econ sample exam 1.… · web viewsample exam #1. for economists, the word ... the making of...

Sample Exam #11. For economists, the word "utility" means:

A) versatility and flexibility. B) rationality. C) pleasure and satisfaction. D) purposefulness.

2. The economic perspective refers to: A) macroeconomic phenomena, but not microeconomic phenomena. B) microeconomic phenomena, but not macroeconomic phenomena. C) the making of purposeful decisions in a context of marginal costs and marginal benefits. D) unlimited resources in a context of limited economic wants.

3. Economic theories: A) are useless because they are not based on laboratory experimentation. B) that are true for individual economic units are never true for the economy as a whole. C) are generalizations based on a careful observation of facts. D) are abstractions and therefore of no application to real situations.

4. Which of the following is a microeconomic statement? A) The real domestic output increased by 2.5 percent last year. B) Unemployment was 6.8 percent of the labor force last year. C) The price of personal computers declined last year. D) The general price level increased by 4 percent last year.

5. A positive statement is concerned with: A) some goal that is desirable to society. B) what should be.C) what is.

D) the formulation of economic policy.

Use the following to answer the next question:

6. Refer to the budget line shown in the diagram above. If the consumer's money income is $20, the: A) prices of C and D cannot be determined. B) price of C is $2 and the price of D is $4. C) consumer can obtain a combination of 5 units of both C and D. D) price of C is $4 and the price of D is $2.


7. The shift of the budget line from cd to ab in the above figure is consistent with: A) decreases in the prices of both M and N . B) an increase in the price of M and a decrease in the price of N . C) a decrease in money income. D) an increase in money income.

8. Which of the following lists includes only capital resources (and therefore no labor or land resources)?A) an ice arena; a professional hockey player; hockey uniforms.B) the owner of a new startup firm; a chemistry lab; a researcher.C) a hydroelectric dam; water behind the dam; power lines.D) autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental

customers to and from the airport.9. Unemployment:

A) causes the production possibilities curve to shift outward. B) can exist at any point on a production possibilities curve. C) is illustrated by a point outside the production possibilities curve. D) is illustrated by a point inside the production possibilities curve.

Answer the next question on the basis of the data given in the following production possibilities table:

10. Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods will be:

A) 4 units of capital goods. B) 2 units of capital goods.C) 3 units of capital goods.D) 1/3 of a unit of capital goods.

11. In drawing the production possibilities curve we assume that: A) technology is fixed. B) unemployment exists.C) economic resources are unlimited.

D) wants are limited.12. Which of the following is not correct? A typical production possibilities curve:

A) indicates how much of two products a society can produce. B) reveals how much each additional unit of one product will cost in terms of the other product. C) specifies how much of each product society should produce. D) indicates that to produce more of one product society must forgo larger and larger amounts of the

other product.

13. Refer to the above production possibilities curve. At the onset of the Second World War the Soviet Union was already at full employment. Its economic adjustment from peacetime to wartime can best be described by the movement from point:

A) c to point b. B) b to point c. C) a to point b. D) c to point d.

14. Refer to the above diagram. As it relates to production possibilities analysis, the law of increasing opportunity cost is reflected in curve:

A) A B) B C) C D) D

15. The marginal benefit curve is: A) upsloping because of increasing marginal opportunity costs. B) upsloping because successive units of a specific product yield less and less extra benefit. C) downsloping because of increasing marginal opportunity costs. D) downsloping because successive units of a specific product yield less and less extra benefit.


16. Technological advance in producing both capital goods and consumer goods is shown by the shift of the production possibilities curve from AB to:

A) CD. B) EB. C) AF. D) GH.


17. Refer to the above diagram. Which of the following positions relative to PP1 would be the most likely to result in a future production possibilities curve of PP3, rather than PP2 ?

A) A. B) B. C) C. D) D.

18. Free products offered by firms:A) may or may not be free to society, but are never free to individuals.B) may or may not be free to individuals, but are never free to society.C) are produced and distributed at no cost to society.D) usually are items nobody wants.

19. "The government deregulated the electricity industry in California and a shortage of electricity soon occurred. It is clear that the deregulation caused the shortage." This statement needs careful analysis because it may reflect the:

A) the fallacy of composition.B) post hoc, ergo propter hoc fallacy.C) use of loaded terminology.D) the law of averages.

20. Examples of command economies are:A) the United States and Japan.B) Sweden and Norway.C) Mexico and Brazil.D) Cuba and North Korea.

21. Which of the following is not a characteristic of the market system?A) private property.B) freedom of enterprise.C) government ownership of the major industries.D) competition in product and resource markets.

22. The division of labor means that: A) labor markets are geographically segmented. B) unskilled workers outnumber skilled workers.C) workers specialize in various production tasks.

D) each worker performs a large number of tasks. 23. Which of the following is not an economic cost?

A) wages. B) rents. C) economic profits. D) normal profits.

24. An increase in consumer desire for strawberries is most likely to: A) increase the number of strawberry pickers needed by farmers

. B) reduce the supply of strawberries. C) reduce the number of people willing to pick strawberries.

D) reduce the need for strawberry pickers. Answer the next question using the following data which show all available techniques for producing 20 units of a particular commodity:

25. Refer to the above data. In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s):

A) #1. B) #2 and #4. C) #3. D) #1 and #3.

26. The market system's answer to the fundamental question "Who will get the goods and services?" is essentially:

A) "Those willing and able to pay for them."B) "Those who physically produced them."C) "Those who most need them."D) "Those who get utility from them."

27. Which of the following best describes the invisible-hand concept? A) The desires of resource suppliers and producers to further their own self-interest will automatically

further the public interest. B) The nonsubstitutability of resources creates a conflict between private and public interests and calls

for government intervention. C) The market system is the best system for overcoming the scarce resources-unlimited wants problem. D) Central direction by the government will improve resource allocation in a capitalistic economy.

28. "Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the:

A) incentive problem under central planning. B) coordination problem under central planning. C) self-sufficiency dilemma under communism. D) resource overcommitment problem under communism.

29. The simple circular flow model shows that: A) households are on the buying side of both product and resource markets. B) businesses are on the selling side of both product and resource markets. C) households are on the selling side of the resource market and on the buying side of the product

market. D) businesses are on the buying side of the product market and on the selling side of the resource

market. 30. In 1996 McDonald's introduced its Arch Deluxe hamburger, which failed to catch on with the public and was

subsequently dropped from the menu. This failure illustrates the idea of:A) consumer sovereignty. B) technological change. C) downsloping demand. D) specialization.

31. A market: A) reflects upsloping demand and downsloping supply curves. B) entails the exchange of goods, but not services. C) is an institution that brings together buyers and sellers. D) always requires face-to-face contact between buyer and seller.

32. If the price of K declines, the demand curve for the complementary product J will: A) shift to the left. B) shift to the right. C) decrease. D) remain unchanged.

33. Suppose an excise tax is imposed on product X. We would expect this tax to: A) increase the demand for complementary good Y and decrease the demand for substitute product Z. B) decrease the demand for complementary good Y and increase the demand for substitute product Z. C) increase the demands for both complementary good Y and substitute product Z. D) decrease the demands for both complementary good Y and substitute product Z.


34. Refer to the above diagram. A decrease in supply is depicted by a:A) move from point x to point y.B) shift from S1 to S2.C) shift from S2 to S1.

D) move from point y to point x.

35. Assume a drought in the Great Plains reduces the supply of wheat. Noting that wheat is a basic ingredient in the production of bread and that potatoes are a consumer substitute for bread, we would expect the price of wheat to:

A) rise, the supply of bread to increase, and the demand for potatoes to increase. B) rise, the supply of bread to decrease, and the demand for potatoes to increase. C) rise, the supply of bread to decrease, and the demand for potatoes to decrease. D) fall, the supply of bread to increase, and the demand for potatoes to increase.

Answer the next question on the basis of the given supply and demand data for wheat:

36. Refer to the above data. Equilibrium price will be: A) $4. B) $3. C) $2. D) $1.

37. A competitive market will: A) achieve an equilibrium price. B) produce shortages. C) produce surpluses. D) create disorder.


38. Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. A shift in the demand curve from D0 to D1 might be caused by a(n):

A) decrease in income if X is an inferior good. B) increase in the price of complementary good Y. C) increase in money incomes if X is a normal good. D) increase in the price of substitute product Y.


39. Which of the above diagrams illustrate(s) the effect of an increase in the price of Budweiser beer on the market for Coors beer?

A) A and C. B) A only. C) B only. D) C only.

40. Price ceilings and price floors: A) cause surpluses and shortages respectively. B) make the rationing function of free markets more efficient. C) interfere with the rationing function of prices. D) shift demand and supply curves and therefore have no effect on the rationing function of prices.

41. The personal distribution of income refers to the: A) division of income between personal taxes, consumption expenditures, and saving. B) division of income on the basis of industry sources, for example, agriculture, transportation, and

mining. C) distribution of income to basic resource classes, that is, wages, rents, interest, and profits. D) way income is distributed among specific households or spending units.

42. The division of U.S. businesses into the categories of proprietorships, partnerships, and corporations is based on:

A) generally accepted accounting principles. B) legal considerations. C) the judgment of the American Economic Association. D) an executive order of the President.

43. Negative externalities arise: A) when firms pay more than the opportunity cost of resources. B) when the demand curve for a product is located too far to the left. C) when firms "use" resources without being compelled to pay for their full costs. D) only in capitalistic societies.

44. Nonrivalry and nonexcludability are the main characteristics of:A) capital goods. B) private goods. C) public goods. D) consumption goods.

45. In performing its stabilization function, it may be appropriate for the nation's central bank (the Federal Reserve in the United States) to take actions to:

A) increase taxes to reduce inflation.B) increase interest rates to reduce inflation. C) reduce government spending to reduce inflation.D) increase subsidies to businesses to reduce unemployment.

46. A progressive tax is such that: A) tax rates are higher the greater one's income. B) the same tax rate applies to all income receivers, so that the rich pay absolutely more taxes than the

poor. C) entrepreneurial income is exempt from taxation. D) the revenues it yields are spent on transfer payments.

47. The Social Security program in the United States faces a long-term funding crisis because:A) the Social Security trust fund was exhausted in 2002.B) the number of retirees receiving benefits is rising more rapidly than the number of workers paying

payroll taxes. C) recent tax cuts have reduced payroll tax revenues.D) the war on terrorism has drained funds away from Social Security.

48. The physical export of motorcycles from the United States to Mexico best illustrates a:A) trade flow. B) resource flow. C) financial flow. D) technology flow.

49. Multinational corporations: A) mainly are headquartered in Switzerland. B) are so named because of their heavy export volume. C) are illegal under the U.S. antitrust laws. D) are so named because of their sizable foreign production and distribution assets.

50. Refer to the above domestic production possibilities curve for Karalex. The gain to Karalex from specialization

and international trade is represented by a move from: A) A to B. B) C to A. C) C to D. D) B to E.

51. The Reciprocal Trade Agreements Act: A) exempted American exporters from the Sherman Antitrust Act. B) provided technological assistance to developing countries. C) brought about considerable reductions in American trade barriers. D) eliminated American subsidies to agricultural exports.

52. Critics of the North American Free Trade Agreement (NAFTA) falsely feared that it would: A) increase the flow of illegal Mexican immigrants to the United States. B) cause the European Union and Japan to raise trade barriers against U.S. goods. C) cause a massive loss of U.S. jobs to Mexico. D) increase foreign ownership of assets in the United States.

53. The price elasticity of demand coefficient measures: A) buyer responsiveness to price changes. B) the extent to which a demand curve shifts as incomes change. C) the slope of the demand curve. D) how far business executives can stretch their fixed costs.

54. When the percentage change in price is greater than the resulting percentage change in quantity demanded: A) a decrease in price will increase total revenue. B) demand may be either elastic or inelastic.C) an increase in price will increase total revenue.

D) demand is elastic. 55. Which of the following statements about elasticity is correct?

A) Supply is more elastic in the short run than in the long run. B) Demand is more elastic in the short run than in the long run. C) Demand is more elastic when a large number of substitute goods are available. D) Supply is more elastic when there are a small number of producers in the industry.

56. A supply curve that is a vertical straight line indicates that: A) production costs for this product cannot be calculated. B) the relationship between price and quantity supplied is inverse. C) a change in price will have no effect on the quantity supplied. D) an unlimited amount of the product will be supplied at a constant price.


57. Refer to the above diagrams. In which case would the coefficient of income elasticity be positive? A) A B) B C) C D) D

58. Microsoft charges a substantially lower price for a software upgrade than for the initial purchase of the software. This implies that Microsoft views the demand curve for the software upgrade to be:

A) more elastic than the demand for the original software.B) upsloping rather than downsloping.C) less elastic than the demand for the original software.D) of less value than the original software.

59. Economic cost can best be defined as: A) any contractual obligation that results in a flow of money expenditures from an enterprise to

resource suppliers. B) any contractual obligation to labor or material suppliers. C) compensations that must be received by resource owners to insure their continued supply. D) all costs exclusive of payments to fixed factors of production.

Answer the next question on the basis of the following output data for a firm. Assume that the amounts of all non-labor resources are fixed.

60. Refer to the above data. Diminishing marginal returns become evident with the addition of the: A) sixth worker. B) fourth worker. C) third worker. D) second worker.

Answer the next question(s) on the basis of the following cost data:

61. Refer to the above data. The total variable cost of producing 5 units is: A) $61. B) $48. C) $37. D) $24.

62. Refer to the above data. The marginal cost of producing the sixth unit of output is: A) $24. B) $12. C) $16. D) $8.

63. In comparing the changes in TC and TVC associated with an additional unit of output, we find that: A) the change in TVC is equal to MC, while the change in TC is equal to TFC. B) the change in TC exceeds the change in TVC. C) the change in TVC exceeds the change in TC. D) both are equal to MC.


64. The above diagram shows the short-run average total cost curves for five different plant sizes of a firm. The shape of each individual curve reflects:

A) increasing returns, followed by diminishing returns.B) economies of scale, followed by diseconomies of scale.C) constant costs.D) increasing costs, followed by decreasing costs.

65. Which of the following sayings relates most closely to the idea of sunk costs?A) Don't cry over spilt milk.B) A bird in the hand is worth two in the bush.C) He who hesitates is lost.D) Show me the money.

66. Economists would describe the U.S. automobile industry as: A) purely competitive. B) an oligopoly. C) monopolistically competitive. D) a pure monopoly.

67. An industry comprised of a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions is called:

A) monopolistic competition. B) oligopoly. C) pure monopoly. D) pure competition.

68. Which of the following is correct? A) Both purely competitive and monopolistic firms are "price takers." B) Both purely competitive and monopolistic firms are "price makers." C) A purely competitive firm is a "price taker," while a monopolist is a "price maker." D) A purely competitive firm is a "price maker," while a monopolist is a "price taker."

69. Price exceeds marginal revenue for the pure monopolist because the: A) law of diminishing returns is inapplicable. B) demand curve is downsloping. C) monopolist produces a smaller output than would a purely competitive firm. D) demand curve lies below the marginal revenue curve.


Av era ge To ta l M arg in a l to ta l M arg in a l

ou tp u t P r ice rev en u e co st co st 1 $1 0 0 $1 0 0 $ 1 0 0 .0 0 $ 3 0 2 9 0 8 0 6 3 .0 0 2 6 3 8 0 6 0 5 2 .6 7 3 2 4 7 0 4 0 4 9 .5 0 4 0 5 6 0 2 0 4 9 .6 0 5 0 6 5 0 0 5 0 .0 0 5 2 7 4 0 -20 5 2 .2 9 6 6 8 3 0 -40 5 5 .7 5 8 0 9 2 0 -60 6 0 .6 7 1 0 0 1 0 1 0 -80 6 7 .6 0 1 3 0

70. Refer to the above data for a nondiscriminating monopolist. At its profit-maximizing output, this firm will be

operating in the:A) perfectly elastic portion of its demand curve. B) perfectly inelastic portion of its demand curve.C) elastic portion of its demand curve.D) inelastic portion of its demand curve.


71. If $4 is Firm B's profit-maximizing price, its:A) ATC must be $4. B) MC must be $4. C) MR must be $4. D) MC must be zero.


P

MC=ATC

Q

P

MC=ATC

Q

$9

$7

100 200 350

MR WD

DWD

$9$10

$4

100 200120

MR WEDWE

72. Refer to the figure above. Suppose the graphs represent the demand for use of a local golf course for which there is no significant competition (it has a local monopoly); P denotes the price of a round of golf; Q is the quantity of rounds “sold” each day. If the left graph represents the demand during weekdays, and the right graph the weekend demand, this profit-maximizing golf course will earn how much economic profit over the course of a full seven-day week?

A) $4200 B) $3700 C) $3400 D) $2700

73. Monopolistic competition means: A) a market situation where competition is based entirely on product differentiation and advertising. B) a large number of firms producing a standardized or homogeneous product. C) many firms producing differentiated products. D) a few firms producing a standardized or homogeneous product.


74. Refer to the above diagram for a monopolistically competitive firm. Long-run equilibrium price will be: A) above A. B) EF. C) A. D) B.

75. If there are significant economies of scale in an industry, then: A) a firm that is large may be able to produce at a lower unit cost than can a small firm. B) a firm that is large will have to charge a higher price than will a small firm. C) entry to that industry will be easy.D) firms must differentiate their products to earn economic profits.


76. Refer to the above diagram where the numerical data show profits in millions of dollars. Beta's profits are shown in the northeast corner and Alpha's profits in the southwest corner of each cell. If Alpha and Beta engage in collusion, the outcome of the game will be at cell:

A) A. B) B. C) C. D) D.

77. We would expect a cartel to achieve: A) both allocative efficiency and productive efficiency. B) allocative efficiency, but not productive efficiency. C) productive efficiency, but not allocative efficiency. D) neither allocative efficiency nor productive efficiency.

78. Broadly defined, technological advance: A) can occur in either the short run, long run, or very long run. B) comprises new and improved goods and services and new and improved ways of producing or

distributing them. C) includes invention, but not innovation or diffusion. D) includes product innovation, but not process innovation.

79. A profit-maximizing firm should not undertake a R&D project for which the: A) Expected rate of return exceeds its interest-rate cost of funds. B) interest-rate cost of funds exceeds the expected rate of return. C) expected returns are in the distant future. D) the expected returns, though potentially very large, are uncertain.

80. All of the following increase the expected rate of return on R&D expenditures, except:A) patents. B) trademarks. C) imitation by others. D) trade secrets.

81. If the nominal wages of carpenters rose by 5 percent in 2000 and the price level increased by 3 percent, then the real wages of carpenters:

A) decreased by 2 percent. B) increased by 2 percent.C) increased by 3 percent.

D) increased by 8 percent. 82. Critics of minimum-wage legislation argue that it:

A) keeps inefficient producers in business. B) reduces employment.C) undermines incentives to work.

D) is deflationary.

83. For the firm, the major goal of profit sharing plans is to:A) force workers to incur some of the business risk.B) overcome the monopsony problem of having to pay higher wages to attract additional workers.C) overcome the principal-agent problem by better aligning the workers' interests with those of the firm.D) reduce total compensation payments.

84. Movie producers A, B, and C secretly meet and agree to release their summer blockbuster films in sequence, rather than at the same time. The U.S. Justice Department learns of the agreement and files an antitrust suit. The Federal government would most likely file charges under the:

A) Sherman Act, Section 1.B) Sherman Act, Section 2.C) Clayton Act.D) Federal Trade Commission Act.

85. The demand for agricultural products is: A) relatively elastic with respect to price. B) relatively inelastic with respect to price. C) relatively elastic with respect to income. D) downward sloping to the individual farmer, but perfectly elastic to farmers as a group.

86. Over the past several decades, farm employment has: A) grown absolutely, but declined as a percentage of total employment. B) declined both absolutely and as a percentage of total employment. C) increased both absolutely and as a percentage of total employment. D) declined absolutely, but increased as a percentage of total employment.

87. In the quintile distribution of income, the term "quintile" represents:A) 5 percent of the income receivers.B) 10 percent of the income receivers.C) 20 percent of the income receivers.D) 25 percent of the income receivers.


88. Refer to the above diagram. If line b represents the pretax and transfer distribution of income in the United States, we would expect the post-tax and transfer distribution to be:

A) line a. B) line b, because taxes and transfers have no effect on income distribution. C) line c. D) line d.

89. Which of the following would we expect to have the highest poverty rate? A) white households headed by males B) elderly white households C) white households headed by females D) African-American households headed by females

90. The twin problems of the U.S. health care industry are: A) rapidly rising costs and unequal access to health care. B) declining quality of health care and the duplication of specialized equipment at hospitals. C) declining per capita spending on health care and the moral hazard problem. D) the decline in the number of family physicians and the failure to vaccinate children.

91. The problem of asymmetric information is that: A) neither health care buyers nor providers are well-informed. B) health care providers are well-informed, but buyers are not. C) the outcomes of many complex medical procedures cannot be predicted. D) insurance companies are well-informed but policy purchasers are not.

92. The main purpose of HMOs and PPOs is to:A) reduce health care costs for employers and their employees.B) reduce medical malpractice suits.C) enable groups of physicians to increase their fees.D) direct patients to specialists rather than to more expensive primary-care physicians.

93. A COLA is a clause in a collective bargaining agreement that:A) specifies that one or more soft drink machines be available in each plant.B) requires nonunion workers nevertheless to pay union dues.C) automatically adjusts vacation time upward along with seniority.D) automatically adjusts pay upward when inflation occurs.


94. In the above diagram, the elimination of discrimination is best represented by:A) a move from C to E.B) an inward shift of the production possibilities curve.C) a move from A to D.D) a move from E to C.

95. Collective bargaining agreements usually cover: A) wages and hours. B) union status. C) seniority and job opportunities. D) all of the above.

96. The GDP is the: A) monetary value of all final goods and services produced within a nation in a particular year. B) national income minus all nonincome charges against output. C) monetary value of all economic resources used in producing a year's output. D) monetary value of all goods and services, final and intermediate, produced in a specific year.

97. In calculating the GDP national income accountants: A) treat inventory changes as an adjustment to personal consumption expenditures. B) ignore inventories because they do not represent final goods. C) subtract increases in inventories or add decreases in inventories. D) add increases in inventories or subtract decreases in inventories.

Answer the next question on the basis of the following data. All figures are in billions of dollars.Proprietors’ income $ 20Compensation of employees 300Consumption of fixed capital 15Gross investment 80Rents 10Interest 20Exports 30Imports 50Corporate profits 25Taxes on production and imports 5Net foreign factor income 0Statistical discrepancy 0

98. Refer to the above data. Gross domestic product is:A) $395. B) $380. C) $375. D) $360.

99. Suppose nominal GDP in 2002 was $100 billion and in 2003 it was $260 billion. The general price index in 2002 was 100 and in 2003 it was 180. Between 2002 and 2003 the real GDP rose by:

A) 160 percent. B) 44 percent. C) 37 percent. D) 12 percent.

100.Economic growth is best defined as an increase in:A) either real GDP or real GDP per capita.B) nominal GDP.C) total consumption expenditures.D) wealth in the economy.

101.To be officially unemployed a person must: A) be in the labor force. B) be 21 years of age or older.C) have just lost a job.

D) be waiting to be called back from a layoff. 102.A large negative GDP gap implies:

A) an excess of imports over exports. B) a low rate of unemployment.C) a high rate of unemployment.

D) a sharply rising price level. 103.The most important determinant of consumer spending is:

A) the level of household debt. B) consumer expectations.C) the stock of wealth.

D) the level of income.

104.The consumption and saving schedules reveal that:A) consumption rises, but saving declines, as disposable income rises. B) saving varies inversely with the profitability of investment. C) saving varies directly with the level of disposable income. D) saving is inversely related to the rate of interest.


105.Refer to the above figure. If the relevant saving schedule were constructed: A) saving would be minus $20 billion at the zero level of income. B) aggregate saving would be $60 at the $60 billion level of income. C) its slope would be 1/2. D) it would slope downward and to the right

106.If business taxes are reduced and the real interest rate increases: A) consumption and saving will necessarily increase. B) the level of investment spending might either increase or decrease. C) the level of investment spending will necessarily increase. D) the level of investment spending will necessarily decrease.

107.If the MPC is .70 and gross investment increases by $3 billion, the equilibrium GDP will: A) increase by $10 billion. B) increase by $2.10 billion.C) decrease by $4.29 billion.

D) increase by $4.29 billion. 108.The aggregate demand curve is:

A) vertical if full employment exists. B) horizontal when there is considerable unemployment in the economy. C) downsloping because of the interest-rate, real-balances, and foreign purchases effects. D) downsloping because production costs decrease as real output rises.

109.Other things equal, an improvement in productivity will:A) shift the aggregate demand curve to the left.B) shift the aggregate supply curve to the left.C) shift the aggregate supply curve to the right.D) increase the price level.


110.Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decrease in resource prices is depicted by:

A) panel (A) only. B) panel (B) only. C) panel (C) only. D) panels (B) and (C).


111.Refer to the above diagram. If equilibrium real output is Q2, then: A) aggregate demand is AD1. B) the equilibrium price level is P1.C) producers will supply output level Q1.

D) the equilibrium price level is P2. 112.Discretionary fiscal policy refers to:

A) any change in government spending or taxes that destabilizes the economy. B) the authority that the President has to change personal income tax rates. C) changes in taxes and government expenditures made by Congress to stabilize the economy. D) the changes in taxes and transfers that occur as GDP changes.


113.Refer to the above diagram, in which Qf is the full-employment output. If aggregate demand curve AD1 describes the current situation, appropriate fiscal policy would be to:

A) increase taxes and reduce government spending to shift the aggregate demand curve rightward to AD2.

B) reduce taxes on businesses to shift the aggregate supply curve leftward. C) reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to

AD2. D) do nothing since the economy appears to be achieving full-employment real GDP.

114.If the economy has a standardized budget surplus, this means that: A) the public sector is exerting an expansionary impact on the economy. B) tax revenues would exceed government expenditures if full employment were achieved. C) the actual budget is necessarily also in surplus. D) the economy is actually operating at full employment.

115.Which of the following did not contribute to the large Federal budget deficits in 2002 and 2003?A) spending on the wars in Afghanistan and Iraq.B) low interest rates.C) Federal tax cuts.D) the recession of 2001 and its aftermath.

Answer the next question using the following budget information for a hypothetical economy. Assume that all budget surpluses are use to pay down the public debt.

116.Refer to the above data. A budget surplus occurred in year:A) 2. B) 3. C) 4. D) 6.

117.Money functions as: A) a store of value. B) a unit of account. C) a medium of exchange. D) all of the above.

118.Assuming no other changes, if balances in small time deposits increase by $30 billion and money market mutual funds held by businesses decrease by $30 billion, the:

A) M1 and M2 money supplies will not change.B) M2 and MZM money supplies will increase.C) M1, M2, and MZM money supplies will decline.D) M2 money supply will increase and MZM money supply will decrease.

119.The Board of Governors of the Federal Reserve has ____ members.A) 5 B) 7 C) 9 D) 14

120.Which one of the following is presently a major deterrent to bank panics in the United States? A) the legal reserve requirement B) the fractional reserve systemC) the gold standard

D) deposit insurance 121.The multiple by which the commercial banking system can increase the supply of money on the basis of each

dollar of excess reserves is equal to: A) the reciprocal of the legal reserve ratio. B) 1 minus the legal reserve ratio.C) the reciprocal of the income velocity of money.

D) 1/MPS. 122.The asset demand for money:

A) is unrelated to both the interest rate and the level of GDP. B) varies inversely with the rate of interest. C) varies inversely with the level of real GDP. D) varies directly with the level of nominal GDP.


123.Refer to the above market for money diagrams. If the interest rate was at 8 percent, people would: A) sell bonds, which would cause bond prices to fall and the interest rate to fall. B) buy bonds, which would cause bond prices to rise and the interest rate to fall. C) have insufficient liquidity, which would cause them to reduce their spending on consumer goods. D) buy bonds, which would cause bond prices to fall and the interest rate to rise.


124.Refer to the above balance sheets. If the reserve ratio is 25%, the maximum money-creating potential of the commercial banking system is:

A) $36. B) $17. C) $48. D) $24.

125.Suppose that, for every 1-percentage point decline of the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve banks. Also assume that reserve ratio is 20 percent. If the Fed increases the discount rate from 4.0 percent to 4.25 percent, bank reserves will:

A) increase by $.5 billion and the money supply will increase by $2.5 billion.B) decline by $.5 billion and the money supply will decline by $2.5 billion.C) increase by $.75 billion and the money supply will increase by $3.75 billion.D) increase by $1 billion and the money supply will increase by $5 billion.

126.The prime interest rate usually: A) rises when the Federal funds rate rises. B) rises when the discount rate falls. C) falls when the Federal funds rate rises. D) falls when the Fed sells bonds in the open market.

127.A restrictive monetary policy is designed to shift the: A) aggregate demand curve rightward. B) aggregate demand curve leftward.C) aggregate supply curve rightward.

D) aggregate supply curve leftward. 128.In recent years the United States has:

A) exported more services abroad than it has imported. B) had a small goods trade surplus with Japan. C) had a large goods trade surplus with the rest of the world. D) fallen to third behind Japan and Germany in the list of leading export nations (absolute volume basis).


129.The production possibilities curves above suggest that:A) West Mudville should specialize in, and export, baseball bats. B) West Mudville should specialize in, and export, both baseballs and baseball bats. C) East Mudville should specialize in, and export, baseball bats. D) workers will try to immigrate from West Mudville to East Mudville.

130.Tariffs: A) may be imposed either to raise revenue (revenue tariffs) or to shield domestic producers from foreign

competition (protective tariffs). B) are also called import quotas. C) are excise taxes on goods exported abroad. D) are per unit subsidies designed to promote exports.

131.Which of the following arguments comes closest to constituting a legitimate economic exception to the case for free trade?

A) the increase-domestic-employment argument B) the cheap-foreign-labor argumentC) the diversification-for-stability argument

D) the infant-industry argument 132.U.S. export transactions create:

A) a U.S. demand for foreign monies and the satisfaction of this demand decreases the supplies of dollars held by foreign banks.

B) a U.S. demand for foreign monies and the satisfaction of this demand increases the supplies of dollars held by foreign banks.

C) a foreign demand for dollars and the satisfaction of this demand decreases the supplies of foreign monies held by U.S. banks.

D) a foreign demand for dollars and the satisfaction of this demand increases the supplies of foreign monies held by U.S. banks.

Answer the next question on the basis of the following 2006 balance of payments data (+ and -) for the hypothetical nation of Zabella. All figures are in billions of dollars.

133.Refer to the above data. Zabella's balance on goods and services shows a: A) $5 billion deficit.B) $5 billion surplus. C) $10 billion surplus. D) $15 billion deficit.

The following diagram is a flexible exchange market for foreign currency:

Q u an tity o f eu ro s

Dol

lar p

rice

of 1

eur

o

$ .8 0

0 Q 1

S

D

134.Refer to the above diagram. Other things equal, a rightward shift of the demand curve would:A) depreciate the dollar.B) appreciate the dollar.C) reduce the equilibrium quantity of euros.D) depreciate the euro.

135.In saying that the present system of floating exchange rates is managed we mean that: A) countries that allow their exchange rate to move freely will lose their borrowing privileges with the

IMF. B) the value of any IMF member's currency can only vary 2 percent from its par value. C) IMF officials determine exchange rates on a day-to-day basis. D) the central banks of various countries sometimes buy and sell foreign exchange to alter undesirable

trends in exchange rates.


136.Which of the above nations are low-income developing countries (DVCs), according to the World Bank?A) country A only B) countries A, D, and E C) countries A and E D) countries A, B, D, and E

137.Population growth remains high in most DVCs because: A) religious and sociocultural considerations favor large families. B) children may provide economic security for aging parents. C) children provide agricultural labor in rural areas. D) of all of the above reasons.

138.The World Bank: A) provides military assistance to those nations interested in improving national defense.B) makes and guarantees loans for basic development projects such as the construction of dams, roads,

and schools. C) provides gold for DVCs that want to go on the gold standard. D) provides short-term loans to DVCs that are incurring balance of payments deficits.

econ sample exam 1.… · web viewsample exam #1. for economists, the word ... the making of...

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