Introduction to Agricultural Economics Agricultural Economics 105 Spring Third Hour Exam Version 1

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1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2011 Third Hour Exam Version 1 For the multiple choice questions, circle the most correct answer (only one answer per question). For the remaining questions either correctly draw on the graphs provided or provide the answer on the space provided. Show your work. Each question is worth 2 1/2 points. 1. Macro economics deals with a. imperfectly competitive markets b. the long run adjustments to equilibrium in the agriculture sector c. the nation s economy as a whole d. individual units or sectors within the economy e. all of the above 2. According to the normal shaped Phillip s Curve, to decrease unemployment a. the aggregate demand curve must shift outward b. the aggregate supply curve must shift outward c. we must be on the 45 degree line Keynesian cross c. inflation must increase e. fiscal and monetary policy must be contractionary Use the following data for to answer questions 3-7. All numbers are in billions. C= (Y - T); G = 210; I = x R; tax rate = 0.10% where Y is before tax income, T is total taxes paid, G is government spending, and I is investment. 3. Autonomous consumption is equal to billion. 4. Consumer expenditures are if disposable income is $1, The marginal propensity to consume in this economy is. 6. At an interest rate of 20% and disposable income of $1,000, aggregate expenditures are (Show work for credit)

2 7. If Y = 2000, the government s deficit for this year would equal billion. 8. Which of the following is not a function of money? a. a medium of exchange to end the need for barter b. a unit of account used to quantify the economic value of goods and services c. a way to store value d. a way to encourage barter e. all of the above 9. Which of the following is not an example of money in the M2 category? a. a $250,000 time deposit held by a large corporation b. coins c. paper money in your wallet d. your parent s bank savings account e. none of the above 10. Why do people hold money? a. because people make purchases almost everyday while income comes in biweekly or monthly b. to meet unexpected expenses without borrowing c. to be able to purchase assets in the future that are expected to decline in price d. all of the above e. none of the above 11. Comparative advantage suggests that a good should be produced in the nation where a. the labor cost of production is the least b. the cost is least in terms of alternative goods that might have been produced c. the absolute cost in terms of resource use is least d. the production possibility frontier (curve) is furthest from the origin e. the nation has an absolute advantage 12. Free trade based on comparative advantage is economically beneficial because a. it promotes efficient use of the world s resources b. it increase competition c. it provide consumers with a wider array of products d. it increase the welfare of the countries involved e. all of the above

3 13. The difference between the government s debt and deficit is a. debt is the difference between government revenues and spending for a year, whereas, deficit is the accumulated debt over all years b. deficit is the difference between government revenues and spending for a year, whereas, debt is the accumulated deficit over all years c. the two terms are basically interchangeable d. debt deals with fiscal policy and deficit with monetary policy e. changes in aggregate demand increase debt but do not impact the deficit Use the following graph to answer questions Answer each question independently. Price AD 0 AD 1 AS 3 1 Y 0 Y FE 14. If the economy is at AD 1 and AS, what type of policy would you suggest to the government? a. do nothing b. expansionary monetary policy c. contractionary monetary policy d. expansionary fiscal policy e. contractionary fiscal policy 15. Label the three sections (Keynesian, normal, classical) of the AS curve. 16. What is the inflation rate in percent (be sure to multiply by 100 to get a percentage) if the economy moved from AD 0 to AD 1? Note / hint: AD 0 is the beginning point.

4 17. If the total reserve requirement is 20% and the change in total reserves is $40,000 what is the total change in the money supply made assuming all available funds have been fully utilized? a. $160,000 change in money supply b. $120,000 change in money supply c. $200,000 change in money supply d. $220,000 change in money supply e. $240,000 change in money supply 18. If the total reserve requirement is 20% and the change in total reserves is $40,000 what is the total change in loans made assuming all available funds have been fully utilized? a. $8,000 change in loans b. $40,000 change in loans c. $100,000 change in loans d. $160,000 change in loans e. $180,000 change in loans 19. A type of monetary system in which the value of money rests on the public s belief that a piece of paper can be exchanged for goods and services. a. silver certificate standard b. gold standard c. fiat standard d. Federal Reserve System e. Fiduciary 20. In March 2011, the number of home loans foreclosed in February 2011 would be what type of indicator? a. Lagging indicator b. Coincidental indicator c. Leading indicator d. CPI and GDP indicators e. All of the above 21. Acreage set aside requirements are designed to a. make the demand for farm products more price elastic b. reduce the supply of agricultural products c. bolster the demand for agricultural products d. make the supply of agricultural producers more inelastic e. accelerate the movement of human resources out of farming

5 22. If the market price is $5.25, the loan rate is $4.75, and the target price $6.00 per bushel, what would be the deficiency payment per bushel a. $1.50 b. $0.50 c. $1.25 d. $0.75 e. $6.00 Through their Go Texan program, the Texas Department of Agriculture encourages exports from Texas to other countries (foreign demand enhancement). Use the following graph to answer questions Price Supply Demand after Go Texan Program 8 7 Demand before Go Texan Program Texas Products 23. On the graph, label the equilibrium points before (P 0 and Q 0 ) and after (P 1 and Q 1 ) the Go Texan program was initiated. 24. Using welfare measures, explain why producers are for the Go Texas program. Be specific. 25. Using welfare measures, explain why international consumers may support the Go Texas program. Be specific.

6 26. What is inflation? a. increase in GDP b. weighted average of prices consumer pay for goods and services c. an increase in gasoline prices d. sustained rise in the general price level. e. c and d 27. A projection of income in the year 2012 is what type of indicator? a. Lagging indicator b. Coincidental indicator c. Leading indicator d. CPI and GDP indicators e. All of the above 28. Which of the following government action is a contractionary fiscal policy action? a. The federal government increases the amount of money available for grants associated with developing new technologies b. Increasing federal government subsidy for reducing pollution from waste water treatment facilities c. Decreasing the banking reserve requirement d. Increasing the income tax rate e. The Fed selling securities 29. Which of the following actions is a contractionary monetary policy action? a. Increasing the banking reserve requirement b. Increasing government spending on infrastructure improvement such as bridges c. The Fed buying securities d. Increasing the tax rate on personal income e. The Fed decreasing the discount rate 30. The ability of a nation to produce more of a good than a competitor nation using the same amount of resources is a. competitive advantage b. comparative advantage c. economic efficiency or equilibrium point d. trade e. absolute advantage

7 31. In the GDP equation, GDP = C + I + G + (X M), (X M) represents a. changes in money supply b. exports minus imports c. changes in aggregate demand caused by changes in the money supply (M) d. service sector of the U.S. economy e. changes in residential housing in the U.S. 32. Which of the following would be included in consumption, C, in the GDP equation a. unemployment benefits paid to a worker who just lost his job because of a recession b. purchase of an antique automobile at an auction c. steel I-beams produced in Pittsburgh to be used to make an automobile d. a bushel of corn to feed a steer e. corn on the cob purchased at HEB for dinner tonight Questions 33 and 34 pertain to the planned investment function given below. Interest Rate 8 3 I 0 I Investment 33. What is the marginal interest rate sensitivity of investment, MIS? a. 10 b. 0.1 c. 5 d. 50 e. more information is necessary

8 34. The rightward shift in the investment function form I 0 to I 1 may be attributed to a. an increase in the interest rate b. decrease in corporate tax rates c. a pessimistic view of profit expectations d. an optimistic view of profit expectations e. b and d 35. Contractionary monetary policy actions would cause farm land prices to decrease because of: a. rising interest rates stemming from a crowding out of available capital in money market b. decreasing interest rates stemming from a crowding out of available capital in money market c. increase in farm incomes caused by increasing crop prices and production but moderated by an increase in interest rates and increasing input costs d. decrease in farm incomes caused by increased interest rates, increasing production, and increasing crop prices accompanied with increasing input costs e. decrease in farm incomes caused by decreasing crop prices and production along with increasing interest rates thus interest expenses but moderated by decreasing input costs 36. A reduction in private consumption that occurs because of an increase in government spending is known as a. demand pull b. deficit spending c. crowding out d. inflationary gap e. recessionary gap 37. Unemployment associated with fluctuations in the economy is known as what form of unemployment? a. frictional b. cyclical c. seasonal d. structural e. full employment rate

9 38. A recessionary gap occurs when a. the economy is at less than full employment b. the economy is at full employment c. the economy is at more than full employment d. aggregate demand and aggregate supply are not in equilibrium e. only when we are on the depression section of the supply curve Provide a graphical (be sure to label) on how the Federal Reserve selling securities decreases the inflation rate. Use the simple Keynesian model discussed in class; be sure to include markets and equations necessary for the change.

10 Extra Credit 41. Expansionary fiscal policy actions would cause net farm incomes to decrease because of: a. rising interest rates causing an increase in interest expenses and rising input costs which outweighs the increase in prices and quantity produced b. decreasing interest rates stemming from a crowding out of available capital in money market along with decreases prices and quantity produced c. increase crop prices and production but moderated by an increase in interest rates and decreasing input costs d. decreased interest rates, increasing production, and increasing crop prices accompanied with increasing input costs e. decreasing crop prices and production along with increasing interest rates thus interest expenses but moderated by decreasing input costs