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ECON2100 Exam I 1) Economics is best classified as a) a social science b) a natural science c) a humanity d) none of the above 2) The main focus of economics is on a) financial decision making b) efficiency c) historical behavior of individuals d) none of the above 3) Which of the following statements is correct? a) macroeconomics analyzes the behavior of individual economic agents (firms, consumers…) b) microeconomics analyzes the behavior of individual economic agents (firms, consumers…) c) microeconomics studies the economy as a whole and is concerned with aspects such as inflation, employment, output 4) Assume that Delta Comp. purchased fuel in December at $3/gallon, and now the price of that fuel is $2.20/gallon. What is the economic cost of using the fuel purchased in December today? a) $3 b) $2.20 c) $5.20 d) $1.00 5) In order to adequately compare the standards of living across countries one must compare the following measure, (converted into the same currency for comparison purposes): a) GNP per capita levels b) Real GNP per capita levels c) GNP per capita based on purchasing price parity d) GDP per capita 6) During the 1990’s the US dollar was appreciating. Two important effects were observed: one, there was a continuously growing trade deficit, and two, there was a substantial inflow of foreign investment into the US. In the context of demand supply framework we can explain this behavior of the dollar as follows: a) both, the demand and the supply of the US dollar grew, but the growth in demand outpaced the growth in supply b) both, the demand and the supply of the US dollar grew, but the growth in supply outpaced the growth in demand c) the demand for the US dollar grew while the supply of the US dollar declined d) the demand for the US dollar decrease, while the supply was on the rise e) both, the demand and the supply of the US dollar remained unchanged 7) Last semester the price of gasoline increased substantially. Yet, the traffic on Atlanta’s roads did not ease at all. Based on this observation you could argue that the demand for gasoline in Atlanta is a) Nearly vertical b) Nearly horizontal c) upward sloped 8) Which of the following facts is wrong? a) In the US economy the largest component of the GDP is the spending by households b) The US economy constitutes nearly (approximately) a quarter of the world economy c) Most of the world’s population lives in high income countries d) Currently the US economy experiences a trade deficit e) None of the above 9) If the US experiences higher inflation than the Euro zone, then, all else held constant, we should expect a) the USD to appreciate against the Euro b) the USD to depreciate against the Euro c) the value of the USD in terms of the Euro to remain the same d) inflation and currency exchange value are not related 10) Appreciation of the USD would lead to a) an increase in the rate of inflation b) a decrease in the rate of inflation c) inflation being unchanged d) inflation and currency exchange value are not related 11) In order to be counted as unemployed in the US one must meet the following: a) be registered with a state labor department b) collect unemployment compensation c) simply have no job and be actively looking for work d) none of the above 12) In the second half of the 1990’s the US economy experienced very low inflation rates. This was in part due to a) a depreciating US dollar b) increasing property values c) stock market boom d) influx of foreign investment and dollar appreciation 13) Which of the following statements about the GDP is not correct? a) The GDP accounts for only domestic value added in the production of final goods and services b) If a good is exported it is considered as a final good in the exporting economy, regardless of how it will be used in the importing economy c) The value of intermediate goods is included in the value of the final goods d) When computing the GDP one must subtract the value of imported goods and services e) None of the above For questions 14-18 state whether the listed activity will be reflected in A – the US current GDP B – the US current GNP C – both, the US current GDP and US current GNP D – neither in the US current GDP or the current GNP 14) A dividend payment paid by a Russian telecommunication company to a US shareholder B 15) A purchase of tires by Ford Comp from GoodYear. The tires are intended to be used by Ford on new cars D 16) Taking Econ 2100 class at GSU 17) A roof repair of a house located in Atlanta by an Atlanta based roofing company C 18) A purchase of new tires by a private household, such as me from a GoodYear (a US firm) outlet C 19) Assume that an indexed for inflation bond pays 1% real rate of return. If the rate of inflation happens to be 2% then the nominal rate of return on this bond should be set to? a) 3% b) 2% c) 1% d) 0% e) -1% C 20) If the rate of inflation is 2%, and your savings account pays a 5% nominal interest then the real return on your account is: a) 5% b) 2% c) 3% d) 8% e) -2% 21) During the 1990’s the housing market in Atlanta experienced price appreciation while both the supply and the demand for housing increased. Thus we can conclude that a) the growth in the demand outpaced the growth in the supply b) the growth in the supply outpaced the growth in the demand c) the growth in the demand was equally matched by the growth in the supply d) none of the above 22) Which of the following statements is incorrect? a) reduction in shipping costs helps the development of international trade b) the evolution of the telecommunications promotes the development in trade in many services c) international migration of workers can be viewed as a characteristic of integration in labor markets d) none of the above 23) It is an established fact that in developed economies, such as that of the US, more of domestic activities (household activities, such as cooking, housework…) are being observed in the market place, and hence are being accounted for in the GDP. This is due to … a) the fact that in developed economies labor force participation rates tend to be lower b) the fact that in developed economies the opportunity cost of time tends to be higher c) none of the above True[A] / False[B] Section 24) If the US economy were to experience a recession, then that recession would spread into the economy of Mexico, a major US trading partner, since the US consumers will buy fewer normal goods, including goods manufactured in Mexico, and hence Mexican exports to the US will decline. 25) Recession is an economy wide problem, and hence all businesses will be adversely affected by a recession. 26) In a market economy prices act as signals of information, i.e. the mechanism through which the various markets communicate with each other 27) At market equilibrium the gains to society from that market are maximized, as only those units of output are being produced and sold for which the consumer valuation exceeds production costs 28) At the market clearing price the marginal benefit of the last unit of sold is about equal to its marginal cost 29) Inflation can be defined as the rate of loss in the purchasing power of money 30) Unanticipated inflation is capable of redistributing real wealth from lenders to borrowers Thanks for taking the test.