Econ 102 Practice Exam

Imports

Purchases of foreign-produced goods and services are:

b) convergence in real GDP per person between poorer countries and richer countries.

Rapid growth in poorer countries leads to: a) higher dependency ratios. b) convergence in real GDP per person between poorer countries and richer countries. c) inadequate enforcement of property rights. d) divergence in real GDP per person between poorer countries and richer countries.

real GDP divided by the population.

Real per capita GDP is:

d) fall, due to a rise in supply.

As a result of technological innovation, automated water pumps are being installed on the farms of Kenyan tomato farmers. As a result of the increased use of automated water pumps, the equilibrium price of tomatoes will: a) fall, due to a fall in demand. b) rise, due to a fall in supply. c) rise, due to a rise in demand. d) fall, due to a rise in supply.

51 gallons

As part of a market research project, you survey six random people to see how much gas per week they would buy at various prices. The data you collect is in the accompanying table. What is the total demand for gasoline at $2.50 per gallon in your survey?

b) above-equilibrium wages designed to encourage better performance.

Efficiency wages are: a) the source of structural unemployment. b) above-equilibrium wages designed to encourage better performance. c) below-equilibrium wages designed to encourage better performance among workers seeking higher pay. d) above-equilibrium wages designed to encourage better performance and the source of structural unemployment.

10

Janelle loves sashimi. Her first piece of sashimi normally gives her a marginal benefit of $5. Each additional piece yields a marginal benefit that declines by $0.25 per piece. If her favorite sushi bar charges $2.75 per piece of sashimi, how many pieces should she eat?

d) investment spending

The construction of new housing is considered part of: a) private saving b) government purchases of goods and services c) consumption d) investment spending

d) benefits are greater than the costs

The cost-benefit principle states that a decision should be pursued only if the ____ a) costs are greater than the benefits b) benefits are positive c) costs are negative d) benefits are greater than the costs

b) job skills

An example of human capital is a person's: a) stocks and bonds b) job skills c) money d) capital goods or machines

Diminishing marginal product

A bakery hires a baker who can make 15 cakes per day. The bakery then decides to hire a second baker who will use the kitchen at the same time as the first baker. The bakery finds that the second baker can produce only an additional nine cakes per day. What concept does this scenario illustrate?

c) a decrease in wealth.

A downward shift of the consumption function can be caused by: a) expectations of higher permanent income. b) a decrease in income. c) a decrease in wealth. d) an increase in income.

d) 7%; 2%

A fixed nominal interest rate of _____ with _____ inflation will yield the highest real rate of return for a lender. a) 9%; 5% b) 10%; 7% c) 19%; 15% d) 7%; 2%

b) Both the equilibrium price and the equilibrium quantity will rise.

A growing number of utility companies are using drones for site inspections. What is the effect of these changes on the equilibrium price and quantity, in the market for drones? a) The equilibrium price falls, and the equilibrium quantity rises. b) Both the equilibrium price and the equilibrium quantity will rise. c) The equilibrium price rises and the equilibrium quantity falls. d) The equilibrium price rises and the change in equilibrium quantity is ambiguous.

a) multiply the individual supply of one of the suppliers by ten.

A market consists of ten similar suppliers that are making the same supply decisions. To find the market supply of these ten suppliers, you: a) multiply the individual supply of one of the suppliers by ten. b) take the individual supply of one supplier. c) find the average quantity produced by the ten suppliers. d) take one-tenth of the individual supply of each supplier and add it up.

costs and benefits

A trade-off involves weighing: a) social costs b) external costs c) costs and benefits d) private costs

a) $12

A university student faces the difficult decision of how to spend one hour tonight. She could babysit her professor's child at an hourly wage of $10; she could work at the college library at a wage of $12; or she could finish her economics homework assignment. If she chooses to complete her homework assignment, she has incurred an opportunity cost equal to: a) $12 b) $18 c) $0 d) $6

c) unemployed while looking for a job that suits his or her skills.

A worker classified as frictionally unemployed is one who is: a) discouraged from seeking employment and so has dropped out of the labor force. b) laid off during a recession. c) unemployed while looking for a job that suits his or her skills. d) working part time but would prefer to work full time.

d) property rights.

Among the factors that are important for modern economic growth are: a) natural resources. b) convergence. c) growth accounting. d) property rights.

$107,200

An automobile manufacturer installs a conveyor belt system for $670,000. The depreciation rate is 10% at the end of next year. The real interest rate is 6%. What is the user cost of the conveyor belt system for one year?

b) unemployment.

An example of a lagging indicator is: a) consumer confidence. b) unemployment. c) business confidence. d) the stock market.

b) the stock market.

An example of a leading indicator is: a) unemployment insurance claims. b) the stock market. c) unemployment. d) nonfarm payrolls.

B to C

An improvement in technology, with everything else remaining unchanged, is shown in the diagram as a movement from:

total quantity of capital at a point in time

Capital stock in an economy

b) the quantity demanded will be higher.

Cedar point amusement park reduces its entry fees. As a result of this price fall, a) the quantity demanded will be smaller. b) the quantity demanded will be higher. c) the demand will rise. d) the demand will decrease.

20 million gallons per week

Consider the data in the table. The price of gasoline is $3.99 per gallon at the gas station. If Rexhall Fuel Supplies is a rational seller, how many gallons of gasoline should this seller be willing to sell?

due to temporary downturn in the economy

Cyclical Unemployment

d) The distribution of income has become more unequal in the country

Data from the World Bank for the top and bottom quintiles of the distribution of income in Costa Rica for two years are presented in Table: Costa Rica Income Distribution, Top and Bottom Quintiles. Which of the following statements is correct for the time period based on the data in the table?

is a decreasing aggregate price level

Deflation

a) decline in capital due to wear and tear, obsolescence, accidental damage, and aging.

Depreciation refers to the: a) decline in capital due to wear and tear, obsolescence, accidental damage, and aging. b) fall in the price of output that the business produces. c) spending by a business on new capital assets. d) decline in the quality of output produced by a business.

d) rising marginal costs for a seller.

Diminishing marginal product leads to... a) lower opportunity costs of producing the item. b) decreased profitability for a seller. c) increased supply of the item in the market. d) rising marginal costs for a seller.

a) Lower interest rates lower the cost of borrowing for firms, and so investment rises.

How do interest rates affect investment in the economy? a) Lower interest rates lower the cost of borrowing for firms, and so investment rises. b) Higher interest rates increase government expenditure and thus raise investment. c) Lower interest rates lower the after-tax profit for firms, and thus investment falls. d) Higher interest rates lower the cost of borrowing for firms, and so firms save more in banks.

b) The marginal benefit of an extra dollar of income falls as income rises.

How does the law of diminishing marginal utility relate to changing income? a) The total utility gained from a high income is lower than the total utility gained from a low income. b) The marginal benefit of an extra dollar of income falls as income rises. c) The total utility gained from a small income is higher than the total utility gained from a high income. d) The marginal benefit of an extra dollar of income rises as income rises

18.75%

How much of the increase in nominal GDP between 2018 and 2019 was due to inflation?

140

If a country has a working-age population of 200 million, 135 million people with jobs, 10 million people who are unemployed and have given up looking for a job, and 5 million people who are unemployed and seeking employment, then its labor force is _____ million.

demand will decrease price will fall

If an aircraft is found to have software problems that could lead to a malfunction. How will the effect on the aircraft demand and price market?

at its highest sustainability rate of production

If an economy has an output gap of 0%, this means the economy is:

c) supply will shift left.

If expected future profits in an industry fall... a) supply will shift right. b) the number of sellers in the market does not change. c) supply will shift left. d) supply is not affected.

rises by $100 billion right

If government expenditure rises by $40 billion and the multiplier in the economy is 2.5, then real GDP_(falls/rises by)__, and the IS curve shifts to the__(left/right)__

rightward movement

If income increases how will the consumption function change

5.41%

If potential GDP is $19.04 trillion and actual GDP is $20.07 trillion, the output gap is:

$22,204

If the interest rate is 4%, what is the approximate future value of $15,000 in 10 years?

10%

If the labor force totals 100 million workers, and 90 million are working, then the unemployment rate is _____.

8.3%

If the price level at the end of year 1 is 110, and the price level at the end of year 2 is 120, the inflation rate in year 2 is _____.

3.5%

If the risk-free rate is 1.5% and the risk premium is 2%, the MP curve is at:

large increase; no change

If there is news of a future rise in income, a consumption smoother will exhibit _____ in consumption, and a hand-to-mouth consumer will exhibit _____ in consumption. (no change, small increase, or large increase)

c) rising population growth would cause productivity per capita to fall.

In 1798, the English economist Thomas Malthus predicted that: a) the recently independent United States would rejoin the British empire out of economic necessity. b) countries with a large supply of natural resources would enjoy economic growth. c) rising population growth would cause productivity per capita to fall. d) the French Revolution would improve the economies of most European countries.

Net exports decreases, leading to a left shift of the IS curve

In June 2019, India imposed a tariff on almonds from the United States. How does this affect the IS curve in the U.S.?

$70

In a simple, closed economy (no government or foreign sector), if income increases by $100, and $30 is saved, _____ will go to consumption.

b) real GDP per capita is rising

In an economy whose aggregate real output is growing faster than the total population: a) nominal GDP per capita is decreasing. b) real GDP per capita is rising. c) living standards are declining. d) national income is falling.

b) borrowers benefit, since they repay their loans in dollars whose real value has declined.

In periods of unexpected inflation: a) neither borrowers nor lenders are affected, since nominal interest rates stay the same. b) borrowers benefit, since they repay their loans in dollars whose real value has declined. c) lenders benefit, since nominal interest rates do not change. d) lenders benefit, since they are repaid in dollars whose real value has risen.

c) increase the rate of economic growth.

In the long run, an increase in saving will generally: a) reduce the rate of economic growth. b) increase consumption simultaneously. c) increase the rate of economic growth. d) leave the rate of economic growth unchanged.

Bangladesh

Income Distribution in Four Countries provides recent data from the World Bank on the distribution of income in four countries. Based on the data, the country with the distribution of income that is closest to equal is:

d) rising aggregate price level.

Inflation is a(n) a) rise in wages. b) expansion of output. c) rise in the unemployment rate. d) rising aggregate price level.

spending on physical capital

Investment

d) $12

It is a beautiful afternoon, and you are considering taking a leisurely stroll through the park. Your alternatives to walking are streaming a movie that you value at $5, taking a nap that you value at $7, or reading a new book that you value at $12. What is the opportunity cost to you of taking the stroll through the park? a) $5 b) $7 c) $0 d) $12

30.0%

Junko is a single mother who earns $17,000 per year. She receives $3,000 per year in in-kind transfers and a $1,000 earned income tax credit. If her earned income rises to $22,000, she will lose the tax credit and $500 of her in-kind transfer benefits. What is Junko's effective marginal tax?

demand for; fallen

Last month, Brayton lost his job at the local auto parts factory when the factory relocated. Brayton and his former coworkers have been looking for similar jobs, but they have found no openings. In Brayton's town, the __(supply of or demand for)___ labor has __(risen or fallen)___.

b) $1.50; $1.00

Maria's Pizza offers one slice for $2, two slices for $3.50, three slices for $4.50, and four slices for $5.00. Gil orders two slices. From this information, we know that the marginal benefit to Gil of a second slice is at least _____, and the marginal benefit to Gil of a third slice is less than _____. a) $1.50; $4.50 b) $1.50; $1.00 c) $3.50; $1.00 d) $3.50; $4.50

d) His dissaving is $300

Mark earns $3,800 in the current period. His consumption in this same period is $4,100. Which of the following is true? a) His income is $7,900. b) He has borrowed $3,800. c) He saves $300. d) His dissaving is $300

expenditure on capital goods by businesses

Planned Investment

extra interest charged by lenders to account for risk

Risk Premium

d) are incurred in the past and cannot be reversed

Sunk costs are costs that... a) should be considered in any decision b) are potential costs associated with a particular decision c) are part of the opportunity costs of a decision d) are incurred in the past and cannot be reversed

Figure A

Suppose falling interest rates in Australia discourage saving. What effect does this have on the consumption function in Australia?

rise above the equilibrium unemployment rate?

Suppose that an economy is in a recession. You would expect to see the unemployment rate?

d) observe higher prices for smartphones this year.

Suppose that the price of rare earth metals is increasing (this is one of the main components of most smartphones). As a consequence, people expect the price of smartphones to rise next year. Therefore, people will MOST likely: a) purchase fewer smartphones this year. b) purchase the same amount of smartphones, since this expectation will have no effect on consumers this year. c) decide to wait and purchase the smartphones next year. d) observe higher prices for smartphones this year.

c) a positive output gap.

Suppose that with a real interest rate of 3%, no output gap exists in the economy. If the real interest rate is below 3%, the economic forecast predicts: a) decreased sales forecasts. b) deflation in the economy. c) a positive output gap. d) a recessionary output gap.

c) at prices above the equilibrium price.

Surpluses always occur... a) at the equilibrium price. b) when the quantity demanded exceeds the quantity supplied. c) at prices above the equilibrium price. d) at prices below the equilibrium price.

b) the size of the economy

The MOST important use of GDP is as a measure of: a) rates of return in financial markets. b) the size of the economy. c) the level of unemployment. d) changes in the price level.

b) real; can be zero, positive, or negative

The _ interest rate ___. a) nominal; can only be positive b) real; can be zero, positive, or negative c) real; can only be positive d) real; cannot be negative

movement from point A to point B

What shows the correct effect on the IS curve of a decrease in the real interest rate? movement from point ... to point ...

1.9%

What was the approximate output gap in 1999?

d) percentage change in the price level from one year to the next

The inflation rate is the: a) price level in the current year minus the price level in the previous year b) price level in the current year plus the price level in the previous year c) price level in the current year multiplied by the price level in the previous year d) percentage change in the price level from one year to the next

macroeconomic equilibrium

The intersection of the IS curve and the MP curve determine:

b) the inverse relationship between price and quantity demanded

The law of demand refers to a) the positive relationship between price and quantity demanded b) the inverse relationship between price and quantity demanded c) the inverse relationship between price and quantity supplied d) the positive relationship between price and quantity supplied.

the positive relationship between price and quantity supplied

The law of supply refers to...

a) median household income

The level of household income at which half of the households in the population earn more and half of the households in the population earn less is the: a) median household income b) mean household income. c) poverty level. d) Gini coefficient.

povery line

The minimum annual income, of which a family that earns a lower amount is considered in poverty, is the:

a, b, c

The news of an impending recession in the economy will lead to a: a) fall in consumption b) rise in precautionary saving c) rise in national saving d) rise in consumption.

d) marginal benefit of consuming a dollar-plus-interest in the future.

The opportunity cost of an extra dollar of consumption today is the: a) same as the marginal benefit of consuming the dollar in the future. b) average benefit from consumption today and in the future. c) marginal benefit of consumption today. d) marginal benefit of consuming a dollar-plus-interest in the future.

b) scarcity

The study of economics arises because of the necessity of choice, and the necessity of choice arises because of the fundamental problem of: a) equilibrium b) scarcity c) inefficiency d) inequity

125 cans

The table shows the monthly individual demand schedules of four students for soda. What is the total monthly market demand for soda at $2 per can?

b) makes people reluctant to lend money for long periods.

The threat of future inflation: a) increases the value of money paid back in the future. b) makes people reluctant to lend money for long periods. c) has no effect on people's willingness to lend money. d) makes people eager to lend money for long periods.

6

The year in which the increase in nominal GDP is exclusively due to the increase in the price level rather than physical output is year:

Shortage in the candy market

There are empty candy shelves at Walmart on the day before Halloween. What explains this event?

rises by 152,000

There are four suppliers in the packed meals market. The quantity of packed meals that each one is willing to supply per week at various prices is provided in the accompanying table. What is the change in the market supply for packed meals when the price rises from $6.25 per meal to $6.50 per meal?

a) are a redistribution of funds from one individual to another individual.

Transfer payments: a) are a redistribution of funds from one individual to another individual. b) are counted in GDP. c) is another term for government taxation. d) are a means by which the government raises funds.

have short and sharp recessions, followed by long and gradual expansions

Typically, business cycles:

a) not fully using their skills

Underemployed people are counted as employed, even though they are _____. a) not fully using their skills b) not working c) in the military d) collecting unemployment benefits

(Number of people not working but seeking work / Labor force) x 100

Unemployment Rate Equation

c) frictional

Unemployment due to the time workers spend in job search is _____ unemployment. a) cyclical b) natural c) frictional d) structural

African American teenagers

Unemployment rates are usually highest for:

b) The arrival of the new E-Class would lead to a decrease in demand for last year's model and their prices would fall.

What affect will the release of the new Mercedes E-Class sedan have on last year's models that are still on the dealers' lots? Use supply and demand concepts to do your analysis. a) The arrival of the new E-Class would lead to an increase in demand for last year's model, and their prices would rise. b) The arrival of the new E-Class would lead to a decrease in demand for last year's model and their prices would fall. c) The arrival of the new E-Class would cause the demand for the older model to fall to almost zero. d) The arrival of the new E-Class would lead to an increased supply of last year's model, and their prices would fall.

real interest rates rise

What change happened?

Change in the cost of living

What does the annual adjust to the poverty line reflect?

economy's deviations from potential GDP

What does the output gap show?

appreciates

What happened to the US dollar

stock market fell sharply and continues to perform poorly due to the financial crisis

What happened to the stock market in this graph?

real GDP

What is the broadest measure of economic activity?

saving: money left over after paying for spending investment: purchase of new capital

What is the difference between saving and investment?

$327.2 billion

What is the level of aggregate expenditure in the economy?

0.53

What is the marginal propensity to consume?

lower interest rates boost aggregate expenditure

What is the relationship between lower interest rates and aggregate expenditure?

A rise in the price of a product that is a complement-in-production

What market changes would lead to a shift of the supply curve from Old supply to New supply?

benefit; be hurt

When inflation rises unexpectedly, borrowers will _(benefit or be hurt)_, and lenders will __(benefit or be hurt)_.

potential GDP meets actual GDP

When is the output gap zero?

Nonfarm Payrolls

Which indicator directly tells you how the labor market is doing?

d) the dollar value of a repair job done by your cousin on her own car

Which item would NOT be included in GDP? a) the value of new cars not sold in the current year b) new car sales by a local dealer c) the dollar value of a lawyer's service d) the dollar value of a repair job done by your cousin on her own car

Figure B

Which of the figures correctly represents the shape of the IS curve?

b) Spending shocks occur.

Which of the following causes shifts in the IS curve? a) Financial shocks occur. b) Spending shocks occur. c) The real interest rate increases. d) The real interest rate decreases.

a) It is the fluctuations of GDP around the potential output.

Which of the following correctly describes the business cycle? a) It is the fluctuations of GDP around the potential output. b) It is the constant rise in GDP over time. c) It refers to excess unemployment during recessionary periods. d) It refers to ups and downs in business revenue during expansions and recessions.

b) Unemployment

Which of the following indicators will probably rise when the economy is in a recession? a) Real retail sales b) Unemployment c) Real GDP growth d) Industrial production

b) The market price of a product.

Which of the following is NOT a factor that can shift supply? a) The expected future price of a product. b) The market price of a product. c) The price of a complement-in-production. d) The price of a substitute-in-production.

d) Marios builds a new house.

Which of the following is an investment? a) Cameron saves $400 in his savings account. b) Dale purchases a house that was built in 1940. c) Mary buys $4,000 worth of Alibaba stock. d) Marios builds a new house.

d) equal incomes

Which of the following is consistent with the view that "fairness" means equality of outcomes? a) nondiscrimination in hiring processes b) equal productivity that yields equal pay c) equal access to education d) equal incomes

c) The price of the product.

Which of the following is not a demand shifter? a)The price of a complementary good. b) The price of a substitute good. c) The price of the product. d) The number of buyers in the market.

a) Damien chooses to buy a sandwich for $5 when the marginal benefit of the sandwich to him is $7.

Which of the following scenarios depicts a rational buyer? a) Damien chooses to buy a sandwich for $5 when the marginal benefit of the sandwich to him is $7. b) John walks into a grocery store and purchases monthly groceries without paying attention to the prices of groceries. c) Darwin buys a can of shoe polish at $4.50 when his marginal benefit from it is $3.75. d) Mary values a bag of salad at $2, but she buys the bag of salad even when the price is $4.

b) Main Street Bakery calculates the marginal cost of a multilayer red velvet cake sd $9 and sells it for $8.

Which of the following scenarios does NOT depict a rational seller? a) United Airlines determines the marginal cost of an extra passenger to be $55 and sells a discount seat for $150. b) Main Street Bakery calculates the marginal cost of a multilayer red velvet cake sd $9 and sells it for $8. c) The Flowery Bower calculates the marginal cost of a bouquet of red roses as $10 and sells it at $45. d) An auto-rickshaw driver in New Delhi, India, calculates a trip to have a marginal cost of 350 rupees and accepts a ride request for 500 rupees.

b) Kathleen eats more steak when the price is low, and less when the price is high.

Which of the following scenarios illustrates the law of demand? a) Francis does not care about the price of coffee at the coffee shop - he must buy two cappuccinos every day, regardless of the price. b) Kathleen eats more steak when the price is low, and less when the price is high. c) John likes to drink spring water. At $2 he buys four bottles of water, and at $1.50 he still buys four bottles of water. d) A research company finds that the more expensive a particular brand of a designer handbag, the more that consumers are willing to purchase the brand.

a 25%

Which of the following tax systems is progressive? Corinne pays a 10% tax on the first $10,000 she earns plus _____ tax on any additional income.

c) Real GDP growth

Which of the following will rise when the economy is expanding? a) Unemployment b) Equilibrium unemployment rate c) Real GDP growth d) Initial unemployment claim

d) The true cost of a choice is what you must give up when choosing between alternatives.

Which statement is TRUE, according to standard economic theory? a) People typically do not make choices that will make them better off. b)Resources are scarce when they can satisfy everyone's wants. c) Rational people use trade-off analysis when making "how much" decisions. d) The true cost of a choice is what you must give up when choosing between alternatives.

it is the sum of frictional and structural rates

Why can't the equilibrium unemployment rate not be 0

d) go; greater

You are considering whether you should go out to dinner at a restaurant with your friend. The meal is expected to cost you $50, you typically leave a 20% tip, and a round-trip Uber ride will cost you $15. You value the restaurant meal at $30 and the time spent with your friend at $50. You should ____ to dinner with your friend because the benefit of doing so is _____ than the cost. a) go; less b) not go; less c) not go; greater d) go; greater

b) fall in the quantity demanded of vanilla lattes.

You go to Starbucks and see that the price of your favorite tall vanilla latte has gone up by 25 cents. All sizes of the vanilla lattes are now more expensive. As a result of this price increase, you would expect to see a... a) rise in the demand for vanilla lattes. b) fall in the quantity demanded of vanilla lattes. c) fall in the demand for vanilla lattes. d) rise in the quantity demanded of vanilla lattes.

0.5%

You open an investment account that earns a nominal interest rate of 4.2% a year. The current consumer price index is 108. In one year, the consumer price index is expected to go to 112. What is your expected real rate of return?

a) consumption

You spend $45 on a haircut, $30 on a couple of T-shirts, and $17 on lunch at a restaurant. In which component of aggregate expenditure are these expenditures included? a) consumption b) planned investment c) exports d) government expenditure

d) No, the client should not invest because the project yields a $100,000 loss.

You've graduated from college and are now working in an investment firm where you advise clients on investment decisions. -Up-front cost: $350,000 -Next year's revenue: $45,000 -Real interest rate: 8% -Depreciation rate: 10% How much profit does the project yield, and should your client invest in this project? a) No, the client should not invest because the project yields a $305,000 loss. b) Yes, the client should invest because the project yields a $100,000 profit. c) Yes, the client should invest because the project yields a $305,000 profit. d) No, the client should not invest because the project yields a $100,000 loss.

c) willingness to pay; most

_____ is estimated by asking: "What is the _____ I am willing to pay to get this benefit (or avoid that cost)?" a) opportunity costs; most b) opportunity costs; least c) willingness to pay; most d) willingness to pay; least