ECO 372 FINAL EXAM COMPLETE SOLUTION 100%

1 The Marions purchased a Persian rug worth $5,000 from an Iranian textile mill. Everything else remaining unchanged, this will:
     
decrease the net imports of the domestic country by $5,000.
decrease the consumption expenditure in the domestic country by $5,000.
reduce the net exports of the domestic country by $5,000.
increase the gross domestic product of the domestic country by $5,000.

2 The table given below shows the total amount of spending in the country of Mesodonia. Mesodonia’s gross domestic product is:  
  
$5,660 million.
$4,560 million.
$4,160 million.
$4,710 million.

3 The circular-flow diagram shows that:
firms receive wages and profits from households in the products market.
households sell the factors of production to firms in the inputs market.
households supply resources to firms in the products market.
firms supply labor and other resources to the government in the factor market.

4 Martha lends $200 to a friend who promises to return it after a year. Instead of lending it to her friend, Martha could have put the money in a bank where she could have earned an interest rate of 2 percent per annum. Martha’s opportunity cost of lending the money is _____.
    
$204
$200
$2
$4

5 Following the unexpected good performance of Leathex, all its employees were given a one-time bonus. This consequently led to a rightward shift of the demand curve for shoes manufactured by the company and a leftward shift of the demand curve for socks. This shows that shoes are:

normal goods.
complementary goods.
substitutes.
inferior goods.

6 Ephlon Inc., an Italian bike manufacturer, opens a factory in the United States. This is an example of:

the catch-up effect.
the accumulation of human capital.
a foreign portfolio investment.
a foreign direct investment.

7 Which of the following is true according to the circular-flow diagram?

Households receive revenue from the government.
Firms receive income from households.
Firms receive wages, rent, and profit from the government.
Households receive wages, rent, and profit from firms.

8 Scarcity occurs because of:
overutilization of labor.
the limited supply of resources.
limited human needs and wants.
the excess of quantity supplied over quantity demanded.

9 In the long run, a higher saving rate:
does not always lead to a higher growth rate of output because of diminishing returns to capital.
does not lead to a higher level of income because of deterioration in labor productivity.
always leads to a higher growth rate of output because of improvement in the stock of human capital.
always leads to a higher level of productivity because of increasing returns to scale.

10 The buyers and sellers in the country of Perylia use corn as a medium of exchange. This means that:
corn can be used as a store of value but not as a unit of account in Perylia.
Perylia uses fiat money.
Perylia uses commodity money.
corn cannot be used as a store of value or as a unit of account in Perylia.

11 Suppose the net foreign investment in Italy is positive. This implies that:

Italy is experiencing a net capital inflow.
foreigners are buying relatively more Italian assets.
foreign direct investment in Italy is higher than foreign portfolio investment in the country.
Italians are buying more foreign assets than foreigners are buying Italian assets.

12 The exhibit given below shows the short-run aggregate demand and supply curves in an economy, AD1 and AS1, and the long-run aggregate supply curve, LRAS. The economy was initially in equilibrium when there was a decrease in aggregate demand, causing a shift of the aggregate demand curve from AD1 to AD2. Which of the following is true in this case?

The economy will move from point D to point A in the short run and then to point C in the long run.
The economy will move from point B to point A in the short run and then to point C in the long run.
The economy will move from point C to point B in the short run and then eventually to point A.
The economy will move from point D to point C in the long run.

13 A difference between commodity money and fiat money is that:

fiat money cannot be used as a unit of account.
commodity money cannot be used as a unit of account.
commodity money is used in a barter economy.
fiat money does not have any intrinsic value.

14 As more capital is used in the production process, the amount of other inputs being fixed, the production function becomes:

steep because the extra output produced from an additional unit of capital decreases.
flat because the extra output produced from an additional unit of capital decreases.
flat because the extra output produced from an additional unit of capital increases.
steep because the extra output produced from an additional unit of capital increases.

15 Suppose the Fed purchases government bonds through open-market operations. All other things remaining equal, this is likely to:

decrease the price level and make domestic goods less expensive relative to foreign goods.
decrease the price level and increase the real wealth of consumers.
increase the price level and eventually decrease the demand for money as well as goods and services.
increase the price level and eventually decrease the interest rate and investment spending.

16 Jack is an out-of-work sculptor. He has been looking for a job for the last two years. Unable to find any, he has given up his job search. Which of the following is true in this case?

This is an example of frictional unemployment.
He is a discouraged worker and will not be included in the calculation of the unemployment rate.
This is an example of structural unemployment.
He is a part of the unemployed labor force.

17 The country of Merilya exported goods and services worth $1.2 million and imported goods and services worth $2.7 million. The net exports of the country was _____.

 
$2 million, and it had a trade surplus
−$3.9 million, and it had a trade deficit
$3.9 million, and it had a trade surplus
−$1.5 million, and it had a trade deficit

18 If the price level in an economy is 120 and the equilibrium price level is 100, _____.

the supply of money is likely to exceed the demand for money
the demand for money curve will shift to the left
people will want to hold more money than is supplied by the central bank
the purchasing power of money will increase

19 A recent survey showed the health benefits of cranberry juice for treating heart and other respiratory disorders. The exhibit below shows that the initial demand curve for cranberry juice is D1. Which of the following is likely to be a consequence of the publication of the survey?
The demand curve will shift from D1 to D2.
There will be a movement from point A to point C on D1.
The demand curve will shift from D1 to D3.
There will be a movement from point A to point B on D1.

20 Suppose the central bank of a country undertakes an expansionary monetary policy. Which of the following is most likely to be the effect of such a policy, all other things remaining unchanged?
    
A decrease in the price level that reduces the amount of money that people want to hold and decreases the interest rate.
A decrease in the price level that reduces the interest rate and lowers the real value of the domestic currency foreign-exchange market.
An increase in the price level that stimulates spending on net exports and increases the demand for money
An increase in the price level that reduces the real value of households’ money holdings and stimulates consumer spending

21 The Phillips curve shows:

the positive relationship between the price level and aggregate supply.
the positive relationship between the interest rate and the supply of money.
the negative relationship between inflation and unemployment.
the negative relationship between the interest rate and the demand for money.

22 A rise in the price of bacon from $14 per pound to $16 per pound will reduce the purchasing power of the dollar by:
 
5 pounds of bacon.
0.55 pounds of bacons.
2 pounds of bacon.
0.06 pounds of bacon.

23 There is an increase in human capital when _____.
    
Susie puts in more than 8 hours of work at her workplace every day
Sue rents a laser printer to teach her employees how to fix it
Shiroh persuades the management of her company to offer more perks to employees
Samantha receives training in quality management after joining a new firm

24 Suppose an economy is in long-run equilibrium. An increase in consumption expenditure will:

decrease both the price level and real gross domestic product in the long run.
increase the price level in the long run but have no effect on real gross domestic product.
shift the aggregate demand curve rightward and increase the real output in the long run.
shift the short-run aggregate supply curve rightward and increase both the price level and real output in the long run.

25 After retirement, Molly deposits $500,000 in a local bank in Merrina. At an interest rate of 4 percent, she will receive approximately _____ after 3 years.
    
$662,345
$608,326
$562,432
$750,000

26 Ruth wants to calculate the present value of a sum of money that she will receive after the demise of her grandparents. To calculate the present value, she should use the:

discounting method.
value-added method.
expenditure method.
compounding method.

27 A higher interest rate in a country:
   
makes domestic bonds less attractive to foreigners.
lowers saving in the country and decreases the quantity of loanable funds supplied.
discourages investment and decreases the quantity of loanable funds demanded.
encourages citizens to buy foreign assets.

28 Keynesian economists believe that when an economy is in a recession, the government should:
    
increase its purchases rather than decrease taxes because households save a part of the increase in their income as a result of tax cuts.
increase the money supply in the economy so that interest rates decline, reducing the cost of borrowing to finance new investment projects.
decrease tax rates rather than increase government spending because households always view such tax cuts as permanent and increase their current consumption.
increase the money supply in the economy so that an excess supply of money can induce households to increase their consumption expenditure.

29 The natural rate of unemployment in a country is 4 percent. This implies that:

4 percent of the labor force is unemployed at any given point of time.
the unemployment rate is constant at 4 percent over time.
the country has a 4 percent unemployment rate when the labor market is in equilibrium.
the country has an unemployment rate of 4 percent in the short run.

30 Suppose the net capital outflow from Zenovia is negative. This implies that:
    
the real interest rate in Zenovia is high.
the citizens of Zenovia are investing more in foreign assets than foreigners are investing in assets in Zenovia.
the real interest rate in foreign countries is higher than in Zenovia.
foreigners are not interested in buying assets in Zenovia.