ECO561/ ECO561 FINAL EXAM LATEST (2016)

Question

Because the Federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized. This illustrates:

a) the adverse selection problem.

b) the moral hazard problem.

c) a failure of the market for externalities.

d) the existence of positive externalities

2. In order for mutually beneficial trade to occur between two otherwise isolated nations:​

a) each nation must face constant costs in the production of the good it exports

b) one nation's production must be labor-intensive while the other nation's production is capital-intensive

c) each nation must be able to produce at least one good relatively cheaper than the other

d) each nation must be able to produce at least one good absolutely cheaper than the other

3. Countercyclical discretionary fiscal policy calls for:​

a) surpluses during recessions and deficits during periods of demand-pull inflation.

b) deficits during recessions and surpluses during periods of demand-pull inflation.

c) surpluses during both recessions and periods of demand-pull inflation.

d) deficits during both recessions and periods of demand-pull inflation.

4. The primary gain from international trade is:

a) increased employment in the domestic-export sector.

b) more goods than would be attainable through domestic production alone.

c) tariff revenue.

d) increased employment in the domestic-import sector

5. Research for industrially advanced countries indicates that:

a) there is no relationship between the degree of independence of a country's central bank and its inflation rate.

b) the more independent the central bank, the higher the average annual rate of unemployment.

c) the more independent the central bank, the lower the average annual rate of inflation

d) the more independent the central bank, the higher the average annual rate of inflation

6. Which of the following have substantially equivalent effects on a nation's volume of exports and imports

a) exchange rate appreciation and a decrease in the domestic supply of money

b) exchange rate appreciation and domestic deflation

c) exchange rate depreciation and domestic deflation

d) exchange rate depreciation and domestic inflation

7. Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that:

a) the two commoditites are substitute goods.

b) Mrs Green should spend more on pretzels and less on soda.

c) Mrs. Green should spend more on soda and less on pretzels.

d) Mrs. Green is buying soda and pretzels in the utility-maximizing amounts.

8. Two major virtues of the market system are that it

a) allocates resources efficiently and allows economic freedom.

b) results in an equitable personal distribution of income and always maintains full employment.

c) results in price level stability and a fair personal distribution of income

d) eliminates discrimination and minimizes environmental pollution.

9. A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from:

a) product differentiation.

b) the likelihood of collusion.

c) mutual interdependence in decision making.

d) high entry barriers

10. Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is:​

a) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.

b) not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million.

c) directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million.

d) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million

11) Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that:

a) their marginal and total utilities are proportionate

b) their total utilities are the same

c) their marginal utilities are the same

d) the income and substitution effects associated with each are equal

12) Which of the following will generate a demand for country X's currency in the foreign exchange market?

a)The imports of country X

b) The desire of foreigners to buy stocks and bonds of firms in country X

c) Charitable contributions by country X's citizens to citizens of developing nations

d) Travel by citizens of country X in other countries

13) As output increases, total variable cost

a)increases at a decreasing rate and then at an increasing rate

b) increases at a constant rate

c) increases more rapidly than does total cost

d) increases continuously at a decreasing rate

14) The primary gain from international trade is:

a) increased employment in the domestic import sector

b) tariff revenue

c) increased employment in the domestic export sector

d) more goods than would be attainable through domestic production alone

15) Pure monopolists may obtain economic profits in the long run because:

a) of advertising

b) of barriers to entry

c) of rising average fixed costs

d) marginal revenue is constant as sales increase

16) The two basic markets shown by the simple circular flow model are:

a)free and controlled

b)product and resource

c)household and business

d)capital goods and consumer goods

17) If the Federal Reserve System buys government securities from commercial banks and the public:

a)commercial bank reserves will decline

b)it will be easier to obtain loans at commercial banks

c)commercial bank reserves will be unaffected

d)the money supply will contract

18) If an unintended increase in business inventories occurs at some level of GDP, then GDP:

a)may be either above or below the equilibrium output

b)is too high for equilibrium

c)is too low for equilibrium

d)entails a rate of aggregate expenditures in excess of the rate of aggregate production

19) The business cycle depicts:

a)the evolution of technology over time

b)short-run fluctuations in output and employment

c)fluctuations in the general price level

d)the phases a business goes through from when it first opens to when it finally closes

20) The term "recession" describes a situation where:

a)government takes a less active role in economic matters

b)output and living standards decline

c) an economy's ability to produce is destroyed

d)inflation rates exceed normal levels

21) Which of the following have substantially equivalent effects on a nation's volume of exports and imports?

a) Exchange rate depreciation and domestic inflation

b) Exchange rate depreciation and domestic deflation

c) Exchange rate appreciation and domestic deflation

d) Exchange rate appreciation and a decrease in the domestic supply of money

22) Normal profit is:

a) determined by subtracting explicit costs from total revenue

b) determined by subtracting implicit costs from total revenue

c) the average profitability of an industry over the preceding 10 years

d)the return to the entrepreneur when economic profits are zero

23) Macroeconomics approaches the study of economics from the viewpoint of:

a)governmental units

b)the operation of specific product and resource markets

c) the entire economy

d)individual firms

24) Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is:

a) directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million.

b) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.

c) not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million.

d) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million.

25) The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that:

a) a nation's trading possibilities line lies to the right of its production possibilities line

b) a nation's production possibilities line lies to the right of its trading possibilities line

c) the production possibilities curves of any two nations are identical

d) a nation's production possibilities and trading possibilities lines coincide

26) Which of the following statements best describes the 12 Federal Reserve Banks?

a) They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

b) They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry.

c) They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury  securities.

d) They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.

27) Why are economists concerned about inflation?

a) Real GDP is necessarily falling when there is inflation

b) Inflation generally causes unemployment rates to rise

c) Inflation increases the value of peoples' saving and encourages overspending on goods and services

d) Inflation lowers the standard of living for people whose income does not increase as fast as the price level

28) In order for mutually beneficial trade to occur between two otherwise isolated nations:

a) each nation must be able to produce at least one good relatively cheaper than the other

b) each nation must face constant costs in the production of the good it exports

c) each nation must be able to produce at least one good absolutely cheaper than the other

d) one nation's production must be labor-intensive while the other nation's production is capital-intensive

29) In the theory of comparative advantage, a good should be produced in that nation where:

a) its cost is least in terms of alternative goods that might otherwise be produced

b) its absolute money cost of production is least

c) its absolute cost in terms of real resources used is least

d) the production possibilities line lies further to the right than the trading possibilities line

30) If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?

a)Nominal GDP would rise, but real GDP would be unchanged

b)Nominal and real GDP would both rise

c)Nominal and real GDP would both be unchanged

d)Real GDP would rise, but nominal GDP would be unchanged