ECON 312/ECON 312 FINAL EXAM-SUMMER (A+++++ ANSWER) - 92941

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1. (TCO 1) Opportunity cost is best defined as (Points : 4) marginal cost minus marginal benefit. the time spent on an economic activity. the value of the best forgone alternative. the money cost of an economic decision. 2. (TCO1) Which is not a factor of production? (Points : 4) Money Land Labor Capital 3. (TCO1) A point outside the production possibilities curve is (Points : 4) attainable, but there is not full employment attainable, but there is not optimal allocation unattainable because the economy is inefficient unattainable because of limited resources 4. (TCO1) A basic characteristic of a command system is that (Points : 4) wages paid to labor are higher government owns most economic resources free markets are never permitted in a command economy government planners play a limited role in deciding what goods will be produced 5. (TCO 2) Which is consistent with the law of demand? (Points : 4) A decrease in the price of tacos causes no change in the quantity of tacos demanded An increase in the price of pizza causes an increase in the quantity of pizza demanded An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded A decrease in the price of turkey sandwiches causes a decrease in the quantity of turkey sandwiches demanded 6. (TCO 2) A decrease in supply and a decrease in demand will (Points : 4) increase price and affect the equilibrium quantity in an indeterminate way decrease the equilibrium quantity and decrease price increase the equilibrium quantity and affect price in an indeterminate way decrease the equilibrium quantity and affect price in an indeterminate way 7. (TCO 2) You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than one. To increase total revenues, you should (Points : 4) increase the price of the software decrease the price of the software hold the price of the software constant increase the supply of the software 8. (TCO 2) The price elasticity of demand increases with the length of the period considered because (Points : 4) consumers' incomes will increase over time the demand curve will shift outward as time passes all prices will increase over time consumers will be better able to find substitutes. 9. (TCO 2) A profit-maximizing firm in the short run will expand output (Points : 4) until marginal cost begins to rise until total revenue equals total cost until marginal cost equals average variable cost as long as marginal revenue is greater than marginal cost 10. (TCO 2) Which case below best represents a case of price discrimination? (Points : 4) An insurance company offers discounts to safe drivers. A major airline sells tickets to senior citizens at lower prices than to other passengers. A professional baseball team pays two players with identical batting averages different salaries. A utility company charges less for electricity used during "off-peak" hours, when it does not have to operate its less-efficient generating plants. 11. (TCO 3) A major reason that firms form a cartel is to (Points : 4) reduce the elasticity of demand for the product enlarge the market share for each producer minimize the costs of production maximize joint profits 12. (TCO 3) The main difference between the short run and the long run is that (Points : 4) firms earn zero profits in the long run the long run always refers to a time period of one year or longer in the short run, some inputs are fixed in the long run, all inputs are fixed 13. (TCO 4) A recession is a decline in (Points : 4) the inflation rate that lasts six months or longer the unemployment rate that lasts six months or longer real GDP that lasts six months or longer potential GDP that lasts six months or longer 14. (TCO 4) The unemployed are those people who (Points : 4 do not have jobs. are not employed but are seeking work are not working are not working 15. (TCO 4) GDP is the market value of (Points : 4) resources (land, labor, capita, and entrepreneurship) in an economy in a given year all final goods and services produced in an economy in a given year consumption and investment spending in an economy in a given year all output produced and accumulated over the years 16. (TCO 4) Nominal GDP differs from real GDP because (Points : 4) nominal GDP is based on constant prices real GDP is based on current prices real GDP is adjusted for changes in the price level nominal GDP is adjusted for changes in the price level 17. (TCO 6) When the federal government uses taxation and spending actions to stimulate the economy it is conducting (Points : 4) fiscal policy incomes policy monetary policy employment policy 18. (TCO 6) Refer to the graph. What combination would most likely cause a shift from AD1 to AD3? Increases in taxes and government spending Decrease in taxes and increase in government spending Increase in taxes and decrease in government spending Decreases in taxes and government spending 19. (TCO 6) The American Recovery and Reinvestment Act of 2009 included mostly (Points : 4) increases in taxes and government spending decreases in taxes and government spending increases in government spending and decreases in taxes decreases in government spending and increases in taxes 20. (TCO 6) The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the (Points : 4) crowding-out lag recognition lag operational lag administrative lag Page 2 1. (TCO 5) A decrease in government spending will cause a(n) (Points : 4) increase in the quantity of real domestic output demanded decrease in the quantity of real domestic output demanded decrease in aggregate demand increase in aggregate demand 2. (TCO 5) The long-run aggregate supply curve is (Points : 4) upward-sloping and becomes steeper at output levels above the full-employment output upward-sloping and becomes flatter at output levels above the full-employment output horizontal vertical 3. (TCO 5) Which would most likely increase aggregate supply? (Points : 4) An increase in the prices of imported products An increase in productivity A decrease in business subsidies A decrease in personal taxes 4. (TCO 5) Deflation refers to a situation where (Points : 4) price level falls price level rises the rate of inflation falls the rate of inflation rises 5. (TCO 6) Dissaving occurs when (Points : 4) income is greater than saving income is less than consumption saving is greater than consumption saving is greater than the interest rate 6. (TCO 7) The M1 money supply is composed of (Points : 4) all coins and paper money held by the general public and the banks bank deposits of households and business firms bank deposits and mutual funds checkable deposits and currency in circulation 7. (TCO 7) The basic requirement of money is that it be (Points : 4) backed by precious metals--gold or silver authorized as legal tender by the central government generally accepted as a medium of exchange some form of debt or credit 8. (TCO 7) The Federal Reserve System of the U.S. is the country's (Points : 4) financial adviser comptroller or accountant central bank deposit insurance provider 9. (TCO 7) Which of the following is the most important function of the Federal Reserve System? (Points : 4) Setting reserve requirements Controlling the money supply Lending money to banks and thrifts Acting as fiscal agent for the U.S. government 10. (TCO 7) Money is "created" when (Points : 4) a depositor gets cash from the bank's ATM a bank accepts deposits from its customers people receive loans from their banks people spend the incomes that they receive 11. (TCO 7) During the financial crisis of 2007-2008, the FDIC increased deposit insurance coverage from (Points : 4) $50,000 to $100,000 per account $100,000 to $250,000 per account $200,000 to $500,000 per account $500,000 to $1,000,000 per account 12. (TCO 7) The purchase and sale of government securities by the Fed is called (Points : 4) federal funds market open market operations money market transactions term auction facility 13. (TCO 7) The Federal Reserve could reduce the money supply by (Points : 4) selling government bonds in the open market buying government bonds in the open market operating the term auction facility reducing the discount rate 14. (TCO 8) Which country is the United States' largest trading partner in terms of volume of trade? (Points : 4) Mexico Japan China Canada 15. (TCO 8) The principal concept behind comparative advantage is that a nation should (Points : 4) maximize its volume of trade with other nations use tariffs and quotas to protect the production of vital products for the nation concentrate production on those products for which it has the lowest domestic opportunity cost strive to be self-sufficient in the production of essential goods and services 16. (TCO 8) A tariff is a (Points : 4) Tax Price ceiling Quantity limit Subsidy 17. (TCO 8) Tariffs and quotas are costly to consumers because (Points : 4) the price of the imported good falls the supply of the imported good increases import competition increases for domestic goods consumers shift purchases to higher-priced domestic goods 18. (TCO 8) Tariffs and import quotas would benefit the following groups, except (Points : 4) consumers of the product domestic producers of the product workers in domestic firms producing the product the government of the importing country 19. (TCO 8) Which organization meets regularly to establish rules and settle disputes related to international trade? (Points : 4) The United Nations Commission on Trade Law The United Nations Conference on Trade and Development The World Trade Organization The Federal Reserve Board 20. (TCO 9) U.S. businesses are demanders of foreign currencies because they need them to (Points : 4) produce goods and services exported to foreign countries pay for goods and services imported from foreign countries receive interest payments from foreign governments receive interest payments from foreign businesses. Page 3 1. (TCO 9) In the balance of payments statement, a current account surplus will be matched by a (Points : 4) capital and financial accounts deficit capital and financial accounts surplus trade deficit trade surplus 2. (TCO 9) A trade deficit means a net (Points : 4) inflow of payments for goods and services outflow of goods and services inflow of goods and services excess of exports over imports 3. (TCO 9) Foreign exchange rates refer to the (Points : 4) price at which purchases and sales of foreign goods take place movement of goods and services from one nation to another price of one nation's currency in terms of another nation's currency difference between exports and imports in a particular nation 4. (TCO 9) When the exchange rate between pounds and dollars moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has (Points : 4) appreciated depreciated inflated deflated 5. (TCO 9) The monetary system for conducting international trade is usually described as a system of (Points : 4) fixed exchange rates freely floating exchange rates a managed gold standard managed floating exchange rates. 6. (TCO 8) a) Explain four problems with the argument that trade protection is needed to protect American jobs. b) Describe the economic reasons why businesses use offshoring. 7. (TCO 6) a) Identify the four major tools of monetary policy. b) How can monetary policy address the problem of inflation?
Solution Description

1. (TCO 1) Opportunity cost is best defined as (Points : 4)

marginal cost minus marginal benefit.

the time spent on an economic activity.

the value of the best forgone alternative.
the money cost of an economic decision.

2. (TCO1) Which is not a factor of production? (Points : 4)

Money

Land

Labor

Capital

3. (TCO1) A point outside the production possibilities curve is (Points : 4)

attainable, but there is not full employment

attainable, but there is not optimal allocation

unattainable because the economy is inefficient

unattainable because of limited resources

4. (TCO1) A basic characteristic of a command system is that (Points : 4)

wages paid to labor are higher

government owns most economic resources

free markets are never permitted in a command economy

government planners play a limited role in deciding what goods will be produced

5. (TCO 2) Which is consistent with the law of demand? (Points : 4)

A decrease in the price of tacos causes no change in the quantity of tacos demanded

An increase in the price of pizza causes an increase in the quantity of pizza demanded

An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded

A decrease in the price of turkey sandwiches causes a decrease in the quantity of turkey sandwiches demanded

6. (TCO 2) A decrease in supply and a decrease in demand will (Points : 4)

increase price and affect the equilibrium quantity in an indeterminate way

decrease the equilibrium quantity and decrease price

increase the equilibrium quantity and affect price in an indeterminate way

decrease the equilibrium quantity and affect price in an indeterminate way

7. (TCO 2) You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than one.  To increase total revenues, you should (Points : 4)

increase the price of the software

decrease the price of the software

hold the price of the software constant

increase the supply of the software

8. (TCO 2) The price elasticity of demand increases with the length of the period considered because (Points : 4)

consumers' incomes will increase over time

the demand curve will shift outward as time passes

all prices will increase over time

consumers will be better able to find substitutes.
9. (TCO 2) A profit-maximizing firm in the short run will expand

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