Practice Questions Flashcards by Alexandria Carter

Which of the follow is NOT a basis for trade between two nations?

b. one nation’s absolute advantage

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For each watch Denmark produces, it gives up the opportunity to make 50 pounds of cheese. Germany can produce one watch for every 100 pounds of cheese it produces. Which of the following is true with regard to opportunity costs in the two countries?

a. The opportunity cost of producing cheese if higher in Denmark.
- same products but denmarks OC is lower which is better

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Malinda’s farm is capable of producing Beets and Corn. Malinda would like to increase her production of Beets and Corn, and so she is considering her available options. If Malinda converts two acres of forest into usable farmland, her productions possibilities will experience…?

c. extensive growth.

expanding the quantity of inputs= increase in the quantity of outputs

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Which of the following is TRUE?

a. international trade makes it possible for a country’s consumption possibilities to exceed its production possibilities.
- if a foreign good is in high demand the consumption for that good will rise therefore the consumption will be greater than production

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It is observed that consumers buy more Sushi on Saturdays when there is a “Ladies night” special of 1/2 price on all drinks at the local restaurant, Geisha. Given the ceteris paribus assumption, you conclude that drinks and sushi are:

a. compliments

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Assume that corn ethanol and corn oil are competing goods that could be produced by most corn processors. An increase in the price of ethanol will…?

c. decrease the supply of corn oil.
- the consumer wants the best thing= higher price= better quality= increase in the price of ethanol= decrease in supply of corn because its in low demand

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Suppose that two events occur simultaneously in the US market for health care, a normal good: (1) an increase in the number of immigrant doctors and (2) the economy enters a recessions (which decreases consumers’ income). An economist would predict with certainty that..?

a. equilibrium price will fall

- consumers income decreases= equilibrium price decreases because people are cutting back on expenses.

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Dr. Lee sells a house she has owned for 10 years. To make it more marketable, she buys carpeting and has ir professionally installed, and buys wall paper that her husband hangs. Which items would be included in this years GDP?

e. the sale price of the wallpaper and the carpeting and the installation fee for the carpet.
- GDP recognizes finals sale of goods and services.

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Tim, a US citizen in Econ1015, decides to take a backpack trip to Europe for the summer While traveling, Tim stops in various places and works in a local restaurant to make extra spending money. We know that he is contributing to the GDP of ___ and the GNP of ____.

a. Europe; The US
- GDP one country’s standard of living= if he lives in Europe then he is contributing to Europes GDP but since he is earning an income (overseas) then he is contributing to the GNP of the US

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Using the rule of 70, a sustained 3.5 percent per year real GDp growth rate will…?

b. quadruple the current level of real GDP in about 40 years.
- take the number 70 and divide it by the growth rate

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Which of the following is the best example of an INTERMEDIATE GOOD?

d. the steel used to make refrigerators.

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Which of the following items is NOT counted as part of Government Purchases?

d. the state of Missouri pays $12,260 to help a welfare mom, Tanya, for her medical bills.

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In a small country, using prices of 2007, GDp in 2007 was $200 and GDP in 2008 was $220. Using prices of 2008, GDP in 2007 was $300 and GDP in 2008 was $315. The country’s BEA will calculate___percent as the growth in real GDP between those years

b. 7.5

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Which of the following is a reason why government is a participant in a market-oriented economy?

a. to enforce contracts and to protect private property rights

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GDP may OVERSTATE the economy’s welfare because GDP does not account for the:

d. all of the above
- air quality deteriorating because of the auto industry
- water quality deteriorating due to hog farming
- distribution of income becoming increasingly unequal

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Hyundai, a Korean automobile company, produces cars in the US, with some of those cars being exported to other nations and some of them being sold within the US. If the prices of these cars decreases then…?

e. the GDP deflator and the CPI will both decrease

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Suppose the price of a gallon of milk rises from $3.00 to $3.30 and the price of yogurt rises from $0.50 to $1.00. If the CPI rises from 100 to 140, then people will likely buy….?

b. more milk and less yogurt.

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Emily purchased one share of Stryker stock for $200 in year 1 and sold that share in year 2 for $400. The inflation rate between year 1 and year 2 was 50%. If the capital gains tax is 50%, what’s Emily’s after tax- real capital gain if the tax is on nominal gains? What is it if the tax is on real gains?

a. $0; $50
the increase of gains she got between year 1 and 2 was $200. then the capital gains tax on that is 50%(inflation rate) so multiply $200 by .50 which gives you $100 in real gains. but the gains tax is 50% so multiply that times the 100 and that gives you the capital gains of only $50

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Which of the following if FALSE according to lecture and/or text?

d. because of activity in the underground economy, GDP statistics overstate the true volume of economic activity

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Which of the following is NOT considered a cost of unemployment?

c. higher inflation rates

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The practice of reducing rish through diversification could be summed up by the phrase:

d. don’t put all your eggs in one basket

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Vincent buys health insurance and then he requests an unreasonably high number of certifications to see specialists. Alex buys automobile insurance because he knows that he has narrowly avoided many accidents. The example with Vincent…

d. best illustrates moral hazard, the example with alex best illustrates adverse selection

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In the country of Happy Accountants, the CPI in 2008 was 150 and the CPI in 2009 was 165. Adam, a resident of Happy Accountants, borrowed money in 2008 and repaid the loan in 2009. If the nominal interest rate on the loan was 7 percent, then the real interest rate Adam paid was…?

d. -3%
-I= CPI (20090- CPI (2008)/ CPI (2008)
(165-150)/150=10%
Nominal interest rate=7%
R=NIR-I
R=7%-10%=-3%

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Assume GDp is $7,000; Consumption Expenditure is $5,500; Total Tax Collection is $2,200; Government Transfer and Interest Payments are $1,200. Suppose the government is running a budget surplus of $100. Then, we know that net taxes (T) is ____ and government purchases (G) is ____

c. $1,000; $900

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Little Reece has been mowing his neighbors lawns since he was nine for $10 a lawn. Recently he turned 16 and his lawn mowing business is thriving. If Reece decides NOT to report his earning to the IRS, which of the following changes in the labor market does the BLS observe?

a. The working age population has increased

Suppose Macroland had an adult population of 100 million, the labor force participation rate was 65 %, and there were 6.5 million unemployed people. Which of the following is CORRECT?

b. The unemployment rate was 10%

AS the real wage rates rises, the opportunity cost of:

b. Leisure rises

According to lecture, which of the following is TRue of automatic stabilizers?

c. The effect of automatic stabilizers on the business cycle is to make both upswings and downswings smaller - to avoid extremes

Which of the following best illustrates the use of discretionary fiscal policy?

c. congress passes a bill authorizing $2 billion in additional spending when it receives news of a deepening recession

Which of the following is INCORRECT according to lecture and the text?

e. Shoeleather cost refers to the costs of adjusting price lists and other posted prices in order to cope with inflation

Sam and Carolyn face a progressive tax structure that has the following marginal tax rates: 0 percent on the first $20,000, 20% on the next $20,000 and 50% on all additional income. Sam earns $50,000 per year, and CArolyn earns $50,000 per year. If Sam and CArlyn get married, the "marriage penalty" will be

c. $16,000

If a poor family has three children in public school and a rich family has two children in private school, the BENEFITS principle would suggest that:

a. the poor family should pay more in taxes to pay for public education than the rich family

Which of the following describes a situation where tax laws give preferential treatment to specific types of behavior?

d. a tax loophole

Which of the following is FALSE according to lecture?

e. the largest source of revenue for the federal government is the sales tax

The aggregate supply curve can be shifted to the right by ALL BUT which of the following?

c. a one-time tax rebate to low-income families

Which of the following economic variables move in the same direction in general?

c. GDP growth, stock price and government tax revenues

Which of the following describes MENU COSTS of the Costs of Inflation?

b. The costs of adjusting price lists and other posted prices

Which of the following is INCORRECT according to TEXT or lecture?

a. the monetary base is also known as "high powered money" and it is controlled by the US Congress

Which of the following are NOT characteristics of a "good" medium of exchange?

e. it should have increasing purchasing power

Supposed that the Federal Reserves fears recession and decides to stimulate spending by increasing the quantity of money. If the Federal Reserve wishes to increase the money supply by $1,000,000 when the required reserve ratio is 0.2, which of the following actions will achieve the Fed's goal?

a. The fed must purchase $200,000 in bonds.

If an increase in excess reserves of $20 million increases checkable deposits in the banking system by a maximum of $200 million, the required reserve ratio is:

a. 10 percent

Under a fractional reserve banking system...

c. bank reserves represent only a fraction of bank deposits

Consider two countries. Country A has a population of 1,000 of whom 800 work 8 hours a day to make 128,000 final goods. Country B has a population of 2,000 of whom, 1,800 work 6 hours a day to make 270,000 final goods

b. Country A has lower productivity and lower real GDP per person than country B

Which of the following is FALSE about the great Depression

e. the type of unemployment increased dramaticall was probably frictional and structural unemployment

Which of the following is FALSE according to lecture or text?

c. the discount rate is the interest rate that commercial banks charge on loans to each other

When Molly transfers $3,000 from a demand deposit to a money market mutual fund,

c. M2 stays the same

Which of the following is FALSE according to lecture or text?

a. the quantity of money demanded is the money that the FED chooses to hold in its vauly

The interest rate that banks charge each other for overnight loans is called the:

Federal Funds Rate

The increase in the amount that government collects in taxes when the economy expands and the decrease in the amount that the governmeny collects in taxes when the economy goes into a recession is an example of

a. automatic stabilizers

Which of the following is INCORRECT according to lecture/ text?

b. the Congressional Budget Office estimates the effects of the 2009 stimulus package indicate that the stimulus package caused real GDP to equal potential GDP in 2011

Which of the following is an objective of fiscal policy?

d. High rates of economic growth

a decrease in the tax rate will ___ the disposable income of households and ____ the size of the multiplier effect

a. increase; increase

What is the meaning of "law-making lags" according to lecture?

d. it takes time for Congress to pass the laws needed to change taxes or spending

When the FOMC conducts_____, it tends to lead to an appreciation of the US currency, whereas when the FOMC conducts ____ it tends to lead to a depreciation of the US currency.

a. open market sales; open market purchases

Suppose a basket of goods costs $400 in the Us and 200 in britain. If the exchange rate is $1/pound, what will happen in the foreign exchange market, according to the purchasing power parity theory?

a. an increase in demand for pounds will lead to an increase in the price of pounds

In August 2011, global revenues for McDonald's increased by 11.3% when measured in local currencies, but increased by only 5.4 % when measure in dollars. The reason for this discrepancy is the value of the ....?

c. US dollar increased relative to most other currencies

Which of the following would be US foreign direct investment?

b. a US citizen opens and operates a law firm in Norway.

A depreciation of the Us nominal exchange rate induces US consumers to buy

b. more domestic goods and fewer foreign goods

Suppose that the dollar buys less cotton in Egypt than in the Us. Traders could make a profit by:

a. buying cottin in the US and selling it in Egypt, which would tend to raise the price of cotton in the US

You're traveling in Japan and are thinking about buying a new Kimono. You've decided you'd be willing to pay $175 for a new kimono, but kimonos in Japan are all priced in yen. If the kimono you're looking at costs 14,000 yen, under which of the following exchange rates would you be willing to purchase the kimono?

c. 80 yen per dollar 175x= 14,000 Solve for x & x=80

If a college student, Anna, from MU travels to Italy, the money spent on hotels and sight-seeing in Italy is conted as services ____ America and _____ Italy.

a. exported to; imported from

If there is currently a shortage of dollars, which of the following would you expect to see in the foreig exchange market?

a. the dollar will depreciate

If the exchange rate is 6 units of Peruvian currency per dollar and a hotel room in Lima costs 300 units of Peruvian currency, how many dollars do you need to get a room?

e. your purchase will increase Peru's net exports and decrease US net exports

If Californian increase their purchases of Italian wine, assuming all esle remains constant, this will______ of the United State

a. decrease the balance of trade

According to text, the US has a trade___ with all its major trading partners and a trade ____ with every region of the world

a. deficit; deficit

If a serious civil demonstration breaks out which kills many citizens and destroys much infrastructure, it will most likely result in:

e. Egyptian economy shrinking due to the loss of factors of production, represented by a shift of Egypt's PPF to PPF3

Overtime worked by a Macy's associate is considered______, a factor of production, and she earns_____ for her hours of work and effort.

a. labor and wages

Which of the following is a positive statement?

e. when the national unemployment rate is 9%, the unemployment rate for inner-city youth is often close to 40%

Which of the following defines the economizing problem?

a. scarcity dealing with unlimited wants and limited resources.

Which of the following would NOT shift the PPF?

e. more efficient use of existing resources and technology

Scott likes hotdogs. He has a budget of $100 to spend on food each month. When the price of hotdogs rises he buys fewer hotdogs. Which of the following best describes his behavior?

- Scott buys fewer hotdogs because a rise in the price of hotdogs has increased the opportunity cost of consuming it. Thus, schott is likely to substitute another good for hotdogs. - Law of demand describes this - scott buys fewer hotdogs because he can't affor to buy the same quantity of hotdogs anymore due to a decrease in the purchasing power of his income

Suppose that in 1980 an Apply Computer was sold for $4,000 and a bottle of vodka was sold for $10. Today, an identical Apple Computer sells for $1,000 whereas the bottle of vodka is sold for $20. We are therefore able to conclude that the relative price of an Apple Computer...?

c. has decreased from 400 bottles of vodka to 50 bottles of vodka

Suppose tha millions of illegal immigrants from Mexico enter the US. This has reduced the supply of unskilled labor in Mexico and increased the supply of unskilled labor in the US. Assume that the demands for labor in Mexico and the US are unchanged. As a result, the wages of unskilled laborers in Mexico must____ and the wages of unskilled laborers in the US must _____

b. rise; fall

When a Us citizens buys a bottle of Chardonnay made in S. Africa for $6, what will happen to the US GDP?

c. US consumption increases by $6, US net exports decreases by $6 and US GDP doesn't change.

Which of the following is the best indicator of the standard of living?

c. real GDP per capita

Which of the following is NOT counted as part of Government Purchases?

e. the unemployment insurance benefit paid to Hillary's sister, who lost her job as a secretary

Suppose Sophia gives up a $50,000 per year job to stay at home to take care of her garden and the house. By doing so, Sophia saves $20,000 in lawn care and house cleaning which she now performs herself. The effect of her decision on GDP is:

c. a decrease of $70,000

Suppose that Sam's Club buys a pound of prime cut filet mignon from a local rancher at $10 per pound. The manager of a local restaurant, Sycamore, buys the fillet at $15 per pound from Sam's Club to serve in his restaurant. His restaurant serves a pound of the fillet for $25 as a Valentine's Day special. how much do these economic activities contribute to GDP in a given time period?

c. $25

Which of the following would cause GDp to OVERSTATE the economy's welfare?

e. the amount of leisure decreases

Which of the following is TRUE according to lecture/text

a. because of activity in the underground or "shadow" economy, GDP statistics understate the true volume of economic activity

The US has experienced ____ dues to an increase in the average education level of the US workers, In addition, the US has experienced____ as a result of discovery of crude oil in Alaska.

e. Intensive growth; extensive growth

In the land of Macrolovers, using prices of 2009. GDP in 2009 was $200 and GDP in 2010 was $240. Using prices of 2010, GDP in 2009 was $300 and GDP in 2010 was $30. The BEA of the land of Macrolovers will calculate____ percent as the growth in the real GDP between those years

e. 15

If nominal GDP for a particular year is $15 trillion and real GDp for that year is $14 trillion, then the GDP price index for that year is

c. (15t/14t) * 100

Which of the following is INCORRECT according to text/ lecture

b. unemployment and inflation are not related

Which of the following is NOT considered a cost of unemployment?

c. higher inflation rates

Many firms pay their workers efficiency wages to:

b. recruit highly productive workers and encourage greater worker productivity

People suffer from inflation because it reduces the purchasing power of money. This is a description of:

b. inflation tax

Which of the following would be an example (s) of the Shoeleather cost of inflation?

d. the wear and tear on your car from additional trips to the bank

In 1931, President Herbert Hoover was paid a salary of $75,000. Government statistics show a consumer price index of 15.2 for 1931 and 195 for 2005. President Hoover's 1931 salary was equivalent to a 2005 salary of about:

b. $75,000 * (195/15.2)

Suppose that in the island of Levy, the CPI in year 1 was 100 and the CPI in year 2 was 106. Danielle, a resident of Levy, borrowed money in year 1 and repaid the loan in year 2. If the nominal interest rate on the loan was 9%, then the real interest rate paid was:

d. 3 % 106/100= 6% NIR-6%= real interest rate = 9-6=3

Suppose that Jasmine opens Calerway Accounting Service in Chicago, Illinois. At the time of Jasmine's 10 year high school reunion she was making $70,000 and the CPI was 120. now that it is time for her to attend her 20 year high school reunion, Jasmine's income has risen to $140,00 and the CPI is 180. At her 20 year reunion, can Jasmine rightfully brag that her nominal and real income have risen since the last time she saw her former classmates ten years ago?

a. yes, Jasmine's nominal and real income rose during that 10 year period.

Suppose that the price of a gallon of ice-cream rises from $5 to $6 and the price of a cup of Chicken Cordon Bleu Soup rises from $3 to $4. If the CPI rises from 150 to 200, then the people will likely buy:

b. more ice-cream and less chicken cordon bleu.

Suppose on the island of Happys it is observed that a typical Happy customer market basket includes 10 boxes of peaches and 15 bags of pecans. In 2006, peaches cost $11 per box, and pecans cost $6 per bag. In 2007, peaches cost $9 per box and pecans cost $10 per bag. We know that the market basket costs ___ in 2006 and it costs____ in 2007. Using 2006 as the Base Year, the value for the CPI in 2007 is_____

d. $200; $240; $120 110+90=200 90+150=240 CPI= 240/200=1.2% pr 120

If the inflation rate is higher in the US, which of the following person(s) in the US would be most likely to gain?

a. heather who borrowed $10,000 at a 6% interest rate from Tiger Credit Union to purchase a Ford Escort.

The substitution bias in the consumer price index refers to the idea that consumers ___ the quantity of products they buy in response to the change in their price, and the CPI doesn't reflect this and ____ the cost of the market basket.

a. change; over-estimate

According to text or lecture, which of the following is INCORRECT about the Consumer Price Index?

d. It assumes that consumers purchase the different amount of different products in the market basket each month.

The consumer price index would be likely to reflect the prices of the following goods and services except:

e. Bond of US corporations

If the price of a US made military unmanned aerial vehicle decreases by 9% then:

b. the GDP deflator will decrease and the CPI will be unchanged

Typically, the higher the level of income per person in a country, the higher the level of spending per person on health care. This relationship between income and spending indicates that health care is a

a. normal good.

Which of the following may not be a likely response to the asymmetric information problem in markets?

e. health insurance companies do not require physical exams before selling policies

According to text or lecture, which of the following is INCORRECT of the Patient Protection and Affordable Care Act?

a. Individual mandate requires that individuals are allowed to opt out of the insurance program if they can prove they have no serious health issues and do so before the act fully takes effect in the year 2012

_____ is the government's health plan for the elderly; whereas ___ is the government's health plan for the poor.

a. Medicare; Medicaid

If a fire insurance company requires firms buying fire insurance to install automatic sprinkler systems, the insurance company is trying to reduce

b. the moral hazard problem

In the United States, consumers usually pay____ than the true cost of medical treatment because of___

c. less; third-party payers

A key reason why some nations show little or no growth is

c. lack of incentives to undertake actions toward growth.

Suppose that the government runs a budget deficit. The ____ funds curve will shift left, effectively____ the interest rate and _____amount of loanable funds. This situation is know as a(n)____effect.

c. Supply of; increasing; decreasing; crowding out

Which of the following is FALSE?

a. incentives to work and save are increased when income taxes are higher

According to lecture, the two largets sources of tax revenue are:

c. personal income and social security tax

John and Taryn face a progressive tax structure that has the following marginal tax rates: 0 % on the first $50,000, 20% on the next $20,00 and 50% on all additional income. John earns $50,000 per year and Taryn earns $50,000 per year. If John and Taryn get married, the "marriage penalty" will be?

c. $19,000

The Us corporate income tax rate, one of the highest in the worl, is levied on company profits. ACcording to research and lecture, who really pays the corporate income tax?

- the shareholders of the company - the bondholders of the company - workers in the company, in the form of lower wages - consumers of the company's product in the form of higher prices for the company's product

Brittany's total income is now $50,000, on which she pays taxes of $15,000. She calculates that for every extra dollar she earns, she owes the government 40 cents. Determine her average tax rate and her marginal tax rate.

30% and 40% respectively

According to lecture, which of the following methods is a well established corporations like Yahoo least likely to use to fund a new investment?

e. issues stocks

According to lecture, with respect to the stock market, the acronym IPO stands for...?

b. initial public offering

Suppose that car engines of a certain engine manufacturer are discovered to be defective. Other things the same, this news would likely cause:

b. the demand for stock of this company to decrease, so the price would fall.

Suppose that Dr. Lee's Taco Casa stock is selling at $130 per share and it has retained earning pf $3 per share, and dividends of $5 per share. What is the price earnings ratio and what is the dividend yield.

c. 130/8, 5/130* 100

An entrepreneur, Alison, opens the private company, "scents of moore" and sells homeade candles over the internet. Her annual revenue is $64,000 per year, the explicit costs of her businesses are $17,000 and the opportunity costs of her business are $22,000. What is her accounting profit? What is her economic profit?

c. $47,000; $25,000

If you own a $1,000 face value bond with one year remaining to maturity and a five percent coupon rate and new bonds are paying 12%, what is the most you can get for your old bond?

d. $1,050/ (1+ 0.12)= $937.50

Suppose that Ian Simon is an economic consultant for the US department of defense. The US is considering whether to build a Border fence that will cost current taxpayers $10 billion. If the total benefit of having the Border fence is spread out over the next twenty years and the prevalent interest rate is 5% per year, what should Ian advise the Us government to do?

a. build the fence if the total benefit is greater than 10 billion X (1+0.05) 20

In August 2011, Standard and Poors changed its ranging on US Treasury Bonds from ____ based on the state of the federal government's budget deficit

e. AAA to AA

Your uncle sets up a Trust account for you to receive $200,000 ten years from today. Which of the following would be the present value of your Trust account if the interest rate is 6%?

$200,000/(1.06)^10

Sam is thinking of starting up a small business selling NASCAR memorabilia. He is considering setting up his business as a sole proprietorship. What is one disadvantage to SAm of setting up his business as a sole proprietorship?

d. as a sole proprietorship, Sam would face unlimited liability

According to text or lecture, which of the following is INCORRECT?

c. a bond buyer cannot sell a bond before it matures

Suppose that a nation of East Yahoo has net taxes of $5 trillion, government purchases of $6 trillion, and private savings of $7 trillion during 2010. We can conclude that investment must be equal to ____

a. $6 trillion 5 trillion + 7 trillion= 12 12-6 trillion= 6 trillion

Breonna, an accountant, opens the Lark Accounting Services in Chicago. Suppose that during her first year of business her monthly income exceeds her monthly expenditures. Breonna would be best described as a:

b. Saver or as a supplier of funds

According to text or lecture, which of the following best illustrates Adverse selection

c. spencer, who has narrowly avoided many accidents, applies for automobile insurance

Which of the following are helpful things to consider when making personal finance investment decisions?

e. considering all below - buying undervalued stocks - investing in diversified stocks earlier rather than later and holding stocks for a long period time - balancing returns and risks

In response to the question, "what are your feelings on recessions?" Kelsey Byland Responds, "I like a good recession. It cuts out the weak...its just survival of the fittest for businesses." Kelsey's statement about recessions:

b. may be true. recessions may lead to a more efficient society by driving inefficient firms out of business

Which of the following groups had the highest poverty rate in 1960 in the US?

a. elderly

Which of the following is INCORRECT about poverty and inequality?

e. the poverty rate of a country dramatically increases as the country experiences a faster and/or bigger economic growth

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