Dr. Alston , Quiz #14, Walton and Rockoff, Chapters 27 & 28

Economics 1740 VERSION A - MARK ON YOUR SCANTRON ANSWER SHEET Fall, 2002 Dr. Alston , Quiz #14, Walton and Rockoff, Chapters 27 & 28

1. The income elasticity of demand for agricultural products is typically a. less than zero. b. greater than zero, but less than one. c. greater than one. d. infinity.

2. If the government-imposed price of corn is greater than the market price, then the a. quantity of corn supplied will exceed the quantity of corn demanded. b. quantity of corn supplied will be less than the quantity of corn demanded. c. demand curve for corn will increase. d. supply curve for corn will increase.

3. The existence of external costs means that the a. producer’s marginal cost is greater than the marginal social cost of production. b. producer’s marginal cost is less than the marginal social cost of production. c. consumer’s marginal benefit is greater than the marginal social benefit of the good. d. consumer’s marginal benefit is less than the marginal social benefit of the good.

4. Federal support for road building into publicly owned commercial forests has caused a. an increase in the supply of timber. b. an increase in the demand for timber. c. higher timber prices. d. a shortage of timber. e. all of the above.

5. Comparisons between industrialized nations and less-developed countries indicates that as income rises, the demand for a clean and well-preserved environment a. increases by a proportional amount. b. decreases by a proportional amount. c. increases by a more than proportional amount. d. decreases by a less than proportional amount. 6. Stagflation is defined as a. the simultaneous occurrence of high inflation and high unemployment. b. high inflation accompanied by falling interest rates. c. declining GDP accompanied by a stable price level. d. a persistent decline in the price level that is unresponsive to monetary and fiscal policies. 7. Fiscal policy aims to influence the overall health of the economy through changes in a. the money supply. b. government spending and tax rates. c. interest rates. d. international exchange rates. e. all of the above.

8. The U.S. economy of the 1960s a. was continuously plagued by low output and high unemployment. b. is notable because the inflation rate reached double-digit levels. c. presents a rare example of deflation in a developed economy. d. enjoyed the longest expansion that the country had experienced since before WWII. 9. Following the lifting of price controls that had been implemented in the early 1970s, inflation skyrocketed. Economists’ explanations for this acceleration in the price level include a. the increase in the money supply that also occurred during the early 1970s. b. increases in the federal government deficit, especially in 1971 and 1972. c. supply-side shocks in oil and food. d. the release of inflationary pressures that built up during the period of price controls. e. all of the above.

10. The Reagan administration’s experiment with supply-side economics produced a historic period of economic expansion that was accompanied by a. falling real interest rates. b. high unemployment rates. c. a dramatic increase in the federal government’s budget deficit. d. a reduction in the U.S. trade deficit. e. all of the above. ANSWERS: Quiz No. 14, Econ 1740 Fall, 2002, Walton and Rockoff, Chapters 27 & 28, Version A

1. ANSWER: b. greater than zero, but less than one. 2. ANSWER: a. the quantity of corn supplied will exceed the quantity of corn demanded. 3. ANSWER: b. producer’s marginal cost is less than the marginal social cost of production. 4. ANSWER: a. an increase in the supply of timber. 5. ANSWER: c. increases by a more than proportional amount. 6. ANSWER: a. the simultaneous occurrence of high inflation and high unemployment. 7. ANSWER: b. government spending and tax rates. 8. ANSWER: d. enjoyed the longest expansion that the country had experienced since before WWII.

9. ANSWER: e. all of the above. 10. ANSWER: c. a dramatic increase in the federal government’s budget deficit.

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