ECON 1100 – Global Economics (Section 05) Exam #3 – Fall 2011 (Version B) Multiple Choice Questions (212 points each): 1. The notion of __________________ says that in order for a tax to be “fair,” individuals of greater economic capacity should not have smaller tax burdens. A. vertical equity B. horizontal equity C. allocative equity D. diagonal equity 2. Which of the following is NOT one of the primary policy tools used by a central bank? A. Setting the discount rate. B. Conducting open-market operations. C. Setting reserve requirements. D. None of the above answers are correct (since each of the choices listed is one of the primary policy tools used by a central bank). 3. ______________ refers to the time that policymakers must wait in order to collect and process economic data and to confirm that a stabilization policy is needed. A. A Monetary Lag B. An Implementation Lag C. A Decision Lag D. An Information and Recognition Lag 4. Between 1991 and 2006, “Government Expenditures as a percentage of GDP” in Spain A. decreased drastically, from roughly 80% in 1991 to roughly 20% in 2006. B. decreased slightly, from roughly 44.3% in 1991 to roughly 38.5% in 2006 (taking on a mean value of 41.66% during this entire time-period). C. increased drastically, from roughly 25% in 1991 to roughly 75% in 2006. D. increased slightly, from roughly 7.2% in 1991 to roughly 12.4% in 2006 (taking on a mean value of 9.31% during this entire time-period). 5. One of the “6 Determinants of Productivity, Income, and Wealth” is “accumulated savings,” which refers to the recognition that differences in income/wealth across individuals partly result from differences in the A. decisions that individuals make in every period regarding how much of their current income/wealth to spend. B. the amount of money that individuals receive as inheritances. C. natural talents that people are endowed with at birth. D. valuable increases in human capital that individuals acquire through education, training, and employment.6. The “Big Dig,” which relocated an existing 3.5 mile stretch of Interstate Highway in Boston underground at a total cost of $14.6 billion, was discussed in lecture as an example of A. the Free Rider Problem. B. Agency Inertia. C. Capture of Regulators. D. a Pork Barrel Project. For Questions 7 through 9, consider a monopolist facing Demand and with Marginal Costs and Marginal Revenue as illustrated below. 7. The efficient level of output for this good is _______ units, while a profit maximizing monopolist will choose to produce _______ units. A. 9,120; 4,560. B. 4,640; 4,560. C. 4,640; 2,720. D. 2,720; 4,640. 8. To maximize profit, this monopolist should charge a price of _______. A. $5.00 B. $7.00 C. $10.00 D. $14.25 9. When this monopolist chooses the price and quantity which maximizes profit, A. Deadweight-Loss is equal to “areas (e)+(h).” B. Producer’s Surplus (i.e., “Monopoly Surplus”) is equal to “areas (f)+(g)+(h)+(i).” C. Total Consumers’ Surplus is equal to “areas (a)+(b)+(c)+(d)+(e).” D. More than one (perhaps all) of the above answers is correct. $ quantity 00Demand Marginal Revenue Marginal Costs of Production 5.00 7.0010.00 2,720 5,920 4,640 g f 14.25 i e h 9,120 c d 4,560 a b10. A “Rival Good” is one for which A. consumption by one person does not diminish the quantity/quality of consumption by others. B. consumption by one person does diminish the quantity/quality of consumption by others. C. it is difficult (or very costly) to prevent consumption by those who do not pay for the good. D. it is easy (or relatively costless) to prevent consumption by those who do not pay for the good. 11. _________________________ wrote “The General Theory of Employment, Interest, and Money.” A. John Maynard Keynes B. Milton Friedman and Anna Schwartz C. Ronald Coase D. Jeremy Bentham 12. Iraq currently has A. a regressive income tax, with marginal rates ranging between 1% and 7%. B. a proportional income tax, with a constant marginal rate of 15%. C. a progressive income tax, with marginal rates ranging between 23% and 94%. D. no income tax. 13. If the federal government of Bernankevania (a small landlocked country in eastern Europe, with an economy highly dependent upon hand sanitizer production) had revenues of €1,245,000,000 and expenditures of €1,995,000,000 in 2011, then in 2011 this government A. realized a budget surplus of €750,000,000. B. realized a budget deficit of €750,000,000. C. realized a budget surplus of €3,240,000,000. D. realized a budget deficit of €3,240,000,000. 14. In the United States, the “highest Marginal Tax Rate” currently imposed under the federal income tax is A. 95%, the highest level that the “highest Marginal Tax Rate” has ever been in the history of our country. B. 83%, a rate so high that it caused Brian Johnson (the lead singer of AC/DC) to move from Hawai’i to England to avoid having to pay such a large fraction of his income in taxes. C. 35%, a “highest Marginal Tax Rate” which is lower than the “highest Marginal Tax Rate” of 39.6% which was in place in 2000 but higher than the “highest Marginal Tax Rate” of 31% which was in place in 1992. D. 17%, since every dollar earned by every worker in the U.S. is taxed at a constant Marginal Rate of 17% (which has been the case ever since the “Flat Tax” was signed into law by President Steve Forbes in 1997).For questions 15 through 18 refer to the graph below, which illustrates “Marginal Private Benefits,” “Marginal Private Costs,” “Marginal Social Benefits,” and “Marginal Social Costs” in the market for “Good Y.” 15. Based upon this graph, it appears as if A. this good generates a positive externality. B. this good generates a negative externality. C. buyers have a difficult time determining their “true reservation price,” since they cannot easily observe the “quality” of the product being sold. D. this good is sold by a firm with substantial market power. 16. The free market level of trade is _____, while the efficient level of trade is _____. A. 2,460 units; 2,980 units. B. 2,460 units; 0 units. C. 2,980 units; 5,350 units. D. 2,980 units; 2,460 units. 17. At the “free market level of trade” there would be a Deadweight-Loss
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