Practice Test #1
Term Test #1
This examination paper includes 13 pages including the title page and 43 questions. You are re-
sponsible for ensuring that your copy of the paper is complete. Please bring any discrepancy to
the attention of your invigilator.
Only the McMaster Standard (Casio - FX991) Calculator may be used. This test paper
must be returned along with the scan sheet. Write your name and student number on the
test paper and the scan sheet. If you are writing in the wrong room, you will lose 5 points
off your test score. If you are wearing a baseball cap, please turn it so the peak is in the
back. Please turn off all cell phones. There should be no electronic devices at your seat
other than a calculator. All books and bags must be left at the front of the room. You will
need your student ID card at your desk, along with your calculator, a pencil, and a pen. If
you complete the short answer section in pencil your test will not be re-graded if there is
a dispute. Use an HB pencil to fill in the scan sheet. If a TA has to grade your scan sheet
by hand, you will lose 5 points off your test score. You cannot fill in the version number
of your test paper on the scan sheet.
Part A: Multiple Choice Questions: There are 40 multiple choice questions. Please record
your answers on the scan answer sheet provided.
Part B: Short Answer Questions: There are 3 short answer questions. Please record your
answers on the test paper.
Part A – Multiple Choice /40
Part B – Short Answer /15
OMR EXAMINATION - STUDENT INSTRUCTIONS
NOTE: IT IS YOUR RESPONSIBILITY TO ENSURE THAT THE ANSWER SHEET IS
PROPERLY COMPLETED: YOUR EXAMINATION RESULT DEPENDS UPON
PROPER ATTENTION TO THESE INSTRUCTIONS.
The scanner, which reads the sheets,senses the shaded areas by their non-reflection of light. A
heavy mark must be made, completely filling the circular bubble, with a HB pencil. Marks made
with a pen or felt-tip marker will NOT be sensed. Erasures must be through or the scanner may
still sense a mark. Do NOT use correction fluid on the sheets. DoNOT put any unnecessary
marks or writing on the sheets.
1. Print your name, student number, course name, section number and the date in the
space provided at the top of Side 1 (red side) of the form.
2. Mark your student number in the space provided on the sheet on Side 1 and fill in
the corresponding bubbles underneath.
3. Mark only ONE choice from the alternatives (1,2,3,4,5, or A,B,C,D,E) provided
for each question. If there is a True/False question, enter response of 1 (or A) as
True, and 2 (or B) as False. The question number is to the left of the bubbles.
Make sure that the number of the question on the scan sheet is the same as the
question number on the test paper.
4. Pay particular attention to the Marking Directions on the form.
5. Begin answering questions using the first set of bubbles, marked “1". 3
Part A - Multiple Choice (40 points)
Identify the choice that best completes the statement or answers the question. Answer on the scan sheet provided.
1. Refer to Figure 4-1. The movement from point A to point B on the graph shows
a. an increase in demand.
b. a decrease in demand.
c. a decrease in quantity demanded.
d. an increase in quantity demanded.
2. Wheat is the main input in the production of flour. If the price of wheat decreases, all else equal, we would expect
a. demand for flour to decrease.
b. supply of flour to be unaffected.
c. supply of flour to increase.
d. supply of flour to decrease.
3. Which goods are supposed to be included in the CPI?
a. all the goods, but not the services, in the consumption component of the GDP accounts
b. all goods and services that typical consumers buy
c. all goods and services produced in the economy
d. all goods and services in the consumption component of the GDP accounts
4. Terms used by an economist would include
a. comparative advantage and elasticity.
b. torts and venues.
c. ego and cognitive dissonance.
d. vector spaces and axioms. 4
Labour Hours Needed to Make
1 Pound of: Pounds produced in 40 hours:
Farmer 8 2 5 20
Rancher 4 5 10 8
5. Refer to Table 3-1. The Farmer has an absolute advantage in
a. potatoes, and the Rancher has an absolute advantage in meat.
b. neither good, and the Rancher has an absolute advantage in both goods.
c. meat, and the Rancher has an absolute advantage in meat.
d. meat, and the Rancher has an absolute advantage in potatoes.
6. Refer to Table 3-1. The opportunity cost of 1 pound of meat for the farmer is
a. 1/4 hour of labour.
b. 4 hours of labour.
c. 4 pounds of potatoes.
d. 1/4 pound of potatoes.
7. Refer to Table 3-1. The Farmer and Rancher both could benefit by the Farmer specializing in
a. neither good and the Rancher specializing in both goods.
b. meat and the Rancher specializing in potatoes.
c. potatoes and the Rancher specializing in meat.
d. They cannot benefit by specialization and trade.
8. Suppose that a worker in Agland can produce either 10 units of organic grain or 2 units of incense per year, and a
worker in Zenland can produce either 5 units of organic grain or 15 units of incense per year. There are 20 workers
in Agland and 10 workers in Zenland. Currently the two countries do not trade. Agland produces and consumes
100 units of grain and 20 units of incense per year. Zenland produces and consumes 50 units of grain and no
incense per year. The combined output of the two countries is therefore 150 units of grain and 20 units of incense
per year. If the two countries decided to trade, and completely specialized in producing the good for which each
has a comparative advantage, the combined yearly output of the two countries would be
a. 200 units of grain and 150 units of incense.
b. 150 units of grain and 20 units of incense.
c. 50 units of grain and 40 units of incense.
d. 200 units of grain and 300 units of incense.
9. A person's expectations about the future
a. cannot affect demand because expectations change.
b. can affect future demand.
c. cannot shift a demand curve.
d. can affect current demand. 5
10. Refer to Figure 4-10. Which of the four graphs represents the market for peanut butter after a major hurricane hits
the peanut-growing south?
11. For market economies, which would NOT be correct?
a. Prices influence how much of a good buyers choose to purchase and how much sellers
choose to produce.
b. Prices ensure that quantity supplied and quantity demanded are in balance.
c. Prices ensure that anyone who wants a product can get it.
d. Prices guide economic decisions and thereby allocate scarce resources.
12. Consumers begin purchasing houses incorporating steel studs instead of wooden studs after the price of lumber
increases. This situation best represents which problem in the construction of the CPI?
b. unmeasured quality change
c. introduction of new goods
d. incomebias 6
13. Suppose that the nominal interest rate is 5 percent and the expected inflation rate is 3 percent.
a. The dollar value of savings increases by 5 percent and the value of savings in goods is
expected to increase by 2 percent
b. The dollar value of savings increases by 5 percent and the value of savings in goods is
expected to increase by 3 percent
c. The dollar value of savings increases by 8 percent and the value of savings measured in
goods is expected to increase by 5 percent
d. The dollar value of savings increases by 8 percent and the value of savings measured in
goods is expected to increase by 3 percent
14. The number of buyers in a market affects
a. individual demand curves for a good.
b. neither individual nor market demand.
c. both individual demand curves and the market demand for a good.
d. the market demand for a good.
15. The GDP deflator is the ratio of
a. real GDP to nominal GDP multiplied by 100.
b. nominal GDP to real GDP multiplied by 100.
c. real GDP to nominal GDP.
d. nominal GDP to real GDP.
16. For two people who are planning to trade, it is impossible to
a. have an absolute advantage in both goods.
b. have a comparative advantage in both goods.
c. trade so that both people will be better off.
d. specialize in the production of one good.
17. What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, the price of steel
rises, public transportation becomes cheaper and more comfortable, and au