Exam 1 (Midterm)

Question 1

When the US economy fell into the Great Depression Keynes argued that government should:

Answer 1

Increase spending to solve the problem.

Question 2

Which of the following most accurately matches how Nic Marks described the Happy Planet Index?

Answer 2

A method of measuring how efficiently a society produces happiness using the quantity of resources required.

Question 3

The recently announced acquisition of SAB Miller by AB InBev is likely to be examined closely by regulators for which reason?

Answer 3

It might lead to increasing market concentration.

Question 4

Most economists in the US in the 1930s were trained as:

Answer 4

Classical economists.

Question 5

The structural stagnation hypothesis posits that economically developed countires like the US are in the trajectory of:

Answer 5

Anemic economic growth and high structural unemployment over the next decade or more.

Question 6

The fluctuations around the long-term growth rate are called:

Answer 6

Business cycles.

Question 7

James Surowecki suggests in his piece Grost Domestic Freebie that:

Answer 7

The digital age is producing huge gains for consumers and creating net decreases in employment.

Question 8

The fatberg - a blob stuck in city sewers of London from restaurant grease trap buildup - is an example of -

Answer 8

A negative externality produced by the London restaurant industry.

Question 9

When the rate of capacity utilization is relatively low and the unemployment rate is relatively high:

Answer 9

The economy is below potential output.

Question 10

If output is below potential output, it is most likely that the economy is:

Answer 10

Near a trough.

Question 11

Technological innovations like EZ Pass toll booths, self-checkout lines in supermarkets, and online travel sites like Expedia would likely:

Answer 11

Increase structural unemployment.

Question 12

The United Nations Development Program (UNDP_ created the Human Development Index (HDI) to measure the wellbeing of every country in the world. Which of the following most accurately reflects the methodology of the HDI?

Answer 12

It includes a metric of economic production and a metric for gender inequality.

Question 13

Some economists have concluded that the US economy is experiencing a period of structural stagnation. Their analysis is partly based on data demonstrating:

Answer 13

Many of the workers laid off during recessions are failing to find jobs when the recessions end.

Question 14

In the beginning of the Great Depression in the US, President Hoover’s economic advisors advised that the president should:

Answer 14

Refrain from engaging in the economy to tackle the depression.

Question 15

Inflation and unemployment:

Answer 15

Fall within both the short- and long-run frameworks.

Question 16

Hershey recently announced that it is interested in acquiring Nestle’s US confectionary business. If this happens, it is likely to be examined closely by government regulators because it could potentially cause:

Answer 16

Market power in the confectionary market.

Question 17

The argument in favor of government intervention in markets with negative externalities is based on the theory:

Answer 17

That the markets are causing a sub-optimal allocation of resources resulting in too much output.

Question 18

Using GDP per capita to compare living standards or quality of life between different countries can be problematic because the metric:

Answer 18

Fails to take into account the value of leisure like parents playing with their children or friends enjoying each other’s company because of a reduced work week.

Question 19

Which of the following is a leakage from the circular flow of income model?

Answer 19

Income taxes.

Question 20

There is a growing consesnsus amongst economists that a policy goal othe than real GDP should guide government policy in wealthy countries. Why?

Answer 20

The data suggests very little correlation between growth in real GDP and the happiness of a countries’ residents.

Question 21

Which of the following would most likely be considered a market failure?

Answer 21

The acqusition of SAB Miller by AB InBev results in an increase in beer prices.

Question 22

What does GDP calculate?

Answer 22

The total dollar value of production in an economy.

Question 23

Which of the following metrics would be most useful in determining how much money will remain in Ireland and be spent by Irelan’d economy?

Answer 23

GNP.

Question 24

Economists would most likely argue that chaebols - a combination of the Korean words for clan and wealth, so things like Samsung, Hyundai, etc. - dominate entire sectors of the Korean economy. Economists would most likely argue that chaebols pose a threat to the economy because:

Answer 24

Their size allows them to dominate markets resulting in market power.

Question 25

The thesis of James Surowecki’s New Yorker article Gross Domestic Freebie is most accurately which of the following?

Answer 25

The digital economy creates measurement problems for the national accountants.

Question 26

A maximum wage is sometimes proposed as a tool to fight increasing inequality in the US. Which of the following would likely have a similar effect?

Answer 26

A federal law prohibiting the highest paid employee of a business from making more than 7 times the pay of the lowest paid employee OR a federal law prohibiting the highest paid employee from making more than 9 times the pay of the average employee’s pay.

Question 27

Michael Greenstone writing on climate change for the Brookings Institute suggests:

Answer 27

That activities that cause damage to others should be penalized.

Question 28

Economists argue that markets that produce negative externalities should be taxed because:

Answer 28

The tax will align private costs with social costs.

Question 29

The tax enacted in British Columbia that Chris Mooney writes about in Mother Jones is:

Answer 29

A tax on carbon.

Question 30

When the Great Depression began in 1929, Hoover’s laissez-faire economic advisors argued the president to:

Answer 30

Allow the market to create a new generation of innovative entrepreneurs.

Question 31

Keynesian and Classical economists agree that business cycles exist in free market economies but they differ with regard to business cycles in that:

Answer 31

Keynedian economists believe that economic policies can counter the business cycle, while Classical economists do not.

Question 32

Simon Kuznets (the chief architect of GDP) likely recommended that GDP should not be used as a metric for living standards because:

Answer 32

Increases in aggregate production do not necessarily increase living standards.

Question 33

Which of the following would most accurately represent how economic theory explains why markets fail to produce public goods?

Answer 33

Public goods are non-rivalrous and non-excludable.

Question 34

During Obama’s first term in office he ordered the federal agency the Environmental Protection Agency (EPA) to introduce new regulations that would require states to reduce carbon emmisions by power plants 30% from 2005 levels by 2030. In economic terms, the purpose of the new EPA regulations:

Answer 34

Is to force producers and consumers to internalize the full costs of their production and consumption.

Question 35

Which of the following best describes the role of effective institutions in the economy:

Answer 35

The reduce uncertainty, they reduce transaction costs, and they increase the likelihood of economic activity.

Question 36

Whole Food recently announces a new program called “responsibly grown” in which suppliers can elect to have their products rated “good”, “better”, or “best”. The rating will take in account criteria like the treatment of farm workers, allowances made for pollinators like bees and butterflies, and the handling of plastic waste in the production process. For econimists this type of program will most likely:

Answer 36

Address the issue of imperfect information in market systems.

Question 37

A public good is a good that:

Answer 37

When consumed by one ondividual, can still be consumed by others.

Question 38

Which of the following is the standard neoclassical economic argument for government intervention in markets?

Answer 38

Market failure.

Question 39

Advocates of a Pigouvian tax (a tax on activity that produces negative externalities) on sugar sweetened beverages (SSBs). Which of the following best explains why the tax advocates wanted a tax on SSBs?

Answer 39

Studies have demonstrated that the consumption of SSBs can have adverse health effects, the Pigouvian tax would likely increase the price leading to reduced sales of SSBs.

Question 40

Which of the following most accurately describes a weakness of GDP as a measure of production in an economy?

Answer 40

GDP measures the production of goods and services performed in markets, but fails to account for production performed outside of the market.

Question 41

The economic argument that there is a failure in the Hummer car market and that government should intervene to fix the failure is most likely based on which of the following?

Answer 41

The social cost of Hummers is not accurately reflected in the market price causing the overproduction of Hummers.

Question 42

In the circular flow model of the economy, imports (goods coming inot the economy from the foreign sector) represent:

Answer 42

A leakage of income from a country’s circular flow.

Question 43

Which of the following is NOT an example of government’s role as a referee?

Answer 43

Laws that require states and the federal government to balance their budgets.

Question 44

Slovene philosopher Renata Salecl uses the concept of opporunity cost in the video “Paradox of Choice” when she suggests that one of the reason making choices is anxiety provoking is:

Answer 44

Choice always involves a loss.

Question 45

Which of the following is likely part of the critique of using GDP as a metric to guide government macroeconomic policy?

Answer 45

GDP includes the $100 billion increase in spending for equipping local police forces with military style vehicles to combat an increase in the crime rate.

Question 46

High achieving students at the CIA are annoyed of loud lawn equipment and are trying to make it so that the US Congress will enact a law that heavily taxes the consumption of these garden power tools. In economic terms how would one explain the purpose of this tax?

Answer 46

The tax would force the users of these tools to internalize the negative externalities of their consumption thereby increasing the efficiency of the market.

Question 47

The Federal Trade Commission (FTC) blocked the merger of Sysco Corporation and US Foods Handling Corporation (the two largest food distributors) in 2015. Which of the following is likely the government’s justification for preventing a feww market transaction like ths voluntary merger between two private entities?

Answer 47

The potential threat of competition in the food distribution market.

Question 48

Economists argue that the most important benefit of efficient institutions is:

Answer 48

They decrease uncertainty thereby decreasing transaction costs.

Question 49

The consensus amongst economists is that GDP is a userful metric for calculating the dollar value of goods and services produced by an economy. The consensus is not as strong when the question becomes what metric should guide macroeconomic policy. Which of the following best explains why a growing number of economists argue that a metric other than GDP should guide government macroeconomic policy?

Answer 49

All of the above: The negative externalities of economic production will often increase GDP, Increasing work hours and decreasing leisure hours will increase GDP, and Depleting finite resources increases GDP.

Question 50

In the video, “The Paradox of Choice”, Renata Salacl argues that the ideology of choice in capitalist economic systems can prevent social change. Which of the following best represents her thesis?

Answer 50

The existence of myriad choices can convince individuals that they are actually in control of their lives and therefore there is no reason to organize for social change.

Question 51

Robert Kennedy, during his presidential campaign of 1968, famously critiqued GDP in a speech at the University of Kansas. Kennedy’s crique was based on:

Answer 51

His belief that US GDP failed to measure much of what made life worth living for most Americans.

Question 52

Slovene philosopher Renata Salecl:

Answer 52

Explains the paradox of the existence of choice and the absence of social change in capitalist economic system.

Question 53

Cattle are a significant contributor to greenhouse gas emissions becuase of methane produced primarily through eruction (belching). As a result, some analysts have proposed a tax on cows. The purpose of the tax would most likely be:

Answer 53

To force the market towards delivering an optimal allocation of scarce resources.

Question 54

Over the last decade there has been a growing momentum around creating a metric that might guide government policy as an alternative, or perhaps a complement, to GDP. Which of the following is a reason that some economists advocate using a metric that would better capture societal happiness or well-being?

Answer 54

All of the above: GDP ignores the value of non-market activities like cooking dinner for a group of friends, The national accountants ignore the negative externalities of economic production when calculating GDP, and Increases in economic production do not necessarily correlate with increases in societal wellbeing.

Question 55

GDP includes all of the following except:

Answer 55

CIA students volunteering their time to feed the hungry in Poughkeepsie.

Question 56

Most economists today are:

Answer 56

Differentiated primarily by the degree to which they depend on markets.

Question 57

We looked at a few different metrics in class that are designed to measure societal wellbeing. The proponents of these metrics suggest they would be better guides for government policy than GDP because:

Answer 57

All of the above: GDP fails to account for the negative externalities from the production of goods and services, GDP includes the value of some production that arguably makes society worse off, and GDP fails to account for some production that arguably makes society better off.

Question 58

If the US economy went into recession, the likely effect would be:

Answer 58

An increase in cyclical unemployment.

Question 59

Nic Marks, in his Ted Talk about the Happy Planet Index makes the case that the typical economic feedback societies receive regarding economic performance (like GDP growth rates, movements in the stock market, currency exchange rates, etc.) do nto cause changes in societal behavior that lead to more efficiency in converting natural resources into societal happiness. He suggests which of the following types of feedback would most likely lead to a more efficient production of happiness?

Answer 59

Frequent reports on carbon emissions in the United States.

Question 60

When economists study the business cycle, they use what kind of framework for analysis?

Answer 60

The short-run framework for analysis.