ECON 312 Final Exam

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ECON 312 Final Exam

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.


Question 2. 2. (TCO1) Which of the following is considered to be an entrepreneur? (Points : 4)

Self-employed person
MBA graduate hired by a firm to be its CEO
Production-line worker
Customer of a firm


Question 3. 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.


Question 4. 4. (TCO1) In a command system (Points : 4)

self-interest guides and commands individuals to pursue actions that lead them toward achieving their goals.
the head of each family decides what to do with the family’s resources.
the government makes production and allocation decisions.
market traders command what outputs are produced and how they are allocated.


Question 5. 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.

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Question 6. 6. (TCO 2) What combination of changes would most likely decrease the equilibrium price? (Points : 4)

When supply decreases and demand increases
When demand increases and supply increases
When demand decreases and supply decreases
When supply increases and demand decreases


Question 7. 7. (TCO 2) Chuck Grim has a price elasticity of demand for beer of 1.2.  Suppose that the price of beer is increased by 10 percent.  What will happen to the total amount Chuck spends on beer? (Points : 4)

It will not change.
It will decrease.
It will increase.
It is impossible to tell.


Question 8. 8. (TCO 2) Which of the following factors will make the demand for a product relatively elastic? (Points : 4)

There are few substitutes.
The time interval considered is long.
The good is considered a necessity.
Purchases of the good require a small portion of consumers’ budgets.


Question 9. 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.


Question 10. 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.


Question 11. 11. (TCO 3) In the kinked demand model of oligopoly, if one firm increases its price, the most likely reaction of the other firms will be to (Points : 4)

decrease their prices.
increase their prices.
not change their prices.
reduce their quantity.


Question 12. 12. (TCO 3) In the short run (Points : 4)

a firm cannot vary its output level.
all factors of production can be varied.
a firm can change its fixed inputs.
output is raised or reduced by changing the levels of variable inputs.


Question 13. 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.


Question 14. 14. (TCO 4) Official unemployment rate statistics may (Points : 4)

overstate the amount of unemployment by including part-time workers in the calculations.
understate the amount of unemployment by excluding part-time workers in the calculations.
overstate the amount of unemployment because of the presence of “discouraged” workers who are not actively seeking employment.
understate the amount of unemployment because of the presence of “discouraged” workers who are not actively seeking employment.


Question 15. 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.


Question 16. 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.


Question 17. 17. (TCO 6) The goal of expansionary fiscal policy is to increase (Points : 4)

the price level.
aggregate supply.
real GDP.


Question 18. 18. (TCO 6) Refer to the figure.  The economy is at equilibrium at Point B.  What would expansionary fiscal policy do?
Graph Description(Points : 4)

Shift aggregate demand from AD2 to AD1
Shift aggregate demand from AD2 to AD3
Move the economy from Point B downward along AD2
Move the economy from Point B upward along AD2


Question 19. 19. (TCO 6) The American Recovery and Reinvestment Act of 2009 is a clear example of (Points : 4)

nondiscretionary expansionary fiscal policy.
nondiscretionary contractionary fiscal policy.
discretionary contractionary fiscal policy.
discretionary expansionary fiscal policy.


Question 20. 20. (TCO 6) If people expected that a tax cut was temporary, then this fiscal policy’s effect on the economy will tend to be (Points : 4)

the exact opposite of what was intended.
as the multiplier effect would predict.



1. (TCO 5) An increase in aggregate demand is most likely to be caused by a decrease in (Points : 4)

the wealth of consumers.
consumer and business confidence.
expected returns on investment.
the tax rates on household income.


Question 2. 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.


Question 3. 3. (TCO 5) If the price of crude oil decreases, then this event would most likely (Points : 4)

decrease aggregate supply in the U.S.
increase aggregate supply in the U.S.
increase aggregate demand in the U.S.
decrease aggregate demand in the U.S.


Question 4. 4. (TCO 5) Disinflation refers to a situation where (Points : 4)

price level falls, but the rate of inflation does not.
Price level rises, but the rate of inflation does not.
the rate of inflation falls, but the price level does not.
the rate of inflation rises, but the price level does not.


Question 5. 5. (TCO 6) With an MPS of .3, the MPC will be (Points : 4)

1 – .3.
.3 – 1.


Question 6. 6. (TCO 7) As of January 2010, slightly more than half of the money supply (M1) was in the form of (Points : 4)

checkable deposits.
gold coins and bars.
savings deposits.


Question 7. 7. (TCO 7) Which of the following “backs” the value of money in the United States? (Points : 4)

Gold stored in the Federal Reserve Bank of New York
Acceptability of it as a medium of exchange
Willingness of foreign government to hold U.S. dollars
Size of the budget surplus in the U.S. government


Question 8. 8. (TCO 7) How many members can serve on the Board of Governors of the Federal Reserve System? (Points : 4)



Question 9. 9. (TCO 7) Which group is responsible for the policy of changing the money supply? (Points : 4)

Federal Open Market Committee
Office of Management and Budget
Thrift Advisory Council
Federal Advisory Council


Question 10. 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.


Question 11. 11. (TCO 7) The establishment of a federal deposit insurance program resulted from the (Points : 4)

establishment of the Federal Reserve System in 1913.
speculation during World War I.
stock market crash of 1987.
bank panics of 1930-1933.


Question 12. 12. (TCO 7) Which monetary policy tool was created in response to the financial crisis of 2007-2008? (Points : 4)

Discount rate
Term auction facility
Target federal funds rate
Open market operations


Question 13. 13. (TCO 7) The tools of monetary policy for altering the reserves of commercial banks are the (Points : 4)

tax rate, transfer payments, and level of government spending.
consumer price index, inflation, and unemployment rate.
public debt, budget surplus, budget deficit, and interest rates.
discount rate, reserve ratio, open market operations, and term auction facility.


Question 14. 14. (TCO 8) Which nation has greatly increased its role in international trade in recent years? (Points : 4)



Question 15. 15. (TCO 8) Nation X has a comparative advantage in the production of a product compared to Nation Y when (Points : 4)

it imposes a tariff on the importation of the product.
its production possibilities curve expands, allowing it to produce more of the product.
it is achieving full employment and is producing the maximum amount of the product.
it has the lower domestic opportunity cost of producing the product.


Question 16. 16. (TCO 8) A tariff is a (Points : 4)

price ceiling.
quantity limit.


Question 17. 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.


Question 18. 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.


Question 19. 19. (TCO 8) About how many nations belonged to the World Trade Organization as of 2010? (Points : 4)



Question 20. 20. (TCO 9) French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be (Points : 4)

supplying dollars and also supplying euros in the foreign exchange market.
demanding dollars and also demanding euros in the foreign exchange market.
supplying dollars and demanding euros in the foreign exchange market.
supplying euros and demanding dollars in the foreign exchange market.



1. (TCO 9) Which of the following appears as a positive item on the balance of payments account for the United States? (Points : 4)

U.S. government sending aid to natural disaster victims in Asia
American tourists spending money in the other countries
Buying of U.S. Treasury bonds by a foreign bank
Payment of stock dividends by U.S. firms to foreign shareholders


Question 2. 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.


Question 3. 3. (TCO 9) If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is (Points : 4)



Question 4. 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)



Question 5. 5. (TCO 9) Proponents of the managed floating exchange rate system argue that it has (Points : 4)

added the volatility needed by the exchange rate market.
been effective because it is a “nonsystem” without fixed rules.
been sufficiently flexible to weather major economic turbulence.
resolved major problems in balance of payments surpluses and deficits.


 (TCO 8) a) Define the four basic types of trade barriers.  b) Who gains and who loses from a protective tariff?  Explain. (Points : 40)


(TCO 6) a) Explain the tools used to pursue expansionary and contractionary fiscal policy.  During which phases of the business cycle would each be appropriate?  b) Explain what is meant by a built-in stabilizer and give two examples.



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