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Homework answers / question archive / University of California, Santa Barbara Econ 2 Final Exam - Summer 2013 1)When an Egyptian firm purchases a cement mixer from Slovakia, Egyptian investment does not change, Egyptian net exports decrease, Egyptian GDP decreases, Slovakian net exports increase, and Slovakian GDP increases

University of California, Santa Barbara Econ 2 Final Exam - Summer 2013 1)When an Egyptian firm purchases a cement mixer from Slovakia, Egyptian investment does not change, Egyptian net exports decrease, Egyptian GDP decreases, Slovakian net exports increase, and Slovakian GDP increases

Economics

University of California, Santa Barbara

Econ 2 Final Exam - Summer 2013

1)When an Egyptian firm purchases a cement mixer from Slovakia,

  1. Egyptian investment does not change, Egyptian net exports decrease, Egyptian GDP decreases, Slovakian net exports increase, and Slovakian GDP increases.
  2. Egyptian investment increases, Egyptian net exports decrease, Egyptian GDP is unaffected, Slovakian net exports increase, and Slovakian GDP increases.
  3. Egyptian investment decreases, Egyptian net exports increase, Egyptian GDP is unaffected, Slovakian net exports decrease, and Slovakian GDP decreases.
  4. Egyptian investment increases, Egyptian net exports do not change, Egyptian GDP     increases, Slovakian net exports do not change, and Slovakian GDP is unaffected.

 

Table 23-6

 

The table below contains data for the country of Batterland, which produces only waffles and pancakes.  The base year is 2009.

 

Prices and Quantities

Year 

Price of  Waffles 

Quantity of Waffles 

Price of

Pancakes 

Quantity of  Pancakes 

2008 

$2.00 

100 

$1.00 

100 

2009 

$2.00 

120 

$2.00 

150 

2010 

$2.00 

150 

$3.00 

200 

2011 

$4.00 

180 

$3.00 

220 

  

____          2. Refer to Table 23-6.  From 2010 to 2011, this country's output grew  a. 12.5%.

  1. 14.3%.
  2. 48.1%.
  3. 155.6%.

 

Figure 25-1.  On the horizontal axis, K/L represents capital (K) per worker (L).  On the vertical axis, Y/L represents output (Y) per worker (L).

 

 

K/L

Y/L

 

 

 

____

3. Refer to Figure 25-1.  Choose a point anywhere on the curve and call it point A.  If the economy is at point A in 2011, then it will definitely remain at point A in 2012 if, between 2011 and 2012,

  1. the quantity of physical capital remains constant; the number of workers doubles; and human capital, natural resources, and technology all double as well.
  2. the quantity of physical capital doubles; human capital, natural resources, and technology all double as well; and the number of workers remains constant.
  3. the quantity of physical capital doubles; the number of workers doubles; and human capital, natural resources, and technology all double as well.
  4. the quantity of physical capital doubles; the number of workers doubles; and human

 

      capital, natural resources, and technology remain constant.

 

 

Scenario 26-3.  Assume the following information for an imaginary, open economy.  

 

Consumption = $1,000; investment = $300; net exports = $100;  taxes = $230; private saving = $200; and national saving = $150.

 

____

4. Refer to Scenario 26-3.  For this economy, government purchases amount to 

  1. $130.
  2. $180.
  3. $280.
  4. $330.

 

Figure 26-4.   On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.

 

 

$50

$62

%

6

8

%

Supply

D

D

1

2

L

r

 

       

____          5. Refer to Figure 26-4.  Regard the position of the Supply curve as fixed, as on the graph.  If the real interest rate is 8 percent, the inflation rate is 3 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be

  1. .
  2. .
  3. between       and     .
  4. to the right of         .

 

 

 

____

6. Refer to Figure 26-4.  If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent,  then the equilibrium nominal interest rate is  a. lower than 6 percent..

  1. approximately 6 percent.
  2. between 6 percent and 8 percent.
  3. approximately 12 percent.

 

____

7. A steel company sells some steel to a bicycle company for $150.  The bicycle company uses the steel to produce a bicycle, which it sells for $250.  Taken together, these two transactions contribute  a. $150 to GDP.

  1. $250 to GDP.
  2. between $250 and $400 to GDP, depending on the profit earned by the bicycle company when it sold the bicycle.
  3. $400 to GDP.

 

____

8. If the price of domestically produced power tools increases, then

  1. the consumer price index and the GDP deflator will both increase.
  2. the consumer price index will increase, and the GDP deflator will be unaffected.
  3. the consumer price index will be unaffected, and the GDP deflator will increase.
  4. the consumer price index and the GDP deflator will both be unaffecte

 

____

9. James offers you $1,000 today or $X in 7 years.  If the interest rate is 4.5 percent, then you would prefer to

take the $1,000 today if and only if a. X < 1,045.00.

  1. X < 1,188.89.
  2. X < 1,266.67.
  3. X < 1,360.86.

 

____

10. According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would 

  1. raise both private and public saving.
  2. raise private saving and lower public saving.
  3. lower private saving and raise public saving.
  4. lower private and public saving.

 

____

11. Which of the following is correct if the interest rate is 6 percent?

  1. $215 to be received a year from today has a present value of over $200; $420 a year from now has a present value over $400.
  2. $215 to be received a year from today has a present value of over $200; $420 a year from now has a present value under $400.
  3. $215 to be received a year from today has a present value of under $200; $420 a year from now has a present value over $400.
  4. $215 to be received a year from today has a present value of under $200; $420 a year from      now has a present value under $400.

 

____

12. A person who believes strongly in the use of fundamental analysis to choose a portfolio of stocks 

  1. has a better chance of outperforming the market if stock prices follow a random walk than if they do not follow a random walk.
  2. almost always chooses to hold index funds in his or her portfolio rather than actively-managed funds.
  3. is spending his or her time wisely if the efficient markets hypothesis is correct.
  4. is interested in the likely ability of a corporation to pay dividends in the future.

 

____

13. Satchel loses his job and immediately begins looking for another.  Other things the same, the unemployment rate

  1. increases and the labor-force participation rate decreases.
  2. and the labor-force participation rate both increase.
  3. increases and the labor-force participation rate is unaffected.
  4. is unaffected and the labor-force participation rate decreases.

 

____

14. If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate? a. 9.0 percent

  1. 5 percent
  2. 3.5 percent
  3. None of the above is correct.

 

____

15. Svetlana is risk averse. Which of the following is correct about Svetlana?

  1. Her marginal utility of wealth increases as her income increases.
  2. She will always accept a bet if the probability of winning a dollar is the same as the probability of losing a dollar.
  3. Her utility function is a straight line.
  4. None of the above are correct.

 

____

16. The labor-force participation rate is computed as

  1. (Employed  Adult Population)  100.
  2. (Employed  Labor Force)  100.
  3. (Labor Force  Adult Population)  100.
  4. (Adult Population  Labor Force)  100.

 

____

17. Suppose the price level rises, but the number of dollars you are paid per hour stays the same.  This means that your

  1. nominal wage is higher.
  2. nominal wage is lower.
  3. real wage is higher.
  4. real wage is lower.

 

____

18. Wealth is redistributed from debtors to creditors when inflation was expected to be a. high and it turns out to be high.

  1. low and it turns out to be low.
  2. low and it turns out to be high.
  3. high and it turns out to be low.

 

____

19. Suppose that real GDP grew more in Country A than in Country B last year.

  1. Country A must have a higher standard of living than country B.
  2. Country A's productivity must have grown faster than country B's.
  3. Both of the above are correct.
  4. None of the above are correct.

 

____

20. Brittany wants to have about $500,000 when she retires in 10 years. She has $200,000 to deposit now.  At which of the following interest rates would her deposit come closest to $500,000 after 10 years? a. 9.6 percent

  1. 9.8 percent
  2. 10 percent
  3. 10.2 percent

 

____

21. According to the quantity equation, the price level would change less than proportionately with a rise in the

money supply if there were also

  1. either a rise in output or a rise in velocity.
  2. either a rise in output or a fall in velocity.
  3. either a fall in output or a rise in velocity.
  4. either a fall in output or a fall in velocity.

 

Figure 26-1.  The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves.

 

 

S1

Demand

S2

 

       

____ 22. Refer to Figure 26-1.  Which of the following events would shift the supply curve from S1 to S2?

  1. In response to tax reform, firms are encouraged to invest more than they previously invested.
  2. In response to tax reform, households are encouraged to save more than they previously saved.
  3. Government goes from running a balanced budget to running a budget deficit.
  4. Any of the above events would shift the supply curve from S1 to S2.

 

____ 23. In June 2009 the BLS reported an adult population of 234.9 million, a labor force of 154 million and employment of 141.6 million.  Based on these numbers the unemployment rate was a. 93.3/234.9.

  1. 12.4/234.9.
  2. 93.3/154.
  3. 12.4/154.

 

____ 24. Money

  1. is a perfect store of value.
  2. is the most liquid asset.
  3. has intrinsic value, regardless of which form it takes.
  4. All of the above are correct.

 

____ 25. Suppose there are a large number of men who used to work or seek work who now no longer do either. 

Other things the same, this makes

  1. the number of people unemployed rise but does not change the labor force.
  2. the number of people unemployed rise but makes the labor force fall.
  3. both the number of people unemployed and the labor force fall.
  4. the number of people unemployed fall but does not change the labor force.

 

____ 26. A person who is not employed and claims to be trying hard to find a job but really is not trying hard to find a job

  1. is counted as out of the labor force but should be counted as unemployed.
  2. is counted as unemployed but should be counted as out of the labor force.
  3. is correctly counted as out of the labor force.
  4. is correctly counted as unemployed.

 

 

Figure 30

-

1

 

 

 

 

____

27. Refer to Figure 30-1. When the money supply curve shifts from MS1 to MS2,

  1. the demand for goods and services decreases.
  2. the economy's ability to produce goods and services increases.
  3. the equilibrium price level decreases.
  4. None of the above is correct.

 

____

28. According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then a. both the price level and real GDP would rise by 5 percent.

  1. the price level would rise by 5 percent and real GDP would be unchanged.
  2. the price level would be unchanged and real GDP would rise by 5 percent.
  3. both the price level and real GDP would be unchange

 

____

29. Suppose you win a small lottery and you are given the following choice:  You can (1) receive an immediate payment of $10,000 or (2) three annual payments, each in the amount of $3,600, with the first payment coming one year from now, the second two years from now, and the third three years from now.  You would choose to take the three annual payments if the interest rate is  a. 2 percent, but not if the interest rate is 3 percent.

  1. 3 percent, but not if the interest rate is 4 percent.
  2. 4 percent, but not if the interest rate is 5 percent.
  3. 5 percent, but not if the interest rate is 6 percent.

 

____

30. Mixster Concrete Company is considering buying a new cement truck. The owners and their accountants decide that this is the profitable thing to do. Before they can buy the truck, the interest rate and price of trucks change. In which case do these changes both make them less likely to buy the truck? a. Interest rates rise and truck prices rise.

  1. Interest rates fall and truck prices rise.
  2. Interest rates rise and truck prices fall.
  3. Interest rates fall and truck prices fall.

 

____

31. Happy Trails, a bicycle rental company, is considering purchasing three additional bicycles. Each bicycle

would cost them $249.66. At the end of the first year the increase to their revenues would be $140 per bicycle. At the end of the second year the increase to their revenues again would be $140 per bicycle. Thereafter, there are no increases to their revenues.  At which of the following interest rates is the sum of the present values of the additional revenues closest to the price of a bicycle? a. 5 percent

  1. 6 percent
  2. 7 percent
  3. 8 percent

 

____

32. Shawn puts money into an account. One year later he sees that he has 5 percent more dollars and that his money will buy 6 percent more goods.

  1. The nominal interest rate was 11 percent and the inflation rate was 5 percent.
  2. The nominal interest rate was 6 percent and the inflation rate was 5 percent.
  3. The nominal interest rate was 5 percent and the inflation rate was -1 percent. d.  None of the above is correct.

 

____

33. Which of the following are costs incurred by people trying to protect themselves from the effects of inflation? a. menu costs and shoeleather costs

  1. menu costs but not shoeleather costs
  2. shoeleather costs but not menu costs
  3. menu costs but not shoeleather costs

 

____

34. You put money into an account and earn a real interest rate of 6 percent.  Inflation is 2 percent, and your marginal tax rate is 20 percent. What is your after-tax real rate of interest? a. 4.8 percent

  1. 3.2 percent
  2. 2.8 percent
  3. None of the above is correct.

 

____

35. Suppose that the legal reserve ratio set by the Fed is 10% and that the Fair Bank in Fairdealing, Missouri initially exhibits checkable deposit accounts of $260 and a reserve account of $70.

 

A customer of Fair Bank deposits $100 into her checking account.  Fair Bank loans 80% of the deposit and places the rest in its reserves at the St. Louis Fed.  How much does Fair Bank have in excess reserves after the deposit and loan? a. $44

  1. $54
  2. $20
  3. $64

 

____

36. The tasks of the Federal Reserve include:

  1. Printing paper currency
  2. Engaging in fiscal policy
  3. Engaging in monetary policy
  4. All of the above

 

____

37. Which of the following statements is false?

  1. Deflation occurs when the aggregate price level falls.
  2. Deflation is when rate of inflation decreases.
  3. Deflation often results in a decrease in aggregate demand.
  4. Deflation does not affect people in the economy uniformly.

 

____

38. Which of the follwing accurately describe the term “velocity”?

  1. how quickly money circulates around the economy
  2. nominal GDP divided by the quantity of money
  3. a variable that was predictable in the 1970s but began to behave more erratically in the

1980s

  1. all of the above

  

____ 39. What does the term “money neutrality” mean?

  1. The Federal Reserve can take actions that are unpopular if they are in the best interest of the country.
  2. Changes in the money supply and the price level are inversely related and proportional.
  3. Changes in the money supply impact everyone in an economy in a similar way.
  4. Changes in the money supply have no real effects on the economy in the long run.

 

____ 40. If money is neutral, what does this imply about the use of monetary policy?

  1. Monetary policy can influence the price level but cannot be used to encourage economic growth.
  2. Monetary policy is more effective in the short term than the long term.
  3. Monetary policy is of limited effectiveness.
  4. Mechanisms should be introduced to ensure that the Federal Reserve is making sound   decisions.

 

____ 41. Which of the following would lead to a rise in the real interest rate?

  1. A smaller budget deficit
  2. A new investment tax credit
  3. An increase in private household saving
  4. All of the above

 

____ 42. If Sally makes an initial deposit of $50 at her bank and the reserve requirement is 5%, then she has created a total money supply of

  1. $100 with a money multiplier of 2
  2. $250 with a money multiplier of 5
  3. $500 with a money multiplier of 10
  4. $1,000 with a money multiplier of 20

 

____ 43. Which of the following would lead to an increase in prices?

  1. An increase in money supply
  2. An increase in money demand
  3. A decrease in money supply
  4. Both B and C

 

____ 44. It takes Mary 40 minutes to bake a cake and 20 minutes to wash a car.  It takes Bob 30 minutes to bake a cake and 10 minutes to wash a car.  Which of the following is true: a. Mary has a comparative advantage in baking cakes.

  1. Mary has a comparative advantage in washing cars.
  2. Mary has an absolute advantage in baking cakes.
  3. Mary has an absolute advantage in washing cars.

 

____ 45. It takes Mary 40 minutes to bake a cake and 20 minutes to wash a car.  It takes Bob 30 minutes to bake a cake and 10 minutes to wash a car.  Which of the following is true:

  1. Bob has a comparative advantage in baking cakes and washing cars.
  2. Mary has a comparative advantage in baking cakes and washing cars.
  3. Bob has an absolute advantage in baking cakes and washing cars.
  4. Mary has an absolute advantage in baking cakes and washing cars.

 

____ 46. If the real interest rate is greater than zero, and there is no inflation, which of the following has the highest present value?

  1. $30 Million after one year.
  2. $10 Million after one year, $10 Million after two years, and $10 Million after three years. c. $30 Million after three years.

d.  More information is needed to answer the question.

 

____ 47. Suppose money supply is increasing at 1%, velocity does not change, and real gdp is decreasing at 5%.  What is inflation?

  1. 1%
  2. -1%
  3. 6%
  4. -6%

 

____ 48. Assume that the required reserve ratio is set to 1/5.0.  Suppose the Fed uses open market operations to increase reserves held by private banks by $150.  By how much will the money supply ultimately increase?  Assume that banks do not hold excess reserves. a. $150

  1. $750
  2. $30
  3. $0

 

____ 49. Suppose there is a bond that matures in two years, principal amount is $2500, the coupon rate is 10% and the current market interest rate is 2%, what is the bond price today? a. $485.39

  1. $2643.21
  2. $2648.02
  3. $2888.31

  

____ 50. Mary deposits $200 into a savings account in 2013. In 2014 her new balance is $180. Over the same period, the CPI has gone from 125 in 2013 to 130 in 2014. What was Mary’s real interest rate on her savings account?

  1. -14%
  2. -4%
  3. -6%
  4. -10%

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