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When a state government chooses to build more roads, the required resources are no longer available for spending on public education

DEVRY ECO312/ECO 312 FINAL EXAM (100% SOLUTION) Question 1.1. (TCO 1) When a state government chooses to build more roads, the required resources are no longer available for spending on public education. This dilemma illustrates the concept of (Points : 4) production expenses. unemployment issues. unintended consequences. opportunity cost. Question 2.2. (TCO1) Which is not a factor of production? (Points : 4) Money Land Labor Capital Question 3.3. (TCO1) A point on the production possibilities curve is (Points : 4) attainable and resources are fully employed. attainable, but resources are unemployed. unattainable, but resources are unemployed. unattainable and resources are fully employed. Question 4.4. (TCO1) A basic characteristic of a command system is that (Points : 4) wages paid to labor are higher. government owns most economic resources. free markets are never permitted in a command economy. government planners play a limited role in deciding what goods will be produced. Question 5.5. (TCO 2) Which is consistent with the law of demand? (Points : 4) A decrease in the price of tacos causes no change in the quantity of tacos demanded. An increase in the price of pizza causes an increase in the quantity of pizza demanded. An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded. A decrease in the price of turkey sandwiches causes a decrease in the quantity of turkey sandwiches demanded. Question 6.6. (TCO 2) What combination of changes would most likely decrease the equilibrium price? (Points : 4) When supply decreases and demand increases When demand increases and supply increases When demand decreases and supply decreases When supply increases and demand decreases Question 7.7. (TCO 2) When the price of movie tickets in a certain town was reduced, the movie theaters’ revenues did not change. This suggests that the demand for movie tickets in that town has a price-elasticity coefficient of (Points : 4) 1.0. greater than 1. 0.5. zero. Question 8.8. (TCO 2) The price elasticity of demand increases with the length of the period considered because (Points : 4) consumers’ incomes will increase over time. the demand curve will shift outward as time passes. all prices will increase over time. consumers will be better able to find substitutes. Question 9.9. (TCO 2) A purely competitive firm’s output is such that its marginal cost is $4 and marginal revenue is $5. Hint: remember that MR = P for Pure Competition and the Profit Maximizing rule. Assuming profit maximization, the firm should (Points : 4) cut its price and raise its output. raise its price and cut output. leave price unchanged and raise output. leave price unchanged and cut output. Question 10.10. (TCO 2) Which would definitely not be an example of price discrimination? (Points : 4) A theater charges children less than adults for a movie. Universities charge higher tuition for out-of-state residents. A doctor charges for services according to the income of patients. An electric power company charges less for electricity used during off-peak hours when production costs are lower. Question 11.11. (TCO 3) In the kinked demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to (Points : 4) decrease their prices. increase their prices. not change their prices. reduce their quantity. Question 12.12. (TCO 3) In the short run (Points : 4) a firm cannot vary its output level. all factors of production can be varied. a firm can change its fixed inputs. output is raised or reduced by changing the levels of variable inputs. Question 13.13. (TCO 4) Refer to the diagram. The phases of the business cycle from points A to D are, respectively: Graph Description (Points : 4) Peak, recession, expansion, trough Trough, recovery, expansion, peak Expansion, recession, trough, peak Peak, recession, trough, expansion Question 14.14. (TCO 4) In calculating the unemployment rate, part-time workers are (Points : 4) counted as unemployed because they are not working full-time. counted as employed because they are receiving payment for work. used to determine the size of the labor force, but not the unemployment rate. treated the same as “discouraged” workers who are not actively seeking employment. Question 15.15. (TCO 4) To avoid multiple counting in national income accounts (Points : 4) only final goods and services should be counted. intermediate goods and services should be counted. both final and intermediate goods and services should be counted. primary, intermediate, and final goods and services should be counted. Question 16.16. (TCO 4) GDP tends to overstate economic well-being because it takes into account (Points : 4) improvements in product quality over time. expenditures undertaken to correct pollution. illegal activities of individuals and businesses. nonmarket activities, such as the productive work of homemakers. Question 17.17. (TCO 6) Fiscal policy is enacted through changes in (Points : 4) interest rates and the price level. the supply of money and foreign exchange. unemployment and inflation. taxation and government spending. Question 18.18. (TCO 6) Refer to the graph. What combination would most likely cause a shift from AD1 to AD3? Graph Description (Points : 4) Increases in taxes and government spending Decrease in taxes and increase in government spending Increase in taxes and decrease in government spending Decreases in taxes and government spending Question 19.19. (TCO 6) Which of the following serves as an automatic stabilizer in the economy? (Points : 4) Interest rates Exchange rates Inflation rate Progressive income tax Question 20.20. (TCO 6) If people expected that a tax cut was temporary, then this fiscal policy’s effect on the economy will tend to be (Points : 4) stronger. weaker. the exact opposite of what was intended. as the multiplier effect would predict. Page 2 Question 1.1. (TCO 5) A decrease in government spending will cause a(n) (Points : 4) increase in the quantity of real domestic output demanded. decrease in the quantity of real domestic output demanded. decrease in aggregate demand. increase in aggregate demand. Question 2.2. (TCO 5) The long-run aggregate supply curve is (Points : 4) upward-sloping and becomes steeper at output levels above the full-employment output. upward-sloping and becomes flatter at output levels above the full-employment output. horizontal. vertical. Question 3.3. (TCO 5) If the price of crude oil decreases, then this event would most likely (Points : 4) decrease aggregate supply in the U.S. increase aggregate supply in the U.S. increase aggregate demand in the U.S. decrease aggregate demand in the U.S. Question 4.4. (TCO 5) With cost-push inflation in the short run, there will be (Points : 4) an increase in real GDP. a leftward shift in the aggregate demand curve. a decrease in real GDP. a decrease in unemployment. Question 5.5. (TCO 6) Dissaving occurs when (Points : 4) income is greater than saving. income is less than consumption. saving is greater than consumption. saving is greater than the interest rate. Question 6.6. (TCO 7) The M1 money supply is composed of (Points : 4) all coins and paper money held by the general public and the banks. bank deposits of households and business firms. bank deposits and mutual funds. checkable deposits and currency in circulation. Question 7.7. (TCO 7) United States currency has value primarily because it (Points : 4) is legal tender, is generally acceptable in exchange for goods or services, and is backed by the gold and silver of the federal government. is generally acceptable in exchange for goods or services, is backed by the gold and silver of the federal government, and facilitates trade. is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services. facilitates trade, is legal tender, and permits the use of credit cards and near-monies. Question 8.8. (TCO 7) The Federal Reserve System consists of which of the following? (Points : 4) Federal Open Market Committee and Office of Thrift Supervision Federal Deposit Insurance Corporation and Controller of the Currency U.S. Treasury Department and Bureau of Engraving and Printing Board of Governors and the 12 Federal Reserve Banks Question 9.9. (TCO 7) Which of the following is the most important function of the Federal Reserve System? (Points : 4) Setting reserve requirements Controlling the money supply Lending money to banks and thrifts Acting as fiscal agent for the U.S. government Question 10.10. (TCO 7) Money is “created” when (Points : 4) a depositor gets cash from the bank’s ATM. a bank accepts deposits from its customers. people receive loans from their banks. people spend the incomes that they receive. Question 11.11. (TCO 7) The establishment of a federal deposit insurance program resulted from the (Points : 4) establishment of the Federal Reserve System in 1913. speculation during World War I. stock market crash of 1987. bank panics of 1930-1933. Question 12.12. (TCO 7) The purchase and sale of government securities by the Fed is called (Points : 4) federal funds market. open market operations. money market transactions. term auction facility. Question 13.13. (TCO 7) The tools of monetary policy for altering the reserves of commercial banks are the (Points : 4) tax rate, transfer payments, and level of government spending. consumer price index, inflation, and unemployment rate. public debt, budget surplus, budget deficit, and interest rates. discount rate, reserve ratio, open market operations, and term auction facility. Question 14.14. (TCO 8) Which country is the United States’ largest trading partner in terms of volume of trade? (Points : 4) Mexico Japan China Canada Question 15.15. (TCO 8) Nation X has a comparative advantage in the production of a product compared to Nation Y when (Points : 4) it imposes a tariff on the importation of the product. its production possibilities curve expands, allowing it to produce more of the product. it is achieving full employment and is producing the maximum amount of the product. it has the lower domestic opportunity cost of producing the product. Question 16.16. (TCO 8) An excise tax on imported commodities is known as a(n) (Points : 4) quota. tariff. export restriction. price ceiling. Question 17.17. (TCO 8) Tariffs and quotas are costly to consumers because (Points : 4) the price of the imported good falls. the supply of the imported good increases. import competition increases for domestic goods. consumers shift purchases to higher-priced domestic goods. Question 18.18. (TCO 8) Tariffs and import quotas would benefit the following groups, except (Points : 4) consumers of the product. domestic producers of the product. workers in domestic firms producing the product. the government of the importing country. Question 19.19. (TCO 8) Which organization meets regularly to establish rules and settle disputes related to international trade? (Points : 4) The United Nations Commission on Trade Law The United Nations Conference on Trade and Development The World Trade Organization The Federal Reserve Board Question 20.20. (TCO 9) French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be (Points : 4) supplying dollars and also supplying euros in the foreign exchange market. demanding dollars and also demanding euros in the foreign exchange market. supplying dollars and demanding euros in the foreign exchange market. supplying euros and demanding dollars in the foreign exchange market. Page 3 Question 1.1. (TCO 9) In the balance of payments statement, a current account surplus will be matched by a (Points : 4) capital and financial accounts deficit. capital and financial accounts surplus. trade deficit. trade surplus. Question 2.2. (TCO 9) If the United States wants to regain ownership of domestic assets sold to foreigners, it will have to (Points : 4) increase domestic consumption. increase its national debt. export more than it imports. import more than it exports. Question 3.3. (TCO 9) Foreign exchange rates refer to the (Points : 4) price at which purchases and sales of foreign goods take place. movement of goods and services from one nation to another. price of one nation’s currency in terms of another nation’s currency. difference between exports and imports in a particular nation. Question 4.4. (TCO 9) If the exchange rate is $1 = 0.7841 euro, then a French DVD priced at 20 euros would cost an American buyer (excluding taxes and other fees) (Points : 4) $15.68. $20.78. $25.51. $27.84. Question 5.5. (TCO 9) Which system would be accompanied by occasional currency interventions by central banks to stabilize or alter rates to avoid persistent balance of payments deficits or surpluses? (Points : 4) Gold standard Fixed exchange rates Flexible exchange rates Managed floating exchange rates Question 6. 6. (TCO 8) a) Explain four problems with the argument that trade protection is needed to protect American jobs. b) Describe the economic reasons why businesses use offshoring. (Points : 40) Question 7. 7. (TCO 6) a) Identify the four major tools of monetary policy. b) How can monetary policy address the problem of inflation? (Points : 40)

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