Select 4 of the following questions to answer. You may answer an additional 2 questions for extra credit. Each question is worth 3 points so you may earn up to 18 points (out of 12 possible).
1. Draw a typical production possibilities frontier for two goods. Show and explain what will happen to the frontier or the production point if a recession causes a significant percentage of the labor force to become unemployed.
2. The U.S can produce 20 bushels of wheat or 2 cars per day, while Canada can produce 15 bushels of wheat or 1 car per day. What is the opportunity cost of a bushel of wheat for each country? Explain who has absolute and comparative advantage in wheat.
3. Draw a demand curve for grapefruit juice and a second diagram for orange juice. Suppose the price of grapefruit juice, a substitute, falls. Show the effect that this has on the markets for grapefruit and orange juice and explain why.
4. Suppose a car is produced in 2007, but does not get sold until 2008. In which year’s GDP should the car count and why? Using the components of GDP explain how the car is counted.
5. If you lend your sibling money at 6% while expecting inflation over the loan to be 3%. What is the nominal and real interest rate on the loan? Suppose inflation turns out to be 4%, who gained at the others expense?
6. How would the BLS classify the following individual: a mathematician who returned to graduate school after failing to find a job during the last four months? Provide details and explain why.
7. Explain the difference between banks borrowing at the fed finds rate versus borrowing at the discount rate of interest? Under what circumstances would it be necessary for a bank to have to borrow money?
When a bank has excess reserves, they are known as federal funds because they are held on deposit in regional Federal Reserve