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ECON 312 Final Exam

ECON 312 Final Exam

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(TCO 1) Opportunity cost is best defined as (Points : 4)

marginal cost minus marginal benefit

the time spent on an economic activity

the value of the best forgone alternative

the money cost of an economic decision

(TCO1) Which is not a factor of production? (Points : 4)

Money

Land

Labor

Capital

(TCO1) A point inside the production possibilities curve is (Points : 4)

Attainable and the economy is efficient

Attainable, but the economy is inefficient

Unattainable, but the economy is inefficient

Unattainable and the economy is efficient

(TCO1) A basic characteristic of a command system is that (Points : 4)

Wages paid to labor are higher

Government owns most economic resources

Free markets are never permitted in a command economy

Government planners play a limited role in deciding what goods will be produced

(TCO 2) Which is consistent with the law of demand? (Points : 4)

A decrease in the price of tacos causes no change in the quantity of tacos demanded

An increase in the price of pizza causes an increase in the quantity of pizza demanded

An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded

A decrease in the price of turkey sandwiches causes a decrease in the quantity of turkey sandwiches demanded

(TCO 2) What combination of changes would most likely decrease the equilibrium price? (Points : 4)

When supply decreases and demand increases

When demand increases and supply increases

When demand decreases and supply decreases

When supply increases and demand decreases

(TCO 2) Chuck Grim has a price elasticity of demand for beer of 1.2.  Suppose that the price of beer is increased by 10 percent.  What will happen to the total amount Chuck spends on beer? (Points : 4)

It will not change

It will decrease

It will increase

It is impossible to tell

(TCO 2) Which of the following factors will make the demand for a product relatively elastic? (Points : 4)

There are few substitutes

The time interval considered is long

The good is considered a necessity

Purchases of the good require a small portion of consumers’ budgets

(TCO 2) A purely competitive firm’s output is such that its marginal cost is $4 and marginal revenue is $5. Hint: remember that MR = P for Pure Competition and the Profit Maximizing rule. Assuming profit maximization, the firm should (Points : 4)

Cut its price and raise its output

Raise its price and cut output

Leave price unchanged and raise output

Leave price unchanged and cut output

(TCO 2) Which case below best represents a case of price discrimination? (Points : 4)

An insurance company offers discounts to safe drivers

A major airline sells tickets to senior citizens at lower prices than to other passengers

A professional baseball team pays two players with identical batting averages different salaries.

A utility company charges less for electricity used during “off-peak” hours, when it does not have to operate its less-efficient generating plants.

(TCO 3) In the kinked demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to (Points : 4)

Decrease their prices

Increase their prices

Not change their prices

Reduce their quantity

(TCO 3) The main difference between the short run and the long run is that (Points : 4)

Firms earn zero profits in the long run

The long run always refers to a time period of one year or longer

In the short run, some inputs are fixed

In the long run, all inputs are fixed

(TCO 4) A recession is a decline in (Points : 4)

The inflation rate that lasts six months or longer

The unemployment rate that lasts six months or longer

Real GDP that lasts six months or longer

Potential GDP that lasts six months or longer

(TCO 4) In calculating the unemployment rate, part-time workers are (Points : 4)

Counted as unemployed because they are not working full-time

Counted as employed because they are receiving payment for work

Used to determine the size of the labor force, but not the unemployment rate

Treated the same as “discouraged” workers who are not actively seeking employment

(TCO 4) Adding the market value of all intermediate goods and services to those of final goods and services in an economy in a given year would result in (Points : 4)

The calculation of GDP for that year

The calculation of NDP for that year

An amount less than GDP for that year

An amount greater than GDP for that year

(TCO 4) Nominal GDP differs from real GDP because (Points : 4)

Nominal GDP is based on constant prices

Real GDP is based on current prices

Real GDP is adjusted for changes in the price level

Nominal GDP is adjusted for changes in the price level

(TCO 6) When the federal government uses taxation and spending actions to stimulate the economy it is conducting (Points : 4)

Fiscal policy

Incomes policy

Monetary policy

Employment policy

(TCO 6) Refer to the graph.  What combination would most likely cause a shift from AD1 to AD2?

(Points : 4)

Increases in taxes and government spending

Decrease in taxes and increase in government spending

Increase in taxes and no change in government spending

Decreases in taxes and government spending

(TCO 6) The American Recovery and Reinvestment Act of 2009 included mostly (Points : 4)

Increases in taxes and government spending

Decreases in taxes and government spending

Increases in government spending and decreases in taxes

Decreases in government spending and increases in taxes

(TCO 6) The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the (Points : 4)

Crowding-out lag

Recognition lag

Operational lag

Administrative lag

ECON 312 Final Exam

(TCO 5) An increase in expected future income will (Points : 4)

Increase aggregate demand and aggregate supply

Decrease aggregate demand and aggregate supply

Increase aggregate supply

Increase aggregate demand

(TCO 5) The long-run aggregate supply curve is (Points : 4)

Upward-sloping and becomes steeper at output levels above the full-employment output

Upward-sloping and becomes flatter at output levels above the full-employment output

Horizontal

Vertical

(TCO 5) If the price of crude oil decreases, then this event would most likely (Points : 4)

Decrease aggregate supply in the U.S.

Increase aggregate supply in the U.S.

Increase aggregate demand in the U.S.

Decrease aggregate demand in the U.S.

(TCO 5) Deflation refers to a situation where (Points : 4)

Price level falls

Price level rises

The rate of inflation falls

The rate of inflation rises

(TCO 6) If a family’s MPC is .7, it means that the family is (Points : 4)

Operating at the break-even point

Spending seven-tenths of any additional income

Necessarily dissaving

Spending 70 percent of its disposable income

(TCO 7) As of January 2010, slightly more than half of the money supply (M1) was in the form of (Points : 4)

Currency

Checkable deposits

Gold coins and bars

Savings deposits

(TCO 7) Which of the following “backs” the value of money in the United States? (Points : 4)

Gold stored in the Federal Reserve Bank of New York

Acceptability of it as a medium of exchange

Willingness of foreign government to hold U.S. dollars

Size of the budget surplus in the U.S. government

(TCO 7) How many members can serve on the Board of Governors of the Federal Reserve System? (Points : 4)

Seven

Nine

12

14

(TCO 7) Which of the following is the most important function of the Federal Reserve System? (Points : 4)

Setting reserve requirements

Controlling the money supply

Lending money to banks and thrifts

Acting as fiscal agent for the U.S. government

(TCO 7) The Federal funds rate is the rate that banks pay for loans from (Points : 4)

The Fed

The U.S. Treasury

Other banks

Large corporations

(TCO 7) The difference between Fed behavior during the Bank Panics of 1930-1933 and the Financial Crisis of 2007-2008 is that the Fed (Points : 4)

Was very active during the former crisis, while it was basically passive during the latter crisis

Stood idly by during the former crisis, but took dramatic actions during the latter crisis

Was not yet in existence during the 1930s

Was a much bigger institution in the 1930s than it is today

ECON 312 Final Exam

(TCO 7) The purchase and sale of government securities by the Fed is called (Points : 4)

Federal funds market

Open market operations

Money market transactions

Term auction facility

(TCO 7) The Federal Reserve could reduce the money supply by (Points : 4)

Selling government bonds in the open market

Buying government bonds in the open market

Operating the term auction facility

Reducing the discount rate

(TCO 8) Which country is the United States’ largest trading partner in terms of volume of trade? (Points : 4)

Mexico

Japan

China

Canada

(TCO 8) The principal concept behind comparative advantage is that a nation should (Points : 4)

Maximize its volume of trade with other nations

Use tariffs and quotas to protect the production of vital products for the nation

Concentrate production on those products for which it has the lowest domestic opportunity cost

Strive to be self-sufficient in the production of essential goods and services

(TCO 8) A tariff is a (Points : 4)

Tax

Price ceiling

Quantity limit

Subsidy

(TCO 8) A key difference between import quotas and voluntary export restraints (VERs) is that the (Points : 4)

Domestic government administers the former, whereas the foreign government administers the latter

Foreign government administers the former, whereas the domestic government administers the latter

One is a tax, whereas the other is a quantity limit

One raises the price of the imported product involved, whereas the other one does not

(TCO 8) When tariffs on imported products are removed by a nation, it will result in (Points : 4)

Higher prices and lower quantities consumed

Higher prices and quantities consumed

Lower prices and quantities consumed

Lower prices and higher quantities consumed

(TCO 8) Which organization meets regularly to establish rules and settle disputes related to international trade? (Points : 4)

The United Nations Commission on Trade Law

The United Nations Conference on Trade and Development

The World Trade Organization

The Federal Reserve Board

(TCO 9) U.S. businesses are demanders of foreign currencies because they need them to (Points : 4)

Produce goods and services exported to foreign countries

Pay for goods and services imported from foreign countries

Receive interest payments from foreign governments

Receive interest payments from foreign businesses

(TCO 9) Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments as a debit in the section on (Points : 4)

Trade in services

Net international transfers

Financial accounts

Capital accounts

(TCO 9) Comparing everything that the United States owes to other nations, and what they owe to the United States, the United States is currently a(n) (Points : 4)

Net creditor

Net debtor

International banking asset

International banking liability

(TCO 9) Foreign exchange rates refer to the (Points : 4)

Price at which purchases and sales of foreign goods take place

Movement of goods and services from one nation to another

Price of one nation’s currency in terms of another nation’s currency

Difference between exports and imports in a particular nation

(TCO 9) When the exchange rate between pounds and dollars moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has (Points : 4)

depreciated

Appreciated

Inflated

Deflated

(TCO 9) Which system would be accompanied by occasional currency interventions by central banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses? (Points : 4)

Gold standard

Fixed exchange rates

Flexible exchange rates

Managed floating exchange rates

(TCO 8) a) Define the four basic types of trade barriers.  b) Who gains and who loses from a protective tariff?  Explain. (Points : 40)

A protective tariff is a tariff that is designed…

(TCO 6) a) Identify the four major tools of monetary policy. b) How can monetary policy address the problem of inflation?  (Points : 40)

Monetary policy can either be expansionary or….

ECON 312 Final Exam

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