ECON1202

Which of the following measures gives us the best indication of a country's standard of living?

Real GDP Per Capita Nominal GDP The Consumer Price Index Real GDP A.

(Figure: Rent Controls) Use Figure: Rent Controls. Suppose that rent controls are imposed. If the government wanted a rent control ceiling to be effective immediately, what is one possible price to set?

Rent4 Rent3 Rent1 Rent2

If the economy grew at 3% this year and average prices increased _____, people would be better off this year than last year.

less than 3% faster than 10% faster than 3% by 3% A.

Which factor will NOT cause an increase in demand for good X?

a decrease in income if good X is an inferior good an increase in income if good X is a normal good a decrease in the price of good X an increase in the popularity of good X with consumers C.

The central mission of modern macroeconomics is to prevent:

a deep recession like the Great Depression. surpluses .high gas prices. shortages. A.

Inflation affects people adversely because:

it causes money to lose its value over time. nominal income falls. purchasing power tends to increase. the budget deficit increases. A.

A price ceiling will not have an immediate effect if:

it is set below the equilibrium price. it creates a shortage. the equilibrium price is above the price ceiling. it is set above the equilibrium price. D.

Which one of the following statements is true about fiscal and monetary policy?

Both policies are directly controlled by the Federal Reserve. Monetary policy is directly controlled by elected officials and fiscal policy is directly controlled by the Federal Reserve. Fiscal policy is directly controlled by elected officials and monetary policy is directly controlled by the Federal Reserve. Both policies are directly controlled by our elected officials. C.

Which one of the following measurements of inflation helps to give us an indication of future inflation?

Consumer price index Laffer index GDP Deflator Producer price index D.

Which statement is CORRECT?

Inflation affects only the more advanced countries, whereas less advanced countries face deflation. Supply and demand cannot explain why a particular good or service becomes more expensive relative to other goods and services. Employment levels remained stable during the Great Depression. When the economy is in recession and jobs are hard to find, inflation tends to fall. D.

One day, Martha wakes up and in frustration yells, "Decisions, decisions, decisions! Why do I have to make decisions about everything?" Martha's frustrations stem from the fact that:

like all economic beings, she faces constraints and cannot have everything she wants. she is the only one who faces constraints in life. she really doesn't want anything. she doesn't realize she can have everything she wants. A.

Which two goods are most likely substitutes in consumption?

loaves of bread and sticks of butter loaves of bread and toasters loaves of bread and gasoline loaves of bread and hamburger buns D.

Trade can be beneficial to an economy because:

more goods and services can be obtained at lower opportunity cost. it eliminates unemployment. it prevents specialization in activities in which countries have a comparative advantage. it results in a more efficient use of the combined resources of some of the trading countries, even though it reduces efficiency in others. A.

The job creation argument for protection against free trade is:

mostly that we need full employment to defend the security of the nation. that we need full employment to prevent currency depreciation. frequently put forward by economists. that keeping out foreign imports allows the goods and services to be produced by domestic workers. D.

(Table: Bongos and Frisbees) Use Table: Bongos and Frisbees. Bill and Mickey make bongos and Frisbees. Who has the comparative advantage in producing Frisbees?

neither both Bill Mickey D.

(Figure: The Markets for Melons in Russia) Use Figure: The Market for Melons in Russia. If Russia is trading based on comparative advantage and the world price is D, then Russia has _____ in the production of melons.

neither an absolute nor a comparative advantage a comparative advantage a comparative disadvantage an absolute advantage B.

A tariff or quota will _____ prices and _____ the consumption of the protected goods in the importing country.

raise; increase lower; decrease lower; increase raise; decrease D.

The government of a small town has decided to ban smoking in all restaurants, stores, and government offices. This is an example of the principle that:

"How Much" is a decision at the margin. one person's spending is another person's income. when markets fail to achieve efficiency, government intervention can improve society's welfare. there are gains from trade. C.

(Problem 7c) The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of 2005 dollars), and population (in thousands) of the United States in 1960, 1970, 1980, 1990, 2000, and 2010. The U.S. price level rose consistently over the period 1960-2010. Calculate real GDP per capita for each of the years in the table. Which year had the largest real GDP per capita?

1960 2010 2000 1990 1980 1970 B.

(Problem 7d) The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of 2005 dollars), and population (in thousands) of the United States in 1960, 1970, 1980, 1990, 2000, and 2010. The U.S. price level rose consistently over the period 1960-2010. Calculate the percent change in real GDP per capita from 1960 to 1970, 1970 to 1980, 1980 to 1990, 1990 to 2000, and 2000 to 2010. Which period had the highest growth rate?

1960 to 1970 .2000 to 2010 1990 to 2000 1970 to 1980 1980 to 1990 A.

(Problem 8c) Eastland College is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you, the Economics Department's star student, to create an index of textbook prices. The average student purchases three English, two math, and four economics textbooks per year. The prices of these books are given in the accompanying table. What is the percent change in the price of an economics textbook from 2012 to 2014? (Note: Express as a percent rounded to one decimal place, for example, 3.2%.)

2.5% 5.2% 25% C.

(Problem 11a) The accompanying table provides the annual real GDP (in billions of 2009 dollars) and nominal GDP (in billions of dollars) for the United States. Calculate the GDP deflator for each year. In which year was the GDP deflator the largest?

2012 2013 2010 2009 2011 B.

(Table: Production Possibilities Schedule I) Use Table: Production Possibilities Schedule I. The opportunity cost of producing the third unit of consumer goods is _____ units of capital goods.

4 2 6 8 C.

(Problem 8b) Eastland College is concerned about the rising price of textbooks that students must purchase. To better identify the increase in the price of textbooks, the dean asks you, the Economics Department's star student, to create an index of textbook prices. The average student purchases three English, two math, and four economics textbooks per year. The prices of these books are given in the accompanying table. What is the percent change in the price of a math textbook from 2012 to 2014? (Note: Express as a percent rounded to one decimal place, for example, 3.2%.)

7.5% 6.0% 5.7% C.

Expansionary monetary policy will lead to which of the following?

A decrease in interest rates and a decrease in the unemployment rate An increase in interest rates and an increase in the unemployment rate An increase in interest rates and a decrease in the unemployment rate A decrease in interest rates and an increase in the unemployment rate A.

Which of the following is not an argument for Protectionism?

All of these 3 possible answers are arguments for Protectionism. Creating a level playing field National security Protecting domestic employment A.

A price ceiling that is binding on the market will most likely lead to which of the following?

An decrease in consumer surplus, a decrease in producer surplus, a decrease in total surplus and a decrease in efficiency. An increase in consumer surplus, a decrease in producer surplus, a decrease in total surplus and an increase in efficiency. An increase in consumer surplus, a decrease in producer surplus, a decrease in total surplus and a decrease in efficiency. An increase in consumer surplus, a increase in producer surplus, a decrease in total surplus and a decrease in efficiency. C.

A price floor that is binding on a market will likely lead to which of the following?

An increase in consumer surplus, an increase in producer surplus, a decrease in total surplus and a decrease in efficiency. A decrease in consumer surplus, an increase in producer surplus, a decrease in total surplus and a decrease in efficiency. A decrease in consumer surplus, an increase in producer surplus, a decrease in total surplus and an increase in efficiency. A decrease in consumer surplus, a decrease in producer surplus, a decrease in total surplus and a decrease in efficiency. B.

(Figure: The Market for Laptops) Use Figure: The Market for Laptops. Assume that S and D are the domestic supply and demand curves and the world price is PW. Identify the area of government tax revenue when a tariff raises the domestic price from the world price to PT.

B D + F E D + E + F C.

Assume that we are looking at the world market for oil. Assume that the initial equilibrium price is $50 a barrel and the monthly quantities bought and sold is 10 trillion barrels. How would this market be affected by a world wide economic downturn?

Demand would decrease, causing a surplus of oil, price would decrease and this would lead to less barrels bought and sold. Demand would decrease, causing a shortage of oil, price would decrease and this would lead to less barrels bought and sold. Demand would decrease, causing a surplus of oil, price would decrease and this would lead to more barrels bought and sold. Demand would increase, causing a surplus of oil, price would decrease and this would lead to less barrels bought and sold. A.

Assume that we are looking at the local market for pizza. Assume that the equilibrium price is $20 and the equilibrium quantity is 1000. Which of the following options best describes what would happen to this market if two new pizza restaurants open up for business in this market?

Demand would increase causing a surplus situation. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and lower quantities. Demand would decrease causing a surplus situation. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and lower quantities. Supply would decrease causing a surplus situation. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and lower quantities. Supply would increase causing a surplus situation. Prices would then decline and this causes quantity supplied to decrease and quantity demanded to increase, this continues until there is a new equilibrium at a lower price and higher quantity. D.

Expansionary fiscal policy can be described by which of the following?

Either an increase in taxes or an increase in government spending Either a decrease in taxes or an increase in government spending Either a decrease in taxes or a decrease in government spending Either an increase in taxes or an increase in government spending B.

In Ventura County, California, strawberry production is limited by the number of acres available for agriculture production. Which economic concept does this statement BEST represent?

Equilibrium Opportunity Cost Scarcity Marginal Analysis C.

Because one person's spending is another person's income, if one group in the economy spends more, the incomes of other groups will increase.

False True TRUE

(Problem 12) The accompanying table contains two price indexes for the years 2011, 2012, and 2013: the GDP deflator and the CPI. For each price index, calculate the inflation rate from 2011 to 2012 and from 2012 to 2013. Which index for which year shows the highest rate of inflation?

GDP deflator for 2012 GDP deflator for 2013 CPI for 2012 .CPI for 2013 C.

Which statement is a positive economic statement?

Government has grown too large and should be reduced. Women should be paid as much as men are for the same work. Government should be subject to the same rules as all other institutions. There has been an increase in the rate of inflation. D.

Which of the following describes a possible problem with the Consumer Price Index?

Gross Domestic Product only counts the final product Per Capita GDP can be misleading. All of the above could be a possible problem Over time cell phones have evolved and become a much different product. D.

Rapidly increasing health costs have been a major political concern since at least 1992. Suppose the government sets the maximum price for a normal doctor visit at $20 to control rising health costs but the current market price is $40. What is MOST likely to happen?

More people will try to visit the doctor, but there will be fewer doctors willing to see patients at that price. More people will be able to see the doctor, since the price is lower. The same number of people will try to visit the doctor, and the same number of doctors are willing to see patients at that price. Fewer people will try to see the doctor, and fewer doctors are willing to see patients at that price. A.

Which of the following measures gives us the best indication of a country's standard of living?

Nominal GDP The Consumer Price Index Real GDP Real GDP Per Capita D.

(Figure: Shifts in Demand and Supply) Use Figure: Shifts in Demand and Supply. The figure shows how supply and demand might shift in response to specific events. Suppose scientists discover that eating a tomato a day prevents aging. Which panel BEST describes how this will affect the market for tomatoes?

Panel C Panel B Panel D Panel A A.

(Figure: Shifts in Demand and Supply II) Use Figure: Shifts in Demand and Supply II. The graph shows how supply and demand might shift in response to specific events. Suppose a fall frost destroys one-third of the nation's grapefruit crop. Which panel BEST describes how this will affect the market for vitamin B12 tablets, which are a substitute in consumption for grapefruit?

Panel C Panel B Panel D Panel A D.

Florida schools offered cash bonuses to students who scored high on the state's standardized exams. The cash bonuses are motivated by which economic principle?

People usually respond to incentives, exploiting opportunities to make themselves better off. Choices are necessary because resources are scarce. The true cost of something is its opportunity cost. "How Much" is a decision at the margin. A.

Assume that we are looking at the local market for pizza. Assume that the equilibrium price is $20 and the equilibrium quantity is 1000. Which of the following options best describes what would happen to this market if a study was published that proved that pizza caused serious illness?

Supply would decrease causing a surplus situation. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and lower quantities. Demand would increase causing a surplus situation. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and higher quantities. Demand would decrease causing a surplus situation. Prices would then decline and this causes quantity supplied to decrease and quantity demanded to increase until the new equilibrium is reached at a lower price and lower quantities. Supply would increase causing a surplus situation. Prices would then decline and this causes quantity supplied to increase and quantity demanded to decrease until the new equilibrium is reached at a lower price and lower quantities. C.

Suppose we are looking at the market for gold. Assume that the equilibrium price is $1,200 per ounce and the quantities bought and sold is 100 billion ounces. If there was a discovery of very large gold deposits in parts of the world, how would this discovery affect this market?

Supply would increase, leading to a surplus, causing price to decrease and we would have greater quantities of gold. Supply would increase, leading to a surplus, causing price to decrease and we would have less quantities of gold. Supply would increase, leading to a shortage, causing price to decrease and we would have greater quantities of gold. Supply would decrease, leading to a surplus, causing price to decrease and we would have greater quantities of gold. A.

In the short run, the relationship between inflation and unemployment can be most accurately described by saying

There is a positive relationship between inflation and unemployment almost all of the time. There is no way to determine any relationship at all .In half of the last ten recessions the relationship has been positive and the other half it has been negative. There is an inverse relationship between inflation and unemployment almost all of the time. D.

(Figure: Bicycles and Radishes I) Use Figure: Bicycles and Radishes I. The figure shows the production possibility frontiers for two countries that produce only radishes and bicycles. The axes of the two graphs are measured in equivalent units. Country A is operating at point M, and country B is operating at point N. The opportunity cost of producing an additional ton of radishes would be greater in:

There is not enough information to answer the question. neither; the opportunity cost would be the same in both countries. country A. country B. D.

Which statement is NOT true?

Very talented individuals, who can do most things better than most people, may still benefit greatly from specializing in doing one thing. An economic situation is in equilibrium when no individual would be better off taking a different action. Most opportunity costs are zero. Resource scarcity is a major economic concern in the rich countries of the world. C.

(Figure: The Market for Roses) Use Figure: The Market for Roses. Assume that PA is the autarky price and PW is the world price. Producer surplus with international trade would be area:

W + X + Y. Y .X + Y + Z. X + Y. B.

"Unemployment of 5% is too high" is:

a normative statement. a positive statement. the circular-flow model. an example of comparative advantage. A.

A binding price floor is where the price is set

above the normal equilibrium price below the normal equilibrium price exactly at the normal equilibrium price At random A.

Comparative advantage arises from:

absolute advantage. countries engaging in autarkic behavior. differences in climate, factor endowments, and technology. an emphasis on export production. C.

If an economy produces the desired mix of goods from its available resources, then this mix of goods is:

allocatively efficient. both productively and allocatively efficient. productively efficient .neither productively nor allocatively efficient. A.

Which of the following policies is MOST likely to reduce traffic congestion in a large metropolitan area because people usually exploit opportunities to make themselves better off?

asking citizens to carpool an increase in the price of subway and bus fare to and from the city a toll road that requires each car to pay a fee to enter the city center a limited number of free early-bird parking passes given only to those who arrive prior to 6 A.M. C.

(Figure: Production Possibility Frontier) Use Figure: Production Possibilities Frontier. This production possibility frontier is:

bowed out because of increasing opportunity costs. bowed in because of increasing opportunity costs. linear because of constant costs. bowed out because of constant cost of cars and computers. A.

(Problem 14b) The economy of Britannica produces three goods: computers, DVDs, and pizza. The accompanying table shows the prices and output of the three goods for the years 2012, 2013, and 2014. Which product had the smallest percent change in prices from 2012 to 2013? Which had the smallest percent change in prices from 2013 to 2014? (Round your calculated percents to one decimal place; for example, 3.2%.)

computers; DVDs pizza; computers pizza; DVDs B.

(Scenario: The Production of Wheat and Toys) Use Scenario: Production of Wheat and Toys. If each country specializes in the good for which it has the comparative advantage:

country A will produce both wheat and toys. country A will produce wheat and country B will produce toys. country A will produce toys and country B will produce wheat. country B will produce both wheat and toys. B.

In the importing country, the MOST likely effect of a tariff is to:

decrease the quantity supplied. raise the price without affecting the quantity demanded. raise the price and increase the quantity demanded. raise the price and decrease the quantity demanded. D.

Assuming that U.S. and French wines are substitutes in consumption, if the U.S. government imposes a quota on the amount of French wine allowed into the United States and the quota is set at a quantity below equilibrium, the price of French wine in the United States will _____ while the price of the U.S.-produced wine will _____.

decrease; decrease increase; increase decrease; increase increase; decrease B.

An inferior good is one for which a(n) _____ in buyers' incomes causes a(n) _____.

decrease; decrease in demand increase; decrease in demand increase; increase in demand increase; increase in quantity demanded B.

(Figure: A Tariff on Oranges in South Africa) Use Figure: A Tariff on Oranges in South Africa. When the government imposes a tariff on imported oranges, the price of oranges in South Africa rises from PW to PT and domestic consumer surplus _____ to _____.

falls; F + G + I + J + K + L rises; F + G + I + J + K + L rises; F + L falls; F + L D.

(Problem 7a) The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of 2005 dollars), and population (in thousands) of the United States in 1960, 1970, 1980, 1990, 2000, and 2010. The U.S. price level rose consistently over the period 1960-2010. Real GDP is ____ nominal GDP for all years before 2005, and real GDP is ____ nominal GDP for 2010. In 2005 itself, real GDP is ___ nominal GDP.

greater than; less than; less than less than; greater than; equal to greater than; less than; equal to C.

Suppose the government sets a price floor below the current price of a good. This price floor will:

have no immediate effect on the price of the good. increase the quantity supplied of the good .result in an excess demand for the good. result in an excess supply of the good. A.

Manny is attending college and majoring in economics. By doing so, Manny is improving his:

human capital land. labor. capital. A.

Overall, trade between China and the United States will:

hurt both countries. benefit China more than the United States. benefit both countries. benefit the United States more than China. C.

An economic expansion in the United States is typically associated with a(n):

increase in output. increase in the poverty rate. falling inflation rate. decrease in corporate profits A.

Long-run growth is the sustained upward trend in:

interest rates over time. the unemployment rate over time. aggregate output per person over several decades. aggregate output per person over the business cycle. C.

Economists use the term equilibrium to describe situation when:

no individual would be better off taking a different action or no individual has an incentive to change his or her behavior. individuals are equal. there are equal number of buyers and sellers. goods are distributed equitably. A.

(Figure: Comparative Advantage) Use Figure: Comparative Advantage. Westland has a comparative advantage in producing:

oranges only. both oranges and peaches. neither oranges nor peaches. peaches only. D.

If all of the households and businesses start saving more during economic hard times, then aggregate income will fall, hurting everyone in the economy. This is known as the:

paradox of thrift. permanent income hypothesis. quantity theory. crowding-out theory. A.

(Figure: Production Possibilities and Circular-Flow Diagram) Use Figure: Production Possibilities and Circular-Flow Diagram. Assume the two figures represent the same economy. Suppose that in the circular-flow diagram capital that used to flow to firms producing coconuts now flows to firms producing fish. This adjustment in the economy would be BEST represented in the production possibilities figure by a move from point A toward:

point C (a decrease in coconut production). point B (a decrease in coconut production and an increase in fish production). point A (no movement). point D (an outward shift of the entire curve). B.

(Figure: The Markets for Melons in Russia II) Use Figure: The Market for Melons in Russia II. If the world price is $10 and a tariff of $5 is imposed on this market, the burden of the tariff will be borne by:

producers. consumers. the government. both producers and consumers. B.

West African cotton farmers are very upset about the subsidies the U.S. government pays to American cotton farmers. One reason for this could be that subsidized cotton from the United States:

raises the world price of cotton. has led to a global shortage of cotton. leads to cotton surpluses in the United States and lower prices for West African farmers on world markets. has led to an increase in the demand for West African cotton. C.

(Table: Market for Apartments) Use Table: Market for Apartments. If a price ceiling of $900 is imposed on this market, the result will be an inefficiency in the form of a _____ million apartments.

shortage of 0.2 surplus of 0.2 surplus of 0.6 shortage of 0.6 A.

(Table: The Market for Chocolate-Covered Peanuts) Use Table: The Market for Chocolate-Covered Peanuts. If the price of chocolate-covered peanuts is $0.50, there is a:

shortage of 35 bags per month. shortage of 70 bags per month. surplus of 70 bags per month. surplus of 35 bags per month. B.

(Problem 7e) The accompanying table shows data on nominal GDP (in billions of dollars), real GDP (in billions of 2005 dollars), and population (in thousands) of the United States in 1960, 1970, 1980, 1990, 2000, and 2010. The U.S. price level rose consistently over the period 1960-2010. The percent change in real GDP is always _____ the percent change in real GDP per capita (assuming that the population is growing).

smaller than the same as larger than C.

Good X and good Y are related goods. Holding everything else constant, if the price of good X decreases and the demand for good Y increases, good X and good Y are probably:

substitutes. inferior. normal. complements. D.

(Table: Wheat and Aluminum) Use Table: Wheat and Aluminum. The United States and Germany can produce both wheat and aluminum. The table shows the maximum annual output combinations of wheat and aluminum that can be produced. Based on the table:

the United States has a comparative advantage in both aluminum and wheat. Germany has a comparative advantage in aluminum and an absolute advantage in aluminum. Germany has an absolute advantage in aluminum and a comparative advantage in wheat. the United States has a comparative advantage in wheat and an absolute advantage in wheat. D.

When a chef prepares a dinner for a customer, which factor is physical capital?

the chef's training and experience the food ingredients the chef the oven D.

(Figure: Strawberries and Submarines) Use Figure: Strawberries and Submarines. Suppose the economy is operating at point G. This implies that:

the economy can move to a point such as C only if it improves its technology. the economy lacks the resources to achieve a combination such as C. the economy has unemployment and/or inefficiently allocates resources. people in this economy don't really like strawberries or submarines. C.

A persistent shortage may occur if:

the government imposes a price ceiling below the equilibrium price. demand keeps falling. supply shifts rightward. the government imposes a price floor below the equilibrium price. A.

An economy is efficient when:

the problem of scarcity is eliminated. all opportunities to make some people better off without making other people worse off have been taken. all opportunities to make some people worse off without making other people better off have been taken. output is distributed equitably. B.

A binding price ceiling is where the price is

unregulated set exactly at the normal equilibrium price set above the normal equilibrium price set below the normal equilibrium price D.

Holding all other things constant, and assuming that ramen noodles are an inferior good for Vanessa, then as her income increases, her demand curve for ramen noodles:

will shift right. will not shift at all. may shift left or right, but we're not sure by how much. will shift left. D.

During a recession, one will often observe:

zero unemployment rates. rising aggregate output. rising employment rates. rising unemployment rates and falling aggregate output. D.