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ECO
204 --Test # 1
This is the first test that was given in January, 2006.
True-False. Use “A” for true and “B”
for false.
1. The major types of productive resources are land, labor,
capital and money.
2. In the United States, the richest twenty percent of
households receive almost one half of the nation’s
total income.
3. An increase in the demand for personal computers, ceteris
paribus, will lower the equilibrium price of
computers and increase the equilibrium
quantity.
4. A public good involves joint consumption.
5. In measuring gross domestic product, government includes
the value of all nonmarket activities, e.g.
the services of a homemaker.
6. The underground economy is defined as all unreported
income.
7. Compared to 1950, there is presently a smaller proportion
of males in the labor force and a larger
proportion of females.
8. Frictional unemployment occurs when those seeking
employment do not have the skills for
available jobs.
9. Inflation is defined as the average rate of increase in all
prices.
10. Inflation harms creditors and benefits debtors.
Multiple choice. Select the letter of the best response.
11. Which of the following is correct?
A. In most economies, capital and labor are
scarce while land is not scarce.
B. Economics may be defined as the study of
allocating scarce resources among unlimited wants.
C. In affluent economies, scarcity of
resources does not exist.
D. Normative economics involves statements
of facts that can be scientifically proven.
12. Which of the following is true regarding a production possibilities
curve?
A. Points inside the curve are attainable
but not desirable.
B. Points outside the curve are not
attainable until an economy experiences economic growth.
C. It is shaped the way it is because of
the law of increasing opportunity cost.
D. all of the above
E. none of the above
13. Opportunity cost
A. is a value added concept.
B. is always measured in dollars because
you can’t add together oranges and concerts.
C. is zero if an economy is operating
inside its production possibilities curve.
D. decreases as more of a particular good
or service is acquired.
14. A newspaper editorial telling what should be done to reduce
unemployment is an example of
A. positive economics.
D. normative economics.
B. pure economics.
E. negative economics.
C. abstract economics.
15. In the United States,
A. Gross domestic product (GDP) per capita
is among the highest in the world.
B. GDP has grown more slowly than
population in recent years.
C. per capita GDP is a good measure of a
society’s quality of life.
D. total output is over fifty percent of
the world’s total output.
E. A and D above
16. Among the explanations for economic growth in the United States in the
past century is
A. an increase in labor productivity.
B. increases in government transfer
payments.
C. that we have achieved greater equality
in the distribution of income.
D. that the supply curves for most goods
and services have shifted to the left.
E. all of the above
17. As a percentage of total output, compared to 1900, the U. S. currently
A. produces more services, more
agricultural goods, and fewer government purchases.
B. produces more manufactured goods and
fewer government purchases.
C. produces more services, fewer
agricultural goods, and more government purchases.
D. produces a larger proportion of all
categories of goods and services.
E. none of the above
18. According to the law of demand, ceteris paribus, the quantity demanded
in a given time period
A. increase as its price rises.
C. increases as its price falls.
B. decreases as its price falls.
D. both A and B above
19. If the supply of a good increases and, at the same time, demand
decreases,
A. equilibrium price will fall and
equilibrium quantity will increase.
B. equilibrium price will increase and
equilibrium quantity will fall.
C. equilibrium price will fall, but the
effect on quantity cannot be determined.
D. equilibrium quantity will increase, but the
effect on price cannot be determined.
20. When half of the consumers in a small town move away, the markets for
many goods and
services will experience a
A. lower equilibrium price and a higher
equilibrium quantity.
B. lower equilibrium price and a lower
equilibrium quantity.
C. higher equilibrium price and a higher
equilibrium quantity.
D. higher equilibrium price and a lower
equilibrium quantity.
21. When price floors (or price supports) are set for a given item,
A. quantity supplied and price will both be
higher than at equilibrium.
B. quantity supplied will be less than at
equilibrium and price will be greater than at equilibrium.
C. quantity supplied will be greater and
price will be less than at equilibrium.
D. quantity supplied and price will both be
lower than at equilibrium.
22. Which of the following is not a result of a price ceiling which keeps
price below equilibrium?
A. Quality of the product often decreases
B. A shortage results.
C. A “black market” develops.
D. Suppliers increase production.
E. none of the above
23. Other things equal, minimum wage legislation results in
A. decreased unemployment in the economy.
B. increased unemployment in the economy.
C. higher wages for all workers.
D. lower wages for all workers.
E. both B and C
24. Which of the following is the best example of a public good?
A. the post office
D. flood control
B. electric power
E. none of the above
C. air pollution
25. Which of the following is correct?
A. Externalities refer to government
intervention in international markets.
B. Government is not empowered to do
anything to preserve competition.
C. Although there is general agreement as
to government’s economic functions, there is
a lot of
disagreement as to how and how much government should intervene.
D. One objective of macroeconomic policy is
to ensure that the economy operates inside
its production
possibilities curve.
26. In the United States,
A. the federal government spends more than
state and local governments.
B. total government spending (federal,
state and local) is over 50 percent of GDP.
C. total government purchases of goods and
services is about 19 percent of GDP but,
if transfer
payments are included in government spending, the total is about 30 percent of
GDP.
D. state and local government spending is
greater than federal government spending.
E. both C and D above
27. Which of the following is correct about government spending in the United
States?
A. The largest category of federal
expenditure is for national defense.
B. The largest category of federal
expenditure is for health care.
C. Most government spending is
discretionary, not mandatory.
D. State and local governments spend very
little on education or welfare.
E. none of the above
28. The federal personal income tax is
A. the second largest single source of
revenue for the federal government.
B. progressive, but not as progressive as
it was in the 1960s.
C. much more progressive than it was in the
1960s.
D. currently levied on individuals’ total
income, regardless of how it is was earned or how it is spent.
29. The federal corporate income tax
A. involves double taxation, since
dividends are also subject to the individual income tax.
B. often forces firms to make decisions
based on tax consequences rather than on economic
consequences.
C. it the biggest source of revenue for the
federal government.
D. both A and B above
E. both B and C above
30. GDP can be found by
A. adding up the spending on goods and
services by business, government, households,
and net exports.
B. adding up the value added at every stage
of production in the economy.
C. adding up the final value of all goods
and services produced in the economy.
D. all of the above
E. A and C above
31. Which of the following is not included in GDP?
A. depreciation expenses by business firms
B. wages paid to a steel worker
C. the full value of a ton of steel sold to
an automobile manufacturer
D. rent payment for a used car dealership
E. both C and D
32. The value of goods that have been produced but not sold during a given
time period
A. decreases GDP by preventing resources
from being used in their best alternative use.
B. increases government stockpiles but
leaves GDP unchanged
C. increases business inventories and
increases GDP for the period
D. decreases business investment and
decreases GDP for the period.
33. The investment component of GDP
A. excludes depreciation.
B. includes only gross private domestic
investment.
C. includes both public and private
investment.
D. is larger than any of the other GDP
components.
34. If the price level was 1.0 in 2004 and 1.2 in 2005, and if nominal GDP
was $600 in 2004
and $700 in 2005, then real income in 2005 was
A. $500.
D. $840.
B. $583.
E. none of the above
C. $720.
35. When an individual makes repairs to his or her own home instead of
hiring a company
to make the repairs, the activity is
A. included in GDP because it represents
production.
B. excluded from GDP because it is a
nonmarket activity.
C. excluded from GDP because it is an
intermediate good.
D. excluded from GDP but included in
disposable personal income.
36. Disposable personal income is
A. GDP plus net domestic product.
B. national income minus personal taxes.
C. personal income plus transfer payments.
D. net domestic product plus transfer
payments.
E. none of the above
37. Real GDP per capita
A. is the best measure of a society’s
social welfare.
B. is not an adequate measure of a
society’s economic welfare.
C. is not an adequate measure of a
society’s quality of life.
D. cannot be used to make comparisons over
time.
38. Who among the following would be counted among the unemployed?
A. someone who is on vacation, but will
return to his or her job
B. someone who is on strike
C. an unpaid employee of a family farm
D. someone who works ten hours per week but
would rather work forty hours per week
E. none of the above
39. Suppose that in a population of 200 million persons, 100 million are
in the labor force
and 93 million are employed. The unemployment
rate is
A. 93.0 percent.
D. 3.5 percent.
B. 7.0 percent.
E. not enough information to answer
C. 50.0 percent.
40. “Discouraged workers”
A. are defined as workers who are unhappy
in their jobs.
B. are counted as part of total
unemployment.
C. are not actively seeking employment,
although they desire to be employed.
D. are part of the labor force.
E. all of the above
41. A recent medical school graduate is currently unemployed but is
searching for a place to
begin her practice. This is best regarded
as an example of
A. structural unemployment.
B. cyclical unemployment.
C. frictional unemployment.
D. seasonal unemployment.
E. none of the above
42. Who are the “phantom” unemployed?
A. people who report that they are actively
seeking a job, even though they have little or
no intention of
finding one.
B. people who want a job, but aren’t
looking because they don’t expect to find one.
C. people who lack the skills to be
employed.
D. workers with very high rates of
absenteeism.
43. The effects of an increase in the unemployment rate include
A. a shift inward (to the left) of the
production possibilities curve.
B. a shift outward (to the right) of the
production possibilities curve.
C. possible increases in crime.
D. an increase in output as employers
substitute capital for labor.
E. A and C above
44. Inflation occurs when
A. some prices are rising and some prices
are falling.
B. both relative prices and average prices
are rising.
C. average prices are rising, but it is not
certain what is happening to relative prices.
D. relative prices are rising, but it is
not certain what is happening to average prices.
45. If the number of dollars you receive every year is the same, but
average prices are
rising, then
A. your nominal income rises and your real
income rises.
B. your nominal income rises but your real
income falls.
C. your nominal income falls but your real
income rises.
D. your nominal income stays the same but
your real income falls.
E. your nominal income stays the same but
your real income rises.
46. Which of the following best describes the effects of inflation?
A. If a household purchases things whose
prices have risen rapidly, they will suffer
from inflation.
B. If a household’s nominal income rises
faster than inflation, that household will
gain from
inflation.
C. Inflation acts like a regressive tax.
D. all of the above
E. none of the above
47. Changes in relative prices may occur in a period of
A. a stable price index.
D. all of the above
B. inflation.
E. none of the above
C. deflation.
48. If, at the beginning of 2005, the consumer price index was 148.2 and
at the end of 2005
it was 152.4, what was the inflation rate during
2005?
A. 4.2 percent
C. 2.8 percent
B. 6.1 percent
D. 3.9 percent
Questions 49 and 50 refer to the following table which provides information
needed to
construct a consumer price index for 2005. (Extra columns are included for you
to use
however you wish in answering the next two questions.)
|
Item |
Quantity
purchased |
Price in 2005 |
|
|
|
|
A |
15 |
$3.00 |
|
|
|
|
B |
20 |
$4.00 |
|
|
|
|
C |
10 |
$7.00 |
|
|
|
|
D |
10 |
$9.00 |
|
|
|
49. Assuming 2005 is the base year, which of the following is correct
about the data for 2005?
A. The average price of the four goods is
$5.75.
B. The average price of the four goods is
$5.18, and the price index is 55.
C. The average price of the four goods is
$5.18, and the price index is 100.
D. The average price is $6.50, but the
price index cannot be determined.
E. none of the above
50. Suppose that in 2006, each of the items’ price increases by $2.00.
What will the price index be
in 2006 (rounded to the nearest whole number)?
A. 50
D. 426
B. 72
E. none of the above
C. 139
ANSWERS
1. B
2. A
3. B
4. A
5. B
6. A
7. A
8. B
9. A
10. A
11. B
12. D
13. C
14. D
15. A
16. A
17. C
18. C
19. C
20. B
21. A
22. D
23. B
24. D
25. C
26. E
27. E
28. B
29. D
30. D
31. C
32. C
33. B
34. B
35. B
36. E
37. C
38. E
39. B
40. C
41. C
42. A
43. C
44. C
45. D
46. D
47. D
48. C
49. C
50. C
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