Exam 1          Student Name: __________________________________
Macroeconomics;   Syn 17216-Sec 030 MWF 10
Exam Date: Monday 9-20-04

Instructions:
I)    On your Scantron card you must print three things:
1) Print your full name clearly;
2) Print the day and time of your section (for example TTh 10:35);
3) Print the number I have written in ink from 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 this answer on lines 37, 38 and 39.
                 Remember to do it!
IV)   You must turn in this written exam along with your Scantron card to get credit for your Exam score.
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Questions:


1.
(Repeat your answer on Scantron lines 23, 24 and 25.) Choose the best answer. Suppose it is true that because of advances in productivity, farmers now can produce any amount of agricultural goods at a far lower total cost than ever before. But suppose, also, that the demand curve for agricultural goods is almost vertical. Use supply/demand curve analysis to evaluate the following statements, then select the best answer from A) through E) below. [Hint: (total revenue/year) = (price/unit) x (quantity per year)]
1) Total annual revenue earned by farmers will increase, thanks to their increase in productivity.
2) Total agricultural production will remain almost unchanged.
3) Total annual revenue earned by farmers will decrease, thanks to their increase in productivity.
4) Total agricultural production will increase sharply because of the reduction in prices of agricultural goods.
5) Total annual revenue earned by farmers will remain unchanged, thanks to their increase in productivity.
A.
Only statements 1 and 4 are correct.
B.
Only statements 2 and 3 are correct.
C.
Only statements 3 and 4 are correct.
D.
Only statements 2 and 5 are correct.
E.
Only statements 4 and 5 are correct.


2.
The largest percentage of businesses are:
A.
partnerships.
B.
sole proprietorships.
C.
corporations.
D.
nonprofit companies.


3.
(Repeat answer on Scantron lines 26 and 27.) Evaluate the following statements and then choose from A) through E)
1) The Wealth of Nations was written by Milton Freidman.
2) The Wealth of Nations was written by John Maynard Keynes.
3) The Wealth of Nations was published just after the Great Depression.
4) Adam Smith is a famous economist who wrote in the mid 1800's.
A.
None of statements 1, 2, 3 or 4 are true.
B.
Statements 2 and 3 are true.
C.
Statement 4 is the only statement which is true.
D.
Only statement 1 is true.
E.
Only statement 3 is true.



Reference: Figure 2-11

4.
(Repeat answer on Scantron line 28.) Refer to the graph above. Given the resources and technology available to this economy, it can produce at points:
A.
A, B, and C.
B.
A, B, and D.
C.
A, C, and D.
D.
B, C, and D.


5.
(Repeat answer on Scantron lines 29 and 30.) Suppose the sunk cost of obtaining your college degree is $50,000, the marginal cost is $175,000, and the marginal benefit is $200,000. Marginal analysis implies that you:
A.
should complete your degree.
B.
should not complete your degree.
C.
should complete your degree only if the marginal cost is equal to or less than $150,000.
D.
obtain more information before making a decision.


Reference: Ch Demand vs Q Dmnded

6.
(Repeat your answer on Scantron lines 31 and 32.) Refer to the graph above. Evaluate statements 1 through 4 and then select the answer from A) through E):
1)     Moving from point E to point F is accompanied by an increase in demand.
2)     Moving from point E to point F is accompanied by a decrease in demand.
3)     Moving from point E to point C is accompanied by no change in demand.
4)   Moving from point E to point C is accompanied by an increase in demand.    
A.
Only statements 1 and 4 are true.
B.
Only statement 1 is true.
C.
Only statement 4 is true.
D.
Only statements 2 and 3 are true.
E.
None of these statements are true because all of these moves actually are changes in quantity demanded, not changes in demand..


Reference: Figure 4-19

7.
(Repeat answer on Scantron line 33.) Referring to the above diagram of an initial market equilibrium, if equilibrium moved to somewhere in area E, we could be sure that:
A.
demand decreased and supply increased.
B.
demand decreased more than supply decreased.
C.
demand increase and supply decreased.
D.
both demand and supply increased.
E.
demand increased more than supply decreased.


8.
One of the most important differences between mercantilism and capitalism is that mercantilism:
A.
had stronger government intervention in economic life.
B.
expected tradition to answer the central coordination problems.
C.
relied more on the "invisible hand" to coordinate economic decisions.
D.
relied less on state intervention to promote economic growth.


9.
(Repeat your answer on Scantron lines 34 and 35.) 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.


10.
(Repeat your answer on Scantron lines 36 and 37.) 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.


11.
(Repeat answer on Scantron line 38.) In the factor market:
A.
businesses supply goods and services to households and government.
B.
government provides income support to households unable to supply factors of production to businesses.
C.
households supply labor and other factors of production to businesses.
D.
households purchase goods and services from businesses.


12.
Karl Marx criticized capitalism because he believed that:
A.
a capitalist system ignored traditional class roles.
B.
the efficient allocation of resources was not a worthwhile goal.
C.
the proletariat class exploited the capitalist class, who created all the value inherent in goods.
D.
the capitalist class exploited the proletariat class, who created all the value inherent in goods.


13.
(Repeat answer on Scantron lines 39 and 40.) Recently, the U.S. economy has:
A.
lost millions of jobs due to increased global competition.
B.
added millions of jobs in spite of increased global competition.
C.
experienced job losses and job gains in different sectors of the economy, but no net change in the number of jobs.
D.
experienced less and less global competition.


14.
(Repeat answer on Scantron lines 41 and 42.) What are the two largest sources of revenue for the federal government?
A.
Excise taxes and social insurance taxes and contributions
B.
Corporate income taxes and excise taxes.
C.
Individual income taxes and corporate income taxes.
D.
Individual income taxes and social insurance taxes and contributions.


15.
A business in which each owner is liable only to the extent of his or her own investment is called a:
A.
non-profit.
B.
sole proprietorship.
C.
partnership.
D.
corporation.


16.
Businesses are:
A.
sellers in factor markets and buyers in goods markets.
B.
buyers in factor markets and sellers in goods markets.
C.
sellers in both factor markets and goods markets.
D.
buyers in both factor markets and goods markets.


17.
(Repeat answer on Scantron line 43.) Which of the following agencies would be most likely to loan developing countries money to build a hydroelectric dam?
A.
The World Trade Organization.
B.
The World Bank.
C.
The International Monetary Fund.
D.
The Group of Eight.


18.
(Repeat answer on Scantron lines 44 and 45.) The Industrial Revolution:
A.
undermined the power of serfs and led to the downfall of feudalism.
B.
increased the power of merchants and gave rise to mercantilism.
C.
increased the power of capitalists and gave rise to capitalism.
D.
produced the Great Depression.


19.
(Repeat answer on Scantron line 46.) Government's role in a market economy includes all of the following except:
A.
providing a stable set of institutions and rules.
B.
providing public goods.
C.
correcting negative externalities.
D.
limiting competition.


20.
(Repeat answer on Scantron line 47.) The economic policy of leaving coordination of individuals' actions to the market is called:
A.
comparative advantage.
B.
laissez faire.
C.
government regulation.
D.
specialization.


21.
(Repeat your answer on Scantron line 48.) Choose the best answer if several are correct. When you produce corn, it is costly to produce small quantities
A.
but marginal costs decline at first as output rises, due to the benefits of specialization and the division of labor.
B.
but marginal costs rise further due to the principle of diminishing returns to scale and increasing marginal opportunity costs.
C.
but eventually, as output continues to increase, marginal cost begins to rise.
D.
Both A and C are correct.


22.
(Repeat your answer on Scantron lines 49 and 50.) Decide which of the following statements about "models" are correct, and then choose the best answer from among A) through E) below:
1)     Models are "abstract representations of reality", and therefore Picasso was a great model builder, since his paintings are "abstract representations of reality".
2)     The best model is the one which gets the correct answer.
3)     The best model is the one which is inexpensive and easy to use.
4)     Models are used extensively in physics and the other sciences, in economics and the other social sciences, and even in history and english. However, models are not often used in daily life because models are mainly used by intellectuals.
5)     Economic models are models which are inexpensive and economical to use.

Choose the best answer:
A.
Statement 2 is correct and statement 3 is false.
B.
Statement 1 is false and statements 2 and 3 are correct.
C.
Statements 2 and 4 are correct.
D.
None of the statements 1, 2, 3, 4 or 5 are correct.
E.
Statement 5 is correct and none of the others.


Answer Key

1. E
2. B
3. A
4. C
5. A
6. D
7. B
8. A
9. B
10. A
11. C
12. D
13. B
14. D
15. D
16. B
17. B
18. C
19. D
20. B
21. D
22. D