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Economics102 Practice Exam 1) Which of the following varies along the demand schedule for a particular good?
A) the price of that good.
B) prices of substitute goods.
C) tastes and preferences.
D) expectations about its prices in the future.
2) A shortage creates a situation that forces prices to __________ while a surplus creates
a situation that forces prices to __________.
A) increase; decrease.
B) increase; increase.
C) decrease; increase.
D) decrease; decrease.
3) The marginal tax rate on income shows
A) the percentage of income, which a representative family pays in taxes.
B) the deductions permitted for childcare and medical expenses.
C) the average tax rate in the economy.
D) the extra tax due on an extra dollar of income
4) If the duration of unemployment in a country increases from 15 weeks to 17 weeks,
A) the unemployment rate will decrease.
B) the unemployment rate will increase.
C) the labor force will increase.
D) the labor force will decrease.
5) An example of frictional unemployment is
A) Charles, who has lost his job as an autoworker because of increased car imports.
B) Cynthia, who has few skills and quit looking for work.
C) Mary, who quit her job to find work closer to her home.
D) Sam, who lost his job as a real estate agent when the housing market went soft.
6) Inflation can cause a misallocation of resources because
A) the nominal rate of inflation doesn't equal the real rate of inflation.
B) inflation doesn't proceed evenly making it hard for people to react appropriately
to changes in relative prices.
C) firms change their prices too quickly.
D) people are encouraged to borrow too much. Page 1 of 10 ©Prep101 www.prep101.com/solutions 7) The business cycle phase that must come before the peak is
8) GDP does not include
A) business investment.
B) consumption expenditures.
C) net exports.
D) overseas production of Canadian subsidiaries.
9) Which of the following transactions would be included in GDP?
A) the purchase of 50 shares of General Motors stock.
B) the purchase of new tires to replace worn out tires on the existing car.
C) the purchase of 2 grams of cocaine.
D) the purchase of a used car. 10) According to table above, the U.S. gross domestic product is
11) How is economic growth graphically depicted?
A) short-run aggregate supply shifts to the left.
B) aggregate demand shifts to the right.
C) the aggregate demand curve shifts to the left.
D) the long-run aggregate supply curve shifts to the right.
12) All of the following explain the downward slope of the aggregate demand curve
A) the availability of foreign substitute goods.
B) changes in the stock of real wealth held by individuals.
C) the presence of unused production capacity and unemployment.
D) the effect of changing interest rates. Page 2 of 10 ©Prep101 www.prep101.com/solutions 13) In the figure above, a move from point B to point C could be explained by
A) a decrease in the price level.
B) an increase in the price level
C) higher taxes.
D) increased government spending.
14) In the classical model, a shift to the right in aggregate demand would result in
A) a permanent increase in real incomes.
B) a shift past full employment.
C) a permanent increase in unemployment.
D) an increase in the price level. 15) In the figure above, the inflationary gap can be identified as
B) the difference between 12 and 12.2 trillion.
C) the difference between 125 and 120.
D) LRAS minus SRAS.
16) Refer to the same figure above. It is possible for the economy to be at E2 rather than
at E1 because
A) in the short run the economy can produce more than it can in a long-run fulladjustment situation.
B) in the long run there is always less than full employment.
C) AD always shifts outward and never shifts inward.
D) the economy must be in a recession. Page 3 of 10 ©Prep101 www.prep101.com/solutions 17) Suppose when real disposable income is $5000, planned real consumption is $4000.
When real disposable income increases to $6000, planned real saving increases by $500.
The new planned real consumption expenditures is
D) $3,500. 18) In the figure above, the marginal propensity to consume (MPC) equals
19) If initial equilibrium real GDP is $400 billion, MPC = 0.9, and autonomous
investment increases $40 billion, equilibrium real GDP will be
A) $360 billion.
B) $440 billion.
C) $600 billion.
D) $800 billion.
20) What statements about built-in or automatic stabilizers are true?
A) they have no effect on the distribution of income.
B) they reduce the size of the budget surplus during recessions.
C) they require no legislative action by Parliament to have an effect.
D) they produce budget surpluses during recessions.
21) If the government wants to use fiscal policy to close a recessionary gap, it should
A) decrease government spending in order to decrease aggregate demand.
B) decrease government spending in order to increase aggregate supply.
C) increase government spending in order to increase aggregate supply.
D) increase government spending in order to increase aggregate demand. Page 4 of 10 ©Prep101 www.prep101.com/solutions 22) When real GDP falls, which of the following will automatically occur?
A) a decrease in tax revenues.
B) an increase in tax revenues.
C) a decrease in all tax rates.
D) a decrease in expenditure on unemployment compensation. 23) In the figure above, if the economy is at E2 and the government enforces
contractionary fiscal policies, it is very likely that
A) the new equilibrium will be E1.
B) the new equilibrium will still be E2.
C) the new equilibrium will be E3.
D) the price level will rise to 120.
24) When there exists an inflationary gap, raising taxes can resolve the problem by
A) shifting aggregate demand to the right.
B) shifting aggregate demand to the left.
C) shifting aggregate supply to the right.
D) shifting aggregate supply to the left.
25) If the price of sushi goes down, then the demand for crabmeat salad will
A) decrease if sushi and crabmeat salad are complements.
B) decrease if sushi and crabmeat salad are substitutes.
C) increase if sushi and crabmeat salad are substitutes.
D) remain constant if sushi and crabmeat salad are related goods.
26) If both the demand for and the supply of MP3 players are increasing, which of the
following is true?
A) The new equilibrium price of a MP3 player will be higher.
B) The new equilibrium price of a MP3 player will be lower.
C) It is uncertain if the price of MP3 players will go up or down in the future.
D) The price of a MP3 player will remain constant.
27) Excess quantity demanded may result from
A) technological progress.
B) an oversupply of output.
C) an effective price ceiling imposed by the government.
D) an effective price floor imposed by the government.
Page 5 of 10 ©Prep101 www.prep101.com/solutions 28) If there is pollution produced by an industry then in this industry there is
A) excess demand.
C) excessive cost borne by the firm.
D) an over-allocation of resources in production. 29) Refer to the figure above. B is the long-run aggregate supply curve and E is the shortrun aggregate supply curve. If there were a discovery of large oil sands in the north of
British Columbia, where no one thought they existed, then the long-run aggregate supply
curve and the short-run aggregate supply curve should be expected to
A) move to A and D respectively.
B) move to A and F respectively.
C) remain B and E respectively.
D) move to C and F respectively.
30) If the U.S. dollar becomes weaker in international foreign exchange markets,
imported goods become more expensive. One result of this is that
A) net exports decrease.
B) net exports increase.
C) real GDP increases.
D) domestic employment rises.
31) Along the portion of the consumption function that lies above 45-degree line coming
from the origin, saving
A) is negative.
B) is positive.
C) is zero.
D) cannot be determined.
32) Autonomous consumption is
A) consumption expenditure independent of the level of income.
B) consumption expenditure with marginal propensity to consume being 1.
C) consumption expenditure based on earned income rather than transfers from the
D) consumption expenditure with zero saving. Page 6 of 10 ©Prep101 www.prep101.com/solutions 33) If disposable personal income (DPI) = $800 and personal income taxes = $80, then
what is personal income (PI)?
A) it cannot be determined.
34) From the base year (2005) to the next year (2006) the price index increases from 100
to 102.5. If nominal GDP is $2800 in 2005, then the real GDP in 2006 is
35) Which of the following statements is correct?
A drop in the foreign exchange value of the dollar would decrease aggregate
II. A decrease in the amount of money in circulation would increase aggregate
A) I only.
B) II only.
C) both I and II.
D) neither I nor II.
36) The rate of inflation and the purchasing power of money are
A) inversely related.
B) positively related.
C) entirely unrelated.
D) somewhat related.
37) If the current price of a market basket of goods is $850 and the base year price for the
same basket is $500, what is the value of the price index?
38) The opportunity cost of holding money is measured by
A) the liquidity of interest-bearing assets.
B) the price of government bonds.
C) the interest that could have been earned by holding other assets.
D) the inflation rate. Page 7 of 10 ©Prep101 www.prep101.com/solutions 39) Which of the following is NOT part of M1 but is included in M2?
A) traveler's checks.
D) small-denomination certificates of deposits. 40) Refer to the table above. The value of M2 is
A) $5,303 billion.
B) $5,325 billion.
C) $5,782 billion.
D) $6,457 billion.
41) A bank with deposits of $200 million keeps $20 million in cash, $15 million on
deposit at the Central Bank, and $10 million in government securities. The reserve
requirement is 15 percent. Excess reserves of this bank are
B) $5 million.
C) $10 million.
D) $15 million.
42) The required reserve ratio is 10 percent. A bank with $10 million in deposits has
$700,000 in vault cash and $200,000 on deposit with the Central Bank. A person deposits
a $1 million check in the bank. Excess reserves of the bank are now
D) $1 million.
43) A bank currently has $100 million in deposits, $6 million in cash, deposits with the
Central Bank of $4 million, and other assets equal to $90 million. The required reserve
ratio is 10 percent. A new deposit of $1 million is made. What is the maximum loan this
bank can now make?
C) $1 million.
D) $1.8 million.
Page 8 of 10 ©Prep101 www.prep101.com/solutions 44) If a bank holds $20,000 in required reserves in order to meet a required reserve ratio
of 40 percent, demand deposits must equal
D) $100,000. 45) Refer to the table above. The required reserve ratio for the ABC Bank is
46) To increase the money supply
A) the Central Bank should sell government securities.
B) the Central Bank should buy government securities.
C) the Central Bank should increase reserve requirements.
D) the chartered banks should decrease their loans. df3
47) Refer to the table above. The money multiplier for the banking system is
48) As nominal GDP rises, people will wish to
A) hold more money for transactions.
B) hold less money for transactions.
C) spend less.
D) invest less. Page 9 of 10 ©Prep101 www.prep101.com/solutions 49) Refer to the graph above. When the economy is at i1, people will want to
A) petition the Central bank to increase the money supply.
B) buy stocks.
C) sell bonds so as to convert them into cash.
D) buy bonds so as to have a better store of value.
50) One likely result of a contractionary monetary policy would be
an increase in business investment.
an increase in the money supply.
a decline in the price level.
lower interest rates. Page 10 of 10 ...
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- Spring '09