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ECO 202 final multiple choice

STUDY
PLAY
Refer to the above tables. Suppose that North Cantina is producing 2 units of capital goods and 17 units of consumer goods while South Cantina is producing 2 units of capital goods and 21 units of consumer goods. We can conclude that:
South Cantina is fully and efficiently using its resources, but North Cantina is not.
Other things equal, an increase in a consumer's money income:
shifts her budget line rightward because she can now purchase more of both products.
Alex sees that his neighbors' lawns all need mowing. He offers to provide the service in exchange for a wage of $20 per hour. Some neighbors accept Alex's offer and others refuse. Economists would describe Alex's behavior as:
rational self-interest, because he attempting to increase his own income by identifying and satisfying someone else's wants.
The basic difference between consumer goods and capital goods is that
consumer goods satisfy wants directly while capital goods satisfy wants indirectly
Which of the following statements pertains to macroeconomics?
Correct National income grew by 2.7 percent last year.
Refer to the above diagram. Which line(s) show(s) a negative vertical intercept?
Correct both B and C.
The production possibilities curve illustrates the basic principle that:
if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.
Refer to the above diagram. All other things equal, curve C
is a more desirable production possibilities curve for an economy than curve A.
In the above diagram the vertical intercept and slope are:
4 and -11/3 respectively.
Microeconomics is concerned with:
a detailed examination of specific economic units that make up the economic system.
The most efficient combination of resources in producing a given output is the combination that:
can be obtained for the smallest money outlay.
On the basis of the above information it can be said that:
Correct no coincidence of wants exists between any two states.
From society's point of view the economic function of profits and losses is to:
reallocate resources from less desired to more desired uses.
Refer to the above diagram. Flow (3) represents:
goods and services.
Which of the following is a fundamental characteristic of the market system?
property rights.
The two basic markets shown by the simple circular flow model are:
product and resource
If products were in short or surplus supply in the Soviet Union:
producers would not react because no price or profit signals occurred
The "coincidence of wants" problem associated with barter refers to the fact that:
for exchange to occur each seller must have a product that some buyer wants.
(Consider This) Since World War II:
South Korea's market economy has significantly outperformed North Korea's command economy.
Which of the following best describes the invisible-hand concept?
The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.
Suppose that corn prices rise significantly. If farmers expect the price of corn to continue rising relative to other crops, then we would expect:
the supply to increase as farmers plant more corn.
One reason that the quantity demanded of a good increases when its price falls is that the:
lower price increases the real incomes of buyers, enabling them to buy more.
(Consider This) Suppose that coffee growers sell 200 million pounds of coffee beans at $2 per pound in 2007, and sell 240 million pounds for $3 per pound in 2008. Based on this information we can conclude that the:
demand for coffee beans has increased.
By an "increase in demand" economists mean that:
the quantity demanded at each price in a set of prices is greater
Refer to the above. An increase in the price of a product that is a close substitute for X will:
increase D, increase P, and increase Q.
Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. Other things equal, a shift of the supply curve from S0 to S1 might be caused by a(n):
increase in the wage rates paid to laborers employed in the production of X.
(Last Word) A market for human organs (rather than the current volunteer-donor system) would be expected to:
eliminate the shortage of organs.
Refer to the above diagram, which shows demand and supply conditions in the competitive market for product X. A shift in the demand curve from D0 to D1 might be caused by a(n):
increase in the price of complementary good Y.
Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market:
demand has increased and equilibrium price has decreased.
Refer to the above. An increase in income, if X is a normal good, will
increase D, increase P, and increase Q.
Which of the following will NOT increase the average productivity of labor?
An increase in the size of the labor force
Refer to the above diagram. Which of the following is the most likely cause for a shift in the production possibilities curve from AB to CD?
An increase in the quantity and quality of labor resources
Which is the single most important source of U.S. economic growth?
Increases in labor productivity
A nation's real GDP will increase by increasing the following, except:
Average price level
A nation's real GDP was $250 billion in 2009 and $265 billion in 2010. Its population was 120 million in 2009 and 125 million in 2010. What is its real GDP per capita in 2010?
$2,120 per person
Consider two scenarios for a nation's economic growth. Scenario A has real GDP growing at an average annual rate of 3.5%; scenario B has an average annual growth of 4.5%. The nation's real GDP would double in about:
20 years under scenario A, versus 16 years under scenario B
A piece of software that benefits many users at the same time would be an example of
Simultaneous consumption
In the periods 1995-2001 and 2001-2007, U.S. real GDP grew at the average annual rates of about:
3.8 % and 2.6%, respectively
Nation A's real GDP was $520 billion in 2009 and $550 billion in 2010. Its population was 150 million in 2009 and 155 million in 2010. On the other hand, Nation B's real GDP was $200 billion in 2009 and $210 billion in 2010; and its population was 53 million in 2009 and 55 million in 2010. Which of the following statements is true?
Nation A's real GDP growth in 2010 is higher than Nation B's
A nation's average annual real GDP growth rate is 2.5%. Based on the "rule of 70", the approximate number of years that it would take for this nation's real GDP to double is:
28 years
Wait unemployment and search unemployment are both types of:
frictional unemployment.
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:
rise by about 15 percent
Which of the following formulas is correct? Percentage change in:
real income approximates percentage change in nominal income minus percentage change in price level.
Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percent of potential GDP is:
8 percent
At the economy's natural rate of unemployment:
the economy achieves its potential output.
Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result:
the official unemployment rate will remain unchanged.
Which of the following would most likely occur during the expansionary phase of the business cycle?
Demand-pull inflation
The relationship between the size of the negative GDP gap and the unemployment rate is:
direct.
Under which of the following circumstances would we observe the greatest increase in real income?
Nominal income falls by 2 percent, and the price level falls by 10 percent.
Refer to the above information. The rate of inflation:
cannot be determined from the data.
When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift:
both the consumption and saving schedules downward.
Refer to the above graph. A shift of the consumption schedule from C1 to C2 might be caused by a:
wealth effect of an increase in stock market prices.
Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:
20 percent.
Refer to the above graph. A movement from b to a along C1 might be caused by a:
Correct recession
A decline in disposable income:
decreases consumption by moving downward along a specific consumption schedule.
The size of the MPC is assumed to be:
greater than zero, but less than one.
Refer to the above table. The multiplier in this economy is:
5
Refer to the above data. The marginal propensity to consume is:
80
If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to:
consume is three-fifths
Which one of the following will cause a movement up along an economy's saving schedule?
an increase in disposable income
Wait unemployment and search unemployment are both types of:
frictional unemployment.
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:
rise by about 15 percent.
Which of the following formulas is correct? Percentage change in:
real income approximates percentage change in nominal income minus percentage change in price level.
Assume the natural rate of unemployment in the U.S. economy is 5 percent and the actual rate of unemployment is 9 percent. According to Okun's law, the negative GDP gap as a percent of potential GDP is:
8 percent
At the economy's natural rate of unemployment:
the economy achieves its potential output.
Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result:
the official unemployment rate will remain unchanged.
Which of the following would most likely occur during the expansionary phase of the business cycle?
Demand-pull inflation
The relationship between the size of the negative GDP gap and the unemployment rate is:
direct
Under which of the following circumstances would we observe the greatest increase in real income?
Nominal income falls by 2 percent, and the price level falls by 10 percent.
Answer the question on the basis of the following information about a hypothetical economy:
cannot be determined from the data.
(Advanced analysis) If S = -60 + .25Y and Ig = 60, where S is saving, Ig is gross investment, and Y is gross domestic product (GDP), then the equilibrium level of GDP is:
$480.
Which two aggregate expenditure schedules AE in the above diagram for a private closed economy have the same MPC, assuming investment is the same at each level of income?
AE1 and AE2
Which of the following would increase GDP by the greatest amount?
a $20 billion increase in government spending
At the equilibrium GDP for a private open economy:
net exports may be either positive or negative.
If unintended increases in business inventories occur, we can expect:
a decline in GDP and rising unemployment.
Refer to the above table. Equilibrium GDP is:
$70
Refer to the above diagram for a private closed economy. At the equilibrium level of GDP, investment and saving are both:
Correct $50
Refer to the above diagrams. Curve A:
is an investment demand curve and curve B is an investment schedule.
In a private closed economy, when aggregate expenditures equal GDP:
planned investment equals saving.
Refer to the above data. The MPS is:
3/10
Refer to the above diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 is consistent with:
an expansionary fiscal policy.
Countercyclical discretionary fiscal policy calls for:
deficits during recessions and surpluses during periods of demand-pull inflation.
A contractionary fiscal policy is shown as a:
leftward shift in the economy's aggregate demand curve.
Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?
Reductions in Federal tax rates on personal and corporate income.
Refer to the above table for a fictional economy. The changes in the budget conditions between 2000 and 2001 best reflect:
an expansion of real GDP and an automatic increase in tax revenues.
The cyclically-adjusted budget tells us:
what the size of the Federal budget deficit or surplus would be if the economy was at full employment.
Refer to the above diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit:
at any level of GDP below $400
Which of the following is a true statement?
Fiscal policy swung from contractionary to expansionary in 2002.
Refer to the above data. If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's public debt is:
$275 billion.
Built-in stability means that:
with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.
Refer to the above list. Which of the following are considered to be "near-monies?"
1. Large-denominated ($100,000 and over) time deposits
2. Noncheckable savings deposits
3. Currency (coins and paper money) in circulation
4. Small-denominated (under $100,000) time deposits
5. Stock certificates
6. Checkable deposits
7. Money market deposit accounts
8. Money market mutual fund balances held by individuals
9. Money market mutual fund balances held by businesses
10. Currency held in bank vaults
2, 4, 7, and 8
Which of the following is the basic economic policy function of the Federal Reserve Banks?
controlling the supply of money
Which of the following programs was not designed and implemented by the Federal Reserve?
Troubled Asset Relief Program
Approximately how many commercial banks are now operating in the United States?
about 6,800
The basic policy-making body in the U.S. banking system is the:
Board of Governors of the Federal Reserve.
Which of the following financial institutions declared bankruptcy as a result of the financial crisis of 2007 and 2008?
Lehman Brothers
The amount of money reported as M2:
is larger than the amount reported as M1.
(Last Word) Electronic money is:
closely associated with smart cards.
Wells Fargo, J.P. Morgan Chase, and Citibank, are all primarily:
commercial banks
Time deposits of $100,000 or more are:
not a component of M1 or M2.
(Last Word) If variables X and Y are positively correlated, this means that:
causation may or may not exist between X and Y.
The production possibilities curve:
is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced
The slope of a line parallel to the horizontal axis is:
zero
A normative statement is one that:
is based on value judgments
Refer to the above tables. If North Cantina is producing at production alternative B, the opportunity cost of the eleventh unit of consumer goods will be:
1/8 of a unit of capital goods
The construction of a production possibilities curve assumes:
technology is fixed
Refer to the budget line shown in the diagram above. If the consumer's money income is $20, the:
price of C is $4 and the price of D is $2.
Which of the following statements pertains to macroeconomics?
National income grew by 2.7 percent last year.
The production possibilities curve tells us:
the combinations of two goods that can be produced with society's available resources.
Which of the following is a microeconomic statement?
The price of personal computers declined last year.
The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:
creative destruction
Refer to the above diagram. Flow (4) represents:
consumer expenditures
Refer to the above information. Which technique is economically most efficient in producing A?
IV
The regulatory mechanism of the market system is:
competition
Refer to the above data. In view of the indicated resource prices, the economically most efficient production technique(s) is (are) technique(s):
Correct #2 and #4.
The market system's answer to the fundamental question "How will the system promote progress?" is essentially:
"Through the profit potential that encourages development of new technology."
Which of the following is a distinguishing feature of a command system?
central planning
Broadly defined, competition involves:
independently acting buyers and sellers and freedom to enter or leave markets
Suppose that an individual sees a tremendous opportunity to produce and sell a new product, but dismisses the idea because there is no way to exploit this opportunity for personal gain. This situation best identifies the:
incentive problem under communist central planning.
Barter:
entails the exchange of goods for goods.
A surplus of a product will arise when price is:
above equilibrium with the result that quantity supplied exceeds quantity demanded.
Which of the following statements is correct?
An increase in the price of C will decrease the demand for complementary product D.
If an effective ceiling price is placed on hamburgers then:
All of these are likely outcomes.
(Consider This) Ticket scalping implies that:
event sponsors have established ticket prices at below-equilibrium levels.
Refer to the above diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in supply may have been caused by:
the development of more efficient machinery for producing this commodity.
A market is in equilibrium:
if the amount producers want to sell is equal to the amount consumers want to buy.
A leftward shift of a product supply curve might be caused by:
some firms leaving an industry
Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. When he arrived he discovered that hamburgers were on sale for $1, so Steve bought two hamburgers and a soda. Steve's response to the decrease in the price of hamburgers is best explained by:
the income effect
Refer to the above diagram. A decrease in demand is depicted by a:
shift from D2 to D1
If the demand and supply curves for product X are stable, a government-mandated increase in the price of X will:
increase the quantity supplied and decrease the quantity demanded of X.
(Consider This) Capital is a:
stock, whereas gross investment and depreciation are flows
Refer to the above data. NI is:
$402
Assume that in 2002 the nominal GDP was $350 billion and in 2003 it was $375 billion. On the basis of this information we:
cannot make a meaningful comparison of the economy's performance in 2002 relative to 2003.
Real GDP is:
the nominal value of all goods and services produced in the domestic economy corrected for inflation or deflation.
Which of the following transactions would be included in GDP?
Peter buys a newly constructed house.
In determining real GDP, economists adjust the nominal GDP by using the:
GDP price index
Refer to the above data. Net domestic product is:
$580
Refer to the above data. If year 2 is chosen as the base year, the price index for year one is:
100
(Last Word) Which of the following is a source of data for the investment component of U.S. GDP?
the Census Bureau's Housing Starts Survey and Housing Sales Survey
If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is:
300
Refer to the above data. The domestic equilibrium prices of steel in Alpha and Beta are:
Correct $3 and $2, respectively
Refer to the above graphs. Terryville has a comparative advantage in producing:
product A.
Which of the following is an example of a capital-intensive commodity?
chemicals
Refer to the above diagram. The most likely cause of a shift from AB to CD would be a(n):
increase in productivity
Economic historians date the start of the Industrial Revolution around the year 1776, when James Watt:
invented and built a more powerful and efficient steam engine.
Between 2009 and 2020, productivity growth is expected to account for about ________ percent of the growth of real GDP in the United States.
92
A nation's infrastructure refers to:
public capital goods such as highways and sanitation systems.
The historical reallocation of labor from agriculture to manufacturing in the United States has:
increased the average productivity of labor.
Globally, on average test scores of eighth-grade math and science students, the U.S. ranks (as of 2007):
9th and 11th, respectively
Suppose total output (real GDP) is $4000 and labor productivity is $8. We can conclude that:
the number of worker-hours must be 500.
If the Consumer Price Index was 90 in one year and 100 in the following year, then the rate of inflation is about:
11 percent
The unemployment rate is interpreted as the percentage of the:
Labor force that are not employed
What is an advantage of mild inflation according to some economists?
It makes it easier for firms to adjust real wages downward as demand for their products falls
In the 1920s, Germany after the First World War experienced an economic condition which can be best described as:
Hyperinflation
Okun's law indicates that for:
Every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 2 percent GDP gap is generated
The Great Recession that started in 2007 was triggered by shocks in which of the following economic sectors?
Real estate and financial markets
What does research indicate about the effect volatility of stock-price averages on the stability of the macroeconomy?
Neither the wealth nor the investment effects of stock price changes are a major cause of macroeconomic instability
If the Consumer Price Index was 125 in one year and 120 in the following year, then the rate of inflation is approximately:
-4.0 percent
From 1999 to 2009, the unemployment rate in the United States compared with other industrially advanced nations, such as France and Germany, has been:
Lower
A worker would be hurt least by inflation when the:
Worker is protected by a cost-of-living adjustment clause in an employment contract
Two basic determinants of investment spending are:
Expected returns and real interest rate
In general, the steeper the consumption schedule the:
Larger is the multiplier
The so-called wealth effect will result in households:
Spending more and saving less
Refer to the above data. If plotted on a graph, the slope of the consumption schedule would be:
9
If disposable income is $900 billion when the average propensity to consume is 0.9, it can be concluded that:
Saving is $90 billion
When the consumption schedule is plotted on a graph:
Consumption is on the vertical axis and disposable income is on the horizontal axis
Refer to the above table. The total change in consumption resulting from the initial change in investment will be:
$15
The amount of consumption in an economy correlates:
Directly with the level of disposable income
As disposable income decreases, consumption:
And saving both decrease
Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,000 before it needs to be upgraded to a new version. The revenue generated by this software is expected to be $250,000. The expected rate of return from this new computer software is:
25 percent
Refer to the above table. If planned investment is $18 billion, then at the $660 billion level of disposable income, there will be an:
Unplanned increase in inventories of $12 billion
Refer to the above graph. If this economy was an open economy without a government sector, the level of GDP would be:
$300 billion
Refer to the above table. If planned investment is $25 billion, the equilibrium level of GDP will be:
$640 billion
Other things being equal, a decrease in an economy's exports will:
Decrease domestic aggregate expenditures and the equilibrium level of GDP
All of the following are true when there is an unplanned decrease in inventories, except:
Actual investment is greater than planned investment
Which event would most likely decrease an economy's exports?
An appreciation of a nation's currency relative to foreign currencies
One of the most important views expressed by classical macroeconomists was that:
Supply creates its own demand
Refer to the above data. Gross investment is $8 billion, net exports are $4 billion, and government collects a lump-sum tax of $30 billion and spends $30 billion. Assume all taxes are personal taxes and that government spending does not entail shifts in the consumption and investment schedules. The equilibrium GDP will be:
$310 billion
The marginal propensity to consume is 0.8. Equilibrium GDP will increase by $30 billion if aggregate expenditures rise by:
$6 billion
The investment schedule shows the:
Amounts business firms collectively intend to invest at each possible level of GDP
Which of the following effects best explains the downward slope of the aggregate demand curve?
An interest-rate effect
Refer to the above graph. Which of the following factors explains a movement along the AD curve?
The interest-rate effect or real-balances effect
An increase in the aggregate expenditures schedule:
Increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier
If personal income taxes and business taxes increase, then this will:
Decrease aggregate demand and aggregate supply
The aggregate demand curve is the relationship between the total demand for output and the:
Price level
A decrease in business taxes will tend to:
Increase aggregate demand and increase aggregate supply
Refer to the figure above. A shift from AD2 to AD1 would be consistent with what economic event in U.S. history?
Great Recession of 2007-2009
Refer to the above graph. Which of the following factors will shift AS1 to AS2?
A decrease in business taxes
In an economy it costs $1,500 to produce 2,000 units of output. If the costs increase to $2,500, then the per unit cost of production will have increased from:
$0.75 to $1.25
The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that:
A decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP
Assume that if there was no crowding-out, an increase in government spending would increase GDP by $100 billion. If there had been partial crowding-out, however, then GDP would have:
Increased by less than $100 billion
Proponents of the notion of a "political business cycle" suggest that:
A possible cause of economic fluctuations is due to the use of fiscal policy for political purposes
Refer to the above data. The direction of fiscal policy became more expansionary from:
2002 to 2003
Fiscal policy is enacted through changes in:
Taxation and government spending
The group that often initiates changes in fiscal policy is the:
Council of Economic Advisors
Refer to the above graph. If the economy was initially in equilibrium at point 3 and a government deficit makes interest rates increase by 4 percentage points, then the crowding-out effect would be:
$20 billion in investment
A budget surplus means that:
Government revenues are greater than expenditures in a given year
In 2009, the general public (excluding Federal agencies) held about how many percent of U.S. Federal debt?
57%
If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement:
Contractionary fiscal policy
In Year 1, the actual budget deficit was $150 billion and the cyclically-adjusted deficit was $125 billion. In Year 2, the actual budget deficit was $130 billion and the cyclically-adjusted deficit was $125 billion. It can be concluded that discretionary fiscal policy from Year 1 to Year 2 was:
More contractionary