ECB 440 Test 1

According to the classical model, there is no need for government intervention in the economy. if the economy is left alone, full employment output will eventually occur.

a.	True
b.	False

Suppose that the inflation rate for a given year was 3%. In that year,
a. all prices rose by 3%
b. prices on average rose by 3%
c. the economy was in an expansion
d. the economy was in a recession
e. the inflation rate was rising

In Figure 16-2, if Colombia produces four fewer calculators, then how many more radios could it produce?
Figure 16-2
Number of workers needed to produce one unit of each of the following goods:

	Korea	Colombia
1 Radio	3	4
1 Calculator	6	2

a. 8
b. 2
c. 16
d. 4
e. 12

According to Say’s Law,
a. demand creates its own supply
b. interest rates never change
c. there is never too much or too little spending
d. prices never change
e. the market for loanable funds is always in equilibrium

When unplanned inventory changes are positive, GDP is current at its equilibrium level

a.	True
b.	False

A student seeking a job right after graduation should be especially attentive to
a. long-run growth patterns in the economy
b. what is the current phase of the business cycle
c. technological change
d. sales of durable goods
e. the duration of strikes

If the cross-price elasticity of demand between two goods is negative, then

a.	the two goods are complements
b.	the two goods are substitutes
c.	as price of one good rises, the quantity demanded of the other good also rises
d.	one of the goods must be inferior
e.	the two goods are rarely used together by consumers

In the long run, the currency of a country with a higher inflation rate will depreciate against the currency of a country with a lower inflation rate.

a.	True
b.	False

As of December 2008, the most important category in the CPI is
a. medical care
b. education
c. transportation
d. food and beverages
e. housing.

Which of the following impacts of the terrorist attacks of September 11, 2001, would not show up as a direct loss to GDP?
a. The loss of jobs in the WTC
b. The loss of restaurant income near ground zero
c. The loss of WTC itself
d. The loss of rental income to landlords for buildings near ground zero
e. The loss of jobs in the surrounding area.

The 2008 financial crisis peaked in September 2008, when Lehman Brothers declared bankruptcy.

a.	True
b.	False

If the price elasticity of demand for Cheer detergent is 3.0, then a

a.	12 percent drop in price leads to a 36 percent rise in the quantity demanded
b.	12 percent drop in price leads to a 4 percent rise in the quantity demanded
c.	$1,000 drop in price leads to a 3,000-unit rise in the quantity demanded
d.	$1,000 drop in price leads to a 333-unit rise in the quantity demanded
e.	12 percent rise in price leads to a 36 percent rise in the quantity demanded

In the classical model, beginning from an equilibrium in which the government is running a budget surplus
a. the supply of loanable funds will be horizontal
b. an increase in government spending will cause the interest rate to rise
c. the supply of loanable funds will be vertical
d. an increase in government spending will crowd out less than an equal amount of private spending
e. a decrease in government spending will crowd out less than an equal amount of private spending

Mutually beneficial trade between two countries is possible only as long as
a. unit costs of production are the same no matter how many units are being produced
b. marginal costs rise as production increases
c. marginal costs are equal to average total costs
d. one country has an absolute advantage in the production of one good, while the other country enjoys a similar advantage in making another good
e. one country has a comparative advantage in the production of one good, while the other country enjoys a comparative advantage in making another good

If an excise tax is imposed on restaurant meals,

a.	fewer meals will be produced and sold
b.	more meals will be produced and sold
c.	the government’s tax revenue will fall
d.	the market price of meals will decrease
e.	restaurants will sell more meals, but at a lower price per meal

With the self-correcting mechanism, if a negative demand shock occurs,
a. a decrease in wage rates will lead to a decrease in the price level so that the economy returns to full employment
b. the price level will increase, causing equilibrium GDP to return to its original level
c. the wage rate will eventually increase, restoring GDP to its full-employment level
d. the price level will remain constant
e. there will be no effect in the long run

If a nation uses all of its resources to produce capital goods, that will
a. force the government to increase its spending
b. leave the production function unchanged
c. rapidly increase the profitability of business firms
d. raise income and capital gains taxes
e. leave no resources available to produce consumption goods

Which of the following is true about the relationships among various cost curves?

a.	When MC exceeds ATC, ATC must be rising.
b.	When MC exceeds ATC, ATC could be rising or falling.
c.	When ATC is falling, MC must exceed ATC.
d.	When TC is rising, MC must exceed TC.
e.	TC falls when AFC falls.

Another term that could be used for elasticity is

a.	sensitivity
b.	utility
c.	surplus
d.	profit
e.	slope