JOHN RAPP
This is the final exam given in December, 1999. It consists of the fifty questions from the last part of the course. If you have a hard copy of last year's test, you will see it also has twenty five questions from the first three parts of the course. That is not happening this year. When I started the quizzes, I decided not to have a comprehensive section on the final. I assume that all you will be happy about that!!
True-False. Circle "A" for true and "B" for false.
1. One reason why the labor supply curve slopes upward is because, as the wage rate rises, people substitute work for leisure.
2. An increase in labor supply, ceteris paribus, leads to higher wages and a larger volume of employment.
3. In a perfectly competitive labor market, neither employers nor employees have any market power.
4. One general effect of labor unions is that they widen wage differentials between unionized and nonunionized labor markets.
5. The reason why the interest rate on a government bond is lower than the interest rate for a car loan is because the government bond involves less risk.
6. Most federal taxes are based on the benefits theory of taxation, while most state and local taxes are based on the ability to pay theory of taxation.
7. One reason why some wealthy tax payers don’t pay high federal income taxes is because much of their income is derived from tax free municipal bonds.
8. State sales taxes are progressive with respect to income, while local property taxes are regressive.
9. If the nation’s income becomes more equally distributed, the Lorenz curve will shift outward to the right.
10. One problem with financing higher education through a loan program is that it would discriminate against students from low income households.
Multiple choice. Circle the letter of the best response.
11. The marginal revenue product of labor is the extra revenue generated by
A. selling an additional unit of output.
B. raising the price by one unit.
C. hiring one additional laborer.
D. price discrimination.
12. Assuming competitive product and labor markets, a firm will hire labor until the marginal revenue product of labor equals
A. the firm’s marginal revenue. D. the wage rate.
B. the firm’s marginal cost. E. none of the above
C. the firm’s average cost.
13. A new technology
that raises the marginal revenue product of labor
A. reduces both the wage rate and the quantity of labor demanded.
B. reduces the wage rate and increases the quantity of labor demanded.
C. increases the wage rate and reduces the quantity of labor demanded.
D. increases both the wage rate and the quantity of labor demanded.
14. Suppose as a firm
increases the quantity of labor it uses from 2 laborers to 3 laborers, the firm’s
total output increases from 20 to 25 units. If the price of the output is $2 per
unit, the marginal revenue product of the third laborer is
A. $1. D. $10.
B. $2. E. none of the above
C. $5.
15. What does it mean to say that the demand for labor is a
"derived" demand?
A. The demand for labor is derived from a business firm’s investment in physical capital.
B. The demand for labor is derived from the demand for the final output the firm produces.
C. The demand for labor is derived from the demand from other inputs.
D. The demand for labor is derived from the available supply of labor.
16. Suppose the wage rate for a semi-skilled laborer increases from $10 per hour in 1998 to $11 per hour in 1999. Also suppose the price index increases from 1.0 in 1998 to 1.1 in 1999. The laborer’s real wage rate in 1999 is
A. $9.00. D. $11.00.
B. $10.00. E. can’t be determined from the data given
C. $10.10.
17. Which of the following is correct?
A. Only labor productivity can influence wage rates.
B. Seniority and non-monetary factors are the most important determinants of wage rates.
C. Opportunity wage–the highest wage someone could earn in his or her best alternative–can explain wages where productivity is not easily measured.
D. Economic theory cannot explain wage rates for highly paid professionals–e.g. physicians or major league ball players.
18. Which of the following is not correct?
A. The effects of sexual or racial discrimination on wages are easily measured by economists.
B. If a black female investment advisor charges less than a white male investment advisor, some people will go to the black female advisor even if they are prejudiced–because the price she charges is lower.
C. Part of the reason why white males earn more than white females is because of human capital differences.
D. It is generally agreed that discrimination (or prejudice) explains some of the differences in earnings among various ethnic and gender groups.
19. In the United States,
A. the percentage of the labor force belonging to labor unions has declined in the past fifty years.
B. most unionized industries operate in "closed" shops (or "union" shops).
C. the AFL-CIO bargains directly with large firms, e.g. automobile producers.
D. industrial unions are workers with the same skills.
20. Craft labor unions
A. involve workers employed by the same firm.
B. try to achieve higher wages by restricting the supply of labor.
C. use the strike threat to obtain higher wages.
D. are often the target of antitrust suits by the justice department.
21. Industrial labor unions
A. typically result in a wage rate about the same wage rate as the competitive wage.
B. typically try to increase the wage rate by raising labor productivity.
C. try to decrease the demand for the product they produce so as to increase the wage rate.
D. often use the strike threat as a way of producing an increased wage rate.
22. Which of the following best describes the effect of labor unions on nonunionized labor markets?
A. The supply of labor in nonunionized markets increases.
B. The wage rate in nonunionized markets decreases.
C. The number of laborers employed in the nonunionized markets increases.
D. all of the above
E. both A and C above, but not B
23. A monopsony
A. occurs when a firm has declining long run average costs.
B. is where there is market power on the part of employees but not on the part of employers.
C. is a labor market where there is a single buyer of labor.
D. is where there is only one seller of a consumer product.
E. none of the above
24. For a monopsonist
A. the marginal labor cost is below the average labor cost.
B. the demand for labor is upward sloping.
C. the optimum wage rate is where the marginal labor cost equals the marginal revenue product.
D. the optimum wage rate is where the average labor cost equals marginal revenue product.
* * * * * * * * * * * *
Question 25 refers to the following diagram:
25. Which of the following is correct?
A. The competitive wage is OC.
B. The wage a monopsonist would pay is OB.
C. If there is a bilateral monopoly, the wage will end up between OA and OC.
D. If there is a bilateral monopoly, the wage will always end up at exactly the competitive wage, which is OB.
* * * * * * * * * *
26. The doctrine of comparable worth
A. leads to shortages in some occupations and surpluses in other occupations.
B. explains why traditionally male dominated occupations pay more than traditionally female dominated occupations.
C. improves labor market outcomes and resource allocation.
D. suggests that unskilled laborers should be paid the same, and that all skilled laborers should be paid the same.
27. According to your instructor, the requirement that some occupations obtain a license from government
A. results in improved competition in such occupations.
B. is one which arises from a history of unhappy customers.
C. has no effect on earnings in such occupations.
D. benefits consumers by reducing fraud and incompetence.
E. none of the above
28. In the market for loanable funds,
A. households are suppliers of loanable funds.
B. both households and businesses are demanders of loanable funds.
C. financial intermediaries transfer loanable funds from lenders to borrowers.
D. all of the above
E. none of the above
29. An increase in the demand for loanable funds
A. will increase interest rates and the quantity of loanable funds.
B. will cause the supply of loanable funds to decrease.
C. will increase interest rates and reduce the quantity of loanable funds.
D. would occur if businesses decided to reduce their purchases of capital equipment.
30. The present value of a stream of future revenue varies
A. inversely
B. directly
C. directly
D. inversely
31. An investment in a capital good will be undertaken if
A. the investment is expected to be profitable.
B. the present discounted value of the investment exceeds the purchase price.
C. the present discounted value of the investment is less than the purchase price.
D. the return on capital exceeds the cost of the borrowed money.
32. The idea that people with higher incomes should pay more taxes is referred to as
A. vertical equity. C. the Lorenz curve.
B. horizontal equity. D. the benefits theory of taxation.
33. A progressive income tax means that
A. someone with an income of $100,000 should pay more taxes than someone with an income of $50,000–but not twice as much tax.
B. someone with an income of $100,000 should pay more than twice as much tax as someone with an income of $50,000.
C. someone with an income of $100,000 should pay exactly twice as much tax as someone with an income of $50,000.
D. taxes should depend on how someone’s income changes through time.
34. Which of the following is correct regarding the federal personal income tax?
A. It is regressive.
B. It is levied on all income, regardless of where that income came from or how it was spent.
C. It gives tax breaks to some taxpayers depending on how they spend their income–e.g. those who contribute to charities, and those who have home mortgages.
D. It is not a major source of revenue for the federal government.
35. Which of the following is correct regarding the federal personal income tax?
A. Interest payments on municipal bonds are not included in taxable income.
B. Both renters and homeowners can deduct mortgage interest.
C. Regardless of earnings, a married couple always enjoys a tax break.
D. all of the above
E. none of the above
36. The highest marginal tax rate in the federal personal income tax
A. was increased in 1980 and again in 1986 at the urging of President Reagan.
B. was reduced in the early 1990s when President Clinton first took office.
C. was reduced from 91 percent to 70 percent shortly after President Kennedy was assassinated.
D. was reduced while Kennedy was president but raised while Johnson was president.
37. The corporate income tax
A. involves double taxation–a corporation pays the tax on its earnings but individuals are also taxed on earnings distributed as dividends.
B. is a highly progressive tax.
C. is an efficient tax because it doesn’t impact on a corporation’s ability to make decisions on economic considerations.
D. all of the above
E. none of the above–There is no corporate income tax in the United States.
38. Your instructor that there is an impending social security problem (maybe even a crisis) in the United States because
A. Congress continually reduces social security benefits and increases social security taxes.
B. it is financed by taxes on corporations.
C. people work longer now than they used to.
D. demographic factors are resulting in far fewer people working for every retiree than was the case several decades ago.
39. One of the problems in using personal income as a measure of income inequality is that it
A. does not include income received from investments.
B. is distorted by including individuals’ wealth.
C. does not include in-kind income.
D. includes taxes but not transfer payments.
40. If income is distributed equally,
A. the line of perfect equality would lie below the Lorenz curve.
B. the Lorenz curve would be a straight line.
C. the Lorenz curve would be below the line of perfect equality.
D. the Lorenz curve would slope downward and to the right.
41. Which of the following is correct about the Gini coefficient?
A. It always has a negative value.
B. It is always greater than one.
C. It is always between one and zero.
D. It is almost identical in all industrialized countries.
42. The argument against greater equality in the distribution of income in the United States hinges basically on
A. the argument that greater equality would result in a loss of incentives which would impair economic growth.
B. the fact that greater equality would reduce horizontal tax equity.
C. the idea that greater equality would involve greater labor productivity.
D. hard empirical evidence demonstrates the desirability of a lower Gini coefficient.
43. The government’s official measure of poverty
A. varies with family size.
B. does not include in-kind income.
C. is higher than the standard measure if work related expenses are included.
D. is lower than the standard measure if government benefits are included.
E. all of the above
44. The numerous anti poverty programs we presently have in the United States have
A. reduced the poverty rate by fifty percent since the early 1970s.
B. been subject to dramatic budget cuts since the early 1970s.
C. often benefited the wrong people.
D. been found to be unconstitutional.
45. Suppose the government institutes a negative income tax involving a break even income of $25,000 annually and a negative tax rate of 60 percent. What is the guaranteed level of annual income under this program?
A. $0 D. $20,000
B. $10,000 E. There is no guaranteed income.
C. $15,000
46. 1Using the same assumed negative income tax program as in the previous question, what would the total income be for a family earning $15,000 annually?
A. $15,000 D. $25,000
B. $19,000 E. none of the above
C. $21,000
47. One problem with the negative income tax proposal is that
A. it is a problem to keep the guaranteed level of income relatively low, while keeping the negative tax rate and the break even level of income relatively high.
B. recipients of negative tax payments might spend the money on things society thinks undesirable–e.g. alcohol and drugs.
C. it is not legal for government to give cash payments to individuals.
D. there is an adverse incentive for households to work less and earn less on their own.
48. The welfare reform act of 1996
A. transferred most welfare programs to individual states.
B. transferred most welfare programs to the federal government.
C. removed the time limits on welfare payments.
D. all of the above
E. none of the above
49. Which of the following best represents your instructor’s views on health care in the United States?
A. The crux of the problem is rising medical costs and the fact that not everyone has health insurance.
B. Individuals pay for more than half of total health care costs.
C. Because it is a basic right, government must become more involved in planning and paying for health care.
D. The managed competition approach, advocated by the Clinton administration, would have been a good solution to the crisis.
50. According to the discussion of the economics of higher education,
A. tuition and room and board are the only items needed to calculate the cost of a college degree.
B. the economic return on investment in a college education is low compared to other investments.
C. there are compelling reasons for much greater direct government subsidies for students seeking college degrees.
D. all of the above
E. none of the above
ANSWERS
1.
A
26. A
2.
B
27. E
3.
A
28. D
4.
A
29. A
5.
A
30. C
6.
B
31. B
7.
A
32. A
8.
B
33. B
9.
B
34. C
10.
B
35. A
11.
C
36. C
12.
D
37. A
13.
D
38. D
14.
D
39. C
15.
B
40. B
16.
B
41. C
17.
C
42. A
18.
A
43. E
19.
A
44. C
20.
B
45. C
21.
D
46. C
22.
D
47. B
23.
C
48. A
24.
C
49. A
25.
C
50. E