1. In economics, the pleasure, happiness, or satisfaction received from a product is called:
D. utility.
2. According to economists, economic self-interest:
A. is a reality that underlies economic behavior.
3. When entering a building, Sam diverts his path to go through an open door rather than make the physical effort to open the closed door that is directly in his path. This is an example of:
C. marginal benefit-marginal cost analysis.
4. Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, "At least I didn't lose any money on my financial investment." His economist friend points out that in effect he did lose money, because he could have received a 3 percent return on the $1000 if he had bought a bank certificate of deposit instead of the coins. The economist's analysis in this case incorporates the idea of:
A. opportunity costs.
5. A person should consume more of something when its marginal:
A. benefit exceeds its marginal cost.
6. Economics may best be defined as the:
B. social science concerned with how individuals, institutions, and society make optimal choices under conditions of scarcity.
7. Purposeful behavior suggests that:
C. individuals will make different choices because of different desired outcomes.
8. The assertion that "There is no free lunch" means that:
B. all production involves the use of scarce resources and thus the sacrifice of alternative goods.
9. Which of the following is an economic explanation for why most college-aged movie stars do not attend college.
C. the opportunity cost in terms of reduced income is too great
10. Economic models:
C. emphasize basic economic relationships by purposefully simplifying the complexities of the real world.
11. The term "ceteris paribus" means:
C. other things equal.
12. Economic theories:
C. are generalizations based on a careful observation of facts.
13. Which of the following statements is true?
A. Microeconomics focuses on specific decision-making units of the economy; macroeconomics examines the economy as a whole.
14. Which of the following is a normative statement?
C. It is too hot to play tennis today.
15. Which of the following is a positive statement?
C. The temperature is 92 degrees today.
16. Brinley says that "Gas prices are rising because there aren't enough oil refineries." Katie argues that "Gas prices are rising because of the growing demand for gasoline from China and India
C. Both statements are positive.
17. Which of the following is a land resource?
D. natural gas
18. Which of the following lists includes only capital resources (and therefore no labor or land resources)?
D. autos owned by a car rental firm; computers at the car rental agency; the vans that shuffle rental customers to and from the airport.
19. The production possibilities curve illustrates the basic principle that:
C. if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced.
20. Which of the following will not produce an outward shift of the production possibilities curve?
B. the reduction of unemployment
21. If the production possibilities curve is a straight line:
B. economic resources are perfectly substitutable between the production of the two products.
22. A nation's production possibilities curve is bowed out from the origin because:
A. resources are not equally efficient in producing every good.
23. Any point inside the production possibilities curve indicates:
D. that more output could be produced with available resources.
24. Refer to the above diagram. Other things equal, this economy will achieve the most rapid rate of growth if:
D. it chooses point A
25. Refer to the above diagram. This economy will experience unemployment if it produces at point:
D.D.
26. Refer to the above diagram. This production possibilities curve is constructed so that:
D. the opportunity cost of both bread and tractors increases as more of each is produced.
D. it chooses point A
25. Refer to the above diagram. This economy will experience unemployment if it produces at point:
D.
26. Refer to the above diagram. This production possibilities curve is constructed so that:
D. the opportunity cost of both bread and tractors increases as more of each is produced.
27. Refer to the above diagram. Starting at point A, the opportunity cost of producing each successive unit of tractors is:
B. 2, 4, 6, and 8 units of bread.
28. Refer to the above production possibilities curve. At the onset of the Second World War the
C. a to point b.
29. Refer to the above production possibilities curve. At the onset of the Second World War the
A. c to point b.
30. The two general types of economic systems that exist today are:
C. market systems and command systems.
31. Examples of command economies are:
D.
32. An economic system:
B. is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem.
33. Economic scarcity:
B. applies to all economies.
D. gives direction to the market system.
35. Broadly defined, competition involves:
B. independently acting buyers and sellers and freedom to enter or leave markets.
36. Specialization in production is economically beneficial primarily because it:
B. permits the production of a larger output with fixed amounts of resources.
37. The use of money contributes to economic efficiency because:
D. it promotes specialization by overcoming the problems with barter.
38. The presence of market failures implies that:
B. there is an active role for government, even in a market system.
39. In a market economy a significant change in consumers' desire for product X will:
D. do all of these.
40. In a competitive economy, prices:
D. do all of these.
41. The competitive market system:
D. encourages innovation because successful innovators are rewarded with economic profits.
42. The market system's answer to the fundamental question "How will the goods and services be produced?" is essentially:
D. "Using the least-cost production techniques."
43. The advent of DVDs has virtually demolished the market for videocassettes. This is an example of:
A. creative destruction.
44. Consumer sovereignty refers to the:
C. idea that the decisions of producers must ultimately conform to consumer demands..
45. Which of the following is not one of the five fundamental questions?
A. What prices will be charged for goods and services?
46. Which of the following best describes the invisible-hand concept?
A. The desires of resource suppliers and producers to further their own self-interest will automatically further the public interest.
47. Two major virtues of the market system are that it:
A. allocates resources efficiently and allows economic freedom.
48. "Under central planning, some group has to decide how to get the necessary inputs produced in the right amounts and delivered to the right places at the right time. This is a nearly impossible task without markets and profits." This quotation best identifies the:
B. coordination problem under central planning.
49. Refer to the above diagram. Flow (1) represents:
A. wage, rent, interest, and profit income.
50. Refer to the above diagram. Flow (2) represents:
B. land, labor, capital, and entrepreneurial ability.
51. Refer to the above diagram. Flow (3) represents:
C. goods and services.
52. Refer to the above diagram. Flow (4) represents:
D. consumer expenditures.
53. Households and businesses are:
C. sellers in the resource and product markets respectively.
54. Which of the following best illustrates the circular flow model in action?
D. All of the above.
55. Income data that show the percentage of total income received by each fifth of all households describe the:
C. personal distribution of income.
56. Income data that show how total income is distributed as wages, rents, interest, and profits describe the:
A. functional distribution of income.
57. The largest functional share of the national income consists of:
A. wages and salaries.
58. In the above diagrams for a hypothetical economy, Figure 1 shows the:
B. functional distribution of income.
59. In the above diagrams for a hypothetical economy, Figure 2 shows the:
A. personal distribution of income.
60. In the above diagrams for a hypothetical economy, from Figure 2 we can conclude that:
D. the top one-fifth of all income receivers get about eight times as much income as the lowest one-fifth.
61. Listed in descending order of relative size, households divide their total incomes among:
C. consumption expenditures, taxes, and saving.
62. Since 1941 personal taxes have:
B. risen both absolutely and as a percentage of personal income.
63. If the aggregate income of households is $300 billion, consumption is $210 billion, and personal taxes are $60 billion, then personal saving:
B. is $30 billion.
64. In 2007, personal saving comprised what portion of U.S. household income?
B. positive 1 percent
65. A firm that produces a single product but owns plants in many different stages of the production process - for example, a steel producer that owns iron ore mines and rolling mills - best illustrates a:
A. vertically integrated firm.
66. In economics, a physical establishment such as a factory, farm, mine, store, or warehouse that performs one or more functions in fabricating and distributing goods is called a(n):
B. plant.
67. In economics, an organization that employs resources to produce goods and services for profit and operates one or more plants is called a(n):
D. firm.
68. An industry is best defined as a group of firms that:
B. produce identical or similar products.
69. A firm that makes computer chips at several locations across the country best illustrates a:
C. multiplant firm.
70. A group of plants that is owned and operated by a single firm and that consists of oil fields, refineries, and gasoline stations best illustrates a:
C. vertically integrated firm.
71. Eclectic Enterprises is a single firm that sells goods and services in the markets for health food, furniture, electric energy, and toys. Eclectic Enterprises is best described as a(n):
A. conglomerate.
72. The three basic legal forms of business enterprise are:
B. proprietorships, partnerships, and corporations.
73. Listed in descending order of total numbers, the business population is comprised of:
A. sole proprietorships, corporations, and partnerships.
74. The corporate form of business enterprise has promoted the development of large-scale business operations because:
B. corporations have been able to marshal large amounts of financial capital through the sale of stocks and bonds.
75. Suppose you own $50,000 of personal property, $5,000 of stock in General Statics Corporation, a $10,000 savings account, and $20,000 of government bonds. If General Statics goes bankrupt, the most you could lose is:
B. $5,000.
76. The owners of a firm face unlimited liability for the firm's debts in:
D. both a proprietorship and a partnership.
77. As it relates to corporations, the principal-agent problem is that:
B. the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals).
78. The Sherman
C. government attempting to maintain competition
79. The economic policies and programs of government affect all of the following except:
D. the underlying motives of consumers, workers, and firms.
80. Government may lessen income inequality by:
D. doing All of these.
81. When the production or consumption of a good involves an externality:
C. someone not involved in buying or selling the good is affected.
82. If a good's production creates substantial positive externalities and no negative externalities, then too:
C. little of the good will be produced unless firms are subsidized.
83. Suppose a product creates substantial negative externalities. If government adopts a policy that forces producers to pay these costs, the:
A. output of the product will decrease.
84. The Federal government requires automobile manufacturers to install pollution control equipment. This is an illustration of the:
D. internalization of external costs.
85. Externalities weaken the efficiency of the market system because they:
D. cause certain goods to be overproduced or underproduced.
86. Susie lives in a dorm and likes to play loud music in her room. Her neighbor Kara enjoys the same type of music and gets pleasure from Susie turning up the music. Her other neighbor, Alex, can't stand Susie's music and gets mad when she turns it up for all to hear. When Susie plays her music loudly, she creates:
A. a positive externality for Kara, and a negative externality for Alex.
87. Which of the following is a shortcoming of the market system?
B. Certain goods will not be produced because there is no way of excluding nonpaying ("free-rider") individuals from the associated benefits.
88. The main characteristics of a public good are:
A. nonrivalry and nonexcludability.
89. As it relates to a public good, nonrivalry means that:
D. one person's benefit from the good does not reduce the benefit available to others
90. Which list provides, in order, examples of a private good, a public good, and a quasi-public good?
B. an automobile, national defense, a national park
91. Fiscal policy:
B. refers to government spending and taxation policies aimed at promoting price stability and full employment.
92. Which of the following is an example of monetary policy?
C. Lowering interest rates to encourage spending and promote full employment.
93. The addition of government to the circular-flow model illustrates that government:
D. does all of these.
94. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (1) might represent:
B. government provision of highways for truck transportation.
95. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (2) might represent:
C. corporate income tax payments.
96. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (3) mightrepresent:
A. government salaries paid to school teachers.
97. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (4) might represent:
A. the services of NASA astrophysicists.
98. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. Flow (6) might represent:
A. the payment of payroll taxes by households.
99. Refer to the above diagram, in which solid arrows reflect real flows; broken arrows are monetary flows. If the economy were in a serious recession, it would be most appropriate for government to:
A. increase flows (3) and (7) and reduce flows (2) and (6).
100. The three most important sources of Federal tax revenue in order of descending importance are:
D. personal income, payroll, and corporate income taxes.
1. Money functions as:
D. all of these.
2. A $70 price tag on a sweater in a department store window is an example of money functioning as a:
A. unit of account.
3. If you place a part of your summer earnings in a savings account, you are using money primarily as a:
B. store of value.
4. When economists say that money serves as a unit of account, they mean that it is:
C. a monetary unit for measuring and comparing the relative values of goods.
5. When economists say that money serves as a store of value, they mean that it is:
A. a way to keep wealth in a readily spendable form for future use.
6. The paper money used in the United States
D. Federal Reserve Notes.
7. The largest component of the money supply (M1) is:
C. currency in circulation.
8. In the United States
A. coins, paper currency, and checkable deposits.
9. Currency held in the vault of First National Bank is:
D. not counted as part of the money supply.
10. The money supply is backed:
A. by the government's ability to control the supply of money and therefore to keep its value relatively stable.
11. To say that coins are "token money" means that:
B. their face value is greater than their intrinsic value.
12. In defining money as M1, economists exclude time deposits because:
C. they are not directly or immediately a medium of exchange.
13. Currency in circulation is part of:
D. both M1 and M2.
14. Paper money (currency) in the United States
B. Federal Reserve Banks.
15. Coins held in commercial banks are:
D. not part of the nation's money supply.
16. Assuming no other changes, if checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, the:
B. M1 money supply will not change.
17. Near-monies:
B. are certain highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into M1.
18. Which of the following does not explain what backs the money supply in the United States
A. It is back by gold.
19. Suppose that the Federal government suddenly declared that wheat was to be used as money. What is a possible outcome of that decision?
D. All of these are possible outcomes.
20. The purchasing power of money and the price level vary:
A. inversely.
21. During periods of rapid inflation, money may cease to work as a medium of exchange:
D. because people and businesses will not want to accept it in transactions.
22. Stabilizing a nation's price level and the purchasing power of its money can be achieved:
C. with both fiscal and monetary policy.
23. The basic policy-making body in the U.S.
B. Board of Governors of the Federal Reserve.
24. The twelve Federal Reserve Banks:
C. hold the reserve deposits of commercial banks.
25. As it relates to Federal Reserve activities, the acronym FOMC describes the:
A. Federal Open Market Committee.
26. The Federal Open Market Committee (FOMC) is made up of:
D. the seven member of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Banks presidents on a rotating basis.
27. Which of the following statements best describes the twelve Federal Reserve Banks?
C. They are privately owned and publicly controlled central banks whose basic goal is to control the money supply and interest rates in promoting the general economic welfare.
28. The seven members of the Board of Governors of the Federal Reserve System are:
A. appointed by the President with the confirmation of the Senate.
29. Research for industrially advanced countries indicates that:
A. the more independent the central bank, the lower the average annual rate of inflation.
30. Which of the following is a true statement?
C. The world's financial markets have become increasingly integrated.
31. Most modern banking systems are based on:
D. fractional reserves.
32. In a fractional reserve banking system:
C. banks can create money through the lending process.
33. Which of the following statements is correct?
B. A bank's liabilities plus its net worth equal its assets.
34. A bank that has liabilities of $150 billion and a net worth of $20 billion must have:
D. assets of $170 billion.
35. Which of the following are all assets to a commercial bank?
B. vault cash, property, and reserves
36. The primary purpose of the legal reserve requirement is to:
B. provide a means by which the monetary authorities can influence the lending ability of commercial banks.
37. Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves:
C. are $20,000.
38. Refer to row 1 in the above table. The number appropriate for space W is:
C. 10.
39. Refer to row 2 in the above table. The number appropriate for space X is:
D. $100,000.
40. Refer to row 3 in the above table. The number appropriate for space Y is:
B. $32,000.
41. Refer to row 4 in the above table. The number appropriate for space Z is:
A. $10,000.
42. When a check is drawn and cleared, the
B. bank against which the check is cleared loses reserves and deposits equal to the amount of the check.
43. Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves?
C. $24,000
44. Excess reserves refer to the:
D. difference between actual reserves and required reserves.
45. Suppose the reserve requirement is 10 percent. If a bank has $5 million of checkable deposits and actual reserves of $500,000, the bank:
D. cannot safely lend out more money.
46. A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are:
C. $5,000.
47. Assume that a bank initially has no excess reserves. If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be:
B. 10 percent.
48. Suppose the reserve requirement is 20 percent. If a bank has checkable deposits of $4 million and actual reserves of $1 million, it can safely lend out:
C. $200,000.
49. Assume the Continental National Bank's balance statement is as follows:
Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000 was drawn and cleared against it?
C. $6,000
50. A commercial bank can expand its excess reserves by:
A. demanding and receiving payment on an overdue loan.
51. Assume Company X deposits $100,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can increase the money supply by a maximum of:
C. $80,000.
52. Refer to the above data. This commercial bank has excess reserves of:
D. $5,000.
53. Refer to the above data. This bank can safely expand its loans by a maximum of:
D. $5,000.
54. Refer to the above data. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit, and has a check cleared against it for that amount, its reserves and checkable deposits will now be:
B. $22,000 and $110,000 respectively.
55. Refer to the above data. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and checkable deposits could have been expanded by a maximum of:
D. $25,000.
56. A single commercial bank must meet a 25 percent reserve requirement. If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of:
D. $3,750.
57. Banks create money when they:
C. buy government bonds from households.
58. Which of the following would reduce the money supply?
C. Commercial banks sell government bonds to the public.
59. The Federal funds market is the market in which:
C. banks borrow reserves from one another on an overnight basis.
60. The transactions demand for money is most closely related to money functioning as a:
B. medium of exchange.
61. The asset demand for money is most closely related to money functioning as a:
C. store of value.
62. Which of the following statements is correct?
B. Interest rates and bond prices vary inversely.
63. Refer to the above market for money diagrams. The asset demand for money is shown by:
B. D2.
64. Refer to the above market for money diagrams. Curve D1 represents the:
B. transactions demand for money.
65. Refer to the above market for money diagrams. The total demand for money is shown by:
C. D3.
66. Refer to the above market for money diagrams. If each dollar held for transactions is spent four times per year on the average, we can infer that the:
B. nominal GDP is $800.
67. Refer to the above market for money diagrams. If the interest rate was at 3 percent, people would:
A. sell bonds, which would cause bond prices to fall and the interest rate to rise.
68. Refer to the above market for money diagrams. If the interest rate was at 8 percent, people would:
B. buy bonds, which would cause bond prices to rise and the interest rate to fall.
69. Refer to the above market for money diagrams. If the Federal Reserve increased the stock of money, the:
B. S curve would shift rightward and the equilibrium interest rate would fall.
70. Reserves must be deposited in the Federal Reserve Banks by:
B. all depository institutions, that is, all commercial banks and thrift institutions.
71. Federal Reserve Notes in circulation are:
B. a liability as viewed by the Federal Reserve Banks.
72. Which of the following will increase commercial bank reserves?
A. the purchase of government bonds in the open market by the Federal Reserve Banks
73. When a commercial bank borrows from a Federal Reserve Bank:
C. the commercial bank's lending ability is increased.
74. The Federal Reserve Banks sell government securities to the public. As a result, the checkable deposits:
B. and reserves of commercial banks both decrease.
75. The commercial banking system borrows from the Federal Reserve Banks. As a result, the checkable deposits:
A. of commercial banks are unchanged, but their reserves increase.
76. The four main tools of monetary policy are:
C. the discount rate, the reserve ratio, the term auction facility, and open-market operations.
77. The Fed can change the money supply by:
D. doing all of these.
78. Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S.
D. directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.
79. Which of the following statements is correct?
B. Excess reserves are the amount by which actual reserves exceed required reserves.
80. Which of the monetary policy tools can alter both the level of excess reserves and the money multiplier?
B. the reserve ratio
81. The discount rate is the interest:
B. rate at which the Federal Reserve Banks lend to commercial banks.
82. Which of the following tools of monetary policy is considered the most important?
C. open market operations
83. Which of the following tools of monetary policy is flexible, and able to affect bank reserves quickly and by relatively specific amounts?
C. open market operations
84. Which of the following statements is true?
C. The Federal Reserve does not set the Federal funds rate, but it influences it through the use of open market operations.
85. Reserves borrowed at the Federal funds rate are usually repaid:
D. the next day.
86. According to the Taylor
D. keep the Federal funds rate at 4 percent.
87. Which of the following best describes the cause-effect chain of an expansionary monetary policy?
D. An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
88. Assuming government wishes to either increase or decrease the level of aggregate demand, which of the following pairs are not consistent policy measures?
A. a tax increase and an increase in the money supply
89. If the Federal Reserve authorities were attempting to reduce demand-pull inflation, the proper policies would be to:
A. sell government securities, raise reserve requirements, raise the discount rate, and reduce the amount of reserves available through the term auction facility.
90. Which of the following best describes the cause-effect chain of a restrictive monetary policy?
B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
91. If the economy were encountering a severe recession, proper monetary and fiscal policies would call for:
B. buying government securities, reducing the reserve ratio, reducing the discount rate, increasing reserves available through the term auction facility, and a budgetary deficit.
92. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3, labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 8 percent and the goal of the Fed is full-employment output of Qf, it should:
C. decrease the interest rate from 8 to 6 percent.
93. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 4 percent and the Fed desires to reduce or eliminate demand-pull inflation, it should:
A. increase the interest rate from 4 percent to 6 percent.
94. Refer to the above diagrams. The numbers in parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each curve, respectively. All numbers are in billions of dollars. If the interest rate is 6 percent and the goal of the Fed is full-employment output of Qf, it should:
D. maintain the interest rate at 6 percent.
95. Monetary policy is thought to be:
C. more effective in controlling demand-pull inflation than in moving the economy out of a depression.
96. Compared with fiscal policy, monetary policy is:
A. quicker and easier to implement.
97. One of the strengths of monetary policy relative to fiscal policy is that monetary policy:
A. can be implemented more quickly.
98. The problem of cyclical asymmetry refers to the idea that:
A. a restrictive monetary policy can force a contraction of the money supply, but an expansionary monetary policy may not achieve an increase in the money supply.
1. What type of economic flow would be illustrated by the purchase of a Mexican candy-making factory by a U.S.
C. Financial flow
2. What type of economic flow would be illustrated by the sending of price data on farm equipment to a foreign company so that it can consider purchasing farm tractors?
D. Information flow
3. What type of economic flow would be illustrated by the emigration of chemical engineers from Germany to the United States
B. Resource flow
4. In terms of dollar volume of exports and imports, the most important trading partner for the United States
A. Canada
5. Which is both a principal commodity import and export of the United States
B. Automobiles
6. The United States has a trade deficit when U.S.
A. Imports are greater than U.S.
7. What is one way that the deficit of the United States
B. By selling real assets of the U.S.
8. Which factor has contributed significantly to more international trade since the Second World War?
D. A general decline in tariffs
9. Which factor has greatly facilitated international trade since World War II?
C. Improved transportation
10. Which set of nations would be considered the major "players" in world trade in terms of the dollar volume of exports?
D. The United States and Germany
11. A distinguishing characteristic of multinational corporations is that they:
C. Have a large proportion of assets in foreign production and distribution
12. Nations specialize and engage in trade to:
B. Increase output and income
13. Specialization and international trade will:
C. Result in a rightward shift in a nation's production possibilities curve
14. When a nation has a comparative advantage in some product this means that:
B. It can produce that product at a lower domestic opportunity cost than can a potential trading partner
15. The central idea behind comparative advantage is that a nation should:
B. Produce the product with the lowest domestic opportunity cost
16. Refer to the above data. In East, the comparative cost of 1 unit of:
B. Food is .5 units of clothing
17. Refer to the above data. Which of the following is true?
B. For West, the cost of 15 units of food is 5 units of clothing
18. Refer to the above data. Which statement about the two nations is correct based on the principle of comparative advantage?
C. West has a comparative advantage in the production of food
19. Refer to the above data. The terms of trade will be:
C. Between 2 and 3 units of food for 1 unit of clothing
20. Refer to the above data. Assume that East had specialized in the production of food at alternative A and that West had produced both products at alternative C. If the nations now specialized based on comparative advantage, the gains from specialization and trade are:
C. 6 units of food and 2 units of clothing
21. The depreciation of the U.S. dollar relative to the French franc would make a vacation trip to:
B. The United States less expensive for the French
22. If the U.S. dollar and Mexican peso exchange rate shows that one peso is worth $0.12, then an American computer that costs $1,500 would be worth how many Mexican pesos?
C. 12,500 pesos
23. Refer to the above table. From 2005 to 2006, what happened to the value of the Japanese yen and the value of the U.S. dollar?
C. The Japanese yen depreciated and the U.S. dollar appreciated
24. Refer to the above table. From 2005 to 2006, what happened to the value of the British pound and the value of the U.S. dollar?
C. The British pound depreciated and the U.S. dollar appreciated
25. Refer to the above table. Which statement is correct about the change from 2004 to 2005?
C. The euro appreciated in value relative to the U.S. dollar
26. Refer to the above table. In 2003, about how many Japanese yen did a U.S. dollar purchase?
B. 117.94
27. Tariffs and quotas on an imported product:
D. Benefit domestic producers and hurt domestic consumers of the product
28. Research studies show that the cost of an American job saved in several industries protected from foreign competition:
B. Is much greater than the benefits to the American economy
29. The most-favored-nation clause in U.S.
C. Means that lower tariffs negotiated with one nation also apply to other nations with which the U.S.
30. The basic objective of GATT is to:
C. Achieve reductions of tariffs by multilateral negotiations among nations
31. The successor to GATT created in the Uruguay Round is the:
B. World Trade Organization
32. What is the basic purpose of the World Trade Organization?
C. To oversee trade agreements reached by member nations and rule on trade disputes among these nations
33. A major criticism of the World Trade Organization is that it:
C. Weakens collective bargaining and labor laws in member nations
34. GDP is the total market value of:
D. All final goods and services produced in an economy in a given year
35. An example of an intermediate good or service would be:
D. A desk bought by an accountant for her office
36. Which of the following is a private transfer payment?
D. A check for $100 sent by a parent to a daughter at college
37. The sale of a used automobile would not be included in the gross domestic product for the current year because it is a:
B. Nonproduction transaction
38. In Year 1, inventories rose by $25 billion. In Year 2, inventories fell by $20 billion. In calculating total investment, national income accountants would have:
D. Increased it by $25 billion in Year 1 and decreased it by $20 billion in Year 2
39. A distinguishing characteristic of public transfer payments is that:
D. The recipients make no contribution to current production in return for them
40. Net exports is a positive number when:
C. A nation's exports of goods and services exceed its imports
41. Which would be considered an investment according to economists?
B. The construction of a new plant by Ford
42. When gross private domestic investment exceeds depreciation, it can be concluded that:
A. Net investment is positive
43. GDP in an economy is $11,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports are:
C. - $84 billion
44. Refer to the above data. Gross domestic product is:
B. $1,079 billion
45. Refer to the above data. Net domestic product is:
C. $1,054 billion
46. Refer to the above data. National income is
D. $1,019 billion
47. Refer to the above data. Personal income is:
B. $656 billion
48. Refer to the above data. Disposable income is:
A. $611 billion
49. The GDP deflator or price index equals:
C. Nominal GDP divided by real GDP
50. Refer to the above data. If year 2 is the base year, the price index for year 3 is:
C. 133
51. Refer to the above data. In year 4, nominal GDP would be:
B. $90
52. Refer to the above data. If year 2 is the base year, then Real GDP in year 5 is:
53. Refer to the above data. If year 2 is the base year, then the percentage increase in real GDP from year 2 to year 4 is:
C. 80 percent
54. The above diagram is best described as an idealized:
A. Business cycle
55. Refer to the above diagram. The phases of the business cycle from points A to D are, respectively:
D. Peak, recession, trough, expansion
56. Refer to the above diagram. The straight line E drawn through the wavy lines would provide an estimate of the:
B. Growth trend
57. Which phase of the business cycle would be most closely associated with an economic contraction?
B. Recession
58. In the expansion phase of a business cycle:
D. Employment and output increase
59. A recession is a decline in:
C. GDP that lasts six months or longer
60. The level of total spending is the immediate determinant of the:
B. Level of real output and employment
61. Which statement is correct?
C. The production of nondurable consumer goods is more stable than the production of durable consumer goods over the business cycle
62. Which is the correct way to calculate the unemployment rate?
B. [(unemployed)/(labor force)J x 100
63. Assuming the total population is 200 million, the labor force is 100 million, and 92 million workers are employed, the unemployment rate is:
C. 8 percent
64. The unemployment rate in an economy is 6%. The total population of the economy is 290 million, and the size of the civilian labor force is 150 million. The number of unemployed workers in this economy is:
B. 9 million
65. In calculating the unemployment rate, "discouraged" workers who are not actively seeking employment are:
A. Excluded
66. Official unemployment rate statistics may:
D. Understate the amount of unemployment because of the presence of "discouraged" workers who are not actively seeking employment
67. Refer to the above information. Which individual is frictionally unemployed?
A. 1
68. Refer to the above information. Which individual is structurally unemployed?
C. 3
69. Refer to the above information. Which individual is cyclically unemployed?
B. 2
70. Refer to the above information. Which individual would be classified as a discouraged worker?
D. 4
71. Refer to the above information. Which individual would be included in the calculation of the full-employment unemployment rate?
C. 1 and 3
72. The natural rate of unemployment:
C. Is equal to the total of frictional and structural unemployment
73. The GDP gap measures the amount by which:
C. Potential GDP exceeds actual GDP
74. If unemployment is above the natural rate of unemployment, then potential GDP is:
D. Greater than actual GDP
75. Okun's law indicates that for:
A. Every 1 percent that the actual unemployment rate exceeds the natural unemployment rate, a 2 percent GDP gap is generated
76. In an economy nominal GDP is $4,000 billion. The actual unemployment rate is 8 percent and the natural rate of unemployment is 6 percent. According to Okun's law there will be:
C. $160 billion lost in potential output
77. Inflation is a rise in:
A. The general level of prices over time
78. If the Consumer Price Index was 166.6 in one year and 172.2 in the next year, then the rate of inflation from one year to the next was:
A. 3.4%
79. Which measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers?
B. The Consumer Price Index
80. The Consumer Price Index was 247 in year 1 and 272 in year 2. The rate of inflation in year 2 was:
B. 10 percent
81. If the annual inflation rate is 5 percent a year, about how many years will it take for the price level to double?
C. 14 years
82. Inflation caused by an increase in aggregate spending is referred to as:
C. Demand-pull inflation
83. Inflation caused by a rise in per unit production costs is referred to as:
A. Cost-push inflation
84. If the average level of nominal income in a nation is $45,000 and the price level index is 180, the average real income would be about:
C. $25,000
85. If the price level increases by 15 percent while nominal income increases by 8 percent, then in percentage terms real income would:
C. Fall by about 7 percent
86. Unanticipated inflation arbitrarily:
B. "Taxes" those who receive fixed money incomes
87. Assume that there is a fixed rate of interest on contracts for borrowers and lenders. If unanticipated inflation occurs in the economy, then:
D. Lenders are hurt, but borrowers benefit
88. A worker would be hurt least by inflation when the:
B. Worker is protected by a cost-of-living adjustment clause in an employment contract
1. The most important determinant of consumption and saving is the:
B. level of income.
2. The MPC can be defined as that fraction of a:
B. change in income that is spent.
3. The 45-degree line on a graph relating consumption and income shows:
C. all the points at which consumption and income are equal.
4. As disposable income increases, consumption:
A. and saving both increase
5. In contrast to investment, consumption is:
B. relatively stable.
6. Tessa's break-even income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level
of:
A. consumption spending will be $14,500.
7. Which of the following relations is not correct?
C. MPS = MPC + 1
8. Refer to the above data. The marginal propensity to consume is:
D. .80.
9. Refer to the above data. At the $200 level of disposable income:
B. dissaving is $5.
10. Refer to the above data. If disposable income was $325, we would expect consumption to be:
B. $305
11. The investment demand slopes downward and to the right because lower real interest rates:
C. enable more investment projects to be undertaken profitably.
12. Assume a machine which has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate of return on this machine is:
C. 15 percent.
13. A decline in the real interest rate will:
A. increase the amount of investment spending.
14. The immediate determinants of investment spending are the:
A. expected rate of return on capital goods and the real interest rate.
15. The investment demand curve will shift to the right as the result of:
C. businesses becoming more optimistic about future business conditions.
16. Investment spending in the United States
D. all of these contribute to the instability.
17. The multiplier effect means that:
C. an increase in investment can cause GDP to change by a larger amount.
18. The multiplier is useful in determining the:
D. change in GDP resulting from a change in spending.
19. The multiplier can be calculated as:
C. 1/(1 - MPC).
20. Refer to the above table. The marginal propensity to consume is:
C. .8
21. Refer to the above table. The marginal propensity to save is:
C. .2
22. Refer to the above table. The change in income in round two will be:
B. $16.
23. Refer to the above table. The multiplier in this economy is:
C. 5.
24. The Council of Economic Advisers has estimated that the actual multiplier for the U.S.
D. 2.
25. A private closed economy includes:
C. households and businesses, but not government or international trade.
26. The equilibrium level of GDP in a private closed economy is where:
D. aggregate expenditures equal GDP.
27. In a private closed economy, when aggregate expenditures equal GDP:
C. planned investment equals saving.
28. The equilibrium level of GDP is associated with:
B. no unintended changes in inventories.
29. A private closed economy will expand when:
B. unplanned decreases in inventories occur.
30. If unintended increases in business inventories occur, we can expect:
A. a decline in GDP and rising unemployment.
31. That the economy has achieved aggregate equilibrium is indicated by:
D. all of these.
32. The foreign purchases effect suggests that a decrease in the U.S.
D. increase U.S. exports and decrease U.S.
33. Which of the following explains why the aggregate demand schedule is downward sloping?
D. all of these
34. Which of the following is incorrect?
C. When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending.
35. The determinants of aggregate demand:
B. explain shifts in the aggregate demand curve.
36. Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC =
0.6, how much will the change in investment increase aggregate demand?
D. $50 billion.
37. In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:
B. increase aggregate demand.
38. The immediate-short-run aggregate supply curve represents circumstances where:
A. both input and output prices are fixed.
39. The aggregate supply curve (short-run) slopes upward and to the right because:
D. wages and other resource prices adjust only slowly to changes in the price level.
40. In the above diagram, a shift from AS1 to AS3might be caused by a(n):
B. increase in the prices of imported resources.
41. In the above diagram, a shift from AS1 to AS2might be caused by a(n):
C. decrease in the prices of domestic resources.
42. In the above diagram, a shift from AS3 to AS2might be caused by an increase in:
D. productivity.
43. In the above diagram, the most favorable shift of the aggregate supply curve for the economy would be from:
D. AS3 to AS2.
44. Refer to the above information. The level of productivity is:
D. 2.
45. The per unit cost of production in the economy described above is:
C. $2
46. Refer to the above information. All else being equal, if the price of each input increased from $4 to $6, productivity would:
D. remain unchanged.
47. Refer to the above information. Given an increase in input price from $4 to $6, we would expect the aggregate:
A. supply curve to shift to the left.
48. Productivity measures:
A. real output per unit of input.
49. Per-unit production cost is:
B. total input cost divided by units of output.
50. Other things equal, appreciation of the dollar:
C. decreases aggregate demand in the United States
51. Other things equal, a reduction in personal and business taxes can be expected to:
B. increase both aggregate demand and aggregate supply.
52. The economy's long-run AS curve assumes that wages and other resource prices:
A. eventually rise and fall to match upward or downward changes in the price level.
53. In the above diagram, the economy's long-run aggregate supply curve is shown by line:
A. 1.
54. In the above diagram, the economy's relevant aggregate demand and long-run aggregate supply curves, respectively, are lines:
B. 4 and 1
55. In the above diagram, the economy's short-run AS curve is line
D. 2; 1
56. The equilibrium price level and level of real output occur where:
D. the aggregate demand and supply curves intersect.
57. Refer to the above data. The equilibrium price level will be:
B. 200.
58. Refer to the above data. If the price level is 150 and producers supply $300 of real output:
A. a shortage of real output of $200 will occur.
59. Refer to the above data. If the amount of real output demanded at each price level falls by $200, the equilibrium price level and equilibrium level of real domestic output will fall to:
C. 150 and $300, respectively.
60. Refer to the above data. If the amount of real output demanded at each price level falls by $200, this might have been caused by:
B. a worsening of business expectations.
61. Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by:
D. panels (A) and (B).
62. Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by:
B. panel (B) only.
63. Refer to the above diagrams, in which AD1 and AS1are the "before" curves and AD2 and AS2 are the "after" curves. Growth, full-employment and price stability is depicted by:
C. panel (C) only.
64. Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, an increase in investment spending is depicted by:
C. panel (C) only.
65. Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in productivity is depicted by:
B. panel (B) only.
66. Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by a change in incomes abroad is depicted by:
A. panel (A) only.
67. Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decrease in resource prices is depicted by:
C. panel (C) only.
68. Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, inflation is absent in:
D. panels (A) and (C).
69. In which of the following sets of circumstances can we confidently expect inflation?
C. aggregate supply decreases and aggregate demand increases
70. Discretionary fiscal policy refers to:
C. changes in taxes and government expenditures made by Congress to stabilize the economy.
71. Countercyclical discretionary fiscal policy calls for:
B. deficits during recessions and surpluses during periods of demand-pull inflation.
72. Fiscal policy refers to the:
A. manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.
73. An economist who favors smaller government would recommend:
A. tax cuts during recession and reductions in government spending during inflation.
74. If the MPC in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by:
C. decreasing taxes by $25 billion.
75. If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion by:
B. reducing government expenditures by $20 billion.
76. In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full- employment GDP is $120 billion. To obtain price level stability under these conditions the government should:
A. increase tax rates and/or reduce government spending.
77. Which of the following represents the most expansionary fiscal policy?
B. a $10 billion increase in government spending
78. Refer to the above diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:
D. AD3.
79. Refer to the above diagram, in which Qf is the full-employment output. An expansionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at:
A. AD0.
80. Refer to the above diagram, in which Qf is the full-employment output. If the economy's present aggregate demand curve is AD2:
C. government should undertake neither an expansionary nor a contractionary fiscal policy.
81. Refer to the above diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it is experiencing:
B. a negative GDP gap.
82. Refer to the above diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it would be appropriate for the government to:
C. increase government expenditures or reduce taxes.
83. Refer to the above diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD3, it would be appropriate for the government to:
B. reduce government expenditures or increase taxes.
84. Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $80 billion. To achieve full- employment output (exactly), government should:
D. reduce taxes by $80 billion.
85. Refer to the above figure. Suppose that the economy is currently operating at the intersection of AS and AD2,
and that the full employment level of output is Y. If contractionary fiscal policy and accompanying multiplier effects
move aggregate demand from AD2 to AD1, what will be the effect on real GDP and the price level?
B. Real GDP will fall to X and the price level will remain unchanged, assuming a ratchet effect occurs.
86. Which of the following best describes the built-in stabilizers as they function in the United States?
D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.
87. The standardized budget refers to:
C. the size of the Federal government's budgetary surplus or deficit when the economy is operating at full employment.
88. An effective expansionary fiscal policy will:
C. increase the standardized deficit but reduce the cyclical deficit.
89. When the economy is at full employment:
D. the actual and the standardized budgets will be equal.
90. Which of the following best describes the idea of a political business cycle?
C. Politicians will use fiscal policy to cause output, real incomes, and employment to be rising prior to elections.
91. The crowding-out effect of expansionary fiscal policy suggests that:
B. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
92. The public debt for the above economy is:
D. $460 billion.
93. Other things equal, an increase of Treasury bonds from $100 billion to $120 billion in the above economy would:
B. increase the public debt from $460 billion to $480 billion.
94. Suppose the Federal government had budget deficits of $40 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have:
B. increased by $20 billion.
95. Suppose the Federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had
budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the Federal government's public debt would have:
D. decreased by $150 billion.
96. Which of the following is not a significant contributor to the U.S. public debt?
D. demand-pull inflation
97. Recessions have contributed to the public debt by:
A. reducing national income and therefore tax revenues.
98. As a percent of GDP, the United States public debt is:
C. lower than the public debts of several other major industrial nations.
99. Payment of interest on the U.S. public debt:
D. is thought to increase income inequality.
