EKO201E Sample 2
EKO201E Sample 2
EKO201E Sample 2
Assume that Sardi and Tinaka can switch between producing corn and producing pork at a constant rate.
Minutes Needed to Make 1
Bushel of Corn Pound of Pork
Sardi 20 12
Tinaka 15 10
1) Refer to Table 1. What is Sardi’s opportunity cost of producing one bushel of corn?
a. 3/5 pound of pork
b. 6/5 pounds of pork
c. 4/3 pounds of pork
d. 5/3 pounds of pork
ANS: D
Figure 1
price
10
9
S
8
2
D
1
D after tax
10 20 30 40 50 60 70 80 quantity
3) Refer to Figure 1. The price that buyers pay after the tax is imposed is
a. $5.
b. $6.
c. $7.
d. $8.
ANS: D
Figure 2
televisions
13
Q
12
11
U
10
7
S
6
R
5
1
T
1 2 3 4 5 6 radios
5) If nominal GDP doubles and the GDP deflator doubles, then real GDP
a. remains constant.
b. doubles.
c. triples.
d. quadruples.
ANS: A
6) In the economy of Wrexington in 2008, consumption was $6000, exports were $1000, GDP was $10,000,
government purchases were $2000, and imports were $600. What was Wrexington’s investment in 2008?
a. $1400
b. $1600
c. $2400
d. $3600
ANS: B
7) If a U.S. citizen buys a dress made in Nepal by a Nepalese firm, then
a. U.S. consumption increases, U.S. net exports decrease, and U.S. GDP decreases.
b. U.S. consumption increases, U.S. net exports decrease, and U.S. GDP is unaffected.
c. U.S. consumption decreases, U.S. net exports increase, and U.S. GDP increases.
d. U.S. consumption decreases, U.S. net exports increase, and U.S. GDP is unaffected.
ANS: B
8) Suppose some country had an adult population of about 50 million, a labor-force participation rate of 60 percent,
and an unemployment rate of 5 percent. How many people were employed?
a. 1.5 million
b. 28.5 million
c. 30 million
d. 47.5 million
Answer: B
9) Unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and
skills is called
a. the natural rate of unemployment.
b. cyclical unemployment.
c. structural unemployment.
d. frictional unemployment.
Answer: D
10) If minimum-wage laws, unions, efficiency wages, and all other factors that could prevent wages from reaching
equilibrium were eliminated, then there would be no
a. cyclical unemployment.
b. frictional unemployment.
c. structural unemployment.
d. natural rate of unemployment.
ANS: C
Table 2
The table below pertains to Pieway, an economy in which the typical consumer’s basket consists of 10 bushels of
peaches and 15 bushels of pecans.
11) Refer to Table 2. If 2005 is the base year, then the CPI for 2006 was
a. 83.3.
b. 100.
c. 120.
d. 240.
ANS: C
12) A decrease in the price of domestically produced industrial robots will be reflected in
a. both the GDP deflator and the consumer price index.
b. neither the GDP deflator nor the consumer price index.
c. the GDP deflator but not in the consumer price index.
d. the consumer price index but not in the GDP deflator.
Answer: C
13) To which of the problems in the construction of the CPI is the creation of the mobile phone most relevant?
a. substitution bias
b. introduction of new goods
c. unmeasured quality change
d. income bias
ANS: B
14) Waldo works eight hours and produces 7 units of goods per hour. Emerson works six hours and produces 10
units of goods per hour.
a. Waldo’s productivity and output are greater than Emerson’s.
b. Waldo’s productivity is greater than Emerson’s but his output is less.
c. Emerson’s productivity and output are greater than Waldo’s.
d. Emerson’s productivity is greater than Waldo’s but his output is less.
ANS: C
15) An economy’s production form takes the form Y = AF(L, K, H, N).If the production function has the constant-
returns-to-scale property, then it could be rewritten as
a. Y/L = AF(1, K/L, H/L, N/L)
b. Y/L = AF(L, 1, H/L, N/L)
c. Y/L = AF(L, K/L, 1, N/L)
d. Y/L = AF(L, K/L, H/L, 1)
Answer: A
S1 S2
Demand
18) Refer to Figure 3. Which of the following events would shift the supply curve from S1 to S2?
a. In response to tax reform, firms are encouraged to invest more than they previously invested.
b. In response to tax reform, households are encouraged to save more than they previously saved.
c. Government goes from running a balanced budget to running a budget deficit.
d. Any of the above events would shift the supply curve from S1 to S2.
ANS: B
19) If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national
saving of $2.5 trillion?
a. C = $8 trillion, G = $.5 trillion
b. C = $6.5 trillion, G = $3 trillion
c. C = $8.5 trillion, G = $2 trillion
d. C = $9 trillion, G = $.5 trillion
ANS: A
20) If banks desire to hold no excess reserves, the reserve ratio is 10 percent, and a bank that was previously just
meeting its reserve requirement receives a new deposit of $400, then initially the bank has a
a. $400 increase in excess reserves and no increase in required reserves.
b. $400 increase in required reserves and no increase in excess reserves.
c. $360 increase in excess reserves and $40 increase in required reserves.
d. $40 increase in excess reserves and $360 increase in required reserves.
ANS: C
22) If the Fed sells government bonds to the public, then reserves
a. increase and the money supply increases.
b. increase and the money supply decreases.
c. decrease and the money supply increases.
d. decrease and the money supply decreases.
ANS: D
24) The classical dichotomy argues that changes in the money supply
a. affect both nominal and real variables.
b. affect neither nominal nor real variables.
c. affect nominal variables, but not real variables.
d. do not affect nominal variables, but do affect real variables.
ANS: C
25)Whitney puts money in a savings account at her bank earning 3.5 percent. One year later she takes her money out
and notes that while her money was earning interest, prices rose 1.5 percent. Whitney earned a nominal
interest rate of
a. 3.5 percent and a real interest rate of 5 percent.
b. 3.5 percent and a real interest rate of 2 percent.
c. 5 percent and a real interest rate of 3.5 percent
d. 5 percent and a real interest rate of 2 percent
ANS: B
27) In the U.S. a candy bar costs $1. The nominal exchange rate is 6 Chinese yuan per dollar. If the real exchange
rate is 1.2, then, what is the price of a candy bar in China?
a. 7.2 yuan
b. 6 yuan
c. 5 yuan
d. 3.6 yuan
ANS: C
28) The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs
$40, how many florins must a basket of goods in Aruba cost for purchasing power parity to hold?
a. 20 florin
b. 40 florin
c. 60 florin
d. 80 florin
ANS: D
Answer: B
Figure 4
Price
10 MC
9 ATC
8 AVC
7
6 P1
5
P2
4
P3
3
2 P4
1
1 2 3 4 5 6 7 8 Quantity
30) Refer to Figure 4. If the market price is P2, in the short run, the perfectly competitive firm will earn
a. positive economic profits.
b. negative economic profits but will try to remain open.
c. negative economic profits and will shut down.
d. zero economic profits.
Answer: D
31) Refer to Figure 4. Which of the four prices corresponds to a perfectly competitive firm earning negative
economic profits in the short run and shutting down?
a. P1
b. P2
c. P3
d. P4
Answer: D
Figure 5
Price
M arginal Cost
20
15
10
Demand
100 150 200 Quantity
M arginal Revenue
32) Refer to Figure 5. To maximize its profit, a monopolist would choose which of the following outcomes?
a. 100 units of output and a price of $10 per unit
b. 100 units of output and a price of $20 per unit
c. 150 units of output and a price of $15 per unit
d. 200 units of output and a price of $20 per unit
ANS: B
33) Refer to Figure 5. The deadweight loss caused by a profit-maximizing monopoly amounts to
a. $150.
b. $200.
c. $250.
d. $500.
ANS: C
34) Because a monopolist must lower its price in order to sell another unit of output,
a. marginal revenue is less than price.
b. long-term economic profits will be zero.
c. total revenue increases as price increases.
d. average revenue is less than price.
ANS: A
35) Which of the following best describes the idea of excess capacity in monopolistic competition?
a. Firms produce more output than is socially desirable.
b. The output produced by a typical firm is less than what would occur at the minimum point
on its ATC curve.
c. Due to product differentiation, firms choose output levels where price equals average total
cost.
d. Firms keep some surplus output on hand in case there is a shift in the demand for their
product.
Answer: B
36) Which of the following statements is not correct?
a. Monopolistic competition is similar to monopoly because in each market structure the firm can
charge a price above marginal costs.
b. Monopolistic competition is similar to perfect competition because both market structures are
characterized by free entry.
c. Monopolistic competition is similar to oligopoly because both market structures are characterized
by barriers to entry.
d. Monopolistic competition is similar to perfect competition because both market structures are
characterized by many sellers.
ANS: C
37) When a market is monopolistically competitive, the typical firm in the market is likely to experience a
a. positive profit in the short run and in the long run.
b. positive or negative profit in the short run and a zero profit in the long run.
c. zero profit in the short run and a positive or negative profit in the long run.
d. zero profit in the short run and in the long run.
ANS: B
38) Oligopolists may well be able to reach their preferred, cooperative outcome if
a. the number of oligopolists is large.
b. they learn that a Nash equilibrium is in their best long-term interests.
c. a sufficient number of firms can be persuaded to lower their prices.
d. the game they play is repeated a sufficient number of times.
Answer: D
Table 3. Amy and Heather are two college roommates who both prefer a clean common space in their dorm room,
but neither enjoys cleaning. The roommates must each make a decision to either clean or not clean the dorm room's
common space. The payoff table for this situation is provided below, where the higher a player’s payoff number, the
better off that player is. The payoffs in each cell are shown as (payoff for Amy, payoff for Heather).
Heather
Clean Don’t Clean
Clean (75, 75) (15, 100)
Amy
Don’t Clean (100, 15) (20, 20)
40) Refer to Table 3. What is the Nash Equilibrium in this dorm room cleaning game?
a. Amy: Clean
Heather: Clean
b. Amy: Don't Clean
Heather: Clean
c. Amy: Clean
Heather: Don't Clean
d. Amy: Don't Clean
Heather: Don't Clean
ANS: D