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ECO 25 multiple choice questions




Question;1.;A person who studies;macroeconomics encounters many different types of growth rates. One of these;growth rates of the value of a price index. This type of growth rate is called;an;a.;economic growth rate;b.;exchange rate;c.;inflation rate;d.;interest rate;2.;A component of GDP that tends;to change very drastically during economic recessions, and is often responsible;for most of the severity of a recession, is;a.;Consumption;b.;Investment;c.;Government purchases;d.;Exports;e.;Imports;3.;According to the National;Bureau of Economic Research, the most recent U.S. recessionbegan near the end of 2007. Since the preceding recession;ended near the end of 2001, there were six years between these two recessions.;Based on economic data from the last 40 years, this interval between recessions;is _______.;a.;Much shorter than average;b.;Fairly close to the average;c.;Much longer than the average;d.;A record: it?s the longest;interval the US economy has had between recessions;e.;A record: it?s the shortest;interval the US economy has had between recessions;4.;In the U.S economy, the demand for loanable fundscomes mostly;from _______, who use these funds mostly to finance;a.;Households, home purchases.;b.;Firms, investment spending;c.;Units of government, their;budget deficits;d.;Households, purchases of;consumer durable goods;e.;Firms, fringe benefits payments;5.;A bank made a;loan to a manufacturing firm, in dollars. The loan had a fixed nominal interest;rate of 5 percent. The average annual inflation rate over the term of the loan;turned out to be 2 percent. Which of the following statements about this loan;is correct?;a.;Over the term;of this loan, the purchasing power of a dollar fell at an average rate of;approximately 3% per year.;b.;The average;annual growth rate of the real value of the dollars repaid, relative to the real;value of the dollars lent, was approximately 3 percent;c.;The real;interest rate on the loan turned out to be approximately 7 %.;d.;If the bank;had expected the average annual inflation rate, over the loan?s term, to turn;out to be 3%, then it was disappointed with the loan?s outcome.;e.;If the firm;had expected the real interest rate on the loan to be 2%, then it was pleased;with the loan?s outcome;6.;In microeconomics, you learned;that economists think of the main item that adjusts to clear the market for any;particular as the unit price of that good. Economists often think of the levels;of national saving and investment as;being determined in a single market. They think of the item that plays the role;of the unit price, in this market, as;a.;The overall price level;b.;The actual inflation rate;c.;The nominal interest rate;d.;The real interest rate;e.;The exchange rate;7.;In the foreign exchangemarket, the price of a U.S. dollar rises from.67;euros to.75 euros. Other things equal;a.;The value of a European version;of the consumer price index is likely to fall.;b.;European currency has;appreciated against U.S currency.;c.;Goods imported from Europe will;become cheaper in the United States;d.;The price of a euro, in;dollars, has fallen from approximately 1.33 euros to approximately 1.25 euros.;e.;A U.S produced car that;formerly cost 16,000 euros in Europe now costs 20,000 euros.;8.;To calculate the value of the Consumer Price Indexfor a particular;month, you must calculate?;a.;The market value, using prices;from that month, of a basket of goods;and services based on the composition of consumer spending during the month.;b.;The market value, using prices;from that month, of a basket of goods and services based on the composition of;consumer spending during some fixed base period.;c.;The market value, using prices;from a fixed base period, of a basket of goods and services based on the;composition of consumer spending during the base period;d.;Both a and c;e.;Both b and c;9.;If the government runs a budget deficitduring a year, then?;a.;Public saving for the year is;negative.;b.;It must increase taxes, during;the year, to raise the funds needed to cover the deficit.;c.;At the end of the year, the;national debt will be equal to the amount of the deficit.;d.;Government consumptions;spending exceeds government investment spending by the amount of the deficit.;e.;The money supply increases by;the amount of the deficit.;10. In the modern U.S monetary system, the ______ is responsible for;making currencyavailable to the;public. This currency has value, and can be used make payments, because;a.;Federal Reserve System, the Fed;will convert it into gold, at a fixed rate, on demand.;b.;Federal Reserve System, the Fed;manages the supply of currency to limit the amount in circulation.;c.;U.S. Treasury Department, the Treasury;will convert it into gold, at a fixed rate, on demand.;d.;US Treasury Department, the Treasury;manages the supply of currency to limit the amount in circulations;e.;None of the items above is;correct;11. If a county is running a trade deficit, then;a.;The market value of its exports;exceeds the market value of its imports.;b.;Its domestic spending exceeds;its domestic income;c.;It is lending to other;countries, or buying assets from foreigners, or give foreign aid.;d.;Its national saving exceeds its;private investment.;e.;All of the above items are;correct.;12. The following list gives the values of a number of items form the;National Income and Product Accounts. What is the value of Gross Domestic Product (GDP)?;Exports 100 Private Saving 550;Private;Investment 700 Consumptions 3000;Taxes (net of;transfers) 250 Imports 300;Government;Purchases 300;(consumption and;investment);a.;4000;b.;5200;c.;3800;d.;4350;e.;4100;13. When the US government calculates GDP using the total-spending;approach, household spending for college tuition is categorized as consumption;spending. Many economists argue that it really should be categorized as;spending, because;a.;Investment, a college education;increases a student?s human capital.;b.;Government, U.S colleges also;receive substantial financial support form the government.;c.;Investment: colleges use;tuition funds to finance construction, as well as purchases of equipment for;teaching and research.;d.;Government, most spending for;college tuition is financed by government loans.;e.;Investment, colleges use most;of their tuition revenue to pay faculty salaries, rewarding their human;capitals;14. Imagine a barter economy in which people trade many different goods;for many other goods, but merchants post the prices of the goods they sell in;terms of a single reference good. This system works because everyone keeps;track of the unit price of each good in terms of the reference good. This;economy has______ but not_________.;a.;Commodity money, fiat money;b.;A pattern of trade, a;coincidence of wants;c.;A unit of account, a medium of;exchange;d.;Money, currency;e.;A store of value, a unit of;account;15. If real GDPfor a;particular year is higher than nominal;GDPfor the same year, then we know that?;a.;The average level of prices;fell during the year.;b.;Total production is higher, in;that year, than it was in the base year.;c.;The value of the GDP deflator;for that year exceeds 100;d.;The average level of prices was;lower, in that year, than it was in the base year.;e.;Nothing, the definition of real;GDP implies that this should be true every year.;16. During the last 65 years (roughly, the period after World War II);the averageU.S. unemployment rate;(the usual estimate of the ?natural rate? of the unemployment) has been;closet to ____ percent.;a.;3;b.;6;c.;9;d.;12;e.;15;17. Most macroeconomists believe that a country cannot experience;persistently high inflationunless;the country?s;a.;Government has allowed the;country?s money supply to grow at an excessively rapid rate.;b.;Firms have colluded with each;other in order to drive up prices.;c.;Households have spend too much;of their income and saving too little.;d.;Government has run excessively;large budget deficits financed by issuing government bonds;18. The U.S unemployment rate is;calculated as fraction, with a numerator and a denominator. The value in the;denominator is closets to____.;a.;The total U.S population;b.;The total U.S population;excluding people in the armed forces.;c.;The total U.S population;excluding people in the armed forces, children under 16.;d.;The total U.S population, excluding;people in the armed forces, children under 16, full-time students, and retired;people.;e.;The total U.S. population;excluding people in the armed forces, children under 16, full-time students;and retired people, and other people who are not actively looking for work;19. Which of the following expenditures would not be considered a;U.S investmentexpenditures, for the;current year, according to the definition used by the U.S. government when it;calculates GDP using the total-spending approach?;a. A U.S computer;manufacturing company builds 1000 computers this year, but has not sold them by;the end of the year;b. A US delivery company buys;a new delivery truck this year that was manufactured in Japan;c. A US automobile;manufacturer buys robotic equipment for its assembly line, the equipment was;manufactured in the United States this year;d. A U.S resident buys;$100,000 worth of stock in a US startup software firm that began operating this;year.;e. A U.S computer;manufacturing company builds 1000 computers this year, but has not sold them by;the end of the year;20. During the last 65 years, U.S government;purchases (consumption and investment) have averaged roughly 20 percent of;GDP, and this ratio has shown little tendency to rise or fall overtime. But;many economists argue that the relative size of the U.S government has;increased substantially during this period. The basis for this argument is the;fact that _____ are not included in government purchases, and they have;increased substantially during this period.;a.;Government transfer payment;b.;National defense expenditures;c.;State and local government;purchases;d.;Wages and salaries of;government employees;e.;Payments to government;contractors;21. The most common way for the U.S money supply to increase is for?.;a.;The U.S. Treasury to issue additional;money to finance federal government spending.;b.;The U.S. Treasury to lend newly;issued money to the Federal Reserve System, which uses it to make loans to;private banks;c.;The Federal Reserve System to;reduce its reserve requirements, allowing banks to take money out of their;reserves and make it available to the public.;d.;The U.S. Treasury department to;write checks drawn on the Federal Reserve Banks, releasing money from those;banks into the economy.;e.;The Federal Reserve System to;use newly-issued money to purchase U.S. Treasury securities from private;financial institutions.;22. At the beginning of a 30- year period, two countries had the same;average standard of living. The two countries also had the same average real;GDP growth rate during the period. At the end of the period, however, the;average living standard in the first country was much higher than in the second;country. The most likely explanation for this observation is that;a.;The first county devoted a much;higher percentage of its GDP to investments;b.;The second country experience;much slower technological change.;c.;The second country allowed its;money supply to grow at a much faster rate;d.;The population of the second;county grew at a much faster rate.;e.;The first county had a much;more effective educational system.;23. One of the reasons Gross;Domestic Product is measured in;dollars, rather than in physical units, is that____.;a.;We have no reason to be;interested in changes in the physical amount of production.;b.;We are interested in domestic;(US) production, and only domestic goods are sold for dollars.;c.;If the dollar value of our;production increases, then our living standards have increased, even if our;physical production has not changed;d.;Measuring GDP in dollars allow;us to include financial assets in GDP, not just goods and physical assets;e.;Different goods are measured in;different physical units, we don?t have any common physical unit that would;allow us to add them up in an economically meaningful way.;24. Although checking accounts (demand deposits, etc.) are created and;administered by private banks, the government has considerable influence on the;total value of the checking account balances in the economy. The main source of;this influence is that fact that____.;a.;The Federal Reserve System;imposes fractional reserve requirements on checking accounts, and it controls;the supply of money banks can use as reserves;b.;The treasury department places;an upper limit of the checking account balances of each bank. The limit is;based on the population in the bank?s area.;c.;State government banking;agencies imposes taxes based on banks? total checking account balances, the tax;rate increases sharply as a bank?s deposits increase.;d.;A bank remains eligible for;federal reserve check-clearing services only if it keeps its total checking;account balances below a cap established by the Fed based on the volume of;economic aticivty in the bank?s area;e.;The Federal Deposits Insurance;Corporation (FDIC) will only covers a bank?s checking accounts if its keeps its;total checking account balances below a cap based on the total federal income;tax payment of its depositors.;25. Oil-producing country A increases its oil production this year;sells the oil in the world market, and uses the funds to buy consumers goods;from foreign countries. Oil producing country B increases its oil production;this year, by the same amount. It sells the oil in the world market and uses;the funds to buy capital goods from foreign countries. Other things equal;which country will experience the biggest increases in GDP in later years.;a.;Both countries will experience;the same increase in GDP this year, but county B probably will experience;bigger increases in future years.;b.;Country B will experience a;bigger increase in GPD this year, but country A probably will experience bigger;increases in future years;c.;Country B, in both cases;d.;Both countries will experience;the same increases in GDP this year and in future years;e.;Neither country will experience;an increase in GDP this year, but country B probably will experience bigger;increases in future years.


Paper#55889 | Written in 18-Jul-2015

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