ECO 372 Final Exam Guide (New 2019)

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ECO 372 Final Exam Guide (New 2018)
1. Martha lends 200 to a friend who promises to
return it after a year. Instead of lending it to
her friend, Martha could have put the money in a
bank where she could have earned an interest rate
of 2 percent per annum. Martha's opportunity cost
of lending the money is_.
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2 The exhibit given below shows the short-run
aggregate demand and supply curves in an economy,
AD1 and AS1, and the long-run aggregate supply
curve, LRAS. The economy was initially in
equilibrium when there was a decrease in
aggregate demand, causing a shift of the
aggregate demand curve from
AD1 to AD2. Which of the following is true in
this case? The economy will move from point B to
point A in the short run and then to point C in
the long run. www.eco372entirecourse.com The
economy will move from point C to point B in the
short run and then eventually to point A.
The economy will move from point D to point A in
the short run and then to point C in the long run.
The economy will move from point D to point C in
the long
run.
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3Suppose an economy is in long-run equilibrium.
An increase in consumption expenditure will
a) shift the short-run aggregate supply curve
rightward and increase both the price level and
real output in the long run. b) decrease both
the price level and real gross domestic product
in the long run. c) increase the price level
in the long run but have no effect on real gross
domestic product. www.eco372entirecourse.com d)
shift the aggregate demand curve rightward and
increase the real output in the long run.
4 In the long run, a higher saving rate
always leads to a higher level of productivity
because of increasing returns to scale.
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does not lead to a higher level of income because
of deterioration in labor productivity.
always leads to a higher growth rate of output
because of improvement in the stock of human
capital. does not always lead to a higher growth
rate of output because of diminishing returns to
capital.
5.Suppose the net foreign investment in Italy is
positive. This implies that www.eco372entirecours
e.com Italians are buying more foreign assets
than foreigners are buying Italian assets.
foreigners are buying relatively more Italian
assets.
Italy is experiencing a net capital inflow.
foreign direct investment in Italy is higher than
foreign portfolio investment in the country.
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5)Suppose the net foreign investment in Italy is
positive. This implies that
Italians are buying more foreign assets than
foreigners are buying Italian assets.
foreigners are buying relatively more Italian
assets.
Italy is experiencing a net capital
inflow. www.eco372entirecourse.com foreign direct
investment in Italy is higher than foreign
portfolio investment in the country.
6)The circular-flow diagram shows that
firms receive wages and profits from households
in the products market.
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households sell the factors of production to
firms in the inputs market.
huseholds supply resources to firms in the
products market.
firms supply labor and other resources to the
government in the factor market
7)The table given below shows the total amount of
spending in the country of Mesodonia.
Mesodonia's www.eco372entirecourse.com gross
domestic product is
8 The country of Merilya exported goods and
services worth 1.2 million and imported goods
and services worth 2.7 million. The net exports
of the country was_.
9 Suppose the Fed purchases government bonds
through open-market operations. All other things
remaining equal, this is likely to
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decrease the price level and increase the real
wealth of consumers. decrease the price level and
make domestic goods less expensive relative to
foreign goods.
increase the price level and eventually decrease
the interest rate and investment spending.
increase the price level and eventually decrease
the demand for money as well as goods and
services. www.eco372entirecourse.com 10 A rise in
the price of bacon from 14 per pound to 16 per
pound will reduce the purchasing power of the
dollar by
0.55 pounds of bacons.
0.06 pounds of bacon.
5 pounds of bacon.
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2 pounds of bacon.
11.A difference between commodity money and fiat
money is that fiat money cannot be used as a
unit of account.
commodity money is used in a barter economy.
fiat money does not have any intrinsic
value. www.eco372entirecourse.com commodity money
cannot be used as a unit of account.
12Suppose the net capital outflow from Zenovia is
negative. This implies that
the real interest rate in Zenovia is high.
the real interest rate in foreign countries is
higher than in Zenovia.
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foreigners are not interested in buying assets in
Zenovia.
the citizens of Zenovia are investing more in
foreign assets than foreigners are investing in
assets in Zenovia.
13 There is an increase in human capital when
Shiroh persuades the management of her company to
offer more perks to employees www.eco372entirecour
se.com Sue rents a laser printer to teach her
employees how to fix it
Samantha receives training in quality management
after joining a new firm
Susie puts in more than 8 hours of work at her
workplace every day
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14.After retirement, Molly deposits 500,000 in a
local bank in Merrina. At an interest rate of 4
percent, she will receive approximately_after 3
years.
15 Ruth wants to calculate the present value of a
sum of money that she will receive after the
demise of her grandparents. To calculate the
present value, she should use the
ependiture method. www.eco372entirecourse.com disc
ounting method. value-added method. compounding
method. 16The buyers and sellers in the country
of Perylia use corn as a medium of exchange. This
means that
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Perylia uses commodity money.
corn cannot be used as a store of value or as a
unit of account in Perylia.
Perylia uses fiat money.
corn can be used as a store of value but not as a
unit of account in Perylia. www.eco372entirecourse
.com 17Scarcity occurs because of
the excess of quantity supplied over quantity
demanded.
overutilization of labor.
limited human needs and wants.
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the limited supply of resources.
18The Phillips curve shows
the negative relationship between inflation and
unemployment.
the positive relationship between the interest
rate and the supply of money. www.eco372entirecour
se.com tepositive relationship between the price
level and aggregate supply.
the negative relationship between the interest
rate and the demand for money.
19Ephlon Inc., an Italian bike manufacturer,
opens a factory in the United States. This is an
example of
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the accumulation of human capital. the catch-up
effect. a foreign direct investment. a foreign
portfolio investment.
20Jack is an out-of-work sculptor. He has been
looking for a job for the last two years. Unable
to find any, he has given up his job search.
Which of the following is true in this case?
This is an example of frictional
unemployment. www.eco372entirecourse.com This is
an example of structural unemployment. He is a
part of the unemployed labor force. He is a
discouraged worker and will not be included in
the calculation of the unemployment rate.
21Suppose the central bank of a country
undertakes an expansionary monetary policy. Which
of the following is
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most likely to be the effect of such a policy,
all other things remaining unchanged?
An increase in the price level that reduces the
real value of households' money holdings and
stimulates consumer spending n increase in the
price level that stimulates spending on net
exports and increases the demand for money A
decrease in the price level that reduces the
amount of money that people want to hold and
decreases the interest rate. www.eco372entirecours
e.com A decrease in the price level that reduces
the interest rate and lowers the real value of
the domestic currency foreign-exchange market.
22Following the unexpected good performance of
Leathex, all its employees were given a one-time
bonus. This consequently led to a rightward shift
of the demand curve for shoes manufactured by the
company and a leftward shift of the demand curve
for socks. This shows that shoes are
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inferior goods.
substitutes. normal goods. complementary
goods. 23A higher interest rate in a
country www.eco372entirecourse.com encourages
citizens to buy foreign assets. makes domestic
bonds less attractive to foreigners. lowers
saving in the country and decreases the quantity
of loanable funds supplied. discourages
investment and decreases the quantity of loanable
funds demanded.
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24If the price level in an economy is 120 and the
equilibrium price level is 100,_.
people will want to hold more money than is
supplied by the central bank
the demand for money curve will shift to the left
the purchasing power of money will
increase www.eco372entirecourse.com the supply of
money is likely to exceed the demand for money
25A recent survey showed the health benefits of
cranberry juice for treating heart and other
respiratory disorders. The exhibit below shows
that the initial demand curve for cranberry juice
is D1. Which of the following is likely to be a
consequence of the publication of the survey?
The demand curve will shift from D1 to D3.
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There will be a movement from point A to point C
on D1.
The demand curve will shift from D1 to D2.
There will be a movement from point A to point B
on D1
26Keynesian economists believe that when an
economy is in a recession, the government
should www.eco372entirecourse.com decrease tax
rates rather than increase government spending
because households always view such tax cuts as
permanent and increase their current consumption.
increase its purchases rather than decrease taxes
because households save a part of the increase in
their income as a result of tax cuts.
increase the money supply in the economy so that
interest rates decline, reducing the cost of
borrowing to finance new investment projects.
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increase the money supply in the economy so that
an excess supply of money can induce households
to increase their consumption expenditure
27The Marions purchased a Persian rug worth
5,000 from an Iranian textile mill. Everything
else remaining unchanged, this will
decrease the consumption expenditure in the
domestic country by 5,000. www.eco372entirecourse
.com decrease the net imports of the domestic
country by 5,000.
reduce the net exports of the domestic country by
5,000.
increase the gross domestic product of the
domestic country by 5,000.
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As more capital is used in the production
process, the amount of other inputs being fixed,
the production function becomes
flat because the extra output produced from an
additional unit of capital decreases.
steep because the extra output produced from an
additional unit of capital decreases.
www.eco372entirecourse.com steep because the
extra output produced from an additional unit of
capital increases.
flat because the extra output produced from an
additional unit of capital increases.
29The natural rate of unemployment in a country
is 4 percent. This implies that
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the country has an unemployment rate of 4 percent
in the short run.
the country has a 4 percent unemployment rate
when the labor market is in equilibrium.
4 percent of the labor force is unemployed at any
given point of time.
the unemployment rate is constant at 4 percent
over time. www.eco372entirecourse.com 30Which of
the following is true according to the
circular-flow diagram? Firms receive wages, rent,
and profit from the government. Firms receive
income from households.
Households receive revenue from the government.
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Households receive wages, rent, and profit from
firms.
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