Economics Final Exam
ALL STUDENTS must complete this course review and it is due on the last regular day of class
(January 10th). Your answers must be HANDWRITTEN on your own paper, not typed. Please
answer all questions in complete statements.
UNIT 1: ECONOMIC CONCEPTS AND COMPARATIVE ECONOMIC SYSTEMS
CHAPTERS 1, 2, 3 & 8
1. Name the four (4) factors of production and the income
earned from each factor.
2. Define scarcity.
3. What are the basic economic questions all economic
systems must answer when dealing with the problem
of scarcity?
4.
a. What is the difference between tradeoffs and an
opportunity cost decision?
b. What economic model demonstrates opportunity
cost decisions?
c. Define underutilization.
d. Name three ways that the curve can be pushed
outward. What does this movement of the curve
represent?
e. How would one demonstrate an opportunity cost
decision using this model?
5. Draw a Production Possibility Curve for capital goods
and consumer goods.
a. Draw and label efficient production as points A, B
and C.
b. Draw and label underutilization as point U.
c. Draw economic growth.
d. How would you illustrate the opportunity cost of
producing more capital goods?
6. Who owns and controls the factors of production in a
a. pure market economy?
b. pure command economy?
c. traditional economy?
7. Name the three (3) major types of mixed economic
systems found today.
a. Explain the different characteristics of each
system.
b. Relate public and private ownership to each of the
systems.
c. Who owns and controls the factors of production
in each system?
8. Identify the economic philosophies of
a. Adam Smith, The Wealth of Nations
b. Karl Marx, The Communist Manifesto.
9. What are the features and goals of the United States
economy?
10. Explain the terms
a. profit motive
b. consumer sovereignty
11. Draw the Three Sector Circular Flow Chart
a. Labeling the diagram using the following terms:
- Factor/Resource Market -Product Market; Household (resource owners)
- Firms/Business;
- goods and services (twice)
- money payment (twice)
- factors of production: land, labor, capital,
entrepreneurship (twice)
- national income: rent, wages, interest, profit
(twice)
- Government
- Public goods and services (twice)
- Taxes (twice)
b. Explain the flow of money and resources in the 3
sector CFC.
12. What is the difference between consumer and capital
goods?
1
1. Name the three main types of business organizations and complete the chart.
Business
Organization
Strengths
Weaknesses
a. Which has/have unlimited liability?
b. Which is considered an “artificial person”?
c. Which has/have unlimited life?
2. Define and provide an example of a
a. horizontal merger
b. vertical merger
c. conglomerate
UNIT 2: SUPPLY & DEMAND
CHAPTERS 4, 5, 6 &7
Chapter 4 - Demand
Chapter 5 – Supply
1. What are the three (3) conditions needed for demand?
1. State the law of supply.
2. State the Law of Demand.
2. What causes a change in quantity supplied (movement
along the curve)?
a. Draw an increase in quantity supplied.
b. Draw a decrease in quantity supplied.
3. Explain the purpose of a demand schedule.
4. List three (3) explanations or reasons why the demand
curve is downward sloping.
5. What causes a change in quantity demanded
(movement along the curve)?
a. Draw an increase in quantity demanded.
b. Draw a decrease in quantity demanded.
6. Identify five (5) factors that can cause a change in
demand (shift the curve).
a. Draw an increase in demand.
b. Draw a decrease in demand.
3. Identify the factors that cause a change in supply (shift
the curve)
a. Draw an increase in supply.
b. Draw a decrease in supply.
4. Distinguish between fixed costs and variable costs.
Provide an example of each.
5. Explain the concept of diminishing marginal returns
and increasing marginal returns.
7. Explain the law of diminishing marginal utility
2
COMPETITION
Chapter 6 – Prices
Chapter 7 – Prices, Competition & Market Structures
1. Describe five (5) advantages of using price as a way to
allocate economic products.
2. Draw the economic model which illustrates the market
clearing price and label equilibrium.
1.
Market
Structure
Define
# of
firms
ease
of
entry
same
or
similar
example
3. When does a surplus exist? How does the market
return to equilibrium?
4. When does a shortage exist? How does the market
return to equilibrium?
5. Define price ceiling and price floors.
a. Draw a price ceiling.
b. Draw a price floor.
6. In a market, draw a decrease in supply.
a. What happened to equilibrium price?
b. What happened to equilibrium quantity?
7. In a market, draw an increase in demand.
a. What happened to equilibrium price?
b. What happened to equilibrium quantity?
a. Which market structures have product
differentiation?
b. Which market structures have non-price
competition?
c. Which market structure has price leadership?
2. Describe three types of monopolies.
3. Explain what is meant by positive and negative
externalities.
Unit 3- Money , Banking and Finance
Chapter 10 & 11
Chapter 10
1. How is money created in the banking system?
2. What are three (3) functions of money?
3. What are three (3) sources of value for money?
4. What are the two (2) measures of money? Explain
what is included in each.
5. Define
a. Currency
b. demand deposits
Chapter 11
3. Explain why savings is important to capital formation.
4. Compare NYSE with over-the-counter market.
5. Explain how the Dow Jones Industrial Average (DJIA)
is a measure of stock performance.
3
B. For stock?
6. What are the three (3) ways that corporations raise
funds?
7. Explain the difference between common and preferred
stocks.
8. Explain the difference between stocks and bonds.
A. What is the return for a bond?
9. Demonstrate how to read and interpret information
from the financial page of the newspaper. (below)
a. Name of stock
b. How many shares were traded for the day
c. Highest price of the stock during the past year.
d. Closing price of a round lot
c. time deposits
52 Weeks
Hi
Lo
123.25
95
Stock
IBM
Sym
IBM
Div
4.84
%
4.0
Yld
PE
11
Vol
100s
Hi
22015 120.50
Lo
116.75
Close
119.25
Net
Chg
+2
UNIT 4: MEASURING ECONOMIC PERFORMANCE
CHAPTERS 12 &13,
1. Explain the importance of economic growth.
2. What are two measures of inflation?
a. national income
b. personal income
c. disposable income
11. Explain C+I+G+Xn = Aggregate Demand.
3. Two types of inflation
a. What is demand-pull inflation? Graph it.
b. What is cost-push inflation? Graph it.
4. Describe the four types of unemployment?
5. Identify the “full-employment” unemployment rate.
Explain why full employment does not mean that
every worker is employed.
6. Draw the Lorenz Curve. What does it illustrate?
12. Define Macroeconomic Equilibrium.
13. Graph macroeconomic equilibrium, include price
level, GDP, AS and AD.
14. Define GDP gap. What economic model is used to
illustrate the GDP gap?
15. What does the business cycle illustrate?
16. Draw the Business Cycle and label the phases.
7. What is stagflation?
8. What is GDP? What does GDP measure?
9. What is the difference between GDP and GNP?
a. Describe what happens during the two major
phases.
b. What problem is associated with each phase?
10. Define
UNIT 5
GOVERNMENT REVENUES AND EXPENDITURES
CHAPTERS 14, 15 & 16
1. What levels of government collect sales tax?
7. What is the crowding-out effect?
2. Describe the two principles of taxation. Provide an a
tax that exemplifies each one.
3. Describe the three tax structures (progressive,
regressive and proportional). Provide a tax that
exemplifies each one.
4. What is the national debt? To whom is the national
debt owed?
5. How do surplus and/or deficit budgets affect the
national debt?
6. What problems are created by the national debt?
4
8. Define the following taxes:
a. sales
b. excise
c. individual income tax
d. corporate
9. What is Fiscal Policy? Who implements it?
10. Identify John Maynard Keynes.
11. What are the tools of Keynesian (Demand-side)
Fiscal policy?
12. What did Keynes recommend to fight inflation during
an expansion? Graph it.
13. What did he recommend to fight unemployment
during a contraction? Graph it.
14. Discuss the limitations of Keynesian economics.
8. During a recession,
a. What monetary policy will be used?
b. What is the goal of the policy?
c. How will each of the three tools be used to fix the
problem?
d. Graph the money market including investment
demand and AS and AD
9. During an expansion,
a. What monetary policy will be used?
b. What is the goal of the policy?
c. How will each of the three tools be used to fix the
problem?
d. Graph the money market including investment
demand and AS and AD
10. How does monetary policy affect interest rates in the
short term?
11. Explain the problems associated with the use of
monetary policy.
15. Draw and explain the Laffer Curve
16. Explain supply-side fiscal policy.
What are automatic stabilizers? Give examples
Chapter 16
1. How is money created in the banking system?
2. What are the two (2) measures of money? Explain
what is included in each.
3. Define
a. currency
b. demand deposits
c. time deposits.
4. What is the difference between excess reserves and
required reserves?
5. Explain why deposit insurance was created.
6. Describe the organization of the Fed.
7. List and define the three (3) tools of monetary policy.
Who implements monetary policy?
UNIT 6 THE GLOBAL ECONOMY & DEVELOPING COUNTRIES
CHAPTERS 17 & 18
3
15
2
12
1. Explain the correlation between international trade
a. Which country has the absolute advantage for
and economic interdependence.
boots. Why?
2. Explain the difference between absolute and
b. Which country has the absolute advantage for
comparative advantage. Which is more important
shoes. Why?
in determining international products to be traded?
c. Which country has the comparative advantage
for boots. Why?
3.
Country X
Country Y
boots shoes boots shoes
d. Which country has the comparative advantage
for shoes. Why?
5
4. What is international specialization? What are the
advantages of specialization?
5. What is the difference between a favorable and
unfavorable balance of trade?
6. What is the flexible exchange rate?
7. Define and give examples of trade barriers.
8. Explain the arguments that defend free trade and
those that defend protectionism.
9. What are three (3) regional trade organizations?
10. Explain the problem with the trade deficit.
11. What are the characteristics of developing
countries?
12. Explain the stages of economic development.
What are some obstacles to economic
development
13. How do you convert from US dollars to foreign currencies, and from foreign currencies to US dollars?
14.
US Dollars in Units of Foreign Currency
1986
1995
Japan
France
Mexico
154
6.52
774
101.25
4.9
7580
a. What would you pay for 1 Franc in
1986?
1995?
b. What would you pay for 1 Peso in
1986?
1995?
c. Compared to the Japanese Yen, is the U.S. US dollar stronger or weaker?
What will happen to the balance of trade between the two countries? Explain.
d. Compared to the French Franc, is the U.S. US dollar stronger or weaker?
What will happen to the balance of trade between the two countries? Explain.
e. Compared to the Mexican Peso, is the U.S. US dollar stronger or weaker?
What will happen to the balance of trade between the two countries? Explain.
15. A TV set sells for Y 52,500 in Tokyo. How much would it cost in US dollars if the exchange rate was Y 110 =
$1.00 (Show your calculations)
16. A pair of blue jeans cost $29.99 in Los Angeles. How much would this item cost in Canadian dollars if the
exchange rate was 1.00 Canadian = 0.76 US dollars? (Show your calculations)
6
Final Exam Essay Topics
As part of the final you are to choose one of the following topics and write a one page essay.
The essay will be due on the last regular day of class (January 10th).
1. Production Possibilities Frontier
2. Business Cycle
3. Comparing Fiscal and Monetary Policy
4. Supply and Demand
5. Types of Inflation
6. International Trade
7
Final Exam Review - Economic Models
You may draw your graphs on the worksheets, tear the graph portion off and
attach it to the handwritten portion.
The following are models we have studied during the semester. In addition to recognizing
them for the multiple-choice portion of the exam, many will need to be replicated on the
essays. Pay particular attention to how they are labeled.
1. Production Possibility Frontier
for products: capital goods and consumer goods
2. 3 Sector Circular Flow Chart
3. Business Cycle
8
4. Increase in Quantity Demanded
5. Decrease in Quantity Demanded
6. Increase in Quantity Supplied
7. Decrease in Quantity Supplied
8. Equilibrium Market for Computer Printers
9. Increase in Supply (in a market)
9. Decrease in Supply (in a market)
10. Increase in Demand (in a market)
11. Decrease in Demand (in a market)
9
12. Price Ceiling (shortage)
13. Price Floor (surplus)
14. Macroeconomic Equilibrium
15. Cost-Push Inflation
16. Demand-Pull Inflation
17. Expansionary Fiscal Policy (AS/AD model)
18. Contractionary Fiscal Policy (AS/AD model)
10
19. Laffer Curve
20. Lorenz Curve
21. Supply –side fiscal policy
22. Easy Money Policy: (Money Market)
23. Tight Money Policy: (Money Market)
11
24. Change in US Currency Market with a weak dollar
25. Change in US Currency Market with a strong dollar
12