Post Eco201 final exam 2015

Question 1
When two individuals voluntarily trade,

both people generally gain from the
exchange.

one person usually gains at the expense of the
other.

one person always gains at the expense of the
other.

the overall well-being of the two individuals remains
unchanged.

Question 2
Indexation is the automatic correction by law or
contract of a dollar amount for the effects of inflation.

True
False
Question 3
Trade allows countries to specialize in what they
do best and to enjoy a greater variety of goods and services.

True
False
Question 4
Which of the following is human capital?

the skills and knowledge that workers have gained
from experience and education and on the job training

the knowledge of technology that a society has
access to

machinery and buildings which were produced in
past periods and now contribute to the production of goods and
services

the amount of GDP per person spent on
education

Question 5
A producer has a comparative advantage in the
production of a good if that producer can produce the good using fewer inputs
than other producers.

True
False
Question 6
Differences in natural resources explain some
differences in the standard of living around the world, but abundant natural
resources are not necessary for an economy to be highly productive.

True
False
Question 7
Most unemployment spells are short, and most
unemployment observed at any given time is long-term.

True
False

Question 8
To produce electricity a U.S. energy company
purchases electrical generators from a company in Germany. Which of the
following happens to the components of U.S. GDP?

U.S. investment and U.S. net exports
increase

U.S. investment
increases and U.S. net exports decrease

U.S. investment does not change, U.S. net exports
decrease

U.S. investment does not change, U.S. net exports increase

Question 9
Which of the following is included in GDP?

both the value of a meal served at a restaurant
and the value of the food used to prepare the meal

the value of a meal served at a restaurant but not the value of the
food used to prepare the meal

neither the value of a meal served at a restaurant nor the value of
the food used to prepare the meal

the value of the food used
to prepare the meal, but not the value of the meal served at a restaurant

Question 10
Risk aversion means that people dislike bad things
happening to them.

True
False
Question 11
Which of the following statements is false?

Economists pay close attention to natural
experiments offered by history.

Economic theories are irrefutable.

It is difficult to conduct laboratory experiments
to test economic theory.

Economic inquiry is conducted through the
scientific method, just as in other sciences.

Question 12
When one producer has an absolute advantage in the
production of every good, that producer cannot gain from trade with other
producers.

True
False
Question 13
Adverse selection means that

people with high risk are the most likely to apply for insurance which
raises the price of insurance.

people with high risk are the most likely to apply for insurance which
reduces the price of insurance.

after people buy insurance, they have less
incentive to be careful about their risky behavior which reduces the price of
insurance.

after people buy insurance, they have less
incentive to be careful about their risky behavior which raises the price of
insurance.

Question 14
A company announces that it has made record
profits. According to the efficient markets hypothesis, this announcement
should

raise the price of stock in this company only if
the announced profits were higher than expected.

reduce the price of stock in this company only if
the announced profits were higher than expected.

raise the price of stock in this company whether
the announced profits were as high as expected or not.

reduce the price of stock in this company whether
the announced profits were as high as expected or not.

Question 15
According to the traditional theory of production,
as capital per worker increases

the addition to output per worker rises. So,
other things the same, poor countries should grow slower than rich ones.

the addition to output per worker rises. So,
other things the same, poor countries should grow faster than rich
ones.

the addition to output per worker falls. So,
other things the same, poor countries should grow faster than rich
ones.

the addition to output per worker falls. So,
other things the same, poor countries should grow slower than rich
ones.

Question 16
Efficiency wages make unemployment

lower than otherwise because they create a
shortage in the labor market.

higher than otherwise because they create a
surplus in the labor market.

lower than otherwise because they create a
surplus in the labor market.

higher than otherwise because they create a shortage in the labor
market.

Question 17
A person who moved money from bonds to stocks would
increase both risk and return.

True
False
Question 18
The efficient markets hypothesis implies that.

fundamental analysis is useful for finding
bargain stocks and indexed mutual funds should usually outperform managed
mutual funds.

fundamental analysis is not useful for finding
bargain stocks and indexed mutual funds should usually outperform managed
mutual funds.

fundamental analysis is useful for finding
bargain stocks and managed mutual funds should usually outperform indexed
mutual funds.

fundamental analysis is not useful for finding bargain stocks and
managed mutual funds should usually outperform indexed mutual
funds.

uestion 19
In one day Cindy can either build 1 computer or 2
stereos, and in one day Dana can build either 2 computers or 3 stereos. Of
course, Cindy or Dana could split their time between the two activities and
produce some combination of the two products. Suppose Cindy and Dana each
specialize in the production of the good for which she has the comparative advantage,
and they agree to trade at a price of 7 stereos for 4 computers. Which of the
following statements is correct?

Neither Cindy nor Dana will gain from this
trade.

Cindy will gain from this trade but Dana will not.

Both Cindy and Dana will gain from this
trade.

Dana will gain from this trade but Cindy will
not.

Question 20
On the one hand more rapid population growth may
lower productivity by stretching the supply of natural resources and reducing
the amount of capital available per worker. On the other hand, a large
population may enhance the rate of technological progress because there are
more scientists and engineers.

True
False

Question 21
Which of the following should not be included in
the cost of going to college?

tuition and fees

room and board (that cost the same amount he was paying before
entering college)

textbooks

the student’s time, which can no longer be devoted to earning a
salary

Question 22
If an improvement in the quality of a good is not
fully measured, then the consumer price index will overstate the increase in
the cost of living.

True
False
Question 23
Suppose that the CPI includes two goods, rice and
bread which are substitutes. If the year after the base year the price of bread
rises relative to the price of rice then

the weight the CPI places on rice will be lower
than actual expenditures indicate, so the inflation rate will be
overstated.

the weight the CPI places on rice will be higher
than actual expenditures indicate, so the inflation rate will be
overstated.

the weight the CPI places on rice will be lower
than actual expenditures indicate, so the inflation rate will be
understated.

the weight the CPI places on rice will be higher
than actual expenditures indicate, so the inflation rate will be
understated.

Economists use assumptions in order to

make their theories as realistic as
possible.

avoid dealing with issues they would rather not
talk about.

recreate the complexities of real situations as
accurately as possible.

simplify the complex world and make it easier to
understand.

Question 25

The cyclical unemployment rate is the natural rate of unemployment minus the
actual unemployment rate.

True

False

Question 26

In one day Adam can produce either 5 shirts or 10 ties, and in
one day Bob can produce either 6 shirts or 15 ties. Of course, Adam or Bob
could split their time between producing shirts and ties and produce some
combination of the two goods.
Which of the following statements is correct?

Adam has an absolute advantage in the
production of ties, and Adam has a comparative advantage in the production of
ties.

Bob has an absolute advantage in the
production of ties, and Bob has a comparative advantage in the production of
ties.

Adam has an absolute advantage in the production
of shirts, and Adam has a comparative advantage in the production of
shirts.

Bob has an absolute advantage
in the production of shirts, and Bob has a comparative advantage in the
production of shirts.

Question 27
The sale of used cars is not included in GDP.

True
False
Question 28
If country A has a higher level of real GDP per person than
country B, we can be certain that people in country A are better off.

True
False
Question 29
In a market economy, the decisions of what and how
much to produce are generally made by

the interaction of producers and consumers in the
market.

non-governmental agencies.

voters in elections.

the President and Congress.

Question 30
Which of the following is true concerning stocks?

In case of financial difficulties stockholders
are paid, if at all, after bondholders.

If the buyer of a stock sells it, no new funds
are raised for the corporation that originally sold it.

The sale of stock to raise funds is called equity finance.

All of these choices are true.

Question 31
Diversification reduces

market risk but not firm specific risk.

neither firm specific risk nor market risk.

market risk and firm specific risk.

firm specific risk but not market risk.

Question 32
A high price-earnings ratio indicates either that a
stock is undervalued or that people expect the corporation’s earnings to fall.

True
False
Question 34
The federal government enacted regulation in the 1960s requiring
people to wear seatbelts in their cars. Which of the following did not occur as
a result of this legislation?

fewer deaths occurred per
accident

the frequency of accidents increased

overall driver deaths due to car accidents
changed very little in the United States

less pedestrians were killed in car
accidents

Question 35
Points lying on the production possibilities frontier are
efficient outcomes while points lying inside the production possibilities
frontier are inefficient outcomes.

True
False

2 points
Question 36
Mike is a U.S. citizen who works in a motorcycle factory in
Mexico. Wendy is a foreign exchange student from Germany who works in a fast
food restaurant in the U.S. Whose output is included in GDP?

both Mike’s and Wendy’s

Mike’s but not Wendy’s

neither Mike’s nor Wendy’s

Wendy’s but not Mike’s

Question 37
Which of the following are included in the investment category
of GDP?

both purchases of new capital such as
forklifts to be used in a warehouse and purchases of financial assets such as
stocks and bonds

purchases of new capital such as forklifts
to be used in a warehouse but not purchases of financial assets such as
stocks and bonds

neither purchases of new capital such as
forklifts to be used in a warehouse nor purchases of financial assets such as
stocks and bonds

purchases of new capital such as forklifts
to be used in a warehouse and purchases of financial assets such as stocks
and bonds

Question 38
If a U.S. airplane manufacturer opened a factory in
Brazil, it would be engaged in

foreign portfolio investment. Brazil’s GNP would
increase by more than its GDP.

foreign portfolio investment. Brazil’s GDP would increase by more than
its GNP.

foreign direct investment. Brazil’s GNP would
increase by more than its GDP.

foreign direct investment. Brazil’s GDP would
increase by more than its GNP

Question 39
The consumer price index is computed using weights
based

on domestic production of consumer goods. Of the
major categories of goods and services, housing is the largest.

on a survey of consumers. Of the major categories of goods and
services, housing is the largest.

on domestic production of consumer goods. Of the
major categories of goods and services, food and beverages is the
largest.

on a survey of consumers. Of the major categories
of goods and services, food and beverages is the largest.

Question 40
Tim has looked for work in the past, but because
he’s been unsuccessful finding work he has temporary given up looking for work
and hasn’t looked during the last month. The BLS counts Tim as

out of the labor force. If he were counted as unemployed, the
unemployment rate would be higher.

unemployed. If he were counted as out of the labor force the
unemployment rate would be lower.

out of the labor force. If he were counted as
unemployed, the unemployment rate would remain the same.

unemployed. If he were counted as out of the
labor force the unemployment rate would remain the same.

Question 41
Frictional unemployment results from

the number of jobs in some labor markets being
insufficient to provide a job to everyone who wants one and is thought to
explain relatively short spells of unemployment.

the process of job matching and is thought to
explain relatively long spells of unemployment.

the number of jobs in some labor markets being
insufficient to provide a job to everyone who wants one and is thought to
explain relatively long spells of unemployment.

the process of job matching and is thought to
explain relatively short spells of unemployment.

Question 42
If a tax credit made investments more attractive,
the interest rate

would fall and saving would rise.

would rise and saving would fall.

and saving would rise.

and saving would fall.

Question 43
Greg, an economist, says, “Prices rise when
the government prints too much money.” In this case, Greg is making a
positive statement.

True
False
Question 44
Buyers of new bonds

receive payments which vary with the profits of the
corporation.

take more risk if they purchase short-term bonds then if they purchase
long-term bonds.

become part owners of the corporation who sold the bonds.

give money to corporations in an exchange for future payments.

Question 45
Microeconomics is the study of

how governments can reduce
inflation.

economy-wide phenomena, including inflation,
unemployment, and economic growth.

how households and firms make
decisions and how they interact in the market.

how governments can pull the economy out of
recessions.

Question 46
Some economists question the efficient markets hypothesis and
believe that irrational psychological factors also influence asset prices.

True
False

Question 47
An increase in the amount of money in the economy will increase
inflation and, as a result, push unemployment higher in the short run.

True
False

Question 48
A plane from St. Louis to Orlando is about to take off, but it
still has a few empty seats. If the average cost per seat is $500, the airline
must charge standby passengers more than $500 to profit from the sale of the
seat.

True
False

2 points
Question 49
Financial markets are financial institutions
through which savers can directly provide funds to borrowers.

True
False

Question 50
In one day Adam can produce either 5 shirts or 10
ties, and in one day Bob can produce either 6 shirts or 15 ties. Of course,
Adam or Bob could split their time between producing shirts and ties and
produce some combination of the two goods. Suppose Adam and Bob each specialize
in the production of the good for which he has the comparative advantage, and
they agree to trade at a price of 4 shirts for 9 ties. Which of the following
statements is correct?

Neither Adam nor Bob will gain from this
trade.

Adam will gain from this trade but Bob will
not.

Both Adam and Bob will gain from this
trade.

Bob will gain from this trade but Adam will
not.