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ECON 201 final exam (Spring 2014)




Question;Final Exam ECON 201 OL1-US1 Spring 2014;I.;MULTIPLE CHOICE (40 questions 2 points each). Choose the one alternative that;best completes the statement or answers the question.;1) All of the following are;considered natural resources EXCEPT 1);A) labor. B) a redwood forest. C);gold. D) a coral reef.;2) Which of the following is NOT a;macroeconomic statement? 2);A) The U.S. inflation rate was two;percent in 2012.;B) The price of cell phones decreased by;18 percent last year.;C) Gross domestic product in Peru;increased 4 percent from 2011 to 2012.;D) Aggregate worker productivity;decreased by three percent in 2012.;3) GDP understates the value of;output produced by an economy because it 3);A) excludes value added from the underground;economy, such as tips taken "under the table.;B) includes environmental degradation;caused by increased output production.;C) excludes the value of the wages and;benefits of government employees.;D) includes transactions that do not;take place in organized markets, such as home-cooked meals.;4) Transfer payments are excluded;from government purchases in GDP accounting because 4);A) they are a reward to individuals who;have been productive their entire lives.;B) they are already included as part of;investment.;C) they are difficult to measure.;D) nothing is being produced in return;for the payment.;Use the following information to answer;the next several questions;Scenario;1;Imagine;that an economy produces two goods, flashlights and fishing lures. In 2011, the;economy produced 70flashlights and 40 fishing lures, and the;prices of flashlights and fishing lures were $5 and $12, respectively. In 2012;the economy produced 85 flashlights and 50 fishing lures, and the prices of;flashlights and fishing lures were $7 and $15, respectively.;5);Based on the information in Scenario 1, real GDP in 2012;(in 2011 dollars) in this economy was 5);A) $830.;B) $1,025.;C) $1,090.;D) $1,345.;6);The real-nominal principle can be stated as;6);A) what matters to people is the;purchasing power of money or income.;B) production generates income.;C) only the manufacture of real goods is;production.;D) only final goods and services should;be counted in GDP.;7);What does the Consumer Price Index;(CPI) measure? 7);A) the;cost of living over time B) prices of;durable goods;C) the;cost of replacing lost items;D) prices of non durable goods;8);Which one of the following statements is true of the;Consumer Price Index? 8);A) It does not take into account the;price of used goods.;B) It understates the true rate of;inflation.;C) It does not take account of the price;of imported goods and services.;D) It measures changes in prices of a;fixed basket of goods.;9) Unemployment that naturally occurs;during the normal workings of an economy as people change jobs and move;across the country is called 9);A) cyclical unemployment. B);structural unemployment.;C) frictional unemployment. D) natural unemployment.;10) The economy needs some;unemployment to operate efficiently, because without it 10);A) firms will find it difficult to;recruit workers, leading to reduced wages and prices.;B) workers will find it difficult to;find a job, leading to reduced wages and prices.;C) workers will find it difficult to;find a job, leading to increased wages and prices.;D) firms will find it difficult to;recruit workers, leading to increased wages and prices.;11) Refer to Figure 8A.1. The stock;of capital no longer increases once the economy reaches point 11);A) a. B) b. C) c. D) e.;12);Using the rule of 70, if the GDP per capita growth rate in the United States is;4.4 percent, real GDP per capita doubles every 12);A) 6.72 years. B) 15.91 years. C) 44 years. D) 65.6 years.;13) The economic theory that;emphasizes the role of difficulties in coordinating economic affairs as a cause;of economic fluctuations is known as 13);A) real business cycle theory. B) Keynesian economics.;C);investment cycle theory. D);technology shock theory.;14) To determine the equilibrium;price level and equilibrium level of real GDP, the aggregate demand and;aggregate;supply;must;14);A) intersect.;B) be considered separately.;C) be disregarded.;D) be considered as a multiplier.;15);Which one of the following statements is true? 15);A) In the long run, the level of output;is determined by demand.;B) In the long run, the aggregate supply;curve is horizontal.;C) Where aggregate demand and aggregate;supply intersect is always the full-employment level of output.;D) In the short run, the level of output;is determined by demand.;16) In the United States during the;1930s 16);A) government spending increased and taxes;decreased, resulting in a fiscal expansion.;B) government spending decreased and;taxes increased, resulting in a fiscal contraction.;C) government spending and taxes both;increased, resulting in zero net fiscal expansion.;D) government spending and taxes both;decreased, resulting in a net fiscal contraction.;17) Policies taken to move the;economy closer to potential output 17);A) are lagging policies or automatic;policies.;B) must necessarily be expansionary;policies.;C) are called stabilization policies.;D) must necessarily be contractionary;policies.;18) Automatic stabilizers 18);A) decrease taxes during expansions.;B) must be authorized by the President.;C) increase welfare payments during;expansions.;D) minimize fluctuations in the economy.;19) A federal budget ________ occurs;when the government spends less than it collects in taxes. 19);A) floor B) surplus C) equilibrium D);deficit;C = 400 + 0.75(y - T);I= 150;G= 200;T= 160;X= 80;M= 0.15y;Table 11.1;20) Refer to Table 11.1. What is the;value of the marginal propensity to save? 20);A) 0.15 B) 0.25 C) 0.75 D) 0.9;21) The marginal propensity to save (MPS);is the 21);A) fraction of income that is saved.;B) savings that is not based on the;level of income.;C);the ratio of additional savings to additional income. D) the ratio of savings;to consumption.;22) Let C = 120 + 0.8y.;Assume no government or foreign sectors. At the equilibrium level of income, y*;= 200, the level of;saving is 22);A) -80. B) -30. C) 96.;D) 160.;23);Refer to Figure 11.5. An increase in the level of;investment is best illustrated by diagram;23);A) A. B) B.;C) C. D) D.;24);Financial intermediaries reduce the costs of negotiation;by 24);A) gaining expertise in evaluating and;monitoring investments.;B) pooling funds.;C) investing in a large number of;projects with independent returns.;D) investing in a small number of;projects with independent returns.;25) The Q-theory of investment 25);A) suggests that a downturn in real GDP;will lead to a sharp fall in investment, which leads to further reductions in;GDP through the multiplier.;B) emphasizes that current investment;spending depends positively on the expected future growth of GDP.;C) emphasizes the role of real interest;rates and taxes.;D) links investment spending to stock;prices.;26);When a firm has earnings it has not;yet paid out to the owners, those earnings are called;26);A) cash;reserves.;B) retained earnings.;C);surplus capital.;D) unearned income.;27);When money is accepted as payment;for a good or service, it is being used as a;27);A) store of value.;B) a mechanism for transforming current;purchases into future purchases.;C) medium of exchange.;D) unit of account.;28) Which of the following can be;used as money?;28);A) cigarettes B) checks;C) precious stones;D) all of the above;29) In order for a barter;transaction to be successful, there must be a;29);A) high demand for a certain item.;B) market for the goods.;C) federal tax law in effect.;D) double coincidence of wants.;30) The exchange rate is 30);A) the price at which one currency;trades for another currency.;B) the rate at which one can translate;money into consumption goods.;C) the slope of the investment function.;D) the rate at which banks can borrow;from the Fed.;31) The federal funds rate is the interest;rate that 31);A) the Fed pays on bank reserves.;B) banks charge each other for borrowed;money.;C) banks charge the Fed for using their;reserves.;D) the Fed charges to banks that borrow;from it.;32) An open market sale by the Fed 32);A) increases the money supply and;decreases output.;B) increases the money supply and;increases output.;C) decreases the money supply and;decreases output.;D) decreases the money supply and;increases output.;33);Refer to Figure 15.1. At point a;33);A) unemployment is below the;natural rate.;B) GDP is below potential output.;C);unemployment is above the natural rate.;D) GDP is equal to potential;output.;34);Suppose Venezuela experiences;economic growth in 2013, yet its unemployment rate is 15 percent, which is;above the;South;American average. This indicates that Venezuela's 2013 output is 34);A);above potential output.;B) below potential output.;C);above actual output. D) below actual output.;35);In the short run;35);A) prices are flexible.;B) the level of GDP is determined by the;demand and supply for labor, the supply of capital, and technological progress.;C) the economy always operates at full;employment.;D) increases in the money supply;increase GDP.;36);If the velocity of money is 2 and nominal GDP is $10;trillion, then the money supply is;36);A) $0.2 trillion. B) $5 trillion.;C) $8 trillion.;D) $12 trillion.;37);To stop hyperinflations, a nation must;37);A) decrease taxes.;B) increase spending.;C) eliminate the budget deficit.;D) increase the budget deficit.;38);If the velocity of money is 6 and the money supply is $4;trillion, then nominal GDP is 38);A) $24 trillion. B) $2 trillion.;C) $1.5 trillion.;D) $0.667 trillion.;39);Government expenditures are defined as;39);A) the excess of total revenues over;total expenditures.;B) government spending on goods and;services plus transfer payments.;C) the excess of total expenditures over;total revenues.;D) the sum of all past borrowing by the;government.;40) The federal government ran a;budget deficit of approximately ________ in fiscal year 2010. 40);A) $800 billion B) $250 billion C) $1.3 trillion D) $14 trillion;II. SHORT ANSWER. (5 questions 4 points each). Write the paragraph to answer the;question.;41) Critically evaluate the statement;Honolulu is an expensive place to live. Therefore the inflation rate must;be high in Honolulu." 41);42);Why is it difficult to implement fiscal policies?;42);43);How do automatic stabilizers work to mitigate;fluctuations in the level of economic activity? 43);44);Define "money illusion" and explain its cause.;44);45) In what ways is the government;debt a burden on future generations?;45)


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