2000 Economics Challenge Play-off
ECONOMIC APPLICATIONS AND CURRENT EVENTS
Round IV

1. During January and early February, the price of borrowing money for 30 years was lower than the price of borrowing money for 10 years. Interest rates usually are higher for long-term loans because the lender is taking a greater risk on inflation and on the ability of borrowers to repay years from now.
   The recent phenomenon—called______________in the parlance of economics—is a rare circumstance that sometimes foretells bad times.
   1. the federal funds rate
   2. a concave yield curve
   3. the real interest rate
   4. an inverted yield curve

    

2. For 1999 as a whole, Japan's economy___________by an estimated_______percent.
   1. decreased, 3.6
   2. decreased, 1.6
   3. increased, 0.6
   4. increased, 3.6

    

3. U.S. productivity___________by_________percent in 1999.
   1. decreased, 2.9
   2. decreased, 0.9
   3. increased, 0.9
   4. increased, 2.9
   5. increased, 5.9
    
4. Identify Product A, which is at the center of a major global trade issue, from the following description:

   One side of the issue argues that Product A should trade freely among countries because it lowers producer costs and hasn't demonstrated any negative health effects. Countries that wish to ban Product A are trying to protect their less efficient domestic producers.

   On the other side, those who wish to ban Product A argue that due to lack of testing, insufficient information is available to determine whether it is safe. Product A refers to

   1. a revolutionary form of computer chip.
   2. a recently introduced pacemaker.
   3. crops grown with genetically modified seeds.
   4. hamburgers produced by a major fast food chain.

    

5. In February 2000, the U.S. economy reached its longest expansion on record. The expansion began in March 1991; nevertheless, Bill Clinton won the presidential election over incumbent President Bush in November 1992 based on criticisms of current economic conditions. Despite the economy's expansion, unemployment had increased from 6.8 percent in 1991 to 7.5 percent by the time of the election. One likely reason unemployment rose during this time was
   1. the Federal Reserve increased interest rates.
   2. the Asian economic crisis reached its pinnacle.
   3. NAFTA was recently ratified causing a short-term decrease in employment.
   4. labor saving investment increased.

    

6. In February 2000, the U.S. Treasury announced it would
   1. sell $30 billion worth of government securities.
   2. buy back $30 billion worth of government securities.
   3. sell $30 million worth of government securities.
   4. buy back $30 million worth of government securities.

    

7. The owner of a garage makes large contributions to a politician who is seeking the office of state governor. If his candidate wins he will get the contract, which now resides with a competitor, to repair State Police vehicles. This is an example of
   1. moral hazard.
   2. externality.
   3. rent seeking.
   4. investment
   5. public good.

8. By the end of 1999, the amount of currency in circulation reached just over
   1. $500 million
   2. $200 billion
   3. $500 billion
   4. $2 trillion
   5. $5 trillion

    

9. Which of the following is a public good?
   1. ballpoint pens
   2. the spraying of mosquito breeding areas around the city
   3. bread
   4. automobile
   5. all of the above

    

10. Suppose that many corporations begin issuing new bonds. Everything else being equal, what is the most likely to happen to the interest rate?
    1. It will increase.
    2. It will decrease.
    3. It will not change.
    4. It will vary according to a random walk.

     

11. If the average tax rate on income is currently 30 percent and the national income is $1,500 billion, how much will income have to expand to avoid a fall in tax revenue if there is a 10 percent reduction (to 27 percent) in the average tax rate?
    1. $750 billion
    2. $500 billion
    3. $167 billion
    4. $150 billion

     

12. This past March gas prices at the pump skyrocketed in response to oil prices that climbed over $30 per barrel. While U.S. consumers complained, they continued to purchase about the same amount of gasoline. While U.S. oil producers took steps to increase production in response to the high prices, it takes several months to significantly increase oil output due to the amount of equipment required. Which of the following statements best reflects this situation in the short-term?
    1. U.S. demand for gasoline is inelastic, while the supply of oil is elastic.
    2. U.S. demand for gasoline is elastic, while the supply of oil is elastic.
    3. U.S. demand for gasoline is inelastic, while the supply of oil is inelastic.
    4. U.S. demand for oil is elastic, while the supply of oil in inelastic.

     

13. Which U.S. government agency publishes the news release on Gross Domestic Product(GDP)?
    1. Federal Reserve
    2. Bureau of Economic Analysis
    3. Census Bureau
    4. Bureau of Labor Statistics

     

14. Since June 1999, the Federal Reserve has raised the target for the fed funds rate
    1. 3 times
    2. 4 times
    3. 5 times
    4. 6 times

     

15. According to The Economist, over____________of American households own shares of stock.
    1. 10 percent
    2. 25 percent
    3. 50 percent
    4. 90 percent

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