Econ Exam

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In a competitive market, each seller has limited control over the price of his product because -A: other sellers are offering similar products. -B: buyers exert more control over the price than do sellers. -C: these markets are highly regulated by the government. -D: sellers usually agree to set a common price that will allow each seller to earn a comfortable profit.

-A: other sellers are offering similar products.

If consumers view cappuccinos and lattés as substitutes, what would happen to the equilibrium price and quantity of lattés if the price of cappuccinos rises? [Tip: Draw the Supply and Demand diagram, and shift the appropriate curve(s)] -A: Both the equilibrium price and quantity would increase. -B: Both the equilibrium price and quantity would decrease. -C: The equilibrium price would increase, and the equilibrium quantity would decrease. -D: The equilibrium price would decrease, and the equilibrium quantity would increase.

A: Both the equilibrium price and quantity would increase.

Which of the following statements about GDP is correct? -A: Nominal GDP values production at current prices, whereas real GDP values production at constant prices. -B: Nominal GDP values production at constant prices, whereas real GDP values production at current prices. -C: Nominal GDP values production at market prices, whereas real GDP values production at the cost of the resources used in the production process. -D: Nominal GDP values production at the cost of the resources used in the production process, whereas real GDP values production at market prices.

A: Nominal GDP values production at current prices, whereas real GDP values production at constant prices.

The U.S. Air Force pays a Turkish citizen $30,000 to work on a U.S. base in Turkey. As a result, -A: U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; and U.S. GDP is unaffected. -B: U.S. government purchases increase by $30,000; U.S. net exports are unaffected; and U.S. GDP increases by $30,000. -C: U.S. government purchases, net exports, and GDP are unaffected. -D: U.S. government purchases are unaffected; U.S. net exports decrease by $30,000; and U.S. GDP decreases by $30,000.

A: U.S. government purchases increase by $30,000; U.S. net exports decrease by $30,000; and U.S. GDP is unaffected.

Assign. #2 Q. 11 Panel (b) shows which of the following? -A: a decrease in demand and a decrease in quantity supplied -B: a decrease in demand and a decrease in supply -C: a decrease in quantity demanded and a decrease in quantity supplied -D: a decrease in quantity demanded and a decrease in supply

A: a decrease in demand and a decrease in quantity supplied

If a surplus exists in a market, then we know that the actual price is -A: above the equilibrium price, and quantity supplied is greater than quantity demanded. -B: above the equilibrium price, and quantity demanded is greater than quantity supplied. -C: below the equilibrium price, and quantity demanded is greater than quantity supplied. -D: below the equilibrium price, and quantity supplied is greater than quantity demanded.

A: above the equilibrium price, and quantity supplied is greater than quantity demanded.

For any given year, the CPI is the price of the basket of goods and services in the -A: given year divided by the price of the basket in the base year, then multiplied by 100. -B: given year divided by the price of the basket in the previous year, then multiplied by 100. -C: base year divided by the price of the basket in the given year, then multiplied by 100. -D: previous year divided by the price of the basket in the given year, then multiplied by 100.

A: given year divided by the price of the basket in the base year, then multiplied by 100.

Equilibrium quantity must increase when demand [Tip: Draw the Supply and Demand diagram, and shift the appropriate curve(s)] -A: increases and supply does not change, when demand does not change and supply increases, and when both demand and supply increase. -B: increases and supply does not change, when demand does not change and supply increases, and when both demand and supply decrease. -C: decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply increase. -D: decreases and supply does not change, when demand does not change and supply decreases, and when both demand and supply decrease.

A: increases and supply does not change, when demand does not change and supply increases, and when both demand and supply increase.

When the quality of a good improves while its price remains the same, the purchasing power of the dollar -A: increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. -B: increases, so the CPI understates the change in the cost of living if the quality change is not accounted for. -C: decreases, so the CPI overstates the change in the cost of living if the quality change is not accounted for. -D: decreases, so the CPI understates the change in the cost of living if the quality change is not accounted for.

A: increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.

Warrensburg is a small college town in Missouri. After the summer break at the end of August each year, the new academic year gets underway. The market demand for fast food in Warrensburg -A: increases. -B: decreases. -C: remains constant, but we observe a movement downward and to the right along the demand curve. -D: remains constant, but we observe a movement upward and to the left along the demand curve.

A: increases.

"Other things equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well." This relationship between price and quantity supplied -A: is referred to as the law of supply. -B: applies only to a few goods in the economy. -C: is represented by a downward-sloping supply curve. -D: All of the above are correct.

A: is referred to as the law of supply.

Changes in the GDP deflator 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.

A: only changes in prices.

A professional gambler moves from a state where gambling is illegal to a state where gambling is legal. Most of his income was, and continues to be, from gambling. His move -A: raises GDP. -B: decreases GDP. -C: doesn't change GDP because gambling is never included in GDP. -D: doesn't change GDP because in either case his income is included.

A: raises GDP.

When quantity supplied decreases at every possible price, we know that the supply curve has -A: shifted to the left. -B: shifted to the right. -C: not shifted; rather, we have moved along the supply curve to a new point on the same curve. -D: not shifted; rather, the supply curve has become flatter.

A: shifted to the left.

Assume that consumers consider rice and potatoes to be substitutes, but they buy rice more regularly and so rice is part of the fixed basket of goods, while potatoes are not. When the price of rice increases, consumers purchase less rice and more potatoes. When the CPI is computed following the increase in the price of rice, it takes into account -A: the increase in the price of rice. -B: the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased. -C: Both (a) and (b) are correct. -D: None of the above is correct.

A: the increase in the price of rice.

The horizontal axis of a graph representing the market for gasoline, is used to display -A: the quantity of gasoline measured in gallons -B: the number of consumers of gasoline -C: the different months of the year -D: the price of 1 gallon of gasoline

A: the quantity of gasoline measured in gallons

Tyler and Camille both live in Oklahoma. A new-car dealer in Oklahoma bought a new car from the manufacturer for $18,000 and sold it to Tyler for $22,000. Later that year, Tyler sold the car to Camille for $17,000. By how much did these transactions contribute to U.S. GDP for the year? -A: $18,000 -B: $22,000 -C: $39,000 -D: $57,000

B: $22,000

Between October 2001 and October 2002, the CPI in Canada rose from 116.5 to 119.8 and the CPI in Mexico rose from 93.2 to 102.3. What were the inflation rates for Canada and Mexico over this one-year period? -A: 2.8 percent for Canada and 9.1 percent for Mexico -B: 2.8 percent for Canada and 9.8 percent for Mexico -C: 3.3 percent for Canada and 9.1 percent for Mexico -D: 3.3 percent for Canada and 9.8 percent for Mexico

B: 2.8 percent for Canada and 9.8 percent for Mexico

Refer to Assign. #4 Q. 10 -A: 16.7 percent. -B: 20 percent. -C: 40 percent. -D: 44.1 percent.

B: 20 percent.

If macaroni and cheese is an inferior good, what would happen to the equilibrium price and quantity of macaroni and cheese if consumers' incomes rise? [Tip: Draw the Supply and Demand diagram, and shift the appropriate curve(s)] -A: Both the equilibrium price and quantity would increase. -B: Both the equilibrium price and quantity would decrease. -C: The equilibrium price would increase, and the equilibrium quantity would decrease. -D: The equilibrium price would decrease, and the equilibrium quantity would increase.

B: Both the equilibrium price and quantity would decrease.

Refer to Assign. #3 Q. 20 -A: Japan, Germany, United States -B: Japan, United States, Germany -C: Germany, United States, Japan -D: United States, Japan, Germany

B: Japan, United States, Germany

Which of the following statements about nominal GDP and real GDP is correct? -A: Nominal GDP is a better gauge of economic well-being than real GDP. -B: Real GDP is a better gauge of economic well-being than nominal GDP. -C: Real GDP and nominal GDP are equally good measures of economic well-being. -D: Neither nominal nor real GDP provide a measure of economic well-being.

B: Real GDP is a better gauge of economic well-being than nominal GDP.

Which of the following changes would not shift the supply curve for a good or service? -A: a change in production technology -B: a change in the price of the good or service -C: a change in expectations about the future price of the good or service -D: a change in input prices

B: a change in the price of the good or service

Refer to Assign. #1 Q. 16 -A: an increase in price (of the good itself). -B: a decrease in price (of the good itself). -C: a decrease in the price of a substitute good. -D: an increase in income.

B: a decrease in price (of the good itself).

Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts? [Tip: Draw the Supply and Demand diagram, and shift the appropriate curve(s)] -A: an increase in the price of wool shirts and a decrease in the price of raw cotton -B: a decrease in the price of wool shirts and a decrease in the price of raw cotton -C: an increase in the price of wool shirts and an increase in the price of raw cotton -D: a decrease in the price of wool shirts and an increase in the price of raw cotton

B: a decrease in the price of wool shirts and a decrease in the price of raw cotton

You and your roommate loved cup noodles while at college. Upon graduation, both of you start well paying jobs. You reduce your consumption of cup noodles to once in a while, but your roommate on the other hand, consumes more of them now than when they were at college with you. Cup noodles are -A: a normal good for both of you. -B: an inferior good for you, but a normal good for your roommate. -C: an inferior good for your roommate, but a normal good for you. -D: an inferior good for both of you.

B: an inferior good for you, but a normal good for your roommate.

If the demand for good A increases, because of a decrease in price of good B; then good A and B are -A: unrelated to each other -B: complementary goods -C: substitute goods -D: none of the above

B: complementary goods

If toast and butter are complements, then which of the following would increase the demand for toast? -A: doctors recommend reducing carb intake -B: decrease in the price of butter -C an increase in the price of butter -D: Both a) and b) are correct.

B: decrease in the price of butter

Refer to Assign. #1 Q. 24 -A: shift in the supply curve caused by a decrease in the price of the good. -B: decrease in the quantity supplied caused by a decrease in the price of the good. -C: increase in the quantity supplied caused by a decrease in input prices. -D: Both a) and b) are correct.

B: decrease in the quantity supplied caused by a decrease in the price of the good.

At the equilibrium price, the quantity of the good that buyers are willing and able to buy -A: is greater than the quantity that sellers are willing and able to sell. -B: exactly equals the quantity that sellers are willing and able to sell. -C: is less than the quantity that sellers are willing and able to sell. -D: Either a) or c) could be correct.

B: exactly equals the quantity that sellers are willing and able to sell.

If suppliers expect the price of their product to fall in the future, then they will -A: decrease supply now. -B: increase supply now. -C: decrease supply in the future but not now. -D: increase supply in the future but not now.

B: increase supply now.

You love peanut butter. You hear on the news that 50 percent of the peanut crop in the South has been wiped out by drought and that this will cause the price of peanuts to double in the next few weeks. As a result, your demand for peanut butter -A: will increase but not until the end of the year. -B: increases today. -C: decreases as you look for a substitute good. -D: decreases today.

B: increases today.

When new goods are introduced, consumers have more variety from which to choose. As a result, each dollar is worth -A: more, and the cost of living increases. -B: more, and the cost of living decreases. -C: less, and the cost of living increases. -D: less, and the cost of living decreases.

B: more, and the cost of living decreases.

Suppose that when income rises, the demand for a doctor's visits increases. In this case, we know doctor's visits are -A: inferior goods. -B: normal goods. -C: perfectly competitive goods. -D: durable goods.

B: normal goods.

By not taking into account the possibility of consumer substitution, the CPI -A: understates the cost of living. -B: overstates the cost of living. -C: may overstate or understate the cost of living, depending on how quickly prices rise. -D: may overstate or understate the cost of living, regardless of how quickly prices rise.

B: overstates the cost of living.

When a shortage exists in a market, sellers -A: raise price, which increases quantity demanded and decreases quantity supplied until the shortage is eliminated. -B: raise price, which decreases quantity demanded and increases quantity supplied until the shortage is eliminated. -C: lower price, which increases quantity demanded and decreases quantity supplied until the shortage is eliminated. -D: lower price, which decreases quantity demanded and increases quantity supplied until the shortage is eliminated.

B: raise price, which decreases quantity demanded and increases quantity supplied until the shortage is eliminated.

If Miguel expects to earn a higher income next month, he may choose to -A: save more now and spend less of his current income on goods and services. -B: save less now and spend more of his current income on goods and services. -C: decrease his current demand for goods and services. -D: move along his current demand curves for goods and services.

B: save less now and spend more of his current income on goods and services.

A monopoly is a market with one -A: seller, and that seller is a price taker. -B: seller, and that seller sets the price. -C: buyer, and that buyer is a price taker. -D: buyer, and that buyer sets the price.

B: seller, and that seller sets the price.

When quantity demanded increases at every possible price, the demand curve has -A: shifted to the left, and is an increase in demand -B: shifted to the right, and is an increase in demand -C: not shifted; rather, we have moved along the demand curve to a new point on the same curve. -D: not shifted; rather, the demand curve has become steeper.

B: shifted to the right, and is an increase in demand

Matthew bakes apple pies that he sells at the local farmer's market. If the price of apples increases, the -A: supply curve for Matthew's pies will increase. -B: supply curve for Matthew's pies will decrease. -C: demand curve for Matthew's pies will increase. -D: demand curve for Matthew's pies will decrease.

B: supply curve for Matthew's pies will decrease.

An important difference between the GDP deflator and the consumer price index is that -A: the GDP deflator reflects the prices of goods and services bought by producers, whereas the consumer price index reflects the prices of goods and services bought by consumers. -B: the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers. -C: the GDP deflator reflects the prices of all final goods and services produced by a nation's citizens, whereas the consumer price index reflects the prices of all final goods and services bought by consumers. -D: the GDP deflator reflects the prices of all final goods and services bought by producers and consumers, whereas the consumer price index reflects the prices of all final goods and services bought by consumers.

B: the GDP deflator reflects the prices of all final goods and services produced domestically, whereas the consumer price index reflects the prices of goods and services bought by consumers.

What basket of goods and services is used to construct the CPI? -A: a random sample of all goods and services produced in the economy -B: the goods and services that are typically bought by consumers as determined by government surveys -C: only food, clothing, transportation, entertainment, and education -D: the least expensive and the most expensive goods and services in each major category of consumer expenditures

B: the goods and services that are typically bought by consumers as determined by government surveys

When computing the cost of the basket of goods and services purchased by a typical consumer, which of the following changes from year to year? -A: the quantities of the goods and services purchased -B: the prices of the goods and services -C: the goods and services making up the basket -D: All of the above are correct.

B: the prices of the goods and services

Quantity demanded is the amount of a good that a consumer is willing and able to purchase at a given price, whereas Demand is -A: an insistent and peremptory request, made as if by right. -B: the set of various quantities demanded of a good that consumers are willing and able to purchase at various prices during a given period of time, assuming everything else remains the same. -C: the increase in quantity demanded of a goods as the price of that good decreases -D: the sum total of all quantities demanded.

B: the set of various quantities demanded of a good that consumers are willing and able to purchase at various prices during a given period of time, assuming everything else remains the same.

Indexation refers to -A: a process of adjusting the nominal interest rate so that it is equal to the real interest rate. -B: using a law or contract to automatically correct a dollar amount for the effects of inflation. -C: using a price index to deflate dollar values. -D: an adjustment made by the Bureau of Labor Statistics to the CPI so that the index is in line with the GDP deflator.

B: using a law or contract to automatically correct a dollar amount for the effects of inflation.

Sam, an American citizen, prepares meals for his family at home. Ellen, a Canadian citizen, commutes to the U.S. to help prepare meals at a restaurant in Idaho. Whose value of services preparing meals is included in U.S. GDP? -A: Sam's and Ellen's. -B: Sam's but not Ellen's. -C: Ellen's but not Sam's. -D: Nether Sam's nor Ellen's.

C: Ellen's but not Sam's.

Many things that society values, such as good health, high-quality education, enjoyable recreation opportunities, and desirable moral attributes of the population, are not measured as part of GDP. It follows that -A: GDP is not a useful measure of society's welfare. -B: GDP is still a useful measure of society's welfare because providing these other attributes is the responsibility of government. -C: GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare. -D: GDP is still the best measure of society's welfare because these other values cannot actually be measured.

C: GDP is still a useful measure of society's welfare because it measures a nation's ability to purchase the inputs that can be used to help produce the things that contribute to welfare.

Darin grows and sells marijuana to Jennifer. Thomas is an organic farmer who sells broccoli to Jennifer. Marijuana is an illegal good and broccoli is a legal good. Assume that if Jennifer marries either, they give her what they use to sell her. Which of the following statements is consistent with the way GDP is computed? -A: GDP will fall if Jennifer marries either Darin or Thomas.. -B: GDP will fall if Jennifer marries Darin but not if she marries Thomas. -C: GDP will fall if Jennifer marries Thomas but not if she marries Darin. -D: GDP remains the same whether Jennifer marries Darin or Thomas.

C: GDP will fall if Jennifer marries Thomas but not if she marries Darin.

Refer to Assign. #1 Que. #4 -A: Bert's -B: Ernie's -C: Grover's -D: Oscar's

C: Grover's

Which of these statements does NOT apply to market economies? -A: Prices prevent decentralized decision making from degenerating into chaos. -B: Prices coordinate the actions of millions of people with varying abilities and desires. -C: Prices ensure that anyone who wants a product can get it. -D: Prices ensure that what needs to get done does in fact get done.

C: Prices ensure that anyone who wants a product can get it.

Sophia puts money in the bank and earns a 5 percent nominal interest rate. If the inflation rate is 2 percent, then after one year, -A: Sophia will have 3 percent more money, which will purchase 5 percent more goods. -B: Sophia will have 3 percent more money, which will purchase 7 percent more goods. -C: Sophia will have 5 percent more money, which will purchase 3 percent more goods. -D: Sophia will have 5 percent more money, which will purchase 7 percent more goods.

C: Sophia will have 5 percent more money, which will purchase 3 percent more goods.

In computing the consumer price index, a base year is chosen. Which of the following statements about the base year is correct? -A: The base year is always the first year among the years for which computations are being made. -B: It is necessary to designate a base year only in the simplest case of two goods; in more realistic cases, it is not necessary to designate a base year. -C: The value of the consumer price index is always 100 in the base year. -D: The base year is always the year in which the cost of the basket was highest among the years for which computations are being made.

C: The value of the consumer price index is always 100 in the base year.

A transfer payment is -A: a payment for moving expenses a worker receives when he or she is transferred by an employer to a new location. -B: a payment that is automatically transferred from your bank account to pay a bill or some other obligation. -C: a form of government spending that is not made in exchange for a currently produced good or service. -D: the benefit that a person receives from an expenditure by government minus the taxes that were collected by government to fund that expenditure.

C: a form of government spending that is not made in exchange for a currently produced good or service.

Refer to Assign. #1 Q. 21 -A: an increase in the price of cigarettes -B: placing a tax on cigarettes -C: a successful public awareness campaign against smoking -D: decreasing the price of marijuana, given that tobacco and marijuana are complements

C: a successful public awareness campaign against smoking

The CPI is a measure of the overall cost of the goods and services bought by -A: a typical consumer, and the CPI is computed and reported by the Department of the Treasury. -B: typical consumers and typical business firms, and the CPI is computed and reported by the Department of the Treasury. -C: a typical consumer, and the CPI is computed and reported by the Bureau of Labor Statistics. -D: typical consumers and typical business firms, and the CPI is computed and reported by the Bureau of Labor Statistics.

C: a typical consumer, and the CPI is computed and reported by the Bureau of Labor Statistics.

For the purpose of calculating GDP, investment is spending on -A: stocks, bonds, and other financial assets. -B: real estate and financial assets such as stocks and bonds. -C: capital equipment, inventories, and structures, including household purchases of new housing. -D: capital equipment, inventories, and structures, excluding household purchases of new housing.

C: capital equipment, inventories, and structures, including household purchases of new housing.

If total spending rises from one year to the next, then -A: the economy must be producing a larger output of goods and services. -B: goods and services must be selling at higher prices. -C: either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both. -D: employment or productivity must be rising.

C: either the economy must be producing a larger output of goods and services, or goods and services must be selling at higher prices, or both.

The Law of Demand states that -A: if everything else remains the same, when the price of a good increases, the quantity demanded of that good increases, and vice versa. -B: if everything else remains the same, when the price of a good increases, the quantity demanded of that good does not change. -C: if everything else remains the same, when the price of a good increases, the quantity demanded of that good decreases, and vice versa. -D: if everything else remains the same, when the price of a good decreases, the quantity demanded of that good decreases, and vice versa.

C: if everything else remains the same, when the price of a good increases, the quantity demanded of that good decreases, and vice versa.

-A: lead to a movement from point A to point B on the graph, indicating an increase in quantity demanded from Q to Q'. -B: lead to no movement on the graph, indicating that the quantity demanded will remain unchanged. -C: lead to a movement from point B to point A on the graph, indicating an decrease in quantity demanded from Q' to Q. -D: lead to an increase in demand in the coming few weeks

C: lead to a movement from point B to point A on the graph, indicating an decrease in quantity demanded from Q' to Q.

Consider a small economy in which consumers buy only two goods: pretzels and cookies. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that -A: the percentage change in the price of pretzels is equal to the percentage change in the price of cookies from year to year. -B: the number of pretzels bought by the typical consumer is equal to the number of cookies bought by the typical consumer in each year. -C: neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year. -D: neither the price of pretzels nor the price of cookies changes from year to year.

C: neither the number of pretzels nor the number of cookies bought by the typical consumer changes from year to year.

Refer to Assign. #2 Q. 5 -A: demand predicts that the price will rise by $2 to eliminate the shortage. -B: supply predicts that the price will rise by $2 to eliminate the shortage. -C: supply and demand predicts that the price will rise by $2 to eliminate the shortage. -D: supply and demand predicts that the price will fall by $2 to eliminate the shortage.

C: supply and demand predicts that the price will rise by $2 to eliminate the shortage.

A demand curve -A: represents the relationship between the price of a good and the quantity demanded of that good. -B: follows the Law of Demand. -C: is downward sloping. -D: All of the above are correct.