Name: ___________________________________________

 

Class:  Macroeconomics    (Unique 06198 S9 and 06199 S10 and 06219 S30)  

Exam 1      October 1 and 2, 2003

Versions A and B

 

Read these Instructions carefully!  You must follow them exactly!

I)   On your Scantron card you must print three things:

            1) Your full name clearly;

            2) The day and time your class meets (for example MWF 1:25);

            3) The number I have written in ink on the upper right corner of

                your copy of this test.  (This number tells me which version of the

                test you have.  Without it your test cannot be graded properly and

                you get no credit for your answers.)    

II)   Answer on your Scantron card, using a #2 pencil. 

III)  Warning:  SOME QUESTIONS MUST BE ANSWERED SEVERAL

       TIMES!  Such questions will begin with a phrase such as this: 

            (Repeat answer on Scantron lines 37, 38 and 39)

                        Remember to do it!

IV) You must turn in this printed exam along with your Scantron card.  Otherwise

      your score on this exam is "F". 

 

Questions:

 

      1.   (Repeat your answer on Scantron lines 23 and 24.)  An example of "derived demand" is,

            A)  the demand curve you are able to derive from analysis of the impact of own price on the demand for a product.

            B)   an increase in the demand for nails because of an increase in the demand for new houses.

            C)   an increase in the supply of dog food in response to an increase in the number of families who have dogs as pets.

            D)  none of the other answers.

            E)   the increased demand for oranges caused by a rise in the price of a substitute such as apples.

 

      2.   (Repeat your answer on Scantron lines 25 and 26.)  If money did not exist in a modern economy,

            A)  production would be much lower and the average person would be extremely poor.

            B)   specialization and the division of labor could be carried to a much higher level, resulting in a much more smoothly functioning economy.

            C)   the world would not go around.

            D)  barter would be extremely rare.

            E)   none of the other answers.

 

      3.   (Repeat your answer on Scantron lines 27 and 28.)  Unlike an increase in the "quantity demanded" of a good, an increase in demand for a good

            A)  can be caused by a reduction in the price of an input used to produce the good.

            B)   can be caused by a decline in the "own price" of that good.

            C)   can be caused by an increase or decrease in the incomes of customers. 

            D)  can be caused by a change in the price of a substitute for the good.

            E)   both c. and d.

 

      4.   If foreign exchange traders expect the dollar to depreciate but the economic fundamentals (trade-currency ratios) suggest that it will appreciate, the dollar is likely to:

            A)  depreciate in the short run and the long run.

            B)   appreciate in the short run and the long run.

            C)   depreciate in the short run but appreciate in the long run.

            D)  appreciate in the short run but depreciate in the long run.

 

      5.   The system that exists when governments stand ready to buy and sell currencies at a particular exchange rate is called a:

            A)  partially flexible exchange rate system.

            B)   flexible exchange rate system.

            C)   fixed exchange rate system.

            D)  gold standard.

 

      6.   A country whose government does not intervene in the foreign exchange market has a:

            A)  partially flexible exchange rate.

            B)   flexible exchange rate.

            C)   fixed exchange rate.

            D)  gold standard.

 

      7.   (Repeat your answer on Scantron lines 29 and 30.)  The supply of leather jackets would be expected to increase as a result of:

            A)  an decrease in the cost of producing leather jackets.

            B)   an increase in the price of leather jackets.

            C)   an increase in the popularity of leather jackets.

            D)  an increase in the demand for leather jackets.

            E)   both B) and C) are correct.

 

      8.   (Answer here and also on Scantron lines 31 and 32.) Which of the following would be expected to cause an increase in the supply of fax machines?

            A)  An increase in the number of business firms demanding fax machines.

            B)   An increase in the price of fax machines.

            C)   A decrease in the cost of manufacturing fax machines.

            D)  Both B and C.

 

Use the following to answer question 9:

 

Current prices in two countries, Europa and Goofonia                                             

(The money of Goofonia is called the goofus, and the money of Europa is called the euro.  Prices in each country are expressed in its local currency.)                                        

                                                Good 1            Good 2            Good 3            Good 4

Europa prices (in euros)           10         1          20        400

Goofonia prices (in goofuses)   20         4          60        400

 

      9.   (Repeat your answer on Scantron lines 33, 34 and 35.)  The numbers in the table represent current prices of four goods in two different nations, Europa and Goofonia.  (If you care (and I hope you don't), each price is expressed in the local currency, which is the "euro" in Europa and the "goofus" in Goofonia.) 

            A)  Europa should definitely import good 2, and Goofonia should definitely import good 4.

            B)   Europa should definitely export good 3 and Goofonia should definitely export good 1.

            C)   As trade builds, opportunity costs in the two countries will tend to become more and more equal, and therefor international trade will expand only so far.

            D)  Both A and C are correct.

            E)   Both B and C are correct.

 

Use the following to answer question 10:

 

 

     10.   Refer to the graph above.  The slope of the line is:

            A)  0.

            B)   1.

            C)   3.

            D)  infinity.

 

     11.   A line is horizontal if its slope is:

            A)  -1.

            B)   0.

            C)   1.

            D)  infinite.

 

     12.   __________ studies how the economy does in fact work while __________ studies what the goals of an economy should be.

            A)  Positive economics; normative economics

            B)   Normative economics; positive economics

            C)   Macroeconomics; microeconomics

            D)  Microeconomics; macroeconomics

 

     13.   (Repeat your answer on Scantron lines 36, 37 and 38.)  The Wealth of Nations was written by:

            A)  Adam Smith

            B)   J.S. Marshall

            C)   Leon Walras

            D)  Karl Marx.

 

     14.   (Repeat your answer on Scantron line 39.)  If you choose to answer this question, an economist is likely to infer that:

            A)  your benefits of answering are lower than your opportunity costs of answering.

            B)   you know it is always valuable to answer questions on exams.

            C)   your opportunity costs of answering are lower than the benefits of answering.

            D)  your opportunity costs of answering the question is zero.

            E)   two of the other answers are correct.

 

     15.   (Repeat your answer on Scantron lines 40 and 41.)  If it takes you two hours to make a rational decision, and the opportunity cost of each hour is $100, then:

            A)  you will always make rational decisions.

            B)   you will make rational decisions only if the benefit from doing so exceeds $100.

            C)   you will make rational decisions only if the benefit from doing so exceeds $200.

            D)  you will never make rational decisions.

 

     16.   (Repeat your answer on Scantron line 42.)  When your wages fall:

            A)  the opportunity cost of an hour of work decreases.

            B)   the opportunity cost of an hour of leisure stays the same.

            C)   the cost of working increases.

            D)  the opportunity cost of an hour of leisure decreases.

 

     17.   (Repeat your answer on Scantron lines 43 and 44.)  Deion Sanders is a two sport athlete who plays both pro football and baseball. He could earn $5,000,000 playing either. Troy Aikman is also a two sport athlete who plays both football and auto racing. He could earn $6,000,000 playing football or $1,000,000 racing cars. Garo Yepremian can play both football and soccer. He could earn $1,000,000 playing football or $500,000 playing soccer. Assuming that all three men have only two options for work, and can only pursue one sport full-time, who has the highest opportunity cost of not playing football?

            A)  Deion Sanders

            B)   Troy Aikman

            C)   Garo Yepremian

            D)  their opportunity costs are the same

 

Use the following to answer question 18:

 

 

     18.   Refer to the graph above.  Suppose a country is plagued by political unrest and strikes which disrupt all sectors of its economy.  If the political unrest and strikes end, which of the following shifts explains what would most likely happen to the country's production possibility curve?

            A)  A

            B)   B

            C)   C

            D)  D

 

     19.   One purpose of the IMF is to

            A)  channel low-interest loans to developing countries to foster economic growth.

            B)   work out repayment plans for developing countries with large international debts.

            C)   promote international economic cooperation among the leading industrial democracies.

            D)  negotiate trade agreements between nations.

 

     20.   (Repeat your answer on Scantron lines 45 and 46.)  Consider each of the following statements about international economics.

            1)  The exchange rate will tend to equal the trade currency ratios of internationally traded goods and claims.

            2)  The foreign exchange markets exist because international exporters and importers wish to specialize in either exporting or importing, but not both.

            3)  Suppose that the trade-currency ratios for internationally traded goods, internationally traded claims, and the exchange rate, all start out equal to 2 Pesos per Lira.  Suppose next that an economic shock increases the trade-currency ratio for goods to 2.2 and also reduces the trade-currency ratio for claims to 1.8.  Then the exchange rate is probably going to quickly rise toward 2.2 rather than decline toward 1.8. 

Choose the best answer from the following:

            A)  Only statements 1 and 2 are true.

            B)   Statements 1, 2 and 3 all are true.

            C)   Only statements 1 and 3 are true.

            D)  Only statements 2 and 3 are true.

            E)   Only statement 1 is true.

 

     21.   (Repeat your answer on Scantron lines 47 and 48.)  Consider each of the following statements about international economics.

            1)  Based on what was said in lecture, if a small country trades with a large country, the small country will capture a larger share of the pareto gains from trade than the large country because prices change more in the small country.

            2)  Even if a country is experiencing pareto gains from international trade, this does not mean that everyone in that country in fact is benefiting from the international trade.

            3)  If some event occurs which causes no changes except that Joe gains $100, Fred loses $50 and Suzy loses $40, an economist would say the event has created a pareto gain even though two people are worse off and only one person is better off.

 

            A)  None of the statements 1, 2 or 3 are true.

            B)   All of statements 1, 2 and 3 are true.

            C)   Only 2 is true.

            D)  Only 3 is true.

            E)   Only 2 and 3 are true.

 

     22.   (Repeat your answer on Scantron lines 49 and 50.)  Consider each of the following statements about international economics.

            1)  It is very common for a nation to run a balance of payments surplus or deficit.

            2)  If a country has a current account surplus, then it also must have a capital account deficit.

            3)  When claims are being exported by a country, this is called a capital inflow.

 

            A)  Statements 1, 2 and 3 are all true.

            B)   Only statements 1 and 2 are true.

            C)   Only statements 1 and 3 are true.

            D)  Only statements 2 and 3 are true.

            E)   None of statements 1, 2 and 3 are true.

 

 

Answer Key -- F03 Ex1A

 

      1.   B          an increase in the demand for nails because of an increase in the demand for new houses.

LO: (None)

Difficulty: Easy

Page: (None)

Source: (None)

            Origin:  GTA Questions....2

      2.   A         production would be much lower and the average person would be extremely poor.

LO: (None)

Difficulty: Easy

Page: (None)

Source: (None)

            Origin:  GTA Questions....3

      3.   E          both c. and d.

LO: (None)

Difficulty: (None)

Page: (None)

Source: (None)

            Origin:  GTA Questions....7

      4.   C          depreciate in the short run but appreciate in the long run.

LO: 16-2

Difficulty: Medium

Page: 379

Source: New

            Origin:  Chapter 16: Open Economy Macro.......67

      5.   C          fixed exchange rate system.

LO: 16-3

Difficulty: Easy

Page: 380

Source: Old

            Origin:  Chapter 16: Open Economy Macro.......71

      6.   B          flexible exchange rate.

LO: 16-3

Difficulty: Easy

Page: 385

Source: New

            Origin:  Chapter 16: Open Economy Macro.......72

      7.   A         an decrease in the cost of producing leather jackets.

LO: (None)

Difficulty: (None)

Page: (None)

Source: (None)

            Origin:  Cool Questions Micro For Ex1....51

      8.   C          A decrease in the cost of manufacturing fax machines.

LO: (None)

Difficulty: (None)

Page: (None)

Source: (None)

            Origin:  Cool Questions Micro For Ex1....52

      9.   D         Both A and C are correct.

LO: (None)

Difficulty: (None)

Page: (None)

Source: (None)

            Origin:  Cool Questions Micro For Ex1....102

     10.   D         infinity.

LO: 1-A

Difficulty: Easy

Page: 23

Source: Revised

            Origin:  Cool Questions Micro For Ex1....100

     11.   B          0.

LO: 1-A

Difficulty: Easy

Page: 23

Source: Revised

            Origin:  Cool Questions Micro For Ex1....99

     12.   A         Positive economics; normative economics

LO: 1-6

Difficulty: Medium

Page: 16

Source: Revised

            Origin:  Cool Questions Micro For Ex1....98

     13.   A         Adam Smith

LO: 1-4

Difficulty: Hard

Page: 10

Source: Old

            Origin:  Cool Questions Micro For Ex1....97

     14.   C          your opportunity costs of answering are lower than the benefits of answering.

LO: 1-3

Difficulty: Hard

Page: 9

Source: New

            Origin:  Cool Questions Micro For Ex1....94

     15.   C          you will make rational decisions only if the benefit from doing so exceeds $200.

LO: 1-3

Difficulty: Medium

Page: 9

Source: New

            Origin:  Cool Questions Micro For Ex1....92

     16.   D         the opportunity cost of an hour of leisure decreases.

LO: 1-3

Difficulty: Hard

Page: 8

Source: Old

            Origin:  Cool Questions Micro For Ex1....91

     17.   B          Troy Aikman

LO: 1-3

Difficulty: Medium

Page: 8

Source: Old

            Origin:  Cool Questions Micro For Ex1....90

     18.   C          C

LO: 2-4

Difficulty: Medium

Page: 38

Source: Old

            Origin:  Cool Questions Micro For Ex1....83

     19.   B          work out repayment plans for developing countries with large international debts.

LO: 3-8

Difficulty: Medium

Page: 74

Source: Revised

            Origin:  Cool Questions for Exam 1....58

     20.   A         Only statements 1 and 2 are true.

LO: (None)

Difficulty: (None)

Page: (None)

Source: (None)

            Origin:  GTA Questions....43

     21.   B          All of statements 1, 2 and 3 are true.

LO: (None)

Difficulty: (None)

Page: (None)

Source: (None)

            Origin:  GTA Questions....42

     22.   D         Only statements 2 and 3 are true.

LO: (None)

Difficulty: (None)

Page: (None)

Source: (None)

            Origin:  GTA Questions....41