ECON 1100 Global Economics (Section 05) Exam #2 Fall 2012 (Version A) Multiple Choice Questions ( 2. points each):

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1 ECON 11 Global Economics (Section 5) Exam #2 Fall 212 (Version A) 1 Multiple Choice Questions ( 2 2 points each): 1. A good is Non-Excludable if A. it is easy (or relatively costless) to prevent consumption by those who do not pay for the good. B. it is difficult (or very costly) to prevent consumption by those who do not pay for the good. C. consumption by one person does diminish the quantity/quality of consumption by others. D. consumption by one person does not diminish the quantity/quality of consumption by others. 2. Between 1991 and 26, Government Expenditures as a percentage of GDP in France A. were less than 33% in every single year. B. were slightly above 5% in each year (taking on a mean value of 53.2% over this entire time-period). C. increased drastically, from roughly 3% in 1991 to roughly 75% in 26. D. None of the above answers are correct, since no accurate measure of Government Expenditure as a percentage of GDP can be calculated for any country which uses the Euro as its currency. 3. A trade surplus occurs when A. exports exceed imports. B. government purchases exceed consumption expenditures. C. the inflation rate exceeds the unemployment rate. D. the Misery Index is negative in value. 4. Consider a market in which the efficient level of trade is 6, units. There would be a positive Deadweight-Loss from too much trade if units were traded. A. 7,4 B. 5,15. C.. D. More than one (perhaps all) of the above answers are correct. 5. The unemployment rate in the United States in July 212 was 8.3%. This was A. only the second month ever that the rate went below 9.%. B. only the fourth month ever that the rate went above 8.%. C. the 42 nd consecutive month with a rate above 8.%, the longest such stretch of time since the Great Depression. D. None of the above answers are correct.

2 6. Suppose that between 21 and 212 the Unemployment Rate increased while the Inflation Rate decreased in Germany. It follows that the value of the Misery Index in 212 the value of the Misery Index in 21. A. could be greater than or could be less than B. must be greater than C. must be less than D. must be exactly equal to 7. provides a measure of the total value of all final goods/services produced within an economy in a given period of time, with all goods/services valued according to current period prices, whereas provides a measure of the total value of all final goods/services produced within an economy in a given period of time, with all goods/services valued according to a single set of common, constant prices. A. Nominal GDP; Real GDP. B. Real GDP; Nominal GDP. C. Nominal GDP Per Capita; Real GDP Per Capita. D. GNP; GNR. For questions 8 and 9 refer to the graph below, which illustrates Supply and Demand for peaches in 212. price Supply a 4.95 b c d f e g Demand 212 2,75 6,7 9,625 quantity 8. At the market equilibrium, Total Consumers Surplus would be equal to A. area (a). B. areas (a)+(b)+(d). C. areas (c)+(e). D. areas (a)+(b)+(c)+(d)+(e). 9. If 8,2 units were traded, then Deadweight-Loss would be A. greater than areas (f)+(g). B. exactly equal to areas (f)+(g). C. exactly equal to area (f). D. positive, but less than area (f).

3 1. refers to the natural and undirected emergence of order out of chaos. A. The Stabilization Function of Government B. Capital Flight C. Spontaneous Order D. The Free Rider Problem 11. Which of the following is not a component of GDP? A. Net Exports. B. The Inflation Rate. C. Investment. D. Government Purchases. 12. According to the depiction provided by the expanded circular flow diagram, government collects taxes from A. both domestic households and domestic firms (but not from any foreign sources). B. only foreign households and foreign firms (but not from any domestic sources) C. only domestic firms. D. only domestic households. 13. Government Spending as a Percentage of GDP in the United States is projected to A. decrease to less than 35% by 216. B. increase to over 5% by 216. C. remain above 42% for the foreseeable future. D. None of the above answers are correct. 14. Scott bought a used snowboard from Brad for $1. This trade gave Scott a Consumer s Surplus of $2 and generated a Social Surplus of $35. It follows that Brad realized a Producer s Surplus of from this trade. A. $15 B. $55 C. $8 D. $ The vicious-cycle-of-poverty A. is apparently true, since every country that was poor a century ago is still poor today. B. suggests that poverty is self-perpetuating, because poor nations are unable to save and invest enough to accumulate the capital stock that would help them grow. C. has no merit whatsoever, since all poor countries always have GDP growth rates over 1%. D. explains why consumers realize zero Consumers Surplus when buying a good from a profit maximizing monopolist.

4 16. A good that is used in the production process that is not (itself) a final good or service is. A. a permanent good B. a club good C. a public good D. an intermediate good 17. Which of the following countries realized an Annual Inflation Rate of 12,563% in 28? A. Nigeria. B. Germany. C. Japan. D. Zimbabwe. 18. In a free market economy profits A. are only earned by firms that sell low quality products. B. are never earned by firms that produce goods for export to foreign countries. C. serve as a signaling device, directing resources to their most valued uses. D. More than one (perhaps all) of the above answers is correct. 19. Suppose that Portugal realizes a constant GDP growth rate of 4% per year. As a result, Portugal s GDP would double in A. approximately 72 years. B. exactly 25 years. C. approximately 18 years. D. approximately 4 years. 2. During the past six decades, inflation rates in the U.S. (reported on an annual basis) were A. relatively high from 1949 through 1968, then relatively low from 1969 through 1984, and finally relatively high from 1985 through 211. B. relatively low from 1949 through 1967, then relatively high from 1968 through 1982, and finally relatively low from 1983 through 211. C. relatively high from 1949 through 1975, but relatively low from 1976 through 211. D. relatively low from 1949 through 1985, but relatively high from 1986 through In 211, Real GDP Per Capita in the United States was roughly the value of Real GDP Per Capita in the United States in A. 1.9 times larger than B. 7.1 times larger than C times larger than D times larger than

5 22. refers to a general decrease in the level of overall prices. A. Hyperinflation B. The Free Rider Problem C. Inflation D. Deflation For Questions 23 through 25, consider a monopolist facing Demand and with Marginal Costs and Marginal Revenue as illustrated below. $ a c b d e f Marginal Costs of Production 4.5 Demand quantity 8,4 Marginal Revenue of Monopolist 13,2 16,8 23. To maximize profit, this firm should charge a price of and sell units. A. $4.5; 8,4. B. $7.2; 13,2. C. $1.9; 8,4. D. $14.8; 16, The efficient level of output for this good is units. A. 13,2 B. somewhere between 8,4 and 13,2 C. 8,4 D. 25. When this monopolist sets the price and sells the quantity which maximizes her profit, A. Deadweight-Loss is equal to areas (e)+(f). B. Consumers Surplus is equal to areas (a)+(b)+(c)+(d)+(e). C. more than the efficient level of trade takes place. D. More than one (perhaps all) of the above answers is correct.

6 26. The Catch-up effect suggests that, all other factors fixed, A. in the short term, an economy should expect to face a trade-off between unemployment and inflation. B. the only way for firms in high tech industries to catch-up to their competitors is to invest large amounts of resources in research and development. C. the global economy is rigged against new entrants, in that there is no way for poor countries to catch-up with rich countries. D. growth rates of less developed countries typically exceed growth rates of developed countries, implying that the gap in GDP between less developed and developed countries will decrease over time. 27. refers to technical change that results in a change in the production process. A. Embodied technical change B. Disembodied technical change C. Industrial Policy D. The Free Rider Problem 28. A grilled chicken taco from Del Taco is A. rival in consumption and excludable. B. rival in consumption and non-excludable. C. non-rival in consumption and excludable. D. non-rival in consumption and non-excludable. 29. When observing Average Annual Working Time across different countries, it was noted that the typical worker in the U.S. spends roughly 1,787 hours per year working. In comparison to other countries, this is A. more hours than any other country in the World (since the country with the second highest value is Brazil, with a figure of 1,744 hours per year). B. higher than the figure for Norway (1,426 hours), roughly equal to the figure for Italy (1,774 hours), but lower than the figure for Turkey (1,877 hours). C. fewer hours than any other country in the World (since the country with the second lowest value is Canada, with a figure of 1,799 hours per year). D. exactly equal to the World average, since there is no variability whatsoever in Average Annual Working Time across different countries. 3. The is an international agency whose primary goals are to stabilize international exchange rates and to lend money to countries that have problems financing their international transactions. A. The Sveriges Riksbank B. U.S. Federal Reserve C. International Monetary Fund (IMF) D. International Justice League of Super Acquaintances (IJLSA)

7 31. Per Capita GDP in Hong Kong is $45,9, while Per Capita GDP in Russia is only $15,9. These values directly imply that A. people in Hong Kong are roughly three times happier than people in Russia. B. the market value of goods/services produced per person is roughly three times larger in Hong Kong than in Russia. C. people in Hong Kong are more highly educated than people in Russia. D. More than one (perhaps all) of the above answers is correct. For Questions 32 and 33, consider a society facing the tradeoffs between Consumption Goods and Capital Goods which are illustrated by the Production Possibilities Frontiers below. The curve labeled 1992 PPF illustrates the PPF of this society in In 1992 this society chose Point A on this curve. As a result, by 212 the society faced the PPF labeled 212 PPF A. If they had instead chosen Point C in 1992, then they would have realized 212 PPF C by 212. Capital Goods 212 PPF - C 212 PPF - A 1992 PPF C B A Consumption Goods 32. The outward shift of the PPF (from 1992 PPF to 212 PPF A ) which occurred between 1992 and 212 could be best described as A. economic growth. B. economic development. C. hyperinflation. D. an increase in demand. 33. If this society had instead chosen Point B in 1992, then the relevant PPF in 212 would likely lie somewhere in the graph above. A. beyond the curve labeled 212 PPF C (i.e., further from the origin) B. between the curves labeled 212 PPF A and 212 PPF C C. between the curves labeled 1992 PPF and 212 PPF A D. below the curve labeled 1992 PPF

8 34. Klaus is the chief economic advisor for the country of Ruritania. Ruritania currently imports nearly all of its clothing. Klaus suggests imposing a 2% tariff on imported clothing in order to discourage domestic consumers from buying foreign made clothing. He argues that this is the most effective way to develop the domestic clothing industry (thereby providing desperately needed jobs for the workers of Ruritania). The policy that he is favoring can be described as A. the vicious-cycle-of-poverty. B. export promotion. C. import substitution. D. Spontaneous Order. 35. Yummycakes is a producer of pre-packaged cupcakes (operating solely within the southeastern United States). So far this year they purchased $26, worth of flour and $12, worth of sugar to use as ingredients in their cupcakes. They also purchased $2, worth of cardboard to make packaging for their cupcakes. They were able to generate a total of $9, of revenue from selling their cupcakes. The total value contributed to Gross Domestic Product from this economic activity is: A. $4,. B. $5,. C. $9,. D. $1,4,. 36. In most markets Total Social Surplus is equal to A. Per Unit Price multiplied by Quantity Sold. B. Total Consumers Surplus divided by Total Producers Surplus. C. Total Consumers Surplus minus Total Producers Surplus. D. Total Consumers Surplus plus Total Producers Surplus. 37. Suppose that Good Y is a commodity for which: (i) consumption by one person does not diminish the quantity of the good available for others to consume and (ii) it is nearly impossible to prevent consumption by people who do not pay for the good. As a result, if Good Y were simply sold in a market, we would expect A. less than the efficient amount of Good Y to be traded. B. exactly the efficient amount of Good Y to be traded. C. more than the efficient amount of Good Y to be traded. D. None of the above answers are necessarily correct (since we need to know something about costs of production in order to be able to determine whether the resulting level of trade will be more than, less than, or exactly equal to the efficient level of trade). 38. The value of the Misery Index in the U.S. in June 212 was A. (.13), the first time ever that any country has realized a negative value. B. 2.96, lower than every other value realized since January C. 9.86, roughly equal to the mean value since January 1948 of 9.5. D , higher than every other value realized since January 1948.

9 39. Maurice is a citizen of Canada, but lives, works, and attends school in the United States. Last year he went on vacation to Spain during Spring Break. In order to pay for his college tuition, he works part time at a car wash in Woodstock, GA. Last year he provided car washing services valued at $9,75. The value of these services would be included in the calculation of GDP for A. Canada (since he is a Canadian citizen). B. the United States (since that is where the production took place). C. Spain (since that is where he went to relax on vacation, which was a necessary activity for him to be able to work hard in school and on the job throughout the rest of the year). D. All of the above answers are correct (since he has an economic tie to each of the three countries). 4. Consider a country in which: Gross Domestic Product is Y=$289 million; Investment Expenditures are I=$34 million; Government Purchases are G=$65 million; and Net Exports are NX=$2 million. It follows that Consumption Expenditures are: C= A. $34,391 million. B. $48 million. C. $21 million. D. $17 million.

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