IS and Econ 13 - Sample Second Midterm

questions
Winter 2014 (Correct answers are starred *)
Please note that these are just sample questions
that indicate the types of questions that you can
expect, not the questions that you will be asked
in the exam.

1. An example of a government transfer is a(n)

a. bequest from a deceased relative.
b. subsidy to corn producers.*
c. tax on inheritance.
d. salary for members of the armed forces.
e. expenditure on an interstate highway.
2. Restrictions on international trade
a. have increased since WWII.
b. include subsidies to exported goods.*
c. were uncommon before WWII.
d. a and b.
e. All of the above.
3. The following are factors that help explain
trade protection EXCEPT:
a.
The availability of new goods.*
b.
Strategic trade policy.
b.
The security externality of trade.
c.
The infant industry argument.
d.
Interest-group politics.
Suppose each of two countries, say China and
the U.S., can either pursue free trade or engage
in trade protection. If both countries were to
engage in free trade, they would each see their
income grow by $50 billion. If both were to
engage in trade protection, they would each grow
by $10 billion. If China were to choose free
trade and the U.S. trade protection, China would
not grow at all and the U.S. would grow by $60
billion. Conversely, if the U.S. were to choose
free trade and China trade protection, China
would grow by $60 billion and the U.S. would
not grow at all. Please use this information in
the following four questions. (In answering
these questions, you might find helpful to draw
the matrix of different outcomes.)

4. Which of the following combination of

policies maximizes the sum of growths for the
U.S and China?
a. China chooses free trade and the U.S.
chooses trade protection.
b. China chooses trade protection and the
U.S. chooses free trade.
c. They both choose free trade.*

d.
e.

They both choose trade protection.

Either a or b should occur.

5. It would be in the U.S.s interest to

a. pursue free trade regardless of what
China does.
b. pursue trade protection regardless of
what China does.*
c. pursue free trade only if China were to
pursue free trade.
d. pursue trade protection only if China
were to pursue trade protection.
e. pursue either free trade or protection,
depending on the level of sunspots.
6. It would be in Chinas interest to
a. pursue free trade regardless of what the
U.S. does.
b. pursue trade protection regardless of
what the U.S. does.*
c. pursue free trade only if the U.S. were to
pursue free trade.
d. pursue trade protection only if the U.S.
were to pursue trade protection.
e. pursue either free trade or protection,
depending on the level of sunspots.
7. Then, if the U.S. and China were to choose
their policies independently of one another so as
to maximize their own growth, we would expect
a. China to choose free trade and the U.S.
to choose trade protection.
b. China to choose trade protection and the
U.S. to choose free trade.
c. both to choose free trade.
d. both to choose trade protection.*
e. Either a or b would occur.
8. When a quota is imposed on an import,
typically in the importing country,
a. consumers lose.
b. domestic producers gain
c. foreign exporters lose.
d. b and c.
e. All of the above.*
9. The value added of a business is
a. its profit.
b. the value of final goods and services
produced.
c. the value of its sales minus the value of
its purchases of inputs from other businesses.*
d. the value of its purchased inputs.
e. the value of its production, including
intermediate inputs.

10. An example of a government transfer is

a. a subsidy to U.S. sugar producers.*
b. The State of Californias support for
university research.
c. expenditure on fixing a highway.
d. the salary of a Social Security
Administration employee.
e. the payroll tax.
11. Which of the following transactions will be
included in Canadian GDP?
a. An American buys a bottle of French
perfume.
b. Mr. Moneybags buys an existing share
of the Bank of Montreal.
c. Coca-Cola builds a new bottling plant in
California.
d. United Airlines buys a new plane from
Canadas Bombardier.*
e. A California winery produces a bottle of
Pinot Noir and sells it to a customer in
Vancouver, Canada.

13. If United Airlines were to sell one of its used

jets to Aero Boliviano, the transaction would
a. not be included in U.S. GDP.*
b. be included in Bolivian GDP.
c. be included in U.S. GDP.
d. lower U.S. GDP.
e. lower Bolivian GDP.

14. The U.S. unemployment rate in January was

a. 10% but total employment decreased.
b. below 9 % and total employment
decreased.
c. higher than 10% but total employment
increased.
d. below 9% and total employment
increased.
e. below 8% and total employment
increased.*
a. all of the above.*
16. In the country of Walachia, a market basket
of goods and services cost $120 in 2009 and
$180 in 2011. Based on this information and
considering 2009 as the base year, the price
index in 2011 was:
a. 66.67
b. 100
c. 130
d. 150*
e. 180

17. Flexible exchange rates

a. imply that exchange rates are
determined by the supply and demand
for currencies.*
b. have existed throughout the West for
over two centuries.
c. have been adopted by every country,
including China.
d. were an integral part of the industrial
revolution.
e. a and b.
18. PPP as used in this course refers to
a. Public Policy Polling.
b. Point-to-Point Protocol.
c. Purchasing Power Parity *
d. Point-to-Point Protection
e. Public Purchasing Policy
19. Every working day at least 1 trillion dollars
are traded in all foreign exchange markets. Most
of this trading is due to
a. to the currency needs of those who
import and export goods and services.
b. short-term speculation on currency
rates.*
c. those who make long-term investments
outside their own country.
d. the currency needs of tourists.
e. currency trading by governments.
20. Between 1870 and 1914:
a. The exchange rate was able to move
freely.
b. All major-country currencies were
backed by gold.
c. The exchange rate was fixed
d. a and b.
e. b and c*
21. Suppose the Euro has depreciated relative to
the US dollar. What happens to European and
US imports?
a.
European imports rise, US imports
fall.
b.
European imports fall, US imports
rise*
c.
European imports rise, US imports
rise.
d.
European imports fall, US imports
fall.
e.
Not enough information is provided.

23. The Eurozone consists of

a. 19 countries that share a common
currency
b. countries that do not have a common
fiscal policy.
c. countries that do not have common bank
supervision and regulation.
d. a and b.
e. All of the above.*
24. When an activity has positive externalities,
a. social costs equal social benefits.
b. private costs equal social benefits.
c. its privately optimal level is higher than
its socially optimal level.
d. its privately optimal level is lower than
its socially optimal level.*
e. its privately optimal level is the same as
its socially optimal level.
25. Examples of activities that typically have
positive externalities include
a. fishing.
b. smoking.
c. eating junk food.
d. driving.
e. public debate.*
26. Marginal Social Cost equals
a. Average Social Cost.
b. Marginal Private Cost plus Marginal
External Cost.*
c. Marginal External Cost.
d. Price plus Marginal Private Cost.
e. Marginal Social Benefit.
27. Measures that could be taken to alleviate the
effects of climate change include
a. subsidies to fossil fuels
b. investing in new technologies that would
make logging more efficient.
c. curbing deforestation.*
d. taxing solar power plants.
e. b and d.
28. An abandoned house is a source of a
a. positive externality because it can be
taken over by others in the neighborhood.
b. positive externality because it frees up
income that would otherwise be used on
maintenance by its owners.
c. positive externality because the boyz in
the hood can use it for their own purposes.
d. negative externality because it tends to
decrease the values of neighboring houses.*
e. a and c.

29. When an activity has a positive externality,

a. its social costs exceed its private costs.
b. its social benefits exceed its private
benefits.*
c. its private costs exceed its social costs.
d. its private benefits exceed its social
benefits.
e. its external costs exceed its social costs.
30. Getting a flu shot
a. has no external effects on the costs or
benefits of others.
b. has external costs only because of the
pain it causes.
c. has external benefits because it benefits
you during flu season.
d. has external benefits because it reduces
not only your chance of getting the flu
but also the chance that you will pass it
on to someone else.*
e. has external costs because others get
the flu from you.
31. 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. fishermen do not fully take into account
the effect their fishing has on the catch
of other fishermen.
e. b and d.*
32. Methane produced by cattle, an activity that
adversely affects the environment,
a. could be reduced by subsidizing cattle
production.
b. could be reduced by taxing cattle
production.*
c. could be increased by taxing cattle
production.
d. is an example of a positive externality.
e. b and d.

33. When you ask a question in class

a. you create a positive externality because
your friend has a positive view of you
b. you create a negative externality
because you interrupt the train of
thought of others around you.
c. you create a positive externality because
you make a positive impression on the
professor.
d. you create a positive externality because
other students who had the same
question, but did not ask, benefit.*
e. you never induce an external effect on
others.
34. The median wage for U.S. males peaked
a. just before the Great Recession.
b. during the 90s.
c. during the 80s.
d. during the 70s.*
e. during the 60s.

35. In the absence of societal interventions, an

activity with positive externalities takes place so
that
a. marginal private benefit equals marginal
private cost.*
b. marginal social cost exceeds marginal
private cost.
c. marginal external benefit exceeds
marginal private benefit.
d. marginal social benefit equals marginal
cost.
e. a and c.