Contemporary Economic Issues
Exam Materials
Course Introduction
This course examines major economic issues shaping the modern world, focusing on current challenges and debates within the global and domestic economies. Topics include globalization, income inequality, unemployment, fiscal and monetary policy, trade disputes, technological change, and environmental sustainability. Through analysis of case studies and current events, students gain an understanding of how economic theories and policies are applied in real-world contexts, equipping them with critical perspectives to interpret and assess contemporary economic developments.
Recommended Textbook
Economics The Basics 2nd Edition by Michael Mandel
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19 Chapters
1210 Verified Questions
1210 Flashcards
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Chapter 1: Introduction
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Sample Questions
Q1) Which of the following is presented in the text as an issue about which reputable economists might disagree?
A) Whether unemployment rose significantly during the Great Recession.
B) Whether the government should provide more scholarship funds.
C) The impact on the federal budget of an increase in military spending.
D) The definition of a market transaction.
Answer: B
Q2) One measurement of economic prosperity is
A) the happiness index.
B) the gross domestic policy.
C) interest rates.
D) the gross domestic product.
Answer: D
Q3) Nuclear power in the United States turned out to be A) a boon to the economy.
B) well worth the time and investment.
C) far more expensive and troublesome than expected.
D) a hazard-free source of limitless power.
Answer: C
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Page 3
Chapter 2: Demand and Supply: The Basics of the Market Economy
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Sample Questions
Q1) If the quantity demanded increases sharply when the price drops,this illustrates what principle?
A) The law of supply.
B) The law of demand.
C) The law of the curve.
D) Ceteris paribus.
Answer: B
Q2) The individual quantity demanded is the amount the buyer is allowed to purchase at a given price.
A)True
B)False
Answer: False
Q3) In contrast to the law of supply,sometimes ______ can reduce the quantity supplied.
A) an increased price
B) a market supply curve
C) a market demand curve
D) price negotiations
Answer: A
Page 4
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Chapter 3: Market Equilibrium and Shifts
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Sample Questions
Q1) For which pair of goods below would an increase in income have the same effect on both goods?
A) A normal good and an inferior good.
B) An inferior good and a luxury good.
C) A normal good and a luxury good.
D) A superior good and a normal good.
Answer: C
Q2) Eventually,reduced-price hotel rooms will ______ the supply of hotel rooms in a market.
A) leave unchanged
B) increase
C) decrease
D) eliminate
Answer: C
Q3) If supply is inelastic,then a demand shift will have a bigger effect on quantity than price.
A)True
B)False
Answer: False
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Page 5
Chapter 4: How Businesses Work
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Sample Questions
Q1) The price of labor per unit times the amount of labor used is called
A) marginal cost.
B) marginal labor.
C) labor cost.
D) labor input.
Q2) The main objective of a business in a market economy is
A) profit maximization.
B) controlling costs.
C) decreasing revenue.
D) managing the production function.
Q3) Revenue is the money that customers pay for the output of a business.
A)True
B)False
Q4) If you add too many inputs,your business may experience
A) increasing marginal revenue.
B) diminishing marginal product.
C) diminishing cost input.
D) accelerated product function.
Q5) Explain,with an example,the type of short-term decisions retailers often have to make.
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Chapter 5: Competition and Market Power
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Sample Questions
Q1) Perfect competition requires a nonstandard product.
A)True
B)False
Q2) Why does perfect competition often lead to a market in which profits tend toward zero?
Q3) Which of the following is NOT an example of a barrier to entry?
A) lower costs.
B) scarce land.
C) rare natural minerals.
D) heavy government regulations.
Q4) Businesses will generally shut down if they lose money for one or two years.
A)True
B)False
Q5) In a market where businesses are earning high profits,new entrants will cause the supply curve to shift to the _________ and the market price to _________.
A) left; rise
B) left; fall
C) right; rise
D) right; fall
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Chapter 6: Government and the Economy
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Sample Questions
Q1) The private sector includes privately owned businesses and for-profit divisions of various governments.
A)True
B)False
Q2) In 1997 the FTC blocked the merger between Staples and Office Depot.Why was this merger blocked?
Q3) When one person's actions harm others (such as in the case of pollution),economists say that a(n)_________ is present.
A) network externality
B) antitrust externality
C) negative externality
D) market externality
Q4) The unintentional impact that the actions of an individual can have on others is called:
A) an externality.
B) a public good.
C) a network effect.
D) the free-rider problem.
Q5) What is income redistribution?
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Chapter 7: The First Step Into Macroeconomics
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Sample Questions
Q1) What is included in government consumption and investment when calculating the GDP?
Q2) GDP is defined as the dollar value of __________ in a given year.
A) the total output of the economy
B) all of the inputs used in the economy
C) all intermediate and final goods produced in the economy
D) the total purchases made in the economy
Q3) The GDP includes government consumption such as A) Social Security.
B) Medicare.
C) Medicaid.
D) Office products.
Q4) The biggest category of business investment spending today is A) trucks.
B) software.
C) computers.
D) residential structures.
Q5) Only final goods and services count in calculating the GDP. A)True
B)False
9
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Chapter 8: Inflation
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Sample Questions
Q1) What is the CPI?
A) The Consumer Price Institute.
B) The consumer price index.
C) The consumer product index.
D) The consumer protection index.
Q2) Inflation is
A) one of the key measures in the GDP.
B) one of the key measures of the health of an economy.
C) generally steady from year to year.
D) generally beneficial to countries.
Q3) Between 2000 and 2010,which of the following experienced a negative inflation rate?
A) Gasoline
B) College tuition.
C) Medical care.
D) Wireless phone service.
Q4) The inflation rate is the annual percentage change in the average price level.
A)True
B)False
Q5) Explain how globalization has caused some goods to be cheaper.
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Chapter 9: Growth
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Sample Questions
Q1) Without economic growth,
A) we would have a zero-sum economy.
B) we would have a non-zero-sum economy.
C) standards of living would rise only as the population increased.
D) the production possibility curve would shift outward.
Q2) Raw materials include which of the following?
A) Software.
B) Computer cases.
C) Oil.
D) Steel beams to build houses.
Q3) Knowledge is human capital plus business know-how.
A)True
B)False
Q4) One essential force in the growth of human capital over the past several decades has been
A) The growth of Social Security.
B) The community college system.
C) The growth of Medicare.
D) The growth of Medicaid.
Q5) What could low productivity growth in a country suggest?
Page 11
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Chapter 10: Business Cycles, unemployment and Inflation
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Sample Questions
Q1) The periods of temporary unemployment that correspond to short gaps between jobs create
A) Frictional unemployment.
B) Cyclical unemployment.
C) Per capita unemployment.
D) Superficial unemployment.
Q2) What is the definition of the output gap?
Q3) When actual GDP goes below potential GDP,it means that
A) Economic activity has increased.
B) Inflation is imminent.
C) Economic activity has slowed.
D) Deflation is imminent.
Q4) An example of a generally recession-resistant business is A) consumer electronics.
B) health care.
C) automobiles.
D) boats.
Q5) What will happen in an economy if the actual GDP is too high relative to the potential GDP?
Q6) What are the definition and purpose of potential GDP?
Page 12
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) The time it takes to recognize a recession and implement a spending stimulus is called a
A) retroactivity.
B) fiscal drag.
C) multiplier.
D) lag.
Q2) In the short term,an increase in government spending may
A) reduce taxes and wages.
B) raise prices and wages.
C) raise taxes but reduce wages.
D) raise wages and reduce inflation.
Q3) A result of budget deficits is that governments have to borrow more,sometimes resulting in
A) increasing the rate of inflation.
B) decreasing interest rates.
C) increased foreign borrowing.
D) crowding out of the private sector from the market for loans.
Q4) Overseas leakage occurs when net imports exceed net exports.
A)True
B)False
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Chapter 12: Monetary Policy
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Sample Questions
Q1) In response to the financial crisis of 2007-2009,the Federal Reserve
A) cut the fed funds rate from 5.25 percent to 2.0 percent.
B) cut the discount rate from 5.25 percent to 2.0 percent.
C) raised the fed funds rate from 2.0 percent to 5.25 percent.
D) raised the discount rate from 2.0 percent to 5.25 percent.
Q2) Alan Greenspan,who preceded Ben Bernanke as Fed chairman,was a proponent of A) discretionary intervention.
B) a rules-based approach to monetary policy.
C) inflation targeting.
D) fiscal policy.
Q3) Which of the following is not one of the three purposes served by money?
A) Serving as a medium of exchange.
B) Serving as a store of value.
C) Providing a means for regulators to track economic activity.
D) Providing a standard of value.
Q4) When financial institutions borrow from the Federal Reserve,this is called
A) borrowing on margin.
B) fiscal policy.
C) open market operations.
D) going to the discount window.
Page 14
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Chapter 13: The Financial Markets
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Sample Questions
Q1) Which of the following would you expect to see for borrowers with a high risk of default?
A) A surplus of loans to these borrowers.
B) A supply curve that is further to the right than the supply curve for low-risk borrowers.
C) A lower interest rate.
D) A higher interest rate.
Q2) Where do banks get their money,and what do they do with the money once they have it? How do banks make a profit?
Q3) Which of the following is NOT true about banks?
A) Banks are tightly regulated by state and federal governments.
B) Banks are required to keep a certain amount of cash reserves.
C) Banks are an example of a financial intermediary.
D) Banks are sellers, not buyers, in the market for money.
Q4) When companies first sell shares to the public,this is called
A) an initial public offering.
B) venture capital funding.
C) microcredit financing.
D) primary lending.
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Page 15
Chapter 14: International Trade
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Sample Questions
Q1) The theory of comparative advantage implies which of the following?
A) A country with an absolute advantage in a good will necessarily have a comparative advantage in that good.
B) The gains to trade are exactly offset by the losses from trade.
C) Workers in an industry in which the United States does not have a comparative advantage will be hurt if the United States reduces barriers to trade.
D) There are gains to trade for a country as long as that country has a comparative advantage in producing the goods that it imports and exports.
Q2) Who loses from expanding international trade? Does this mean that globalization is a bad idea overall?
Q3) The United States imports all of its niobium because
A) niobium production in the United States is expensive compared to production in other countries.
B) niobium mining is so unsafe that it was outlawed in the United States in 1959.
C) the United States does not have any natural niobium deposits.
D) niobium is no longer a very useful metal.
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Page 16
Chapter 15: Technological Change
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Sample Questions
Q1) Which of the following would NOT be an example of a technological change?
A) The government passes a law expanding the funding available to NASA and other agencies concerned with the advancement of basic science.
B) A pharmaceutical company develops a new drug that effectively fights malaria.
C) A team of nuclear scientists develop a new way of generating nuclear power that is safer than the older methods but is more expensive to implement.
D) Google develops a new way to perform Internet searches that makes searches produce more relevant results.
Q2) Which of the following is not an example of research and development?
A) Government funding to a biochemistry professor for the study of new pharmaceutical therapies.
B) Government funding to elementary and middle schools.
C) Government funding of new public transportation technologies.
D) General Motors funding a study of new internal combustion technology.
Q3) A productivity-enhancing innovation has the effect of shifting the supply curve to the right.
A)True
B)False
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Chapter 16: Economics of the Labor Market
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Sample Questions
Q1) If technology is a complement to labor,then advances in technology will __________ the number of workers hired.
A) increase
B) not affect
C) act as a substitute for
D) decrease
Q2) The market expansion effect of globalization has which of the following effects?
A) The overall number of workers employed falls.
B) The labor force participation rate declines.
C) The supply of labor for many kinds of work increases, pushing the equilibrium wage down.
D) The demand for labor for many kinds of work increases, pushing the equilibrium wage up.
Q3) Between 2005 and 2010,the increase in the foreign-born labor force was
A) about equal to the increase in the native-born labor force.
B) about twice as large as the increase in the native-born labor force.
C) about half as large as the increase in the native-born labor force.
D) the only source of labor-force growth.
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Chapter 17: The Distribution of Income
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Sample Questions
Q1) People tend to earn higher incomes as they mature and gain experience in the workforce.As a consequence of this income mobility,
A) statistics on income may understate inequality.
B) redistribution from high-income individuals to low-income individuals may encourage innovation and economic growth.
C) statistics on income may overstate inequality.
D) the overall poverty rate may rise as the population ages.
Q2) Which of the following is a theoretically possible value for the 80/20 ratio?
A) -1.
B) 0.
C) 0.5.
D) 1,000.
Q3) Under the current federal income tax laws,a person who has a high income is likely to
A) pay a larger percentage of income in taxes than the average taxpayer.
B) pay a smaller percentage of income in taxes than the average taxpayer.
C) receive a substantial benefit from the earned income tax credit.
D) spend a larger fraction of total income than a low-income taxpayer.
Q4) How has global trade affected income inequality? Explain briefly.
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Chapter 18: Economics of Retirement and Healthcare
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Sample Questions
Q1) Which of the following would tend to lower overall healthcare expenses?
A) A reduction in the incidence of third-party payers.
B) An increase in national income.
C) Higher technology in medical care.
D) An increase in court awards of damages in malpractice lawsuits.
Q2) Which of the following persons would be covered by Social Security?
A) A 72-year-old who is retired but still working part-time.
B) A 40-year-old who has lost his job and is temporarily unemployed.
C) The 35-year-old married daughter of a Social Security recipient who died last year at age 69.
D) A 60-year-old who took early retirement from his employer.
Q3) Describe the basic financial life cycle.How does the life cycle change with Social Security in the picture?
Q4) List the four possible responses to the Social Security financing gap.
Q5) All of the following have contributed to rising medical care costs EXCEPT
A) rapid technological progress.
B) the aging of the population.
C) third parties paying for most medical expenses.
D) increasing occurrences of expensive communicable disease.
Q6) Describe the problem demographic change presents for Social Security.
Page 20
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Chapter 19: Economics of Energy, the Environment, and Global Climate Change Glossary
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Sample Questions
Q1) Which of the following is NOT a negative externality?
A) A homeowner failing to remove trash from his yard, leaving it as an unsightly eyesore in the neighborhood.
B) Low-flying aircraft creating noise over an otherwise quiet neighborhood.
C) A household pet leaving waste on a public sidewalk.
D) E-mail "spam" consisting of advertisements for goods and services.
Q2) Suppose the production of widgets generates negative externalities but no positive externalities.If widget producers suddenly had to pay the true marginal cost of their product for every unit they produced,including all externalities,producers would
A) produce more than the current level of output.
B) produce and sell at a lower price than before.
C) produce less than the current level of output.
D) have less of an incentive to control their pollution output.
Q3) Briefly describe revealed preference and stated preference as means of determining the value of a statistical life.
Q4) Describe the two main categories of responses to global climate change.
Q5) Describe the difference between a command-and-control approach and a market-based approach to reducing pollution.
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