Introduction to Agricultural Economics Agricultural Economics 105 Spring 2014 Third Hour Exam Version 1

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1 Introduction to Agricultural Economics Agricultural Economics 105 Spring 2014 Third Hour 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 ½ points. Use the following instructions to complete questions one through six. Read the following excerpts from news articles and indicate the policy type, fiscal (F) or monetary (M), and whether it is a contractionary (C) or expansionary (E) policy. Record M or F and C or E on your answer sheet. All responses must have two letters for a correct answer. If the policy, for example, is fiscal and contractionary, you would mark FC on your answer sheet. 1) The Federal Reserve said it would further [reduce] its signature bond-buying program next month, a move that solidifies the central bank s strategy for winding down asset purchases as long as the economy continues to improve. (The Wall Street Journal, January 29, 2014) 2) The president wants to spend $659 billion less on overseas [military] operations, such as those in Afghanistan, than would occur under current policies. (CNN Money, April 17, 2014) 3) On March 31, Janet Yellen highlighted inconsistencies in job data and said considerable slack in labor markets showed the Fed s accommodative policies will be needed for some time. In her first major speech on her policy framework as Fed chair on April 16, Yellen said it will take at least two years for the U.S. economy to meet the Fed s goals. (Bloomberg, April 21, 2014) 4) Filers and accountants alike are finding a new array of taxes resulting from the president s health care legislation. These include at least 20 ObamaCare-related tax increases totaling $409 billion over the next ten years, according to the Joint Committee on Taxation. (Fox News, April 15, 2014) 5) The Economic Stimulus Act of 2008 has three main parts: an individual tax rebate that the Internal Revenue Service will send out starting in mid-2008 and two provisions that encourage investment during (Tax Policy Center, March 13, 2008) 6) President Eisenhower set into motion a record $33 [billion] road-building program today by signing the bipartisan authorization bill the Congress sent him The main feature of the program is a 41,000-mile network of limited-access roads linking 90 percent of all cities with populations of more than 50,000. (The New York Times, June 29, 1956)

2 Use the following data to answer questions seven through nine. The base year is Year Real GDP $12,910 $13,270 $13,774 CPI ) Which of the following would give the nominal GDP for 2003? a. $13,270 * = $11,372 b. $13,270 * (1 / 0.857) = $15,484 c. ($13,774 $13,270) / $13,270 = 3.7% d. ($13,270 $12,910) / $12,910 = 2.8% e. None of the above is the correct formulation. 8) Which of the following would give the growth in real GDP between 2002 and 2003? a. $13,270 * = $11,372 b. $13,270 * (1 / 0.857) = 15,484 c. ($13,774 $13,270) / $13,270 = 3.7% d. ($13,270 $12,910) / $12,910 = 2.8% e. None of the above is the correct formulation. 9) What is the farm deficiency payment per bu if the target price is $5 / bu, loan rate is $3/ bu and the market price is $6 / bu? a. 6-5 = $1 b. 5 6 = $-1 c. 5-3 = $2 d. 6-3 = $3 e. None of the above Use the following information to answer questions 10 through 13. In the 1960s, there was considerable development of new technologies to promote the U.S. space program. Because of the vast research and development, modern society benefits from many innovations (LEDs, artificial limbs, computer advancements, etc.) from this program. 10) The sudden increase in productivity associated with the space program is likely which of the following causes of business cycles? a. Keynesian b. Technological c. Exogenous d. Political e. Classical

3 11) The funding provided to NASA is an example of which of the following determinants of GDP? a. Autonomous consumption b. Consumption c. Investment d. Trade balance e. Government expenditures 12) As a result of the NASA funding, one would expect. a. an increase in aggregate demand b. a decrease in aggregate demand c. an increase in total output d. a decrease in total output e. both an increase in aggregate demand and an increase in total output. 13) Suppose that as a result of the government expenditures on NASA, there are many new jobs created for Americans. This results in an increase in consumers incomes. Which of the following will occur other things equal? a. I and III b. I and IV c. II and IV d. I, II, and III e. I, II and V I. An increase in the demand for money II. An increase in the interest rate III. An increase in government tax revenues IV. A decrease in total output V. A decrease in disposable income 14) Assume the Federal Reserve has decided to decrease the reserve requirements for American banks. Other things equal, the decrease 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.

4 For questions 15 through 18, assume the interest rate in the U.S. has increased. 15) The quantity demanded for U.S. dollars by U.S. citizens will. a. be unchanged b. increase c. decrease d. The effect of this policy cannot be determined from the information given. 16) Let the British Pound to United States Dollar exchange rate be given by /$. What is the expected change in the exchange rate given the increase in the interest rate? a. The exchange rate, /$, will decrease. b. The exchange rate, /$, will increase. c. The exchange rate, /$, is not affected by changes in the monetary policy of these two nations. d. The exchange rate, /$, is unrelated to the interest rates of the two nations. e. The effect of this policy cannot be determined form the information given. 17) Assume the U.S. is currently pegging the Dollar to the British Pound instead of allowing an independent float. What is the effect of the increase in interest rates? a. The exchange rate, /$, will decrease. b. The exchange rate, /$, will increase. c. The exchange rate, /$, is not affected. d. The exchange rate, /$, is unrelated to the interest rates of the two nations. e. The effect of this policy cannot be determined from the information given. 18) Assume the Pound per Dollar exchange rate, /$, has increased. This means that goods are now relatively for. a. cheaper; Britons b. expensive; Americans c. cheaper; Americans d. expensive; Britons e. a and b f. c and d

5 19) The reserve requirement. a. is the official national interest rate of the United States b. is the percentage of a bank s total liabilities (deposits) that it must hold as vault cash c. is set by Congress d. has no effect on the monetary policy of the United States e. All are correct. 20) If the reserve requirement is 5%, what is the money multiplier? a. 20 b. 10 c. 5 d. 1 e. The money multiplier cannot be determined by the information given. 21) If the money multiplier is 10 and the Federal Reserve sells $1 million in securities, then the total change in the money supply for the entire economy is expected to be. a. -$10 million b. -$1 million c. $ 1 million d. $10 million e. There is no change in the total money supply. 22) The gross domestic product (GDP) of a country is the sum of. I. consumer expenditures II. investment expenditures III. disposable personal income IV. government expenditures V. net exports a. I, III, IV, and V b. I, II, and IV c. I, II, IV, and V d. I, II, III, and IV e. All of five are included in the sum to obtain GDP of a country.

6 23) Which of the following best describes the Consumer Price Index (CPI)? a. The CPI can be used to measures changes in the price level of a basket of consumer goods and services over a given period. b. The CPI can be used to calculate the rate of inflation over a given period. c. The CPI is a weighted average of prices of certain goods and services. d. The CPI is equal to one (or 100) in the base year. e. All of the above are true about the CPI. Use the following graph of the personal savings rate to answer questions 24 and 25. The shaded areas represent economic recessions. 24) In late 2001, the personal savings rate was approximately 6 percent. What was the marginal propensity to consume for the U.S.in the same period? Record your response on the answer sheet. 25) The graph shows that at the start of recessions, there is typically a(n) in personal savings. a. increase b. decrease c. no change

7 Use the following graph to of unemployment and the CPI to answer questions 26 through 28. The shaded areas represent economic recessions. 26) The right-hand side vertical axis shows the percentage change in the Consumer Price Index (CPI). This is a measure of. a. The unemployment rate b. The rate of inflation c. The value of the dollar against another currency, exchange rate. d. The change in the personal savings rate e. None of the above. 27) The graph shows that, on the whole, when unemployment is high, the rate of change in the CPI is. a. low b. high c. no relationship is shown 28) The relationship described in the previous problem is best illustrated in the short run using the. a. Keynesian model of the economy b. Gini coefficient c. aggregate demand and aggregate supply framework d. Phillips Curve e. Engel Curve

8 29) Which of the following is not a major economic agent in the circular flow of a general economy model? a. Government b. Households c. Firms d. Financial markets e. All of the above are major agents in the circular flow model. 30) On February 14, 2014, Janet Yellen, the newly-appointed Chair of the Federal Reserve, stated that the unemployment rate is not an adequate gauge of the health of the labor market. Why does she believe this? a. The unemployment rate does not consider those who have given up looking for employment. b. The unemployment rate will never be zero because of seasonal and frictional unemployment. c. The unemployment rate is determined after-the-fact and is not a strong leading indicator of the health of the economy. d. The unemployment rate is sensitive to changes in military action; when servicemen and women are deployed, they are considered unemployed. e. None of these are reasons why Janet Yellen believes the unemployment rate alone is inadequate for evaluating the labor market. Use the following to answer questions 32 through 34. Questions Written for Test Papers Written for Journals Dr. Mjelde 6 12 Alex ) Who has the absolute advantage in writing journal articles? a. Dr. Mjelde b. Alex c. Robert d. Neither e. Both 32) What is Dr. Mjelde s opportunity cost of writing a test question in terms of journal articles? a. 2 b. 4 c. 6 d. 10 e. 12

9 Use the following to answer questions 33 through 36. The U.S. has maintained an embargo against Cuba since October 19, Congress is considering allowing the import of Cuban cigars. The diagram below shows the implications of this policy. Assume that D US represents the U.S. demand for cigars, S US represents the supply of U.S. made cigars, and S total represents the total supply of U.S. and Cuban made cigars. 33) If the embargo is lifted, what will be the equilibrium price for cigars? a. P 0 b. P* c. P 1 d. P 2 e. None of the above 34) If the embargo is lifted, what will be the quantity of cigars sold by U.S. cigar-makers? a. Q 0 b. Q* c. Q 1 d. Q 2 e. The distance Q 2 to Q* 35) If the embargo is lifted, which area(s) will be the surplus to American consumers of cigars? a. 1, 2, 3, 4, 5, 6 b. 1, 2, 3, 4, 5, 6, 7 c. 1, 2, 3, 4, 5 d. 1, 2, 4, 7, 11 e. 1, 2, 4

10 36) Would U.S. producers support or oppose lifting the trade embargo? a. Support the change as they gain areas 6 and 7 b. Support the change as they gain areas 9, 10, and 11 c. Oppose the change as they lose areas 4, 5, 8, 9, 10 and 11 d. Oppose the change as they lose areas 6, 7, 9, and 10 e. Oppose the change as they lose areas 4 and 5 37) Petroleum, a major input into many production processes, has in recent years seen its price increasing. This is a potential example of. a. demand-pull inflation b. cost-push inflation c. change in aggregate demand and supply d. general inflation e. one product does not translate into inflation 38) If the economy is at AD 1 and AS, what situation is the economy experiencing? Price AD 0 AD 1 AS 3 1 Y 0 Y FE Y Pot a. Inflationary gap b. Recession gap c. Full employment d. Output at potential employment e. Business cycle

11 39) Which of the following is not a reason why a fiduciary monetary system has value? a. Money is acceptable by others b. Money has been designed legal tender c. Money has predicable value d. Money is backed by either a gold or silver standard e. All are reasons why a fiduciary system has value 40) 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 41) The leftward shift in the investment function 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 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) Suppose that the government promises farmers to pay them a total price of P1 per ton of soybeans but the government instructs the farmers to sell all soybeans in the market. The government will pay a subsidy to the farmers equal to the difference between P1 and the price the soybeans actually sold for in the market. Given this program, the total costs to the government will equal. a. P1 times (Q5 Q2) b. (P1 P2) times (Q5) c. (P1 P4) times (Q5) d. (P1 P3) times ( Q2) e. Not enough information is given.

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 Extra Credit