ECON 1100 Global Economics (Section 10) Exam #2 Fall 2013 (Version C) Multiple Choice Questions ( 2. points each):

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1 ECON 1100 Global Economics (Section 10) Exam #2 Fall 2013 (Version C) 1 Multiple Choice Questions ( 2 2 points each): 1. One of the principle functions of money is that it serves as a unit of measure. 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. 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 self-enforcing, since there is upward pressure on price at prices below the equilibrium price and downward pressure on price at prices above the equilibrium price. C. is unique, as a direct consequence of the Law of Supply and Law of Demand. 3. Dan s Pappy Cola is a small soft drink producer, operating solely within the southeastern United States. So far this year they spent $160,000 on ingredients, $750,000 on labor, and $90,000 on packaging for their soda. They were able to generate a total of $1,500,000 of revenue from selling their soda. The total value contributed to Gross Domestic Product from this economic activity is: A. $2,500,000. B. $1,500,000. C. $1,000,000. D. $500, Alvin (who is 37 years old) is currently employed as a manager of an Italian restaurant. After losing his job at an auto factory last year Simon (who is 64 years old) has decided to essentially retire early and not actively try to find another job. Theodore (who is 22 years old) recently graduated from college with an economics degree and is seeking his first full time job. Which of these individuals are currently part of the workforce? A. Alvin, Simon, and Theodore (since each is between the ages of 18 and 65). B. Only Alvin (but not Simon or Theodore, since they do not currently have jobs). C. Only Alvin and Theodore (but not Simon, since he is not actively seeking a job). D. Only Alvin and Simon (but not Theodore, since he has never had a full time job before).

2 5. provides a measure of the total value of all final goods/services produced within an economy in a given period of time, with all goods/services valued according to current period prices, whereas provides a measure of the total value of all final goods/services produced within an economy in a given period of time, with all goods/services valued according to a single set of common, constant prices. A. Equilibrium GDP; Real GDP. B. Nominal GDP; Equilibrium GDP. C. Nominal GDP; Real GDP. D. Real GDP; Nominal GDP. 6. The Law of Demand A. drives the observations that if demand increases, equilibrium price and equilibrium quantity will both increase. B. implies that a demand curve should be downward sloping (i.e., negatively sloped). C. states that (all other factors fixed) consumers are willing and able to buy a greater quantity of a good when its price is lower. 7. The unemployment rate in the U.S. reported on an annual basis has only been above 8.0% in 7 years since the end of the Great Depression. Of these 7 years, A. 4 of them were 2009, 2010, 2011, and 2012 (the 4 most recent years on record). B. the most recent year was C. the most recent year was D. 2 were in the 1960 s and 5 years were in the 1990 s. For questions 8 and 9, consider a country with consumption expenditures, private investment expenditures, government purchases, exports, and imports as summarized in the table below (each measured in millions of dollars): consumption investment government exports imports expenditures expenditures purchases $856 $148 $176 $117 $ This country is running a A. trade deficit of $30 million. B. trade deficit of $264 million. C. trade surplus of $30 million. D. trade surplus of $264 million. 9. The Gross Domestic Product of this country is equal to A. $1,444 million. B. $1,210 million. C. $1,150 million. D. $826 million.

3 10. Suppose that between 2012 and 2013 the Unemployment Rate decreased while the Inflation Rate increased in Portugal. It follows that the value of the Misery Index in 2013 the value of the Misery Index in A. could be greater than or could be less than B. must be greater than C. must be less than D. must be exactly equal to 11. A good that is used in the production process that is not (itself) a final good or service is good. A. an inefficient B. a finished C. an intermediate D. a government 12. During the last several decades, health officials in the United States have strengthened the case that cigarette smoking is harmful to people s health. As a result, there has been a significant decrease in smoking. Which of the following is the most consistent explanation of this decrease in equilibrium quantity? A. Cigarettes are a normal good, and as people experienced an increase in real income their demand for cigarettes increased. B. Tobacco companies were able to increase demand for cigarettes by way of high profile endorsements of major professional sporting events. C. Tobacco companies (whose primary concern is the health of their customers) decided to produce relatively fewer cigarettes, decreasing supply for cigarettes. D. Consumers (concerned about their own health) decreased their demand for cigarettes. 13. Per Capita GDP in Hong Kong is $45,900, while Per Capita GDP in Russia is only $15,900. These values directly imply that A. people in Russia are less intelligent than people in Hong Kong. B. people in Hong Kong are roughly three times happier than people in Russia. C. the market value of goods/services produced per person is roughly three times larger in Hong Kong than in Russia. D. None of the above answers is correct. 14. According to the depiction provided by the expanded circular flow diagram, government collects taxes from A. only itself. B. both domestic households and domestic firms (but not from any foreign sources). C. both foreign households and foreign firms (but not from any domestic sources) D. nobody.

4 For questions 15 through and 19, refer to the graph below. This graph illustrates the supply and demand for milk in price Supply 2013 (a) (b) (f) (c) (g) 2.05 (d) (h) Demand 2013 (e) 0 quantity 0 1,900 3,750 5, There would be excess supply at which of the following price? A. $4.95. B. $3.35. C. Both $3.35 and $4.95. D. Neither $3.35 nor $ Focusing on the 1,900th unit, which of the following statements is true? A. The Buyer's Reservation Price for this unit is $3.10. B. The Seller's Reservation Price for this unit is $1.05. C. The Social Surplus from trading this unit would be $ In this market, the equilibrium quantity is and the efficient quantity is. A. 1,900 units; 5,125 units. B. 3,750 units; 0 units. C. 3,750 units; 3,750 units. D. 5,125 units; 1,900 units. 18. In equilibrium A. Total Consumers Surplus is equal to areas (a)+(b)+(f). B. Total Producers Surplus is equal to areas (c)+(d)+(e)+(g)+(h). C. Total Social Surplus is equal to areas (e)+(h). 19. If 1,900 units were traded, Deadweight-Loss would be equal to A. areas (a)+(b)+(c)+(d). B. areas (a)+(b)+(c)+(d)+(e). C. areas (f)+(g). D. areas (f)+(g)+(h).

5 20. An increase in income will result in an increase in demand for. A. a normal good B. an inferior good C. an intermediate good D. a misery index 21. Which of the following countries realized Annual Inflation Rates of 384.7%, 266.8%, and 12,563% in 2004, 2006, and 2008? A. Nigeria. B. Zimbabwe. C. Ghana. D. Russia. 22. The Great Inflation refers to the period of high inflation in the U.S. during A. World War II. B. the early 1970 s through the early 1980 s (June 1973 to July 1982). C. the entire Presidency of George W. Bush (Jan to Dec. 2008). D. the first two years of the Obama Administration (Feb to Mar. 2011). 23. refers to the natural and undirected emergence of order out of chaos. A. Deflation B. Spontaneous Order C. Deadweight Loss D. Excess Supply 24. Coca-Cola is a substitute for RC Cola. If the price of Coca-Cola decreases, then A. Demand for RC Cola will decrease. B. Demand for RC Cola will increase. C. Supply for RC Cola will increase. D. None of the above answers are correct (since the only thing that can cause a change in either Demand or Supply for RC Cola is a change in the price of RC Cola). For Question 25, consider a country that had realized values of real GDP, nominal GDP, and population in 1983, 1998, and 2013 as follows: Year Nominal GDP Real GDP Population 1983 $495,812,500,000 $745,900,800,000 23,456, $659,234,600,000 $779,376,000,000 24,980, $942,684,200,000 $935,680,000,000 29,240, For this country, Real GDP Per Capita between 1983 and 1998 and then between 1998 and A. increased; increased further. B. increased; decreased. C. decreased; increased. D. decreased; decreased further.

6 26. Scott bought a used snowboard from Brad for $150. This trade gave Scott a Consumer s Surplus of $25 and generated a Social Surplus of $35. It follows that Brad realized a Producer s Surplus of from this trade. A. $10 B. $60 C. $90 D. $210 For questions 27 through 29, consider the market for hot dogs, with demand in 2012 and 2013 as illustrated below. Suppose hot dogs are an inferior good and hot dog buns are a complement to hot dogs. price Demand 2013 Demand The change illustrated in the graph above is best described as A. An increase in demand. B. A decrease in demand. C. An increase in quantity demanded. D. A decrease in quantity demanded. quantity 28. Given that hot dogs are an inferior good and hot dog buns are a complement to hot dogs, which of the following is a possible explanation for the change between 2012 and 2013 illustrated above? Between 2012 and 2013 there was A. an increase in the price of hot dog buns. B. a decrease in average income of hot dog consumers. C. a decrease in the number of consumers of hot dogs. 29. Supposing that the Supply of hot dogs was unchanged between 2012 and 2013, it follows that between 2012 and 2013, equilibrium price will have and equilibrium quantity will have. A. increased; increased. B. increased; decreased. C. decreased; increased. D. decreased; decreased.

7 30. In 2012 Country X realized an unemployment rate of 7.2% and an inflation rate of 4.8%. By 2013 the unemployment rate had decreased to 6.5%. Supposing that the relation summarized by the Phillips Curve holds, which of the following is a possible value for the inflation rate in 2013? A. 5.5%. B. 5.2%. C. 4.1%. 31. 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 Open-Ended Fallacy B. The Invisible Hand C. Spontaneous Order D. Deadweight Loss 32. Which markets are represented in the simple Circular Flow Diagram? A. Markets for Goods and Services and markets for Factors of Production. B. Markets for Imports and Exports and markets for Factors of Production. C. Markets for Goods and Services and markets for Financial Assets. D. Markets for Spontaneous Order and markets for Invisible Hands. 33. After getting a $2,000 raise last year, Heidi increased the number of haircuts that she gets per year. This observation would seem to suggest that A. Heidi s demand for haircuts violates the Law of Demand. B. for Heidi a haircut is an inferior good. C. for Heidi a haircut is a normal good. D. for Heidi a hat is a substitute for a haircut. 34. Consider a market in which the efficient level of trade is 7,250 units. There would be a positive Deadweight-Loss if units were traded. A. 0. B. 5,500. C. 8,750. D. More than one (perhaps all) of the above answers are correct. 35. Between August 2012 and August 2013 there was a decrease in equilibrium price and an increase in equilibrium quantity traded in the market for gasoline. This observed change in market equilibrium outcome would result from A. a decrease in Supply. B. an increase in Supply. C. a decrease in Demand. D. an increase in Demand.

8 36. The most recent month in which the value of the Misery Index in the U.S. was above 10 was in A. August 2013, the most recent month for which the relevant data is available. B. October C. April D. None of the above answers are correct, since the value of the Misery Index in the U.S. has never been above 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. The head of a household C. A government regulator D. A market maker 38. Last weekend Danny won $950 at a casino in Biloxi, Mississippi. He decided to use the money to purchase a new TV from Target. He was able to use the money to acquire the new TV since money serves as a A. medium of exchange. B. store of value. C. unit of measure. D. Gross National Product. 39. The notion of Spontaneous Order in a free market system is illustrated in (an essay which was assigned from the textbook). A. Eye of the Tiger B. I, ipad C. I, Pencil D. Aye Aye, Captain 40. In 2011, the value of Nominal GDP for the United States was roughly the value of Nominal GDP for the United States in A times larger than B times larger than C. 7.1 times larger than D. 5.2% less than

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