Econ 109 Introduction to Economics 1 Final Exam 12 10 2001 Name TA s Name Part I 40 Points Choose the best answer and mark it on your scantron sheet 1 The process of thinking like an economist involves three basic items Which of the following five does not belong a Economists use assumptions to simplify matters x Economists deal only in items which have prices c Economists explore the relationship between two variables holding other variables fixed d Economists think in marginal terms e Economists consider opportunity costs 2 Which of the following is not a way we can use the study of microeconomics a to understand how markets work x to understand the full impact of our trade deficit with Japan c to make personal or managerial decisions d to evaluate the merits of specific public policies e to help decide between two automobiles when we are buying a new car 3 The concept of opportunity cost is based on the principle of a consumer spending b wealth c poverty x scarcity e individuality 4 The principle of diminishing returns says that a consumer loyalty is constantly decreasing b all else equal your dollars never buy all the things they previously could have c if inputs are reduced then output will remain constant x all else equal as an input is increased output increases but at a decreasing rate e as you add inputs to a process you always get more output 5 Why do people specialize and trade x Because each person can consume more by specializing and trading b Because it is not possible to produce enough good to live on yourself c Because each person is only good at producing one thing d Because people have to have jobs in order to live e all of the above 6 According to the theory of comparative advantage specialization and free trade will benefit a only the owner of a monopoly x all trading parties who specialize in the production of the good in which they have a comparative advantage c only that trading party that has an absolute advantage in the production of all goods Econ 109 Introduction to Economics 2 12 10 2001 d only the party which specializes the least e only the party which specializes the most 7 Market systems are desirable because x they facilitate exchange and specialization b people cannot be self sufficient c exchange cannot take place without markets d then everyone pays the same amount in taxes e producers cannot specialize without markets 8 All else equal an increase in supply leads to a increased price and increased quantity b decreased price and decreased quantity x decreased price and increased quantity d increased price and decreased quantity e decreased price and decreased quantity 9 Which of the following is an example of a government transfer payment a the salary paid to a soldier b the purchase of a new car for the Department of Agriculture c the funding of a clinic to provide free vaccinations x the food stamps issued to persons in an antipoverty program e the funding of a new bridge in an urban area 10 Which of the following is not included in gross domestic product a the cost of a new car b the purchase of a used house c The phone bill d the value of a meal you cook yourself x answers 2 and 4 only 11 If the cost of a basket of goods is 125 in 1989 135 in 1990 and 150 for 1991 assuming 1991 is the base year the CPI for 1989 is a 90 b 100 c 120 d 93 x 83 12 Suppose you notice that when the price level falls the real value of your money increases This induces you to increase your level of consumption This is an example of the x wealth effect b interest rate effect c real effect d income effect e international trade effect 13 Which of the following is an example of an automatic stabilizer a an increase in defense spending during an expansion b a decrease in social security benefits during a recession c an increase in welfare benefits during an expansion x a decrease in unemployment benefits paid out during an expansion Econ 109 Introduction to Economics 3 12 10 2001 e an increase in taxes during a recession 14 High levels of inflation are often caused by a excessive money creation used to pay for a government budget surplus b excessive borrowing from the public used to pay for a government budget surplus c excessive borrowing from the public used to pay for a government budget deficit x excessive money creation used to pay for a government budget deficit e None of the above are true 15 Which of the following is NOT a tool of the Federal Reserve a open market operations x Government spending c the discount rate d the reserve requirement e All of the above are Fed tools 16 If the Federal Reserve conducts an open market purchase of bonds x the supply of money increases causing interest rates to decrease b the supply of money decreases causing interest rates to decrease c the supply of money increases causing interest rates to increase d the demand for money increases causing interest rates to decrease e the demand for money increases causing interest rates to increase 17 At levels of output where the firm s short run average cost curve is increasing x the marginal cost curve is above the short run average cost curve b the marginal cost curve is below the short run average cost curve c the marginal cost curve is equal to the short run average cost curve d the marginal cost curve may be above or below the short run average cost curve e none of the above are true 18 A firm s average fixed costs x are determined by dividing the total fixed cost by the amount produced b are always larger than variable costs in the short and long run c are the same no matter what quantity the firm produces d are equal to zero only when the level of production is also zero e always increase as output increases 19 Assuming that capital is fixed as the amount of labor in the economy increases total output a increases at an increasing rate b decreases at a decreasing rate c decreases at a constant rate x increases at a decreasing rate e increases at a constant rate 20 An increase in the capital stock x shifts up the short run production function causing output to increase at all positive levels of labor b shifts down the short run production function causing output to increase at all positive levels of labor Econ 109 Introduction to Economics 4 12 10 2001 c shifts up the short run production function causing output to decrease at all positive levels of labor d shifts down the short run production function causing output to decrease at all positive levels of labor e has no impact on