Economics 155 Final Exam
Spring 1996

1. Macroeconomics is concerned primarily with:
a. the economy's total output of goods and services and changes in the rate of unemployment and inflation over time
b. the attainment of a fair distribution of income
c. the economic behavior of individual households and firms
d. factors that cause individual product prices to change relative to one another
e. all of the above

2. Because Adam can get an excellent seat at the Bears game by arriving 30 minutes early, he thinks everyone ought to be able to get a good seat by this technique. Adam's thinking is an example of which fallacy?
a. Occam's razor
b. the fallacy of composition
c. the post hoc fallacy
d. the fallacy of limited alternatives
e. the Law of Increasing Costs

3. Economic problems arise fundamentally from:
a. the price system
b. the existence of money
c. the relationship between the private and public sectors
d. the market system
e. scarcity

4. Regarding the production possibilities curve, a point below (or inside) the curve would represent:
a. a point of technological and allocative efficiency
b. a point of market equilibrium
c. growth
d. a point of technological efficiency
e. unemployment of resources

5. The production possibilities (or transformation) curve illustrates the basic principle that:
a. an economy will automatically seek that level of output at which all of its resources are employed
b. if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced
c. an economy's capacity to produce increases in proportion to its population size
d. both (a) and (c)

6. Which of the following would not be an example of capital:
a. Great Southern Savings and Loan building
b. undeveloped oil field in Oklahoma
c. oil refinery in New Jersey
d. ship yard in San Francisco
e. steel mill in Pittsburgh

7. A demand curve gives a relationship between price and quantity demanded, other things equal. These "other things" include all of the following EXCEPT:
a. the quantity supplied at every price
b. the prices of substitute products
c. tastes
d. the distribution of income (or income levels)
e. the prices of complementary products

8. If the demand curve for product B shifts to the right as the price of product A declines, it can be concluded that:
a. A is an inferior good and B is a superior good
b. A is a superior good and B is an inferior good
c. A and B are substitute goods
d. A and B are complementary goods
e. A and B are inferior goods

9. For there to be a market, there must be:
a. third parties such as brokers and agents
b. perfect competition
c. buyers and sellers
d. a building such as a retail store
e. all of the above are necessary

10. An increase in price will lead to a lower quantity demanded because:
a. people will cut back their purchases of the good
b. suppliers will supply only the smaller demand
c. quality deteriorates
d. all of the above are true e. none of the above

11. The establishment of an effective price floor (support) can be expected to bring about quantity supplied
a. less than the quantity demanded
b. equal to the quantity demanded
c. greater than the quantity demanded
d. none of these

12. If supply and demand both decrease, we can say that equilibrium quantity:
a. price must fall, but equilibrium quantity may either rise, fall, or remain unchanged
b. and equilibrium price must both increase
c. and equilibrium price must both decline
d. must decline, but equilibrium price may either rise, fall, or remain unchanged
e. and equilibrium price must both decrease

13. To say that a price is "below equilibrium" means that:
a. there will occur a surplus of the product
b. the amount demanded exceeds the amount supplied
c. producers are making substantial profits
d. consumers want to pay a lower price than sellers are currently charging

14. Consider the profits of Japanese management working at a Honda plant in the United States. The profits__________ in US GDP and __________ in US GNP.
a. do not count, do not count
b. count, do not count
c. count, count
d. do not count, count

15. Historically, real GDP has risen less rapidly than money GDP because:
a. technological progress has resulted in more efficient production
b. the general price level has risen
c. exports to foreign nations have risen more rapidly than imports
d. the general price level has fallen
e. price indices have not reflected improvements in product quality

16. Personal income is the
a. income remaining to persons after payment of personal taxes
b. total income received by persons from all sources
c. market value of the output of goods and services produced by the nation's economy
d. total earnings of labor and property from the production of goods and services

17. An income tax may be called progressive when:
a. the tax rate increases as income goes up
b. the tax rate is constant, but the absolute amount of taxes paid increases, as income goes up
c. the tax rate on low-income groups exceeds the tax rate of high-income groups
d. high-income groups pay more taxes absolutely than do low-income groups

18. An externality arises when
a. consumers' desires are not taken into account by producers
b. external circumstances affect the value of the exchange
c. producers make too many goods, leaving a glut on the market
d. costs and benefits external to exchange are incurred

19. A friend has borrowed $100 from you at 10 percent promising to pay back next year. Prior to lending this money, you had anticipated a 5 percent inflation over the next year. Suppose, the actual inflation turns out to be 10 percent?
a. your friend as a creditor has won
b. your friend as a debtor has won
c. you as a creditor have won
d. you as a debtor have won

20. Wendy Clark has stopped looking for a job feeling that there are not any jobs available for professional women television sportscasters. She is
a. a discouraged worker
b. a member of the labor force
c. frictionally unemployed
d. unemployed

21. "Too much money chasing too few goods", best describes what is called:
a. cost-push inflation
b. profit-push inflation
c. structural inflation
d. demand-pull inflation
e. wage-push inflation

22. If Smith's disposable income increased from $1400 to $1900 and his level of saving increases from minus $100 to plus $100, it may be assumed that his marginal propensity to
a. consume is .90
b. save is .40
c. consume is .75
d. save is .10

23. If at all levels of income, people decide to save a greater portion of their incomes, which of the following is the correct outcome?
a. The saving function shifts down, the consumption function shifts up, and income remains constant.
b. The saving function shifts up, the consumption function remains where it was initially, and income rises.
c. The saving function shifts up, the consumption function shifts down, and income increases.
d. The saving function shifts up, the consumption function shifts down, and income decreases.
e. The outcome is indeterminant.

24. In the Keynesian model, without government or foreign trade, equilibrium exists when:
a. desired saving equals desired investment
b. consumption plus saving just offsets investment spending
c. actual saving equals actual investment
d. desired saving equals actual saving

Use the table below to answer question number 25

Gross Domestic Product

25. The equilibrium level of GDP is:
a. 1200
b. 1100
c. 1400
d. 1300
e. cannot be determined from data given

26. The tools of government fiscal policy include all of the following EXCEPT:
a. changes in tax rates
b. the imposition of new taxes
c. government spending on goods and services
d. changes in the money supply
e. changes in welfare payments

27. Assume government spending increases by $1 billion and taxes are unchanged. If the MPS is .15, the equilibrium GDP (income) will increase by ______ billion
a. $4
b. $5
c. $2.5
d. $3
e. $6.7

28. Which of the following fiscal actions is likely to be most effective in curbing inflation?
a. incurring a budget surplus which is used to retire debt held by commercial banks
b. incurring a budget deficit by borrowing from the public
c. incurring a budget surplus which is used to retire debt held by the public
d. incurring a budget surplus and allowing that surplus to accumulate as idle treasury balances
e. shifting federal spending away from nonproductive spending such as social security and into spending such as national defense

29. The essential difference between money and near-money is that:
a. money is directly usable in transactions; near-money is not
b. near-money is "fiat money"; money is not
c. the velocity of circulation of money is rapid; that of near-money is slow
d. near-money includes all deposits in bank accounts; money includes none of these
e. none of the above

30. If the public finds ways of making the same amount of money perform a larger amount of transactions than before
a. incomes and prices must have risen
b. the supply of money must have risen
c. the demand for money must have risen
d. velocity must have risen

31. When a borrower writes checks against his deposit, his bank immediately is likely to
a. lose reserves and deposits to other banks
b. gain reserves and deposits from other banks
c. lose reserves to, but gain deposits from, other banks
d. gain reserves from, but lose deposits to, other banks
e. experience no changes in its reserves and deposits

32. Which of the following is most accurate in reflecting the "monetarist" view of the effectiveness of macroeconomic tools?
a. discretionary fiscal and monetary policy are very effective
b. nondiscretionary monetary policy is preferred
c. fiscal policy is very powerful
d. wage and price controls are preferred to fiscal policy
e. it is not important to control the quantity of money so much as it is to control the competitive environment within which banks operate

33. If acute inflation was occurring in the economy, proper short-run fiscal and monetary policies would involve a government budget
a. deficit and the sale of securities in the open market, a higher discount rate, and lower reserve requirements
b. deficit and the purchase of securities in the open market, a higher discount rate, and higher reserve requirements
c. surplus and the purchase of securities in the open market, a lower discount rate, and lower reserve requirements
d. surplus and the sale of securities in the open market, a higher discount rate, and higher reserve requirements

34. In controlling the money supply, the Federal Reserve System most often uses:
a. changes in reserve requirements
b. moral suasion
c. open market operations
d. changes in the discount rate
e. changes in Regulation Q

35. The Federal Funds market has reference to the market where:
a. newly printed currency gets into circulation
b. banks deposit the majority of their legal reserves
c. the federal government finances its debt
d. banks borrow reserves from other banks
e. checks are cleared

36. If businesses expect an increase in profit opportunities from their capital investment projects, we would expect the:
a. Aggregate Demand to shift left
b. Aggregate Demand to shift right
c. Aggregate Supply to shift left
d. Aggregate Supply to shift right
e. shift of neither Aggregate Demand nor Aggregate Supply

37. According to the Keynesian view, along which portion of the aggregate supply curve will a given increase in aggregate demand have the LEAST inflationary and GREATEST employment effects?
a. the vertical portion of the aggregate supply curve
b. the horizontal portion of the aggregate supply curve
c. the upward sloping portion of the aggregate supply curve
d. none of the above

38. Supply-side economics is especially interested in stimulating:
a. real production by providing incentives to work and save
b. lower interest rates and price levels by breaking up large, highly monopolistic firms
c. total expenditures on goods and services
d. worker productivity by higher minimum wages

39. To say that a country has a comparative advantage in the production of wine is to say that
a. its opportunity cost of producing wine is lower than any other country's
b. the relative price of wine is higher in that country than in any other
c. it can produce wine with fewer resources than any other country can
d. its opportunity cost of producing wine is greater than any other country's

40. If a nation buys $3.5 billion in foreign goods and services and sells $.5 billion to foreigners, it has a:
a. surplus of $4 billion in its balance of trade
b. surplus of $3 billion in its balance of trade
c. deficit of $4 billion in its balance of trade
d. deficit of $3 billion in its balance of trade

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