ECON101 SAMPLE QUESTIONS FOR FINAL EXAM

Ans: C Diff: 3 1. If we know that the exchange rate is 0.8 dollars per euro, then we know that the rate of euros per dollars is a. b. c. d. e. 2. 0.8 1.8 1.25 less than 1.0 5

Ans: B Diff: 1

Which of the following best describes the foreign exchange market? It is a market where one countrys exports are traded for another countrys imports currency is traded for that of another goods are traded for another countrys services imports are traded for another countrys exports services are traded for another countrys goods

a. b. c. d. e.

Ans: A Diff: 1

3. a. b. c. d. e. 4. a. b. c. d. e. 5. a. b. c. d. e. 6. a. b. c. d. e.

Which of the following is a reason Americans would demand British pounds? to purchase British real estate to purchase Japanese semiconductors to purchase French government bonds to purchase stocks on the New York Stock Exchange to purchase a ticket to see a British film in the U.S. What does the demand curve for British pounds tell us? the quantity of pounds people will want to sell at each different exchange rate the quantity of pounds people will want to buy at each level of output the quantity of pounds people will want to buy at each different exchange rate the quantity of pounds people will want to sell in each different time period the quantity of pounds people will want to buy at each different interest rate If the dollar-peso exchange rate fell, few firms would want to relocate to Mexico the demand for pesos would fall more Americans would travel to Mexico Americans would buy fewer Mexican goods the demand for pesos curve would shift inward If the dollar-euro exchange rate increased, Americans would purchase fewer European goods more U.S. firms would want to relocate to Europe more American tourists would travel to Europe the demand for euros would increase Europeans would become more highly respected

Ans: C Diff: 2

Ans: C Diff: 2

Ans: A Diff: 2

Ans: D Diff: 1

7.

Which of the following changes would cause a movement along the U.S. demand curve for a foreign currency? an increase in U.S. real GDP a fall in U.S. real GDP a rise in the U.S. interest rate a change in the exchange rate an expectation that the exchange rate is going to fall Which of the following would lead to a rightward movement along the demand curve for pounds? an increase in the dollar price of a pound a decrease in U.S. GDP a renewed interest in British beef products a decrease in the dollar price of a pound an increase in U.S. GDP What does the supply curve for Swiss francs tell us? the quantity of francs people will want to sell at each different exchange rate the quantity of francs people will want to sell at each level of output the quantity of francs people will want to buy at each different exchange rate the quantity of francs people will want to buy in each different time period the quantity of francs people will want to sell at each different interest rate If British real GDP rose relative to U.S. real GDP, there would be a rightward movement along the supply of British pounds curve in the dollarpound market a leftward movement along the supply of British pounds curve in the dollarpound market a rightward shift of the supply of British pounds curve in the dollar-pound market a leftward shift of the supply of British pounds curve in the dollar-pound market the tendency for the supply of British pounds curve to become flatter in the dollar-pound market Which of the following would lead to a rightward shift in the supply curve for Russian rubles? an increase in the dollar price of the ruble an increase in Russian GDP an increase in the U.S. price level relative to the Russian price level a decrease in the dollar-ruble exchange rate expectation that the price of the ruble will rise

a. b. c. d. e. Ans: D Diff: 2 a. b. c. d. e. Ans: A Diff: 2 9. a. b. c. d. e. 10. a. b. c. d. e. 8.

Ans: C Diff: 2

Ans: B Diff: 2

11.

a. b. c. d. e.

Ans: E Diff: 2

12. a. b. c. d. e.

If Mexicos GDP drops, which of the following will happen in the market for pesos? a rightward shift of the supply curve, a depreciation of the peso, and a larger number of pesos traded a rightward shift of the demand curve, a depreciation of the peso, and a smaller number of pesos traded a rightward shift of the demand curve, an appreciation of the peso, and a larger number of pesos traded a leftward shift of the demand curve, a depreciation of the peso, and a smaller number of pesos traded a leftward shift of the supply curve, an appreciation of the peso, and a smaller number of pesos traded If there is an increased interest in U.S. goods by Indians, which of the following will happen in the market for Indian rupees? a rightward shift of the supply curve, a depreciation of the rupee, and a larger number of rupees traded a rightward shift of the demand curve, a depreciation of the rupee, and a smaller number of rupees traded a rightward shift of the demand curve, an appreciation of the rupee, and a larger number of rupees traded a leftward shift of the demand curve, a depreciation of the rupee, and a smaller number of rupees traded a leftward shift of the supply curve, an appreciation of the rupee, and a smaller number of rupees traded If the Federal Reserve decreases the U.S. interest rate while the Bank of England keeps the British rate constant, which of the following will happen in the market for pounds? a rightward shift of the demand curve, a leftward shift of the supply curve, and an appreciation of the pound a leftward shift of the demand curve, a rightward shift of the supply curve, and an appreciation of the pound a leftward shift of the demand curve, a leftward shift of the supply curve, and a depreciation of the pound a rightward shift of the demand curve, a rightward shift of the supply curve, and an appreciation of the pound a leftward shift of the demand curve, a rightward shift of the supply curve, and a depreciation of the pound The dominant forces causing changes in exchange rates in the very short run are changes in relative interest rates changing expectations regarding future exchange rates economic fluctuations the erratic spending patterns of tourists changes in relative interest rates and in expectations of future exchange rates

Ans: A Diff: 2

13.

a. b. c. d. e.

Ans: A Diff: 2

14.

a. b. c. d. e.

Ans: E Diff: 2

15. a. b. c. d. e.

Ans: C Diff: 2

16. a. b. c. d. e. 17.

In the long run, exchange rates are determined by business cycle fluctuations are determined by movements of hot money will adjust until the price of a bundle of goods is the same in both countries will reflect economic fluctuations in both countries are still a mystery to most economists If the U.S. price level and inflation rate falls relative to Mexicos price level and inflation rate, which of the following will happen in the market for pesos? a rightward shift in the demand curve, a leftward shift in the supply curve, and an appreciation of the peso a leftward shift in the demand curve, a rightward shift in the supply curve, and an appreciation of the peso a leftward shift in the demand curve, a leftward shift in the supply curve, and a depreciation of the peso a rightward shift in the demand curve, a rightward shift in the supply curve, and an appreciation of the peso a leftward shift in the demand curve, a rightward shift in the supply curve, and a depreciation of the peso If the U.S. price level is increasing by 3 percent annually and the French price level is increasing by 5 percent annually, by what percent would the dollar price of francs need to change according to purchasing power parity? depreciate by 5 percent appreciate by 3 percent appreciate by 5 percent depreciate by 2 percent appreciate by 2 percent Under a managed float, if U.S. GDP suddenly increased, which of the following actions would the Bank of England need to take in order to stop any movement in the dollar-pound exchange rate? buy British pounds for dollars in order to shift the demand curve for pounds leftward sell British pounds for dollars in order to shift the supply curve for pounds leftward sell British pounds for dollars in order to shift the supply curve for pounds rightward buy British pounds for dollars in order to shift the demand curve for pounds rightward do nothing, since purchasing power parity will correct the situation in the short run If there is an excess supply of the domestic currency at a fixed exchange rate, the currency will undergo a devaluation the currency will appreciate the country must switch to a floating exchange rate the central bank must buy up that excess supply or the exchange rate will fall the central bank must be up that excess supply or the exchange rate will rise

Ans: E Diff: 2

a. b. c. d. e.

Ans: D Diff: 3

18.

a. b. c. d. e. Ans: C Diff: 2 a. b. c. d. e. Ans: D Diff: 2 20. a. b. c. d. e. 19.

Ans: D Diff: 1

21. a. b. c. d. e. 22. a. b. c. d. e. 23. a. b. c. d. e. 24. a. b. c. d. e.

One advantage of a common European currency is that the exchange rate between the euro and other currencies will never vary the exchange rate between the euro and other currencies will always be less than 1.0 each member country can run a managed float European firms will no longer have to pay commissions on currency exchanges monetary policy will no longer be necessary Which of the following describes a trade deficit? exports plus imports exports divided by imports exports multiplied by imports exports exceed imports imports exceed exports Which of the following is an opportunity cost of cyclical unemployment? a higher wage rate a lower interest rate lower taxes paid by the employed costs of updating prices lost earnings of the unemployed Which of the following is true? structural unemployment is caused by the fact that it takes a short time to search for a job cyclical unemployment is caused by the fact that it takes a short time to search for a job frictional unemployment is caused by a lack of skills or information about jobs structural unemployment is caused by a lack of skills or information about jobs cyclical unemployment is caused by a lack of skills or information about jobs Which of the following will cause the aggregate demand curve to shift to the right? an increase in the price level a decrease in the price level an increase in government purchases an increase in taxes an increase in the interest rate The AS curve would shift downward if unit costs increase due to an increase in output the wage rate increases good weather increases crop yields an increase in real GDP causes the price level to decrease an oil embargo causes world oil prices to rise

Ans: E Diff: 2

Ans: E Diff: 2

Ans: D Diff: 2

Ans: C Diff: 2

25. a. b. c. d. e. 26. a. b. c. d. e.

Ans: C Diff: 3

Ans: B Diff: 2

27. a. b. c. d. e. 28. a. b. c. d. e. 29. a. b. c. d. e.

When government spending decreases, the AD curve shifts right output and the price level decrease together the AS curve shifts left first output decreases and then the price level decreases the economy slides down the AD curve In the short run, a contractionary fiscal policy would cause the AD curve to shift to the right equilibrium real GDP to decrease and the price level to increase the AS curve to shift left the economy to slide along the AD curve equilibrium GDP and the price level to fall If equilibrium GDP is below potential, then unemployment is unusually low the Fed will lower the money supply the wage rate will fall as workers compete for scarce jobs the AS curve will shift left the wage rate will remain stable as labor productivity increases The economys self-correcting mechanism prevents the economy from ever being in disequilibrium guides the economy to full employment in the long run maintains a steady long-run price level is a short-run adjustment process is controlled by the Central Bank Stagflation is caused by a negative demand shock is theoretically impossible is a long-run phenomenon was rampant during the Great Depression is the combination of rising price levels and negative GDP growth

Ans: E Diff: 2

Ans: C Diff: 1

Ans: B Diff: 2

30. a. b. c. d. e. 31. a. b. c. d. e.

Ans: E Diff: 2

Ans: A Diff: 2

32.

If Chris pays $500 for a bond that will return $750 in one year, what is the interest rate? 50 percent 10 percent 25 percent 250 percent 33 percent

a. b. c. d. e.

Ans: D Diff: 2

33.

If Pat pays $500 for a one-year bond that carries an interest rate of 10 percent per year, how much will she be repaid at the end of the year? $1,000 $510 $620 $550 $500 The Central Banks open market operations involve buying and selling of government bonds changes of the discount rate setting the required reserve ratio collection of tax revenues a policy of last resort used to avert a financial crisis Examples of Fed actions that could decrease money supply are making open market purchases, increasing the required reserve ratio, and increasing the discount rate sales, decreasing the required reserve ratio, and increasing the discount rate sales, increasing the required reserve ratio, and decreasing the discount rate sales, increasing the required reserve ratio, and increasing the discount rate purchases, decreasing the required reserve ratio, and decreasing the discount rate Which of the following is not a tool for controlling the money supply? buying government bonds selling government bonds changing tax rates changing the required reserve ratio changing the discount rate Which of the following is not true of a recession? the economy is overheated cyclical unemployment is high unemployment is caused by insufficient spending if the economy is in equilibrium, the aggregate expenditure line is too low to create an intersection at the full-employment level if employers hired more workers to reduce unemployment, they would be unable to sell all the extra output those workers would produce During a recession, which of the following occurs? output falls, employment rises, and unemployment rises output rises, employment falls, and unemployment falls output falls, employment falls, and unemployment rises output rises, employment rises, and unemployment falls output falls, employment falls, and unemployment falls

a. b. c. d. e.

Ans: A Diff: 1

34. a. b. c. d. e. 35. a. b. c. d. e. 36. a. b. c. d. e. 37. a. b. c. d. e.

Ans: D Diff: 2

Ans: C Diff: 2

Ans: A Diff: 2

Ans: C Diff: 2

38. a. b. c. d. e.

Ans: C Diff: 2

39. a. b. c. d. e.

According to Keynesian economists, the economy will return quickly to full employment in most cases if output is below its potential, the economy will soon return to full employment production can be stuck below its full-employment level for extended periods of time the Great Depression proved that classical economics does a good job of explaining how the economy operates he economy will achieve full employment in the short run but, in the long run, GDP will fluctuate Gold, silver and furs, when used as money, are referred to as fiat money precious money paper currency commodity money exchange money When a piece of currency must be accepted for payment because the government says so, the currency is called commodity money money backed by gold high-powered money greenbacks fiat money

Ans: D Diff: 1

40. a. b. c. d. e. 41.

Ans: E Diff: 1

a. b. c. d. e.

Ans: E Diff: 3

42. a. b. c. d. e. 43.

The Consumer Price Index (CPI) measures the prices of all goods produced in the economy includes prices of raw materials is found by averaging the prices of all goods consumed in the economy includes only the prices of domestically produced consumer goods includes the prices of some used consumer goods The prices of which of the following goods would be included in the Consumer Price Index? fighter planes iron ore tennis shoes firefighters services IBM stock If inflation is higher than anticipated, which group loses purchasing power? borrowers and lenders lenders and retirees borrowers and retirees only borrowers only lenders

Ans: C Diff: 2

a. b. c. d. e. Ans: B Diff: 2 44. a. b. c. d. e.

Ans: C Diff: 2

45.

A labor union anticipates a 7 percent inflation rate in each of the next three years. It wants to obtain a 3 percent increase in real wages in each of those three years. To obtain this goal, the requisite nominal wage hike it should negotiate is 7 percent each year 3 percent each year 10 percent each year 10 percent the first year and 3 percent each year thereafter 21 percent the first year and 3 percent each year thereafter Suppose the nominal interest rate charged is 5 percent and the expected inflation rate is 2 percent, which of the following is the expected real interest rate? 2 percent 5 percent 7 percent 3 percent 3 percent Gross domestic product (GDP) is the total value of all goods and services produced for the marketplace during a given year, within the nations borders the total value of all final goods and services produced for the marketplace during a given year, by a nations citizens and businesses the total value of all final goods and services produced for the marketplace during a given year, within a nations borders the total value of all goods and services produced for the marketplace during a given year, by a nations citizens and businesses the total value of all goods, services and inputs produced for the marketplace during a given year, within a nations borders Which of the following is the best example of an intermediate good? a new fighter jet purchased by the government tires purchased by an automobile manufacturer for installation on a new line of cars a new saw purchased by a carpenter screwdrivers purchased by a consumer for home repairs aprons purchased by restaurant chefs A Texas oil company extracts petroleum and sells it to a refinery for $1,000. After processing, the refinery sells the gasoline to a wholesaler for $1,500, who then sells it to a gas station for $1,700. The gas station sells it to customers for $2,500. In these transactions, how much has been added to GDP? $1,000 $1,500 $1,700 $2,500 $6,700

a. b. c. d. e. Ans: E Diff: 2 a. b. c. d. e. Ans: C Diff: 2 47. a. b. c. d. e. 46.

Ans: B Diff: 2

48. a. b. c. d. e. 49.

Ans: D Diff: 2

a. b. c. d. e.

Ans: E Diff: 2

50. a. b. c. d. e.

Which of the following would be included in a years GDP? Susan cleans the fuel injectors on her car a private individual purchases 100 shares of IBM stock a timber company purchases land in Oregon a consumer buys an antique desk a college professor purchases a new computer

Ans: C Diff: 2

51.

When measuring GDP, economists count only the values of final goods and services because the final value is the highest value of good adding the values of intermediate products is too difficult a task the value of all intermediate products is automatically included in the value of those final goods intermediate products are overpriced the final cost is the selling price, which is what economists want to know Which of the following would be classified as private investment spending? a familys purchase of a new home an automobile producers purchase of steel for use in building new cars a paper companys purchase of timber a households purchase of AT&T stock the governments purchase of a new office building Which of the following four elements contribute to GDP in the expenditure approach? consumption spending, private investment, government purchases, net exports consumption spending, business investment, government purchases, imports consumption of services, private investment, government consumption, exports consumption of goods, private investment, government investment, government consumption consumption of durable goods, private investment, government purchases, net exports In the expenditure approach to measuring GDP, we add the values of all intermediate goods in addition to all final goods purchased goods and services purchased by each type of final user goods and services purchased in the United States goods and services purchased by intermediate and final users output produced by U.S. firms Assume net exports are $220, consumption is $5,000, tax revenues are $1,000, government purchases are $1,500, and 1997 GDP, calculated by the expenditure approach, is $8,000. We can conclude that private investment was $1,940 public investment was $310 private investment was $320 private investment was $1,720 public investment was $1,730

a. b. c. d. e. Ans: A Diff: 2 52. a. b. c. d. e. 53.

Ans: A Diff: 2

a. b. c. d. e.

Ans: B Diff: 2

54. a. b. c. d. e. 55.

Ans: D Diff: 3

a. b. c. d. e.

Ans: C Diff: 3

56. a. b. c. d. e. 57. a. b. c. d. e.

An example of a capital good is food produced by farmers in 1998 the pickup truck that your friend drives to school a house owned and occupied by a family the rent your friend paid last year for a college apartment a share of General Electric Company stock Transfer payments are payments for goods or services that individuals provide funds given to people or organizations when no good or service is received in exchange included in the government purchases category of GDP examples of government investment used to pay state employees Using the table below, calculate GDP. Consumption spending $1,000 Wages and salaries $800 Rent $100 Government purchases $200 Profit $300 Exports $400 Interest $250 Private investment spending $400 Imports $550

Ans: B Diff: 1

Ans: A Diff: 2

58.

Based on the above information, GDP in this year was a. b. c. d. e. Ans: C Diff: 2 59. a. b. c. d. e. 60. $1,450 $2,000 $2,550 $2,900 $4,000 What is the difference between nominal and real GDP? nominal GDP is adjusted for changes in the price level, real GDP is not real GDP is adjusted for taxes and transfer payments, nominal GDP is not real GDP is adjusted for changes in the price level, nominal GDP is not nominal GDP is adjusted for depreciation, real GDP is not real GDP is adjusted for depreciation, nominal GDP is not Yuan recently completed his college degree and is entering the labor market for the first time. He has been submitting applications and has been interviewed twice in the last two weeks, but so far has not found a job. Yuan could be classified as frictionally unemployed seasonally unemployed structurally unemployed cyclically unemployed not yet in the labor force

Ans: A Diff: 2

a. b. c. d. e.

Ans: C Diff: 2

61.

Dennis is an excellent typist. However, because he has been unable to adapt to his companys new computer system, he has lost his job. He is currently seeking another secretarial position, but it is likely that he will have to acquire new skills to become employable as a secretary again. Dennis would best be described as frictionally unemployed seasonally unemployed structurally unemployed cyclically unemployed not in the labor force Unemployment that has an entirely macroeconomic cause is called frictional unemployment seasonal unemployment structural unemployment cyclical unemployment short-term unemployment When is the U.S. economy at full employment? when there is no cyclical unemployment when there is no structural unemployment when there is no full employment when there is no seasonal unemployment when there is no frictional unemployment

a. b. c. d. e. Ans: D Diff: 1 62. a. b. c. d. e. 63. a. b. c. d. e.

Ans: A Diff: 2