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ECO 561 Final Exam Guide (New 2017) (Score 29 30)
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ECO 561 Final Exam Guide (New 2017) (Score 29 30)

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ECO 561 Final Exam Guide (New, 2017) (Score 29/30)

 

 

1 Which of the following have substantially equivalent effects on a nation's volume of exports and imports?​

 

​Exchange rate appreciation and domestic deflation

​Exchange rate depreciation and domestic inflation

​Exchange rate appreciation and a decrease in the domestic supply of money

​Exchange rate depreciation and domestic deflation                                                                                     

 

2 Which of the following statements best describes the 12 Federal Reserve Banks?​

 

​They are privately owned and publicly controlled central banks whose basic goal is to earn profits for their owners.

​They are privately owned and privately controlled central banks whose basic goal is to provide an ample and orderly market for U.S. Treasury securities.

​They are privately owned and publicly controlled central banks whose basic function is to minimize the risks in commercial banking in order to make it a reasonably profitable industry.

​They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare

 

 

3 ​Buyers will opt out of markets in which:

​there are only foreign sellers

​there is inadequate information about sellers and their products

​there are significant negative externalities

​standardized products are being produced               

 

4 ​Pure monopolists may obtain economic profits in the long run because:

 

​of advertising

​marginal revenue is constant as sales increase 

​of rising average fixed costs

​of barriers to entry                             

 

5 All else equal, a large decline in the real interest rate will shift the:​

 

​investment demand curve rightward

​investment demand curve leftward

​investment schedule upward

​investment schedule downward                    

 

6 In order for mutually beneficial trade to occur between two otherwise isolated nations:​

 

​each nation must be able to produce at least one good relatively cheaper than the other

​each nation must face constant costs in the production of the good it exports

​one nation's production must be labor-intensive while the other nation's production is capital-intensive

​each nation must be able to produce at least one good absolutely cheaper than the other    

 

7 ​If the Federal Reserve System buys government securities from commercial banks and the public:

 

​the money supply will contract

​commercial bank reserves will decline

​it will be easier to obtain loans at commercial banks

​commercial bank reserves will be unaffected                                                

                                                                                                                       

8 Normal profit is:​

 

​the average profitability of an industry over the preceding 10 years

​determined by subtracting explicit costs from total revenue

​the return to the entrepreneur when economic profits are zero

​determined by subtracting implicit costs from total revenue             

                                                                                                           

9 The term "recession" describes a situation where:​

 

​an economy's ability to produce is destroyed

​output and living standards decline

​inflation rates exceed normal levels

​Government takes a less active role in economic matters

 

10 If an unintended increase in business inventories occurs at some level of GDP, then GDP:​

 

​is too low for equilibrium

​entails a rate of aggregate expenditures in excess of the rate of aggregate production

​is too high for equilibrium

​may be either above or below the equilibrium output

 

 

11 ​The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that:

 

​a nation's production possibilities and trading possibilities lines coincide

​the production possibilities curves of any two nations are identical

​a nation's trading possibilities line lies to the right of its production possibilities line

​a nation's production possibilities line lies to the right of its trading possibilities line

           

 

 

12 In the theory of comparative advantage, a good should be produced in that nation where:​

 

​its cost is least in terms of alternative goods that might otherwise be produced

​its absolute cost in terms of real resources used is least

​its absolute money cost of production is least

​the production possibilities line lies further to the right than the trading possibilities line

 

 

 

13 ​Why are economists concerned about inflation?

 

​Inflation lowers the standard of living for people whose income does not increase as fast as the price level

​Real GDP is necessarily falling when there is inflation

​Inflation generally causes unemployment rates to rise

​Inflation increases the value of peoples' saving and encourages overspending on goods and services

 

14 ​Two major virtues of the market system are that it:

 

​results in an equitable personal distribution of income and always maintains full employment

​results in price level stability and a fair personal distribution of income

​allocates resources efficiently and allows economic freedom

​eliminates discrimination and minimizes environmental pollution

 

 

15 ​Suppose you have a limited money income and you are purchasing products A and B, whose prices happen to be the same. To maximize your utility, you should purchase A and B in such amounts that:

 

​the income and substitution effects associated with each are equal

​their marginal and total utilities are proportionate

​their total utilities are the same

​their marginal utilities are the same

 

 

16 ​Macroeconomics approaches the study of economics from the viewpoint of:

 

​governmental units

​the entire economy

​individual firms

​the operation of specific product and resource markets

 

 

17 ​Mrs. Arnold is spending all her money income by buying bottles of soda and bags of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are $.60 per bottle and $.40 per bag respectively. It can be concluded that:

 

​Mrs. Arnold should spend more on soda and less on pretzels

​Mrs. Arnold is buying soda and pretzels in the utility-maximizing amounts

​the two commodities are substitute goods

​Mrs. Arnold should spend more on pretzels and less on soda

 

 

 

18 ​The simple circular flow model shows that:

 

​households are on the selling side of the resource market and on the buying side of the product market.

​businesses are on the selling side of both product and resource markets.

​households are on the buying side of both product and resource markets.

​businesses are on the buying side of the product market and on the selling side of the resource market.

 

 

19 Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S. securities from the public, which deposits this amount into checking accounts. As a result of these transactions, the supply of money is:​

​directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million.

​not directly affected, but the money-creating potential of the commercial banking system is increased by $12 million.

​directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.

​directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million.

 

 

20 As output increases, total variable cost:​

 

​increases at a constant rate

​increases at a decreasing rate and then at an increasing rate

​increases continuously at a decreasing rate

​increases more rapidly than does total cost

 

 

 

21 ​The two basic markets shown by the simple circular flow model are:

 

​product and resource

​free and controlled

​household and business

​capital goods and consumer goods

 

 

22 Countercyclical discretionary fiscal policy calls for:​

​surpluses during both recessions and periods of demand-pull inflation

​deficits during both recessions and periods of demand-pull inflation

​surpluses during recessions and deficits during periods of demand-pull inflation

​deficits during recessions and surpluses during periods of demand-pull inflation

 

 

23 ​Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized. This illustrates:

 

​the moral hazard problem

​the special interest effect

​the adverse selection problem

​logrolling

 

24 ​A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from:

 

​the likelihood of collusion

​mutual interdependence

​product differentiation

​high entry barriers

 

 

25 Research for industrially advanced countries indicates that:​

 

​the more independent the central bank, the higher the average annual rate of unemployment.

​the more independent the central bank, the higher the average annual rate of inflation

​the more independent the central bank, the lower the average annual rate of inflation

​there is no relationship between the degree of independence of a country's central bank and its inflation rate.

 

 

26 ​The business cycle depicts:

 

​short-run fluctuations in output and employment

​the phases a business goes through from when it first opens to when it finally closes

​fluctuations in the general price level

​the evolution of technology over time

 

 

27 ​The primary gain from international trade is:

 

​increased employment in the domestic export sector

​increased employment in the domestic import sector

​more goods than would be attainable through domestic production alone

​tariff revenue

 

 

28 Contractionary fiscal policy is so named because it:​

 

​necessarily reduces the size of government

​is aimed at reducing aggregate demand and thus achieving price stability

​involves a contraction of the nation's money supply

​is expressly designed to expand real GDP

 

 

29 If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?​

 

​Real GDP would rise, but nominal GDP would be unchanged

​Nominal and real GDP would both be unchanged

​Nominal GDP would rise, but real GDP would be unchanged

​Nominal and real GDP would both rise

 

 

 

30 Which of the following will generate a demand for country X's currency in the foreign exchange market?​

 

​Charitable contributions by country X's citizens to citizens of developing nations

​The imports of country X

​The desire of foreigners to buy stocks and bonds of firms in country X

​Travel by citizens of country X in other countries

 

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