ECO 108 Lecture 16: One Class ECON 16
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Suppose that, instead of taking this test, you could either have worked and earned income or partied and had a pleasurable time. Your opportunity cost of taking the test is the
a. | forgone working or partying, depending on which was your next best choice. | |
b. | forgone work. | |
c. | forgone working and partying. | |
d. | test because you are taking it. |
1 points
QUESTION 2
A trend is
a. | a measure of closeness on a scatter diagram. | |
b. | a general tendency for a variable to rise or fall. | |
c. | the maximum value of a variable. | |
d. | the difference between the maximum value of a variable and the minimum value of the variable. |
1 points
QUESTION 3
A time-series graph measures
a. | time on the y-axis and the variable or variables in which we are interested on the x-axis. | |
b. | time on the x-axis and the variable or variables in which we are interested on the y-axis. | |
c. | the value of one variable against the value of another variable. | |
d. | the value of an economic variable for different groups in a population at a point in time. |
1 points
QUESTION 4
Canada has nationalized health care, so that everyone, regardless of their ability to pay, has some access to health care. Based on this observation, Canada has decided that "everyone, regardless of their ability to pay" is the answer to what microeconomic question?
a. | Why will we offer health care? | |
b. | How will health care be produced? | |
c. | For whom will health care be produced? | |
d. | What type of health care will be produced and in what quantity? |
1 points
QUESTION 5
As a shoe factory adds more workers, shoe production grows, reaches a maximum, and then shrinks. In a diagram that has the number of workers on the horizontal axis and the number of shoes on the vertical axis, the relationship between the number of workers and the number of shoes starts as ________ and then, after the maximum point, is ________.
a. | positive; negative | |
b. | negative; positive | |
c. | linear; negative | |
d. | positive; linear |
1 points
QUESTION 6
Microeconomics includes the study of the
a. | choices made by individuals and businesses. | |
b. | recessions and inflation in the global economy. | |
c. | aggregate effects on the national economy. | |
d. | reasons why the government changes interest rates. |
1 points
QUESTION 7
When Fresh Express Salads decides to mechanically pick all of its lettuce, it directly answers the ________ question.
a. | when | |
b. | for whom | |
c. | how | |
d. | what |
1 points
QUESTION 8
Proponents of cuts in income tax rates argue that when income tax rates are cut, workers have an incentive to increase their work hours. This argument is based on the assumption that
a. | the opportunity cost of working is negative. | |
b. | the marginal cost of each additional work hour is not important to most workers. | |
c. | workers are irrational. | |
d. | workers make decisions based on the marginal benefit of each hour worked compared to the marginal cost of work. |
1 points
QUESTION 9
A choice made by comparing all relevant alternatives systematically and incrementally is
a. | an opportunity cost. | |
b. | a benefit. | |
c. | a sunk cost. | |
d. | a choice on the margin. |
1 points
QUESTION 10
A normative statement
i. can be tested as to whether it is true or false.
ii. is considered negative.
iii. depends on a person's values.
a. | i, ii, and iii | |
b. | iii only | |
c. | i and iii | |
d. | ii and iii |
1 points
QUESTION 11
Normative statements
i. describe how the world is.
ii. describe how the world ought to be.
iii. depend on people's values and cannot be tested.
a. | iii only. | |
b. | i only. | |
c. | ii and iii. | |
d. | ii only. |
1 points
QUESTION 12
In order to determine whether to major in economics, a rational individual compares the ________ of the decision.
a. | positive benefits and normative costs | |
b. | normative benefits and positive costs | |
c. | marginal benefit and marginal cost | |
d. | opportunity cost and the sunk cost |
1 points
QUESTION 13
If x increases whenever y decreases, then x and y are
a. | positively related. | |
b. | negatively related. | |
c. | not related. | |
d. | related but whether positively or negatively related depends on whether the x variable or the y variable is plotted on the vertical axis. |
1 points
QUESTION 14
Rational choice
a. | is what you must give up get what you want. | |
b. | is made by comparing different incentives. | |
c. | making the choice. | |
d. | provides the answer to only the "how" question. |
1 points
QUESTION 15
Scarcity results from the fact that
a. | choices made in self-interest rare not always in the social interest. | |
b. | not all goals are desirable. | |
c. | people's wants exceed the resources available to satisfy them | |
d. | we cannot answer the major economic questions. |
1 points
QUESTION 16
When Delta decides to quit flying to Lithuania, it directly answers the ________ question.
a. | what | |
b. | why | |
c. | for whom | |
d. | how |
1 points
QUESTION 17
A normative statement
a. | says what is currently believed about the way the world operates. | |
b. | depends on someone's values. | |
c. | cannot use the word "should." | |
d. | must be tested to determine if it is correct. |
1 points
QUESTION 18
Which of the following statements best describes the study of economics? Economics studies how
a. | to organize production so that scarcity does not occur. | |
b. | to create incentives so that scarcity does not exist. | |
c. | firms make profits. | |
d. | we make choices in the face of scarcity. |
1 points
QUESTION 19
Which of the following best defines economics?
a. | Economics teaches how to limit our wants. | |
b. | Economics is concerned with prices and quantities of goods and services, both at the individual level and at the industry level. | |
c. | Economics helps you earn as much money as possible. | |
d. | Economics studies how to choose the best alternative when coping with scarcity. |
1 points
QUESTION 20
In economics, cost is ________, and benefit is ________.
a. | the amount of money that you pay for something; the amount of money that someone else is willing to pay you | |
b. | what you are willing to pay on the margin; what the government pays you when you are unemployed or retired | |
c. | what you must give up to get something; what you are willing to give up to get it | |
d. | the amount of money that you pay on the margin; the amount of money that you receive on the margin |
1 points
QUESTION 21
If Jessie studies economics for two hours instead of going to the movies with her friends, then
a. | the opportunity cost of studying is the missed movie. | |
b. | Jessie is ignoring a sunk cost | |
c. | Jessie is not responding to any incentives. | |
d. | Jesse definitely is making a rational choice. |
1 points
QUESTION 22
Going skiing will cost Adam $80 a day. He also loses $40 per day in wages because he has to take time off from work. Adam still decides to go skiing.
a. | The $80 price of skiing is a sunk cost and so did not affect Adam's decision. | |
b. | He loses a total of $120 per day, so his decision is irrational. | |
c. | His decision is rational if Adam's marginal benefit of spending a day skiing is greater than his marginal cost. | |
d. | Adam's lost $40 per day in wages is a sunk cost and so did not affect his decision. |
1 points
QUESTION 23
If a curve falls and then rises, it
a. | has a maximum. | |
b. | has a linear relationship. | |
c. | has a minimum. | |
d. | has a constant slope relationship. |
1 points
QUESTION 24
In 2003, Michael Jordan decided to retire from professional basketball. Which of the following was an opportunity cost of his decision?
a. | the avoidance of pain and injury from playing one more year | |
b. | the time he could spend with his family while retired | |
c. | the lost salary from playing one more year | |
d. | the value of new employment opportunities that would await him |
1 points
QUESTION 25
Which of the following statements is a normative statement?
a. | Military spending as a percent of government spending decreased by 5 percent in the 1990s. | |
b. | Every American household should have health care insurance coverage. | |
c. | Welfare reform has decreased the amount the government spends on welfare. | |
d. | The price of computers fell last year. |
TRUE / FALSE
1. True False In the aggregate expenditures model presented in the textbook,
investment is assumed to rise with increases in real GDP and fall with decreases in real GDP.
2. True False When C + Ig = GDP in a private closed economy, S = Ig and there are no unplanned changes in inventories.
3. True False The risk-free interest rate is the rate on long-term U.S. government bonds.
4. True False Bond prices and interest rates are directly or positively related.
5. True False The public debt is the accumulation of all deficits and surpluses that have occurred through time.
6. True False The M2 money supply may be larger or smaller than the M1 money supply depending on the size of small-denominated time deposit balances and Money Market Mutual Fund balances held by individuals.
7. True False Excess reserves are the amount by which required reserves exceed actual reserves.
8. True False The public debt is held as Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.
9. True False The equilibrium price level and equilibrium level of real GDP occur at the intersection of the aggregate demand curve and the aggregate supply curve.
10. True False Investment is highly stable; it increases over time at a very steady rate.
MULTIPLE CHOICE
11. A recessionary expenditure gap is:
A. the amount by which the full-employment GDP exceeds the level of aggregate expenditures.
B. the amount by which equilibrium GDP falls short of the full-employment GDP.
C. the amount by which investment exceeds saving at the full-employment GDP.
D. the amount by which aggregate expenditures exceed the full-employment level of GDP.
12. The multiplier effect indicates that:
A. a decline in the interest rate will cause a proportionately larger increase in investment.
B. a change in spending will change aggregate income by a larger amount.
C. a change in spending will increase aggregate income by the same amount.
D. an increase in total income will generate a larger change in aggregate expenditures.
13. Which one of the following is true about the U.S. Federal Reserve System?
- There are 12 regional Federal Reserve Banks.
B. The head of the U.S. Treasury also chairs the Federal Reserve Board.
C. There are 14 members of the Federal Reserve Board.
D. The Open Market Committee is smaller in size than the Federal Reserve Board.
14. If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:
A. 18 percent.
B. 24 percent.
C. 12 percent.
D. 6 percent.
15.
Refer to the above diagram for a private closed economy. The equilibrium level of GDP is:
A. $400.
B. $300.
C. $200.
D. $100.
16. Which of the following represents the most expansionary fiscal policy?
A. a $10 billion tax cut
B. a $10 billion increase in government spending
C. a $10 billion tax increase
D. a $10 billion decrease in government spending
17.
Refer to the above table. The economy shown is a:
A. private economy.
B. private open economy.
C. mixed closed economy.
D. mixed open economy.
18. Currency held in the vault of First National Bank is:
A. counted as part of M1.
B. counted as part of M2, but not M1.
C. only counted as part of M1 if it was deposited into a checking account.
D. not counted as part of the money supply.
19. If the dollar appreciates relative to foreign currencies, we would expect:
A. the multiplier to decrease.
B. the country's exports and imports to both fall.
C. the country's net exports to rise.
D. the country's net exports to fall.
20. The most important determinant of consumption and saving is the:
A. level of bank credit.
B. level of income.
C. interest rate.
D. price level.
21. The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to:
A. the reciprocal of the required reserve ratio.
B. 1 minus the required reserve ratio.
C. the reciprocal of the income velocity of money.
D. 1/MPS.
22. Which one of the following would not shift the aggregate demand curve?
A. a change in the price level
B. depreciation of the international value of the dollar
C. a decline in the interest rate at each possible price level
D. an increase in personal income tax rate
23. The cyclically-adjusted budget tells us:
A. that in a full-employment economy the Federal budget should be in balance.
B. that tax revenues should vary inversely with GDP.
C. what the size of the Federal budget deficit or surplus would be if the economy was at full
employment.
D. the actual budget deficit or surplus realized in any given year.
24. The aggregate supply curve:
A. is explained by the interest rate, real-balances, and foreign purchases effects.
B. gets steeper as the economy moves from the top of the curve to the bottom of the curve.
C. shows the various amounts of real output that businesses will produce at each price level.
D. is downsloping because real purchasing power increases as the price level falls.
25.
Refer to the above diagram. If the equilibrium price level is P1, then:
A. aggregate demand is AD2.
B. the equilibrium output level is Q3.
C. the equilibrium output level is Q2.
D. producers will supply output level Q1
26. Discretionary fiscal policy refers to:
A. any change in government spending or taxes that destabilizes the economy.
B. the authority that the President has to change personal income tax rates.
C. intentional changes in taxes and government expenditures made by Congress to stabilize the economy.
D. the changes in taxes and transfers that occur as GDP changes.
27.
Refer to the above diagram. Which tax system has the most built-in stability?
A. T4
B. T3
C. T2
D. T1
28.
Refer to the given graph. A shift of the consumption schedule from C1 to C2 might be caused by a(n):
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29. When a bank loan is repaid the supply of money:
A. is constant, but its composition will have changed.
B. is decreased.
C. is increased.
D. may either increase or decrease.
30. The Federal budget deficit is found by:
A. subtracting government tax revenues plus government borrowing from government spending in a particular year.
B. subtracting government tax revenues from government spending in a particular year.
C. cumulating the differences between government spending and tax revenues over all years since the nation's founding.
D. subtracting government revenues from the noninvestment-type government spending in a particular year.
31.
Refer to the above information. Money supply M1 for this economy is:
A. $ 60.
B. $ 70.
C. $ 130.
D. $ 140.
32. Which of the following statements is true as a result of Federal Reserve efforts to rescue the financial industry from the financial crisis of 2007 and 2008?
- From February 2008, to May 2009, the Fed oversaw the consolidation of 20 major financial institutions into fewer than a dozen.
B. From March 2008, to February 2009, the Fed experienced a 50 percent decline in the value of assets held.
C. From February 2008, to March 2009, Fed assets more than doubled to nearly $2 trillion.
D. From February 2008, to March 2009, Fed lending caused the U.S. public debt to rise by over $1 trillion.
33. Which of the following is the basic economic policy function of the Federal Reserve Banks?
- holding the deposits or reserves of commercial banks
B. acting as fiscal agents for the Federal government
C. controlling the supply of money
D. the collection or clearing of checks among commercial banks
34. In a fractional reserve banking system:
A. bank panics cannot occur.
B. the monetary system must be backed by gold.
C. banks can create money through the lending process.
D. the Federal Reserve has no control over the amount of money in circulation.
35. |
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36. Assume the Continental National Bank's balance statement is as follows:
Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000 was drawn and cleared against it?
A. $ 3,000
B. $ 24,000
C. $ 6,000
D. $ 16,000
37. Answer the question on the basis of the following table for a commercial bank or thrift:
Refer to the above table. When the legal reserve ratio is 25 percent, the excess reserves of this single bank are:
A. $0.
B. $1,000.
C. $5,000.
D. $30,000.
38. Which of the following is a tool of monetary policy?
A. open market operations
B. changes in banking laws
C. changes in tax rates
D. changes in government spending
39. An increase in nominal GDP increases the demand for money because:
A. interest rates will rise.
B. more money is needed to finance a larger volume of transactions.
C. bond prices will fall.
D. the opportunity cost of holding money will decline.
40. Answer the next question on the basis of the following table:
At equilibrium in the above market for money, the total amount of money demanded is:
A. $500.
B. $480.
C. $460.
D. $440.
41. For most financial assets investors must be compensated for:
A. non-diversifiable and diversifiable risk.
B. diversifiable risk and time preference.
C. non-diversifiable risk and time preference.
D. non-diversifiable and diversifiable risk, and time preference.
42. Reserves must be deposited in the Federal Reserve Banks by:
A. only commercial banks which are members of the Federal Reserve System.
B. all depository institutions, that is, all commercial banks and thrift institutions.
C. state chartered commercial banks only.
D. federally chartered commercial banks only.
43.
Refer to the diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE1to AE2 would:
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44. The discount rate is the interest:
A. rate at which the central banks lend to the U.S. Treasury.
B. rate at which the Federal Reserve Banks lend to commercial banks.
C. yield on long-term government bonds.
D. rate at which commercial banks lend to the public.
45. What concept describes how quickly an investment increases in value when interest is paid not only on the original amount invested, but also on the accumulated interest payments?
A. present value
B. future value
C. compound interest
D. real rate of interest
46. The aggregate demand curve:
A. is upsloping because a higher price level is necessary to make production profitable as production costs rise.
B. is downsloping because production costs decline as real output increases.
C. shows the amount of expenditures required to induce the production of each possible level of real output.
D. shows the amount of real output that will be purchased at each possible price level.
47. The Security Market Line depicts the relationship between the:
A. average expected rate of return on stocks and the average expected rate of return on bonds.
B. average expected rate of return of a financial asset and the discount rate.
C. risk level of a financial asset and the prime interest rate.
D. average expected rate of return and risk level of a financial asset.
48. Arbitrage causes all financial assets:
A. of the same risk level to have the same price.
B. to have the same expected rate of return.
C. to have the same beta.
D. of the same risk level to have the same average expected rate of return.
49. |
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50. Given the expected rate of return on all possible investment opportunities in the economy:
A. an increase in the real rate of interest will reduce the level of investment.
B. a decrease in the real rate of interest will reduce the level of investment.
C. a change in the real interest rate will have no impact on the level of investment.
D. an increase in the real interest rate will increase the level of investment.
END OF THE EXAM