Introduction to Agricultural Economics Agricultural Economics 105 Spring 2015 Third Exam Version 1

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1 Introduction to Agricultural Economics Agricultural Economics 105 Spring 2015 Third Exam Version 1 Name Section 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 1/2. 1. According to the International Monetary Fund (IMF), currencies that are fixed to the value of some other currency are classified as a. pegged rate currencies. b. independent float currencies. c. managed currencies. d. exchange rate. e. cross exchange rate. 2. A nation s effective production possibilities frontier (curve) is a. the same as its production possibilities frontier. b. never the same as its production possibilities frontier. c. the same as its production possibilities frontier only if there is advantageous trade. d. the same as its production possibilities frontier only if there is no international trade. e. there is no economic concept of an effective production possibilities frontier. 3. The source of gains from trade is a. tariffs. b. comparative advantage. c. Autarky equilibrium. d. restrictions on trade from low cost countries. e. absolute advantage. 4. An individual worker who is replace by a robot is an example of a. frictional unemployment. b. cyclical unemployment. c. seasonal unemployment. d. structural unemployment. e. cost push unemployment.

2 5. The National Bank of Ghana has decided to increase the supply of the Ghanaian cedi (the money used in Ghana). Which of the following actions would you suggest the Bank undertake? a. Increase the tax rate. b. Decrease the tax rate. c. Sell government securities in the open market. d. Purchase government securities in the open market. e. Both b and d. 6. As shown in the graph, the U.S. civilian unemployment rate initially increased as the U.S. recovered from the last recession. Which of the following statements provide the best explanation for this rise? a. As the economy began to recover from the recession, the demand for goods and services decreases leading to a decreased demand for workers. b. It is mostly caused by lags in collecting the data and errors associated with the data as recovery means more jobs. c. As the economy began to recover from the recession, firms did not hire more workers rather they increased the hours each worker worked. d. Unemployment is a lagging indicator; as such we would expect unemployment to lag behind any recovery. e. As the economy began to recover from the recession, workers who were previously discouraged from looking for employment began to look for a job in the improved economic environment.

3 7. Unemployment caused by fluctuations in the overall economic activities is an example of a. frictional unemployment. b. cyclical unemployment. c. seasonal unemployment. d. structural unemployment. e. cost push unemployment. 8. The economy of Togo is currently at equilibrium producing at Y potential (potential GDP), an increase in the money supply will cause a. demand pull inflation. b. cost push inflation. c. stagflation. d. Keynesian deflation. e. supply side inflation. 9. Which of the following is NOT an example of a transfer payment in the sense of the national income accounts? a. National School Lunch Program for low income households. b. Public unemployment insurance benefits. c. Dividends paid by corporations to stockholders. d. Disability pensions paid from the social insurance system. e. WIC Women, Infant, and Children Program. 10. Commercial banks create money by a. transferring depositors accounts to the Federal Reserve System for conversion to cash. b. buying Treasury bills from the Federal Reserve. c. sending their excess cash in their vault to the Federal Reserve. d. maintain a 100% reserve requirement. e. lending excess reserves to customers. 11. Which of the following monetary and fiscal policy combination would result in a decrease in aggregate demand? Discount Rate Open-Market Operations Government Spending a. Increase Buy Securities Increase b. Increase Sell Securities Decrease c. Decrease Buy Securities Increase d. Decrease Sell Securities Decrease e. No Change No Change Increase

4 12. Suppose unemployment fell from 9.2 to 7.0 percent and inflation fell from 5 to 3 percent. Which of the following provides the best explanation for these changes? a. The aggregate demand curve shifted to the left (downward). b. The aggregate demand curve shifted to the right (upward). c. The aggregate supply curve shifted to the left. d. The aggregate supply curve shifted to the right. e. This is an example of the Phillips Curve. 13. Which of the following is true if the economy is producing at full-employment level of output? a. The unemployment rate is zero. b. There is frictional unemployment. c. Government unemployment payments are zero. d. Both the government s budget and the balance of trade are in equilibrium. e. Both a and c. 14. If the reserve requirement is 20 percent, the existence of $1000 in excess reserves would lead to the expansion of the money supply by a maximum of a. $1000. b. $1250. c. $5000. d. $2000. e. $ The day before ChiliFest, you withdraw funds from your checking account to purchase supplies the next day. This is an example of a. speculative demand for money. b. transactions demand for money. c. precautionary demand for money. d. adding to the money supply. e. the equilibrium money supply and money demand. 16. Suppose a 19 year person withdraws funds from their checking account the day before ChiliFest to pay for a potential underage drinking citation. This is an example of a. speculative demand for money. b. transactions demand for money. c. precautionary demand for money. d. adding to the money supply. e. the equilibrium money supply and money demand

5 17. Which of the following is a correct listing of money s functions? a. medium of exchange, unit of account, store of value. b. medium of exchange, unit of account, medium of barter. c. unit of account, unit of income, transaction cost accounting. d. store of value, medium of exchange, unit of income. e. unit of barter, unit of account, medium of exchange. 18. The Federal Reserve System (FED) is the a. federal agency responsible for collecting taxes and government spending. b. the company that delivers packages to your house. c. the federal agency that collects and disseminates all the economic data that economists are interested in. d. the central bank responsible for monetary policy. e. a federal agency responsible for both fiscal and monetary policies. 19. Fiji s real GDP for 2012 was $3.671 billion whereas the real GDP in 2013 was $ This change in GDP was caused by a. an increase in prices and decrease in productivity. b. increase in both prices and productivity. c. need to know the CPI to be able to answer this question. d. and increase in productivity. e. a decrease in prices and an increase in productivity. 20. As the opportunity cost of holding money decreases, the quantity demanded of money a. stays the same. b. decreases. c. increases and then decreases because of time necessary for policy to take effect (lags). d. increases. e. decreases and then increases because of time necessary for policy to take effect (lags). 21. Fiscal policy is best referred to as a. efforts to balance a government s budget. b. changes in the money supply to achieve particular economic goals. c. changes in government expenditures and taxation to achieve particular economic goals. d. changes in private expenditures that occur as a consequence of government actions. e. All of the above.

6 22. Automatic stabilizers refer to a. government spending and taxes that automatically increase or decrease along with the business cycle. b. changes in the money supply and interest rates that are intended to achieve macroeconomic policy objectives. c. changes in federal taxes and purchases that are intended to achieve macroeconomic policy d. the money supply and interest rates that automatically increase or decrease along with the business cycle. e. changes in monetary policy brought about by actions of the FED. 23. In the Keynesian representation of the Aggregate Demand (AD) and Aggregate Supply (AS) graph, a decrease in the money supply will cause a shift of the curve. a. rightward; AD. b. rightward; AS. c. leftward; AD. d. leftward; AS. e. neither as the economy is assumed to be in equilibrium in the Keynesian model. 24. All of the following are components of the money supply in the U.S. EXCEPT a. paper money. b. gold bullion. c. checking accounts / deposits. d. coins. e. demand deposits. 25. Use the following economy to answer the questions below. All numbers are in billions of dollars. C= (Y T); G = 240; I= 60: T= 200; Y FE = 960 a. What is the autonomous consumption? b. What is the marginal propensity to consume? c. What is the government deficit?

7 26. The change in consumption associated with a change in disposable personal income is known as the a. money multiplier. b. MPS marginal propensity to save. c. Autonomous consumption. d. MIS marginal interest rate sensitivity. e. MPC marginal propensity to consume. 27. What is inflation? a. increase in GDP b. sustained rise in the general price level. c. weighted average of prices consumer pay for goods and services d. an increase in gasoline prices e. c and d Questions 28 and 29 pertain to the planned investment function given below. Interest Rate 8 2 I 0 I Investment 28. What is the marginal interest rate sensitivity of investment, MIS? a. 10 b. 0.2 c. 50 d. 5 e. more information is necessary

8 29. The leftward shift in the investment function from I 1 to I 0 may be attributed to a. a pessimistic view of profit expectations d. an optimistic view of profit expectations c. an increase in the interest rate d. decrease in corporate tax rates e. a and c 30. In February 2013, President Obama announced the Fix-It-First program which included funds to start repairing nearly 70,000 structurally deficient bridges. This program is a. increasing GDP by the amount of dollars spent by the program. b. decreasing GDP by the amount of dollars spent by the program. c. increasing GDP by the amount of dollars spent by the program minus the cost of the steel used in the program. d. Zero by their very nature, government transfer payments are excluded from the calculation of a nation's GDP since they do not represent compensation for the production of currently produced goods and services. e. zero GDP represents goods and services and not infrastructure. Answer questions based on the following demand and supply schedules. Pounds of Tomatoes Demanded Price / Pound ($) Pounds of Tomatoes Supplied If the market is perfectly competitive, what is the equilibrium quantity of tomatoes? a. 500 pounds b. 600 pounds c. 700 pounds d. 800 pounds e. 900 pounds 32. If the government supports the price of tomatoes at $3.50 / pound, at this price there is a. a shortage of 600 pounds b. a shortage of 200 pounds c. a surplus of 800 pounds d. a surplus of 200 pounds e. a surplus of 900 pounds

9 33. At the support price of $3.50 / pound, consumers spend, the federal government spends, and farmers receive. a. $2100; $700; $2800 b. $2800; $700; $2100 c. $2100; $2800; $4900 d. $2100; $700; $1400 e. more information is necessary 34. In the U.S., how does trade in agricultural products contribute (effect) the trade balance and the balance of payments? a. Has no effect on the trade balance or balance of payments. b. Improves the trade balance but has a negative effect on the balance of payments. c. Has a negative effect on the trade balance but a positive effect on the balance of payments. d. Because agriculture has a trade surplus it improves both the trade balance and balance of payments. e. Because agriculture has a trade deficit it improves both the trade balance and balance of payments. The Texas Department of Agriculture s International Marketing Program is designed to expand exports from Texas to other countries. One way of enhancing exports is through creating demand for Texas products worldwide. Assume that D T represents Texas demand for beef, D F represents international demand for Texas beef created by the program, and S T represents the supply of Texas beef. 35. Why would Texans as a society support such a program? a. producer surplus is a gain of c + d. b. consumer surplus is a gain of b + d. c. both producers and consumers gain. d. producers gain and consumers lose so would not support the program. e. society as a whole gains b + d.

10 36. A reduction in private consumption that occurs because of an increase in government spending is known as a. deficit spending b. fiscal debt c. inflationary gap d. recessionary gap e. crowding out 37. If the economy is at AD 1 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. Recession gap. c. Full employment. d. Output at potential employment. e. Business cycle. 38. Which of the following would NOT be included in consumption, C, in the GDP equation? a. Your parents purchasing an automobile for your graduation present. b. Corn on the cob purchased at HEB for dinner tonight c. Increase in inventory of fertilizers for residential lawns because of an extremely dry year. d. Wheat flour purchased by your favorite restaurant to make tortillas. e. A bushel of corn to fed your pet deer.

11 39. Using the following information on the exchange rates, calculate the exchange rate between the Norwegian Krone and Belize dollar. 1 Belize dollar = 0.5 US dollars 1 Norwegian Krone = 0.1 US dollars a. 0.1 / 0.5 = 0.2 Krone / Belize dollar. b. 0.5 / 0.1 = 5 Krone / Belize dollar. c. More information is necessary. d. 1/0.5 * 1/(1/0.1) = 0.20 Krones / Belize dollars. e. 1/.01 * 0.5 = 50 Krones / Belize dollar. 40. From the information on exchange rates given in question 39, which of the following is a true statement. a. Given it takes less Belize dollars than Krones to buy a U.S. dollar, Belize economy is stronger than the Norwegian economy. b. Given it takes less Belize dollars than Krones to buy a U.S. dollar, Belize economy is weaker than the Norwegian economy. c. Given it takes more Belize dollars than Krones to buy a U.S. dollar, Belize economy is stronger than the Norwegian economy. d. Given it takes more Belize dollars than Krones to buy a U.S. dollar, Belize economy is weaker than the Norwegian economy.. e. More information is necessary to infer relative strengths of the two economies. 41. Assume the Canadian dollar to U.S. exchange rates has decreased. This means that goods are relatively in. a. cheaper; Canada. b. more expensive; the United States. c. cheaper; the United States. d. more expensive Canada.. e. a and b. f. c and d.

12 Extra credit question with a risk if answered correctly you will received 3 points, if answered incorrectly 1 point will be taken off your test, if not answered no points received or deducted. 42. The table below indicates the number of labor hours required in Ghana and Togo to produce one unit of food or clothing. Given this information, which country has a comparative advantage in Food; Clothing? Hint: be careful this is slightly different format than presented in class can you think beyond class notes. Country Food Clothing Togo 20 hours 50 hours Ghana 10 hours 20 hours a. Togo; Ghana. b. Togo; Togo. c. Ghana; Togo. d. Ghana; Ghana. e. neither country has a comparative advantage in the production of either good.

13 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 a. b. c Grade Extra Credit:

14 Extra Credit: