ECO 216-501 Practice Test

Which of the following news stories would typically be studied in macroeconomics?

"What if economic growth is no longer possible?", "we believe inflation should rule monetary policy", "expectations high for march employment".

Profits earned by Shane from the production unit he set up in Country A.

GDP only

Income earned by Mary when she worked at a foreign branch of her domestic company for 6 months.

GNP only

For a trade to take place, a buyers willingness to pay must be _______.

Higher than the sellers willingness to accept and equal to the sellers willingness to accept.

Firm B sources watches worth $450 each from international factories and sells them to its domestic customers.

Imports

Why might one consider the value of depreciation in estimates of national​ income?

Including depreciation gives more complete picture of economic production; failing to do so overstates what society can consume.

If opportunity cost were to suddenly increase, total cost would

Increase and net benefit would decrease

Hewlett-Packard has 200,000 new printers worth $500 million in its stores waiting to be sold.

Investment

In which of the following examples is prescriptive analysis necessary?

Jay chooses to go to Europe rather than China because of the huge discounts

Daryl gets free refreshments and lunch allowances at work.

Labor income

Luke recieved Amazon gift cards from his office at Christmas.

Labor income

Adrian likes to play loud music in her apartment, which gets under her neighbors skin. One of Adrian's neighbors, Seth, bought noise-cancelling earphones and installed sound proof windows to get some peace. This scenario shows an example of _____.

a negative externality

The statement that the US government should increase carbon taxes to reduce carbon emissions that cause global warming is ______.

a normative statement, since it describes what ought to be done and is therefore not possible to confirm with data.

The definition of economics states that if the study of how _______.

agents choose to allocate scarce resources and the impact of those choices on society.

If the level of aggregate expenditure was​ $16.8 trillion in​ 2013, the level of aggregate income in the economy during 2013 was​ ___________.

also $16.8 trillion because of the identity between aggregate expenditure and income.

Marginal analysis _______ picks out _______ optimum as minimization of total cost.

always; the same

Positive externalities occur when an economic activity has a spillover ______ that ________ affect those directly engaged in the activity.

benefit; does not

Since there are only a limited of apartments near the city center, these apartments will be allocated based on _______ that you face. This process is known as _______.

both the costs and benefits; optimization

Which of the following statements are true?

equilibrium is attained when princes are allowed to respond to market pressure; A binding price ceiling will always cause the quantity demanded to exceed the quantity supplied.

If nominal GDP for 2017 is $56 trillion and real GDP for 2017 is $45 trillion, then the GDP deflator for 2017 is _____.

124.44

Which of the following statements about the principles of economics is false?

An investors selecting and investing in a stock or a combination of stocks that always earns him 15% returns on his investment is an example of optimization.

Which of the following are examples of under ground economic activites?

Bob is engaged in the trade of illegal drugs, endangered animals, and organs; Sylvia moved to country Z last month and has applied for a work visa. She is working secretly in the meantime and accepting salary in cash; Carla is a professor at a university and she also tutors students privately for some extra income on which she does not pay taxes.

Kelly earns rent on the 1 hectare of land she inherited from her mother.

Capital income

Rebecca enjoys the benefits of living in her apartment in central London.

Capital income

Debra went to bowling alley and paid $20 for a game.

Consumption

What tool would you employ to analyze the relationship between gasoline prices and consumer behavior?

Economic models

Frim A's earnings from the sale of its products internationally are around $15 billion.

Exports

Yasmin earns revenue by selling perfumes sourced from factories in country B to her domestic clients.

GDP and GNP only

The government pays $500 billion interest on its national debt, and its social security expenditure was $800 billion this year.

Not included

Which of the following is the best example of causation (versus correlation)?

Oil prices go up and gasoline prices go up

Which of the following statements would not be considered a positive statement?

Production in the automobile industry is still low and should be subsidized by the government

Suppose you have just been hired as a management consultant by a major oil company to help it optimally price gasoline at its service stations. In your first presentation to management, how would you describe your planned methodology to perform the analysis?

Scientific method

GDP calculations include

Seth's private cost of earphones and windows.

What does it mean to say that we are running out of "cheap oil"?

That oil reserves are becoming more expensive to find and extract over time

What is meant by capital depreciation?

The reduction in the value of physical capital due to obsolescence or wear and tear.

When deciding whether to install visible countdown timers for pedestrians at crosswalks, which of the following would be considered in the cost benefit analysis?

The value of the pedestrians lives saved by having the timers to assist in crossing the street, the cost in terms of dollars of installing these new timers all over the city, the higher maintenance bill associated with fixing these more complex signals when they break down, the value of the lives lost by drivers who watch the countdown timers and try to make it through a light.

Which of the following is not true about economic models?

They are not useful, since they do no include all variables

Using the concept of a natural experiment, which of the following statements is true about the scenario?

This is a decent natural experiment

Which of the following ways of distributing the laptops would be more efficient?

Using flexible prices so those who value the laptop more would pay more for it, Using a random lottery to decide who gets the laptops, Auctioning off the laptops to the highest bidders

Suppose you have a flashlight that takes three batteries to power it. If you buy the batteries one at a time, for which purchase will diminishing benefits set in?

When you buy the fourth battery

Which of the following identities is the national income accounting identity?

Y=C+I+G+X-M

Does the principle of optimization imply the people always make the best choices?

Yes, it is a good approximation for the decisions people make

Does the principle of optimization imply that people always make the best choices?

Yes, it is good approximation for the decisions people make

What is meant by comparative statics? explain with an example

a change in an outcome, such as a consumption, that results from a change in a factor, such as the price

Holding all else equal, if the price of a digital camera rises, then we can expect

a decrease in the quantity demanded of digital cameras

You should collect ______ amount of data to create ______ to test the _______ indicated by the economic model.

a large; empirical evidence; hypothesis

All of the following are properties of the most exciting economic questions, except good questions

cannot be answered

In a perfectly competitive market, sellers ____ and buyers ____.

cannot change more than the market price; cannot pay less than the market price.

In a perfectly competitive market, sellers ______ and buyers ________.

cannot change more then the market price; cannot pay less then the market price.

Comparing a set of feasible alternatives and picking the best one is an optimization process called​ _________.

cost-benefit analysis

Negative externalities occur when an economic activity has a spillover _____ that ______ affect those directly engaged in the activity.

cost; does not

To adjust for nominal variables and find the value of past income in terms of todays values, divide the _____ years price index by the ______ years price index and then multiply the result by the ______ years values.

current; past; past

Suppose you have a part time job and earn $400 a month. Suppose you decide to spend your income buying new shoes and jeans. The chart below shows the possible combinations that could be purchased in a month. Assume jeans cost $50 each and shoes cost $100 each. The table above shows that for a given budget if you increase the amount of one type of good that you buy, you must ______ that amount of the other good that you buy. Therefore, a budget constraint implies that the consumer faces ______.

decrease; trade offs

Based on what happened at the Richmond event, it is apparent that at a price of $50, the quantity _______ of laptops exceeded the quantity ________. This resulted in an excess _______ for laptops.

demanded; supplied; demand

The concept of diminshing marginal benefits means that ________.

each additional unit consumed is worth less to you than the previous one.

The concept of diminishing benefits ________ for goods that you like a lot.

holds true

The distribution of GDP between different factions within an economy most closely relates to the ____ method of aggregate accounting. The fact that the value of GDp remains equal regardless of whether GDP is measured by what people are earning or what they are producing is referred to as an

income; identity

Which of the following statements explain positive economics?

it can be rejected or amended depending on the evidence available, the predictions are testable.

Which of the following statements regarding marginal analysis are true?

it focuses on the difference between one feasible alternative and the feasible alternative, it is often faster to implement than optimization using total value

Which of the following is common between optimization using total value and optimization using marginal analysis?

it is cost benefit analysis technique for optimization

Which of the following is not an important property of an economic model?

it predicts actual results over half the time

In a perfectly competitive market, if one seller chooses to charge a price for its good that is slightly higher than the market price, then it will _____.

lose all or almost all of its customers

In a perfectly competitive market, if one seller chooses to charge a price for its good that is sightly higher than the market price, then it will _______.

lose all or almost all of its customers.

A competitive market will

move towards equilibrium quantity because both producers and consumers act in their own best interest.

Mason and Jack are neighbors. Mason wants to buy a new outdoor grill so he can bbq. Mason has two options, a charcoal grill or a gas grill. By using _______, he chooses to buy a gas grill. Mason knows that jack would borrow his grill without asking; therefore, decides to use ______ in order to prevent his neighbor Jack from becoming a free rider.

prescriptive economic analysis; equilibrium analysis

An aggregated demand curve is created by summing the _______ on the individual demand ______.

quantity demanded at each price; curves

The market value of the watches sold by firm B will be _______ subtracted in the expenditure based GDP calculation.

subtracted

The level of economic activity is calculated using the income method by ______.

summing labor income and capital income, tracking the flow of funds from firms to the owners of the factors of production, adding together the income payments received by the various agents in the economy.

A budget constraint represents ________.

the bundles of goods or activities that a consumer can choose given her limited budget.

Why of the following cases can create a free rider problem?

the street light on the road; use of public parks by local

What does this imply for the price of oil in the future?

the supply of oil will decrease, which will lead to higher prices in the future

Which of the following does not support the concept of an economic agent?

their decisions do not have an effect on the economy of the country, all economic agents are individuals

The lowest price that a seller is willing to receive to sell an extra unit of a good is called __________, while the highest price that a buyer is willing to pay for an extra unit of a good is called _________.

willingness to accept; willingness to pay