality is to:

1. Punish those creating externalities.
2. Educate those creating externalities.
3. Help the party creating positive externalities receive a greater share of the social benefits.
4. Force the party creating positive externalities to pay a greater share of the social costs.
5. Alfalfa grows in the field.

QUESTION 12

Rapid growth in technology has increased our ability to:

1. Navigate through a busy city.
2. Access and process data.
3. Communicate with friends on the other side of the planet.
4. All of the above.
5. Answers B and C only.

QUESTION 13

Public goods:

1. Can only exist in theory.
2. Are theoretically impossible.
3. Are separate and identifiable.
4. Are not separate and identifiable.
5. Are separate but not identifiable.

QUESTION 14

Most of the gains in life expectancy of the human race:

1. Is due to markets.
2. Is the result of vigorous exercise.
3. Cannot be explained by advances in technology.
4. Happened in the 20^th century.
5. Occurred in the 21^st century.

QUESTION 15

An innovative firm knows that it will usually have:

1. A temporary edge over its competitors.
2. A permanent edge over its competitors.
3. Tax payments due daily.
4. All of the above.
5. None of the above.

QUESTION 9

Why will flu shots go under produced and under consumed?

1. Because the marketplace does not recognize the positive externality.
2. Because the marketplace fights over the positive externality.
3. Because the flu has been eradicated.
4. Because the polio vaccine was successful.
5. Because I told them to.

QUESTION 10

New knowledge often becomes a:

1. Bad headache.
2. Hang-over effect.
3. Public good.
4. Club good.
5. Environmental disaster.

QUESTION 11

If there is no way for the company to fully enjoy the total benefits of innovation:

1. Then it will cease to exist.
2. Then it will borrow less than the socially optimal level.
3. Then it will borrow more than the socially optimal level.
4. All of the above.
5. None of the above.

QUESTION 5

What are the defining characteristics of public goods?

1. Excludable and rival.
2. Excludable but not rival.
3. Rival but not excludable.
4. Neither excludable nor rival.
5. All of the above.

QUESTION 6

The reason for requiring immunizations is:

1. That it prevents spillovers of illness to others.
2. That it punishes individuals by inflicting pain.
3. That it prevents disease in those who are immunized.
4. That it harms society.
5. All of the above.  

QUESTION 7

An incentive that does not involve the government’s close scrutiny of specific projects is:

1. To give firms a reduction in taxes depending on how much R&D they do.
2. Direct support of research and development.
3. To give firms tax breaks for specific projects.
4. All of the above.
5. None of the above.

QUESTION 8

How much of the total economic benefits from innovations does the original inventor receive?

1. Approximately 1/10.
2. Exactly 1/6.
3. Less than 1/2.
4. At least 4/7.
5. More than 13/8.

QUESTION 1

To reduce the number of free riders and to collect resources for the public goods, we:

1. Can use social pressure.
2. Can use air pressure.
3. Can use pneumatic pressure.
4. Can use only hydraulic pressure.
5. All of the above.

QUESTION 2

Much technology of today is a spillover product of:

1. Russia’s space program.
2. The incredible feats NASA accomplished 40 years ago.
3. Religious practices.
4. Religious philosophy.
5. Ethical behavior.

QUESTION 3

These often spark other creative endeavors that society also values.

1. Cocaine and Mushrooms.
2. New innovations.
3. Old innovations.
4. Split-fire spark plugs.
5. The same old routines.

QUESTION 4

Who is the primary recipient of the estimated returns to education?

1. The individual worker.
2. The collective workers who sponsor that education.
3. Society.
4. Sea monsters.
5. Space aliens.

1.    Show using the IS-LM graph the impact of an expansionary fiscal policy if the LM curve is vertical. If you were the Economic Planner in this country, how would you implement the fiscal policy without causing any crowding out of private investment? (You may insert a snapshot of the graph if drawn manually) (5 marks).

1.    Suppose the IS curve is Y = 39XX-100i and Y = 1500 + 250i is the LM curve, where XX is the last two digits of your ID number. Using these compute:

a)    The equilibrium interest rate and output (i*and Y*).

b)   If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate.

c)    Determine the impact of the above policy on private investment if it is known that di/dA = XX/100, where XX is the last two digits of your ID number.

d)   Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number.

e)    Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually).

1.     Drive the AD (Aggregate Demand) curve using the following: IS curve is given as Y = 20XX-100i, LM₁ is Y= 1000+25i (when P = 1) and LM₂ is Y = 500+25i (when P =2), where XX is the last two digits of your student ID number. Show the derivation in (interest rate-income) and (price level-income) spaces. (You may insert a snapshot of the graphs if drawn manually).

1.     Drive the AD (Aggregate Demand) curve using the following: IS curve is given as Y = 20XX-100i, LM₁ is Y= 1000+25i (when P = 1) and LM₂ is Y = 500+25i (when P =2), where XX is the last two digits of your student ID number. Show the derivation in (interest rate-income) and (price level-income) spaces. (You may insert a snapshot of the graphs if drawn manually).