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Econ222 Exam1Fall07

Econ222 Exam1Fall07 - I ‘ u" I Winter 2007 Econ 222...

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Unformatted text preview: I) ‘ _ u:',". , ,, I Winter 2007 Econ 222 Test 1 v1 Name _ _ ., 1. Even though local newspapers are very inexpensive, people rarely buy more than one of them cal; day. This fact: Ex is an example of irrational behavior. \b). implies that reading should be taught through phonics rather than the whole language method. c) contradicts the economic perspective. d) implies that, for most people, the marginal benefit of reading a second newspaper is less than the marginal cost. 2. Macroeconomics can best be described as the: \a). analysis of how a consumer tries to Spend income. b) study of the large aggregates of the economy or the economy as a whole. \er analysis of how firms attempt to maximize their profits. study of how supply and demand determine prices in individual markets. 3. A positive statement is one which is: a) derived by induction. 3% subjective and is based on a value judgment. c derived by deduction. objective and is based-on facts. 4. Which of the following is a land resource? a) a computer programmer b) silicon (sand) used to make computer chips c) a computer (1) a piece of sofiware used by a firm 5. Unemployment: \ak causes the production possibilities curve to shift outward. b) can exist at any point on a production possibilities curve. & is illustrated by a point outside the production possibilities curve. d) is illustrated by a point inside the production possibilities curve. 6. Assume that a change in government policy results in greater production of both consumer goods and investment goods. We can conclude that: 63’ the economy was not employing all of its resources before the policy change. "-b)\ the economy's production possibilities curve has been shified to the left as a result of the policy decision. this economy's production possibilities curve is convex (bowed inward) to the origin. \d-)\ the law of increasing opportunity costs does not apply in this society. Use the following graph to answer the next two questions: Capital goods 0 Consumer goods 7. Refer to the above diagram. Other things equal, this economy will achieve the most rapid rate of growth if: a) the ratio of capital to consumer goods is minimized. b) it chooses point C. c) it chooses point B. d) it chooses point A. 15. The income and substitution effects account for: a)‘ the upward sloping supply curve. b) movements along a given supply curve. the downward sloping demand curve. 5 the “other things equa " assumption. 16. A recent study found that an increase in the Federal tax on beer (and thus an increase in the price of beer) would reduce the demand for marijuana. We can conclude that: a) beer and marijuana are substitute goods. b) beer is an inferior good. beer and marijuana are complementary goods. marijuana is an inferior good. 17. Other things equal, which of the following might shifi the demand curve for gasoline to the lefi? the discovery of vast new oil reserves in Montana § the development of a low—cost electric automobile an increase in the price of train and air transportation \ka large decline in the price of automobiles 18. A government subsidy to the producers of a product: a) reduces product supply. ' b reduces product demand. increases product supply. increases product demand. 19. If there is a shortage of product _X: fewer resources will be allocated to the production of this good. \ e price of the product will rise. \Qgthe price of the product will decline. d the supply curve will shifi to the lefi and the demand curve to the right, eliminating the shortage. Use the following demand and supply graphs to answer the next two questions. 43. Which of the following is not a component of private investment, for purposes of GDP accounting? ‘ @ purchases by firms of used machinery newly produced housing 0) newly built factories d) additions to firms' stock of inventories 44. Which of the following should be included in U.S. GDP? @J A computer manufactured in Mexico and sold in the United States. b) A used computer manufactured in the United States and sold in Mexico. 0) A computer manufactured in the United States and sold in Mexico. d) A computer manufactured in Mexico W firm .and sold in the United States. 45. Suppose that a hardware store had $1000 of paintbrushes on its shelves at the beginning of the year and $1500 at yeapend. How is this increase in inventories treated in GDP (expenditure method) calculations? a) $1000 is subtracted from current spending on GDP to adjust for inventory changes. b) $500 is added to current spending on GDP to adjust for inventory changes. . c) $1250 is added to current spending on GDP to adjust for inventory changes. d) $1500 is subtracted from current spending on GDP to adjust for inventory changes. 46. Which of the following is most likely to be an inferior good? a) fur coats b) ocean cruises c) used clothing (1) steak 47. A leftward shift of a product supply curve might be caused by: Wu an improvement in the relevant technique of production. ’13»): a decline in the prices of needed inputs. c) an increase in consumer incomes. “borne firms leaving an industry. 48. 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. ‘ 1&3rise, 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. Use the following to answer the next two questions: Price 50 100 150 200 Quantity 49. Refer to the above diagram. A price of $20 in this market will result in: a) a shortage of 50 units. b) a surplus of 100 units. c) a surplus of 50 units. £5; a shortage of 100 units. 35. Net exports are negative when: a nation's imports exceed its exports. ) the economy's stock of capital goods is declining. c) depreciation exceeds domestic investment. d) a nation's exports exceed its imports. 36. In calculating GDP, governmental transfer payments, such as social security or unemployment compensation, are: a) not counted. b) counted as government spending. c) counted as investment spending. d) counted as consumption spending. 37. How does real gross domestic product (GDP) differ fi'om nominal GDP? (a) _,}‘ Real GDP controls for price changes, while nominal GDP does not. Nominal GDP can be used to directly compare the amount of output produced from year to year, while real GDP cannot be used for such comparison. Nominal GDP controls for price changes, while real GDP does not. \Cl)»\There is no difference between nominal GDP and real GDP. 38. The largest component of GDP is: a) private investment expenditures. b) consumption expenditures. c) government spending. d) net exports. 39. GDP excludes: a) the market value of unpaid work in twe. b) the production of services. c) the production of nondurable goods. d) positive changes in inventories. 40. Which of the following activities is excluded from GDP, causing GDP to understate a nation's well-being? a) the services of health care workers b) the services of military personnel c 1 the construction of new buildings Q15 goods and services produced in the underground economy. Answer the next question on the basis of the following data. All figures are in billions of dollars: Government purchases $15 C O 9‘ Consumption' 90 (z e l . O -’r\ 3+ /\ Gross investment 20 ”i L T 1‘ 0 Consumption of fixed capital 5 Exports 8 Imports 12 41. Refer to the above data. GDP is: a) $116. b) $121. c) $125. d) $150. 42. In determining real GDP economists adjust the nominal GDP by using the: a) national productivity index. b) GDP price index. c) wholesale (prod'ucers') price index. d) consumer price index. market for corn? , (3/ a) B only 10 b) C only c) B and C d) D only GM" 21. Which of the previous supply and demand diagrams illustrate(s) the effect of a decline in the price of personal computers on the market for software? a) A only is) A and D c) B only 01) D only 22. Which of the following would not shift the demand curve for beef? a widely publicized study that indicates beef increases onc's cholesterol @ a reduction in the price of cattle feed c). an effective advertising campaign by pork producers ‘Q a change in the incomes of beef consumers 23. A price ceiling means that: a) there is currently a surplus of the relevant product. b) government is imposing a legal price that is below the equilibrium price. c) government wants to stop a deflationary spiral. ' d) government is imposing a legal price that is above the equilibrium price. 24. (Last Word) A market-based system of buying and selling human organs for transplant w0uld: a) reduce total health care spending. 3L create a surplus of organs. Ex increase the quantity of organs available for transplant. (1) reduce the price of organs. 25. The personal distribution of income in the United States is such that the richest fifth receives about percent of personal income. a) 30 b) 40 c) 50 ' d) 60 26. In corporations, owners are and managers are 3) agents; principals. b) agents; employees. c) stockholders; bondholders. d) principals; agents. Use the following table to answer the next two questions. Taxable income Total tax $1000 3.; 0 2000 100 w" r, .15 3000 300 E . :3: 4000 600 4 g ‘ ".u‘ 5000 1000 .. f) 6000 1500 we 40%. 27. The tax represented above is: 6;; 5.0 a) optimal. . ff b) proportional. c) regressive. d) progressive. ________,______.__.__———-——-7. Refer to the previous diagram. This economy will experience unemployment if it produces at point: a) A. b) B. c) C. d) D. Use the following to answer the next two questions: War goods (“guns”) 10. 11. 12. 13. 14. Civilian goods (“butter”) Refer to the above production possibilities curve. At the onset of the Second World War the United States had large amounts of idle human and property resources. lts 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 (1. 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 fi'om point: a) c to point b. b) b to point 0. c) a to point b. d) c to point d. (Last Word) If you leave a football game at the end of the third quarter, you will avoid traffic and get home more quickly. Therefore, everyone should leave the game early. This assertion illustrates the: a) moral hazard problem. b) fallacy of limited decisions. c) adverse selection problem. d)\failacy of composition. Examples of command economies are: a) the United States and Japan. b) Mexico and Brazil. c) Sweden and Norway. d) Cuba and North Korea. The term laissez faire suggests that: a) land and other natural resources should be privately owned, but capital should be publicly owned. b) land and other natural resources should be publicly owned, but capital equipment should be privately owned. c) government should not interfere with the operation of the economy. d) government action is necessary if the economy is to achieve full employment and full production. When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes: a) the cost effect. b) the inflationary effect. c) the income effect. d) the substitution effect. W 50. 5hr to the previous diagram. A government price ceiling would conceivably be set at: $60 b) $40 c) $20 d) 100 e) 200 Written Portion: please answer the following two questions in your bluebook. I. Summarize the events and ideas that led to the birth of economics. Explain basic ideas of capitalism (free market) philosophy- what is it and how does it work? (5 points) 2. (video “Affluenza) List the costs and causes of “Affluenza”. Do you agree with the video’s position on economic growth and American consumption? Why or why not? (5 points) 23. Refer to the above data. If your taxable income is $4000, your average tax rate will be; % m a) 20 percent. . 2 b) 15 percent. I (:0 [w c) 10 percent. d) 5 percent. Use the following table to answer the next two questions. Barmnns/hour Peaches [hour Alex Rachel . 29. Consider two individuals, Alex and Rachel, who produce peaches and bananas. Table 3 .1 shows how much of each good Alex and Rachel can produce in one hour. Rachel's opportunity cost of one banana is: a) lpeach. b) 6peaches. 0" 4 2" 03 A, hi c) 4 peaches. I @ 1/3 peach. a A} [b 30. Based on the data in the above table: (7 _ yaw-(mg W Rachel should specialize in both goods. ‘ "' ‘ 6 b) Alex should specialize in peaches and trade for bananas. ; c) Alex should specialize in bananas and trade for peaches. Alex should specialize in both goods. Answer the next two question(s) on the basis of the following production possibilities data for Landia and Scandia: .> \ . 3 . Landia production possibilities: ;\¥8 (0 ¥ 1 <2 1, B C D E . (5’ — — — — ,_ 3:335 $13 23 33 @@ (SQ-9% Scandia production possibilities: «7 \A a c n a ._ O *2 is ' . 0 Z 7 at. a i: 2: 3: g Nb 49 i ’5 \ {a 31. Refer to the above data. On the basis of the production possibilities data shown: a) Landia has a comparative advantage in chips while Scandia has a comparative advantage in fish. b) Landia has a comparative advantage in fish while Scandia has a comparative advantage in chips. as; both Landia and Scandia have a comparative advantage in fish. ‘ .—-d.)~ both Landia and Scandia have a comparative advantage in chips. 32. fer to the above data. Which of the following would be feasible terms of trade betw en Landia and Scandia? 1 fish for 4 chip . l ‘1 g Lo 1 fish for 6 chug) //l 4 ‘35 f 1 fish or c 1ps \n\2 fish for 4 chips - IE} [9 I 43 33. All else equal, depreciation of the Mexican peso relative to the US. dollar would make a trip by: a) an American to Mexico more expensive. 3‘ a Mexican to the United States less expensive. an American to Mexico less expensive. _ / an Australian to the United States more expensive. 34. The latest, arr-going international round of trade negotiations is called the: 4.0 ‘ a) Bangkok Round. b) Doha Round. c) Seattle Round. d) Stockholm Round. [L9 ...
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