Download Econ 202 Midterm 1

Douglas, Spring 2006
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Econ 202 Midterm 1
Figure 4-8
1. Refer to Figure 4-8. If price in this market is currently $14, there would be a
a. shortage of 20 units and price would tend to rise.
b. surplus of 20 units and price would tend to fall.
c. shortage of 40 units and price would tend to rise.
d. surplus of 40 units and price would tend to fall.
Table 3-2
Labor Hours needed to make one unit of:
Quilts
Dresses
Helen
40
10
Carolyn
80
16
Amount produced in 160 hours:
Quilts
Dresses
4
16
2
10
2. Refer to Table 3-2. The opportunity cost of 1 quilt for Carolyn is
a. 5 dresses.
b. 4 dresses.
c. 3 dresses.
d. 2 dresses.
3. Refer to Table 3-2. Which of the following trades would make both Helen and Carolyn better off?
a. Carolyn gives Helen 3 dresses in exchange for one quilt.
b. Helen gives Carolyn 1 quilt in exchange for 6 dresses.
c. Carolyn gives Helen 2 quilts in exchange for 9 dresses.
d. Helen gives Carolyn 2 quilts in exchange for 9 dresses.
4. Refer to Table 3-2. Helen has a comparative advantage in
a. dresses and Carolyn has a comparative advantage in quilts.
b. quilts and Carolyn has a comparative advantage in dresses.
c. neither good and Carolyn has a comparative advantage in both goods.
d. both goods and Carolyn has a comparative advantage in neither good.
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Econ202 Exam 1, Spring 2006
Douglas
5. Jim is a chef at a restaurant. Sally prepared her own meals during the first quarter of 2002, and then ate
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virtually the same meals at Jim's restaurant every day in the second quarter of 2002. Sally's change of habit
a. raises GDP.
b. reduces GDP.
c. raises GDP only if the opportunity cost of Jim’s meal-prep time exceeds Sally’s.
d. has no impact on GDP.
Which goods are supposed to be included in the Consumer Price Index (CPI)?
a. all goods and services produced in the economy
b. all goods and services that typical consumers buy
c. all goods and services in the consumption component of the GDP accounts
d. all the goods, but not the services, in the consumption component of the GDP accounts
The full opportunity cost to the Mountaineer Bus Company of driving a 50-passenger bus from Rainelle to
Logan is $2000, whether there are any empty seats on the bus or not. A bus is ready to leave the station, but
still has one empty seat. A man wants to board, but is unwilling to pay the regular ticket price. Which of the
following is the least amount the bus company could profitably charge the man for a ticket?
a. $2000/49 = $40.82.
b. $40.01
c. $40.
d. one cent.
One result of a drought in the wheat-growing areas of the Midwest could be an increase in
a. wheat farm machinery prices.
b. the price of diesel fuel used in wheat farming.
c. migrant wheat farm workers' wages.
d. the price of frosted shredded wheat breakfast cereal.
The US price of popular imported athletic shoes produced in Thailand by a U.S. company increases. By itself
what effect will this change have on the US GDP deflator and CPI?
a. The GDP deflator and the CPI will both increase.
b. The GDP deflator will increase and the CPI will be unaffected.
c. The GDP deflator and the CPI will both be unaffected.
d. The GDP deflator will be unaffected and the CPI will increase.
Suppose that in a closed economy GDP is equal to 10,000, Taxes are equal to 2,000, Consumption equals
6,500, and Government expenditures equal 2,500. What are private saving and public saving?
a. 1500 and -500
b. 1500 and 500
c. 1000 and -500
d. 1000 and 500
If a U.S. household buys a $75 handbag from Italy, U.S. consumption increases by $75, U.S.
a. imports increase by $75, and U.S. GDP increases by $75.
b. imports increase by $75, but U.S. GDP is unaffected.
c. imports are unaffected, and U.S. GDP is unaffected.
d. exports increase by $75, and U.S. GDP increases by $75.
PDAs are normal goods. What will happen to the equilibrium price of PDAs if consumers experience a
decrease in income at the same time that the technology for producing PDAs improves?
a. Price will rise.
b. Price will fall.
c. Price will stay exactly the same.
d. The price change will be ambiguous.
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Econ202 Exam 1, Spring 2006
Table 11-2
year
2003
2004
Douglas
price of pork
$20
$20
price of corn
$20
$30
13. Refer to Table 11-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 2 units of
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corn. What is the inflation rate for 2004?
a. 33.3 percent
b. 25 percent
c. 20 percent
d. 15 percent
Refer to Table 11-2. Suppose that the basket of goods in the CPI consisted of 3 units of pork and 2 units of
corn. What is the consumer price index for 2004 if the base year is 2003?
a. 100
b. 105
c. 115
d. 120
Ingrid takes a university teaching job as an assistant professor in 1974 at a salary of $10,000. By 2003, she
has been promoted to full professor, with a salary of $50,000. If the price index in 1974 is 50, and the price
index in 2003 is 180, what is Ingrid's 2003 salary in 1974 dollars?
a. $13,889
b. $180,000
c. $18,000
d. $133,889
Which of the following is the correct definition of GDP?
a. the market value of all goods produced within a country
b. the market value of all final goods and services produced by the citizens of a country
c. the market value of all final goods and services produced within a country
d. None of the above are correct.
Which of the following equations represents national saving in a closed economy?
a. Y - I - G - NX
b. Y - C - G
c. Y - I - C
d. G + C - Y
The supply of loanable funds slopes
a. upward because an increase in the interest rate induces people to save more.
b. downward because an increase in the interest rate induces people to save less.
c. downward because an increase in the interest rate induces people to invest less.
d. upward because an increase in the interest rate induces people to invest more.
People who buy newly issued stock in a corporation such as Rockwood Pottery provide
a. debt finance and so become part owners of Rockwood.
b. debt finance and so become creditors of Rockwood.
c. equity finance and so become part owners of Rockwood.
d. equity finance and so become creditors of Rockwood.
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Econ202 Exam 1, Spring 2006
Douglas
20. Which of the following best defines efficiency?
a. absolute fairness
b. equal distribution
c. minimum waste
d. consumer sovereignty
21. A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a
a. bond.
b. stock.
c. mutual fund.
d. All of the above are correct.
22. Investment rises and interest rates fall. Which of the following could explain these changes?
a. The government went from surplus to deficit.
b. The government instituted an investment tax credit.
c. The government reduced the tax rate on savings.
d. None of the above are correct.
23. What would happen to the equilibrium price and quantity in the market for full-size SUVs if the price of
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25.
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compact SUVs rises at the same time that several car makers quit producing full-size SUVs?
a. Price will fall and the effect on quantity is ambiguous.
b. Price will rise and the effect on quantity is ambiguous.
c. Quantity will fall and the effect on price is ambiguous.
d. Quantity will rise and the effect on price is ambiguous.
“Substitution bias” in the consumer price index refers to the
a. substitution of new goods for old goods in the purchases of consumers.
b. substitution of quality for quantity in consumer purchases over time.
c. fact that consumers substitute toward goods that have become relatively less expensive.
d. substitution of new prices for old prices in the basket of goods from one year to the next.
The fall in investment due to government borrowing is called
a. the Barro Reduction.
b. the Solow Residual.
c. the Ricardian Equivalence Principle.
d. crowding out.
In calculating GDP, the sale of wheat flour is
a. always an intermediate good, and therefore not counted.
b. included in GDP only if it is used by a company to make bread.
c. included in GDP if a consumer buys it to bake bread for his own consumption.
d. excluded from US GDP if the flour was produced in the US but purchased in Canada.
An American company owns a fast food restaurant in Romania. The value of its meals is included
a. in both Romanian and U.S. GDP.
b. partly in Romanian GDP and partly in U.S. GDP.
c. in Romanian GDP, but not U.S. GDP.
d. in U.S. GDP, but not Romanian GDP.
In computing GDP, investment is spending on
a. stocks, bonds, and other financial assets.
b. real estate and financial assets.
c. new capital equipment, inventories, and structures, including new housing.
d. capital equipment, inventories, and structures for business and industry only.
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Econ202 Exam 1, Spring 2006
Douglas
Figure 3-1: Production Possibilities Frontiers for Paul and Cliff
29. Refer to Figure 3-1. The opportunity cost of 1 bushel of wheat for Cliff is
a. 1/3 bushel of corn.
b. 2/3 bushel of corn.
c. 1 bushel of corn.
d. 3/2 bushels of corn.
30. Fred is considering expanding his dress shop. If interest rates rise he is
a. less likely to expand. This shows why the supply of loanable funds slopes downward.
b. more likely to expand. This shows why the supply of loanable funds slopes upward.
c. less likely to expand. This shows why the demand for loanable funds slopes downward.
d. more likely to expand. This shows why the demand for loanable funds slopes upward.
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ID: A
Econ 202 Midterm 1
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