ECON 2301
TEST 2 Study Guide
Fall 2008
Instructions:
33 multiple-choice questions, each with 4 responses
Students need to bring: (1) Sanddollar ID card; (2) scantron Form 882-E; (3) pencil; (4) calculator (optional)
Chapter 5
9
Market failures
9
Externalities and correcting for them
9
Functions of government
9
Public goods
9
Types of economic policy
9
Merit goods
9
Transfer payments
9
Government spending – federal and state/local level
Chapter 6
9
Sources of government funding
9
Average vs marginal tax rates
9
Proportional vs progressive vs regressive tax systems
9
Government tax receipts at federal and state/local level
9
Income, corporate, employment, capital gains, sales, excise, per unit and ad valorem taxes
9
Static vs dynamic tax analysis
9
Salvaging social security
Chapter 7
9
Unemployment rate
9
Labor force participation rate
9
Frictional, structural, cyclical and seasonal unemployment
9
Stock vs flow variables
9
Discouraged worker effect
9
Inflation, deflation, disinflation
9
Nominal and real values
9
Constructing a price index and base year
9
CPI, PPI and the GDP deflator
9
Anticipated vs unanticipated inflation
9
Real interest rates
9
Business cycles: peaks, troughs, recessions, depressions
Chapter 8
9
Simple flow diagram of economy; product and factor markets
9
National income accounting identity
9
Expenditure method of calculating GDP
9
Definition of GDP: inclusions, exclusions
9
Consumption, investment, government spending, net exports
9
GDP as a measure of welfare
9
Nominal vs real GDP, per capita real GDP
9
Foreign exchange rates
Chapter 9
9
Economic growth
9
Growth rates and economic wellbeing
9
Productivity
9
New growth theory
9
Factors determining economic growth
Example Questions
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Answer
all questions
1) Which of the following is an example of the free-rider problem?
1) _______
A) A student who refuses to buy a college catalog
B) A fast food employee who is provided food at work
C) A neighbor who refuses to help pay for a street light that is intended to help reduce crime
D) A law enforcement officer who receives a uniform from the police department
2) Suppose the income tax rate schedule is 0 percent on the first $10,000; 10 percent on the next
$20,000; 20 percent on the next $20,000; 30 percent on the next $20,000; and 40 percent on any
income over $70,000. Family A earns $28,000 a year and Family B earns $65,000 a year. Both
receive a ten percent raise. What is the marginal tax rate of each and what is the extra tax paid by
each after the raise?
A) Family A: 10 percent marginal tax rate and $280 in extra taxes; Family B 30 percent
marginal tax rate and $1950 in extra taxes.
B) Family A: 20 percent marginal tax rate and $360 in extra taxes; Family B 40 percent
marginal tax rate and $2100 in extra taxes.
C) Family A: 15 percent marginal tax rate and $420 in extra taxes; Family B 35 percent
marginal tax rate and $2275 in extra taxes.
D) Family A: 20 percent marginal tax rate and $560 in extra taxes. Family B 40 percent
marginal tax rate and $2600 in extra taxes.
2) _______
3) Bobʹs assembly line job has been replaced by robots, and Bob lacks abilities and skills required to
attain other jobs. He is considered
A) a discouraged worker.
B) frictionally unemployed.
C) seasonally unemployed.
D) structurally unemployed.
3) _______
4) Which of the following price indexes is designed to measure changes in the prices of goods and
services purchased by a typical individual?
A) Index of Leading Economic Indicators
B) Producer Price Index
C) Gross Domestic Product (GDP) Deflator
D) Consumer Price Index
4) _______
5) An example of an increase in gross private domestic investment spending that also increases
Gross Domestic Product (GDP) is when
A) government increases spending on infrastructure.
B) inventories of new cars accumulate on the lots of car dealers.
C) a family sells its home because of a transfer.
D) a farmer buys a used tractor.
5) _______
6) Suppose that in 2006, nominal Gross Domestic Product (GDP) for the economy of Chiconia was
$10 trillion and the Gross Domestic Product (GDP) price index was 200.0. What is Chiconiaʹs
real Gross Domestic Product (GDP) in 2006?
A) $20 trillion
B) $5 trillion
C) $200 trillion
D) $10 trillion
6) _______