Econ Sample Exam 4… · Web viewSample Exam #4. Joe sold gold coins ... because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit

Sample Exam #41. Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money

on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of:

A) opportunity costsB) marginal benefits that exceed marginal costs.C) imperfect information.D) normative economics.

2. The assertion that "There is no free lunch" means that: A) there are always tradeoffs between economic goals. B) all production involves the use of scarce resources and thus the sacrifice of alternative goods. C) marginal analysis is not used in economic reasoning. D) choices need not be made if behavior is rational.

3. Which of the following is associated with macroeconomics? A) an examination of the incomes of Harvard Business School graduates B) an empirical investigation of the general price level and unemployment rates since 1990C) a study of the trend of pecan prices since the Second World War D) a case study of pricing and production in the textbook industry

4. A positive statement is one which is: A) derived by induction. B) derived by deduction. C) subjective and is based on a value judgment.D) objective and is based on facts.

5. The scarcity problem: A) persists only because countries have failed to achieve continuous full employment. B) persists because economic wants exceed available productive resources. C) has been solved in all industrialized nations. D) has been eliminated in affluent societies such as the United States and Canada. Answer: B

6. The shift of the budget line from cd to ab in the above figure is consistent with: A) decreases in the prices of both M and N . B) an increase in the price of M and a decrease in the price of N . C) a decrease in money income. D) an increase in money income.

7. Which of the following is a labor resource?A) a computer programmerB) a computerC) silicon (sand) used to make computer chipsD) a piece of software used by a firm

8. The production possibilities curve illustrates the basic principle that: A) the production of more of any one good will in time require smaller and smaller sacrifices of other

goods. B) an economy will automatically obtain full employment of its resources.C) 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. D) an economy's capacity to produce increases in proportion to its population size.

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 that a change in government policy results in greater production of both consumer goods and investment goods. We can conclude that:

A) the economy was not employing all of its resources before the policy change. B) the economy's production possibilities curve has been shifted to the left as a result of the policy

decision. C) this economy's production possibilities curve is convex (bowed inward) to the origin. D) the law of increasing opportunity costs does not apply in this society.

11.Berzerkistan produces both consumer and capital goods. Other things equal, if Berzerki stan reduces the percentage of its output devoted to capital goods, then:

A) its rate of growth will decline. B) its production possibilities curve will shift to the left. C) it must also reduce the percentage of its output devoted to consumer goods. D) its rate of growth will increase.

Use the following to answer this question:

12.Refer to the above diagram. Starting at point A, the opportunity cost of producing each successive unit of tractors is:

A) a constant 2 units of bread. B) 2, 4, 6, and 8 units of bread.C) 8, 6, 4, and 2 units of bread.

D) the reciprocal of the output of tractors. 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. If North Cantina is producing at production alternative B, the opportunity cost of the eleventh unit of consumer goods will be:

A) 10 units of capital goods. B) 1/4 of a unit of capital goods.C) 8 units of capital goods.

D) 1/8 of a unit of capital goods. 14.The law of increasing opportunity costs exists because:

A) resources are not equally efficient in producing various goods. B) the value of the dollar has diminished historically because of persistent inflation. C) wage rates invariably rise as the economy approaches full employment. D) consumers tend to value any good more highly when they have little of it.

Use the following to answer this question:

15.Refer to the above diagram for athletic shoes. If the current output of shoes is Q1, then: A) society would consider additional units of shoes to be more valuable than alternative uses of those

resources. B) society would consider additional units of shoes to be less valuable than alternative uses of those

resources. C) society would experience a net loss by producing more shoes. D) resources are being allocated efficiently to the production of shoes.

16.Which of the following would be most likely to shift the production possibilities curve to the right? A) a sudden and substantial expansion of consumer wants B) an improvement in the literacy level and general level of education C) a decline in the size of the population and labor force D) shifting resources from the production of capital goods to the production of consumer goods.

17.Through specialization and international trade a nation: A) can attain some combination of goods lying outside its production possibilities curve. B) can move from a high consumption-low investment to a high investment-low consumption point on

its production possibilities curve. C) will attain some combination of goods lying within its production possibilities curve. D) will cause its production possibilities curve to shift leftward.

18.If you leave a football game at the end of the third quarter, you will avoid traffic and get home more quickly. Therefore, everyone should leave the game early. This assertion illustrates the:

A) moral hazard problem. B) adverse selection problem.C) fallacy of limited decisions.

D) fallacy of composition. 19.The term laissez faire suggests that:

A) land and other natural resources should be privately owned, but capital should be publicly owned. B) land and other natural resources should be publicly owned, but capital equipment should be privately

owned. C) government should not interfere with the operation of the economy. D) government action is necessary if the economy is to achieve full employment and full production.

20.The regulatory mechanism of the market system is:A) self-interest. B) private property. C) competition. D) specialization.

21.The coincidence-of-wants problem associated with barter refers to the fact that: A) for exchange to occur each seller must have a product that some buyer wants. B) money must be used as a medium of exchange or trade will never occur. C) specialization is restricted by the size or scope of a market. D) buyers in resource markets and sellers in product markets can never engage in exchange.

22.Economic profits in an industry suggest the industry: A) can earn more profits by increasing product price. B) should be larger to better satisfy consumers’ desire for the product. C) has excess production capacity. D) is the size that consumers want it to be.

23.Suppose industry A is realizing substantial economic profit. Which of the following best describes what will happen in this competitive market?

A) Firms will leave the industry and output will fall. B) Firms will enter the industry and output will fall. C) Firms will leave the industry and output will rise. D) Firms will enter the industry and output will rise.

24.In a competitive market economy firms will select the least-cost production technique because: A) such choices will result in the full employment of available resources. B) to do so will maximize the firms' profits. C) this will prevent new firms from entering the industry. D) "dollar voting" by consumers mandates such a choice.

25.The advent of DVDs will eventually demolish the market for videocassettes. This is an example of:A) creative destruction.B) derived demand.C) capital accumulation.D) the difference between normal and economic profits.

26.The invisible-hand concept suggests that: A) changes in product demands are only randomly reflected in changes in the demands for resources. B) profit maximization is inconsistent with an efficient allocation of resources. C) government action is necessary to correct for market failures. D) when firms maximize their profits, society's output will also be maximized.

27.The failure of Soviet central planning was reflected in: A) a declining growth rate. B) poor quality goods. C) the failure to provide promised consumer goods. D) all of the above.

28.Households and businesses are: A) both buyers in the resource market. B) both sellers in the product market. C) sellers in the resource and product markets respectively. D) sellers in the product and resource markets respectively.

29.One reason that the quantity of a good demanded increases when its price falls is that the: A) price decline shifts the supply curve to the left. B) lower price shifts the demand curve to the left. C) lower price shifts the demand curve to the right. D) lower price increases the real incomes of buyers, enabling them to buy more.

30.The demand for most products varies directly with changes in consumer incomes. Such products are known as:

A) complementary goods. B) competitive goods. C) inferior goods. D) normal goods.

Use the following to answer the next question:

31.A decrease in demand is depicted by a:A) move from point x to point y.B) shift from D1 to D2.C) shift from D2 to D1.

D) move from point y to point x.32.The supply curve shows the relationship between:

A) price and quantity supplied. B) production costs and the amount demanded. C) total business revenues and quantity supplied. D) physical inputs of resources and the resulting units of output.


33.Refer to the above table. In relation to column (3), a change from column (2) to column (1) would indicate a(n):

A) increase in demand. B) decrease in demand. C) increase in supply. D) decrease in supply.


34.Refer to the above diagram. A shortage of 160 units would be encountered if price was: A) $1.10, that is, $1.60 minus $.50. B) $1.60. C) $1.00. D) $.50.

35.llocative efficiency refers to: A) the use of the least-cost method of production. B) the production of the product-mix most wanted by society. C) the full employment of all available resources. D) production at some point inside of the production possibilities curve.

36.Data from the registrar's office at Gigantic State University indicate that over the past twenty years tuition and enrollment have both increased. From this information we can conclude that:

A) higher education is an exception to the law of demand. B) the supply of education provided by GSU has also increased over the twenty-year period. C) school-age population, incomes, and preferences for education have changed over the twenty-year

period. D) GSU's supply curve of education is downsloping.


Q u an tity Q u an tity D em an d ed P rice S up p lied

5 2 $ 5 0 73 62 45 62 72 40 51 82 35 42 92 30 33

37.If government set a minimum price of $50 in the above market, a:

A) shortage of 21 units would occur.B) shortage of 125 units would occur.C) surplus of 21 units would occur.D) surplus of 125 units would occur.

Use the following to answer questions 7-9:

38.In the above diagrams for a hypothetical economy, from Figure 2 we can conclude that:

A) income is quite equally distributed. B) wages are the main source of income. C) the distribution of income has become more unequal over time. D) the top one-fifth of all income receivers get about eight times as much income as the lowest one-fifth.

39.In the above diagrams for a hypothetical economy, Figure 1 shows the: A) personal distribution of income. B) functional distribution of income.C) microeconomic distribution of income.

D) international distribution of income. 40.An owner's liability for the debts of a business is:

A) limited in a corporation to the assets of preferred stockholders. B) limited in a corporation to the assets of bondholders. C) limited to the owner's investment in a single proprietorship. D) unlimited in a partnership.

41.If the production of a good or service creates sizable positive externalities, government might correct for the: A) underallocation of resources to its production by imposing an excise tax. B) overallocation of resources to its production by imposing an excise tax. C) underallocation of resources to its production by granting a subsidy. D) overallocation of resources to its production by granting a subsidy.

42.The market system does not produce public goods because:A) there is no need or demand for such goods.B) private firms cannot stop consumers who are unwilling to pay for such goods from benefiting from

them.C) public enterprises can produce such goods at lower cost than can private enterprises.D) their production seriously distorts the distribution of income.

43.The major source of tax revenue for the Federal government is: A) personal income taxes. B) property taxes.C) corporate income taxes.

D) sales and excise taxes. 44.Taxable income is:

A) total income less deductions and exemptions. B) the same as gross income.C) only income to which marginal tax rates apply.

D) the sum of all wage and property income. 45.In recent years the United States has:

A) exported more goods and services than it has imported. B) imported more goods and services than it has exported. C) realized an approximate balance in its imports and exports. D) experienced a falling absolute dollar amount of imports and a rising absolute dollar amount of

exports. Answer the next question on the basis of the following production possibilities data for Landia and Scandia:

46.Refer to the above data. On the basis of the production possibilities data shown: A) Landia has a comparative advantage in chips while Scandia has a comparative advantage in fish. B) Landia has a comparative advantage in fish while Scandia has a comparative advantage in chips. C) both Landia and Scandia have a comparative advantage in fish. D) both Landia and Scandia have a comparative advantage in chips.

Answer the next question on the basis of the following table which indicates the dollar price of luta, the currency used in the hypothetical economy of Luteland:

47.Refer to the above table. Suppose that the United States imports more products from Luteland than before. All else equal, the dollar price of luta will:

A) rise and the dollar will depreciate. B) fall and the dollar will depreciate.C) rise and the dollar will appreciate.

D) fall and the dollar will appreciate. 48.The countries comprising NAFTA are:

A) Canada, the United States, and Puerto Rico.B) the United States, Mexico, and Chile.C) the United States, United Kingdom, and France.D) Canada, Mexico, and the United States.

49.Global competition: A) forces domestic producers to become more efficient and to improve product quality. B) drives up prices worldwide. C) reduces employment worldwide. D) creates higher flows of international migration than without trade.

50.If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then:

A) demand is elastic. B) demand is inelastic. C) demand is of unit elasticity. D) not enough information is given to make a statement about elasticity.


51.Refer to the above diagram. If price falls from P1 to P2, total revenue will become area(s): A) B + D. B) C + D. C) A + C. D) C.


52.Refer to the above diagram and assume that price decreases from $10 to $2. The coefficient of the price

elasticity of supply (midpoints formula) relating to this price change is about:A) 4 and supply is elastic.B) 1 and supply is unit elastic.C) .5 and supply is inelastic.D) .25 and supply is inelastic.

53.We would expect the cross elasticity of demand between Pepsi and Coke to be: A) positive, indicating normal goods. B) positive, indicating inferior goods.C) positive, indicating substitute goods.

D) negative, indicating substitute goods. 54.Suppose that a firm has "pricing power" and can segregate its market into two distinct groups based on

differences in elasticities of demand. The firm might charge:A) a lower price to the group that has the less elastic demand. B) a higher price to the group that has the less elastic demand.C) the same price to both groups but include a "free" related product for the group that has an inelastic

demand.D) the same price to both groups but make it difficult for the group with the more elastic demand to gain

access to the product.

55.The short run is characterized by: A) plenty of time for firms to either enter or leave the industry. B) increasing, but not diminishing returns. C) at least one fixed resource. D) zero fixed costs.


56.Refer to the above diagram. The vertical distance between ATC and AVC reflects: A) the law of diminishing returns. B) the average fixed cost at each level of output.C) marginal cost at each level of output.

D) the presence of economies of scale. Use the following to answer the next question:

57.Refer to the above short-run production and cost data. The curves of Figures A and B suggest that: A) marginal product and marginal cost reach their maximum points at the same output. B) marginal cost reaches a minimum where marginal product is at its maximum. C) marginal cost and marginal product reach their minimum points at the same output. D) AVC cuts MC at the latter's minimum point.

58.If a firm increases all of its inputs by 10 percent and its output increases by 10 percent, then: A) it is encountering diseconomies of scale. B) it is encountering economies of scale.C) it is encountering constant returns to scale.

D) the marginal products of all inputs are falling. 59.An industry comprised of four firms, each with about 25 percent of the total market for a product is an

example of:A) monopolistic competition. B) oligopoly. C) pure monopoly. D) pure competition


60.Refer to the above two diagrams for individual firms. Figure 2 pertains to: A) a market characterized by government regulation of price and output. B) either an imperfectly competitive or a purely competitive seller. C) a purely competitive seller. D) an imperfectly competitive seller.


61.Which of the above diagrams correctly portrays the demand (D) and marginal revenue (MR) curves of a pure monopolist that is able to price discriminate by charging each customer their maximum willingness to pay?

A) A B) B C) C D) D

62.When a pure monopolist is producing its profit -maximizing output, price will: A) be less than MR. B) equal neither MC nor MR. C) equal MR. D) equal MC.

63.A price discriminating pure monopolist will attempt to charge each buyer (or group of buyers): A) different prices to compensate for differences in the characteristics of the product. B) the same price if per unit cost is constant for each unit of the product. C) that price which equals the buyer's marginal cost. D) the maximum price each would be willing to pay.

64.The monopolistically competitive seller maximizes profit by producing at the point where: A) total revenue is at a maximum. B) average costs are at a minimum.C) marginal revenue equals marginal cost.

D) price equals marginal revenue. 65.The economic inefficiencies of monopolistic competition may be offset by the fact that:

A) advertising expenditures shift the average cost curve upward. B) available capacity is fully utilized. C) resources are optimally allocated to the production of the product. D) consumers have a number of variations of the product from which to choose.

66.Assume six firms comprising an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl Index for this industry is:

A) 2,000. B) 1,600. C) 2,200. D) 80.

67.Cartels are difficult to maintain in the long run because: A) they are illegal in all industrialized countries. B) individual members may find it profitable to cheat on agreements. C) it is more profitable for the industry to charge a lower price and produce more output. D) entry barriers are insignificant in oligopolistic industries.

68.As it relates to the R&D decision, the interest-rate-cost-of-funds curve: A) usually slopes downward. B) is the marginal cost element in the MB = MC decision framework. C) indicates a constant rate of return, r. D) reflects the interest rate on bank loans, but not the implicit interest rate on the use of retained

earnings. 69.Process innovation causes an upward shift in a firm's total product curve and:

A) a decrease in its average product. B) a downward shift in its average total cost curve.C) an upward shift in its average total cost curve.

D) an upward shift in its marginal revenue curve. 70.The process by which new firms and new products replace existing dominant firms and products is called:

A) monopolistic competition. B) the inverted-U process. C) process innovation.D) creative destruction.

71.Which one of the following best exemplifies the principal-agent problem in the employer-employee relationship?

A) A worker takes 20 minute coffee-breaks although the employer allots only 15 minutes for this purpose.

B) A worker is on the job 50 hours per week although only 40 hours are required for promotion. C) A worker opts for early retirement in response to the firm's incentive plan. D) A worker's productivity is independent of the wage paid.

72.In terms of anti-trust legislation, Behavioralists believe that: A) if four or fewer firms control more than half of the market for a product, then the Sherman Act is

being violated. B) industries should be judged on the basis of their price-output behavior and their technological

progressiveness. C) there is no evidence that any monopolistic industries has abused its market power. D) all concentrations of economic power are socially undesirable.

73.Over the past several decades, farm employment has: A) grown absolutely, but declined as a percentage of total employment. B) declined both absolutely and as a percentage of total employment. C) increased both absolutely and as a percentage of total employment. D) declined absolutely, but increased as a percentage of total employment.

74.The U.S. price support program, which guaranteed prices for currently grown crops:A) ended with passage of the Freedom to Farm Act of 1996.B) began with the Grain Planting Act of 1914.C) remains the core of U.S. farm policy.D) was restored in full and expanded by the Farm Act of 2002.

75.Which of the following is a noncash transfer? A) a payment to a divorced mother under AFDC B) food stampsC) a social security payment to a retiree

D) unemployment compensation benefits 76.Which of the following demographic groups does not bear a disproportionate burden of poverty?

A) households headed by women B) the elderly C) Hispanics D) African-Americans

77.The TANF program is designed to: A) increase the minimum wage. B) shift people from welfare to employment. C) provide medical insurance to poverty level workers. D) provide income to the blind and disabled.

78.Rapidly rising U.S. health care costs have: A) reduced the ability of many Americans to afford health care. B) slowed the growth of real wages. C) caused Federal and state governments to restrict spending on nonhealth budget items. D) done all of the above.

79.If an individual is less inclined to avoid accidents or illness because she has health insurance, this is an example of:

A) the free-rider problem. B) the moral hazard problem.C) the adverse selection problem.

D) the Coase theorem. 80.Health maintenance organizations (HMOs):

A) are based on the traditional fee-for-service system of paying physicians.B) charge a fixed amount per member, hire many of their own physicians, and provide health services

only to members.C) are also known as preferred provider organizations.D) are illegal in several states.

81.The Overnight Construction Company has just signed a collective bargaining contract in which it agrees that all workers it hires must be union members in good standing at the time they are hired. This provision reflects:

A) preferential hiring. B) a maintenance-of-membership shop. C) a union shop. D) a closed shop.

82.Discrimination that results in the payment of a lower wage to a woman relative to an equally productive man on the same job is called:

A) wage discrimination.B) human-capital discrimination.C) reverse discrimination.D) occupational discrimination.

83.Suppose that GDP was $200 billion in year 1 and that all other components of expenditures remained the same in year 2 except that business inventories fell by $10 billion. GDP in year 2 is:

A) $180 billion. B) $190 billion. C) $200 billion. D) $210 billion.

Answer the next question on the basis of the following national income data for the economy. All figures are in billions.

Personal consumption expenditures $400Government purchases 128Gross private domestic investment 88Net exports 7Net foreign factor income 0Consumption of fixed capital 43Taxes on production and imports 50Compensation of employees 369Rents 12Interest 15Proprietors’ income 52Corporate income taxes 36Dividends 24Undistributed corporate profits 22Statistical discrepancy 0

84.Refer to the above data. The national income is: A) $561. B) $573. C) $580. D) $530.

85.In the second quarter (3-month period) of 2001, U.S. nominal GDP increased but U.S. real GDP declined. We can conclude that:

A) nominal income declined by more than personal income.B) the price level rose by more than nominal GDP. C) real wages declined by more than real GDP.D) the price level fell by more than real GDP.

86.In an economy experiencing persistent deflation: A) potential GDP will necessarily exceed actual GDP. B) changes in nominal GDP may either overstate or understate changes in real GDP. C) changes in nominal GDP understate changes in real GDP. D) changes in nominal GDP overstate changes in real GDP.

87.The phase of the business cycle in which real GDP declines is called: A) the peak. B) an expansion. C) a recession. D) the trough.

88.The type of unemployment associated with recessions is called: A) frictional unemployment. B) structural unemployment.C) cyclical unemployment.

D) seasonal unemployment. 89.Inflation initiated by increases in wages or other resource prices is labeled:

A) demand-pull inflation. B) demand-push inflation. C) cost-push inflation. D) cost-pull inflation.


90.The above diagram shows consumption schedules for economies A and B. We can say that the: A) MPC is greater in B than in A. B) APC at any given income level is greater in B than in A. C) MPS is smaller in B than in A. D) MPC is greater in A than in B.


91.Refer to the above data. The marginal propensity to consume is:A) .25. B) .75. C) .20. D) .80.

92.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:

A) 80 percent. B) 8 percent. C) 2 percent. D) 20 percent.

93.The multiplier is: A) 1/MPC. B) 1/(1 + MPC). C) 1/MPS. D) 1/(1 - MPS).

94.The aggregate supply curve (short-run):A) slopes downward and to the right.B) graphs as a vertical line.C) slopes upward and to the right.D) graphs as a horizontal line.

95.Graphically, cost-push inflation is shown as a:A) leftward shift of the AD curve.B) rightward shift of the AS curve.C) leftward shift of AS curve.

D) rightward shift of the AD curve.Answer the next question on the basis of the following table for a particular country in which C is consumption expenditures, Ig is gross investment expenditures, G is government expenditures, X is exports, and M is imports. All figures are in billions of dollars. Each question is independent of the other questions.

96.Refer to the above table. Which of the following schedules constitutes aggregate demand in this country?

(a ) (b ) (c ) (d ) P G D P P G D P P G D P P G D P

12 8 $ 1 9 12 8 $2 3 12 8 $2 0 12 8 $3 4 12 5 2 5 12 5 27 12 5 22 12 5 37 12 2 3 1 12 2 31 12 2 24 12 2 40 11 9 3 7 11 9 35 11 9 26 11 9 43 11 6 4 3 11 6 39 11 6 28 11 6 46

Answer: A

97.Prices and wages tend to be: A) flexible both upward and downward. B) inflexible both upward and downward.C) flexible downward, but inflexible upward.

D) flexible upward, but inflexible downward.

98.An expansionary fiscal policy is shown as a: A) rightward shift in the economy's aggregate demand curve. B) movement along an existing aggregate demand curve. C) leftward shift in the economy's aggregate supply curve. D) leftward shift in the economy's aggregate demand curve.

Answer the next question on the basis of the following before-tax consumption schedule for a closed economy:

99.Refer to the above data. If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy, the tax system:

A) is regressive. B) is proportional.C) is progressive.

D) may be either proportional or progressive. 100.When the economy is at full employment:

A) one cannot generalize in comparing the actual and the standardized budgets. B) the standardized budget will show a surplus and the actual budget will show a deficit. C) the actual budget will show a surplus and the standardized budget will show a deficit. D) the actual and the standardized budgets will be equal.

101.The public debt is the amount of money that:A) state and local governments owe to the Federal government.B) Americans owe to foreigners.C) the Federal government owes to holders of U.S. securities.D) the Federal government owes to taxpayers.

102.Which of the following is considered a legitimate concern of a large public debt?A) Bankruptcy of the Federal governmentB) Crowding-out of private investmentC) Burdening future generations

D) Collapse of the financial system103.The largest component of the money supply (M1) is:

A) currency in bank vaults. B) currency in circulation. C) checkable deposits. D) stock certificates.

104.As it relates to Federal Reserve activities, the acronym FOMC describes the:A) Federal Open Market Committee.B) Federal Options Market Committee.C) Federal Organization for Monetary Control.D) Federal Organization for Money Creation.

105.Commercial banks and thrift institutions: A) differ because thrifts cannot make loans. B) differ because thrifts cannot offer checkable deposits. C) have become less similar in recent years. D) have become increasingly similar in recent years.

Answer the next question on the basis of the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions.

Assets Liabilities and net worthReserves $ 51 Checkable deposits $140Securities 100 Stock shares 130Loans 109Property 10

106.Refer to the above data. The commercial banking system has excess reserves of: A) $9 billion. B) $7 billion. C) $6.1 billion. D) $5 billion.

107.If excess reserves in the banking system are $4,000, checkable deposits are $40,000, and the legal reserve ratio is 10 percent, then actual reserves are:

A) $4,000. B) $6,000. C) $8,000. D) $5,000.

108.Money is destroyed when: A) loans are made. B) checks written on one bank are deposited in another bank. C) loans are repaid. D) the net worth of the banking system declines.

Answer the next question on the basis of the following information for a bond having no expiration date: bond price = $1000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent.109.Refer to the above information. If the price of this bond falls by $200, the interest rate will:

A) rise by 2.5 percentage points. B) rise by 5 percentage points.C) fall by 2.5 percentage points.

D) fall by 5 percentage points. 110.Which of the following is not a tool of monetary policy?

A) open market operations B) changes in banking lawsC) changes in the discount rateD) changes in the reserve ratio


111.Refer to the above diagram for the Federal funds market. If the quantity of reserves falls from $150 billion to

$125 billion, we can expect:A) the Federal funds rate to rise to 4.0 percent. B) the discount rate to rise to 3.5 percent.C) the prime interest rate to rise.

D) banks to loan more to each other. 112.An increase in the money supply will:

A) lower interest rates and lower the equilibrium GDP. B) lower interest rates and increase the equilibrium GDP. C) increase interest rates and increase the equilibrium GDP. D) increase interest rates and lower the equilibrium GDP.

113.Other things equal, an increase in productivity will:A) reduce aggregate supply and increase real output.B) reduce both the interest rate and the international value of the dollar.C) increase both aggregate supply and real output.D) increase net exports, increase investment, and reduce aggregate demand.


114.Refer to the above diagrams. The solid lines are production possibilities curves; the dashed lines are trading possibilities curves. The opportunity cost of producing a:

A) pizza is 2 beers in both countries. B) beer is 1/2 a pizza in both countries.C) pizza in East Lothian is 1 beer.

D) beer in West Lothian is 1/2 a pizza. Use the following to answer the next question:

115.Refer to the above diagram pertaining to two nations and a specific product. The equilibrium world price occurs at:

A) F. B) I. C) G. D) J.


116.Refer to the above diagram, where Sd and Dd are the domestic supply and demand for a product and Pc is the world price of that product. Sd + Q is the product supply curve after an import quota is imposed. Assuming there is no tariff, the import quota:

A) will increase United States Treasury revenue by areas G + H. B) will increase United States Treasury revenue by areas E + F + G + H + J. C) may either increase or decrease the total revenues of foreign producers, depending on the elasticity

of domestic demand. D) will increase the revenues of foreign firms by area E.


The following table contains hypothetical data for the 2006 U.S. balance of payments. Answer the next question(s) on the basis of this information. All figures are in billions of dollars.

117.Refer to the above data. Item (5) indicates: A) that the United States' current account was in surplus. B) the size of the net inflow of foreign investment to the United States that occurred in 2001. C) the net amount Americans received as interest and dividends on existing U.S. investments abroad. D) the net amount Americans paid as interest and dividends on existing foreign investments in the

United States. 118.If the exchange rate changes so that more Mexican pesos are required to buy a dollar, then:

A) the peso has appreciated in value. B) Americans will buy more Mexican goods and services. C) more U.S. goods and services will be demanded by the Mexicans. D) the dollar has depreciated in value.

119.Under the gold standard: A) nations can protect their domestic price and employment levels from changes in the volume and

direction of world trade. B) exchange rates are virtually fixed. C) differences in exports and imports will be precisely balanced by capital account flows, excluding gold. D) exchange rates fluctuate freely in response to changes in the supply of, and demand for, foreign

currencies.

120.If a nation's real output is growing by 5 percent per year, its real output will double in approximately: A) 22 years. B) 20 years. C) 14 years. D) 8 years.

121.Many countries remain poor because they currently are poor. This statement summarizes the: A) infrastructure problem. B) vicious circle of poverty.C) capricious universe view.

D) problem of capital flight.

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Econ Sample Exam 4… · Web viewSample Exam #4. Joe sold gold coins ... because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit