Economics II
Final Exam Questions
Course Introduction
Economics II builds upon the foundational concepts introduced in introductory economics courses, delving deeper into both macroeconomic and microeconomic theories. Students will explore market structures, fiscal and monetary policy, international trade, and economic growth, with an emphasis on applying analytical tools to real-world scenarios. The course also covers topics such as inflation, unemployment, and government intervention, equipping students with advanced problem-solving skills and a deeper understanding of the forces that drive economies at both national and global levels.
Recommended Textbook
Macroeconomics 11th Edition by Michael Parkin
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Page 2
Chapter 1: What Is Economics
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Q1) What does the slope of the curved line at point A shown in the above figure equal?
Answer: The slope of a curved line equals the slope of a straight line that touches the curved line at only that point.And,the slope of a straight line equals the change in variable on the y-axis divided by the change in the variable on the x-axis.Measure the slope of the straight line from point A to where the line crosses the x-axis,at 15.Thus the straight line has a slope of \[( 30 - 0 ) / ( 10 - 15 ) = - 6\] Therefore the curve line at point A also has a slope equal to -6.
Q2) In the above figure,the slope across the arc between b and d is
A) 1/2.
B) 1/3.
C) 5/3.
D) 6/5.
Answer: C
Q3) What is opportunity cost?
Answer: Opportunity cost is the highest-valued alternative given up when selecting an action.For instance,the opportunity cost of studying an hour is whatever the highest-valued alternative would have been for the hour spent studying.
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Chapter 2: The Economic Problem
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Q1) Over the past several decades,the United States has devoted a greater fraction of its resources to consumption than Hong Kong,which is why the U.S.economy grew faster than Hong Kong's economy.
A)True
B)False
Answer: False
Q2) The kitchen manager at an Italian restaurant is deciding what assignments he should give to his two cooks,John and David.John can make 25 pizzas or 40 servings of pasta per hour and David can make 20 pizzas or 30 servings of pasta.Which of the following should be the manager's choice?
A) Fire David because he is not as productive as John. John will do both jobs.
B) John will make pizza because he has comparative advantage in making pizza.
C) David will make pizza because he has comparative advantage in making pizza.
D) John and David both will spend half their time making pizza and half their time making pasta because each has a comparative advantage in making pizza.
Answer: C
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Chapter 3: Demand and Supply
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Sample Questions
Q1) The price of a bag of corn chips is $3,and the price of a bottle of soda is $1.What is the relative price of a bag of corn chips?
A) 3 bottles of soda per bag of corn chips
B) 1/3 bottle of soda per bag of corn chips
C) $3
D) 33¢
Answer: A
Q2) Good A and good B are substitutes in production.The demand for good A decreases,which lowers the price of good A.The decrease in the price of good A
A) decreases the supply of good B.
B) increases the supply of good B.
C) decreases the demand for good B.
D) increases the demand for good B.
Answer: B
Q3) What leads to a decrease in the quantity supplied of a good or service?
Answer: The quantity supplied of a good or service decreases when the price of the product decreases.
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Chapter 4: Measuring GDP and Economic Growth
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Q1) Is it possible for nominal GDP to increase while real GDP does not change?
Q2) Consumption expenditure is the payment by households for consumption of A) goods but not services.
B) services but not goods.
C) goods and services.
D) services and for saving.
Q3) Suppose the country of Dingo experienced an economic trough in January 2011.We can conclude that
A) real GDP in Dingo was increasing in January 2011.
B) an expansion occurred after January 2011.
C) Dingo did not experience a recession in 2010.
D) Dingo's potential GDP fell in 2011.
Q4) List and compare the four components of the expenditure approach to calculating GDP.
Q5) The circular flow diagram shows that the flow of payments to the factors used to produce goods and services exceeds the flow of payments for final goods and services.
A)True
B)False
Q6) Define and distinguish between final goods and intermediate goods.
Page 6
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Chapter 5: Monitoring Jobs and Inflation
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Q1) The bias in the CPI typically
A) overstates inflation.
B) understates inflation.
C) about half the time overstates and about half the time understates the inflation rate.
D) cannot be measured or estimated.
Q2) In a country with a working-age population of 300 million,230 million workers are employed and 40 million workers are unemployed.What is the labor force participation rate?
A) 100 percent
B) 90 percent
C) 65 percent
D) 5 percent
Q3) How does the unemployment rate change in a recession and in an expansion?
Q4) Frictional unemployment is the result of
A) technological change or foreign competition.
B) normal labor market turnover.
C) a slowdown in the rate of economic expansion.
D) irresponsible workers with poor work habits.
Q5) Give an example of a structurally unemployed person.
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Chapter 6: Economic Growth
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Q1) With no change in labor productivity,what would happen to the real wage rate and potential GDP if the population increased?
Q2) Economic growth is measured by
A) changes in real GDP.
B) changes in nominal GDP.
C) changes in the employment rate.
D) All of the above are used to measure economic growth.
Q3) What factors raise the productivity of labor?
Q4) An advance in technology shifts the production function upward and shifts the labor
A) demand curve leftward.
B) supply curve leftward.
C) demand curve rightward.
D) supply curve rightward.
Q5) Suppose there is a rise in the real wage rate.As a result,the quantity of labor demanded
A) increases.
B) decreases.
C) does not change because there is no change in the money wage rate.
D) increases only if the price level also decreases.
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Chapter 7: Finance, Saving, and Investment
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Q1) If the nominal interest rate is 8 percent and the current inflation rate is 3 percent,approximately what is the real interest rate?
A) 11 percent
B) 8 percent
C) 5 percent
D) 3 percent
Q2) If the world real interest rate falls,then a country that is a net foreign lender
A) increases the amount of its lending.
B) does not change the amount of its lending.
C) decreases the amount of its lending.
D) None of the above answers is correct because lending might increase, decrease, or not change.
Q3) A nation's investment must be financed by
A) national saving only.
B) the government's budget deficit.
C) borrowing from the rest of the world only.
D) national saving plus borrowing from the rest of the world.
Q4) How does expected future income affect saving supply?
Q5) How does the real interest affect households' decisions about saving?
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Chapter 8: Money, The Price Level, and Inflation
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Sample Questions
Q1) The definition of M2 includes A) M1.
B) savings deposits.
C) time deposits.
D) all of the above
Q2) Which of the following are part of a commercial bank's reserves?
I. cash in the bank's vaults
II. loans
III. cash in checking accounts
A) I only
B) I and II
C) I and III
D) I, II and III
Q3) When real GDP increases,people demand
A) the same quantity of real money.
B) less real money.
C) more real money.
D) more money in nominal terms but less in real terms.
Q4) What effect does an increase in the interest rate have on the opportunity cost of holding money and on the demand for money curve?
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) The People's Bank of China has
A) allowed a flexible exchange rate to boost exports.
B) managed its exchange rate to help control inflation.
C) strictly followed a fixed exchange rate to boost exports.
D) purchased U.S. dollars to appreciate the yuan.
Q2) If the Fed wants to depreciate the dollar against the yen,the Fed will
A) increase the supply of dollars by selling yen.
B) increase the demand for dollars by selling yen.
C) decrease the supply of dollars by selling yen.
D) increase the supply of dollars by buying yen.
Q3) A decrease in the demand for U.S.exports ________ the demand for U.S.dollars and shifts the demand curve for U.S.dollars ________.
A) increases; rightward
B) decreases; rightward
C) decreases; leftward
D) increases; leftward
Q4) The current account records foreign investment in the United States minus U.S.investment abroad.
A)True
B)False
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) What could Keynes have meant by his now famous statement,"in the long run we are all dead? "
A) Government intervention is destabilizing, will lead to slower growth in the long run, and will prevent an economy from self-regulating.
B) Government intervention in the economy is necessary in times of recession because an economy rarely restores itself to full-employment.
C) Government intervention in the economy is useless because it takes too long to take effect.
D) Government intervention in the economy is only effective if it is not erratic.
Q2) In 2008 the money wage rate in Ireland increased by 4 percent while the price level increased by 8 percent. As a result,Ireland's
A) short-run aggregate supply curve shifted leftward.
B) short-run aggregate supply curve shifted rightward.
C) long-run aggregate supply curve shifted rightward.
D) short-run and long-run aggregate supply curves shifted rightward.
Q3) What are the substitution effects that affect aggregate demand?
Q4) Explain the reasons why the AD curve slopes downward.
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12
Chapter 11: Expenditure Multipliers
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Sample Questions
Q1) The slope of the consumption function
A) is positive and equals 1 - MPC.
B) is negative.
C) equals the MPC.
D) is undefined below the 45-degree line.
Q2) If the change in autonomous investment equals $1 trillion and the change in real GDP equals $4 trillion,the multiplier equals 1/4.
A)True
B)False
Q3) Discuss the link between real GDP and imports.
Q4) Any expenditure component that depends on the level of real GDP is called
A) spurious expenditure.
B) equilibrium expenditure.
C) induced expenditure.
D) autonomous expenditure.
Q5) How do firms respond to unplanned inventory changes? What is the effect on their production and GDP?
Q6) What is the relationship between the aggregate expenditure curve and the aggregate demand curve?
Explain the relationship.
Page 13
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Chapter 12: Inflation, Jobs, and the Business Cycle
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Q1) Suppose that the money prices of raw materials increase so that short-run aggregate supply decreases.If the Federal Reserve does not respond,the higher money price of raw materials will I. repeatedly shift the aggregate demand curve rightward and raise the price level.
II) shift the aggregate demand curve rightward and the aggregate supply curve leftward,raising prices.
III) result initially in lower employment and a higher price level.
A) I only
B) both I and II
C) both II and III
D) III only
Q2) Distinguish between the short-run and long-run Phillips curves.
Q3) If an economy at potential GDP experiences a demand shock that shifts the aggregate demand curve rightward,there will be
A) an eventual leftward shift in the short-run aggregate supply curve.
B) unemployment below the natural rate.
C) upward pressure on money wage rates.
D) All of the above answers are correct.
Q4) What are sources that can start a demand-pull inflation?
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) How does a tax on labor income affect potential GDP?
Q2) If the government raises taxes on labor income and interest income,explain how potential GDP and economic growth are affected.
Q3) In response to the economic crisis in 2008,President Merkel "highlighted in her speech what the German government has already done: a financial sector rescue package worth up to 500 billion,and a proposed stimulus package of tax breaks [on income] and spending measures aimed at triggering investments of up to 50 billion over the next two years." www.iht.com,11/26/2008
Which parts of the stimulus plan will increase labor supply?
A) financial sector rescue package
B) spending measures targeted at investment
C) tax breaks
D) all of the above
Q4) If employment exceeds full employment,what fiscal policy actions could eliminate the gap?
Q5) According to tax receipt and outlay categories,what are the main components of the federal government budget?
Q6) What is the government expenditure multiplier?
Q7) How can discretionary fiscal policy be used to close a recessionary gap?
Page 15
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Chapter 14: Monetary Policy
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Q1) In order to combat a recession,the Fed will ________ the federal funds rate thereby ________ the quantity of money.
A) raise; increase
B) lower; increase
C) raise; decrease
D) lower; decrease
Q2) If the federal funds rate is below the Fed target,the Fed will conduct an open market sale to increase the federal funds rate to the desired level.
A)True
B)False
Q3) The figure above shows the market for bank reserves in Futureland.If the Bank of Futureland undertakes an open market sale of government securities that changes the quantity of reserves by $100 billion,then the federal funds rate will ________.
A) rise to 8 percent a year
B) remain at 6 percent a year
C) fall to 4 percent a year
D) None of the above answers is correct.
Q4) Describe how open market operations change the quantity of money.
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Chapter 15: International Trade Policy
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Q1) Suppose the country of Mooland imposes tariffs on imported beef from the country of Aqualand.As a result of the tariffs,the
A) price of beef in Mooland falls.
B) quantity of beef exported by Mooland increases.
C) quantity of beef imported by Mooland decreases.
D) quantity of beef imported by Mooland increases.
Q2) The Smoot-Hawley Act
A) made most tariffs illegal.
B) greatly raised tariffs.
C) gave the President the right to broker trade deals with other nations.
D) recognized Congress's right to deny trade authorization powers to the President.
Q3) A tariff is a
A) tax on an exported good or service.
B) tax on an imported good or service.
C) subsidy on an exported good.
D) subsidy on an imported good.
Q4) What is "rent seeking?
" How does it apply to restricting imports?
Q5) Why do nations engage in international trade?
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Chapter 16: Introduction
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Q1) If OPEC cuts oil production,then the A) demand for gasoline will decrease.
B) price of gasoline will fall.
C) demand for gasoline will increase.
D) supply of gasoline will decrease.
Q2) Shoes are a normal good and people's incomes rise.As a result,the equilibrium price of a pair of shoes ________ and the equilibrium quantity ________.
A) rises; increases
B) rises; decreases
C) falls; increases
D) falls; decreases
Q3) An opportunity cost of economic growth is
A) the capital accumulation given up to increase present consumption.
B) the increased future consumption.
C) the present consumption given up to accumulate capital.
D) None of the above because there is no opportunity cost since if an economy grows, it can produce more of all goods.
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Chapter 17: Monitoring Macroeconomic Performance
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Q1) At full employment,
A) real GDP equals potential GDP.
B) the unemployment rate is zero.
C) real GDP is above potential GDP.
D) the business cycle is at its peak.
Q2) Comparing the unemployment rate and the business cycle we see that
A) the unemployment rate generally increases during expansions and generally decreases during recessions.
B) there is virtually no relationship between the business cycle and the unemployment rate.
C) the unemployment rate eventually falls during expansions and rises during recessions.
D) higher unemployment rates are the cause of most business cycles.
Q3) A significant decline in activity spread across the economy,lasting more than a few months is called
A) a recession.
B) an expansion.
C) a peak.
D) inflation.
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Page 19
Chapter 18: Macroeconomic Trends
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Q1) The ________ growth theory assumes that population growth is not driven by real GDP per person and the ________ growth theory predicts that differences in the economic growth rate can last indefinitely.
A) new; classical
B) neoclassical; new
C) classical; neoclassical
D) neoclassical; neoclassical
Q2) If the U.S.interest rate differential ________,the demand for dollars ________ and the U.S.exchange rate ________.
A) increases; increase; appreciates B) decreases; increase; appreciates C) increases; decrease; depreciates
D) decreases; decreases; appreciates
Q3) If two currencies allow for the equal value of money so that the same bundle of goods cost the same in two countries,there is
A) trade equalization parity.
B) interest rate parity.
C) tariff application parity.
D) purchasing power parity.
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Chapter 19: Macroeconomic Fluctuations
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Q1) Japan's population increased by 3 percent in 2010. As a result,which of the following occurred?
I. an increase in potential GDP
II. a rightward shift in the long-run aggregate supply curve
III. a rightward shift in the short-run aggregate supply curve.
A) I, II and III.
B) III only.
C) I and II only.
D) II and III.
Q2) Business cycles result when
A) aggregate demand grows faster than potential GDP.
B) the labor force participation rate changes.
C) aggregate supply and aggregate demand change at an uneven pace.
D) real GDP equals potential GDP.
Q3) Keynesian economists believe that
A) the economy automatically adjusts towards full employment.
B) monetary policy causes business cycles.
C) there are no business cycles.
D) activist government policy is needed to get the economy to full employment.
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Chapter 20: Macroeconomic Policy
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Q1) ________ occurs when a foreign firm sells its exports at a lower price than its cost of production.
A) A quota
B) Dumping
C) A tariff
D) A nontariff barrier
Q2) If the economy is at potential GDP and the Fed makes an open market purchase of government securities,in the short run bank reserves ________,the nominal interest rate ________,and the aggregate demand curve ________.
A) stay constant; does not change; does not shift
B) increase; rises; shifts rightward
C) decrease; falls; shifts rightward
D) increase; falls; shifts rightward
Q3) Fiscal policy entails changes in
A) the quantity of money.
B) the MPC.
C) government spending and taxes.
D) the multiplier.
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