QN=1 (17758) Refer to Figure 3-3.

Enid has an absolute advantage in the production of

(2206
)

a. burritos and a comparative advantage in the production of tacos.

b. burritos and a comparative advantage in the production of burritos.
c. neither good and a comparative advantage in the production of tacos.
d. neither good and a comparative advantage in the production of burritos.

QN=2 (2210) (17726) Which famous economist developed the principle of comparative advantage as
we know it today?
a. Adam Smith
b. David Ricardo
c. John Maynard Keynes
d. Milton Friedman

QN=3 (2225) (17724) Two people can benefit from specialization and trade by obtaining a good at a
price that is
a. lower than his or her opportunity cost of that good.
b. the same as his or her opportunity cost of that good.
c. higher than his or her opportunity cost of that good.
d. different than his or her opportunity cost of that good.

QN=4 (2212) (17719) When an economist points out that you and millions of other people are
interdependent, he or she is referring to the fact that we all
a. rely upon the government to provide us with the basic necessities of life.
b. rely upon one another for the goods and services we consume.
c. have similar tastes and abilities.
d. are concerned about one another’s well-being.

QN=5 (2228) (17743) When can two countries gain from trading two goods?
a. (i) when the first country can only produce the first good and the second country can
only produce the second good
b. (ii) when the first country can produce both goods, but can only produce the second
good at great cost, and the second country can produce both goods, but can only
produce the first good at great cost
c. (iii) when the first country is better at producing both goods and the second country is
worse at producing both goods
d. Two countries could gain from trading two goods under all of the conditions in (i), (ii),
and (iii).

QN=6 (17751) Refer to Table 3-5. England has a comparative advantage in the production of
(2244
)

a. cheese and Spain has a comparative advantage in the production of bread.

b. bread and Spain has a comparative advantage in the production of cheese.
c. both goods and Spain has a comparative advantage in the production of neither good.
d. neither good and Spain has a comparative advantage in the production of both goods.

QN=7 (17734) Refer to Table 3-1. At which of the following prices would both Sardi and Tinaka gain from
(2245 trade with each other?
)
a. 6 bushels of corn for 10.5 pounds of pork
b. 12 bushels of corn for 19 pounds of pork
c. 24 bushels of corn for 34 pounds of pork
d. Sardi and Tinaka could not both gain from trade with each other at any price.

QN=8 (2259) (17783) Which of the following items is counted as part of government purchases?
a. (i) The federal government pays the salary of a Navy officer.
b. (ii) The state of Nevada pays a private firm to repair a Nevada state highway.
c. (iii) The city of Las Vegas, Nevada pays a private firm to collect garbage in that city.
d. All (i), (ii), and (iii) are correct.

QN=9 (2251) (17764) Gross domestic product is defined as

a. (i) the quantity of all final goods and services demanded within a country in a given
period of time.
b. (ii) the quantity of all final goods and services supplied within a country in a given
period of time.
c. (iii) the market value of all final goods and services produced within a country in a
given period of time.
d. Both (i) and (ii) are correct.

QN=10 (2260) (17776) Which of the following statistic is usually regarded as the best single measure
of a society’s economic well-being?
a. the unemployment rate
b. the inflation rate
c. gross domestic product
d. the trade deficit

QN=11 (2293) (17817) Table 24-3

The table below pertains to Studious, an economy in which the typical consumer’s
basket consists of 5 books and 10 calculators.

Refer to Table 24-3. The cost of the basket

a. increased from 2006 to 2007 and increased from 2007 to 2008.
b. increased from 2006 to 2007 and decreased from 2007 to 2008.
c. decreased from 2006 to 2007 and increased from 2007 to 2008.
d. decreased from 2006 to 2007 and decreased from 2007 to 2008.

QN=12 (2280) (17808) In an imaginary economy, consumers buy only sandwiches and magazines.
The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich
cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If
the inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007?
a. $1.87
b. $2.08
c. $2.32
d. $3.00

QN=13 (2282) (17815) The CPI was 120 in 2000 and 132 in 2001. Dorgan borrowed money in 2000
and repaid the loan in 2001. If the nominal interest rate on the loan was 12 percent,
then the real interest rate was
a. 2 percent.
b. 10 percent.
c. 12 percent.
d. 22 percent.

QN=14 (2287) (17798) The consumer price index tries to gauge how much incomes must rise to
maintain
a. an increasing standard of living.
b. a constant standard of living.
c. a decreasing standard of living.
d. the highest standard of living possible.

QN=15 (2269) (17773) Quality Motors is a Japanese-owned company that produces automobiles; all
of its automobiles are produced in American plants. In 2007, Quality Motors produced
$20 million worth of automobiles, with $12 million in sales to Americans, $6 million in
 sales to Canadians, and $2 million worth of automobiles added to Quality Motors’
inventory. The transactions just described contribute how much to U.S. GDP for 2007?
a. $12 million
b. $14 million
c. $20 million
d. $34 million

QN=16 (2321) (17835) Suppose that real GDP grew more in Country A than in Country B last year.
a. (i) Country A must have a higher standard of living than country B.
b. (ii) Country A's productivity must have grown faster than country B's.
c. Both (i) and (ii) are correct.
d. None of (i) and (ii) is correct.

QN=17 (2298) (17805) Economists use the term inflation to describe a situation in which
a. some prices are rising faster than others.
b. the economy's overall price level is rising.
c. the economy's overall price level is high, but not necessarily rising.
d. the economy's overall output of goods and services is rising faster than the economy's
overall price level.

QN=18 (2312) (17846) The Peapod Restaurant uses all of the following to produce vegetarian meals.
Which of them is an example of physical capital?
a. the owner's knowledge of how to prepare vegetarian entrees
b. the money in the owner's account at the bank from which she borrowed money
c. the tables and chairs in the restaurant
d. the land the restaurant was built on

QN=19 (2300) (17814) The price of domestically produced DVD players increases dramatically,
causing a 1 percent increase in the CPI. The price increase will most likely cause the
GDP deflator to increase by
a. (i) more than 1 percent.
b. (ii) less than 1 percent.
c. (iii) 1 percent.
d. None of (i), (ii), and (iii) is correct; this particular price increase will not affect the GDP
deflator.

QN=20 (2314) (17837) All else equal, if there are diminishing returns, then which of the following is
true if a country increases its capital by one unit?
a. Output will rise by more than it did when the previous unit was added.
b. Output will rise but by less than it did when the previous unit was added.
c. Output will fall by more than it did when the previous unit was added.
d. Output will fall but by less than it did when the previous unit was added.
QN=21 (2332) (17821) Over the past 100 years, U.S. real GDP per person has doubled about every 35
years. If, in the next 100 years, it doubles every 25 years, then a century from now U.S.
real GDP per person will be
a. 4 times higher than it is now.
b. 8 times higher than it is now.
c. 12 times higher than it is now.
d. 16 times higher than it is now.

QN=22 (2338) (17858) If the nominal interest rate is 6 percent and the real interest rate is 2 percent,
then what is the inflation rate?
a. (i) 8 percent
b. (ii) 4 percent
c. (iii) 3 percent
d. None of (i), (ii), and (iii) is correct.

QN=23 (2348) (17849) Which of the following is not always correct for a closed economy?
a. National saving equals private saving plus public saving.
b. Net exports equal zero.
c. Real GDP measures both income and expenditures.
d. Private saving equals investment.

QN=2 (17836) Refer to Figure 25-1. The curve becomes flatter as the amount of capital per worker
4 increases because of
(2331)

a. increasing returns to capital.

b. increasing returns to labor.
c. diminishing returns to capital.
d. diminishing returns to labor.

QN=25 (2334) (17845) Dilbert’s Incorporated produced 6,000,000 units of software in 2005. At the
start of 2006 the pointy-haired boss raised employment from 10,000 total annual
hours to 14,000 annual hours and production was 7,000,000 units. Based on these
numbers what happened to productivity?
a. It fell by about 16.7%.
b. It stayed the same.
c. It rose by about 16.7%.
d. It rose by about 40%.

QN=26 (2363) (17881) The labor force equals the

a. number of people employed.
b. number of people unemployed.
c. number of people employed plus the number of people unemployed.
d. adult population.

QN=27 (2360) (17888) The efficiency-wage theory of worker health is

a. more relevant for explaining unemployment in less developed countries than in rich
countries.
b. more relevant for explaining unemployment in rich countries than in less developed
countries.
c. equally relevant for explaining unemployment in less developed countries and in rich
countries.
d. not relevant for explaining unemployment.

QN=28 (2372) (17889) Unemployment that results because the number of jobs available in some
labor markets may be insufficient to give a job to everyone who wants one is called
a. the natural rate of unemployment.
b. cyclical unemployment.
c. structural unemployment.
d. frictional unemployment.

QN=29 (2380) (17899) Which of the following does not help reduce frictional unemployment?
a. (i) government-run employment agencies
b. (ii) public training programs
c. (iii) unemployment insurance
d. All of (i), (ii), and (iii) help reduce frictional unemployment.

QN=30 (2357) (17871) Which of the following lists correctly identifies the four expenditure categories
 of GDP?
a. consumption, government purchases, investment, net-exports
b. consumption, investment, depreciation, net-exports
c. consumption, saving, investment, depreciation,
d. consumption, government purchases, investment, savings

QN=31 (2375) (17897) Suppose that because of the popularity of the low-carb diet, bakeries need
fewer workers and steak houses need more workers. This is an example of
a. frictional unemployment created by efficiency wages.
b. frictional unemployment created by sectoral shifts.
c. structural unemployment created by efficiency wages.
d. structural unemployment created by sectoral shifts.

QN=32 (2413) (17911) Suppose a bank’s reserve ratio is 6.5 percent and the bank has $1,950 in
reserve. Its deposits amount to
a. $62.25.
b. $126.75.
c. $22,500.00
d. $30,000.00.

QN=33 (2392) (17920) If an economy used gold as money, its money would be
a. commodity money, but not fiat money.
b. fiat money, but not commodity money.
c. both fiat and commodity money.
d. functioning as a store of value and as a unit of account, but not as a medium of
exchange.

QN=34 (2389) (17917) Suppose that banks desire to hold no excess reserves. If the reserve
requirement is 5 percent and a bank receives a new deposit of $400, it
a. (i) must increase required reserves by $20.
b. (ii) will initially see reserves increase by $400.
c. (iii) will be able to use this deposit to make new loans amounting to $380.
d. All of (i), (ii), and (iii) are correct.

QN=35 (2442) (17948) The claim that increases in the growth rate of the money supply increase
nominal interest rates but not real interest rates is known as the
a. (i) Friedman Effect.
b. (ii) Hume Effect.
c. (iii) Fisher Effect.
d. None of (i), (ii), and (iii) is correct.

QN=36 (2424) (17935) The shoeleather cost of inflation refers to

a. the redistributional effects of unexpected inflation.
b. the time spent searching for low prices when inflation rises.
c. the waste of resources used to maintain lower money holdings.
d. the increased cost to the government of printing more money.

QN=37 (2428) (17943) Suppose that velocity rises while the money supply stays the same. It follows
that
a. P*Y must rise.
b. P*Y must fall.
c. P*Y must be unchanged.
d. the effects on P*Y are uncertain.

QN=38 (2431) (17950) Tara deposits money into an account with a nominal interest rate of 6 percent.
She expects inflation to be 2 percent. Her tax rate is 20 percent. Tara’s after-tax real
rate of interest
a. will be 2.8 percent if inflation turns out to be 2 percent; it will be higher if inflation
turns out to be higher than 2 percent.
b. will be 2.8 percent if inflation turns out to be 2 percent; it will be lower if inflation
turns out to be higher than 2 percent.
c. will be 3.2 percent if inflation turns out to be 2 percent; it will be higher if inflation
turns out to be higher than 2 percent.
d. will be 3.2 percent if inflation turns out to be 2 percent; it will be lower if inflation
turns out to be higher than 2 percent.

QN=3 (17931) Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS2; also
9 suppose the economy’s real GDP is 45,000 for the year. If the money market is in equilibrium, then
(2422) the velocity of money is approximately
a. 4.5
b. 6.0
c. 9.0
d. 12.0

QN=40 (2426) (17954) An increase in the price level makes the value of money
a. increase, so people want to hold more of it.
b. increase, so people want to hold less of it.
c. decrease, so people want to hold more of it.
d. decrease, so people want to hold less of it.

QN=41 (2459) (17983) If Saudi Arabia had positive net exports last year, then it
a. sold more abroad than it purchased abroad and had a trade surplus.
b. sold more abroad than it purchased abroad and had a trade deficit.
c. bought more abroad than it sold abroad and had a trade surplus.
d. bought more abroad than it sold abroad and had a trade deficit.

QN=42 (2467) (17961) Other things the same, if the dollar depreciates relative to the British pound,
then
a. the exchange rate falls. It will cost fewer pounds to travel in the U.S.
b. the exchange rate falls. It will cost more pounds to travel in the U.S.
c. the exchange rate rises. It will cost fewer pounds to travel in the U.S.
d. the exchange rate rises. It will cost more pounds to travel in the U.S.

QN=43 (2446) (17982) If it took as many dollars to buy goods in the United States as it did to buy
enough currency to buy the same goods in India, the real exchange rate would be
computed as how many Indian goods per U.S. goods?
a. (i) one
b. (ii) the number of dollars needed to buy U.S. goods divided by the number of rupees
needed to buy Indian goods
c. (iii) the number of rupees needed to buy Indian goods divided by the number of
dollars needed to buy U.S. goods
d. None of (i), (ii), and (iii) is correct.

QN=44 (2476) (18012) A tax on imported goods is called an

a. (i) excise tax.
b. (ii) tariff.
c. (iii) import quota.
d. None of (i), (ii), and (iii) is correct.

QN=45 (2484) (17995) In the open-economy macroeconomic model, if the supply of loanable funds
increases, then the interest rate
a. income
b. tastes
c. Price
d. Expectations

QN=46 (2512) (18032) Suppose the economy is in long-run equilibrium. If there is a tax cut at the
same time that major new sources of oil are discovered in the country, then in the
short-run
a. real GDP will rise and the price level might rise, fall, or stay the same.
b. real GDP will fall and the price level might rise, fall, or stay the same.
c. the price level will rise, and real GDP might rise, fall, or stay the same.
d. the price level will fall, and real GDP might rise, fall, or stay the same.

QN=47 (2519) (18033) Which of the following shifts both the short-run and long-run aggregate supply
right?
a. (i) an increase in the actual price level
b. (ii) an increase in the expected price level
c. (iii) an increase in the capital stock
d. None of (i), (ii), and (iii) is correct.

QN=48 (2511) (18041) From 2001 to 2005 there was a dramatic rise in the price of houses. If this
made people feel wealthier, then it would shift
a. aggregate demand right.
b. aggregate demand left.
c. aggregate supply right.
d. aggregate supply left.

QN=49 (2545) (18067) Using the liquidity-preference model, when the Federal Reserve increases the
money supply,
a. the equilibrium interest rate decreases.
b. the aggregate-demand curve shifts to the left.
c. the quantity of goods and services demanded is unchanged for a given price level.
d. the long-run aggregate-supply curve shifts to the right.

QN=50 (2538) (18051) According to liquidity preference theory, the opportunity cost of holding
money is
a. the interest rate on bonds.
b. the inflation rate.
c. the cost of converting bonds to a medium of exchange.
d. the difference between the inflation rate and the interest rate on bonds.
For Examination Department Only

Answer of Paper Code=ECO121_SP22_1[1905]

***************************************************************

MULTIPLE CHOICES QUESTIONS:(Mark=50)

[id=2206, Mark=1]1. C

[id=2210, Mark=1]2. B

[id=2225, Mark=1]3. A

[id=2212, Mark=1]4. B

[id=2228, Mark=1]5. D

[id=2244, Mark=1]6. A

[id=2245, Mark=1]7. B

[id=2259, Mark=1]8. D

[id=2251, Mark=1]9. C

[id=2260, Mark=1]10. C

[id=2293, Mark=1]11. A

[id=2280, Mark=1]12. B

[id=2282, Mark=1]13. A

[id=2287, Mark=1]14. B

[id=2269, Mark=1]15. C

[id=2321, Mark=1]16. D

[id=2298, Mark=1]17. B

[id=2312, Mark=1]18. C

[id=2300, Mark=1]19. B

[id=2314, Mark=1]20. B

[id=2332, Mark=1]21. D

[id=2338, Mark=1]22. B

[id=2348, Mark=1]23. D

[id=2331, Mark=1]24. C
[id=2334, Mark=1]25. A

[id=2363, Mark=1]26. C

[id=2360, Mark=1]27. A

[id=2372, Mark=1]28. C

[id=2380, Mark=1]29. C

[id=2357, Mark=1]30. A

[id=2375, Mark=1]31. B

[id=2413, Mark=1]32. D

[id=2392, Mark=1]33. A

[id=2389, Mark=1]34. D

[id=2442, Mark=1]35. C

[id=2424, Mark=1]36. C

[id=2428, Mark=1]37. A

[id=2431, Mark=1]38. B

[id=2422, Mark=1]39. C

[id=2426, Mark=1]40. C

[id=2459, Mark=1]41. A

[id=2467, Mark=1]42. A

[id=2446, Mark=1]43. A

[id=2476, Mark=1]44. B

[id=2484, Mark=1]45. B

[id=2512, Mark=1]46. A

[id=2519, Mark=1]47. C

[id=2511, Mark=1]48. A

[id=2545, Mark=1]49. A

[id=2538, Mark=1]50. A