Posted: November 27th, 2022

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Economics 111B

Exam #2 Version A Key

Department of Economics Professor Siegler

UC Davis Winter 2013

The first five questions on Version A are the last five questions on Version B.

Part I: Multiple-Choice Questions (4 points each, 60 points in total)

1. According to the article by Dehejia and Lleras-Muny on branch banking laws and state deposit insurance from 1900 to 1940, the authors find that financial expansions induced by state deposit insurance:

A. led to growth in manufacturing and accelerated agricultural growth.

B. led to growth in manufacturing, but had negative consequences for agriculture.

C. had negative consequences in manufacturing, but accelerated agricultural growth.

D. had negative consequences for both manufacturing and agriculture.

2. Bad credit risks may be the most willing to pay high interest rates and thus get loans. This describes an example of:

A. symmetric information.

B. adverse selection.

C. moral hazard.

D. the winner’s curse.

3. According to the theory of loanable funds, an increase in government spending, ceteris paribus, will lead to:

A. higher real interest rates and investment spending.

B. higher real interest rates and lower investment spending.

C. lower real interest rates and investment spending.

D. lower real interest rates and higher investment spending.

4. Suppose that over the past fifty years, the birth rate is 2 percent per year, the death rate is 1 percent per year, the immigration rate is 1 percent per year, and the emigration rate 2 percent per year. The population growth rate in this economy is _______ percent per year.

A. 0

B. 1

C. 2

D. 4

E. 6

5. In international test score comparisons, like the OECD Program of International Student Assessment, U.S. fifteen year-olds score relatively the worst in which subject?

A. Math

B. Reading

C. Science

D. Social Studies

6. During the “Rise of the American High School” from 1910 to 1940, all of the following were widespread except:

A. curricular changes that emphasized vocational education.

B. higher graduation rates for girls.

C. the use of standardized tests.

D. local funding and control.

7. The Baumol effect was most important during:

A. the period from 1850 to 1870.

B. the period from 1870 to 1900.

C. the period from 1900 to 1937.

D. the period after 1950.

8. In Country A, the Gini coefficient is 0.45 while it is 0.48 in Country B. Based on this, we can conclude that:

A. there is more inequality in Country A.

B. there is more inequality in Country B.

C. there is higher growth in Country A.

D. there is higher growth in Country B.

9. Suppose that the demand curve in a particular market is described by the following equation:

= 20 −

Where is the quantity demanded for the good or service and P is the price. If the price is currently $12, then the price elasticity of demand is ____________ and a reduction in price from $12 to $11 will _______________ total revenue.

A. 0.66; increase

B. 0.66; decrease

C. 1.5; decrease

D. 1.5; increase

10. The table below measures the distribution of wealth in the United States in 2010:

Household Quintiles

Share of Net

Worth (Wealth)

Cumulative

Share of

Households

Cumulative

Share of

Wealth

Bottom 20 percent 0.00 0.20 0.00

Second 20 percent 0.02 0.40 0.02

Third 20 percent 0.03 0.60 0.05

Fourth 20 percent 0.06 0.80 0.11

Top 20 percent 0.89 1.00 1.00

Note that these shares are not cumulative, but simply represent the share of wealth held

by each group. For example, the top 20 percent of the population has 89 percent of the

wealth. Using the Z-gradient approximation, the Gini coefficient for wealth in the United

States in 2010 is approximately:

A. 0.75

B. 0.80

C. 0.84

D. 0.89

11. The social savings approach to measure the importance of transportation developments

A. likely overestimates the true importance of transportation developments due to double counting.

B. likely underestimates the true importance of transportation developments because it only estimates the direct transportation savings and ignores

spillovers to other sectors of the economy.

C. has been found to be an accurate and unbiased measure of the importance of transportation developments,

D. likely overestimates the true importance of transportation developments due to measurement errors.

12. In 1870, half of all workers in the United States were employed in agriculture. Today, it is less than two percent. One piece of evidence contrary to the induced innovation hypothesis is:

A. the fact that the income elasticity of food is low.

B. the fact that the income elasticity of food is high.

C. the fact that the price of land relative to wages was falling in the decades after 1870.

D. the fact that the price of land relative to wages was rising in the decades after 1870.

13. Compared to other countries in the world, the United States was most exceptional in terms of economic mobility:

A. during the Great Compression from 1929 to 1953.

B. during the 1950s and 1960s period of high economic growth.

C. during the period from 1850 to 1920.

D. during the period 1973 to 2007 when inequality increased but so did economic opportunity.

14. Which of the following explanations for the fertility transition in the United States is likely the most important?

A. the decline in death rates.

B. the introduction of contraceptive technologies like the condom.

C. the increasing opportunity costs of having children.

D. the decrease in the direct costs of having children.

15. Consider the following two hypothetical scenarios. In Scenario 1, everyone in the economy sees their incomes increase by 10 percent. In Scenario 2, everyone in the economy sees their incomes increase by $10,000. As a result:

A. the Gini coefficient for income increases in both Scenario 1 and Scenario 2.

B. the Gini coefficient for income decreases in both Scenario 1 and Scenario 2.

C. the Gini coefficient for income stays constant in Scenario 1 but decreases in Scenario 2.

D. the Gini coefficient for income stays constant in both Scenario 1 and Scenario 2.

E. the Gini coefficient for income decreases in Scenario 1 but stays constant in

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