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1. UOP ECO 561 Final Guide NEW 2018
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1 Which of the following have substantially
equivalent effects on a nation's volume of exports
and imports?
Exchange rate appreciation and domestic deflation
Exchange rate depreciation and domestic inflation
Exchange rate appreciation and a decrease in the
domestic supply of money
Exchange rate depreciation and domestic deflation
2 Which of the following statements best describes
the 12 Federal Reserve Banks?

2. They are privately owned and publicly controlled
central banks whose basic goal is to earn profits
for their owners.
They are privately owned and privately controlled
central banks whose basic goal is to provide an
ample and orderly market for U.S. Treasury
securities.
They are privately owned and publicly controlled
central banks whose basic function is to minimize
the risks in commercial banking in order to make
it a reasonably profitable industry.
They are privately owned and publicly controlled
central banks whose basic goal is to control the
money supply and interest rates in promoting the
general economic welfare
3 Buyers will opt out of markets in which:
there are only foreign sellers
there is inadequate information about sellers and
their products
there are significant negative externalities
standardized products are being produced
4 Pure monopolists may obtain economic profits
in the long run because:

3. of advertising
marginal revenue is constant as sales increase
of rising average fixed costs
of barriers to entry
5 All else equal, a large decline in the real interest
rate will shift the:
investment demand curve rightward
investment demand curve leftward
investment schedule upward
investment schedule downward
6 In order for mutually beneficial trade to occur
between two otherwise isolated nations:
each nation must be able to produce at least one
good relatively cheaper than the other
each nation must face constant costs in the
production of the good it exports
one nation's production must be labor-intensive
while the other nation's production is capital-
intensive
each nation must be able to produce at least one
good absolutely cheaper than the other

4. 7 If the Federal Reserve System buys government
securities from commercial banks and the public:
the money supply will contract
commercial bank reserves will decline
it will be easier to obtain loans at commercial
banks
commercial bank reserves will be unaffected
8 Normal profit is:
the average profitability of an industry over the
preceding 10 years
determined by subtracting explicit costs from total
revenue
the return to the entrepreneur when economic
profits are zero
determined by subtracting implicit costs from
total revenue
9 The term "recession" describes a situation
where:
an economy's ability to produce is destroyed
output and living standards decline
inflation rates exceed normal levels

5. Government takes a less active role in economic
matters
10 If an unintended increase in business
inventories occurs at some level of GDP, then GDP:
is too low for equilibrium
entails a rate of aggregate expenditures in excess
of the rate of aggregate production
is too high for equilibrium
may be either above or below the equilibrium
output
11 The 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
the production possibilities curves of any two
nations are identical
a nation's trading possibilities line lies to the right
of its production possibilities line
a nation's production possibilities line lies to the
right of its trading possibilities line

6. 12 In the theory of comparative advantage, a good
should be produced in that nation where:
its cost is least in terms of alternative goods that
might otherwise be produced
its absolute cost in terms of real resources used is
least
its absolute money cost of production is least
the production possibilities line lies further to the
right than the trading possibilities line
13 Why are economists concerned about inflation?
Inflation lowers the standard of living for people
whose income does not increase as fast as the
price level
Real GDP is necessarily falling when there is
inflation
Inflation generally causes unemployment rates to
rise
Inflation increases the value of peoples' saving and
encourages overspending on goods and services

7. 14 Two major virtues of the market system are
that it:
results in an equitable personal distribution of
income and always maintains full employment
results in price level stability and a fair personal
distribution of income
allocates resources efficiently and allows
economic freedom
eliminates discrimination and minimizes
environmental pollution
15 Suppose you have a limited money income and
you are purchasing products A and B, whose prices
happen to be the same. To maximize your utility,
you should purchase A and B in such amounts that:
the income and substitution effects associated
with each are equal
their marginal and total utilities are proportionate
their total utilities are the same
their marginal utilities are the same

8. 16 Macroeconomics approaches the study of
economics from the viewpoint of:
governmental units
the entire economy
individual firms
the operation of specific product and resource
markets
17 Mrs. Arnold is spending all her money income
by buying bottles of soda and bags of pretzels in
such amounts that the marginal utility of the last
bottle is 60 utils and the marginal utility of the last
bag is 30 utils. The prices of soda and pretzels are
$.60 per bottle and $.40 per bag respectively. It can
be concluded that:
Mrs. Arnold should spend more on soda and less
on pretzels
Mrs. Arnold is buying soda and pretzels in the
utility-maximizing amounts
the two commodities are substitute goods
Mrs. Arnold should spend more on pretzels and
less on soda

9. 18 The simple circular flow model shows that:
households are on the selling side of the resource
market and on the buying side of the product
market.
businesses are on the selling side of both product
and resource markets.
households are on the buying side of both product
and resource markets.
businesses are on the buying side of the product
market and on the selling side of the resource
market.
19 Assume the reserve ratio is 25 percent and
Federal Reserve Banks buy $4 million of U.S.
securities from the public, which deposits this
amount into checking accounts. As a result of these
transactions, the supply of money is:
directly increased by $4 million and the money-
creating potential of the commercial banking
system is increased by an additional $16 million.
not directly affected, but the money-creating
potential of the commercial banking system is
increased by $12 million.

10. directly increased by $4 million and the money-
creating potential of the commercial banking
system is increased by an additional $12 million.
directly reduced by $4 million and the money-
creating potential of the commercial banking
system is decreased by an additional $12 million.
20 As output increases, total variable cost:
increases at a constant rate
increases at a decreasing rate and then at an
increasing rate
increases continuously at a decreasing rate
increases more rapidly than does total cost
21 The two basic markets shown by the simple
circular flow model are:
product and resource
free and controlled
household and business
capital goods and consumer goods

11. 22 Countercyclical discretionary fiscal policy calls
for:
surpluses during both recessions and periods of
demand-pull inflation
deficits during both recessions and periods of
demand-pull inflation
surpluses during recessions and deficits during
periods of demand-pull inflation
deficits during recessions and surpluses during
periods of demand-pull inflation
23 Because 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 moral hazard problem
the special interest effect
the adverse selection problem
logrolling
24 A monopolistically competitive industry
combines elements of both competition and
monopoly. The monopoly element results from:
the likelihood of collusion

12. mutual interdependence
product differentiation
high entry barriers
25 Research for industrially advanced countries
indicates that:
the more independent the central bank, the higher
the average annual rate of unemployment.
the more independent the central bank, the higher
the average annual rate of inflation
the more independent the central bank, the lower
the average annual rate of inflation
there is no relationship between the degree of
independence of a country's central bank and its
inflation rate.
26 The business cycle depicts:
short-run fluctuations in output and employment
the phases a business goes through from when it
first opens to when it finally closes
fluctuations in the general price level
the evolution of technology over time

13. 27 The primary gain from international trade is:
increased employment in the domestic export
sector
increased employment in the domestic import
sector
more goods than would be attainable through
domestic production alone
tariff revenue
28 Contractionary fiscal policy is so named
because it:
necessarily reduces the size of government
is aimed at reducing aggregate demand and thus
achieving price stability
involves a contraction of the nation's money
supply
is expressly designed to expand real GDP
29 If the prices of all goods and services rose, but
the quantity produced remained unchanged, what
would happen to nominal and real GDP?

14. Real GDP would rise, but nominal GDP would be
unchanged
Nominal and real GDP would both be unchanged
Nominal GDP would rise, but real GDP would be
unchanged
Nominal and real GDP would both rise
30 Which 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 imports of country X
The desire of foreigners to buy stocks and bonds of
firms in country X
Travel by citizens of country X in other countries