Economics 155 Final Exam
Fall 1996

1. Macroeconomics is:
a. is concerned with details in the economy and does not generalize
b. the analysis of economic aggregates
c. the study of individual economic units and specific markets
d. is the basis for the 'after this, therefore because of this' fallacy (post hoc ergo propter hoc)

2. Which of the following is a positive, rather than a normative, statement?
a. if the price of gasoline is allowed to rise, people will buy less of it
b. Americans must learn to conserve energy
c. the government should reduce spending
d. the United States should reduce its dependence on Arab Oil

3. The principal economic function of price is to
a. make certain only worthy people get products
b. make people work in order to buy things they want
c. allocate scarce resources in the economy
d. make sure all businessmen make the same amount of profit
e. prevent overproduction of important goods

4. Being on the production possibilities frontier for guns and butter means that:
a. more guns can be produced only by doing without some butter
b. if society becomes more productive in producing butter, then we can have more butter, but not more guns
c. it is impossible to produce any more guns
d. it is impossible to produce any more butter

5. The law of increasing opportunity costs states that:
a. the sum of the costs of producing a particular good cannot rise above the current market price of that good
b. if society wants to produce more of a particular good, it must sacrifice larger and larger amounts of other goods to do so
c. if the prices of all the resources devoted to the production of goods increase, the cost of producing any particular good will increase at the same rate
d. if the sum of the costs of producing a particular good rises by a specified percent, the price of that good must rise by a greater relative amount

6. An item which is not a factor of production (economic resource) is:
a. Busch Stadium
b. Alan Greenspan
c. money
d. land
e. trees

7. Assuming a normal, downward sloping demand curve, one can expect a decrease in price to result in
a. an increase in quantity demanded
b. a decrease in quantity demanded
c. an increase in demand for the product
d. a decrease in demand for the product
e. no change in quantity demanded

8. If an increase in the price of product A results in an increase in the demand for product A, one may conclude that products A and B are
a. unrelated goods
b. inferior goods
c. substitute goods
d. complementary goods

9. The market demand curve represents
a. the sum of the quantities demanded by all individuals at each price
b. a steeper curve than would be obtained by adding all the individual demands
c. points at which the quantity supplied equals the quantity demanded
d. none of these

10. Which of the following factors could not cause the supply curve for product X to shift?
a. A change in technology
b. A change in the number of suppliers of X
c. A change in the cost of factors of production
d. A change in the price of X

11. The complaint that there are not enough parking spaces in downtown areas indicates that
a. the "market" for parking places is in equilibrium
b. the price of parking in downtown areas is below the market-clearing price
c. cities should build more parking places
d. everyone should ride mass transit into the city

12. Given an upward sloping supply curve for lamb chops, a reduction in the price of pork chops will tend to:
a. raise the price of lamb chops
b. lower the price of lamb chops
c. shift the demand curve for lamb chops to the right
d. shift the demand curve for pork chops to the left

13. Dairy price supports (floor) which raise milk prices received by farmers, are likely to:
a. help consumers
b. cause increased production of milk
c. lower the price of milk
d. result in shortages of milk
e. reduce inflation

14. The difference between GDP and GNP is essentially the difference between:
a. goods that are exported and goods that are imported
b. location of production and ownership of resources
c. production of consumer goods and production of capital goods
d. production of final goods and production of intermediate goods

15. Real income differs from money income in that real income:
a. reflects constant dollar purchasing power, while money income reflects current dollar purchasing power
b. represents the income value used in determining income taxes, while money income is the gross income actually received before taxes
c. refers to earned income, while money income refers to unearned income
d. refers to income minus the amount put into savings, while money income includes savings

16. In the national income accounts, the capital consumption allowances (depreciation) represents
a. net investment minus depreciation
b. the difference between net national product and national income
c. income to the suppliers of capital
d. interest payments plus distributed corporation profits
e. repayment for capital used up in production

17. A proportional tax means that someone earning $20,000 would:
a. pay a proportionally higher tax on income than someone who has a lower income
b. pay just as much tax in percentage terms as someone earning $10,000
c. pay just as much tax as someone earning $10,000
d. none of the above

18. A common characteristic of pure public goods is that
a. their benefits cannot be withheld from anyone, regardless of whether he pays for them or not
b. their benefits can be withheld from anyone who does pay for them
c. people pay for them in proportion to the benefits received
d. the costs of producing them are less than if they were private goods
e. they are produced only by the public sector, not by the private sector

19. Which of the following statements is correct about unanticipated inflation?
a. It increases the real value of savings
b. It imposes costs on or "taxes" groups with fixed incomes
c. It benefits creditors at the expense of debtors
d. It increases the purchasing power of the dollar

20. In the official statistics, a worker who is so discouraged that he has stopped looking for employment is counted as:
a. underemployed
b. not in the labor force in exactly the same way as a spouse who works exclusively at home
c. unemployed
d. in the labor force, but not employed
e. none of the above

21. The relative shares of income spent on particular components of a typical consumer's market basket of commodities are used to compute
a. the CPI
b. the IPI
c. the GDP deflator
d. the PPI
e. all of these

22. The inequality of intended saving and intended investment:
a. may be of considerable significance because of the subsequent changes in income, employment, and the price level
b. is attributable to a low MPC
c. is of no consequence because actual saving and investment will always be equal
d. is of no consequence because a compensating inequality of tax collections and government spending will always occur

23. The unplanned accumulation of inventory is a sign that:
a. planned investment equals planned saving
b. current national income exceeds aggregate expenditure
c. aggregate expenditure exceeds current national income
d. planned investment exceeds planned saving

24. If a family's MPC is .7, it is
a. spending seven-tenths of any change to its income
b. operating at the "breakeven" point
c. spending 70 percent of its income on consumer goods
d. necessarily dissaving

25. Assume the current equilibrium level of income is $200 billion as compared to the full employment income level of $240 billion. If the MPC is 0.6, what change in autonomous expenditures is needed to achieve full employment?
a. an increase of $16 billion
b. an increase of $25 billion
c. an increase of $10 billion
d. an increase of $12 billion
e. an increase of $40 billion

26. During times of unemployment, the use of full-employment fiscal policy calls for
a. excise taxes to be raised
b. a deficit in the government's budget
c. a surplus in the government's budget
d. a decrease in government expenditures

27. Which of the following best describes the built-in (automatic) stabilizers as they function in the United States?
a. personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of national income
b. personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as the national income rises
c. personal and corporate income tax collections and transfers and subsidies all automatically vary directly with the level of national income
d. personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as national income rises
e. the size of the balanced budget multiplier varies inversely with the level of national income

28. Suppose the economy is operating far below its full employment level. Now the government increases its spending without an increase in taxes. Given time, this will most likely result in:
a. no change in output but an increase in inflation
b. a lowering of the rate of inflation
c. output rising by a multiple of the increase in government spending and inflation may increase a little
d. a fall in output due to the initial position being one with idle resources

29. To say that money is used as the medium of exchange means that:
a. money and total spending are the same
b. people can use money to carry over wealth from one time period to the next
c. money and income are one and the same thing
d. money serves as a unit of account
e. money is used in transactions, rather than goods exchanging for goods

30. One would definitely expect the quantity of money demanded to increase if:
a. interest rates were decreasing and total spending was increasing
b. the supply of money was decreasing
c. interest rates were increasing and total spending was falling
d. everyone were paid daily instead of once or twice a month

31. According to the Classical (crude) quantity theory of money, doubling of the supply of money in a fully employed economy will cause the price level to
a. be halved
b. remain unchanged
c. double
d. the theory makes no definite prediction in such a situation

32. Suppose that the banking system holds $1 million in demand deposits and $300,000 in legal reserves. If the required reserve ratio is 25 percent, the maximum amount by which the banking system can expand the money supply is:
a. $1,000,000
b. $1,500,000
c. $200,000
d. $300,000
e. $2,000,000

33. Keynesians argue that when the FED uses monetary policy to stimulate the economy, it can _________ bonds in the open market which causes interest rates to ___________ and _________ investment spending.
a. buy / increase / stimulates
b. buy / decrease / decreases
c. sell / decrease / stimulates
d. buy / decrease / stimulates

34. Generally recognized as a sign of a policy favoring tighter money is a
a. rise in the money supply
b. rise in the discount rate
c. reduction of the required reserve ratio
d. rise in government bond purchases by the Fed

35. By purchasing government securities in the open market, the Federal Reserve authorities hope ultimately to accomplish:
a. a decrease in member-bank Reserves
b. an equal increase in member-bank Reserves and Federal Reserve notes
c. an increase in member-bank Reserves larger than the original purchases by the appropriate multiple
d. an increase in member-bank Reserves by the amount of the original purchases
e. an increase in Federal Reserve notes larger than the original purchases by the appropriate multiple

36. All except one of the following will cause a shift in Aggregate Demand. Which will not shift the curve?
a. decreased investment due to higher business confidence
b. increased government spending due to policy changes
c. increased exports due to higher foreign incomes
d. increased imports due to perceptions of higher quality
e. reduction of government regulations of business production

37. Which of the following would result in an increase in potential GDP?
a. A movement down the Aggregate Supply curve
b. A movement up the Aggregate Demand curve
c. Aggregate Supply shifts right
d. Aggregate Supply shifts left
e. none of the above

38. Which of the following is not essential for the classical model to be valid?
a. long-run full employment
b. fixed money supply
c. wage-price flexibility
d. interest rate flexibility

39. A nation has a comparative advantage when it:
a. finds a new way to improve existing goods
b. can produce a good without using up any of its capital stock
c. can produce a good at a lower opportunity cost than another nation
d. can produce a good with fewer resources than another nation

40. The value of net exports is:
a. always positive
b. always larger than government expenditures
c. an injection into the economy if exports exceed imports
d. an injection into the economy if imports exceed exports

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