Economics II
Midterm Exam
Course Introduction
Economics II builds upon fundamental economic principles introduced in earlier coursework, delving deeper into both microeconomic and macroeconomic concepts. Students explore topics such as market structures, factor markets, government intervention, national income determination, fiscal and monetary policy, and international trade. Emphasis is placed on real-world applications, analytical skills, and problem-solving through case studies and quantitative analysis. The course equips students with the tools needed to critically evaluate economic events and policies on both national and global scales.
Recommended Textbook
Macroeconomics 12th Edition by Michael Parkin
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Page 2
Chapter 1: What Is Economics?
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Q1) Suppose we are considering the relationship between two variables y and x. y is measured on the y-axis and x is measured on the x-axis, and the relationship between then is a straight line. Suppose that the slope of the line is equal to 1. This slope means that
A) a change in x is associated with a bigger change in y.
B) a change in x is associated with a smaller change in y.
C) a change in x is associated with no change in y.
D) a change in x is associated with an equal change in y.
Answer: D
Q2) The term human capital refers to
A) labor resources used to make capital equipment.
B) buildings and machinery.
C) people's knowledge and skill.
D) entrepreneurship and risk-taking.
Answer: C
Q3) The tools, instruments, machines, and buildings that people use to produce goods and services are called human capital.
A)True
B)False
Answer: False
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Chapter 2: The Economic Problem
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Q1) If the marginal benefit of consuming another unit of a good is positive, then to reach the allocatively efficient level of output more of the good should be produced and consumed
A) no matter what.
B) as long as the consumer can afford to pay for it.
C) if the total benefit of the good is greater than its total cost.
D) if the marginal benefit of the good is greater than its marginal cost.
Answer: D
Q2) In the United States, Texas ranks number one in the amount of installed megawatts for wind power generation and Florida ranks number one in the number of beach vacations. These facts point out that
A) Texas has a comparative advantage in wind power generation.
B) Texas definitely has an absolute advantage in wind power generation.
C) Florida should produce more wind energy.
D) Florida can produce wind energy at a lower opportunity cost than can Texas.
Answer: A
Q3) A circular flow diagram shows the flows from the goods and resources markets.
A)True
B)False
Answer: True
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Chapter 3: Demand and Supply
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Q1) In 2014, the price of peanuts increased. In the market for peanut butter, this change led to ________ and which therefore ________ the price of peanut butter and ________ the quantity of peanut butter.
A) a decrease in the supply; increased; decreased B) an increase in supply; decreased; increased C) a decrease in demand; decreased; decreased D) an increase in demand; increased; increased
Answer: A
Q2) The above figure shows the market for hamburger. Which figure shows the effect of an announcement by the U.S. Food and Drug Administration (FDA)that eating hamburger causes early death?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
Answer: B
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Chapter 4: Measuring GDP and Economic Growth
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Q1) Gross investment equals net investment plus A) capital.
B) capital gains.
C) depreciation.
D) dividends paid to the owners of the company.
Q2) The largest component of GDP is
A) gross private domestic investment.
B) personal consumption expenditures.
C) net exports of goods and services.
D) government expenditure on goods and services.
Q3) Using the information in the table above, depreciation equals
A) -$90 billion.
B) $90 billion.
C) -$70 billion.
D) some amount that cannot be determined.
Q4) An expansion
A) follows a peak.
B) is defined as a period of negative real GDP growth.
C) comes just before a trough.
D) is defined as a period of real GDP increases.
Page 6
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Chapter 5: Monitoring Jobs and Inflation
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Q1) Suppose the country of Quasiland experienced a decrease in real GDP and people were laid off from their jobs. The people would be considered part of
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) discouraged workers.
Q2) A typical household in Orangeland consumes only orange juice and shorts. Last year, which was the base year, the household spent $400 on juice and $120 on shorts. In the base year, juice was $2 a bottle and shorts were $10 a pair. This year, juice is $3 a bottle, shorts are $12 a pair, and a typical household has bought 180 bottles of juice and 14 pairs of shorts.
a)What is the basket used in the CPI?
b)Calculate the CPI in the current year.
c)Calculate the inflation rate in the current year.
d)Is the inflation rate that you've calculated likely to be biased? Why or why not?
Q3) One way to be considered unemployed is to be without a job and looking for work.
A)True
B)False
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Chapter 6: Economic Growth
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Q1) How has the U.S. growth experience compared to that of Central Europe and Africa? How has compared to the recent experience of Asian nations such as Hong Kong and Singapore.
Q2) The higher the real wage rate, the higher the labor force participation rate.
A)True
B)False
Q3) According to the Economic Times (09/2012), Standard & Poor's forecast for India's GDP growth rate was cut by 1 percentage point to 5.5 percent as the entire Asia Pacific region feels the pressure of ongoing economic uncertainty. India has averaged 7 percent growth in GDP since 1997. Which of the following is TRUE?
A) India's PPF has been shifting rightward since 1997.
B) India's PPF has been shifting leftward since 1997.
C) India has been moving from a point within its PPF to points beyond its PPF.
D) India's PPF has not shifted since 1997.
Q4) Economists are interested in long-term economic growth because growth increases real GDP per person and improves our standard of living.
A)True
B)False
Q5) How has U.S. real GDP per person changed over the last 100 years?
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Chapter 7: Finance, Saving, and Investment
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Q1) If national saving (S)is $100,000, net taxes (T)equal $100,000 and government expenditure (G)is $25,000, how much are households and businesses saving?
A) $25,000
B) $225,000
C) -$25,000
D) none of the above
Q2) In January 2015, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2015, Tim spent $200,000 on new machines. During 2015, Tim's net investment totaled
A) $1 million.
B) -$300,000.
C) $200,000.
D) -$100,000.
Q3) The term "capital," as used in macroeconomics, refers to
A) the plant, equipment, buildings, and inventories of raw materials and semi-finished goods.
B) financial wealth.
C) the sum of investment and government purchases of goods.
D) investment.
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Page 9
Chapter 8: Money, the Price Level, and Inflation
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Q1) The Federal Reserve has ________ regional Federal Reserve Banks and ________ members of the Board of Governors.
A) 12; 12
B) 12; 7
C) 7; 12
D) 7; 7
Q2) In the short run, when the Fed increases the quantity of money
A) bond prices rise and the interest rate falls.
B) bond prices fall and the interest rate rises.
C) the demand for money increases.
D) the supply of money curve shifts leftward.
Q3) The president of which Federal Reserve Bank is always a voting member of the FOMC?
Q4) "The velocity of circulation is the average speed with which money is loaned to businesses and households." Is the previous statement correct or incorrect?
Q5) Does the Federal Reserve conduct both the nation's monetary policy and its fiscal policy?
Q6) Explain how the money market determines the equilibrium interest rate.
Q7) What is the money multiplier and what affects its size?
Page 10
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) A factor that helps to determine the demand for the dollar in the foreign exchange market is
A) the expected future exchange rate.
B) the expected future interest rate.
C) the amount of U.S. imports.
D) the supply of U.S. dollars.
Q2) A country has a government sector deficit and a private sector surplus. If the government sector deficit increases, and the private sector surplus decreases, then ________.
A) net exports decrease or remain constant
B) net exports increase
C) net exports increase, decrease, or remain constant
D) net exports decrease
Q3) If people expect the foreign exchange rate for dollars to rise in the future
A) the demand for dollars today decreases.
B) the demand for dollars today increases.
C) the demand for dollars today is unaffected.
D) there is a movement along the demand curve for dollars.
Q4) What happens in the foreign exchange market if the U.S. interest rate increases? What is the effect on the exchange rate?
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) A change in ________ creates a movement along the aggregate demand curve, while a change in ________ shifts the aggregate demand curve.
A) expected profits; tax rates
B) the price level; government expenditures
C) foreign income; the foreign exchange rate
D) real wealth; human capital
Q2) The level of output at which the short-run aggregate supply curve and the aggregate demand curve intersect is the full-employment level of GDP.
A)True
B)False
Q3) A monetarist economist believes that if the economy was left alone, it would rarely operate at full employment.
A)True
B)False
Q4) If the money prices of resources changes, the SAS curve shifts.
A)True
B)False
Q5) What is the difference between a recessionary gap and an inflationary gap?
Q6) What are the substitution effects that affect aggregate demand?
Page 12
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Chapter 11: Expenditure Multipliers
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Q1) In the above figure, when disposable income is greater than $12 trillion, then
A) savings are negative.
B) the MPC is greater than 1.
C) savings are positive.
D) the MPS is negative.
Q2) An increase in the price level decreases planned expenditure because
A) real wealth decreases, thus decreasing expenditure.
B) current prices rise relative to future prices, increasing expenditure.
C) domestic prices rise relative to foreign prices, increasing net exports.
D) the real interest rate rises, increasing consumption expenditure.
Q3) Real GDP equals $20 billion and aggregate planned expenditure is $30 billion. There is an unplanned ________ in inventories of ________ and real GDP will ________.
A) increase; $10 billion; increase
B) increase; $50 billion; decrease
C) decrease; $10 billion; increase
D) decrease; $10 billion; decrease
Q4) As disposable income increases, saving increases.
A)True
B)False
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Chapter 12: The Business Cycle, Inflation, and Deflation
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Q1) Suppose the data show that an unexpected change in tax rates caused a recent recession. These data support which model of the business cycle?
A) new classical cycle theory
B) new Keynesian cycle theory
C) real business cycle theory
D) Both answers A and B are correct.
Q2) Which theory views fluctuations in productivity as the main source of business cycle fluctuations?
A) real business cycle theory
B) Keynesian cycle theory
C) monetarist cycle theory
D) new classical cycle theory
Q3) If Samantha predicts future inflation based on rational expectations, then
A) her forecast of inflation will always be correct.
B) she uses all relevant information to forecast inflation.
C) she looks only to the past to help her predict future inflation.
D) she never under estimates inflation.
Q4) What was the U.S. experience with demand pull inflation during the 1960s and early 1970s?
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Chapter 13: Fiscal Policy
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Q1) The structural surplus
A) equals the actual surplus plus the cyclical surplus.
B) is the government budget surplus that would exist if the economy was at potential GDP.
C) is, by definition, equal to the negative of the cyclical deficit.
D) is legally required to be positive.
Q2) Suppose a country has been running a persistent government budget deficit. If the deficit is reduced, but remains positive
A) government debt will increase.
B) government debt will decrease.
C) the country will experience a budget surplus.
D) interest payments on the debt immediately will decrease.
Q3) If the government runs a deficit, the total amount of government debt is
A) increasing.
B) decreasing.
C) constant.
D) zero.
Q4) What does the Employment Act of 1946 specify? Why is it an important economic milestone?
Q5) 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) Does an open market operation in which the Fed buys securities from the general public decrease or increase the banking system's reserves?
Q2) If the Fed is concerned with inflation it will ________ the federal funds rate in order to ________ aggregate demand.
A) raise; increase
B) lower; increase
C) raise; decrease D) lower; decrease
Q3) If the Fed lowers the federal funds rate, then
A) investment and consumption expenditure decrease.
B) the price of the dollar rises on the foreign exchange market and so net exports decrease.
C) a multiplier process that affects aggregate demand occurs.
D) All of the above answers are correct.
Q4) If the Fed wants to lower the federal funds rate, it can
A) decrease the budget deficit.
B) sell government securities in the open market.
C) instruct banks to print more money.
D) buy government securities on the open market.
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Chapter 15: International Trade Policy
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Q1) If the United States imposes a tariff of $1 per imported shirt, the higher tariff
A) raises the price of a shirt to U.S. consumers.
B) benefits U.S. shirt consumers.
C) increases imports of shirts into the United States.
D) none of the above.
Q2) The fundamental force that drives international trade is
A) comparative advantage.
B) absolute advantage.
C) countries' desire to increase their trade surplus.
D) cheap labor in countries like China or India.
Q3) Which of the following reasons explains why rich countries persistently restrict textile imports from poor countries?
A) The trade restrictions make textile consumers better off.
B) The trade restrictions make workers in poor countries better off.
C) The trade restrictions benefit an organized visible special interest in rich countries.
D) Rich countries have a strong need for the revenue from these trade restrictions.
Q4) What is "rent seeking?" How does it apply to restricting imports?
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