Introduction to Agricultural Economics

Agricultural Economics 105

Spring 2017

Third Hour Exam – Version 1

Name____________________________

There is only ONE best, correct answer per question. Place your answer on the attached

sheet. DO NOT RIP THE ANSWER SHEET FROM THE TEST. HAND IN BOTH THE

TEST AND ANSWER SHEET. Each question is worth 2 1/2.

Use the following information for questions 1 through 3.

Suppose a worker in the United States can produce 4 cars or 20 computers per month while a

worker in Russia can produce 1 car or 5 computers per month. For simplicity, assume each

country has only one worker and no other resources.

1. Which country has the absolute advantage in the production of cars? Computers?

a. U.S. cars, U.S. computers

b. U.S. computers, Russia cars

c. U.S. cars, Russia computers

d. Russia cars, Russia computers

e. Neither

2. Which country has the comparative advantage in the production of cars? Computers?

a. U.S. cars, U.S. computers

b. U.S. computers, Russia cars

c. U.S. cars, Russia computers

d. Russia cars, Russia computers

e. Neither

3. Would trade help the overall welfare of these countries?

a. No

b. Yes

c. Need more information

4. What type of policy (ies) would you suggest to eliminate a recessionary gap?

a. Contractionary fiscal or monetary policies

b. Expansionary fiscal or monetary policies

c. Trade deficit elimination policies

d. Do nothing as the economy is operating as expected

e. Policies designed to decrease planned aggregate expenditures

5. In April 2017, President Trump stated there are approximately 100 million people in the

U.S. that are unemployed – this statement is misleading as it includes all people in the U.S.

that are not working. In calculating unemployment which of the following groups are

included?

a. People taking care of the home or family

b. Students going to school

c. Retired

d. People who were looking for a job but stopped looking when they could not find a job

e. Military

f. None of the above are included

6. If the total reserve requirement is 20% and the change in total reserves is $20,000 what is

the total change in the money supply made assuming all available funds have been fully

utilized?

a. $20,000 change in money supply

b. $60,000 change in money supply

c. $80,000 change in money supply

d. $100,000 change in money supply

e. $180,000 change in money supply

7. If the total reserve requirement is 20% and the change in total reserves is $20,000 what is

the total change in loans made assuming all available funds have been fully utilized?

a. $20,000 change in loans

b. $60,000 change in loans

c. $80,000 change in loans

d. $100,000 change in loans

e. $180,000 change in loans

8. Indicators of changes in economic activity six months before they occur are

a. leading indicators.

b. lagging indicators.

c. coincidental indicators.

d. consumer price index (CPI) and gross domestic product (GDP).

e. All of the above are indicators.

9. According to the normal shaped Phillip’s Curve, to decrease unemployment

a. the aggregate demand curve must shift outward.

b. the aggregate supply curve must shift outward.

c. the economy must be on the 45 degree line – Keynesian cross.

d. inflation must increase.

e. fiscal and monetary policy must be Contractionary.

10. Which of the following is not a function of money?

a. A medium of exchange to end the need for barter.

b. A way to encourage barter.

c. A unit of account used to quantify the economic value of goods and services.

d. A way to store value.

e. All of the above are functions of money.

11. The difference between the government’s debt and deficit is

a. the two terms are basically interchangeable.

b. debt is the difference between government revenues and spending for a year, whereas,

deficit is the accumulated debt over all years.

c. deficit is the difference between government revenues and spending for a year,

whereas, debt is the accumulated deficit over all years.

d. debt deals with fiscal policy and deficit with monetary policy.

e. changes in aggregate demand increase debt but do not impact the deficit.

12. A type of monetary system in which the value of money rests on the public’s belief that a

piece of paper can be exchanged for goods and services.

a. Silver certificate standard

b. Gold standard

c. Fiat standard

d. Federal Reserve System

e. Fiduciary

13. A reduction in private consumption that occurs because of an increase in government

spending is known as

a. crowding out.

b. demand pull.

c. deficit spending.

d. inflationary gap.

e. recessionary gap.

14. Unemployment associated with fluctuations in the economy is known as what form of

unemployment?

a. Frictional

b. Seasonal

c. Structural

d. Cyclical

e. Full employment rate

15. The exchange rate is

a. is the price of domestic currency in terms of a foreign currency.

b. can be determined in a market in which international investors trade.

c. can be fixed by a government.

d. is a major determinant of imports and exports.

e. all of the above.

16. Keeping extra cash on hand to pay for lunch today is an example of the following reason to

demand money.

a. Money Multiplier

b. Reserve Requirement

c. Transaction

d. Speculative

e. Precautionary

17. Small increases in output are associated with very small increases in the price level in which

area of the aggregate supply curve?

a. Inelastic area

b. Downward sloping area

c. Classical

d. Depression or Keynesian area

e. Normal area

18. If the economy moved from a price level of 80 in year 2015 to a price level of 100 in 2016,

what is the inflation rate?

a. 5%

b. 10%

c. 15%

d. 20%

e. 25%

19. Mike Smith has just lost his job harvesting wheat in south Texas because the wheat crop has

all been harvested. This is an example of what type of unemployment?

a. Frictional

b. Cyclical

c. Seasonal

d. Structural

e. None of the above

20. Consider the above figure, movement from Mb to Ma is brought about by the following

policy (ies).

a. Increased government spending

b. The Fed buying securities

c. The Fed selling securities

d. The Fed increasing the reserve requirement

e. both c and d

21. Consider the figure to the right, this economy is

a. experiencing an inflationary gap of $3 trillion.

b. experiencing a recessionary gap of $3 trillion.

c. experiencing an inflationary gap of $5 trillion.

d. experiencing a recessionary gap of $5 trillion.

e. none of the above.

22. In calculating the U.S. GDP, both the product market and the resource market must be

considered because

a. both supply and demand matter.

b. consumers represent the product market and producers the resource market.

c. if we considered only one market, GDP would be approximately one-half of what is

should be.

d. only one market should be considered to avoid double counting.

e. a, b. and c, are correct.

23. Supply-side policies emphasize increasing production. Assuming the economy is currently

at point D, how would a successful supply side policy be reflected on the above diagram?

a. Move to A

b. Move to B

c. Stay at C

d. Move to D

e. More information is necessary as to the type of policy

24. In the Keynesian-cross model, a decrease in the interest rate ______ planned investment

spending and ______ the equilibrium level of income.

a. increases; increases

b. increases; decreases

c. decreases; decreases

d. decreases; increases

e. no change; no change

25. The Federal Reserve System (FED) is the

a. federal agency responsible for collecting taxes and government spending.

b. the company that delivers packages to your house.

c. the federal agency that collects and disseminates all the economic data that economists

are interested in.

d. the central bank responsible for monetary policy.

e. a federal agency responsible for both fiscal and monetary policies.

Use the following data to answer questions 26 – 27. The base year is 2010.

Year 2014 2015 2016

Real GDP $14,910 $15,270 $16,774

CPI 1.15 1.21 1.24

26. Which of the following would give the nominal GDP for 2016?

a. ($15,270 – $14,910) / $14,910 = 2.4%

b. ($14,910 – $15,270) / $15,270 = -2.4%

c. $16,774 / 1.24 = $13,527

d. $16,774 * 1.24 =$20,800

e. None of the above is the correct formulation.

27. Which of the following would give the growth in real GDP between 2014 and 2015?

a. ($15,270 – $14,910) / $14,910 = 2.4%

b. ($14,910 – $15,270) / $15,270 = -2.4%

c. $16,774 / 1.24 = $13,527

d. $16,774 * 1.24 = $20,800

e. None of the above is the correct formulation.

Questions 28 and 29 pertain to the planned investment function given below.

28. What is the marginal interest rate sensitivity of investment, MIS?

a. 6

b. 5

c. 0.2

d. 30

e. more information is necessary

Investment

Interest

Rate

8

2

270 300

I1 I0

29. The rightward shift in the investment function from I0 to I1 may be attributed to

a. a pessimistic view of profit expectations.

b. an optimistic view of profit expectations.

c. an increase in the interest rate.

d. increase in corporate tax rates.

e. a and d.

30. Using the following information on the exchange rates, calculate the exchange rate between

the Australian dollar and Norwegian Krone.

1.5 Australian dollar = 1 US dollars

0.5 Norwegian Krone = 1 US dollars

a. 0.5 / 1.5 = 0.33 Australian dollar /Krone.

b. 1.5 * 1/ 0.5 = 3 Australian dollar / Krone.

c. 1/1.5 * 1/0.5 = 1.33 Australian dollars / Krone.

d. 1.5 * 0.5 = 0.75 Australian dollars / Krone. e. More information is necessary.

31. This year was a great year for Farmer Ed. He purchased $500,000 worth of land to grow

more cotton and a used tractor for $50,000. Ed sold $300,000 worth of cotton to the local gin

he grew this year and $60,000 of fresh vegetables at his store to consumers. How much did

Farmer Ed directly contribute to the U.S. GDP this year?

a. $0

b. $60,000

c. $50,000

d. $300,000

e. $360,000

f. $500,000

g. $910,000

Consider the following figure for questions 32

and 33.

32. Given the consumption function in the

adjacent figure, what is autonomous

consumption?

a. 1000

b. 500

c. 300

d. 1500

e. Insufficient information

33. Given the consumption function, how much of every dollar would you expect to be spent?

a. $1.00

b. $0.80

c. $0.50

d. $0.20

e. Insufficient information

Use the following graph to answer question 34.

34. If the economy is at AD1 and AS, what type of policy would you suggest to the government?

a. Expansionary monetary policy

b. Contractionary monetary policy

c. Expansionary fiscal policy

d. Contractionary fiscal policy

e. Do nothing

35. Since the 1980’s the U.S. has been running a trade deficit, this means the

a. U.S. government is spending more money than its revenues.

b. U.S. exports are less than U.S. imports.

c. U.S. government is spending less money than its revenues.

d. U.S. exports are more than U.S. imports.

e. monetary and fiscal policies have been ineffective.

36. The effect of a depreciation of the domestic currency on the trade balance is likely to

a. increase the trade balance (increase exports relative to imports).

b. decrease the trade balance (increase imports relative to exports).

c. have no effect on the trade balance (have little effect on imports and exports).

Y0 YFE

3

1

AD0 AS

AD1

Price

37. If the exchange goes from 450 euros/Mexican peso to 440 euros/Mexican peso, the euro has

__________ and the peso has ____________.

a. appreciated, depreciated.

b. depreciated, appreciated.

c. appreciated, appreciated.

d. depreciated, depreciated.

e. need to know the U.S. exchange rate as this rate is the basis for world trade.

Use the following to answer question 38.

The U.S. has maintained an embargo against Cuba since October 19, 1960. Congress is

considering allowing the import of Cuban cigars. The diagram below shows the implications of

this policy. Assume that DUS represents the U.S. demand for cigars, SUS represents the supply of

U.S. made cigars, and Stotal represents the total supply of U.S. and Cuban made cigars.

38. If the embargo is lifted, which area(s) will be the surplus to American consumers of cigars?

a. 1, 2, 3, 4, 5

b. 1, 2, 3, 4, 5, 8

c. 1, 2, 3, 4, 5, 6, 7, 8, 9 10, 11

d. 1, 2, 3, 4, 5, 6, 7

e. 1, 2, 3

39. According to the analysis of the British economist John Maynard Keynes

a. markets coordinate supply and demand so that a policy of laissez-faire (hands off by

government) would prevent recessions.

b. economic fluctuations are the cumulative result of mistakes made by businesses and

households in an uncertain world.

c. government demand cannot be used to smooth fluctuations in aggregate output and

income.

d. supply creates its own demand through the circular flow of economic activity.

e. the capitalist system is inherently unstable and government intervention is necessary to

smooth out fluctuations.

40. Which is the following correct equation for GDP?

a. C + I + G

b. C + I + G + (X – M)

c. CPI + I + G

d. C + I + G + M

e. None of the above – need FED in the equation.

41. Select whether you want 1 point or 3 points added onto your test grade. But there's a small

catch: if more than 10% of the class selects 3 points, then no one gets any points.

a. 1 point

b. 3 points

There are 41 questions, only the first 40 will be graded. Question 41 will determine extra

credit points.

Test Version 1 Name

Question Answer Question Answer

1

22

2

23

3

24

4

25

5

26

6

27

7

28

8

29

9

30

10

31

11

32

12 33

13

34

14

35

15

36

16

37

17

38

18

39

19

40

20

41

21

Grade