ECON 103- MID TERM EXAM 2015

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ECON 103- MID TERM EXAM 2015

Question # 00152494 Posted By: expert-mustang Updated on: 12/15/2015 08:48 AM Due on: 12/15/2015

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ECON 103- MID TERM EXAM(COVERED ON THE CONCEPTS in the assigned reading from week 1 to week 4) (100 POINTS)

A-MULTIPLE CHOICE -PLEASE ANSWER THE FOLLOWING (35 POINTS-1 point each)

1- Identify the logic of economics that those who have not studied economics may fail to understand.

a.	The implicit cost of a commodity is always higher than the explicit cost.
b.	Individual wants are limited by means.
c.	Private goods do not have a social cost.
d.	Public goods are available to us freely.
e.	There are costs to everything.

2- Economics is the study of how people use:

a.	their scarce resources to satisfy their basic wants.
b.	their scarce resources to attempt to satisfy their unlimited wants.
c.	the natural resources to satisfy their basic wants.
d.	the natural resources to attempt to satisfy their unlimited wants.
e.	their resources to influence the tastes and preferences of others.

3- Which of the following is an example of capital as a factor of production?

a.	Products such as machinery and equipment that are used in the production process
b.	The financial condition of a privately held corporation
c.	The value of a company’s stock on the New York Stock Exchange
d.	A company’s outstanding liabilities
e.	A business cash flow

4- Which of the following is true of microeconomics?

a.	It is often a focal point of debates in a presidential campaign.
b.	It is the study of the behavior of individual firms and individual consumers.
c.	It is often focused on the tradeoff between the rate of inflation and the unemployment rate.
d.	It is based on theories that help us understand the relationship between the money supply and interest rates.
e.	It is the study of the economy in aggregate.

5- Which of the following is considered a macroeconomic question?

a.	How can one particular firm maximize profits?
b.	How does a family allocate income among various available goods and services?
c.	How can economic policy fight inflation?
d.	What factors determine the wage rate in a certain industry?
e.	What is the impact of competition on the profits of a business?

6- Money exchanges are more efficient than barter because:

a.	money exchanges do not require a double coincidence of wants.
b.	the government guarantees the value of money.
c.	money usually has an intrinsic value.
d.	money is backed by a physical commodity.
e.	opportunity costs are higher with barter trades.

7- The amount of a product that people are willing and able to purchase at a specific price is referred to as the:

a.	demand.
b.	quantity demanded.
c.	law of demand.
d.	consumption function.
e.	purchasing power.

8- Which of the following statements correctly defines the law of demand?

a.	The lower the price of a commodity, the lower the quantity demanded of that commodity.
b.	As the price of a commodity increases, the quantity demanded of that commodity also increases.
c.	The lower the price of a commodity, the greater the quantity of that commodity that is demanded.
d.	The lower the price of a commodity, the greater the quantity of that commodity that is supplied.
e.	The quantity demanded of a particular good decreases with an increase in the price of a substitute good.

9- Which of the following is true of the law of supply?

a.	The law of supply is the sole determinant of market prices.
b.	The law of supply states that as the price of a good rises, the quantity supplied rises.
c.	The law of supply holds good only in the long-run.
d.	The law of supply is valid only in a market system of allocation.
e.	The law of supply asserts that as the cost of producing a good rises, the quantity supplied rises.

10- Which of the following is true of a price floor?

a.	A price floor allows supply and demand to function effectively.
b.	A price floor is set such that the price is not allowed to increase above a certain level.
c.	A price floor is beneficial to buyers in a market.
d.	A price floor usually creates a shortage of a good in a market.
e.	A price floor is set such that the price is not allowed to decrease below a certain level.

11-To avoid double counting in calculating GDP,

a.	net exports should be excluded.
b.	the value of intermediate goods and services should be excluded.
c.	the capital consumption allowance should be excluded.
d.	business investment should be excluded.
e.	government purchases should be excluded.

12- Which of the following accounts for the largest percentage of output in the United States?

a.	The government
b.	Business firms
c.	Households
d.	Banks
e.	The rest of the world

13- Which of the following can be a valid reason for Canada’s GDP exceeding its GNP in 2001?

a.	Net factor income from abroad in Canada was negative.
b.	Canada’s GNP measurements were flawed.
c.	Canada’s indirect business taxes were exceptionally high.
d.	The World Bank underestimated Canada’s net exports.
e.	Canada’s residents received more foreign aid than they could spend.

14- In terms of price indexes, what is a COLA?

a.	A measure of the quality of living
b.	A consumer price adjustment
c.	An increase in wages designed to match consumer price increases
d.	An estimate of gross domestic product
e.	A measure of producer surplus

15-Which of the following is explained by the price elasticity of demand?

a.	The effect of price changes on supply.
b.	The effect of quantity changes on supply.
c.	The effect of quantity changes on price.
d.	The effect of price changes on quantity demanded.
e.	The effect of price changes on quantity supplied.

16- A 0.5% increase in the price of a particular product causes the quantity demanded of the product to drop to zero. This means that the price elasticity of demand for the product is:

a.	moderately inelastic.
b.	highly inelastic.
c.	unitary elastic.
d.	perfectly inelastic.
e.	perfectly elastic.

17- If $1 was equivalent to 120 Japanese yen in 2008 and 125 Japanese yen in 2010, it implies in 2010, there was:

a.	a depreciation of the dollar against the yen.
b.	a depreciation of the yen against the dollar.
c.	an appreciation of the yen against the dollar.
d.	no change in the value of yen, but the dollar had weakened.

19-For a given product, income elasticity of demand relates the percentage change in:

a.	quantity demanded to the percentage change in income.
b.	quantity demanded to the absolute change in income.
c.	income to the percentage change in price.
d.	price to the absolute change in quantity demanded.
e.	income to the percentage change in quantity available for sale.

20- A commodity money standard exists when exchange rates are:

a.

artificially pegged to the price of oil.

b.

fixed in terms of gold, thus creating flexible exchange rates between countries.

c.

fixed in terms of gold, thus creating fixed exchange rates between countries.

d.

allowed to fluctuate based on the values of different currencies.

e.

fixed, based on the values of different currencies, in terms of some commodity.

21-A measure of the responsiveness of quantity supplied to changes in price is known as _____.

a.	cross-price elasticity
b.	price elasticity of demand
c.	price elasticity of supply
d.	income elasticity
e.	point elasticity

22- Utility is most closely defined as _____.

a.	the purchasing power of individuals
b.	welfare maximization
c.	a medium of exchange
d.	satisfaction
e.	an opportunity cost

23-When economists describe the theory of consumer choice, they

a.	portray people as simple and methodical with perfectly predictable patterns of behavior.
b.	assert that consumers decide which goods and services give them the greatest utility within their limited incomes.
c.	point out that consumers rarely consider utility in their purchase decisions; they look at other factors like convenience, peer behavior, and price.
d.	assert that the retail price is the only variable consumers really consider in making their purchasing decisions.
e.	admit that consumer behavior is random and there is no credible economic theory to explain the phenomenon.

24-Marginal utility is _____.

a.	always greater than total utility
b.	utility that is not as good as normal utility
c.	the extra utility derived from consuming one additional unit of a good or service
d.	always positive
e.	not related to total utility

25- Jason is trying to decide whether to buy a bagel or a muffin for breakfast. The bagel costs $.50 and has a marginal utility of 5. The muffin costs $1 and has a marginal utility of 20. Which should he buy, and why?

a.	The muffin, because it has a higher marginal utility
b.	The muffin, because it has a lower marginal utility per dollar
c.	The bagel, because it costs less
d.	The bagel, because it has a higher marginal utility per dollar
e.	The muffin, because it has a higher marginal utility per dollar

26- Which of the following can be categorized as a commodity money standard?

a.	The pegged exchange rate standard
b.	The free float standard
c.	The managed float standard
d.	The reserve currency standard
e.	The gold standard

27- The exchange-rate arrangement that emerged from the Bretton Woods conference is often referred to as the:

a.	dollar exchange standard.
b.	euro exchange standard.
c.	gold exchange standard.
d.	silver exchange standard.
e.	flexible exchange rate standard.

28- A reserve currency is a currency that is:

a.	used exclusively to settle domestic debts.
b.	specifically designed for use by commercial banks to settle accounts.
c.	held only by bureaucrats.
d.	used to settle international debts by private corporations.
e.	held by governments to facilitate foreign exchange market interventions.

29- The focal point of the Bretton Woods system was the:

a.	Great Britain pound.
b.	institution of special drawing rights.
c.	U.S. dollar.
d.	gold reserve.
e.	management of commodity money.

30- Foreign exchange market intervention is most effective when:

a.	each country’s political leaders agree to cooperate fully with the process.
b.	leading economists in each country concur that intervention is needed.
c.	permanent differences between the free market exchange rate and the fixed exchange rate are expected.
d.	temporary differences between the free market exchange rate and the fixed exchange rate are expected.
e.	all the countries restrict the international movement of goods and services.

31- The exchange rate that is established in the absence of foreign exchange market intervention by the government is known as a(n):

a.	historical anachronism.
b.	fixed exchange rate.
c.	“dirty float” exchange rate.
d.	unmanaged exchange rate.
e.	free market equilibrium exchange rate.

32- What is a currency board?

a.	A fixed exchange rate that, by law, exchanges domestic currency for a specified foreign currency at a fixed exchange rate.
b.	A floating exchange rate.
c.	A managed floating exchange-rate policy that the government adjusts periodically according to some economic indicator.
d.	A laissez-faire exchange-rate policy.
e.	An interventionist exchange-rate policy.

33- Assume that a country’s government influences the exchange rate through active central bank intervention, with no pre-announced path. This policy is known as a(n):

a.	floating exchange-rate policy.
b.	managed floating exchange-rate policy.
c.	fixed exchange-rate policy.
d.	crawling-peg exchange-rate policy.
e.	interventionist exchange-rate policy

34- Equilibrium in the foreign exchange market occurs:

a.	at the point where the foreign exchange demand and supply curves intersect.
b.	at the point where the foreign exchange demand and supply curves reach maximum separation.
c.	when two nations’ economic leaders agree on the appropriate exchange rate.
d.	when two nations’ diplomatic leaders agree on an exchange rate that meets both countries’ needs.
e.	only by chance, if at all, because they change very frequently.

35- The supply of Thai baht in the foreign exchange market originates with:

a.	tourists who go on vacation to Thailand.
b.	the export of Thailand oranges and other goods.
c.	Thai residents who wish to purchase goods from other countries.
d.	the Thai royal family.
e.	Thai central bank intervention to stop the peseta from depreciating.

B-TRUE/FALSE ( 16 POINTS-1 point each)

1- Producers use inputs, or resources, to produce their goods.

2-If unemployment rises when beer consumption rises, then the statement “Rising unemployment is the result of increased beer consumption” is an example of the ceteris paribusfallacy.

3-The study of inflation and unemployment in East Timor is in the realm of microeconomics.

4- According to the law of demand, if the price of a netbook decreases, ceteris paribus, the demand for netbooks would increase.

5- Assume that the supply curve for tomatoes is upward sloping. If the price per pound increases from $0.99 to $1.89, a greater quantity of tomatoes will be supplied to the market.

6- GDP is based on the market value of goods and services produced in an economy and not on the value of only final goods and services.

7- To arrive at a more accurate measure of real output changes in an economy, nominal GDP figures should be adjusted for inflation.

8-The price elasticity of demand depends on how readily and easily consumers can switch their purchases from one product to another.

9-The World Bank was created to help finance economic development in poor countries.

10- Fixed exchange rates serve as a constraint on inflationary government policies.

2-

11- Appreciation of the dollar means that now it takes more dollars to buy one unit of foreign currency.

12- T

12 -Purchasing power parity holds when the exchange rate is equal to the product of the foreign price level and the domestic price level.

13-Because of their greediness, speculators are considered bad for exchange-rate markets.

14-The theory of bounded rationality states that it is likely for consumers to have perfect information.

15- As the price of a good declines, a utility-maximizing consumer will respond by purchasing more of that good.

16-If cherries cost twice as much as dates, and the last cherry consumed provides twice as much utility as the last date consumed, the consumer is maximizing utility.

3-

C-SHORT QUESTIONS (49 POINTS - 7 POINTS EACH)

1- Why study Economics in Information Age? What is the difference between Macroeconomics and Microeconomics? Give examples to substantiate your answer.

2-Why does the demand curve slope down? Why does the supply curve slope up? Give examples.

3-What is GDP? How it is different from GNP? Does information technology help in assessing the GDP more accurately? How help it is for Economist in forecasting for future?

4-How do individuals of one nation trade money with individuals of another nation?

5-List the goods you believe are price inelastic and price elastic and explain why.

6-How do changes in exchange rates affect international trade? How do nations record their transactions with the rest of the world?

7-Define foreign exchange and the foreign exchange market. PROVIDE EXAMPLES. Distinguish between appreciation and depreciation of a currency. PROVIDE EXAMPLES

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