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exam1spring2003part1

exam1spring2003part1 - fi— ECONOMICS 51D Economic...

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Unformatted text preview: fi—_____ ECONOMICS 51D: Economic Principles Dr. Lori Leachman EXAMINATION 1 February 6, 2003 An essentiai feature of Duke University is its commitment to integrity and ethical conduct. Duke‘s honor system helps to build trust among students and faculty and to maintain an academic community in which a code of values is shared. Instilling a sense of honor, and of high principles that extend to all facets of life, is an inherent aspect of a liberal education. As a student and citizen of the Duke University Community: . I will not lie, cheat, or steal in my academic endeavors. . I will forthrightly oppose each and every instance of academic dishonesty. - I will communicate directly with any person or persons I believe to have been dishonest. Such communication may be oral or written. Written communication may be signed or anonymous. . I will give prompt written notification to the appropriate faculty member and to the Dean of Trinity College or the Dean of the School of Engineering when I observe academic dishonesty in any course. . I will let my conscience guide my decision about whether my written report will name the person or persons I believe to have committed a violation of this Code. NAME: SIGNATURE: Multiple Choice Questions Version C 1) When a teacher in private school points out to her high school principal that since there are empty seats in all classrooms, the cost of an additional student to the class is really zero, she is using the a) law of comparative advantage b) principle of marginal analysis c) theory of externalities d) notion of the cost decrease in the service sector e) concept of opportunity cost 2) Economics is most generally concerned with a) the operation of banks and the stock market b) business management 0) how limited resources are allocated among alternative goals and uses d) the right time to start a business Comp uters Z Pizza M=million 3) As the economy moves from producing 7 m pizzas and 2000 computers to producing 4 m pizzas and 3000 computers, what is the opportunity cost of the additional 1000 tanks? a) l m pizzas b) 2 m pizzas c) 3 m pizzas d) 4 1n pizzas 4) If a society wants to consume at point Z, how could they achieve this? a) produce more pizza in the current period b) engage in international trade 0) experience innovation d) all of the above e) b and c only 5) If a society produced at a point on the production possibility curve, but wanted to consume at point Z, what output combination would be mo st likely to lead to this over the long run. a.) 0 computers and 10m pizzas. b.) 2000 computers and ?m pizzas c.) 3000 computers and 4m pizzas d.) 1000 computers and 9m pizzas. 6) If a society currently operates at the output level X a) there are many output combinations, which would not involve any opportunity costs. b) the economy may have unemployed or underernployed resources 0) the economy may have severe inflation d) all of the above e) b and c only 7) The basic difference between a consumption good and an investment or productive good is that the production of a) investment goods is always done by the public sector b) consumption goods does not allow for the specialization of labor c) investment goods produce satisfaction in the future, while the consumption goods produce satisfaction now d) consumption goods is subject to personal and corporate income taxes 8) Adam Smith pointed out that the most important source of efficiency in production is a) investing in more labor b) consuming more rationally c) increasing inputs of energy and raw material . d) using more capital to expand the production possibilities frontier e) The specialization of labor 9) The aim of antitrust policy is to a) provide adequate incentives for investors and entrepreneurs b) prevent firms from acquiring or exercising undue market power 0) prevent firms from becoming very large d) regulate the prices charged by monopolistically competitive firms. 10) The first antitrust law passed in the United States was a) the Clayton Act of 1906 b) the Trust Act of 1914 c) the Law on Monopolies of 1929 d) the Sherman Antitrust Act of 1890 11) If antitrust law was interpreted such that all large firms in the economy were broken into smaller firms, the results might be a) decreased manufacturing efficiency in some industries b) increased prices for some manufactured goods 0) decreased investment in research and development in some industries d) all of the above 12) The growth rate of potential GDP depends, among other factors, on the a) rate of technological progress b) the rate of productivity growth 0) the rate of capital accumulation d) all of the above e) a and c only 13) The production function a) Determines, in the aggregate, the production possibilities curve b) determines how inputs are converted to outputs c) indicates exactly what output combination a society will choose to produce d) all of the above e) a and b only 14) The shortfall between actual real GDP and potential real GDP a) decreases as the unemployment rate rises b) increases as the unemployment rate rises 0) increases as prices rise d) decreases as prices increase 15} If ten years ago the price of a movie ticket was $5 and the average hourly wage was $10, and today the price of a movie ticket is $8 and the average hourly wage is $20, then a) movies are now relatively cheaper in terms of work hours b) movies are now relatively more expensive in terms of work hours c) the relative price of movies has remained constant d) workers now need to work longer hours to earn a movie ticket e) real income is unchanged 16) i. The production function will reflect the nature of the returns to scale in a production process. When it reflects increasing returns to scale the industry is more likely to be characterized by oligopolies or monopolies and hence subject to antitrust scrutiny. ii. Real GNP accounting with the expenditure approach accurately reflects the level of wellbeing and output produced in an economy a.) i is true; ii is false b.) i is false; ii is true. c.) Both i and ii are false d.) Bothiand ii are true. 17) i. If the unemployment rate is rising it can only be due to the fact that more people are out of ajob. ii. The producer price index tends to capture demand pull inflationary pressure. a.) i is true; ii is false. b.) i is false; ii is true. c.) Both i and ii are false d.) Both i and ii are true. 18) i. Inflation, disinflation and deflation are all essentially a macroeconomic concern of government because their presence tends to affect investment spending which is so important for future growth. ii. According to the fisher equation, if inflationary expectations are inaccurately . . forecast the real rate of return may be higher or lower than the desired real return. a.) i is true; ii is false. b.) i is false; ii is true. c.) Both i and ii are false. d.) Bothi and ii are true. 19) When externalities are present a.) government ignores them. b.) Government tends to tax the production of goods that generate positive externalities c.) Government uses antitrust policy to correct them. (1.) They indicate a market failure has occurred whi ch the government may address through fiscal policy. ...
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