ECON 1100 Global Economics (Section 07) Exam #2 Spring 2013 (Version B) Multiple Choice Questions ( 2. points each):

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1 ECON 11 Global Economics (Section 7) Exam #2 Spring 213 (Version B) 1 Multiple Choice Questions ( 2 2 points each): 1. One of the principle functions of money is that it serves as a store of value. This role could be described by recognizing that money A. is an asset that can be used as a means to hold wealth. B. is used as a basic unit of measuring economic activity. C. is an asset used as payment when purchasing goods and services. D. None of the above answers are correct. 2. The expanded circular flow diagram builds upon the basic circular flow diagram by adding an illustration of the role of in the economy. A. labor unions and monopolies B. government and the foreign sector C. the central bank D. the military 3. The unemployment rate in the U.S. reported on an annual basis has only been above 8.% in 7 years since the end of the Great Depression. Of these 7 years, A. 4 of them were 29, 21, 211, and 212 (the 4 most recent years on record). B. the most recent year was 2. C. the most recent year was D. 3 were in the 196 s and 4 years were in the 199 s. 4. Deadweight Loss refers to A. the fact that everyone loses when society uses scarce resources to produce output. B. the payments that firms must make to hire factors of production. C. the burden that consumers incur from having to pay for goods, instead of being given the goods for free. D. the difference between maximum possible Total Social Surplus and realized Total Social Surplus. 5. In the model of Supply and Demand, the market equilibrium A. is an unstable outcome, which we should never expect to persist for any extended period of time. B. is not self-enforcing, since there is upward pressure on price at prices above the equilibrium price and downward pressure on price at prices below the equilibrium price. C. is unique, as a direct consequence of the Law of Supply and Law of Demand.

2 6. Christian bought 4 comic books from Chad. This trade gave Christian a Consumer s Surplus of $3 and gave Chad a Producer s Surplus of $18. It follows that the trade A. must have taken place at a price of $12. B. generated a Social Surplus of $12. C. generated a Social Surplus of $48. D. made both Christian and Chad worse off. 7. Supply A. is determined primarily by buyers willingness to pay for the good. B. refers to the entire relationship between the price of a good and the number of units that firms are willing and able to sell, all other factors fixed. C. is always a vertical line at the prevailing equilibrium quantity (an insight which is a direct consequence of the Law of Supply ). 8. From 1983 to 212, the U.S. experienced Inflation Rates which A. were relatively high, exceeding a value of 8.17% in 25 of the 3 years during this period. B. were relatively low, exceeding a value of 4.83% in only one year during this 3 period. C. fluctuated tremendously from year to year, evidenced by the observation that the rate was below 1% in 15 of these 3 years but over 8% in 13 of these 19 years. D. None of the above answers are correct, since no accurate measures of inflation rates were computed for the U.S. before 21. For questions 9 and 1, consider a country with consumption expenditures, private investment expenditures, government purchases, imports, and exports as summarized in the table below (each measured in millions of dollars): consumption investment government imports exports expenditures expenditures purchases $912 $187 $271 $234 $ This country is running a A. trade deficit of $38 million. B. trade deficit of $43 million. C. trade surplus of $38 million. D. trade surplus of $43 million. 1. For this country, Gross Domestic Product is equal to A. $1,48 million. B. $1,37 million. C. $1,332 million. D. $912 million.

3 11. refers to the natural and undirected emergence of order out of chaos. A. Gross Domestic Product B. Spontaneous Order C. Deadweight Loss D. Excess Demand 12. Per Capita GDP in the United States is approximately $47,2. This value is the corresponding level of Per Capita GDP in the European Union as a whole, which is approximately. A. about 37.6% less than; $75,64. B. roughly equal to; $46,95. C. about 38.8% greater than; $34,. D. more than double; $23,5. For questions 13 to 15 refer to the graph below, which illustrates Supply and Demand for Peanuts in 213. price Supply a 4.3 b c d e f Demand 213 2,25 5,6 7, In this market there would be Excess Supply at a price of. A. $5.5 B. $4.3 C. $3.95 D. None of the above answers are correct. quantity 14. At the market equilibrium, Total Social Surplus would be equal to A. areas (a)+(b)+(d). B. areas (c)+(e). C. areas (a)+(b)+(c)+(d)+(e). D. areas (d)+(e). 15. If 8, units were traded, then Deadweight-Loss would be A. negative. B. positive but less than area (f). C. positive and exactly equal to area (f). D. positive and greater than area (f).

4 16. After getting a $2, raise last year, Heidi increased the number of nights per year that she stays in a hotel. This observation would seem to suggest that A. Heidi s demand for nights in a hotel violates the Law of Demand. B. for Heidi nights in a hotel is a normal good. C. for Heidi nights in a hotel is an inferior good. D. Heidi is irrational when it comes to deciding how often to stay in a hotel versus stay at home. 17. Which of the following activities would not contribute toward GDP? A. John sells his 1994 Ford Escort to Samantha for $45. B. Erika buys a pound of bananas at Kroger. C. Tyler uses a coupon to get a haircut at Great Clips for only $9.99. D. None of the above answers are correct (since each of the three would be counted toward GDP). 18. The essay I, Pencil illustrates A. the notion of Spontaneous Order in a free market system. B. how easy it is for any one single person to make a pencil. C. how it is nearly impossible to coordinate productive resources in a free market system in order to make sure that pencils are produced. D. why it is essential to have government play an active role in altering the final distribution of income and consumption across households (in order to achieve a distribution that is fair or equitable). 19. In 211 Country B realized an unemployment rate of 7.2% and an inflation rate of 2.8%. By 212, the unemployment rate had increased to 8.5%. Supposing that the relation summarized by the Phillips Curve holds, which of the following is a possible value for the inflation rate in 212? A. 4.1%. B. 2.%. C. 1.5%. For Question 2, consider a country that had realized values of real GDP, nominal GDP, and population in 1983, 1998, and 213 as follows: Year Nominal GDP Real GDP Population 1983 $485,612,7, $687,847,2, 23,456, 1998 $517,234,52, $683,64,2, 21,982, 213 $559,284,1, $537,748,26, 18,12, 2. For this country, Real GDP Per Capita between 1983 and 1998 and then between 1998 and 213. A. increased; increased further. B. increased; decreased. C. decreased; increased. D. decreased; decreased further.

5 21. The Great Inflation refers to the period of high inflation in the U.S. during the A. Great Depression from 1929 through B. early 197 s through the early 198 s (from roughly June 1973 to July 1982). C. entire Presidency of George W. Bush (from Jan. 21 to Dec. 28). D. first year of the Obama Administration (from Feb. 29 to May 21). 22. refers to purchases of newly produced goods/services by firms. A. Consumption Expenditures. B. Private Investment Expenditures. C. Government Purchases. D. Net Exports. For questions 23 and 24, consider the market for chicken, with demand in 211 and 213 as illustrated below. Suppose chicken is a normal good and pork is a substitute for chicken. price Demand 213 Demand 211 quantity 23. Given that chicken is a normal good and pork is a substitute for chicken, which of the following could be a possible explanation for the change in demand between 211 and 213 illustrated above? Between 211 and 213 there was A. an increase in the price of pork. B. an increase in the number of producers of chicken. C. a decrease in average income of chicken consumers. D. an decrease in the price of chicken feed (an input used in the production of chickens). 24. Supposing that the Supply of chicken was unchanged between 211 and 213, it follows that between 211 and 213, equilibrium price will have and equilibrium quantity will have. A. decreased; increased. B. decreased; decreased. C. increased; increased. D. increased; decreased.

6 25. refers to the logical error whereby someone incorrectly concludes that simply because there are benefits (to some people) from higher levels of an activity, that more of the activity is always better. A. The Invisible Hand B. Spontaneous Order C. The Open-Ended Fallacy D. The Phillips Curve 26. When computing GDP, different goods/services are weighted according to the A. production costs of the goods/services. B. values of the goods/services to consumers, based upon telephone surveys. C. values of Consumer Surplus and Producer Surplus generated from trading the good/service. D. market prices of the goods/services. 27. refers to a general decrease in the level of overall prices. A. Hyperinflation B. Inflation C. Deflation D. Deadweight Loss 28. Which of the following statements regarding GDP in the U.S. is accurate? A. Real GDP Per Capita was 8.25% smaller in 211 than in B. Nominal GDP was roughly 7.1 times larger in 211 than in C. Real GDP was roughly 23.1 times larger in 211 than in Dan s Pappy Cola is a small soft drink producer, operating solely within the southeastern United States. So far this year they spent $17, on ingredients, $75, on labor, and $8, on packaging for their soda. They were able to generate a total of $1,25, of revenue from selling their soda. The total value contributed to Gross Domestic Product from this economic activity is: A. $2,25,. B. $1,25,. C. $1,,. D. $25,. 3. Thailand, Bolivia, and Rwanda are Less Developed Countries. Such nations A. used to be quite wealthy but are now very poor, as a direct result of exploitation by wealthy, industrialized countries. B. have relatively high incomes, as a result of having market economies based on large stocks of technologically advanced capital and a welleducated labor force. C. have relatively low incomes, as a result of lacking both large stocks of technologically advanced capital and a well-educated labor force. D. None of the above answers are correct.

7 31. Consider a market in which the efficient level of trade is 7,5 units. There would be a positive Deadweight-Loss if units were traded. A. 5,125. B. 7,5. C. 9,25. D. More than one (perhaps all) of the above answers are correct. 32. Since January 1948, the highest realized value of the Misery Index in the United States was a value of, realized in. A..9875; December B. 1.8; April C ; June 198. D ; February refers to someone who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business. A. An Entrepreneur B. A Monopolist C. A Deadweight Loss D. An Invisible Hand 34. A buyer s reservation price A. is visually illustrated by the vertical distance between demand and supply. B. refers to the maximum dollar amount a buyer is willing to pay for an item. C. is always exactly equal to the price that a buyer actually pays for an item. 35. In 28 Zimbabwe experienced an inflation rate of approximately. A. 12,563% B. 9.82% C..36% D. 1.4%. For Question 36, consider the values of Unemployment Rate, Inflation Rate, and Per Capita GDP reported in the table below for four different countries in 212: Country Unemployment Rate Inflation Rate Per Capita GDP Country A 8.6% 6.3% $24,872 Country B 7.3% 8.7% $17,985 Country C 5.5% 4.9% $8,59 Country D 9.5% 2.1% $41, In 212 the value of the Misery Index was greatest in A. Country A. B. Country B. C. Country C. D. Country D.

8 37. Between March 211 and March 213 there was a decrease in both price and quantity traded in the market for apples. This observed change in market equilibrium outcome would result from A. a decrease in Demand. B. an increase in Demand. C. a decrease in Supply. D. an increase in Supply. For questions 38 through 4, refer to the graph below, which illustrates supply and demand for beer in January 213. price 37.2 Supply a b d f c e g Demand 3,4 6,52 9, Focusing on the 3,4 th unit, the value of the buyer s reservation price for the seller of this unit is, while the value of the seller s reservation price for the buyer of this unit is. A. $2.7; $8.5. B. $15.1; also $15.1. C. $12.2; also $12.2. D. $5.6; $ In equilibrium units will be traded, each at a price of. A. 3,4; $8.5. B. 3,4; $2.7. C. 6,52; $15.1. D. 9,18; $ At the market equilibrium outcome, A. Deadweight Loss is equal to area (g). B. Total Consumers Surplus is equal to areas (a)+(b)+(c). C. Total Producers Surplus is equal to areas (d)+(e)+(f). quantity

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