ECON 1000 (Maymester 2018 Section 01) Exam #3B

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1 ECON 1 (Maymester 218 Section 1) Exam #3B Multiple Choice Questions: (3 points each) 1. I am taking of the exam. B. Version B 2. The magnitude of the % decline in Real GDP during the most recent recession in the U.S. was tied for the largest such decline since WW-II. During this recession GDP declined by. A. 8.6% B. 4.1% C. 2.5% D. None of the above answers are correct (since Real GDP has not declined during any recession after WW-II). 3. Examining how Real (i.e., inflation adjusted) Household Incomes have changed between 1974 and 214, the mean household income of the middle 5th of all households while the mean household income of the top 5th of all households between these years. A. decreased from $14,281 to $9,485; increased from $365,481 to $44,285. B. decreased from $32,819 to $29,996; decreased from $11,953 to $99,982. C. increased from $48,282 to $54,41; increased from $123,542 to $194,53. D. increased from $52,386 to $98,338; decreased from $212,514 to $156, A government policy that attempts to Internalize an Externality can be generally described as A. a policy which completely bans an activity that generates an externality. B. a policy which reduces non-monetary costs associated with voting, in order to increase political participation by people from all socio-economic groups. C. a policy which mandates the exact level of an activity that decision makers must choose. D. a policy which introduces a cost (or foregone gain) that would be realized by a decision maker who generates an externality. 5. George s income is higher than Phil s income. Two of the notable differences between their jobs are that Phil gets to work in a climate controlled office building year-round and George runs a greater risk of being severely injured on the job. Based upon this information, it would seem reasonable to infer that at least part of the difference in incomes between the workers is due to A. compensating differentials. B. racial discrimination. C. the Labor Theory of Value. D. redistribution in-kind. 6. During our discussion in lecture of government failure resulting from costs of complying with government bureaucracy it was noted that in recent decades people in have been burdened with a complex, irrational, almost incomprehensible system of controls and licenses under which everything needed (government) approval and a stamp, known as the Permit Raj. A. Vietnam B. India C. Iran D. Turkey

2 7. Based upon a poverty threshold of $1.9 per day, between 1981 and 215 the percentage of people living in poverty for the world as a whole A. decreased dramatically from 44.3% to 9.6%. B. decreased slightly from 21.3% to 19.8%. C. increased moderately from 14.6% to 15.2%. D. remained essentially constant, changing from 32.4% to 33.1%. 8. were two of the central figures in the formulation of the ideas of Utilitarian Justice, which argues that total social welfare can be increased by income redistribution, so long as people have a diminishing marginal utility for money. A. Max Lorenz and Corrado Gini B. Robert Nozick and John Rawls C. Ronald Coase and James Buchanan D. Jeremy Bentham and John Stuart Mill Answer Questions 9 and 1 based upon the graph below. This graph illustrates the Lorenz Curve in Country X, along with two different Tax Concentration Curves in Country X one for Tax Code A (its current tax policy) and one for Tax Code B (a proposed different tax policy). Notice that the Tax Concentration Curve for Tax Code B is the same as the Lorenz Curve. The value of: Area (i) is equal to.16; Area (ii) is equal to.19; and Area (iii) is equal to.15. Fraction of Total Income, Fraction of Total Taxes i Lorenz Curve = Tax Concentration Curve under Tax Code B ii iii Tax Concentration Curve under Tax Code A Fraction of Total Population 9. The value of the Gini Coefficient in Country X is. A..16 B..32 C..34 D The value of the Stroup Coefficient is under Tax Code A and would be under Tax Code B. A..7;.32. B..38; zero. C. approximately.5588; zero. D..3;.68

3 11. The is the Central Bank of the United States. A. Bank of America B. Congressional Bank C. Federal Reserve D. None of the above answers are correct (since the U.S. Central Bank was abolished by President Obama in 21). 12. refers to decreases in private spending that occur following increases in government spending. A. Fiscal Policy B. Monetary Policy C. Crowding Out D. Deficit Spending For questions 13 through 15, consider the following scenario. Bob resides in a jurisdiction in which hamburgers (his favorite food) are subject to a per unit tax. Supply and Demand in this market are as illustrated below. Assume that the market outcome without a tax is efficieint. $ Supply a b c d e f Demand 4, 6, 7,75 quantity 13. Imposing a per unit tax of $1.5 on sellers in this market would generate tax revenue of A. exactly $6,. B. more than $6, but less than $9,. C. exactly $9,. D. more than $9, but less than $11, Consider a per unit tax of $3.25 imposed on sellers. The incidence of the tax for buyers is A. illustrated by area a. B. illustrated by areas b+d. C. illustrated by areas d+e+f. D. illustrated by area b+c. 15. Consider the following two proposed taxes: Tax A is a $1.25 per unit tax imposed on buyers; Tax B is a $1.25 per unit tax imposed on sellers. We can infer that A. the incidence for sellers would be smaller for Tax A than for Tax B. B. Deadweight-Loss would be larger under Tax A than under Tax B. C. the quantity of trade would be identical under Tax A and Tax B. D. More than one (perhaps all) of the above answers is correct.

4 16. Rachel bought a widget from Company X. Her purchase was a voluntary transaction between herself and the seller, but generated a positive externality. As such, we can infer that A. some other person (or group of other people) realized a benefit (or gain) as a result of the production/consumption of this widget. B. some other person (or group of other people) realized a cost (or loss) as a result of the production/consumption of this widget. C. Rachel realized a negative Consumer s Surplus from his purchase. D. Company X realized zero Producer s Surplus from their sale. 17. The arguments made by John Maynard Keynes suggest that during an economic downturn, the government should A. run a budgetary deficit, in order to stimulate the economy by replacing missing private spending with government spending. B. run a budgetary surplus, so that we do not accumulate a tremendous amount of debt that will ultimately burden future generations. C. increase the money supply in order to provide a short term stimulus to the macroeconomy. D. increase income tax rates for all households, thereby indirectly forcing households to consume less. 18. In 196, 12% of all U.S. households had air conditioning in their homes. In contrast, by 1997, of U.S. households below the poverty line had air conditioning in their homes. A. 7% B. 47% C. 21% D. 14% Answer question 19 based upon the information conveyed in the graph below. 35% % Curve A 15% 13% Curve B Curve C Curve D 2.5% 19. Which of the curves above illustrates Average Tax Rate in Russia under their national income tax? A. Curve A. B. Curve B. C. Curve C. D. Curve D. Income

5 2. Observing Average Tax Rate (ATR) from the U.S. Federal Income Tax between 198 and 213, the ATR of the Bottom 5% of Income Earners while the Average Tax Rate of the Top 5% of Income Earners. A. decreased from 6.1% down to 3.3%; decreased from 26.85% down to 23.2%. B. increased from 7.14% up to 12.22%; increased from 19.86% up to 3.12%. C. increased from 4.46% up to 5.9%; decreased from 17.83% down to 12.55%. D. decreased from 12.29% down to 1.86%; increased from 6.51% up to 9.37%. For questions 21 through 23, consider a situation in which three different candidates (Casey, Hunter, and Stacey denoted C, H, and S) are seeking an office. The person to fill the position will be decided by voting. Voter preferences are summarized by the table below. Assume throughout that all people vote sincerely/truthfully (i.e., in-line with their actual preferences). Voter Type 1 st Choice 2 nd Choice 3 rd Choice % of Population [i] Casey Hunter Stacey 19% [ii] Casey Stacey Hunter 14% [iii] Hunter Casey Stacey 13% [iv] Hunter Stacey Casey 22% [v] Stacey Casey Hunter 2% [vi] Stacey Hunter Casey 12% 21. In an election between all three candidates, would receive the most votes. A. Casey B. Hunter C. Stacey D. None of the above are correct (since the table does not provide enough information to answer this question). 22. If the position were filled by first having a vote over all three candidates, followed by a head-tohead runoff between the two highest vote getters, the person chosen as the eventual winner would be A. Casey B. Hunter C. Stacey D. None of the above are correct (since the table does not provide enough information to answer this question). 23. Given these voter preferences, there A. is not a Condorcet Paradox, since Casey would receive a majority of votes in both a headto-head election between Casey and Hunter and also a head-to-head election between Casey and Stacey. B. is not a Condorcet Paradox, since Hunter would receive a majority of votes in both a headto-head election between Hunter and Casey and also a head-to-head election between Hunter and Stacey. C. is a Condorcet Paradox, since in a series of head-to-head elections, Stacey would defeat Casey, Hunter would defeat Stacey, and Casey would defeat Hunter. D. is a Condorcet Paradox, since in a series of head-to-head elections, Casey would defeat Stacey, Hunter would defeat Casey, and Stacey would defeat Hunter.

6 24. Which of the following was discussed in lecture to illustrate how something akin to the Coasian Solution to Externalities has been implemented in practice? A. How total social welfare (on a global level) was likely decreased by President Barack Obama flying to Copenhagen in order to lobby the International Olympic Committee on behalf of Chicago s bid to host the 212 Summer Olympics. B. How the Defenders of Wildlife established the Bailey Wildlife Wolf Compensation Trust in order to facilitate the re-introduction of the gray wolf into the wild in the western United States. C. Why high levels of corruption persist in present day Russia. D. How vote trading by members of a legislative body can result in an inefficient oversupply of government goods and services. For Questions 25 through 27, consider a good for which Marginal Private Benefits, Private Costs, Social Benefits, and Social Costs are as illustrated below. $ (Marginal Private Costs) =(Marginal Social Costs) a b c d f Marginal Social Benefits e Marginal Private Benefits 1,2 1,86 2,76 3,72 quantity 25. Based upon this graph, it appears as if production and consumption of this good generates a A. imaginary externality. B. pecuniary externality. C. positive externality. D. negative externality. 26. The free market level of trade is ; the efficient level of trade is. A. 1,2 units; 1,86 units. B. 1,86 units; 2,76 units. C. 2,76 units; 1,86 units. D. 3,72 units; units. 27. At the free market outcome there would be a Deadweight-Loss equal to A. area f. B. area d. C. areas b+c. D. area a.

7 28. Which of the following statements about a Lorenz Curve must always be true? A. A Lorenz Curve must pass through the points (,1) and (1,). B. A Lorenz Curve must start out above but end up below the 45 degree line. C. A Lorenz Curve must be positively sloped. D. More than one (perhaps all) of the above answers is correct. 29. The country of Freedonia imposes an income tax which reduces the value of its Gini Coefficient from.34 to.29. This implies that the value of the Pechman-Okner Coefficient for this tax is. A. approximately.8529 B..63 C. approximately.1471 D For the United States, the value of the Gini-Coefficient between 1994 and 24 and then between 24 and 214. A. increased from.456 to.466; increased further from.466 to.48. B. increased from.489 to.576; decreased from.576 to.397. C. decreased from.621 to.587; increased from.587 to.683. D. decreased from.446 to.392; decreased further from.392 to.364. For question 31, consider a society which has realized the changes in and trend in Real GDP illustrated in the graph below. Real GDP $ GDP Growth trend line time October 21 January 212 January 214 December 212 November This country experienced an expansion from A. October 21 through December 212. B. January 212 through January 214. C. December 212 through November 215. D. January 214 through July 217. July 217

8 32. In advance of the election for Lieutenant Governor, Karen and Sheldon are discussing the different candidates. Karen states: I haven t really researched the positions and backgrounds of the three people running. In order to do so properly I would have to invest a great deal of time, and, after all, the chance of my vote deciding the election is very small and I don t think things will be very different for me regardless of who wins. Her statement is closely related to the issue of A. regulatory capture. B. rational ignorance. C. Utilitarian Justice. D. kelptocracy. 33. The largest government redistribution program in the U.S. (based upon annual expenditures) is Social Security. Annual spending on this program is approximately with benefits going to approximately people. A. $39 billion; 6 million. B. $45 billion; 9 million C. $888 billion; 4 million. D. $954 billion; 18 million.

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