BUSINESS

20.

Given the interest rate you found in #18, what is the ex-ante real interest rate?

[removed]  A) 1%
[removed]  B) 0%
[removed]  C) -1%
[removed]  D) 2%
[removed]  E) None of the above are correct

21.

Suppose the price index in State College, PA is 151 and 275 in New York City (as always, we assume the basket is exactly the same in both locations). Suppose also that you are currently making $75,000 in State College. What income do you need to be offered in New York City to maintain the exact same purchasing power that you currently have in State College? Round your answer to the nearest dollar.

[removed]  A) $34,791
[removed]  B) $197,250
[removed]  C) $136,589
[removed]  D) $91,500
[removed]  E) None of the above are correct

22.

Given equation Y=300+.7Y, what does Y equal?

[removed]  A) 1000
[removed]  B) 90
[removed]  C) 510
[removed]  D) 176.5
[removed]  E) None of the above are correct

23.

Economics does not study correct or incorrect behaviors but rather it assumes that economic agents behave ________, meaning they make the best decisions given their knowledge of the costs and benefits.

[removed]  A) equitably
[removed]  B) rationally
[removed]  C) emotionally
[removed]  D) selfishly

24.

Which of the following is a positive economic statement?

[removed]  A) People should not buy SUVs.
[removed]  B) The government should mandate electric automobiles.
[removed]  C) Scarcity necessitates that people make trade-offs.
[removed]  D) Foreign workers should not be allowed to work for lower wages than the citizens of a country.

25.

In one hour of labor input, South Korea can produce either 100 computer chips or 50 bed linens. In the U.S., in one hour of labor input, either 150 computer chips or 100 bed linens can be made. Select the correct response below.

[removed]  A) The U.S. has a comparative advantage in computer chips manufacturing.
[removed]  B) Both the U.S. and S. Korea have comparative advantages in computer chips manufacturing.
[removed]  C) S. Korea has a comparative advantage in computer chips manufacturing.
[removed]  D) S. Korea has an absolute advantage in bed linen production.
[removed]  E) None of the above are correct

26.

The extra cost associated with undertaking an activity is called

[removed]  A) net loss.
[removed]  B) marginal cost.
[removed]  C) opportunity cost.
[removed]  D) foregone cost.

27.

Jen makes $16 per hour and Sammie makes $20 per hour. Both Jen and Sammie like to eat hamburgers that cost $4 each. Select the correct answer below.

[removed]  A) Sammie’s real wage is equal to 4 hamburgers
[removed]  B) Sammie’s real wage is higher than Jen’s real wage
[removed]  C) Jen’s real wage is higher than Sammie’s real wage
[removed]  D) Jen and Sammie’s real wages are equal
[removed]  E) Jen’s real wage is equal to 5 hamburgers.

28.

In May 2009, the U.S. auto industry experienced a 34 percent decline in sales compared to May 2008. The automobile industry was experiencing the effects of

[removed]  A) deflation.
[removed]  B) the underground economy.
[removed]  C) the business cycle.
[removed]  D) depreciation.

29.

Consumption expenditures $800
Investment expenditures 300
Government purchases 300
Government transfer payments 400
Exports 300
Imports 300

Refer to Table above.  Consider the data above (in billions of dollars) for an economy:  Gross domestic product (in billions of dollars) for this economy equals

[removed]  A) $2,000
[removed]  B) $2,300
[removed]  C) $1,700
[removed]  D) $1,400
[removed]  E) None of the above.

30.

Year Guns Produced Price of Guns Butter Produced Price of Butter
2005 80 $5 40 $4
2011 90 6 60 10

Consider the above data for Tyrovia, a country that produces only two products: guns and butter.  Real GDP for Tyrovia for 2005 using 2011 as the base year equals

[removed]  A) $1,140
[removed]  B) $880
[removed]  C) $690
[removed]  D) $560
[removed]  E) None of the above are correct

31.

Which of the following cause the unemployment rate as measured by the Bureau of Labor Statistics to understate the true extent of joblessness?

[removed]  A) inflation
[removed]  B) discouraged workers
[removed]  C) people employed in the underground economy
[removed]  D) unemployed persons falsely report themselves to be actively looking for a job

32.

Your grandfather tells you that he earned $7,000/year in his first job in 1961. You earn $35,000/year in your first job in 2011. You know that average prices have risen steadily since 1961. You earn

[removed]  A) 5 times as much as your grandfather in terms of real income.
[removed]  B) more than 5 times as much as your grandfather in terms of real income.
[removed]  C) less than 5 times as much as your grandfather in terms of real income.
[removed]  D) less than 5 times as much as your grandfather in terms of nominal income.

33.

Which of the following is a reason why decreases in the price level result in a rise in aggregate expenditure?

[removed]  A) Price level decreases cause firms and consumers to hold less money, which lowers the interest rate. Lower interest rates raise consumption and planned investment expenditures, which raises aggregate expenditure.
[removed]  B) Price level decreases reduce real wealth, which causes consumption spending and aggregate expenditure to rise.
[removed]  C) As the price level falls, government spending rises, which raises aggregate expenditure.
[removed]  D) Price level decreases in the United States relative to other countries lower net exports, which raises aggregate expenditure.

34.

Which of the following functions of money would be violated if inflation were high?

[removed]  A) unit of account
[removed]  B) store of value
[removed]  C) certificate of gold
[removed]  D) medium of exchange

35.

Which of the following is a reason why we should consider the federal national debt a problem?

[removed]  A) The federal government is in danger of defaulting on its debt.
[removed]  B) If the debt drives up interest rates, crowding out will occur.
[removed]  C) If the debt was incurred to finance improvements in infrastructure, crowding out will occur.
[removed]  D) If the debt was incurred to finance research and development, crowding out will occur.

36.

A college must decide if it wants to offer more Internet-based classes. This decision involves answering the economic question of “what to produce.”

[removed]  A) True
[removed]  B) False

37.

If a country produces only two goods, then it is not possible to have a comparative advantage in the production of both those goods.

[removed]  A) True
[removed]  B) False

38.

Excluding underground economy production from measured GDP causes errors in GDP growth estimates in the long run.

[removed]  A) True
[removed]  B) False

39.

The natural rate of unemployment consists of frictional unemployment plus structural unemployment.

[removed]  A) True
[removed]  B) False

40.

An increase in the price of output will cause a firm’s MRP to shift upward.

[removed]  A) True
[removed]  B) False

41.

If the effective tax rate on capital falls, that will result in the investment demand function shifting to the right.

[removed]  A) True
[removed]  B) False

42.

If the US economy is growing faster than the rest of the world, then we would expect a surge in US imports.

[removed]  A) True
[removed]  B) False

43.

The FOMC meets in Washington DC but the action of conducting open market operations takes place at the New York Fed (FRBNY).

[removed]  A) True
[removed]  B) False

44.

During the lead up to Y2K, the Fed, to keep the federal funds rate from rising, had to conduct open market sales. This action is referred to as ‘accommodating’ the shock to reserve demand.

[removed]  A) True
[removed]  B) False

45.

Spending by local governments to stimulate or slow down their local economies is an example of fiscal policy.

[removed]  A) True
[removed]  B) False

46.

If the long-run aggregate supply curve is vertical so is the long-run Phillips curve.

[removed]  A) True
[removed]  B) False

47.

If savings exceeds investment then the country is running a trade surplus.

[removed]  A) True
[removed]  B) False

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