Exam 4a

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Ag Econ 1042
Fourth Exam, 140 points
May 11, 2011
Name ________KEY_____________________
8 a.m. Section
True/False – one point each
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17.
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21.
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25.
Gross domestic product is used to measure inflation changes in the macroeconomy.
The Leading Indicators provide a forecast for how the economy will be doing two to
four years in the future.
If the value of the dollar declines relative to the Japanese yen, Japanese goods will
become less expensive.
Budget deficits may have increased by an effort to stimulate the economy, which
could increase current standards of living in the U.S.
Personal consumption is the smallest portion of aggregate demand.
Liquidity measures how easily an asset can be converted to or used as cash.
Higher gas prices will lower the quantity sold by a larger percentage than the price
increased.
Increased worker productivity is a sign of improved technological applications.
Crowding out by the U.S. government displaces private investment.
A bond is a share of ownership in a business.
The current rate of unemployment, 5.4%, is extremely high compared to the early
1990s.
Elasticity is simply a measure of the relative responsiveness of quantity to a change
in another variable.
The FED is responsible for issuing currency, supervising parts of the financial system
and monetary policy.
U.S. exporters generally want the dollar to be valued high relative to other currencies.
Monetary policy is not directly under the control of the federal government in the
short run.
Frictional unemployment is caused by layoffs and business closings.
Comparative advantage simply relates to different opportunity costs associated with
production in different regions.
Supply is unaffected by changes in input costs.
Market demand is downward sloping because we tend to value items greater that are
priced higher.
Aggregate supply shows the short run impact of the price level on production.
If a good’s price is held below equilibrium in a market, it will create a shortage of the
good.
Prices are signals that tell us the scarcity of a good relative to other goods.
Consistent or large increases in basic commodity prices can lead to increases in
prices for a wide range of goods.
Structural unemployment caused by the changing makeup of the U.S. economy will
hurt individuals but is necessary for the overall economy to keep growing.
The U.S. is a high tax nation.
1
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26.
27.
28.
29.
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30.
Increasing imports usually will reduce prices.
Inflation will generally reduce efficiency and cause a redistribution of income.
The exchange rate is the relative price of a currency.
The FED is responsible for fiscal policy, the federal government’s spending and
taxing decisions.
A tight money policy might include buying bonds on the open market or inceasing
interest rates.
Multiple choice – two points each
__C___ 31. If the productivity of inputs used to produce a good increases,
a. The quantity supplied increases
b. The quantity supplied decreases
c. Supply increases
d. Supply decreases
__B___ 32. If there is a shortage in a market, then the
a. The price is too high
b. Price must rise to restore equilibrium
c. Supply curve must shift to eliminate the shortage
d. Price must fall to restore equilibrium
__A___ 33. If the Federal Reserve lowers the Federal funds rate,
a. Other short-term interest rates fall
b. Net exports decreases
c. Other short-term interest rates rise
d. The price level falls
e. Both answers A and C are correct
__C___ 34. If the FED fears a recession, it
a. Sells government securities
b. Decreases the quantity of money
c. Buys government securities
d. Decreases aggregate demand
e. Decreases aggregate supply
__D___ 35. Which of the following expenditure components of GDP can be negative or positive?
a. Consumption expenditure
b. Investment expenditure
c. Government purchases of goods and services
d. Net exports of goods and services
e. None of the above because expenditure can never be negative
2
__D___ 36. The net benefit that consumers get from buying a good in a market is
a. Producer surplus
b. Own-price elasticity
c. Total utility
d. Consumer surplus
e. None of the above
__A___ 37. When the price of home delivered pizza falls, then demand
a. For frozen pizza decreases
b. For frozen pizza increases
c. Curve for home delivered pizza shifts leftward
d. Curve for frozen pizza shifts rightward
__D___ 38. Ceteris paribus, total revenue definitely declines when price
a. Falls and demand has unitary elasticity
b. Falls and demand is elastic
c. Rises and demand is elastic
d. Rises and demand is inelastic
__C___ 39. Nominal GDP is defined as GDP
a. Minus taxes and subsidies
b. Corrected for price changes
c. Measured at prices that prevailed during the year GDP was measured
d. Measured by using quantities
e. Measured using base year prices
__C___ 40. Goods and services such as environmental equality, leisure time and household
production are not included in GDP because they are not
a. Productive activities
b. For consumption
c. Bought in markets
d. Made for profit
e. Really durable goods
3
Short answers are valued at five points each
41. What needs to happen before the unemployment rate will fall more than it has already fallen
during the last year?
GDP ↑ (profits ↑ is ok)
42. How does an increase in productivity affect economic growth?
Increases it
43. List the four components of GDP and indicate which is the largest.
C – consumption expenditures
Largest
I – investment
G – government expenditures
X – net exports
44. U.S. income tax is what type of tax?
Progressive
45. What is a recession?
6 months or more of GDP decline
46. Diagram the situation when income and the price of substitutes for the good increase. Show
final producer surplus.
P
S
P1
PS
P0
D1
D
0
Q0 Q1
Q
4
47. Name two types of taxes where the poor spend a larger portion of their income than the
wealthy.
Excise taxes, sales taxes, social security taxes
48. How do we increase our income?
Sell something (trade)
49. What is the price of using or accessing money?
Interest rate
50. How do we measure an increase in national output?
∆ or ↑ in GDP
51. Diagram the likely effect of increases in personal income and productivity on the
macroeconomy.
AS
PL
AS1
PL1
PL0
AD1
AD
0
Q0
Q1
rGDP
52. How does aggregate demand differ from market demand?
It is the sum of all individual good demands within a region or country
5
53. Diagram the impact on the clothing market due to increasing cotton and energy costs. Indicate
the change in consumer surplus.
P
S1
S
CS ↓ or ∆
P1
P0
D
0
Q1 Q0
Q
54. What are the three functions of money?
Medium of exchange; store of value; standard of value
The following questions are valued at 10 points each
55. Debts and deficits
What are three things that can lead to smaller deficits?
a) Loss spending
b) More taxes
c) Economic growth
d) Deficits tend to rise during __recessions__________________.
e) The government must __borrow_______________ to run a deficit.
6
56. Moving toward free trade increases the price of grains such as wheat and corn in the U.S.
Given the higher price, show the gain and loss to consumers and sellers in the U.S. only.
Exporter – U.S.
P
S
Pw
Pw
CS ↓
PS ↑
PS ↑
P0
D
0
Qd
Q0
Qs
Q
7
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