Contemporary Economic Issues
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Course Introduction
Contemporary Economic Issues explores current topics and challenges shaping global and national economies. The course examines real-world economic phenomena, including globalization, income inequality, technological change, environmental sustainability, labor markets, international trade, and economic policy responses to recent crises. Students will develop a critical understanding of how economic theory and evidence inform debates on issues such as poverty, inflation, unemployment, financial instability, and government intervention. Emphasis is placed on analysis, discussion, and evaluation of policy alternatives in light of contemporary data and case studies.
Recommended Textbook Survey of Economics 8th Edition by Irvin B. Tucker
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Page 2
Chapter 1: Introducing the Economic Way of Thinking
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Sample Questions
Q1) The Secretary of Labor states that wage rates in the country have risen by 2 percent this past year.The head of a local labor union states that wage gains should have been higher.The Secretary's statement is a(n)____ economic statement,and the labor head's statement is a(n)____ economic statement.
A) normative; normative
B) normative; positive
C) positive; normative
D) positive; positive
E) proper; improper
Answer: C
Q2) "Ceteris paribus" is a Latin expression that essentially means "holding everything else constant."
A)True
B)False
Answer: True
Q3) All human wants cannot be satisfied because of the problem of scarcity.
A)True
B)False
Answer: True
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Page 3
Chapter 1: A: Appendix: Applying Graphs to Economics
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Sample Questions
Q1) Which of the following statements is correct?
A) Slope is the ratio of the vertical change (the rise or fall) to the horizontal change (the run).
B) A direct relationship is one in which two variables change in the same direction.
C) An inverse relationship is one in which two variables change in opposite directions.
D) An independent relationship is one in which two variables are unrelated.
E) All of the above.
Answer: E
Q2) In Exhibit 1A-5,the slope of straight line CD is:
A) positive.
B) zero.
C) negative.
D) variable.
Answer: C
Q3) A horizontal line has an infinite slope.
A)True
B)False
Answer: False
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4
Chapter 2: Production Possibilities,Opportunity Cost,and Economic Growth
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Sample Questions
Q1) Suppose an economy is faced with the production possibilities table shown in Exhibit 2-10.As additional units of capital goods are produced,the opportunity cost in terms of sacrificed units of consumption goods ____ because of ____.
A) decreases; greater efficiency in production
B) increases; decreasing opportunity cost
C) increases; the law of increasing costs
D) increases; greater efficiency in production
E) decreases; the law of increasing costs
Answer: C
Q2) Because of the problem of scarcity,each economic system must make which of the following choices?
A) How to produce?
B) What to produce?
C) For whom to produce?
D) All of the above.
Answer: D
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Chapter 3: Part 1: Market Demand and Supply
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Sample Questions
Q1) Which of the following corresponds to the definition of the supply curve?
A) It depicts a positive relationship between income and quantity supplied.
B) It depicts a positive relationship between technology and prices.
C) It depicts a positive relationship between prices and quantity supplied.
D) It depicts a negative relationship between prices and quantity supplied.
E) It depicts a proportional relationship between prices and quantity supplied.
Q2) A curve that depicts the relationship between price and quantity demanded is the: A) supply curve.
B) supply schedule.
C) demand curve.
D) equilibrium price.
Q3) The horizontal summation of individual demand curves gives:
A) a supply curve.
B) a Phillips curve.
C) a market demand curve.
D) the quantity supplied.
E) a production function.
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Chapter 3: Part 2: Market Demand and Supply
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Sample Questions
Q1) The law of demand is the principle that there is an inverse between the price of a good and the quantity that buyers are willing to purchase in a defined time period,ceteris paribus.
A)True
B)False
Q2) Which of the following best explains the determination of the equilibrium price of a product?
A) Production costs.
B) The supply of a good.
C) The interaction of supply and demand.
D) The decisions of government.
Q3) Equilibrium in a market exists when there is neither a surplus nor a shortage of the item.
A)True
B)False
Q4) If equilibrium is present in a market:
A) there is either a shortage or a surplus.
B) the quantity demanded equals quantity supplied.
C) the quantity demanded exceeds quantity supplied.
D) the quantity supplied exceeds quantity demanded.
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Chapter 4: Markets in Action
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Sample Questions
Q1) A legally mandated minimum wage is an example of:
A) the invisible hand principle.
B) a price floor.
C) a price ceiling.
D) a fringe benefit.
Q2) Externalities get their name from the fact that they are:
A)b and d.
B)unintended.
C)short lived.
D)outside of decisions.
E)outside of marketplace.
Q3) An increase in the wage rate paid to workers producing good X would be represented by which of the graphs in Exhibit 4-4?
A) Graph A.
B) Graph B.
C) Graph C.
D) None of the above.
Q4) Discuss the impact of demand and supply changes on market equilibrium price and quantity.Express this graphically.
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Chapter 5: Price Elasticity of Demand
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Sample Questions
Q1) If the percentage change in the quantity demanded of a good is greater than the percentage change in price,price elasticity of demand is:
A) elastic.
B) inelastic.
C) perfectly inelastic.
D) perfectly elastic.
Q2) You are part of a local community theater group.It is the goal of the group to increase the amount of revenue earned through ticket sales.Mary says the obvious solution is to increase ticket prices.Is Mary correct?
A) Mary is correct if the demand for tickets is price inelastic.
B) Mary is incorrect if the demand for tickets is price inelastic.
C) Mary is correct. The increase in ticket prices will always increase revenue.
D) Mary is incorrect. The increase in ticket prices will never increase revenue.
E) Mary is incorrect. The way to increase revenue is to decrease ticket prices.
Q3) Over the elastic portion of a demand curve,a decrease in price causes:
A) an increase in total revenue.
B) a decrease in total revenue.
C) no change in total revenue.
D) an increase in quantity demanded, but anything can happen to revenue.
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Page 9
Chapter 6: Production Costs
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Sample Questions
Q1) In Exhibit 6-10,the average variable cost of producing 2 cases of books is:
A) $50 per case.
B) $75 per case.
C) $100 per case.
D) $150 per case.
Q2) Fixed costs are best defined as:
A) costs that do not vary with output.
B) costs that are at a minimum when output approaches the firm's capacity.
C) the amount that one more unit of output adds to total costs.
D) costs that decline as output increases.
Q3) When the cost curves have U-shapes,at the point where marginal cost equals average total cost:
A)b and c.
B)marginal cost is rising.
C)average total cost is at its minimum.
D)average variable cost is falling.
E)the fixed cost has been fully depreciated.
Q4) Distinguish economies and diseconomies of scale.How can the extent to which economies and diseconomies of scale explain the size and number of real world firms in an industry?
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Chapter 7: Perfect Competition
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Sample Questions
Q1) If a firm decreases output when MR < MC,then:
A) profit will equal zero.
B) profit will increase.
C) profit will decrease.
D) profit will remain the same.
E) the firm is minimizing losses.
Q2) In Exhibit 7-16,suppose the firm faces a price of $80 per unit.How much should the firm produce to earn the largest possible profit?
A) 2 units per hour.
B) 4 units per hour.
C) 5 units per hour.
D) 6 units per hour.
Q3) As shown in Exhibit 7-12,suppose the firm's price is OB.The firm's total economic profit at this price is equal to the area of:
A) CJID.
B) BFHD.
C) AEXD.
D) CGHD.
E) zero.
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Page 11
Chapter 8: Monopoly
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Sample Questions
Q1) Price discrimination requires:
A) a firm to be a competitive firm.
B) a firm to be able to segment its customers based on different price elasticities of demand.
C) arbitrage.
D) that the product can be easily resold.
Q2) In Exhibit 8-1,the marginal revenue curve corresponding to the monopolist's demand curve would be a straight line drawn between points:
A) A to B.
B) A to C.
C) A to D.
D) C to B.
E) C to D.
Q3) A perfectly competitive firm is a price taker,but a monopoly is a price maker.
A)True
B)False
Q4) A monopolist always earns an economic profit.
A)True
B)False
Q5) Under what conditions might a monopoly lose money?
Page 12
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Chapter 9: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Under which one of the following market structures are sellers most likely to consider the reaction of rival sellers when they set the price of their product?
A) Perfectly competition.
B) Monopoly.
C) Monopolistic competition.
D) Oligopoly.
Q2) The automobile,steel,and oil markets are all examples of: A) perfectly competitive markets.
B) monopolies.
C) monopolistically competitive markets.
D) oligopolies.
Q3) In the short run both the monopolistically competitive firm and the perfectly competitive firm will charge a price equal to marginal cost.
A)True
B)False
Q4) Examples of nonprice competition include advertising and product differentiation. A)True
B)False
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13
Chapter 10: Labor Markets and Income Distribution
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Sample Questions
Q1) As a percentage of nonfarm workers,union membership in the United States grew most rapidly since 1945.
A)True
B)False
Q2) The social security tax is called FICA,which stands for:
A) Federal Investment Corporation of America.
B) Federal Income Contributions to Americans.
C) Funding from Individuals and Corporations in America.
D) Federal Insurance Contributions Act.
Q3) In Exhibit 10-4,if Sally can produce 2 units of output for every hour that she works,then:
A) she will earn a wage of $50.
B) she is not productive enough to be hired at all.
C) her MRP is less than her wage.
D) she will work 30 hours.
E) her wage cannot be determined.
Q4) Contrary to popular belief,the richest families in the United States became slightly poorer in recent years.
A)True
B)False
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Chapter 11: Gross Domestic Product
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Sample Questions
Q1) The largest component of GDP as measured by the expenditure approach is:
A) wages and salary earnings.
B) personal consumption.
C) net profits of corporations.
D) gross private investment.
Q2) GDP does not count:
A) the estimated value of homemaker production.
B) state and local government purchases.
C) spending for new homes.
D) changes in inventories.
Q3) National income:
A) represents total wages and salaries in an economy.
B) equals GDP minus indirect business taxes.
C) equals GDP minus depreciation.
D) equals C + I + G + (X - M).
E) is the value of existing capital stock used up in making goods.
Q4) All changes in nominal GDP are due to price changes.
A)True
B)False
Q5) Discuss the components of GDP using the expenditure approach.
Page 15
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Chapter 12: Business Cycles and Unemployment
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Sample Questions
Q1) The economic cost of unemployment is the loss of potential output which can never be realized.
A)True
B)False
Q2) Ryan Black does not work and has not looked for work because of a disability.He is:
A) a member of the civilian labor force who is employed.
B) a member of the civilian labor force who is unemployed.
C) a member of the civilian labor force who is underemployed.
D) a discouraged worker who is not a member of the labor force.
E) not a member of the labor force.
Q3) A business cycle is the:
A) period of time in which expansion and contraction of economic activity are equal.
B) period of time in which there are three phases: peak, depression, and recovery.
C) recurring growth and decline in real GDP.
D) period of time in which a business is established and ceases operations.
Q4) What is full employment? What are the different kinds of unemployment? What constitutes the natural (normal)rate of unemployment?
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Page 16
Chapter 13: Inflation
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Sample Questions
Q1) Suppose the price of banana rises over time and consumers respond by buying fewer bananas.This situation contributes to which bias in the consumer price index?
A) Substitution bias.
B) Transportation bias.
C) Quality bias.
D) Indexing bias.
Q2) Assume that the real rate of interest is 5 percent and a lender charges a nominal interest rate of 15 percent.If a borrower expects that the rate of inflation next year will be 10 percent and the actual rate of inflation next year is 12 percent:
A) neither the borrower nor the lender benefits from inflation.
B) both the borrower and the lender lose from inflation.
C) the borrower benefits from inflation, while the lender loses from inflation.
D) the lender benefits from inflation, while the borrower loses from inflation.
Q3) The consumer price index (CPI)is computed as the ratio of nominal GDP to real GDP.
A)True
B)False
Q4) Who is hurt and who benefits from inflation? Why?
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Chapter 14: Aggregate Demand and Supply
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Sample Questions
Q1) In the aggregate demand and supply model,the:
A) aggregate supply curve is horizontal at full-employment real GDP.
B) vertical axis measures real GDP.
C) vertical axis measures the average price level.
D) All of the above.
E) None of the above.
Q2) Other factors held constant,a decrease in resource prices will shift the aggregate:
A) demand curve leftward.
B) demand curve rightward.
C) supply curve leftward.
D) supply curve rightward.
Q3) Suppose the economy is on the intermediate range of the aggregate supply curve.Which of the following would reduce both real GDP and the price level?
A) A decrease in aggregate supply.
B) An increase in aggregate supply.
C) A decrease in aggregate demand.
D) An increase in aggregate demand.
Q4) How are demand-pull and cost-push inflation reflected in terms of the AD-AS model?
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Chapter 14: A: Appendix: The Self-Correcting Aggregate
Demand and Supply Model
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Sample Questions
Q1) If both the price level and nominal incomes change by the same percentage:
A)real GDP will remain constant.
B)the aggregate supply curve will be upward-sloping.
C)profit margins will change in real terms.
D)the long-run aggregate supply curve will be horizontal.
E)both a and d.
Q2) In Exhibit 14A-4,point P ,Y represents:
A) that the economy needs policies to reduce unemployment.
B) a long-run equilibrium.
C) a short-run equilibrium.
D) that the economy is at full employment.
Q3) Long-run full-employment equilibrium assumes:
A) a downward-sloping production function.
B) a downward-sloping long-run supply curve (LRAS).
C) the CPI index price level equals the equilibrium wage rate.
D) the CPI equals aggregate demand (AD) equals short-run aggregate supply (SRAS) equals long-run aggregate supply (LRAS).
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Page 19
Chapter 15: Fiscal Policy
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Sample Questions
Q1) The spending multiplier is:
A) 1 / (1 - MPC).
B) 1 - MPC.
C) MPC.
D) MPC / (1 - MPC).
Q2) According to Keynesian economics,fiscal policy should create a deficit during economic contractions.
A)True
B)False
Q3) If the marginal propensity to consume (MPC)is 0.75,the value of the spending multiplier is:
A) 0.
B) 1.
C) 4.
D) 5.
Q4) As the marginal propensity to consume (MPC)increases,the spending multiplier:
A) increases.
B) decreases.
C) remains constant.
D) becomes undefinable.
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Chapter 16: The Public Sector
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Sample Questions
Q1) Which of the following statements is true?
A) Sales, excise, and flat-rate taxes violate the ability-to-pay principle of taxation fairness because each results in a greater burden on the poor than the rich.
B) Government failure may occur if voters are rationally ignorant.
C) Government failure may occur because of special-interest group political pressure.
D) All of the above.
Q2) People who often create benefits for the minority and impose the cost on the majority are called:
A) fair-interest groups.
B) encounter groups.
C) laissez-faire groups.
D) special-interest groups.
Q3) Since World War II,most of the growth in U.S.government outlays is attributable to rapidly growing federal government transfer programs.
A)True
B)False
Q4) Describe the two basic philosophies of taxation fairness.
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21
Chapter 17: Federal Deficits,Surpluses,and the National Debt
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Q1) Which of the following is true?
A) The size of the national debt currently is about the same size as it was during World War II.
B) The national debt increases in size whenever the federal government has a surplus budget.
C) The national debt's size decreased steadily after 1980.
D) The current U.S. national debt is over $13.0 trillion.
Q2) If the crowding-out effect is strong,how will the potency of discretionary fiscal policy be affected?
A) It will make fiscal policy more potent.
B) It will make fiscal policy less potent.
C) The potency of fiscal policy will be unaffected.
D) The potency of expansionary fiscal policy will be reduced.
Q3) Currently,the national debt is approximately:
A) 50 percent of GDP.
B) 60 percent of GDP.
C) 90 percent of GDP.
D) 120 percent of GDP.
Q4) Can the U.S.federal government go broke as a result of a large national debt?
Q5) Does government borrowing crowd out private sector spending?
Page 22
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Chapter 18: Money and the Federal Reserve System
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Sample Questions
Q1) The currency of the United States is:
A) backed dollar for dollar by gold.
B) backed by a gold cover of 50 percent.
C) not backed by any precious metal.
D) backed by the government's silver reserves.
E) back by the government's gold and silver reserves.
Q2) Which of the following is responsible for controlling the money supply in the United States?
A) The U.S. Congress.
B) The Board of Governors of the Federal Reserve System.
C) The U.S. Treasury.
D) The Council of Economic Advisors.
Q3) Which of the following is not a component of the M1 money supply?
A) Checkable deposits.
B) Large-denomination (more than $100) bills.
C) Interest-earning checking deposits.
D) Outstanding balances on credit cards.
Q4) What is money? What are the three definitions of money in the United States?
Q5) Who runs the Federal Reserve System? Describe the organizational structure of the Fed.
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Chapter 19: Money Creation
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Questions
Q1) Assume all banks in the system started with balance sheets as shown in Exhibit 19-3 and the Fed made a $100,000 open market purchase.The result would be a(n):
A) $500,000 expansion of the money supply.
B) $100,000 expansion of the money supply.
C) $20,000 contraction of the money supply.
D) infinite contraction of the money supply.
E) infinite expansion of the money supply.
Q2) If the required reserve ratio is 4 percent,then $100 of reserves can support up to $2,500 of checkable deposits.
A)True
B)False
Q3) Which of the following statements is true?
A) The simple money multiplier equals the reciprocal of the required reserve ratio.
B) Required reserves is the minimum balance that the Fed requires a bank to hold in vault cash or on deposit with the Fed.
C) The Discount rate is the interest rate charged banks for loans from the Fed.
D) Excess reserves equal total reserves minus required reserves.
E) All of the above.
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Chapter 20: Monetary Policy
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Sample Questions
Q1) According to classical economists,
A) prices are rigid.
B) both V and Q are variable for an economy in short-run equilibrium.
C) changes in M cause changes in V.
D) the velocity of money is constant.
Q2) Using the aggregate supply and demand model,assume the economy is operating along the intermediate portion of the aggregate supply curve.An increase in the money supply will increase the price level and:
A) lower both the interest rate and real GDP.
B) raise both the interest rate and real GDP.
C) lower the interest rate and raise GDP.
D) raise the interest rate and lower real GDP.
Q3) In Exhibit 20-4,which one of the following actions could the Fed use to shift the AD curve from AD to AD ?
A) Lower the legal reserve requirement.
B) Lower the discount rate.
C) Lower the federal funds rate.
D) Raise the discount rate.
E) Buy government securities.
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Page 25
Self-Correcting Aggregate Demand and Supply Model
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Q1) In Panel (b)of Exhibit 20A-2,a Keynesian expansionary stabilization policy designed to move the economy from Y to Yp would attempt to shift the:
A) aggregate demand curve (AD) leftward.
B) SRAS curve leftward.
C) aggregate demand curve (AD) rightward.
D) LRAS curve rightward.
Q2) In Panel (a)of Exhibit 20A-2,an expansionary Keynesian government stabilization policy designed to move the economy from Y to Yp would shift the:
A) aggregate demand curve (AD)to the left.
B) aggregate demand curve (AD) to the right.
C) SRAS rightward.
D) LRAS rightward.
Q3) Assuming the economy is in a recession,Keynesian economists predict that:
A) wages will remain fixed.
B) monetary policy will sell government securities.
C) higher wages will shift the short-run aggregate supply curve leftward.
D) lower wages will shift the short-run aggregate supply curve rightward.
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Chapter 21: International Trade and Finance
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Q1) The current account in the BOP records:
A) all money flowing between countries.
B) a nation's yearly exports and imports of goods and services.
C) only the transactions involving capital goods in international trade.
D) only the transactions involving consumer goods in international trade.
E) only those goods and services purchased on credit in international transactions.
Q2) Absolute advantage is the ability of a country to produce a good with ____ than another country.
A) a lower opportunity cost
B) a higher opportunity cost
C) fewer resources
D) more resources
Q3) A tax on an imported good is called:
A) an export.
B) dumping.
C) a quota.
D) a tariff.
E) free trade.
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Chapter 22: Economies in Transition
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Q1) Centralized planning agencies are a key feature of command economies.
A)True
B)False
Q2) In a market economy:
A) collective decision-making is more important than individual decision-making.
B) goods and services are distributed as if by an "invisible hand" to those who can not afford them.
C) profit provides an incentive to be productive.
D) the distribution of wealth is equitably distributed.
Q3) Socialism is correctly described by which of the following statements?
A) Central planning is used exclusively to answer the basic economic questions.
B) Markets are used exclusively to answer the basic economic questions.
C) Tradition is used exclusively to answer the basic economic questions.
D) Government ownership of many resources and centralized decision-making answers the basic economic questions.
Q4) Proponents of a command economy argue that it promotes:
A) efficiency.
B) equity.
C) consumer sovereignty.
D) economic growth.
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Chapter 23: Growth and the Less-Developed Countries
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Q1) Which of the following would be most likely to improve the standard of living of the residents of a less-developed country?
A) The development of strong labor unions.
B) A sharp increase in the legal minimum wage.
C) An increase in expenditures on education and capital investment.
D) Rapid growth rate of the money supply.
Q2) The vicious circle of poverty makes it difficult for an LDC to:
A) establish political institutions.
B) control inflation.
C) save and invest.
D) fix its exchange rate.
Q3) According to the text,Singapore and Hong Kong are classified as industrially advanced countries (IACs).
A)True
B)False
Q4) Which of the following makes long-term low-interest loans to LDCs?
A) Agency for International Development (AID).
B) World Bank.
C) International Monetary Fund (IMF).
D) New International Economic Order (NIEO).
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