Contemporary Economic Issues
Exam Answer Key
Course Introduction
This course explores current and emerging issues shaping global and domestic economies, emphasizing the practical application of economic concepts to real-world situations. Students analyze topics such as globalization, inequality, financial crises, environmental sustainability, labor market changes, and the impact of technology on economic growth. The course reviews policy responses and debates, encouraging critical thinking and data-driven evaluation of pressing economic challenges. Through case studies, discussions, and research, students develop a nuanced understanding of how economic theory informs decision-making in todays rapidly changing economic environment.
Recommended Textbook
Economics Private and Public Choice 14th Edition by
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Page 2
David A. Macpherson
Chapter 1: The Economic Approach
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Sample Questions
Q1) "The money and resources currently being devoted to the War on Terrorism reduces the quantity of other goods that we are able to supply." This statement most clearly illustrates which of the following?
A)the fallacy of composition.
B)the idea that association is not causation.
C)the concept of opportunity cost.
D)the difference between positive and normative economics.
Answer: C
Q2) The benefit (or satisfaction)that an individual expects to derive from an activity is called
A)opportunity cost.
B)utility.
C)marginal cost.
D)scarcity.
Answer: B
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Chapter 2: Asome Tools of the Economist
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Sample Questions
Q1) Which of the following is true of a production possibilities curve?
A)It reveals the maximum amount of any two goods that can be produced from a fixed quantity of resources.
B)It reveals the ideal level of technology for a country.
C)It assumes that the prices of the two products are equal.
D)For a country that could produce many different goods,it shows which two goods are most important to produce.
Answer: A
Q2) For most students attending state universities,the largest cost component of going to college is
A)the cost of books and supplies.
B)the cost of room and board.
C)tuition.
D)the opportunity cost in terms of forgone current income from the time spent attending college.
Answer: D
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4
Chapter 3: Asupply,demand,and the Market Process
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Sample Questions
Q1) An increase in the price of a good normally increases the A)demand for its substitutes
B)supply of complements for the good
C)purchasing power of consumers' dollar incomes
D)money income of the consumer
Answer: A
Q2) Economists would say that the demand for tacos is
A)relatively inelastic because there are very few close substitutes available.
B)relatively elastic because there are many substitutes for tacos.
C)increasing because of reports of Mad Cow Disease.
D)relatively inelastic because its demand curve is flatter.
Answer: B
Q3) Ceteris paribus,a decrease in the price of a good will cause the
A)quantity demanded of the good to decrease.
B)quantity supplied of the good to increase.
C)producer surplus derived from the good to decrease.
D)supply of the good to decrease.
Answer: C
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Chapter 4: Asupply and Demand: Applications and Extensions
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Sample Questions
Q1) The Laffer curve illustrates the principle that
A)when tax rates are quite high,reducing tax rates will increase tax revenue.
B)when tax rates are quite low,reducing tax rates will increase tax revenue.
C)when tax rates are quite high,reducing tax rates will decrease tax revenue. D)increasing tax rates always increases tax revenue.
Q2) Which of the following statements is correct?
A)Whenever a per-unit tax is imposed,sellers always pass on the full amount of the tax to consumers in the form of higher prices.
B)The burden of a per-unit tax on cigarettes would likely fall more on consumers than would the burden of a tax on imported bottled water.
C)The burden of a per-unit tax is always equally shared between producers and consumers.
D)When a per-unit tax is imposed,the total losses to producers and consumers exactly equal the amount of revenue collected by the government.
Q3) Bill the butcher is upset because the government plans to tax beef $.10 a pound."I hate paying taxes," he says."Because of this,I'm raising all my beef prices by $.10 a pound.The consumers will bear this burden,not me." Do you see anything wrong with this way of thinking? Explain.
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Chapter 5: Difficult Cases for the Market and the Role of Government
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Sample Questions
Q1) In the absence of government intervention,goods with external costs tend to be A)overproduced.
B)underproduced.
C)efficiently produced.
D)offset by goods generating external benefits.
Q2) Compared to ideal economic efficiency,when the production of a good generates external benefits,competitive markets will likely result in an output that is too
A)large and a price that is too high.
B)large and a price that is too low.
C)small and a price that is too high.
D)small and a price that is too low.
Q3) If the construction of a new roadway would create $10 billion worth of benefits for citizens and would cost $8 billion to construct,then using the criterion of economic efficiency,the roadway
A)should be built.
B)should not be built.
C)results in no net improvement to the welfare of society.
D)should be built only if it passes by a majority vote.
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Chapter 6: The Economics of Collective Decision-Making
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Sample Questions
Q1) Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project.For which types of projects would government action most likely work well,undertaking only efficient projects and rejecting inefficient ones?
A)types A and B
B)types B and D
C)types B and C
D)types A and D
Q2) In economics,actions by individuals and interest groups designed to influence public policy in a manner that will either directly or indirectly redistribute more income to themselves are known as
A)logrolling.
B)rent seeking.
C)influence peddling.
D)redistribution searching.
Q3) A survey of income by county revealed that four of the five wealthiest counties were located in the suburbs surrounding Washington,D.C.Why?
Q4) Is calling a voter rationally ignorant the same as calling her irrational? Explain.
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Chapter 7: Ataking the Nations Economic Pulse
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Sample Questions
Q1) Refer to Table 7-8.Gross domestic product equals
A)$5,500.
B)$5,650.
C)$5,800.
D)$6,650.
Q2) In 1980,the price of a gallon of gasoline was $1.25.The Consumer Price Index was 82.4 in 1980 compared to 215.3 in 2008 (1983 - 1984 = 100).Measured in 2008 dollars,the price of gasoline in 1980 was
A)$0.56.
B)$1.25.
C)$2.37.
D)$3.27.
Q3) Which one of the following would count as investment in the national income accounts?
A)purchase of a new airplane by an airline
B)purchase of a U.S.government bond
C)purchase of 100 shares of Wal-Mart stock
D)purchase of an existing house
Q4) Explain the two approaches to calculating GDP.
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Chapter 8: Economic Fluctuations, unemployment, and Inflation
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Sample Questions
Q1) Which of the following would be most likely to reduce the rate of unemployment?
A)a business recession
B)an Internet job listing system that makes it easier to get information about job openings and available employees
C)an increase in unemployment compensation benefits
D)a rise in the minimum wage
Q2) Suppose an economy is operating at its maximum sustainable output rate.Neither recession nor economic boom are present.Which of the following would be true?
A)The economy would be considered at full employment.
B)Actual GDP would exceed potential GDP.
C)Actual unemployment will be less than the natural rate of unemployment.
D)One hundred percent of the labor force is employed.
Q3) Economists define full employment as the level of employment that results when
A)the economy is in an economic boom.
B)the rate of unemployment is zero.
C)the rate of unemployment has fallen to its historical low of approximately two percent.
D)the rate of unemployment is normal,considering both frictional and structural factors.
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Chapter 9: Aan Introduction to Basic Macroeconomic Markets
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Sample Questions
Q1) People anticipate inflation will be 3 percent during the next several years.If this is true,when the real interest rate is 4 percent,the money interest rate will be
A)1 percent.
B)3 percent.
C)4 percent.
D)7 percent.
Q2) If the dollar price of the English pound goes from $1.80 to $1.40,the dollar has
A)appreciated,and the English will find U.S.goods cheaper.
B)appreciated,and the English will find U.S.goods more expensive.
C)depreciated,and the English will find U.S.goods cheaper.
D)depreciated,and the English will find U.S.goods more expensive.
Q3) If expected inflation is constant,then when the nominal interest rate falls,the real interest rate
A)falls by more than the change in the nominal interest rate.
B)falls by the change in the nominal interest rate.
C)rises by the change in the nominal interest rate.
D)rises by more than the change in the nominal interest rate.
Q4) What are the three reasons why the aggregate demand curve slopes downward? Give an example of each.
Page 11
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Chapter 10: Dynamic Change, economic Fluctuations, and the Ad-As Model
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Sample Questions
Q1) During an economic contraction,housing and stock prices generally
A)fall,leading to a reduction in aggregate demand.
B)fall,leading to an increase in aggregate demand.
C)rise,leading to a reduction in aggregate demand.
D)rise,leading to an increase in aggregate demand.
Q2) What impact did the change in housing prices during 2002 to 2005 have within the framework of the AD/AS model?
A)Declining housing prices reduced aggregate demand shifting AD leftward.
B)Rising housing prices increased aggregate demand shifting AD rightward.
C)Rising housing prices led to increased construction shifting LRAS leftward.
D)Declining housing prices caused SRAS to shift leftward.
Q3) An unanticipated decline in the real interest rate in the loanable funds market will cause the
A)aggregate demand curve to shift to the right.
B)aggregate demand curve to shift to the left.
C)long-run aggregate supply curve to shift to the left.
D)natural rate of unemployment to fall.
Q4) Which will cause a larger short-run increase in prices: an anticipated or unanticipated increase in aggregate demand? Will they cause the same increase in prices in the long run?
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Chapter 11: Fiscal Policy: the Keynesian View and Historical Perspective
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139 Flashcards
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Sample Questions
Q1) The Great Depression provided support for Keynes' view that
A)government action was necessary to ensure interest rates remained at the equilibrium level.
B)prolonged periods of unemployment would be present when demand is deficient.
C)falling resource prices would bring the economy out of a recession.
D)lower interest rates would quickly restore the full employment equilibrium of an economy.
Q2) Refer to Figure 11-2.When the economy is operating at point a,reliance on the self-correcting mechanism will
A)result in higher resource prices and a shift to the left in the SRAS curve.
B)result in lower resource prices and a shift to the right in the SRAS curve.
C)lead to lower interest rates and a shift to the right in the AD curve.
D)lead to higher interest rates and a shift to the left in the AD curve.
E)do both a and d.
Q3) What is fiscal policy? What is the relationship between fiscal policy and the federal budget?
Q4) Is there any way to conduct fiscal policy and avoid the lags involved with discretionary policy?
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Q5) How does Keynesian economic theory recommend that fiscal policy be conducted?
Chapter 12: Fiscal Policy, incentives, and Secondary Effects
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Sample Questions
Q1) As more politically directed spending leads to more rent-seeking activity, A)the spending will increase GDP,but only if it is directed toward productive activity. B)the spending will decrease GDP,but only if it is directed toward unproductive activity.
C)resources will be channeled toward unproductive activity and away from productive activity.
D)resources will be channeled toward productive activity and away from unproductive activity.
Q2) Ted Harper's annual income increased from $20,000 to $25,000.If Ted faces a 40 percent effective marginal tax rate,the $5,000 increase in income will expand his disposable income by
A)$2,000.
B)$3,000.
C)$3,600.
D)$5,000.
Q3) What is the "crowding-out" effect? How does the crowding-out effect influence the potency of fiscal policy?
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Chapter 13: Amoney and the Banking System
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Sample Questions
Q1) The immediate effect of a member bank's sale of U.S.government securities to the Fed is
A)an increase in that bank's required reserves.
B)a decrease in that bank's required reserves.
C)an increase in that bank's excess reserves.
D)a decrease in that bank's excess reserves.
Q2) In the United States,the money supply (M1)consists of
A)paper currency,coins and traveler's checks.
B)government bonds,currency,demand deposits,other checkable deposits,and traveler's checks.
C)paper currency,coins,demand deposits,and savings deposits.
D)coins,paper currency,demand deposits,other checkable deposits,and traveler's checks.
Q3) The three basic functions of money are
A)fiat,seigniorage,and debt.
B)a medium of exchange,a store of value,and a unit of account.
C)a standard of pay,a coincidence of wants,and a measure of the value of time.
D)demand deposits,other checkable deposits,and time deposits.
Q4) Why is there more than one definition of the money supply? What is the difference between them?
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Chapter 14: Modern Macroeconomics and Monetary Policy
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Sample Questions
Q1) Countries that persistently expand the supply of money at a rapid rate can expect to experience
A)high rates of inflation
B)rapid economic growth.
C)lower interest rates.
D)low rates of unemployment.
Q2) In the long run,changes in the money supply affect only the price level because
A)the aggregate demand curve is vertical.
B)the aggregate demand curve is downward sloping.
C)the long-run aggregate supply curve is vertical.
D)the long-run aggregate supply curve is upward sloping.
E)current real GDP is less than the economy's potential GDP.
Q3) If the Fed anticipates that the conditions illustrated by AD and SRAS in Figure 14-2 will be present in the near future,it should
A)shift to a more restrictive policy.
B)shift to a more expansionary policy.
C)request that Congress raise tax rates.
D)refuse to buy any more U.S.securities.
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Chapter 15: Stabilization Policy, output, and Employment
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Sample Questions
Q1) Since the 1960s,macroeconomists have become more aware
A)that increases in government expenditures are more effective than tax reductions as a source of economic stimulus.
B)that persistent inflation will reduce the unemployment rate.
C)of both the potential and the limitations of fiscal and monetary policy as stabilization tools.
D)of the fact that fiscal policy is more potent than monetary policy.
Q2) Under the adaptive expectations hypothesis,which of the following is the most likely short-run effect of a move to a more expansionary monetary policy?
A)higher prices and no change in real output
B)higher prices and expansion in real output
C)no change in prices but an expansion in real output
D)no change in either prices or real output
Q3) When the effects of a more expansionary macroeconomic policy are quickly and accurately anticipated,the policy will
A)increase inflation without reducing unemployment.
B)increase unemployment while exerting little impact on inflation.
C)decrease unemployment while exerting little impact on inflation.
D)fail to exert a significant impact on either unemployment or inflation.
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Chapter 16: Creating an Environment for Growth and Prosperity
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Sample Questions
Q1) Which of the following is true?
A)Real GDP is a measure of income,but not output.
B)Real GDP is a measure of output,but not income.
C)Real GDP is a measure of inflation.
D)Growth of output is necessary for the growth of income.
Q2) High income countries with larger governments as a share of GDP have generally A)grown less rapidly than their counterparts with smaller governments.
B)experienced less deadweight losses resulting from taxes and/or government borrowing.
C)seen the government decrease in size as real GDP rises.
D)been able to be more economically efficient.
Q3) Why is competition important? Do business firms operating in competitive markets have a strong incentive to serve the interests of consumers? Do business owners have to care about the interests of others if they are going to provide them with helpful products and services?
Q4) Are abundant natural resources good or bad for economic growth?
Q5) How does private ownership and a competitive market affect the efficiency of economic organization?
Page 18
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Chapter 17: Institutions,policies,and Cross-Country
Differences in Income and Growth
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Sample Questions
Q1) Authoritarian political regimes
A)never produce sound economic institutions,due to corruption.
B)have produced movement toward sound economic institutions in Chile,South Korea and several other nations.
C)will generally produce sound economic institutions and policies.
D)are necessary for the emergence of sound institutions,but not for their continued operation.
Q2) To compare income across countries in a common currency,economists generally prefer to use the
A)purchasing power parity (PPP)method.
B)production possibilities frontier (PPF)method.
C)common currency converter (CCC)method.
D)exchange rate conversion (ERC)method.
Q3) Compared to those in low-income countries,the residents of countries with high per person incomes nearly always
A)live longer.
B)have a lower illiteracy rate.
C)have a lower infant mortality rate.
D)all of the above.
Page 19
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Chapter 18: Gaining From International Trade
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Q1) Refer to Figure 17-8.The horizontal line at the world price of wagons represents the A)demand for wagons from the rest of the world.
B)supply of wagons from the rest of the world.
C)level of inefficiency in the domestic market caused by trade.
D)surplus in the domestic wagon market.
Q2) Refer to Figure 17-10.As a result of the tariff,there is a deadweight loss that amounts to A)B.
B)E.
C)D + F.
D)B + D + E + F.
Q3) In Figure 17-13,if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States,which area represents the amount of tariff revenue the United States government collects?
A)a
B)b
C)c
D)f
E)e
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Chapter 19: International Finance and the Foreign Exchange Market
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Sample Questions
Q1) Figure 18-1 illustrates supply and demand for U.S.dollars and British pounds in the foreign exchange market.If the dollar price of pounds is $1.20,which of the following is true?
A)There is an excess supply of pounds,and the dollar price of pounds will rise.
B)There is an excess demand for pounds,and the dollar price of pounds will rise.
C)There is an excess supply of pounds,and the dollar price of pounds will fall.
D)There is an excess demand for pounds,and the dollar price of pounds will fall.
Q2) Would one expect the imports and exports between two countries to be approximately equal?
A)Yes;the foreign exchange rate assures that this will be the case.
B)Yes;this will always be the case unless one of the countries is treating the other unfairly.
C)No;there is no reason to expect that the purchases from and sales to any specific country will be equal because one country may not want to buy the items the other country produces at a low opportunity cost.
D)No;if they were approximately equal this would mean that neither country benefited from the trade.
Q3) Explain how an increase in the American demand for German goods leads to a change in the German Mark relative to the U.S.dollar.
Page 21
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Chapter 20: Consumer Choice and Elasticity
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Sample Questions
Q1) Refer to Figure 7-12.When price falls from $50 to $40,it can be inferred that demand between those two prices is
A)inelastic,since total revenue decreases from $8,000 to $5,000.
B)inelastic,since total revenue increases from $5,000 to $8,000.
C)elastic,since total revenue increases from $5,000 to $8,000.
D)unit elastic,since total revenue increases from $5,000 to $8,000.
Q2) Figure 7-2 depicts a demand curve with a price elasticity that is
A)perfectly elastic,implying that as much as can be supplied will be purchased at the market price.
B)relatively inelastic,implying that a percent increase in price results in a smaller percent reduction in sales.
C)unitary,implying that a percent change in price leads to an equal percent change in quantity demanded.
D)perfectly inelastic,implying that the same amount will be purchased regardless of the price of the good.
Q3) Mark complains: "I can't believe they raised the price of comic books,and because of this,I'm going to reduce my demand for comic books." Is Mark stating the concept of demand correctly?
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Chapter 21: Acosts and the Supply of Goods
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Q1) Takeover bids (and the potential for such bids)
A)increase the incentive of corporate managers to perform efficiently.
B)increase the likelihood that managers will be able to gain at the expense of stockholders.
C)are more likely to occur when a company is producing efficiently and operating profitably.
D)serve no useful economic purpose.
Q2) If the government levies a $1 excise tax on each unit of a good sold,what will happen to the producer's cost curve?
A)The average total cost and marginal cost curves will shift downward by the amount of the tax.
B)The average total cost and marginal cost curves will shift upward by the amount of the tax.
C)The marginal cost curve will shift upward by the amount of the tax;the average total cost curve will remain unchanged.
D)Both the marginal cost and average total costs will remain the same since taxes are not a cost of production.
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Chapter 22: Aprice Takers and the Competitive Process
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Q1) Claude's Copper Clappers sells clappers for $40 each in a competitive price-taker market.At its present rate of output,Claude's marginal cost is $40,average variable cost is $45,and average total cost is $60.Claude should
A)increase output
B)reduce output but not to zero
C)maintain the present rate of output
D)shut down
E)raise the price
Q2) Which of the following statements is correct?
A)In order to maximize profits in the short run,a price taker should always produce at the output level where marginal cost is equal to price.
B)In long-run equilibrium,a price taker will produce at an output level where average total cost is at its minimum.
C)A price taker will remain open in the short run,even if it is earning an economic loss,so long as price is sufficient to cover average variable cost.
D)All of the above are true.
Q3) If the model of price-taking firms is so unrealistic and restrictive,why study it?
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Page 24
Chapter 23: Price-Searcher Markets With Low Entry Barriers
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Q1) Which of the following would be most likely if firms in a competitive price-searcher market were earning economic profit?
A)Production inefficiencies would persist until the profit was eliminated.
B)Firms would decrease their rate of output in the short run,causing a decline in profitability in the market.
C)New firms would enter the market,resulting in fewer sales by existing firms.
D)All firms in the market would continue to produce at their current levels and continue to charge the same price.
Q2) If a profit-maximizing restaurant is going to increase its revenues by charging senior citizens (persons age 65 and over)lower prices than other customers,
A)the demand of senior citizens for the services of the restaurant must be inelastic.
B)senior citizens must have lower incomes than other potential customers.
C)the demand of senior citizens for the services of the restaurant must be elastic.
D)senior citizens must have higher incomes than other potential customers.
E)other customers must enjoy food more than senior citizens.
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Chapter 24: Aprice-Searcher Markets With High Entry
Barriers
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Q1) If the government wants a natural monopoly to earn a "fair return" or zero economic profit,it will set
A)price equal to marginal cost.
B)price equal to average total cost.
C)price equal to average revenue.
D)marginal cost equal to marginal revenue.
E)marginal cost equal to average total cost.
Q2) "Market power" is an expression used to indicate that a firm has A)no rivals.
B)the power to sell a given output at whatever price it chooses.
C)some freedom from the rigors of intense competition.
D)a monopoly over the product it produces.
Q3) Which of the following is a characteristic of an oligopolistic industry?
A)interdependence of a firm's price and output decisions
B)low barriers to entry
C)small output of individual firms relative to the total market
D)a large number of competing firms
Q4) Why does the U.S.government maintain a monopoly in the delivery of first-class mail? Does the Postal Service nevertheless face other forms of competition?
Page 26
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Chapter 25: The Supply of and Demand for Productive Resources
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Q1) Which of the following is an example of an investment in human capital?
A)a law student who works as a waiter in the summer
B)on-the-job training received by an apprentice welder
C)payments into a retirement pension plan by a skilled laborer
D)all of the above are correct.
Q2) The derived demand curve for a resource is downward sloping because
A)the demand for products that utilize the resource is directly related to the price of the resource.
B)the marginal productivity of resources will decline as their price increases.
C)as the price of a resource rises,other resources will be less desirable than the higher priced resource.
D)other resources will be substituted for a resource that increases in price.
Q3) When the supply of workers is plentiful,one would predict that market wages would be
A)determined solely by factors that affect supply.
B)determined solely by factors that affect demand.
C)low,other things equal.
D)high,other things equal.
Q4) There is an Italian soccer player who makes more than $10 million a year.Why?
Page 27
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Chapter 26: Earnings, productivity, and the Job Market
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Q1) Which of the following could be an institutional barrier to employment?
A)licensing requirements
B)labor unions
C)minimum wages
D)all of the above
Q2) Assume that Burger King employees work in an air-conditioned environment while McDonalds employees do not.Other things equal,you would expect wages to be ____ in Burger King because ____.
A)higher;Burger King employees are more productive
B)lower;McDonald's employees are more productive
C)higher;Burger King is a more prestigious place to work
D)lower;Burger King has more favorable working conditions
Q3) Economic theory suggests that the standard of living of American workers would rise if:
A)the minimum wage were doubled.
B)the knowledge and skills of workers improved.
C)older workers were forced to retire earlier,opening up jobs for younger workers.
D)people bought only American products.
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28
Chapter 27: Investment, the Capital Market, and the Wealth of Nations
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Q1) Megan must decide whether or not to go to college.She can either continue to work as a waitress and earn $22,000 per year or she can go to school and expect to earn $32,000 per year when she finishes.She should:
A)continue to work as a waitress.
B)go to school,but only if she knows she can finish in four years.
C)go to school no matter what.
D)we cannot tell since there may be important nonmonetary considerations that Megan will take into account.
Q2) If the interest rate was 5 percent and an investment project was expected to yield net revenue of $3,000 per year (to be received at year end)for each of the next three years,profit-maximizing decision makers would undertake the investment only as long as it cost less than
A)$7,461.
B)$8,170.
C)$8,652.
D)$9,000.
Q3) In a barter economy that had no form of currency,how could interest exist?
Q4) If people prefer to consume goods now rather than in the future,how does anyone save money?
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Chapter 28: Income Inequality and Poverty
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Sample Questions
Q1) This year,Bob earned a total of $9,000.As a result,he received $9,000 less in government transfers.Therefore,his implicit marginal tax rate is A)zero.
B)25 percent.
C)50 percent.
D)100 percent.
Q2) Data on the distribution of income among individuals and families in the United States indicate that
A)the power of labor unions and corporations is the major determinant of income inequality.
B)the rich stay rich and the poor stay poor from one generation to another.
C)much of the inequality in annual income emanates from differences in education,age,hours worked,and family size.
D)the difference in annual income emanating from ownership of capital assets is the major source of economic inequality.
Q3) Why not designate the poorest 10 percent of the population as the official measure of poverty?
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Chapter 29: Government Spending and Taxation
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Q1) As government becomes larger and larger as a share of the economy,economic growth is likely to decline because
A)taxes are reduced to levels that are inconsistent with economic efficiency.
B)governments are involved in many activities for which they are ill-suited.
C)tax-transfer activities are reduced and sometimes virtually eliminated.
D)governments do not spend enough on the provision of key public goods like education.
Q2) How much does it cost to tax a dollar of revenue away from the private sector and transfer it to the government to finance a government program?
A)one dollar
B)less than one dollar because the administration of and compliance with the tax laws creates jobs for people
C)more than a dollar because collection of the taxes requires resources that would otherwise be available for private sector production
D)more than a dollar because of the excess burden resulting from the elimination of productive exchanges by the taxes
E)Both c and d are correct.
Q3) Discuss how size of government can negatively affect economic growth.
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Chapter 30: The Economics of Social Security
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Sample Questions
Q1) Most married women who choose to work can expect to receive
A)substantially higher Social Security benefits than if they had not worked and thus not paid into the system.
B)substantially lower Social Security benefits than if they had not worked and thus not paid into the system.
C)approximately the same Social Security benefits than if they had not worked and thus not paid into the system.
D)benefits based on their husbands' salary plus 50 percent of their own salary.
Q2) (I)Current Social Security retirees typically receive real benefits that are equal to three or four times the amount of their contributions into the system.
(II)Current young workers can expect to receive real benefits less than their contributions into the system.
A)I is true;II is false.
B)I is false;II is true.
C)Both I and II are false.
D)Both I and II are true.
Q3) Briefly explain why the Social Security system will face a "crisis" in the coming years.
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Page 32
Chapter 31: The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity
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Sample Questions
Q1) Which of the following has enhanced the ability of investors,without any special business skills,to benefit from the ownership of corporate America?
A)the increased availability of mutual funds that make it possible for even small investors to purchase a diverse stock portfolio at a low cost
B)an increased tendency of small investors to buy and sell stock frequently,using stock tips from investment experts
C)the virtual disappearance of business failures among corporations with publicly traded stock shares
D)all of the above
Q2) Historically,when a diverse set of stocks are held over a lengthy time period,stocks have yielded a ____ rate of return and the variation in the rate of return has been ____.(Fill in the blanks. )
A)low;low
B)low;high
C)high;low
D)high;high
Q3) Does it ever make sense to purchase a stock that has never paid a dividend? Explain.
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Chapter 32: Great Debates in Economics: Keynes Versus Hayek
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Sample Questions
Q1) Adam Smith stated,"The man of system is apt to be very wise in his own conceit.He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board." Which is true of this statement?
A)Keynes would tend to agree with the statement;Heyek would disagree with it.
B)Keynes would tend to disagree with the statement;Hayek would agree with it.
C)As the rap video indicates,both Keynes and Hayek strongly agree with this statement.
D)As the rap video indicates,both Keynes and Hayek strongly disagree with this statement.
Q2) According to the Keynesian view,capitalism
A)is a highly productive form of economic organization that works best when government intervention is least.
B)experiences booms and busts because of the instability of private investment that is driven by fickle changes in business optimism.
C)experiences booms and busts that are primarily the result of inappropriate monetary policy.
D)experiences fluctuations in aggregate demand that cannot be controlled with fiscal policy.
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Chapter 33: The Crisis of 2008: Causes and Lessons for the Future
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Sample Questions
Q1) Compared to the 1970s and early 1980s,household debt as a share of income in 2007 has
A)increased at a steady rate over time.
B)remained about the same.
C)more than doubled.
D)decreased slowly over time.
Q2) An analysis of housing prices between 1987 and 2008 indicates that prices
A)increased sharply in the five years leading up to the housing bust in 2007.
B)were relatively stable before dropping sharply in 2001.
C)rose steadily during the 1990s,but declined sharply beginning in 2001.
D)were erratic,but there was no discernable trend during either the 1990s or 2000-2006.
Q3) Are new regulations likely to prevent a future financial crisis?
A)Yes,regulatory agencies have been effective at anticipating the secondary effects of new regulations.
B)Yes,industries that were highly regulated were unaffected by the Crisis of 2008.
C)No,regulators have a poor record with regard to foreseeing future problems.
D)No,current regulations could have prevented the Crisis of 2008,but were largely ignored.
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Chapter 34: Lessons From the Great Depression
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Q1) The rapid growth in stock prices during the 1920s was due in large part to A)the expansionary monetary policy of the Federal Reserve.
B)the wartime demand for military equipment and supplies.
C)the artificially high value of the dollar,which eventually led to the stock market crash of 1929.
D)the technological innovations of the decade,which spurred economic growth.
Q2) An analysis of stock market prices during 1929 to 1930 indicates that A)the stock market crash of October 1929 was the cause of the Great Depression of the 1930s.
B)stock market prices rose steadily throughout the entire year of 1930.
C)after recovering most of its value from the crash of October 1929,stock prices again declined steadily during the debate and passage of the Smoot-Hawley trade bill.
D)after the crash of October 1929,the Smoot-Hawley trade bill marked the beginning of a steady recovery of the stock market.
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Chapter 35: Lessons From Japan and Canada
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Q1) Why are the 1990s sometimes referred to as Japan's "lost decade"?
A)Similar to the Great Depression in the U.S. ,Japan's unemployment remained at double-digit levels throughout the 1990s.
B)The Japanese were reluctant to use fiscal policy to stimulate aggregate demand,which would have prompted an economic recovery.
C)Following the stock market crash of 1990,GDP was persistently weak throughout the decade,only growing at a rate of about 1 percent.
D)Despite the strong economic growth during the decade,stock market prices have not recovered.
Q2) Like the U.S.during 2002-2004,Japan increased the money supply significantly and pushed interest rates to low levels during the late 1980s.This policy contributed to A)deflation during the late 1980s.
B)a high rate of unemployment.
C)upward pressure on asset prices,such as real estate.
D)a decline in stock prices during the late 1980s.
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Chapter 36: The Federal Budget and the National Debt
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Sample Questions
Q1) According to the new classical view,if people appropriately realize that an increase in government debt implies higher future taxes,they will
A)save less since the substitution of debt for taxes makes them wealthier.
B)increase their consumption since the substitution of debt for taxes makes them wealthier.
C)save more now to meet the future tax liability implied by the increase in debt.
D)alter neither their saving nor their consumption rate.
Q2) According to the traditional (crowding-out)view,which of the following is most likely to result if a substantial portion of government expenditures is financed by borrowing rather than taxation?
A)no change in interest rates and an increase in saving
B)higher interest rates and an outflow of foreign capital
C)higher interest rates and a reduction in private domestic investment
D)lower interest rates and an inflow of foreign investment
Q3) What is the difference between the federal budget deficit and the national debt?
Q4) If the U.S.government were to run a substantial budget deficit,what would be the effects on the economy under the new classical view?
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Chapter 37: The Economics of Healthcare
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Sample Questions
Q1) From the standpoint of economic efficiency,which of the following is a major advantage of medical savings accounts?
A)They encourage healthcare consumers to purchase low-deductible,low co-payment medical insurance plans.
B)They guarantee that no American will ever have to pay another medical bill.
C)They encourage healthcare consumers to economize.
D)They will force employers to pay a larger share of the medical expenses of their employees.
Q2) Which of the following would increase the incentive of consumers to economize and of producers to provide medical services at economical prices?
A)substitution of catastrophic health insurance plans for low deductible,low co-payment plans
B)more reliance on medical savings accounts rather than insurance
C)equalization of tax treatment between out-of-pocket medical expenses and employer-provided health insurance
D)all of the above
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Chapter 38: Education: Problems and Performance
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Sample Questions
Q1) Compared to a system based on customer choice and competition,the current structure of the educational system tends to ____ education costs and ____ the quality of education.
A)lower;lower
B)lower;raise
C)raise;lower
D)raise;raise
Q2) In 2010,how many states permitted public school choice in some or all school districts?
A)10
B)30
C)40
D)45
Q3) When compared to the achievement scores of students in other nations,U.S.students are
A)well-below average.
B)well-above average.
C)about average.
D)above average in mathematics,but below average in science.
Q4) What does the evidence suggest regarding the effects of school choice programs?
Page 40
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Chapter 39: Earnings Differences Between Men and Women
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Q1) Which of the following is true?
A)Employers who discriminate against women will have lower costs than rival firms that hire employees strictly on the basis of merit (productivity).
B)On average,the number of hours worked per year by women in the labor force is greater than the hours worked by men in the labor force.
C)The female/male earnings ratio is substantially higher for never married persons than for those married with a spouse present.
D)As the proportion of women preparing for careers as professionals has increased in recent decades,the earnings of women have declined relative to those for men.
Q2) Evaluate the following: "Employers who discriminate against women will have lower costs than rival firms that hire employees strictly on the basis of merit (productivity)."
Q3) In the future,the earnings differential between women and men is expected to A)widen.
B)become smaller.
C)remain about the same as it is now.
D)become smaller over the next five years then begin to widen again.
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Chapter 40: Do Labor Unions Increase the Wages of Workers
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Sample Questions
Q1) Which of the following factors will reduce considerably the ability of a union to raise the wages of its workers?
A)an elastic demand for the goods produced by union labor
B)a five-year apprenticeship before one can qualify for jobs held by union members
C)high tariffs on goods produced by the union labor
D)favoritism in the allocation of government contracts to firms that employ union labor
Q2) Which of the following is true?
A)Women are more highly unionized than men.
B)A higher percent of white workers belong to unions than do African-American workers.
C)The proportion of government employees belonging to a union is substantially higher than the proportion of private-sector workers who are union members.
D)There is little difference in incidence of unionization among occupational categories.
Q3) If a firm operates in a competitive industry and its unionized labor force is successful in bargaining for a wage increase,where is the firm likely to get the money to pay the higher wages?
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42
Chapter 41: The Question of Resource Exhaustion
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Q1) Resource markets are like any other market in that
A)the increase in quantity supplied in response to a higher price will generally be greater in the long run than in the short run.
B)the amount demanded of a resource is inversely related to its price.
C)higher prices encourage people to search for substitutes.
D)all of the above are correct.
Q2) "If China and India continue their economic expansion,the world cannot provide enough raw materials without terrible shortages worldwide." Evaluate this statement.
A)True,increased demand from developing countries will swamp the existing supply of resources.
B)True,increased demand from China and India will lead to large shortages in the North America and Europe.
C)False,the shortage will be limited to China and India.
D)False,increasing scarcity will result in higher prices and the deployment of new technologies that increase the efficiency of production,and together these markets forces will help to balance demand and supply worldwide.
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Chapter 42: Difficult Environmental Cases and the Role of Government
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Q1) Which of the following is most likely to have the strongest demand for environmental quality?
A)countries with water pollution problems
B)poor countries
C)countries with air pollution problems
D)wealthy countries
Q2) Providing citizens with enforceable property rights to resources
A)increases resource conservation and decreases wasteful resource use.
B)promotes economic prosperity and thus increases demand for environmental quality.
C)provides people with a strong incentive not to damage the privately owned resources of others.
D)does all of the above.
Q3) The Endangered Species Act
A)weakened the property rights of landowners.
B)encourages landowners to find new ways to provide habitat for listed species.
C)provides compensation to landowners affected by the law.
D)has not benefited any of the species protected under the act.
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