econ test 2

16. If a country had a trade deficit of $10 billion and then its exports rose by $20 billion and its imports rose by $10 billion, its net exports would now be A. $0 B. $10 billion. C. -$10 billion. D. -$20 billion.

A. $0

14. Refer to the above data. The national income is: A. $265. B. $223. C. $208. D. $346.

A. $265.

2. How much of each dollar spent by a consumer ultimately becomes income to someone else? A. 100 percent B. 67 percent C. It depends on how much labor was needed to produce the good the consumer buys. D. It depends on how much overhead there is in the distribution channel that delivers the good from the manufacturer to the consumer.

A. 100 percent

6. If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is: A. 11 percent. B. 33 percent. C. 91 percent. D. 10 percent.

A. 11 percent.

7. Which of the following institutional structures is most likely to promote growth? A. A well-enforced system of patents and copyrights. B. A tightly regulated market system. C. A system of tariffs and other trade barriers to protect domestic companies. D. All of these.

A. A well-enforced system of patents and copyrights.

8. Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase? A. Spain's B.the U.S.'s C. Spain's and the U.S.'s D. neither Spain's nor the U.S.'s

A. Spain's

5. Which of the following is a final good or service? A. a haircut B. fertilizer purchased by a farm supplier C. diesel fuel bought for a delivery truck D. Chevrolet windows purchased by a General Motors assembly plant

A. a haircut

5. Inflation is undesirable because it: A. arbitrarily redistributes real income and wealth. B. invariably leads to hyperinflation. C. usually is accompanied by declining real GDP. D. reduces everyone's standard of living.

A. arbitrarily redistributes real income and wealth

1. A nation's gross domestic product (GDP): A. can be found by summing C + Ig + G + Xn. B. is the dollar value of the total output produced by its citizens, regardless of where they are living. C. can be found by summing C + S + G + Xn. D. is always some amount less than its NDP.

A. can be found by summing C + Ig + G + Xn.

4. Compound interest: A. describes how quickly an interest-bearing asset increases in value. B. measures the rate of return of a portfolio of stocks and bonds. C. measures the after-tax, inflation-adjusted rate of interest. D. refers to the multiple rates of interest of various types of bonds in a portfolio.

A. describes how quickly an interest-bearing asset increases in value.

11. Payments to shareholders from corporate profits are known as: A. dividends. B. capital gains. C. interest. D. appreciation.

A. dividends

1. Economic growth is best defined as an increase in: A. either real GDP or real GDP per capita. B. nominal GDP. C. total consumption expenditures. D. wealth in the economy.

A. either real GDP or real GDP per capita.

9. A competitive market system: A. encourages growth by allowing producers to make profitable investment decisions based on market signals. B. encourages growth by ensuring that everyone in society will receive a decent standard of living. C. discourages growth because firms busy competing have no time to innovate or invest. D. discourages growth unless government protects domestic firms from foreign competition.

A. encourages growth by allowing producers to make profitable investment decisions based on market signals.

14. For any country, if the world price of copper is higher than the domestic price of copper without trade, that country should A. export copper, since that country has a comparative advantage in copper. B. import copper, since that country has a comparative advantage in copper. C. neither export nor import copper, since that country cannot gain from trade. D. neither export nor import copper, since that country already produces copper at a low cost compared to other countries.

A. export copper, since that country has a comparative advantage in copper.

14. The U.S. Federal government is unlikely to default on its bond payments because: A. if necessary, it can print the money needed to make payments on time. B. its bond payments are insured. C. the U.S. Federal budget usually runs a surplus, providing ample funds for repaying debt. D. of all of these.

A. if necessary, it can print the money needed to make payments on time.

3. An unexpected increase in total spending will cause an increase in GDP: A. if prices are sticky. B. if prices are fully flexible. C. regardless of whether prices are sticky or fully flexible. D. only if prices are stuck in the long term.

A. if prices are sticky.

5. Depreciation of the dollar will: A. increase the prices of U.S. imports, but decrease the prices of U.S. exports. B. decrease the prices of U.S. imports, but increase the prices of U.S. exports. C. increase the prices of both U.S. imports and exports. D. decrease the prices of both U.S. imports and exports.

A. increase the prices of U.S. imports, but decrease the prices of U.S. exports.

3. The GDP is the: A. monetary value of all final goods and services produced within a nation in a particular year. B. national income minus all nonincome charges against output. C. monetary value of all economic resources used in producing a year's output. D. monetary value of all goods and services, final and intermediate, produced in a specific year.

A. monetary value of all final goods and services produced within a nation in a particular year.

8. In calculating GDP, governmental transfer payments, such as social security or unemployment compensation, are: A. not counted. B. counted as investment spending. C. counted as government spending. D. counted as consumption spending.

A. not counted

7. Refer to the above diagram. If U.S. consumers increase their travel to Euro Zone nations, we would expect: A. the demand for euros to increase, and the euro to appreciate. B. the demand for euros to increase, and the dollar to appreciate. C. the supply of euros to increase, and the euro to depreciate. D. the supply of euros to decrease, and the dollar to depreciate.

A. the demand for euros to increase, and the euro to appreciate

11. Human capital refers to: A. the skills and knowledge that enable a worker to be productive. B. machinery used by labor in production. C. the accumulated financial wealth of households. D. physical capital owned by households rather than businesses.

A. the skills and knowledge that enable a worker to be productive.

2. Present value is best defined as the: A. worth today of future expected returns or costs. B. worth in the future of a current flow of returns or costs. C. current worth of a financial asset purchased in the past. D. expected future value of a financial asset purchased today.

A. worth today of future expected returns or costs

13. Refer to the above data. The net domestic product is: A. $233. B. $255. C. $230. D. $348.

B. $255.

5. What are the two most important factors influencing investor preferences? A. The desire for high rates of return and the thrill of uncertainty. B. The desire for high rates of return and dislike of risk and uncertainty. C. An equal balance between stocks and bonds, and high rates of return. D. Stable rates of return and balance between private and public sector financial assets.

B. The desire for high rates of return and dislike of risk and uncertainty.

10. Paul, a Canadian citizen, purchases oranges grown in Florida. This purchase is an example of A. a U.S. import and a Canadian export B.a U.S. export and a Canadian import C. an export for both the U.S. and Canada D. an import for both Canada and the U.S.

B. a U.S. export and a Canadian import

15. When shares of stock are sold for more than they are purchased, the difference received by the seller is referred to as: A. a dividend. B. a capital gain. C. interest. D. economic profit.

B. a capital gain.

2. A nation's true gain from international trade is: A. increased employment in export industries. B. an overall increase in output obtained through specialization and exchange. C. added technological knowledge. D. the tariff revenue that goes to the national treasury.

B. an overall increase in output obtained through specialization and exchange.

10. Who is least likely to be hurt by unanticipated inflation? A. a disabled laborer who is living off accumulated savings B. an owner of a small business C. a secretary D. a pensioned steelworker

B. an owner of a small business

12. Critics of economic growth: A. contend that growth and industrialization reduce pollution. B. argue that economic growth does not resolve socioeconomic problems such as an unequal distribution of income and wealth. C. point out that growth results in greater economic security for workers. D. say that its benefits accrue nearly exclusively to white males.

B. argue that economic growth does not resolve socioeconomic problems such as an unequal distribution of income and wealth.

1. Recurring upswings and downswings in an economy's real GDP over time are called: A. recessions. B. business cycles. C. output yo-yos. D. total product oscillations.

B. business cycles.

6. A small increase in the annual rate of economic growth can lead to a larger increase in growth over time due to the effects of A. the money supply. B. compounding. C. regression towards the mean. D. averaging.

B. compounding.

8. "Too much money chasing too few goods" best describes: A. the GDP gap. B. demand-pull inflation. C. the inflation premium. D. cost-push inflation.

B. demand-pull inflation.

9. Owners of stock can receive ___________ from their shares; sellers of stock can receive ___________ from selling their shares. A. capital gains; dividends B. dividends; capital gains C. interest; dividends D. interest; capital gains

B. dividends; capital gains

2. The production of durable goods varies more than the production of nondurable goods because: A. durables purchases are nonpostponable. B. durables purchases are postponable. C. the producers of nondurables have monopoly power. D. producers of durables are highly competitive.

B. durables purchases are postponable.

2. Growth is advantageous to a nation because it: A. promotes faster population growth. B. lessens the burden of scarcity. C. eliminates the economizing problem. D. slows the growth of wants.

B. lessens the burden of scarcity.

4. For a nation's real GDP per capita to rise during a year: A. consumption spending must increase. B. real GDP must increase more rapidly than population. C. population must increase more rapidly than real GDP. D. investment spending must increase

B. real GDP must increase more rapidly than population.

4. Exchange rates are particularly important because: A. they present a challenge to financial speculators. B. they link the price levels of various nations to one another. C. they represent exceptions to the laws of demand and supply. D. equilibrium is never achieved in such markets.

B. they link the price levels of various nations to one another.

9. When Jamie, a U.S. citizen, purchases a wool jacket made in Ireland, the purchase is A. both a U.S. and Irish import. B.a U.S. import and an Irish export. C. a U.S. export and an Irish import. D. neither an export nor an import for either country.

B.a U.S. import and an Irish export.

11. Net exports of a country are the value of A. goods and services imported minus the value of goods and services exported. B.goods and services exported minus the value of goods and services imported. C. goods exported minus the value of goods imported. D. goods imported minus the value of goods exported.

B.goods and services exported minus the value of goods and services imported.

13. When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy, A. producer surplus increases and total surplus increases in the market for that good. B.producer surplus increases and total surplus decreases in the market for that good. C. producer surplus decreases and total surplus increases in the market for that good. D. producer surplus decreases and total surplus decreases in the market for that good.

B.producer surplus increases and total surplus decreases in the market for that good.

3. Which of the following statements best reflects the concept of present value? A. "The savings bond I bought five years ago is now worth $1000." B. "My $100 savings bond will be worth $200 in 10 years." C. "You owe me $500, due at the end of the year, but I will reduce your debt to $450 if you pay me now." D. "The $5000 in my savings account is worth less today than five years ago because of inflation."

C. "You owe me $500, due at the end of the year, but I will reduce your debt to $450 if you pay me now."

6. Refer to the above diagram. The equilibrium dollar price of euros is: A. $0.625. B. $1.20. C. $1.60. D. $2.00.

C. $1.60.

12. Refer to the above data. The gross domestic product is: A. $326. B. $282. C. $307. D. $300.

C. $307.

8. Which of the following is a difference between stocks and bonds? A. Stocks are issued for a fixed period; bonds are not. B. Stocks pay interest; bonds pay dividends. C. Bond payouts are more predictable than payouts from stocks. D. Bonds represent ownership; stocks represent debt.

C. Bond payouts are more predictable than payouts from stocks.

1. Which of the following concepts provides the basic rationale for international trade? A. Increasing opportunity costs. B. Consumer sovereignty. C. Comparative advantage. D. The law of supply.

C. Comparative advantage.

7. In national income accounting, consumption expenditures include: A. purchases of both new and used consumer goods. B. consumer durable goods and consumer nondurable goods, but not services. C. consumer durable goods, consumer nondurable goods, and services. D. changes in business inventories.

C. consumer durable goods, consumer nondurable goods, and services.

12. In general, risk levels and average expected rates of return are: A. not related. B. inversely related. C. directly related. D. as often inversely related as they are directly related.

C. directly related.

3. Since 1970, United States exports and imports have: A. grown absolutely, but remained a constant proportion of GDP. B. grown absolutely, but declined as a proportion of GDP. C. grown both absolutely and as a percentage of GDP. D. declined both absolutely and as a percentage of GDP.

C. grown both absolutely and as a percentage of GDP.

3. Which of the following best measures improvements in the standard of living of a nation? A. growth of nominal GDP B. growth of real GDP C. growth of real GDP per capita D. growth of national income

C. growth of real GDP per capita

4. Inflation means that: A. all prices are rising, but at different rates. B. all prices are rising and at the same rate. C. prices in the aggregate are rising, although some particular prices may be falling. D. real incomes are rising.

C. prices in the aggregate are rising, although some particular prices may be falling.

6. Tom Atoe grows tomatoes for home consumption. This activity is: A. excluded from GDP in order to avoid double counting. B. excluded from GDP because an intermediate good is involved. C. productive but is excluded from GDP because no market transaction occurs. D. included in GDP because it reflects production

C. productive but is excluded from GDP because no market transaction occurs.

10. A nation's infrastructure refers to: A. its ability to realize economies of scale. B. its stock of technological knowledge. C. public capital goods such as highways and sanitation systems. D. the productivity of its labor force.

C. public capital goods such as highways and sanitation systems.

12. Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will: A. fall by about 20 percent. B. fall by about 2 percent. C. rise by about 15 percent. D. rise by about 25 percent.

C. rise by about 15 percent.

9. Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from 100 to 105. The person's real income will: A. fall by about 20 percent. B. fall by about 2 percent. C. rise by about 15 percent. D. rise by about 25 percent.

C. rise by about 15 percent.

13. The rate of return on short-term U.S. government bonds is often referred to as the: A. Federal funds rate. B. discount rate. C. risk-free interest rate. D. yield rate.

C. risk-free interest rate.

4. If intermediate goods and services were included in GDP: A. the GDP would then have to be deflated for changes in the price level. B. nominal GDP would exceed real GDP. C. the GDP would be overstated. D. the GDP would be understated.

C. the GDP would be overstated.

13. Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of: A. 2 percent. B. 3 percent. C. 5 percent. D. 7 percent.

D. 7 percent.

1. What is the difference between economic and financial investments? A. Financial investments are sensitive to interest rates, economic investments are not. B. Economic investments add to the capital stock of an economy, financial investments do not. C. Economic investments are expressed in real (inflation adjusted) terms, financial investments are expressed in nominal terms. D. Financial investments include all purchases undertaken with the expectation of financial gain; economic investments include only purchases of new capital goods.

D. Financial investments include all purchases undertaken with the expectation of financial gain; economic investments include only purchases of new capital goods.

10. In the treatment of U.S. exports and imports, national income accountants: A. subtract exports, but add imports, in calculating GDP. B. subtract both exports and imports in calculating GDP. C. add both exports and imports in calculating GDP. D. add exports, but subtract imports, in calculating GDP.

D. add exports, but subtract imports, in calculating GDP.

7. Bond payments are generally more predictable than stocks because: A. interest on bonds is not taxable. B. stock prices and dividends exhibit little volatility. C. bonds generate higher average rates of return. D. bond owners know the size and timing of payments they will receive.

D. bond owners know the size and timing of payments they will receive.

5. If the economy's real GDP doubles in 18 years, we can: A. not say anything about the average annual rate of growth. B. conclude that its average annual rate of growth is about 5.5 percent. C. conclude that its average annual rate of growth is about 2 percent. D. conclude that its average annual rate of growth is about 4 percent.

D. conclude that its average annual rate of growth is about 4 percent.

7. Rising per-unit production costs are most directly associated with: A. frictional unemployment. B. structural unemployment. C. demand-pull inflation. D. cost-push inflation.

D. cost-push inflation.

11. Real income is found by: A. dividing nominal income by 70. B. multiplying nominal income by 1.03. C. dividing the price index (in hundredths) by nominal income. D. dividing nominal income by the price index (in hundredths).

D. dividing nominal income by the price index (in hundredths).

10. Limited liability rules: A. mean that bankrupt companies owe nothing to corporate bondholders. B. discourage investment in corporate stock. C. help prevent corporate fraud. D. encourage stock investing by limiting shareholder risk of loss.

D. encourage stock investing by limiting shareholder risk of loss.

8. Free trade: A. discourages growth by increasing competitive pressures on domestic firms. B. encourages growth by effectively eliminating all patent and copyright barriers to growth. C. discourages growth compared to circumstances where the government strongly controls foreign trade. D. encourages growth by promoting the rapid spread of new inventions and innovations.

D. encourages growth by promoting the rapid spread of new inventions and innovations.

15. A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has A. exports of $3 billion and a trade surplus of $1 billion. B. exports of $3 billion and a trade deficit of $1 billion. C. exports of $2 billion and a trade surplus of $1 billion. D. exports of $2 billion and a trade deficit of $1 billion.

D. exports of $2 billion and a trade deficit of $1 billion.

9. GDP is a A. stock because it measures income for the entire country. B. stock because it measures wealth at a distinct point in time. C. flow because dollar values are used. D. flow because it measures income over a period of time.

D. flow because it measures income over a period of time.

6. Bonds represent: A. a claim on company dividends. B. ownership of a company. C. all financial assets guaranteed to pay interest. D. loans to governments and corporations.

D. loans to governments and corporations.

11. The components of the expenditure approach to measuring GDP include all of the following EXCEPT A. net exports. B. government purchases of goods and services. C. expenditures for business investments. D. the implicit payments for unpaid household work.

D. the implicit payments for unpaid household work

12. The price of sugar that prevails in international markets is called the A. export price of sugar. B. import price of sugar. C. comparative-advantage price of sugar. D. world price of sugar.

D. world price of sugar.