ECON 1100 Global Economics (Section 05) Exam #3 Fall 2010 (Version A) 1 Multiple Choice Questions ( 2 2 points each): 1. The U.S. Federal Income Tax A. requires every worker in the country to pay exactly 17% of all earned income to the Federal government. B. is a Progressive Tax. C. was first established by President Barack Obama in early 2009 (shortly after the passage of the 28 th Amendment to the U.S. Constitution legalized such a tax on income by the Federal government). 2. The replacement fertility rate A. is the birth rate which would lead to a constant population over time. B. refers to the amount of money which a society must invest in new industrial capital, so as to maintain a constant stock of capital over time. C. is exactly equal to 2 births per woman worldwide, since every person born has exactly two biological parents. 3. The Stabilization Function of Government refers to A. Government policies aimed at minimizing fluctuations in the rate of economic growth over time. B. Government policies aimed at altering the final consumption of goods/services across consumers. C. Government production of goods or regulation of business, to ensure that the right mix of products are produced, each in the ideal quantity and at the ideal quality. D. the role that prices play in directing resources to their most valued uses. 4. Which of the following statements regarding GDP in the U.S. is accurate? A. Nominal GDP was roughly 467.7 times larger in 2007 than in 1908. B. Real GDP did not change at all between 1908 and 2007. C. Real Per Capita GDP was lower in 2007 than in 1908. 5. The refers to the trap in which countries are poor because they cannot afford to save and invest, but they cannot easily save and invest because they are poor. A. Gale of Creative Destruction B. Business Cycle C. GDP Deflator D. Vicious Cycle of Poverty
6. Which of the following countries experienced an annual inflation rate of roughly 12,563% in 2008? A. Germany. B. India. C. Zimbabwe. D. Argentina. 7. Suppose that the U.S. government wants to protect the jobs of U.S. automotive manufacturers. In an attempt to do so, they decide to impose an additional tax of $5,000 on any car that is sold in the U.S. but built in another country. From the perspective of the U.S. government, this trade policy A. makes all U.S. consumers better off, since cars produced in the U.S. are of higher quality than cars produced anywhere else in the world. B. has the objective of protecting the home market. C. has the objective of assisting exports. D. is an example of Monetary Policy. 8. is the study of the performance of national economies as a whole, and the policies that governments use to improve their performance. A. Macroeconomics B. Microeconomics C. Public Finance D. Corporate Finance For Questions 9 through 11, consider a state with an income tax as follows: for each of the first $100,000 earned a worker must pay 6% to the government; for every dollar earned beyond $100,000 a worker must pay 2% to the government. 9. Amy earns $400,000 per year. At her current level of income, Amy s Marginal Tax Rate is A. 2%. B. 3%. C. 4%. D. 6%. 10. Bob earns $150,000 per year. As a result, his A. Marginal Tax Rate is greater than his Average Tax Rate. B. Marginal Tax Rate is exactly equal to his Average Tax Rate. C. Marginal Tax Rate is less than his Average Tax Rate. D. Marginal Tax Rate is exactly equal to zero. 11. Based upon the description given above, this tax appears to A. be a Regressive Tax. B. be a Progressive Tax. C. be a Proportional Tax. D. tax the rich too heavily.
12. Comparing macroeconomic outcomes and standards of living around the world (by looking at things such as per capita GDP, life expectancy at birth, infant mortality rates, and unemployment rates ), it is clear that A. while there is tremendous variation between countries with respect to important measures of quality of life (such as life expectancy, infant mortality rates, and literacy rates ), there is no variation whatsoever between countries with respect to Per Capita GDP. B. humanity is essentially divided into two groups, the haves (consisting of the roughly 24% of people who live in countries with per capita GDP above $50,000 per year) and the have nots (consisting of the roughly 72% of people who live in countries with per capita GDP below $1,000 per year). C. in almost every country in the world, the standard of living is lower today than it was in previous centuries (e.g., lower GDP per capita in real terms, shorter life expectancy at birth, higher unemployment rates, etc.). 13. In which of the following regions/countries would a typical worker be most likely to belong to a union? A. The United States. B. Japan. C. Scandinavian countries (e.g., Sweden, Finland, Norway). D. None of the above answers are correct (since Union Membership is currently illegal in all countries around the World, implying that membership rates are equal to zero in all countries). 14. If the Canadian government enacted a trade policy to Assist Exports, such a policy would make it A. more difficult for Canadian firms to sell goods in other countries. B. easier for U.S. firms to sell goods in Canada. C. easier for Canadian firms to sell goods in Canada. D. easier for Canadian firms to sell goods in other countries. 15. Per Capita GDP in Ireland is approximately $47,300. This figure: A. is greater than the Per Capita GDP of any other country in the World (since the Per Capita GDP of France the country with the second highest value worldwide is only $33,800). 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 Connecticut (which is approximately $55,319). C. is less than the Per Capita GDP of the European Union as a whole (which is approximately $55,600). D. is not greater than the Per Capita GDP of every other country in the World (since the Per Capita GDP of Russia is $61,380), but is roughly twice as large as the Per Capita GDP of the United States (which is equal to $24,000).
16. The Top 10% of wage earners in the U.S. earn roughly 46.44% of all income earned in the U.S. Under the current U.S. Federal Income Tax, these workers pay A. 39.37% of all income taxes paid. B. 70.30% of all income taxes paid. C. 100% of all income taxes paid (since nobody with income below $100,000 has to pay any income taxes in our country). D. virtually no taxes, due to all of the loopholes in the current tax code. 17. The refers to the periodic but irregular fluctuation in overall macroeconomic activity which occurs over time. A. Business Cycle B. notion of Limited Liability C. Stabilization Function of Government 18. Which of the following countries currently has a Progressive Income Tax? A. Russia. B. Iraq. C. The United States. 19. Gordon is a citizen of Canada, but lives, works, and attends school in the United States. Last year he went on vacation to Jamaica during Spring Break. In order to pay for his college tuition and vacation, he worked part-time at a daycare in Woodstock, GA. Last year he provided daycare services valued at $12,000. The value of these services would be included in the calculation of GDP for A. the United States, since that is where the production took place. B. Canada, since he is a Canadian citizen. C. Jamaica, since that is where he went to relax on vacation (which was a necessary activity for him to be able to work hard in school and on the job throughout the rest of the year). D. all three countries, since he has an economic tie to Canada, the United States, and Jamaica. 20. Which of the following is one of the primary policy tools used by a central bank? A. Imposing highly progressive taxes as a way to reduce income inequality within a society. B. Setting the discount rate. C. Setting reserve requirements. 21. Which of the following financial institutions is a Depository Institution? A. Allstate Auto Insurance. B. Google Ventures (a venture capital fund established by Google). C. The Credit Union of Georgia. D. The U.S. Federal Reserve.
22. The World Bank is A. a lending agency which makes long-term low interest rate loans and provides technical assistance to Less Developed Countries. B. a branch of the U.S. Government with the explicit goal of buying up all land around the world with known oil reserves (so that the U.S. will not have to be dependent on foreign oil in the future). C. the Central Bank which oversees Monetary Policy for the entire world. D. a private enterprise with the primary purpose of providing foreign private investment to Less Developed Countries, since such investments are often quite profitable (due to the low prices of raw materials and labor in LDC s). 23. refers to improvements (over time) in a society s quality of life and standard of living. A. The GDP Growth Rate B. Economic Development C. Industrial Advancement D. Redistribution In-Kind 24. Joseph Schumpeter described Capitalism as a gale of creative destruction, recognizing that A. having the government impose income taxes always leads to a destruction of individual incentives and should therefore never be done. B. the only way for a business to earn profits in a Capitalist system is to pay workers very low wages and treat them poorly (thereby effectively destroying the individual). C. under the Capitalist system, the vast majority of people will end up in wretched conditions with very low standards of living. D. over time, the failure of businesses must be viewed as a normal facet of the Capitalist system. 25. Per Capita GDP in Canada is $38,200, while Per Capita GDP in Japan is only $33,800. These values directly imply that A. people in Canada must live longer than do people in Japan. B. people in Canada are roughly 13.02% happier than are people in Japan. C. the market value of goods/services produced per person is greater in Canada than in Japan. 26. The are high income nations that have market economies based upon large stocks of technologically advanced capital and a well educated work force (such as the United States, Canada, Australia, New Zealand, and Japan). A. Less Developed Countries B. Industrially Advanced Countries C. Second World Countries D. Economically Superior Countries
27. A Corporation is A. the entity that sets monetary policy for an economy. B. a group of workers who attempt to negotiate with one voice, so as to increase their market power and realize higher incomes and better working conditions. C. a legal entity that can, through the sale of stock, raise capital from a large number of investors, each of whom shares in the profits of the firm. 28. To include many different goods and services in a single aggregate measure, GDP is computed by weighting each good/service according to A. the reservation price of the seller of the good/service. B. the market price of the good/service. C. the reservation price of the consumer of the good/service. D. an estimate of the social value of the good/service, a value with is approximated by bureaucrats employed by the U.S. Agency of Macroeconomic Measurement. 29. The Unemployment Rate A. is defined as the fraction of a society s entire population that currently does not have a job. B. provides a measure of the rate at which prices are increasing in an economy on an annual basis. C. is defined as the number of people in a society s workforce who currently do not have jobs. D. is defined as the percentage of individuals in a society s workforce who currently do not have jobs. 30. Suppose that for the world as a whole the current fertility rate is above the replacement fertility rate. This observation would imply that A. total global population must be decreasing over time. B. total global population must be increasing over time. C. the population of every single country around the world must be increasing over time. D. the population of every single country around the world must be decreasing over time. 31. Comparing Average Tax Rates in the United States resulting from the Federal Income tax in 2006 to those in 2000, we see that A. the Average Tax Rate increased between 2000 and 2006 for the Bottom 50% of wage earners. B. the Average Tax Rate decreased for taxpayers in all income groups between 2000 and 2006. C. the Top 10% of wage earners was the only segment of individuals who realized any decrease in Average Tax Rate between 2000 and 2006.
32. Real GDP Per Capita is defined as A. the value of Real GDP divided by the value of nominal GDP. B. the value of Real GDP minus the value of nominal GDP. C. the value of Real GDP multiplied by the value of total population. D. the value of Real GDP divided by the value of total population. 33. Consider three taxpayers: Amy, Burt, and Candice. Amy and Burt have exactly equal economic capacities when it comes to being able to bear the burden of taxation, while Candice has a greater economic capacity than Amy and Burt. Considering the notions of fairness discussed in lecture, A. to satisfy the notion of Horizontal Equity, Candice should have a greater tax burden than both Amy and Burt. B. to satisfy the notion of Horizontal Equity, Amy and Burt should have exactly equal tax burdens. C. to satisfy the notion of Vertical Equity, Candice should have a smaller tax burden than both Amy and Burt. 34. In some instances it is difficult or very costly for consumers to gather accurate information on important characteristics of some goods. Therefore, having the government impose and enforce standards on safety, quality, and effectiveness of such goods may assist consumers in making good economic decisions in the marketplace. This argument provides the justification for A. progressive taxation. B. government provision of pure Public Goods. C. government regulation of industry. D. government regulation of products and provision of information. 35. The discussion in lecture of the professional career of Cincinnati Bengals quarterback Greg Cook (along with the comparison to the careers of Drew Brees and Chad Pennington) illustrated how A. working conditions will generally be very dangerous for employees, unless the government intervenes and directly mandates that certain safety conditions be met. B. very high Marginal Tax Rates can cause otherwise productive members of the workforce to stop working. C. tremendous differences exist in standards of living, even between different regions of a wealthy country such as the United States. D. advances in healthcare can result in members of the workforce being more productive. 36. Structural Policy can be described as government policy A. aimed at changing the underlying institutions of a nation s economy. B. which determines the money supply within an economy. C. related to securing the borders of and protecting the homeland of a nation.
37. One of the byproducts of a system of stock ownership is that it creates a Market for Corporate Control, which means that A. the stock price of a mismanaged firm will become artificially low, making the firm particularly vulnerable to an outside takeover bid, after which the new owners could increase the value of the firm by putting in place new managers. B. publicly traded firms are able to control unskilled workers, by paying them wages which are so low that they are barely able to afford basic necessities. C. if a large enterprise (such as an automaker) is about to go bankrupt, the best thing for the government to do is bailout the firm and take over control of the firm, ensuring that innocent workers do not lose their jobs. D. governments can most effectively control the behavior of corporations by imposing upper limits on the salaries which can be paid to CEOs. 38. Financial Disclosure refers to A. the establishment, clarification, and enforcement of property rights by the government. B. requirements of firms to public report their financial status using a standard system of accounting. C. the right of the Internal Revenue Service to audit the tax return of any taxpayer in the U.S. D. the markets and other institutions which collectively raise and allocate funds, as well as manage risks, for businesses within an economy. 39. Government provision of free Pre-Kindergarten in the State of Georgia (which is available for all four year old children) is an example of A. government provision of a pure Public Good. B. income support. C. redistribution in-kind. D. government provision of information. 40. In the United States, the highest Marginal Tax Rate currently imposed under the federal income tax is A. 17%, since every dollar earned by every worker in the U.S. is taxed by the federal government at a Marginal Rate of 17%. B. 35%, a highest Marginal Tax Rate which is lower than the highest Marginal Tax Rate of 39.6% which was in place in 2000 but higher than the highest Marginal Tax Rate of 31% which was in place in 1992. C. 83%, a rate so high that it caused Brian Johnson (the lead singer of AC/DC) to move from Hawai i to England to avoid having to pay such a large fraction of his income in taxes. D. 91%, the highest level that the highest Marginal Tax Rate has ever been in the history of our country.
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