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Exam+1+study+guide+chapters+2-3+and+14

Course Number: ECON 2100, Fall 2010

College/University: Georgia Tech

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ECON 2100 EXAM 1 Study Guide Chapters 2-3; 14 Exam 1 date: 09/15/2010 Name: __________________________ Date: _____________ 1. Technological improvements will: A) leave the production possibility frontier unchanged. B) shift the production possibility frontier inward. C) shift the production possibility frontier outward. D) necessarily lead to increased unemployment. Use the following to answer question 2:...

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2100 ECON EXAM 1 Study Guide Chapters 2-3; 14 Exam 1 date: 09/15/2010 Name: __________________________ Date: _____________ 1. Technological improvements will: A) leave the production possibility frontier unchanged. B) shift the production possibility frontier inward. C) shift the production possibility frontier outward. D) necessarily lead to increased unemployment. Use the following to answer question 2: Figure: Strawberries and Submarines II 2. (Figure: Strawberries and Submarines II) Suppose the economy is now operating at point A. The first submarine, which is achieved at point B, would have an opportunity cost of ________ million tons of strawberries. A) 50 B) 150 C) 400 D) 950 Page 1 3. The circular-flow diagram illustrates how households ________ goods and services and ________ factors of production. A) buy; sell B) buy; buy C) own; buy D) own; sell 4. Assume an economy is operating on its production possibility frontier, which shows the production of military and civilian goods. If the output of military goods is increased, the output of civilian goods: A) will increase, too. B) will not change. C) must decrease. D) may increase or decrease. 5. Trade can be beneficial to an economy because: A) it results in a more efficient use of the combined resources of some of the trading countries, even though it reduces efficiency in others. B) more goods and services can be obtained at lower opportunity cost. C) it prevents specialization in those activities in which countries have a comparative advantage. D) it prevents unemployment. 6. Economists may disagree about policies because: A) they may approach the issue using different sets of values. B) they may be using different economic models. C) they enjoy disagreeing with each other. D) they may approach the issue using different sets of values and because they may be using different economic models. Page 2 Use the following to answer question 7: Figure: Strawberries and Submarines II 7. (Figure: Strawberries and Submarines II) Suppose the economy is now operating at point B. Achieving production at point F would require that the economy: A) achieve full employment and an efficient allocation of resources. B) reduce its production of strawberries. C) reduce its production of submarines. D) improve its technology or increase the amount of resources it has. Use the following to answer question 8: Figure: Tom's Production Possibilities Page 3 8. (Figure: Tom's Production Possibilities) In the figure, which of the choices below represents the combination(s) of coconuts and fish that are feasible for Tom to produce at this time? A) A only B) A and B C) A, B, and C D) D only 9. The production possibility frontier illustrates that: A) the economy will automatically end up at full employment. B) an economy's productive capacity increases proportionally with its population. C) if all resources of an economy are being used efficiently, more of one good can be produced only if less of another good is produced. D) economic production possibilities have no limit. Use the following to answer question 10: Figure: Production Possibilities and Circular-Flow Diagram Page 4 10. (Figure: Production Possibilities and Circular-Flow Diagram) Assume the accompanying figures represent the same economy. Suppose that in the circular-flow diagram there is a significant increase in the amount of productivity that is occurring inside most of the firms. This results in a significant increase in the output of both coconuts and fish. If all other variables remain unchanged, then the adjustment in this economy would be best represented in the production possibilities figure by a movement from point A toward: A) point A (no movement would occur). B) point B (an increase in fish production). C) point C (a decrease in coconut production). D) point D (an outward shift of the entire curve). 11. Abe starts exercising regularly, and after a few months discovers he can now do twice as much of everythingin a single day Abe can now make 10 hamburgers or 8 milkshakes, rather than the 5 hamburgers and 4 milkshakes he made in the past. We now know that Abe's production possibility frontier: A) has shifted right, but his opportunity costs of making milkshakes are unchanged. B) has shifted right, but his opportunity costs of making milkshakes have decreased. C) has not changed, but his opportunity costs of making milkshakes have increased. D) has not changed, but his opportunity costs of making milkshakes have decreased. Use the following to answer question 12: Figure: Tom's Production Possibilities Page 5 12. (Figure: Tom's Production Possibilities) In the figure, the opportunity cost for Tom to move from point A on the curve to point B is: A) 10 coconuts. B) 10 fish. C) 5 coconuts. D) 5 fish. 13. Which of the following statements is true? A) Very talented people may have a comparative advantage in everything they do. B) Very untalented people may have a comparative advantage in something they do. C) Very talented people may have a very low opportunity cost in most things they do. D) Very untalented people may have a very low opportunity cost in most things they do. 14. Which of the following would be a positive economic statement? A) Government has grown too large and should be reduced. B) There has been an increase in the rate of inflation. C) Government should be subject to the same rules as all other institutions. D) Women should be paid as much as men for the same work. Use the following to answer question 15: Table: Production Possibilities Schedule II 15. (Table: Production Possibilities Schedule II) If the economy is producing at alternative X, the opportunity cost of producing at Y instead of X is ________ units of consumer goods per period. A) 0 B) 6 C) 8 D) 14 Page 6 Use the following to answer question 16: Figure: Production Possibility Frontier 16. (Figure: Production Possibility Frontier) The combination of cars and computers at point H: A) can be attained, but would cost too much. B) cannot be attained given the level of technology and the resources available. C) has no meaning since it is not what consumers want. D) is attainable but would increase unemployment. 17. If the production possibility frontier were a straight line sloping down from left to right, this would suggest that: A) more of both goods could be produced moving along the frontier. B) the two products must have the same price. C) the opportunity costs of the products are constant. D) there are no opportunity costs. 18. Which of the following is not a factor of production? A) labor B) machines and buildings C) land D) money Page 7 Use the following to answer question 19: Table: Production Possibilities Schedule I 19. (Table: Production Possibilities Schedule I) The opportunity cost of producing the fourth unit of consumer goods is ________ units of capital goods. A) 2 B) 4 C) 6 D) 8 20. If an economy has to sacrifice increasing amounts of good X for each unit of good Y produced, then its production possibility frontier is: A) bowed out from the origin. B) bowed in toward the origin. C) a straight line. D) a vertical line. 21. As long as people have different ________, everyone has a comparative advantage in something. A) direct costs B) benefits C) utility D) opportunity costs 22. Economists who are asked to choose between two different government policies may disagree because: A) they make different value judgments about the desirability of the policies. B) they are basing their conclusions on models that make different simplifications. C) as a matter of course, economists often take opposing points of view so that all sides of a question may be discussed. D) they make different value judgments about the desirability of the policies and because they are basing their conclusions on models that make different simplifications. Page 8 Use the following to answer question 23: Figure: Production Possibility Frontier 23. (Figure: Production Possibility Frontier) If the economy were operating at point B, producing 16 units of cars and 12 units of computers per period, a decision to move to point E and produce 18 units of computers: A) indicates you can have more computers and cars simultaneously. B) makes it clear that this economy experiences decreasing opportunity costs. C) involves a loss of 8 units of cars per period. D) involves a loss of 4 units of cars per period. 24. Suppose that Indiana produces only steel and corn with fixed amounts of land, labor, and capital resources. Which of the following best reflects the potential for economic growth of the Indiana economy? A) The unemployment rate in Indiana falls from 6% to 5%. B) The midwestern U.S. experiences a devastating drought. C) The percentage of Indiana residents with a college degree rises from 25% to 30%. D) The U.S. imports more and more low-cost steel from Asian countries. Use the following to answer question 25: Table: Production Possibilities Schedule II Page 9 25. (Table: Production Possibilities Schedule II) The production of 14 units of consumer goods and 1 unit of capital goods per period would: A) result in full employment. B) result in no unused resources. C) result in some unused or inefficiently used resources. D) increase economic growth. 26. In the market for tacos, you observe that the equilibrium price and quantity have increased. This can only be caused by: A) an increase in the price of beef. B) an increase in the wages of taco shop workers. C) fewer taco shops. D) an increase in the incomes of people who eat tacos. Use the following to answer question 27: Figure: Shifts in Demand and Supply III Page 10 27. (Figure: Shifts in Demand and Supply III) The figure shows how supply and demand might shift in response to specific events. Suppose a wet and sunny year increases the nation's corn crop by 20 percent. Which panel best describes how this will affect the market for corn? A) Panel A B) Panel B C) Panel C D) Panel D 28. Which of the following is likely to cause a rightward shift in the demand for homedelivered pizza? A) a lower price of pizza B) a lower price of fast-food hamburgers C) a higher price of pepperoni D) a larger population 29. After graduation from college, you will receive a substantial increase in your income from a new job. If you decide that you will purchase more T-bone steak and less hamburger, then for you hamburger would be considered a(n): A) normal good. B) substitute good. C) complementary good. D) inferior good. Page 11 Use the following to answer question 30: Figure: Market for DVD Rentals 30. (Figure: Market for DVD Rentals) Four possible outcomes in the market for rentals of DVDs are shown in the figure provided. An increase in the price of DVD players would result in a change illustrated by: A) the move from f to g in panel A. B) the move from h to i in panel B. C) the move from j to k in panel C. D) the move from l to m in panel D. 31. The demand curve for running shoes has shifted to the right. What could have caused it? A) a fall in the price of running shoes B) an increase in the price of running shoes C) an increase in the supply of running shoes D) an increase in the income of buyers of running shoes Page 12 Use the following to answer question 32: Figure: Shifts in Demand and Supply IV 32. (Figure: Shifts in Demand and Supply IV) The figure shows how supply and demand might shift in response to specific events. Suppose half the people in San Diego pack up and move to Colorado Springs. Which panel best describes how this will affect the supply of houses in San Diego? A) Panel A B) Panel B C) Panel C D) Panel D 33. French fries and hamburgers are complements. Suppose that the cost of the ingredients used to make hamburgers rises, so that the price of a hamburger rises. Then the equilibrium relative price of french fries ________ and the equilibrium quantity ________. A) rises; increases B) rises; decreases C) falls; increases D) falls; decreases Page 13 Use the following to answer question 34: Figure: Shifts in Demand and Supply 34. (Figure: Shifts in Demand and Supply) The figure shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel best describes how this will affect the market for used furniture, an inferior good? A) Panel A B) Panel B C) Panel C D) Panel D 35. If goods A and Z are complements, an increase in the price of good Z will: A) increase the demand for good A. B) decrease the demand for good A. C) decrease the demand for good Z. D) decrease the demand for good A and decrease the demand for good Z. Page 14 36. All of the following would result in an increase in the supply of a good except: A) a decrease in resource prices. B) beneficial a technological change. C) an increase in the number of suppliers. D) an increase in input prices. 37. Which of the following will not cause an increase in supply of good X? A) an improvement in the technology used to produce good X B) an increase in the price of good X C) an increase in the price of inputs used to produce good X D) an increase in the price of good X and an increase in the price of inputs used to produce good X Use the following to answer question 38: Table: The Lemonade Market 38. (Table: The Lemonade Market) If the price of a cup of lemonade is $1.00, what will exist in the market? A) equilibrium B) a shortage of 150 cups C) a shortage of 75 cups D) a surplus of 75 cups 39. An inverse relationship between price and quantity is represented by: A) the demand curve. B) the supply curve. C) the production possibility frontier. D) equilibrium. Page 15 40. The primary difference between a change in supply and a change in the quantity supplied is that: A) a change in quantity supplied is a movement along the supply curve, while a change in supply is a shift in the supply curve. B) both a change in quantity supplied and a change in supply are movements along the supply curve, only in different directions. C) a change in supply is related to the supply curve, while a change in quantity supplied is related to shifts in the demand curve that elicit a change in supply. D) a change in supply is a movement along the supply curve, while a change in quantity supplied is a shift in the supply curve. 41. Over the past several years, consumer tastes for tattoos have increased. This means that the ________ for tattoos has ________. A) quantity demanded; increased B) demand; decreased C) demand; increased D) quantity demanded; decreased 42. If goods A and B are substitutes, a decrease in the price of good B will: A) increase the demand for good A. B) increase the demand for good B. C) decrease the demand for good A. D) increase the demand for good B and decrease the demand for good A. Page 16 Use the following to answer question 43: Figure: Demand and Supply of Wheat 43. (Figure: Demand and Supply of Wheat) A temporary price of $4 in this market would result in: A) a surplus of 4,000 bushels. B) a shortage of 2,000 bushels. C) a shortage of 4,000 bushels. D) a surplus of 2,000 bushels. 44. If the quantity of housing supplied in a community is greater than the quantity of houses demanded, the existing price: A) is above the market equilibrium price. B) will rise to clear the market. C) will either rise or remain unchanged. D) is below the market equilibrium price. 45. If the price of hamburger decreases, it would probably result in ________ in the demand for hamburger buns. A) a decrease B) an increase C) no change D) random fluctuations Page 17 Use the following to answer question 46: Figure: Shifts in Demand and Supply IV 46. (Figure: Shifts in Demand and Supply IV) The figure shows how supply and demand might shift in response to specific events. Suppose oil becomes more expensive. Which panel best describes how this will affect the market for gasoline, which is made from oil? A) Panel A B) Panel B C) Panel C D) Panel D 47. An increase in demand and a decrease in supply will lead to a(n) ________ in equilibrium quantity and a(n) ________ in equilibrium price. A) decrease; decrease B) indeterminate change; increase C) indeterminate change; decrease D) increase; indeterminate change Page 18 Use the following to answer question 48: Figure: Demand and Supply of Wheat 48. (Figure: Demand and Supply of Wheat) If a price of $10 temporarily exists in this market, a: A) shortage of 10,000 bushels will result. B) shortage of 8,000 bushels will result. C) surplus of 8,000 bushels will result. D) surplus of 4,000 bushels will result. 49. Which of the following best describes the law of demand? A) As income taxes rise, fewer new cars are purchased. B) As the price of corn rises, more acres of corn are planted. C) As the price of a DVD rental rises, fewer DVDs are rented. D) As the population rises, more electricity is consumed. Page 19 Use the following to answer question 50: Figure: Supply and Demand in the Orange Juice Market 50. (Figure: Supply and Demand in the Orange Juice Market) Suppose most people only drink orange juice with champagne. What will be the new equilibrium point in the orange juice market if a law banning alcohol passes? A) A B) B C) D D) E Page 20 Use the following to answer question 51: Figure: Shifts in Demand and Supply IV 51. (Figure: Shifts in Demand and Supply IV) The figure shows how supply and demand might shift in response to specific events. Suppose consumer incomes increase. Which panel best describes how this will affect the market for big-screen televisions, a normal good? A) Panel A B) Panel B C) Panel C D) Panel D 52. Given that pizza is a normal good, if students' incomes at your college increase substantially, there would be: A) an increase in the demand for pizza. B) an increase in the quantity of pizza demanded. C) a decrease in the demand for pizza. D) no change in the demand for pizza. Page 21 53. Holding everything else constant, if the price of X decreases and the demand for Y increases, then this most likely means that X and Y are: A) complements. B) substitutes. C) inferior. D) normal. 54. In the market for beef, what would cause a price increase? A) The price of chicken decreases. B) Your doctor tells you that you cannot have saturated fat anymore. C) The prices of grass and corn increase. D) There is a movement in the United States towards vegetarianism. Use the following to answer question 55: Figure: Demand and Supply of Wheat 55. (Figure: Demand and Supply of Wheat) A temporary price of $2 in this market would result in: A) a surplus of 4,000 bushels. B) a shortage of 8,000 bushels. C) a shortage of 10,000 bushels. D) a surplus of 10,000 bushels. Page 22 56. An independent panel of economic experts at the ______ analyzes the macroeconomy and determines when recessions begin and end. A) Bureau of the Census B) President's Council of Economic Advisors C) Treasury Department D) National Bureau of Economic Research 57. Which of the following statements is true? A) In the last century, the population of the U.S. has grown faster than output. B) Long-run growth models and business cycle models are the same. C) Since World War II, the economy of Argentina has grown faster than the economy of Canada. D) The level of saving is important for long-run growth. 58. Fiscal policy involves: A) deliberate changes in the money supply. B) deliberate changes in taxation and/or government spending. C) changes in interest rates in specific markets. D) changes which only correct recessionary problems. 59. Controlling interest rates is an example of: A) fiscal policy. B) tax policy. C) monetary policy. D) exchange rate policy. 60. Which of the following statements about long-run growth is true? A) Long-run growth started during the Renaissance. B) Long-run growth started in the early 1700s. C) Peasants in eighteenth-century Europe had a standard of living more than 50 times higher than the Egyptian peasants in the age of the pharaohs. D) Long-run growth is a relatively modern phenomenon. 61. If macroeconomic policy has been successful over a period of time, it is likely that the economy has not seen: A) any inflation. B) severe recessions. C) any unemployment. D) a business cycle. Page 23 62. In contrast to the conclusions drawn from microeconomics, many economists would argue that in macroeconomics, government: A) control of rent prices increases overall economic activity. B) intervention in markets usually leaves society as a whole worse off. C) taxation of goods and services does not create a deadweight loss of economic welfare. D) intervention in markets can prevent or reduce the effects of adverse events on the macroeconomy. 63. Fiscal and monetary policies: A) have no role in macroeconomic policies. B) have been used by the government for over 250 years. C) are most effective in microeconomic settings. D) are used to correct for short-term economic fluctuations. 64. When an economy's overall production grows faster than its population, this is referred to as: A) long-run growth per capita. B) an increase in nominal GDP. C) deflation. D) the paradox of thrift. 65. When a country's total product, better known as real Gross Domestic Product (GDP) undergoes periodic fluctuations, it is generally known as: A) a recession. B) a business cycle. C) an expansion. D) a trough. 66. A period of rising real GDP is a(n): A) peak. B) trough. C) expansion. D) recession. Page 24 67. If all the households and businesses in the economy start saving more during economic hard times, that results in a fall in aggregate income hurting everyone in the economy. This is known as: A) the quantity theory. B) the crowding out theory. C) the paradox of thrift. D) the permanent income hypothesis. 68. A period of falling real GDP is a(n): A) peak. B) trough. C) expansion. D) recession. 69. Which of the following is (are) true? A) Inflation means an increase in the overall level of prices. B) Deflation refers to a decrease in prices only in the energy and transportation sectors. C) During inflation most people hold more cash than usual. D) Inflation was first a problem in the recession of 19291933. 70. When the Great Depression reached its trough in 1933, the unemployment rate was approximately: A) 5%. B) 10%. C) 25%. D) 50%. 71. Which of the following suggests a limited role for government? A) microeconomics B) macroeconomics C) microeconomics and macroeconomics D) government policy makers 72. When the value of a nation's imports exceeds the value of that nation's exports, the nation is said to have: A) hyperinflation. B) a trade deficit. C) price stability. D) a trade surplus. Page 25 73. The General Theory of Employment, Interest, and Money, written by _______ and published in _______, transformed the way economists thought about macroeconomics. A) Milton Friedman; 1946 B) Paul Samuelson; 1940 C) John Maynard Keynes; 1936 D) Paul Lucas; 1966 74. Fiscal policy involves: A) changes in interest rates. B) changes in government spending. C) changes in the quantity of money. D) changes in the quantity of money and interest rates. 75. A depression occurs when: A) both output and employment increase. B) the economic downturn becomes extremely deep and prolonged. C) both price level and unemployment increase. D) output rises but employment remains unchanged. 76. When the overall price level decreases, this is: A) inflation. B) deflation. C) long-run growth. D) the result of an increase in economic production. 77. Which of the following would NOT be classified as a macroeconomic question? A) How many people are employed in the economy as a whole? B) What determines the overall level of prices in the economy as a whole? C) What determines the overall trade in goods, services, and financial assets between the United States and the rest of the world? D) What determines the cost to a university or college of offering a new course? 78. Long-run growth is: A) the sustained upward trend in aggregate output per person over several decades. B) the expansion phase of business cycles. C) the downturn phase of business cycles. D) the sustained downward trend in the employment rate over several decades. Page 26 79. Long-run economic growth is best measured by: A) a sustained rise in the quantity of goods and services produced by the country. B) the growth of a nation's money supply over time. C) the trade surpluses enjoyed by a country in the long rum. D) the rate of private saving in the long run. 80. Which one of the following statements about the U.S. economy is not accurate? A) Since the Second World War, aggregate output grew at a rate lower than the average annual growth rate of population. B) Since the Second World War, aggregate output grew at a rate higher than the average annual growth rate of population. C) Since the Second World War, macroeconomic policy has helped make the economy more stable. D) Long-run growth per capita is the key to higher wages and a rising standard of living. Page 27 Answer Key 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. C A A C B D D C C D A C B B B B C D D A D D C C C D B D D A D C D D B D D C A A C C C A Page 28 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74. 75. 76. 77. 78. 79. 80. B D B C C C B A A C B D D B C D B D D A B C C D A C A B C B B B D A A A Page 29
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