AGEC 105 Test 3 Spring 2013 Name There is only ONE correct answer per multiple choice question. Please put your answer on the attached sheet. DO NOT RIP THE ANSWER SHEET FROM THE TEST. 1. Assume a producer raised 10,000 bushels of corn. What are the total deficiency payments to this farmer if the loan rate is $3.00, the target price is $4.00 and the market equilibrium price is $4.25? a. $0.00 b. $10,000 c. $2,500 d. $1.25 e. $1.00 2. If the CPI in Timmyland is 80 in 1995 and 160 in 1996, what was the rate of inflation between 1995 and 1996? a. 80% b. 160% c. 200% d. 100% e. 10% 3. To pay for Obama Care, the plan includes a 10% tax on indoor tanning services (true why I don t know). This tax is expected to generate $X dollars to be used to pay for low income health insurance. By strict definition of GDP, because medical expenses are a component of GDP, the $X increase in tax revenues will increase GDP by a. $X amount b. 10% - the tax rate c. will lower GDP as people will have less money to pay for other goods and services d. zero this $X amount is a transfer payment e. medical is not part of GDP as it is not a good, but a service. 4. If U.S. exports are at $1.7 billion and imports are at $1.2 billion, a. the U.S is lending to the rest of the World b. U.S. national saving is too high c. the U.S. is borrowing from the rest of the World d. U.S. investment must decrease e. U.S. investment must increase
5. The change in consumption associated with a change in disposable personal income is known as the a. MPC marginal propensity to consume b. MPS marginal propensity to save c. MU marginal utility d. MIS marginal interest rate sensitivity e. elasticity of consumption 6. Assuming the economy experiences a small increase in aggregate demand, but a resulting relatively large inflation rate. This economy appears to be operating in the range of the supply curve. a. Keynesian b. Normal c. Classical d. Depends also on the demand curve but supply and demand are important e. Ricardian 7. The difference between the government s debt and deficit is a. debt is the difference between government revenues and spending for a year, whereas, deficit is the accumulated debt over all years b. deficit is the difference between government revenues and spending for a year, whereas, debt is the accumulated deficit over all years c. debt is the difference between government spending and revenues for a multi-year period year, whereas, deficit is the accumulated debt over all years d. the two terms are basically interchangeable e. debt deals with fiscal policy and deficit with monetary policy 8. For the following economy, fill in the table. Be sure to put the values on the answer sheet in the order listed.. R = 10% C = 300 +0.8 x DPI I = 200 15 x R Capacity Y Govt. Expenditures Investment Taxes DPI Consumption AE 500 10 50 720
9. If a policy change causes a decrease in total reserves of $50,000 and the reserve requirement is 20%, what is the total change in money supply in this economy caused by this policy? a. $-100,000 b. $-50,000 c. $100,000 d. $-250,000 e. $250,000 10. Josephine Lowne has just quit her job at GE to take a job next month at LG Electronics. This is an example of what type of unemployment? a. frictional b. cyclical c. seasonal d. structural e. none as Josephine is employed 11. Fiat money is money that is a. U.S. dollar bills b. Fiduciary c. back by gold or silver d. money declared by a government to be legal tender e. non U.S. money 12. Joe Lowne plans on buying the entire class lunch today. This is an example of a. speculative demand for money b. transactions demand for money c. precautionary demand for money d. all of the above e. nice guy demand for money 13. The 2011 nominal price of coke is $1.25 per bottle, if the CPI is 5.00 (base 1982-84) what is the real price of coke in 2011 dollars? What is real price in 1982-84 dollars? a. 1.25 and 5.00 b. 5.00 and 1.25 c. 0.25 and 1.25 d. 1.25 and 0.25 e. 1.25 and 6.25
14. Coincident indicators tend to reach their peaks and troughs at about the same time as: a. GDP b. the budget deficit c. the stock market d. lagging indicators e. leading indicators 15. If the CPI is 224.9 in 2011 with the base period being 1982-84, this value of the CPI means a. nominal expenditures will increase b. real expenditures are increasing c. the CPI was 224.9% higher in 2011 than in the base year d. the CPI was 124.9% higher in 2011 than in the base year e. to get real values you need both expenditures and the deflator 16. Why do economists use weights in developing the consumer price index (CPI)? a. to allow the index to be compared across nations b. to balance supply and demand c. to reflect the fact that people spend different amounts on different goods d. to ensure the index grows at the appropriate rate e. to compensate for seasonal changes Use the following information for questions 17 and 18. Assume the total money supply is $500,000 and the reserve requirement is 0.05. 17. What is the money multiplier for this economy? a. 0.05 b. 5 c. 10 d. 15 e. 20 18. Assuming all loans have been made to create the money supply, what are the total reserves for this economy? a. 500,000 b. 1,000,000 c. 10,000,000 d. 25,000 e. 9,500,000
19. Consider the above figure; movement from M b to M c is brought about by the following policy (ies). a. Increased government spending b. The Fed buying securities c. The Fed selling securities d. The Fed increasing the reserve requirement e. both a and b 20. You are going on vacation to ski in Colorado. You figure out your total expenses are $1500. However, you carry $1800. This $300 difference can best be described as a. transaction demand for money b. precautionary demand for money c. speculative demand for money d. total demand for money e. effects of the money multiplier 21. Consider the figure to the right, this economy is experiencing a a. experiencing an inflationary gap of $3 trillion b. experiencing a recessionary gap of $3 trillion c. experiencing an inflationary gap of $5 trillion d. experiencing a recessionary gap of $5 trillion e. none of the above
22. The U.S. government provides approximately $300 million dollars in aid to Mexico. This aid can best be illustrated by Mexico s aggregate supply curve a. shifting outward b. becoming flatter c. shifting inward d. becoming more elastic e. should not affect aggregate supply but affects aggregate demand 23. In calculating the U.S. GDP, both the product market and the resource market must be considered because a. both supply and demand matter b. only one market should be considered to avoid double counting c. consumer represent the product market and producers the resource market d. if we considered only one market, GDP would be approximately one-half of what is should be. e. a, c, and d are correct 24. Which of the following is not a major sector of the U.S. economy? a. government b. households c. financial d. businesses e. none of the above 25. If the actual unemployment rate is below the natural or full rate of unemployment, it would be expected that a. inflation will not occur in the immediate future as there is little unemployment b. inflation may be in the future because to increase output you have to increase wages to entice more people to join the workforce c. inflation may be in the future because to increase output people will be working overtime which is at a higher wage rate d. deflation may occur as getting the unemployment rate this low was caused by supply side economics e. both b and c 26. President Obama is proposing an increase in 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 disposal income decrease in consumption d. will not change the curve but will increase disposal income increase in consumption. e. b and c are correct
27. One stated reason for increasing the saving rate in the U.S. is to increase personal wealth in future periods. If the saving rate is increased this should influence future planned consumption function, in the following manner. 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 disposal income decrease in consumption d. will not change the curve but will increase disposal income increase in consumption. e. b and c are correct 28. Cyclical unemployment a. is due mainly to people leaving their job b. may increase or decrease during an expansion c. occurs when technology improvements change job requirements d. fluctuates over the business cycle e. will increase during nonpeak vacation periods 29. 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 30. Total business inventories in 2012 increased by approximately $77 billion dollars. How does this inventory change appear in the GDP calculation when adding up all expenditures? a. it is added when measuring GDP, as it is an increase in goods produced during 2012 but not sold b. it is added when measuring GDP, as it is a decrease in goods produced during 2012 because of increased sales c. it is subtracted when measuring GDP, as it is a decrease in goods produced during 2012 because of increased sales d. it is subtracted when measuring GDP, as it is an increase in goods produced during 2012 but not sold e. inventories is not part of GDP 31. Which of the following is not an example of money in the M2 category? a. coins b. paper money c. checking accounts d. saving accounts e. all are in M2
32. The stock market has been increasing in 2013 because of expectations for higher corporate profits in 2013 and 2014. This should increase planned investments because a. the marginal interest sensitivity of investment (MIS) is a function of profit expectations, thus MIS is increasing b. the marginal interest sensitivity of investment (MIS) is a function of profit expectations, thus MIS is decreasing c. higher profit expectation shift the planned investment function to the right d. higher profit expectation shift the planned investment function to the left e. by increasing wealth (stock prices) the recessionary gap the U.S. economy has been experiencing is increasing The following is a list of policies the Fed and U.S. government can undertake. Use this list to answer questions 33 and 34. Item Number Policy 1 Raising the personal tax rate 2 Decreasing the personal tax rate 3 Buying securities on the open market 4 Selling securities on the open market 5 Increasing the discount rate 6 Decreasing the discount rate 7 Increased National Defense Spending 8 Decreased National Defense Spending 9 Increase the reserve requirement 10 Decrease the reserve requirement 11 Increased U.S. govt. R&D spending at TAMU 12 Decreased U.S. govt. R&D spending at TAMU 33. Which item numbers correspond to contractionary monetary policies? a. 1, 2, 5 b. 2, 5, 10 c. 4, 5, 9 d. 2, 7, 12 e. 3, 6, 10 34. Which item numbers correspond to expansionary fiscal policies? a. 1, 8, 12 b. 2, 7, 11 c. 4, 6, 9 d. 2, 7, 6 e. 4, 6, 10
35. Supply-side policies emphasize increasing production. Assuming the economy is currently at point C, how would a successful supply policy be reflected on the above diagram? a. Move to A b. Move to B c. Stay at C d. Move to D e. More information is necessary as to the type of policy 36. The Mexican government has recently started providing subsidies to Mexican farmers who sell their products to the U.S. As such, U.S. consumers have started consuming more Mexican agricultural products and less U.S. grown products. Assuming the economy is currently at point C, how would this change be reflected in the above diagram. a. Move to A b. Move to B c. Stay at C d. Move to D e. More information is necessary as to the type of policy 37. In the financial markets are net borrowers while are net savers. a. businesses, households b. households, businesses c. government, businesses d. businesses, government e. households, government
38. Given the following information, assume the countries use equal amount of labor the only input. Country Product - Output Cashews Plywood Benin 10 20 Bhutan 60 30 Which of the following statements best describes these two countries? a. Neither country has a comparative advantage. b. Benin has a comparative advantage in cashews. c. Bhutan has a comparative advantage in plywood. d. Benin has a comparative advantage in plywood. e. Bhutan has a comparative advantage in both products. 39. According to the theory of competitive advantage, countries gain from trade because a. trade makes firms behave more competitively, reducing their market power. b. all firms can take advantage of cheap labor. c. output per worker increase in each firm. d. world output can rise when each country specializes in what it does relatively best. e. Every country will have an absolute advantage in producing something. 40. Use the following economy to answer the questions below. All numbers are in billions of dollars. C= 250+.85 (Y T); G = 240; I = 60: T = 240; Y FE = 960 a. What is the autonomous consumption? b. What is the marginal propensity to consume? c. What is the government deficit? 41. What is the unemployment rate for the following economy? Total People in the economy 100 Number of people in military service 10 Number of unemployed people 20 Number of discourage workers 10 a. 20 / 100 = 20% b. 10 / 100 = 15 % c. 20 / 90 = 22% d. 20 / 80 = 25% e. 20 / 120 = 17%
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 1 will not be graded on your exam. Test Version 1 Name Question Answer Question Answer 1 22 2 23 3 24 4 25 5 26 6 27 7 28 8 29 9 30 10 31 11 32 12 33 13 34 14 35 15 36 16 37 17 38 18 39 19 40 a. b. c. 20 41 21 Grade