You are on page 1of 7

Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) In the United States, recessions are informally defined as ________ in real GDP.
A) three consecutive quarters of negative growth
B) three consecutive quarters of positive growth
C) two consecutive quarters of positive growth
D) two consecutive quarters of negative growth

2) Which of the following rises during a recession?


A) Consumption B) Investment
C) Unemployment D) Gross Domestic Product

3) The demand for a particular brand of shoes decreased due to a change in consumers' tastes and preferences.
This will lead to a(n) ________, assuming all else equal.
A) rightward shift of the firm's labor demand curve
B) leftward shift of the firm's labor demand curve
C) downward movement along a firm's labor demand curve
D) upward movement along a firm's labor demand curve

4) Assuming all else equal, if the labor demand curve shifts to the left and the labor supply curve remains
unchanged, ________.
A) equilibrium wage falls B) consumption falls
C) equilibrium wage rises D) unemployment rises

5) The ________ in employment during a recession is smaller if wages are ________.


A) increase; flexible B) decline; rigid C) decline; flexible D) increase; rigid

6) Wages in Baltonia are downwardly rigid. Which of the following will happen if a recession occurs in the
country?
A) Employment will fall less than if wages were flexible.
B) Unemployment will fall more than if wages were flexible.
C) Unemployment will fall less than if wages were flexible.
D) Employment will fall more than if wages were flexible.

1
The diagram below shows the labor demand and labor supply curves for an economy.

7) Refer to the figure above. The labor market is currently at point E. Which of the following is likely to happen
if a recession hits the economy assuming that wages are flexible?
A) The labor market equilibrium will move from E to G.
B) The labor market equilibrium will move from E to F.
C) The labor market equilibrium will move from E to D.
D) The labor market equilibrium will move from E to H.

8) Refer to the figure above. The economy is currently at E. Which of the following is likely to happen if a
recession hits the economy? Assume that wages are downwardly rigid.
A) The labor market equilibrium will move from E to D.
B) The labor market equilibrium will move from E to F.
C) The labor market equilibrium will move from E to G.
D) The labor market equilibrium will move from E to H.

9) Suppose we are plotting the relationship between the unemployment rate and the growth rate of real GDP. If
the unemployment rate is measured along the vertical axis and the growth rate of real GDP is measured
along the horizontal axis, we will get a(n) ________.
A) upward sloping curve B) vertical straight line
C) horizontal straight line D) downward sloping curve

10) An initial leftward shift in labor demand often creates a cascading chain of events, amplifying the impact of
the initial shock. This is known as the ________ effect.
A) cluster B) multiplier C) Veblen D) rebound

11) A sudden fall in housing prices in Potentia has lowered the confidence of households. Assuming all else
equal, this is likely to lead to a(n) ________.
A) fall in the unemployment rate
B) increase in the demand for construction workers
C) increase in the overall price level
D) decline in current consumption

2
12) A decrease in money supply will lead to ________ if nominal wages are fixed.
A) higher output B) lower real wages
C) higher real wages D) lower unemployment

13) Which of the following happens if the real interest rate of an economy rises?
A) Investment falls. B) Labor demand increases.
C) Labor supply falls. D) Consumption increases.

14) A recent study has revealed that the consumption of coffee is injurious to health. This led to a sharp decline
in coffee consumption worldwide. If coffee production accounts for 40% of Richland's GDP, this will lead to
a(n)________.
A) rise in Richland's demand for labor B) increase in the real interest rate in Richland
C) fall in Richland's demand for labor D) rise in Richland's inflation rate

15) Which of the following economic variables is affected when the government adopts countercyclical fiscal
policy?
A) M2 measure of money supply B) Bank reserves
C) Interest rates D) Government spending

16) Counter cyclical policies ________.


A) lower output below its potential level
B) smooth the rate of growth of the economy over time
C) lead to hyperinflation
D) increase the intensity of economic fluctuations

17) If the labor demand curve shifts to the right due to a government policy during a recession, and if wages are
flexible, ________.
A) unemployment will increase B) prices will fall
C) real wages will increase D) real wages will decrease

18) If the Fed wants to stimulate the economy, ________.


A) it lowers short-run interest rates B) it increases tax rates
C) it reduces money supply D) it lowers spending

19) If the Fed increases the supply of bank reserves, ________.


A) investment falls B) the inflation rate falls
C) consumption falls D) the federal funds rate falls

20) If the Fed wants to increase the federal funds rate through open market operations, it ________.
A) increases tax rates B) buys bonds
C) decreases tax rates D) sells bonds

21) Assuming all else equal, the ________, the lower the nominal interest rate.
A) lower the inflation rate B) lower the income tax rates
C) higher the income tax rates D) higher the inflation rate

22) If the nominal interest rate is 5.6% and inflation rate is 2.4%, the real interest rate is ________.
A) 3.2% B) 4% C) 8% D) 6.4%

3
23) If the value of the government multiplier is 1.5, which of the following is likely to be true if all other
variables remain unchanged?
A) A $1.50 increase in government expenditure reduces gross domestic product by $1.50.
B) A $1.50 increase in government expenditure increases gross domestic product by $1.50.
C) A $1 increase in government expenditure reduces gross domestic product by $1.50.
D) A $1 increase in government expenditure increases gross domestic product by $1.50.

24) Rapid growth in M2 is likely to lead to ________.


A) high levels of inflation B) low levels of investment
C) high real interest rates D) low demand for labor

25) Assuming all else equal, if the Fed is expected to adopt a contractionary monetary policy, ________.
A) labor demand will increase B) inflation expectations will increase
C) the long-run real interest rate will increase D) labor supply will increase

26) Which of the following should be increased during a recession?


A) Nominal interest rate B) Real interest rates
C) Income taxes D) Government spending

27) If a $10 increase in government expenditure produces a change of $17 in gross domestic product, the value of
the government expenditure multiplier is ________.
A) 1.7 B) 7 C) 170 D) 27

28) Which of the following is likely to be true when the economy is in a boom?
A) The unemployment rate is high.
B) The size of government expenditure multiplier is small.
C) The size of government expenditure multiplier is large.
D) The inflation rate is negative.

29) Greatland and Superland both produce 5 million watches in a year. The opportunity cost of producing one
watch is 2 shirts in Greatland, and the opportunity cost of producing one watch is 3 shirts in Superland.
Which of the following statements is true?
A) Superland has a comparative advantage in producing watches.
B) Greatland has a comparative advantage in producing watches.
C) Greatland has an absolute advantage in producing watches.
D) Superland has an absolute advantage in producing watches.

30) A producer is said to have a comparative advantage in the production of a good when:
A) the producer has a lower opportunity cost than another producer.
B) the producer has a higher opportunity cost than another producer.
C) the producer charges a higher price for the good than the other producers.
D) the producer can produce more units of the good per hour than another producer.

31) Mark can make 3 tables and 1 chair in a day while John can make 4 tables and 1 chair in a day. Which of the
following is true?
A) Mark has an absolute advantage in making tables.
B) Mark has a comparative advantage in making tables.
C) John has a comparative advantage in making chairs.
D) John has an absolute advantage in making tables.

4
Consider two economies, Beta and Zeta. Each farmer in Beta can grow 1,000 pounds of apples in a year or 500 pounds of
oranges. Each farmer in Zeta can grow 400 pounds of apples or 1,200 pounds of oranges in a year.

32) Refer to the scenario above. The opportunity cost of producing one pound of apples in Beta is:
A) 1/2 pounds of oranges. B) 15 pounds of oranges.
C) 10 pounds of oranges. D) 2 pounds of oranges.

33) Refer to the scenario above. The opportunity cost of producing one pound of oranges in Beta is:
A) 2 pounds of apples. B) 5 pounds of apples.
C) 1/2 pounds of apples. D) 1 pound of apples.

34) Refer to the scenario above. The opportunity cost of producing one pound of apples in Zeta is:
A) 0.67 pounds of oranges. B) 2 pounds of oranges.
C) 1.5 pounds of oranges. D) 3 pounds of oranges.

35) Refer to the scenario above. Which of the following statements is true?
A) Zeta has an comparative advantage in producing apples.
B) Beta has a comparative advantage in producing oranges.
C) Beta has a comparative advantage in producing apples.
D) Zeta has absolute advantage in producing apples.

A shoe manufacturer has factories in two countries - Eduland and Laborland. Shoe manufacturing involves two main
tasks - designing the shoe and stitching it. The value added per hour in each activity by workers in the two countries is
shown in the table below:

36) Refer to the table above. Which of the following statements is true?
A) Laborland has an absolute advantage in stitching shoes.
B) The opportunity cost of designing shoes is lower in Eduland.
C) Laborland has an absolute advantage in designing shoes.
D) The opportunity cost of stitching shoes is lower in Eduland.

37) Which of the following is true of international trade?


A) International trade reduces the total surplus enjoyed by an economy.
B) International trade increases overall economic efficiency.
C) International trade in services is not allowed.
D) International trade benefits all participants equally.

38) A U.S. citizen buys some toys made in China for his son. This is an example of a(n) ________.
A) export by China B) transfer payment to China
C) transfer payment to the U.S. D) import by China

39) Which of the following is true of tariffs?


A) Tariffs discourage international trade. B) Tariffs increase the volume of imports.
C) Tariffs decrease the prices of imports. D) Tariffs are special taxes levied on exports.

5
The table below shows the GDP per capita of four different countries:

40) Refer to the table above. Which country is likely to have the lowest percentage of children between 7 and 14
who are working?
A) Country A B) Country B C) Country C D) Country D

41) When Walmart sells toys imported from China:


A) the U.S. consumers pay in dollars while the workers who produce the toys are paid in yuan.
B) the U.S. consumers pay in yuan while workers who produce the toys are paid in dollars.
C) the U.S. consumers pay in yuan and the workers who produce the toys are also paid in yuan.
D) the U.S. consumers pay in dollars and the workers who produce the toys are also paid in dollars.

42) One dollar could be exchanged for 55 rupees in 2013 and for 60 rupees in 2014. This implies that the:
A) rupee appreciated in 2014.
B) nominal exchange rate did not change in 2014.
C) real exchange rate did not change in 2014.
D) dollar appreciated in 2014.

43) Assuming that one dollar trades for 50 rupees, what is the dollar cost of 750 rupees?
A) $15 B) $75 C) $50 D) $5

44) If the government of a country does not intervene in the foreign exchange market, then the country is said to
have a:
A) nominal exchange rate system. B) flexible exchange rate system.
C) fixed exchange rate system. D) managed exchange rate system.

45) The dollar demand curve in the foreign exchange market is:
A) downward sloping. B) vertical.
C) upward sloping. D) horizontal.

46) Everything else equal, an appreciation of the dollar against the yuan:
A) will lead to a decrease in the quantity of dollars demanded.
B) will lead to an increase in the quantity of dollars demanded.
C) will not affect the quantity of dollars demanded.
D) can either lead to an increase or a decrease in the quantity of dollars demanded depending on the
magnitude of the appreciation.

47) Which of the following is most likely to cause a rightward shift in the demand curve for dollars in exchange
of the Chinese yuan?
A) A decrease in the demand for U.S. products in China
B) An increase in the demand for U.S. products in China
C) An increase in the demand for Chinese products in the U.S.
D) A decrease in the demand for Chinese products in the U.S.

6
48) If a country wants to keep a foreign currency overvalued against the domestic currency:
A) it will buy both the foreign and domestic currency.
B) it will sell both the foreign and domestic currency.
C) it will buy the domestic currency and sell the foreign currency.
D) it will buy the foreign currency and sell the domestic currency.

Suppose India borrows $10,000 from the U.S. at the beginning of 2012. The flexible exchange rate is 50 Indian rupees per
dollar.

49) Refer to the scenario above. The amount of the loan in rupees is ________.
A) 10,000 B) 30,000 C) 500,000 D) 50

50) Refer to the scenario above. If India wants to repay a lower sum of money to the U.S., it should:
A) peg the exchange rate below 50 rupees per dollar.
B) peg the exchange rate to 70 rupees per dollar.
C) peg the exchange rate to 60 rupees per dollar.
D) continue to use a flexible exchange rate regime.

You might also like