ECO 561 Final Exam (new 2016)

ECO 561 Final Exam (new 2016)

Author: Patricia Rhone

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1 Research for industrially advanced countries indicates that:•     there is no relationship between the degree of independence of a country's central bank and its inflation rate. •     the more independent the central bank, the higher the average annual rate of unemployment. •     the more independent the central bank, the lower the average annual rate of inflation   the more independent the central bank, the higher the average annual rate of inflation2Contractionary fiscal policy is so named because it:•     involves a contraction of the nation's money supply •     is expressly designed to expand real GDP •     is aimed at reducing aggregate demand and thus achieving price stability   necessarily reduces the size of government3Because the federal government typically provides disaster relief to farmers, many farmers do not buy crop insurance even through it is federally subsidized. This illustrates:•     the adverse selection problem •     the special interest effect •     the moral hazard problem   logrolling4Which of the following will generate a demand for country X's currency in the foreign exchange market?•     Charitable contributions by country X's citizens to citizens of developing nations •     The desire of foreigners to buy stocks and bonds of firms in country X •     The imports of country X   Travel by citizens of country X in other countries5The two basic markets shown by the simple circular flow model are:•     capital goods and consumer goods •     household and business •     free and controlled   product and resource6The fact that international specialization and trade based on comparative advantage can increase world output is demonstrated by the reality that:•     a nation's production possibilities and trading possibilities lines coincide •     a nation's trading possibilities line lies to the right of its production possibilities line •     the production possibilities curves of any two nations are identical   a nation's production possibilities line lies to the right of its trading possibilities line7A monopolistically competitive industry combines elements of both competition and monopoly. The monopoly element results from:•     mutual interdependence •     high entry barriers •     product differentiation   the likelihood of collusion8Countercyclical discretionary fiscal policy calls for:•     deficits during both recessions and periods of demand-pull inflation •     surpluses during both recessions and periods of demand-pull inflation •     deficits during recessions and surpluses during periods of demand-pull inflation   surpluses during recessions and deficits during periods of demand-pull inflation9Buyers will opt out of markets in which:•     standardized products are being produced •     there are significant negative externalities •     there is inadequate information about sellers and their products   there are only foreign sellers10Pure monopolists may obtain economic profits in the long run because:•     of barriers to entry •     of rising average fixed costs •     marginal revenue is constant as sales increase    of advertising11Why are economists concerned about inflation?•     Real GDP is necessarily falling when there is inflation •     Inflation lowers the standard of living for people whose income does not increase as fast as the price level •     Inflation increases the value of peoples' saving and encourages overspending on goods and services    Inflation generally causes unemployment rates to rise12As output increases, total variable cost:•     increases at a decreasing rate and then at an increasing rate •    

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