1. Which of the following best illustrates the concept of the fact that people respond to incentives?
Jordan is offered a position at a different firm, with a 20% pay raise. Jordan accepts the new job. Thus, we know that the marginal benefit of changing jobs was greater than the marginal cost for Jordan.
b. Rather than building his own house and his own computer, Tim builds computers for a living and hired a contractor to build his house.
c. Many countries that used to rely on central planning now have a market economy.
d. McDonald's begins paying workers a bonus related to how quickly they serve customers in the drive through lane. As a result, the rate at which McDonald's workers mess up a customer's order increases.
2. Which of the following is not an example of a group responding to an incentive?
a. Employees that have a higher level of education tend to be more productive.
b. Students attend class because of an attendance policy that reduces their grade for absences.
c. Some residents of a local town move away after a new firm opens that was brought in to increase economic activity, because of its high level of pollution.
d. Universities offer more online classes when they generate more revenue than traditional classes.
3. You are driving to Chicago next weekend to visit some friends. You are trying to decide if you want to attend the Chicago Bears football game while you are in town. Which of the following should not be included in the opportunity cost of attending the game?
a. The price of the ticket
b. The value of what you would do if you do not attend the game.
c. The $50 you will have to pay for parking near the stadium.
d. The cost of gas to drive to Chicago.
4. Refer to Table 1. Table 1 shows one set of production possibilities. What is the opportunity o of increasing the production of milkshakes from 400 dozen to 800 dozen?
a. 150 pounds of ice cream
b. 400 pounds of ice cream
c. 950 pounds of ice cream
d. 1100 pounds of ice cream
5. Refer to Table 1. Table 1 shows one set of production possibilities. Which of the following statements is correct?
a. The opportunity cost of a dozen milkshakes does not depend on how many pounds of ice cream are being produced.
b. The opportunity cost of a dozen milkshakes increases as more ice cream is produced.
c. The opportunity cost of a dozen milkshakes decreases as more ice cream is produced.
d. The opportunity cost of a pound of ice cream decreases as more ice cream is produced.
6. Suppose the income level for consumers decreases. What will happen to the consumption of peanut butter, assuming that peanut butter is a compliment to jelly.
a. Consumers will buy more of peanut butter and less jelly.
b. Consumers will buy less of peanut butter and jelly.
c. Consumers will buy more peanut butter and jelly, assuming they are normal goods.
d. Consumers will buy more peanut butter and jelly, assuming they are inferior goods.
7. What will happen to the equilibrium quantity sold of coffee if a new study shows that drinking 2 cups of coffee every day has long term benefits such as a decreased risk of cancer?
a. Supply increases and quantity sold increases.
b. Supply does not change and quantity sold increases.
c. Demand increases and the effect on quantity sold is ambiguous.
d. Demand does not change and quantity sold increases.
8. What will happen to the price and quantity sold of tickets to Purdue basketball games next season if the men's basketball team is ranked as the best team in the country and Mackey Arena is expanded to hold an additional 5,000 seats?
a. Price is ambiguous, quantity sold increases.
b. Price increases, quantity sold increases.
c. Price increases, quantity sold is ambiguous.
d. Price is ambiguous, quantity sold decreases.
9. Which of the following is most likely to cause an increase in the price of milk?
a. The price of cereal increases.
b. Many farms that raise cows recently saw an outbreak of a disease that has been killing cows.
c. The price of plastic used to make milk cartons has decreased.
d. The price of pencils decreases.
Table 2
The country. of Boiletland produces only Boilers and Hammers. Quantities and prices of these goods for the last several years are shown below. The base year is 2009
Prices and Quantities
|
Year
|
Price of Boilers
|
Quantity of
Boilers
|
Price of
Hammers
|
Quantity of
Hammers
|
|
2009
|
$4.00
|
90
|
S1.00
|
150
|
|
2010
|
$4.50
|
95
|
52 00
|
180
|
|
2011
|
$5 00
|
120
|
$2 50
|
200
|
|
2012
|
$600
|
150
|
$3.50
|
200
|
10. Refer to Table 2. In 2010, this country's
a. nominal GDP was greater than real GDP, and the GDP deflator was greater than 100.
b. nominal GDP was equal to real GDP, and the GDP deflator was equal to 1.
c. nominal GDP was less than real GOP, and the GDP deflator was less than 100.
d. nominal GDP was equal to real GDP, and the GDP deflator was equal to 100.
|
11. Refer to Table 2. Boilerland experienced what inflation rate from 2009 to 2010?
|
|
a.
|
140.625
|
|
b.
|
40.625%
|
|
c.
|
111.702
|
|
d.
|
11.702%
|
12. Which of the following will increase GDP in the United States?
a. Ford buys $100,000 worth of new tires to use in a new model of the Ford Focus(the tires were produced in the United States).
b. Ford buys 5100,000 worth of plastic to use in a new model of the Ford Focus from a plastic producer in Germany.
c. Ford sells the final 500 Ford Focus' remaining from their 2008 model.
d. Ford sells 500 of their new Ford Focus' to consumers in Germany (the cars were produced in the U.S.).
Table
The table below pertains to Bodedand. an economy in which the typical consumer's basket consists of 20 unds of corn and 10 hammers
|
Year
|
Price of
Corn
|
Price of a
Hammer
|
|
2010
|
$3 per potmd
|
$3
|
|
2011
|
$1 per pound
|
$6
|
|
2012
|
S4 per pound
|
SS
|
|
13. Refer to table 3. What is the CPI in Boilerland for 2011? Assume 2010 is the base year.
|
|
a.
|
80
|
|
b.
|
88.9
|
|
c.
|
100
|
|
d.
|
144.4
|
14. Refer to table 3. What was the inflation rate in Boilerland from 2011 to 2012?
a. -20%
b. -11.1%
c. 44.4%
d. 62.4%
15. Which of the following will not affect the CPI in the United States?
a. The price gasoline rises because of an oil shortage in the Middle East.
b. Consumers have substituted away from tea and having been drinking more coffee since the CPI's fixed basket was last updated. This has caused the price of coffee to rise during this time.
c. The price of industrial machinery used to build large office buildings has increased.
d. The cost of tuition at many 4-year colleges rises.
16. Which of the following don not explain why some countries are much richer than other countries, as measured by real GDP per person?
a. Higher savings rates
b. Decreasing returns to capital
c. High levels of capital
d. large spending on healthcare.
17. Which of the following will increase Real GDP per person in the United States?
a. Consumers begin spending more of their income on current consumption
b. An American based plastic producer expands and opens 2 new factories in Canada.
c. Inflation causes the price of many U.S. goods to rise.
d. A German manufacturing plant funds the construction of a new factory in the United States and hires American residents to operate the plant.
18. Last quarter in a closed economy GDP was 100,000. Expenditures on capital goods such as business equipment and structures was 10,000, inventory rose 1,000, and new construction of
homes was 5,000. Consumption was 65,000, taxes were 15,000. What was public saving?
a. -4,000
b. -9,000
c. -10,000
d. 20,000
19. Which of the following will result from the Government increasing spending?
a. Interest rates increase
b. Equilibrium quantity of investment decreases
c. Equilibrium quantity of savings decreases
d. All of the above
20. The government decreases taxes on the interest earned from bank deposits, in order to increase savings incentives for consumers. Because of this decreases in taxes, the government begins running a deficit. What effect will this have on interest rates and investment?
a. Interest rates increase and investment decreases.
b. Interest rates decrease and investment increases.
c. Interest rates increase, the effect on investment is ambiguous.
d. The effect on both interest rates and investment is ambiguous.
21. A high school baseball player is offered two contracts by a Major League Baseball organization. The first one gives him a $100,000 signing bonus (that he would receive today) and pays him $50,000 at the end of each of the next 3 years. The second one gives him an $80,000 signing bonus (that he would receive today) and pays him $60,000 at the end of each of the next 3 years. Assuming that the interest rate is 5%, which contract should the player accept, based on the concept of present value?
a. The first contract
b. The second contract
c. Either contract
d. Not enough information
22. Which of the following actions best illustrates adverse selection?
a. Kevin enjoys risks and fills his portfolio with only risky stocks.
b. After purchasing health insurance, Jon is less careful about washing his hands regularly.
c. Josh is very risk averse and fears the possibility of a large, unexpected medical expense in his future, even though there is no history of serious health problems in his family. As a result, Josh purchases health insurance.
d. Toby has a very dangerous job that involves the risk of serious injury. As a result, he purchases health insurance.
23. Which of the following is not consistent with the efficient market hypothesis?
a. Stock prices should follow a random walk.
b. Index funds should typically outperform highly managed funds.
c. It is only possible to consistently beat the market if you hire a professional analyst to perform fundamental analysis.
d. There is little point in spending many hours studying the business pages looking for undervalued stocks.
24. Suppose that the adult population is 4 million, the number of unemployed is 0.25 million, and the labor-force participation rate is 75%. What is the unemployment rate?
a. 6.25%
b. 83%
c. 9.1%
d. 18.75%
25. Which of the following would decrease the unemployment rate?
a. The government increases unemployment insurance benefits.
b. The government increases minimum wages.
c. Many firms begin paying their workers hire wages so that the workers are healthier, more motivated to work hard, and more loyal to the company.
d. None of the above.