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45 MCQs on the Microeconomics - Final Examination | ECO 120, Exams of Economics

Eastern Kentucky University (EKU)Economics
Prof. Thomas Watkins

Material Type: Exam; Professor: Watkins; Class: Economic Reasoning & Issues; Subject: ECO Economics; University: Eastern Kentucky University; Term: Unknown 1989;

Typology: Exams

Pre 2010

Uploaded on 08/18/2009

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Economics 120
Sample Questions for Macroeconomics Section of Final Exam.
Multiple Choice Questions: Choose the best single answer to each question.
1. When people use money to pay for goods and services, this is an example of
money serving as a:
a. Medium of exchange.
b. Store of value.
c. Unit of value.
d. Standard of deferred payment.
2. The value of money:
a. Is determined by the government.
b. Is determined by the willingness of people to accept money as payment for
goods or debts.
c. Decreases when the price level increases.
d. Both b and c.
3. When the aggregate demand for final goods and services decreases:
a. Employment decreases.
b. Real GDP decreases.
c. The price level increases.
d. Both a and b.
4. If the wealth of the household sector decreases, then:
a. Aggregate supply will shift leftward.
b. Aggregate demand will shift leftward.
c. Real GDP will increase.
d. The price level will increase.
5. Equilibrium real GDP occurs when:
a. The final goods and services demanded exceed the final goods and
services supplied.
b. The final goods and services demanded equal the final goods and services
supplied.
c. Potential GDP is greater than real GDP.
d. The price level is constant.
6. If government purchases increase, then:
a. Aggregate demand decreases.
b. Real GDP and the price level decreases.
c. Real GDP and the price level increases.
d. Both a and b.
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Economics 120 Sample Questions for Macroeconomics Section of Final Exam. Multiple Choice Questions: Choose the best single answer to each question.

  1. When people use money to pay for goods and services, this is an example of money serving as a: a. Medium of exchange. b. Store of value. c. Unit of value. d. Standard of deferred payment.
  2. The value of money: a. Is determined by the government. b. Is determined by the willingness of people to accept money as payment for goods or debts. c. Decreases when the price level increases. d. Both b and c.
  3. When the aggregate demand for final goods and services decreases: a. Employment decreases. b. Real GDP decreases. c. The price level increases. d. Both a and b.
  4. If the wealth of the household sector decreases, then: a. Aggregate supply will shift leftward. b. Aggregate demand will shift leftward. c. Real GDP will increase. d. The price level will increase.
  5. Equilibrium real GDP occurs when: a. The final goods and services demanded exceed the final goods and services supplied. b. The final goods and services demanded equal the final goods and services supplied. c. Potential GDP is greater than real GDP. d. The price level is constant.
  6. If government purchases increase, then: a. Aggregate demand decreases. b. Real GDP and the price level decreases. c. Real GDP and the price level increases. d. Both a and b.
  1. If the government increases personal taxes, then: a. Disposable income decreases. b. The household sector consumes less, so aggregate demand decreases. c. Real GDP decreases. d. All of the above.
  2. Income taxes are an automatic stabilizer, since: a. Taxes increase as income increases, and this reduces the increase in consumption that occurs as income increases. b. People hate to pay taxes. c. Taxes increase when there is a recession and decrease when there is an expansion. d. Lower income households pay a higher tax rate than higher income households.
  3. If the prices of economic resources increase, then this causes: a. Aggregate supply to decrease. b. The price level to increase. c. Real GDP to decrease. d. All of the above.
  4. When the nation’s capital stock increases, this causes: a. Aggregate supply to decrease. b. The price level to increase. c. Real GDP to increase. d. All of the above.
  5. If net exports decrease, then: a. The price level and real GDP will increase. b. The price level and real GDP will decrease. c. The price level will increase, but real GDP will decrease. d. The price level will decrease, but real GDP will increase.
  6. Suppose the economy is operating at potential GDP. If oil prices rise dramatically, then this will cause: a. Aggregate supply to decrease. b. The price level to increase. c. Real GDP to decrease. d. All of the above.
  7. The money supply, M1, includes all of the following except: a. Currency. b. Checkable deposits. c. Savings accounts. d. Traveler’s checks.
  1. Suppose the Fed believes the economy is expanding too rapidly and is in danger of experiencing high inflation. Which of the following is most likely to reduce this danger? a. The Fed purchases government securities on the open market. b. The Fed decreases the discount rate. c. The Fed increases the reserve requirement. d. All of the above.
  2. Which of the following correctly describes a reason why aggregate demand is downward sloping? a. When the prices of final goods and services decrease, the money supply increases and so people buy more. b. When the prices of final goods and services decrease, interest rates increase and people buy more. c. When the prices of our final goods and services decrease, foreign customers find our goods and services more attractive than foreign goods and services and so foreign customers buy more of our goods and services. d. All of the above.
  3. When foreign incomes decrease: a. Foreign customers buy fewer goods and services from the USA, and so aggregate demand in the USA decreases. b. Foreign customers buy more goods and services from the USA, and so aggregate demand in the USA increases. c. Aggregate supply in the USA decreases. d. Both b and c occur.
  4. Which of the following statements is FALSE? a. A budget deficit occurs when the federal government spends more than it receives in tax revenue. b. Keynesian (activist) economists argue that the federal government should run a deficit during a recession to stimulate economic activity and then run a surplus during an expansion to cool economic activity. c. Non-activist economists believe that the federal government should not use discretionary fiscal policy to influence economic activity. d. The national debt equals the annual federal budget deficit.
  5. If the USA is running a deficit in the current account of the balance of payments, then one knows that the nation is: a. Running a deficit in the capital and financial account. b. Running a surplus in the capital and financial account. c. Buying fewer goods and services from the rest of the world than they are buying from the USA. d. Experiencing inflation.
  1. If the dollar price of the Euro increases, then one knows that: a. European goods and services are more expensive for Americans. b. American goods and services are less expensive for Europeans. c. Net exports to Europe are likely to increase. d. All of the above.
  2. In the American market for the British pound the equilibrium exchange rate: a. Occurs when the demand for the British pound equals the supply of the British pound. b. Identifies the dollar price of the British pound. c. Occurs when the pounds demanded by Americans equal the pounds supplied by the British. d. Both b and c are true.
  3. If the American demand for the British pound increases, then: a. The dollar will appreciate. b. British goods and services will be more expensive for Americans, since the dollar price of the pound will increase. c. American goods and services will be more expensive for Brits, since the pound price of the dollar will decrease. d. Both b and c are true.
  4. If prices are rising faster in the USA than in Europe, then one expects: a. Americans to buy more goods and services from Europe, so the demand for Euros will increase. b. Europeans to buy more goods and services from the USA. c. The dollar to appreciate. d. Both a and c are true.
  5. If a nation “pegs” its currency to the dollar, then this means: a. The nation allows its currency to float against the dollar. b. The nation fixes the exchange rate with the dollar. c. The nation’s currency appreciates when the dollar depreciates. d. The nation’s currency is replaced by the dollar.
  6. When nations allow exchange rates to float: a. Exchange rates are determined by the demand for and supply of foreign currencies. b. Exchange rates change as market forces change, and this increases uncertainty in the goods and services traded internationally. c. A nation’s currency depreciates when its citizens want to buy more foreign goods and appreciates when its citizens want to buy fewer foreign goods. d. All of the above.
  1. Suppose that the USA can import cars at a price lower than charged by domestic producers. If free trade is permitted at the world price, then: a. American consumers benefit, since they pay lower prices and buy more. b. American producers benefit, since they sell more cars. c. American producers are not affected by free trade. d. Both a and b.
  2. In the exporting nation free trade causes: a. Consumers to lose, since they pay higher prices after trade begins. b. Producers to gain, since they receive higher prices after trade begins. c. No one to gain or lose. d. Both a and b.
  3. If the government imposes a tariff of $10 on imported shoes, then: a. The price of both foreign and domestic shoes will increase. b. Consumers will benefit, but producers will lose. c. Both consumers and producers will lose. d. Both a and b.
  4. If the government imposes an import quota on foreign-produced steel, then: a. Consumers benefit and domestic producers lose. b. Consumers lose, but domestic producers benefit. c. Consumers and domestic producers lose. d. The price of steel is unchanged, so consumers and producers are not affected by the quota. Short Answer Essays and Problems
  5. Suppose the Fed purchases government securities on the open market. Explain how this event will change the interest rate, investment, aggregate demand, and real GDP.
  6. Suppose that the required reserve ratio is .2. If the Fed sells government securities equal to $1000 on the open market, explain what will happen to the money supply assuming the banking system had no excess reserves. What effect would this have on interest rates?
  1. Suppose that real GDP is currently above potential GDP. b. Explain what is true about the unemployment rate relative to the natural unemployment rate. c. Explain what specific fiscal policy measures could alleviate the nation’s problem. d. Explain how the fiscal policy measures alleviate the problem. e. Explain what specific monetary policy measures could alleviate this problem f. Explain how the monetary policy measures alleviate the problem.
  2. Suppose that the equilibrium dollar price of the British pound is $2. Explain what happens in the American market for British pounds if fewer American tourists travel to Britain due to fears of terrorism. Which curve shifts and why? What happens to the equilibrium dollar price of the pound and the equilibrium quantity traded. a. After the change in the dollar price of the pound, explain what happens to the dollar price of British goods and services and to the pound price of American goods and services.
  3. Suppose the USA can produce 40 personal computers and no televisions or 50 televisions and no personal computers. Mexico can produce 40 personal computers and no televisions or 40 televisions and no personal computers. Compute the opportunity cost of producing one personal computer in each nation and then compute the opportunity cost of producing one television in each nation. Explain the principle of comparative advantage and then use the principle to decide which product each nation produces assuming the two engage in trade. What happens to total production if the two nations engage in trade according to comparative advantage?
  1. The opportunity cost of producing one more TV is .8 computers in the USA and one computer in Mexico. The USA has the comparative advantage in TVs, since it has the lower opportunity cost. The opportunity cost of producing one more computer is 1.25 TVs in the USA and 1 TV in Mexico. Mexico has the comparative advantage in computers, since it has the lower opportunity cost. According to the law of comparative advantage, a nation should specialize in the production of the good in which it has the comparative advantage and then engage in trade at a mutually beneficial exchange rate. The USA will devote all resources to the production of 50 TVs and Mexico will devote all resources to the production of 40 computers. Since production occurs where it is most efficient, world output increases with specialization and trade.