Sample Exam #51. The study of economics is primarily concerned with:

A) keeping private businesses from losing money. B) demonstrating that capitalistic economies are superior to socialistic economies. C) choices that are made in seeking the best use of resources. D) determining the most equitable distribution of society's output.

2. Which of the following is an economic explanation for why most college-aged movie stars do not attend college.

A) they are too dumb to get into collegeB) they would find college life boringC) the opportunity cost in terms of reduced income is too greatD) they cannot afford the room, board, and tuition fees most colleges charge.

3. Which of the following statements pertains to macroeconomics? A) Because the minimum wage was raised, Mrs. Olsen decided to enter the labor force. B) A decline in the price of soybeans caused farmer Wanek to plant more land in wheat. C) National income grew by 2.7 percent last year. D) The Pumpkin Center State Bank increased its interest rate on consumer loans by 1 percentage point.

4. Normative statements are concerned with: A) facts and theories. B) what ought to be. C) what is.D) rational choice involving costs and benefits.

5. The budget line shows: A) the amount of product A that a consumer is willing to give up to obtain one more unit of product B. B) all possible combinations of two goods that can be purchased, given money income and the prices of

the goods. C) the minimum amount of two goods that a consumer can purchase with a given money income. D) all possible combinations of two goods that yield the same level of utility to the consumer.

6. An increase in money income: A) shifts the consumer’s budget line to the right. C) increases the slope of the budget line. B) shifts the consumer’s budget line to the left. D) has no effect on the budget line.

7. Which of the following is a capital resource?A) a computer programmerB) a corporate bond issued by a computer manufacturerC) silicon (sand) used to make computer chipsD) a piece of software used by a firm

8. Which of the following will not produce an outward shift of the production possibilities curve? A) an upgrading of the quality of a nation's human resources B) the reduction of unemployment C) an increase in the quantity of a society's labor force D) the improvement of a society's technological knowledge

Answer the next question on the basis of the data given in the following production possibilities table:

9. Refer to the above table. If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods will be:

A) 4 units of capital goods. B) 2 units of capital goods.C) 3 units of capital goods.D) 1/3 of a unit of capital goods.

10.Assume an economy is operating at some point on its production possibilities curve, which shows civilian and military goods. If the output of military goods is increased, the output of civilian goods:

A) will remain unchanged.B) may be either increased or decreased.C) must be decreased.D) must also be increased.

11.In the figure above are two linear production possibilities curves for countries Alpha and Beta. We can conclude that:

A) different value systems make it impossible to compare opportunity costs in the two countries. B) the opportunity cost of shelter is greater in Beta than it is in Alpha. C) the opportunity cost of food is greater in Alpha than it is in Beta. D) the opportunity cost of shelter is greater in Alpha than it is in Beta.

12.Refer to the above production possibilities curve. At the onset of the Second World War the United States had large amounts of idle human and property resources. Its economic adjustment from peacetime to wartime can best be described by the movement from point:

A) c to point b. B) b to point c. C) a to point b. D) c to point d.

Answer the next question(s) on the basis of the following production possibilities tables for two countries, North Cantina and South Cantina:

13.Refer to the above tables. The opportunity cost of the fifth unit of capital goods: A) is higher in North Cantina than in South Cantina. B) is the same in North Cantina and South Cantina. C) is lower in North Cantina than in South Cantina. D) cannot be determined from the information provided.

14.The point on the production possibilities curve that is most desirable can be found by: A) estimating the marginal costs of both products in real or physical terms. B) comparing marginal benefits and marginal costs. C) determining where least-cost production occurs. D) calculating where economic growth will be greatest.

15.Refer to the above diagram for athletic shoes. If the current output of shoes is Q3, then: A) resources are being allocated efficiently to the production of shoes. B) society would consider additional units of shoes to be more valuable than alternative products. C) society would consider additional units of shoes to be less valuable than alternative products. D) society would experience a net gain by producing more shoes.

Use the following to answer:

16.Refer to the above diagram. The concept of opportunity cost is best represented by the: A) shift of the production possibilities curve from PP1 to PP2. B) move from B on PP1 to E on PP2. C) move from B on PP1 to C on PP1. D) move from D inside PP1 to B on PP1.

17.If all discrimination in the United States were eliminated, the economy would: A) have a less concave production possibilities curve. B) produce at some point closer to its production possibilities curve. C) be able to produce at some point outside of its production possibilities curve. D) produce more consumer goods and fewer investment goods.

18.Which of the following best illustrates the post hoc, ergo propter hoc fallacy? A) Because it was 90 degrees today, I worked up a sweat playing tennis. B) I took the day off work to go to the beach and that's why it rained. C) Because it rained at the football game, my new sweater got wet. D) Because I have studied diligently this semester, my grade average has improved.

19.Economic systems differ according to what two main characteristics? A) Who owns the factors of production, and the methods used to coordinate economic activity.

B) The technology used in production, and the quantity and quality of natural resources. C) How goods are produced, and who gets them. D) The political system in place, and the degree of scarcity facing the economy.

20.Competition means that: A) sellers can manipulate market price by causing product scarcities. B) there are independently-acting buyers and sellers in each market. C) a product can be purchased at a number of different prices. D) there is more than one seller in a market.

21.The use of money contributes to economic efficiency because: A) governmental direction of the production and distribution of output can be avoided by using money. B) roundabout production could not occur without the availability of money. C) it is necessary for the creation of capital goods. D) it promotes specialization by overcoming the problems with barter.

22.Economic profits and losses: A) are both considered by economists to be a part of production costs. B) are essential to the reallocation of resources from less desired goods to more desired goods. C) have no influence on the composition of the domestic output. D) equalize the distribution of income in the long run.

23.In a market economy the distribution of output will be determined primarily by: A) consumer needs and preferences. B) the quantities and prices of the resources that households supply. C) government regulations that provide a minimum income for all. D) a social consensus as to what distribution of income is most equitable.

24.The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially:

A) "With as much machinery as possible."B) "Using the latest technology."C) "By exploiting labor."D) "At least-cost production."

25.Consumer sovereignty refers to the: A) fact that resource prices are higher than product prices in capitalistic economies. B) idea that the pursuit of self-interest is in the public interest. C) idea that the decisions of producers and resource suppliers with respect to the kinds and amounts of

goods produced must be appropriate to consumer demands. D) fact that a Federal agency exists to protect consumers from harmful and defective products.

26.Two major virtues of the market system are that it: A) allocates resources efficiently and allows economic freedom. B) results in an equitable personal distribution of income and always maintains full employment. C) results in price level stability and a fair personal distribution of income. D) eliminates discrimination and minimizes environmental pollution.

27.If products were in short or surplus supply in the Soviet Union: A) price and profit signals eliminated those shortages and surpluses. B) price and profit signals intensified those shortages and surpluses. C) producers would not react because no price or profit signals occurred. D) the planners would immediately adjust produciton to achieve equilibrium.

28.According to Dallas Federal Reserve economist W. Michael Cox, taken to its extreme, the logic of “buying American” implies that:

A) we should buy everything from abroad.B) people should only consume what they can produce themselves. C) consumers should only buy goods from other states. D) the best quality goods are found in the United States.

29.An economist for a bicycle company predicts that, other things equal, a rise in consumer incomes will increase the demand for bicycles. This prediction is based on the assumption that:

A) there are many goods that are substitutes for bicycles. B) there are many goods that are complementary to bicycles. C) there are few goods that are substitutes for bicycles. D) bicycles are normal goods.

30.If consumer incomes increase, the demand for product X: A) will necessarily remain unchanged. B) may shift either to the right or left.C) will necessarily shift to the right.

D) will necessarily shift to the left. 31.Assume that the demand schedule for product C is downsloping. If the price of C falls from $2.00 to $1.75:

A) a smaller quantity of C will be demanded. B) a larger quantity of C will be demanded.C) the demand for C will increase.

D) the demand for C will decrease.

32.An improvement in production technology will: A) increase equilibrium price. B) shift the supply curve to the left.C) shift the supply curve to the right.

D) shift the demand curve to the left. Use the following to answer the next question:

33.Refer to the above table. Suppose that demand is represented by columns (3) and (2) and supply is represented by columns (3) and (5). If the price were artificially set at $9, a:

A) the market would clear.B) a surplus of 20 units would occur.C) a shortage of 20 units would occur.D) demand would change from columns (3) and (2) to columns (3 and (1).

Use the following to answer the next question:

34.Refer to the above diagram. A price of $60 in this market will result in: A) equilibrium. B) a shortage of 50 units. C) a surplus of 50 units. D) a surplus of 100 units.

35.Other things equal, the provision of a per unit subsidy for a product will: A) increase its supply. B) increase its price.C) decrease the quantity sold.

D) decrease its demand.

Use the following to answer the next question:

36.Which of the above diagrams illustrate(s) the effect of an increase in automobile worker wages on the market for automobiles?

A) A only.B) B only. C) C only. D) D only.

Use the following to answer the following question:

37.Refer to the above diagram. A government-set maximum permissible interest rate is best illustrated by:A) price B. B) quantity E. C) price C. D) price A.

38.Economists define saving as: A) that part of after-tax income which is not consumed. B) total income less taxes. C) bank accounts. D) purchases of stocks and bonds.

39.As it relates to corporations, the principal-agent problem is that:A) the goals of the corporate managers (the principals) may not match the goals of the corporate owners

(the agents).B) the goals of the corporate managers (the agents) may not match the goals of the corporate owners

(the principals).C) the Federal government (the agent) taxes both corporate profits and the dividends paid to

stockholders (the principals).D) It is costly for the corporate owners (the principals) to obtain a corporate charter from government

(the agent).40.Pollution:

A) should be corrected by the subsidization of offending firms. B) is not an economic problem because it is external to the market system. C) is an example of private production costs. D) is an example of an external cost.

41.Government rather than private firms must provide economically desirable public goods because:A) high marginal costs preclude their production in the private sector. B) public goods have characteristics that make it difficult or impossible for private firms to produce them

profitably.C) public goods have marginal costs that exceed marginal benefits.D) the law of increasing opportunity costs applies only to private goods.

42.As a proportion of domestic outputs, taxes in the United States: A) are lower than in most other industrially advanced countries. B) are higher than in most other industrially advanced countries. C) are approximately the same as in most other industrially advanced countries. D) doubled in the 1990s.

Answer the next question on the basis of the following data:

43.Refer to the above data. If your taxable income increases from $4000 to $5000, you will encounter a marginal tax rate of:

A) 40 percent. B) 25 percent. C) 15 percent. D) 10 percent.

44.The problems of corporations such as Enron and WorldCom occurred because:A) they failed to offer stock to executives to encourage profit-seeking decisions.B) providing stock as part of executive compensation encouraged fraudulent practices designed to

exaggerate profits and artificially inflate the value of the stock.C) incompetent auditing failed to identify unprofitable practices.D) the industries in which those companies operated were no longer profitable.

45.The major goods exports of the United States (in dollar volume) are: A) chemicals, consumer durables, agricultural products, and semiconductors.B) petroleum, automobiles, clothing, and household appliances. C) iron and steel, clothing, beef, and sugar. D) aircraft, glassware, television sets, and furniture.

Answer the next question on the basis of the following production possibilities tables for countries Alpha and Beta:

46.Refer to the above tables. The domestic opportunity cost of one unit of X in Alpha is: A) 2 units of Y. B) 4 units of Y. C) 1 unit of Y. D) 3 units of Y.

47.Refer to the above tables. Which one of the following terms of trade would be acceptable to both countries? A) 1 unit of X for 3 units of Y B) 1 unit of X for 5 units of YC) 1 unit of X for 12 units of Y

D) 1 unit of X for 1 unit of Y 48.Import quotas are:

A) maximum limits on the quantity or total value of specific products imported to a nation. B) excise taxes or duties placed on imported products. C) licensing requirements, unreasonable quality standards, and the like designed to impede imports. D) government payments to domestic producers to reduce the world prices of exported goods.

49.Which of these groups of nations are all members of the Euro Zone?A) Great Britain, France, and SwitzerlandB) France, Germany, and ItalyC) Denmark, Sweden, and NorwayD) Russia, Poland, and Hungary

50.The nations of the Euro Zone have:A) abandoned their national currencies and switched to a common currency.B) abandoned their national currencies and switched to American dollars.C) formed a single country called the Union of European Nations (UEN).D) recently admitted 10 new members.

51.A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the: A) more elastic the supply curve. B) larger the elasticity of demand coefficient.C) more elastic the demand for the product.

D) more inelastic the demand for the product. 52.Other things the same, if a price change causes total revenue to change in the opposite direction, demand is:

A) perfectly inelastic. B) relatively elastic. C) relatively inelastic. D) of unit elasticity.

53.The main determinant of elasticity of supply is the: A) number of close substitutes for the product available to consumers. B) amount of time the producer has to adjust inputs in response to a price change. C) urgency of consumer wants for the product. D) number of uses for the product.

54.An antidrug policy which reduces the supply of heroin might:A) increase street crime because the addict's demand for heroin is highly inelastic. B) reduce street crime because the addict's demand for heroin is highly elastic. C) reduce street crime because the addict's demand for heroin is highly inelastic. D) increase street crime because the addict's demand for heroin is highly elastic.

Use the following to answer the next question:

55.Refer to the above diagram. Assuming equilibrium price P1, producer surplus is represented by areas: A) a + b. B) a + b + c + d. C) c + d. D) a + c.

56.Suppose that a business incurred implicit costs of $500,000 and explicit costs of $5 million in a specific year. If the firm sold 100,000 units of its output at $50 per unit, its accounting:

A) profits were $100,000 and its economic profits were zero. B) losses were $500,000 and its economic losses were zero. C) profits were $500,000 and its economic profits were $1 million. D) profits were zero and its economic losses were $500,000.

Use the following data to answer the next question:

57.Refer to the above data. When total product is diminishing, marginal product is: A) positive and increasing. B) positive and decreasing. C) constant. D) negative.

58.If a technological advance reduces the amount of variable resources needed to produce any level of output, then the:

A) AVC curve will shift upward. B) MC curve will shift downward.C) ATC curve will shift upward.

D) AFC curve will shift downward.

59.Which of the following is incorrect? A) Total fixed cost does not change with output in the short run. B) Fixed costs exist only in the short run. C) Total fixed cost must be added to total variable cost to determine total cost. D) Total fixed cost equals total variable cost in the long run.

60.The long-run average total cost curve: A) will rise if diminishing returns are encountered. B) will fall if diminishing returns are encountered. C) will rise if economies of scale are incurred. D) is based on the assumption that all resources are variable.

61.Which of the following is not a basic characteristic of pure competition? A) considerable nonprice competition B) no barriers to the entry or exodus of firmsC) a standardized or homogeneous product

D) a large number of buyers and sellers 62.The nondiscriminating monopolist's demand curve:

A) is less elastic than a purely competitive firm's demand curve. B) is perfectly elastic. C) coincides with its marginal revenue curve. D) is perfectly inelastic.

63.The pure monopolist's demand curve is relatively elastic: A) in the price range where total revenue is declining. B) at all points where the demand curve lies above the horizontal axis. C) in the price range where marginal revenue is negative. D) in the price range where marginal revenue is positive.

64.Which of the following statements is incorrect? A) A monopolist's 100 percent market share ensures economic profits. B) The monopolist's marginal revenue is less than price for any given output greater than 1. C) A monopolistic firm produces a product having no close substitutes. D) A pure monopolist's demand curve is the industry demand curve.

65.An important economic problem associated with pure monopoly is that, at the profit maximizing outputs, resources are:

A) overallocated because price exceeds marginal cost. B) overallocated because marginal cost exceeds price. C) underallocated because price exceeds marginal cost. D) underallocated because marginal cost exceeds price.

66.If the long-run average total cost curve of an industry is declining at the point where it intersects the industry demand curve, we can expect:

A) an overallocation of resources. B) the industry will be purely competitive. C) the industry will be monopolistically competitive. D) the industry will be a natural monopoly.

67.Monopolistically competitive and purely competitive industries are similar in that: A) both are assured of short-run economic profits. B) both produce differentiated products. C) the demand curves facing individual firms are perfectly elastic in both industries. D) there are few, if any, barriers to entry.

68.Which of the following statements concerning a monopolistically competitive industry is correct? A) If there are short-run losses, firms will leave the industry and the demand curves of the remaining

firms will shift to the right. B) If there are short-run economic profits, firms will enter the industry and the demand curves of

existing firms will shift to the right. C) If there are short-run losses, firms will leave the industry and the demand curves of the remaining

firms will shift to the left. D) If there are short-run economic profits, firms will leave the industry and the demand curves of the

remaining firms will shift to the right. 69.An industry having a four-firm concentration ratio of 85 percent:

A) approximates pure competition. B) is monopolistically competitive.C) is a pure monopoly.

D) is an oligopoly. 70.The kinked-demand curve model of oligopoly:

A) assumes a firm's rivals will ignore a price cut but match a price increase. B) embodies the possibility that changes in unit costs will have no effect on equilibrium price and

output. C) assumes a firm's rivals will match any price change it may initiate. D) assumes a firm's rivals will ignore any price change it may initiate.

71.In which of the following market models do individual firms exert no control over product price? A) oligopoly B) pure monopoly C) monopolistic competition D) pure competition

72.Suppose firm X implements a new process for extracting copper from copper-bearing ore. This is an example of:

A) product innovation. B) process innovation. C) economics of scale. D) the inverted-U theory.

73.Assume that a firm's interest-rate-cost of funds curve for R&D is perfectly elastic. Which of the following would decrease a firm's optimal R&D expenditures and, in equilibrium, increase the expected rate of return on the last dollar of R&D?

A) a rightward shift of the expected-rate-of-return curveB) an upward shift of the interest-rate-cost of funds curveC) a leftward shift of the expected-rate-of-return curveD) a downward shift of the interest-rate-cost of funds curve

74.Which of the following supports the contention that pure competitors have a strong incentive to engage in R&D?

A) Entry to purely competitive industries is easy and thus profit from innovation is quickly competed away.

B) Pure competitors cannot risk being complacent about innovation, since a new product, production technique, or distribution method could undermine their normal profit and drive them out of the market.

C) Most purely competitive industries are increasing-cost industries. D) Pure competitors are happy to earn only a normal profit.

75.According to some supporters of the minimum wage, it has very small or even nonexistent negative employment effects because:

A) the demand for minimum wage labor is highly elastic.B) it reduces turnover among minimum wage workers, prompts employers to use them more efficiently,

and thus raises their average productivity.C) it encourages teenagers to stay in school.D) employers substitute lower fringe benefits for higher pay, keeping their compensation costs the

same.76.A firm is likely to be a natural monopoly:

A) when the demand for its product or service is inelastic. B) if it is producing an inferior good. C) if economies of scale are experienced over the full range of output. D) because government grants it an exclusive franchise.

77.Critics of social regulation argue that it: A) causes deflation. B) violates the due process clause of the U.S. constitution. C) is a relatively greater burden for small firms than for large firms. D) improves allocative efficiency.

Use the following to answer the next question:

78.Refer to the above diagram. If output changes from a poor crop, Qp, to a bumper crop, Qb: A) farm incomes will decrease. B) farm incomes will increase.C) price and quantity will both increase.

D) farm incomes may either rise or fail. 79.Acreage allotment programs were designed to:

A) reduce the supply of agricultural products. B) make the demand for farm products more price elastic. C) bolster the demand for agricultural commodities. D) accelerate the movement of human resources out of farming.

80.The Gini ratio:A) measures the relative extent of poverty in a nation.B) compares the income of persons, households, or households at the 90th percentile of the income

distribution to the income at the 10th percentile.C) is a numerical measure of the overall dispersion of income in a nation.D) is found by dividing the entire area below and to the right of the diagonal in the Lorenz diagram by

the area between the diagonal and Lorenz curve.

81.The distribution of U.S. income by quintiles: A) reveals a marked increase in the relative importance of the middle class between 1970 and 2004.B) shows considerably more inequality in the distribution of income immediately after the Second World

War than presently. C) shows a movement toward greater inequality since 1970. D) shows a sharp movement toward greater equality since the Second World War.

82.Which of the following terms describes a system of subsidized health insurance available to the aged? A) Medicare B) Supplemental Security Income (SSI) C) Medicaid D) TANF

83.The health care market is characterized by: A) important ethical-equity considerations. B) asymmetric information between providers and consumers. C) third-party payment of health care costs. D) all of the above.

Use the following to answer next question:

84.Refer to the above demand and supply diagram that relates to the health care market. If suppliers provide the quantity of health care demanded and insurance pays one-half of the equilibrium price of the health care good or service depicted above, the immediate price to the consumer and the quantity of health care consumed would be:

A) P1 and Q1. B) P1 and Q2. C) P2 and Q2. D) P2 and Q1.

85.Which of the following Congressional proposals relating to health care was enacted under President George W. Bush?

A) establishment of health maintenance organizations to reduce health care costs.B) establishment of deductibles and copayments in health insurance policies.C) provision of prescription drug coverage under Medicare.D) establishment of fixed Medicare payment to hospitals based on one of several hundred diagnostic

categories. 86.Economic discrimination:

A) affects the distribution of domestic output and income, but not its total size.B) is shown as some point outside of an economy's production possibilities curve.C) places the economy at some point inside of its production possibilities curve.D) affects the total size of domestic output and income, but not its distribution.

87.An employer whose discrimination coefficient is zero will:A) refuse to hire African-Americans at any wage rate.B) hire only whites if African-American and white wages are the same.C) randomly hire African-American and white workers if the actual African-American-white wage

differential is also zero.D) refuse to hire whites at any wage rate.

88.Since 1980, labor union membership in the United States has been: A) increasing absolutely and as a percentage of the labor force. B) increasing absolutely but declining as a percentage of the labor force. C) decreasing absolutely and as a percentage of the labor force. D) decreasing absolutely but increasing as a percentage of the labor force.

89.GDP includes: A) neither intermediate nor final goods. B) both intermediate and final goods.C) intermediate, but not final, goods.

D) final, but not intermediate, goods. 90.If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the

country's capital stock: A) may have either increased or decreased. B) increased by $65 billion.C) increased by $55 billion.

D) decreased by $55 billion. 91.The largest component of national income is:

A) compensation of employees. B) rents. C) interest. D) corporate profits.

Answer the next question(s) on the basis of the following information: Only three goods are produced in an economy in the following amounts: A = 10, B = 30, C = 5. The current year per unit prices of these three goods are A = $2, B = $3, and C = $1. 92.Refer to the above information. Nominal GDP in the current year is:

A) $110. B) $115. C) $45. D) $90.

93.Refer to the above information. If the per unit prices of the three goods each were $1 in a base year used to construct a GDP price index, then the GDP price index in the current year is:

A) 205.5. B) 255.5. C) 39.3. D) 100.

94.At an annual growth rate of 4 percent, real GDP will double in about:A) 17 ½ years. B) 20 years. C) 13 ½ years. D) 15 years.

95.The unemployment rate is the: A) ratio of unemployed to employed workers. B) number of employed workers minus the number of workers who are not in the labor force. C) percentage of the labor force that is unemployed. D) percentage of the total population that is unemployed.

96.For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of:

A) Taylor's rule. B) Okun's law. C) Say's law. D) the Coase theorem.

97.Suppose the nominal annual interest rate on a two year loan is 8 percent and lenders expect inflation to be 5 percent in each of the two years. The annual real rate of interest is:

A) 6 percent. B) 8 percent. C) 2 percent. D) 3 percent.

98.The consumption schedule is drawn on the assumption that as income increases consumption will: A) be unaffected. B) increase absolutely, but remain constant as a percentage of income. C) increase absolutely, but decline as a percentage of income. D) increase both absolutely and as a percentage of income.

99.The wealth effect is shown graphically as a:A) shift of the consumption schedule.B) movement along an existing consumption schedule.C) shift of the investment schedule.D) movement along an existing investment schedule.

Answer the next two questions on the basis of the following consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars.

100.Refer to the above data. The marginal propensity to consume in economy (1) is: A) .5. B) .3. C) .8. D) .7.

101.Refer to the above data. Suppose that consumption decreased by $2 billion at each level of DI in each of the three countries. We can conclude that the:

A) marginal propensity to consume will remain unchanged in each of the three countries. B) marginal propensity to consume will decline in each of the three countries. C) average propensity to save will fall at each level of DI in each of the three countries. D) marginal propensity to save will rise in each of the three countries.

102.A high rate of inflation is likely to cause a: A) high nominal interest rate. B) low nominal interest rate.C) low rate of growth of nominal GDP.

D) decrease in nominal wages.

Answer the next question on the basis of the following table that illustrates the multiplier process.

103.Refer to the above table. The total change in consumption resulting from the initial change in investment will be:

A) $100. B) $96. C) $180. D) $80.

104.Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.:

A) aggregate demand curve would shift to the right. B) aggregate supply curve would shift to the left. C) aggregate supply curve would shift to the right. D) aggregate demand curve would shift to the left.

Use the following to answer the next question:

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Answer the following question(s) on the basis of this information.

105.Refer to the above information. Given an increase in input price from $4 to $6, we would expect the aggregate:

A) supply curve to shift to the left. B) supply curve to shift to the right.C) demand curve to shift to the left.

D) demand curve to shift to the right. 106.If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect:

A) aggregate demand to decrease and aggregate supply to increase. B) both aggregate demand and aggregate supply to decrease. C) both aggregate demand and aggregate supply to increase. D) aggregate demand to increase and aggregate supply to decrease.

107.The fear of unwanted price wars may explain why many firms are reluctant to:A) reduce wages when a decline in aggregate demand occurs.B) reduce prices when a decline in aggregate demand occurs.C) expand production capacity when an increase in aggregate demand occurs.D) provide wage increases when labor productivity rises.

108.Discretionary fiscal policy will stabilize the economy most when: A) deficits are incurred during recessions and surpluses during inflations. B) the budget is balanced each year. C) deficits are incurred during inflations and surpluses during recessions. D) budget surpluses are continuously incurred.

109.Which of the following statements is correct? A) Built-in stability only partially offsets fluctuations in economic activity. B) Built-in stability works in halting inflation, but it cannot alleviate unemployment. C) Built-in stability can be relied on to eliminate completely any fluctuation in economic activity. D) Built-in stability has eliminated the need for discretionary fiscal policy.

Use the following to answer the next question:

110.Refer to the above diagram. Assume that G and T2 are the relevant curves, the economy is currently at A, and the full-employment GDP is B. This economy has a(n):

A) standardized budget surplus.B) actual budget deficit.C) standardized budget deficit.D) actual budget surplus.

111.The financing of a government deficit increases interest rates and, as a result, reduces investment spending. This statement describes:

A) the supply-side effects of fiscal policy. B) built-in stability.C) the crowding-out effect.

D) the net export effect. 112.The largest proportion of the public debt is held by:

A) the U.S. public (individuals, businesses, financial institutions, etc.) and state and local governments. B) foreign individuals and institutions. C) the Federal Reserve System.D) U.S. government agencies.

113.Currency held in the vault of First National Bank is: A) counted as part of M1. B) counted as part of M2, but not M1. C) counted as part of MZM. D) not counted as part of the money supply.

Use the following to answer the next question:

Money market mutual fund balances held by businesses $100Money market mutual fund balances held by individuals

220

Currency in banks 10Currency in circulation 60Saving deposits, including money market deposit accounts

50

Large ($100,000 or more) time deposits 180Small (less than $100,000) time deposits 80Checkable deposits 70

114.Refer to the above information. Money supply M2 for this economy is:A) $480. B) $130. C) $490. D) $630.

115.The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 in:A) mutual fund companies and pension fund companies.B) thrifts and insurance companies.C) commercial banks and thrifts.D) securities firms and insurance companies.

116.Credits cards are:A) the fastest growing component of the M1 money supply.B) near-monies that are part of the MZM money supply but not part of the M2 or M1 money supplies.C) not money, officially defined.D) also known as time deposits.

Answer the next question on the basis of the following information for the Moolah Bank.

Reserves $ 100Checkable deposits 1000Loans (to customers) 300Property 400Securities (owned) 300Stock shares 0

117.Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's:A) assets are $1000. B) liabilities are $1000. C) net worth is zero. D) profit is $1000.

118.The value of the monetary multiplier is: A) 1/MPS. B) 1/Excess Reserves. C) 1/MPC. D) 1/Required Reserve Ratio.

119.Other things equal, if the required reserve ratio was lowered: A) banks would have to reduce their lending. B) the size of the monetary multiplier would increase. C) the actual reserves of banks would increase. D) the Federal funds interest rate would rise.

120.The transactions demand for money will shift to the: A) right when the interest rate increases. B) left when the interest rate decreases.C) right when aggregate income increases.

D) right when aggregate income decreases. 121.Which of the following is an asset on the consolidated balance sheet of the Federal Reserve Banks?

A) loans to commercial banks B) Federal Reserve Notes in circulationC) Treasury deposits

D) reserves of commercial banks Answer the next question on the basis of the following consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 10 percent. All figures are in billions and each question should be answered independently of changes specified in the preceding ones.

122.Refer to the above data. Suppose the Fed wants to increase the money supply by $400 billion to drive down interest rates and stimulate the economy. To accomplish this it could:

A) sell $20 billion of U.S. securities to the banks.B) buy $20 billion of U.S. securities from the banks.C) sell $40 billion of U.S. securities to the banks.D) buy $40 billion of U.S. securities from the banks.

123.Generally, the prime interest rate:A) moves in the opposite direction as the Federal funds rate.B) remains constant over long periods of time.C) is highly inflexible downward.D) moves in the same direction as the Federal funds rate.

124.If the Fed were to purchase government securities in the open market, we would anticipate: A) lower interest rates, an expanded GDP, and depreciation of the dollar. B) lower interest rates, an expanded GDP, and appreciation of the dollar. C) higher interest rates, a contracted GDP, and depreciation of the dollar. D) lower interest rates, a contracted GDP, and appreciation of the dollar.

125.The problem of cyclical asymmetry refers to the idea that: A) a restrictive monetary policy can force a contraction of the money supply, but an expansionary

monetary policy may not achieve an increase in the money supply. B) the monetary authorities have been less willing to use an expansionary monetary policy than they

have a restrictive monetary policy. C) cyclical downswings are typically of longer duration than cyclical upswings. D) an expansionary monetary policy can force an expansion of the money supply, but a restrictive

monetary policy may not achieve a contraction of the money supply. 126.Countries engaged in international trade specialize in production based on:

A) relative levels of GDP.B) comparative advantage.C) relative exchange rates.D) relative inflation rates.

127.The law of increasing opportunity costs: A) applies to land-intensive commodities, but not to labor-intensive or capital-intensive commodities. B) results in straight-line production possibilities curves rather than curves that are bowed outward from

the origin. C) refutes the principle of comparative advantage. D) may limit the extent to which a nation specializes in producing a particular product.

128.Suppose the United States eliminates high tariffs on German bicycles. As a result, we would expect: A) the price of German bicycles to increase in the United States. B) employment to decrease in the German bicycle industry. C) employment to decrease in the U.S. bicycle industry. D) profits to rise in the U.S. bicycle industry.

129.The organization created to oversee the provisions of multilateral trade agreements, resolve disputes under the international trade rules, and meet periodically to consider further trade liberalization is called the:

A) International Monetary Fund (IMF).B) World Trade Organization (WTO).C) Common Market Organization (CMO).D) International Trade Commission (ITC).

130.If a nation has a current account surplus and it does not have to make any inpayments or outpayments of official reserves, it must have a:

A) surplus in its capital and financial account.B) balance of payments deficit.C) balance of payments surplus.D) deficit in its capital and financial account.

131.Suppose the balance on the financial account is + $200 billion and the balance on the capital account is + $2 billion. The size of the current account is:A) + $200 billion. B) - $202 billion. C) - $198 billion. D) + $2 billion.

Use the following to answer the next question:

Answer the next question(s) on the basis of the following information: In 1985, the exchange rate between the U.S. dollar and the Japanese yen was $1 = 262 yen; in 2003, the rate was $1 = 110 yen.

132.Present consumption supported by large trade deficits may come at the expense of: A) permanent debt to foreign interests. B) permanent foreign ownership of formerly U.S. owned assets. C) large sacrifices of future consumption. D) all of the above.

133.Refer to the above information. Which one of the following might be a plausible explanation for the change in the dollar-yen exchange rate cited in the previous question?

A) Japan exported much more to the United States during this period than it imported from the United States.

B) Japan greatly increased its purchases of military equipment from the United States during this period. C) Japan's economy grew far faster than the U.S. economy during this period. D) Japan's government devalued the yen during this period.

134.The very poorest low-income DVCs typically have relatively: A) low rates of economic growth and relatively high rates of population growth. B) high rates of economic growth and relatively low rates of population growth. C) low rates of both population growth and economic growth. D) high rates of both population growth and economic growth.

135.Infrastructure is best illustrated by: A) farm equipment. B) school buildings and highways. C) machinery and equipment for the production of consumer goods. D) government tax revenues.

136.Economic growth in the DVCs might increase if IACs:A) reduce their tariffs and import quotas.B) encourage more immigration of high-skilled DVC workers.C) outlaw direct private investment abroad by IAC corporations.D) discourage capital flight to the DVCs.