b. a downward pressure on U.S. lowskilled

04 Jun b. a downward pressure on U.S. lowskilled

Question

IS and Econ 13 – Final Examination

S. Skaperdas – March 16, 2015

Version (Form) A

Please fill in your scantron, INCLUDING

YOUR VERSION (Form) (A). Be sure to

mark (blacken) the appropriate boxes.

There are 74 questions in this exam. Questions

1-28 are worth 1 point each, whereas questions 29-74 are worth 2 points each (making a total of 120 maximum possible points).

1. Government revenue as a fraction of GDP and GDP per capita

a. are not related at all.

b. are negatively correlated.

c. are positively correlated.

d. have been proven to be causally linked.

e. b and d.

2. Over the past 40 years, productivity

a. has been growing more slowly than wages.

b. has been growing faster than median wages.

c. has been growing just about the same as wages.

d. has been falling while wages have remained stagnant.

e. has been falling while wages have increased.

3. If a country has a population of 1,000, an area of 1,000 square miles and a GDP of $6,000,000, then its GDP per capita is

a. $600.

b. $1,000.

c. $6,000.

d. $10,000.

e. $60,000.

4. Changes in the following variable shift the demand curve for a good.

a. The tastes of the consumers.

b. The preferences of the consumers.

c. The prices of some other goods.

d. The income of consumers.

e. All of the above.

5. Modern economic growth is correlated with

a. the rise of the corporation as a dominant

form of firm organization.

b. an increase in the government’s share of GDP.

c. an expansion of social safety nets.

d. a and c.

e. All of the above.

6. According to Krugman and Wells, productivity is driven by all of the following EXCEPT:

a. physical capital

b. human capital

c. natural resources

d. technological progress

e. innovation.

7. Modern economic growth is correlated with the following characteristics EXCEPT

a. investment in economic infrastructure.

b. a reduction in the importance of traditional communities.

c. government investment in sewers and public health.

d. a reduction in urbanization.

e. lower child-mortality rates.

8. If output is growing at 3.5%, how many years will it take for output to double?

a. 10 years.

b. 20 years.

c. 40 years.

d. 14 years.

e. 28 years.

9. An economy that grows at 2% a year can be expected to double its income in about

a. 20 years

b. 35 years

c. 50 years

d. 70 years

e. 100 years

10. Productivity usually refers to

a. output per worker

b. output per dollar of invested capital.

c. output per acre of land.

d. output per unit of human capital.

e. output per unit of physical capital.

11. Typically, excessive fishing occurs because

a. fishermen rely on enforcers to worry

about fish populations.

b. fishermen do not fully take into account

the effect their fishing has on the future

stock of fish.

c. fishermen are unionized, so they are not

concerned with externalities.

d. shows like the “Deadliest Catch” make

people eat more crab.

e. b and c.

12. The “party of Davos” refers to

a. the participants of the World Aristocracy

Forum.

b. the participants of the World Social

Forum.

c. the party that takes place every June in

Davos, Switzerland.

d. a hypothesized emerging world-wide

elite.

e. a and c.

Suppose that each of Xena and Robinson

face the choice between, on the one hand,

Not Arming and Specializing in Production

(with the intention to Trade) and, on the

other hand, Arming with the intention of

remaining autarkic. Denote the first

“strategy” by N and the second by A. The

matrix of possible outcomes is then as

follows:

13. If Robinson were to pursue his self-interest,

he would choose:

a. N

b. A

c. Sometimes N and sometimes A.

d. Can never be determined from the

information provided.

14. If Xena were to pursue her self-interest, she

would choose:

a. N

b. A

c. Sometimes N and sometimes A.

d. Can never be determined from the

information provided.

15. If Robinson and Xena were each to pursue

their own self-interest, the outcome that will

occur is

a. N for Robinson and N for Xena

b. N for Robinson and A for Xena

c. A for Robinson and N for Xena

d. A for Robinson and A for Xena

e. Can never be determined from the

information provided.

16. The collectively rational outcome is for

a. N for Robinson and N for Xena

b. N for Robinson and A for Xena

c. A for Robinson and N for Xena

d. A for Robinson and A for Xena

e. Can never be determined from the

information provided.

Suppose Bianca takes 4 minutes to produce one

coconut and 1 minute to produce a fish, whereas

Jake takes 6 minutes to produce a coconut and 12

minutes to produce a fish.

17. Bianca’s opportunity cost of 1 coconut is:

a. 1 fish

b. 3 coconuts

c. 4 fish

d. 2 fish

e. 1/4 a fish

18. Jake’s opportunity cost of 1 coconut is:

a. 1/2 a fish

b. 3 fish

c. 4 fish

d. 2 fish

e. 7 coconuts

19. Who has the absolute advantage in

producing coconuts?

a. Bianca

b. Jake

c. Both

d. Neither

e. Cannot be determined

20. Who has the comparative advantage in

producing coconuts?

a. Bianca

b. Jake

c. Both

d. Neither

e. Cannot be determined

21. Suppose the exchange rate for pesos in terms

of dollars in the first year is 5 pesos to 1 dollar.

Xena

N A

Robinso

n

N (No

arming)

Robinson

obtains:

(5coconuts

, 10 fish);

Xena

obtains (10

coconuts,

5 fish)

Robinson

obtains:

(0coconuts

, 0 fish);

Xena

obtains (15

coconuts,

20 fish)

A

(Arming

)

Robinson

obtains:

(20

coconuts,

10 fish);

Xena

obtains (0

coconuts,

0 fish)

Robinson

obtains: (2

coconuts,

6 fish);

Xena

obtains (7

coconuts,

4 fish)

In year two, the exchange rate becomes 10 pesos

to 1 dollar. In this example, the peso:

a. appreciated relative to the dollar.

b. depreciated relative to the dollar.

c. is too cheap.

d. unclear given the information provided.

e. a and c.

22. Suppose the exchange rate for pesos in terms

of euros in the first year is 5 pesos to 1 euro. In

year two, the exchange rate becomes 3 pesos to 1

euro. In this example, the peso:

a. depreciated relative to the euro.

b. is too expensive.

c. appreciated relative to the euro.

d. unclear given the information provided.

e. a and b.

23. Given the exchange rates in the above two

questions, we know that the dollar must have:

a. depreciated relative to the peso

b. appreciated relative to the euro

c. become too expensive

d. unclear given the information provided.

e. a and b.

24. The key statistic to measure economic

growth is

a. Real GDP per capita.

b. The size of the government’s budget.

c. Life expectancy.

d. The Dow Jones market index.

e. A high exchange rate.

25. Restrictions on international trade

a. have been reduced since WWII.

b. include US city taxes on all local sales.

c. were uncommon before WWII.

d. a and b.

e. All of the above.

26. An example of investment spending in the

calculation of GDP is

a. purchase of a bond.

b. purchase of a stock.

c. purchase of insurance.

d. purchase of a new productive machine.

e. All of the above.

27. Globalization is associated with the

following tendencies EXCEPT

a. economic growth in China.

b. some loss of sovereignty on the part of

states.

c. increasing competition for natural

resources.

d. less movement of capital across

countries

e. greater information transmission and

cultural exchanges across countries.

28. For the past decade, the US

a. had a yearly trade deficit (negative trade

balance).

b. had a yearly trade surplus (positive

trade balance).

c. some years it had a trade deficit and

some years a trade surplus.

d. consumed more goods and services than

it produced.

e. a and d.

Please note that the remaining questions are

worth 2 points each.

29. An example of the use of leverage is

a. buying low and selling high.

b. using others as a lever in order to make

money.

c. trading using modern computers.

d. investing by borrowing funds in order to

boost investment returns.

e. the buying of foreign currencies by a

Central Bank that wants to support these foreign

currencies.

30. Externalities

a. Are always negative

b. Are always positive

c. Include the effects of climate

change.

d. Provide a rationale for government

involvement in the economy.

e. c and d.

31. Positive externalities

a. Call for subsidies or public

ownership.

b. Call for taxes or quantitative

restrictions.

c. Imply there is no government

involvement.

d. Imply that private choices are

always by themselves efficient.

e. c and d.

32. Public goods are

a. rivalrous in consumption and

excludable

b. non-rivalrous in consumption and

non-excludable.

c. rivalrous in consumption and nonexcludable

d. non-rivalrous in consumption and

excludable.

e. None of the above.

33. Increasing returns to scale in production

imply

a. decreasing average cost in

production.

b. increasing average cost of

production.

c. constant average cost of

production.

d. first decreasing and then increasing

average cost of production.

e. first increasing and then decreasing

average cost of production.

34. Key areas of government involvement in the

economy include

a. infrastructure investment.

b. regulation of banking and finance.

c. basic research.

d. All of the above.

e. None of the above.

35. Stock markets and other financial markets

a. can exist without any governance.

b. can last only if there are laws and

effective enforcement that protect

investors.

c. have existed since the agricultural

revolution.

d. only require self-regulation on the

part of market participants.

e. a and d.

36. Channels through which influence of

government can be responsible in determining

incomes DOES NOT include:

a. The regulation of finance and

industry.

b. The Bank for International

Settlements.

c. The legal and administrative

intervention in labor markets (e.g., re.

unions)

d. Through international treaties (e.g.,

NAFTA)

e. tax policy.

37. Natural monopolies

a. are characterized by decreasing

average costs of production.

b. are characterized by diminishing

returns.

c. Are naturally pro-competitive.

d. imply either public ownership or

regulation of the industry.

e. b and d.

Note: marking A or D for #37 is correct.

38. The US Federal Reserve

a. was founded in 1776 and was the

first Central Bank created in

industrialized countries.

b. was founded in 1913 after a series

of banking crises.

c. was founded in 1776 and was the

last Central Bank created in

industrialized countries.

d. is the Central Bank’s Central Bank.

e. c and d.

39. Over the past 40 years the US distribution of

income

a. has become less equal.

b. has remained roughly the same.

c. has become more equal.

d. first became less equal and is now

becoming more equal.

e. cannot be determined.

40. Since the onset of the Great Recession, longterm

interest rates (such as on mortgages)

a. have gone down.

b. have gone up.

c. are about the same as before.

d. have followed an indeterminate

path.

e. c and d.

41. Social spending and insurance DOES NOT

include

a. Unemployment compensation

b. Food assistance

c. Housing subsidies

d. Subsidies to agribusiness.

e. Subsidies to the poor.

42. Most of the US federal discretionary budget

is taken by

a. health care expenditures.

b. unemployment insurance.

c. administration.

d. military expenditures.

e. welfare expenditures.

43. Economic policy, especially about the role of

governments and markets, is determined

a. solely by voting.

b. solely through lobbying

c. by a combination of democratic

voice and money influences.

d. just by money influences.

e. in a secret room.

44. David Ricardo, a British political economist

of the 19th century, used the production of

wine and cloth in Britain and Portugal to

illustrate the idea of comparative advantage. In

his classic example, the unit labor costs of

production (i.e., how much labor it takes to

produce one unit of output) of these two goods in

these two countries are

Cloth Wine

Britain 100 110

Portugal 90 80

According to these numbers, which of the

following statements is correct?

a. Britain has comparative advantage

in producing wine.

b. Britain has absolute advantage in

producing wine.

c. Portugal has absolute advantage in

producing wine.

d. Portugal has comparative

advantage in producing cloth.

e. Neither comparative advantage

nor absolute advantage can be

determined by the information

provided.

44. Government subsidies to U.S. farm products

a. are highly uncommon.

b. tend to lower their international price.

c. can be considered a form of trade

protection

d. b and c.

e. All of the above.[DOES NOT

COUNT]

45. Included in GDP would be:

a. the dollar value of a used car sold during

the period.

b. the dollar value of a new car imported

during the period.

c. the dollar value of a new car exported

during the period.

d. the dollar value of a used car imported

during the period.

e. All of the above.

46. The Bretton Woods system was characterized

by

a. the universal adoption of the Gold

standard.

b. the absence of recessions.

c. flexible exchange rates.

d. low levels of cross-country capital

movements.

e. All of the above.

47. When a country has a trade surplus,

a. The financial (or, capital) account must

necessarily be negative.

b. The financial account is positive.

c. The financial account is zero.

d. the value of its exports is higher than

the value of its imports.

e. a and d.

48. Since 1971

a. restrictions on trade gradually increased.

b. only the U.S. dollar has been backed by

gold.

c. no currency has been backed by either

gold or silver.

d only a new currency, the euro, followed

the practice of the Swiss franc to be backed

by gold.

e. only the Icelandic kroner has been

backed by a precious metal successfully.

49. An increase in the cost of producing a good

a. shifts the demand curve to the right.

b. shifts the demand curve to the left.

c. causes a movement along the demand

curve.

d. implies no change in the demand

curve.

e. causes a movement along the supply

curve.

50. An Iowa farmer buys a new truck made in

Connecticut by a Japanese company. As a result

a. US GDP increases, but Japanese

GDP is unaffected

b. GDP for both US and Japan

increase

c. US GDP increases, but Japanese

GDP decreases

d. Japanese GDP increases, but US

GDP is unaffected

e. None of the above

51. Suppose the U.S. market for a certain

industry, say textiles, opens to international

competition through a complete elimination of

trade barriers. Then, other things being equal,

we can expect

a. no effect on employment or wages since

industries such as textiles are never

affected by international competition.

b. an increase in the number of U.S.

workers employed in that industry and

an increase in their wages.

c. a decrease in the number of U.S.

workers employed in that industry and

an increase in their wages.

d. an increase in the number of U.S.

workers employed in that industry and a

decrease in their wages.

e. a decrease in the number of U.S.

workers employed in that industry and a

decrease in their wages.

52. A point outside a production possibilities

frontier

a. indicates that some resources are

unemployed.

b. is unattainable for production purposes

c. is worse than points on the production

possibilities frontier.

d. implies that too much capital and not

enough labor are used.

e. None of the above.

53. Modern economic growth is correlated

a. with increasing urbanization.

b. with an increase in the size of the public

sector.

c. with massive investments in

infrastructure.

d. a and c.

e. All of the above.

54. Suppose that, at a particular price, quantity

demanded is 500 and quantity supplied is 300.

Then, we should expect the price in this market

to

a. Go up because there is excess

demand

b. Go down because there is excess

demand.

c. Go up because there is excess supply.

d. Stay the same.

e. Go up or down, depending on whether

there is excess supply or excess

demand.

55. Economic growth can be represented by

a. a movement along the Production

Possibilities Frontier (PPF).

b. an outward expansion of the PPF.

c. an inward (down and left) shift of the

PPF.

d. a downward shift in the demand curve.

e. b and d.

56. The province of Shanghai in China has

about the same life expectancy and per capita

income as

a. the rest of China.

b. Italy.

c. Bangladesh.

d. India.

e. Ghana.

57. Consider the market for the Samsung

Galaxy Note II. Samsung has started an effective

advertising campaign for its product and more

segments of the population consider it a “cool”

product. At the same time, improvements in

production techniques imply that the Note II is

cheaper to produce. Which of the following

MUST be true?

a. The equilibrium quantity will fall.

b. The equilibrium quantity will rise.

c. The equilibrium price will fall.

d. The equilibrium price will rise.

e. Neither the equilibrium price nor

quantity will be affected.

58. Adam Smith

a. argued in favor of corporations as the

most efficient form of firm organization.

b. considered the corporate form of firm

organization critical for the success of the

industrial revolution.

c. considered the corporate form of firm

organization too immature for the

nineteenth century economy.

d. argued against corporations because of

the intractable problems inherent in the

separation of ownership from

management.

e. a and b.

59. The Democratic Republic of the Congo

(former Zaire)

a. lost more the 5 million people to war over

the past 20 years.

b. is very rich in natural resources.

c. has had a very weak and corrupt

government.

d. All of the above.

e. None of the above.

60. Positive economics refers to

a. analyses that try to understand how the

economy actually works.

b. the positive reinforcement that the media

can employ to pump up the economy.

c. the positive feelings that firms can

induce for the good of the economy.

d. a and b.

e. b and c.

61. The U.S. real median wage for males peaked

a. just before the Great Recession.

b. during the 90s.

c. during the 80s.

d. during the 70s.

e. during the 60s.

62. If all prices were to go down next year, with

production of all goods remaining the same, then

a. real income would be the same

b. nominal income would increase

c. real income would increase

d. real income would decrease.

e. a and b.

63. A tariff on an imported good shifts the

a. supply curve upward and increases both

the equilibrium price and equilibrium

quantity.

b. demand curve upward and decreases

the equilibrium price and equilibrium

quantity.

c. demand curve upward and increases

both the equilibrium price and

equilibrium quantity.

d. supply curve upward and decreases both

the equilibrium price and equilibrium

quantity.

e. supply curve upward, increases the

equilibrium price and decreases the

equilibrium quantity.

64. Suppose the U.S. wanted to improve its

domestic computer industry’s profitability. What

policy could the U.S. government pursue?

a. eliminate any restrictions on computer

imports.

b. impose a tax on exported computers.

c. subsidize the U.S. computer industry.

d. put a quota on exported computers.

e. b and d.

65. The smoking ban on all UC campuses

a. can be expected to yield few known

additional benefits as a result of the absence of

second-hand smoke.

b. can be expected to yield large benefits as

a result of the absence of second-hand smoke.

c. is expected to have no costs.

d. a and c.

e. b and c.

66. Pursuing freer trade is

a. always best for a country.

b. sometimes not in the interest of a

country.

c. always bad for a country.

d. always benefits the citizens of a

country.

e. a and d.

67. One reason many sub-Saharan countries in

Africa are as poor as they are is

a. the soil is less fertile because of the

Sahara.

b. there are few natural resources available

in most countries.

c. political instability combined with civil

wars.

d. the legacy of Spanish conquest.

e. All of the above.

68. Human capital is (are)

a. the machinery and tools that each

individual worker owns.

b. the improvement in labor created by

education and knowledge that is embodied in the

work force.

c. robots that can perform tasks that only

humans could do in the past.

d. general-purpose technology.

e. All of the above.

69. The greater openness of the U.S. economy

over the past three decades has induced

a. higher incomes for almost all U.S.

workers because of cheaper imported

goods.

b. a downward pressure on U.S. lowskilled

workers.

c. an upward pressure on U.S. low-skilled

workers.

d. lower competition in the U.S. job

market.

e. c and d.

70. In evaluating different policies addressing

climate change, taking account of the welfare of

future generations

a. is impossible.

b. depends on the economic growth assumed

between now and then.

c. is not proper because future generations do

not vote.

d. should not be of concern to us.

e. a and c.

71. Economic and financial globalization has

a. reduced the need for transnational

governance.

b. reduced the power of national

governments.

c. increased the bargaining power of

workers in rich countries.

d. increased the bargaining power of

workers in poor countries.

e. a and d.

72. An example of a government transfer is

a. a subsidy to U.S. sugar producers.

b. The State of California’s support for

university research.

c. expenditure on fixing a highway.

d. the salary of a Social Security

Administration employee.

e. the payroll tax.

73. The military superiority of European states

over the rest of the world since the 15th century

could ultimately be attributed to

a. the philosophers of ancient Greece and

Rome.

b. their economies being more advanced

than China in the 15th century.

c. solely to the industrial revolution.

d. advances in military technology induced

by the considerable internal political

fragmentation of Europe.

e. b and c.

74. The following is NOT a social benefit of

public higher education

a. The higher wages of college graduates

b. The intrinsic enjoyment in learning it can

induce.

c. A better educated citizenry many

contribute to the better functioning of

democracy.

d. The innovation induced through basic

research.

e. The stress of getting good grades.