4/14/2018

FINAL REVIEW
ECON 2105

EXAM 1 PROBLEMS

1. Suppose you are a rational person and you have a laptop you want to
sell. If you add Windows 10 to it, you can sell it for $500 but if you
don’t add Windows 10, you can sell it for $400. Installing Windows 10
costs $90. Should you install it?

4. Refer to the figure above, what is the opportunity cost of going from
point A to point B? What about going from point D to B?

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5. Refer to the figure above. The opportunity cost of increasing production of

blueberry pies from 7 to 11 pies is ________ pies.

a. 2 blueberry pies d. 4 apple pies

b. 14 apple pies e. 2 apple pies
c. 7 blueberry pies

CHAPTER 1 circular flow diagram

Two agents = households and firms
Two markets = product and resource markets
In the PM, HHS = buyers and firms =sellers
In the RM: HHS = sellers and firms = buyers
Buy
revenue
g&s
Flow of products and resources = hhs supply
labor to the resource market which is used by
firms to produce g&s sold on the product market
wages salaries and those g&s are used by the hhs

Flow of money = hhs pay for g&s in the product

market which becomes revenue for the firms
which is used to pay workers on the resource
market and this becomes hhs’ wages.

6. Trade-offs occur in all of the following scenarios EXCEPT

a. a student has two exams on the following day and must divide study time
between the classes.
b. a couple chooses between two equally appealing vacation destinations for the
following weekend.
c. a shopper wants to buy two equally appealing shirts priced $20 each, and has
$70 to spend
d. a caterer selects from two potential jobs, both paying $2,500 on a Saturday
night.
e. consumers are often forced to make a compromise between quality and price.

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• 7. Laura goes to college for 4 years. Every year, she pays $20,000 in
tuition, $500 in textbooks and $8,000 in room and board. If she had
worked full time, she would have earned $30,000 per year. Also, her
parents told her that if she worked, she could live at home. What is
Laura’s opportunity cost of going to college?
• a. 234,000
• b. 250,000
• c. 220,000
• d. 30,000
• f. 202,000

8. Which point in figure 2 shows unemployment?

9. Which point in figure 2 is impossible?

10. Which point(s) in figure 2 are efficient?

TABLE 1. Sean and Stefan can create sculptures or paintings. Table1 shows their maximum daily outputs.
Sculptures Paintings
Sean 10 5
Stefan 6 2

11. Use table 1. What is Sean’s opportunity cost of a sculpture?

a. 2 paintings d. 1/3 sculpture
b. 1/2 painting e. 1/2 sculpture
c. 3 paintings

12. Based on table 1 , does Sean or Stefan have an absolute advantage?

a. Yes, Sean has an absolute advantage in both sculptures and paintings.
b. Yes, Stefan has an absolute advantage in both sculptures and paintings.
c. Yes, Sean has an absolute advantage in paintings, and Stefan has an absolute advantage in sculptures.
d. Yes, Sean has an absolute advantage in sculptures, and Stefan has an absolute advantage in paintings.
e. No, neither has an absolute advantage.

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TABLE 1. Sean and Stefan can create sculptures or paintings. Table1 shows their maximum daily
outputs.
Sculptures Paintings
Sean 10 5
Stefan 6 2

13. Based on the table, does Sean or Stefan have a comparative advantage?
• a. Yes, Sean has a comparative advantage in both sculptures and
paintings.
• b. Yes, Stefan has a comparative advantage in both sculptures and
paintings.
• c. Yes, Sean has a comparative advantage in paintings, and Stefan has a
comparative advantage in sculptures.
• d. Yes, Sean has a comparative advantage in sculptures, and Stefan has a
comparative advantage in paintings.
• e. No, neither has a comparative advantage.

14. Suppose a great plague wipes out half of the society’s population. Which of the
following graphs best depicts how this would affect the PPF?
• a. Graph A d. Graph D
• b. Graph B e. Graph E
• c. Graph C

• 15. Suppose the printing press is invented. Which graph best depicts how this would
affect the PPF?
• a. Graph A d. Graph D
• b. Graph Be. Graph E
• c. Graph C

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16. Suppose a new generation of baby boomers is entering the workforce. Which
graph best depicts how this would affect the PPF?
• a. Graph A d. Graph D
• b. Graph B e. Graph E
• c. Graph C

17. Use Figure 3. Which statement best describes absolute advantage?

a. DiNozzo has an absolute advantage in the production of wooden boats.
b. DiNozzo has an absolute advantage in both.
c. Gibbs has an absolute advantage in solving crimes, whereas DiNozzo has an absolute advantage in making
wooden boats.
d. Gibbs has an absolute advantage in both.
e. Gibbs has an absolute advantage in making wooden boats, whereas DiNozzo has an absolute advantage in
solving crimes.

18. Use Figure 3. What is DiNozzo’s opportunity cost of making a wooden boat?
a. 20 solved crimes d. 1/20 of a boat
b. 30 solved crimes e. 1/10 of a boat
c. 10 solved crimes

19. Isaac has four potential jobs to consider, each with different salary
offers. From highest to lowest, the salaries are: $47,500, $46,000,
$45,000, and $42,000. Based on the information provided, if Isaac
accepts the highest-paying position, what is his opportunity cost of this
position?
a. $46,000 d. $133,000
b. $42,000 e. $1,500
c. $47,500

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EXAM 2 PROBLEMS
1. In the economy of Talikastan in 2015, consumption was $5300, GDP
was $8800, government purchases were $1800, imports were $600,
and investment was $2000. What were Talikastan’s exports in 2015?
a. -$900
b. -$600
c. $200
d. $300

2.If the prices of all goods and services produced in the economy rose
while the quantity of all goods and services stayed the same, which
would rise?
a. both real GDP and nominal GDP.
b. real GDP but not nominal GDP.
c. nominal GDP but not real GDP.
d. neither nominal GDP nor real GDP.

3. Company X sells leather to company Y for $60,000. Company Y uses

the leather to make shoes, selling them to consumers for $180,000.
The total contribution to gross domestic product (GDP) is
a. $240,000. d. $120,000.
b. $180,000. e. $30,000.
c. $60,000.

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4. When people in the United States buy clothing made in China, this
counts as
• a. consumption. d. exports.
• b. consumption and exports. e. investment.
• c. consumption and imports.

5. If output is 10 million, consumption is 3 million, investment is 2

million, exports are 1 million, imports are 2 million, what are
government purchases?
a. 1 million d. 10 million
b. 3 million e. 8 million
c. 6 million

6. In 2009, the Swedish adult population was 7.568 million, the labor
force was 4.888 million, and the number of people employed was
4.486 million. According to these numbers, the Swedish labor-force
participation rate and unemployment rate were about
a. 64.6% and 8.2%.
b. 64.6% and 5.3%.
c. 59.3% and 8.2%.
d. 59.3% and 5.3%.

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9. Workers who lose their jobs because the skill set they possess is no
longer required in the economy are considered to be
• a. discouraged workers. d. overemployed.
• b. cyclically unemployed. e. structurally unemployed.
• c. frictionally unemployed.
10. Unemployment caused by delays in matching available jobs and
workers is called ________ unemployment.
• a. structural c. discouraged e. seasonal
• b. cyclical d. frictional

Group # in Millions
Relevant population 243
Labor force 154
Not in labor force 89
Employed 142
Unemployed 12
Table 1

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22. According to table 1, the unemployment rate in this economy is equal to

a. 4.9 percent. d. 7.8 percent.

b. 92.2 percent. e. 8.5 percent.

c. 63.4 percent.

23. According to table 1, the labor force participation rate in this economy is equal to
12
a. 4.9 percent. d. 7.8 percent.

b. 92.2 percent. e. 8.5 percent.

c. 63.4 percent.

24. If the unemployment rate is 5.8 percent and the number of unemployed persons is 15 million, the labor force is
approximately

a. 259 million. d. 870 million.

b. 25.9 million. e. 2.6 million.

c. 87 million.

13. If the CPI was 127 in 1972 and is 324 today, then $10 in 1972
purchased the same amount of goods and services as
a. $3.92 purchases today.
b. $25.51 purchases today.
c. $207.00 purchases today.
d. $324.00 purchases today.

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The table below pertains to Iowan, an economy in which the typical consumer’s basket consists of 4
pounds of pork and 3 bushels of corn.
Year Price of Pork Price of Corn
2012 $20 per pound $12 per bushel
2013 $25 per pound $18 per bushel

14. If 2012 is the base year, then the CPI for 2013 was
a. 100.0.
b. 116.0.
c. 132.8.
d. 154.0.

15. If 2012 is the base year, then the inflation rate in 2013 was
a. 24.7 percent.
b. 54.0 percent.
c. 32.8 percent.
d. 38.0 percent.

16. In 1983, one could buy a model radio-controlled airplane for

$11.50 each. Those same planes are available today and the price
increased at exactly the rate of inflation. If the CPI today is 220.5 and in
1983 was 105, what is the price of the airplane today?
a. $24.15
b. $11.50
c. $5.48
d. $2.10

17. Let’s say a bottle of Dr. Wells (an actual soft drink still available but hard
to obtain) cost $0.15 in 1970. If the consumer price index (CPI) in 1970 was
37.8 and the current CPI is 240, then the inflation-adjusted price of Dr. Wells
would be (rounded to the nearest penny)
• a. $0.0236. d. $0.95
• b. $2.36. e. $95.00.
• c. about a dollar.

18. In 2002, the cost of the basket was $76.00; in 2004, cost of the basket
was $79.50; and in 2006, the basket’s cost was $85.00. If 2002 is the base
year, then the value of the CPI was
• a. 100 in 2002. d. at least 118 in 2007.
• b. 108 in 2004. e. no more than 90 in 2001.
• c. 120 in 2006.

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Year CPI
1999 80
2000 87
2001 105
2002 112
2003 108
2004 117

19. As presented in table 2, the rate of inflation from 1999–2000 was

a. 7.00 percent. d. 8.75 percent.
b. 80.00 percent. e . 10.00 percent.
c. 87.00 percent.

EXAM 3 PROBLEMS
1. If the demand for loanable funds shifts to the right, then the
equilibrium interest rate
a. and quantity of loanable funds rises.
b. and quantity of loanable funds falls.
c. rises and the quantity of loanable funds falls.
d. falls and the quantity of loanable funds rises

Chapter 9
2. Which of the following movements shows the effects of
households’ decision to save more?
a. a movement from Point A to Point B
b. a movement from Point F to Point A
c. a movement from Point C to Point F
d. a movement from Point B to Point C

3. Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase
a new piece of machinery. Whose spending would be an act of investment in the
language of macroeconomics?
a. only Jim’s
b. only ABC Corporation’s
c. Jim’s and ABC Corporation’s
d. neither Jim’s nor ABC Corporation’s

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4. Assuming the figure represents the market for loanable funds, which of the following would represent a decrease in
time preferences (i.e., people are more patient)?
a. a shift from line 1 to line 4
b. a shift from line 4 to line 1
c. a shift from line 2 to line 3
d. movement from A to B
e. a new shortage of loanable funds represented by the distance from C to D
5. Assuming the figure represents the market for loanable funds, which of the following would represent a cut in
corporate tax rates, causing business owners and managers to become more optimistic?
a. a shift from line 1 to line 4 d. movement from A to B
b. movement from B to A e. a shift from line 3 to line 2
c. a shift from line 2 to line 3

6. It is likely that as more baby boomers reach retirement,

• a. more babies will be born to replace them.
• b. the demand for loanable funds will shift right.
• c. the demand for loanable funds will shift left.
• d. the supply of loanable funds will shift right.
• e. the supply of loanable funds will shift left.

6. The demand for loanable funds increases while the supply of loanable
funds remains constant. This would cause
• a.the equilibrium quantity of loanable funds to decrease and the
equilibrium interest rate to increase.
• b.the equilibrium quantity of loanable funds to increase and the
equilibrium interest rate to decrease.
• c.both the equilibrium quantity of loanable funds and the equilibrium
interest rate to increase.
• d.the equilibrium interest rate to decrease, but the equilibrium quantity of
loanable funds would remain unchanged.
• e.the equilibrium interest rate to increase, but the equilibrium quantity of
loanable funds would remain unchanged.

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7. Which of the following would shift aggregate demand to the right?

• a. College graduates are having a difficult time finding jobs.
• b. There is a decline in consumer confidence.
• c. Stock market values increase by 20 percent.
• d. A fall in the price level increases the value of real wealth.
• e. The value of the dollar increases.

8. Based on the figure, if the economy is currently at point B because of a shift in

aggregate demand, then in the long run, we can expect we will move to
• a. point C. d. point C and then point D.
• b. point A. e. point A and then point C.
• c. point D.
9. Based on the figure, ________ could cause the economy to move from point A to
point D.
• a. an increase in government spending d. higher imports
• b. an increase in taxes e. higher labor productivity
• c. a natural disaster

10. Suppose a country’s population is growing due to immigration. In

the long run, output will ________ due to ________.
• a. increase; an increase in both long-run and short-run aggregate
supply
• b. increase; an increase in long-run aggregate supply
• c. increase; an increase in aggregate demand
• d. increase; an increase in short-run aggregate supply
• e. remain unaffected; price adjustment

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11. Suppose firms increase investment spending to replace worn-out

equipment. In the short run, aggregate demand will ________ and
output will ________.
• a. increase; increase
• b. increase; decrease
• c. decrease; decrease
• d. remain unchanged; remain unchanged
• e. decrease; increase

12. Which of the following causes an increase in short-run aggregate

supply?
• a. The price level increases.
• b. The price level decreases.
• c. Firms and workers expect the price level to fall.
• d. Firms and workers expect the price level to rise.
• e. There are fewer workers in the labor force.

13. If an initial increase in government spending of $100 billion leads to

a total increase of $400 billion in income, the marginal propensity to
consume in the economy is
• a. 0.4. d. 0.75.
• b. -0.8. e. 0.8.
• c. 0.5.

14. If the marginal propensity to consume is equal to 0.75, the

spending multiplier is equal to
• a. 4.0. d. 0.57.
• b. 1.75. e. 1.33.
• c. 0.25.

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15. If your income increases by $1,500 and you only consume $900 of
it, your marginal propensity to consume would be equal to
• a. 600.00. c. 0.75 e.0.60.
• b. 0.50. d. 0.40

16. If the MPC is 0.8 and there are no crowding-out or accelerator

effects, then an initial increase in aggregate demand of $120 billion will
eventually shift the aggregate demand curve to the right by
a. $216 billion.
b. $150 billion.
c. $600 billion.
d. $480 billion.

17. According to the figure, and assuming the marginal propensity to

consume is 0.75, to shift aggregate demand enough to be back at long-run
equilibrium, the government would have to increase government spending
by
• a. $20 billion. d. $1 billion.
• b. $10 billion. e. $500 million.
• c. $5 billion.

18.Which of the following shifts short-run, but not long-run aggregate

supply right?
a. a decrease in the actual price level
b. a decrease in the expected price level
c. a decrease in the capital stock
d. an increase in the money supply

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19. If aggregate demand shifts left, then in the short run

a. the price level and real GDP both rise.
b. the price level rises and real GDP falls.
c. the price level falls and real GDP rises.
d. the price and real GDP both fall.

20. If the economy is initially at long-run equilibrium and aggregate

demand declines, then in the long run the price level
a. and output are higher than in the original long-run equilibrium.
b. and output are lower than in the original long-run equilibrium.
c. is lower and output is the same as the original long-run equilibrium.
d. is the same and output is lower than in the original long-run equilibrium.

9. If the MPC is 0.8 and there are no crowding-out or accelerator

effects, then an initial increase in aggregate demand of $120 billion will
eventually shift the aggregate demand curve to the right by
a. $216 billion.
b. $150 billion.
c. $600 billion.
d. $480 billion.

10. If your marginal propensity to consume is 0.75 and you get an

additional $400 in income, you would spend ________ on
consumption.
a. $400.00 d. $300.00
b. $200.00 e. $1,600.00
c. $533.33

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Chapters 17 and 18
The First Bank of Fairfield

Assets Liabilities

Reserves $1,000 Deposits $8,000

Loans 7,000

1. Starting from the situation as depicted by the T-account, if someone deposits $500 into
the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio
unchanged, then the amount of new loans that it makes will be
a.$40.
b. $437.50.
c. $71.42.
d. $428.57.

2. If the reserve ratio is 8 percent, then a decrease in reserves

of $6,000 can cause the money supply to fall by as much as
• a. $48,000.
• b. $75,000.
• c. $55,200.
• d. $10,800.

3. If the reserve ratio is 8 percent, then the money multiplier is

• a. 12.5.
• b. 11.5.
• c. 13.5.
• d. 8.

4. If the reserve ratio is 5 percent, then $1,000 of additional reserves

can create up to
• $5,500 of new money.
• $5,000 of new money.
• $4,000 of new money.
• None of the above is correct.

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5. An increase in the money supply might indicate that the Fed had
• purchased bonds to increase banks reserves.
• purchased bonds to decrease banks reserves.
• sold bonds to increase banks reserves.
• sold bonds to decrease banks reserves.

6. In 1991, the Federal Reserve lowered the reserve requirement from

12 percent to 10 percent. Other things the same this should have
a. increased both the money multiplier and the money supply.
b. decreased both the money multiplier and the money supply.
c. increased the money multiplier and decreased the money supply.
d. decreased the money multiplier and increased the money supply.

7. Which of the following is not a tool of monetary policy?

a. open market operations
b. reserve requirements
c. changing the discount rate
d. increasing the government budget deficit

8. The principle of monetary neutrality implies that an increase in

the money supply in the long run will
a. increase real GDP and the price level.
b. increase real GDP, but not the price level.
c. increase the price level, but not real GDP.
d. increase neither the price level nor real GDP.

9. What function of money is highlighted when Sally pays her cell

phone bill with cash?
a. fiat money d. store of value
b. medium of exchange e. commodity money
c. unit of account

10. Which of the following is NOT considered part of M2?

a. currency d. credit cards
b. money e. checkable deposits
c. traveler’s checks

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11. According to the figure, expansionary monetary policy will cause an

economy that is initially at full-employment output to go from
equilibrium ________ to equilibrium ________ in the short run.
a. A; C d. C; B
b. A; B e. C; D
c. A; D

12. If a bank has a required reserve ratio of 20 percent and has

required reserves of $300,000,000, how much does the bank hold in
deposits?
a. $33,750,000
b. $60,000,000
c. $360,000,000
d. $1,500,000,000

13. Crowding-out occurs when

a. supply-side fiscal policy does not increase total output.
b. consumption increases when government spending increases.
c. private spending falls in response to increases in government
spending.
d. time lags crowd out the effects of fiscal policy.
e. increases in government spending and decreases in taxes are
offset by increases in savings.

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