Posted: May 13th, 2018

ECO561 ECO/561 FINAL EXAM NEW CLASSROOM 1

1) Suppose that in the clothing market, production
costs have fallen, but the equilibrium price and quantity purchased have both
increased. Based on this information you can conclude that
A. the supply of clothing has grown faster than the
demand for clothing
B. demand for clothing has grown faster than the
supply of clothing
C. the supply of and demand for clothing have grown
by the same proportion
D. there is no way to determine what has happened to
supply and demand with this information
2) Camille’s Creations and Julia’s Jewels both sell
beads in a competitive market. If at the market price of $5, both are running
out of beads to sell (they can’t keep up with the quantity demanded at that
price), then we would expect both Camille’s and Julia’s to:
A. raise their price and reduce their quantity
supplied
B. raise their price and increase their quantity
supplied
C. lower their price and reduce their quantity
supplied
D. lower their price and increase their quantity
supplied
3) In which of the following industries are
economies of scale exhausted at relatively low levels of output?
A. Aircraft production
B. Automobile manufacturing
C. Concrete mixing
D. Newspaper printing
4) The average cost curves (AVC and ATC) should be
minimized
A. where MC = ATC and MC = AVC
B. where FC = ATC and FC = AVC
C. where TC starts to increase at a faster rate
D. where ATC = AVC
5) If the wage rate increases,
A. a purely competitive producer will hire less
labor, but an imperfectly competitive producer will not
B. an imperfectly competitive producer will hire
less labor, but a purely competitive producer will not
C. a purely competitive and an imperfectly
competitive producer will both hire less labor
D. an imperfectly competitive producer may find it
profitable to hire either more or less labor
6) The real wage will rise if the nominal wage
A. falls more rapidly than the general price level
B. increases at the same rate as labor productivity
C. increases more rapidly than the general price
level
D. falls at the same rate as the general price level
7) Construction workers frequently sponsor political
lobbying in support of greater public spending on highways and public
buildings. One reason they do this is to
A. restrict the supply of construction workers
B. increase the elasticity of demand for
construction workers
C. increase the demand for construction workers
D. increase the price of substitute inputs
8) Paying an above-equilibrium wage rate might reduce
unit labor costs by
A. permitting the firm to attract lower-quality
labor
B. increasing the cost to workers of being fired for
shirking
C. increasing voluntary worker turnover
D. increasing the supply of labor
9) A good real-world example of monopolistic
competition is
A. lawyers
B. gas stations
C. Time Warner Cable
D. groceries stores
10) An industry comprising a small number of firms,
each of which considers the potential reactions of its rivals in making
price-output decisions, is called
A. monopolistic competition
B. oligopoly
C. pure monopoly
D. pure competition
11) Price is constant or given to the individual
firm selling in a purely competitive market because
A. the firm’s demand curve is downward sloping
B. of product differentiation reinforced by
extensive advertising
C. each seller supplies a negligible fraction of
total supply
D. there are no good substitutes for its product
12) The most important pricing strategy for a
perfectly competitive firm is
A. minimizing cost
B. maximizing sales
C. product differentiation
D. advertising
13) Which of the following is a nonprice barrier of
entry?
A. Huge sunk cost
B. Discounts
C. Product differentiation
D. Advertising
14) A third-degree price discrimination can be
applied to which of the following market structures?
A. A monopoly
B. An oligopoly
C. A monopolistic competition
D. A perfect competition
15) Investing in R&D is more likely to occur in
markets where
A. firms have monopoly power protected by regulatory
barriers
B. markets are closely competitive markets with
close to zero economic profits
C. markets are oligopoly markets with strong
collusion agreements
D. markets are monopolistic competitive markets
16) All economies of scale are achieved at the
minimum of
A. average total cost
B. total cost
C. average variable cost
D. average fixed cost
17) Inflation is undesirable because it
A. arbitrarily redistributes real income and wealth
B. invariably leads to hyperinflation
C. usually is accompanied by declining real GDP
D. reduces everyone’s standard of living in the same
proportion
18) An economy’s aggregate demand curve shifts
leftward or rightward by more than changes in initial spending because of the
A. net export effect
B. wealth effect
C. real-balances effect
D. multiplier effect
19) Suppose productivity rises in a particular
economy, but wages stay the same. Other things equal,
A. the demand curve will shift leftward
B. the supply curve will shift rightward
C. the supply curve will shift leftward
D. expenditures curve will shift rightward
20) If personal taxes were decreased and resource
productivity increased simultaneously, the equilibrium
A. output would rise
B. output would fall
C. price level would necessarily fall
D. price level would necessarily rise
21) Expansionary fiscal policy is so named because
it
A. involves an expansion of the nation’s money
supply
B. can only be attained by expanding government
consumption
C. is aimed at achieving greater price stability
D. can motivate an expansion of real GDP
22) Suppose the price level is fixed, the MPC is .5,
and the GDP gap is a negative $100 billion. To achieve full-employment output
(exactly), government should
A. increase government expenditures by $100 billion
B. increase government expenditures by $50 billion
C. reduce taxes by $50 billion
D. reduce taxes by $200 billion
23) GDP understates the value of output produced by
an economy because it
A. includes transactions that do not take place in
organized markets, such as home cooked meals
B. includes environmental degradation caused by increased
output production
C. excludes value added from the underground
economy, such as tips taken under the table
D. excludes the value of the wages and benefits of
government employee
24) Other things equal, a decrease in the real
interest rate will
A. shift the investment demand curve to the right
B. shift the investment demand curve to the left
C. move the economy upward along its existing
investment demand curve
D. move the economy downward along its existing
investment demand curve
25) Other things equal, a decrease in corporate
income taxes will
A. decrease the market price of real capital goods
B. have no effect on the location of the investment
demand curve
C. shift the investment demand curve to the right
D. shift the investment demand curve to the left
26) Inflation in U.S. prices will cause
A. an increase in the demand for U.S. dollars and an
appreciation in the exchange rate
B. an increase in the supply of U.S. dollars and a
depreciation in the exchange rate
C. a decrease in the demand for U.S. dollars and a
depreciation in the exchange rate
D. a decrease in the supply of U.S. dollars and an
appreciation in the exchange rate
27) The quantity theory of money states that
A. the money supply divided by the velocity of money
equals the price level divided by real output
B. the money supply times the velocity of money
equals the price level times real output
C. the money supply times the price level equals
real output divided by the velocity of money
D. the money supply times the price level equals real
output times the velocity of money
28) Suppose that U.S. prices rise 4% over the next
year while prices in Mexico rise 6%. According to the purchasing power parity
theory of exchange rates, what should happen to the exchange rate between the
dollar and the peso?
A. The dollar should depreciate.
B. The peso should appreciate.
C. The peso should depreciate.
D. The dollar will be revalued.
29) A rise in the domestic interest rate leads to
capital
A. outflows and exchange rate appreciation
B. outflows and exchange rate depreciation
C. inflows and exchange rate depreciation
D. inflows and exchange rate appreciation
30) A firm under monopolistic competition will earn
A. a positive economic profit as it has some
monopoly power
B. zero economic profit as it sets P = MC
C. zero economic profit as its P = ATC
D. a positive economic profit as it sets MC = MR
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