Practice Economics Question 1) Which of the following should be included in GDP:

Question

Practice Economics Question

1)

Which of the following should be included in GDP:

The purchase of a brick of gold as an investment;

An unemployment insurance payment;

The purchase of a used phone;

The salary of an employee of the IRS;

The purchase of computer processors by a company, with plans to use them to make computers.

2)

In 2015 the tax revenue of Happy Land was 15 million. The government purchases were 6 million, the investment spending by private firms was 4 million and government transfers were 10 million. What was the budget balance in Happy Land in 2015?

Deficit of 1 million;

Surplus of 1 million;

Deficit of 3 million;

Surplus of 3 million;

Deficit of 5 million;

Surplus of 5 million;

3)

A decrease in price of milk will:

Increase the supply of milk;

Decrease the supply of milk;

Increase the quantity supplied of milk;

Decrease the quantity supplied of milk;

4)

Marginal costs intercept average total costs at:

The maximum of average total costs;

The minimum of average total costs;

The maximum of fixed costs;

The minimum of fixed costs;

5)

Nuts are the only goods produced in Happy Land. In 2014, 200 boxes of nuts were produced in Happy Land and sold at a price of $10 per box. In 2015, 150 boxes of nuts were produced in Happy Land and sold at a price of $20 per box. From 2014 to 2015 the nominal GDP of Happy Land _____________ and the real GDP of Happy Land _____________ .

increased; increased

decreased; decreased

increased; decreased

decreased; increased

6)

The price of salad dressing decreased, and at the same time the cost of producing lettuce decreased. The equilibrium price of lettuce is will _____________ and equilibrium quantity of lettuce will ______________.

decrease; increase;

be ambiguous; increase.

increase; be ambiguous.

decrease; be ambiguous.

7)

Which of the following is an example of expansionary fiscal policy?

The Fed increases money supply;

Government decreases transfers;

The Fed decreases money supply;

Government decreases taxes;

8)

Jessica values red Dior lipstick at $50. Claudia values the lipstick at $40. Natasha values it at $30. The actual price of the lipstick is $35. What is the total consumer surplus in this example?

$15;

$20;

$55;

$85;

$90;

9)

The real GDP of a country was $50 billion in 2013 and $60 billion in 2014. If the country continues to grow at the current rate, how many years will it take it to double the GDP since 2013?

3.5

7

14

140

10)

The government introduces a price floor above the equilibrium level. This price floor will cause:

Decrease in the quality of the good produced;

Decrease in the quantity demanded of the good;

Decrease in deadweight loss;

An increase in the quantity of the good sold;

11)

The marginal propensity to consume is 0.8. The government increases the unemployment benefits by $10 billion. As a result of this policy GDP is going to increase by:

$4 billion;

$5 billion;

$12.5 billion;

$40 billion;

$50 billion

12)

Which of the following is true for a perfectly competitive firm at any level of output:

Price=Marginal Revenue;

Marginal Costs=Marginal Revenue;

Both A and B.

13)

The nominal interest rate is 5%. The real interest rate is 2%. What is the inflation rate?

3%

7%

There is not enough information to answer this question;

14)

An individual demand curve for a monopoly is:

Horizontal;

Upward sloping;

Downward sloping;

15)

Which of the following should not be included in GDP:

Salaries paid to firefighters;

Purchase of a new pair of leggings;

Disability insurance payments;

The construction of a new building by a private firm.

16)

A firm that sells orange juice increased the price of juice. The total revenue of the firm remained the same. This suggests that demand for orange juice is:

Inelastic;

Elastic;

Unit-Elastic;

Perfectly inelastic.

17)

Expansionary fiscal policy _____________ GDP in the short run and ______________ GDP in the long run.

increases; increases;

decreases; decreases;

increases; does not change;

does not change; increases;

18)

Which of the following statements is correct:

In the short run the firm should continue producing as long as it is covering all the fixed costs;

In the short run the firm should continue producing as long as it is covering all the variable costs;

In the short run the firm should always shut down immediately if it is making losses;

19)

Frictional unemployment is 4%, structural unemployment is 2% and cyclical unemployment is 3%. What is the actual unemployment rate?

3%;

5%;

6%;

9%;

20)

In one hour Luke can solve 10 math problems or 2 econ problems. In one hour Adam can solve 12 math problems or 3 econ problems. Which of the following statements is true:

Luke has comparative advantage in math;

Luke has comparative advantage in econ;

Luke does not have comparative advantage in anything;

Luke has an absolute advantage in both math and econ.

21)

Which of the following are not included in the labor force?

Individuals working part time;

Individuals who were searching for a job for a long time, got discouraged and are not searching anymore;

Individuals that do not have a job but are searching for a job;

Both B and C.

22)

When quantity demanded exceeds quantity supplied, a:

shortage occurs and prices are pushed up toward equilibrium;

shortage occurs and prices are pushed down toward equilibrium;

surplus occurs and prices are pushed up toward equilibrium;

surplus occurs and prices are pushed down toward equilibrium;

23)

In Happy Land 6 million people are out of the labor force, 8 million are employed and 2 million are unemployed. What is the unemployment rate in Happy Land?

14%;

20%;

25%;

33.3%;

24)

The marginal revenue of a firm is currently $10. While the marginal costs are $9. Which of the following statements is true?

The firm can increase profit by increasing output;

The firm can increase profit by decreasing output;

The profit is already maximized;

25)

Which of the following is an example of contractionary monetary policy?

Decrease in federal funds rate;

Decrease in reserve requirement;

Open market sales of treasury bonds;

Decrease in transfer payments;

26)

In comparison to a single price monopolist, price discrimination results in _____________ quantity sold and _____________ deadweight loss.

Larger; lower.

Smaller; higher;

Larger; higher;

Smaller; lower.

27)

Which of the following will shift the aggregate demand curve to the right?

Decrease in aggregate price level;

Increase in aggregate price level;

Increase in productivity;

Improvement in consumer expectations of the future.

28)

Which of the following is always negative?

Income elasticity of demand;

Price elasticity of demand;

Cross price elasticity of demand;

Elasticity of supply;

29)

In 2014 the CPI was 100. In 2015 CPI was 115. What was the inflation rate during this time period?

13%;

-13%;

15%;

-15%;

30)

Joe is a perfectly competitive corn farmer. Currently the market price for corn is below average total costs for producing corn. In the long run Joe should expect:

Entry of firms on the market because the profits are positive;

Entry of firms on the market because the profits are negative;

Exit of firms from the market because the profits are positive;

Exit of firms from the market because the profits are negative;

31)

A country experienced a positive supply shock. As a result the aggregate price level will ____________ and the aggregate output (GDP) will ______________ in the short run.

decrease; increase.

decrease; decrease.

increase; increase.

increase; decrease.

32)

Elasticity of supply of candy is 3. If the price of candy increased by 2% what would happen to the quantity supplied of candy?

The quantity supplied will decrease by 6%;

The quantity supplied will increase by 6%;

The quantity supplied will decrease by 1.5%;

The quantity supplied will increase by 1.5%;

33)

The government decreases the government purchases of goods and services. As a result the aggregate price level will ____________ and the aggregate output (GDP) will ______________ in the short run.

increase; not change.

decrease; not change.

decrease; decrease.

increase; increase.

34)

Marcus started a t-shirt business. He is currently producing 5 t-shirts. His total costs are $120 and his fixed costs are $100. What are his average variable costs?

$4;

$20;

$24;

$100;

$220.

35)

Who of the following individuals would be considered structurally unemployment?

Nick lost his job due to the recession;

Erin lost her job because the minimum wage was raised by the state of Ohio;

Julia was searching for a job for a long time, got discouraged and stopped searching;

Kiara is currently not working because she is interviewing with several firms for a job in computer science.

36)

A perfectly competitive firm is producing rice crackers at a profit maximizing quantity of output. The price of 1 pack of rice crackers is $2. What is the marginal cost of producing the last pack of rice crackers?

less than $2;

$2;

more than $2;

there is not enough information to answer this question;

37)

Which of the following will increase the Long Run Aggregate Supply?

Decrease in oil prices;

Decrease in taxes;

Increase in human capital of the country;

Improvement in consumer expectations about the future.

38)

Lana has 3 alternatives of what to do tomorrow morning: 1) She can go for a run with a friend, which she values at $35; 2) She can study French which she values at $20; 3) She can watch TV which she values at $10. Suppose she chooses to go for a run. What is the opportunity cost of going for a run?

Zero because she gets to do what she likes most;

$10;

$20;

$30;

$35;

39)

A firm experiences diminishing returns to an input when:

Total production is falling;

Marginal product of that input is decreasing but is still positive;

Marginal product of that input is negative;

40)

Which of the following policies can be implemented to close a recessionary gap?

Increase the reserve requirement ratio;

Decrease transfer payments;

Decrease money supply;

Decrease taxes;

Explanation / Answer

1) The salary of an employee of the IRS;

2) surplus of 5 million

3) Decrease the quantity supplied of milk;

4) The minimum of average total costs;

4)

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