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Economics Challenge: 1999 Regional Exam #2
Questions
Federal Reserve Bank of San Francisco Economics Challenge
District Final
November 16, 1999
Macroeconomics
1. Below is the data for the nation of Asiatica for the year
1998. What is the value of its Gross Domestic Product?
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The Nation of Asiatica
1998
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Consumption
Net Investment
Depreciation
Government spending on goods and services
Household and business saving
Net Exports
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1000
500
50
300
100
150
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a. 2100
b. 2000
c. 1900
d. 1950
2. For the nation of Asiatica, the deflator for the Gross Domestic
Product in 1997 (with the base year 1995) was 110. In 1997 its real Gross
Domestic Product was 1500. The nominal Gross Domestic Product in that
year was
a. 1364.
b. 1500.
c. 1650.
d. 1700.
3. Alice works in the construction industry. For several months
in the winter she was unable to work because of frost and rain. She is
considered
a. seasonally unemployed.
b. structurally unemployed.
c. cyclically unemployed.
d. frictional unemployed.
Diagram 1
4. In Diagram 1, a likely cause of a shift in the aggregate demand
curve from AD1 to AD2 is
a. a decrease in the money supply.
b. a decrease in mortgage interest rates.
c. an expectation of a decrease in the rate of inflation.
d. a decrease in government spending.
5. If aggregate demand shifts from AD2 to AD1, which of the following
will not decline?
a. price level
b. real output
c. income
d. unemployment
6. An incumbent president is most likely to be reelected if, during
his first term of office,
a. the AS curve shifts from AS2 to AS1.
b. the AS curve shifts from AS1 to AS2.
c. the AD curve shifts from AD1 to AD2.
d. the AD curve shifts from AD2 to AD1.
7. The Dow Jones average measures the change in prices of
a. stocks on the New York Stock Exchange.
b. all publicly traded stocks.
c. 30 select stocks traded on the New York Stock Exchange.
d. large and mid-cap stocks traded on the New York Stock Exchange.
8. One inaccuracy in the consumer price index is caused by
a. the different consumption patterns of households.
b. the different rates of changes in the prices of different commodities.
c. the changes in demography.
d. the difficulties in quantifying quality changes of products.
9. Inflation that is not anticipated often results in
a. losses to lenders.
b. losses to borrowers.
c. gains to both lenders and borrowers.
d. losses to both borrowers and lenders.
10. The M1 money supply includes demand deposits plus
a. savings deposits in banks.
b. currency in bank vaults.
c. currency held by the non-bank public.
d. certificates of deposit.
11. The multiplier in an economy has been estimated as being equal
to 5. An increase in equilibrium income in this economy of $1,000 would
most likely result from
a. an increase in government spending of $200.
b. a government deficit of $200.
c. a decrease in taxes of $200.
d. a government surplus of $200.
Diagram 2
12. Of the four alternatives given in Diagram 2, the best prospect
for future growth for the country depicted is at point
a. A.
b. B.
c. C.
d. D.
13. The Federal Reserve has direct control of
a. the volume of currency in circulation in the United States.
b. the volume of loans made by banks.
c. United States monetary policy.
d. interest rates.
14. The Federal Reserve buys $10,000 worth of bonds in the open market.
The reserve requirement is 10%, and banks have no excess reserves. The
initial effect of this change on the reserves of the banking system is
a. an increase of $10,000.
b. a decrease of $10,000.
c. an increase of $100,000.
d. a decrease of $100,000.
15. When interest rates are relatively high, owners of wealth are
more likely to
a. hold their wealth in the form of M1 money.
b. hold their wealth in interest bearing bonds.
c. invest in gold.
d. invest in physical capital.
Microeconomics
Diagram 1
1. A concave production possibility curve, as shown in diagram 1,
implies
a. technology is characterized by increasing returns.
b. full employment of all resources is impossible.
c. technology is available for producing computers and airplanes
simultaneously.
d. some resources are more suitable for production of computers
than airplanes.
2. The opportunity cost of a new sports car to Emily is
a. the price, in dollars, which she paid for it.
b. the hours she must work to earn the money to pay for it.
c. equal to the satisfaction she sacrifices from not buying the
best
alternative to the car.
d. equal to the satisfaction she gets from driving it.
3. One of the reasons a market demand curve is drawn with a negative
slope is because
a. the higher the price, the lower the utility from the product.
b. the higher the price, the fewer units producers will willingly
supply.
c. the higher the price, the fewer consumers who can afford to
purchase
the product.
d. the higher the price, the higher the production costs.
Diagram 2
4. Assume that the initial demand and supply curves for airplane tickets
between San Francisco and Los Angeles is shown as D1 and S1 in Diagram
2. A high speed train is then introduced on this route. The new equilibrium
in the market for airplane tickets is most likely to be at
a. A.
b. B.
c. C.
d. D.
5. If both the price and quantity sold of cans of soup increase, this
is most likely the result of
a. an increase in demand.
b. a decrease in demand.
c. an increase in supply.
d. a decrease in supply.
6. The team owners reduced the average price of tickets to NBA basketball
games to encourage fan support after the labor dispute at the beginning
of the 1998-1999 season. Initially the average price of tickets was $25;
after the reduction the average price was $20. After the decrease, the
total revenue received from fan ticket purchases increased by slightly
more than 20%. From this information, it can be concluded that the
a demand for basketball tickets is inelastic.
b. demand for basketball tickets is elastic.
c. demand for basketball tickets has an elasticity equal to one.
d. elasticity of demand cannot be determined without more information.
Diagram 3
7. Diagram 3, above, depicts the market for home heating oil. Pe indicates
the equilibrium price. Hoping to help low income households unable to
buy heating oil during cold winter months, the state legislature established
a price ceiling on home heating oil of Pc. A likely result of this legislation
is to
a. help poor household obtain fuel at a lower price.
b. create a surplus of heating oil.
c. create a shortage of heating oil.
d. encourage exploration for new oil.
8. In a purely competitive industry, any individual firm can
a. increase its sales by lowering the price of its product.
b. face a completely inelastic demand curve.
c. sell as much as it wants at the market price.
d. increase its profit by increasing the price of its product.
Diagram 4
9. Assume Diagram 4, above, depicts a monopolistic competitive industry.
For any firm in this industry
a. marginal revenue is equal to P2.
b. marginal revenue is always less than price.
c. marginal revenue is equal to P1.
d. marginal revenue is equal to economic profit.
10. Assume that Diagram 4 depicts the situation for a newly patented
drug which the Health and Happiness company has just put on the market.
It is the only seller of this drug. For the company, the marginal revenue
curve lies below the demand curve at any quantity because
a. it is charging less than the equilibrium price.
b. to sell an additional unit of its drug it must lower the price
to all buyers.
c. for a new product, marginal revenue tends to be depressed initially
before its efficacy is appreciated.
11. At the quantity where total revenue is at the maximum,
a. marginal revenue is also at its maximum.
b. marginal revenue is negative.
c. marginal revenue is zero.
d. marginal revenue is positive.
12. Externalities are
a. corrected for by the market if they cause marginal social costs
to exceed marginal social benefits.
b. primarily negative.
c. are present in production but not consumption.
d. market failures, sometimes used to justify government intervention.
Diagram 5
13. Diagram 5 depicts the market for cigarettes in the United States.
At the end of 1998 the government imposed an additional excise tax on
each pack of cigarettes sold. The supply curve before the tax and after
the tax are shown on the diagram. As a result of the tax, total amount
spent on cigarettes, including the tax,
a. rose from P2 x Q2 to P1 x Q1.
b. fell from P1 x Q1 to P2 x Q2.
c. rose from P3 x Q1 to P1 x Q1.
d. remained unchanged as the income of smokers is unchanged so
they
will spend the same amount on cigarettes.
14. As a result of the imposition of the additional per pack tax on
cigarettes, as shown in diagram 5 above, the total revenue of the cigarette
companies
a. rose from P1 x Q1 to P2 x Q2.
b. fell from P1 x Q1 to P2 x Q2.
c. fell from P2 x Q2 to P1 x Q2.
d. fell from P2 x Q2 to P3 x Q1.
15. Rick Smith opened a bookshop as a sole proprietor. After two years
of operation, the business failed, and he has a large debt outstanding.
As a result, he is required to turn over to his creditors up to the amount
of the debt,
a all the liquid assets of the bookstore.
b. all of the inventory and assets of the bookstore, but not his
personal
property which is protected by limited liability law.
c. all of the personal property of Mr. Smith and his blood relatives.
d. all of the assets of the bookstore plus his personal assets
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International Economics
1. The International Monetary Fund (IMF)
a. was originally set-up to oversee the international monetary system,including
the exchange rate policies of member nations.
b. establishes exchange rates between national currencies.
c. has the power to prohibit use of a nationĚs currency in foreign
exchange transactions.
d. imposes development policies on member countries.
2. Greater capital mobility among nations can be harmful because
a. it increases the risk of engaging in international business.
b. it destabilizes the foreign exchange market through speculation.
c. it reduces saving and investment.
d. it subjects countries to unfair foreign competition.
3. Taxes absorb approximately half of income, and land and capital
are primarily privately owned in most of the
a. countries of the former Soviet Union.
b. countries which suffered from the Asian Economic Crisis beginning
in 1997.
c. China.
d. Scandinavian countries.
4. A fundamental difference between capitalism and socialism is that
a. central planning is conducted by socialist bureaucrats but bureaucrats
are powerless under capitalism.
b. markets allocate resources under capitalism but do not exist
under socialism.
c. capitalism is democratic, while socialism is characterized by authoritarian
political systems.
d. productive resources are largely privately owned under capitalism
and publicly owned under socialism.
5. Since the fall of Communism, widespread bartering developed in
Russia. This is associated with
a. a decrease in efficiency in industrial production.
b. increase in the inflation rate.
c. increased social cohesiveness.
d. increase in the efficiency of product distributution.
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Table One
Output per Worker per Day
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Country
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Alpha
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Beta
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Baseballs
Baseball bats |
40
80
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10
40 |
6. Table One, above, depicts the output per worker before trade in
countries
Alpha and Beta. Assuming labor is the only input, if trade begins between
them, Alpha should
a. export baseballs.
b. import baseballs.
c. not trade because Alpha can produce both at a lower cost.
d. export baseball bats.
7. If the Japanese are found to be "dumping" steel into
the United States markets, it means that the Japanese are
a. selling steel at a price below their costs of production.
b. below the historic market price.
c. selling steel at a price below the price of United States steel.
d. conspiring with their American customers.
8. If the Federal Reserve lowers the discount rate, we would expect
that the value of the dollar on the foreign exchange market would
a. increase.
b. decrease.
c. not change.
d. be impossible to predict.
9. A tariff
a. reduces trade between nations.
b. is a necessary complement to a quota.
c. has exactly the same impact on trade as a quota.
d. is no longer permitted under WTO (World Trade Organization)
rules.
10. If Japan opens its markets to imports of American agricultural
products and America reduces restrictions on imports of Japanese automobiles,
a. Japanese farmers and food consumers will gain.
b. American automakers and car buyers will gain.
c. for both countries, the total gains from this exchange will be greater
than the total losses.
d. for both countries, the losses from this change will be larger
than the
gains.
11. The merchandise deficit in the United States balance of payments
in the last few years has had the effect in the United States of
a. dampening inflationary pressures.
b. reducing unemployment.
c. reducing trades barriers such as tariffs and quotas.
d. reducing interest rates.
12. If a firm in the United States invests in a company abroad, this
is reflected in the United States balance of payments as a
a. capital account debit.
b. capital account credit.
c. current account debit.
d. current account credit.
13. An appreciation of the dollar relative to the Euro can be the
result of
a. expansionary fiscal policy in the United States.
b. expansionary monetary policy in the United States.
c. expansionary monetary policy in the Euro countries.
d. adoption by Asian nations of the Euro as a reserve currency.
14. Diagram 1 above illustrates the total demand and supply for dollars
on the foreign exchange market. A shift from D1 to D2 could be caused
by
a. a recovery in the economies of East Asia.
b. a recession in the European Union Countries.
c. an increase in American investment in Latin America.
d. a decrease in American investment in Latin America.
15. When the Federal Reserve conducts expansionary monetary policy
to combat a recession,
a. the resulting decline in the value of the dollar will partially
offset the
impact of its policy.
b. the resulting decline in the value of the dollar will reinforce
the impact
of its policy.
c. the resulting increase in the value of the dollar will partially
offset the
impact of its policy.
d. the resulting increase in the value of the dollar will reinforce
the impact
of its policy.
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