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ECONOMICS 10-8
ECON 10-8: FINAL EXAM
12/16/00
PROF. WILDE
1. In microeconomics, we typically assume that producers are attempting to maximize profits,
which can be measured by:
a) total costs – total revenues
b) (P – ATC) Q
c) (Q-ATC) P
d) PQ – ATC
e) P(ATC) – Q
2. In microeconomics, we refer to the short run as a time interval during which a producer is
able to select:
a) the output quantity
b) the quantity of workers
c) the quantity of capital
d) all of the above
e) only a and b
3. Which of the following are characteristics of a perfectly competitive market?
a) firms in this market produce a homogeneous product
b) individual firms are “price-makers” in that they realistically choose both the price and the
quantity of their goods
c) all firms in this market make positive economic profits in the long run
d) price will equal the minimum LRATC in the long run
e) both a and d
4. Consider the curves for a perfectly competitive firm in Figure X. At a price of $20, this firm
will choose an output of :
a) 50
c) 60
e) 90
b) 55
d) 80
5. In a short run perfectly competitive market in Figure XI, the supply curve is reflective of the
cost situations facing ______ firms. The various points along the market supply curve result
in ______ economic profits for the firms involved.
a) many; positive
b) few; zero or positive
c) many; positive, zero or negative
d) few; zero
e) one; zero
6. If other firms in Figure XI are making positive economic profits, the firm in Figure X will:
a) leave the industry because there is no way for it to keep up with its competitors
b) expect to see new firms enter the industry
c) simply increase its output in order to raise profits to match theirs
d) buy fewer inputs in order to reduce costs
e) pray for a recount of profits
7. If competitive firms face an increase in worker wage rates, we can expect them to witness a
______ shift in their ______ curve(s).
a) upward; MC and AVC
b) downward; demand
c) upward; MC, AFC and ATC
d) downward; AFC
e) both a and d
8. An increase in worker wage rates in a competitive industry will likely result in __________
by the time the industry gets to a new long-run equilibrium.
a) less employment
d) all of the above
b) fewer firms
e) only b and c
c) higher prices
9. A monopolist finds its profit-maximizing quantity where:
a) MC=ATC
d) MR=MC
b) P=ATC
e) both c and d
c) P=MC
10. Figure XII represents the short run situation of a monopoly. We know that it is NOT a
perfectly competitive firm because:
a) the marginal revenue curve is not above the demand curve
b) the marginal cost curve is u-shaped
c) the demand curve is downward-sloping
d) of the profit outcome
e) there is no average fixed cost curve
11. When the Figure XII firm is maximizing profits, it will have ______ economic profits and
will _______ in the short run.
a) negative; choose to produce
b) positive; choose to produce
c) zero; shut down
d) negative; leave the industry
e) negative; shut down
12. If preferences change for the product depicted in Figure XII such that the product becomes
more attractive to consumers, we can expect that:
a) the demand curve will shift to the right
b) the profit-maximizing output will increase
c) the profit-maximizing price will increase
d) economic profits will increase
e) all of the above
13. In the long run the Figure XII firm will likely:
a) down-size if that will reduce ATC
b) adopt a more sophisticated technology which raises ATC
c) adopt a new technology if it lowers ATC
d) leave the industry if costs cannot be lowered
e) any of a, c, or d
14. If Figure XII applies to a firm in a monopolistically competitive industry, the long run
implications for the industry include:
a) a reduction in the number of firms
b) an increase in the profits of surviving firms
c) a decrease in the prices of surviving firms
d) all of the above
e) only a and b above
15. Pharmaceutical companies, such as Glaxo, could be labelled “natural monopolies”
because:
a) they have very large fixed costs in the form of research, development, and
testing of new drugs
b) they have constant marginal costs
c) they have decreasing average total costs
d) all of the above
e) none of the above
16. Natural monopolies tend to maximize profits by picking a price
a) which is equal to marginal cost
b) which is equal to average total cost
c) which is equal to average variable cost
d) which is above marginal cost
e) which is equal to marginal revenue
17. Advertising may play a significant role in enhancing the brand loyalty of customers
and differentiating a company’s product from that of its competitors. Because of this:
a) perfectly competitive firms have upward-sloping ATC curves
b) monopolies have downward-sloping MR curves
c) monopolistically competitive firms have downward-sloping demand curves
d) oligopolies do not advertise
e) all of the above
18. Monopolistically competitive firms do not usually end up at the bottom of their Ushaped LRATC curves in the long run because:
a) they face downward-sloping demand curves
b) they profit-maximize
c) they operate in a market with easy entry and exit
d) they are forced to zero economic profits in the long run
e) all of the above
19. When advertising has its expected effect on the demands of a firm’s customers,
a) the demand curve will shift to the left
b) the marginal revenue curve will shift to the right
c) the profit-maximizing output level will decline
d) the profit-maximizing price will be unchanged
e) all of the above
20. Since a cartel usually operates to maximize the combined profits of its members,
cheating by an individual member is most often carried out by:
a) raising price with no change in output
b) raising output with no change in price
c) raising both price and output
d) lowering both price and output
e) raising output and lowering price
21. The overall profit objective of a cartel can usually be achieved by setting:
a) price equal to marginal revenue
b) marginal revenue equal to marginal cost
c) marginal cost equal to average total cost
d) average total cost equal to average revenue
e) all of the above
22. If an individual has a checking account at his/her local bank, this checking account is
considered a(n) ______ to the individual and a(n) _________ to the bank.
a) asset; asset
b) liability; liability
c) asset; net worth
d) net worth; liability
e) asset; liability
CENTURA BANK
Assets
Liabilities
Vault Cash +$30 m.
Demand Deposits +$60 m.
Dep. At F.R.B. +$30 m.
23. Centura Bank is one of many banks in the commercial banking system. All such banks face a
Required Reserve Ratio R of 10%. Centura has recently received a $60 million deposit of
cash into a customer’s checking account. As indicated above, it sent a portion of this off to
the Fed for safekeeping. On the basis of this deposit, Centura could be expected to make new
loans of_____.
a) $6 m.
b) $54 m.
c) $60 m.
d) $120 m.
e) $540 m.
24. In calculating its loan response, Centura would be acknowledging:
a) that the required R limits its loans to 10% of its reserves
b) that the required R limits its loans to 10% of its deposits
c) that borrowers can be expected to quickly spend their loan proceeds
d) that they can make loans only as large as the amount of reserves they can afford to lose
e) both c and d
25. The Federal Reserve Bank has set a 0% required reserve ratio against Time Deposits, which
include certificates of deposit (CDs). If a customer bought a $10 million CD from Centura,
paying for it with a $10 million check written on the Wachovia Bank:
a) Centura could $10 million in new loans
b) Centura could not make any new loans
c) Centura would have to use its new deposit to pay back Wachovia
d) Centura would have to borrow $10 million from Wachovia
e) Centura would lose money on the CD because the reserve ratio is so low
26. On a commercial banks balance sheet:
a) assets + net worth = liabilities
b) assets + liabilities = net worth
c) assets + liabilities + net worth = 0
d) assets – liabilities = net worth
e) liabilities – assets = net worth
27. Suppose Centura Bank makes a $10 million loan to Belk’s Department Store so that Belk’s
can buy $10 million of Nautica shirts. This loan + spending transaction should result in:
a) more deposits at Nautica’s bank
b) less reserves at Centura
c) more reserves at Nautica’s bank
d) all of the above
e) only a and c above
28. A commercial bank is “all loaned up” when:
a)
b)
c)
d)
e)
its loans equal its actual reserves
its loans equal its demand deposits
its required reserves + its actual reserves equal its deposits
its required reserves equal its actual reserves
its loans equal its required reserves
29. A commercial bank is maximizing profits when:
a) it minimizes the amount of its assets which are not earning income
b) it holds no more reserves than it is required to
c) it holds no more loans than it is required to
d) all of the above
e) only a and b above
30. An open market purchase of government securities by the Federal Reserve Bank is likely to
lead to a(n) _________ in the market price of those securities and a(n) _________ in the
effective interest rates on those securities.
a) increase; no change
b) no change; increase
c) increase; decrease
d) decrease; increase
e) no change; decrease
31. Suppose that the commercial banking system has $60 billions in demand deposits, a Required
Reserve Ratio R of 20%, and no excess reserves (or deficiency in reserves). If the Fed
reduced R to 10%, this would immediately create:
a) a reserve deficiency of $6 billion
b) excess reserves of $6 billion
c) excess reserves of $60 billion
d) no change in the reserve position of the banking system
e) a reserve deficiency of $12 billion
32. Once the banking system has become all loaned up, the above reduction in R to 10% will
result in:
a) a loan reduction of $6 billion
b) a loan increase of $60 billion
c) a loan increase of $6 billion
d) no change in bank loans
e) a loan reduction of $12 billion
33. If the Fed wished to have corporations buy more plant and equipment, it could:
a) increase the reserve ratio R or increase its holdings of government securities
b) increase R or sell government securities
c) decrease R or sell government securities
d) decrease R or increase its holdings of government securities
e) none of the above
34. When conducting monetary policy, the Fed:
a) buys and sells government securities
b) changes tax rates
c) affects the supply of loans
d) all of the above
e) only a and c above
35. When conducting monetary policy, the Fed is likely to affect:
a) residential construction
b) aggregate demand
c) unemployment
d) the price level in the economy
e) all of the above
36. If the Federal Reserve Bank believes that the unemployment rate is too high, we could expect
them to:
a) decrease government spending
b) buy government securities
c) raise the discount rate
d) raise the reserve ratio R
e) none of the above
TABLE A: MACROECONOMY
At a Transfer
Tax Disposable Consumer Investment Gov’t
Export Import
GDP of: Payments Revenue Income Spending Spending Purchases Demand Demand
0
120
0
120
216
84
100
120
40
400
100
60
440
472
108
100
120
80
600
90
90
600
600
120
100
120
100
800
80
120
760
728
132
100
120
120
1000
70
150
920
856
144
100
120
140
1200
60
180
1080
984
156
100
120
160
1600
40
240
1400
1240
180
100
120
200
1800
30
270
1560
1368
192
100
120
220
2400
0
360
2040
1752
228
100
120
280
37.
In a 4-sector macro-economy, equilibrium will occur where:
a) the gross domestic product (GDP) = household disposable income
b) the total value of output produced = the total value of the incomes generated in
production
c) the output of the economy = the total amount that all spenders wish to purchase
d) the quantity demanded = the quantity purchased
e) the quantity supplied = the quantity sold
38.The equilibrium level of GDP in the Table A macro-economy is:
a) 600
b) 800
c) 1000
d) 1200
e) none of the above
39. At a GDP level of 1800 in the Table A macro-economy, the household sector would have
_______ savings, the government would have a _______ budget, and there would be a
foreign trade _______ .
a) zero; balanced; balance
b) positive; surplus; deficit
c) negative; surplus; surplus
d) negative; deficit; surplus
e) positive; deficit; surplus
40. The data in columns 1 and 2 of Table A :
a) reflect the fact that GDP tends to increase as a result of lower transfer payments
b) reflect the fact that Congress usually passes new laws increasing the amount of
welfare payments when GDP is falling
c) show that unemployment compensation checks decrease when the economy is
expanding
d) show that senior citizens tend to retire earlier in order to start receiving Social
Security checks when the economy is expanding
e) all of the above
41. The data in columns 1 and 3 of Table A:
a) indicate that existing sales tax legislation will yield lower sales tax revenues when the
GDP declines because of household spending patterns
b) indicate that as rising GDP creates inflationary pressures which lower corporate profits,
profits tax payments will decrease
c) reflect the fact that GDP tends to increase as a result of higher tax payments
d) reflect the fact that Congress usually passes new tax laws which increase the amount of
tax revenues when the GDP is increasing
e) all of the above
42. Table A says that consumer spending would be 728 when GDP is 800. There would be an
autonomous increase in C, making C higher at this GDP level if:
a) taxes were increased
b) transfer payments were increased
c) GDP increased
d) all of the above
e) only a and b above
43. The marginal propensity to consume of the household sector in the Table A economy is:
a) 1.18
c) 0.9
e) 0.64
b) 216
d) 0.8
44. The Wilde multiplier in the Table A economy is:
a) 2
c) 3.33
e) 10
b) 2.5
d) 5
45. If the (Wilde) multiplier for a Table A-type economy was 3, a $100 billion tax cut would be
expected to _______ equilibrium GDP by ________.
a) increase; $300 billion
b) decrease; $300 billion
c) increase; $240 billion
d) decrease; $33.3 billion
e) increase; $103 billion
46. If the (Wilde) multiplier for a Table A-type economy was 3, a $100 billion reduction in
government purchases would be expected to ______ equilibrium GDP by ________ .
a) increase; $100 billion
b) increase; $300 billion
c) decrease; $97 billion
d) decrease; $300 billion
e) decrease; $33.3 billion
47. A $100 billion reduction in government purchases in a Table A-type economy could be
expected to result in:
a) lower tax revenues and lower imports
b) a lower trade deficit and less investment spending
c) less inflation
d) all of the above
e) only a and c above
48. Supply-side economics proposes to reduce the inflationary trends in the economy by shifting
the __________ in Figure IV.
a) AS curve up
d) AD curve down
b) AD curve up
e) both the AS and AD curves up
c) AS curve down
49. In Figure IV the AS curve will tend to shift down when:
a) the AD curve also shifts down
b) there is less investment spending
c) there is a reduction in the prices of production inputs
d) there is an increased desire to work
e) both c and d
50. If the Federal Reserve Bank is concerned that there is too much unemployment, its actions in
a Table A-type economy are likely to result in:
a) more automobile purchases by households because borrowing costs are less
b) less jeans purchases by automobile workers
c) more hiring of construction workers
d) all of the above
e) only a and c above
51. If the Federal Reserve Bank is concerned that inflation is too high, its actions in a Table Atype economy are likely to result in:
a) more construction of condominiums because of the change in interest rates
b) greater purchases of imported wine
c) higher income tax revenues for the Federal government
d) all of the above
e) none of the above
52. A demand-management response by the Congress to recessionary conditions in a Table Atype economy are likely to result in:
a) more jeans purchases by households who have received a tax cut
b) increased profits tax revenues from corporations whose profits are higher
c) higher demand for American airplanes by foreign airlines because U.S. GDP rises
d) all of the above
e) only a and b above
53. A demand-management response by Congress to excessive inflationary conditions in a Table
A-type economy are likely to result in:
a) lay-offs in defense industries
b) greater job opportunities in the consumer goods sector
c) greater imports of German textile-making equipment
d) increased hiring of Supreme Court clerks
e) all of the above
54. You have become an expert web surfer. You decide to make arrangements for your Spring
Break by making electronic contact with a Cancun hotel. You receive a message that this
hotel will charge you 540 pesos per night for a room if you book it quickly. In the Wall Street
Journal, you read that the current exchange rate is 9 pesos=$1. In order to decide whether to
book this room, you figure that it will cost you:
a) $549 per night
b) $531 per night
c) $486 per night
d) $60 per night
e) $69 per night
55. If instead of booking a room, you decide to buy the whole Cancun hotel and rent out rooms
to American college students, your purchase transaction would involve:
a) a supply of pesos
b) a demand for pesos
c) a supply of dollars
d) both a and c above
e) both b and c above
56. Your purchase of a Mexican hotel will, in flexible exchange rate system, tend to:
a) increase the international value of the peso
b) decrease the international value of the peso
c) increase the international value of the dollar
d) both a and c above
e) both b and c above
57. Consider the production possibility frontiers in Figure II. If we can ignore the fact that there
are more workers in China than in the U.S., we could conclude that:
a) the U.S. has a comparative advantage in shirts
b) China has a comparative advantage in shirts
c) the U.S. has an absolute advantage in shirts
d) both a and c above
e) both b and c above
58. In view of the information in Figure II, both countries would be better off if:
a) China traded 100 planes for 1800 million shirts
b) the U.S. traded 190 million shirts for 10 planes
c) the U. S. traded 2000 million shirts for 100 planes
d) China traded 4000 million shirts for 250 planes
e) both a and b
59. Consider the following market conditions in the two countries:
TABLE B
At a shirt price of:
US supply
US demand Chinese supply Chinese demand
$28 (Y224)
1.0 b. shirts 1.0 b. shorts 3.5 b. shorts
0.5 b. shorts
$22 (Y176)
0.75 b.
1.5 b.
3.0 b.
0.75 b.
$16 (Y128)
0.5 b.
2.0 b.
2.5 b.
1.0 b.
$10 (Y80)
0.25 b.
2.5 b.
2.0 b.
1.25 b.
$ 4 (Y32)
0
3.0 b.
1.5 b.
1.5 b.
We have assumed that the exchange rate between their two currencies is 1 U.S. $ = 8
Chinese Yuans. But if shorts trade was not permitted between the two countries, their separate
equilibria indicate that:
a) the U.S. shorts price is lower than the Chinese shorts price
b) the U.S. shorts output is lower than the Chinese shorts output
c) the U.S. is more efficient in shorts production
d) all of the above
e) none of the above
60. According to Table B, if free trade opened up between China and the U.S. at a $1=8 Yuan
exchange rate, we could expect to see an equilibrium in which (compared to no trade):
a) the price of shorts in the U.S. would decrease
b) the output of shorts in the U.S. would decrease
c) the U.S. would be buying $24 billion worth of Chinese shorts
d) the Chinese would be buying fewer shorts
e) all of the above
61. According to Figure III, if the market for currencies was based only on the interests of
importers and exporters, a fixed $1=6Yuan exchange rate would :
a) result in a U.S. trade deficit of $300 billion
b) send more dollars out of the U.S. than would return in payment for our goods
c) result in a Chinese trade deficit
d) require that China settle up international accounts by shipping gold to the U.S.
e) both c and d
62. According to Figure III, a $1=6Yuan exchange rate is a disequilibrium rate. If this market
moved to equilibrium,
a) the U.S. would be importing $350 billion worth of Chinese goods
b) there would be a balance of trade in the U.S.
c) China would be importing 2.8 trillion Yuan worth of American goods
d) all of the above
e) only a and b above
63. If there were flexible exchange rates and the U.S. experienced a decrease in its GDP, we
could expect to see:
a) an increase in the U.S. demand for foreign goods
b) an increase in the supply of $ to the foreign exchange market
c) a reduction in the value of the $ internationally
d) all of the above
e) none of the above
64. There was a Floridian named Chad,
Whose popularity was merely a fad,
Trying simply to punch him out,
Many voters found him too stout,
a) And Florida turned into the State of Mad
b) And the loser’s the one who wanted it So Bad
c) And the winner’s The Son of The Dad
d) But the Supreme Court said “Done” and we’re glad.
* * * * * *HAPPY HOLIDAYS * * * * * * *