IS and Econ 13 - Final Exam Sample

Questions (correct answers 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. The Democratic Republic of the Congo
(former Zaire)
a. has few natural resources and is one of the
poorest countries on earth.
b. has a large amount of natural resources but
is one of the poorest countries on earth.*
c. has few natural resources and is one of the
richest countries in sub-Saharan Africa.
d. has a large amount of natural resources
and is one of the richest countries in sub-Saharan
Africa.
e. is smaller but richer than South Africa.
2. Corporations
a. were the main form of firm organization
since the beginning of the industrial revolution.
b. have always been the most efficient form
of firm organization.
c. arose in the late Middle ages and have
been dominant since then.
d. became the dominant form of firm
organization in the US in the late 19th century.*
e. a and c.
4. Which of these attributes is NOT associated
with the rise of agriculture?
a. less protein, more carbs consumption.
b. nomadic lifestyle*
c. more generalized trade
d. emergence of states
e. increasing specialization in production
6. The Industrial Revolution began in
a. Great Britain.*
b. The United States.
c. France.
d. Japan.
e. Scandinavia
7. John can solve 20 math problems per hour
while Frank can only solve 17 math problems in
the same time period. Which of the following
are true?
a. John has a comparative advantage in
solving math problems.
b. John has an absolute advantage in solving
math problems.*
c. Frank has an absolute advantage in
solving math problems

d. both a and b.
e. none of the above
8. Joe and Drew can both produce hats and
shoes (and no other goods) and there is no one
else around. If Joe has a comparative advantage
in producing shoes, what else do we know for
certain?
a. Joe has an absolute advantage in
producing shoes.
b. Drew has an absolute advantage in
producing shoes.
c. Drew has a comparative advantage in
producing hats.*
d. Joe has a comparative advantage in
producing hats.
e. None of the above.
9. Restrictions on international trade
a. have increased since WWII.
b. include taxes on imported goods.*
c. were uncommon before WWII.
d. a and b.
e. All of the above.
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.)
10. 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. They both choose trade protection.
e. Either a or b should occur.

11. 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.
12. 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.
13. 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.
14. 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.*
16. 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.

17. 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
18. 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.
19. 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.*
20. The party of Davos refers to
a. the participants of the World Business
Forum.
b. the participants of the World Social
Forum.
c. the party that takes place every March in
Davos, Switzerland.
d. a hypothesized emerging world-wide
elite.*
e. a and c.
21. A point outside a production possibilities
frontier
a. indicates that some resources are
unemployed.
b. is unattainable for production
purposes.*
c. is worse than points on the production
possibilities frontier.
d. implies that too much capital and not
enough labor are used.
e. None of the above.

22. Changes in the following variable shift the

demand curve for a good.
a. Marketing and advertising.
a. The preferences of the consumers.
b. The prices of related goods.
c. The income of consumers.
d. All of the above.*
23. Suppose that to produce one pound of rice in
Japan requires 4 hours of labor, whereas in the
U.S. it requires 2 hours of labor. As a result, we
can conclude that
a. Japan has a comparative advantage
(CA) in producing rice.
b. Japan has the absolute advantage in
producing rice.
c. The U.S. has a CA in producing rice.
d. The U.S. has the absolute advantage in
producing rice.*
e. None of the above
24. When a country has a trade surplus,
a. The capital account must necessarily be
negative.
b. The current account is positive.
c. the value of its exports is higher than
the value of its imports.*
d. The capital account is positive.
e. a and c.
25. A reduction in the U.S. price level can be
expected to lead to
a. the depreciation of the dollar and the
appreciation of other currencies.
b. the appreciation of the dollar and the
appreciation of other strong currencies.
c. the depreciation of the dollar and the
depreciation of the euro.
d. the appreciation of the dollar and the
depreciation of other currencies.*
e. the appreciation of the dollar and the
appreciation of the euro.
26. We discussed the following aspects of
globalization EXCEPT:
a. Political globalization
b. Economic globalization
c. Religious globalization*
d. Financial globalization
e. Cultural globalization
27. The modern era of globalization
a. has been present continuously since the
late 1950s.

b. has led to the creation of a global

government that supersedes national
governments.
c. is correlated with lower US median
incomes for males.*
d. b and c.
e. all of the above
28. Globalization is associated with the
following tendencies EXCEPT
a. economic growth in China.
b. some loss of sovereignty on the part of
state.
c. increasing competition for natural
resources.
d. less movement of capital across
countries*
e. greater information transmission and
cultural exchanges across countries.
29. Fiscal policy refers to
a. the taxation and spending decisions of
governments.*
b. the international policies of
governments.
c. the production and spending decisions
of private firms.
d. how much money the government
prints.
e. the FICO scores created by credit
bureaus.
30. The policy of Quantitative Easing refers to
a. the taxation and spending decisions of
the Federal government.
b. internationally-coordinated exchangerate policies.
c. the production and spending decisions
of private firms.
d. the Federal Reserves policy of reducing
long-term interest rates by buying
bonds. *
e. the recent lending policies of banks.

31. Modern economic growth is correlated with

the following characteristics EXCEPT for
a. investment in economic infrastructure.
b. the reduction of governments share in
GDP.*
c. the expansion of social safety nets.
d. government investment in sewers and
public health.
e. an increase in life expectancy.

32. If output is growing at 7% per year,

approximately how many years will it take for
output to double?
a. 10.*
b. 14.
c. 20.
d. 28.
e. 70.
33. An economy that grows at 1% a year can be
expected to double its income in about
a. 20 years
b. 35 years
c. 50 years
d. 70 years*
e. 100 years

44. Making cost-benefit analyses of climate

change is
a. useless because of the large
uncertainties that exist in making
predictions about the future.
b. useless because we cannot possibly
agree on how to value the welfare of
future generations.
c. useless because there is no certainty
about what will occur in a couple of
decades.
d. difficult because of the uncertainty of
predictions and the valuation methods
of the welfare of future generations.*
e. a and c.

34. Productivity usually refers to

a. output per dollar of invested capital.
b. output per acre of land.
c. output per worker.*
d. output per unit of human capital.
e. output per unit of physical capital.

48. 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.

41. One reason Sub-Saharan Africa is so poor:

a. The soil is less fertile because of the
Sahara.
b. there are few natural resources available
in most countries.
c. political instability and civil wars.*
d. because of the brain drain: all the bright
people go to neighboring countries.
e. b and d.
42. Building dams on the Nile river for power
generation and irrigation is important for the
economic development of
a. Vietman
b. Laos
c. The Peoples Republic of the Congo.
d. Egypt.*
e. Syria.

43. Modern economic growth is correlated

a. with an increase in the size of the public
sector.*
b. with the reduction of social safety nets.
c. with a reduction in regulation and other
government interference in business.
d. a and b.
e. b and c.
a. b and c.*

49. 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.
50. 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.
51. 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

e.

but also the chance that you will pass it

on to someone else.*
has external costs because others get
the flu from you.

52. 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.*
53. 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.
54. 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.

55. The greater openness of the U.S. economy

over the past three decades has induced
a. higher incomes for almost all U.S.
workers because of cheaper imported
goods.
b. a downward pressure on U.S. low-skilled
workers.*
c. an upward pressure on U.S. low-skilled
workers.
d. lower competition in the U.S. job market.

e.

c and d.

56. A well-maintained yard

a. induces a positive externality because it
increases the value of adjacent properties in
the neighborhood.*
b. induces a positive externality because it
increases the homes own market value.
b. induces a negative externality because it
increases the property tax liability of the
owner.
d. cannot provide any type of externality.
e. a and d.
58. U.S. median household income
a. peaked in the 70s.
b. peaked in the 80s.
c. is higher now than it was 40 years ago.*
d. has steadily fallen over the past 40
years.
e. a and d.
61. Over the past few decades the great
reduction in the price of computers (while
simultaneously their computing power increased)
could best be attributed to:
a. A shift of the demand curve to the right
(or, upwards) due to the greater number of
applications of computers.
b. A shift of the demand curve to the left
(or, downwards) due to the greater number of
applications of computers.
c. A shift of the supply curve to the right
(or, downwards) due to the great reduction in the
cost of production.*
d. A shift of the supply curve to the left (or,
upwards) due to the great reduction in the cost of
production.
e. b and c.
62. Institutions of transnational governance
include
a. the Securities and Exchange
Commission (SEC).
b. the Bank of International Settlements
(BIS).*
c. The United Fruit Organization
(UFO).
d. a and c.
e. b and c.
63. The following transactions would enter into
the U.S. current account
a. A French importer buys a case of
Canadian wine for $500.
b. A foreign investor buys U.S. real estate.

c. An American investor buys Japanese

bonds.
d. The U.S. sends military aid to Egypt.*
e. A German corporation buys a U.S.
corporation.
64. When you talk during class with your friend
a. you create a positive externality because
your friend is lonely.
b. you create a positive externality because
your friend has a positive view of you.
c. you create a positive externality when
your friend was late in class.
d. you create a negative externality
because you bother others around you.*
e. a and b.

65. The average material standard of living in

the U.S. is at least five times higher than that of
most countries in the world. Yet, most industrial
technology can be easily transferred to the
developing world. Why, then, does that wide
disparity in income persist?
a. Partly because poor countries have
trouble accumulating enough capital.
b. Partly because poor people are often
lazy
c. Partly because many poor countries are
lacking effective governance.
d. b and c.
e. a and c.*
66. 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.
67. The ozone depletion in the upper layers of
the atmosphere
a. is an example of a positive externality.
b. has been largely mitigated through the
banning of chlorofluorocarbons (CFCs).
c. was co-discovered by Professor Sherry
Rowland of UCI.
d. has reduced air pollution is Southern
California.
e. b and c.*

68. In comparing different scenarios or

measures against climate change in terms of
costs and benefits, the following considerations
need to be taken into account EXCEPT
a. the uncertainty inherent in each
scenario about the future.
b. the views expressed by members of the
CATO institute.*
c. the well-being of future generations.
d. the effects on the losers of such
measures.
e. the political feasibility of such
measures.

70. Economic and financial globalization has

a. reduced the need for transnational
governance.
b. reduced the power of national
governments.*
c. increased the bargaining power of
workers in rich countries.
d. increased the bargaining power of
workers in poor countries.
e. a and d.
Please note that the above questions do not
include any from the segment of the course on
Governments and the Economy.