ECO 212 Final Exam 1
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Date Created: 11/11/15
1) According to economics, what causes us to have to make choices? A. unlimited resources. B. unemployment. C. scarcity. D. greed. 2) Why do consumers have to make tradeoffs in deciding what to consume? A. there are not enough of all goods produced. B. the prices of goods vary. C. not all goods give them the same amount of satisfaction. D. they are limited by a budget constraint. 3) What is the term in economics by which a group of buyers and sellers of a product come together to trade? A. tradeoff B. cooperative C. collective D. market 4) Which of the following is not a critical function of the government in facilitating the operation of a market economy? A. enforcing contracts. B. enforcing property rights. C. protecting private property. D. ensuring an equal distribution of income to all citizens. 5) Which of the following statements describes the actions of producers in the circular flow model? A. spend earnings from resource sales on goods and services in the product market. B. hire resources sold by households in the factor market. C. sell goods and services in the input market. D. and households spend earnings from resource sales on goods and services in the factor market. 6) Which of the following is an example of spending on goods and services in the circular flow model? A. Timmy purchases a new examination table for use in his veterinary clinic. B. Celeste buys fresh herbs at the farmers' market to use in her restaurant. C. Belinda purchases a new computer for her taxpreparation business. D. Javier buys 800 square feet of wood flooring for his vacation home. 7) If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is A. relatively elastic. B. relatively inelastic. C. unitelastic. D. perfectly elastic. 8) If demand is inelastic, the absolute value of the price elasticity of demand is A. greater than the absolute value of the slope of the demand curve. B. greater than one. C. one. D. less than one. 9) Economists in general A. Incorporate tastes into economic models only to the extent that tastes determine whether pairs of goods are substitutes or complements. B. Do not try to explain people's tastes, but they do try to explain what happens when tastes change. C. Believe that they must be able to explain people's tastes in order to explain what happens when tastes change. D. Do not believe that people's tastes determine demand and therefore they ignore the subject of tastes. 10) Which of the following is evidence of a surplus of bananas? A. The quantity demanded of bananas is greater than the quantity supplied. B. Firms raise the price of bananas. C. The price of bananas is lowered in order to increase sales. D. The equilibrium price of bananas rises due to an increase in demand. 11) At a product's equilibrium price A. the product's demand curve crosses the product's supply curve. B. the product's demand curve is the same as the product's supply curve. C. the quantity of the product demanded is greater than the quantity of the product supplied. D. the quantity of the product demanded is less than the quantity of the product supplied. 12) If, for a product, the quantity supplied exceeds the quantity demanded, the market price will fall until A. quantity demanded equals quantity supplied. The market price will then equal the equilibrium price. B. the quantity demanded exceeds the quantity supplied. The market will then be in equilibrium. C. quantity demanded equals quantity supplied. The equilibrium price will then be lower than the market price. D. all consumers will be able to afford the product. 13) Marginal revenue product for a perfectly competitive seller is equal to A. the marginal cost of production. B. the output price multiplied by the total product of labor. C. the output price multiplied by the number workers hired. D. the change in total revenue that results from hiring another worker. 14) At low wages, the labor supply curve for most people slopes upward because A. the demand for labor is perfectly elastic at low wages. B. as wages increase the opportunity cost of leisure increases. C. the supply of labor is perfectly inelastic at low wages. D. as wages increase income also increases unless hours worked decrease. 15) Firms use information on labor's marginal revenue product to determine A. how much labor services to supply at each wage rate. B. how many workers to hire at each wage rate. C. how much to produce at each output price. D. how much marginal product to produce at each wage rate. 16) How will an increase in population affect the labor market? A. It will increase the opportunity cost of leisure. B. It will cause a decrease in the quantity of labor demanded. C. It will shift the market supply curve. D. It will increase the supply of jobs. 17) A firm's demand for labor curve is also called its A. marginal benefit of labor curve. B. marginal factor cost of labor curve. C. marginal revenue product of labor curve. D. marginal valuation curve. 18) An individual's labor supply curve shows A. the relationship between the quantity of hours worked and total income earned by that individual. B. the relationship between wages and the quantity of labor that she is willing to supply. C. the maximum wage rates offered to that individual by various potential employers. D. the relationship between wages and the quantity of labor that a firm is willing to employ. 19) Which of the following is an example of a quasipublic good? A. crime prevention B. stock of knowledge in the public domain C. organic apples D. cable television 20) Private costs A. are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good. B. are borne by producers of a good while social costs are borne by society at large. C. are borne by consumers of a good while social costs are borne by government. D. are borne by producers of a good while social costs are borne by government. 21) Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption? A. common resources B. quasipublic goods C. private goods D. public goods 22) A monopoly is a seller of a product A. without a welldefined demand curve. B. with a perfectly inelastic demand. C. without a close substitute. D. with many substitutes. 23) One reason why the coffeehouse market is competitive is that A. consumption takes place in public. B. barriers to entry are low. C. it is trendy and therefore is likely to have a customer following. D. demand for specialty coffee is very high. 24) A characteristic found only in oligopolies is A. break even level of profits. B. interdependence of firms. C. products that are slightly different. D. independence of firms. 25) Gross domestic product understates the total production of final goods and services because of the omission of A. the underground economy. B. intermediate goods. C. exports. D. inflation. 26) Which of the following would be directly counted in GDP in 2010? A. kitchen cabinets purchased from Home Depot in 2010 to be installed in a house built in 1997 B. kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a brand new countrystyle home C. kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a farm house built in 1950 D. none of the these 27) Gross domestic product is calculated by summing up A. the total quantity of goods and services in the economy. B. the total quantity of goods and services produced in the economy during a period of time. C. the total market value of final goods and services produced in the economy during a period of time. D. the total market value of goods and services in the economy. 28) Which of the following would be classified as fiscal policy? A. The federal government passes tax cuts to encourage firms to reduce air pollution. B. The Federal Reserve cuts interest rates to stimulate the economy. C. The federal government cuts taxes to stimulate the economy. D. A state government cuts taxes to help the economy of the state. 29) Which of the following does not reflect the state of the tax system in the United States today? A. The tax laws have become increasingly simplified as private citizens have demanded these changes. B. The tax laws are used to achieve social policy goals such as energy conservation. C. Many taxpayers use software or professional tax preparation companies to file their income taxes. D. The tax laws are used to achieve macroeconomic goals of high employment and economic growth. 30) Which of the following is an objective of fiscal policy? A. energy independence from Middle East oil B. discovering a cure for AIDs C. high rates of economic growth D. health care coverage for all Americans 31) In economics, money is defined as A. the total value of one's assets in current prices. B. the total amount of salary, interest, and rental income earned during a year. C. any asset people generally accept in exchange for goods and services. D. the total value of one's assets minus the total value of one's debts, in current prices. 32) Which of the following assets is most liquid? A. money B. savings account C. stock D. bond 33) Dollar bills in the modern economy serve as money because A. they are backed by the gold stored in Fort Knox. B. they have value as a commodity independent of their use as money. C. people have confidence that others will accept them as money. D. they can be redeemed for gold by the central bank. 34) The M2 measure of the money supply equals A. savings account balances plus smalldenomination time deposits plus traveler's checks. B. M1 plus savings account balances plus smalldenomination time deposits. C. M1 plus savings account balances plus smalldenomination time deposits plus noninstitutional money market fund shares. D. savings account balances plus smalldenomination time deposits plus noninstitutional money market fund shares. 35) The M1 measure of the money supply equals A. paper money plus coins in circulation. B. currency plus checking account balances plus traveler's checks plus savings account balances. C. currency plus checking account balances. D. currency plus checking account balances plus traveler's checks. 36) Which of the following is one of the most important benefits of money in an economy? A. Money allows for the exchange of goods and services. B. Money encourages people to produce all of their own goods (selfsufficiency) and therefore increases economic stability. C. Money allows for the accumulation of wealth. D. Money makes exchange easier, leading to more specialization and higher productivity. 37) If the central bank can act as a lender of last resort during a banking panic, banks can A. call in their loans to their customers and eventually restore the public's faith in the banking system. B. encourage the public to borrow directly from the central bank, and this will worsen the banking panic. C. satisfy customer withdrawal needs and eventually restore the public's faith in the banking system. D. borrow more and more money from the central bank, and this will lower its reserves and decrease the public's faith in the banking system. 38) Which of the following determines the amount of money the banking system as a whole can create? A. the quantity of bank reserves B. the quantity of vault cash held by banks C. the gold reserves held by the Federal Reserve D. the limit on profits by banks imposed by the U.S. Congress 39) To increase the money supply, the Federal Reserve could A. raise the discount rate. B. lower transfer payments. C. decrease income taxes. D. conduct an open market purchase of Treasury securities. E. raise the required reserve ratio. 40) Monetary policy refers to the actions the A. President and Congress take to manage the money supply and interest rates to pursue their economic objectives. B. Federal Reserve takes to manage government spending and taxes to pursue its economic objectives. C. Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives. D. President and Congress take to manage government spending and taxes to pursue their economic objectives. 41) The Federal Reserve System's four monetary policy goals are A. low government budget deficits, low current account deficits, high employment, and a high foreign exchange value of the dollar. B. low rate of bank failures, high reserve ratios, price stability, and economic growth. C. price stability, high employment, economic growth, and stability of financial markets and institutions. D. price stability, low government budget deficits, low current account deficits, and low rate of bank failures. 42) The goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of ________, it also can achieve the goal of ________ simultaneously. A. high employment; economic growth B. high employment; lowering government spending C. economic growth; a low current account deficit D. stability of financial markets; a low current account deficit 43) Table 23 Serena Haley Bracelets 8 9 Necklaces 16 12 Refer to Table 23. Which of the following statements is true? A. Haley has an absolute advantage in making both products. B. Serena has an absolute advantage in making both products. C. Haley has an absolute advantage in making bracelets and Serena in making necklaces. D. Haley has an absolute advantage in making necklaces and Serena in making bracelets. 44) Specializing in the production of a good or service in which one has a comparative advantage enables a country to do all of the following except A. engage in mutually beneficial trade with other nations. B. increase the variety of products that it can consume with no increase in resources. C. consume a combination of goods that lies outside its own production possibilities frontier. D. produce a combination of goods that lies outside its own production possibilities frontier. 45) Table 23 Serena Haley Bracelets 8 9 Necklaces 16 12 Refer to Table 23. What is Haley's opportunity cost of making a bracelet? A. 3/4 of a bracelet B. 1 1/3 necklaces C. 3 bracelets D. 2 necklaces 46) Currency traders expect the value of the dollar to fall. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market? A. Demand for dollars will increase, and supply of dollars will decrease. B. Demand for dollars will decrease, and supply of dollars will increase. C. Demand for dollars will increase, and supply of dollars will increase. D. Demand for dollars will decrease, and supply of dollars will decrease. 47) How does an increase in a country's exchange rate affect its balance of trade? A. An increase in the exchange rate raises imports, reduces exports, and reduces the balance of trade. B. An increase in the exchange rate reduces imports, raises exports, and increases the balance of trade. C. An increase in the exchange rate reduces imports, raises exports, and reduces the balance of trade. D. An increase in the exchange rate raises imports, reduces exports, and increases the balance of trade. 48) If there is currently a surplus of dollars, which of the following would you expect to see in the foreign exchange market? A. The dollar will appreciate. B. There will be a decrease in the demand for dollars. C. The dollar will depreciate. D. There will be a decrease in the supply of dollars. 49) Destabilizing speculation refers to A. actions taken by the International Monetary Fund that increase lending to countries who have pegged their currencies against the dollar. B. actions taken by investors who sell a country's currency in anticipation of buying it back later at a lower price. C. actions taken by currency traders to sell a currency that is undervalued. D. any depreciation of a country's currency as a result of longrun adjustments to purchasing power parity. 50) The gold standard is an example of A. a managed float exchange rate system. B. a flexible exchange rate system. C. a floating exchange rate system. D. a fixed exchange rate system. 51) You decide to work in Japan for the next 10 years, accumulate some savings, then move back to the United States and convert your savings from yen to dollars. At the time of your move, economists predict that consumers in the United States have reignited their love of Japanese products, especially hybrid cars, and expect that this strong preference for Japanese products will continue for the next decade. How should this influence your decision to work and save in Japan? A. You should be discouraged as the growing U.S. preference for Japanese goods should decrease the value of the yen to the dollar and decrease the value of your savings when converted to dollars. B. You should be encouraged as the growing U.S. preference for Japanese goods should increase the value of the yen to the dollar and raise the value of your savings when converted to dollars. C. You should be discouraged as the growing U.S. preference for Japanese goods should increase the value of the yen to the dollar and decrease the value of your savings when converted to dollars. D. You should be encouraged as the growing U.S. preference for Japanese goods should decrease the value of the yen to the dollar and raise the value of your savings when converted to dollars. 52) China has been accused of deliberately undervaluing its currency, the yuan, in order to A. increase its imports. B. maintain purchasing power parity. C. increase its exports. D. prevent deflation. 53) If interest rates in the United States rise, A. the value of the dollar will rise as the foreign investors increase their holdings of U.S. investments. B. the value of the dollar will rise as foreign investors sell their U.S. investments. C. the value of the dollar will fall as foreign investors sell their U.S. investments. D. the value of the dollar will fall as foreign investors increase their holdings of U.S. investments. 54) The three most important international financial centers today are A. London, Tokyo, and Beijing. B. Tokyo, London, and New York. C. New York, Los Angeles, and London. D. San Francisco, Paris, and Mexico City.
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