Download Econ 1101 Practice Questions Final Exam

Review Questions for Econ1101 Final, Part 1
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
1) Define opportunity cost. A student who has just graduated from college has three job
offers: the first job pays him $35,000 a year, the second job pays him $23,000 a year, and
the third one pays him $15,000 a year. What is the studentʹs opportunity cost of taking the
first job?
1)
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
2) Beth can paint 2 T-shirts in an hour while her brother can paint 1 T-shirt in an hour. However, her brother can
paint 2 walls in an hour while she can paint only one. Who should specialize in which activity and why?
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
3) A producer is said to have a comparative advantage in the production of a good when:
A) the producer has a higher opportunity cost than another producer.
B) the producer has a lower opportunity cost than another producer.
C) the producer charges a higher price for the good than the other producers.
D) the producer can produce more units of the good per hour than another producer.
3)
4) The number of computers produced per day in Domium is 1,000 more than the number of
computers produced in Chromium. Domium and Chromium have the same number or workers
and have the same opportunity costs for producing computers. Which of the following statements
is true?
A) Chromium has an absolute advantage in producing computers.
B) Chromium has a comparative advantage in producing computers.
C) Domium has a comparative advantage in producing computers.
D) Domium has an absolute advantage in producing computers.
4)
Consider two economies, Beta and Zeta. Each farmer in Beta can grow 1,000 pounds of apples in a year or 500 pounds of
oranges. Each farmer in Zeta can grow 400 pounds of apples or 1,200 pounds of oranges in a year.
5) Refer to the scenario above. The opportunity cost of producing one pound of oranges in Beta is:
A) 2 pounds of apples.
B) 5 pounds of apples.
C) 1 pound of apples.
D) 1/2 pounds of apples.
5)
6) Refer to the scenario above. Which of the following statements is true?
A) Zeta should specialize in producing oranges and Beta should specialize in producing apples.
B) Beta and Zeta will suffer losses if they engage in foreign trade.
C) Beta has a comparative advantage in producing both oranges and apples.
D) Zeta has an absolute advantage in producing both oranges and apples.
6)
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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
7) If the marginal total cost when moving from Option A to Option B is negative and the
marginal total cost when moving from Option B to A is positive, which of the two options
is better? What is the underlying principal behind the decision?
7)
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
8) What is meant by the term ʺmarginal analysisʺ? Suppose an individual has to choose between renting four
apartments at different distances from his place of work. The individual has to commute to work on five days
of the week and as such will require different quantities of gasoline depending on the apartment he decides to
rent. The monthly rents and expected gasoline consumption from each of the apartments is shown in the table
below. If the price of gasoline is $5 per gallon, using marginal analysis, determine the optimum choice for the
individual. Which principal is used for this optimization? What does it state?
Apartment
1
2
3
4
Gasoline Consumption
(gallons per month)
Rent ($ per month)
5
1,100
10
1,000
15
960
20
940
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
9) Which of the following is an example of marginal analysis?
A) To determine the optimal amount of fertilizer to be used, a farmer calculates the total benefits
of using a given amount of fertilizer.
B) To determine the optimal number of workers, a firm calculates the net benefits of hiring an
extra worker.
C) To determine the optimal output that a firm should sell, the manager calculates the total
revenue earned by selling different levels of output.
D) To choose the optimal apartment to rent, an individual estimates the net benefits of renting
an apartment close to his place of work.
9)
10) If the total cost incurred in hiring ten workers by a firm is $45, and the total cost incurred when the
eleventh worker is hired is $60, the marginal cost of hiring the eleventh worker is:
A) $105.
B) $20.
C) $1.33.
D) $15.
10)
11) Total cost falls when marginal cost is ________, and total cost rises when marginal cost is ________.
A) zero; positive
B) zero; negative
C) positive; negative
D) negative; positive
11)
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ESSAY. Write your answer in the space provided or on a separate sheet of paper.
12) Using graphs, explain how the equilibrium price and quantity of laptops will change when:
a) the demand curve for laptops shifts right and the supply curve for laptops shifts left. The shift in the
demand curve is greater than the shift in the supply curve.
b) both the demand and supply curves for laptops shift to the right by the same amount.
c) the demand curve for laptops shifts rightward without any change in the supply curve.
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
13) The quantity demanded of a good is:
A) always determined by government intervention.
B) the amount of a good that buyers are willing to purchase at a given market price.
C) determined independent of the market price.
D) the amount of a good that sellers are willing to supply at a given market price.
13)
14) Two goods are said to be complements when a fall in the price of one good:
A) doesnʹt affect the demand for the other good.
B) leads to a fall in price of the other good.
C) leads to a left shift in the demand for the other good.
D) leads to a right shift in the demand for the other good.
14)
15) Which of the following pairs of goods is likely to be considered substitutes?
A) A Nokia cell phone and a Nokia cell phone charger
B) Coffee and sugar
C) A Ford car and public transportation
D) Printers and printing ink
15)
16) Assume that the economy is in a recession and consumers are expecting a fall in their income
levels. This will cause a(n):
A) right shift in the market demand for all goods.
B) left shift in the market demand for all goods.
C) increase in the total quantity demanded of all goods.
D) decrease in the total quantity demanded of all goods.
16)
17) The market supply is the ________ of the individual supplies of all the potential sellers.
A) product
B) square root of the sum
C) square of the sum
D) sum
17)
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18) Which of the following is likely to cause the supply curve for steel window frames to shift to the
right?
A) A rise in the market price of steel window frames due to an increase in demand
B) A decrease in the cost of production of steel due to a new subsidy
C) A fall in the number of steel window frame producers due to factory lockouts
D) An increase in the wages of labor working in steel firms due to demands by trade unions
18)
19) Which of the following is likely to lead to an increase in the quantity supplied of steel?
A) A rise in the market price of steel
B) An increase in the productivity of capital due to technological innovation
C) A fall in the wage rate of labor employed in the steel industry
D) An expected increase in the demand for steel in the future
19)
20) Which of the following is likely to lead to a right shift in the supply curve of cotton?
A) An increase in the price of cotton
B) A rise in labor costs due to wage demands by labor unions
C) A decrease in the price of cotton
D) An increase in labor productivity due to training programs
20)
21) Other things remaining the same, a left shift in the supply curve will lead to:
A) a decrease in the equilibrium price and an increase in the equilibrium quantity.
B) an increase in the equilibrium price and a decrease in the equilibrium quantity.
C) a decrease in the equilibrium price and the equilibrium quantity.
D) an increase in the equilibrium price and the equilibrium quantity.
21)
22) Z is a normal good. The equilibrium price and equilibrium quantity of Z in the year 2011 was $25
and 60 units, respectively. It was seen that, in 2014, the equilibrium price of Z had decreased to
$15, but the equilibrium quantity had increased to 70 units. Other things remaining the same,
which of the following could explain this change?
A) Shift of the demand curve for Z to the left
B) Shift of the demand curve for Z to the right
C) Shift of the supply curve of Z to the left
D) Shift of the supply curve of Z to the right
22)
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The table below shows the values of various economic variables of a country during a particular year.
23) Refer to the table above. The gross domestic product of the country is ________.
A) $554,000
B) $352,000
C) $452,000
D) $402,000
23)
24) Refer to the table above. If exports increase by $4,000 in the next year, ________, all other variables
remaining unchanged.
A) gross domestic product will increase by $4,000
B) trade deficit will increase by $2,000
C) trade surplus will increase by $2,000
D) gross domestic product will decrease by $4,000
24)
25) Refer to the table above. If consumption expenditure increases to $200,000 in the next year,
________, all other variables remaining unchanged.
A) gross domestic product will fall to $400,000
B) gross domestic product will increase to $400,000
C) gross domestic product will fall to $367,000
D) gross domestic product will increase to $367,000
25)
26) Refer to the table above. If a trade deficit of $23,000 occurs in the next year, ________, all other
variables remaining unchanged.
A) gross domestic product will fall by $2,000
B) gross domestic product will increase by $2,000
C) gross domestic product will increase to $531,000
D) gross domestic product will fall to $325,000
26)
27) Which of the following will be included in the income-based method of national accounting?
A) A workerʹs retirement benefits
B) A consumerʹs expenditure on a imported car
C) A firmʹs expenditure on raw materials
D) A studentʹs expenditure on education
27)
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28) Which of the following is an example of labor income?
A) Bonus paid to a worker
B) Rent paid to a landlord
C) Dividend received by shareholder
D) Profit earned by an entrepreneur
28)
Infi Corp. is a leading manufacturer of smart phones. Every year, customers spend $31 billion on smart phones
manufactured by Infi Corp. $10 billion of this sale comes from a leading retailer while the remaining buy directly from Infi
Corp. The retailer pays 70% of its revenue to Infi Corp. and Infi Corp. pays $19 billion to its suppliers.
29) Refer to the scenario above. Infi Corp. adds a value of ________ to the production process.
A) $12 billion
B) $31 billion
C) $21 billion
D) $9 billion
29)
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
30) Explain the differences between real GDP and nominal GDP.
30)
31) Why is real GDP a more accurate measure of the level of production in an economy than
nominal GDP? Explain with an example.
31)
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
32) Polonia produces two goods - X and Y. The quantity produced of the two goods and their prices in two
different years are given in the table below:
Year
Good X Price
1
2
$10
$25
Good X
Quantity
100
120
Good Y Price
$12
$22
Good Y
Quantity
250
300
i) Calculate the real GDP of Polonia in Year 2 taking Year 1 as the base year.
ii) What is the growth rate of Poloniaʹs real GDP between Year 1 and Year 2?
33) The table below shows a list of goods purchased by Susan in two different years:
Year
1
2
Price of
Apples
$1.40/pound
$1.50/pound
Quantity of
Apples
10 pounds
10 pounds
Price of
Oranges
$1.80/pound
$2.00/pound
Quantity of
Oranges
5 pounds
6 pounds
Price of Pears
$2.00
$2.50
Calculate the consumer price index for Year 2 taking Year 1 as the base year.
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Quantity of
Pears
4 pounds
5 pounds
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
34) The price of a given basket of goods in Year 1 was $1,300. The price of the same basket of goods in
Year 2 was $1,560. The consumer price index for Year 2 taking Year 1 as the base year is ________.
A) 101
B) 120
C) 100
D) 156
34)
35) Mr. Clooney inherited a sum of $30,000 in 1990. If the price index for 1990 was 100 and the price
index for 2014 is 188, the value of the money he inherited in 2014 dollars is ________.
A) $48,000
B) $38,800
C) $45,200
D) $56,400
35)
A country produces only one good. It produced 5,000 units of the good during Year 1 and 6,000 units of the good in Year 2.
The price of each unit of the good in Year 1 was $280 and it was $320 in Year 2. Suppose Year 1 is taken as the base year for
the calculation of GDP.
36) Refer to the scenario above. The real GDP of the country in Year 1 was ________.
A) $540,000
B) $1,400,000
C) $280,000
D) $2,200,000
36)
37) Refer to the scenario above. The GDP deflator for Year 2 is ________.
A) 114.3
B) 0.14
C) 87.5
37)
D) 240
38) If the growth rate of real GDP and the rate of inflation in an economy are 2% and 1% respectively,
the growth rate of nominal GDP in the economy must be:
A) 2%.
B) 1%.
C) 3%.
D) 5%.
38)
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
39) In an economy, the number of potential workers is 60,000, the size of the labor force is
45,000, and the number of employed workers is 39,000. Calculate the unemployment rate
and labor force participation rate in the country.
39)
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
40) Which of the following is a part of the potential work force of a country?
A) People on active duty in the military.
B) Institutionalized people
C) Children aged 15 and lower
D) Civilian non-institutionalized people aged 16 years and above
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40)
41) A worker is unemployed if he:
A) has been working part-time and has been actively looking for full-time work.
B) does not have a job and is not actively looking for a job.
C) is working from home and drawing a weekly salary.
D) does not have a job and has been actively looking for one in the prior four weeks and is
available for work.
41)
42) Which of the following equations is correct?
A) Adults not in labor force = unemployed workers
B) Adults not in the labor force = potential adult workers - employed workers - unemployed
workers
C) Adults not in labor force = potential adult workers - employed workers
D) Adults not in labor force = unemployed workers - employed workers
42)
43) The number of adults not in the work force of a country equals 6 million and the number of
individuals employed is 5 million. If there are 12 million potential adult workers in the economy,
what is the current unemployment rate in this country?
A) 16.67 percent
B) 12.45 percent
C) 30.55 percent
D) 21 percent
43)
44) Which of the following statements is true?
A) The unemployment rate in an economy is constant over the long run.
B) In almost every economy, each job opening is instantly filled by a qualified worker.
C) There always exists some amount of unemployment in an economy.
D) The unemployment in an economy normally increases at times of expansion and decreases at
times of contraction.
44)
45) Which of the following explains why frictional unemployment exists in an economy?
A) It arises because job search is completely a supply side phenomenon in the labor market, and
firms make no attempts to advertise for the vacancies they have.
B) It arises because it takes time for an unemployed worker to find a firm with a well -matched
job vacancy.
C) It arises because most of the workers shirk at work.
D) It arises because unemployment benefits encourage workers not to look for jobs.
45)
46) Which of the following statements is true?
A) Technological innovation can cause unemployment in a single industry.
B) Technological innovation always complements labor.
C) Technological innovation can cause unemployment in a country as a whole.
D) Technological innovation always substitutes labor.
46)
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SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
47) How is the wage to be paid to a worker determined by a profit -maximizing firm? If a
marginal worker creates 8 units of a product in a month that is sold for $5 per unit, how
much should be the maximum wage that should be paid to him?
47)
48) What causes the labor demand curve to shift? List three factors that can cause the labor
demand curve to shift rightward?
48)
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
49) The labor demand curve represents the relationship between the quantity of labor demanded at:
A) different values of average product of labor.
B) different income tax rates.
C) different wage rates.
D) different prices of the good that labor is used to produce.
49)
50) If a firm hires a worker by paying him a wage lower than his value of marginal product, ________.
A) profits of the firm are minimized
B) the firm should hire more workers to increase profits
C) firing the worker will increase the firmʹs profits
D) the firm is making an optimum decision
50)
51) The impact of an increase in the wage rate on labor demand is represented by ________, assuming
all else equal.
A) leftward shift in the demand curve for labor
B) downward movement along the demand curve for labor
C) upward movement along the demand curve for labor
D) rightward shift in the demand curve for labor
51)
52) What will happen to the demand curve for tea workers if the price of tea increases, assuming all
else equal?
A) There will be an upward movement along the demand curve for tea workers.
B) There will be a downward movement along the demand curve for tea workers.
C) There will be a leftward shift in the demand curve for tea workers.
D) There will be a rightward shift in the demand curve for tea workers.
52)
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53) If a firm introduces some technology that substitutes capital for labor, ________, assuming all else
equal.
A) there will be a leftward shift in the labor demand curve of the firm
B) there will be a downward movement along the labor demand curve of the firm
C) there will be an upward movement along the labor demand curve of the firm
D) there will be a rightward shift in the labor demand curve of the firm
53)
54) The impact of an increase in the wage rate on labor supply will be represented by ________,
assuming all else equal.
A) a leftward shift of the labor supply curve.
B) an upward movement along the labor supply curve.
C) a downward movement along the labor supply curve.
D) a rightward shift of the labor supply curve.
54)
55) Which of the following statements is true?
A) At the equilibrium wage rate, quantity demanded of labor exceeds the quantity supplied of
labor.
B) At wages above the equilibrium wage rate, quantity supplied of labor exceeds the quantity
demanded of labor.
C) At wages below the equilibrium wage rate, quantity supplied of labor exceeds the quantity
demanded of labor.
D) At the equilibrium wage rate, quantity supplied of labor exceeds the quantity demanded of
labor.
55)
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
56) What does the quantity theory of money imply? If the growth rate of money supply and
growth rate of real GDP in an economy are 8% and 6%, respectively, then what is the
inflation rate in the economy?
56)
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
57) If the quantity theory of money holds, then in an economy,
A) inflation = growth rate of money supply - growth rate of nominal GDP.
B) inflation = growth rate of money supply + growth rate of real GDP.
C) inflation = growth rate of money supply + growth rate of nominal GDP.
D) inflation = growth rate of money supply - growth rate of real GDP.
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57)
58) The quantity theory of money implies that:
A) inflation is equal to the gap between the growth rate of money supply and the current real
interest rates.
B) inflation is equal to the gap between the growth rate of money supply and the growth rate of
nominal GDP.
C) inflation is equal to the gap between the growth rate of money supply and the growth rate of
real GDP.
D) inflation is equal to the gap between the growth rate of money supply and the current
nominal interest rates.
58)
59) Which of the following is likely to happen if the annualized growth rate of money supply increases
while real GDP remains unchanged?
A) The unemployment rate will rise.
B) The inflation rate will fall.
C) The nominal GDP will fall.
D) The inflation rate will rise.
59)
60) A worker has negotiated a nominal wage contract with his employer for a period of 3 years. Which
of the following will happen if the rate of inflation rises beyond the workerʹs expectation during
this period?
A) The companyʹs shareholders will be worse off.
B) The worker will be worse off.
C) The workerʹs real wage will increase.
D) The worker will be better off.
60)
61) Suppose you have borrowed money from a bank to buy a house. Which of the following will
happen if the inflation rate unexpectedly rises?
A) The bankʹs shareholders will be better off.
B) The real cost of your mortgage will rise.
C) You will be better off.
D) You will be worse off.
61)
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
62) Everything else remaining unchanged, what is likely to happen to the credit demand
curve of a software producing firm if:
a. there is an increase in the real interest rate?
b. they plan to expand production in near future?
62)
63) Everything else remaining unchanged, what is likely to happen to the credit supply curve
of households if:
a. there is a decrease in the real interest rate?
b. households expect a recession in near future?
63)
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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
64) If the nominal interest rate is greater than the real interest rate in an economy:
A) the real interest rate must be negative.
B) inflation must be zero in the economy.
C) inflation must be negative in the economy.
D) inflation must be positive in the economy.
64)
65) The real interest rate is given by:
A) the nominal interest rate adjusted for inflation.
B) the nominal interest rate adjusted for income changes.
C) the nominal interest rate adjusted for tax rates.
D) the nominal interest rate adjusted for changes in exchange rate.
65)
66) Which of the following equations is correct?
A) Real interest rate = Nominal interest rate / Inflation rate
B) Real interest rate = Nominal interest rate × Inflation rate
C) Real interest rate = Nominal interest rate - Inflation rate
D) Real interest rate = Nominal interest rate + Inflation rate
66)
67) If the nominal interest rate in an economy is 6%, and the rate of inflation in the economy is 4%, the
real interest rate in the economy is:
A) 24%.
B) 1.5%.
C) 10%.
D) 2%.
67)
68) Assuming all else equal, if the real interest rate decreases, it will lead to:
A) the credit demand curve of a firm shifts to the left.
B) a decrease in the quantity of credit demanded by a firm.
C) an increase in the quantity of credit demanded by a firm.
D) the credit demand curve of a firm to shift to the right.
68)
69) Factors that cause an increase in the demand for credit at a given real interest rate cause:
A) a downward movement along the credit demand curve.
B) the credit demand curve to shift to the left.
C) an upward movement along the credit demand curve.
D) the credit demand curve to shift to the right.
69)
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70) Assuming all else equal, if households are optimistic about their future income, it is likely to cause
a(n):
A) downward movement along their credit demand curve.
B) upward movement along their credit demand curve.
C) leftward shift of their credit demand curve.
D) rightward shift of their credit demand curve.
70)
71) Which of the following statements is true?
A) If the opportunity cost of current consumption is high, people will save less.
B) If the opportunity cost of current consumption is high, people will save more.
C) If the opportunity cost of current consumption is high, the inflation rate will increase.
D) If the opportunity cost of current consumption is high, the unemployment rate will decrease.
71)
72) An automobile manufacturer decides to increase its retained earnings. Assuming all else equal,
this will cause:
A) an upward movement along the current credit supply curve of the firm.
B) a downward movement along the current credit supply curve of the firm.
C) the current credit supply curve of the firm to shift to the right.
D) the current credit supply curve of the firm to shift to the left.
72)
73) Everything else remaining unchanged, what is likely to happen to the equilibrium real interest rate
and quantity of credit if the credit supply curve shifts to the right?
A) Both equilibrium rate of interest and quantity of credit will decrease.
B) Both equilibrium rate of interest and quantity of credit will increase.
C) The equilibrium rate of interest will increase and the quantity of credit will decrease.
D) The equilibrium rate of interest will decrease and the quantity of credit will increase.
73)
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