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1. (Points: 2.5) Which of the following best describes the response of output as time passes to an increase in the saving rate?

1. (Points: 2.5)
Which of the following best describes the response of output as time passes to an increase in the saving rate?



a. The growth rate of output does not change.

b. The growth rate of output increases and gets even larger as time passes.

c. The growth rate of output increases and does not change as time passes.

d. The growth rate of output increases, but diminishes to its former level as time passes.


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2. (Points: 2.5)
The dictator of Turan has recently begun to arbitrarily seize farms belonging to his political opponents, and he has given the farms to his friends. His friends don't know much about farming. The courts in Turan have ruled that the seizures are illegal, but the dictator has ignored the rulings. Other things equal, we would expect that the growth rate in Turan will



a. fall temporarily, but will return to where it was when the new owners learn how to farm.

b. increase because the total amount of human capital in the country will increase as the new owners learn how to farm.

c. fall and remain lower for a long time.

d. not be affected unless widespread civil disorder or civil war results.


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3. (Points: 2.5)
In the US each additional year of schooling has historically raised a person's wage on average by about



a. 5%. In less developed countries the gap between the wages of educated and uneducated workers is smaller.

b. 10%. In less developed countries the gap between the wages of educated and uneducated workers is smaller.

c. 5%. In less developed countries the gap between the wages of educated and uneducated workers is larger.

d. 10%. In less developed countries the gap between the wages of educated and uneducated workers is larger.


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4. (Points: 2.5)
Which of the following World Bank poverty aid programs did the Poverty Action Lab find to have no beneficial effects?



a. hiring high-school graduates to tutor groups of lagging students in Bombay slums

b. adding an extra teacher to classrooms in rural India

c. giving poor Kenyan students drugs to treat intestinal worms

d. All of the above programs were shown to have no beneficial effects.


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5. (Points: 2.5)
Other things the same, if a country increased its saving rate, in 40 years or so it would likely have



a. higher productivity, and a higher growth rate of real GDP.

b. higher productivity, but not a higher growth rate of real GDP.

c. the same productivity and growth of real GDP it began with.

d. None of the above is correct.


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6. (Points: 2.5)
Proprietary technology is technology that is



a. widely used because it is easy to learn.

b. widely used because the government subsidizes its use.

c. not widely used because people could, but have not, taken the time to learn how to apply it.

d. not widely used because it is known or controlled only by the company that discovered it.


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7. (Points: 2.5)
The relationship between the quantity of output created and the quantity of inputs needed to create it is called



a. the capital accumulation function.

b. technological knowledge.

c. the production function.

d. human capital.


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8. (Points: 2.5)
In 1870, the richest country in the world was



a. the United States.

b. Spain.

c. the United Kingdom.

d. Germany.


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9. (Points: 2.5)
If an economy with constant returns to scale were to double its physical capital stock, its available natural resources, and its human capital, but leave the size of the labor force the same,



a. its output would stay the same and so would its productivity.

b. its output and productivity would increase, but less than double.

c. its output and productivity would increase by more than double.

d. None of the above is correct.


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10. (Points: 2.5)
On the basis of theory and empirical evidence economists have concluded several things concerning growth. Which of the following is not one of these conclusions?



a. A relatively simple way to increase growth rates permanently is to increase a country's saving rate.

b. Growth is generally inhibited rather than promoted by policies like protective tariffs.

c. Well-established property rights that are enforced by fair and efficient courts are important to economic growth.

d. Countries with few domestic natural resources still have opportunities for economic growth.


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11. (Points: 2.5)
Which of the following could explain an increase in the interest rate and a decrease in the equilibrium quantity of loanable funds?



a. The demand for loanable funds shifted right.

b. The demand for loanable funds shifted left.

c. The supply of loanable funds shifted right.

d. The supply of loanable funds shifted left.


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12. (Points: 2.5)
PacknCamp Corporation has a stock price of $50, has issued 2,000,000 shares of stock, has retained earnings of $4 million dollars, and a dividend yield of 4 percent. The price-earnings ratio of PacknCamp is



a. 25, which is high compared to historical standards of the market.

b. 25, which is low compared to historical standards of the market.

c. 12.5, which is low compared to historical standards of the market.

d. 12.5, which is high compared to historical standards of the market.


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13. (Points: 2.5)
In the Coen Brothers’ movie The Hudsucker Proxy the board of directors picks someone to run the company that they believe will make poor decisions. If things turn out as they plan



a. The price of a share of stock in the Hudsucker corporation should decline as the demand for shares falls.

b. The price of a share of stock in the Hudsucker corporation should rise as the demand for shares rises.

c. The price of a share of stock in the Hudsucker corporation should decline as the supply of existing shares falls.

d. The price of a share of stock in the Hudsucker corporation should rise as the supply of existing shares rises.


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14. (Points: 2.5)
Which of the following is correct?



a. Some bonds have terms as short as a few months.

b. Because they are so risky, junk bonds pay a low rate of interest.

c. Corporations buy bonds to raise funds.

d. All of the above are correct.


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15. (Points: 2.5)
If the tax revenue of the federal government exceeds spending, then the government necessarily



a. runs a budget deficit.

b. runs a budget surplus.

c. runs a national debt.

d. will increase taxes.


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16. (Points: 2.5)
In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies like John Deere that manufacture farm equipment?



a. raise the demand for existing shares of the stock, causing the price to rise

b. decrease the demand for existing shares of the stock, causing the price to fall

c. raise the supply of the existing shares of stock, causing the price to rise

d. raise the supply of the existing shares of stock, causing the price to fall


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17. (Points: 2.5)
Index funds



a. buy all the stocks in a given stock index.

b. promise to beat the market by a certain percentage known as an index.

c. provide a return that is adjusted for changes in the consumer price index.

d. buy industries within a particular category of the North American Industry Classification System.


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18. (Points: 2.5)
Suppose a country has a consumption tax that is similar to a state sales tax. If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings, what happens?



a. There is no change in the interest rate or saving.

b. The interest rate decreases and saving increases.

c. The interest rate increases and saving decreases.

d. None of the above is correct.


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19. (Points: 2.5)
Queen City Sausage stock is selling at $40 per share, it has retained earnings of $2.00 per share and dividends of $.50 per share. What is the price-earnings ratio and what is the dividend yield?



a. 20, 1.25 percent

b. 20, 6.25 percent

c. 16, 1.25 percent

d. None of the above is correct.


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20. (Points: 2.5)
Which of the following is not correct?



a. If you buy a bond from a corporation, you can sell the bond to someone else before it matures.

b. Date to maturity refers to the scheduling of periodic interest rate payments on a bond.

c. A bond is an IOU.

d. There are millions of different bonds in the U.S. economy.


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21. (Points: 2.5)
The last $2,000 of Samantha's wealth adds less to her utility than the previous $2,000. Based on this information, Samantha has



a. increasing marginal utility of wealth and is risk averse

b. increasing marginal utility of wealth and is not risk averse

c. decreasing marginal utility of wealth and is risk averse

d. decreasing marginal utility of wealth and is not risk averse


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22. (Points: 2.5)
Anna deposited $10,000 into an account three years ago. The first year she earned 12 percent interest, the second year she earned 8 percent interest, and the third year she earned 4 percent interest. How much money does she have in her account today?



a. $12,579.84

b. $12,596.80

c. $12,597.12

d. None of the above are correct to the nearest penny.


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23. (Points: 2.5)
If a person is risk averse, then she has



a. diminishing marginal utility of wealth, implying that her utility function gets flatter as wealth increases.

b. diminishing marginal utility of wealth, implying that her utility function gets steeper as wealth increases.

c. increasing marginal utility of wealth, implying that her utility function gets flatter as wealth increases.

d. increasing marginal utility of wealth, implying that her utility function gets steeper as wealth increases.


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24. (Points: 2.5)
What is the future value of $800 one year from today if the interest rate is 7 percent?



a. $747.66

b. $756.00

c. $856.00

d. None of the above are correct to the nearest penny.


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25. (Points: 2.5)
According to the efficient markets hypothesis, worse than expected news about a corporation will



a. have no effect on it's stock price.

b. raise the price of the stock.

c. lower the price of the stock.

d. change the price of the stock in a random direction.


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26. (Points: 2.5)
Felix deposited $500 into an account two years ago. The first year he earned 3 percent interest and the second year he earned 5 percent interest. How much money does Felix have in his account now?



a. $540.75

b. $540.80

c. $540.85

d. None of the above are correct to the nearest penny.


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27. (Points: 2.5)
Your financial advisor tells you that if you earn the historical rate of return on a certain mutual fund, then in three years your $20,000 will grow to $23,152.50. What rate of interest does your financial advisor expect you to earn?



a. 5 percent

b. 6 percent

c. 7 percent

d. 8 percent


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28. (Points: 2.5)
A measure of the volatility of a variable is its



a. present value.

b. future value.

c. return.

d. standard deviation.


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29. (Points: 2.5)
Which of the following is a source of market risk?



a. Holding stocks in many companies carries the risk of a reduced average return.

b. Real GDP varies over time and sales and profits move with real GDP.

c. When a paper producer has declining sales, it is likely that so will other paper producers.

d. If stockholders become aggravated with the way a CEO runs a company, the price of that company’s stock might fall in the stock market..


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30. (Points: 2.5)
Jamie deposited $1,000 into an account three years ago. The first two years she earned 5 percent interest, the third she earned 6 percent. How much money does she have in her account today?



a. $1,157.90

b. $1,168.65

c. $1,176.00

d. None of the above are correct to the nearest penny.


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31. (Points: 2.5)
Labor Stats
The Labor Market
This table shows the 2003 data for males and females ages 16 and over in the imaginary country of Meditor.

1. Not in labor force
a. male: 45 million
b. female: 35 million
2. Unemployed
a. male: 5 million
b. female: 5 million
3. Employed
a. male: 85 million
b. female: 65 million



Refer to Labor Stats. What is the adult labor force in Meditor?



a. 90 million

b. 150 million

c. 160 million

d. 240 million


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32. (Points: 2.5)
Marginally attached workers are people who



a. are looking for a better job than they currently have.

b. are not working and are not looking for work, but would work if asked.

c. are working part-time while they go to school or get training for a better job.

d. are only a few years from retirement.


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33. (Points: 2.5)
The theory of efficiency wages explains why



a. setting wages at the equilibrium level may increase unemployment.

b. it may be in the best interest of firms to offer wages that are above the equilibrium level.

c. the most efficient way to pay workers is to pay them according to their skills.

d. it is efficient for firms to set wages at the equilibrium level.


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34. (Points: 2.5)
People who are unemployed because of job search are best classified as



a. cyclically unemployed.

b. structurally unemployed.

c. frictionally unemployed.

d. discouraged workers.


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35. (Points: 2.5)
Job search



a. explains why firms pay less than the competitive equilibrium wage.

b. is due simply to the failure of wages to balance labor supply and labor demand.

c. is the process of matching workers with appropriate jobs.

d. All of the above are correct.


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36. (Points: 2.5)
Which of the following causes of unemployment is associated with a wage rate above the market equilibrium level?



a. minimum-wage laws

b. unions

c. efficiency wages

d. All of the above are correct.


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37. (Points: 2.5)
The labor force equals the



a. number of people who are employed.

b. number of people who are unemployed.

c. number of people employed plus the number of people unemployed.

d. adult population.


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38. (Points: 2.5)
Jack is a full-time unpaid homemaker not currently searching for other work. Jill is a full-time student who is not looking for a job. Who does the BLS count in the labor force?



a. only Jack

b. only Jill

c. both Jack and Jill

d. neither Jack nor Jill


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39. (Points: 2.5)
If an unemployed person quits looking for work, ceteris paribus, the unemployment rate



a. decreases, and the participation rate increases.

b. decreases, and the participation rate decreases.

c. stays the same, and the participation rate decreases.

d. and the labor-force participation rate stay the same.


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40. (Points: 2.5)
Labor Stats
The Labor Market
This table shows the 2003 data for males and females ages 16 and over in the imaginary country of Meditor.

1. Not in labor force
a. male: 45 million
b. female: 35 million
2. Unemployed
a. male: 5 million
b. female: 5 million
3. Employed
a. male: 85 million
b. female: 65 million



Refer to Labor Stats. What is the adult female labor-force participation rate in Meditor?



a. 4.76%

b. 38.10%

c. 66.67%

d. 80.95%


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