ECON 1100 Global Economics (Section 02) Exam #4 Spring 2009 (Version C) Multiple Choice Questions ( 2. points each):

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1 ECON 1100 Global Economics (Section 02) Exam #4 Spring 2009 (Version C) 1 Multiple Choice Questions ( 2 2 points each): 1. Under command planning in the Soviet Union a. it was more expensive to take a cab from the airport in Moscow to Red Square than it was to fly from Vladivostok to Moscow. b. the industrial sector was very efficient and could produce more output with fewer inputs than enterprises in similar sectors in other countries. c. a large fraction of total productive resources were devoted to national defense. 2. There was an Oil Crises in the U.S. in the 1970 s as a result of a. the election of Jimmy Carter in 1976, and the subsequent transfer of power from Ford to Carter. b. the disruption of worldwide supply during the Iranian Revolution and the subsequent Iran/Iraq War. c. the environmental policies signed into law by President Nixon. 3. Glasnost a. refers to the government agency in the former Soviet Union which was in charge of establishing wages and labor policies. b. refers to the movement launched by Mao Zedong to rid China of liberal bourgeoisie elements and to continue revolutionary class struggle. c. means restructuring, referring to restructuring of the Soviet economy. d. means openness, referring to the shift toward openness and transparency in governmental decision making, along with freedom of access to information, in Soviet society. 4. was the leader of the Soviet Union when the Solidarity Party gained political control of Poland during the semi-free elections of a. Dolph Lundgren b. Mikhail Gorbachev c. Boris Yeltsin d. Nikita Kruschev 5. One explanation for the spread of the currency crises from Thailand to other Asian economies was that investors engaged in behavior similar to that of a. a profit maximizing monopolist. b. an person trying to free ride on someone else s provision of a public good. c. individuals during a bank run. d. leaders of a militant labor union during a strike.

2 6. The Dow Jones Industrial Average a. is the federal government agency, created as part of the New Deal, which oversees and regulates financial markets in the U.S. b. provides a weighted average of the stock prices of 30 large and widely held publicly traded U.S. companies (currently including AT&T, ExxonMobil, Home Depot, McDonald s, and Walmart). c. provides a direct measure of average expected profits (in dollar terms) that a typical firm can expect to earn during the current year (given current macroeconomic conditions), to which shareholders can compare actual profits of a firm in order to assess CEO performance. d. is an investment fund founded in 1982 by Economist James Dow, which currently owns approximately 68% of all stock in U.S. companies. 7. The Balcerowicz Group a. was led by Leszek Balcerowicz, who served as Finance Minister and Deputy Prime Minister in the new Solidarity government in Poland. b. supported economic reform in Poland by way of Gradual Reform. c. gained control of the Commanding Heights of the Polish Economy through Voucher Privatization. 8. Economies of Agglomeration refer to a. benefits that governments realize from decreasing the amount of resources used for military purposes. b. benefits that firms obtain from locating near other firms. c. a special geographic region in which the behavior of enterprises is constrained by fewer restrictions than in the rest of the country. d. the acquisition of a private enterprise by the government (either with or without compensation to the original owners). 9. The Unemployment Rate in the U.S. reached 8.10% in February This rate a. is the highest rate in the history of the U.S. b. is not the highest rate in the history of the U.S., but is the highest rate since the Great Depression. c. is not even the highest rate in the last 30 years, since the unemployment rate was 8.30% or higher for 26 straight months from 1981 through December d. None of the above answers are correct. 10. In Russia, the ownership of many small shops was transferred to current managers, agricultural land was decollectivized, and apartments were sold to current occupants as a part of a. the Pietlukiewicz Reforms. b. the program of Voucher Privatization. c. the Loans for Shares Deals. d. Small Scale Privatization.

3 11. One of the distinguishing characteristics of economic reform in China was that the leaders in China often implemented partial reform, which refers to a. the novel approach of the Chinese government to partially base the decision of which enterprises to subsidize upon relative export performance. b. the willingness to create situations in which market reform is incomplete, thereby introducing incentives without completely altering the environment in which individuals must make decisions. c. a recognition in hindsight that almost all of the reforms enacted in China were at best partially successful. d. the fact that individuals in China presently have a substantial amount of Economic Freedom, even though they have not yet realized Chinese Democracy. 12. The Misery Index a. is an economic indicator created by Korean economist Yong-Kyun Bae in order to measure the negative effects of the East Asian Financial Crises on the Korean banking sector. b. provides a measure of how many people in a country are clinically depressed. c. is computed by taking the sum of (i.e., adding together the values of) the current unemployment rate to the current annual inflation rate. 13. was known as the trust buster, having launched anti-trust suits during his administration that led to the breakup of over 40 monopolies. a. Lech Wałęsa b. Theodore Roosevelt c. Franklin Roosevelt d. Richard Nixon 14. The World Trade Organization a. welcomed China as an official member in late b. was created on the 1970 s under the leadership of Richard Nixon, in order to supervise the trading of nuclear weapons between super-powers and rouge states during the Cold War. c. is an organization designed to increase barriers to international trade. 15. refers to a series of domestic programs proposed by and initially enacted under the leadership of President Johnson in the 1960 s, with the two main goals of eliminating poverty and racial injustice. a. The Great Society b. The New Deal c. The New Economic Policy d. Shock and Awe

4 16. The Securities and Exchange Commission was created as part of the New Deal, with the primary task of a. banning the free trade of stocks on open markets, thereby guaranteeing that no more stock market crashes could occur in the future. b. regulating stock markets and restoring efficiency to financial markets. c. providing a greater level of national defense and homeland security for the U.S., in anticipation of WW-II. d. None of the above answers are correct. 17. Import Substitution refers to a. the idea that while the market is efficient in the long term, selective government intervention may lead to short term gains. b. policies aimed at replacing imports of finished products with domestic production of the same goods. c. government policies which make it easier for foreign firms to sell goods within their country. d. the argument that The Wonderful Wizard of Oz by L. Frank Baum was written as a metaphor of Populist demands for a bi-mettalic monetary system in the U.S. in the late 1800 s. 18. was the leader of China during the time when the country implemented a system of Soviet style Command Planning. a. Deng Xiaoping b. Yao Ming c. Junichirō Koizumi d. Mao Zedong 19. After Jeffrey Sachs agreed to formulate a plan for economic reform in Poland, Polish leaders told him that a. it did not really matter how long it took him to write up his plan, since asking him to do so was only symbolic and there was no chance that his plan would ever actually be implemented. b. they needed the plan immediately, which forced him to write up his plan that night and deliver it to members of Parliament the following morning. c. he could take two weeks to write the plan, since Parliament would be on recess over Christmas and the New Year holiday. d. he could take up to 5 years to write the plan if needed, since there had just been a national election and the current leaders would certain to be in office for at least this amount of time. 20. Which of the following countries was one of the New Tigers (the Asian countries which experienced rapid growth starting in the late 1970 s/early 1980 s) a. Singapore b. North Korea c. Malaysia d. Japan

5 21. According to the Rule of 70, a. balancing the social benefits of income redistribution against the disincentive effects of high marginal tax rates, the optimal marginal rate at which income of the rich should be taxed is approximately 70%. b. when privatizing an enterprise, it is best to allow current managers and employees to acquire a 70% ownership stake in the enterprise. c. if a variable grows at a constant rate of X% per period, then the value of the variable will double in approximately (70/X) periods. d. no matter what types of macroeconomic policies are put in place, during a recession the value of the Misery Index will typically be around Per Capita GDP in Norway is approximately $55,600. This figure: a. is less than the Per Capita GDP of the European Union as a whole (which is approximately $72,450). b. is greater than the Per Capita GDP of the United States as a whole (which is approximately $46,000), but is less than the Per Capita GDP of the state of Alaska (which is approximately $57,520). c. is greater than the Per Capita GDP of any other country in the world (since the Per Capita GDP in Canada the country with the second highest value worldwide is only $38,200). d. None of the above answers are correct. 23. A general criticism of Special Economic Zones is that a. the establishment of a SEZ will make it less likely that firms can realize economies of agglomeration. b. if a region is dependent upon a declining industry, then new investment can be attracted to the area by the incentives that result from SEZ status. c. an SEZ might not actually generate any new economic activity, but rather might simply move existing economic activity from one area to another in a potentially inefficient manner. d. None of the above answers are correct, since no economist have been able to formulate any accepted criticisms of Special Economic Zones. 24. refers to the industrial structure common in South Korea, consisting of large business conglomerates, typically owned by a single family and operated with authoritarian management along with substantial government assistance. a. An iron rice bowl b. Perestroika c. Keiretsu d. Chaebol 25. The current population of China is approximately a. 3,367,273,924, which is approximately 50% of the world s population. b. 1,330,044,605, which is approximately 20% of the world s population. c. 298,427,702, which is roughly equal to that of the United States. d. 140,702,094, which is just less than half of that of the United States.

6 26. Between 1978 and 1996, the Chinese economy experienced a. a collapse of their economy, resulting from the economic reform by way of shock therapy which was instituted in December b. a doubling of per capita income between 1978 and 1987, followed by another doubling of per capita income between 1987 and c. negative rates of GDP growth, which caused real per capita incomes in 1996 to be about 75% of their 1978 levels. 27. Many would argue that philosophy took a back seat to politics during Nixon s first Presidential Administration since, contrary to previously expressed views, he a. had the United States join OPEC, in order to inflate worldwide oil prices. b. administered a series of domestic programs known as the Great Society, which greatly expanded the role of the Federal Government in the U.S. economy. c. increased the role of government in the economy by imposing price controls in an attempt to control inflation and by introducing a Keynesian full employment budget in an attempt to reduce unemployment. d. completely eliminated the role of government in the economy, returning the United States to a complete reliance on free market institutions. 28. Between 10/9/07 and 3/9/09, the Dow Jones Industrial Average decreased by a %, a much smaller percentage decrease that the 38.22% decrease associated with the Tech Bubble of b %, the largest percentage decrease in its value since the 85.98% decrease between 1930 and 1932 (during the early years of the Great Depression). c %, the largest percentage decrease in the value of the DJIA ever. d. None of the above answers are correct, since the DJIA was only first created as a stock market index in October 2008 (in order to illustrate how bad the failed economic policies of George W. Bush truly were). 29. The Asian countries which experienced tremendous growth during the second half of the twentieth century typically during their periods of growth. a. had low inflation rates and small government budget deficits b. moved away from free market institutions and toward systems of command planning c. had negative rates of individual savings 30. During the mid and late 1970 s the U.S. economy a. was characterized by high inflation, but historically low unemployment. b. was characterized by both high unemployment and high inflation. c. realized simultaneously low rates of both unemployment and inflation, as a direct result of Richard Nixon s Square Deal. d. saw real per capita incomes double twice in less than 9 years.

7 31. The non-violent 1989 revolution in Czechoslovakia that led to the overthrow of the communist government was known as a. Slash s Snakepit. b. the Velvet Revolution. c. Shock Therapy. d. the Gaidar Reforms. Answer Questions (32) through (34) based upon the information conveyed in the graph below. This graph illustrates Demand and Supply for gas in April The current ( free market ) price is $1.899, at which 5,000 units are traded. price Supply (a) (b) (c) (d) (e) (f) 2,800 5,000 7,240 11, Suppose the government is concerned that gas station owners cannot make a sufficient profit when the price of gas is only $1.899 per gallon, so they impose a price floor of $2.499 in this market. As a result of this policy, a. less trade will take place in this market. b. all buyers in the market are made worse off. c. there would be a Deadweight-Loss equal to Area (g). 33. Imposing a price ceiling of $1.499 in this market would a. result in a Deadweight-Loss equal to Areas (e)+(f). b. decrease Total Producers Surplus by Areas (b)+(d). c. not have any impact on the market outcome whatsoever. (g) Demand quantity 34. If a price ceiling of $1.199 were imposed in this market, then a. Total Consumers Surplus would be equal to Areas (a)+(b). b. 11,300 units would be traded c. both Total Consumers Surplus and Total Producers Surplus would be equal to zero.

8 35. Regarding the effectiveness of the policies known as the New Deal, economists a. all agree that they helped tremendously in getting the U.S. out of the Great Depression. b. all agree that they actually prolonged the recovery of the U.S. during the Great Depression. c. disagree on the impact of the policies on the U.S. economy during the Great Depression some think they helped tremendously, some think they prolonged the recovery, and some think they had little impact in total (either good or bad). d. all agree that they helped the Soviet Union establish itself as a global super-power following World War II. 36. The Contract Responsibility System was a. the primary cause of the substantial decrease in industrial production which occurred throughout China from 1979 to b. the central component of reform within State Owned Enterprises in China. c. a movement launched by Mao Zedong to rid China of liberal bourgeoisie elements and to continue revolutionary class struggle. 37. Based upon the current values of life expectancy at birth for different countries around the world which were discussed in lecture, a. countries around the world typically fall into one of two categories long life span countries (those with life expectancies above 75 years, which accounts for about 42% of countries worldwide) and short life span countries (those with life expectancies below 50 years, which account for 56% of countries worldwide) with very few countries (only 2%) realizing life expectancies between 50 and 75 years. b. life expectancy at birth in the U.S. (78.14 years) is neither the longest nor the shortest life expectancy in the world. c. life expectancy at birth is lowest in capitalist societies (such as the U.S. (56.17 years), New Zealand (54.39 years), Singapore (60.12 years), and Hong Kong (49.86 years)), as a result of big business exploiting labor and working people to death. d. the country with the longest life expectancy at birth is Cuba (84.56 years), an outcome which is primarily a result of the exceptionally high quality healthcare provided by the government. 38. A lesson that could be taken away from the Asian Miracle is that a. the social/cultural traditions of Asia make capitalism outperform socialism in this region (while the reverse is true everywhere else in the world). b. the global economy is not rigged against new entrants, but rather it is possible for currently poor countries to become rich. c. industrialization and development must be based upon import substitution.

9 39. If a currency is on a Floating Exchange Rate system, then a. the value of a currency is allowed to fluctuate and is determined within the foreign exchange market. b. the value of a currency is set equal to the value of another single currency. c. it is illegal for foreign investors to trade the currency. d. None of the above answers are correct. 40. Which of the following was a part of the Gaidar Reforms introduced in Russia? a. The complete elimination of all Social Welfare Programs (e.g., programs such as unemployment compensation). b. The Nationalization of the Commanding Heights of the Soviet economy. c. A decrease in defense spending, allowing for increase in the production of other goods as more productive resources could now be used for nonmilitary purposes (i.e., a conversion of the defense sector ).

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