Introduction to Agricultural Economics Agricultural Economics 105 Fall 2017 Third Hour Exam Version 1

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1 Name Introduction to Agricultural Economics Agricultural Economics 105 Fall 2017 Third Hour Exam Version 1 There is only ONE best, correct answer per question. Place your answer on the attached sheet. DO NOT RIP THE ANSWER SHEET FROM THE TEST. HAND IN BOTH THE TEST AND ANSWER SHEET. Each question is worth 2 ½ points. Questions 1-4 pertain to the proposed tax reform in congress as of 11/9/2017. Answer each question with the only the information given in the question and how it may impact GDP. 1. The proposal calls for reducing the corporate tax rate from 35% to 25%. This change increases the expectation that firms will become more profitable. The main effect of this change in expectations is to a. shift the planned investment function outward (right). b. shift the planned investment function inward (left). c. shift the planned consumption function upward (left). d. shift the planned consumption function downward (right). e. decrease disposable personal income. 2. The proposal attempts to reduce tax rates for individuals and increase the standard deduction. This attempt to lower taxes paid by individuals should a. shift the planned investment function outward (right). b. shift the planned investment function inward (left). c. shift the planned consumption function upward (left). d. shift the planned consumption function downward (right). e. increase disposal personal income. 3. Although, affecting only a few households, the plan calls for elimination of the estate tax. By eliminating the estate tax (increasing the wealth of individuals), the reform is attempting to a. shift the planned investment function outward (right). b. shift the planned investment function inward (left). c. shift the planned consumption function upward (left). d. shift the planned consumption function downward (right). e. a and c.

2 4. Preliminary analysis of the plan initially indicates tax revenues will decrease and the plan calls for no decrease in government spending. Such an outcome may result in a. crowding out. b. an increase in the federal deficit. c. an increase in the federal debt. d. a, b, and c. e. b and c. 5. If disposable personal income increases by $200 which leads to a $60 increase in consumption, the marginal propensity to save is a b c d e. more information is necessary. For questions 6 and 7 use the following graph. 6. Total autonomous expenditures are a. 0 b. 400 c. 780 d e Equilibrium aggregate expenditures are a. 0 b. 400 c. 780 d e The change in aggregate consumption associated with a change in disposable personal income is known as the a. the money multiplier. b. autonomous consumption. c. MPS marginal propensity to save. d. MPC marginal propensity to consume. e. MIS marginal interest rate sensitivity.

3 9. During the past year, you purchased a used automobile for $10,000, bought new tires and a battery for $2,000, and purchased $1,000 in gasoline. You increased GDP by a. $13,000. b. $12,000. c. $11,000. d. $3,000. e. $ If the economy is at AD 0 and AS, what situation is the economy experiencing? Price AD 0 AD 1 AS P 1 Y 0 Y FE Y 1 Y Pot a. Inflationary gap b. Recessionary gap c. Full employment d. Output at potential employment e. None of the above 11. Which of the following policy options would decrease output? a. The Federal Reserve sells bonds through open market operations. b. The Federal Reserve increases the reserve requirement. c. The Federal Reserve buys bonds through open market operations. d. The Federal Reserve decreases the reserve requirement. e. Actions described in both in both a and b. 12. The term liquidity means that the a. Federal Reserve is expanding the money supply. b. asset is used in a barter exchange. c. asset is used as the medium of exchange. d. market interest rate is too low. e. asset is readily convertible to cash without much loss of value.

4 13. Berkshares is a legal hyper-local currency that is only accepted in the Berkshires region of western Massachusetts. Berkshares are issues by Berkshare Inc. to promote local economic growth. Currently, over 400 businesses except Berkshares and 13 banks exchange Federal Reserve notes for Berkshares at a rate of $95 for 100 Berkshares. This is an example of a. a barter system where you trade one commodity for another commodity. b. money backed by any precious metal, e.g. gold or silver. c. illegal money in the U.S. as it is not a Federal Reserve note. d. money that can be used in international exchanges. e. fiat money. 14. Banks create money by a. printing additional money. b. issuing debit or credit cards. c. accepting checks from individuals. d. lending out part of their deposits or reserves. e. banks cannot create money only the Fed creates money. 15. Given the stock market has been rising this year and is predicted to continue to rise, your financial advisor suggests you buy additional stocks from cash in your financial holdings. The advisor is suggesting you a. increase your transaction demand for money. b. increase your precautionary demand for money. c. increase your speculative demand for money. d. decrease your speculative demand for money. e. decrease you transaction demand for money. 16. Announcing the class average on a test as it will impact your final grade (like a potential curve) in a class is an example of a. lagging indicator. b. coincident indicator. c. concurrent indicator. d. coextensive indicator. e. leading indicator. 17. Assume the Federal Reserve has decided to increase the reserve requirements for American banks. Other things equal, the increase in the reserve requirements for American banks will the money supply. This leads to a(n) in the interest rate. a. increase; decrease b. decrease; increase c. increase; increase d. decrease; decrease e. The effect of this policy cannot be determined from the information given.

5 18. Which of the following statements best describes U.S. agriculture and international trade? a. U.S. agricultural is dependent on trade as approximately 20% of agricultural production is exported. b. A higher percentage of crop production is exported than livestock production. c. Agricultural trade runs a surplus. d. Agricultural imports are important allowing for fresh vegetables to be consumed throughout the year. e. All describe U.S. agriculture. Use the following table for questions 19-21, the table provides information on the average house values in College Station over time. Year CPI 2017 Dollars Nominal Home Price Real Price , ,710 Ten Year Inflation Rate Nominal Rate of increase of Homes Real Rate of increase of Homes , , , , , , What is the yearly average inflation rate for the ten years 2007 to 2017? a. 25% b. 2.5% c. 0.2% d. 1% e. 0.8% f. 20. Between 1987 and 1997, the nominal value of home prices in College Station increased by $20,000 but the real home price decreases by $18,735. How can this be? a. There must be an error, real 2017 dollars by definition must always be larger in 1997 than nominal dollars in b. One would except this result as nominal prices include inflation and real prices include deflation. c. In real terms, the $20,000 and $18,735 are approximately the same value, so there is no conflict in the results. d. Nominal home prices increased at a rate less than the increase in the general price level in the economy. e. Homes became more worth more on the market and therefore their nominal price increased. Real prices only state the value from a previous period.

6 21. Between both 1997 and 2007 and 2007 and 2017, the nominal rate of increase is almost 67%, but the changes in home price differ ($60,000 and $100,000). How can this be? a. Must be an error in the calculations. b. Percentage change formulas do not depend on differences, therefore this comparison in not a fair comparison. c. Differences matter, but also the base matters and the base varies between the years. d. One needs to multiple by 100 to get percentage and by multiplying by 100 with only two decimals the values round to the same number. If one used more decimal places the values would differ. e. Relative house values will never change in a competitive market. 22. The economy of Transylvania consists of two commodities, cell phones and wheat. Using the following information, what is the percentage increase in productivity in the economy between 2010 and 2017? value in 2010 dollars Nominal Nominal Commodity Price Quantity Value Price Quantity Value Value Cell Phones , ,000 Wheat Sum , ,400 a. Percentage difference in the sum of the quantities (1,250 1,050) / 1,050 = b. Percentage difference in the sum of the prices ( / 102 = c. Percentage difference in the sum of the values (8,100 7,000)/ 7,000 = d. Percentage difference in the sum of the values (7, ) / 7,000 = e. Need information on the inflation rate to properly answer. 23. The business cycle includes the following phases in order of occurrence a. peak, recession, expansion, and trough. b. peak, expansion, recession, and trough. c. peak, trough, expansion, and recession. d. peak, trough, recession, and expansion. e. peak, recession, trough, expansion.

7 24. According to the theory of comparative advantage, a country will export bananas only if a. it can produce bananas using less labor than other countries. b. its productivity is higher in producing bananas than the productivity of other countries producing bananas. c. its wage rate in producing bananas is lower than in other countries. d. its cost of producing bananas, relative to other goods, is lower than in other countries. e. All of the above. 25. Countries gain from free trade because a. trade makes firms behave more competitively, reducing their market power. b. output per work will increase to make up for the increase in world consumption of goods because of trade. c. because of increased world consumption, firms can take advantage of workers by lower the cost of labor. d. every country has an absolute advantage in producing something and only those who have the largest absolute advantage should produce that good. e. world consumption can rise because countries are specializing in what they do relatively best. 26. Federal Reserve policy to increase the money supply in the U.S. should cause the international demand for U.S. dollars to a. increase. b. decrease. c. stay the same. d. increase through the concept of crowding out. e. decrease because of the contractionary policy impact on aggregate demand. 27. An increase in the U.S. demand for the euro a. causes a rise in the dollar / euro exchange rate. b. causes the euro to appreciate. c. causes the dollar to depreciate. d. causes euro area goods to be relatively more expensive. e. All of the above. 28. The exchange rate is $0.05 dollars / Mexican peso and 22,300 Vietnamese dong / U.S. dollar. What is the exchange rate between Mexican peso and Vietnamese dong in dong / peso? a. between 0.05 and 1 but market will decide exact amount b. 11,150 c. 446,000 d. 1,115 e. 44,600

8 Countries Pitchland and Fieldland have the same resources and both can produce either soccer balls or baseballs. The following table provides the number of baseball and soccer balls each country can produce. Answer questions 29 and 30 using this information. Pitchland Fieldland Commodity Soccer Balls Baseballs Which country has the absolute advantage in producing soccer balls? Baseballs? a. Pitchland; Fieldland b. Fieldland; Pitchland c. Fieldland; Fieldland d. Pitchland; Pitchland e. Neither; Fieldland f. Neither; Pitchland g. Fieldland; Neither; h. Pitchland; Neither 30. Which country has the comparative advantage in producing soccer balls? Baseballs? a. Pitchland; Fieldland b. Fieldland; Pitchland c. Fieldland; Fieldland d. Pitchland; Pitchland e. Neither; Fieldland f. Neither; Pitchland g. Fieldland; Neither; h. Pitchland; Neither 31. All else being equal, if Canada increases its interest rates a. the U.S. dollar depreciates. b. the U.S. demand for Canadian dollars increase. c. the Canadian supply of Canadian dollars increase. d. both a and b. e. both a and c. 32. The international body which helps countries manage the balance of payments is a. Intra-country Monetary Fund. b. Inter-regions Money Fund. c. International Monetary Fund. d. Intergovernmental Manager of Funds. e. World Trade Organization

9 33. The consumer price index measures. a. the cost of a standard basket of goods and services in the base year relative to the cost of a basket of goods and services in the previous base year. b. the cost of a standard basket of goods and services in a given year relative to the cost of the same basket of goods and services in the base year. c. the cost of a standard basket of goods and services in a given year relative to the cost of the same basket of goods and services in the previous year. d. the cost of a standard basket of goods and services in a deflated by the CPI of the base year. e. None of the above. 34. What year and why was the Federal Reserve System created? a. 1939; To help the economy recover from the great depression. b. 2009; To help the economy recover from the most recent depression and take advantage of advances in digital technology. c. 1918; To facilitate the world economic recovery after World War I. d. 1890; Fed was created as part of the Sherman Antitrust Act to combat monopolies. e. 1913; In response to runs on banks. 35. The following graph depicts the yearly rate of inflation in Toowoomba. Which of the following is true based on this figure? a. The general price level is higher in 2017 than in b. The price level is lower in 2017 than in c. The base year is d. The price level was highest in e. Deflation occurred in one year. f. a and e.

10 36. Which of the following would not be directly included in 2017 GDP calculations? a. A new house completed in December b. The price of a steak dinner that was eaten at the Texas Road restaurant. c. The realtor s commission on the purchase of a house built in d. Changes in inventory between December 31, 2016 and December 31, 2017 of Ford F 150 pickup trucks. e. All would be included. 37. Robotic arms are the most common manufacturing robot. They are nimbler, lighter and work better than humans. An estimated 5 million U.S. factory jobs have evaporated since 2000 and most of those (88%) were lost to increased productivity due to automation (use of robots), according to a study by Ball State University. Unemployment of this type is. a. frictional unemployment. b. cyclical unemployment. c. seasonal unemployment. d. structural unemployment. 38. If real GDP is 6,000 Swedish krona and nominal GDP is 12,000 Swedish krona, the value of the CPI used to convert nominal to real is a b c d e The CPI in years after the base year a. is never equal to 100. b. is always greater than 100. c. is always less than 100. d. can be less than, greater, than or equal to 100. e. more information is necessary. 40. Workers at the Toyota Motor Manufacturing plant in San Antonio TX are laid off because the economy is weak and Toyota Tundra and Tacoma pickups are not selling. Toyota is not sure when the plant will reopen. What type of unemployment describes the workers' situation? a. frictional unemployment. b. cyclical unemployment. c. seasonal unemployment. d. structural unemployment.

11 41. Using the following information, what is the unemployment rate for this economy? a. 80%. b. 50%. c. 40%. d. 20%. e. 10%. Millions of people Total Population (all people) 800 People in the military 200 People not looking for work 90 Employed workers 400 People in college and other institutions 10

12 There are 41 questions, only 40 will be graded. Please pick the one question you do not want graded by placing XXX in the answer line. If you do not pick a question to not be graded, question 41 will not be graded. Test Version 1 Name Question Answer Question Answer Grade