UNIVERSITY OF MASSACHUSETTS-DARTMOUTH

Quiz

Instructor=s Name: Yves A. Isidor Course: ECO 231-09 or 10 Principles of Microeconomics

Student=s Name (print)____________________________ Student=s SS#: __________________

Date: __________________________

Multiple Choice (choose the best answer), Essays, and Definitions

* I am convinced that you are a savvy student. Since it is so, with regards to the essay-questions you are expected to be as Socratic (Socratic irony - Pretended ignorance, used by Socrates as a method of instruction or to reveal inconsistencies in the arguments of an opponent) as possible. No fast food-type (i.e., McDonald=s) answers please

1) Economics is the study of how:

A) Best to use society=s scare resources. B) Society spends the income of individuals. C) Society purchases resources, given its microeconomic goals. D) Individual market participants decide what to produce given fixed resource constraints.

2) The fundamental problem of economics is:

A) The law of increasing opportunity costs. B) The scarcity of resources relative to human wants C) How to get government to operate efficiently. D) How to create employment for everyone.

3) Which of the following would advocate a laissez-faire economic policy?

A) Karl Marx. B) Adam Smith. C) John Maynard Keynes. D) President Franklin Roosevelt.

4) Karl Marx wrote:

A) The wealth of Nations, which provided the rationale for centrally-planned economies. B) The Wealth of Nations, which described the virtues of market-based economies. C) Das Kapital, which provided the rationale for centrally-planned economies. D) Das Kapital, which described the virtues of market-based economies.

5) Compare, contrast, analyze and synthesize: Capitalism (Adam Smith) and Communism (Karl Mark).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6) Explain in detail the interrelationships between economic facts, theory, policy. Critically evaluate: AThe trouble with economics is that it is not practical. It has too much to say about theory and not enough to say about facts. More, economics is the study of the principles governing the allocation of scare means among competing ends when the objective of the allocation is to maximize the attainment of ends. Explain. Why is the problem of unemployment a part of the subject matter of economics?

 

 

 

 

 

 

7) The GDP is:

A) The sum of the physical amounts of goods and services in the economy. B) A dollar measure of output produced during a given time period. C) A measure of the per capita economic growth rate of the economy. D) A physical measure of the capital stock of the economy.

8) Suppose during the course of a year an economy produces $7 trillion of consumer goods, $1 trillion of investment goods, $5 trillion in government services, and has $1 trillion of exports and $2 trillion of imports. For that economy, GDP would be:

A) $16 trillion. B) $14 trillion. C) $13 trillion. D) $12 trillion.

9) Suppose during the course of a year an economy produces $11 trillion of consumer goods, $3 trillion of investment goods, $5 trillion in government services, and has $2 trillion of exports and $1 trillion of imports. For that economy, GDP would be:

A) $20 trillion. B) $21 trillion. C) $22 trillion. D) $19 trillion.

10) HAPPINESS IS A WARM VOTE - The meaning of life, according to economic theory, is maximized utility. Democracy and happiness, it appears, also have something to do with it. Do you agree? If not, a detailed explanation indicating why it not hard for you to disagree with such contention will be greatly appreciated. You may also answer this question in a graphically sound format. Quantifying your answer will certainly convince the author that you have amassed a great of knowledge in the field of economics (micro).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11) The decision by consumers to buy lager or lesser quantities of a product at each possible price - can be caused by:

Your answer may be, preferably, in the form of an intelligent analysis rather than simply listing the cause(s) of a change in demand or a change in the quantity demanded, which ever applies. So, too, you may further your answer in a graphically sound format.

NOTE: A Achange in demand@ must not be confused with a Achange in quantity demanded.@ A change in demand is a shift in the entire demand curve either to the right (an increase in demand) or the to left (a decrease in demand). In contrast, a change in the quantity demanded designates the movement from one point to another point - from one price-quantity combination to another - on a fixed demand curve.

 

 

 

 

 

 

 

 

 

 

 

 

 

12) The four factors of production are:

A) Labor, raw materials, capital, and money. B) Rent, wages, interest, and profit. C) Production, distribution, pricing, and marketing. D) Land, labor, capital, and entrepreneurship.

13) Use the first Figure (1.1 )on the last page to answer this question - Choose the letter of the diagram in the concerned Figure that best describes the type of shift that would occur in each situation for the market listed at the left, ceteris paribus.

A) Laptop computers: An advancement in technology reduces the cost of producing laptop computers.

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

14) Use Figure 1.2 (last page) to answer this question. The equilibrium price and quantity in this Figure are, respectively:

A) A) $6 and 30 units. B) $4 and 20 units. C) $8 and 20 units. D) $8 and 40 units.

15) Explain the law of demand. Why does a demand curve slope downward? What are the determinants of demand? What happens to the demand curve when each of these determinants changes? Distinguish between a change in demand and a change in the quantity demanded, nothing the cause (s) of each.

 

 

 

 

 

 

 

 

 

 

 

 

16) Our imports create a demand for foreign monies; foreign imports of our goods generate supplies of foreign monies. Do you agree? Other things being equal, would a decline in American incomes or a weakening of American preferences for foreign goods cause the dollar to depreciate? What would be the effects of that depreciation or appreciation on production and employment domestically and abroad? An intelligent answer is expected you.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17) Define the following terms:

A) Laissez-faire:

 

B) Consumption:

 

C) Imports:

 

D) Transfer payments:

 

E) Market surplus:

 

E) Market Shortage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

sumers to a change in spending. C) Position of the aggregate supply curve. D) All of the above.

2) During the 1970s and early 1980s, the U.S. Phillips curve shifted outward because of:

A) The elimination of price controls. B) Higher oil prices. C) Increasing marginal tax rates on excess profit. D) All of the above.

3) The marginal tax rate is the:

A) Change in taxes resulting from a change in fiscal policy. B) Tax rate imposed on total income. C) Tax rate imposed on taxable income. D) Tax rate imposed on the last dollar of income earned.

4) Which of the following is a major goal of short-run macroeconomic policy?

A) Shift the production-possibilities curve outward. B) Move toward the production-possibilities curve outward. C) Shift the aggregate supply curve to the left. D) Shift the aggregate supply curve to the right.

5) If the U.S. GDP was $10 trillion in 2000 and the U.S. population was 280 million, the per capita real GDP would have been closest to:

A) $2,800 per person. B) $35,714 per person. C) $28,000 per person. D) $5,000 person.

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6) If the GDP in Afghanistan grew at an annual rate of 1.5 percent and the country=s population grew at an annual rate of 2.5 percent, how long would it take for GDP per capita to double?

A) Approximately 36 years. B) Approximately 14 years. C) Approximately 72 years because real GDP is growing at a very low rate. D) It will never double because population is increasing more rapidly than real GDP.

7) If the average worker=s productivity is $10 per hour and the labor force is employed for 400 billion hours, then GDP is equal to:

A) $40.trillion. B) $2.5 trillion. C) 25.0 trillion D) $4.0 trillion.

8) Which of the following would not increase labor productivity, ceteris paribus?

A) An increase in the quality of capital. B) An increase in the number of participants in the labor force. C) Human-capital investment. D) Management training.

9) Countries with lower savings rates are likely to have:

A) A lower investment rate as a percentage of GDP and a higher growth rate of GDP. B) A lower investment rate as a percentage of GDP and a lower growth rate of GDP. C) A higher investment rate as a percentage of GDP and a higher growth rate of GDP. D) A higher investment rate as a percentage of GDP and a lower growth rate of GDP.

10) Goods and services purchased from foreign sources by the United States:

A) Are imports. B) Increase the trade deficit, ceteris paribus. D) Threaten domestic import-competing industries. D) All of the above.

11) Greater opportunity to trade increases production by:

A) Protecting countries from competition. B) Improving efficiency through specialization. C) Shifting the production-possibilities curve outward. D) All of the above.

12) Terms of trade refers to:

A) The opportunity costs incurred in trade. B) The rate at which goods are exchange. C) The degree to which one country has an absolute advantage. D) Which country pays the transportation costs when trade occurs.

13) International trade:

A) Lowers prices to consumers. B) Alters the mix of domestic production. C) Redistributes

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income from import-competing industries to export industries. D) All of the above.

14) quotas are greater threat to competition than tariffs because:

A) Quotas allow imports but only at a higher price. B) Tariffs are voluntary and quotas are not. C) Quotas preclude additional imports at any price. D) Tariffs do not reduce the quality sold and quotas do.

15) Use the Figure below to answer this question. If the countries are at points A and B in Figure 1.1 and do not trade, what is the total number of motorcycles produced per day?

A) 1,000. B) 2,000. C) 3,000. D) 4,000.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16) The United States can produce product X more efficiently than can Great Britain. Yet we import X from Great Britain. Explain.

 

 

 

 

 

 

 

 

 

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17) Use the Figure below to answer this question. The U.S. economy suddenly experiences a recession.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

18) Assume that by using all its resources to produce X, nation A can produce 80 units of X; by devoting all its resources to Y, it can produce 40 Y. Comparable figures for nation B are 60 X and 60 Y. Assuming constant costs, in which product should each nation specialize? Why? Indicate the limits of the terms trade.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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19) In what ways are domestic and foreign trade similar? In what ways do they differ?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20) A rise in the dollar price of yen, for example, necessarily means a fall in the yen price of dollars. Do you agree? Illustrate and elaborate: The critical thing about exchange rates is that they provide a direct link between the prices of goods and services produced in all trading nations of the world. Explain the purchasing power parity theory of exchange rates.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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21) Explain how an American automobile importer might finance a shipment of Toyotas, for example, from Japan. Demonstrate how an American export machine, for example, to Italy might be financed. Why an American firm that sells goods or services to Jamaica may not want to be paid in that country=s currency, but hard currency, or the U.S. dollar, for example?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22) Why economic growth important? What are the major causes of economic growth?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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23) How might a weak dollar (U.S.) affect the global economy?

 

 

 

 

 

 

 

 

 

 

 

 

 

24) Given the current state of the U.S. economy, will a further drop in share prices further erode consumer and business confidence, and harm growth? If so, will it ultimately translate into a significant reduction of tax revenues?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25) If the capitalist system can be seen as a Amachine whose primary product is economic growth,@ what are the machine=s components?

 

 

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26) Define the following terms:

 

A) Comparative advantage:

 

B) Absolute advantage:

 

C) Import quotas:

 

D) Nontariff barriers:

 

E) Balance of payments:

 

27) Define the following terms:

A) Flexible or floating exchange rate:

 

B) International Monetary Fund:

 

C) Fixed exchange rates:

 

D) Devaluation:

 

E) Non-convertible currency:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1) When money is used to express the market value of goods and services it is functioning as a:

A) Medium. B) Standard of value. C) Store of value. D) Substitute for precious metals.

2) Will pursuing price stability, as policymakers often claim, reduce the risk of boom and bust?

 

 

 

 

 

 

 

 

 

 

3) Traveler=s checks are included in which of the following?

A) M1. B) M2. C) M3. D) All of the above.

4) Suppose a bank has $100,000 in deposits and a required reserve ratio of 20 percent. Then required reserves are:

A) $10,000. B) $20,000. C) $40,000. D) $100,000.

 

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5) Any central banker worth his salt knows that his job is to aim for price stability. But stability of which prices? Given the continued pronounced corporate malfeasance and the bubble that finally bursts, which, too, has caused severe economic and financial harm to an innumerable number of citizens and, serves as a basis for the unpleasant, if not painful, headlines in daily and weekly publications in the United States and a significant portion of the rest of the world today, do you believe the Fed should long ago worry about asset-price inflation (ASP), in addition to consumer-price inflation (CPI)? Also, while America is now up to its neck in debt (Not long ago, citizens and firms still were going on a borrowing and spending binge, using their stocks, for example, as collaterals, and, now a great many of them have unfortunately seen the value of those same stocks go to a few cents from $40 each, for example) do you share the following contention: AHow to deal with asset prices is today one of the most serious dilemmas of monetary policy.@

 

 

 

 

 

 

 

 

 

 

 

6) The use of money and credit controls to achieve macroeconomic goals is:

A) Fiscal policy. B) Monetary policy. C) Supply-side policy. D) Eclectic policy.

7) Table 1.1 - Monetary aggregates of the U.S. financial system. On the basis of the information in the Table below, the required reserve ratio is:

A) 6.5 percent. B) 10.0 percent. C) 15.0 percent. D) 20.0 percent.

 

 

 

 

 

 

 

 

 

 

 

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8) The United States= Federal Reserve System has reduced interest rates to their lowest levels for decades. But has the Fed, as it is commonly known, done enough to revive the sickly U.S. economy. Why monetary policy does not always work as anticipated, especially when too many people live on borrowed time, or when households and firms were on a borrowing binge, with combined debts at record levels in relation to GDP, say directly prior to the latest reduction of rates?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9) Do Central Banks have a huge influence over the financial system? Evaluate the overall effectiveness of monetary policy. Why have open-market operations evolved as the primary means of controlling commercial banks reserves? Discuss the specific limitations, if any, of monetary policy.

 

 

 

 

 

 

 

 

 

 

 

 

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10) Suppose you are a member of the Board of Governors of the Federal Reserve System. The economy is experiencing a sharp and prolonged inflationary trend. What changes in a) the reserve ratio, b) the discount rate, and c) open-market operations would you recommend? Explain in each how the change you advocate would affect commercial bank reserves, the money supply, interest rate (prime or real rate), and aggregate expenditures. You may use hypothetical numbers to intelligently answer this essay-question. So, too, answering this essay-question in a graphically sound format will be greatly appreciated.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11) If the Fed wishes to reduce the money supply it could:

A) Raise the discount rate. B) Sell securities on the open market. C) Raise the minimum reserve ratio. C) All of the above.

12) Individuals hold precautionary balances in order to:

A) Take advantage of future changes in bond. B) Make anticipated expenditures. C) Handle emergencies. D) Make speculative purchases.

13) Which shift is most likely to occur if the Fed lowers the discount rate?

 

A) The aggregate supply curve should shift leftward. B) The aggregate supply curve should

 

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shift rightward. C) The aggregate demand curve should shift leftward. D) The aggregate demand curve should shift rightward.

14) Most economists regard monetary policy as an essential component of the United States=s economic stabilization policy. How well does monetary policy work?

15) Refer to Figure 1.1 below to answer this question. An increase in the money supply from Ms1 to Ms3 would cause:

A) An increase in investment of $40 billion. B) An Increase in investment of $2 billion. C) A decrease in investment of $40 billion. D) A decrease in investment of $20 billion.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16) Refer to Figure 1.2 below to answer this question. Which of the following Fed actions is most likely to shift the aggregate demand curve from AD1 to AD2?

A) An increase in the discount rate. B) A decrease in the reserve requirement. C) The sale of bonds in the open market. D) All of the above.

 

 

 

 

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17) Define the following terms:

 

A) Near monies:

 

B) Board of Governors:

 

C) Federal Reserve Bank or Central Bank:

D) Money illusion:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1) Inflation rates above 10 percent rarely occur:

A) In the world today. B) In the United States. C) During wartime periods. D) In or during all of the above.

2) A decrease in the average level of prices of goods and services is:

A) Deflation. B) Recession. C) Depression. D) Inflation.

3) Which of the following is true about a period of inflation?

A) Specific prices are rising, and relative prices are failing. B) Both relative prices and average prices are rising. C) Relative prices are rising, but it is not certain what is happening to average prices. D) Average prices are rising, but it is not certain what is happening to relative prices.

4) Carefully define the term recession and explain how it is measured. Also, what exactly are the set of problems that are created by a recession. You may or also refer to the most recent recession in the U.S. to answer this essay-question.

 

 

 

 

 

 

 

 

 

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5) Discuss and explain the causes of inflation, both Consumer Price Index Inflation (CPI) and Asset Price Inflation (API).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6) Why are the multitude of problems, if any, caused by deflation, more painful than those that are attributed to a sharp increase in the inflation rate? You may refer to class discussions and relevant literature to intelligently answer this essay-question. You may also use hypothetical rates for both, deflation and inflation, to provide the author of this essay-question with an answer - and intelligently so. .

 

 

 

 

 

 

 

 

 

 

 

 

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7) If the price of computers falls 12 percent during a period when the level of average prices falls 6 percent, the relative price of computers:

A) Stays the same. B) Increases. C) Decreases. D) More information is required.

8) Important micro consequences of inflation include all of the following excerpt:

A) Cyclical Unemployment. B) Income effects. C) Wealth effects. D) Price effects.

9) Hyperinflation is:

 

A) An inflation rate in excess of 200 percent, lasting at least one year. B) An inflation rate in excess of 200 percent, lasting at least one month. C) A common problem in the United. D) All of the above.

10) Using the information in Table 1.1 below. The rate of inflation between 1998 and 1999 using the CPI is:

A) 1.5 percent. B) 2.2 percent. C) 6.2 percent D) 4.1 percent.

 

 

 

 

 

 

 

 

 

 

 

 

11) What are the determinants of aggregate demand? The unemployment can be caused by a leftward shift of aggregate demand or a leftward shift of aggregate supply. Do you agree? In each case, specify price level effects.

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12) What Does economic history teach about natural disasters and war?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13) Do you think the recession that started more than a year ago recently played itself out without having inflicted much serious damage?

 

 

 

 

 

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14) Keynes argued that the level of economic activity is predominantly determined by the level of:

A) Aggregate supply. B) Aggregate demand. C) Unemployment. D) Interest rates.

15) Personal-consumption expenditure:

A) Accounts for two-thirds of total spending. B) Represents purchases of newly produced. goods and services by consumers. C) Is disposable personal income minus personal savings. D) all of the above.

16) Given a consumption function of C = 25 + 0.75Y, the average propensity to consume is 1 when income equals:

A) $25. B) $75. C) $100. D) -$300.

17) Consumption is defined as expenditures by:

A) Consumers on final goods and services. B) Government on final goods and services. C) Business on final goods and services. D) All of the Above.

18) A consumer is considered to be saving if she:

A) Puts money under the mattress in the form of cash. B) Deposits money in her savings account. C) Buys stocks in the stock market. D) All of the above.

19) Suppose the MPC in an economy is 0.8, the APC is 0.9 and disposable income is $10 billion. If disposable income increases to $14 billion, what is the new level of consumption?

A) $11.2 billion. B) $13.2 billion. C) $9 billion. D) $12.2 billion.

20) Which diagram in Figure 1.2 below shows how investment responds to the expectation that

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the economy is about to go into a period of fast growth causing firms to expect an acceleration in sales?

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21) Based on class discussions, given the pronounced corporate malfeasance (i.e., WorldCom) that is continued to be reported by the news media and the Federal government=s anticipated budget deficit of more than $165b for this coming fiscal year, for example, would you say that the U.S. economy is no longer alluring - in other words investors are intriguingly wary of America=s economic recovery? An obvious explanation as to why the economic outlook remains uncertain will be greatly appreciated.

 

 

 

 

 

 

 

 

 

 

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22) Given the unpleasant state of the U.S. economy, including the Bush=s Administration=s anticipated budget deficit of more than $165b, do you think President Bush was wise to sign the economic-stimulus bill?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23) According to Keynes, the level of economic activity is predominantly determined by the level of:

A) Aggregate supply. B) Aggregate demand. C) Unemployment. D) Interest rates.

24) Fiscal policy is:

A) An internal market force. B) A macroeconomic outcome. C) The use of budget levers to influence the macroeconomy.

25) Based on class discussions are state budgets now a disaster? And, if yes, does this matter?

 

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26) Suppose the consumption function is C = 100 + 0.90Y. If the government stimulates the economy with $100 billion in increased government purchases, aggregates expenditure would rise by:

A) A) $100 billion. B) $900 billion. C) $1,000 billion. D) 800 billion.

27) Refer to Figure 1.3 below. Assume aggregate demand is represented by AD1 and full employment is $5.6 trillion. The economy confronts an inflationary GDP gap of:

 

A) $200 billion. B) $400 billion. C) $600 billion. D) $800 billion.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28) According to Adam Smith, how do nations growth wealthy?

 

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29) The use of government taxes and spending to alter economic outcomes is known as:

A) Monetary policy. B) Fiscal policy. C) Incomes policy. D) Foreign-trade policy.

30) Which of the following is not considered to be a desirable use for a budget surplus in the United States?

A) Cutting taxes. B) Investing the surplus in the stock market. C) Spending the surplus. D) Increasing transfer payments.

31) The cost of servicing the national debt may increase if:

A) The debt grows rapidly. B) Deficits are very large. C) Interest rates are extremely high. D) All of the above.

32) Define the following terms:

A) Business cycle:

 

 

B) Quality of life:

 

 

C) Balanced-budget:

 

 

D) Budget surplus:

 

 

E) Budget deficit:

 

 

 

 

 

 

 

 

 

 

 

 

Economics can be defined as the study of:

A) For whom resources are allocated to increase efficiency. B) How society spends the income of individuals. C) How scarce resources are allocated to fulfill society=s goals. D) What scare resources are used to produce goods and services.

2) Which of the following is a scarce resource?

A) Land. B) Labor. C) Entrepreneurship. D) All of the above.

3) Which of the following is not a factor of production?

A) A teacher. B) A ballpoint pen. C) The $100,000 used to start a new business. D) Ten acres of forest.

4) Compare, contrast and analyze Communism and Capitalism.

 

 

 

 

 

 

 

 

 

 

 

 

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5) Assume you were an economic adviser to U.S. President George W. Bush. How would you advise him, and intelligently so, to use fiscal policy in a recession when analyzing, for example, his most recent economic-stimulus bill that he signed into law? What economic purpose would your advice serve once carried out?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6) The GDP is:

A) C + 1+G + (X-IM) B) The sum of value added at every stage of the production process. C) The total market value of final goods and services. D) All of the above.

7) GDP can be calculated by:

A) Adding up the spending on goods and services by business, government, households, and foreigners, and subtracting imports.

A) Adding up the >value added= at every stage of production in the economy. C) Adding up all of the receipts of households, government, and business. D) All of the above.

8) According to Figure 1.1 from 1990 to 2000 the standard of living in this hypothetical economy:

A) Improved because the population increase in the 1970s and 1980s caused the labor force to increase. B) Decreased because the level of inflation caused the value of output to fall. C) Decreased because the population growth exceeded the output growth. D) Stayed about the

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same because real GDP was fairly constant.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9) Do you agree that economists have a dismal record in predicting recession? How is recession defined? What=s its multiplying effect?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10) Consumer confidence index has been a mainstay of economic forecasting for 25 years. Alan Greenspan invokes it as a source of strength for the struggling U.S. economy. Wall Street traders buy or sell on each squiggle in the consumer confidence indexes. Politicians, economists, corporate executives, journalists all count on it to make the recovery work - a

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reference to the U.S. economic downturn. But now a growing number of researchers and economists say that consumer confidence index may be a phantom concept, an attempt to quantify a state of mind that does not exist. After more than 25 years why such an abrupt loss in consumer confidence index while an exorbitant number of citizens, with only rudimentary knowledge of economics, sadly continue to greatly rely on it to help them guide their financial decisions, including increasing their purchases? Also, given the current state of the U.S. economy, the swagger of the legendary American consumer is starting to look more and more like that of a drunken sailor. Can America=s high consumer spending be maintained? If not, an explanation relating to the multiplying effect of low consumer confidence will be greatly appreciated.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11) Which of the following are included in the labor force?

A) A student who is still in school, but not working or looking for work. B) A part-time store clerk who is looking for another job. C) A person who voluntarily runs a charity. D) A person who spends the entire day taking care of his or her own young children or progenies at home.

12) According to Figure 1.2, points D, E and F represent:

A) The maximum output that can be produced if there are no constraints on the use of resources and technology. B) Potential output given the social constraints and limits on the use of resources and technology. C) The potential unemployment of resources and technology because of decrease in demand. D) The demand of phantom unemployment.

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13) Suppose that in a population of 220 million persons, 115 million are in the labor force and 99 million are employed. The unemployment rate is:

A) 1.1 percent. B) 13.9 percent. C) 45.0 percent. D) 52..3 percent.

 

*Not only that it is imperative you also answer this question in a graphically sound format but an explanation of a high unemployment rate, if any, communicating to the author of this question the relationships (statistical) between an unacceptable unemployment rate, say 45.0 percent, and its impact (multiplying) on citizens=quality of life, to begin with, will be greatly appreciated.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

14) Sure, the U.S. economic downturn receded so rapidly. However, do you think it left the conditions for another downturn, if not more painful, unnoticed? In an attempt to further demonstrate your knowledge of economic issues relating to the U.S. economy you may also insert or incorporate your intelligent analysis of the current state of the U.S. economy in your answer. More, you may use some hypothetical numbers, including constructing a model.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15) Describe the sources and types of unemployment, define full employment, and explain the link between unemployment and real GDP, for example

- Unemployment arises from the process of job creation and job destruction and from the movement of people into and out of the labor force.

- Unemployment can be frictional, structural, and seasonal, or cyclical.

- The duration of unemployment fluctuates over the business cycle.

- Young people and minorities have the highest unemployment rates.

- Full employment occurs when there is no cyclical unemployment, the unemployment rate equals the natural unemployment rate.

- As the unemployment rate fluctuates around the natural unemployment rate, real GDP fluctuates around potential GDP.

 

 

7

16) Describe the trends and fluctuations in the indicators of labor market performance in the United States, for example

- The unemployment rate fluctuates with the business cycle.

- The female labor force participation rate has increased, and the male labor force participation rate decreased.

- Aggregate hours trend upward more slowly than employment because average hours decrease.

- Aggregate hours and average hours fluctuate with the business cycle.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17) Define the following terms:

A) Microeconomics:

 

B) Macroeconomics:

 

C) Leakages:

 

D) Injections:

 

E) National Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1) Which of the following is not a cause of unemployment?

A) an increase in aggregate demand B) a decrease in aggregate demand C) real wage rates that are above equilibrium levels D) minimum wage legislation

2) A significant technological change in a given industry which has historically required persons with a significant amount of very specific manual skills is most likely to lead to:

A) frictional unemployment B) structural unemployment C) cyclical unemployment D) no changes at all

3) A major cause of involuntary unemployment is:

A) wage rates below equilibrium B) not enough demand for labor C) too much supply of labor D) laziness D) wage rates above equilibrium

4) Leakages in the circular flow consist of:

A) savings, taxes, and exports B) savings, investment, and exports C) government spending, investment, and exports D) savings, taxes, and imports E) investment, taxes, and imports

5) Refer to the Figure below - At wage rate w1 , the quantity of labor demanded is:

A) a1 B) e3 C) ab D) e2

6) Refer to the Figure below - At wage rate w3, involuntary unemployment is:

 

(2)

A) ab B) ac C) e2 D) both (b) and (e)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7) Do flexible labor markets promote employment? You may refer to current U.S. labor regulations, which are not limited to work hours to defend your answer.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8) What are the reasons for Unemployment? How do you define full employment? How would you explain the type of quality of life citizens enjoy when there is zero unemployment compared to when the unemployment rate is, say, between 6.9 and 7.5 percent during two consecutive quarters?

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9) Consider two hypothetical countries, both with unemployment rates of 7 percent. In Flexiland, a randomly selected 25 percent of the labor force change their employment status each month - that is, they either change from being employed to being unemployed, or vice versa. In Rigiland, only 5 percent of the labor force change their employment status each month. Flexiland thus has much more turnover in its labor market than does Rigiland. If you had to move to one of these countries, which one would you choose, and why?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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10) Consider two hypothetical countries. In Country A, 20 percent of the labor force is unemployed for half the time and employed for the other half; the remaining 80 percent of the labor force is never unemployed. In Country B, 100 percent of the labor force is unemployed for

10 percent of the time and employed for the other 90 percent of the time. Note that both countries have an overall unemployment rate of 10 percent. Discuss which of the countries seems to have the more serious unemployment problem, and explain why. How is this question related to question #9?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11) Money does not serve as a:

A) unit of account B) store of value C) bartering mechanism D) medium of exchange

12) A correct statement of the equation of exchange is:

A) MP = QV B) MV = PQ C) M = V/PQ D) P/MV E) PV = QM

13) If the consumer price index is 100 in 1990 and is 120 in 1998, then the rate of inflation between 1990 and 1998 is:

A) 10% B) 20% C) 15% D) 5% E) can=t be calculated without further

information

14) Suppose a family spends $20,000 on a basket of goods in 1990. Suppose the same basket costs $22,000 in 1998. Using 1990 as the base year, the price index for 1998 is:

(5)

A) 105 B) 102 C) 111 D) 110

15) Would an increase in the rate of inflation cause the unemployment rate to go up? Discuss and analyze the multiplying effect, if any.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16) Controlling prices to halt inflation is like breaking a thermometer to control the heat. In both instances you are treating symptoms rather than causes. Do you agree? Does the correctness of the statement vary when applied to demand-pull and to cost-push inflation? Explain

 

 

 

 

 

 

 

 

 

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17) Define the following terms:

A) Discouraged workers:

 

B) Psychological law of consumption:

 

C) Injections:

 

D) Discount rate:

 

E) Cost-push inflation:

 

F) Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9) What is the most important source of revenue and the major type of expenditure at the Federal level? At the state level? At the local level? If the Federal, state and local governments collect less tax revenues than anticipated what would the multiplying effect be?

 

 

 

 

 

 

 

 

 

 

 

 

10) A stimulating debate - How should fiscal policy be used to support a slumping economy?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24) For the economy to expand its investment in the production of capital goods, it must:

A) enhance its current level of technology B) forgo some production of consumer goods and services C) expand its geographic territory D) increase its real supply of money E) reduce the level of savings by consumers

 

 

 

 

 

 

 

 

 

 

 

 

25) Does economic growth help the poor? In an effort to support your statement you may provide the author of this essay-question with as many examples as possible. You may also answer the above question in a graphically sound format. To further convince the author of the essay-question that your answer is worth reading, you may also quantify your answer, using hypothetical numbers.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26) What are the major causes of economic growth? There are both demand and supply side to economic growth. Explain. Illustrate the operation of both sets of factors in terms of the production possibilities curve.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Imperfect competition can best be described as a situation in which:

A) a few large firms produce and sell a particular product B) many firms produce and sell a product C) only one firm produces and sells a product D) firms exercise some monopoly power E) both (a) and (d)

2) In order to maximize profits a monopolist produces the output level at which:

A) its total receipts are greatest B) its total costs are minimum C) its marginal cost equals its marginal revenue D) its total costs equal its receipts

3) See graph below - Suppose the market being considered is competitive (disregard irrelevant lines in the graph), equilibrium market price and output will be:

A) P1, X2 B) P2, X3 C) P3, X1 D) P1, X4

 

 

 

 

 

 

 

 

 

 

 

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4) Discuss the major barriers of entry. Explain how each barrier can foster monopoly or oligopoly. Which barriers, if any, do you feel give rise to monopoly that is socially justifiable?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5) How does competitive advantage differ from comparative advantage? To fully answer this question, you may use two businesses in your neighborhood (If you so desire), one with competitive advantages, and the other with comparative advantages.

 

 

 

 

 

 

 

 

 

 

 

6) How often do companies engage in Apredatory pricing@ - deliberately losing money to keep competitors out of their industry?

 

 

 

 

 

 

 

 

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31) See graph below - Pegging the exchange rate at $1.25 will result in a:

A) shortage of $20 million pounds per month B) surplus of $20 million pounds per month C) shortage of $40 million pounds per month D) surplus of $40 million pounds per month

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32) In a free market, who benefits from voluntary exchange ?

A) buyers B) sellers C) both buyers and sellers D) the government only E) nobody

33) What do you call taxes placed on imports?

A) tariffs B) quotas C) voluntary restraints agreements D) exchange rates C) dumping taxes

34) Assume that by using all of its resources to produce X, nation A can produce 80 units of X; by devoting all its resources to Y, it can produce 40 Y. Comparable figures for nation B are 60 X and 60 Y. Assuming constant costs, in which product should each nation specialize? Why? Indicate the limits of the terms trade.

 

 

 

 

 

 

 

 

 

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B) product market discrimination:

 

C) wage discrimination:

 

D) monopoly power:

 

E) price discrimination:

 

19) Define the following terms:

A) imports:

 

B) exports:

 

C) balance of trade (merchandise):

 

D) production possibilities curve:

 

20) Discuss and analyze the economic loses resulting from the terrorist acts of September 11, 2001. Are billions of dollars more likely to be lost in the months to come as confidence in the economy remains an issue of concern? Are all of the factors that you have analyzed in reference to the current state of the U.S. economy give real cause for concern, suggesting that since the September 11 attacks the U.S. economy is no longer having a hard time landing - meaning that it will in the near future not escape a recession, defined as two consecutive quarters of failing growth GDP? If your pessimistic view is not limited to the Arecession that you assume the U.S. economy to be now in@ do you also believe that a 1-point increase in the national unemployment rate, say, from 5 percent to 6 percent, will promote social problems? If so, enumerate and analyze the anticipated social problems.

 

 

 

 

 

 

Which of the following most accurately describes the American economy?

A) pure market economy B) mixed economy C) purely competitive economy D) a command economy E) a monopoly

2) In a market economy:

A) resources are allocated by the private parties who own the resources B) resources are allocated by the various local, state, federal planning committees and zoning commissions C) shortages never exist D) surpluses never exist E) both c) and d)

3) In the market economy, markets serve the function of:

A) coordinating resource use decisions made by individual owners of resources B) bringing about resource allocation changes desired by resource owners C) all of the above D) both (a) and (b)

4) Refer to graph below. The demand curve and supply curve for beef, for example, are DD and SS. The demand curve shifts to D1 D1 and a price ceiling is placed on beef at price p. The result will be:

A) a surplus equal to X1 X B) a shift in the supply curve to S1S1 C) an increase in the quantity placed on the market to X1 D) both (b) and (c) above E) a shortage equal to X1X

 

 

 

 

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5) What is arguably the most famous Alaw@ in economics is just five words: ASupply creates its own demand.@ Jean Baptiste Say. In the opening sentence of AThe Wealth of Nations,@ Adam Smith, the father of free market capitalism, laid down virtually the same Alaw@ as Say - although taking 48 words to make the point. Do you agree with the above economic theory? If so, what if spenders don=t spend?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

6) Do Adam Smith=s views, ASupply creates its own demand,@on free market capitalist resemble those, as they are laid down in The Wealth of Nations, those of Karl Marx, who in The Communist Manifesto, called for the abolition of private property, the replacement of marriage by a community of women, concentration of political power in the hands of the lumpen proletariat and the replacement of the state by an association in which the free development of each is the condition for free development of all. If not, explain the pros and cons of Smith and Marx=s views within an economic and social context.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7) As the United States gets back to business in the aftermath of the worst terrorist acts ever committed in the annals of the modern world attention has turned to measuring - and minimizing - the economic fall-out. Given the economy that was already on the edge of recession, in addition to the billions of dollars in revenue that have already been lost in revenue, for example, are there other reasons why for you to believe that the fall-out, say, three months from today, will be sharply negative? If so, what will the resulting anticipated social problems be?

 

 

 

 

 

 

 

 

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8) In a market economy, if the market supply of a product decreases relative to its demand, the products price will:

A) fall B) rise C) be unchanged D) fall and then rise E) rise and then fall

9) Refer to graph below. If demand and supply are DD and SS and demand increases, the new equilibrium rent and quantity (number of units in thousands) are:

A) $800 and 25 B) $625 and 30 C) $600 and 20 D) $400 and 25 $600 and 25

10) Refer to graph below. If the supply and demand for rental housing are DD and SS, what effect will rent control law that sets the maximum allowable rent at $400 have on the market? It will lead to:

A) a surplus of 5 thousand units B) a shortage of 5 thousand units C) a surplus of 10 thousand units D) a shortage of 10 thousand units E) no change in equilibrium rent or quantity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5)

11) Rent control laws may lead to which of the following unintended effects?

A) under -the-table payments B) increased forced commuting C) higher search costs D) lost profit incentives to change the supply of rental housing E) all of the above

12) What would happen in the New Bedford housing market, for example, if voters in the State of Massachusetts through a referendum voted in favor of rent control and in the aftermath of so the above city government set economic rent at $350 per unit maximum per month - regardless of the size of a unit?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13) Which of the following best describes why pollution exists in the environment?

A) the environment has no capacity to recycle waste B) all materials take a very long time to recycle in the environment C) no waste can be completely recycled D) recycling process fail to prevent wastes from accumulating in the environment E) the environment=s capacity to recycle exceeds the rate of waste disposal

14) From an economic perspective, explain why pollution takes place? Also, would you prefer your today=s quality of life to resemble, rather, that of a person, say, 200 years ago in favor of a less polluted environment you so believe - I assume - is like a ADamocles sword@ (Danger, threat) hanging over your head?

 

 

 

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15) If all benefits from consuming a good go to the consumer, the demand curve is the same as the:

A) MPC curve B) MSC curve C) MPB curve D) supply curve E) benefit curve

16) Define the following terms:

A) economic systems:

 

B) supply:

 

C) demand:

 

D) marginal revenue:

 

E) externalities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26) What are the major causes of economic growth? There are both a demand and a supply side to economic growth. Explain. Illustrate the operation of both sets of factors in terms of the production possibilities curve.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27) Define the following terms:

A) progressive tax rates:

 

B) proportional tax rates:

 

C) collective goods:

 

D) cost of living allowances:

E) substitution effect:

 

28) Define the following terms:

A) manage care system:

 

B) deductible:

 

C) business cycles:

 

D) peak:

 

E) economic boom:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4) Assuming the production consumption possibilities depicted below (Figure 1) and an initial combination of 75 million loaves of bread and 150 million gallons of milk, the country represented would refuse to enter into any trade relationships in which:

A) the cost of importing bread exceeds two gallons of milk per loaf B) the cost of importing milk exceeds one loaf of bread per gallon C) the cost of importing milk exceeds two loaves of bread per gallon D) both (a) and (b)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5) Refer to Figure 1.1 below. Pegging the exchange rate at $1.25:

A) impose a price floor B) results in a balance of payments problem C) will increase British demand for U.S. exports D) will increase U.S. demand for British imports

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6) In what ways are domestic and foreign trade similar? In what ways do they differ?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7) Assume that by using all its resources to produce X, nation A can produce 80 units of X; by developing all its resources to Y, it can produce 40 Y. Comparable figures for nation B are 60 X and 60 Y. Assuming constant costs, in which product should each nation specialize? Why? Indicate the limits of the terms of trade.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8) Which of the following is not a cause of unemployment?

A) an increase in aggregate demand B) a decrease in aggregate demand C) real wage rates that are above equilibrium levels D) minimum wage legislation

 

9) A significant technological change in a given industry which has historically required persons with a significant amount of every specific manual skills is most likely to lead to:

A) frictional unemployment B) structural unemployment C) cyclical unemployment D) no changes at all

10) Refer to Figure 1.2 below. At wage rate w1, the quantity of labor demanded is:

A) e1 B) e3 C) AB D) e2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11) Does flexible labor markets promote employment? You may refer to current U.S. labor regulations to defend your answer. If the current week work of 40 hours (full-time) were to be amended, say to 35 hours, would that lead to more unemployment? What would the multiplying effect be?

 

 

 

 

 

 

 

 

 

 

 

 

 

12) What=s the relationships, preferably statistical, between inflation and unemployment? Would an increase in the rate of inflation cause the unemployment rate to go up? How? What would the multiplying effect be?

 

 

 

 

 

 

 

 

13) Money does not serve as a:

A) unit of account B) store of value C) bartering mechanism D) medium of exchange

14) A correct statement of the equation of exchange is:

A) MP = QV B) MV = PQ C) M = V/PQ D) P = Q/MV E) PV = QM

15) Controlling prices to halt inflation is like breaking a thermometer to control the heat. In both instances you are treating symptoms rather than causes. Do you agree? Does the correctness of the statement vary when applied to demand-pull and to cost-push inflation? Explain.

 

 

 

 

 

16) Define the following terms:

A) free trade area:

 

B) comparative advantage:

 

C) labor force:

 

D) discouraged workers:

 

E) Price Index numbers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4) Choose the letter of the diagram in Figure (1.1) that monetarists would use to illustrate the effect of an increase in the quantity of money on the economy?

A. a B. b C. c D. d

 

5) Choose the letter of the diagram in Figure (1.1) that represents the Philips curve

 

A. a B. b C. c D. d

6) Choose the letter of the diagram in Figure (1.1) that Keynesian would use to illustrate the effects of stimulative fiscal policy on the economy.

A. a B. b C. c D. d

7) Why might prices rise when aggregate demand increase? What factors might influence the extent of price inflation?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8) Is limitless growth really possible? What forces do you think will be most important in slowing or halting economic growth? Refer to class discussions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9) A major goal of short-run macroeconomic policy is to:

A. shift the production-possibilities curve outward B. move toward the production-possibilities curve C. shift the aggregate supply curve to the left D. shift the aggregate supply curve to the right

10) To achieve large and lasting increases in output there must be:

A. an increase in potential GDP B. an increase in the use of existing capacity C. a shift in aggregate supply to the left D. a commitment to expansionary fiscal policy

11) If the real U.S. GDP was $6,339 billion in 1995 and the U.S. population was 263 million, the per capital real GDP would have been closest to:

A. $4,150 per person D. $24,100 C. $41,500 C. $250,000 per person

12) Approximately how long would it take for real GDP to double if it grew at a constant annual rate of 10 percent?

A. approximately 3 years B. approximately 7 years C. approximately 10 years D. approximately 20 years

13) If the average worker=s productivity is $12 per hour and the labor force is employed for 500 billion hours, then GDP is equal to:

A. $6.0 trillion B. $41.6 trillion B. $30.0 trillion C. $2.4 trillion

14) Define the following terms:

A. marginal tax rate:

 

B. tax rebate:

 

C. tax elasticity of supply:

 

D. human capital:

 

E. investment:

 

 

15) Define the following terms:

A. dumping:

 

B. comparative advantage:

C. embargo:

 

D. flexible exchange rates:

 

E. foreign-exchange reserves:

 

16) What determines the value of one country=s money as compared to the value of another=s? Refer to class discussions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17) Goods and services purchased from foreign sources by the United States:

A. are imports B. increase the trade deficit, ceteris paribus C. threaten domestic import-competing industries D. all of the above

18) When the overall trade balance is zero:

A. merchandise exports equal merchandise imports B. the service trade balance must be zero C. exports equal imports D. all of the above

19) Over a given period of time if exports exceed imports, the result is:

A. a trade war B. a trade deficit C. an embargo D. a trade surplus

20) Greater opportunity to trade increases production by:

A. protecting countries from competition B. improving efficiency C. shifting the production-possibilities curve outward D. all of the above

Use the following Figure (1.2) to answer questions 21-22.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21) If the countries are at point A and B in Figure (1.2) and do not trade, what is the total number of motorcycles produced per day?

A. 1,000 B. 2,000 C. 3,000 D. 4,000

22) Which of the following best describes the comparative advantage of the two countries illustrated in Figure (1.2)?

A. Japan has a comparative advantage in both goods B. Japan has the comparative advantage in CD players; the United States in motorcycles C. Japan has the comparative advantage in motorcycles; the United States in CD players D. the United States has a comparative advantage in both goods

23) What are the benefits and the costs of protectionist policies? Compare the two. Refer to class discussions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24) In what ways does international trade promote economic growth? Your countries of study may include: the United States and Mexico, the United States and Brazil. Refer to class discussions.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

25) The exchange rate is the:

A. opportunity cost at which goods are produced domestically B. balance-of-trade ratio of one country to another C. price of one country=s currency expressed in terms of another country=s currency D. amount of currency that can be purchased with 1 ounce of gold

26) An exchange rate:

A. Is always fixed B. is tied to the price of gold C. is the price of one currency in terms of another D. all of the above

27) If the German mark (DM is equal to $0.50, what would be the DM price of a car that costs $10,000?

A. DM 5,000 B. DM 20,000 C. DM 50,000 D. 10,000

28) The Swedish auto company Saab imports car components from Germany and exports autos to the United States. In 1990 the dollar depreciated, and the German mark appreciated, relative to the Swedish Krona. Speculate as to how this hurt Saab - twice. Refer to class discussions and notes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

29) A rise in the American dollar price of yen necessarily means a fall in the yen price of dollars. Do you agree? Illustrate and elaborate: The critical thing about exchange rates is that they provide a direct link between the prices of goods and services produced in all nations of the world. Explain the purchasing power parity theory of exchange rates. Refer to class notes and discussions.