ECON 102: Module #1 Practice Questions
ECON 102: Module #1 Practice Questions ECON 102
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This 16 page Study Guide was uploaded by Margaret Pressman on Saturday January 23, 2016. The Study Guide belongs to ECON 102 at California State University Chico taught by Ruben Sargsyan in Winter 2016. Since its upload, it has received 105 views. For similar materials see Principles of Macro Analysis in Economcs at California State University Chico.
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Date Created: 01/23/16
Chapter 1 Practice Questions 1) True or False: Exhaust from a factory that increases health risks for people living near the factory is an example of an externality. 2) True or False: The business cycle refers to regular and predictable fluctuations in economic activity 3) True or False: A society faces many decisions, but a household does not. 4) True or False: Public policies aimed at increasing the size of the economic pie also lead to a higher degree of equality. 5) You can stay home and study to do well on your exam or you can go to the movies with your friends, but not both. This example illustrates: a) scarcity and tradeoffs. b) scarcity but not tradeoffs. c) tradeoffs but not scarcity. d) neither tradeoffs nor scarcity. 6) During winter break, Jason considers quitting college to accept a job. Which of the following should he include when calculating the opportunity cost of leaving college to take on a new job? a) the amount of income he can earn from his new job b) the value of the benefits of completing the rest of his college education c) the value of books he has already purchased for next semester d) All of these choices 7) Adam has spent $30 for a taxi ride to attend a Colts game. When he arrives at the stadium, he discovers that he left his ticket at home. He doesn’t have time to return home to get it. He paid $60 for his ticket, but can buy another one for $80. In deciding whether he should buy another ticket, Adam should compare the value he places on attending the game to: a) $30. b) $80. c) $90. d) $170. 8) Trade between countries tends to: a) reduce specialization and can make everyone better off. b) reduce specialization and make everyone worse off. c) raise specialization and can make everyone better off. d) raise specialization but make everyone worse off. 9) Which of the following is the primary determinant of the standard of living? a) labor unions b) productivity c) the amount of labor d) competition from foreign countries 10) High inflation is: a) not associated with high money supply growth rates. An increase in inflation temporarily reduces unemployment. b) not associated with high money supply growth rates. An increase in inflation permanently reduces unemployment. c) associated with high money supply growth rates. An increase in inflation temporarily reduces unemployment. d) associated with high money supply growth rates. An increase in inflation permanently reduces unemployment. 11) Suppose the government taxes the wealthy at a higher rate than it taxes the poor and then develops programs to redistribute the tax revenue from the wealthy to the poor. This redistribution of wealth: a) is more efficient and more equal for society. b) is more efficient but less equal for society. c) is more equal but less efficient for society. d) is less equal and less efficient for society. 12) Efficiency: a) and equality both refer to how much a society can produce with its resources. b) and equality both refer to how fairly the benefits from using resources are distributed between members of a society. c) refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society. d) refers to how evenly the benefits from using resources are distributed between members of society. Equality refers to how much a society can produce with its resources. Chapter 2 Practice Questions 1. Which of the following steps does an economist take when studying the economy? a. develop theories b. collect data c. analyze data d. All of the above are correct. 2. True or False: A production possibilities frontier that illustrates the production of cars and computers shows the opportunity cost of computers measured in terms of cars. 3. True or False: A circular flow diagram shows how dollars flow through financial markets among households and firms. 4. In a circular flow diagram, decisions are made by: a. households and firms. Firms are sellers in the markets for goods and services; households are buyers in the markets for goods and services. b. individuals and government. Individuals are sellers in the markets for goods and services; the government is a buyer in the markets for goods and services. c. households and firms. Firms are buyers in the markets for goods and services; households are sellers in the markets for goods and services. d. individuals and government. Individuals are buyers in the markets for goods and services; the government is a seller in the markets for goods and services. 5. Which of the following examples does not correctly describe the movement of $10 through a circular flow diagram? a. A firm sells a hat for $10. The firm uses the $10 to hire another employee. The employee uses $10 of her wages to pay her cell phone bill. b. An individual works for a firm for $10 per hour editing textbooks. The firm sells a textbook to a consumer. c. An individual buys one share of stock for $10. The firm that sold the stock uses the $10 to pay back interest on a loan from the U.S. government’s Small Business Administration (SBA). The SBA uses the $10 to pay one of its employees. d. A consumer buys a gourmet sandwich for $10. The owner of the sandwich shop uses the $10 to pay one of her employees. The employee uses $10 of his wages to purchase a book. 6. On this production possibilities graph below, which points are efficient? a. A, B, and D only b. C, F, and G only c. E only d. A, B, F, and G only A B C D E T-Ws 0 10 20 30 40 Boxers 70 60 45 25 0 7. Refer to above table which shows various production possibilities between “tighty-whities” and boxers. What is the opportunity cost of increasing the production of T-W’s from 0 to 10? a. 25 boxers b. 10 boxers c. 10 T-W’s d. 25 T-W’s 8. In the figure below, assume the economy is producing at point D; then a technological innovation is discovered that reduces the production costs of pizza. As a result, the economy would be able to produce more: a. CDs only. b. pizzas only. c. more CDs and more pizzas. d. more CDs or more pizzas but not more of both. 9. For the production possibilities frontier below, identify which of the following statements is incorrect: a. production points A and B are efficient b. production points D and E are efficient c. production points F and G are unattainable d. production point E is inefficient 10. On a production possibilities frontier showing military goods and consumer goods, which of the following is most likely to cause an inward shift of the PPF? a. destruction of economic resources because of war b. a decrease in society’s preferences for military goods relative to consumer goods c. a decrease in society’s preferences for consumer goods relative to military d. technological advances in the aerospace industry 11. As we move to the right on a bowed outward production possibilities frontier, we see: a. increasing labor productivity b. decreasing labor productivity c. increasing opportunity cost d. decreasing opportunity cost 12. Which of the following illustrates a positive statement followed by a normative statement? a. The government should raise the minimum wage. Minimum- wage laws cause teenage unemployment. b. More people in the United States should vote in the next Presidential election. Non-U.S. citizens should be allowed to vote in U.S. Presidential elections. c. The Earned Income Tax Credit benefits the working poor. The government should expand the Earned Income Tax Credit. d. Temporary tariffs protect domestic steel producers. Import quotas protect domestic farmers. Chapter 4 Practice Questions 1. True or False: Changes in the price of cake cause the demand curve for cake to shift, whereas changes in income cause a movement along the demand curve for cake. 2. True or False: A movement along the downward-sloping demand curve for frozen yogurt can be caused by a change in weather. 3. True or False: If demand decreases, both the equilibrium price and quantity increase. 4. A market is a a. series of equilibrium prices for a particular good or service. b. series of equilibrium quantities for a particular good or service. c. group of buyers and sellers of a particular good or service. d. graph of the relationship between the price and quantity of a particular good or service. 5. Which of the following would not cause the demand curve for peaches to shift? a. an increase in the price of apricots b. a decrease in the price of nectarines c. an increase in the price of peaches d. a decrease in the income of peach buyers 6. Which of the following is an example of the law of demand? a. A technological innovation enables ABC Medical Company to produce more blood-sugar meters at every price. b. When the price of bagels rises, Bloomington Bagel Company is willing to sell more bagels. c. As the temperature rises, consumers purchase more lemonade. d. When tuition at public universities rises, fewer students enroll in courses at public universities 7. In 1971 a pocket calculator cost more than $75. In 2005 a calculator of the same quality cost less than $10. Which of the following explanations is most consistent with these facts? a. an increase in the demand for calculators b. a change in technology c. an increase in income, given that calculators are a normal good d. a decrease in supply 8. The graph above illustrates the market for fine wine. If the current price is $50 per bottle, we expect the: a. price to decrease due to the surplus of wine. b. price to increase due to the shortage of wine. c. supply to shift left until the equilibrium price is $50. d. demand to shift left until the equilibrium price is $50. 9. The graph above illustrates the market for gluten free chocolate cake. If the current price is $30 per cake, we expect the: a. price to decrease due to the surplus of cake. b. price to increase due to the shortage of cake. c. supply to shift right until the equilibrium price is $30. d. demand to shift left until the equilibrium price is $30. 10. An advance in technology would shift the: a. supply curve to the right. b. supply curve to the left. c. demand curve to the right. d. demand curve to the left. 11. In the market for American-made automobiles, an increase in the unionized workers wages would: a. decrease both the equilibrium price and quantity. b. increase both the equilibrium price and quantity. c. decrease the equilibrium price and increase the equilibrium quantity. d. increase the equilibrium price and decrease the equilibrium quantity. 12. Which of the following would shift the supply curve of iPads? a. an increase in wages paid to workers making the iPads b. more advertising for iPads c. an increase in the price of iPads d. All of the above would shift the supply curve of iPads 13. Suppose that cold temperatures cause a decrease in the supply of tea. All other things the same, what should happen in the market for coffee? a. The equilibrium price will increase, and the equilibrium quantity will decrease. b. The equilibrium price will decrease, and the equilibrium quantity will increase. c. Both the equilibrium price and quantity will increase. d. Both the equilibrium price and quantity will decrease. Chapter 10 Practice Questions 1. True or False: In the national income accounts GDP can be measured as production, income, or expenditures. 2. True or False: If the GDP deflator were 150 this year and 142 last year, then the inflation rate would be computed as ((150- 142)/150) x 100. 3. Which of the following would not be included in U.S. GDP? a. both the value of a paper clip and the metal used to produce it b. pharmaceuticals produced in the U.S. but sold overseas c. a pizza a family orders for home delivery d. the cost of a city’s provision of police service 4. Which of the following is included in U.S. GDP? a. meals served by a restaurant located in Canada but owned by an American citizen b. the estimated rental value of owner-occupied housing c. social security payments d. unpaid household work 5. Which of the following is included in the investment category of GDP? a. newly produced capital equipment b. inventory accumulation c. new residential construction d. All of these are included. 6. Eric is purchasing her first house today. The house was build this year, and Eric is the first one to purchase this house. The $310,000 Eric spends to buy his new house are counted as part of: I. this year’s GDP II. this year’s consumption spending III. this year’s investment IV. this year’s government purchases a. I and II b. I and III c. II and IV d. II and IV 7. The following table contains information about an economy that produces only rice and beans. The base year is 2011. Using the table above, what is the value of nominal GDP for 2012? Year Price of Rice Quantity of Price of Beans Quantity of Beans Rice 2011 $2 100 $5 50 2012 $2 120 $6 70 2013 $3 120 $8 70 a. $590 b. $660 c. $760 d. $920 8. A U.S. household buys a $100 pair of shoes from Denmark. Which of the following increases by $100? a. U.S. imports but not U.S. consumption b. U.S. exports but not U.S. consumption c. U.S. consumption and U.S imports d. U.S. consumption and U.S. exports 9. The following table contains information about an economy that produces only rice and beans. The base year is 2011. Using the table above, what is the value of real GDP for 2013? a. $590 b. $660 c. $665 d. $920 10. If economists want to gauge economic well being it is appropriate to look at: a. nominal GDP. If they want to look at economic growth it is also appropriate to look at nominal GDP. b. nominal GDP. If they want to look at economic growth it is appropriate to look at real GDP. c. real GDP. If they want to look at economic growth it is appropriate to look at nominal GDP. d. real GDP. If they want to look at economic growth it is also appropriate to look at real GDP. 11. If real GDP is $14 trillion dollars and nominal GDP is $16 trillion what is the GDP deflator? a. 100x($14 trillion/$16 trillion) b. $14 trillion/$16 trillion c. 100x($16 trillion/$14 trillion) d. $16 trillion/$14 trillion 12. If real GDP is $2,200 billion, the GDP deflator is 110, nominal net exports are $100 billion, nominal investment is $200 billion, and nominal government expenditures are $400 billion, what is nominal consumption? a. $1300 b. $1500 c. $1520 d. $1720 13. For an economy with $3 billion government purchases, $1 billion exports, $11 billion consumption spending, $1 billion imports, and $2 billion investment, the GDP is: a. $12 billion b. $14 billion c. $16 billion d. $17 billion
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