# Calculating the level of consumption

ECON 104 Homework 1 Answer (Penn State University) in 2 examples (2019 and 2018) SEE BELOW:

EXAMPLE 1:

Part 1: 20 questions worth 3 points each for a total of 60 points.   FOR FILL-IN-THE-BLANK questions: If your answer is in decimal form, round to 2 decimal places. For example, if your answer is .412, enter it into the fill-in-the-blank as .41, or if your answer is 1.415, enter it into the fill-in-the-blank as 1.42. If there are no decimals in your answer, you will simply enter the number; so if your answer is 2, enter 2 with no decimals. Do not enter any extra spaces, do not enter commas or \$ or % symbols.

Question 1. Suppose the consumption function is: C = a1 Yd + a2 WRE/S + a3CC Where all the a’s (the sensitivity parameters) are greater than zero. Initial conditions: Let a1 = 0.65, a2 = 0.04, a3 = 0.5, WRE/S = 18,000: CC = 70

Solve for C in terms of Yd. Select the correct equation.

C = 765 + .60 Yd

C = 70 + .65 Yd

C = 685 + .64 Yd

None of these are correct

C = 755 + .65 Yd

Question 2  Use the equation you found in #1 and let Yd = 2000. C is equal to:

Question 3  Suppose that the stock market rallies so that WRE/S increases to 22,000. Additionally, consumer confidence (CC) rises to 120. Re-solve for C in terms of Yd.

Select the correct equation.

C = 930 + .60 Yd

C = 830 + .65 Yd

None of these are correct

C = 980 + .64 Yd

C = 940 + .65 Yd

Question 4 3 pts Now suppose disposable income (Yd) falls due to a tax increase (Uncle Sam is trying to balance the budget) to 1800. Solve for the level of consumption using the equation you found in question #3. Consumption (C) is equal to:

Question 5 3 pts Now we will calculate the level of consumption that would have occurred if Uncle Sam did not raise taxes. In other words, use the equation you found in question 3, but keep Yd at its original value of 2000. Consumption (C) is equal to:

Question 6 3 pts Look at the consumption values you calculated in #2 and #4. The percent change in consumption between those values is: _________%

NOTE: There is no graphing component to be collected for this homework. However, you should be comfortable graphing the equations you found in #1 and #3. You should also be able to plot the points you found in #2, #4 and #5.    Flag this Question

Question 7 3 pts Use the table below for questions 7 & 8. Let’s consider some data on consumption and disposable income from the Federal Reserve Database (measured in billions of dollars)  Real Personal Consumption Expenditures Real Disposable Personal Income January 1, 1995 6442.9 7190.9 January 1, 2018 12061.0 12940.5   The percent change in consumption between 1/1/95 and 1/1/18 is: _______%.    Flag this Question

Question 8 3 pts The percent change in real disposable between 1/1/95 and 1/1/18 is: _______%.    Flag this Question

Question 9 3 pts Given equation Y=520+.6Y, what does Y equal? None of these are correct 325 208 1650 1300  Flag this Question

Question 10 3 pts Use the following information to answer questions 10 – 14. Suppose South Korea can produce 100 computer chips with 12 hours of labor input and 50 bed linens with 6 hours of labor input. The US can produce 100 computer chips with 10 hours of labor input and 50 bed linens with 4 hours of labor input.    The opportunity cost of producing 100 computer chips for South Korea is:  40 Computer Chips None of these are correct 100 Bed Linens 125 Bed Linens 50 computer Chips  Flag this Question

Question 11 3 pts The opportunity cost of producing 50 bed linens for South Korea is:  40 Computer Chips 125 Bed Linens None of these are correct 50 computer Chips 100 Bed Linens  Flag this Question

Question 12 3 pts The opportunity cost of producing 100 computer chips for the US is:  125 Bed Linens None of these are correct 40 Computer Chips 50 computer Chips 100 Bed Linens  Flag this Question

Question 13 3 pts The opportunity cost of producing 50 bed linens for the US is:  125 Bed Linens None of these are correct 40 Computer Chips 100 Bed Linens 50 computer Chips  Flag this Question

Question 14 3 pts Using comparative advantage, which country should export bed linens?  South Korea United States Neither country should export bed linens Both countries have a comparative advantage in computer chips, so both should export bed linens Both countries have a comparative advantage in bed linens, so both should export bed linens  Flag this Question

Question 15 3 pts Economics promote which of the following as the way to make the best decision? Continue an enjoyable activity until you cannot afford to pursue it Continue an enjoyable activity as long as you do not have to pay for it Continue an enjoyable activity until it is no longer enjoyable Continue an enjoyable activity up to the point where its marginal benefit equals its marginal cost  Flag this Question

Question 16 3 pts By definition, economics is the study of supply and demand the choices people make to attain their goals, given their scarce resources how to make money in a market economy how to make money in the stock market  Flag this

Question Question 17 3 pts Which of the following best describes an assumption economists make about human behavior? They assume that individuals act rationally all the time in all circumstances They assume that individuals act randomly They assume that people take into account the question of fairness in all decisions they make They assume that rational behavior is useful in explaining choices people make even though people may not behave rationally all the time  Flag this Question

Question 18 3 pts Which of the following is a normative economic statement? When the price of gasoline rises, transportation costs rise The price of gasoline is too high The current high price of gasoline is the result of strong worldwide demand When the price of gasoline rises, the quantity of gasoline purchased falls  Flag this Question

Question 19 3 pts Which of the following is a positive economic statement? People should not buy SUVs The government should mandate electric automobiles Foreign workers should not be allowed to work for lower wages than the citizens of a country Scarcity necessitates that people make trade-offs  Flag this Question

Question 20 3 pts Jen makes \$12 per hour and Sammie makes \$24 per hour. Both Jen and Sammie like to eat hamburgers that cost \$6 each. Select the correct answer below Jen’s real wage is equal to 2 hamburgers Sammie’s real wage is equal to 100 hamburgers Jen and Sammie’s real wages are equal Sammie’s real wage is equal to 2 hamburgers Jen’s real wage is higher than Sammie’s real wage  Flag this

Question Part 2: 20 questions worth 2 points each for a total of 40 points.  Flag this Question

Question 21 2 pts Examining the conditions that could lead to a recession in an economy is an example of a macroeconomics topic.  True False  Flag this Question

Question 22 2 pts Every individual, no matter how rich or poor, is faced with making trade-offs. True False  Flag this Question

Question 23 2 pts When voluntary exchange takes place, only one party gains from the exchange. True False  Flag this Question

Question 24 2 pts A college must decide if it wants to offer more Internet-based classes. This decision involves answering the economic question of “what to produce.” True False  Flag this Question

Question 25 2 pts One desirable outcome of a market economy is that it leads to a more equitable distribution of income. True False  Flag this Question

Question 26 2 pts An economic model is a simplified version of reality used to analyze real-world economic situations. True False  Flag this Question

Question 27 2 pts The decisions Apple makes in determining production levels for its iPhone is an example of a macroeconomics topic. True False  Flag this Question

Question 28 2 pts Economic resources are also called factors of production. True False  Flag this Question

Question 29 2 pts A curved line has slope values that change at every point. True False  Flag this Question

Question 30 2 pts A straight line has a slope of zero. True False  Flag this Question

Question 31 2 pts If a country is producing efficiently and is on the production possibilities frontier, the only way to produce more of one good is to produce less of the other. True False  Flag this Question

Question 32 2 pts If a country produces only two goods, then it is not possible to have a comparative advantage in the production of both those goods. True False  Flag this Question

Question 33 2 pts Any output combination outside a production possibility frontier is associated with unused or underutilized resources. True False  Flag this Question

Question 34 2 pts An increase in the labor force shifts the production possibility frontier inwards over time. True False  Flag this Question

Question 35 2 pts If Sanjaya can shuck more oysters in one hour than Tatiana, then Sanjaya has a comparative advantage in shucking oysters. True False  Flag this Question

Question 36 2 pts The basis for trade is comparative advantage, not absolute advantage. True False  Flag this Question

Question 37 2 pts In a two-good, two country world, if one country has an absolute advantage in the production of both goods, it cannot benefit by trading with the other country. True False  Flag this Question

Question 38 2 pts For a person to have a comparative advantage in producing a product, she must be able to produce that product at a lower opportunity cost than her competitors. True False

Question 39 2 pts It is possible to have a comparative advantage in producing a good or service without having an absolute advantage. True False

Question 40 2 pts An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point inside the frontier. True False

EXAMPLE 2:

1. Suppose the consumption function is: C = a1 Yd + a2 WRE/S + a3CC Where all the a’s (the sensitivity parameters) are greater than zero. Initial conditions: Let a1 = 0.60, a2 = 0.04, a3 = 0.5, WRE/S = 18,000: CC = 90 Solve for C in terms of Yd. Select the correct equation below.

2. Use the equation you found in #1 and let Yd = 2000. C is equal to

3. Suppose that the stock market rallies so that WRE/S increases to 22,000. Additionally, consumer confidence (CC) rises to 100. Re-solve for C in terms of Yd. Select the correct equation below.

4. Now suppose disposable income (Yd) falls due to a tax increase (Uncle Sam is trying to balance the budget) to 1800. Solve for the level of consumption using the equation you found in #3. Consumption (C) is equal to

5. Now we will calculate the level of consumption that would have occurred if Uncle Sam did not raise taxes. In other words, use the equation you found in question 3, but keep Yd at its original value of 2000. Consumption (C) is equal to

6. Look at the consumption values you calculated in #2 and #4. The percent change in consumption between those values is

7. Use the table below for questions 7 & 8. Let’s consider some data on consumption and disposable income from the Federal Reserve Database (measured in billions of dollars)

8. The percent change in real disposable between 1/1/90 and 4/1/13 is

9. Given equation Y=330+.8Y, what does Y equal?

10. Use the following information to answer questions 10 – 14. Suppose South Korea can produce 100 computer chips with 10 hours of labor input and 50 bed linens with 6 hours of labor input. The US can produce 100 computer chips with 8 hours of labor input and 50 bed linens with 4 hours of labor input.

The opportunity cost of producing 100 computer chips for South Korea is:

11. The opportunity cost of producing 50 bed linens for South Korea is:

12. The opportunity cost of producing 100 computer chips for the US is:

13. The opportunity cost of producing 50 bed linens for the US is:

14. Using comparative advantage, which country should import bed linens?

15. Marginal analysis involves undertaking an activity

16. Which of the following statements is true about scarcity?

17. Economists assume that individuals

18. Which of the following is a normative economic statement?

19. Which of the following is a positive economic statement?

20. Jen makes \$12 per hour and Sammie makes \$20 per hour. Both Jen and Sammie like to eat hamburgers that cost \$5 each. Select the correct answer below

21. Examining the conditions that could lead to a recession in an economy is an example of a macroeconomics topic

22. Every individual, no matter how rich or poor, is faced with making trade-offs

23. When voluntary exchange takes place, only one party gains from the exchange

24. A college must decide if it wants to offer more Internet-based classes. This decision involves answering the economic question of “what to produce.”

25. One desirable outcome of a market economy is that it leads to a more equitable distribution of income

26. An economic model is a simplified version of reality used to analyze real-world economic situations

27. The decisions Apple makes in determining production levels for its iPhone is an example of a macroeconomics topic

28. Economic resources are also called factors of production

29. A curved line has slope values that change at every point

30. A straight line has a slope of zero

31. If a country is producing efficiently and is on the production possibilities frontier, the only way to produce more of one good is to produce less of the other

32. If a country produces only two goods, then it is not possible to have a comparative advantage in the production of both those goods

33. Any output combination outside a production possibility frontier is associated with unused or underutilized resources

34. An increase in the labor force shifts the production possibility frontier inwards over time

35. If Sanjaya can shuck more oysters in one hour than Tatiana, then Sanjaya has a comparative advantage in shucking oysters

37. In a two-good, two country world, if one country has an absolute advantage in the production of both goods, it cannot benefit by trading with the other country

38. For a person to have a comparative advantage in producing a product, she must be able to produce that product at a lower opportunity cost than her competitors

39. It is possible to have a comparative advantage in producing a good or service without having an absolute advantage

40. An increase in the unemployment rate may be represented as a movement from a point on the production possibilities frontier to a point inside the frontier

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