ECO 561 Final Exam Guide (New, 2019) NEW

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Final Guide NEW 2019
1 Which of the following have substantially
equivalent effects on a nation's volume of
exports and imports?
2
Exchange rate appreciation and domestic
deflation Exchange rate depreciation and domestic
inflation Exchange rate appreciation and a
decrease in the domestic supply of money Exchange
rate depreciation and domestic deflation
2 Which of the following statements best
describes the 12 Federal Reserve Banks?
II r a They are privately
owned and publicly controlled central banks whose
basic goal is to earn profits for their
owners. They are privately owned and privately
controlled central banks whose basic goal is to
provide an ample and orderly market for U.S.
Treasury securities. They are privately owned and
publicly controlled central banks whose basic
function is to minimize the risks in commercial
banking in order to make it a reasonably
profitable industry.
3
They are privately owned and publicly controlled
central banks whose basic goal is to control the
money supply and interest rates in promoting
the general economic welfare
3 Buyers will opt out of markets in which there
are only foreign sellers there is inadequate
information about sellers and their
products httn,//www.fjrr i assicmmpnt rom there
are significant negative externalities
standardized products are being produced 4 Pure
monopolists may obtain economic profits in the
long run because of advertising marginal revenue
is constant as sales increase of rising average
fixed costs
4
of barriers to entry
5 All else equal, a large decline in the real
interest rate will shift the
investment demand curve rightward investment
demand curve leftward investment schedule upward
investment schedule downward http//www.eco5blassi
gnment.com 6 In order for mutually beneficial
trade to occur between two otherwise isolated
nations
each nation must be able to produce at least one
good relatively cheaper than the other each
nation must face constant costs in the production
of the good it exports
5
one nation's production must be labor-intensive
while the other nation's production is
capitalintensive each nation must be able to
produce at least one good absolutely cheaper than
the other
7 If the Federal Reserve System buys government
securities from commercial banks and the public
the money supply will contract nttp,//\A/WW H 11
IHKSIJJnmP nr com commercial bank reserves will
decline
it will be easier to obtain loans at
commercial banks
commercial bank reserves will be unaffected
8 Normal profit is
the average profitability of an industry over
the preceding 10 years
6
determined by subtracting explicit costs from
total revenue the return to the entrepreneur when
economic profits are zero determined by
subtracting implicit costs from total revenue
9 The term "recession" describes a
situation where
httn7/w\A/\A/ prnRfil altKicmmpnt rnm an economy's
ability to produce is destroyed output and living
standards decline inflation rates exceed normal
levels Government takes a less active role in
economic matters
10 If an unintended increase in business
inventories occurs at some level of GDP, then GDP
7
is too low for equilibrium entails a rate of
aggregate expenditures in excess of the rate of
aggregate production is too high for
equilibrium may be either above or below the
equilibrium output
11 The fact that international specialization and
p-J-j-trade based on comparative advantage can
increase world output is demonstrated by
the reality that
a nation's production possibilities and trading
possibilities lines coincide the production
possibilities curves of any two nations are
identical a nation's trading possibilities line
lies to the right of its production possibilities
line
8
a nation's production possibilities line lies to
the right of its trading possibilities line
12 In the theory of comparative advantage, a good
should be produced in that nation where
its cost is least in terms of alternative goods
that might otherwise be produced llllJ//VvVVVV
11 I II I 1 l.LUl
its absolute cost in terms of real resources used
is least
its absolute money cost of production is
least the production possibilities line lies
further to the right than the trading
possibilities line
13 Why are economists concerned about inflation?
9
Inflation lowers the standard of living for
people whose income does not increase as fast as
the price level
Real GDP is necessarily falling when there
is inflation Inflation generally causes
unemployment rates to rise Inflation increases
the value of peoples' saving and encourages
overspending on goods and services http//www.eco5
61assignment.com 14 Two major virtues of the
market system are that it
results in an equitable personal distribution of
income and always maintains full
employment results in price level stability and a
fair personal distribution of income allocates
resources efficiently and allows economic freedom
10
eliminates discrimination and minimizes
environmental pollution
15 Suppose you have a limited money income and
you are purchasing products A and B, whose prices
happen to be the same. To maximize your utility,
you should purchase A and B in such amounts that
the income and substitution effects
associated with each are equal their marginal and
total utilities are proportionate their total
utilities are the same their marginal utilities
are the same
16 Macroeconomics approaches the study of
economics from the viewpoint of
11
governmental units the entire economy individual
firms the operation of specific product and
resource markets
17 Mrs. Arnold is spending all her money income
by buying bottles of soda and bags of pretzels in
such amounts that the marginal utility of the
last bottle is 60 utils and the marginal utility
of the last bag is 30 utils. The prices of soda
and pretzels are .60 per bottle and .40 per bag
respectively. It can be concluded that
Mrs. Arnold should spend more on soda and less on
pretzels Mrs. Arnold is buying soda and pretzels
in the utility-maximizing amounts the two
commodities are substitute goods
12
Mrs. Arnold should spend more on pretzels
and less on soda
18 The simple circular flow model shows that
households are on the selling side of the
resource market and on the buying side of the
product http//www.ec(market businesses are on
the selling side of both product and resource
markets. households are on the buying side of
both product and resource markets. businesses are
on the buying side of the product market and on
the selling side of the resource market.
13
19 Assume the reserve ratio is 25 percent and
Federal Reserve Banks buy 4 million of U.S.
securities from the public, which deposits this
amount into checking accounts. As a result of
these transactions, the supply of money
is directly increased by 4 million and the
money-creating potential of the commercial
banking system is increased by an additional 16
million. not directly affected, but the
money-creating potential of the commercial
banking system is increased by 12
million. prrn,//\A/\A/\A/ orns laccianmonr
rnrp directly increased by 4 million and the
money- creating potential of the commercial
banking system is increased by an additional 12
million. directly reduced by 4 million and the
money-creating potential of the commercial
banking system is decreased by an additional 12
million.
20 As output increases, total variable cost
14
increases at a constant rate increases at a
decreasing rate and then at an increasing
rate increases continuously at a decreasing rate
increases more rapidly than does total cost
21 The two basic markets shown by the
simple circular flow model are nent.com
product and resource free and controlled
household and business capital goods and consumer
goods
15
22 Countercyclical discretionary fiscal policy
calls for
surpluses during both recessions and periods
of demand-pull inflation deficits during both
recessions and periods of demand-pull
inflation surpluses during recessions and
deficits during periods of demand-pull
inflation deficits during recessions and
surpluses during periods of demand-pull
inflation http//www.eco561assignment.com
23 Because the federal government typically
provides disaster relief to farmers, many farmers
do not buy crop insurance even through it is
federally subsidized. This illustrates
the moral hazard problem the special interest
effect the adverse selection problem
16
logrolling
24 A monopolistically competitive industry
combines elements of both competition and
monopoly. The monopoly element results from
the likelihood of collusion mutual
interdependence product differentiation http
l//WWVhigh entry barriers
25 Research for industrially advanced
countries indicates that
the more independent the central bank, the higher
the average annual rate of unemployment. the more
independent the central bank, the higher the
average annual rate of inflation
17
the more independent the central bank, the lower
the average annual rate of inflation there is no
relationship between the degree of independence
of a country's central bank and its inflation
rate.
26 The business cycle depicts
short-run fluctuations in output and
employment llltSgt// VV VVVVtWJVJ JJII II I
IVI lla Wl I I
the phases a business goes through from when it
first opens to when it finally closes
fluctuations in the general price level the
evolution of technology over time
27 The primary gain from international trade is
18
increased employment in the domestic
export sector increased employment in the
domestic import sector more goods than would be
attainable through domestic production
alone tariff revenue
is so named I I I I 1I I 1 1
28 Contractionary fiscal policy
II lltS gt/ / VV VV VVtU _ ' ' VI
because it
necessarily reduces the size of government is
aimed at reducing aggregate demand and
thus achieving price stability involves a
contraction of the nation's money supply is
expressly designed to expand real GDP
19
29 If the prices of all goods and services rose,
but the quantity produced remained unchanged,
what would happen to nominal and real GDP?
Real GDP would rise, but nominal GDP would
be unchanged Nominal and real GDP would both be
unchanged
Nominal GDP would rise, but real GDP would
be unchanged http//www prrnn i
aipnmpntcom Nominal and real GDP would both rise
30 Which of the following will generate a demand
for country X's currency in the foreign
exchange market?
20
Charitable contributions by country X's citizens
to citizens of developing nations The imports of
country X The desire of foreigners to buy stocks
and bonds of firms in country X Travel by
citizens of country X in other countries
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