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ECO 561 Final Exam
1. If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium _____.
a) output would rise
b) price level would necessarily fall
c) output would fall
d) price level would necessarily rise
2. The quantity theory of money states that _____.
a) the money supply divided by the velocity of money equals the price level divided by real output
b) the money supply times the price level equals real output divided by the velocity of money
c) the money supply times the velocity of money equals the price level times real output
d) the money supply times the price level equals real output times the velocity of money
3. Paying an above-equilibrium wage rate might reduce unit labor costs by _____.
a) permitting the firm to attract lower-quality labor
b) increasing the supply of labor
c) increasing voluntary worker turnover
d) increasing the cost to workers of being fired for shirking
4. Inflation is undesirable because it _____.
a) usually is accompanied by declining real GDP
b) reduces everyone’s standard of living in the same proportion
c) invariably leads to hyperinflation
d) arbitrarily redistributes real income and wealth
5. Suppose that in the clothing market, production costs have fallen, but the equilibrium price and quantity purchased have both increased. Based on this information you can conclude that _____.
a) the supply of clothing has grown faster than the demand for clothing
b) there is no way to determine what has happened to supply and demand with this information
c) the supply of and demand for clothing have grown by the same proportion
d) demand for clothing has grown faster than the supply of clothing
6. Construction workers frequently sponsor political lobbying in support of greater public spending on highways and public buildings. One reason they do this is to _____.
a) restrict the supply of construction workers
b) increase the price of substitute inputs
c) increase the demand for construction workers
d) increase the elasticity of demand for construction workers
7. Expansionary fiscal policy is so named because it _____
a) is aimed at achieving greater price stability
b) can motivate an expansion of real GDP
c) involves an expansion of the nation’s money supply
d) can only be attained by expanding government consumption
8. A rise in the domestic interest rate leads to capital _____.
a) outflows and exchange rate depreciation
b) outflows and exchange rate appreciation
c) inflows and exchange rate depreciation
d) inflows and exchange rate appreciation
9. The average cost curves (AVC and ATC) should be minimized _____.
a) where MC = ATC and MC = AVC
b) where ATC = AVC
c) where TC starts to increase at a faster rate
d) where FC = ATC and FC = AVC
10. The real wage will rise if the nominal wage _____.
a) increases more rapidly than the general price level
b) increases at the same rate as labor productivity
c) falls more rapidly than the general price level
d) falls at the same rate as the general price level
11. the most important pricing strategy for a perfectly competitive firm is _____.
a) advertising
b) minimizing cost
c) product differentiation
d) maximizing sales
12. Price is constant or given to the individual firm selling in a purely competitive market because _____.
a) each seller supplies a negligible fraction of total supply
b) the firm’s demand curve is downward sloping
c) of product differentiation reinforced by extensive advertising
d) there are no good substitutes for its product
13. All economies of scale are achieved at the minimum of _____.
a) average total cost
b) total cost
c) average fixed cost
d) average variable cost
14. Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should _____.
a) increase government expenditures by $50 billion
b) reduce taxes by $50 billion
c) increase government expenditures by $100 billion
d) reduce taxes by $200 billion
15. An industry comprising a small number of firms, each of which considers the potential reactions of its rivals in making price-output decisions, is called _____.
a) pure competition
b) oligopoly
c) monopolistic competition
d) pure monopoly
16. An economy’s aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the _____.
a) real-balances effect
b) multiplier effect
c) wealth effect
d) net export effect
17. A third-degree price discrimination can be applied to which of the following market structures?
a) a perfect competition
b) a monopoly
c) a monopolistic competition
d) an oligopoly
18. Inflation in U.S. prices will cause _____.
a) a decrease in the demand for U.S. dollars and a depreciation in the exchange rate
b) a decrease in the supply of U.S. dollars and an appreciation in the exchange rate
c) an increase in the demand for U.S. dollars and an appreciation in the exchange rate
d) an increase in the supply of U.S. dollars and a depreciation in the exchange rate
19. A good real-world example of monopolistic competition is _____.
a) gas stations
b) lawyers
c) groceries stores
d) Time Warner Cable
20. A firm under monopolistic competition will earn _____.
a) a positive economic profit as it has some monopoly power
b) a positive economic profit as it sets MC = MR
c) zero economic profit as its P = ATC
d) zero economic profit as it sets P = MC
21. Investing in R&D is more likely to occur in markets where _____.
a) firms have monopoly power protected by regulatory barriers
b) markets are oligopoly markets with strong collusion agreements
c) markets are closely competitive markets with close to zero economic profits
d) markets are monopolistic competitive markets
22. Suppose that US prices rise 4% over the next year while prices in Mexico rise 6%. According to the purchasing power parity theory of exchange rates, what should happen to the exchange rate between the dollar and the peso?
a) The dollar should depreciate.
b) The peso should depreciate.
c) The dollar will be revalued.
d) The peso should appreciate.
23. Other things equal, a decrease in the real interest rate will _____.
a) move the economy downward along its existing investment demand curve
b) move the economy upward along its existing investment demand curve
c) shift the investment demand curve to the left
d) shift the investment demand curve to the right
24. Which of the following is a nonprice barrier of entry?
a) huge sunk cost
b) advertising
c) product differentiation
d) discounts
25. Camille’s Creations and Julia’s Jewels both sell beads in a competitive market. If at the market price of $5, both are running out of beads to sell (they can’t keep up with the quantity demanded at that price), then we would expect both Camille’s and Julia’s to _____.
a) lower their price and reduce their quantity supplied
b) raise their price and increase their quantity supplied
c) lower their price and increase their quantity supplied
d) raise their price and reduce their quantity supplied
26. Suppose productivity rises in a particular economy, but wages stay the same. Other things equal, _____.
a) the supply curve will shift rightward
b) expenditures curve will shift rightward
c) the supply curve will shift leftward
d) the demand curve will shift leftward
27. GDP understates the value of output produced by an economy because it _____.
a) excludes the value of the wages and benefits of government employee
b) includes transactions that do not take place in organized markets, such as home cooked meals
c) excludes value added from the underground economy, such as tips taken under the table
d) includes environmental degradation caused by increased output production
28.Other things equal, a decrease in corporate income taxes will _____.
a) have no effect on the location of the investment demand curve
b) shift the investment demand curve to the right
c) decrease the market price of real capital goods
d) shift the investment demand curve to the left
29. If the wage rate increases, _____.
a) a purely competitive producer will hire less labor, but an imperfectly competitive producer will not
b) an imperfectly competitive producer will hire less labor, but a purely competitive producer will not
c) a purely competitive and an imperfectly competitive producer will both hire less labor
d) an imperfectly competitive producer may find it profitable to hire either more or less labor
30. In which of the following industries are economies of scale exhausted at relatively low levels of output?
a) aircraft production
b) concrete mixing
c) newspaper printing
d) automobile manufacturing