Practice exam for Midterm #1

The demand and supply curves for T-shirts can be given by: Q= 12,000 -2000 P and Q = 6000 + 1000 P the equilibrium price of a T-shirt and quantity are? HINT: 12,000 - 2000P = 6000 + 1000P

$2 and 8000

Both Arnold and Will work 10 hours a day. Arnold can produce six baskets of goods per hour while Will can produce four baskets of the same goods per hour. It follows that Arnold's

-productivity is greater than Will's -output is greater than Will's -standard of living is higher than Will's

The current price of blue jeans is $30 per pair, but the equilibrium price of blue jeans is $25 per pair. As a result,

-the quantity supplied of blue jeans exceeds the quantity demanded of blue jeans at the $30 price -the equilibrium quantity of blue jeans exceeds the quantity demanded at the $30 price -there is a surplus of blue jeans at the $30 price

The president of a poor country has announced that he will implement the following measures which he claims are designed to increase growth: 1. Reduce corruption in the legal system; 2. Reduce reliance on market forces because they allocate goods and services in an unfair manner; 3. Restrict investment in domestic industries by foreigners because they take some of the profits out of the country; 4. Encourage trade with neighboring countries; and 5. Increase the fraction of output devoted to consumption. How many of these measures will have a positive effect on growth?

2

The current US Unemployment rate is closest to

5%

Which of the following is NOT a characteristic of a perfectly competitive market? -Sellers must accept the price the market determines. -There are many sellers. -Different sellers sell identical products. -All of the above are characteristics of a perfectly competitive market.

All of the above are characteristics of a perfectly competitive market.

US government T-bills

Are usually purchased at a discount to their principal

Which of the following would decrease the demand for blue pens? A) an increase in the price of blue pens B) a decrease in the price of BLACK pens C) a decrease in the price of blue pens D) an increase in the price of BLACK pens E) both A and B

B) a decrease in the price of black pens

Which of the following scenarios best illustrates the concept of cyclical unemployment? Grace loses her job because of new automated machinery. Sean quits his job to look for work that is more fun. Ellen quits looking for work because she doesn't think she can find a suitable job. Marian loses her job because of a recession.

Marian loses her job because of a recesssion

If the Federal Reserve decides to sell T-bills, How will this affect the price of T-bills and the interest rate?

T-bill prices fall and interest rates rise

On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L represents output (Y) per worker (L). The shape of the curve is consistent with which of the following statements about the economy to which the curve applies?

There are diminishing returns to the capital to labor ratio

If there is a positive correlation between X and Y then

X causes Y Y causes X There may be an omitted variable Z

A shift in the supply curve of bicycles resulting from lower wages for bicycle assembler workers will lead to

a larger output of bicycles

If a surplus exists in a market then we know that the actual price

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

Which of the following is likely to affect the position and shape of society's production possibilities frontier? -the number of workers -level of worker skills -level of technology -amount of factories on hand -All of the above are correct.

all of the above are correct

What would cause the PPF to move outward in the following year

an increase in the amount of physical capital

If the labor market was perfectly competitive then

at equilibrium in the market there would be full employment

An issuer of a bond is

borrowing money

If scientists discover that steamed milk, which is used to make lattes, prevents heart attacks, what would happen to the equilibrium price and quantity of lattes?

both the equilibrium price and quantity would increase

A change in price of a product causes a movement along the demand curve for that product from one point to another point. What factors that would cause a shift in the demand are held constant when this happens?

consumer incomes and the prices of other related goods

If a good is an inferior good, then an increase in income will result in a(n)

decrease in the demand for the good

The view of the production function is that physical capital labor is subject to

diminishing returns

Stock prices fell throughout much of 2007 and 2008 and many investors decided to switch their funds into the bond market. What only about 30 percent of surveyed investors knew was that as bond prices rise, interest rates

fall in reaction to the increased demand for bonds.

An example of a perfectly competitive market would be the market for

gold

Which of the following statements about the term of a bond is correct? -Term refers to the various characteristics of a bond, including its interest rate and risk. -yields on short-term bonds are usually higher than yields on long-term bonds. -The term of a bond never changes. -Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

The US unemployment rate

is the number unemployed divided by the labor force

The horizontal sum of all the firm's supply curves for a product is called

market supply

Jai Li just lost her job because of a downturn in the economy. She hasn't yet started looking for a new one. The Bureau of Labor Statistics counts Jai Li as

neither in the labor force nor unemployed

Each of the following is a determinant of demand except the prices of related goods. production technology. expectations. tastes and preferences

production technology

A basic principle of economics is that a country's standard of living depends on its...

productivity

accumulating physical capital

requires that society sacrifice consumption goods in the present

If the penalty for stealing Ford cars increases, we can expect criminals to

steam more Honda cars AND steal less Ford cars

The US 3 year T-note and the US 5 year T-note could be thought of as

substitutes

"Moonshine" is an illegal home brew made by adding sugar to accelerate corn fermentation. Ten pounds of sugar are necessary to make a gallon of moonshine. In the mid-1970s, the price of sugar tripled and the price of moonshine skyrocketed from $6 to $15 a gallon. Which would explain this?

supply decreased

Workers at a bicycle assembly plant currently earn the mandatory minimum wage. If the federal government increases the minimum wage by $1.00 per hour, then it is likely that the

supply of bicycles will shift to the left

Amy discovers a way to produce water heaters so they are less expensive and use less natural gas. Amy's discovery is

technological knowledge. If Amy's discovery leads to lower natural gas prices, it has made natural gas less scarce.

A movement along the supply curve might be caused by a change in

the demand for the good if the demand increases

When used in an economic sense rather than a scientific sense, the law of supply and demand refers to

the process of prices adjusting so that quantity demanded and quantity supplied are equal.

In January, 2,500 quarts of ice cream are sold in Boston at $2 a quart. In February, 3,000 quarts are sold at $2.50 a quart. This change in quantity sold and price may have been caused by

the release of a medical study showing that ice cream consumption improves mental health.

In an attempt to reduce poaching of elephant tusks for ivory, officials in Kenya burned illegally gathered ivory. Economists tend to point out that

the supply of ivory has fallen, leading to an increase in price and reward for poachers

A university's football stadium is never more than half-full during football games. This indicates:

the ticket price is above the equilibrium price.

Keynes thought that the classical theory of unemployment might be wrong because

the wage might not be flexible

The 10 year US Treasury Note with a face value of $10,000 that you bought last week yielding 2.8% just dropped in price yesterday. You paid $9,500 for it but now they are selling for $9,200. This means that...

the yield on the 10-year notes have increased

If the supply of a product increases, then we would expect equilibrium price

to decrease and equilibrium quantity to increase

Which of the following is human capital?

understanding how to use a company's accounting software

if the demand for labor decreased and wages did not fall what would occur

unemployment

All of the following would be considered inputs in the production function except: -labor (L) -physical capital (K) -wages (W) -technology (A) -human capital (HC)

wages

You are thinking of buying a bond from Bluestone Corporation. You know that this bond is long term and you know that Bluestone's business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct? -The longer term would tend to make the interest rate (yield) on the bond issued by Bluestone lower, while the higher risk would tend to make the interest rate (yield) higher. -Both the longer term and the higher risk would tend to make the interest rate (yield) higher on the bond issued by Bluestone. -Both the longer term and the higher risk would tend to make the interest rate lower (yield) on the bond issued by Bluestone. -The longer term would tend to make the yield on the bond issued by Bluestone higher, while the higher risk would tend to make the yield lower.

Both the longer term and the higher risk would tend to make the interest rate (yield) higher on the bond issued by Bluestone.