Econ 1103- Practice Midterm Exam

Economics 1103 080 - Principles of Macroeconomics
PRACTICE Midterm Exam

Part A: Multiple Choice (30 marks) Answer the following questions on the scantron sheet.
1. Which of the following goods best meets the definition of scarcity?
a) air
b) water in the ocean
c) water in a city
d) wood in a forest

2. When the government attempts to cut the economic pie into more equal slices, what happens?
a) It is easier to cut the pie, and therefore the economy can produce a larger pie.
b) The government can more easily allocate the pie to those most in need.
c) The pie gets smaller, and there will be less pie for everyone.
d) The economy will spend too much time cutting and loses the ability to produce enough pie for everyone.

3. What is a circular-flow diagram?
a) a visual model of how the economy is organized
b) a mathematical model of how the economy works
c) a model that shows the effects of government on the economy
d) a visual model of the relationship among money, prices, and businesses

4. What does the simple circular-flow diagram illustrate?
a) that expenditure generates income so that income and the value of production are equal
b) that the economy's income exceeds its expenditure
c) that the expenditure of an economy exceeds its income
d) that money “flows” from households to firms and not the other way around

For Questions 5 and 6 use the data from Table 1:

Table 1

Hours needed to make one unit of:
Amount produced in 1000 hours:

Beef
Wine
Beef
Wine
Canada
2.5
5
400
200
Argentina
1
4
1000
250

5. According to the data in Table 1:
a) Canada has an absolute advantage in both beef and wine
b) Argentina has a comparative advantage in both beef and wine
c) Canada has an absolute advantage in beef and a comparative advantage in wine
d) Argentina has an absolute advantage in wine and a comparative advantage in beef

6. According to the data in Table 1 and the theory of comparative advantage:
a)