Course Introduction
Business Economics
Pre-Test Questions
Business Economics explores the application of economic theories and methodologies to real-world business decision-making. The course examines fundamental concepts such as supply and demand, market structures, cost analysis, and pricing strategies, equipping students with analytical tools to assess business environments. It also covers macroeconomic factors that impact organizations, including inflation, unemployment, fiscal and monetary policy, and global economic trends. By integrating economic reasoning with practical business challenges, the course helps students develop critical thinking and problem-solving skills relevant to managerial and strategic planning in various industries.
Recommended Textbook
Macroeconomics 11th Edition by Michael Parkin
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Page 2
Chapter 1: What Is Economics
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Q1) An economic model includes
A) only normative statements.
B) no use of marginal concepts.
C) all known details in order to increase its accuracy.
D) only details considered essential.
Answer: D
Q2) The opportunity cost of attending college includes the cost of
A) the tuition but not the job at which you would otherwise have worked.
B) the highest valued alternative to attending college.
C) the highest valued alternative to attending college plus the cost of tuition.
D) tuition, books, and the lost wages for the hours spent studying.
Answer: C
Q3) The slope of the line in the above figure is A) 8.
B) 0.05.
C) 0.125.
D) 0.10.
Answer: C
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3
Chapter 2: The Economic Problem
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Q1) In one day,Sue can change the oil on 20 cars or change the tires on 20 cars.In one day,Fred can change the oil on 20 cars or change the tires on 10 cars.Sue's opportunity cost of changing oil is ________ than Fred's and her opportunity cost for changing tires is ________ than Fred's.
A) greater; less
B) less; greater
C) less; less
D) greater; greater
Answer: A
Q2) The above table shows production combinations on a country's production possibilities frontier.Which of the following points signifies efficient production?
A) 0 units of good X and 40 units of good Y
B) 3 units of good X and 25 units of good Y
C) 10 units of good X and 16 units of good Y
D) 12 units of good X and 1 unit of good Y
Answer: A
Q3) Explain how the production possibilities frontier illustrates scarcity.
Answer: The PPF illustrates scarcity because we cannot attain the points outside the frontier.
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Page 4
Chapter 3: Demand and Supply
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Sample Questions
Q1) Blank DVDs and prerecorded DVDs are substitutes in production.An increase in the price of a blank DVD will lead to
A) an increase in the supply of prerecorded DVDs.
B) a decrease in the supply of prerecorded DVDs.
C) an increase in the quantity supplied of prerecorded DVDs but not in the supply of prerecorded DVDs.
D) a decrease in the quantity supplied of prerecorded DVDs but not in the supply of prerecorded DVDs.
Answer: B
Q2) What leads to a decrease in the quantity demanded of a good or service?
Answer: The quantity demanded of a good or service decreases when the price of the product increases.
Q3) The demand curve for a normal good shifts leftward if income ________ or the expected future price ________.
A) decreases; falls
B) decreases; rises
C) increases; falls
D) increases; rises
Answer: A
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Page 5
Chapter 4: Measuring GDP and Economic Growth
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Q1) All of the following are components of the expenditure approach to measuring GDP EXCEPT
A) Shaniq's purchase of a meal at the Olive Garden in Atlanta.
B) a Senator from Iowa being paid the monthly salary.
C) the army buying new M1 Abram tanks.
D) Ford Motor Company buying new Dell computers for use in its marketing department in Dearborn, Michigan.
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) If an American firm produces goods that are sold to a German household,then
A) German GDP increases but not U.S. GDP.
B) U.S. GDP increases.
C) the transaction is considered an export in the German GDP accounts.
D) net exports in the United States will not change because an export immediately generates an offsetting import.
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Page 6
Chapter 5: Monitoring Jobs and Inflation
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Sample Questions
Q1) Using the notation Pt to designate this period's price level and Pt to designate last period's price level,the formula for measuring the inflation rate from last period to this period is
A) [(Pt - Pt ) / Pt] × 100.
B) [(Pt - Pt) / Pt ] × 100.
C) [(Pt - Pt ) / Pt ] × 100.
D) [(Pt - Pt) / Pt] × 100.
Q2) Unemployment caused by the normal labor turnover is called ________ unemployment.
A) part-time
B) frictional
C) involuntary
D) cyclical
Q3) The labor force is defined as the number of
A) people 16 and over.
B) unemployed people.
C) people with jobs, both part-time and full-time.
D) people who are employed and unemployed.
Q4) Last year the CPI was 177.1 and this year the CPI is 180.9.What was the inflation rate between these two years?
Page 7
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Chapter 6: Economic Growth
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Q1) Factors that influence labor productivity include ________.
A) the inflation rate, the real wage rate, and the exchange rate
B) the labor demand curve
C) physical capital, the real wage rate, and technology
D) physical capital, human capital, and technology
Q2) The real wage rate measures the quantity of goods and services an hour's work will buy.
A)True
B)False
Q3) New growth theory claims that economic growth occurs because firms reap profits from research and add to the stock of capital.
A)True
B)False
Q4) The aggregate production function describes the relationship between
A) real GDP and the quantity of labor employed.
B) real GDP and the price level.
C) the rate of growth of real GDP and inflation.
D) real GDP and the unemployment rate.
Q5) What happens to the real wage rate and potential GDP if population increases?
Page 8
Q6) How has U.S.real GDP per person changed over the last 100 years?
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Chapter 7: Finance, Saving, and Investment
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Q1) In the loanable funds market,what variable changes to eliminate a shortage of loanable funds and how is the shortage eliminated?
Q2) In the above figure,if the real interest rate is 4 percent,then there
A) there is a surplus of loanable funds.
B) is equilibrium in the loanable funds market.
C) the real interest rate will rise.
D) the demand curve for loanable funds will shift rightward.
Q3) In the above figure,the economy is at point a on the initial supply of loanable funds curve SLF .What happens if real wealth decreases?
A) Nothing; the economy would remain at point a.
B) There would be a movement to a point such as b on supply of loanable funds curve SLF .
C) The supply of loanable funds curve would shift rightward to a curve such as SLF .
D) The supply of loanable funds curve would shift leftward to a curve such as SLF .
Q4) If Ann's disposable income increases,her saving decreases.
A)True B)False
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Chapter 8: Money, The Price Level, and Inflation
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Sample Questions
Q1) An individual wanting the most liquid asset possible will hold A) currency.
B) a savings account.
C) gold.
D) U.S. government bonds.
Q2) Suppose you hold $50 to buy groceries weekly and then the price of groceries increases by 5 percent.To be able to buy the same amount of groceries,what must happen to your nominal money holdings?
A) They must increase by $5.
B) They can decrease by $5.
C) They must increase by $2.50.
D) They must increase, but the amount of the increase is different than the above answers.
Q3) Barter is
A) another type of money.
B) printing too much money.
C) the exchange of goods and services directly for other goods and services.
D) the exchange of goods and services for any type of money.
Q4) In the short run,how is the interest rate determined?
If the interest rate is less than the equilibrium interest rate,what occurs?
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) The exchange rate is the
A) opportunity cost of pursuing a nation's comparative advantage.
B) price of one country's currency expressed in terms of another country's currency.
C) ratio between imports and exports.
D) interest rate that is charged on risk-free international capital flow.
Q2) When the U.S.government buys aircraft from BAe,a British corporation,it pays for them using
A) euros.
B) pounds.
C) dollars.
D) foreign exchange rates.
Q3) When there is a current account deficit and the official settlements account equals 0,then
A) exports exceed imports for the country.
B) the country is an exporter of capital.
C) the capital and financial account has a surplus.
D) the country has a budget surplus.
Q4) In the foreign exchange market,what factor leads to a movement along the demand curve for dollars?
11
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) In the above figure,the economy is at point A when the money wage rate and the price level both fall by 10 percent.Firms will be willing to supply output equal to A) less than $13.0 trillion
B) $13.0 trillion
C) more than $13.0 trillion
D) Without more information, it is impossible to determine which of the above answers is correct.
Q2) The data in the above table show that the economy will be in a short-run macroeconomic equilibrium at a price level of A) 90.
B) 110.
C) 100.
D) 120.
Q3) Give examples of factors that decrease short-run aggregate supply.Which way does the SAS curve shift?
Q4) An increase in the quantity of money shifts the aggregate demand curve rightward. A)True
B)False
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Chapter 11: Expenditure Multipliers
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Sample Questions
Q1) If the slope of the AE curve is 0.60,the value of the multiplier is
A) 2.5.
B) 0.4.
C) 1.67.
D) 4.0.
Q2) If a $75 billion increase in autonomous expenditure increases equilibrium expenditure by $150 billion,then the multiplier is ________.
A) $225 billion
B) 0.625
C) $75 billion
D) 2
Q3) How is it possible for consumption expenditure to be positive even when disposable income is zero?
Q4) "Similar to imports,U.S.exports depend on the level of U.S.real GDP so that if real GDP increases,U.S.exports increase." Explain whether the previous sentence is correct or incorrect.
Q5) Discuss how the marginal propensity to consume,imports,and income tax rates influence the multiplier.
Q6) Discuss the link between real GDP and imports.
Page 13
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Chapter 12: Inflation, Jobs, and the Business Cycle
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Q1) Both the new classical and new Keynesian business cycle theories agree that
A) expected changes in aggregate demand lead to the business cycle.
B) unexpected changes in aggregate demand cannot result in a business cycle.
C) the money wage rate is influenced by rational expectations of the price level.
D) the long-term nature of wage contracts allow expected changes in the price level to cause business cycles.
Q2) Which of the following theories is criticized for assuming the money wage rate is not sticky?
A) monetarist cycle theory
B) real business cycle theory
C) Keynesian cycle theory
D) new Keynesian cycle theory
Q3) When the expected inflation rate changes,what happens to the short-run Phillips curve?
To the long-run Phillips curve?
Q4) In the long run,what is the tradeoff between inflation and unemployment?
Explain your answer using Phillips curve analysis.
Q5) Define and describe the short-run Phillips curve.
Q6) Compare and contrast the Keynesian and Monetarist business cycle theories.
Page 14
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Chapter 13: Fiscal Policy
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Q1) Corporate income taxes are the largest source of revenue for the federal government.
A)True
B)False
Q2) The largest source of revenue for the federal government is ________ and the largest outlay is for ________.
A) corporate taxes; Social Security
B) personal income taxes; Medicare
C) personal income taxes; interest on national debt
D) personal income taxes; transfer payments
Q3) If employment is less than full employment,what fiscal policy should the government pursue?
Q4) The table above has data for a country's government budget.Government outlays for the economy equal ________ billion.
A) $1200
B) $1275
C) $1500
D) $1425
Q5) What is fiscal policy and what are its purposes?
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Chapter 14: Monetary Policy
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Q1) Ben Bernanke has been more precise than his predecessor,suggesting a core inflation rate of ________ per year is the same as price stability.
A) 0 to 1 percent
B) 0 to 2 percent
C) 1 to 2 percent
D) 1 to 4 percent
Q2) If the Fed wants to lower the federal funds rate,it can
A) decrease the budget deficit.
B) sell government securities in the open market.
C) instruct banks to print more money.
D) buy government securities on the open market.
Q3) Federal Reserve Chairman Ben Bernanke has defined price stability as occurring when core inflation is
A) exactly 0 percent.
B) less than 10 percent.
C) between 1 and 2 percent.
D) used in wage-setting contracts.
Q4) In the aggregate demand/aggregate supply framework,lowering the federal funds rate has what short-run effects on real GDP?
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Chapter 15: International Trade Policy
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Q1) During the first 6 months of 2008,the United States imported more than 1.6 billion pounds of coffee. Suppose the United States is considering placing trade restrictions on the importation of coffee. What would be a potential consequence of such a trade restriction?
A) The U.S. price of coffee would increase.
B) U.S. consumers would drink more coffee.
C) The quantity of coffee imported into the United States would increase.
D) If the United States instead imposed a quota on coffee imports, government tax revenue would increase by more than with a tariff.
Q2) Explain the effects of a quota.
Q3) Agriculture Secretary Ed Schafer today announced that Chile's Livestock and Agricultural Service approved the U.S.inspection,control and certification systems for poultry,allowing these products to enter the Chilean market effective immediately. What is NOT an effect of this change in Chilean policy on the Chilean poultry market?
A) Chile's tariff revenue will increase.
B) The quantity of poultry consumed in Chile will increase.
C) The quantity of Chilean imports will increase.
D) The price for poultry in Chile will decrease.
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Chapter 16: Introduction
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Q1) A processor of alligator hides can produce either purses or shoes.If the demand for alligator shoes increases,then the ________ alligator purses will ________.
A) supply of; increase
B) supply of; decrease
C) demand for; decrease
D) demand for; increase
Q2) The table above lists six points on the production possibilities frontier for cheese and DVDs.What is the opportunity cost of producing the 7th ton of cheese?
A) 16 DVDs per ton of cheese
B) 8 DVDs per ton of cheese
C) 20 DVDs per ton of cheese
D) 28 DVDs per ton of cheese
Q3) The opportunity cost of a good is
A) the income you forgo to get it.
B) the lowest valued alternative you give up to get it.
C) the highest valued alternative you give up to get it.
D) all alternatives you give up to get it.
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Chapter 17: Monitoring Macroeconomic Performance
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Q1) A significant decline in activity spread across the economy,lasting more than a few months is called
A) a recession.
B) an expansion.
C) a peak.
D) inflation.
Q2) Comparing the unemployment rate and the business cycle we see that
A) the unemployment rate generally increases during expansions and generally decreases during recessions.
B) there is virtually no relationship between the business cycle and the unemployment rate.
C) the unemployment rate eventually falls during expansions and rises during recessions.
D) higher unemployment rates are the cause of most business cycles.
Q3) The difference between nominal GDP and real GDP is that real GDP eliminates the effects from
A) depreciation.
B) inflation.
C) the unemployment rate.
D) changes in productivity.
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Chapter 18: Macroeconomic Trends
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Q1) In the foreign exchange market,if the supply of dollars ________ and simultaneously the demand for dollars ________,then the exchange rate definitely
A) increases; increases; depreciates B) decreases; increases; depreciates C) increases; decreases; depreciates
D) decreases; decreases; appreciates
Q2) The ________ growth theory assumes that population growth is not driven by real GDP per person and the ________ growth theory predicts that differences in the economic growth rate can last indefinitely.
A) new; classical
B) neoclassical; new
C) classical; neoclassical
D) neoclassical; neoclassical
Q3) The opportunity cost of holding money is the
A) price level.
B) real interest rate.
C) velocity of circulation.
D) nominal interest rate.
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Chapter 19: Macroeconomic Fluctuations
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Q1) Suppose disposable income increases from $11 trillion to $12 trillion.At the same time,consumption expenditure increases from $4.2 trillion to ________.Thus the MPC must equal ________.
A) $5.0 trillion; 0.50
B) $5.0 trillion; 0.80
C) $4.4 trillion; 0.40
D) $5.5 trillion; 0.50
Q2) If the Fed increases the quantity of money,________ economists believe that the ________.
A) Keynesian; aggregate supply curve shifts rightward
B) Keynesian; structural deficit increases
C) monetarist; cyclical deficit increases
D) monetarist; aggregate demand curve shifts rightward
Q3) Long-run macroeconomic equilibrium occurs when
A) real GDP is equal to potential GDP.
B) real GDP is at a point along the short-run aggregate supply curve.
C) the unemployment rate is zero.
D) all able-bodied adults have jobs.
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Chapter 20: Macroeconomic Policy
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Q1) An economy has real GDP of $300 billion and potential GDP of $240 billion.To move the economy to potential GDP,the government should ________ taxes and/or ________ government expenditure.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q2) A decrease in government expenditures on goods and services is an example of ________.
A) a fiscal policy designed to increase real GDP
B) decreasing needs-tested spending programs
C) increasing induced taxes
D) a fiscal policy designed to decrease real GDP
Q3) If the Fed makes an open market ________ of government securities,the federal funds rate ________ and the immediate impact is to shift the aggregate ________ curve.
A) purchase; falls; demand
B) sale; falls; demand
C) sale; rises; supply
D) purchase; rises; supply
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