Economics 2410-001

Multiple Choice
You have 2 hours to complete the following multiple choice examination. There are a total of 50 questions worth 2 points each. Identify the letter of the choice that best completes the statement or answers the question. You are expected to complete your work in accordance with the honor code.

____ 1. If there are diminishing returns to capital, then
a.
increases in the capital stock increase output by ever smaller amounts.
b.
increases in the capital stock eventually decrease output.
c.
capital produces fewer goods as it ages.
d.
old ideas are not as useful as new ones.

____ 2. The real exchange rate is the nominal rate exchange defined as foreign currency per dollar times
a.
U.S. prices minus foreign prices.
b.
foreign prices divided by U.S. prices.
c.
prices in the United States divided by foreign prices.
d.
None of the above is correct.

____ 3. The local Chevrolet dealership has an increase in inventory of 25 cars in 2006. In 2007 it sells all 25 cars. Which of the following statements is correct?
a.
The full value of the increased inventory will be counted as part of GDP in 2006, and the value of the cars sold in 2007 will not cause 2007 GDP to increase.
b.
The value of the increased inventory will be counted as part of 2006 GDP and the value of the cars sold in 2007 will increase 2007 GDP.
c.
The value of the increased inventory will not affect 2006 GDP; instead, the full value of the inventory will be counted as part of 2007 GDP.
d.
One-half of the value of the increased inventory will be counted as part of 2006 GDP and the other one-half of the value will be counted as part of 2007 GDP.

____ 4. Suppose that fundamental analysis shows a stock is overvalued
a.
This means its present value is less than its price. You should consider adding the stock to your portfolio.
b.
This means