ECO 202 Final Exam Questions And
Answers 100% Pass
T or F: Debt-to-GDP ratio typically increases during war time - answer✔True
What would happen to the market for loanable funds if the government cuts the capital
gains tax? - answer✔Supply increases
What would happen to the market for loanable funds if the government runs a large budget
deficit? - answer✔Interest rate increases
What would happen to the market for loanable funds if the government offered tax breaks
for companies building new factories? - answer✔Demand increases
Suppose GDP is $7 trillion, taxes are $2 trillion, private saving is $0.3 trillion, and public
saving is $0.1 trillion. Calculate consumption, government purchases, national (or total)
saving, and investment. Assume a closed economy. - answer✔Consumption = $4.7 trillion;
Government purchases = $1.9 trillion; National (or Total) Saving = $0.4 trillion; Investment
= $0.4 trillion
You purchase some Microsoft stock. - answer✔Financial market
You open a mutual fund with AIG. - answer✔Financial intermediary
You open a savings account at the bank. - answer✔Financial intermediary
You purchase US government bonds. - answer✔Financial market
You contact a broker to decide on a mix of stocks and bonds for you to save your money in
and manage the portfolio for you. - answer✔Financial intermediary
Suppose you loan a friend $5,000. Your friend promises to pay it back in 2 years with 5%
interest. Assuming your friend does pay you back, what is the future value of the loan? -
answer✔$5,512.50
T or F: You can eliminate all the risks of investing in the stock market by diversifying your
portfolio. - answer✔False
Suppose you are in charge of making the following decision for the company you work for:
The company is considering building a new factory. It will cost $10 million and take 5
years. Once the factory is built, it will increase profits by $16 million dollars. The interest
rate is 7%. Should the company build the factory? - answer✔Yes
Suppose you are in charge of making the following decision for the company you work for:
The company is considering investing $25 million in a new technology that's supposed to
be the wave of the future. In 10 years, the new technology is expected to earn profits of $35
million. The interest rate is 5%. Do you recommend investing in the new technology? -
answer✔No
Consider the following insurance example: Suppose there's a town with 4,000 houses. All of
the houses are worth $100,000. Once a year, one of them burns down at random. What
would be the annual premium for fire insurance to replace the loss of the house in this
situation? - answer✔$25
Roger always drives over the speed limit and often changes lanes without checking his
blind spot. Because he knows this makes him more likely to damage his car, he buys more
extensive insurance coverage. - answer✔Adverse s election
Thomas never let his clothes dryer run while he was away from home and he always
cleaned out the lint trap. After buying fire insurance, he doesn't worry about doing those
things anymore. - answer✔Moral hazard
Because of his concern about the risk in the stock market, John invests in 30 different
companies as well as several different types of bonds. - answer✔Diversification
Neartopia has 100 million adult citizens. Of these, there are 50 million full-time workers
and 10 million part-time workers. There are 9 million people who have been looking for
jobs but don't have one yet. There are 1 million workers that have been laid off and not yet
recalled to work. There are 11 million full-time students without jobs, 10 million
homemakers without jobs, and 8 million people who retired from their jobs. There are also
1 million people that don't have jobs but gave up looking for one.
What is Neartopia's unemployment rate? - answer✔14.3%
Neartopia has 100 million adult citizens. Of these, there are 50 million full-time workers
and 10 million part-time workers. There are 9 million people who have been looking for
jobs but don't have one yet. There are 1 million workers that have been laid off and not yet
recalled to work. There are 11 million full-time students without jobs, 10 million
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