Answer questions 1 and 2 based on the following:

Points Price Quantity
A $10 15(units)
B 8 30
C 6 45
D 4 60
E 2 75

1. Given the above demand schedule, the price elasticity between points A and B is:

a. 0.66 b. 1.0 c. 2.0 d. 0.33 e. 3.0

2. The firm in order to increase revenue between points A and B in the above demand curve must:

a. increase price b. decrease price
c. keep price unchanged d. increase units sold e. decrease units sold

Assume that the current level of GDP is $250 billion compared to a full-employment level of $200 billion. The MPC is 0.80.

3. What is likely to be the main economic problem facing the above economy?

4. If Government spending decreases by $100, GDP will

a) increase by $500 b) fall by $500 c) fall by $400
d) increase by $900 e) fall by $900

5. If taxes increase by $100, GDP will

a) increase by $400 b) decrease by $400 c) rise by $500
d) fall by $600 e) not change

6. Which of the following will shift the aggregate supply curve to the right?

a) an increase in government spending d) an increase in the personal income tax rate
b) higher oil prices e) an increase in labor productivity
c) an increase in the money supply

7. In 1974 disease killed many anchovies and raised anchovy prices. Anchovies are used in cattle feed as a source of protein. The likely impact of this event would be to

a) raise both the price level and real GDP
b). lower both the price level and real GDP
c). raise the price level but lower real GDP
d).lower the price level but raise real GDP

8. Suppose that Congress reduced Government spending at the same time that the price ofimported oil increased. This would have the following impact

a). increase both the price level and real GDP
b). reduce both the price level and real GDP
c). increase the price level, but the impact on real GDP is uncertain
d). decrease real GDP, but the impact on the price level is uncertain

9. Keynesian fiscal policy recommendation in the case of excessive unemployment
is:

a) increase taxes
b) undertake new government spending
c) cut government spending
d) stimulate more saving

10. Social security, welfare payments, aid for housing are all components of

a) business investment
b) consumption spending
c) disposable income
d) transfer payments
e) exports

11. Which of the following is not part of a tight monetary policy

a) selling of government securities by the Federal Reserve
b) increasing government spending
c) increasing the discount rate
d) increasing the required reserve ratio

12. A decrease in consumers' money income will shift the:

a) demand curve for X to the right
b) demand curve for X to the left
c) supply curve for X to the right
d). supply curve for X to the left

13. Lower interest rates will

a) lower government spending
b) increase transfer payments
c) decrease car and housing sales
d) increase business investment

14. A decrease in supply and an increase in demand will cause the equilibrium:

a) price to rise and the quantity to change in an indeterminate way;
b). price to fall and the quantity to change in an indeterminate way;
c). price to change in an indeterminate way and the quantity to rise;
d) price to change in an indeterminate way and the quantity to fall.

15. Under a system of freely floating exchange rates, an increase in the international value of a nation’s currency will:

a) cause its exports to rise
b) cause its imports to rise
c) cause gold to flow into that country
d) contribute to equilibrium in its balance of payments
e) cause an international surplus of its currency

16. A change in demand means that:

a) the quantity demanded is changing as price changes
b) there has been a change in the price elasticity of demand
c) the shift of a demand curve is taking place
d) a movement along a given demand curve is taking place

17. If there is a shortage in the supply of a product, we can conclude that its price:

a) is in equilibrium b) will fall in the near future
c) is above the equilibrium level d) is below the equilibrium level

18. An increase in supply and an increase in demand will cause the equilibrium:

a) price to rise and the quantity to change in an indeterminate way;
b) price to fall and the quantity to change in an indeterminate way;
c) price to change in an indeterminate way and the quantity to rise;
d) price to change in an indeterminate way and the quantity to fall.

19. The price system corrects for a shortage by:

a) lowering the price and profits of firms causing the shortage
b) raising the price and the producer's profits
c) lowering the price, but increasing the producer's profits
d) raising the price, but lowering the producer's profits

20. The economizing problem is essentially one of deciding how the make the best
use of:

a) limited resources to satisfy limited wants
b) unlimited resources to satisfy limited wants
c) limited resources to satisfy virtually unlimited wants
d) virtually unlimited resources to satisfy virtually unlimited wants

21. A market is in equilibrium:

a) whenever the demand curve slopes downward and the supply curve slopes upward;
b) if the amount which producers want to sell is equal to the amount which consumers want to buy;
c) at all prices above that shown by the intersection of supply and demand;
d) provided there is no surplus in the market.

22. Which of the following best describes the "invisible hand" concept?

a) central direction by the government will improve resource allocation in a capitalist economy
b) mixed capitalism is the best system for overcoming the limited resources -unlimited wants problem
c) the nonsubstitutability of resources gives rise to a conflict between private and public interests and the need for government intervention
d) the desires of resource suppliers and producers to further their own self-interests will automatically further the public interest

23. If the demand for cattle is increasing more rapidly than supply

a) cattle prices will rise
b) cattle prices will fall
c) cattle prices will not change
d) any of the above is possible

24. Microeconomics is the study of :

a) individual economic households and firms
b) what "ought to be" in the economy
c) descriptive economics
d) aggregate economic activity

25. Given a reserve requirement ratio of 10 percent, what will be the impact on the money supply if the Fed buys $10 in securities from the banks

a) increase by $100 b) decrease by $100
c) increase by $50 d) decrease by $20
e) decrease by $30

26. A major advantage of floating versus fixed exchange rates is that:

a).the balance of trade will be self-correcting
b) the price of gold will be self-correcting
c) balance of payments surpluses will be generated
d) a high level of domestic employment will be insured

27. The international exchange value of a currency is currently determined by the:

a) Bretton Woods System
b) International Monetary Fund Agreement
c) value of gold backing that currency
d) international supply and demand for that currency

28. Other things being unchanged, if a tight money policy raises interest rates in Europe as compared to the US:

a) the Euro will depreciate
b) the dollar will depreciate
c) the dollar will appreciate
d) gold bullion will flow into Europe

29. Using supply and demand, what are the effects on the US dollar exchange rate of the following: (10 Pts)

a) an increase in US. exports of merchandise
b) a decrease in US. imports of services
c) an increase in French purchases of US Treasury bonds
d) a Federal Reserve sale of foreign exchange
e) a sharp increase in the US inflation rate

30. List two reasons why interest rates are low. (4 pts)

31. List two reasons why the rate of inflation is slowing down. (4 pts)

The following questions are true and false. (2pts)

32. The dollar has increased sharply versus the Euro over the last year.

33. Government spending represents the largest expenditure category in GDP. It makes up about two-thirds of total spending.

34. GDP declined by 5% in the first quarter of this year.

35. The unemployment rate rose to 15% in the month of April.

36 The current interest rate on the 30 year Treasury bond is around 11%.

37. The interest rate on the federal funds rate is currently 4% after the latest Fed rate move.

Answer questions 1 and 2 based on the following: Points Price Qu...