Business Economics
Midterm Exam
Course Introduction
Business Economics explores the application of economic theory and methodologies to real-world business decision-making. The course examines how businesses operate within different market structures, how they determine pricing, output, and investment strategies, and how they respond to changes in the economic environment. Topics include demand and supply analysis, production and cost functions, market equilibrium, competitive strategies, and the impact of government policy on business operations. Students will develop analytical skills to assess business problems and make informed managerial decisions in a dynamic marketplace.
Recommended Textbook Macroeconomics 12th Edition by Michael Parkin
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Page 2
Chapter 1: What Is Economics?
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Q1) A graph shows that as fees to use ATM machines increase, people use them less frequently. The graph of this relationship would show
A) an inverse relationship.
B) a negative relationship.
C) a direct relationship.
D) Both answers A and B are correct.
Answer: D
Q2) In the above figure, the axis breaks are used
A) to create a misleading graph.
B) to indicate that there are jumps from the origin, 0, to the first values recorded along the axes.
C) to indicate that there are not enough data to be included in the graph.
D) to show that there are no data available for the omitted ranges.
Answer: B
Q3) In the above diagram, draw a straight line with a slope of zero.
Answer: 11ea1607_d9fc_158e_ba9d_8387a731dc0e_TB3035_00 A horizontal line has a slope of zero. The figure above shows a horizontal line with a slope of zero.
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Chapter 2: The Economic Problem
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Q1) In markets, people's decisions are coordinated by
A) specialization according to absolute advantage.
B) changes in property rights.
C) learning-by-doing.
D) adjustments in prices.
Answer: D
Q2) According to the diagram in the figure above, an allocatively efficient use of resources requires that production and consumption of gasoline be
A) 1 million gallons of gasoline per month.
B) 2 million gallons of gasoline per month.
C) 3 million gallons of gasoline per month.
D) 4 million gallons of gasoline per month.
Answer: B
Q3) One of the opportunity costs of economic growth is A) capital accumulation.
B) technological change.
C) reduced current consumption.
D) the gain in future consumption.
Answer: C
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Chapter 3: Demand and Supply
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Q1) A decrease in the expected future price of cars
A) increases the current quantity demanded of cars, that is, there is a movement downward along the demand curve for cars.
B) increases the current demand for cars, that is, there is a rightward shift of the demand curve for cars.
C) decreases the current quantity demanded of cars, that is, there is a movement upward along the demand curve for cars.
D) decreases the current demand for cars, that is, there is a leftward shift of the demand curve for cars.
Answer: D
Q2) When income increases, the demand curve for X shifts rightward and the demand curve for Y shifts leftward. These shifts mean that
A) X and Y are complements.
B) X and Y both normal goods.
C) X is an inferior good and Y is a normal good.
D) X is a normal good and Y is an inferior good.
Answer: D
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Chapter 4: Measuring GDP and Economic Growth
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Q1) The use of purchasing power parity prices
A) decreases the real GDP per person statistics published by the International Monetary Fund.
B) weakens the validity of cross country comparisons of economic welfare.
C) increases the amount by which U.S. GDP is larger than that of any other nation.
D) accounts for differences in the prices of the same goods in different countries when measuring real GDP.
Q2) If Ford sells 200 Explorers for a total of $400,000 to Germany, while the United States imports 100 BMWs for a total of $500,000 from Germany
A) U.S. GDP increases because it sells more Explorers.
B) U.S. GDP decreases because net exports are negative.
C) Germany's GDP decreases.
D) U.S. net exports is positive.
Q3) Which of the following is NOT included in real GDP?
A) production of services, such as the services of doctors
B) production of goods that last more than one year, such as television sets
C) production of goods that do not last more than one year, such as gasoline
D) production in the home
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Chapter 5: Monitoring Jobs and Inflation
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Q1) What is the definition of the unemployment rate? How are part-time workers and discouraged workers treated when calculating the unemployment rate?
Q2) A recent accounting graduate from a major business school is searching for a place to begin his career as an accountant. This individual is best considered as A) structurally unemployed.
B) seasonally unemployed.
C) cyclically unemployed.
D) frictionally unemployed.
Q3) If this year's price level exceeds last year's A) the inflation rate between these years has been positive. B) the inflation rate is accelerating.
C) deflation is occurring.
D) no relative price changes are occurring.
Q4) Suppose the population is 220 million people, the labor force is 150 million people, the number of people employed is 130 million and the working-age population is 175 million people. What is the unemployment rate?
Q5) If the base year CPI basket costs $250 and next year the CPI basket costs $275, what is next year's CPI?
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Page 7
Chapter 6: Economic Growth
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Q1) Which of the following statements are CORRECT?
I.The average economic growth rate in real GDP per person in the United States over the last century was 5 percent per year.
II.The United States has the highest economic growth rate of any nation.
A) I only
B) II only
C) both I and II
D) neither I nor II
Q2) The assumption that population growth will lead to a fall in real GDP per person rate back to subsistence level is
A) accepted by all economists today.
B) associated with Malthusians.
C) part of the neoclassical school of growth theory.
D) central to the new growth theory.
Q3) One policy that would increase the saving rate would be
A) raising taxes on the returns to saving.
B) raising taxes on the returns to investment.
C) taxing consumption.
D) raising taxes on saving.
Q4) How does the new growth theory explain economic growth?
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Chapter 7: Finance, Saving, and Investment
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Q1) During the financial crisis in 2007 and 2008, financial institutions believed that default risks were higher. As a result, there was ________ in the supply of loanable funds and a ________ in the real interest rate.
A) a decrease; fall
B) an increase; rise
C) an increase; fall
D) a decrease; rise
Q2) Which of the following influences household saving?
I.The real interest rate
II.Disposable income
III.Expected future income
A) I only
B) I and II
C) I and III
D) I, II, and III
Q3) The crowding-out effect refers to
A) government spending crowding out private spending.
B) private saving crowding out government saving.
C) government investment crowding out private investment.
D) private investment crowding out government saving.
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Chapter 8: Money, the Price Level, and Inflation
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Q1) Money is created by
A) government taxation.
B) banks taking in deposits.
C) banks making loans.
D) banks paying for depositor's insurance.
Q2) Which of the following is a liability of the Federal Reserve?
A) currency
B) mortgage-backed securities
C) U.S. government securities
D) U.S. coins
Q3) In the money market, if the interest rate exceeds the equilibrium interest, there is a surplus of money. How is the surplus eliminated?
A) People buy bonds to rid themselves of the surplus money, bidding up their price and pushing interest rates down.
B) Banks will lend out the surplus, lowering interest rates.
C) The Federal Reserve will destroy currency, reducing the quantity of money.
D) The high interest rate increases the demand for money, eliminating the surplus.
Q4) What factors affect the demand for money?
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) Using the table above, if the current market value of the dollar is 110 francs
A) investor A expects dollar appreciation, but B and C expect depreciation.
B) investor C expects dollar depreciation, but A and B expect appreciation.
C) all three investors expect the dollar to appreciate.
D) all three investors expect the dollar to depreciate.
Q2) The lower the exchange rate today, ceteris paribus, the
A) greater is the expected profit from buying U.S. dollars today and holding them.
B) smaller is the expected profit from buying U.S. dollars today and holding them.
C) greater is the expected profit from buying foreign currency today and holding it.
D) smaller the quantity of U.S. dollars demanded in the foreign exchange market today.
Q3) The largest part of the U.S. current account consists of
A) Fed transfers of U.S. dollars to other central banks.
B) net transfer payments between the United States and Mexico.
C) receipts from exports and payments for imports.
D) net borrowing between the United States and other countries.
Q4) What is purchasing power parity?
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) In the short run, a supply shock that shifts the short-run aggregate supply curve leftward ________ real GDP and ________ the price level.
A) increases; raises B) decreases; raises C) increases; lowers D) decreases; lowers
Q2) In the above figure, the inflationary gap when AD? is the aggregate demand curve equals
A) the difference between 110 and 100.
B) the difference between $16.5 trillion and $16.0 trillion.
C) LAS minus SAS at a price level of 100.
D) AD?.
Q3) An increase in government expenditure on goods and services
A) increases aggregate demand.
B) increases the aggregate quantity demanded.
C) decreases the aggregate quantity demanded.
D) decreases aggregate demand.
Q4) Give examples of factors that decrease aggregate demand. Which way does the aggregate demand curve shift?
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Chapter 11: Expenditure Multipliers
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Q1) The value of the multiplier in the economy illustrated in the figure above is
A) 2.0.
B) 2.5.
C) 4.0.
D) 10.0.
Q2) The figure above illustrates an economy's consumption function. What is the marginal propensity to consume in this economy?
A) 0.67
B) 1.00
C) 0.75
D) 0.33
Q3) How does the concept of the multiplier help explain business cycle turning points?
Q4) In the above figure, at a disposable income level of $2 trillion, saving equals
A) disposable income.
B) zero.
C) $4 trillion.
D) consumption expenditures.
Q5) Discuss the relationship between the business cycle and changes in autonomous expenditures.
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Chapter 12: The Business Cycle, Inflation, and Deflation
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Q1) An economy is at potential GDP and the price level is 100 in the figure above. If aggregate demand unexpectedly increases so that the aggregate demand curve shifts to AD?, the inflation rate is ________.
A) 0 percent a year
B) 10 percent a year
C) 20 percent a year
D) More than 20 percent a year
Q2) According to the real business cycle theory, an increase in the price of a resource (such as oil), that decreases the demand for loanable funds will ________ employment and ________ real GDP.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q3) An increase in the expected inflation rate shifts
A) both the short-run and the long-run Phillips curves upward.
B) the short-run but not the long-run Phillips curve upward.
C) the long-run but not the short-run Phillips curve upward.
D) neither the short-run nor the long-run Phillips curve.
Q4) What is the factor that leads to business cycles in the monetarist cycle theory?
Page 14
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Chapter 13: Fiscal Policy
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Q1) The tax rebates passed by Congress in 2008 to help move the economy more rapidly toward potential GDP are an example of
A) automatic fiscal policy.
B) discretionary fiscal policy.
C) non-needs spending.
D) contractionary fiscal policy.
Q2) Tax revenues ________ during recessions and ________ during expansions. A) decrease; decrease
B) decrease; increase
C) increase; expansions
D) increase; increase
Q3) Does the figure above illustrate a recessionary or an inflationary gap? What do potential GDP and real GDP equal? What is an appropriate fiscal policy to restore real GDP to potential real GDP?
Q4) The largest component of the fiscal imbalance is A) Social Security.
B) Medicare.
C) defense spending.
D) none of the above.
Q5) How can discretionary fiscal policy be used to close a recessionary gap?
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Chapter 14: Monetary Policy
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Q1) Which of the following is a problem in pursuing monetary policy?
A) The lag between a change in the quantity of money and its effect on economic activity is too short.
B) Monetary policy must be approved by the Congress.
C) The Fed cannot control the federal funds rate.
D) None of the above answers is correct.
Q2) In order to combat a recession, the Fed will ________ the federal funds rate and thereby ________ the quantity of money.
A) raise; increasing
B) lower; increasing C) raise; decreasing
D) lower; decreasing
Q3) An open market purchase of government securities by the Federal Reserve shifts the ________ reserves curve ________.
A) supply of; leftward
B) supply of; rightward
C) demand for; rightward
D) demand for; leftward
Q4) Describe how open market operations change the quantity of money.
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Chapter 15: International Trade Policy
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Q1) In 2006, the European Union (EU)threatened to ban imports of long-grain rice because traces of genetically modified rice were found mixed in to commercial supplies. Instead of a ban, suppose the EU placed a tariff on the import of long-grain rice. Which of the following would be an outcome of this tariff?
A) The EU would gain tariff revenue.
B) The social loss would decrease.
C) European rice producers would decrease production.
D) The price of long-grain rice in the EU would be higher with a tariff than if rice imports were completely banned.
Q2) As a result of an increase in tariffs, imports decrease and government revenue increases.
A)True
B)False
Q3) In the figure above, with international trade U.S. companies buy ________ helicopters per year.
A) 240
B) 480
C) 720
D) 360
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