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Econ 2105 Principles of Macroeconomics
Sample Exam 3
For the following question(s), use the accompanying table.
Table 3-2
Labor Hours needed to make one unit of:
Quilts
Dresses
Helen
40
10
Carolyn
80
16
Amount produced in 160 hours:
Quilts
Dresses
4
16
2
10
____
1. Refer to Table 3-2. The opportunity cost of 1 quilt for Carolyn is
a. 5 dresses.
b. 4 dresses.
c. 3 dresses.
d. 2 dresses.
____
2. Refer to Table 3-2. The opportunity cost of 1 dress for Helen is
a. 1 quilt.
b. 1/2 quilt.
c. 1/4 quilt.
d. 4 quilts.
____
3. Refer to Table 3-2. Helen has a comparative advantage in
a. dresses and Carolyn has a comparative advantage in quilts.
b. quilts and Carolyn has a comparative advantage in dresses.
c. neither good and Carolyn has a comparative advantage in both goods.
d. both goods and Carolyn has a comparative advantage in neither good.
____
4. Comparative advantage is based on
a. capital costs.
b. labor costs.
c. dollar price.
d. opportunity costs.
____
5. Which of the following would NOT occur if each person specializes in the good for which they have a
comparative advantage?
a. Each person's production possibilities frontier will shift outward.
b. Total production in the economy will increase.
c. Everyone can be better off with specialization and trade.
d. The size of the economic pie will increase.
____
6. Economists generally support
a. trade restrictions.
b. government management of trade.
c. export subsidies.
d. free international trade.
____
7. If the world price of a product is higher than a country's domestic price we know that country
a. should import that product.
b. should no longer produce that product.
c. has a comparative advantage in that product.
d. could benefit by imposing a tariff on that product.
1
____
8. When a co
ountry allowss free trade,
a. the do
omestic price will be greater than the world
w
price.
b. the do
omestic price will be lowerr than the wo
orld price.
c. the do
omestic price will equal th
he world pricee.
d. it doees not matter what
w
the worrld price is; th
he domestic prrice is the preevailing price.
____
9 Benefits frrom free trade include each of the follow
9.
wing EXCEPT
T
a. increaased variety of
o goods.
b. lowerr costs becausse of economiees of scale.
c. enhan
nced flow of ideas.
i
d. reducced competitio
on.
____
100. The world
d price of yo-y
yo's is $4.00 each.
e
The pre--trade price of yo-yo's in Taiwan is $3.50 each With free trade, in
the yo-yo market in Ta
aiwan consum
mers
a. and producers
p
willl both lose.
b. and producers
p
willl both benefitt.
c. will lo
ose and produ
ucers will ben
nefit.
d. will benefit
b
and prroducers will not be affecteed.
Figure 9-33
____
111. Refer to Figure
F
9-3. Co
onsumer surp
plus in Jamaicca before tradee is
a. $375.
b. $1,5000.
c. $2,2500.
d. $8,7000.
____
122. Refer to Figure
F
9-3. Th
he change in total
t
surplus in
i Jamaica beccause of tradee is
a. $625.
b. $865.
c. $1,3755.
d. $1,5000.
2
Figure 9-55
____
133. Refer to Figure
F
9-5. Th
he amount of revenue colleected by the government frrom the tariff is
a. $200.
b. $400.
c. $500.
d. $600.
Figure 9-111
____
144. Refer to Figure
F
9-11. Consumer
C
surrplus before trrade would be
a. $16000.
b. $24000.
c. $32000.
d. $36000.
____
155. Refer to Figure
F
9-11. Consumer
C
surrplus after trade would be
a. $16000.
b. $24000.
c. $32000.
d. $36000.
3
____
166. A tariff
a. lowerrs the price off the exported
d good below the world price.
b. keepss the price of the
t exported good the sam
me as the worlld price.
c. raisess the price of the
t imported good above the
t world pricce.
d. lowerrs the price off the imported
d good below
w the world prrice.
____
wn pillows. Th
he world pricee of these pilllows is $50. Turkey imposees a $7 tariff
177. Turkey is an importer of goose dow
on pillows. Turkey is a price-taker in the pillow market.
m
As a result
r
of the tariff
t
Turkish consumers of
o pillows willl
a. gain and
a Turkish producers
p
of pillows
p
will lo
ose.
b. lose and
a Turkish producers
p
of pillows
p
will gain.
c. gain and
a Turkish producers
p
of pillows
p
will gain.
g
d. lose and
a Turkish producers
p
of pillows
p
will lo
ose.
Figure 9-114
____
F
9-14. The
T amount off the quota is
188. Refer to Figure
a. 100 biirdhouses.
b. 200 biirdhouses.
c. 300 biirdhouses.
d. 400 biirdhouses.
____
199. Refer to Figure
F
9-14. The
T deadweig
ght loss as a reesult of the qu
uota would bee
a. $100.
b. $200.
c. $400.
d. $500.
____
200. Refer to Figure
F
9-14. The
T gain as a result
r
of the quota to licensse holders wh
ho import bird
dhouses wou
uld be
a. $100.
b. $200.
c. $400.
d. $500.
____
211. Import qu
uotas and tariiffs have each
h of the follow
wing in comm
mon EXCEPT
a. total surplus
s
falls.
b. deadw
weight losses occur.
c. produ
ucer surplus increases.
i
d. reven
nue to governm
ment is raised
d.
____
222. When a co
ountry takes a unilateral ap
pproach to frree trade it
a. remov
ves trade resttrictions on itss own.
b. reducces its trade reestrictions wh
hile other countries do the same.
c. does not
n remove trrade restrictio
ons no matterr what other countries
c
do.
d. is willling to trade with
w multiplee countries at once.
4
____
23. Senator Blowhard represents a state that has some textile firms in it. He wants to impose tariffs on all imported
textiles. Which of the following is the least likely consequence of such tariffs?
a. Domestic textile buyers will lose consumer surplus, have less variety, and will pay higher
prices.
b. Domestic textile sellers will gain producer surplus.
c. Domestic textile sellers will have a higher rate of technological advance.
d. Domestic textile sellers will have more market power.
____
24. Critics of free trade sometimes argue that allowing imports from foreign countries costs jobs domestically. An
economist would argue that
a. foreign competition may cause unemployment in import-competing industries, but the
effect is temporary because other industries, especially exporting industries, will be
expanding.
b. foreign competition may cause unemployment in import-competing industries, but the
increase in consumer surplus due to free trade is more valuable than the lost jobs.
c. the critics are correct, so countries must protect their industries with tariffs or quotas.
d. foreign competition may cause unemployment in import-competing industries, but the
increase in the variety of goods consumers can choose from is more valuable than the lost
jobs.
____
25. Which of the following is correct?
a. Lenders sell bonds and borrowers buy them.
b. Long-term bonds usually pay a lower interest rate than do short-term bonds because longterm bonds are riskier.
c. Junk bonds refer to bonds that have been resold many times.
d. None of the above are correct.
____
26. Assuming that the bonds below have the same term and principal and that the state or local government which
issues the municipal bond has a good credit rating, which list has bonds ordered from the one that pays the most
interest to the one that pays the least interest?
a. corporate bond, municipal bond, U.S. government bond
b. corporate bond, U.S. government bond, municipal bond
c. municipal bond, U.S. government bond, corporate bond
d. U.S. government bond, municipal bond, corporate bond
____
27. Municipal bonds pay a
a. low rate of interest because of their high-default risk and because the interest they pay is
subject to federal income tax.
b. low rate of interest because of their low-default risk and because the interest they pay is
not subject to federal income tax.
c. high rate of interest because of their high-default risk and because federal taxes must be
paid on the interest they pay.
d. high rate of interest because of their low-default risk and because the interest they pay is
not subject to federal income tax.
____
28. People who buy newly issued stock in a corporation such as Rockwood Pottery provide
a. debt finance and so become part owners of Rockwood.
b. debt finance and so become creditors of Rockwood.
c. equity finance and so become part owners of Rockwood.
d. equity finance and so become creditors of Rockwood.
5
____
29. Financial intermediaries are
a. the same as financial markets.
b. individuals who make a profits by buying a stock low and selling it high.
c. a more general name for financial assets such as stocks, bonds, and checking accounts.
d. financial institutions through which savers can indirectly provide funds to borrowers.
____
30. A mutual fund
a. is a financial market where small firms mutually agree to sell stocks and bonds to raise
funds.
b. is funds set aside by local governments to lend to small firms who want to invest in
projects that are mutually beneficial to the firm and community.
c. sells stocks and bonds on behalf of small and less known firms who would otherwise have
to pay high interest to obtain credit.
d. is an institution that sells shares to the public and uses the proceeds to buy a selection of
various types of stocks, bonds, or both stocks and bonds.
____
31. It is claimed that a secondary advantage of mutual funds is that
a. an investor can avoid investment charges and fees.
b. they give ordinary people access to loanable funds for investing.
c. they usually outperform stock market indexes.
d. they give ordinary people access to the skills of professional money managers.
____
32. If the tax revenue of the federal government exceeds spending, then the government
a. runs a budget deficit.
b. runs a budget surplus.
c. runs a national debt.
d. will increase taxes.
____
33. Fred is considering expanding his dress shop. If interest rates rise he is
a. less likely to expand. This illustrates why the supply of loanable funds slopes downward.
b. more likely to expand. This illustrates why the supply of loanable funds slopes upward.
c. less likely to expand. This illustrates why the demand for loanable funds slopes
downward.
d. more likely to expand. This illustrates why the demand for loanable funds slopes upward.
____
34. The supply of loanable funds slopes
a. upward because an increase in the interest rate induces people to save more.
b. downward because an increase in the interest rate induces people to save less.
c. downward because an increase in the interest rate induces people to invest less.
d. upward because an increase in the interest rate induces people to invest more.
____
35. Suppose that the government were to replace the income tax with a consumption tax. This would make the
interest rate
a. and investment increase.
b. and investment decrease.
c. increase and investment decrease.
d. decrease and investment increase.
____
36. Other things the same, countries that tax saving less will have
a. lower interest rates and higher investment than other countries.
b. lower interest rates and lower investment than other countries.
c. higher interest rates and higher investment than other countries.
d. higher interest rates and lower investment than other countries.
6
____
377. Suppose Congress
C
insttitutes an inveestment tax crredit. What would happen
n in the markeet for loanablee funds?
a. The in
nterest rate an
nd investmen
nt would fall.
b. The in
nterest rate an
nd investmen
nt would rise.
c. The in
nterest rate would
w
rise and
d investment would
w
fall.
d. None of the above is necessarily
y correct.
____
388. When thee government runs a budgeet deficit,
a. intereest rates are lo
ower than theey would be otherwise.
o
b. nation
nal saving is higher
h
than itt would be oth
herwise.
c. investtment is loweer than it wou
uld be otherw
wise.
d. All off the above are correct.
____
399. Interest raates and invesstment rise. Which
W
of the following
f
cou
uld explain theese changes?
a. the go
overnment ru
uns a larger deeficit
b. the go
overnment institutes an inv
vestment tax credit
c. the go
overnment replaces the inccome tax with
h a consumption tax
d. None of the above are correct.
Use the figure below fo
or the followiing question.
Figure 26--1
____
400. Refer to Figure
F
26-1. Which
W
of the graphs
g
in the figure above shows the efffects of institu
uting a nation
nal sales tax
and simulltaneously low
wering the in
ncome tax ratee?
a. graph
h1
b. graph
h2
c. graph
h3
d. None of the above are correct.
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A
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