ECON 1100 – Global Economics (Section 06)
Exam #3 – Fall 2012 (Version C)
Multiple Choice Questions ( 2 12 points each):
1.
If the federal government of Bernankevania (a small landlocked country in
eastern Europe, with an economy highly dependent upon oil production) had
revenues of €3,725,000,000 and expenditures of €4,125,000,000 in 2011, then in
2011 this government
A.
realized a budget surplus of €7,850,000,000.
B.
realized a budget deficit of €7,850,000,000.
C.
realized a budget surplus of €400,000,000.
D.
realized a budget deficit of €400,000,000.
2.
During the most recent recession in the U.S. (which officially lasted from
December 2007 through June 2009) Real GDP _____________.
A.
increased by 0.8%
B.
decreased by 1.2%
C.
decreased by 4.1%
D.
decreased by 9.8%
3.
______________ were two of the central figures in the formulation of the ideas of
Utilitarianism, which argues that total social welfare can be increased by income
redistribution, so long as people have a diminishing marginal utility of income.
A.
Milton Friedman and Anna Schwartz
B.
John Maynard Keynes and James Buchanan
C.
Jeremy Bentham and John Stuart Mill
D.
Ludwig von Mises and Friedrich von Hayek
4.
The point in time at which an economy stops contracting at the end of a recession
and economic activity reaches a minimum is called
A.
a depression.
B.
the trough.
C.
an expansion.
D.
a stabilization.
5.
Consider a good for which there is a positive externality. If this good were
provided by the market, then
A.
trade would have to take place at a price of $0.
B.
less than the efficient amount of the good would be traded.
C.
every single unit of the good for which any consumer has a positive
reservation price would be traded.
D.
More than one (perhaps all) of the above answers is correct.
6.
The U.S. Federal Income Tax
A.
requires every worker in the country to pay exactly 10% of all earned
income to the Federal government.
B.
is a Progressive Tax.
C.
was first established by President Barack Obama in early 2009 (shortly
after the passage of the 28th Amendment to the U.S. Constitution legalized
such a tax on income by the Federal government).
D.
More than one (perhaps all) of the above answers is correct.
7.
Which of the following was discussed in lecture to illustrate how something akin
to the “Coasian Solution to Externalities” has been implemented in practice?
A.
How total social welfare (on a global level) was likely decreased by
President Barack Obama flying to Copenhagen in order to lobby the
International Olympic Committee on behalf of Chicago’s bid to host the
2012 Summer Olympics.
B.
How cigarette smoking can be reduced by the imposition of a per unit tax.
C.
Why a free market would tend to provide less than the efficient amount of
national defense.
D.
How the “Defenders of Wildlife” established the “Bailey Wildlife Wolf
Compensation Trust” in order to facilitate the re-introduction of the gray
wolf into the wild in the western United States.
8.
________________ said that “Inflation is always and everywhere a monetary
phenomenon.”
A.
Jeremy Bentham
B.
Milton Friedman
C.
John Maynard Keynes
D.
Ronald Coase
For Questions 9 and 10, consider a country with an income tax as follows: for each of
the first $100,000 earned a worker must pay 10% to the government; for any income
earned beyond $100,000 a worker must not pay any additional taxes.
9.
Amy earns $500,000 per year. At her current level of income, Amy’s “Marginal
Tax Rate” is ______.
A.
0%
B.
2%
C.
10%
D.
None of the above answers are correct.
10.
Based upon the description given above, this tax appears to
A.
be a Regressive Tax.
B.
be a Proportional Tax.
C.
be a Progressive Tax.
D.
clearly violate the notion of horizontal equity.
11.
The Gini-Coefficient provides a quantitative measure of
A.
the degree to which taxation in a country is progressive.
B.
the rate at which prices are increasing in an economy over time.
C.
the rate at which a society is depleting its natural resources.
D.
income equality/inequality within a society.
For questions 12 through 14, consider a market with Supply and Demand as illustrated
below. Assume throughout that the efficient level of trade is 30,000 units.
$
Supply
53.50
a
50.35
b
c
48.75
Demand
0
quantity
0
20,000
30,000
12.
In comparison to the “free market outcome,” imposing a per unit tax of $4.75 on
buyers in this market would
A.
decrease Consumers’ Surplus by more than “areas (a)+(b).”
B.
decrease Producers’ Surplus by exactly “area (c).”
C.
result in a Deadweight-Loss equal to “areas (b)+(c).”
D.
More than one (perhaps all) of the above answers is correct.
13.
Imposing a per unit tax of $5.00 on sellers in this market would generate tax
revenue of
A.
less than $100,000.
B.
exactly $100,000.
C.
more than $100,000 but less than $150,000.
D.
exactly $150,000.
14.
Consider the following two proposed taxes: “Tax A” is a $1 per unit tax imposed
on buyers; “Tax B” is a $2 per unit tax imposed on sellers. We can infer that
A.
The government’s tax revenue would be exactly the same under “Tax A”
and “Tax B.”
B.
producers would prefer “Tax A” over “Tax B.”
C.
consumers would prefer “Tax A” over “Tax B.”
D.
More than one (perhaps all) of the above answers is correct.
15.
Focusing on the benefits provided through the “Temporary Assistance for Needy
Families” (TANF) welfare program, the maximum monthly payment to a oneparent family of three in January 2003
A.
was $0 in every single state in the U.S. (due to this program being
abolished by George W. Bush on his first day as President).
B.
varied by state (due to benefit levels being set by each state) from a low of
$170 in Mississippi to a high of $923 in Alaska.
C.
varied by state (due to benefit levels being set by each state) from a low of
$2,897 in Connecticut to a high of $4,746 in Alabama.
D.
was $1,000 in every single state in the U.S.
For questions 16 through 18 consider the following scenario. “Company X” wants to
construct a new manufacturing facility near an existing residential neighborhood. If
they construct and operate the facility, they can do so at one of four different plant
sizes: “size 1,” “size 2,” “size 3,” or “size 4.” However, their economic activity would
impose external costs from pollution on the nearby residents. The resulting profit (for
“Company X”) and external costs (to residents of the adjacent neighborhood) of each
possible choice are specified in the table below:
Profit
External Costs
no plant
$0
$0
size 1
$500,000
$100,000
size 2
$850,000
$225,000
size 3
$1,000,000
$400,000
size 4
$950,000
$700,000
16.
If “Company X” was allowed to choose its plant size without having to account
for the external cost to nearby residents whatsoever, they would choose a plant of
A.
“size 1.”
B.
“size 2.”
C.
“size 3.”
D.
“size 4.”
17.
The socially efficient outcome is for “Company X” to construct and operate
A.
a plant of “size 3.”
B.
a plant of “size 2.”
C.
a plant of “size 1.”
D.
no plant.
18.
Suppose that property rights can be clearly defined, individuals must pay
compensation if they infringe upon the property rights of others, and the impacted
parties can negotiate with one another. We would expect the ultimate outcome to
be _______________ if the homeowners are given the right to a pollution free
environment and _______________ if “Company X” is given the right to pollute
the environment.
A.
a plant of “size 3”; a plant of “size 3.”
B.
a plant of “size 2”; a plant of “size 2.”
C.
a plant of “size 1”; a plant of “size 3.”
D.
no plant; a plant of “size 4.”
19.
Kevin’s income is higher than Henry’s income. Two of the notable differences
between their jobs are that Henry gets to work in a climate controlled office
building year-round and Kevin runs a greater risk of being injured on the job.
This would seem to suggest that the difference in incomes between the two
individuals is
A.
an indication of the Labor Theory of Value.
B.
due to gender discrimination.
C.
a compensating differential.
D.
None of the above answers is correct.
20.
Within our discussion of the relation between the money supply and inflation, it
was noted that _________ experienced an inflation rate of 3,398% in 1989 and an
inflation rate of 7,482% in 1990.
A.
Peru
B.
Canada
C.
Japan
D.
the United States
21.
______________ refers to the time that policymakers must wait in order to collect
and process economic data and confirm that a stabilization policy is needed.
A.
A Fiscal Delay
B.
A Decision Lag
C.
An Implementation Lag
D.
An Information and Recognition Lag
22.
Under the current U.S. Federal Income Tax, the “Top 5% of wage earners” pay
A.
about 15.6% of all taxes collected, an amount which is less than half of
their share of total adjusted gross income (of 31.7%).
B.
about 31.7% of all taxes collected, an amount exactly equal to their share
of total adjusted gross income earned.
C.
about 58.7% of all taxes collected, an amount which is almost twice as
large as their share of total adjusted gross income earned (of 31.7%).
D.
100% of all taxes collected, due to the fact that nobody with adjusted gross
income below $200,000 per year pays any income taxes.
23.
In advance of the recent vote on “Amendment 1” to the Georgia Constitution,
Chris and Ed were discussing the measure. Chris stated: “I haven’t really
researched the proposal. In order to do so properly I would have to invest a great
deal of time, and, after all, the chance of my vote deciding the election is very
small and I don’t think the quality of education will be that much different
regardless of the outcome.” His statement is closely related to the issue of
A.
kleptocracy.
B.
rational ignorance.
C.
the Economic Calculation Problem.
D.
progressive taxation.
24.
For the United States, the value of the Gini-Coefficient __________ between
1989 and 1998 and then __________ between 1998 and 2007.
A.
decreased from .783 to .456; increased from .456 to .801.
B.
decreased from .235 to .194; decreased further from .194 to .156.
C.
increased from .431 to .456; increased further from .456 to .463.
D.
increased from .345 to .679; decreased from .679 to .227.
25.
“Monetary Policy” can be described as government policy
A.
related to spending and revenue generation.
B.
related to securing the borders of and protecting the homeland of a nation.
C.
which determines the “money supply” of an economy.
D.
None of the above answers are correct.
26.
___________________ can potentially be used by the government in order to
stabilize the performance of the macroeconomy (i.e., to minimize fluctuations in
the rate of economic growth) over time.
A.
Monetary Policy, but not Fiscal Policy
B.
Fiscal Policy, but not Monetary Policy
C.
Both Fiscal Policy and Monetary Policy
D.
Neither Monetary Policy nor Fiscal Policy
27.
Consider three taxpayers: Ann, Bob, and Carl. Ann and Bob have exactly equal
“economic capacities” when it comes to being able to bear the burden of taxation,
while Carl has a greater “economic capacity” than Ann and Bob. Considering the
notions of “fairness” discussed in lecture,
A.
to satisfy the notion of Vertical Equity, Bob should have a greater tax
burden than Ann.
B.
to satisfy the notion of Vertical Equity, Carl should not have a smaller tax
burden than either Ann or Bob.
C.
to satisfy the notion of Horizontal Equity, Ann and Bob should have equal
tax burdens.
D.
More than one (perhaps all) of the above answers is correct.
28.
The arguments made by John Maynard Keynes suggest that during an economic
downturn, the government should
A.
deploy the military in order to conquer and colonize other countries with
large amounts of natural resources (e.g., Middle Eastern countries with
tremendous oil reserves).
B.
run a budgetary surplus, so that we do not accumulate a tremendous
amount of debt that will ultimately burden our children and grandchildren.
C.
run a budgetary deficit, in order to stimulate the economy by replacing
missing private spending with government spending.
D.
decrease the money supply so that we can keep the inflation rate as low as
possible.
29.
Within our discussion of Logrolling, we noted that _______________ argued that
politicians in a democracy often act to maximize the probability of their own reelection.
A.
Jeremy Bentham
B.
Ronald Coase
C.
John Maynard Keynes
D.
James Buchanan
30.
__________________ is a broad term which refers to monetary payments made
by the government to certain individuals in society, with the impact of altering the
distribution of income within a society.
A.
Redistribution In-Kind
B.
Income Support
C.
Crowding Out
D.
Monetary Policy
31.
The Stabilization Function of Government refers to
A.
government production of goods or regulation of business, aimed at
getting the right mix of products produced, each in its ideal quantity and at
its ideal quality.
B.
government policies aimed at changing the final distribution of
goods/services across households, usually with an intention of realizing a
“fairer” apportionment of consumption, income, or wealth.
C.
government imposition of progressive taxes in order to reduce income
inequality.
D.
attempts by the government to minimize fluctuations in overall
macroeconomic activity.
32.
The “Maximin Criterion” argues that the government should
A.
aim to maximize the well-being of the worst off person in society.
B.
aim to minimize the well-being of the best off person in society.
C.
maximize economic growth by minimizing the money supply.
D.
outlaw production/consumption of any good which generates a positive
externality.
33.
Within our discussion in lecture about how levels of real household income have
changed over time for different segments of the population in the United States, it
was noted that between 1980 and 2007
A.
the rich became richer, while both the poor and the middle class became
poorer.
B.
the rich and poor both became richer, while the middle class became
poorer.
C.
the rich, middle class, and poor all became richer.
D.
the rich, middle class, and poor all became poorer.
34.
Monetary Policy in the United States is determined by
A.
the Federal Reserve.
B.
the President of the United States.
C.
the Supreme Court of the United States.
D.
None of the above answers are correct (since in the United States nobody
undertakes any actions which would be described as “Monetary Policy”).
35.
Which of the following is NOT one of the seven sources of government failure
discussed in lecture?
A.
Corruption or Kleptocracy.
B.
Informational Problems.
C.
Regulatory Capture.
D.
Externalities.
For question 36, consider a society which has realized the changes in and trend in Real
GDP illustrated in the graph below.
$
Real GDP
GDP Growth
“trend line”
time
0
0
April 2004
May 2003
36.
December 2005
January 2005
November 2009
September 2007
This country experienced a recession from
A.
September 2007 through November 2009.
B.
January 2005 through September 2007.
C.
April 2004 through December 2005.
D.
May 2003 through September 2007.
37.
According to the views held by Monetarists, if the money supply is drastically
increased, then in the long run
A.
the level of real output will increase but prices will not increase.
B.
prices will increase but the level of real output will not increase.
C.
both prices and the level of real output will increase.
D.
neither prices nor the level of real output will increase.
38.
Suppose that the Lorenz Curve for Sweden in 2012 lies completely above the
Lorenz Curve for the U.S. in 2012. This implies that
A.
Per Capita Incomes are higher in the U.S. than in Sweden.
B.
Per Capita Incomes are higher in Sweden than in the U.S.
C.
incomes are distributed more equally in Sweden than in the U.S.
D.
incomes are distributed more equally in the U.S. than in Sweden.
39.
The trade protections for the canned tuna industry which are presently in place in
the U.S. provide ________________ per person per year over society as a whole.
A.
net benefits of approximately $107.
B.
net benefits of approximately $7.89.
C.
net costs of approximately 32.41¢.
D.
net costs of approximately $946.
40.
The central bank of the U.S. can increase the Money Supply in the country by
A.
increasing the discount rate.
B.
decreasing the reserve requirement.
C.
selling U.S. Treasury debt securities to the public.
D.
More than one (perhaps all) of the above answers is correct.
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