Econ 1103- Practice Midterm Exam

Topics: Inflation, Economics, Minimum wage Pages: 10 (2153 words) Published: January 17, 2014
﻿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
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) Canada should export both goods and Argentina should export neither good b) Argentina should export both goods and Canada should export neither good c) Canada should export beef and Argentina should export wine d) Canada should export wine and Argentina should export beef

7. For what reason does total output in an economy increase when each person specializes? a) Because there is much less competition for the same resources. b) Because each person spends more time producing that product for which they have a comparative advantage. c) Because a wider variety of products can be produced with specialization. d) Because more people will be producing products than before.

8. What are exports?
a) a limit placed on the quantity of goods brought into a country. b) goods produced abroad and sold domestically.
c) a country's ability to produce a good.
d) goods produced domestically and sold abroad.

9. Which of the following is the correct definition of GDP?
a) the market value of all goods produced within a country
b) the market value of all final goods and services produced by the citizens of a country c) the market value of all final goods and services consumed within a country over a number of years d) the market value of all final goods and services produced within a country in a given period of time

10. Over time, people have come to rely more on market-produced goods and less on goods that they produce for themselves. What would this change do by itself? a) It would make GDP fall over time.

b) It would not make any change in GDP over time.
c) It would make GDP rise over time.
d) It would change GDP, but in an uncertain direction.

11. Babe Ruth's 1931 salary was \$80 000. The price index for 1931 is 15.2 and the price index for 2010 is 195. What would Ruth's 1931 salary be equivalent to in 2010? a)\$536 000 b)\$635 000 c) \$828 000 d)\$1 026 000

12. Why are measurement problems in the consumer price index as an indicator of the cost of living...

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