Download Final Exam with answers from Spring 2006

Final Examination – ECON2100 – SPRING 2006
NAME:_________________________
Please, prior to answering each question, make sure to read all listed choices.
For questions 1-6 state whether the observation in each statement, all else held constant, will lead to A –
appreciation of the USD, B – depreciation of the USD, C – have no impact on the USD, D – not enough
information is provided
1)
An increase in foreign investment into the US stock and bond markets
A
2)
An increase in the US interest rates
A
3)
An increase in the purchases of foreign goods by US consumers
B
4)
An increase in the US inflation rate
B
5)
An increase in foreign tourism to the US
A
6)
An increase in the US tourism to Europe
B
7)
When we compare the standards of living between the US and Japan we find an interesting
paradox. The GDP per capita in the US is lower than in Japan, and yet the standard of living
in the US is considered to be higher. How can this be true?
a) because the prices in the US are higher than in Japan
b) because the prices in the US are lower than in Japan
c) there is no economic explanation for this phenomenon
8)
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 in the Forex
market, we can explain this behavior of the dollar as follows:
a) both, the demand and supply of the US dollar grew, but the growth in the demand
outpaced the growth in the supply
b) both, the demand and supply of the US dollar grew, but the growth in the supply
outpaced the growth in the 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
9)
This academic year has been very memorable. We started the year when the price of gasoline
was around 1.70/gallon, then within a few weeks it jumped to 3.20/gallon, by the start of this
semester it had declined to about 1.80/gallon, and now it is again on the rise (around
3.00/gallon). Yet, despite this, the traffic on the Atlanta’s roads has remained identically
unbearable throughout the entire year. Based on this observation one could conclude that the
demand curve for gasoline in Atlanta is
a) nearly vertical
b) nearly horizontal
c) upward sloped
10)
In the second half of the 1990’s the US economy experienced very low overall 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
11)
If you look around yourself right now you will notice that you are surrounded by relatively
young people, of course excluding the instructor. Is this purely coincidental or may this be a
characteristic of human behavior that can be explained by economic theory? From the list of
the arguments listed below select a possible explanation to this observation.
a) the implicit costs of attending the class are higher for older students, as the wage rate
tends to increase with age, due to experience
b) the expected benefit from education declines with age. After all, the older an individual
gets the fewer years that individual is expected to spend in the labor force
c) with age comes wisdom, and hence older workers do not require an education
d) choices A and B are both correct
e) None of the above
12)
In a market economy prices act as
a) rational of distribution
b) signals of information
c) both, choices b and a
d) none of the above
13)
Which of the following statements is incorrect?
a) at any price above the market clearing price the market will experience surplus of output
b) at any price below the market clearing price the market will experience shortage of output
c) at the market clearing price the quantity demanded will equal the quantity supplied
d) none of the above
14)
During the last several years we have witnessed rapid inflation in the housing prices in most
US cities, Atlanta included. And yet, there has been a huge construction boom and many new
housing units have been constructed. Which best describes the situation in the housing
market?
a) both, the supply and the demand have increased, and the demand increase
dominated (was larger than the supply rise)
b) both, the supply and the demand have increased, and the supply increase dominated (was
larger than the demand increase)
c) the supply has increased while the demand has decreased
d) the demand has increased while the supply has increased
e) none of the above
15)
Which of the following best describes modern economics?
a) a science that studies how people make financial decisions
b) a science of efficiency that studies how people allocate scares resources
c) a science that studies the behavior of the government sector
d) economics is best defined as a natural science
16)
Assume the following scenario: at the start of this semester you purchase shares in XYZ
corporation at $10/share. By the time you take this exam the value of the shares has declined
to $7/share. What is the economic cost of continued ownership of these sales today (at the
time of this exam)? [disregard any tax implications]
a) 10 dollars
b) 7 dollars
c) 17 dollars
d) 0 dollars
17)
If the rate of inflation is 3%, and your savings account pays a 4% nominal interest then the
real return on your account is:
a)
7%
b)
4%
c)
3%
d)
1%
e)
-1%
18) Which of the following institutions is primarily concerned with economic development and
provides lending for development projects
a)
World Trade Organization
b)
World Bank
c)
International Monetary Fund
d)
None of the above
19) Which of the following best describes the USSR type of economies
a)
market economy
b)
command economy
c)
mixed economy, with elements of capitalism and socialism mixed together
d)
mixed economy, with elements of capitalism, socialism, and communism mixed
together
e)
none of the above
20) In a market economy productive efficiency and the evolution of the production process are
primarily achieved through?
a) government regulations
b) competition
c) property rights
d) price controls
21) During the course of the 1990’s the Eastern European economies went through a transition to
a) market economy
b) command economy
c) pure communist type economy
d) none of the above
22) Which of the following best describes the Principal-Agent problem?
a) A conflict of interest that exists between the principal, typically the owner of the
business, and the agent who is hired to represent the interests of the principal
b) An issue that arises when the agent, worker knows that no matter how productive he or
she is, the reward remains the same, and hence the incentive to work disappears
c) A situation where the agent, worker, overstates his/her abilities prior to being hired, thus
misleading the principal, the business owner, of the worker’s true productivity
d) None of the above
23) The principle of comparative advantage implies that a nation should specialize in the production of
that product in which it
a) has the lowest absolute cost of production when compared to all other producers
b) utilizes the least amount of real resources
c) has the lowest opportunity cost compared to all other producers
d) none of the above
24) Which of the following is not a characteristic of free trade?
a) Free trade can make nations more interdependent
b) Free trade can cause some instability in a nation’s economy as a nation’s comparative
advantage may change over time
c) Imports can cause some domestic jobs to be lost
d) None of the above
25) Concerning import tariffs and quotas which of the following statements is true?
a) both lead to lower prices for domestic consumers
b) both lead to more imports
c) tariffs result in higher prices while quotas leave prices unchanged
d) tariffs generate government revenues, while quotas will not, unless the quota rights
are auctioned
26) Removal of import restrictions on foreign t-shirts will
a) Make domestic consumers of t-shirts better off as the price level decreases
b) Cause a reduction in the unemployment in the domestic textile industry
c) Reduce the supply of foreign t-shirts in the domestic market
d) None of the above
27) Economic theory suggests that
a) countries tend to have comparative advantage in those industries that intensely use
the country’s abundant inputs
b) comparative advantage does not change over time
c) international trade does not impact the standard of living
d) none of the above
28) The European Union is best described as
a) a free trade area
b) a customs union
c) an economic union
d) a political alliance
29) Which of the following has no impact on the nation’s comparative advantage?
a)
physical capital
b)
technological endowment
c)
of human capital
d)
none of the above
30) The current membership of the EU is?
a) 12
b) 15
c) 25
d) 27
31) Which of the following European countries IS using the Euro at present?
a) The United Kingdom
b) Sweden
c) Norway
d) Belgium
e) Switzerland
32) Which of the following is not a function of the WTO?
a)
assisting member states with design of trade policies
b)
providing a trade dispute resolution mechanism
c)
assisting member states with currency stabilization
d)
none of the above
33) Which of the following statements concerning the OPEC is incorrect?
a) The OPEC sets production quotas for member states
b) The OPEC can impact the price of oil by varying the production levels
c) The US is not a member of the OPEC
d) Russia is a member of the OPEC
e) None of the above
34) Which of the following is one of the main functions of the IMF?
a) assist countries in the development of infrastructure
b) assist countries in the development of trade policies
c) assist countries with balance of payments crisis
d) assist countries with political negotiations
35) Which of the following statements concerning the USD exchange rate is correct?
a) the value of the USD is driven by market forces
b) the value of the USD is maintained by the Federal Reserve
c) the value of the USD is set in terms of gold
d) none of the above
36) If the commodity pricing were to be changed from the USD to the EURO, then we would expect
a) the USD to depreciate, as the demand by foreign firms that purchase the USD to pay for
commodities would decline
b) the US firms that purchase commodities would have to either hedge in the currency
market, or assume the risk associated with the dollar fluctuations
c) all of the above
d) none of the above
37) Market economy requires
a)
well defined property rights
b)
contract law
c)
anti-trust regulations
d)
all of the above
e)
none of the above
38) NAFTA at present includes all but
a) USA
b) Canada
c) Venezuela
d) Mexico
e) None of the above
39)
If a group of countries agree on a common treatment of goods coming from countries outside
of this group, then this agreement could be considered as an establishment of?
a)
a free trade area
b)
a customs union
c)
an economic union
d)
none of the above
40) Which of the following treaties played the key role in paving the way for the common currency in
Europe?
a) the treaty of Rome
b) the Breton Woods accords
c) the Maastricht Treaty
d) the Uruguay Round
e) the Kyoto Treaty
41) In order to protect from an appreciation in the price of oil one should purchase
a) a call option on oil
b) a put option on oil
c) none of the above
42) In order to protect from a depreciation of the USD one should
a) purchase a call option on the USD
b) purchase a put option on the USD
c) none of the above
True/False
43) Development of the internet has reduced natural trade restrictions in many markets,
effectively enlarging the geographical scope of the market
44) At the market clearing price the marginal benefit of the last unit of output sold is about
equal to its marginal cost
45) 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 would buy fewer
normal goods, including goods manufactured in Mexico, and hence the Mexican exports to the
US would decline.
46) The Brain Drain phenomenon refers to a situation where highly skilled workers leave the
country.
47) Deflation is a situation when the average of all prices is rising
48) Recession is an economy wide problem, and hence all businesses will be negatively affected by a
recession.
49) Principal-Agent problem is present only in state-run enterprises
50) When a nation restricts imports to protect domestic jobs, it in effect preserves less
productive employment at the expense of more productive employment
Thank you for taking the final! And, have a great Summer!