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Economics Challenge: 1999 Regional Exam #1
Questions
Federal Reserve Bank of San Francisco Economics Challenge
District Final
November 16, 1999
Macroeconomics
1. In Sleneria for the year 1997
| Consumption
Exports
Imports
Saving
Gross investment
Wage and Salary Income
Interest, rent, profit
Government Spending
Taxes
|
1,000
300
400
150
200
800
150
200
180
|
What is SlenderiaĖs Gross Domestic Product ?
a. 3,380
b. 2,300
c. 1,300
d. 1,130
2. Suppose you started to work at a computer store after school
. During your first year your income was $10,000. Next year you earned
$20,000. During this same period the CPI increased from 100 to 125. Your
real income has risen by
a. 100%.
b. 60%.
c. 50%.
d. 25%.
3. In an economy without government, the marginal propensity
to consume is 0.8. The simple multiplier in the economy is
a. 8.
b. 10.
c. 5.
d. 1.
Diagram 1
4. Diagram 1, above, depicts a simple economy with no government.
Y1 refers to full employment real Gross Domestic Product . This economy
is
a. characterized by a deflationary gap.
b. characterized by an inflationary gap.
c. likely experiencing full employment equilibrium real GDP.
d. probably experiencing significant unemployment.
5. Which of the following is NOT a characteristic of the consumption
function in Keynesian theory?
a. The marginal propensity to consume is between zero and one.
b. Consumption is a function of disposable income.
c. The average propensity to consume is greater than the marginal propensity
to
consume.
d. The sum of the marginal propensity to save and the marginal propensity
to
consume is unlimited in range.
Diagram 2
6. In Diagram 2, above, the GDP of the economy is at Y1, and full
employment GDP is Y2. Which of the following policy actions is most likely
to move the economy to full employment equilibrium?
a. an increase in tax rates
b. an increase in government spending
c. sales of government bonds on the open market
d. a decrease in tariffs on imported goods
Diagram 2
7. In Diagram 2 above, the GDP of the economy is initially at Y1,
with full employment income at Y2. Any policy action to move the economy
to full employment is likely to
a. result in an increase in the price level.
b. achieve its objective without inflation.
c. be unsuccessful because it is not possible to shift the AD curve.
d. reduce the nominal interest rate, while keeping the real interest
rate unchanged.
8. A major sources of economic growth is
a. increases in aggregate demand.
b. increases in resource productivity.
c. increases in the marginal and average propensity to consume.
d. increases in inflationary expectations.
9. If the Federal Income tax is progressive, then in a recession,
a. the fall in tax revenues will be proportionately greater than
the fall in income.
b. government deficits will be reduced.
c. raising tax rates will balance the budget.
d. the fall in income will be proportionately greater than the fall
in
tax revenues.
10. Marietta takes $1,000 in cash, which she has been keeping under
her mattress and deposits it in a checking account in her neighborhood
bank. The reserve requirement is 10%, and banks in the system are fully
loaned up. How much will this transaction initially increase the demand
deposits of the banking system?
a. $1,000
b. $10,000
c. $100,000
d. 0
11. The Board of Governors of the Federal Reserve System meets and
decides that the economy has entered a recession. Which of the following
actions are they most likely to take?
a. increase the discount rate
b. increase the reserve requirement
c. increase sales on the open market
d. increase purchases on the open market
12. The Federal Reserve sells $100,000 worth of bonds on the open
market. The reserve requirement is 20%, banks keep no excess reserves
and the public does not change its holdings of cash. What will be the
eventual effect on the money supply of this sale of bonds?
a. The money supply will decrease by $100,000.
b. The money supply will decrease by $500,000.
c. The money supply will increase by $100,000.
d. The money supply will increase by $500,000.
13. The Federal Reserve does not
a. lend money to banks and other financial intermediaries.
b. consist of 12 regional Federal Reserve banks.
c. conduct monetary policy.
d. approve major loans made by financial intermediaries.
14. The Federal Reserve, concerned about inflation, takes action which
increases the interest rate in the United States. This change is likely
to
a. increase the value of the dollar in the foreign exchange market.
b. decrease the value of the dollar in the foreign exchange market.
c. decrease imports into the United States.
d. increase United States exports.
15. Which of the following combinations of fiscal policy actions by
Congress is the most expansionary?
a. raise government spending and keep tax rates unchanged
b. lower government spending and reduce tax rates by the same amount
c. raise government spending and raise tax rates
d. raise government spending and lower tax rates
Microeconomics
1. Mary Smith pays $600 on a mortgage on her home. In her neighborhood
identical houses rent for $1,000 a month. The economic cost to Ms. Smith
for each month she lives in her house is
a. $1,000.
b. $ 400.
c. $600.
d. $1600.
Diagram 1
2. The difference between points B and C on the production possibility
curve illustrated in Diagram 1 above, is that
a. at point B prices for VCRs are higher.
b. at point C fewer VCRs and more televisions are being produced.
c. point B indicates a higher level of total output than point
C.
d. at point C fewer televisions and more VCRs are being produced.
Diagram 2
3. Diagram 2 above illustrates demand and supply in the market for
video tapes. Initially the market was in equilibrium on supply curve 1
and demand curve 1, at point A. Then there was a large increase in sales
of DVD players (digital video disk players), and a decrease in costs of
components of video tape. As a result of these two changes, equilibrium
will be at
a. A.
b. B.
c. C.
d. D.
4. In the market for computers, there was a parallel shift in the
demand curve to the right and a parallel shift in the supply curve to
the left. A likely result of these changes is that
a. more computers are sold at a higher price.
b. more computers are sold, but the change in their price cannot
be determined.
c. fewer computers are sold at a lower price.
d. the price of computers increases but the change in the number of
computers
sold cannot be determined.
5. One of the major fast food chains, selling hamburgers, raised their
price for a burger by 25 cents. As a result, total revenue from sales
decreased. The managers of the chain conclude that the price elasticity
of demand for its burger is
a. elastic.
b. inelastic.
c. one.
d. cannot be determined from this information.
Diagram 3
6. In the industry illustrated in Diagram 3, for a ceiling price
to have an effect on market price, the ceiling price must be set
a. below P1.
b. at P1.
c. at P2.
d. below P2.
7. The government of a city imposes rent control, reducing rents 10%
below the current level and restricting future increases in rent. The
most likely long run impact of this action is
a. increase in the number of dwelling units rented.
b. no change in quantity of dwelling units available and rented.
c. decrease in the number of dwelling units rented.
d. decrease in demand for dwelling units.
8. Which of the markets below best meets the condition for perfect
competition? The market for
a. the automobile industry, including Chrysler, Ford, General Motors,
and foreign
manufacturers.
b. software for computer operating systems.
c. already issued stocks and bonds traded on the NASDQ and New York
Stock
Exchange.
d. the market for soft drinks.
9. A seller in a perfectly competitive market faces a demand curve
that is
a. vertical.
b. horizontal.
c. negatively sloped.
d. undefined.
Diagram 4
10. A profit maximizing monopolist faces the demand and cost curves
illustrated in Diagram 4. Its total revenue is
a. the rectangle OBFD.
b. the rectangle OAGD.
c. the rectangle OBHJ.
d. the five sided figure AGHJO.
11. Assume that the firm depicted in Diagram 4 above, producing nuts
and bolts, was initially a monopoly. As a result of government action
many firms enter the industry and it becomes perfectly competitive. This
does not change the costs of production. The impact of this action on
this firm in terms of price and quantity of nuts and bolts can best be
described as
a. price rises from OB to OA and quantity sold remains unchanged.
b. price remains unchanged at OB and quantity sold goes up from
OD to OJ.
c. price rises from OB to OA and quantity sold decreases from OJ
to OD.
d. price falls from OA to OB and quantity sold increases from OD
to OJ.
12. A consumer maximizes satisfaction when allocating income so that
the marginal utility of each good is
a. equal to that of every other good.
b. equal to its average utility.
c. maximized.
d. proportional to its opportunity costs.
Diagram 5
13. Diagram 5 illustrates demand and supply for workers in a competitive
industry. The government imposes a minimum wage of W1. As a result of
this change in law, the total wage income of workers in this industry
changes from
a. the rectangle OW2 EN2 to the rectangle OW1 AN1.
b. the rectangle OW2 EN2 to the rectangle OW2 FN3.
c. the rectangle OW3 IN3 to the rectangle OW3 HN2.
d. the rectangle OW1 BN2 to the rectangle OW1 CN3.
Table One
Tax Schedule
|
Taxable Income
(in $s)
|
Marginal Tax Rate
(in %)
|
|
0- 4,999
5,000- 9,999
10,000-14,999
15,000-19,999
20,000-24,999
25,000-29,999
|
0
10
20
30
40
50
|
14. Table One above is an income tax schedule for a family of four.
The Rodriguez family of four has a taxable income of $25,000. Their tax
liability is
a. $5,000.
b. $2,500.
c. $10,000.
d. $12,500.
15. The major problem with financing a public good such as national
defense through user fees levied according to the individualĖs demand
for the public good is
a. user fees will fall disproportionately on the poor.
b. it is impossible to set user fees high enough to cover the complete
cost of the
public good.
c. it is extremely difficult to measure demand for a public good.
d. taxes do not have excess burdens while user fees do.
International Economics
1. There is an increased demand for foreign exchange in the United
States when
a. foreigners travel to the United States.
b. Americans invest in foreign countries.
c. the United States exports computers to foreign countries.
d. foreigners send remittances to relatives in the United States.
2. Under a floating exchange rate system, an increase in American
demand for Mexican pesos will
a. raise the price of dollars in terms of pesos.
b. cause an economic crisis in Mexico.
c. increase the number of pesos which can be bought with one dollar.
d. increase the number of dollars required to purchase a given number
of pesos.
3. Which of the following factors is most likely to increase the supply
of dollars in the foreign exchange market?
a. a booming economy in the United States.
b. a booming economy in the rest of the world.
c. a higher inflation rate in the rest of the world than the United
States.
d. an increase in the real interest rate in the United States relative
to that in the
rest of the world.
4. The United States balance of payment deficit will decrease if
a. United States demand for foreign goods increases.
b. foreign demand for American goods decreases.
c. the value of the dollar in the foreign exchange market increases.
d. the value of the U.S. dollar in the foreign exchange market
decreases.
5. Which of the following transactions are included in the current
account balance of United States?
a. imports and exports of merchandise.
b. private capital payments and receipts.
c. changes in U.S government assets of foreign currency reserves.
d. gold shipments.
6. The President announces a new appointment as Chairman of the Federal
Reserve. The new appointee is known to support raising interest rates
in order to control inflation. On the day the appointment is announced,
what will most likely happen to the foreign exchange value of the dollar?
a. The value of the dollar will fall.
b. The value of the dollar will not change.
c. The value of the dollar will rise.
d. There is not enough information to predict the direction of change
in the value
of the dollar.
7. In the United States monetary policy is used to fight a recession.
Nominal and real interest rates decline domestically while they remain
unchanged in the rest of the world. This policy will
a. be reinforced by increases in exports and decreases in imports.
b. be partially offset by decreases in exports and increases in
imports.
c. have little effect on foreign trade because it effects interest
rates in the United
States but not in the rest of the world.
d. most probably reduce exports and imports by the same amount.
8.
|
Country
|
Yards of cloth per Bushels of wheat
worker per day
|
per worker per day
|
Alpha
Beta |
40
20
|
80
40
|
Assuming labor is the only input, the table shows labor productivity
in Alpha and Beta before international trade commences between them. Given
this data Alpha
a. has no incentive to trade.
b. will (and should) export cloth.
c. will (and should) import cloth.
d. will (and should) export wheat.
Diagram 1
9. Diagram 1 above shows the production possibility curves for two
nations, Alpha and Beta. They show that
a. Alpha has a comparative advantage in the production of cloth.
b. Beta has a comparative advantage in the production of cloth.
c. Beta has an absolute advantage in the production of wine.
d. Alpha has a comparative advantage in the production of wine.
10. A quota imposed on foreign car imports into the United States
will
a. benefit domestic car companies less than the loss of consumer surplus
from
the higher price of cars in the U.S. b. benefit domestic car companies
more than the loss of consumer surplus from
the higher price of cars in the U.S.
c. not affect car imports because demand for foreign cars tends
to be inelastic.
d. benefit both domestic car companies and consumers because economies
of
scale in car production lower the costs at higher outputs.
11. Dumping of steel by a foreign country does NOT
a. decrease domestic jobs in the steel industry.
b. mean domestic buyers pay more for steel than it costs to produce.
c. lead to a deterioration of our balance of payments.
d. increase the net welfare of citizens and residents of the United
States.
12. The World Bank may
a. establish interest rates for international loans.
b. set reserve requirements for developing countries.
c. peg exchange rates between countries.
d. make loans to help countries undertake development projects.
13. Which of the following is not a policy that a country moving from
a command to a market economy is likely to undertake?
a. adopting market prices.
b. privatizing enterprises.
c. expanding the safety net for workers
d. open the economy to foreign investors
14. Voluntary Export Restraints, in which foreign exporters agree
to limit their exports to an importing country,
a. are not a barrier to trade since they are voluntary.
b tend to lower the price of the imported commodity in question.
c transfer revenue from domestic consumers to foreign producers.
d. have no effect on the price of the imported commodity.
15. Capitalism is characterized by all but one of the following. Which
is it?
a. private ownership of the means of production
b. laissez faire
c. the invisible hand coordinating economic activity
d. capital is more important than labor in production
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