Fall 2011 AGEC 105 Test 3 Capps

AGEC 105 Fall 2011 Test 3 Capps

Please put the following pieces of information on your scantron:

(a) Name (b) UIN # (c) Section # (d) Sign the Aggie pledge on the back of your Scantron.

“On my honor, as an Aggie, I have neither given nor received unauthorized aid on this exam.” Fall 2011 AGEC 105 – Test 3 Capps

1. Which of the following statement(s) is (are) true? (a) If the marginal propensity to save is 0.20, then the marginal propensity to consume is 0.80. (b) Monopsonists will offer a lower price and buy more input than firms engaging in perfect competition. (c) Disposable personal income is inversely related to consumer expenditures as depicted by the planned consumption function. (d) All of the above.

2. In the United States, the agency charged with the responsibility of investigating business organizations and practices is the: (a) Food and Drug Administration (b) Commodity Credit Corporation (c) Federal Trade Commission (d) Federal Bureau of Investigation

3. This legislative act was responsible for the creation of commodity checkoff programs. Name the act. (a) Clayton Act of 1914 (b) Capper-Volstead Act of 1922 (c) Agricultural Adjustment Act of 1933 (d) Agricultural Marketing Agreement Act of 1937

4. The piece of legislation that not only plugged loopholes in the Sherman Antitrust Act of 1890 but also created the Federal Trade Commission was: (a) the Clayton Act of 1914 (b) the Capper-Volstead Act of 1922 (c) the Agricultural Adjustment Act of 1933 (d) the Agricultural Marketing Agreement Act of 1937

5. Which of the following statements is true? (a) under government intervention, the loan rate is always above the market price. (b) under government intervention, the target price is always above the loan rate. (c) under government intervention, the market price is always above the loan rate. (d) under government intervention, the target price is always above the market price.

Use the following graph to answer questions 6 and 7.

Fall 2011 AGEC 105 – Test 3 Capps

PLABOR MIC $8.00

S $6.25 $5.50 MVP 2000 2500 QLABOR

6. What is the equilibrium quantity of input used and what is the price paid per unit under the condition of monopsony? (a) Q Labor = 2000 P Labor = $5.50 (b) Q Labor = 2000 P Labor = $8.00 (c) Q Labor = 2500 P Labor = $6.25 (d) can’t tell; insufficient information.

7. What is the magnitude of monopsonistic exploitation? (a) $0.75 (b) $1.75 (c) $2.50 (d) can’t tell; insufficient information.

8. Which of the following statement(s) is (are) true? (a) The agricultural sector is not sensitive to interest rates. (b) The slope of the planned investment function is the MIS. (c) The slope of the saving function is the MPS. (d) All of the above.

9. The Capper-Volstead Act of 1922: (a) reinforced anti-trust laws regarding livestock marketing. (b) was principal legislation exempting cooperatives from anti-trust laws. (c) plugged loopholes in the Sherman Anti-trust Act and created the Federal Trade Commission. (d) none of the above.

10. The current loan rate for this commodity is $5.00/bushel, and the current target price for this commodity is $5.80/bushel. The commodity is: (a) soybeans (b) wheat (c) corn (d) none of the above

11. In the diagram below, suppose the government imposes a price ceiling of $27. The total revenue the monopolist will accrue is:

P MC ($/unit) ATC 30 AVC 27 25 20 D 18 MR

50 55 60 Units

(a) $1,350 (c) $1,620 (b) $1,500 (d) can’t tell; insufficient information.

12. Which of the following does not describe the real roots of the farm problem? (a) excess capacity (b) lack of market power by agricultural producers (c) interest sensitivity of the agricultural sector (d) none of the above

13. Which of the following target prices is correct? (a) corn: $1.95/bushel (c) wheat: $2.94/bushel (b) cotton: $0.7125/pound (d) rice: $6.50/cwt (hundredweight)

14. Which of the following acts marked the beginning of the long history of government intervention in the agricultural sector? (a) Clayton Act of 1914 (b) Capper-Volstead Act of 1922 (c) Agricultural Adjustment Act of 1933 (d) Agricultural Marketing Agreement Act of 1937

15. According to the English philosopher Thomas Malthus, (a) the population grows at a geometric rate, but food production grows at an arithmetic rate. Thus, the time eventually will come when it is impossible to feed the world. (b) the population grows at an arithmetic rate, but food production grows at an geometric rate. Consequently, there will never come a time when it is impossible to feed the world. (c) government intervention in the agricultural sector is undesirable politically. (d) none of the above.

16. The government agency within the U.S. Department of Agriculture (USDA) that makes nonrecourse loans to farmers for the purpose of supporting prices at a specified level is the (a) Food and Drug Administration (b) Federal Trade Commission (c) Commodity Credit Corporation (d) National Resource Conservation Service

17. On economic grounds, U.S. cotton farmers should not support legislation to:

Fall 2011 AGEC 105 – Test 3 Capps (a) continue with NAFTA (North American Free Trade Agreement) (b) terminate the Conservation Reserve Program (c) terminate the commodity checkoff program for cotton (d) (b) and (c)

18. The rationale for government intervention into the agricultural sector typically includes: (a) providing for environmental quality. (b) providing for national food security. (c) providing for consumer health and safety. (d) all of the above.

19. Which of the following is (are) included in GDP? (a) the purchase of farmland (b) expenditures associated with illegal activities (c) expenditures for fire and police protection (d) both (a) and (c).

20. Measures to lessen the possible adverse effects of imperfect competition are known as: (a) marketing orders (b) countervailing actions (c) non-price competition (d) barriers to entry

21. Which of the following statement(s) is (are) true? (a) The Department of Commerce collects data about GDP and its components. (b) Consumption expenditures represent about 70 percent of GDP. (c) Net exports for the U.S. economy currently are negative. (d) All of the above.

22. The most volatile component of GDP (that is, the component that fluctuates the most) is: (a) consumption expenditures (b) gross private domestic investment (c) government expenditures (d) net exports

23. Assume that the own-price elasticity of domestic demand for a particular agricultural product is -.4 and that the own-price elasticity of foreign demand is -1.6. Also, suppose that the market share for domestic use of this product is 80 percent. What is the own-price elasticity of total demand? (a) -0.64 (b) -1.00 (c) -1.36 (d) can’t tell; insufficient information.

24. In the following graph, the rightward shift in the planned investment function may be attributed to:

I I 0 1

(a) a drop in interest rates. (b) a sharp increase in the tax rate to corporations. (c) an optimistic view of profit expectations. (d) both (a) and (c).

25. Which of the following statement(s) is (are) true? (a) Fiscal policy refers to changes in taxes and government expenditures. (b) Agricultural checkoff programs, if successful, are demand expansion programs. (c) A goal of macroeconomic policy is to eliminate inflationary or recessionary gaps when they occur. (d) All of the above.

26. Which of the following is not a factor affecting the consumption function? (a) interest rates (b) taxes (c) technology (d) wealth

27. The information below pertains to agricultural prices for a particular commodity. Loan rate Target Price Market Price $1.95 per bushel $2.63 per bushel $2.25 per bushel

According to this information, what is the deficiency payment per bushel for this commodity? (a) $0.00 (b) $0.30 (c) $0.38 (d) $0.68

28. Identify the commodity based on the loan rate and target price information given in Question 27. (a) corn (b) soybeans (c) wheat (d) sorghum

29. Which of the following statement(s) is (are) true? (a) The own-price elasticity of domestic demand for agricultural products is inelastic. Page 6 Fall 2011 AGEC 105 – Test 3 Capps (b) The supply curve, in the short run, for agricultural products is inelastic. (c) The own-price elasticity of foreign demand for agricultural products is larger (in absolute value) than the own-price elasticity of domestic demand for agricultural products. (d) all of the above.

30. ______refers to the difficulty that farmers have in disposing of farm equipment or shutting down their operation. (a) asset fixity (b) parity (c) the treadmill problem (d) resource scarcity

Questions 31 to 35 pertain to the following diagram for a particular agricultural commodity.

P ($/lb.) S 6 $5.00 4 3 5 $4.00 1 2

80 120 150 Q (millions of lbs.)

31. The producer surplus under the minimum price floor guarantee ($5) is given by: (a) area 3 + area 4 + area 6 (b) area 1 + area 2 (c) area 6 (d) area 1 + area 2 + area 3 + area 4 + area 5

32. At the government mandated price of $5, consumers are: (a) better off by area 6 (b) better off by area 3 + area 4 (c) worse off by area 3 + area 4 (d) worse off by area 6

33. What is the magnitude of the surplus for this commodity if the price is $5.00 per pound? (a) zero million pounds (b) 30 million pounds (c) 40 million pounds (d) 70 million pounds

34. This government program will cost taxpayers: (a) $350 million.

Fall 2011 AGEC 105 – Test 3 Capps (b) $480 million. (c) $750 million. (d) can’t say; insufficient information..

35. Under this government program, how much will producers receive? (a) $350 million. (b) $480 million. (c) $750 million. (d) can’t say; insufficient information.

36. A situation designed to increase or maintain profits through price fixing and/or to restrict new firms in an industry is called: (a) a countervailing action (c) non-price competition (b) collusion (d) none of the above

Questions 37 to 40 pertain to the following information supposedly collected on a particular country by the CIA.

Consumption Expenditures $3,600 million Imports $1,200 million Depreciation $300 million Government Expenditures $1,000 million Gross Private Domestic Investment $1,000 million Tax Revenues $700 million Exports $800 million Implicit GDP Deflator 2.00 (1996 = 1.00)

37. Nominal GDP is equal to: (a) $4,900 million (c) $5,600 million (b) $5,200 million (d) $6,000 million

38. Which of the following statement(s) is (are) true? (a) This country is a net exporting nation. (b) This country is a net importing nation. (c) Nominal NNP is nominal GDP less $300 million. (d) (b) and (c).

S 39. Which of the following statements is true? D 1 (a) This country is incurring a deficit of $300 million. (b) This country is incurring a surplus of $300 million. S 0 (c) This country is experiencing a balanced budget. 7 (d) can’t tell; insufficient information. P 1 E 2 40. Real per capita GDP is equal to: 6

(a) $5,200 million (c) $2,4504 million P 5 E 0 1 (b) $2,600 million (d) can’t tell; insufficient3 information. 1 2 Questions 41 to 43 pertain to the graph to the right.

Q Q Q 1 0 S Fall 2011 AGEC 105 – Test 3 Capps

41. This graph may correspond to: (a) the set aside program (b) the CRP (c) domestic expansion program (d) both (a) and (b)

42. The change in producer surplus is given by: (a) -4-5-6 (c) 2+3-6 (b) 6-2-3 (d) 4+5+6

43. Which of the following statements is (are) true, consistent with the graphical analysis? (a) A reduction in soil erosion and an improvement in water quality might occur. (b) There is no economic loss to society as a result of this policy action. (c) Areas 4+5+6 represent the loss to consumers as a result of this policy action. (d) both (a) and (c)

Questions 44 to 47 pertain to the following diagram. D P (general level) AS 2.00 AD C

1.50 1.40 A B

12 14 20 Q (trillion) Assume the curves depict the aggregate demand (AD) and aggregate supply (AS) curves for a particular economy. Let $14 trillion correspond to the full employment level of aggregate output (the targeted or desired level) for this particular economy.

44. This economy is: (a) experiencing an inflationary gap of $2 trillion. (b) experiencing an recessionary gap of $2 trillion. (c) experiencing an recessionary gap of $6 trillion. (d) experiencing an inflationary gap of $6 trillion.

45. To eliminate the gap described in the previous question: (a) the tax rate should be lowered. (b) government expenditures should be lowered. (c) interest rates should be lowered. (d) (a) and (c)

46. Which of the following statement(s) is (are) true: (a) The depression range of the aggregate supply curve is given by CD. (b)The potential GDP for the country is $20 trillion. (c) The classical range of the aggregate supply curve is given by AB. (d) All of the above.

47. The price level in the above diagram corresponds to the implicit GDP price deflator. What is the inflation rate as we move from a $12 trillion GDP to a $14 trillion GDP? (a) 6.67 percent (c) 10 percent (b) 7.14 percent (d) can’t tell; insufficient information.

Questions 48 and 49 pertain to the following information. Personal Income DPI Consumption Expenditures Planned Interest Rates Investment $100,000 $75,000 $60,000 $50,000 6% $140,000 $105,000 $80,000 $80,000 4%

48. Which of the following statements is (are) true? (a) when DPI = $75,000, taxes = $25,000. (b) the MPC = 2/3. (c) when DPI =$105,000, savings = $25,000. (d) all of the above.

49. The MIS (marginal interest sensitivity) is equal to: (a) -$15,000. (c) -$30,000. (b) $15,000. (d) can’t tell; insufficient information.

50. Which of the following statement(s) is (are) true? (a) Farm conditions in the United States would be improved if the U.S. were to continue trade relations with China. (b) The concept of target prices was first proposed by Secretary of Agriculture Charles Brannan in 1949. (c) A marketing quota corresponds to a supply management program. (d) all of the above.

51. Which of the following statement(s) is (are) true? (a) Farm conditions in the United States would be improved if the U.S. were to discontinue all supplemental food programs. (b) Net exports can never be negative. (c) John Maynard Keynes is credited with the development of the consumption function as well as the notion of aggregate demand. (d) (a) and (c).

52. Which of the following program(s) is (are) concerned about demand expansion? (a) Supplemental Nutritional Assistance Program

Fall 2011 AGEC 105 – Test 3 Capps (b) National School Lunch Program (c) CRP (d) (a) and (b)

53. If the government (federal or state) were to impose a lump-sum tax on a monopolist, what is likely to happen to the quantity produced of a commodity and the price charged relative to the situation where no lump-sum tax is imposed? (a) No change in price or quantity produced would occur; only a reduction in profit. (b) The price would remain the same and the quantity produced would fall. (c) The price would fall and the quantity produced would fall. (d) None of the above.

54. Which of the following is (are) true? (a) The slope of the consumption function is the MPC. (b) The slope of the planned investment function is the MIS. (c) MPC + MPS = 1. (d) both (a) and (c)

55. The own-price elasticity of demand for soybeans at the farm level is -0.40. Asian soybean rust is a disease currently affecting this crop, interfering with the process of photosynthesis. As a result, soybean production for next year is expected to drop by 16%. As a result, soybean prices in the coming year are likely to: (a) rise by 16% (b) rise by 40% (c) fall by 40% (d) can’t tell; insufficient information

56. On economic grounds, U.S. beef producers should support legislation to: (a) increase exports of beef to Latin America (b) continue the commodity checkoff program for beef (c) continue to support tax cuts to consumers and businesses (d) all of the above

57. Given the graph below: P S 1 S 0

Which of the following statements is (are) true? (a) This graph depicts a marketing quota, given by B. (b) This graph depicts the set-aside program. (c) This graph pertains to supply control measures for tobacco and peanuts. (d) (a) and (c)

Fall 2011 AGEC 105 – Test 3 Capps 58. If a country exports more than it imports, then net exports for this country are: (a) positive (c) zero (b) negative (d) can’t tell; insufficient information.

59. If the MPC = .85, then: (a) 85 cents out of each extra dollar will be spent. (b) the slope of the consumption function is .85. (c) the MPS = .15. (d) all of the above.

60. The arrangement among producers and processors of agricultural commodities in which the chief goal is to improve income is called: (a) collusion. (b) a marketing order. (c) non-price competition. (d) a cartel.

61. This legislative act was responsible for the creation of food labels. Name the act. (a) Clayton Act of 1914 (b) Capper-Volstead Act of 1922 (c) Robinson-Patman Act of 1926 (d) none of the above.

62. In a processing industry, four firms comprise roughly 75 percent of the market on the buying side of the market. This situation characterizes: (a) an oligopoly (b) an oligopsony (c) a monopoly (d) a monopsony

63. The concept of parity was established initially under which legislative act? (a) Capper-Volstead Act of 1922 (b) Agricultural Adjustment Act of 1933 (c) Agricultural Marketing Agreement Act of 1937 (d) None of the above

64. The Packers and Stockyards Act of 1921: (a) primarily covered price discrimination practices (b) reinforced anti-trust laws regarding livestock marketing (c) permitted farmers to acquire and disseminate market information (d) all of the above

65. The safety of the U.S. food supply is monitored by: (a) the Food and Drug Administration (FDA) (b) the U.S. Department of Agriculture (USDA) (c) the Environmental Protection Agency (EPA)

Fall 2011 AGEC 105 – Test 3 Capps (d) all of the above

66. Which of the following describes the “treadmill” problem? (a) the demand curve for agricultural products shifts to the right more than the corresponding supply curve. (b) the supply curve for agricultural products shifts to the right more than the corresponding demand curve. (c) Asset fixity (d) Resource scarcity

67. Which economist first made estimates of GDP in 1932? (a) John Maynard Keynes (b) Simon Kuznets (c) Charles Brannen (d) none of the above

68. Which of the following statements is (are) true? (a) The responsibility of fiscal policy rests on the shoulders of the President and Congress. (b) Current net farm income is high relative to the situation in recent years. (c) The unemployment rate associated with full employment GDP is roughly 4%. (d) All of the above.

69. Which of the following statement(s) is (are) true? (a) Business expectations of declining future profits will shift the investment function to the right. (b) As a proportion of current GDP, government expenditures rank behind consumption expenditures and gross private domestic investment. (c) The “Golden Age” of agriculture occurred in the decade of the 1930s. (d) An inflationary gap exists if equilibrium GDP is greater than full employment GDP.

70. Of those given, what is the most reasonable estimate of the current per capita GDP of the United States? (a) between $30,000 and $35,000 (b) between $35,000 and $40,000 (c) between $40,000 and $45,000 (d) between $45,000 and $50,000