EC 202 PRINCIPLES OF MACROECONOMICS FALL 2009 TEST 1
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Read the questions very carefully, answer all of them and mark
the your answer on the answer sheet.MULTIPLE CHOICE. Choose the one
alternative that best completes the statement or answers the
question. 1) By definition, economics is the study of A) how to
make money in the stock market. B) how to make money in a market
economy. C) the choices people make to attain their goals, given
their scarce resources. D) supply and demand. Table 1-1 Hours Open
1 2 3 4 5 6 Total Revenue (Dollars) $35 60 80 92 100 105 1)
Eva runs a small bakery in the village of Roggerli. She is
debating whether she should extend her hours of operation. Eva
figures that her sales revenue will depend on the number of hours
the bakery is open as shown in the table above. She would have to
hire a worker for those hours at a wage rate of $8 per hour. 2)
Refer to Table 1-1. Using marginal analysis, determine how many
hours should Eva extend her bakery's hours of operations? A) 2
hours B) 3 hours C) 5 hours D) 4 hours E) 6 hours 3) The three
fundamental questions that any economy must address are A) What
will be the prices of goods and services; how will these goods and
services be produced; and who will receive them? B) What goods and
services to produce; how will these goods and services be produced;
and who receives them? C) Who gets jobs; what wages do workers
earn; and who owns what property? D) How much will be saved; what
will be produced; and how can these goods and services be fairly
distributed? 2)
3)
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4) The Coffee Nook, a small cafe near campus, sells cappuccinos
for $2.50 and Russian tea cakes for $1.00 each. What is the
opportunity cost of buying a cappuccino? A) 2 1/2 Russian tea cakes
B) 2/5 of a Russian tea cake C) $2.50 D) $1.00 5) How are the
fundamental economic questions answered in a market economy? A) The
government alone decides the answers. B) Individuals, firms, and
the government interact in markets to decide the answers to these
questions. C) Households and firms interact in markets to decide
the answers to these questions. D) Large corporations alone decide
the answers. Figure 2-2
4)
5)
Figure 2-2 above shows the production possibilities frontier for
Mendonca, an agrarian nation that produces two goods, meat and
vegetables. 6) Refer to Figure 2-2. Suppose Mendonca is currently
producing 60 pounds of vegetables per period. How much meat is it
also producing, assuming that resources are fully utilized? A) 45
pounds of meat B) 75 pounds of meat C) 80 pounds of meat D) 100
pounds of meat 6)
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Figure 2-3
7) Refer to Figure 2-3. Carlos Vanya grows tomatoes and
strawberries on his land. A portion of his land is more suitable
for growing tomatoes and the other portion is better suited for
strawberry cultivation. Which of the graphs in Figure 2-3 represent
his production possibilities frontier? A) Graph A B) Graph B C)
Graph C D) either Graph A or Graph B E) either Graph B or Graph C
Figure 2-5
7)
8) Refer to Figure 2-5. If the economy is currently producing at
point Y, what is the opportunity cost of moving to point W? A) 2
million tons of steel B) zero C) 9 million tons of paper D) 16
million tons of paper
8)
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Table 2-2 George Lawns Mowed Gardens Cultivated 10 5 Jack 6
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Table 2-2 shows the output per day of two gardeners, George and
Jack. They can either devote their time to mowing lawns or
cultivating gardens. 9) Refer to Table 2-2. Which of the following
statements is true? A) Jack has a comparative advantage in both
tasks. B) George has a comparative advantage in both tasks. C) Jack
has a comparative advantage in lawn mowing and George in garden
cultivating. D) Jack has a comparative advantage in garden
cultivating and George in lawn mowing. Table 2-3 One Digital Camera
100 hours 60 hours Wheat (per pound) 4 hours 3 hours 9)
China South Korea
Table 2-3 shows the number of labor hours required to produce a
digital camera and a pound of wheat in China and South Korea. 10)
Refer to Table 2-3. What is South Korea's opportunity cost of
producing one digital camera? A) 25 pounds of wheat B) 20 pounds of
wheat C) 60 pounds of wheat D) 0.05 pounds of wheat 11) Rayburn
Reed is a highly talented photographer. He has chosen to specialize
in photography because of all of the following except A) he
obviously has a comparative advantage in photography. B) his
opportunity cost of pursuing another career is very low. C) for
him, this is the most lucrative way to purchase the products that
he wants to consume. D) his photographs are highly esteemed by art
lovers who are willing to pay very high prices. 12) Which of the
following is not a factor of production? A) an acre of farmland B)
a drill press in a machine shop C) the manager of the local tire
shop D) $1,000 in cash 13) The law of demand implies, holding
everything else constant, that A) as the price of bagels increases,
the quantity of bagels demanded will decrease. B) as the price of
bagels increases, the demand for bagels will decrease. C) as the
price of bagels increases, the quantity of bagels demanded will
increase. D) as the price for bagels increases, the demand of
bagels will increase. 10)
11)
12)
13)
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14) Which of the following will not shift the demand curve for a
good? A) An increase in population. B) An increase in the price of
the good. C) A decrease in the price of a substitute good. D) An
increase in consumer incomes. 15) Technological advancements have
led to lower prices and an increase in the sale of digital cameras.
How does this affect the digital photo printing paper market? A)
The demand curve for digital photo printing paper shifts to the
right. B) The demand curve for digital photo printing paper shifts
to the left. C) The supply curve for digital photo printing paper
shifts to the right. D) The supply curve for digital photo printing
paper shifts to the left. 16) In July, market analysts predict that
the price of gold will rise in August. What happens in the gold
market in July, holding everything else constant? A) The supply
curve shifts to the right. B) The supply curve shifts to the left.
C) The quantity demanded and the quantity supplied of gold
increase. D) The demand curve shifts to the left. 17) George Gnat
subscribes to a monthly pest control service for his home. Last
week the owner of the service informed George that he will have to
raise his monthly service fee because of increases in the price of
gasoline used by his workers on their service trips. How is the
market for pest control services affected by this? A) There is an
increase in the supply of pest control services. B) There is a
decrease in the demand for pest control services. C) There is a
decrease in the quantity supplied of pest control services. D)
There is a decrease in the supply of pest control services. 18)
Hurricane Katrina damaged a large portion of refining and pipeline
capacity when it swept through the Gulf coast states in August
2005. As a result of this, many gasoline distributors were not able
to maintain normal deliveries. At the pre-hurricane equilibrium
price (i.e., at the initial equilibrium price), we would expect to
see A) a surplus of gasoline. B) the quantity demanded equal to the
quantity supplied. C) a shortage of gasoline. D) an increase in the
demand for gasoline.
14)
15)
16)
17)
18)
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Figure 3-2
19) Refer to Figure 3-2. If the current market price is $25, the
market will achieve equilibrium by A) a price increase, increasing
the supply and decreasing the demand. B) a price decrease,
decreasing the supply and increasing the demand. C) a price
decrease, decreasing the quantity supplied and increasing the
quantity demanded. D) a price increase, increasing the quantity
supplied and decreasing the quantity demanded.
19)
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Figure 3-5
20) Refer to Figure 3-5. Assume that the graphs in this figure
represent the demand and supply curves for women's clothing. Which
panel best describes what happens in this market when the wages of
seamstresses rise? A) Panel (a) B) Panel (b) C) Panel (c) D) Panel
(d) 21) Refer to Figure 3-5. Assume that the graphs in this figure
represent the demand and supply curves for Fruitopia, a soft drink.
Which panel describes what happens in the market for Fruitopia when
the price of Snapple, a substitute product, decreases? A) Panel (a)
B) Panel (b) C) Panel (c) D) Panel (d) 22) Refer to Figure 3-5.
Assume that the graphs in this figure represent the demand and
supply curves for potatoes and that steak and potatoes are
complements. What panel describes what happens in this market when
the price of steak rises? A) Panel (a) B) Panel (b) C) Panel (c) D)
Panel (d) 23) What does it mean to say that an owner has "unlimited
liability" for business debts? A) It means creditors can seek
payments for outstanding debts through business assets and the
owner's personal assets. B) It means the owner can borrow an
unlimited amount of money in credit markets at very low interest
rates. C) It means the owner will always honor all her debts in the
event of a bankruptcy. D) It means creditors have no recourse to
collect payments from the owner in the event of bankruptcy.
20)
21)
22)
23)
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24) Giles is interested in purchasing Ted's desktop publishing
company, the Peach Pit Press. Being relatively inexperienced in the
business field, Giles hires Diana to negotiate on his behalf.
Identify the parties to this transaction. A) Giles is the principal
and Diana is the agent. B) Ted is the principal and Diana is the
agent. C) Diana is the principal and Ted is the agent. D) Giles is
the principal and Ted is the agent. 25) The two main types of
financial securities are A) stocks and bonds. B) assets and
liabilities. C) financial markets and financial intermediaries. D)
savings and loans. 26) Which of the following is an example of
indirect financing? A) Google issues new stock for sale in the
financial market B) Google sells a bond in the financial market C)
Google borrows money from Credit Suisse, an investment bank D)
Google sells a financial security in the financial market 27) Which
of the following would not be listed on the face of a bond? A) the
market price of the bond B) the coupon rate of bond C) the
principal amount of the bond D) the name of the issuer 28) Suppose
you purchased in 2006 a house built in 2000. Which of the following
would be included in gross domestic product for 2006? A) the value
of the house in 2006 B) the value of the house in 2000 C) the value
of the house in 2006 minus depreciation D) the value of the
services of the real estate agent 29) The factors of production
include A) wages. B) capital.
24)
25)
26)
27)
28)
29) C) investment. Table 7-4 D) transfers.
Consumption expenditures Investment expenditures Government
purchases Government transfer payments Exports Imports
$800 300 300 400 300 100 30)
30) Refer to Table 7-4. Consider the data above (in billions of
dollars) for an economy: Gross domestic product (in billions of
dollars) for this economy equals A) $2,200. B) $2,100. C) $1,700.
D) $1,400.
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31) Suppose Bob works for Mary as a proofreader. Mary and Bob
fall deeply in love, marry and have eight children. Bob stops
working for Mary in order to care for the children. What will be
the effect on GDP? A) GDP will decrease. B) GDP will increase. C)
GDP will not change. D) GDP may increase or may decrease depending
on inflation. Table 7-8 Guns Produced 80 90 Price of Guns (Dollars)
$5 $6 Butter Produced 40 60 Price of Butter (Dollars) $4 $10
31)
Year 2000 2006
Consider the following data for a fictional economy that
produces only two products: guns and butter. 32) Refer to Table
7-8. Real GDP for this fictional economy for 2006 using 2000 as the
base year equals A) $1,140. B) $880. C) $690. D) $560. 33) Refer to
Table 7-8. Nominal GDP for this fictional economy in 2006 equals A)
$1,140. B) $880. C) $690. 32)
33) D) $560. 34)
34) Which of the following could cause nominal GDP to increase,
but real GDP to decrease? A) The price level rises and the quantity
of final goods and services produced rises. B) The price level
rises and the quantity of final goods and services produced falls.
C) The price level falls and the quantity of final goods and
services produced rises. D) The price level falls and the quantity
of final goods and services produced falls. 35) If nominal GDP
exceeds real GDP for a specific year, then the GDP deflator must be
A) equal to 100. B) greater than 100. C) less than 100. D) less
than 0. Table 7-12 Year 1997 1998 1999 Nominal GDP $8,318 $8,790
$9,299 Real GDP $8,159 $8,516 $8,876
35)
36) Refer to Table 7-12. Consider the following data on nominal
GDP and real GDP (values are in billions of dollars): The GDP
deflator for 1998 equals A) 96.9. B) 103.2. C) 104.2. D) 105.7. 37)
If an American firm opens a production facility in India, the total
value of the production will be included in the A) gross domestic
product of the U.S. B) net domestic product of the U.S. C) gross
domestic product of India. D) gross national income of India.
36)
37)
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38) Which of the following is included in both the U.S. GDP and
U.S. GNP? A) the value of all cars produced by General Motors in
the U.S. B) the value of all cars produced by Ford in Mexico C) the
value of all cars produced by Toyota in the U.S. D) the value of
all cars produced by Nissan in Japan and the U.S. 39) A country in
which a significant fraction of domestic production takes place in
foreign owned factories and facilities is most likely a country
where A) GNP is much larger than GDP. B) GDP is much larger than
GNP. C) GDP is equal to GNP. D) GDP is not comparable to GDP. Table
8-1 Total Population Working-Age Population Employment Unemployment
Consider the data above for a simple economy. 40) Refer to Table
8-1. The unemployment rate for this simple economy equals A)
(100/1,000) x 100. B) (100/1,100) x 100. C) (100/15,000) x 100. D)
(100/20,000) x 100. 41) Suppose the labor force stays constant, and
the working population stays constant, but a greater number of
persons who were unemployed become employed. The labor force
participation rate will A) increase. B) decrease. C) remain
constant. D) not change in way that can be predicted. 42) The
advice to "keep searching, there are plenty of jobs around here for
which you are qualified", would be most appropriate for which of
the following types of unemployment? A) frictional unemployment B)
structural unemployment C) cyclical unemployment D) core
unemployment 43) Structural unemployment is the result of A) a
persistent mismatch between the skills and characteristics of
workers and the requirements of the jobs. B) the search process of
matching workers with jobs. C) the ups and downs in inflation. D) a
slowdown in the economy. 44) Full employment is not considered to
be zero unemployment, because A) some cyclical unemployment always
exists. B) some people do not want a job. C) there are not enough
jobs for everyone who wants one. D) people do not find jobs
instantaneously. 20,000 15,000 1,000 100
38)
39)
40)
41)
42)
43)
44)
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45) Which of the following would increase the unemployment rate?
A) a law making it illegal to work more than 35 hours per week B) a
cut in unemployment compensation C) an increase in unemployment
insurance payments D) a decrease in the minimum wage 46) If the
price level rose in three consecutive years from 100 to 120 to 140,
then the annual inflation rate over those years would A) increase.
B) remain the same. C) decrease. D) equal 20%. Table 8-4 Base Year
(2000) Quantity Price 100 $10 200 $2 2006 Quantity 120 180 Price
$12 $3
45)
46)
Product Meat Potatoes
47) Refer to Table 8-4. Assume the market basket for the
consumer price index has two products meat and potatoes with the
following values in 2000 and 2006 for price and quantity: The
Consumer Price Index for 2006 equals A) 125. B) 129. C) 135. D)
141. Table 8-6 Year 1996 1997 1998 CPI 157 161 163
47)
48) Refer to Table 8-6. Consider the following values of the
consumer price index for 1996, 1997, and 1998: The inflation rate
for 1997 equals A) 1.2 percent. B) 2.0 percent. C) 2.5 percent. D)
4.0 percent. 49) Suppose your grandfather earned a salary of
$12,000 in 1961. If the CPI is 30 in 1961 and 196 in 2005, then the
value of your grandfather's salary in 2005 dollars equals A)
$78,400. B) $62,500. C) $40,000. D) $23,520. 50) Suppose you borrow
$1,000 at an interest rate of 12 percent. If the expected real
interest rate is 5 percent, then the rate of inflation over the
upcoming year that would be most beneficial to you would be a rate
of inflation A) equal to 0 percent. B) greater than 7 percent. C)
equal to 7 percent. D) less than 7 percent.
48)
49)
50)
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Answer Key Testname: TEST1FALL2009
1) C 2) C 3) B 4) A 5) C 6) B 7) C 8) B 9) D 10) B 11) B 12) D
13) A 14) B 15) A 16) B 17) D 18) C 19) C 20) B 21) D 22) D 23) A
24) A 25) A 26) C 27) A 28) D 29) B 30) C 31) A 32) C 33) A 34) B
35) B 36) B 37) C 38) A 39) B 40) B 41) C 42) A 43) A 44) D 45) C
46) C 47) D 48) C 49) A 50) B 12