Section 1: 80 points

CHAPTER 1WHAT IS ECONOMICS?

1. Economics is
a. the narrow study of how to make money in financial markets
b. the broad study of how to allocate unlimited resources to satisfy limited uses
c. the broad study of how to allocate limited resources to satisfy unlimited wants
d. the narrow study of using stocks and bonds to their maximum potential
e. the narrow study of how to be conservative in financial affairs




2. Which of the following is the study of economic policy recommendations?
a. positive economics
b. law and economics
c. Microeconomics
d. development economics
e. normative economics



3. A good economic model
a. is as simple as possible, including only necessary details
b. is as complex as possible, including many details
c. represents reality as concretely as possible
d. tries to be as detailed as the reality it is describing
e. is very detailed regardless of its purpose


4. In one year, a weapons plant can manufacture either 1,000 more guns or 50 more tanks. The plant's
opportunity cost of an extra gun is approximately
a. 50 tanks
b. 20 guns
c. 20 tanks
d. 1/20 of a tank
e. 1/50 of a tank








Figure 1-1
Hours
Studying
Physics
Score
Geology
Score
0 40 30
1 50 60
2 60 80
3 85 90
4 90 100

5. Grant has six hours of time to divide between studying for a physics exam and a geology exam. Figure
1-1 shows his estimates of the grades (on a scale of 0 to 100) that he could earn from studying a
particular number of hours on each subject. If he plans on spending three hours studying geology, what
would be his opportunity cost of an additional hour studying geology?
a. 10 points on his geology exam
b. 20 points on his geology exam
c. 30 points on his geology exam
d. 25 points on his physics exam
e. 85 points on his physics exam



CHAPTER 2SCARCITY, CHOICE, AND ECONOMIC SYSTEMS




6. Combinations of goods outside the production possibilities curve
a. are unattainable given society's technology and resources
b. are combinations that have already been consumed
c. go beyond basic necessities
d. result from involuntary unemployment
e. are the result of economic recessions
a. lower production levels than would otherwise be possible
b. higher living standards than would otherwise be possible
c. more down-time as workers switch activities more frequently
d. the assignment of workers to activities according to their preferences
e. self-sufficiency


8. In a market system, resources are allocated by
a. the orders of authority
b. traditional practices
c. Prices
d. absolute advantage
e. production possibilities frontiers


7. Specialization and exchange result in
9. Which of the following could lead to an inward shift of the production possibilities frontier?
a. an increase in the cost of one good
b. an increase in the utilization of resources
c. a rise in the level of technology
d. a law is passed whereby a mandatory retirement age of 60 is imposed
e. a decrease in the utilization of resources

CHAPTER 3SUPPLY AND DEMAND


10. Which of the following statements about markets is false?
a. markets are used to allocate resources in market systems
b. markets can vary in geographical size
c. prices are used to allocate goods in markets
d. markets are used to allocate resources in centrally-planned socialist economic systems
e. supply and demand explains how prices are set in competitive markets


Figure 3-1
Price
per CD
Quantity
Demanded
$10 5.0 Million
$11 3.5 Million
$12 2.8 Million
$13 2.3 Million
$14 2.0 Million

11. Figure 3-1 shows the market demand schedule for compact disks. If the price per disk rises from $10 to
$11, the
a. quantity demanded will decrease by 1.5 million disks
b. demand will decrease by 1.5 million disks
c. supply will rise by 3.5 million disks
d. result is a change in demand
e. demand curve will shift to the left



12. If the price of jelly (a complement with peanut butter) decreases, both the demand and supply curves of
peanut butter will shift rightward.
a. True
b. False





13. Assuming that baseball and football cards are substitutes. What might explain the shift in demand curve
for baseball cards from D
2
to D
1
in Figure 3-6?
a. an increase in the price of baseball cards
b. a decrease in the price of baseball cards
c. an increase in income (assuming that baseball cards are a normal good)
d. an increase in the population
e. a decrease in the price of football cards



14. A good is said to be a normal good when
a. decreases in income lead to an increase in demand for the good
b. decreases in income lead to a decrease in demand for the good
c. increases in income lead to a decrease in demand for the good
d. increases in price lead to a decrease in the quantity demanded of the good
e. increases in price lead to a decrease in demand for the good



15. Consider the market represented by Figure 3-9. If the price of the good is currently $50.00, the price will
a. fall, causing the quantity demanded to fall
b. fall, causing the quantity supplied to fall
c. rise, causing the demand curve to shift to the right
d. rise, causing the quantity supplied to increase
e. fall, causing the supply curve to shift to the right




16. An increase in demand coupled with an increase in supply results in a(n)
a. increase in price and an unclear effect on equilibrium quantity
b. increase in equilibrium quantity and a decrease in equilibrium price
c. decrease in equilibrium quantity and an ambiguous effect on equilibrium price
d. increase in economic rent
e. equilibrium price may be higher or lower and an increase in equilibrium quantity

CHAPTER 4WORKING WITH SUPPLY AND DEMAND

17. Price ceilings are primarily targeted to help _____, while price floors generally benefit _____.
a. producers; no one
b. increase tax revenue for governments; producers
c. increase tax revenue for governments; consumers
d. producers; consumers
e. consumers; producers




18. Gary buys a house for $200,000 using $40,000 of his own money and gets a mortgage for the remaining
$160,000. If the value of the house increases 10%, and Gary sells the house, what will be the
percentage increase in Garys investment?
a. 40%
b. 50%
c. 150%
d. 200%
e. 2000%


CHAPTER 5WHAT MACROECONOMICS TRIES TO EXPLAIN


19. Which of the following is a major macroeconomic goal?
a. Low prices
b. Declining prices
c. Pure competition
d. Stable prices
e. High prices

20. From 1929 to 1933, U.S. output dropped by about
a. 10 percent
b. 20 percent
c. 25 percent
d. 50 percent
e. 75 percent




21. Periodic fluctuations in real GDP are called
a. business cycles
b. recessions
c. peaks
d. expansions
e. troughs




22. The occurrence of the Great Depression offered evidence that supported
a. the classical theory of economics
b. the need for the government to practice the policy of laissez faire
c. the need for the government to control prices
d. Congress to take action to stop rising prices
e. the Keynesian idea that the government needed to guide the economy

23. The phase of the business cycle characterized by rising employment is called
a. a recession
b. a low-tax phase
c. a high-inflation phase
d. an expansion
e. a depression
24. Assuming a constant population, for the average living standard of a nation to _____, _____ must
increase faster than the price level
a. increase; nominal GDP
b. increase; real GDP
c. decrease; nominal GDP
d. remain constant; nominal GDP
e. decrease; real GDP


25. What are the three important macroeconomic goals about which most economists, and society at large,
agree?
a. economic growth, full employment, and low interest rates
b. economic growth, full employment, and stable prices
c. economic growth, zero unemployment, and falling prices
d. economic growth, low unemployment, and a balanced budget
e. economic growth, a balanced budget, and balanced international trade

CHAPTER 6PRODUCTION, INCOME, AND EMPLOYMENT



26. The precise definition of GDP is the total value of all
a. goods and services produced by a nation, minus household labor
b. goods and services produced by a nation, minus depreciation
c. goods and services produced for the marketplace during a given period
d. final goods and services produced for the marketplace during a given period, within a
nation's borders
e. final goods and services produced within a nation's borders and by this nations citizens
abroad during a given period


27. Which of the following would be included in a year's GDP?
a. Susan cleans the fuel injectors on her car.
b. A private individual purchases 100 shares of IBM stock.
c. A timber company purchases land in Oregon.
d. A man buys an antique desk from his neighbor.
e. A college professor purchases a new computer.

28. Which of the following is the best example of an intermediate good?
a. a new fighter jet purchased by the federal government
b. tires purchased by an automobile manufacturer for installation on new cars
c. a new saw purchased by a carpenter
d. screwdrivers purchased by a homeowner for home repairs
e. aprons purchased by restaurant chefs




29. Personal consumption spending now comprises approximately what fraction of GDP?
a. One-third
b. One-sixth
c. Two-thirds
d. One-quarter
e. One-half



30. Which of the following would be classified as consumption spending?
a. A family's purchase of a new home
b. A family's purchase of a used car
c. A family's payment for a child's hospitalization
d. A family's purchase of Microsoft stock
e. A family's purchase of a swing set for their home day-care business

31. Which of the following describes the relationship between net exports and imports?
a. Net exports = exports - imports
b. Net exports = exports + imports
c. Net exports = imports - exports
d. Imports = net exports - exports
e. Imports are not related to net exports

32. Mark is an 86-year-old watchmaker who works ten hours a week to supplement his retirement income.
In determining the U.S. unemployment rate, Mark would be considered
a. employed
b. unemployed
c. an involuntary part-time worker
d. not in the labor force
e. a discouraged worker

33. Yuan recently completed his college degree and is entering the labor market for the first time. He has
been submitting applications and has been interviewed twice in the last two weeks, but so far has not
found a job. Yuan would be classified as
a. frictionally unemployed
b. seasonally unemployed
c. structurally unemployed
d. cyclically unemployed
e. not yet in the labor force

34. Full employment occurs when
a. everyone has a job
b. everyone who wants a job has one
c. there is no frictional unemployment
d. there is no cyclical unemployment
e. there is no structural, frictional, and seasonal unemployment

35. Full employment occurs only when the unemployment rate is 0%.
a. True
b. False



36. Assume that net exports are -$340, private investment is $1500, tax revenues are $800, and
government purchases are $2000. Also assume GDP using the expenditure approach equals $9,000. In
this case, consumption expenditures must be
a. $1,840
b. $12,960
c. $5,840
d. $4,360
e. $5,160



CHAPTER 7THE PRICE LEVEL AND INFLATION


37. If the base year for an index is 2005 and the value of the index in 2008 is 165.1, by what percent has the
measure grown over those 3 years?
a. 165.1 percent
b. 100.0 percent
c. 6.51 percent
d. 0 percent
e. 65.1 percent



38. The Consumer Price Index (CPI) is a weighted average of all prices paid by households for goods and
services.
a. True
b. False



39. If inflation is higher than anticipated and benefits are not indexed, which group loses purchasing power?
a. Borrowers and lenders
b. Lenders and retirees
c. Borrowers and retirees
d. Only borrowers
e. Only lenders



40. If the Consumer Price Index (CPI) increases from 100 to 125 and the nominal wage increases from $125
to $300, what is the change in the real wage?
a. +$175
b. +$300
c. +$125
d. +$115
e. -$175


Section 2: 20 points

1. The following table represents information on end of year prices for the years of 2012,
2013 and 2014. Calculate the level of inflation that occurred in 2013 and 2014.
Calculate what the price index value for 2013 and 2014, assuming 2012 is the base year.

Inflation rate for 2013 = 2.5 pts.

Inflation rate for 2014 = 2.5 pts.

Index level for 2013 = 2.5 pts.

Index level for 2014 = 2.5 pts




2. In 2001, real GDP equaled 11,033.6 billion. In 2012, real GDP equaled $13,502 billion.
During the same period, population in the US equaled 275,112,000 in 2001 and
323,430,000 in 2012.
Answer the following questions:

The GDP per Capita in 2001 equals (1.5 pts)

The GDP per Capita in 2012 equals (1.5 pts)

The total percentage increase in GDP per capita from 2001 to 2012 is (2 pts)




Price Quantity
Fruit $1.00 100 $1.25 80 $1.15 80
Meat $3.00 25 $2.95 30 $2.75 30
Clothes $2.50 10 $2.40 11 $2.45 11
2012 2013 2014
3. The country of Oregonia has the following information.

Using that information, the unemployment rate is (5 PTS)







Population
A Under 16
B Worked one or more hours
C Want to work but gave up
D Not working and searched for work
E Retired and not looking for work 2,250,000
F In miltary service
750,000
250,000
15,250,000
2,500,000
8,500,000
1,000,000