ECON 1100 – Global Economics (Section 06)
Exam #2 – Fall 2012 (Version C)
5.
3.
Multiple Choice Questions ( 2 1
2
points each):
1.
“Deadweight Loss” refers to
A. the difference between “maximum possible Total Social Surplus” and
“realized Total Social Surplus.”
B. the negative impact of industrial production on our scarce environmental resources.
C. the burden that consumers incur from having to pay for goods, instead of being given the goods for free.
D. None of the above answers are correct.
2. ___________________ is a trade strategy which encourages domestic industries to produce goods to sell in other countries.
A. First World Exploitation
B. The Vicious-Cycle-of-Poverty
C. Import Substitution
D. Export Promotion
The “Great Inflation” refers to the period of high inflation in the U.S. during the
A.
Great Depression from 1929 through 1939.
B.
Kennedy and Johnson Administrations from 1960 through 1967.
C.
early 1970’s through the early 1980’s (from roughly June 1973 to July
1982).
D.
last year of the Reagan Administration (from Jan. 1988 to Dec. 1988).
4.
The “Stabilization Function of Government” refers to
A. Government policies aimed at ensuring that there are never any changes in market prices.
B. Government production of goods or regulation of business, to ensure that the “right mix” of products are produced, each in the “ideal quantity” and at the “ideal quality.”
C. Government policies aimed at minimizing fluctuations in overall macroeconomic activity.
D. Government policies aimed at altering the final consumption of goods/services across consumers.
A “Common Good” is one that is
A. rival in consumption and excludable.
B. rival in consumption and non-excludable.
C.
D. non-rival in consumption and excludable. non-rival in consumption and non-excludable.

6. From January 1948 to January 2009, the Unemployment Rate in the United States reported on a monthly basis was only ever above 8% during two different consecutive time periods – a 12 month stretch from January 1975 to December
1975 and a 27 month stretch from November 1981 to January 1984. During the
42 month period from February 2009 to July 2012, the rate was
A. below 8% in every single month.
B. above 8% in only two months (February 2009 and March 2010).
C. above 8% for 24 consecutive months (from February 2009 through
January 2011).
D. above 8% in every single month.
7.
8.
The __________________ is the logical error whereby someone incorrectly concludes that simply because there are benefits (to some people) from higher levels of an activity, that more of the activity is always better.
A.
B.
C.
D.
Brain Drain
Free Rider Problem
Phillips Curve
Open-Ended Fallacy
Which of the following would not be included in GDP?
A. The sale of a new car.
B. The sale of bananas at a grocery store.
C. Leisure time.
D. The sale of a chemistry textbook by the campus bookstore.
For questions 9 and 10, consider a country with consumption expenditures, private investment expenditures, government purchases, and net exports as summarized in the table below (each measured in billions of Euros):
Consumption
Expenditures
€463
Investment
Expenditures
€65
Government
Purchases
€186
Net
Exports
€12
9.
Given that Net Exports are €12, which of the following are possible values for
Exports and Imports?
A.
Exports of €8 and Imports of €4.
B.
Exports of €74 and Imports of €62.
C.
Exports of €93 and Imports of €105.
D. More than one (perhaps all) of the above answers is correct.
10. For this country, Gross Domestic Product is equal to
A.
€726 billion.
B.
€702 billion.
C. €463 billion.
D.
€200 billion.

11. The expanded circular flow diagram builds upon the basic circular flow diagram by _________________________ in the economy.
A. adding an illustration of the role of a Central Planner
B. adding an illustration of the role of labor unions and monopolies
C. adding an illustration of the role of government and the foreign sector
D. eliminating the illustration of the role of businesses
12. Which of the following scenarios illustrates the Free Rider Problem?
A. Stacy owns a chicken processing plant. When choosing her quantity of output, she completely disregards the negative impact of her economic activity on the people who own homes near her plant.
B. Michael grew up in Mexico. After earning a medical degree at a prestigious school in Chicago he decided to practice medicine in the U.S. instead of moving back to Mexico.
C. At the risk of potentially alienating some of his fans with different political views, Kid Rock recently endorsed Mitt Romney for President.
D. Edward lives in a town with a public library that is funded entirely by voluntary contributions. Edward regularly takes his kids to the library to check out books, even though nobody from his household ever volunteers time or money to the library.
13. Focusing on corruption in Germany and Russia, __________________ presently has/have a very low level of corruption.
A.
B. both Germany and Russia neither Germany nor Russia
C. Germany (but not Russia)
D. Russia (but not Germany)
14. Someone who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business is
A. an Entrepreneur
B. a Free Rider
C. a Monopolist
D. an Invisible Hand
15. Economic Development
A. is simply a consequence of whether or not a country has access to natural resources (and is therefore simply determined by “chance” or “nature”).
B. is defined as improvements (over time) in a society’s quality of life and standard of living.
C. is visually illustrated by an outward shift of the Production Possibilities
Frontier.
D. None of the above answers are correct.

16. A society can achieve economic growth by
A.
B. making deliberate investments in overhead capital. making deliberate investments in human capital and physical capital.
C. pursuing policies which prevent the realization of any improvements in technology.
D. More than one (perhaps all) of the above answers is correct.
For questions 17 through 19, refer to the graph below, which illustrates supply and demand for beer in 2012. price
36.00
Supply 2012
20.00
14.50
8.10
0 f a b d c e g h
Demand 2012 quantity
0 3,600 6,860 9,750
17. Suppose the 3,600 th
unit was traded at a price of $12.00. It follows that, for this trade, Consumer’s Surplus would be ____ and Producer’s Surplus would be ____.
A. $5.95; $5.95.
B.
C.
D.
$8.00; $3.90.
$11.90; $0.
$20.00; $8.10.
18. At the market equilibrium outcome,
A.
Total Consumers’ Surplus is equal to “areas (a)+(b)+(c).”
B.
Total Producers’ Surplus is equal to “areas (b)+(d)+(f).”
C.
Deadweight Loss is equal to “areas (c)+(e).”
D. More than one (perhaps all) of the above answers is correct.
19. Suppose that the equilibrium quantity of trade is efficient. It follows that if 9,750 units were traded, then Deadweight Loss would be
A. equal to “area (g).”
B. equal to “areas (c)+(e).”
C. equal to “areas (g)+(h).”
D. equal to “area (h).”

20. Per Capita GDP in the U.S. is roughly $47,200, which is approximately
A. 104.3% greater than the value of Per Capita GDP for the European Union as a whole (of roughly $23,100).
B. 38.8% greater than the value of Per Capita GDP for the European Union as a whole (of roughly $34,000).
C. equal to the value of Per Capita GDP for the European Union as a whole
(of roughly $46,950).
D. 13.6% less than the value of Per Capita GDP for the European Union as a whole (of roughly $54,600).
21.
The essay “I, Pencil” illustrates
A. the notion of Spontaneous Order in a free market system.
B. why a firm with market power will produce less than the efficient quantity of output.
C. the Free Rider Problem.
D. why it is essential to have government play an active role altering the final distribution of income and consumption across households (in order to achieve a distribution that is fair or equitable).
22. “Market Failure” is defined as a situation in which
A. the government attempts to minimize fluctuations in overall macroeconomic activity.
B. a seller has substantial control over the price of the good that she is selling
C. the free market outcome is inefficient, in that there is a positive
Deadweight Loss at the free market level of trade.
D. the government actively picks enterprises and industries to support as a base for economic development.
23. Tim has a copy of the book “The Economic Naturalist: In Search of Explanations for Everyday Enigmas,” autographed by the author Robert Frank. His reservation price as a seller of this item is $25. Ann’s reservation price as a buyer of this item is $40. If this unit was traded (i.e., ownership was transferred from Tim to Ann)
A. Social Surplus would be decreased by $25.
B. Social Surplus would be increased by $15.
C. Social Surplus would be increased by $65.
D. Social Surplus would be increased, but the magnitude of the increase depends upon the price at which trade takes place.
24. Private Investment Expenditures are defined as
A. purchases of newly produced domestic goods/services by households in a foreign country.
B.
C. purchases of newly produced goods/services by households. purchases of newly produced goods/services by firms.
D. purchases of newly produced goods/services by local, state, and federal governments.

25. __________________ is defined as an advance in knowledge.
A.
B.
C.
Economic Growth
Invention
Innovation
D. Stabilization
For Questions 26 through 28, consider a monopolist facing Demand and with
Marginal Costs and Marginal Revenue as illustrated below.
$
17.10
Marginal
Revenue
Marginal Costs of Production
12.00 a d
8.40 e b f
6.00 c
Demand
0 quantity
0 1,360
2,280 2,320
2,960
4,560
26. The efficient level of output for this good is _______ units.
A.
B.
1,360.
2,280.
C.
D.
2,320.
4,560.
27. To maximize profit, this monopolist should charge a price of ________ per unit and sell ________ units of output.
A. $17.10; 4,560.
B. $12.00; 1,360.
C. $8.40; 2,320.
D. $6.00; 1,360.
28. When this monopolist chooses the price and quantity which maximizes profit,
A. Deadweight-Loss is equal to “area (f).”
B.
Producer’s Surplus (i.e., “Monopoly Surplus”) is equal to “areas
(a)+(b)+(c)+(d)+(e).”
C. Total Consumers’ Surplus is equal to zero.
D. More than one (perhaps all) of the above answers is correct.

29.
In 2011 “Country B” realized an unemployment rate of 6.4% and an inflation rate of 3.1%. By 2012, the unemployment rate had increased to 7.1%. Supposing that the relation summarized by the Phillips Curve holds, which of the following is a reasonable value for the inflation rate in 2012?
A.
B.
C.
D.
7.1%.
3.8%.
2.4%.
More than one (perhaps all) of the above answers is correct.
30.
“Industrially Advanced Countries” are those high income nations that have market economies based on large stocks of technologically advanced capital and a well-educated labor force. Examples include
A.
B.
Russia and Brazil.
India and China.
C. Canada and Australia.
D. None of the above answers are correct.
31. Before 2008, government spending in the U.S. (combined, at all levels of government) as a percentage of GDP was only ever above 40% in three years
(1943, 1944, and 1945). In comparison, from 2008 through 2011, this figure was
A. below 30% in each of these four years.
B. above 45% in 2008 and 2009, but below 35% in 2010 and 2011.
C. above 50% in 2008, between 40% and 45% in 2009, and below 40% in
2010 and 2011.
D. above 40% in each of these four years.
32.
Which of the following is a good example of a “Pure Public Good”?
A. The all-you-can-eat pizza buffet at “Stevi B’s.”
B. National Defense.
C. The KSU BOB bus system.
D. More than one (perhaps all) of the above answers is correct.
33. During our discussion of current values of “life expectancy at birth” for different countries around the world in lecture, it was noted that “life expectancy at birth” in the U.S. is presently 78.37 years. This figure
A. is higher than every other country in the world (since the country with the next highest figure, Germany, has a life expectancy of only 72.15 years).
B. is lower than every other country in the world (since the country with the next lowest figure, China, has a life expectancy of 80.19 years).
C. is not the lowest in the world, but is considerably shorter than both Canada
(which has a life expectancy of 88.93 years) and Mexico (which has a life expectancy of 84.91 years).
D. None of the above answers are correct.

34. Focusing on GDP Growth Rates between 1991 and 2007, Japan grew at an average rate of ______ per year while China grew at an average rate of ______ per year.
A. 26.5%; 70.2%.
B. 6.3%; –1.1%.
C. 1.3%; 10.4%.
D.
–2.3%; –5.9%.
35.
Consider a market in which there is currently “Inefficiency from too much trade
.”
This observation suggests that
A. Deadweight-Loss in this market is negative.
B. we are likely not trading all units for which buyer’s reservation price is greater than seller’s reservation price.
C. Total Social Surplus could be increased by decreasing the level of trade in
D. this market.
More than one (perhaps all) of the above answers is correct.
36.
Which of the following statements regarding “GDP in the U.S.” is accurate?
A.
“Real GDP Per Capita was roughly 7.1 times larger in 2011 than in 1912.”
B. “Real GDP decreased by roughly 12.4% between 1912 and 2011.”
C.
“Nominal GDP was roughly 2.4 times higher in 2011 than in 1912.”
D. None of the above answers is correct.
37.
The “Unemployment Rate” is defined as the
A. number of individuals in the workforce who currently do not have jobs.
B. percentage of individuals in the workforce that currently do not have jobs.
C. percentage of individuals in the workforce who have a job, but who feel that they are “undercompensated” or “unappreciated at work.”
D. percentage of all individuals over the age of 18 that currently do not have full time jobs.
38.
Suppose that “Country Z” is hoping to double its GDP over the course of the next
8 years. If it expects to grow at a constant rate over this time period, then in order to achieve this result its economy would have to grow at a rate of roughly _____ per year.
A. 9%
B. 12.5%
C. 13.9%
D. 72%

39. A firm operating in a “Perfectly Competitive Market” has “No Market Power,” which implies that the firm
A. faces a demand curve for its output that is a vertical line at the prevailing market equilibrium quantity.
B. can increase the quantity of output that they sell without having to decrease price.
C. would lose some but not all of their customers if they increased price above the prevailing market price.
D. More than one (perhaps all) of the above answers is correct.
For Question 40, consider a country that had realized values of real GDP, nominal
GDP, and population in 2000, 2005, and 2010 as follows:
Year
2000
Nominal GDP Real GDP Population
$36,552,871,000 $39,672,551,000 1,281,000
2005
2010
$37,221,983,000 $38,979,443,000 1,224,000
$43,687,219,000 $42,594,934,000 1,292,000
40. For this country, Real GDP Per Capita
A. decreased between 2000 and 2005 and then decreased further between
2005 and 2010.
B. decreased between 2000 and 2005 but then increased between 2005 and
2010.
C. increased between 2000 and 2005 but then decreased between 2005 and
2010.
D. increased between 2000 and 2005 and then increased further between
2005 and 2010.

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