Introduction to Agricultural Economics Agricultural Economics 105 Spring 2018 Third Hour Exam

Transcription

1 1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2018 Third Hour Exam 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. Questions 1-4 pertain to the tax reform passed December 22, Answer each question with the only the general information given in the question. 1. The tax reform created a single tax rate of 21% for corporations, which is a reduction from the tax rate of 35% before the tax reform. This change could best be described as an a. expansionary demand side policy. b. expansionary supply side policy. c. contractionary demand side policy. d. contractionary supply side policy. e. monetary policy. 2. The tax reform is forecasted by independent organizations to raise the federal deficit by hundreds of billions of dollars and perhaps as much as $2.0 trillion over the coming decade. An increase in the deficit may cause a. the government to spend more on interest costs of the debt, increasingly crowding out public investments. b. increased interest rates that will cause the federal government's borrowing costs to increase. c. increased interest rates will cause the planned investment function to shift outward. d. an increase the national debt. e. all of the above. 3. The tax reform law retains the current structure of seven individual income tax brackets, but in most cases it lowers the rates for personal income taxes. This change could best be described as an a. expansionary demand side policy. b. expansionary supply side policy. c. contractionary demand side policy. d. contractionary supply side policy. e. monetary policy.

2 2 4. The reform reduces tax rates for individuals and increases 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. increase the money supply. e. increase disposal personal income. 5. If the Fed increases the reserve requirement from 10% to 20% this change should a. increase the money supply as banks have more money in reserve. b. increase the money supply as the money multiplier has increased. c. decrease the money supply as the money multiplier has decreased. d. increase the money supply as the Fed has added money to the banking system. e. have no effect on the money supply as total reserves have not changed. 6. Banks create money in the U.S. banking system by a. printing paper money in conjunction with the Fed. b. loaning out money deposited in their bank. c. using Fiat money so there is no necessary increase in gold or silver reserves. d. by using the Fed as the check clearing agency in the U.S. thereby lowering transaction costs. e. banks do not create money the Federal government creates money in the U.S. system. 7. Before 2017, Kumho Tire had three manufacturing plants in South Korea where they manufactured tires for sale in the U.S. U.S. sales of Kumho tires in 2016 were $40 million dollars. Three-quarters of the sale of their tires goes to replacing worn out tires, whereas the other 25% are sold on new automobiles. Kumho Tire sales directly added million to U.S. GDP. a. $40 b. $30 c. $10 d. $50 e. $0 8. In 2017, Kumho Tire opened a tire manufacturing plant in the U.S. that increases 2016 sales to $50 million. Assume all increase in sales comes from the U.S. plant. Again, threequarters of the sale of their tires goes to replacing worn out tires, whereas the other 25% are sold on new automobiles. Kumho Tire sales directly added million to U.S. GDP in a. $50 b. $2.5 c. $10 d. $7.5 e. $12.5

3 3 9. 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. 10. If the Syrian response to the U.S. bombing of their chemical plants starts another regional conflict which causes the involved countries GDP to decrease, which of the following would best describe this cause of the business cycle? a. Keynesian b. Exogenous c. Technological d. Political 11. The U.S. welfare payments have been slowly decreasing since This decrease in payments a. is decreasing GDP as government expenditures are decreasing. b. is increasing GDP as government expenditures are increasing. c. is decreasing personal disposal income, thus decreasing GDP. d. has no effect on GDP as it is a transfer payment. e. is increasing interest rates in the U.S. 12. The Fed has decided the U.S. economy is showing an inflationary gap. One way to eliminate this gap would be the Fed a. buying securities to increase total reserves. b. lowering the discount rate to increase total reserves. c. lowering the reserve requirement to increase the money multiplier. d. selling securities to decrease total reserves. e. increasing the tax rate to decrease disposal personal income. f. either d or e. 13. After graduation you plan on traveling the U.S. for two months in your new 2018 SUV before starting your job. Most likely, traveling will a. increase your transaction demand for money. b. decrease your transaction demand for money. c. increase your speculative demand for money. d. decrease your speculative demand for money. e. decrease your precautionary demand for money.

4 4 14. The map illustrates the location of major broiler (chickens raised for meat) operations in the U.S. Based only on this map, the southeast appears to have a comparative advantage for producing broilers, why? a. Trade and production are based on comparative advantage and the southeast is producing broilers. b. The southeast has an absolute advantage for broiler production as this area obviously has low input costs. c. Both a and b are correct, to have a comparative advantage, a region must have an absolute advantage. d. Cannot tell absolute or comparative advantage based on production and trade. e. More information is necessary on the costs of production in other regions to be able to compare the regions. 15. Every year in May the unemployment rate tends to increase as students graduate from college and all graduating students are not employed at the time of graduation. This is an example of a. frictional unemployment. b. cyclical unemployment. c. seasonal unemployment. d. structural unemployment. e. 16. The term liquidity means that the a. Fed is expanding the money supply. b. asset is used in a barter exchange. c. asset is used as a medium of exchange. d. market interest rate is too low. e. asset is readily convertible to cash without much loss of value. 17. Petroleum, a major input into many production processes, has in recent years seen its price increasing. This is a potential example of. a. change in aggregate demand and supply. b. general inflation. c. one product does not translate into inflation. d. demand-pull inflation. e. cost-push inflation.

5 5 18. Suppose that as a result of the government expenditures on the Border Wall there are many new jobs created for Americans resulting in an increase in consumers incomes. Which of the following changes in the economic will occur other things equal? I. An increase in the demand for money II. An increase in the interest rate III. An increase in government tax revenues IV. An increase in total output V. An increase in disposable income a. I and III b. I and IV c. II and IV d. I, II, and III e. I, II and V f. All will occur 19. Assuming the economy experiences a large increase in aggregate demand, but a resulting relatively small inflation rate. This economy appears to be operating in the range of the aggregate supply curve. a. Phillips b. Keynesian or depression c. Normal d. Fischer e. Classical f. 20. The following graph shows that right before recessions the personal savings rates tends to increases. This knowledge could be best be described as a. coincident indicator. b. lagging indicator. c. leading indicator. d. the relationship is not perfect so of no use for fiscal or monetary policy. e. no recessions are show on the graph.

6 6 Use the following figure to answer the next two questions. 21. If the economy is at AD 1 and AS, what situation is the economy experiencing? a. Inflationary gap b. Recessionary gap c. Full employment d. Output at potential employment e. Business cycle 22. If AD go from AD 1 to AD 0, what is the inflation rate in the economy? Place your calculated rate on the answer sheet. 23. On February 14, 2014, Janet Yellen, then 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 might she believe this? a. The unemployment rate will never be zero because of seasonal and frictional unemployment. b. The unemployment rate is determined after-the-fact and is not a strong leading indicator of the health of the economy. c. The unemployment rate is sensitive to changes in military action; when servicemen and women are deployed, they are considered unemployed. d. The unemployment rate does not consider those who have given up looking for employment. e. None of these are reasons why Janet Yellen believed the unemployment rate alone is inadequate for evaluating the labor market.

7 7 24. The change in savings 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. 25. In the short-run if the government policy is to decrease unemployment, the economy will experience increased inflation is known as the. a. Keynesian cross model of the economy. b. Stagflation curve. c. aggregate demand and aggregate supply framework. d. Phillips Curve. e. Fisher Curve. 26. Which of the following statements concerning the circular flow diagram of the economy are true? a. Economic activity can be measured in either the resource markets or the product markets but not both to avoid double counting. b. Businesses are net borrowers in financial markets while households are net savers c. Governments receive net inflows of taxes from businesses and households and are a net borrower in financial markets. d. Businesses make investment expenditures, governments make expenditures, and households make consumption expenditures. e. All are true. 27. Fed 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. 28. 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

8 8 29. Monetary policy may not be an effective means of mitigating short-run fluctuations in the economy arising from events such as Katrina. Fiscal policy may be better for responding to such short-run fluctuations. The reason for such comments is a. because of lags in paying taxes, a change in the tax code takes effect in the next year. b. because fiscal policy such as changes in spending occur quickly after passing a spending bill. c. because changes in money supply occur quickly in the economy. d. because of lags associated with monetary policy can take up to 12 or more months for the economy to feel the effects of a change in monetary policy. e. b and d 30. Which component of GDP would the purchase of a new General Electric (made in the USA) clothes washing machine most likely impact? a. Consumption. b. Investment c. Government d. Exports e. Imports. 31. As shown in the following graph, during recessions unemployment benefits rise. These benefits are an example of a. discretionary fiscal policy instruments. b. automatic fiscal policy instruments. c. automatic Fed monetary policy instruments. d. discretionary fiscal policy instruments. e. the result of both demand and supply side economics policy instruments. 32. President Trump and Congress decreased the marginal tax rate. How would such a change influence the planned consumption function? a. will shift the curve to the right increase consumption b. will shift the curve to the left decrease consumption c. will not change the curve but will decrease disposable income decrease in consumption d. will not change the curve but will increase disposable income increase in consumption. e. b and c are correct

9 9 33. Inflation is a. an increase in the prices of key items such as food and gasoline b. a sustained raise in the general level of prices in the economy c. an excessive growth in the quantity of money in the economy d. a change in the equilibrium level of aggregate demand and supply e. increasing the pressure in your tires 34. Economists generally argue that countries should participate in free trade because a. trade makes firms behave more competitively, reducing their market power. b. the welfare of each country participating in trade increases. c. output per work will increase to make up for the increase in world consumption of goods because of trade. d. because of increased world consumption, firms can take advantage of workers by lowering the cost of labor. e. every country has an absolute advantage in producing something. Consider the following economy for the following two questions. C = * dpi G = 50 I = 50 net exports = 50 tax rate = When aggregate planned expenditure are $300 trillion, aggregate planned expenditure is than GDP and to reach equilibrium firms must output. a. less; increase b. more; increase c. less; decrease d. more; decrease

10 Equilibrium occurs at planned aggregate expenditures of a. 0 b. 200 c. 300 d. 400 e. 500 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. 37. Fed officials raised interest rates by a quarter of a percentage point at their most recent meeting, in March, to a range of 1.5 percent to 1.75 percent. (New York Times April 6, 2018) 38. Business investment improved markedly last year following two subpar years, and both business surveys and profit expectations point to further gains ahead, he said. The recently enacted tax cuts and spending increases are helping to lift investment, Mr. Powell said, adding that strong global growth has boosted U.S. exports. (New York Times April 6, 2018) 39. The administration is also expected to soon roll out its $1.5 trillion infrastructure package, which would include $200 billion in new federal spending, offset by unspecified cuts elsewhere (new York Times February 6, 2018) 40. Reagan was certainly a tax cutter legislatively, emotionally and ideologically. But for a variety of political reasons, it was hard for him to ignore the cost of his tax cuts," said tax historian Joseph Thorndike. Two bills passed in 1982 and 1984 together "constituted the biggest tax increase ever enacted during peacetime," Thorndike said. The bills didn't raise more revenue by hiking individual income tax rates though. Instead they did it largely through making it tougher to evade taxes, and through "base broadening" -- that is, reducing various federal tax breaks and closing tax loopholes. (CNN Money September 12, 2010) 41. The Federal Reserve Wednesday announced a series of far-reaching steps to including buying up to $300 billion in U.S. long-term Treasury securities. (ABC News 2009)

11 11 There are 41 questions, only the first 40 will be graded. Question 41 will determine extra credit points. Test Version 1 Name Question Answer Question Answer Grade