ECON EXAM

Question 1

I’ve been studying hard all week and I want to get out of the house tonight! My options are to (1) go somewhere with live music, (2) see the Fireflies game and eat expensive hot dogs, or (3) cook dinner and play games at my friend’s house. I’d prefer (1) to (2) and (2) to (3), and only have time for one event tonight. If each of these has the same dollar cost, what is the opportunity cost of going somewhere with live music tonight?

a
A Fireflies baseball game with expensive concessions.

b
Dinner and games at my friend’s house.

c
The baseball game and hanging out at my friend’s house.

Answer 1

A Fireflies baseball game with expensive concessions.

Question 2

The largest source of household income in the United States is:
Select an answer and submit.

a
stock dividends.

b
wages and salaries.

c
interest earnings.

d
rental income.

Answer 2

b
wages and salaries.

Question 3

In practice, distribution under socialism is primarily determined by:

a
individual altruism and cooperation.

b
the ability of each individual to produce.

c
central planners within the government.

d
market forces of supply and demand.

Answer 3

c
central planners within the government.

Question 4

In principle, socialism is:
Select an answer and submit.

a
less concerned about fairness than capitalism.

b
just as concerned about fairness as capitalism.

c
more concerned about fairness than capitalism.

d
not concerned about fairness at all.
Correct Answer:

Answer 4

c
more concerned about fairness than capitalism.

Question 5

Which of the following is true of an economic model?

a
Must be a mathematical formula to calculate the effects of economic forces such as unemployment and interest rates

b
Is specifically used to forecast future economic events

c
Makes simplifying assumptions to provide a simpler version of a complex problem so that it may be studied and understood

d
Is really only used by banks to calculate the effect of macroeconomic events on loans

Answer 5

c
Makes simplifying assumptions to provide a simpler version of a complex problem so that it may be studied and understood

Question 6

Private property rights are essential to market economies.

a
True

b
False

Answer 6

a
True

Question 7

An increase of the price of a good will cause:

a
supply to increase

b
supply to decrease

c
supply to increase only if the good is “normal”

d
no change in supply

Answer 7

d
no change in supply

Question 8

An increase in the price of a good will cause:

a
demand to increase

b
demand to decrease

c
demand to decrease only if the good is “normal”

d
no change in demand

Answer 8

d
no change in demand

Question 9

Indicate which of the following is a Positive Statement and which is a Normative Statement

The United States should legalize Marijuana

The legalization of Marijuana would lower alcohol and tobacco sales

Answer 9

The United States should legalize Marijuana - normative

The legalization of Marijuana would lower alcohol and tobacco sales - positive

• normative statements are what you think should happen

Question 10

Economists characterize the decision of whether to live in suburbs as a trade-off between the benefit of lower housing prices versus the total cost: the direct cost of paying for the transportation and the indirect cost of longer commute times. If the innovation of Autonomous Automobiles may increase urban sprawl because people can spend that commuting time getting work done instead of concentrating on driving, then how would you characterize this innovation in the context of an analysis of the costs and benefits?

a
Lowers total cost of commuting because the direct costs of commuting increase.

b
Lowers total cost of commuting because the indirect costs of commuting decrease.

c
Raises benefit due to the indirect effect of housing prices lowering in equilibrium

d
Lowers total cost of commuting because the indirect costs of commuting increase

Answer 10

b
Lowers total cost of commuting because the indirect costs of commuting decrease.

Question 11

There is an old proverb that “anything worth doing is worth doing well”. Would an Economist agree and why?

a
No. Even though the benefit of doing it at all may exceed the cost of doing it at all, the cost of the extra effort to do it well can exceed the benefit of doing it well

b
Yes. Doing it well is optimizing behavior.

c
No. There are not any next-best alternatives to Doing it well in the statement.

d
Yes. Marginal cost of effort is increasing and the marginal benefit of well is falling.

Answer 11

a
No. Even though the benefit of doing it at all may exceed the cost of doing it at all, the cost of the extra effort to do it well can exceed the benefit of doing it well

Question 12

Suppose that you are offered a promotion that will pay you $10k more per year but will require an additional 100 hours on the road away from your family. By turning down the promotion, you have revealed to your family that this marginal time spent with them is worth at least $______ per hour.

Answer 12

100

Question 13

Economists are shy about normative statements and tend to fall back on only advocating for Pareto Improvements due to
Select an answer and submit.

a
Skepticism

b
Heterogeneity

c
Rationality

d
Scarcity

Answer 13

b
Heterogeneity

Question 14

What principle is assumed when Economists model agents as optimizing some objective?

a
Skepticism

b
Market Efficiency

c
Interdependecy

d
Rationality

Answer 14

d
Rationality

Question 15

This is a normative statement.
Select an answer and submit.

a
True

b
False

Answer 15

b
False

Question 16

Adam Smith’s “invisible hand” refers to what?

a
The way in which some government regulations, like parameters on property rights, are not usually mentioned but still have enormous impacts.

b
People working in their own self interest always works out best for society.

c
People working in their own self interest sometimes works out best for society.

d
Butchers and bakers make food. We usually only see the products, not the hands that made the food.

Answer 16

c
People working in their own self interest sometimes works out best for society.

Question 17

Tipping at a restaurant while on vacation is an example of the influence of what kind of economic system?

a
Traditional

b
Centrally planned

c
Market

d
None of the above

Answer 17

a
Traditional

Question 18

When I say “assume this market is competitive” which of the following assumptions am I asking you to make? (Select all correct answers)

a
There are many price taking buyers and sellers.

b
The good is homogeneous (no appreciable quality differences).

c
There are no externalities (when the good is produced/traded/consumed no third party is benefited or harmed).

d
The equilibrium that results will be efficient.

e
New sellers can freely enter the market.

Answer 18

a
There are many price taking buyers and sellers.

b
The good is homogeneous (no appreciable quality differences).

e
New sellers can freely enter the market

Question 19

Suppose a new study is released which demonstrated that the use of YMBHS reduces the relative risk or carpal tunnel syndrome (a bad thing) by 50%.
What can we expect to happen to the equilibrium price?

a
It will increase.

b
It will decrease.

c
It will not change.

d
Any of the above could happen.

Answer 19

a
It will increase.

Question 20

Suppose a new study is released which demonstrated that the use of YMBHS reduces the relative risk or carpal tunnel syndrome (a bad thing) by 50%. What can we expect to happen to the equilibrium quantity?

a
It will increase.

b
It will decrease.

c
It will not change.

d
any of the above could happen

Answer 20

a
It will increase.

Question 21

Imagine instead of that study being released, the price of corn-based yak feed doubles.

What can we expect to happen to the equilibrium price?

a
It will increase.

b
It will decrease.

c
It will not change.

d
Any of the above could happen.

Answer 21

a
It will increase.

Question 22

Imagine instead of that study being released, the price of corn-based yak feed doubles.
What can we expect to happen to the equilibrium quantity?

a
It will increase.

b
It will decrease.

c
It will not change.

d
Any of the above could happen.

Answer 22

b
It will decrease.

Question 23

Now suppose the study from before is released and the price of corn-based yak feed increases at the same time.

What can we expect to happen to the equilibrium price?

a
It will increase.

b
It will decrease.

c
It will not change.

d
Any of the above could happen.

Answer 23

a
It will increase.

Question 24

Now suppose the study from before is released and the price of corn-based yak feed increases at the same time.

What can we expect to happen to the equilibrium quantity?

a
It will increase.

b
It will decrease.

c
It will not change.

d
Any of the above could happen.

Answer 24

d
Any of the above could happen.

Question 25

Which of the following would not be counted in GDP?

a
The fee a realtor charges to sell a new house.

b
The fee a realtor charges to sell an old house.

c
The value of a newly constructed log cabin I built for myself on some land I own in the country.

d
The amount of rent I don’t have to pay because I own my house.

e
More than one of the above is correct.

Answer 25

d
The amount of rent I don’t have to pay because I own my house.

Question 26

Which of the following is not a requirement for goods and services to be counted in GDP?

a
New

b
Final

c
Privately produced

d
Domestically produced

Answer 26

c
Privately produced

Question 27

Which is the largest category of GDP?

a
Consumption

b
Investment

c
Government Purchases

d
Net Exports

Answer 27

a
Consumption

Question 28

GDP is measured on a __________ basis by the _____.

a
Monthly, BLS

b
Quarterly, BLS

c
Monthly, BEA
Your answer

d
Quarterly, BEA

Answer 28

d
Quarterly, BEA

Question 29

In 2018, inflation was positive. Which was higher, Nominal GDP or real GDP?

a
Nominal GDP

b
Real GDP

c
They were equal.

d
It depends on the base year.

Answer 29

d
It depends on the base year.

Question 30

The small country of Grand Fenwick had a nominal GDP of $30 million and a real GDP of $32 million in 2015. Which of the following is true?

a
The price level in Grand Fenwick was higher in 2015 than in the base year.

b
The price level in Grand Fenwick was lower in 2015 than in the base year.

c
Grand Fenwick was experiencing inflation in 2015.

d
Grand Fenwick was experiencing deflation in 2015.

Answer 30

b
The price level in Grand Fenwick was lower in 2015 than in the base year.

Question 31

Sally lost her job almost a year ago and looked for a new one for several months before deciding to become a homemaker. How would economists describe Sally right now?

a
Unemployed

b
Employed

c
Discouraged

d
Marginally Attached

e
Three of the above

f
Two of the above

Answer 31

d
Marginally Attached

Question 32

What effect will Sally’s decision to become a homemaker have on GDP? (Assuming she otherwise would have found a job)

a
GDP will be higher

b
GDP will be lower

c
GDP will be unchanged

d
Sally’s decision has no direct effect on GDP.

Answer 32

b
GDP will be lower

Question 33

What effect will Sally’s decision to be a homemaker have on national income? (Assume she would otherwise have found a job.)

a
National income will be higher.

b
National income will be lower.
Your answer

c
National income will be unchanged.

d
Any of the above are possible.

Answer 33

d
Any of the above are possible.

Question 34

Which of the following is not a problem with using GDP to measure output?

a
GDP doesn’t include home production.

b
GDP doesn’t include production in informal markets.

c
GDP doesn’t measure the distribution of the fruits of production.

d
GDP does not accurately count the value of environmental production.

Answer 34

c
GDP doesn’t measure the distribution of the fruits of production.

Question 35

Hector worked as a distribution manager for an international organization until he had a serious medical incident, leaving him disabled. He no longer works and is not seeking a job. What effect did Hectors medical incident have on the unemployment rate?

a
The unemployment rate increased.

b
The unemployment rate decreased.

c
The unemployment rate would not have been affected.
Your answer

d
The unemployment rate would have increased if it were below 50%, otherwise it would have increased.

Answer 35

a
The unemployment rate increased.

Question 36

Sam has been travelling outside his country for a couple years. (I don’t think we covered this, but he would not be counted in the total population while he is not a resident). Upon his return he starts his own gardening business. What effect does Sam’s return have on the unemployment rate?

a
The unemployment rate will decrease.

b
The unemployment rate will increase.

c
The unemployment rate will be unchanged.
Your answer

d
The unemployment rate will decrease if it was below 50%, otherwise it will increase.

Answer 36

a
The unemployment rate will decrease.

Question 37

Sam has been travelling outside his country for a couple years. (I don’t think we covered this, but he would not be counted in the total population while he is not a resident). Upon his return he starts his own gardening business. What effect does Sam’s return have on the labor force participation rate?

a
The labor force participation rate will decrease.

b
The labor force participation rate will increase.

c
The labor force participation rate will be unchanged.

d
The labor force participation rate will decrease if it was below 50%, otherwise it will increase.

Answer 37

b
The labor force participation rate will increase.

Question 38

How are the unemployment measures U-3 and U-4 related?

a
U-3 is traditional unemployment, U-4 counts people who are employed part time but want a full time position.

b
U-3 is only counts individuals who have looked for work in the last 3 weeks, whereas U-4 (Headline Unemployment) counts individuals who have looked for work in the last 4 weeks.
Your answer

c
This is a trick question, U-3 and U-4 are not measures of unemployment.

d
U-3 is less than or equal to U-4. Note: if it is ever possible for U-4 to be strictly smaller than U-3, do not pick this answer.

Answer 38

d
U-3 is less than or equal to U-4. Note: if it is ever possible for U-4 to be strictly smaller than U-3, do not pick this answer.

Question 39

John used to work as a hiring consultant for an employment agency, but with many companies turning to AI to handle job applications John’s company found they had little use for him and let him go. John has been continually looking for a job for the last twelve weeks, but no company wants (human) hiring consultants. John is:

a
Frictionally unemployed

b
Structurally unemployed

c
Tacitly unemployed

d
Not really unemployed

Answer 39

b
Structurally unemployed

Question 40

Inflation refers to:

a
An increase in the price of levelling generals.

b
A general increase in the level of prices.

c
A general level of increasing prices.

d
A general price level.

Answer 40

b
A general increase in the level of prices.

Question 41

Suppose a price index includes three categories: gas, groceries, and rent. The basket contains 20 gallons of gas/month, 4 grocery trips, and a single rent payment. What is the value of this price index in 2014? (Do not normalize to 100)

a
1

b
1.12

c
0.89

d
Not enough information.

Answer 41

d
Not enough information.

Question 42

Suppose a price index includes three categories: gas, groceries, and rent. The basket contains 20 gallons of gas/month, 4 grocery trips, and a single rent payment. Use 2014 as the base year. What is the value of this price index in 2015? (Do not normalize to 100)

a
1

b
1.12

c
0.89

d
Not enough information.

Answer 42

b
1.12

Question 43

Suppose a price index includes three categories: gas, groceries, and rent. The basket contains 20 gallons of gas/month, 4 grocery trips, and a single rent payment. What was the inflation rate between 2014 and 2015?

a
11.9%

b
13.5%

c
16.1%

d
Not enough information.

Answer 43

a
11.9%

Question 44

The substitution bias causes inflation to be:

a
Overestimated

b
Underestimated

c
Lower in cities and higher in rural areas

d
This is a trick question, the substitution bias is about GDP, not inflation.

Answer 44

a
Overestimated

Question 45

Which of the following is not a cost of inflation?

a
Menu costs

b
Shoe-leather costs

c
Fixed-tax effects

d
Price confusion

Answer 45

c
Fixed-tax effects

Question 46

If inflation was expected to be 1.5%, but instead ends up being 3%:

a
lenders benefit, borrowers lose.

b
borrowers benefit, lenders lose.

c
both borrowers and lenders benefit

d
both borrowers and lenders lose

Answer 46

b
borrowers benefit, lenders lose.

Question 47

What will happen if there is a great deal of uncertainty about inflation rates in the future?

a
Lenders are better off because inflation is good for lenders.

b
Borrowers are better off because inflation is good for borrowers.

c
More people will borrow, to buy assets which are safe from inflation and more people will lend since they need to earn interest to compensate for inflation.

d
Fewer people will borrow and lend.

Answer 47

d
Fewer people will borrow and lend.

Question 48

Which of these is not a function of money?

a
Unit of account

b
Store of value

c
Divisibility

d
Medium of exchange

Answer 48

c
Divisibility

Question 49

The US dollar

a
Can be redeemed for gold at the Federal Reserve.

b
Can be redeemed for gold at the US Treasury.

c
Cannot be redeemed for gold with the government.

d
A and B

Answer 49

c
Cannot be redeemed for gold with the government.

Question 50

How do banks increase the money supply?

a
They do not.

b
Fractional reserve lending

c
By promoting confidence in the economy.

d
By allowing for foreign currency exchange.

Answer 50

b
Fractional reserve lending

Question 51

If the simple money multiplier is 8, what must the reserve ratio

Answer 51

.125

Question 52

Suppose the reserve ratio is 5%. If you put $1,000 in a bank account, by how much will that increase the money supply according to the simple money multiplier?

Answer 52

19000

Question 53

When a bank chooses to lend a little more of its reserves, what effect does it have on bank capital?

a
Bank capital increases

b
Bank capital decreases

c
Bank capital doesn’t change.

d
Not enough information

Answer 53

c
Bank capital doesn’t change.

Question 54

If I move $832 from my checking account to my savings account, what effect does that have on M1 and M2?

a
None whatsoever.

b
M1 increases and M2 decreases

c
M2 increases and M1 decreases

d
M1 decreases, but M2 doesn’t change

Answer 54

a
None whatsoever.

Question 55

What is the relationship between M1 and M2?

a
M1 represents money available for use in the short run, where M2 represents money available in the long run.

b
M1 includes M2

c
M2 includes M1 as well as liquid debt contracts, like credit cards.

d
M2 contains M1, along with small time deposits and money market accounts.

Answer 55

d
M2 contains M1, along with small time deposits and money market accounts.

Question 56

The value of a money tree that produces $10 a day, lasts forever, and requires no care:

a
is infinite.

b
depends on the interest rate. The higher the interest rate, the more valuable the tree.

c
depends on the interest rate. The lower the interest rate, the more valuable the tree.

d
is zero.

Answer 56

c
depends on the interest rate. The lower the interest rate, the more valuable the tree.

Question 57

Suppose the interest rate is 10%. Given a choice between $90 today and $100 next year:

a
you should take the money today

b
you should take the money next year

c
the $90 today and $100 next year are equivalent

d
not enough information

Answer 57

b
you should take the money next year

Question 58

Is risk aversion rational?

a
Yes

b
No

c
Not enough information

Answer 58

a
Yes

Question 59

An asset with a more uncertain return will have a __________ risk premium and trade at a _________ price.

a
larger, lower

b
larger, higher

c
smaller, lower

d
smaller, higher

Answer 59

a
larger, lower

Question 60

There is ____________ relationship between bond prices and interest rates.

a
no

b
a positive

c
a negative

d
a u-shaped

Answer 60

c
a negative

Question 61

The price of money in the market for loanable funds is the:

a
Exchange rate

b
Coupon rate

c
Interest rate

d
Dividend rate

Answer 61

c
Interest rate

Question 62

Home production, in this chapter, refers to what?

a
New residential construction.

b
The work done by the self-employed.

c
Gardening, household chores, and the like.

d
Remote work done by employees.

Answer 62

c
Gardening, household chores, and the like.

Question 63

Suppose a rational household is trying to maximize their utility. What should be true about the total utility they get from leisure and working?

a
The total utility should be equal between the two.
Your answer

b
Working should give a higher total utility, otherwise an individual should only engage in leisure.

c
Leisure should give a higher total utility since the utility from working can only be realized during leisure time.

d
The total utility from each could be higher or lower than the other.

Answer 63

d
The total utility from each could be higher or lower than the other.

Question 64

Suppose you inherit $1 million. What can we expect to happen to your marginal utility from working? (Ceteris paribus)

a
It will decrease.

b
It will stay the same.

c
It will increase.

d
It could go either way.

Answer 64

a
It will decrease.

Question 65

You have 2 additional waking hours, how can we expect you to allocate them.

a
You will increase leisure, since you wanted to spend 14 hours on that before.

b
You will increase labor, since more income will allow you to better enjoy your leisure and reduce your home production needs.

c
You will increase home production because that category has the lowest time allotment, and we assume diminishing marginal utility.

d
You will increase all three. (If able)

Answer 65

d
You will increase all three. (If able)

Question 66

If your marginal utility from home production is greater than your marginal utility from leisure, what should you do? (Assume you spend some time on each)

a
Not change anything.

b
Increase home production and decrease leisure.

c
Decrease home production and increase leisure.

d
Not enough information.

Answer 66

b
Increase home production and decrease leisure.

Question 67

Why might a rational utility maximizing household choose to have their MULabor < MULeisure?

a
They would not.

b
They might not be working at all.

c
They might not have flexibility in their hours of work, and this is their best option.

d
B and C

Answer 67

d
B and C

Question 68

When wages go up, what happens to the demand for labor?

a
It decreases

b
It does not change

c
In increases

d
Not enough information

Answer 68

b
It does not change

Question 69

When the government taxes a labor market, what happens?

a
Workers end up paying all of the tax, since firms just take it out of their wages.

b
Firms end up paying all of the tax, since they are the ones directly sending in the money.

c
Only one side, workers or firms, will lose, but it is impossible to tell which without more information.

d
Both workers and firms lose, and it doesn’t matter who has to send the government the money.

Answer 69

d
Both workers and firms lose, and it doesn’t matter who has to send the government the money.

Question 70

When the government taxes a labor market, what happens to the total number of filled jobs?

a
It decreases

b
No effect

c
It increases

Answer 70

a
It decreases

Question 71

If the government raises tax rates, what will happen to tax revenue?

a
It will increase

b
It will stay the same

c
It will decrease

d
Any of the above could happen

Answer 71

d
Any of the above could happen

Question 72

Which of these is an example of a regressive tax?

a
Federal Gas Tax

b
Social Security payroll tax

c
Unemployment Insurance payroll tax

d
Cigarette tax

Answer 72

all of them

Question 73

In the US, which households tend to face the highest marginal tax rates?

a
Low income, single parent households.

b
The high income earners who make most of their money from labor income.

c
The high income earners who make most of their money from capital gains.

d
Higher income earners in general.

Answer 73

a
Low income, single parent households.