Practice Final PDF

Name____________________________ Computing ID______________ TA________________ Practice Final Multiple Choice Identify the choice that best completes the statement or answers the question. For the the questions that follow, suppose a country has the following quar...

Name____________________________ Computing ID______________ TA________________ Practice Final Multiple Choice Identify the choice that best completes the statement or answers the question. For the the questions that follow, suppose a country has the following quarterly growth data for the last three years: ____ 1. The country’s long-run average growth rate is 3%. How many quarters were spent in recession? a. six b. five c. four d. three e. two ____ 2. Which of the following is a service? a. a visit to your local beach b. a visit to your doctor c. a trip to the store to buy a T-shirt d. a trip to your favorite restaurant for dinner e. having to write a check to pay your taxes ____ 3. Joe sells the house he has lived in for 10 years to the Smith family for $300,000. He receives $50,000 more than his original purchase price 10 years ago. Joe pays his real estate agent a 5% sales commission. This transaction will increase GDP by: a. $0. b. $50,000. c. $15,000. d. $65,000. e. $300,000. ____ 4. Bob wins the lottery. This ________ included in ________ category of GDP. a. is; the consumption b. is; the investment c. is; the government purchases d. is; the net export e. is not; any ____ 5. Real GDP can be calculated as: a. (nominal GDP the GDP deflator) 100. b. (nominal GDP / the GDP deflator) 100.  c. (nominal GDP the GDP deflator) 100. d. (the GDP deflator / nominal GDP) 100. e. (nominal GDP the long-run trend growth rate of GDP) 100. ____ 6. Which of the following equations represents the unemployment rate? a. (number of unemployed / labor force) 100 b. (unemployed employed) c. (number of employed / labor force) 100 d. (number of unemployed / relevant population) 100 e. (labor force / relevant population) 100 Use the following table to answer the questions that follow: ____ 7. According to the table, the unemployment rate in this economy is equal to: a. 4.9%. b. 92.2%. c. 63.4%. d. 7.8%. e. 8.5%. ____ 8. Which of the following statements about the composition of the labor force is correct? a. Since 1948, the percentage of women participating in the labor force has decreased. b. Since 1948, the percentage of women participating in the labor force has increased. c. Since 1948, the percentage of men participating in the labor force has increased. d. Since 1948, the percentage of women participating in the labor force has remained the same. e. Since 1948, the labor force participation gap between males and females has risen. ____ 9. Typically the largest percentage category in the consumer price index (CPI) is: a. transportation. b. education. c. food and beverages. d. housing. e. medical care. ____ 10. Suppose a basket of goods and services has been selected to calculate the consumer price index (CPI) and 2002 has been selected as the base year. In 2002, the basket’s cost was $600; in 2004, the basket’s cost was $650; and in 2006, the basket’s cost was $700. The value of the CPI in 2004 was (round to one decimal place): a. 92.3.  b. 106.3. c. 108.3. d. 152.0. e. more than 155.0. ____ 11. In Bovania, milk constitutes 56% of the typical basket of goods for a typical consumer. Let’s say the price of milk rises by 7% and the prices of all other goods fall by 4%. Based on the information given, we can definitely say: a. the consumer price index (CPI) in Bovania is greater than in the previous year. b. the CPI in Bovania is less than in the previous year. c. if consumers get a 4% pay raise, they are worse off in terms of their real income compared to inflation as measured by the Bovanian CPI. d. the gross domestic product (GDP) deflator must be higher than the CPI. e. the GDP deflator must be less than the CPI. ____ 12. Deflation: a. automatically implies that, on average, everyone is better off because prices have fallen. b. is the same as disinflation; it means the rate of inflation has fallen. c. will make you better off if your nominal wages fall more slowly than prices. d. will make you better off if your nominal wages fall more rapidly than prices. e. will make you better off if your real wages fall more rapidly than prices. ____ 13. The interest rate is: a. the price of labor. b. the price of land. c. both the price of capital and the price of labor. d. the price of loanable funds. e. the marginal rate of investment supply. ____ 14. Every dollar borrowed: a. represents a dollar leaving the circular flow. b. requires a dollar to be saved. c. represents a piece of capital. d. requires the supply of loanable funds to increase. e. causes inflation. ____ 15. If interest rates rise, holding all else constant, this would cause: a. an increase in both the demand and supply of loanable funds. b. a decrease in both the demand and supply of loanable funds. c. an increase in the supply of loanable funds but a decrease in the demand for loanable funds. d. an increase in the quantity supplied of loanable funds but a decrease in the quantity demanded of loanable funds. e. an increase in the supply of loanable funds but a decrease in the demand for loanable funds. ____ 16. You borrow some amount of money for five years at a fixed rate of 4%. For the first three years, inflation is 3%, and for the last two years, deflation is 3%. Based on this information: a. your real rate of interest was larger than your nominal rate only for the last two years. b. your real rate of interest was larger than your nominal rate only for the first three years. c. your real rate of interest exceeded your nominal rate for the entire five years. d. your nominal rate of interest exceeded your real rate for the entire five years.  e. your nominal rate of interest equaled your real rate for the entire five years. ____ 17. If household wealth falls and governments run fewer deficits, we would correctly say that: a. the new equilibrium quantity of loanable funds would decrease, but we would be unable to tell if the new equilibrium interest rate would be higher or lower than the original. b. the new equilibrium quantity of loanable funds would increase, but we would be unable to tell if the new equilibrium interest rate would be higher or lower than the original. c. the new equilibrium quantity of loanable funds would be indeterminate, but we would be certain the new equilibrium interest rate would be higher than the original. d. the new equilibrium quantity of loanable funds would be indeterminate, but we would be certain the new equilibrium interest rate would be less than the original. e. based on this information and because both changes would affect the demand for loanable funds in the opposite way, we would be unable to say anything about the relationship of the new equilibrium interest rate and quantity to the original interest rate and quantity. ____ 18. As income and wealth rise, we would expect: a. savings to increase as people save some of the extra wealth or income they have. b. savings to fall, since people would spend the extra income or wealth. c. interest rates to rise. d. foreigners with more wealth to move their assets out of the United States to foreign markets. e. people to have a negative rate of time preference. Refer to the following graph to answer the questions that follow: ____ 19. Assuming the figure represents the market for loanable funds, which of the following would represent a cut in corporate tax rates, causing business owners and managers to become more optimistic? a. a shift from line 1 to line 4 b. movement from B to A c. a shift from line 2 to line 3 d. movement from A to B e. a shift from line 3 to line 2 ____ 20. When borrowers go directly to savers for funds, it is called: a. indirect finance. b. direct finance. c. security finance.  d. bond finance. e. banking finance. ____ 21. Your friend Jamarcus is an award-winning chef. Jamarcus wants to start his own restaurant in Denver but is unable to obtain a loan from his local bank. Jamarcus has decided to issue a one-year bond with a face value of $6,000 and an interest rate of 10%. If you wanted to buy this bond, what would be the initial price? a. $6,600.00. b. $5,500.50. c. $6,000.00. d. $5,000.00. e. $5,454.54. ____ 22. Which of the following supply and demand models for bonds issued by company X represents what happens when the default risk decreases for company X? a. b. c. d.  e. ____ 23. Which of the following supply and demand models for home mortgages represents what would happen if the U.S. government began monitoring lending practices of financial institutions, making it more difficult to issue mortgages? a. b. c. d. e. ____ 24. Long-run per capita world income growth was basically flat until around what year? a. 1500 b. 1600 c. 1700 d. 1800 e. 1900 ____ 25. In 1800, the average income of U.S. citizens was roughly: a. $100. b. $1,400. c. $19,600. d. $2,000. e. $1,750. ____ 26. An increase in ________________ would lead to an increase in long-run economic growth. a. consumer spending and borrowing b. government taxes and fees c. resources and technology d. imports and exports e. prices and interest rates ____ 27. Why would an increase in capital resources lead to an increase in worker productivity? a. More capital means that fewer workers are needed, increasing output. b. More capital leads to a decrease in wages, leading employees to work harder. c. More capital means that workers have better tools and equipment and can produce more. d. More capital means that the owners of a company reap all of the benefits of labor. e. More capital causes decreasing returns to scale. ____ 28. An advance in technology allows a firm to produce ___________ output with ___________ resources. a. the same; more b. more; the same c. less; fewer d. more; more e. the same; the same ____ 29. If the production function in the Solow growth model is given by q = f(human capital, physical capital), then in this model: a. there is no investment. b. there is no labor. c. labor is represented by the human capital variable. d. there is no depreciation. e. there is no economic growth. ____ 30. Country X has a higher growth rate of real investment than country Y. You might expect country X to have: a. a higher growth rate of real gross domestic product (GDP). b. the same growth rate of real GDP. c. a lower growth rate of real GDP. d. a lower level of net investment. e. a lower level of depreciation. ____ 31. It is reasonable to expect that as the amount of physical capital is increased, the amount of output produced will:  a. increase at a constant rate. b. increase at a diminishing rate. c. increase at an increasing rate. d. decrease. e. be unaffected. ____ 32. If all countries are going to converge at the same level of real gross domestic product (GDP) per capita as predicted by the Solow growth model, then: a. they must all have identical production functions. b. they must all have the same number of people in the population. c. they must all have the same size of labor force. d. they must all have the same level of real GDP. e. they must all end up with a marginal product of zero. ____ 33. All of the following are examples of institutions except: a. private property rights. b. incentives. c. competitive markets. d. efficient taxes. e. stable money and prices. ____ 34. Consider a country that suffered through five years of civil war, but now has a stable government that has the support of the majority of the people. In this country, we are likely to observe: a. an increase in physical capital and an upward shift of the production function. b. an increase in physical capital but no change in the production function. c. an upward shift of the production function but no change in physical capital. d. no change in physical capital or the production function. e. an increase in physical capital and a downward shift of the production function. ____ 35. A country lowers trade barriers and institutes monetary and price stability. As a result, the annual growth rate of gross domestic product (GDP) increases from 2% to 4% per year. All else the same, in 35 years, GDP will be __________ as high as if there were no reform. a. 50% b. twice c. three times d. five times e. four times ____ 36. According to the interest rate effect, an increase in the price level leads to __________ in the interest rate, and therefore to __________ in the quantity of aggregate demand. a. no change; no change b. a rise; a fall c. a rise; a rise d. a fall; a fall e. a fall; a rise ____ 37. When median home prices rise, the value of real wealth __________ and aggregate demand __________. a. increases; is unaffected b. increases; increases c. increases; decreases d. decreases; decreases e. is unaffected; is unaffected ____ 38. If large emerging economies continue to grow rapidly, we can expect U.S. aggregate: a. demand to increase. b. demand to decrease. c. supply to increase. d. supply to decrease. e. demand and supply to be unaffected. ____ 39. The slope of the short-run aggregate supply curve can be explained by: a. the fact that all prices are sticky in the short run. b. sticky input prices and flexible output prices. c. flexible input prices and sticky output prices. d. the fact that all prices are flexible in the short run. e. the fact that all prices except wages are flexible in the short run. ____ 40. Suppose advances in computer technology lead to a surge in worker productivity. In the long run, output will _________ and the price level will _________. a. increase; increase b. increase; decrease c. increase; remain unchanged d. decrease; decrease e. remain unchanged; remain unchanged ____ 41. Suppose a change in health care laws increases the cost of hiring an employee. We can expect output in the short run to __________ and output in the long run to __________. a. be unaffected; be unaffected b. decrease; decrease c. decrease; be unaffected d. decrease; increase e. increase; increase ____ 42. During the Great Recession, the U.S. aggregate demand curve shifted to the left, in part, because: a. the stock market declined in value by one-third. b. there was a decline in the U.S. population. c. there was an increase in expected income. d. the U.S. government restricted trade with other countries. e. there was an increase in housing prices. ____ 43. The Great Depression lasted longer and was deeper than the average recession, in part, because: a. the government raised taxes and did not allow the money supply to increase. b. the government reduced barriers to trade. c. the government reduced tax rates and increased spending. d. consumer sentiment and spending both increased. e. the unemployment rate remained very low. ____ 44. Which of the following policy statements would a classical economist tend to support? a. The government should be prepared to intervene when aggregate demand changes in any way. b. The government should only intervene in the economy when aggregate demand decreases. c. The government should allow the economy to adjust to changes in aggregate demand on its own, without interference. d. The government should frequently change taxes and spending levels to manipulate the economy.  e. The government should only intervene in the economy when aggregate demand increases. ____ 45. Which of the following economic statements would a Keynesian economist tend to support? a. Government intervention in the economy is unnecessary. b. The short run deserves more attention than the long run. c. The key determinant of economic growth is long-run aggregate supply. d. Savings is a crucial component of economic growth. e. The economy tends to be stable and at full employment. ____ 46. Transfer payments refer to funds that are transferred from one group in society to another group: a. so these payments have no impact on the government budget deficit. b. so these payments have no impact on the government debt. c. so these payments are unfair to those who lose money in the transfer. d. and these payments represent a growing share of U.S. federal outlays. e. and these payments remain approximately constant over time. ____ 47. The United States has a: a. progressive income tax system. b. regressive income tax system. c. marginal income tax system. d. good income tax system. e. bad income tax system. ____ 48. Typically, the average tax rate for a person is ____________ their marginal tax rate, because ____________. a. below; the marginal tax rate applies to all income b. below; the marginal tax rate applies to the first dollars taxed, but not to all income c. below; the marginal tax rate applies to the last dollars taxed, but not to all income d. above; the marginal tax rate applies to the last dollars taxed, but not to all income e. above; the marginal tax rate applies to the first dollars taxed, but not to all income ____ 49. The use of the money supply to influence the economy is: a. called fiscal policy. b. called countercyclical policy. c. called monetary policy. d. initiated through actions of Congress. e. part of automatic stabilization. ____ 50. Expansionary fiscal policy occurs when: a. the government decreases spending or increases taxes to stimulate the economy toward expansion. b. the government decreases spending or decreases taxes to stimulate the economy toward expansion. c. the government increases spending or increases taxes to stimulate the economy toward expansion. d. the government increases spending or decreases taxes to stimulate the economy toward expansion. e. the Federal Reserve increases money supply to stimulate the economy toward expansion. Refer to the following figure to answer the questions that follow. ____ 51. According to the figure, if the government increases spending by only $4 billion in an effort to shift aggregate demand enough to return to long-run equilibrium, the marginal propensity to consume must be equal to: a. 0.75. b. 0.8. c. 1.33. d. 1.57. e. 0.6. ____ 52. ___________ is an example of an automatic stabilizer. a. The fiscal multiplier b. The spending multiplier c. The Keynesian multiplier d. Unemployment compensation e. The American Recovery and Reinvestment Act of 2009 ____ 53. An illustration of the relationship between tax rates and tax revenues is called: a. the Laffer curve. b. the new classical critique. c. the aggregate demand–aggregate supply model. d. the loanable funds market. e. the marginal tax curve. ____ 54. Money does NOT function as: a. a unit of account. b. a medium of exchange. c. a means to buy goods and services. d. an item to barter. e. a store of value. ____ 55. I have decided to use my credit card to purchase a new television. What is the immediate consequence of this purchase? a. There would be a decrease in M1 and an increase in M2. b. There would be an increase in M1 and an increase in M2. c. There would be no changes to M1 or M2. d. There would be a decrease in M1 and a decrease in M2. e. There would be an increase in M1 and a decrease in M2. ____ 56. Which of the following would NOT decrease the supply of money in a fiat money economy? a. The Federal Reserve decides to link the value of money to a scarce, rare earth metal. b. The Federal Reserve decides to sell existing treasury securities. c. The Federal Reserve increases the required reserve ratio. d. The Federal Reserve increases the discount rate. e. The Federal Reserve decides to link the value of money to water (a commodity). Refer to the following table to answer the questions that follow. ____ 57. Using the table, what is the value of M2 that is not part of M1? a. $1,150,500,00 b. $1,495,500,000 c. $93,000,000 d. $345,000,000 e. $78,000,000 ____ 58. I have a checking account at the local bank, and my sister has a car loan at the same bank. How does each of these appear on the bank’s balance sheet? a. The checking account is a liability, and the car loan is an asset. b. The checking account is an asset, and the car loan is a liability. c. Both the checking account and the car loan are assets. d. Both the checking account and the car loan are liabilities. e. Both the checking account and the car loan are net worth. ____ 59. Tom Goldman deposits $1,000 in newly printed birthday cash into his checking account at the bank. How would this be recorded on the bank’s balance sheet? a. The money supply will fall by $1,000 because the amount of currency would fall by $1,000. b. The money supply will rise by $1,000 because the money is now in the banking system. c. The money supply will fall by $1,000 when the birthday gift is given but will increase once the deposit is made. d. The money supply will rise by $1,000 when the birthday gift is given but then fall once the deposit is made. e. There will be no initial change to the money supply. ____ 60. To increase the money supply, the Federal Reserve could do which of the following? a. increase the discount rate b. increase the required reserve ratio c. conduct an open market sale of U.S. Treasury securities d. discourage banks from lending money to borrowers  e. conduct an open market purchase of U.S. Treasury securities ____ 61. Central banks can use monetary policy to: a. reduce interest rates. b. decrease taxes. c. increase government spending. d. steer the economy out of every recession. e. prevent recessions. ____ 62. According to the Fisher equation, if a bank extends a loan for 3% and the inflation rate ends up being 2%: a. the nominal interest rate is 1%. b. the real interest rate is 1%. c. the nominal interest rate is –1%. d. the real interest rate is –1%. e. the nominal interest rate is 5%. ____ 63. Which of the following explains why the money supply is not completely controlled by the Federal Reserve? a. The actions of private individuals and banks can increase or decrease the money supply via the money multiplier. b. The president can issue an executive order that can increase or decrease the money supply. c. The treasury has say over when the Federal Reserve can increase or decrease the money supply. d. The actions of private individuals and banks can increase or decrease the money supply via the spending multiplier. e. Congress has authority to veto any monetary policy enacted by the Federal Reserve. Refer to the following figure to answer the questions that follow: ____ 64. According to the figure, if the policy is fully expected, expansionary monetary policy will cause an economy initially in full-employment equilibrium to see its price level: a. increase from P1 to P3. b. increase from P1 to P2. c. initially increase from P1 to P2 and over time increase to P3. d. decrease from P3 to P2. e. decrease from P3 to P1. Use the following scenario to answer the questions that follow:  Amy can produce either 5,000 pounds of cheese or 20 houses per year. Jim can produce either 5,000 pounds of cheese or 10 houses per year. ____ 65. If both Amy and Jim produce the good for which each has a comparative advantage, total output of this economy will be: a. 10,000 pounds of cheese. b. 30 houses. c. 10,000 pounds of cheese and 30 houses. d. 5,000 pounds of cheese. e. 5,000 pounds of cheese and 20 houses. Use the following scenario to answer the questions that follow: Rosa and Dirk produce basketballs and footballs. Rosa can produce six basketballs per hour or two footballs per hour. Dirk can produce three basketballs per hour or four footballs per hour. ____ 66. Based on the scenario, Rosa’s opportunity cost of one football is: a. 4 basketballs. b. 1 1/2 basketballs. c. 6 basketballs. d. 3 basketballs. e. 8 basketballs. ____ 67. The United States feels that it has become too dependent on oil from Saudi Arabia, so it places a limit on the amount of oil that is imported from Saudi Arabia. This is an example of a(n): a. nontariff trade barrier. b. quota. c. tariff. d. export subsidy. e. import subsidy. ____ 68. The argument that calls for the trade protection of only newly developing industries is known as the ______________ argument. a. autarky b. infant industry c. developing nation d. predatory dumping e. learning by doing The following table shows the number of British pounds required to buy one U.S. dollar between September 3, 2012, and April 1, 2013. Use this table to answer the questions that follow: ____ 69. Between January 1, 2013, and March 1, 2013, the U.S. dollar __________ against the British pound, and the British pound _____________ against the U.S. dollar. a. depreciated; appreciated b. appreciated; depreciated c. neither appreciated nor depreciated; depreciated d. depreciated; depreciated e. appreciated; neither appreciated nor depreciated ____ 70. If the theory of purchasing power parity holds, then how much does an Egyptian tapestry cost in the United States if the same tapestry sells for 15,000 Egyptian pounds in Egypt and the exchange rate is $0.14 per Egyptian pound? a. $12,000 b. $2,100 c. $107,143 d. $15,000 e. $3,148