EC111 EXAM UPDATED WITH WELL ELABORATED
QUESTION AND CORRECT ANSWER
Some poor countries appear to be falling behind rather than catching up with rich
countries. Which of the following could explain the failure of a poor country to catch up?
- CORRECT ANSWER The poor country has poorly developed property rights.
Two of the economy's most important financial intermediaries are:
- CORRECT ANSWER Banks and mutual funds.
You observed a closed economy that has a government deficit and positive investment.
Which of the following is correct?
- CORRECT ANSWER Private saving is positive, public saving is negative.
(T/F) For a closed economy, the sum of private saving and public saving must equal
investment.
- CORRECT ANSWER True.
If there is a surplus of loanable funds, then:
- CORRECT ANSWER Neither curve shifts, but the quantity of loanable funds supplied
decreases and the quantity demanded increases as the interest rate falls to equilibrium.
If a reform of the tax laws encourages greater saving, the result would be:
- CORRECT ANSWER Greater investment and lower interest rates.
For an economy as a whole, income must equal expenditure because:
- CORRECT ANSWER Every dollar of spending by some buyer is a dollar of income for
some seller
The consumption component of GDP includes spending on:
- CORRECT ANSWER Durable goods, non-durable goods, and services
A Minnesota farmer buys a new tractor made in Iowa by a German company. As a
result,
- CORRECT ANSWER US investment and GDP increase, but German GDP is
unaffected
Goods that go into inventory and are not sold during the current period are:
- CORRECT ANSWER Included in current period GDP as inventory investment
(because it is produced during the current period)
The inflation rate is the:
- CORRECT ANSWER Percentage change in the price level from one period to another
QUESTION AND CORRECT ANSWER
Some poor countries appear to be falling behind rather than catching up with rich
countries. Which of the following could explain the failure of a poor country to catch up?
- CORRECT ANSWER The poor country has poorly developed property rights.
Two of the economy's most important financial intermediaries are:
- CORRECT ANSWER Banks and mutual funds.
You observed a closed economy that has a government deficit and positive investment.
Which of the following is correct?
- CORRECT ANSWER Private saving is positive, public saving is negative.
(T/F) For a closed economy, the sum of private saving and public saving must equal
investment.
- CORRECT ANSWER True.
If there is a surplus of loanable funds, then:
- CORRECT ANSWER Neither curve shifts, but the quantity of loanable funds supplied
decreases and the quantity demanded increases as the interest rate falls to equilibrium.
If a reform of the tax laws encourages greater saving, the result would be:
- CORRECT ANSWER Greater investment and lower interest rates.
For an economy as a whole, income must equal expenditure because:
- CORRECT ANSWER Every dollar of spending by some buyer is a dollar of income for
some seller
The consumption component of GDP includes spending on:
- CORRECT ANSWER Durable goods, non-durable goods, and services
A Minnesota farmer buys a new tractor made in Iowa by a German company. As a
result,
- CORRECT ANSWER US investment and GDP increase, but German GDP is
unaffected
Goods that go into inventory and are not sold during the current period are:
- CORRECT ANSWER Included in current period GDP as inventory investment
(because it is produced during the current period)
The inflation rate is the:
- CORRECT ANSWER Percentage change in the price level from one period to another
