Business Economics
Final Exam
Course Introduction
Business Economics explores the application of economic theory and quantitative methods to analyze business enterprises and the factors contributing to the diversity of organizational structures and behaviors. This course examines how businesses operate within various market environments, make decisions about resource allocation, pricing, production, and investment, and respond to external influences such as government policies and global economic trends. Through real-world case studies and practical examples, students will gain a deeper understanding of demand and supply, cost analysis, market structure, and the economic rationale behind business strategies, equipping them with essential tools for decision-making in a competitive business landscape.
Recommended Textbook
Economics Today The Macro View 18th Edition by Roger
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Page 2
LeRoy Miller
Chapter 1: The Nature of Economics
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Q1) An economic model should capture
A)the essential relationships that help to analyze the problem.
B)all possible variables that apply to the problem.
C)only social value related variables.
D)all of the above.
Answer: A
Q2) Which of the following would most likely NOT be taught in a microeconomics course?
A)changes in prices of automobiles
B)the effects of a gas tax on gas purchases
C)the effect of an increase in wheat prices on farmers' behavior
D)the unemployment rate
Answer: D
Q3) A microeconomist would study all of the following issues EXCEPT
A)the impact of a change in consumer income on the sales of corn.
B)the impact of a snowstorm on the sales of snow shovels.
C)the most efficient means for General Motors to produce an automobile.
D)the effect of a change in income taxes on the nation's rate of unemployment.
Answer: D
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3
Chapter 2: Scarcity and the World of Trade-Offs
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Sample Questions
Q1) Services can be thought of as
A)unvalued goods.
B)unwanted goods.
C)free goods.
D)intangible goods.
Answer: D
Q2) Which of the following is the LEAST scarce?
A)college education
B)medicine
C)housing
D)air
Answer: D
Q3) All of the following are examples of physical capital EXCEPT A)buildings.
B)machinery.
C)company stocks and bonds.
D)a hydroelectric power plant.
Answer: C
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Chapter 3: Demand and Supply
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Sample Questions
Q1) A schedule of amounts of a good that people will purchase at various prices during a specific time period holding other factors constant is
A)a market.
B)supply.
C)demand.
D)the market clearing price.
Answer: C
Q2) Refer to the above figure. A shortage will exist when
A)the price is between $0 and $6.
B)the price equals $6.
C)the price equals $10.
D)quantity demanded equals 3.
Answer: A
Q3) Which of the following are complementary goods?
A)sport utility vehicles and gasoline
B)butter and margarine
C)beer and wine
D)DVDs and videocassettes
Answer: A
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Page 5
Chapter 4: Extensions of Demand and Supply Analysis
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Q1) Refer to the above figure. A price support set at P will
A)lead to a surplus of Q minus Q .
B)lead to a shortage of Q minus Q .
C)lead to an equilibrium quantity of Q .
D)be ineffective.
Q2) Assume that CDs are a normal good and that the price of stereo equipment falls while the labor costs of producing CDs increase. What will happen in the market for CDs?
Q3) In a market system, what must take place for quantity demanded to continually be equated with quantity supplied?
A)Price controls must be applied by governments.
B)Relative prices must be able to adjust to market clearing levels.
C)Tastes and preferences of consumers must adjust to eliminate surpluses or shortages.
D)Businesses must engage in involuntary, unprofitable exchanges to eliminate surpluses or shortages.
Q4) Describe the market process that should occur if the price of a product is below its equilibrium price; now describe what would occur if the price is above its equilibrium price, assuming no market interference.
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Chapter 5: Public Spending and Public Choice
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Q1) Which of the following would be classified as a public good?
A)state lotteries
B)telephone service
C)cable TV programming
D)national defense
Q2) One characteristic of a public good is that it
A)is available for consumption by only a few individuals at any particular time.
B)always eliminates the free-rider problem.
C)can be consumed simultaneously by many individuals.
D)can be easily subdivided into small units.
Q3) Costs that spill over to third parties are called
A)opportunity costs.
B)external costs.
C)variable costs.
D)public costs.
Q4) All of the following are major sources for financing public education EXCEPT
A)income taxes.
B)sales taxes.
C)property taxes.
D)government fees.
Page 7
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Chapter 6: Funding the Public Sector
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Sample Questions
Q1) Imposing a unit excise tax on the final sale of a good or service can be displayed graphically as
A)a vertical shift upward of the demand curve.
B)a vertical shift upward of the supply curve.
C)a vertical shift downward of the demand curve.
D)a vertical shift downward of the supply curve.
Q2) Dynamic tax analysis generally predicts
A)that the higher the tax rate is, the higher the tax revenue will continue to be into the future.
B)that the higher tax rates lead to higher revenues only to a point at which revenues will begin to decrease due to a diminishing tax base.
C)that lower tax rates will always and continuously lead to increased tax revenues.
D)that lower tax rates are always going to lead to decreased tax revenues.
Q3) Briefly compare the three tax systems based on the relationship between the marginal tax rate and the average tax rate as income rises.
Q4) Why is the government budget constraint different between the short run and the long run?
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Chapter 7: The Macroeconomy: Unemployment, Inflation, and Deflation
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Sample Questions
Q1) Who stands to gain as a result of unanticipated inflation?
A)creditors
B)debtors
C)persons living on a fixed income
D)retired individuals
Q2) The nominal rate of interest is
A)the interest rate observed in today's market.
B)the interest rate observed in the market minus the inflation premium.
C)not influenced by inflation.
D)a value that depends upon the stock market.
Q3) The official dating of recessions is done by
A)the Council of Economic Advisors.
B)the National Bureau of Economic Research.
C)the Government Accounting Office.
D)the Secretary of the Treasury.
Q4) The natural rate of unemployment is the rate of unemployment that
A)all workers and employers have fully adjusted to any changes in the economy.
B)occurs when all workers find work in the economy.
C)is an unrealistic goal set by policymakers.
D)occurs when employers find more than one job applicant for each job available.
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Chapter 8: Global Economic Growth and Development
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Sample Questions
Q1) Entrepreneurship functions better when
A)the government performs the entrepreneurial function.
B)there is a well-defined property rights system.
C)saving is relatively low.
D)most of the population has low levels of education.
Q2) Which one of the following is TRUE?
A)Investments in secondary education produce gains in the form of economic growth.
B)Secondary education does not boost economic growth in developing nations, because so much of the workforce remains in agriculture.
C)New growth theory suggests that there is no connection between the level of education in a country and its rate of economic growth.
D)New growth theory suggests that education benefits only those people who receive it, and not the population as a whole.
Q3) Which of the following is an obstacle to economic development?
A)poorly defined property rights
B)foreign direct investment
C)immigration
D)openness to trade
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Chapter 9: Real GDP and the Price Level in the Long Run
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Sample Questions
Q1) An increase in the money supply will cause which of the following to occur?
A)a rightward shift of the aggregate supply curve
B)a leftward shift of the aggregate demand curve
C)a leftward shift of the aggregate supply curve
D)a rightward shift of the aggregate demand curve
Q2) Decreases in interest rates have made it less costly to finance purchases of new houses. What impact will this have on U.S. aggregate demand?
A)None. A nation's aggregate demand is not affected by changes in interest rates.
B)U.S. aggregate demand will remain unchanged.
C)U.S. aggregate demand will decrease.
D)The U.S. aggregate demand curve will shift to the right.
Q3) Long-run equilibrium will occur at the price level at which
A)the long-run aggregate demand and short-run aggregate supply curves intersect.
B)the aggregate demand and short-run aggregate supply curves intersect.
C)the aggregate demand and long-run aggregate supply curves intersect.
D)the short-run aggregate supply and long-run aggregate supply curves intersect.
Q4) What are three causes of supply-side inflation?
Q5) Explain how an economy can experience long-run economic growth and deflation at the same time.
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Chapter 10: Classical and Keynesian Macro Analyses
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Sample Questions
Q1) Say's law implies that
A)surpluses never occur.
B)surpluses or shortages are possible, but only for a short time.
C)there will always be unemployment.
D)shortages never occur.
Q2) In the above figure, an increase in aggregate demand has resulted in
A)a decline in the price level.
B)economic growth.
C)an inflationary gap.
D)a recessionary gap.
Q3) The concept of Say's law can be summed up by the phrase,
A)"supply creates its own demand."
B)"demand creates its own supply."
C)"supply and demand are equivalent concepts."
D)"supply and demand are irrelevant concepts."
Q4) The horizontal short-run aggregate supply curve
A)assumes that wages and all other input prices are constant.
B)shows that real GDP can be increased only when prices increase.
C)assumes that there is full employment in the economy.
D)assumes that opportunity cost is constant.
Page 12
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Chapter 11: Consumption, Real GDP, and the Multiplier
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Sample Questions
Q1) Use the above table. The autonomous consumption in this table is
A)$140.
B)$20.
C)$0.
D)$50.
Q2) A lump-sum tax, such as a $1000 tax that every family must pay one time, is
A)a type of income tax.
B)an autonomous tax.
C)negatively related to real GDP.
D)a regressive tax.
Q3) According to the above table, as the level of real disposable income increases
A)the marginal propensity to save declines.
B)the APC increases.
C)the marginal propensity to consume increases.
D)the APS increases.
Q4) When real planned saving is greater than real planned investment spending
A)the interest rate will increase.
B)the interest rate will decrease.
C)real GDP will increase.
D)real GDP will decrease.
13
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Chapter 12: Fiscal Policy
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Q1) When there is an interval between when the fiscal policy changes and corresponding changes in aggregate spending, we have a(n)
A)aggregate time lag.
B)action time lag.
C)recognition time lag.
D)effect time lag.
Q2) The Keynesian perspective on the effect of an increase in taxes is that this policy action
A)generates reductions in consumption and in saving.
B)generates reductions in consumption and an increase in saving to pay for the new taxes.
C)has no impact on consumption.
D)increases current consumption and reduces future consumption.
Q3) In the extreme case of a complete crowding-out effect
A)an increase in interest rates will stimulate investment spending.
B)an increase in tax rates will stimulate work effort.
C)an increase in government spending will not increase aggregate demand.
D)an increase in government spending will stimulate investment spending.
Q4) What is discretionary fiscal policy and what is its purpose?
Q5) Explain how indirect crowding out can offset expansionary fiscal policy.
Page 14
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Chapter 13: Deficit Spending and the Public Debt
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Q1) The two ways in which deficit spending can impose a burden on future generations are
A)by requiring future generations to face higher taxes and to work with a lower accumulated stock of capital goods.
B)by requiring future generations to face lower government spending and to utilize a smaller stock of human capital.
C)by substituting private goods for public goods and thereby shifting resources to foreign residents.
D)by substituting private goods for public goods and thereby benefiting only large businesses.
Q2) Which of the following is TRUE when a budget deficit exists?
A)Government expenditures exceed tax revenues.
B)Tax revenues exceed government expenditures.
C)A trade surplus exists.
D)Dissaving exists.
Q3) Explain how deficit spending could be a burden to future generations.
Q4) Explain how deficit spending can benefit future generations.
Q5) Explain the differences between the public debt and the government budget deficit.
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Chapter 14: Money Banking and Central Banking
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Q1) When the Fed buys government securities
A)reserves increase, leading to a decrease in the money supply by an amount more than the purchase of the government securities.
B)reserves decrease, leading to a increase in the money supply by an amount more than the purchase of the government securities.
C)reserves increase, leading to a increase in the money supply by an amount more than the purchase of the government securities.
D)reserves decrease, leading to a decrease in the money supply by an amount more than the purchase of the government securities.
Q2) A sale of securities by the Fed causes
A)a contraction of the money supply equal to the amount of the securities sold.
B)an expansion of the money supply equal to the amount of the securities sold.
C)a multiple expansion of the money supply greater than the amount of the securities sold.
D)a multiple contraction of the money supply greater than the amount of the securities sold.
Q3) What are the functions of money?
Q4) What is a fiduciary monetary system?
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Page 16
Chapter 15: Domestic and International Dimensions of Monetary Policy
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Q1) If the Fed thought the economy was experiencing a recessionary gap, and it wanted to correct this gap, it would
A)sell bonds.
B)lower the differential between the discount rate and the federal funds rate.
C)raise the reserve requirement.
D)increase aggregate supply.
Q2) As the world economy becomes more integrated through globalization
A)the Fed will find it easier to conduct monetary policy.
B)the Fed will have a more difficult time reaching its money supply growth rate targets.
C)the Fed will rely less on open market operations and more on changing the required reserve ratio when conducting monetary policy.
D)U.S. interest rates will determine world interest rates.
Q3) Which of the following is NOT part of the FOMC directive?
A)It lays out the FOMC's general economic objectives.
B)It establishes short-term federal funds rate objectives.
C)It specifies target ranges for money supply growth.
D)It specifies who the chair of the Fed is.
Q4) What is meant by the demand for money?
Page 17
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Chapter 16: Stabilization in an Integrated World Economy
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Q1) Refer to the above figure. Suppose the economy is at point B and the central bank adopts contractionary monetary policy. In the short run, this will result in
A)the economy moving towards point A.
B)the economy staying at point B.
C)the economy moving towards point C.
D)an outcome that cannot be predicted, because not enough information is given.
Q2) The Phillips curve shows the relationship between
A)the rate of growth in real GDP and the unemployment rate.
B)the inflation rate and the unemployment rate.
C)aggregate demand and the unemployment rate.
D)aggregate supply and the unemployment rate.
Q3) One economic hypothesis states that people form expectations by combining the effects of past policy changes on important economic variables with their own judgment about the future effects of current and future policy changes, and then react accordingly. This is known as the
A)relevance hypothesis.
B)contrary opinion hypothesis.
C)rational expectations hypothesis.
D)structural hypothesis.
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Page 18
Chapter 17: Policies and Prospects for Global Economic Growth
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Q1) Special drawing rights are
A)the reserves held by members of the European Union to back their accounts with the European Central Bank.
B)credit accounts held by individual stockholders with portfolio investments in other countries.
C)international units of account held by the International Monetary Fund for member countries.
D)the estimated level of oil reserves remaining in OPEC countries.
Q2) Foreign direct investment implies that the investor obtains ________ share in a foreign company's ownership.
A)less than 1 percent
B)less than 5 percent
C)less than 10 percent
D)none of the above
Q3) Economic freedom by its nature suggests
A)minimal government interference.
B)zero government.
C)a lack of laws and regulations.
D)economic anarchy.
Page 19
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Chapter 18: Comparative Advantage and the Open Economy
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Sample Questions
Q1) Suppose a Middle Eastern firm moves its final assembly line to Germany and then ships the final products to other members of the EU trading bloc. This is an example of
A)trade diversion.
B)trade deflection.
C)trade restriction.
D)trade detection.
Q2) Country X subsidizes industry A. A worldwide recession has hit and Country X has decided to export Good A worldwide, selling the product for less than it costs to produce it. This is
A)the infant industry argument.
B)comparative advantage argument.
C)dumping.
D)a regional trade bloc.
Q3) The net effect of regional trade agreements has been
A)an increase in the total amount of trade in the world.
B)a decrease in the total amount of trade in the world.
C)no change in the total amount of trade in the world.
D)either an increase or decrease in the amount of trade in the world, depending on where trade takes place.
Page 20
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Chapter 19: Exchange Rates and the Balance of Payments
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Q1) A system of accounts that measures the transactions of goods, services, income, and financial assets between domestic households, businesses, and governments and residents of the rest of the world during a specific time period is the A)capital account.
B)current account.
C)balance of payments.
D)balance of trade.
Q2) Which of the following combinations is plausible for a nation's balance of payments? (All numbers in billions.)
A)current account = 10, capital account = 40, official reserve transaction account = 50
B)current account = 40, capital account = 20, official reserve transaction account = -50
C)current account = 50, capital account = -30, official reserve transaction account = 20
D)current account = 30, capital account = -20, official reserve transaction account = -10
Q3) What brought about the end of the Bretton Woods Agreement?
Q4) Explain how the gold standard operated.
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