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ECO 202 Final Exam: Questions With Solutions (A+)
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ECO 202 Final Exam: Questions With Solutions (A+)
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ECO 202 Final Exam: Questions With Solutions (A+)T or F: Debt-to-GDP ratio typically increases during war time Right Ans -
True
What would happen to the market for loanable funds if the government cuts
the capital gains tax? Right Ans - Supply increases
What would happen to the market for loanable funds if the government runs a
large budget deficit? Right Ans - Interest rate increases
What would happen to the market for loanable funds if the government
offered tax breaks for companies building new factories? Right Ans -
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. Right Ans - 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. Right Ans - Financial market
You open a mutual fund with AIG. Right Ans - Financial intermediary
You open a savings account at the bank. Right Ans - Financial intermediary
You purchase US government bonds. Right Ans - 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. Right Ans - 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? Right Ans - $5,512.50
, T or F: You can eliminate all the risks of investing in the stock market by
diversifying your portfolio. Right Ans - 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? Right Ans - 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? Right Ans - 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? Right Ans - $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. Right Ans -
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. Right Ans - 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. Right Ans -
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,
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