Rustici GMU Econ 104 Final Study (1-3 exams

Exam 1: Which of the following causes changes in the supply or demand for a good?

None of the above (Not: changes in the y-axis, relative price of a good, own price of a good, barter price of a good).

Exam 1: The guiding force behind what economist call the 'Invisible Hand' is....

Self-interested, maximizing behavior by individuals.

Exam 1: The law of demand states that there exists:

An inverse relationship between the relative price of the good and the quantity of that good demanded.

Exam 1: The major problem with the "Equality of Exchange" idea was:

It could not explain why voluntary exchange occurs, because equal values in trade benefits no one.

Exam 1: Which of the following was a mistake of the Classical School of thought?

The infinite regression in value.

Exam 1: Which of the following determines the law of supply?

The opportunity cost of the next unit.

Exam 1: Which of the following is true?

The Capital Account is tabulated by the Federal Reserve, the US Treasury, and the IRS.

Exam 1: Suppose there are two people on an island: Crusoe and Friday. Below is each person's underlying productivity with respect to picking coconuts and pineapples. Both people want one of each good. The terms of trade (relative price) is one coconut for one pineapple.

Crusoe:

Coconuts- 45 minutes

Pineapples- 50 minutes

Friday:

Coconuts- 35 minutes

Pineapples- 30 minutes

Which of the following is true?

The gains from trade are 5 minutes for Crusoe and 5 minutes for Friday.

Exam 1: Which of the following is true?

OPEC's monopoly power is the direct result of the US price controls in the 1970's instituted on domestic oil prices.

Exam 1: The neoclassical revolution:

Introduced the idea of marginalism in value.

Exam 1: Which of the following is a normative statement?

The goal of economics is to help society be more fair.

Exam 1: In "The Function and Formation of Prices", Hans Sennholz writes that the value of a good orservice comes from:

The subjective judgements of buyers and sellers.

Exam 1: According to F.A. Hayek in "The Use of Knowledge in Society", a market economy prices:

None of the above (Not: are chosen by technocrats trained in economic theory, are determined by the cost of a good, convey government approved "official information" to steer the decisions of producers and consumers, convey scientific information that is relevant to the decisions of producers and consumers).

Exam 1: Jane S. Shaw notes in "Public Choice Theory", that Anthony Downs, in one of the earliest public choice books, An Economic Theory of Democracy, pointed out that the voter is largely ignorant of political issues and that this ignorance is what?

Rational.

Exam 1: According to Israel Kirzner in "Entrepreneurship", entrepreneurs earn pure economic profit by:

Discovering and having alertness to new opportunities.

Exam 1: In the Steve Hanke essay, "Let the Data Speak" he argues which of the following?

The EU countries with no minimum wage have youth unemployment rates dramatically less than those with minimum wage.

Exam 1: Suppose the absolute wage of American car manufactures is $45,000 in real purchasing power. In contrast, Japanese car manufacturers are making the equivalent of $65,000 in real purchasing power. Now assume that Japanese and American cars are both selling very well internationally and are similarly priced. Which of the following statements is most correct?

Japanese car manufacturers produce more cars in the same amount of time as their American counterparts.

Exam 1: Which of the following is the best reason for invoking ceteris paribus?

Exam 1: This is from James Buchanan's essay: "Politics without Romance". Which of the following is the description of Public Choice closest to that of James Buchanan?

A positive analysis using economic methods which examines how elected official, bureaucrats, and other government agents act.

Exam 1: This is from James Buchanan's essay: "Politics without Romance". Which of the following best describes James Buchanan's idea of the difference in ordinary politics and constitutional politics?

A constitutional establishment of rules that empower government to protect individual rights, but which constrain ordinary politics from violating those same rights.

Exam 2: Which of the following is included in gross national product (GNP) statistics?

The final output of all consumer goods and services available for immediate consumption.

Exam 2: Which of the following would a classical macroeconomist agree with?

None of the above (Not: the interest rate is the price of money, nominals effect reals.., recessions are caused by an over production of economic goods, prices should be as inflexible as possible).

Exam 2: Which of the following is true?

The real money supply is equal to the nominal money supply divided by a price index.

Exam 2: Which of the following is true?

The variable determining supply and demand curves in microeconomic theory are generally independent from each other, whereas in aggregate supply and demand macroeconomics they are somewhat interrelated.

Exam 2: Which of the following is true?

Frictional unemployment arises from a lack of information on the labor market.

Exam 2: What is not true with respect to various versions of the quantity theory?

Increasing the quantity of money (ceteris paribus) leads to the increase in its value in all three versions.

True:

- In the Fisher version money is primarily a medium of exchange whereas in the Cambridge version it is primarily an asset.

- The Fisher version is a tautological identity while the Cambridge version allows us to make a distinction between actual and desired cash holdings.

- In the Fisher version, the left side of the equation is the money transfer side and right side is the goods and services transfer side.

- The Income version excludes the value of all intermediate transactions from the income circuit.

Exam 2: Metallic money did not solve which problem relative to livestock money?

Valuability

Did solve:

- Portability

- Hideability

- Divisibility

- Durability

Exam 2: Which of the following is the typical sequence of the hyperinflation pattern?

Government controls money (Group 1)-- legal tender laws -- rapid inflation of nominal prices-- maximum price controls-- shortages-- velocity accelerates-- disaster.

Exam 2: Say's Law implies which of the following?

None of the above is implied by Say's Law. (Not: recessions are caused by a general over-production of all economic goods and under consumption (inability to consume what we produce), recessions are not possible because prices are perfectly flexible, since supply creates its own demand, the money market is in continuous equilibrium, what ultimately pays for economic goods and services is money).

Exam 2: What is a reason why Say's Law is important for macroeconomic theory?

To integrate microeconomics and price theory with macroeconomic.

Exam 2: Which of the following is an accurate statement about "jobs"?

The natural rate of unemployment is the amount of unemployment that exists when the economy is fully employed.

Exam 2: Using the income version of the quantity theory of money, calculate the annual inflations rate if the following events occur: money supply increase 6%, velocity of circulation increases 3%, and real quantity of output increases at 2%. The inflation rate will be:

7%- MV=PQ

M^6%V^3%=PQ^2%:

9%-2%

7%

Exam 2: Which of the following statements about money is not true?

Paper money requires legal tender laws before people will trust in and accept it.

True:

- Money is a medium of exchange, store of value, and unit of account.

- Money solves the double co-incidence of wants problem.

- The lowering of transactions costs of trade has propelled the evolution of money.

- Privately produced coins and paper money have also served as a form of free advertising.

Exam 2: Which of the following is true?

A repressed inflation actually magnifies inflation.

Exam 2: Which of the following is not a serious problem associated with calculation of an inflation index such as the CPI?

There may be insufficient money that is needed to buy the goods making up the index.

True (is a problem):

- The proportions or "weights" of goods consumed by a "representative consumer" in their budget may differ from the index.

- The quality of goods changes.

- The composition of the goods and services comprising the index are always changing.

Exam 2: Suppose we have the following data:

(4th order) Value of trees $5 per tree and 1,000 trees harvested; (3rd order) 1,000 trees fabricated in to $25 wood pulp per ton (1,000 tons); (2nd order) 500,000 sheets of book paper (10 cents per sheet) and 1,000 rolls facial tissue ($10 each); (1st order) 2,000 hardback books at the retail bookstore for $20 each and 50,000 boxes of Kleenex tissue at Safeway for $1 each. Which of the following is the correct calculation of GNP?

$90,000

1st order:

2,000x20 + 1x50,000

40,000 + 50,000

Exam 2: Which of the following is true?

The outstanding money supply is always held in form of cash-balances.

Exam 2: Which of the following is not true with respect to money?

Paper money originated in Europe in 1641 because of legal tender laws.

True:

- Money evolved from barter exchange.

- Money solves the "double co-incidence" of wants problem.

- Many economic goods have served as money including livestock, tobacco, and furs or skins.

- The first coins were minted in the Kingdom of Lydia in 650 BC.

Exam 2: Which of the following would not increase the real value of money ceteris paribus?

Increasing inflation expectations.

True (would increase):

- Increasing the demand for cash-balances.

- Decreasing the money supply.

- Increasing capital accumulation.

- Decreasing velocity of circulation.

Exam 2: Which of the following is not true?

As a group, the economy cannot get rid of excess cash-balances by trading them away.

True:

- The monetary transmission mechanism of money to nominal prices runs through actual cash-balances and desired cash-balances.

- Human do not have an unlimited portfolio demanded ot hold cash-balances.

- In the case of an excess demand for cash-balances (at existing nominal prices), competitive overbidding pushes nominal prices upward.

- Price level adjustments equate the real value of cash-balances held with the real value of outstanding cash-balances.

Exam 2: In the Adam Smith essay, "The Origin and Use of Money" he says this: I believe the avarice and injustice of princes and sovereign states abusing the confidence of their subjects have by degrees diminished the real quantity of metal, which may have originally been contained in the coins.

What does he mean by this statement?

He is pointing to the debasement of coins for the inflation tax.

Exam 2: In the Nicholas Copernicus essay, "On the Minting of Money" says this: But what had over so long a period of time become the inveterate habit (or license) of adulterating, pilfering, and cheapening the money, has not ceased in our day. For what it later became and what it is today I am ashamed to say.

What is he pointing to here?

Government mints using their position to use inflation to raise revenue.

Exam 2: In the Thomas Rustici essay, "The Classical Macro Model" it was pointed out that there were disagreement concerning interest rate theory. What were these two different theories and what did they agree upon?

Difference: Interest was seen as the return to the productivity of capital and the other value of time. Agreed: Interest originates from real variables.

Exam 2: This question relates to the Thomas Rustici essay, "Smoot-Hawley Tariff and the Great Depression". Which of the following is not true?

The classical economists favored the tariff.

True:

- Macroeconomic aggregation models understate the effect of the tariff on the GNP.

- Microeconomic partitioning models understate the effect of the tariff on the GNP.

- Trade policy had a negative effect on monetary policy.

Exam 2: This question relates to the Thomas Rustici essay, "Smoot-Hawley Tariff and the Great Depression". Which of the following was not an effect of the tariff?

Industries in export markets expanded.

True (was an effect):

- Foreign governments retaliated by increasing tariffs against the USA.

- The values of stocks in the NY Stock Exchange decreased.

- Post-War debt repayments interruption harmed the solvency of larger US banks.

0 Agricultural regions in the USA experienced massive numbers of bank failures.

Exam 2: In Henry Hazlitt's essay, "Who is Protected by Tariffs?" he identifies what group benefits at the expense of all others?

Special interest groups promoting the tariff.

Exam 2: n Henry Hazlitt's essay, "Who is Protected by Tariffs?" he points out tha ttariffs reduce real wages on the labor market. What is his reasoning?

Tariffs destroy comparative advantage and economic efficiency.

Exam 2: In Irving Fisher's essay, "A Glance at the Money Illusion" he explains that money illusion is caused by:

Unexpected inflation.

Exam 3: Which of the following is true with respect to government policy and America's Great Depression?

The federal government twice instituted minimum wage laws causing massive unemployment in labor markets.

Exam 3: Which of the following is true?

The price system in the capital market (the real interest rate) was sabotaged by a structurally unsound central banking system.

Exam 3: Which of the following is not true?

The classical model failed in the 1930's because it had great difficulty explaining the severity of the Great Depression.

True:

- I aggregate demand increases, and aggregate supply is inelastic, the price level will rise.

- The "spending multiplier" of Keynes is defined as 1/(1-b)(1-tax).

- A repressed inflation arises from accelerating inflation and maximum price controls.

- Aggregate supply is the "Q" part of the quantity equation of exchange.

Exam 3: Which of the following is true?

A saver's deposits are assets and liabilities to the bank receiving the deposit.

Exam 3: Suppose we have two people Smith and Jones. Each person wants both one of each a pineapple and a coconut. Below is their respective time forgone with gathering each good. If the price is one pineapple for one coconut, which of the following is correct?

Smith

Pineapple 50 minutes

Coconuts 160 minutes

Jones

Pineapple 200 minutes

Coconuts 180 minutes

Smith produces pineapples and exports them for his coconut consumption.

Exam 3: Assume the following information. The deposit to currency ration is 0.2 and the reserve deposit requirement ratio is 0.1. If the monetary base in the economy is $100 billion, the total money supply is:

$400 billion

Exam 3: Suppose the following percentage data is known about the quantity equation variables: M^4%V^1%=PQ^2%. What will be the resulting inflation or deflation of nominal prices?

Increase of 3%

M+V^5%=Q^2%

3%

Exam 3: What is true with respect to US economic policy following WWI?

The government cut taxes and paid down the national debt by 10% during the recession.

Exam 3: Which of the following is a correct statement concerning classical economists and the Great Depression?

They believed that "elasticity" was important to understand the mistake between "high wage rates" and "high total wage income".

Exam 3: The following question is from T. Rustici's essay, "Banking Crisis and the Great Depression". Which of the following is true?

The bank runs in Europe followed the collapsing spiral of international trade because of the escalating tariff wars.

Exam 3: This question is from T. Rustici's essay, "Banking Crisis and the Great Depression". The Interregnum Crisis was caused by what political action?

President elect Roosevelt deliberate rumors about leaving the Gold Standard.

Exam 3: In his piece, Stones into Bread: They Keynesian Miracle, Ludwig Von Mises is responding to John Maynard Keynes' policy proposals on what two aspects of the economy?

Money and Credit.

Exam 3: In, The Economics of Abundance, Friedrich A. Hayek is similarly responding to the claims of John Maynard Keynes. What key concept in economic thought does he accuse Keynes of forgetting?

Scarcity.

Exam 3: This question comes from the essay, "Herbert Hoover Father of the New Deal" by Dr. Steve Horowitz. Which of the following is true about Herbert Hoover?

He favored labor unions and restricted immigration to raise wages.

Exam 3: You are appointed as Chairman of the Board of Governors of the Federal Reserve System. Suppose people have no expectations. If you want an expansionary monetary policy to lower interest rates, you would:

Lower reserve requirements on banks.

Exam 3: Suppose the long-run nominal interest rate is 10% and the real or natural rate of interest is 6%. What does this tell us?

The price level is expected to rise 4% over the next year.

Exam 3: Suppose we are in a depression and assume as "given" all of the Keynesian model assumptions about the macro economy. Further, suppose the real GNP is a stationary equilibrium at $4 trillion. Also assume the full employment size of the real GNP is $5 trillion. If the marginal propensity to save (MPS) is 0.2 or 20%, what would Keynes suggest occur to restore full employment?

The government run a budgetary deficit of $200 billion.

Exam 3: In the "Central Bank Role of Clearinghouse Associations" Richard Timberlake notes that clearinghouse associations issued emergency currency in the form of "clearinghouse load certificates". Which of the following is true?

Clearinghouse certificates helped stabilize the banking system during panics.

Exam 3: This question related to the essay "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," by Professors Harold Cole and Lee Ohanian. Which of the following is true?

The NIRA created industry cartels to limit competition and raise wages above equilibrium levels, and the National Labor Relations Act (Wagner Act of 1935) allowed unions to use coercion with "sit down strikes" occupying factories to halt production.

Exam 3: This question related to the essay "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," by Professors Harold Cole and Lee Ohanian. In their essay, provide the statistical evidence that demonstrates:

New deal policies did not bring the economy out of the depression, they stopped a normal recovery by restricting employment.

Exam 3: In the R. Vedder and L. Galloway essay entitles "From New Era to New Deal", the empirical case is made by the very high cyclical unemployment experienced during the Great Depression can be easily explaine dby which of the following?

A productivity adjusted wage model for the labor market.

Exam 3: This question relates to the essay "Wartime Prosperity: A Reassessment of the Economy in the 1940's," by Dr. Robert Higgs. Which of the following is true about the US economy during WWII?

The real economy was incorrectly overstated because the price level was understated from under counted inflation and maximum price controls.

Exam 3: This questions relates to the essay "Wartime Prosperity: A Reassessment of the Economy in the 1940's," by Dr. Robert Higgs. Which of the following is not true, did not happen?

Consumer spending (MPC) increased during the war and pulled the rest of the economy out of depression.

True (did happen):

- Labor market statistics for unemployment were artificially skewed downward from military conscription (draft).

- Intermediate goods which should not be added to GNP were mistakenly added into GNP statistics.

- Prospects of "regime change in politics away from the New Deal" at the federal level increased positive investor expectations.

- As late as 1944, the Stock Market Indexes were virtually unchanged form their 1939 Depression values.