ECON 2301: Principles of Macroeconomics Fall 2014 Quarter Term Exam #1

ECON 2301: Principles of Macroeconomics Fall 2014 Quarter Term Exam #1 Instructions : Please answer each of the following questions by choosing the alternative that BEST answers the question. Be sure to mark the bubble of your answer choice on your scantron. When you finish, please write your name atop this sheet and ensure that your name is on your scantron. Then, you may submit both to me directly. If you have any questions during the exam, then please quietly come to see me. Otherwise, please take your exam quietly without disturbing others and without accessing any resources. Please put your cellular devices on silent and do not check them during the exam. Thank you and good luck! 1. If a certain combination of goods lies outside the production possibilities curve of an economy, which of the following could be true? a. effective trade barriers have reduced imports into the economy b. obsolete technology is being used in production c. resources are not available to achieve that level of production d. resources are not being used efficiently to achieve that level of production e. resources are being wasted at a rapid rate 2. If the exchange rate for the United States dollar ($) and the British pound ( ) changed from $2 per 1 to $3 per 1, then in United States, under ceteris paribus conditions a. the dollar depreciates, net exports increase b. the dollar depreciates, net exports decrease c. the dollar appreciates, net exports increase d. the dollar appreciates, net exports decrease e. purchase three times more British goods than before the change occurred. 3. Economics is the science of a. Reducing unemployment b. Improving the general welfare of the public c. Eliminating opportunity costs d. Eradicating scarcity e. Determining how choices are made about using limited resources to satisfy unlimited wants 4. The concept of opportunity cost would no longer be relevant if a. poverty in an economy no longer existed b. the supply of all resources were unlimited c. resources were allocated efficient d. minimum wage were higher e. all current incomes were invested in technological research 5. Which of the following will occur in a competitive market when the price of a good is less than the equilibrium price? a. price will decrease to eliminate the surplus and restore equilibrium b. price will decrease to eliminate the shortage and restore equilibrium c. price will increase to eliminate the surplus and restore equilibrium d. price will increase to eliminate the shortage and restore equilibrium e. price will remain constant, because supply will increase to eliminate the shortage 1

6. Which of the following illustrates the law of increasing opportunity cost? a. the demand curve has a negative slope b. the demand curve has a positive slope c. the PPF is bowed outward d. the supply curve has a negative slope e. the supply curve has a positive slope 7. An advance in technology would violate assumptions economists make about a. the law of supply b. the law of demand c. the production possibilities frontier d. rationality e. self interest 8. Assume that the world operates under a floating exchange rate system. If a hurricane causes significant damage to Mexico s tourist resorts in the Baja region, then what would be the expected change to the international value of the peso and Mexico s net exports? a. peso appreciates, net exports increase b. peso appreciates, net exports decrease c. peso depreciates, net exports increase d. peso depreciates, net exports decrease e. peso depreciates, net exports do not change 9. Assuming a floating exchange rate, if the country of Burchardia has a weaker economy than the country of Castilawia, then what would be the expected changes for the international value of Burchardia s and Castilawia s currencies? a. appreciation in Burchardia, appreciation in Castilawia b. appreciation in Burchardia, depreciation in Castilawia c. appreciation in Burchardia, no change in Castilawia d. depreciation in Burchardia, appreciation in Castilawia e. depreciation in Burchardia, depreciation in Castilawia 10. Any point inside a production possibilities curve is a. better than points on the production possibilities curve b. allocatively efficient but technologically inefficient c. associated with inefficient use or underemployment of resources d. associated with movements along the production possibilities curve e. associated with constant opportunity costs 11. A country s capital refers to all of the following EXCEPT a. public capital goods such as highways b. natural resources c. private financial institutions d. proportion of the population with postsecondary education e. manmade resources used in production 2

12. If one fourth of a nation s wheat crop is destroyed by a flood in a given season, then the price of wheat bread and quantity of wheat bread demanded will change in which of the following ways? a. price decreases, quantity demanded does not change b. price decreases, quantity demanded increases c. price increases, quantity demanded increases d. price increases, quantity demanded decreases e. price does not change, quantity demanded increases 13. If producing each additional unit of good X required sacrificing ever increasing amounts of good Y, the production possibilities curve between X and Y would be a. bowed outward b. bowed inward c. a straight line d. horizontal e. upward sloping 14. If the international value of the United States dollar depreciates in comparison with the Japanese yen, which of the following is most likely to occur? a. United States exports to Japan will increase. b. United States exports to Japan will decrease. c. United States exports will not change. d. The new exchange rate will result in more yen per dollar. e. The exchange rate will remain the same. 15. Which of the following concepts can be illustrated by the production possibilities frontier? i. choice ii. scarcity iii. market equilibrium iv. opportunity cost b. II only c. I and III only d. III and IV only e. I, II, and IV only 16. Which of the following is the most fundamental issue that economics addresses? a. choice of appropriate technology b. reduction of unemployment c. reduction of budget deficit d. promotion of growth e. use of scarce resources 17. An increase in the international value of the United States dollar will most likely benefit a. producers of premium California wines sold to people in other countries b. currency traders holding large quantities of the Japanese yen c. German citizens vacationing in the United States d. Canadian citizens expecting to purchase real estate in the United States e. retired United States citizens living overseas on their social security checks 3

18. If the production technology of a good improves, which of the following would be most likely to occur? a. market clearing price would increase, demand would increase b. market clearing price would increase, demand would decrease c. market clearing price would decrease, demand would increase d. market clearing price would decrease, demand would decrease e. market clearing price would decrease, demand would not change 19. A rightward shift of the production possibilities curve could be caused by all of the following EXCEPT a. new gene therapy techniques increase the corn yield b. automated services allow businesses to extend their hours of operation c. a guest worker program is enacted, which eases the requirements on businesses to hire immigrants d. a drought reduces the number of arable acreage e. regulations on mining companies are relaxed 20. For an economy that is operating inside its production possibilities curve, which of the following is true? a. it can increase the production of both capital and consumer goods b. its population is growing faster than the economy s ability to increase production c. it is using all available resources efficiently d. it cannot move to a point on the production possibilities curve with available technology e. it lacks the resources to increase production beyond its current output 21. If the minimum wage is set at a price above the market equilibrium, then it would be an example of which of the following? a. price ceiling causing a surplus b. price ceiling causing a shortage c. price ceiling causing a market malfunction d. price floor causing a surplus e. price floor causing a shortage 22. Which of the following does not accurately depict the law of demand? a. as consumers incomes rise, their demand for all goods increases b. as a particular good increases in fashionability so does the quantity demanded of that good increase at each given price c. the price of a good and the quantity demanded at each given price are inversely related d. a consumer delays purchasing a new item because she believes the price will be cut soon e. as the production of a good becomes less costly, the quantity available at each given price level increases 23. If Powerade were a viable substitute for Gatorade, which of the following would be expected to happen in the market for Gatorade if the price of Powerade were cut in half? a. supply of Gatorade would increase, price would increase b. supply of Gatorade would increase, price would decrease c. supply of Gatorade would decrease, price would increase d. supply of Gatorade would decrease, price would decrease e. quantity supplied of Gatorade would decrease, price would decrease 4

24. For economists, anything that is limited is considered a. scarce b. inefficient c. costly d. productive e. unattainable 25. Which of the following is not a factor of production? a. ipad used to store data on sales at a business b. unleaded gasoline c. software used to track shipping progress of goods d. lawyer e. sound equipment used by a band at a sold out concert 26. There is no such thing as a free lunch relates most directly to which of the following economic concepts? a. opportunity costs b. scarcity c. economizing problem d. factors of production e. production possibilities frontier 27. A large stock tank in the middle of a ranch is fed by a creek that has run dry. Which of the following best describes the economic reality of the stock tank? a. The productivity of the rancher s capital will increase b. The productivity of the rancher s capital will decrease c. The productivity of the rancher s land will increase d. The productivity of the rancher s land will decrease e. The productivity of neither the capital nor the land will change 28. The phenomenon where economic wants exceed economics means is a. The economizing problem b. The study of economics c. How prices are determined d. Only occurs in a command economy e. Can be avoided if consumption expands constantly 29. An economy that has an unexpected shift in production capacities due to technological innovation would likely experience which of the following changes? a. Higher full employment rate and outward shift of the PPF b. Higher full employment rate and inward shift of the PPF c. Lower full employment rate and outward shift of the PPF d. Lower full employment rate and inward shift of the PPF e. No change in either full employment rate or the PPF 5

30. What would one expect to happen to the equilibrium quantity and price of good if a complementary good were sold for a cheaper price? a. EQ would increase and EP would increase b. EQ would increase and EP would decrease c. EQ would decrease and EP would increase d. EQ would decrease and EP would decrease e. EQ would decrease and EP would not change 31. When an economy is operating at a level at which unemployment level exceeds the natural rate of unemployment, it is what? a. Communist b. Efficient c. Overextended d. Unattainable e. Inefficient 32. The comment that The unemployment rate should be lower most likely comes from which type of economist? a. Positive economist b. Normative economist c. Microeconomist d. Macroeconomist e. Any economist 33. Assuming floating exchange rates, if Dillonville s economy becomes less attractive relative to its trading partners, Dillonville s imports and exports will most likely change in which of the following ways? a. Imports will decrease and exports will increase b. Imports will decrease and exports will decrease c. Imports will increase and exports will decrease d. Imports will increase and exports will increase e. No change in either imports or exports 34. Of the following, which is not an assumption made when depicting production possibilities frontiers? a. Fixed technology b. Fixed resources c. Fixed exchange rates d. Full employment e. Two goods 6

35. The country of Freedonia introduces an attractive tax concession for foreign investors. Attracted by the tax concession, many United States investors decide to invest in Freedonia. One should expect the international value of Freedonia s currency (the nia) and Freedonia s net exports to change in which of the following ways? a. Nia appreciates and net exports decrease b. Nia appreciates and net exports increase c. Nia depreciates and net exports decrease d. Nia depreciates and net exports increase e. No change 36. In the face of the rapidly declining value of the Euro, which of the following is likely to result in the value of British Pound and British trade AFTER the Central Bank in Europe attempts to decrease the supply of Euros in foreign currency exchange markets? a. Pound appreciates, British exports increase b. Pound appreciates, British exports decrease c. Pound depreciates, British exports increase d. Pound depreciates, British exports decrease e. Pound depreciates, British exports remain fixed 37. If real wages in the United States increased by 15% overnight, what would happen to the equilibrium price and quantity supplied in the market for new BMWs? a. EP increases and quantity supplied increases b. EP increases and quantity supplied decreases c. EP decreases and quantity supplied increases d. EP decreases and quantity supplied decreases e. Income does not affect market equilibria 38. Each of the following is an assumption Economists make about behavior EXCEPT a. actors behave rationally b. actors behave according to selfishness c. ceteris paribus conditions can be applied d. actors, in aggregate, behave in predictable ways e. actors make decisions necessary to satisfy their wants 39. Today, most economic systems in the world can be classified as what? a. market, or price, systems b. command systems c. stable systems d. mixed systems e. closed systems 7

40. Which of the following would be the best tool for analyzing the opportunity costs a society faces in the tradeoff between the production of capital and consumer goods? a. market for labor b. market for capital c. market for land d. market for FOPs e. production possibilities frontier 41. For the country of Huckabaland, the natural rate of unemployment ranges from 14 to 15 %. Which of the following would represent an unattainable full employment level given present FOPs and technology for Huckabaland? a. 0 % b. 6 10 % c. 50 % d. 85 to 86 % e. 99 % 42. After Hurricane Katrina in 2005, government price controls were set to keep water at a very low price so that victims of the hurricane could have access to water. Assuming there is a market for water, what what the likely outcome of this policy, ceteris paribus? a. shortage caused by a price ceiling b. shortage caused by a price floor c. surplus caused by a price ceiling d. surplus caused by a price floor e. a new market equilibrium 43. Students of macroeconomics consider each of the following questions EXCEPT a. What do societies choose to produce? b. How do societies produce the goods and services they make? c. Who consumes goods and services in a society? d. What tradeoffs do societies face in the production of goods and services? e. What causes firms to produce certain goods at certain prices? 44. The Chinese Yuan is purposely manipulated by the Chinese government to keep its relative value to the United States dollar constant. What best describes this policy and its subsequent effect on US China trade? a. floating exchange rate, increased US exports b. floating exchange rate, increased US imports c. fixed exchange rate, increased US exports d. fixed exchange rate, increased US imports e. fixed exchange rate, trade remains fixed 8

45. In the market for GM hybrid automobiles, if the government offers a subsidy to GM for each hybrid automobile it sells, then what should be observed? a. supply increases, price increases b. supply decreases, price increases c. supply increases, price decreases d. supply decreases, price decreases e. supply increases, price remains constant 46. When an economic agent choosing the alternative that best suits his wants he is acting a. selfishly b. self interestedly c. altruistically d. irrationally e. emotionally 47. A pet is an example of a a. service b. capital good c. consumer good d. land e. labor 48. If a society shifts production from consumer goods to make more capital goods, which would be the best tool for analyzing the opportunity costs society would face? a. capital market b. labor market c. land market d. currency exchange market e. production possibilities frontier 9