ECON 224 Practice Final

The term economists use to describe a situation in which the economy's overall price level is rising is a. growth. b. inflation. c. recession. d. expansion

B

8. Refer to Figure 23-1. Which of the following pairs correctly identify X and Z? a. markets for factors of production and markets for goods and services b. firms and households c. GDP deflator and CPI d. flow of dollars and flow of inputs and outputs

A

Adverse selection arises because a. insurance buyers have more information than insurance sellers. b. insurance sellers have more information than insurance buyers. c. individuals can select which insurance company to patronize. d. insurance companies can exercise too much control over who they insure

A

After much consideration, you have chosen Ireland over Spain for your Study Abroad program next year. However, the deadline for your final decision is still months away and you may reverse this decision. Which of the following events would prompt you to reverse this decision? a. The marginal benefit of going to Spain increases. b. The marginal cost of going to Spain increases. c. The marginal benefit of going to Ireland increases. d. The marginal cost of going to Ireland decreases.

A

Both Dave and Caroline produce sweaters and socks. If Dave's opportunity cost of 1 sweater is 3 socks and Caroline's opportunity cost of 1 sweater is 5 socks, then a. Dave has a comparative advantage in the production of sweaters. b. Caroline has a comparative advantage in the production of sweaters. c. Dave has a comparative advantage in the production of socks. d. Dave has a comparative advantage in the production of both sweaters and socks.

A

Buddy is the owner of a firm that bottles beer in St. Louis, Missouri. There are many other such firms in the area. Buddy decides that if he pays his workers a wage higher than the going market wage, his profits will increase. Which of the following is a likely explanation for his decision? a. The higher the wage, the less often his workers will choose to leave his firm. b. The higher the wage, the lower will be the costs of obtaining needed supplies. c. The higher the wage, the more he can charge for his beer d. The higher the wage, the more he will have to monitor his workers for shirking.

A

In a simple circular-flow diagram, firms a. rent resources from households. b. purchase the output produced by households. c. receive income by selling resources to households. d. All of the above are correct.

A

In game theory, the outcome or consequence of a strategy is referred to as the a. payoff. b. penalty. c. reward. d. end-game strategy.

A

When the Fed decreases the discount rate, banks will a. borrow more from the Fed and lend more to the public. The money supply increases. b. borrow more from the Fed and lend less to the public. The money supply decreases. c. borrow less from the Fed and lend more to the public. The money supply increases. d. borrow less from the Fed and lend less to the public. The money supply decreases.

A

Which of the following is not a characteristic found in the prisoners' dilemma game? a. Players cooperate in arriving at their strategies. b. Both players have a dominant strategy. c. Both players would be better off if neither chose their dominant strategy. d. The payoff from a strategy depends on the choice made by the other player.

A

A television broadcast is an example of a good that is a. private. b. not rival in consumption. c. social. d. normal.

B

Adverse selection in competitive insurance markets pushes which group out of the market? a. high risk individuals. b. low risk individuals. c. owners of insurance companies. d. Everyone.

B

Consider the following traders who meet. Bill has an eggplant wants a head of cabbage Tim has a head of lettuce wants a cucumber Mike has a tomato wants an eggplant Amy has a cucumber wants a head of lettuce Which, if any, pairs of traders has a double coincidence of wants? a. Bill with Mike b. Tim with Amy c. Bill with Mike, and Tim with Amy d. Bill with Tim, and Mike with Amy

B

Cyclical unemployment is closely associated with a. long-term economic growth. b. short-run ups and downs of the economy. c. fluctuations in the natural rate of unemployment. d. changes in the minimum wage.

B

Efficiency wages a. increase productivity and reduce unemployment. b. increase productivity but increase unemployment. c. decrease productivity but reduce unemployment. d. decrease productivity and increase unemployment

B

In the economy of Talikastan in 2015, consumption was $700, exports were $200, government purchases were $300, imports were $150, and investment was $400. What was Talikastan's GDP in 2015? a. $1350 b. $1450 c. $1050 d. $1750

B

Refer to Figure 15-7. In order to maximize profits, the monopolist should produce a. 9 units. b. 12 units. c. 15 units. d. more than 15 units.

B

Refer to Figure 23-1. Which of the following pairs correctly identify W and Y? a. markets for factors of production and markets for goods and services b. firms and households c. expenditures and income d. consumption and investment

B

Treasury Bonds are a. both a store of value and a medium of exchange. b. a store of value, but not a medium of exchange c. a medium of exchange, but not a store of value. d. neither a store of value nor a medium of exchange.

B

When the Fed conducts open-market sales, a. it sells Treasury securities, which increases the money supply. b. it sells Treasury securities, which decreases the money supply. c. it auctions term loans, which increases the money supply. d. it auctions term loans, which decreases the money supply.

B

Which of the following items is counted as part of government purchases? a. The federal government pays $2,000 in Social Security benefits to a retired person. b. The city of Athens, Ohio pays $10,000 to a tree-trimming firm to trim trees along city boulevards. c. The state of Nebraska pays $1,000 to help a low-income family pay its medical bills. d. All of the above are correct.

B

Which of the following will not help to prevent bank runs? a. government insurance of deposits b. fractional reserve banking c. 100% reserve banking d. All of the above prevent bank runs.

B

You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a _______. The laptop's price is posted as $500. The $500 price illustrates money's function as a _____. You use the $500 to purchase the laptop. This transaction illustrates money's function as a ______. a. store of value, medium of exchange, unit of account b. store of value, unit of account, medium of exchange c. medium of exchange, unit of account, store of value d. medium of exchange, store of value, unit of account

B

You use U.S. currency to pay the owner of a restaurant for a delicious meal. The currency a. has no intrinsic value. The exchange is an example of barter. b. has no intrinsic value. The exchange is not an example of barter. c. has intrinsic value. The exchange is not an example of barter. d. has intrinsic value. The exchange is not an example of barter.

B

. For an economy as a whole, a. wages must equal profit. b. consumption must equal income. c. income must equal expenditure. d. consumption must equal saving.

C

A manufacturer produces 1 million televisions in the first quarter of the year. It sells 900,000 of them before the end of the first quarter, and holds the others in its warehouse. How will the 100,000 unsold televisions be treated in the GDP statistics? a. Since the televisions eventually will be bought by consumers, they will be included as consumption in the first quarter. b. Since the televisions were not purchased in the first quarter, they will be counted as an increase in second-quarter GDP. c. The televisions will be counted as a change in inventory in the first quarter and so will be included in first-quarter GDP. d. The televisions will be counted as a change in inventory in the first quarter, and when sold in the second quarter will raise second-quarter GDP.

C

A monopolist faces a a. horizontal demand curve. b. vertical demand curve. c. downward-sloping demand curve. d. U-shaped demand curve.

C

Changes in nominal GDP reflect a. only changes in prices. b. only changes in the amounts being produced. c. both changes in prices and changes in the amounts being produced. d. neither changes in prices nor changes in the amounts being produced.

C

For a certain firm, the 100th unit of output that the firm produces has a marginal revenue of $7 and a marginal cost of $10. It follows that the a. production of the 100th unit of output increases the firm's profit by $3. b. production of the 100th unit of output increases the firm's average total cost by $7. c. firm's profit-maximizing level of output is less than 100 units. d. production of the101st unit of output must increase the firm's profit by more than $3.

C

If a bank has a reserve ratio of 8 percent, then a. government regulation requires the bank to use at least 8 percent of its deposits to make loans. b. the bank's ratio of loans to deposits is 8 percent. c. the bank keeps 8 percent of its deposits as reserves and loans out the rest. d. the bank keeps 8 percent of its assets as reserves and loans out the rest.

C

If the prices of all goods and services produced in the economy rose while the quantity of all goods and services stayed the same, which would rise? a. both real GDP and nominal GDP. b. real GDP but not nominal GDP. c. nominal GDP but not real GDP. d. neither nominal GDP nor real GDP.

C

Macroeconomists study a. the decisions of individual households and firms. b. the interaction between households and firms. c. economy-wide phenomena. d. regulations imposed on firms and unions.

C

One way the "lemons problem" in the used-car industry can be mitigated is by a. raising the price of used cars. b. hiring auto experts to sell used cars. c. requiring sellers to guarantee trouble-free cars. d. allowing owners to trade in their own cars when they purchase a used car.

C

Pete is a non-union employee at The Electric Co. The majority of the employees at The Electric Co. are unionized. The union at The Electric Co. has negotiated very good benefits. Even though he is not a union member and he does not have to pay union dues, Pete receives all the benefits that the union has negotiated. Pete's behavior is an example of a. rivalry. b. a barrier to entry. c. free riding. d. Taft-Hartley opposition.

C

Refer to Figure 3-20. Canada's opportunity cost of one unit of Good X is a. 1/2 unit of Good Y and Mexico's opportunity cost of one unit of Good X is 1/2 unit of Good Y. b. 1/2 unit of Good Y and Mexico's opportunity cost of one unit of Good X is 2 units of Good Y. c. 2 units of Good Y and Mexico's opportunity cost of one unit of Good X is 1/2 unit of Good Y. d. 2 units of Good Y and Mexico's opportunity cost of one unit of Good X is 2 units of Good Y.

C

Refer to Table 23-10. In which year was this country's real GDP highest? a. 2014 b. 2015 c. 2016 d. 2017

C

The CPI is more commonly used as a gauge of inflation than the GDP deflator is because a. the CPI is easier to measure. b. the CPI is calculated more often than the GDP deflator is. c. the CPI better reflects the goods and services bought by consumers. d. the GDP deflator cannot be used to gauge inflation.

C

The Mansfield Public Library has a large number of books that anyone with a library card may borrow. Anyone can obtain a card for free. Because the number of copies of each book is limited, not everyone can have the same book at the same time. What type of good would the library books be classified as in this case? a. private goods b. club goods c. common resources d. public goods

C

The term crowding-out effect refers to a. the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease. b. the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease. c. the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase. d. the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase.

C

Which of the following phrases best captures the notion of efficiency? a. absolute fairness b. equal distribution c. minimum waste d. equitable outcome

C

Which of the following transactions is not included in GDP? a. oranges sold to households by a grocer. b. orange juice sold by a restaurant to its diners. c. oranges sold by a farmer to a grocery store. d. All of the above are included in GDP

C

. Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This change in behavior, by itself, has a. reduced measured GDP. b. not affected measured GDP. c. increased measured GDP by the value of the restaurant meals. d. increased measured GDP by the value added by the restaurant's preparation and serving of the meals.

D

. Refer to Table 23-10. In which year was this country's nominal GDP highest? a. 2014 b. 2015 c. 2016 d. 2017

D

A profit-maximizing firm in a competitive market is currently producing 200 units of output. It has average revenue of $9 and average total cost of $7. It follows that the firm's a. average total cost curve intersects the marginal cost curve at an output level of less than 200 units. b. average variable cost curve intersects the marginal cost curve at an output level of less than 200 units. c. profit is $400. d. All of the above are correct.

D

A sidewalk runs across Jermichael's front yard near the street. By law, anyone has the right to use the sidewalk. When Jermichael shovels the sidewalk after a heavy snowstorm, a. he is providing a good that is excludable. b. he is a free rider. c. those who walk on the sidewalk are using a club good. d. he is providing a good that is not rival and not excludable.

D

A tornado siren is a a. private good. b. club good. c. common resource. d. public good.

D

Consider the following game, Player 2 Left Right Player 1 Up 80 , 30 0 , 20 Down 85 , 15 20 , 20 What is the Nash Equilibrium of this game? a. {Up, Left} b. {Up, Right} c. {Down, Left} d. {Down, Right}

D

If an economy's GDP rises, then it must be the case that the economy's a. income rises and saving falls. b. income and saving both rise. c. income rises and expenditure falls. d. income and expenditure both rise.

D

Refer to Figure 23-1. Which of the following correctly identifies the flow of dollars? a. W, X, Y and Z b. K, M, L and N c. C, K, M and D d. A, L, N and B

D

Refer to Table 14-11. Marginal revenue equals marginal cost when the firm produces a. 2 units. b. 3 units. c. 4 units. d. 5 units.

D

Since restored historic buildings convey a positive externality, local governments may choose to a. restrict the demolition of them. b. provide tax breaks to owners who restore them. c. increase property taxes in historic areas. d. Both a and b are correct

D

When a U.S. citizen buys $500 of Chinese-made parts for a motorcycle, a. U.S. consumption falls by $500, U.S. net exports decline by $500, and U.S. GDP declines by $1000. b. U.S. consumption does not change, U.S. net exports decline by $500, and U.S. GDP declines by $500. c. U.S. consumption increases by $500, U.S. net exports remain the same, and U.S. GDP increases by $500. d. U.S. consumption increases by $500, U.S. net exports decline by $500, and U.S. GDP remains the same.

D

When economists talk about growth in the economy, they measure that growth as the a. absolute change in nominal GDP from one period to another. b. percentage change in nominal GDP from one period to another. c. absolute change in real GDP from one period to another. d. percentage change in real GDP from one period to another

D

Which of the following is correct? a. Short run fluctuations in economic activity happen only in developing countries. b. During economic contractions most firms experience rising profits. c. Recessions come at irregular intervals and are easy to predict. d. When real GDP falls, the rate of unemployment generally rises.

D

Which of the following is not an example of the opportunity cost of going to school? a. The money a student could have earned by working if he had not gone to college. b. The nap a student could have enjoyed if he had not attended class. c. The party a student could have enjoyed if he had not stayed in to study for his exam. d. The money a student spends on rent for his apartment while attending school.

D

Which of the following topics are more likely to be studied by a macroeconomist than by a microeconomist? a. the effect of taxes on the prices of airline tickets, and the profitability of automobilemanufacturing firms b. the price of beef, and wage differences between genders c. how consumers maximize utility, and how prices are established in markets for agricultural products d. the percentage of the labor force that is out of work, and differences in average income from country to country

D