Practice Econ 2

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Quiz by , created almost 6 years ago

Econ 101 Quiz on Practice Econ 2, created by mjheg on 05/05/2013.

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Question 1

Question
Investment is an important determinant of economic growth. Suppose that Congress passes an investment tax credit to encourage firms to spend more on investment. The impact of the investment tax credit would be:
Answer
  • An increase in the quantity of loanable funds exchanged and an increase in the interest rate
  • An increase in the quantity of loanable funds exchanged and a decrease in the interest rate
  • A decrease in the quantity of loanable funds exchanged and an increase in the interest rate
  • A decrease in the quantity of loanable funds exchanged and a decrease in the interest rate

Question 2

Question
In the AD and SRAS model, an increase in the rate of expected inflation causes
Answer
  • the short-run aggregate supply curve to shift down.
  • the short-run aggregate supply curve to shift up.
  • an upward movement along the short-run aggregate supply curve.
  • a downward movement along the short-run aggregate supply curve.

Question 3

Question
An increase in money growth will cause output growth to increase in
Answer
  • the short run only
  • the long run only
  • the short run and the long run
  • neither the short run nor the long run

Question 4

Question
Suppose a negative externality exists in a market. If transactions costs are low and parties are willing to bargain, then, according to the Coase theorem
Answer
  • an equitable solution can be reached only if property rights are assigned to polluters and not to the victims of pollution.
  • government intervention is necessary to reach an efficient and equitable solution.
  • an efficient solution can be reached regardless of the initial assignment of property rights.
  • an efficient solution can be reached only if property rights are assigned to the victims of pollution and not the polluters.

Question 5

Question
A potential problem with expansionary monetary policy is that banks can
Answer
  • will create deflation.
  • be unwilling to lend.
  • decide that a recession is best for the economy.
  • All of the above

Question 6

Question
At 8 units of production, the marginal cost is $50 per unit, and average cost is $30 per unit. If the price is $50, what is the profit of producing 8 units?
Answer
  • $160
  • $240
  • $400
  • There is no profit

Question 7

Question
Mrs. Smith is operating a firm in a competitive market. The market price is $6.50. At her profit-maximizing level of output, her average total cost of production is $7.00 and her average variable cost of production is $6.00.
Answer
  • Mrs. Smith is earning a loss and should shutdown in the short run.
  • Mrs. Smith is earning a loss but should continue to operate in the short run.
  • Mrs. Smith is earning a profit since the price is above the average variable cost.
  • Without knowing Mrs. Smith's marginal cost we cannot determine whether she should stay in business or shut down.

Question 8

Question
If government legislation requires businesses to switch to a different method of production that generates 50% fewer greenhouse gas emissions, compliance to this policy (assuming no other changes) can be illustrated in the Solow model by _____ the aggregate production function that leads to a _____ level of real GDP per person
Answer
  • a movement to the left on; lower
  • a movement to the right on; higher
  • a shift up of; higher
  • a shift down of; lower

Question 9

Question
Which of the following counts towards GDP
Answer
  • Illegal transactions
  • Used goods
  • Leisure time
  • Intermediate goods
  • Anything within a store's inventory

Question 10

Question
Which of the following is not an institution?
Answer
  • Honest Government
  • Competitive Open Markets
  • Political Stability
  • Secure Property Rights
  • Dependable Legal System
  • Fair Fiscal Policy

Question 11

Question
Compared to private goods, the free market would ______ public goods
Answer
  • sometimes overproduce, but oftentimes under produce
  • under produce
  • over produce
  • efficiently produce

Question 12

Question
Why do some economist think that GDP my overestimate the actual level of economic activity in an economy?
Answer
  • There is no positive adjustment for the underground economy
  • It does not account for the distribution of income in a country
  • There is no negative adjustment for pollution
  • There is no positive adjustment for leisure and well-being

Question 13

Question
Marcie quit her job as a preschool teacher, which paid an annual salary of $28,000 and became a street food vendor. She used $8,000 out of her savings account that paid a 4% interest rate to buy a street cart to sell food. In her first year of operations, she spend $10,000 on food and supplies and earned revenue of $45,000. Accounting profit: ____ Economic profit:___
Answer
  • $35,000 ; -$1,000
  • $35,000 ; $6,680
  • $28,000 ; 20,000
  • $27,000 ; $17,000

Question 14

Question
In recent years, real GDP in China has grown
Answer
  • faster than real GDP in the US in some years, slower than real GDP in the US in other years
  • slower than real GDP in the US
  • at the same rate as real GDP in the US
  • faster than real GDP in the US

Question 15

Question
The economy's production function relates __________ to output
Answer
  • the inflation rate
  • real GDP
  • the unemployment rate
  • the factors of production

Question 16

Question
Which of the following statements is FALSE?
Answer
  • A firm that produces 100 unites at a total cost of $500 has an average cost of $5 per unit
  • Firms will earn positive profits if price exceeds average cost
  • When marginal cost is below average cost, average cost is rising
  • AC= TC/Q

Question 17

Question
Why does South Korea have a higher level of physical and human capital than NK? 1) Markets consitute much more of the primary organizations of economic activity in SK than in NK 2)Economic incentives are better in SK 3) SK has a different culture from NK
Answer
  • 1 only
  • 1 and 2 only
  • 1, 2, and 3
  • 3 only
  • 2 and 3 only

Question 18

Question
Which of the following best illustrates a product sold in a perfectly competitive market?
Answer
  • eggs
  • jeans
  • televisions
  • soft drinks

Question 19

Question
Which is always true for monopolies?
Answer
  • P greater than MR
  • P less than AC
  • TR greater than TC
  • MR greater than D

Question 20

Question
After a hurricane, the prices of many items rise. How best might the government help poor people afford to buy goods and services?
Answer
  • Institute a wage freeze to keep the costs of production from rising too rapidly
  • give poor people debit cards for use in purchasing essential items, while leaving prices unregulated
  • institute price controls at pre-hurricane prices
  • set prices at zero, so consumers can buy what they need without financial distress

Question 21

Question
the US can make 50 tons of corn or 10 tons of potatoes. Mexico can make 40 tons of corn and 5 potatoes. Assume each country specializes in the production of the good in which they have a comparative advantage. Which identifies the trade price that both countries should find acceptable?
Answer
  • 5 corns for 1 potato - trade price - 8 corns for 1 potato
  • .125 potatoes for 1 corn - trade price - 5 potatoes for 1 corn
  • .125 potatoes for 1 corn - trade price- 8 potatoes for 1 corn
  • .2 potatoes for 1 corn - trade price - 8 potatoes for 1 corn

Question 22

Question
Which of the following would not lead to a decrease in the price of a domestic automobile?
Answer
  • an economic recession, which decreases consumer income
  • a decrease in the wages paid to union auto workers
  • an increase in the number of domestic automakers
  • an increase in the price of foreign-made automobiles

Question 23

Question
If the conditions of the Coase theorem are met -__- the free market quantity of goods sold will _____.
Answer
  • well-informed consumers and well-defined property rights; maximize social surplus
  • well-informed consumers and nonexistant property rights; maximize consumer and producer surplus
  • low transaction costs and well-defined property rights; maximize social surplus
  • low transaction costs but nonexistant property rights; maximize consumer and producer surplus

Question 24

Question
When a binding price ceiling is in effect, goods and services
Answer
  • are neight necessarily supplied by their lowest-cost producer nor do they flow to their highest valued use
  • do not necessarily flow to their highest-valued use
  • are still allocated efficiently
  • are not necessarily supplied by their lowest-cost producer

Question 25

Question
A new per unit subsidy for almond production in the US increases the world supply of almonds. If almonds are inelastically demanded, what will happen to total revenues from almond production?
Answer
  • They will change in an indeterminate direction
  • They will rise
  • They will fall
  • They will remain the same

Question 26

Question
If the elasticity of supply is 1, and the elasticity of demand is 3, then for a tax of $1 buyers will pay:
Answer
  • an extra 75 cents, and sellers will receive 25 cents less
  • an extra 50 cents, and sellers will receive 50 cents less
  • nothing extra since this is the special case where demand is unit elastic
  • an extra 25 cents and sellers will receive 75 cents less

Question 27

Question
When the opportunity cost of a choice increases:
Answer
  • the marginal benefits of that choice decrease
  • individuals are more likely to chose that same option
  • individuals are less likely to choose that same option
  • the marginal benefits of that choice increase, as well

Question 28

Question
in the case of an external benefit, marginal private benefit is _____ marginal social benefit at all quantity of levels.
Answer
  • incomparable to
  • greater than
  • equal to
  • less than