UOP ECO 561 Final Exam Guide (New, 2017)
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<strong>UOP</strong> <strong>ECO</strong> <strong>561</strong> <strong>Final</strong> <strong>Exam</strong> <strong>Guide</strong> (<strong>New</strong>, <strong>2017</strong>)<br />
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<strong>ECO</strong> <strong>561</strong> <strong>Final</strong> <strong>Guide</strong> NEW <strong>2017</strong><br />
1 Which of the following have substantially equivalent effects on a nation's volume<br />
of exports and imports?<br />
Exchange rate appreciation and domestic deflation<br />
Exchange rate depreciation and domestic inflation<br />
Exchange rate appreciation and a decrease in the domestic supply of money<br />
Exchange rate depreciation and domestic deflation<br />
2 Which of the following statements best describes the 12 Federal Reserve Banks?<br />
They are privately owned and publicly controlled central banks whose basic goal is<br />
to earn profits for their owners.<br />
They are privately owned and privately controlled central banks whose basic goal is<br />
to provide an ample and orderly market for U.S. Treasury securities.<br />
They are privately owned and publicly controlled central banks whose basic<br />
function is to minimize the risks in commercial banking in order to make it a<br />
reasonably profitable industry.<br />
They are privately owned and publicly controlled central banks whose basic goal is<br />
to control the money supply and interest rates in promoting the general economic<br />
welfare<br />
3 Buyers will opt out of markets in which:<br />
there are only foreign sellers<br />
there is inadequate information about sellers and their products<br />
there are significant negative externalities<br />
standardized products are being produced<br />
4 Pure monopolists may obtain economic profits in the long run because:<br />
of advertising<br />
marginal revenue is constant as sales increase<br />
of rising average fixed costs
of barriers to entry<br />
5 All else equal, a large decline in the real interest rate will shift the:<br />
investment demand curve rightward<br />
investment demand curve leftward<br />
investment schedule upward<br />
investment schedule downward<br />
6 In order for mutually beneficial trade to occur between two otherwise isolated<br />
nations:<br />
each nation must be able to produce at least one good relatively cheaper than the<br />
other<br />
each nation must face constant costs in the production of the good it exports<br />
one nation's production must be labor-intensive while the other nation's production<br />
is capital-intensive<br />
each nation must be able to produce at least one good absolutely cheaper than the<br />
other<br />
7 If the Federal Reserve System buys government securities from commercial banks<br />
and the public:<br />
the money supply will contract<br />
commercial bank reserves will decline<br />
it will be easier to obtain loans at commercial banks<br />
commercial bank reserves will be unaffected<br />
8 Normal profit is:<br />
the average profitability of an industry over the preceding 10 years<br />
determined by subtracting explicit costs from total revenue<br />
the return to the entrepreneur when economic profits are zero<br />
determined by subtracting implicit costs from total revenue<br />
9 The term "recession" describes a situation where:<br />
an economy's ability to produce is destroyed<br />
output and living standards decline<br />
inflation rates exceed normal levels<br />
Government takes a less active role in economic matters<br />
10 If an unintended increase in business inventories occurs at some level of GDP,<br />
then GDP:<br />
is too low for equilibrium<br />
entails a rate of aggregate expenditures in excess of the rate of aggregate production<br />
is too high for equilibrium
may be either above or below the equilibrium output<br />
11 The fact that international specialization and trade based on comparative<br />
advantage can increase world output is demonstrated by the reality that:<br />
a nation's production possibilities and trading possibilities lines coincide<br />
the production possibilities curves of any two nations are identical<br />
a nation's trading possibilities line lies to the right of its production possibilities<br />
line<br />
a nation's production possibilities line lies to the right of its trading possibilities<br />
line<br />
12 In the theory of comparative advantage, a good should be produced in that nation<br />
where:<br />
its cost is least in terms of alternative goods that might otherwise be produced<br />
its absolute cost in terms of real resources used is least<br />
its absolute money cost of production is least<br />
the production possibilities line lies further to the right than the trading<br />
possibilities line<br />
13 Why are economists concerned about inflation?<br />
Inflation lowers the standard of living for people whose income does not increase as<br />
fast as the price level<br />
Real GDP is necessarily falling when there is inflation<br />
Inflation generally causes unemployment rates to rise<br />
Inflation increases the value of peoples' saving and encourages overspending on<br />
goods and services<br />
14 Two major virtues of the market system are that it:<br />
results in an equitable personal distribution of income and always maintains full<br />
employment<br />
results in price level stability and a fair personal distribution of income<br />
allocates resources efficiently and allows economic freedom<br />
eliminates discrimination and minimizes environmental pollution<br />
15 Suppose you have a limited money income and you are purchasing products A<br />
and B, whose prices happen to be the same. To maximize your utility, you should<br />
purchase A and B in such amounts that:
the income and substitution effects associated with each are equal<br />
their marginal and total utilities are proportionate<br />
their total utilities are the same<br />
their marginal utilities are the same<br />
16 Macroeconomics approaches the study of economics from the viewpoint of:<br />
governmental units<br />
the entire economy<br />
individual firms<br />
the operation of specific product and resource markets<br />
17 Mrs. Arnold is spending all her money income by buying bottles of soda and bags<br />
of pretzels in such amounts that the marginal utility of the last bottle is 60 utils and<br />
the marginal utility of the last bag is 30 utils. The prices of soda and pretzels are<br />
$.60 per bottle and $.40 per bag respectively. It can be concluded that:<br />
Mrs. Arnold should spend more on soda and less on pretzels<br />
Mrs. Arnold is buying soda and pretzels in the utility-maximizing amounts<br />
the two commodities are substitute goods<br />
Mrs. Arnold should spend more on pretzels and less on soda<br />
18 The simple circular flow model shows that:<br />
households are on the selling side of the resource market and on the buying side of<br />
the product market.<br />
businesses are on the selling side of both product and resource markets.<br />
households are on the buying side of both product and resource markets.<br />
businesses are on the buying side of the product market and on the selling side of<br />
the resource market.<br />
19 Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million<br />
of U.S. securities from the public, which deposits this amount into checking<br />
accounts. As a result of these transactions, the supply of money is:<br />
directly increased by $4 million and the money-creating potential of the commercial<br />
banking system is increased by an additional $16 million.<br />
not directly affected, but the money-creating potential of the commercial banking<br />
system is increased by $12 million.<br />
directly increased by $4 million and the money-creating potential of the commercial<br />
banking system is increased by an additional $12 million.<br />
directly reduced by $4 million and the money-creating potential of the commercial<br />
banking system is decreased by an additional $12 million.
20 As output increases, total variable cost:<br />
increases at a constant rate<br />
increases at a decreasing rate and then at an increasing rate<br />
increases continuously at a decreasing rate<br />
increases more rapidly than does total cost<br />
21 The two basic markets shown by the simple circular flow model are:<br />
product and resource<br />
free and controlled<br />
household and business<br />
capital goods and consumer goods<br />
22 Countercyclical discretionary fiscal policy calls for:<br />
surpluses during both recessions and periods of demand-pull inflation<br />
deficits during both recessions and periods of demand-pull inflation<br />
surpluses during recessions and deficits during periods of demand-pull inflation<br />
deficits during recessions and surpluses during periods of demand-pull inflation<br />
23 Because the federal government typically provides disaster relief to farmers,<br />
many farmers do not buy crop insurance even through it is federally subsidized.<br />
This illustrates:<br />
the moral hazard problem<br />
the special interest effect<br />
the adverse selection problem<br />
logrolling<br />
24 A monopolistically competitive industry combines elements of both competition<br />
and monopoly. The monopoly element results from:<br />
the likelihood of collusion<br />
mutual interdependence<br />
product differentiation<br />
high entry barriers<br />
25 Research for industrially advanced countries indicates that:<br />
the more independent the central bank, the higher the average annual rate of<br />
unemployment.
the more independent the central bank, the higher the average annual rate of<br />
inflation<br />
the more independent the central bank, the lower the average annual rate of<br />
inflation<br />
there is no relationship between the degree of independence of a country's central<br />
bank and its inflation rate.<br />
26 The business cycle depicts:<br />
short-run fluctuations in output and employment<br />
the phases a business goes through from when it first opens to when it finally closes<br />
fluctuations in the general price level<br />
the evolution of technology over time<br />
27 The primary gain from international trade is:<br />
increased employment in the domestic export sector<br />
increased employment in the domestic import sector<br />
more goods than would be attainable through domestic production alone<br />
tariff revenue<br />
28 Contractionary fiscal policy is so named because it:<br />
necessarily reduces the size of government<br />
is aimed at reducing aggregate demand and thus achieving price stability<br />
involves a contraction of the nation's money supply<br />
is expressly designed to expand real GDP<br />
29 If the prices of all goods and services rose, but the quantity produced remained<br />
unchanged, what would happen to nominal and real GDP?<br />
Real GDP would rise, but nominal GDP would be unchanged<br />
Nominal and real GDP would both be unchanged<br />
Nominal GDP would rise, but real GDP would be unchanged<br />
Nominal and real GDP would both rise<br />
30 Which of the following will generate a demand for country X's currency in the<br />
foreign exchange market?<br />
Charitable contributions by country X's citizens to citizens of developing nations<br />
The imports of country X<br />
The desire of foreigners to buy stocks and bonds of firms in country X
Travel by citizens of country X in other countries<br />
Information