ECO 102bFall 2009 SemesterMidterm #1Name:Student ID#:Part I: Instructions: Provide answers to the following questions. Show your work as much as possible.1. There is 1 ECO major and 1 JMC major on an island. The two activities that they do in order to survive are gathering coconuts and building shelters. The ECO major can either gather four coconuts per day or build one-half of a shelter per day. A day can also be divided between the two activities, with proportional changes in output. The JMC major can either gather one coconut per day or build one-tenth of a shelter per day. Draw below each persons Production Possibilities Frontier (PPF) (you will need 2 graphs).2a. For the ECO major, what is the opportunity cost of producing one shelter?2b. For the JMC major, what is the opportunity cost of producing one shelter?3. Draw the combined PPF of the islands population (both the ECO major andthe JMC major.)4. Suppose the islanders are gathering 3 coconuts per day in the most efficient way they can. What is the opportunity cost of gathering one more coconut?5. Assume that the islanders arc producing both coconuts and shelters, and producing both goods in an efficient way. The products are traded between the two of them. Which person benefits from the trade - the ECO major or the JMC major? Explain your answer.Part II: Instructions: Select the one best response and record it directly on the paper. If you do not clearly indicate which response you pick, you will not receive credit for a correct answer. (If you change your mind, erase or obliterate completely your old choice, and draw special attention to your new choice by underlining, circling, drawing arrows, etc.)Intermediate goods are goods which are:a. imported or exported.b. added to inventory of unsold goods.c. purchased by the government.d. used up in the production of some other good.e. none of the above.1. Which of the following add up toGDP?a. wages plus profit.b. land plus labor plus capital.c. consumption plus government budget deficit plus net exports.d. wages plus spendingplussavings.e. none of the above.2. The picture above shows the circular flow diagram. What is the label missing for the box on the right?a.b.c.d.e.LaborGovernment Households Education None of the above.3. Which of the following things - that contribute to the quality of life in a country - are not included in GDP figures?(i) value of goods andservicesproducedat homeimprovements to thequalityof the environment(ii) leisureonly (i) is true.a. only (ii) is true.b. only (iii) is true.c. only (i) and (iii) arc true.d. all of the above.4. For an open economy (that trades goods, services, and factors of production with the outside world), when is the countrys value of final goods output equal to the value of all incomes earned in the country?a. only when production of intermediate goods equals 0.b. only when C = I.c. only when S = T.d. only when Net Factor Payments (NFP) = 0.e. always.5. Which of the following is Investment?(i) buying land in order to build a future homebuying a new machine to increase our ability to produce goods(ii) buying shares of stock in a company whose profits are expected to riseonly (i) is true.a. only (ii) is true.b. only (iii) is true.c. both (i) and (ii) is true.d. (i), (ii), and (iii) are all true.6. is a flow variable, andis a stock variable.a. investmentGDPsavingswealthb. importsexportsconsumptionsavingsc. none of theabove.Beer7. Bob can produce 2 units of Beer per day, or 1 Pretzel per day. Pete can produce 1 Beer per day or 2 Pretzels per day. Their combined Production Possibility Frontier is shown above. If Bob spends his day making Beer, and Pete spends his day making Beer, then output is shown as point X. This isbecause.a.b.c.d.e.inefficient both consumers want more of both products.efficient all resources are being used to produce a point on the PPF. efficient output is not outside the PPF.inefficient not all the available labor is used.inefficient more output of both goods is possible with existing resources.8. For an open economy, the uses of national savings are:(i) lending to business for investmentlending to households to finance consumption(ii) lending to foreigners to finance the current account surplusonly(i) is true.a. only(ii) is true.b. only(iii) is true.c. both(i) and (ii) are true.d. only (i) and (iii) arc true.1(). The difference between real and nominal GDP is:a. real GDP measures output of products, nominal includes value of services.b. real GDP uses market values of output, nominal GDP uses producers, costs.c. nominal GDP uses current market prices, real GDP attempts to adjust for changes in the price level.d. nominal GDP includes imported goods, real GDP does not.e. none of the above.11. What would allow a country to push its Production Possibilities Frontier outwards?(