Normal
Economics 203 Spring, 2013 1st Test NAME
Answer any three questions. Maximum of 25 points each.
1. Assume the information below pertains to output per growing season for 200 hours of labor.
Kathryn Meghan
Corn 300 400
Wheat 150 600
A. Who has the absolute advantage in corn? Explain.
B. Who has the comparative advantage in corn? Explain.
C. Explain how it is possible for someone to be absolutely more efficient
than another person in producing a product and still be economically inefficient.
D. Explain the relevance of this example for countries.
2. "The significant increases in rental values in this community suggest that price gouging and profiteering by
landlords has made it difficult if not impossible for the disadvantaged of this community to obtain
adequate housing. I therefore propose that a rent control ordinance be passed to help these people".
Evaluate this proposal-that is,
a. discuss the advantages and disadvantages of such a law as a means of helping the poor. Include in
your essay a discussion of both the short-run and long-run effects.
b. it was pointed out in class that evidence shows that the "poor" are not likely to benefit from such
laws. Explain why.
c. to the extent that someone is helped by a rent control, who "pays"-that is who caries the financial
burden of the benefits. Explain.
4. Discuss the relationship between Nominal GDP and Real GDP. Explain the
importance of the concept of the "price level" in distinguishing between
Real GDP and Nominal GDP. Give an example of how the price level is measured and discuss the difficulties in making such measures accurate.
If a price index is currently equals 150 and the base year is 1983, explain what that index means.
Economics 203 Spring, 2013 Final Exam NAME
Answer five questions. Three questions must come from Section A. and Two questions from Section B. 25 points each.
Answer all objective questions by placing the correct answer on the answer sheet provided. 1 point each
SECTION A Answer Two questions from section A
1. a. Explain how a commercial bank can cause a change in the money supply in the economy.
b. Explain what is meant by "fractional reserve banking" and discuss its importance in the conduct of "monetary policy".
c. Explain the importance of the reserve\deposit ratio(reserve requirement).
2. Discuss the problem of "inflation". Include in your essay:
A. definition of inflation
B. how it can be measured
C. why inflation can be a problem
D. why some are beneficiaries of inflation and others are victims
E. Explain why the following statement is misleading: "Inflation is terrible because the price of everything is going up".
F. discuss the relevance of "menu costs" associated with inflation
g. The authors of the text present the argument that it is not so much the rate of inflation but the difficulty in anticipating
correctly its timing and magnitude that is most important. Briefly present their reasoning.
3. The fear that our society may run out of jobs was criticized in class.
a. Discuss the popular notion that unemployment indicates a "lack of jobs".
b. Discuss three types of unemployment and the related causes.
c. What are the hazards in using statistical unemployment rates to measure "involuntary" unemployment?
d. To what extent should we be fearful of "technological" unemployment?
e. To what extent should we be fearful of unemployment from imported foreign products?
f. In what sense is the popular American inclination to judge policies and outcomes on the basis of "jobs" created or lost a "mercantilist" idea and thus flawed?
4. a. The "Fed" has three major tools at its disposal to fulfill its responsibilities as the U S Central Bank. List the three tools and explain how they can be used to provide ‘economic stability"
b. Suppose the level of spending in the economy was believed to be deficient. Explain the appropriate adjustments in the monetary tools that could be made by the "Fed" and how they are intended to function
5. Discuss what is meant by the "equation of exchange". Write the equation and discuss its importance in understanding the potential sources of macroeconomic problems
SECTION B answer three questions come from Section B
6. Assume the information below pertains to output per growing season for 200 hours of labor.
Kathryn Meghan
Corn 20 40
Wheat 15 60
a. Who has the absolute advantage in wheat? Explain.
b. Who has the comparative advantage in wheat? Explain.
c. Is there a basis for mutually advantageous trade between these two parties? If so, explain how each party can be benefitted. Since Meghan produces more of both goods for her labor, explain how can it be in Meghan’s interest to buy anything from Kathryn? Explain.
d. What is the relevance of is this example to the issue of trade between countries? Explain
e. What is the relevance of is this example to the issue of whether it is desirable to import goods from foreign countries
into the United States? Doesn’t this mean that our money is going to other countries? Doesn’t it mean that U.S. "jobs"
are leaving the country?
7. It has been proposed that the Federal Minimum wage be raised from $7.25 per hour to $9.00. Provide an explanation for each
of the following:
a. Discuss the potential advantages and disadvantages of having a minimum wage and raising it.
b. Who are the intended beneficiaries ?
c. According to economic theory and empirical evidence who is most likely to benefit from an increase in the minimum wage
d. Some say that employers should not oppose an increase in the minimum wage because all they have
to do is raise the price of their product to cover the higher costs. Based on the text and class discussion, what is wrong
with that reasoning?
e. Explain why the effects of a minimum wage may vary geographically across states, cities, and regions
8. It was pointed out in class that expanded international trade (globalization) is analogous to technological change. Based on the
reading assignments and class discussion:
a. Explain the analogy and its importance
b. Explain the relevance of this issue to contemporary U. S. issues.
9. Identify and explain the importance of the following:
a. solow growth curve
b. fiscal deficit
c. public debt
d. crowding out
e. automatic stabilizers
Multiple choice questions. one point each- You must Place answers on the answer sheet below.
1. The unemployment rate in the U.S. may increase even when there is an increase in the number of jobs. TRUE OR FALSE?
2 Minimum wage laws have been shown to be one of the most important tools for combating poverty. TRUE OR FALSE
3 In our class discussion of market based economies it was concluded that, although such a system may lead to high s
standards of living, it is more likely to lead to the rich getting richer at the expense of the poor. TRUE OR FALSE
4 The major source of unemployment in the current "Great Recession" is structural changes underway in related to the
housing and financial sectors of the economy. TRUE OR FALSE
5 Frictional unemployment relates to the various impediments that unemployed workers confront as they are searching for
employment. TRUE OR FALSE?
6 Speculators can be helpful to society but only when they profit from the risks they take. TRUE OR FALSE
7 The fact that employees are often paid a wage above the legal minimum suggests that uncontrolled markets (with private
property rights) require that employees be paid what their services are worth. TRUE OR FALSE
8 Inflation is most likely to be harmful because it results in undeserved "winners and losers" TRUE OR FALSE?
9 In our discussion of international trade and comparative advantage we concluded that although there are benefits to trade, jobs must be saved no matter how costly or absurd such a policy may be. TRUE OR FALSE.
10 It was emphasized in class that interstate trade tends to be a positive sum game but international trade tends to be a
negative sum game. TRUE OR FALSE.
11 The biggest problem associated with inflation is that the price of everything is going up. TRUE OR FALSE.
12. The argument that imports destroy jobs is a half-truth at best because
a. exports also create jobs and imports make exports possible
b. it neglects the interests of consumers
c. using job creation as a criterion for policy will justify any policy, no matter how absurd its implications.
d. of all the reasons above.
13 Scholarship on efforts to improve the macroeconomic performance of the U. S. Economy through Federal Government intervention clearly shows such efforts have been successful. TRUE OR FALSE
14. A reported increase in the U. S. "unemployment rate" typically means that the number of jobs in the economy has
decreased. TRUE OR FALSE
15. Unanticipated inflation tends to benefit creditors at the expense of debtors. TRUE OR FALSE?
16. A person who refuses four offers of employment in order to keep looking for a better job is counted by the bureau of labor
statistics (BLS) as
a. not in the labor force.
b. unemployed.
c. a discouraged worker.
d. eligible for unemployment compensation.
17 In his article: "Should Winners from Free Trade Compensate the Losers" Steven Landsburg argues that:
a. a person has a moral obligation to compensate the loser when engaged in personal business.
b. a country has a moral obligation to compensate those who are harmed by trade.
c. a country should feel no obligation to compensate those harmed by international trade for the same reason that individuals
do not feel obliged to compensate those harmed when they switch brands of beer .
d. a person should be required to "buy local"
18. The purchase of government bonds by the "Fed" leads to the equivalent of "printing money" and this is inappropriate. TRUE
OR FALSE
19. One of the alleged strengths of "monetary policy" is that it is relatively insulated from political manipulation. TRUE OR FALSE?
20. The recent increase in the Federal Minimum Wage may be contributing factor in the historically high unemployment rates of
teenagers in America. TRUE OR FALSE
21. One of the major causes of the "great depression" in the U. S. was a large and abrupt decrease in the money supply.
TRUE OR FALSE.
22. Historically, imports of foreign goods has been one of the most important obstacles to achieving high levels of employment in the U. S. Economy. TRUE OR FALSE
23. The real costs that inflation imposes upon a society are almost entirely the result of
a. government price controls
b. inability to predict its rate and timing
c. the fact that no one can ultimately gain from higher prices because everyone is a consumer
d. the lag between the rise of wage costs and the subsequent rise of prices
e. the lag between the rise of prices and the subsequent rise of wages
24. At a time of high inflation that is due to excessive growth of aggregate demand an appropriate policy would be selling of government bonds by the "Fed . TRUE OR FALSE
25.
Monetary policy is more powerful in addressing "aggregated demand shocks" than "real/supply-side shocks". TRUE ORFALSE.
Economics 150 Final Exam NAME
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Economics 203 Spring, 2013 Quiz#1 of 6 NAME
Answer one question. Maximum of 10 points
1. Assume the information below pertains to output per growing season for 200 hours of labor.
Kathryn Meghan
Corn 200 400
Wheat 150 600
a. Who has the absolute advantage in wheat? Explain.
b. Who has the comparative advantage in wheat? Explain.
c. Is there a basis for mutually advantageous trade between these two parties? If so, explain how each party can be benefitted. Since Meghan produces more of both goods for her labor, explain how can it be in Meghan’s interest to buy anything from Kathryn.
d. What is the relevance of is this example to the issue of trade between countries? Explain
f. What is the relevance of is this example to the issue of whether it is desirable to import goods from foreign countries into the United States? Doesn’t this mean that our money is going to other countries? Doesn’t it mean that U.S. "jobs" are leaving the country?
2. a
. What was the "Mercantilist" view concerning the basis of the wealth of a nation?c. What was the "Mercantilist" view concerning exports and imports out of
and into a country? Explain
d. What was Adam Smith's criticism of the
"Mercantilist View" concerning exports and imports? Expain
e. What is
the relevance of Smith's view of international trade to the contemporary U.S.
economy?
f. Explain how the U.S. Constitution appears to embody the
views of Adam Smith concerning trade.
g. We criticized the view that
places "saving jobs" above all other considerations in judging whether
imported
goods should be imported into our country. Discuss the criticisms.
3. You were asked to view four podcasts linked to the syllabus page regarding international trade. Discuss the major points of
two of the four podcasts.4
. The article by Steven Landsburg raises the question: "Should Winners from Free Trade Compensate theLosers?" Write an essay explaining his answer. What is your view? Explain.
ECONOMICS 203 Fall, 1996 QUIZ #1 OF 6 MAKE UP
Answer one question. Maximum of 10 points.
1. Assume the information below pertains to output per growing season for 200 hours of labor.
Kathryn Meghan
Corn 150 200
Wheat 75 300
A. Who has the absolute advantage in corn? Explain.
B. Who has the comparative advantage in corn? Explain.
C. Is there a basis for mutually beneficial trade between these two parties? Explain.
D. Assume the two parties despise each other. Can mutually beneficial exchange take place? Explain.
2. "In order to promote the interest of our country we should impose tariffs on those imports produced by cheap foreign labor". Critically evaluate this statement. Would your answer be different if the statement read: "In order to promote the interest of Kentucky we should impose tariffs on those imports produced by cheap Indiana labor"?
Explain.
3. The U.S. Congress recently legislated an increase in the federal
minimum wage to $5.15. It is argued, by some, that such an increase is an appropriate and effective mechanism for helping lower income individuals. Discuss the potential advantages and disadvantages of raising the minimum wage and to whom these may accrue.
4. A. What, historically, has been the major problem faced by American farmers? What is the basis of this problem? Explain.
B. Discuss three different approaches which have been taken historically to help farmers.
C. What is the ostensible justification for the special privileges that have been extended to farmers in the U. S.?
D. Discuss the possible consequences of abolishing all farm policies. Is
it clear that we would face higher prices? Explain.
5. "The significant increases in rental values in this community suggest
that price gouging and profiteering by landlords has made it difficult
if not impossible for the disadvantaged of this community to obtain
adequate housing. I therefore propose that a rent control ordinance
be passed to help these people". Evaluate this proposal-that is,
discuss the advantages and disadvantages of such a law as a means of
helping the poor. Include in your essay a discussion of both the
short-run and long-run effects.
Economics 203 Fall, 1996 Quiz #2 of 6 NAME
Answer one question. Maximum of 10 points.
1. Explain the relationship between the concept of Aggregate Demand and the Equation of Exchange.
2. You have just won 1 million dollars in the Kentucky lottery, to be
paid in one lump sum 7.2 years from now. If the appropriate interest rate is 10% per year, what (approximate) sum of money would you accept todayin lieu of the million dollars? Explain how you arrived at your answer.
3. A financial institution that wants a 4 % real return on its loans
and contemplates a 2 % annual inflation rate should loan at a
nominal rate of interest of approximately
a. 2 %
b. 4%
c. 6%
d. 8%
Provide an explanation for your answer.
4. Explain what is meant by the "Fisher equation".
Economics 203 Spring 2013, Quiz 3 of 6 NAME___________________
1. Summarize two of the main points made in Alex Tabarrok’s podcast entitled "How Ideas Trump Crises".
2. a. In their discussion of Economic Growth the text authors call attention to the differences between North
and South Korea. Discuss the differences and their causes.
b. In their discussion of Economic Growth the text authors discuss five institutions that are important in
fostering economic growth. Identify and explain three of the five.
3. In chapter 8 of the text the authors discuss the importance of the "Solow Model" in our understanding of
Economic Growth.
a. Explain the main ideas in the "Solow Model"
b. What is the main shortcoming of the "Solow Model" ? Explain.
Economics 203 Quiz #4 Spring, 2013 NAME__________________
Answer one question. 10 points
1. I
dentify the following and briefly explain their importance:a. "residual claimant"
b. "invisible hand" theorem
c. "efficient capital market"
d. "entrepreneur".
2. The following information (Table I ) is that used in the Clamming example covered in class under which five Property Rights
Arrangements were discussed: Assume: 1,000 people, 4clams per day on the beach, no coercion, a boat is "found", all decision
makers are self-interested.
a. Share and share alike b. Private property
c. Absentee ownership d. Public property (and the "Tragedy of the Commons")
e. Public regulation
a. What is the likely crew size under Share and Share alike? Explain and comment on the implications to the community at
large.
b. What difference in the choice of crew size is associated with the assumption of private ownership of the boat? Explain.
c. Based on the example data shown in TABLE I , provide the reasoning which supports the view that, under a system of salable
private property rights, Absentee ownership of productive capital does not, per se, jeopardize the broader interests of "society"
in maximizing the "social total" of the community. In your essay address the importance of an "efficient capital market" in
preserving the interests of "society".
d. Explain the consequences of declaring the boat to be public property.
e. Explain how a property rights arrangement in which the boat is declared "public property" may lead to the "tragedy of the
commons".
TABLE I
Number Total Marginal Average Net Social Social Total
of Clamers Catch Efficiency Efficiency Marginal (land&boat)
on the Boat Of Clamers Of Clamers Efficiency
0 0 0 0 0 4,000+0 = 4,000
1 6 +6 6 2 3,996+6 = 4,002
2 16 +10 8 6 3,992+16 = 4,008
3 24 +8 8 4 3,988+24 = 4,012
4 30 +6 7.5 2 3,984+30 = 4,014
5 34 +4 6.8 0 3,980+34 = 4,014
6 36 +2 6 -2 3,976+36 = 4,012
7 36 0 5.14 -4 3,972+36 = 4,008
8 32 -4 4 -8 3,968+32 = 4,000
9 27 -5 3 -9 3,964+27 = 3,991
10 21 -6 2.1 -10 3,960+21 = 3,981
3. a. From chapter 9 of the text explain what is meant by the "loanable funds" market. Explain its components and its importance.
b. From chapter 10, what is the personal financial advice that the authors give concerning personal investments? Explain.
Economics 203 Spring, 2013 Quiz#5 of 6 NAME_______________
Answer one question. Maximum of 10 points
1. Explain what is meant by the "Quantity Theory of Money". It is important in explaining one type of
macroeconomic problem—what is that problem?
2. a. Define "inflation"
b. Explain why inflation is undesirable
c. Most people regard themselves to be a "victim" of inflation. Explain why some may benefit
from inflation.
3. a. "Debtors gain and creditors lose during a period of inflation." TRUE OR FALSE. EXPLAIN.
b. Who is the largest "debtor" in most economies and why is that important? Explain.
4. a. Explain the distinction between "real shocks" and other shocks to the national economy
b. According to the text, what was the major problem that caused the "great depression"? Explain.
Economics 203 Quiz #5 of 6 Fall, 1996 NAME
Answer one question. Maximum of 10 points.
1. List and identify two of the three quantitative tools at the disposal
of the "Fed" to affect commercial bank activity in the economy. Explain
thoroughly how each one works and its relationship with the "fractional
reserve banking principle".
2. Define and explain the M1 multiplier. Include an explanation of the importance of the currency/deposit ratio and the reserve/deposit
ratio.
3. Explain the difference between the monetary base, M1, M2, and L definitions of the money supply. Explain why the monetary base
is sometimes referred to as "high powered money".
Economics 203 Spring, 2013 Quiz #6 of 6 NAME
Answer one question. Maximum of 10 points.
1. Define and explain the M1 (money) multiplier..
2.. What "backs" the U.S. dollar? What determines its value?
3. The "Fed" has three major tools at its disposal to fulfill its responsibilities as the U S Central Bank. List the three tools and explain how they can be used to provide ‘economic stability"
4. Explain what is meant by "fractional reserve banking" and discuss its importance in the conduct of "monetary policy".
5. Monetary policy is more powerful in addressing "aggregated demand shocks" than "real/supply-side shocks".
TRUE OR FALSE. EXPLAIN
Economics 203 2nd Test Spring, 2013 NAME_______________________
Answer any three essay questions. 25 points each
1.. The fear that our society may run out of jobs was criticized in class.
b. Discuss three types of unemployment and the related causes.
c. How may those types of unemployment relate to the current U.S. recession?
d. To what extent should we be fearful of "technological" unemployment?
e. To what extent should we be fearful of "foreign trade" and imported products as an impediment to high levels of
employment?
f. Of what relevance is the information reported each month by the Department of Labor on the "duration unemployment"
and the "reasons for unemployment" in understanding the current unemployment in America?
2. a. Explain how a minimum wage law may contribute to unemployment.
b. Discuss the relevance of this question to the current unemployment rate in Americans.
3.a. In their discussion of Economic Growth the text authors discuss five institutions that are important in
fostering economic growth. Identify and explain four of the five.
b. In chapter 8 of the text the authors discuss the importance of the "Solow Model" in our understanding of Economic Growth.
a. Explain the main ideas in the "Solow Model"
b. What is the main shortcoming of the "Solow Model" ? Explain.
5. Identify the following and briefly explain their importance:
a. "residual claimant"
b. "invisible hand" theorem
c. "efficient capital market"
d. "entrepreneur".
6. The following information (Table I ) is that used in the Clamming example covered in class under which five Property Rights
Arrangements were discussed: Assume: 1,000 people, 4clams per day on the beach, no coercion, a boat is "found", all decision
makers are self-interested.
a. Share and share alike b. Private property
c. Absentee ownership d. Public property (and the "Tragedy of the Commons")
e. Public regulation
a. What is the likely crew size under Share and Share alike? Explain and comment on the implications to the community at
large.
b. What difference in the choice of crew size is associated with the assumption of private ownership of the boat? Explain.
c. Based on the example data shown in TABLE I , provide the reasoning which supports the view that, under a system of salable
private property rights, Absentee ownership of productive capital does not, per se, jeopardize the broader interests of "society"
in maximizing the "social total" of the community. In your essay address the importance of an "efficient capital market" in
preserving the interests of "society".
d. Explain the consequences of declaring the boat to be public property.
e. Explain how a property rights arrangement in which the boat is declared "public property" may lead to the "tragedy of the
commons".
TABLE I
Number Total Marginal Average Net Social Social Total
of Clamers Catch Efficiency Efficiency Marginal (land&boat)
on the Boat Of Clamers Of Clamers Efficiency
0 0 0 0 0 4,000+0 = 4,000
1 6 +6 6 2 3,996+6 = 4,002
2 16 +10 8 6 3,992+16 = 4,008
3 24 +8 8 4 3,988+24 = 4,012
4 30 +6 7.5 2 3,984+30 = 4,014
5 34 +4 6.8 0 3,980+34 = 4,014
6 36 +2 6 -2 3,976+36 = 4,012
7 36 0 5.14 -4 3,972+36 = 4,008
8 32 -4 4 -8 3,968+32 = 4,000
9 27 -5 3 -9 3,964+27 = 3,991
10 21 -6 2.1 -10 3,960+21 = 3,981
Answer all of the following objective questions. Place the correct answer on the answer sheet below. 2 points each.
1. The unemployment rate in the U.S. may increase even when there is an increase in the number of jobs. TRUE OR FALSE?
2. Minimum wage laws have been shown to be one of the most important tools for combating poverty. TRUE OR FALSE?
3. The major source of unemployment in the current "Great Recession" is structural changes underway in related to the
housing and financial sectors of the economy. TRUE OR FALSE?
4. Frictional unemployment relates to the various impediments that unemployed workers confront as they are searching for
employment. TRUE OR FALSE?
5. One of the advantages of GDP as a measure of economic performance is that it reflects an adjustment for production in the
underground economy .TRUE OR FALSE?
6. The fact that employees are often paid a wage above the legal minimum suggests that uncontrolled markets (with private
property rights) require that employees be paid what their services are worth. TRUE OR FALSE?
7. The argument that imports destroy jobs is a half-truth at best because
a. exports also create jobs and imports make exports possible
b. it neglects the interests of consumers
c. using job creation as a criterion for policy will justify any policy, no matter how absurd its implications.
d. of all the reasons above.
8. A reported increase in the U. S. "unemployment rate" typically means that the number of jobs in the economy has
decreased. TRUE OR FALSE?
9. A person who refuses four offers of employment in order to keep looking for a better job is counted by the bureau of labor
statistics (BLS) as
a. not in the labor force.
b. unemployed.
c. a discouraged worker.
d. eligible for unemployment compensation.
10. Generous unemployment and other social benefits are thought to result in higher measured unemployment rates. TRUE OR
FALSE?
11. One of the important scholarly findings from the research on the Solow Model is that under Capitalism "the rich get richer and
poor get poorer." TRUE OR FALSE?
12. One of the important scholarly findings from the research on the Solow Model is that "diminishing returns" can be avoided by
"new ideas". TRUE OR FALSE?
Economics 203 2nd Exam NAME
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2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
According to the authors of the text, private property are an essential institution in fostering economic growth. TRUE OR
FALSE?
Economics 203 Fall, 1996 Test #2 NAME
Answer any three questions. Maximum of 25 points.
1. A. Explain how a commercial bank can cause a change in the money supply
in the economy.
B. Explain the significance of "fractional reserve banking" in your
answer to part A.
C. Explain the importance of the "currency deposite ratio"
in determining the maximum by which the money supply may
change as a result of $100 in new demand deposites in the
banking system.
2. Discuss the problem of "inflation". Include in your essay:
A. definition of inflation
B. how it can be measured
C. why inflation can be a problem
D. comment on the following statements.
"Inflation is terrible because the price of everything is
is going up".
"Inflation benefits debtors at the expense of creditors".
3. The fear that our society may run out of jobs was criticized in class.
Discuss the popular notion that unemployment indicates a "lack of jobs". To what extent should we be fearful of "technological" unemployment? Has
technological progress prevented our achieving high levels of employment
in the past? To what extent can "imports" reduce the (total) number of jobs in America? Explain. Discuss the hazards in using statistical unemployment rates to measure "involuntary" unemployment.
4. Explain the majority and minority views of the effects of a tax reduction that causes an increase in the Government budget
deficit. Explain thoroughly the effects on the real rate of
interest, the level of consumption and savings, the level of
investment spending and other relevant variables. Include in
your essay an explanation of what is meant by "crowding out"
and what causes it.
5. Discuss the effects of a permanent increase in government
spending and taxes on the level of consumption, savings,
investment, real interest rate, capital stock, and other relevant variables in the national economy. Explain what
difference it may make if the increase in government spending
and taxes were believed to be temporary.
6. It is widely believed that inflation can be caused by such things as:
(a) an increase in the minimum wage; (b) greedy producers using their monopoly power; or (c) greedy labor unions. Discuss each of these "theories" of inflation and explain why they are misleading or fallacious. Evaluate the proposition that an increase in the Federal
governmental budget deficit will be inflationary if is financed by
"printing money".
MULTIPLE CHOICE . 2 POINTS EACH.
1. The real costs that inflation imposes upon a society are almost entirely the result of
a. government price controls
b. inability to predict its rate and timing
c. the fact that no one can ultimately gain from higher prices because
everyone is a consumer
d. the lag between the rise of wage costs and the subsequent rise of prices
e. the lag between the rise of prices and the subsequent rise of wages
2. Which of the following is not a usual consequence of inflation?
a. income is redistributed among people
b. people are misled into supposing that their earnings have risen
substantially
c. people believe that rising prices have made them worse off
d. the cost of living goes up for everyone
e. the value of money falls
3. The overwhelming unpopularity of inflation among citizens is largely a
result of the fact that
a. inflation raises the real cost of such basic necessities as food,
housing, and clothing
b. inflation reduces the value real wealth
c. no one knows what causes it
d. no one( or almost no one) gains from inflation
e. people who gain from inflation often erroneously conclude that they
are losing as a result of it
4. A permanent increase in government spending and taxes will most likely
a. increase consumption, but may change investment spending
b. increase consumption and investment
c. decrease consumption, but may change investment spending
d. decrease consumption and investment
e. decrease consumption and increase investment
5. If crowding out occurs, then a government budget deficit caused by a
tax cut will most likely
a. raise the real interest rate and decrease investment
b. raise the real interest rate and increase investment
c. lower the real interest rate and decrease investment
d. lower the real interest rate an increase investment
6. According to the minority view of the effects of a temporary tax
cut,
a. people save more than the tax cut, and crowding out occurs
b. people save less than the tax cut, and there is no crowding out
c. people save the entire tax cut, and crowding out occurs
d. people save more than the tax cut, and there is no crowding out
e. people save the entire tax cut, and there is no crowding out
7. Total factor productivity growth can be described as
a. increases in output that the economy can produce with larger amounts of inputs
b. increases in output that the economy can produce with given amounts of inputs
c. increases in the total volume of inputs that produce larger
amounts of output
d. increases in the total volume of inputs that increase real GDP
in the long run
e. all the above
8. An increase in nominal interest rate tends to raise the demand for
money. TRUE OR FALSE
9. Indexing tax rates to inflation keeps real tax payments independent
of inflation.
10. Which of the following tend to increase the demand for money?
a. An increase in the price level
b. An increase in real GDP
c. A decrease in the nominal interest rate
d. All of the above.
11. Suppose that OPEC raises oil prices, so that gasoline prices rise.
If there is no change in the nominal money supply, what will be the
long-run effects on inflation in the U.S.?
a. Inflation will accelerate
b. Inflation will decelerate.
c. There will be no effect
d. Uncertain, but the rate will definitely change
12. An increase in the level of wages is a possible case for inflation
a. if the wage rate is already high
b. if the wage rate in initially quite low
c. if government increases the money supply as well
d. if government decreases the budget deficit as well
e. if accompanied by wage increases in specific industries
Place answers to objective questions in the appropriate spaces below
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Economics 203G Fall, 1996 Test #2 NAME
Answer any three questions. Maximum of 25 points.
1. A. Explain how a commercial bank can cause a change in the money supply
in the economy.
B. Explain the significance of "fractional reserve banking" in your
answer to part A.
C. Explain the importance of the "currency deposite ratio"
in determining the maximum by which the money supply may
change as a result of $100 in new demand deposites in the
banking system.
2. Discuss the problem of "inflation". Include in your essay:
A. definition of inflation
B. how it can be measured
C. why inflation can be a problem
D. comment on the following statements.
"Inflation is terrible because the price of everything is
is going up".
"Inflation benefits debtors at the expense of creditors".
3. The fear that our society may run out of jobs was criticized in class.
Discuss the popular notion that unemployment indicates a "lack of jobs". To what extent should we be fearful of "technological" unemployment? Has
technological progress prevented our achieving high levels of employment
in the past? To what extent can "imports" reduce the (total) number of jobs in America? Explain. Discuss the hazards in using statistical unemployment rates to measure "involuntary" unemployment.
4. Explain the majority and minority views of the effects of a tax reduction that causes an increase in the Government budget
deficit. Explain thoroughly the effects on the real rate of
interest, the level of consumption and savings, the level of
investment spending and other relevant variables. Include in
your essay an explanation of what is meant by "crowding out"
and what causes it.
5. Discuss the effects of a permanent increase in government
spending and taxes on the level of consumption, savings,
investment, real interest rate, capital stock, and other relevant variables in the national economy. Explain what
difference it may make if the increase in government spending
and taxes were believed to be temporary.
6. It is widely believed that inflation can be caused by such things as:
(a) an increase in the minimum wage; (b) greedy producers using their monopoly power; or (c) greedy labor unions. Discuss each of these "theories" of inflation and explain why they are misleading or fallacious. Evaluate the proposition that an increase in the Federal
governmental budget deficit will be inflationary if is financed by
"printing money".
7. List and identify two of the three quantitative tools at the disposal
of the "Fed" to affect commercial bank activity in the economy. Explain
thoroughly how each one works and its relationship with the "fractional
reserve banking principle".
MULTIPLE CHOICE . 2 POINTS EACH.
1. The real costs that inflation imposes upon a society are almost entirely the result of
a. government price controls
b. inability to predict its rate and timing
c. the fact that no one can ultimately gain from higher prices because
everyone is a consumer
d. the lag between the rise of wage costs and the subsequent rise of prices
e. the lag between the rise of prices and the subsequent rise of wages
2. Which of the following is not a usual consequence of inflation?
a. income is redistributed among people
b. people are misled into supposing that their earnings have risen
substantially
c. people believe that rising prices have made them worse off
d. the cost of living goes up for everyone
e. the value of money falls
3. The overwhelming unpopularity of inflation among citizens is largely a
result of the fact that
a. inflation raises the real cost of such basic necessities as food,
housing, and clothing
b. inflation reduces the value real wealth
c. no one knows what causes it
d. no one( or almost no one) gains from inflation
e. people who gain from inflation often erroneously conclude that they
are losing as a result of it
4. A permanent increase in government spending and taxes will most likely
a. increase consumption, but may change investment spending
b. increase consumption and investment
c. decrease consumption, but may change investment spending
d. decrease consumption and investment
e. decrease consumption and increase investment
5. If crowding out occurs, then a government budget deficit caused by a
tax cut will most likely
a. raise the real interest rate and decrease investment
b. raise the real interest rate and increase investment
c. lower the real interest rate and decrease investment
d. lower the real interest rate an increase investment
6. According to the minority view of the effects of a temporary tax
cut,
a. people save more than the tax cut, and crowding out occurs
b. people save less than the tax cut, and there is no crowding out
c. people save the entire tax cut, and crowding out occurs
d. people save more than the tax cut, and there is no crowding out
e. people save the entire tax cut, and there is no crowding out
7. Total factor productivity growth can be described as
a. increases in output that the economy can produce with larger amounts of inputs
b. increases in output that the economy can produce with given amounts of inputs
c. increases in the total volume of inputs that produce larger
amounts of output
d. increases in the total volume of inputs that increase real GDP
in the long run
e. all the above
8. An increase in nominal interest rate tends to raise the demand for
money. TRUE OR FALSE
9. Indexing tax rates to inflation keeps real tax payments independent
of inflation.TRUE OR FALSE
10. Which of the following tend to increase the demand for money?
a. An increase in the price level
b. An increase in real GDP
c. A decrease in the nominal interest rate
d. All of the above.
11. Suppose that OPEC raises oil prices, so that gasoline prices rise.
If there is no change in the nominal money supply, what will be the
long-run effects on inflation in the U.S.?
a. Inflation will accelerate
b. Inflation will decelerate.
c. There will be no effect
d. Uncertain, but the rate will definitely change
12. An increase in the level of wages is a possible case for inflation
a. if the wage rate is already high
b. if the wage rate in initially quite low
c. if government increases the money supply as well
d. if government decreases the budget deficit as well
e. if accompanied by wage increases in specific industries
Place answers to objective questions in the appropriate spaces below
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Economics 203 Fall, 1996 Test #2 NAME
Answer any three questions. Maximum of 25 points.
1. A. Explain how a commercial bank can cause a change in the money supply
in the economy.
B. Explain the significance of "fractional reserve banking" in your
answer to part A.
C. Explain the importance of the "currency deposite ratio"
in determining the maximum by which the money supply may
change as a result of $100 in new demand deposites in the
banking system.
2. Discuss the problem of "inflation". Include in your essay:
A. definition of inflation
B. how it can be measured
C. why inflation can be a problem
D. comment on the following statements.
"Inflation is terrible because the price of everything is
is going up".
"Inflation benefits debtors at the expense of creditors".
3. The fear that our society may run out of jobs was criticized in class.
Discuss the popular notion that unemployment indicates a "lack of jobs". To what extent should we be fearful of "technological" unemployment? Has
technological progress prevented our achieving high levels of employment
in the past? To what extent can "imports" reduce the (total) number of jobs in America? Explain. Discuss the hazards in using statistical unemployment rates to measure "involuntary" unemployment.
4. Explain the majority and minority views of the effects of a tax reduction that causes an increase in the Government budget
deficit. Explain thoroughly the effects on the real rate of
interest, the level of consumption and savings, the level of
investment spending and other relevant variables. Include in
your essay an explanation of what is meant by "crowding out"
and what causes it.
5. Discuss the effects of a permanent increase in government
spending and taxes on the level of consumption, savings,
investment, real interest rate, capital stock, and other relevant variables in the national economy. Explain what
difference it may make if the increase in government spending
and taxes were believed to be temporary.
6. It is widely believed that inflation can be caused by such things as:
(a) an increase in the minimum wage; (b) greedy producers using their monopoly power; or (c) greedy labor unions. Discuss each of these "theories" of inflation and explain why they are misleading or fallacious. Evaluate the proposition that an increase in the Federal
governmental budget deficit will be inflationary if is financed by
"printing money".
MULTIPLE CHOICE . 2 POINTS EACH.
1. The real costs that inflation imposes upon a society are almost entirely the result of
a. government price controls
b. inability to predict its rate and timing
c. the fact that no one can ultimately gain from higher prices because
everyone is a consumer
d. the lag between the rise of wage costs and the subsequent rise of prices
e. the lag between the rise of prices and the subsequent rise of wages
2. Which of the following is not a usual consequence of inflation?
a. income is redistributed among people
b. people are misled into supposing that their earnings have risen
substantially
c. people believe that rising prices have made them worse off
d. the cost of living goes up for everyone
e. the value of money falls
3. The overwhelming unpopularity of inflation among citizens is largely a
result of the fact that
a. inflation raises the real cost of such basic necessities as food,
housing, and clothing
b. inflation reduces the value real wealth
c. no one knows what causes it
d. no one( or almost no one) gains from inflation
e. people who gain from inflation often erroneously conclude that they
are losing as a result of it
4. A permanent increase in government spending and taxes will most likely
a. increase consumption, but may change investment spending
b. increase consumption and investment
c. decrease consumption, but may change investment spending
d. decrease consumption and investment
e. decrease consumption and increase investment
5. If crowding out occurs, then a government budget deficit caused by a
tax cut will most likely
a. raise the real interest rate and decrease investment
b. raise the real interest rate and increase investment
c. lower the real interest rate and decrease investment
d. lower the real interest rate an increase investment
6. According to the minority view of the effects of a temporary tax
cut,
a. people save more than the tax cut, and crowding out occurs
b. people save less than the tax cut, and there is no crowding out
c. people save the entire tax cut, and crowding out occurs
d. people save more than the tax cut, and there is no crowding out
e. people save the entire tax cut, and there is no crowding out
7. Total factor productivity growth can be described as
a. increases in output that the economy can produce with larger amounts of inputs
b. increases in output that the economy can produce with given amounts of inputs
c. increases in the total volume of inputs that produce larger
amounts of output
d. increases in the total volume of inputs that increase real GDP
in the long run
e. all the above
8. An increase in nominal interest rate tends to raise the demand for
money. TRUE OR FALSE
9. Indexing tax rates to inflation keeps real tax payments independent
of inflation.
10. Which of the following tend to increase the demand for money?
a. An increase in the price level
b. An increase in real GDP
c. A decrease in the nominal interest rate
d. All of the above.
11. Suppose that OPEC raises oil prices, so that gasoline prices rise.
If there is no change in the nominal money supply, what will be the
long-run effects on inflation in the U.S.?
a. Inflation will accelerate
b. Inflation will decelerate.
c. There will be no effect
d. Uncertain, but the rate will definitely change
12. An increase in the level of wages is a possible case for inflation
a. if the wage rate is already high
b. if the wage rate in initially quite low
c. if government increases the money supply as well
d. if government decreases the budget deficit as well
e. if accompanied by wage increases in specific industries
Place answers to objective questions in the appropriate spaces below
Economics 203G Fall, 1996 Test #2 NAME
Answer any three questions. Maximum of 25 points.
1. A. Explain how a commercial bank can cause a change in the money supply
in the economy.
B. Explain the significance of "fractional reserve banking" in your
answer to part A.
C. Explain the importance of the "currency deposite ratio"
in determining the maximum by which the money supply may
change as a result of $100 in new demand deposites in the
banking system.
2. Discuss the problem of "inflation". Include in your essay:
A. definition of inflation
B. how it can be measured
C. why inflation can be a problem
D. comment on the following statements.
"Inflation is terrible because the price of everything is
is going up".
"Inflation benefits debtors at the expense of creditors".
3. The fear that our society may run out of jobs was criticized in class.
Discuss the popular notion that unemployment indicates a "lack of jobs". To what extent should we be fearful of "technological" unemployment? Has
technological progress prevented our achieving high levels of employment
in the past? To what extent can "imports" reduce the (total) number of jobs in America? Explain. Discuss the hazards in using statistical unemployment rates to measure "involuntary" unemployment.
4. Explain the majority and minority views of the effects of a tax reduction that causes an increase in the Government budget
deficit. Explain thoroughly the effects on the real rate of
interest, the level of consumption and savings, the level of
investment spending and other relevant variables. Include in
your essay an explanation of what is meant by "crowding out"
and what causes it.
5. Discuss the effects of a permanent increase in government
spending and taxes on the level of consumption, savings,
investment, real interest rate, capital stock, and other relevant variables in the national economy. Explain what
difference it may make if the increase in government spending
and taxes were believed to be temporary.
6. It is widely believed that inflation can be caused by such things as:
(a) an increase in the minimum wage; (b) greedy producers using their monopoly power; or (c) greedy labor unions. Discuss each of these "theories" of inflation and explain why they are misleading or fallacious. Evaluate the proposition that an increase in the Federal
governmental budget deficit will be inflationary if is financed by
"printing money".
7. List and identify two of the three quantitative tools at the disposal
of the "Fed" to affect commercial bank activity in the economy. Explain
thoroughly how each one works and its relationship with the "fractional
reserve banking principle".
MULTIPLE CHOICE . 2 POINTS EACH.
1. The real costs that inflation imposes upon a society are almost entirely the result of
a. government price controls
b. inability to predict its rate and timing
c. the fact that no one can ultimately gain from higher prices because
everyone is a consumer
d. the lag between the rise of wage costs and the subsequent rise of prices
e. the lag between the rise of prices and the subsequent rise of wages
2. Which of the following is not a usual consequence of inflation?
a. income is redistributed among people
b. people are misled into supposing that their earnings have risen
substantially
c. people believe that rising prices have made them worse off
d. the cost of living goes up for everyone
e. the value of money falls
3. The overwhelming unpopularity of inflation among citizens is largely a
result of the fact that
a. inflation raises the real cost of such basic necessities as food,
housing, and clothing
b. inflation reduces the value real wealth
c. no one knows what causes it
d. no one( or almost no one) gains from inflation
e. people who gain from inflation often erroneously conclude that they
are losing as a result of it
4. A permanent increase in government spending and taxes will most likely
a. increase consumption, but may change investment spending
b. increase consumption and investment
c. decrease consumption, but may change investment spending
d. decrease consumption and investment
e. decrease consumption and increase investment
5. If crowding out occurs, then a government budget deficit caused by a
tax cut will most likely
a. raise the real interest rate and decrease investment
b. raise the real interest rate and increase investment
c. lower the real interest rate and decrease investment
d. lower the real interest rate an increase investment
6. According to the minority view of the effects of a temporary tax
cut,
a. people save more than the tax cut, and crowding out occurs
b. people save less than the tax cut, and there is no crowding out
c. people save the entire tax cut, and crowding out occurs
d. people save more than the tax cut, and there is no crowding out
e. people save the entire tax cut, and there is no crowding out
7. Total factor productivity growth can be described as
a. increases in output that the economy can produce with larger amounts of inputs
b. increases in output that the economy can produce with given amounts of inputs
c. increases in the total volume of inputs that produce larger
amounts of output
d. increases in the total volume of inputs that increase real GDP
in the long run
e. all the above
8. An increase in nominal interest rate tends to raise the demand for
money. TRUE OR FALSE
9. Indexing tax rates to inflation keeps real tax payments independent
of inflation.TRUE OR FALSE
10. Which of the following tend to increase the demand for money?
a. An increase in the price level
b. An increase in real GDP
c. A decrease in the nominal interest rate
d. All of the above.
11. Suppose that OPEC raises oil prices, so that gasoline prices rise.
If there is no change in the nominal money supply, what will be the
long-run effects on inflation in the U.S.?
a. Inflation will accelerate
b. Inflation will decelerate.
c. There will be no effect
d. Uncertain, but the rate will definitely change
12. An increase in the level of wages is a possible case for inflation
a. if the wage rate is already high
b. if the wage rate in initially quite low
c. if government increases the money supply as well
d. if government decreases the budget deficit as well
e. if accompanied by wage increases in specific industries
Place answers to objective questions in the appropriate spaces below
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
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