ECB 218 Midterm 2 | Course Paper

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A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil. If the exchange rate

is 2 reals per dollar, purchasing power parity predicts that

A) the dollar is undervalued.

B) the dollar is overvalued.

C) the real is undervalued.

D) both B and C are correct.

Not enforcing property rights in an economy will

A) cause the market system to work efficiently.

B) not change the level of investment.

C) lower the level of investment.

D) raise the level of investment.

Sarah is a full-time student who is not looking for work. What kind of unemployment is

Sarah experiencing?

A) cyclical

B) structural

C) frictional

D) Sarah is not experiencing unemployment of any kind, because she is not currently

part of the labor force.

One criticism of the Fed’s quantitative easing policy is that a prolonged period of low

interest rates could lead to speculative bubbles. Some economists argued that as interest

rates fell and prices of long-term Treasury bonds rose, financial markets were

experiencing a “Treasury bubble.” These economists

worried that investors, banks, other financial firms, and pension funds were

underestimating the likelihood that long-term interest rates would eventually ________,

causing substantial ________ in the prices of Treasury bonds.

A) rise; declines

B) rise; increases

C) fall; declines

D) fall; increases

Scenario 10-1

Consider the following data for a closed economy:

Y = $12 trillion

C = $8 trillion

I= $2 trillion

G = $2 trillion

TR = $2 trillion

T = $3 trillion

Refer to Scenario 10-1. Based on the information above, what is the level of private

saving in the economy?

A) $3 trillion

B) $4 trillion

C) $5 trillion

D) $8 trillion

At a recent company meeting, Geraldine Erwin, sales manager of Dastoria, a flavored

beverage producer announced, “We have increased our sales by 8 percent in just six

months.” Suppose six months ago, its sales amounted to $452,000, what is the value of

its sales today?

A) $36,160

B) $415,840

C) $488,160

D) $565,000

Governments sometimes erect barriers to trade other than tariffs and quotas. Which of

the following is not an example of this type of trade barrier?

A) a requirement that the employees of domestic firms that engage in foreign trade pay

income taxes

B) a requirement that imports meet health and safety requirements

C) restrictions on imports for national security reasons

D) a requirement that the U.S. government buy military uniforms only from U.S.

manufacturers

Which of the following goods is directlycounted in GDP?

A) the lettuce that Subway purchases for its sandwiches

B) the bread that Subway purchases for its sandwiches

C) a 12-inch Subway sandwich purchased by a student

D) the plastic bags that Subway purchases to wrap its sandwiches

The demand for loanable funds is determined by the willingness of ________ to borrow

money to engage in new investment projects.

A) government

B) households

C) banks

D) firms

According to the “rational expectations” school of thought in macroeconomics, the

short-run Phillips curve is ________ in face of anticipated changes in monetary policy.

A) negatively sloped

B) positively sloped

C) vertical

D) horizontal

Which of the following is correct about the economic decisions consumers, firms, and

the government have to make?

A) Governments may face the problem of shortages but not scarcity in making

economic decisions.

B) Only individuals face scarcity; firms and the government do not.

C) Firms and the government face scarcity, individuals only face shortages.

D) Each faces the problem of scarcity which necessitates trade-offs in making economic

decisions.

The U.S. work week has declined from 60 hours in 1890 to 40 hours today. The impact

of the decline in working hours

A) increases U.S. GDP and increases the well-being of a typical working person in the

U.S.

B) increases U.S. GDP and decreases the well-being of a typical working person in the

U.S.

C) decreases U.S. GDP and increases the well-being of a typical working person in the

U.S.

D) decreases U.S. GDP and decreases the well-being of a typical working person in the

U.S.

Table 2-8

Table 2-8 shows the output per month of two people, Wilma and Betty. They can either

devote their time to making marble statues or making marble benches.

Refer to Table 2-8. What is Wilma’s opportunity cost of making a statue stick?

A) 1/3 bench

B) 3 benches

C) 6/7 statue

D) 1/2 bench

The response of investment spending to an increase in the government budget deficit is

called

A) expansionary investment.

B) private dissaving.

C) crowding out.

D) income minus net taxes.