First Midterm:  Exam Version 1

Binary Questions:

1. A limit on the amount of a good that can be imported is called a

a. tariff.

b. quota.

2. Large gains from trade are more likely when the opportunity cost of production for the two countries are

a. Very different.

b. Very similar.

3. If the current equilibrium price is $15, a price ceiling of _____ will have NO effect on the equilibrium price

a. $13

b. $17

4. The Consumer Price Index (CPI) in the country of Myland was 120 in December 2001 and 144 in December 2002. The inflation rate for year 2002 is:

a. 20%

b. 10%

5.  The numerical value of the real wage

a. does not depend on the year chosen as the base year.

b. differs according to the year chosen as the base year.

6. An increase in the price of potatoes could cause a _________ noodles.

a. Change in the demand for

b. Change in the quantity demanded of

7. Which one of the following is counted in GDP for the United States?

a. Cars produced at Toyota's plant in Indiana. Toyota is a Japanese company.

b. Cars produced by the American company Ford at their plant in Ontario, Canada.          

8. The largest component of GDP in the United States is

a. private consumption.               

b. the capital stock.

9. Discouraged workers are people who are currently not working who

a. want a job, but have given up looking for one.

b. used to have a job, but no longer want a job. 

Multiple Choice Questions:

10. The price paid for taking out a loan is the interest rate.  Holding everything else constant, if the interest rate increases,

a. the demand for loans decreases.

b. the total amount of money loaned out will decrease.

c. there is no change in the market for loans.

d. the outcome is uncertain-the law of demand does not hold for loans.

11. After opening its borders to trade, if a country is importing a good, then compared to before trade this country's

a. consumer and producer surplus associated with this good are higher.

b. consumer and producer surplus associated with this good are lower.

c. consumer surplus is higher and producer surplus is lower for this good.

d. consumer surplus is lower and producer surplus is higher for this good.

 12. If U.S. producers of steel are less efficient at producing steel than producers elsewhere in the world, then U.S. steel producers may request that

a. foreign countries put a quota on U.S. steel.

b. the U.S. government put a tariff on U.S. steel.

c. the U.S. government pay a subsidy to U.S. steel producers.

d. the U.S. government put a price ceiling on steel.

13. The figure below represents the production possibility frontier for beef and wheat. The opportunity cost of moving from point F to point G is equal to

a. approximately ¼ bushels of wheat.

b. approximately ¼ pounds of beef.

c. approximately 8 bushels of wheat.

d. approximately 2 pounds of beef.

14. Which of the following changes MUST result in an increase in the equilibrium price and a decrease in the equilibrium quantity? (Assume the good is a normal good)

a. Population increases while labor costs rise

b. The cost of capital increases

c. Income rises

d. The price of a substitute good increases while technology improves

15. Consumer surplus measures

a. The difference between the price consumers are willing to pay, and the price producers are willing to charge.

b. The change in deadweight loss.

c. The social benefit from the market transaction.

d. The difference between the price consumers are willing to pay and the market equilibrium price.

Use the following graph to answer the next two questions.

16. Which of the following equations is a correct representation of the demand curve described in the graph above?

a. Q = 300 - 15P

b. Q = 20 - (1/15)P

c. P = 20 - 300Q

d. Q = 300 - 20P

17. What is the consumer surplus if the equilibrium price is $8?

a. $12

b. $1500

c. $1080

d. $2160

18. The following information is available for the country of Wonderland:

What is the total inflation rate (i.e. the total percentage rise in the price level) over the entire period?

a. 25%

b. 27.05%

c. 20.34%

d. 30.25%

19. Which of the following is not counted in the civilian labor force?

a. a factory worker who is currently laid off

b. a full-time student who is not working and is not currently looking for a job

c. a small business owner who has not yet earned a positive profit

d. an unemployed individual who is not working but looking for a job

20. Workers laid off when IBM goes bankrupt due to competition are counted in

a. frictional unemployment.

b. seasonal unemployment.

c. structural unemployment.

d. cyclical unemployment.

21. Which of the following is a difference between a tariff and a quota?

a. A quota is determined by the exporting country while a tariff is determined by the importing country.

b. A tariff results in an increase in the exporting price while a quota does not.

c. A quota reduces the amount of trade while a tariff does not.

d. A tariff generates revenue for the government of the importing country while  a quota does not.

22. Consider the Real GDP expressed in 1950 Dollars and the Real GDP expressed in 2000 Dollars. The growth rate of the economy between 2001 and 2002 calculated using the Real GDP in 1950 Dollars is:

a. higher than the growth rate calculated using the Real GDP in 2000 Dollars.

b. the same as the growth rate calculated using the Real GDP in 2000 Dollars.

c. lower than the growth rate calculated using the Real GDP in 2000 Dollars.

d. it can be any of the above answers, depending on circumstances.

23. If country A has a labor force of 200,000 people and 170,000 are employed, what is the unemployment rate of county A?

a. 20 percent

b. 15 percent

c. 85 percent

d. 30 percent    

24. Assume in a SMALL OPEN economy the domestic market demand curve is QD = 1200 - 4P and the domestic market supply curve is QS = 2P and the world price is $100.  What will be the Deadweight Loss in this economy if a tariff of $50 is imposed?

a. $ 15000

b. $ 7500

c. $ 10000

d. $ 5000

25. Which of the following is NOT included in private investment?

a. investment in stocks and mutual funds

b. business purchases of plant and equipment

c. new home construction

d. changes in business firms' inventory stocks

26. The economy is said to be at full employment when

a. the unemployment rate is zero.

b. structural unemployment is zero.

c. cyclical unemployment is zero.

d. cyclical and structural unemployment is zero.

27. The real wage per hour and the inflation rate in 2001 and 2002 are given in the table below (base year 2000)

The nominal wage and the CPI in 2002 were:

a. $ 24.20 and 121

b. $ 22.50 and 110

c. $ 21.50 and 107.5

d. $ 25.60 and 121

Answer the next two questions using the information below

The country of Wowza produces only three goods: 1) shirts, 2) pants, and 3) cotton.  All the cotton is used to produce the other two goods. The following table describes Wowza's production during the years 1999 and 2000. Use the table to answer the next two questions.

28. What is the Nominal GDP of Wowza in 1999?

a. $ 20

b. $ 80

c. $ 100

d. $ 160

29. The base year is 1999. What is Wowza's growth rate of Nominal GDP from 1999 to 2000?

a. 50%

b. 60%

c. 150%

d. 160%