VWCC ECO 201- Practice Final Exam

A

16.In an economy, the government wants to increase aggregate demand by $36 billion at each price level to increase real GDP and reduce unemployment. If the MPC is .75, then it could: A)reduce taxes by $12billion. B)reduce taxes by $10 billion. C)increase government spending by $18 billion. D)increase government spending by $12 billion.

B

17.Which situation causes a budget deficit to have the greatest expansionary effect? A)when automatic stabilizers are effective B)when it is financed by newly printed money C)when it occurs during a period of high inflation D)when it is financed by borrowing from the public

D

18.Which of the following is an example of an automatic stabilizer? As real GDP decreases, income tax revenues: A)and transfer payments decrease. B)and transfer payments increase. C)increase and transfer payments decrease. D)decrease and transfer payments increase.

A

19.Due to automatic stabilizers, when income rises, government transfer spending: A)decreases and tax revenues increase. B)increases and tax revenues decrease. C)and tax revenues increase. D)and tax revenues decrease.

B

2.A decrease in aggregate demand results in: A)no change in either the price level or domestic output. B)a decrease in the price level and a decrease in domestic output. C)a decrease in the price level and an increase in domestic output. D)no change in domestic output, but a decrease in the price level.

D

20.With a progressive tax system, as the level of income increases in an economy, the average tax rate will: A)remain the same. B)either decrease, increase, or remain the same. C)decrease. D)increase.

B

1.In the long-run, the aggregate supply curve is: A)downward "negative" sloping. B)vertical. C)upward "positive" sloping. D)horizontal.

B

10.Refer to the above diagram. The economy is at equilibrium at point B. What fiscal policy should be pursued to improve the condition of the economy? A)decrease aggregate demand from AD2to AD3 by decreasing government spending B)make no change because the economy is at or near its full-employment level of real output C)increase aggregate demand from AD2to AD1 by decreasing taxes D)decrease aggregate demand from AD2to AD3 by increasing taxes

D

11.Refer to the above diagram. The economy is at equilibrium at point C. What fiscal policy should be pursued to improve the condition of the economy? A)decrease aggregate demand from AD2to AD3 by increasing taxes B)increase aggregate demand from AD2to AD1 by decreasing taxes C)make no change because the economy is at or near its full-employment level of real output D)increase aggregate demand from AD3to AD2 by increasing government spending

D

12.Refer to the above diagram. A contractionary fiscal policy can best be represented by a: A)shift in the aggregate demand curve from AD3to AD2 . B)movement along the aggregate supply curve, SRAS. C)shift in the aggregate demand curve from AD2to AD1 . D)shift in the aggregate demand curve from AD1to AD2 .

B

13.Refer to the above diagram. An expansionary fiscal policy can best be represented by a: A)movement along the aggregate supply curve, SRAS. B)shift in the aggregate demand curve from AD3to AD2. C)shift in the aggregate demand curve from AD1to AD2. D)shift in the aggregate demand curve from AD1to AD3.

C

14.Which combination of fiscal policy actions would be preferred if an economy were in a deep recession? A)increase taxes and decrease government spending B)decrease taxes and government spending C)decrease taxes and increase government spending D)increase taxes and government spending

A

15.The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPC is .8. What would be the full increase in real GDP from the change in government spending assuming the increase would be in the horizontal range of the aggregate supply curve? A)$10 billion B)$16 billion C)$6 billion D)$8 billion

D

66. Which of the following would most likely encourage economic growth? A) a decrease in the government deficit B) an increase in household saving C) a change from an income tax to a consumption tax D) all of the above are likely

B

21.Refer to the above diagram. If the full-employment level of GDP for this economy is at H, the: A)actual budget will produce a surplus. B)full-employment budget will produce a deficit. C)full-employment budget will produce a surplus. D)actual budget will produce a deficit.

A

22.Refer to the above diagram. Automatic stability in this economy would be decreased by: A)changing the tax system so that the tax line has a flatter slope. B)shifting the government expenditure line upward but parallel to its current position. C)changing the tax system so that the tax line is shifted upward but parallel to its present position. D)changing the government expenditures line so that it has a negative slope.

C

23.The functions of money are to serve as a: A)resource allocator, method for accounting, and means of income distribution. B)factor of production, exchange, and aggregate supply. C)unit of account, store of value, and medium of exchange. D)determinant of consumption, investment, and government spending.

D

24.Money eliminates the need for a coincidence of wants primarily through its use as a: A)store of value. B)unit of account. C)standard of confidence. D)medium of exchange.

B

25.The major component of the money supply (M1) is: A)saving deposits. B)checkable deposits. C)Federal Reserve notes. D)gold certificates.

B

26.A decrease in the interest rate will cause a(n): A)increase in the transactions demand for money. B)increase in the amount of money held as an asset. C)decrease in the amount of money held as an asset. D)decrease in the transactions demand for money.

C

27.When the interest rate falls, the: A)total amount of money demanded decreases. B)transactions demand for money increases. C)total amount of money demanded increases. D)asset demand for money decreases.

D

28.Allocative efficiency means that: A)the least-costly methods are being used to produce a product. B)the law of increasing opportunity costs has reached a maximum. C)the amount of other products which must be sacrificed to obtain production of a given product is at a minimum. D)resources are being devoted to the production of products most desired by consumers.

D

29.Economic growth may be represented by a: A)production possibilities curve which remains fixed. B)point outside (to the right) of the production possibilities curve. C)leftward shift of the production possibilities curve. D)rightward shift of the production possibilities curve.

B

3.Fiscal policy is enacted through changes in: A)unemployment and inflation. B)taxation and government spending. C)the supply of money. D)interest rates

D

30.In a capitalistic economy: A)the government owns the means of production. B)markets can never be competitive. C)consumers can never be sovereign. D)there is a reliance on the market system.

A

31.Refer to the above table. Which technique is economically the most efficient way of producing Zenia? A)D B)A C)C D)B

B

32.Refer to the above table. If each of the 70 Zenias that are produced sells for $1 each, what will be the economic profit for the firm? A)$10 B)$13 C)$19 D)$ 7

B

33.Refer to the above table. If the price of labor declines from $3 to$2 per unit, then what is the least-costly way of producing Zenias? A)C B)B C)D D)A

C

34.Refer to the above graph, which shows the market for a product where D1and D2represent different demand curves. Which of the following could not explain an increase in price from P1to P2? A)an increase in the price of a substitute product B)an increase in consumer incomes C)an increase in production costs D)a decrease in the price of a complementary product

A

35.Refer to the above graph. An increase in quantity demanded would be a movement from point: A)4 to 1. B)6 to 4. C)2 to 5. D)3 to 1.

D

36.Refer to the above graph. An increase in demand would best be reflected by a change from: A)line Ato C . B)point 4 to 5. C)point 1 to 2. D)line Ato B .

A

37.Which is a factor that can cause a change in supply? A)technology B)number of consumers C)consumer income D)tastes and preferences

C

38.Which would cause a rightward shift in the supply curve for telephone service? A)an increase in consumer incomes in the economy B)an increase in the wage of telephone workers C)an improvement in telephone technology D)an increase in the price of telephones

C

39.Refer to the above diagram. The equilibrium price and quantity for milk in this market are: A)$1.00 and 35 million gallons. B)$2.00 and 20 million gallons. C)$1.50 and 28 million gallons. D)$1.50 and 30 million gallons.

B

4.Which are contractionary fiscal policies? A)decreased taxation and no change in government spending B)increased taxation and decreased government spending C)no change in taxation and increased government spending D)increased taxation and increased government spending

C

40.Refer to the above diagram. If the price were $2 per gallon, there would be a: A)surplus of 8 million gallons. B)shortage of 8 million gallons. C)surplus of 10 million gallons. D)shortage of 10 million gallons.

B

42.Refer to the above graph, which shows the market for bicycles. S1 and D1are the original supply and demand curves. D2and D3and S2and S3are possible new demand and supply curves. Starting from the initial equilibrium point (#1), what point on the graph is most likely to result from the introduction of technological improvements in bicycle assembly, and publicity campaigns by the government on the virtues of bicycling to work? A)4 B)5 C)6 D)3

A

43.Refer to the above graph, which shows the market for bicycles. S1 and D1are the original supply and demand curves. D2and D3and S2and S3are possible new demand and supply curves. Starting from the initial equilibrium point (#1), what point on the graph is most likely to result from an increase in wages of bicycle workers, and a significant increase in the price of gasoline? A)4 B)2 C)5 D)3

A

44.Refer to the above graph, which shows the market for bicycles. S1 and D1are the original supply and demand curves. D2and D3and S2and S3are possible new demand and supply curves. Starting from the initial equilibrium point (#1), what point on the graph is most likely to result from reports of increased accidents on roads involving cyclists, and the payment of subsidies to bicycle producers? A)6 B)3 C)5 D)4

D

45.If the supply of a good decreases and demand remains constant equilibrium price: A)and quantity will decrease. B)will decrease, and equilibrium quantity will increase. C)and quantity will increase. D)will increase, and equilibrium quantity will decrease.

C

46.If demand for a good decreases while supply remains unchanged, equilibrium price: A)will increase, and equilibrium quantity will decrease. B)and quantity will both increase. C)and quantity will both decrease. D)will decrease, and equilibrium quantity will increase.

A

47.If demand for a good increases and supply remains constant equilibrium price: A)and quantity will both increase. B)and quantity will both decrease. C)will increase, and equilibrium quantity will decrease. D)will decrease, and equilibrium quantity will increase.

A

48.Refer to the above data. United States exports are: A)$24 billion. B)$28 billion. C)$16 billion. D)$9 billion.

B

49.Refer to the above data. GDP is: A)$315 billion. B)$360 billion. C)$367 billion. D)$324 billion.

B

5.If the Congress passes legislation to cut taxes to counter the effects of a severe recession, then this would be an example of a: A)nondiscretionary fiscal policy. B)discretionary fiscal policy. C)contractionary fiscal policy. D)political business cycle.

B

50.Refer to the above data. Depreciation is: A)$38 billion. B)$15 billion. C)$21 billion. D)$40 billion.

D

51.Refer to the above data. Personal income is: A)$265 billion. B)$169 billion. C)$311 billion. D)$231 billion.

C

52.Refer to the above data. Net domestic product is: A)$315 billion. B)$309 billion. C)$345 billion. D)$335 billion.

C

53.Unemployment that occurs when there is deficient demand for the goods and services of an economy is called: A)natural unemployment. B)structural unemployment. C)cyclical unemployment. D)frictional unemployment.

C

54.A mismatch between the geographic location of workers and the location of job openings would result in what type of unemployment? A)cyclical B)frictional C)structural D)wait

D

55.The rate of unemployment when the economy is at its potential output is called the: A)structural rate of unemployment. B)frictional rate of unemployment. C)full-employment rate of unemployment. D)natural rate of unemployment.

A

56.A nation has a population of 260 million people. Of these, 50 million are retired, in the military, or in institutions. There are 188 million who are employed and 12 million who are unemployed. What is the unemployment rate? A)6 percent B)4 percent C)27 percent D)9 percent

A

57.Inflation is a rise in: A)the general level of prices over time. B)real GDP. C)industrial production. D)the standard of living over time.

D

58.The above diagram is best described as an idealized: A)activity fluctuation. B)prosperity cycle. C)seasonal variation. D)business cycle.

C

59.Refer to the above diagram. The phases of the business cycle from points A to D are, respectively: A)peak, recession, recovery, trough. B)expansion, recession, trough, peak. C)peak, recession, trough, recovery. D)trough, recovery, expansion, peak.

B

6.If the Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n): A)political business cycle. B)contractionary fiscal policy. C)nondiscretionary fiscal policy.D)expansionary fiscal policy.

B

60.A peak in the business cycle: A)occurs when unemployment is widespread. B)occurs when domestic production potential is reached. C)occurs when the inflation rate is its lowest. D)none of the above.

C

61.When real GDP and employment are declining for six months or longer is called a: A)secular trend. B)trough. C)recession. D)business cycle.

A

62. An increase in the demand for loanable funds will occur if there is A) an increase in expected profits from firm investment projects. B) an increase in the nominal interest rate accompanied by an equal increase in inflation. C) an increase in the real interest rate. D) a decrease in the real interest rate.

B

63. Borrowers are ________ of loanable funds, and lenders are ________ of loanable funds. A) suppliers; demanders B) demanders; suppliers C) suppliers; suppliers D) demanders; demanders

C

64. When the government runs a budget deficit, A) the equilibrium interest rate will fall. B) household savings will fall. C) business investment will fall. D) none of the above

A

65. The response of investment spending to an increase in the government budget deficit is called A) crowding out. B)private dissaving. C) income minus net taxes. D)expansionary investment.

A

7.In an aggregate demand and aggregate supply graph, a contractionary fiscal policy can be illustrated by a: A)leftward shift in the aggregate demand curve. B)rightward shift in the aggregate demand curve. C)movement along an existing aggregate supply curve. D)rightward shift in the aggregate supply curve.

C

8.In an aggregate demand and aggregate supply graph, an expansionary fiscal policy can be illustrated by a: A)change in the price level. B)leftward shift in the aggregate demand curve. C)rightward shift in the aggregate demand curve. D)leftward shift in the aggregate supply curve.

D

9.Refer to the above diagram. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to improve the condition of the economy? A)increase aggregate demand by decreasing taxes B)decrease aggregate supply by increasing taxes C)increase aggregate demand by increasing government spending D)decrease aggregate demand by increasing taxes