Contemporary Economic Issues
Midterm Exam
Course Introduction
Contemporary Economic Issues explores current topics and debates shaping the global and national economy. The course examines themes such as income inequality, globalization, technological change, environmental sustainability, labor markets, and the impact of government policy. Students analyze real-world case studies and recent data to understand the complex interplay between economic theory and practical outcomes. Emphasis is placed on developing critical thinking skills, evaluating diverse perspectives, and crafting informed responses to the pressing economic challenges facing society today.
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) Household production is more likely to occur when
A)it requires many specialized resources
B)technology makes it more costly than market production
C)tax avoidance is undesirable
D)less control over the final product is desirable
E)the opportunity cost of household work is relatively small
Answer: E
Q2) The highest valued alternative that must be given up in order to choose an action is called its
A)opportunity cost.
B)utility.
C)scarcity.
D)ceteris paribus.
Answer: A
Q3) Economics is primarily the study of
A)why people like to make money.
B)the management of a business.
C)the choices people make as the result of scarcity.
D)how to make money in the stock market.
Answer: C
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Chapter 2: Asome Tools of the Economist
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Q1) If Kim can wash 10 cars or wax 2 cars during a day,and Susan can wash 8 cars or wax 2 cars during a day,then according to the law of comparative advantage, A)Susan's opportunity cost of waxing a car is greater than Kim's.
B)their total output can be expanded if Susan specializes in waxing and Kim in washing.
C)their total output can be expanded if Susan specializes in washing and Kim in waxing.
D)it is impossible to expand total output through specialization and mutual exchange in this case.
Answer: B
Q2) According to the law of comparative advantage,both individuals and nations will be able to produce a larger joint output if each productive activity is undertaken by A)the high opportunity cost producer.
B)the low opportunity cost producer.
C)the producer who is able to hire workers at the lowest wage.
D)the party that can complete the productive activity most rapidly.
Answer: B
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Chapter 3: Asupply,demand,and the Market Process
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Sample Questions
Q1) In which statement(s)are "supply" and "quantity supplied" used correctly?
(I)"An increase in the price of computers will increase the quantity supplied of computers."
(II)"A technological advance that lowers the cost of producing computers will increase the supply of computers."
A)in both statements I and II
B)in statement I only
C)in statement II only
D)in neither statements I nor II
Answer: A
Q2) If a decrease in the price of good Y causes the demand for good Z to decrease,this indicates that
A)Y and Z are complements.
B)Y and Z are substitutes.
C)Y and Z are unrelated.
D)the demand for Y is elastic,but the demand for Z is inelastic.
Answer: B
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Chapter 4: Asupply and Demand: Applications and Extensions
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Sample Questions
Q1) Both price floors and price ceilings lead to A)shortages.
B)surpluses.
C)reductions in quality.
D)a reduction in the quantity traded.
Q2) The burden of a tax will fall primarily on buyers when the A)demand for the product is highly inelastic and the supply is relatively elastic.
B)demand for the product is highly elastic and the supply is relatively inelastic.
C)tax is legally (statutorily)imposed on the seller of the product.
D)tax is legally (statutorily)imposed on the buyer of the product.
Q3) A tax for which the average tax rate rises with income is defined as a A)regressive tax.
B)proportional tax.
C)neutral tax.
D)progressive tax.
Q4) Joanne states,"If raising the minimum wage to $10 an hour is good,like Senator Largess suggests,then raising it to $20 an hour would be twice as good." Is Joanne correct? Why or why not?
Page 6
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Chapter 5: Difficult Cases for the Market and the Role of Government
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Q1) Anne has just purchased a new house in a lovely neighborhood.Her neighbors are friendly and even brought her house-warming gifts.Anne,however,has a problem.Her neighbors have cats,and Anne hates cats.Even though the city has a law requiring all outdoor pets to be on a leash,her neighbors ignore it,and the cats roam all over Anne's property.How would an economist describe this situation? Is there anything Anne can do?
Q2) When market failure is present,
A)democratic political decision-making can be counted on to improve the efficiency of resource allocation.
B)market allocation will achieve idealized economic efficiency.
C)the conditions implied by idealized efficient allocation of resources will be absent,but it does not follow that political action will improve the situation.
D)democratic political decision-making will never be able to improve the efficiency of resource allocation.
Q3) Externalities
A)are always detrimental.
B)are always beneficial.
C)arise when all costs,external and private,are included in production cost.
D)cause the price system to misallocate resources.
Page 7
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Chapter 6: The Economics of Collective Decision-Making
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Q1) When analyzing public sector decision making,economic theory assumes voters,politicians,and government officials will
A)respond to changes in personal benefits and costs when making public sector choices.
B)always pursue the public interest even when it conflicts with their private interests.
C)generally ignore the personal costs and benefits associated with their choices.
D)make decisions that seek to maximize the amount of benefits created for society as a whole.
Q2) In a representative democracy,government action results from the A)choices of voters.
B)legislative decisions by politicians.
C)political action of organized interest groups.
D)complex interaction of all of the above.
Q3) According to the shortsightedness effect,politicians tend to favor projects with
A)short-run benefits and short-run costs.
B)short-run benefits and long-run costs.
C)long-run benefits and short-run costs.
D)long-run benefits and long-run costs.
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Chapter 7: Ataking the Nations Economic Pulse
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Sample Questions
Q1) The amount of U.S.exports purchased by the rest of the world is primarily determined by
A)real disposable income in the United States
B)real disposable income in other nations
C)the real interest rate in other nations
D)the real interest rate in the United States
E)the government budget deficits in other nations
Q2) If nominal GDP increased 2 percent during a year,while real GDP increased 4 percent,the
A)price level must have increased approximately 2 percent compared to the prior year.
B)price level must have decreased approximately 2 percent compared to the prior year. C)price level must have decreased approximately 50 percent compared to the prior year.
D)unemployment rate must have increased during the year.
Q3) What is meant by a final good or service as opposed to an intermediate good or service? Why are only final goods and services included in the calculation of GDP?
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) Structural unemployment means that
A)employment in the construction industry is insufficient.
B)there are simply not enough jobs to go around.
C)worker qualifications do not match available jobs.
D)jobs are plentiful,but workers are scarce.
Q2) Which of the following is a true statement?
A)Unanticipated inflation is a change in the general level of prices that catches most decision makers by surprise.
B)High and variable rates of inflation are easy for decision makers to forecast accurately.
C)High and variable rates of inflation can increase GDP by reducing investment.
D)When decision-makers are able to anticipate slow,steady rates of inflation,prices become more unstable and there is a negative impact on the level of prosperity.
Q3) When the economy is at its potential output level,which of the following is not true?
A)Actual unemployment is equal to the natural rate of unemployment.
B)The unemployment rate is about 2 percent.
C)The economy is producing its maximum sustainable output.
D)The actual price level equals the expected price level.
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Chapter 9: Aan Introduction to Basic Macroeconomic Markets
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Sample Questions
Q1) Which of the following would generate a dollar demand for the euro?
A)American exports to Europe.
B)European demand for U.S.government bonds.
C)American demand for European real estate.
D)All of the above are correct.
Q2) The short-run aggregate supply curve shows the relationship between
A)the general level of prices and the quantity of goods and services purchased by all consumers in the economy.
B)the general level of prices and the quantity of goods and services that domestic firms will supply.
C)the interest rate and the quantity of goods and services that domestic firms will supply.
D)the money supply and the quantity of goods and services that domestic firms will supply.
Q3) The potential output of an economy is the level of output produced when the A)real wage equals the nominal wage.
B)price level is constant.
C)expected real wage equals the inflation rate.
D)expected price level equals the unemployment rate.
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E)expected price level equals the actual price level.
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Chapter 10: Dynamic Change, economic Fluctuations, and the Ad-As Model
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Q1) Once decision makers fully adjust to an increase in the general price level,
A)the actual rate of unemployment will exceed the natural rate of unemployment.
B)the actual rate of unemployment will be less than the natural rate of unemployment.
C)the rate of output will exceed the economy's long-run capacity.
D)output will return to the full-employment level.
Q2) When the output of an economy exceeds the economy's full-employment capacity, A)aggregate supply will increase until the economy can produce the output at the existing price level.
B)the actual rate of unemployment will be less than the natural rate.
C)wage rates and resource prices will tend to fall.
D)interest rates will decline and help direct the economy back to full employment.
Q3) Beginning from a point of short-run equilibrium at point E in Figure 10-18,the economy's movement to a new position of long-run equilibrium from that point would best be described as
A)a movement along the AD curve with a shift in the SRAS curve to SRAS .
B)a movement along the SRAS curve with a shift in the AD curve.
C)a shift in the LRAS curve to an intersection at E .
D)no shift of any kind.
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Chapter 11: Fiscal Policy: the Keynesian View and Historical Perspective
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Q1) Keynesian analysis stresses that a tax cut that increases the government's budget deficit (or reduces its budget surplus)
A)is appropriate during a period of inflation.
B)will increase the money supply.
C)will stimulate aggregate supply and,thereby,promote employment.
D)will stimulate aggregate demand and,thereby,promote employment.
Q2) According to Keynesian theory,which of the following would most likely stimulate an expansion in real output if the economy were in a recession?
A)an increase in tax rates
B)a balanced budget
C)a budget deficit
D)a budget surplus
Q3) The expenditure multiplier indicates that A)changes in investment,government,or consumption spending can trigger much larger changes in output.
B)an increase in saving will cause output to rise by a multiple of the additional saving.
C)a market economy will be more stable than classical economists thought.
D)the marginal propensity to consume is greater than one.
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Chapter 12: Fiscal Policy, incentives, and Secondary Effects
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Q1) Which of the following is true with regard to the use of countercyclical fiscal policy as a stabilization tool?
A)Successful fiscal policy would be easy to achieve if Congress had greater access to forecasting tools.
B)Successful fiscal policy is difficult to achieve because Congress acts slowly and our ability to predict the future is limited.
C)Successful fiscal policy is easier to achieve today because econometric forecasting models are highly accurate.
D)Congress and the President have persistently altered fiscal policy in a stabilizing manner.
Q2) The crowding-out effect suggests that
A)expansionary fiscal policy causes inflation.
B)high marginal tax rates crowd out tax deductions.
C)the demand stimulus effects of a budget deficit will be weak because the borrowing to finance the deficit will lead to higher interest rates.
D)a budget surplus will cause the economy to slip into a major recession.
Q3) What effect will expansionary fiscal policy have on the economy,according to new classical economists?
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Chapter 13: Amoney and the Banking System
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Sample Questions
Q1) Widespread use of credit cards
A)will increase the M1 money supply figures.
B)will increase the M2 money supply figures but not those for M1.
C)tends to reduce the average quantity of money that people will choose to hold.
D)tends to increase the average quantity of money that people will choose to hold.
Q2) Which of the following will cause the U.S.money supply to expand?
A)a commercial bank uses excess reserves to extend a loan to a customer
B)a commercial bank purchases U.S.securities from the Fed as an investment
C)an increase in reserve requirements
D)an increase in the discount rate
Q3) A bank that has $10,000 in excess reserves can extend new loans up to a maximum of
A)$1,000.
B)$9,000.
C)$10,000.
D)$100,000.
Q4) What are the advantages of a fractional reserve banking system compared to a system that requires 100 percent of deposits to be kept on reserve?
Q5) What advantages does a money economy have over a barter economy?
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Chapter 14: Modern Macroeconomics and Monetary Policy
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Q1) Which of the following is true?
A)Monetary policy influences long-term real interest rates more than short-term interest rates.
B)Short-term interest rates are primarily determined by real factors and the expected inflation.
C)A shift to a more expansionary monetary policy will tend to raise short-term interest rates.
D)A shift to expansionary monetary policy that increases the fear of future inflation will tend to increase long-term interest rates.
Q2) Write out the equation of exchange.What assumptions did the classical economists make about the variables that compose the equation,and what did this lead them to conclude about money and prices?
Q3) If the Federal Reserve sells bonds,the short-run effects will be
A)an increase in the money supply and lower real interest rates.
B)a decrease in the money supply and lower real interest rates.
C)an increase in the money supply and higher real interest rates.
D)a decrease in the money supply and higher real interest rates.
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Chapter 15: Stabilization Policy, output, and Employment
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Sample Questions
Q1) Under the adaptive expectations theory,people persistently
A)underestimate inflation when it is slowing down.
B)overestimate inflation when it is accelerating.
C)underestimate inflation when it is accelerating.
D)adapt to the prevailing inflation rate quickly.
Q2) What is the Phillips curve? What is the difference between the original Phillips curve and the "modern" view of the Phillips curve? What problems caused the abandonment of the ideas behind the original Phillips curve?
Q3) According to the modern expectational Phillips curve,unemployment will temporarily rise above the natural rate of unemployment when
A)any inflation is present.
B)inflation turns out to be lower than what people expected.
C)inflation turns out to be higher than what people expected.
D)inflation turns out to be equal to what people expected.
Q4) The Phillips curve illustrates the relationship between
A)change in the money supply and change in unemployment.
B)tax rates and tax revenues.
C)the equilibrium level of income and the employment rate.
D)inflation and unemployment.
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Chapter 16: Creating an Environment for Growth and Prosperity
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Q1) Obstacles that restrict trade,either domestic or international,will
A)reduce output,income,and the general living standard of the populace.
B)help people achieve higher income levels.
C)help promote high rates of economic growth.
D)encourage domestic business firms to expand output so they can achieve larger gains from the adoption of mass production techniques.
Q2) Which of the following is most likely to be a serious obstacle retarding the growth of less-developed nations?
A)a lack of knowledge about modern technology
B)a lack of natural resources
C)slow population growth
D)low capital formation as the result of a weak legal system
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) How can increased investment help a country achieve increased economic growth? What costs are involved?
Q5) Are abundant natural resources good or bad for economic growth?
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Chapter 17: Institutions,policies,and Cross-Country
Differences in Income and Growth
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Q1) According to the Economic Freedom of the World (EFW)rating,which of the following countries has the lowest level of economic freedom?
A)Singapore
B)Switzerland
C)Zimbabwe
D)Mexico
Q2) Since the mid-1980s,the overall Economic Freedom of the World (EFW)ratings of most countries have been increasing due to
A)more stable monetary policies.
B)lower tax rates.
C)trade liberalization.
D)All of the above.
Q3) The Economic Freedom of the World measure indicates that the United States
A)was the freest economy in the world in 2009.
B)has experienced a decline in economic freedom since 2000.
C)has experienced an increase in economic freedom since 2000.
D)continues to be substantially more free than Australia,Canada,and Chile.
Q4) What are some of the key economic factors that characterize countries with poor growth records?
Page 19
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Chapter 18: Gaining From International Trade
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Q1) If a foreign supplier sells a good in another country at a cheaper price than it sells the good in its home market,the
A)foreign supplier will gain a monopoly in the foreign market.
B)consumers in the receiving country will be harmed by the dumping of the good into its domestic market.
C)consumers in the receiving country can gain from buying the foreign-produced good if it is cheaper than the cost of producing the good domestically.
D)usual implications of the law of comparative advantage with trade restrictions do not hold in this case,particularly if the low-cost supplier is subsidized by a foreign government.
Q2) Which of the following provides the foundation of the case for free trade?
A)the law of diminishing marginal utility
B)the anti-dumping argument
C)the industrial diversity argument
D)the law of comparative advantage
Q3) "Trade restrictions will stop foreign imports,which will increase American employment and protect American jobs." Most economists realize this argument is wrong.Can you explain why?
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Chapter 19: International Finance and the Foreign Exchange Market
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Q1) Which of the following would be most likely to cause an appreciation of the dollar relative to foreign currencies?
A)higher domestic interest rates
B)a reduction in the rate of inflation abroad
C)a shift to a more expansionary monetary policy
D)rapid growth of income in the United States
Q2) If the U.S.purchases oil from Venezuela,what is the effect in the foreign exchange market?
A)It will increase demand for U.S.dollars.
B)It will decrease demand for U.S.dollars.
C)It will increase supply of U.S.dollars.
D)It will decrease supply of U.S.dollars.
Q3) An appreciation in the value of the dollar would
A)make U.S.goods less expensive to foreigners.
B)encourage U.S.consumers to buy more foreign goods.
C)increase the number of dollars that could be purchased with a Mexican peso.
D)discourage U.S.consumers from traveling abroad.
Q4) What are the three categories of transactions in the balance of payments? Give an example of each.
Page 21
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Chapter 20: Consumer Choice and Elasticity
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Questions
Q1) Assume that a college student purchases only coffee and Snickers.The substitution effect associated with a decrease in the price of a Snickers will result in
A)an increase in the consumption of coffee only.
B)a decrease in the consumption of coffee only.
C)an increase in the consumption of Snickers and a decrease in the consumption of coffee.
D)a decrease in the consumption of Snickers and an increase in the consumption of coffee.
Q2) When the price of a good falls,consumers buy more of the good because it is cheaper relative to competing goods.This statement describes the
A)consumer equilibrium effect.
B)price effect.
C)income effect.
D)substitution effect.
Q3) Ceteris paribus,an increase in the price of a good will cause the
A)quantity demanded of the good to increase.
B)quantity supplied of the good to decrease.
C)consumer surplus derived from the good to decrease.
D)demand of the good to increase.
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Chapter 21: Acosts and the Supply of Goods
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Q1) Refer to Figure 8-14.Diminishing returns to the variable factor of production for this firm set in at
A)Q = 6.
B)Q = 10.
C)Q = 15.
D)none of the above.
Q2) If General Electric finds that when it doubles both its plant size and the amount of associated inputs,its output level does not double,then
A)the law of diminishing returns is in effect.
B)long-run average costs must be decreasing.
C)the firm is experiencing diseconomies of scale.
D)the firm should increase production.
E)the firm is experiencing constant returns to scale.
Q3) Al's Donuts produces about 600 dozen doughnuts daily.If flour prices increase 20 percent
A)only marginal cost will shift up.
B)only marginal cost and average total cost will shift up.
C)marginal cost,average variable cost,and average total cost will shift up.
D)marginal cost,average total cost,and average fixed cost will shift up.
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Chapter 22: Aprice Takers and the Competitive Process
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Q1) If a firm is losing money,this implies that
A)consumers do not understand the value of the product.
B)the value of the resources used to make the product is being reduced.
C)the firm must go out of business immediately.
D)this product cannot be produced profitably in the long run.
Q2) In Figure 9-10,the movement from points A to B to C can best be explained by which of the following factors?
A)a decrease in demand,followed by the entry of new firms and an expansion in supply in a constant cost industry.
B)an increase in demand,followed by the entry of new firms and an expansion in supply in an increasing cost industry.
C)a decrease in demand,followed by the exit of firms and a decline in supply in an increasing cost industry.
D)an increase in demand,followed by the exit of firms and a decline in supply in a constant cost industry.
Q3) Even if a firm is optimistic about the future,why should it shut down if it cannot cover its variable cost? If it does shut down,are there ramifications not mentioned in the textbook?
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Chapter 23: Price-Searcher Markets With Low Entry Barriers
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Q1) When an entrepreneur introduces a new improved product that is highly valued relative to cost
A)consumers will be worse off.
B)the demand for the products that are good substitutes for the new product will increase.
C)some of the existing products will become obsolete and businesses producing those products will fail.
D)total employment will decline if there are business failures.
Q2) Many small U.S.cities are served by only one or two airlines.If a price increase in these markets allows other airlines to quickly and easily enter the market and compete,economists would call these markets
A)contestable markets.
B)high entry markets.
C)conventional markets.
D)monopolistic markets.
Q3) What type of model would be best if we wanted to analyze the market for fast food? Why?
Q4) Why do the airlines charge less for passengers who stay over Saturday night and purchase their tickets two weeks in advance?
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Chapter 24: Aprice-Searcher Markets With High Entry
Barriers
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Q1) Breaking a monopoly firm into several rival firms will be unlikely to improve economic efficiency when economies of scale are important because
A)several smaller firms will have higher per-unit costs than a single larger firm.
B)a single firm will have higher per-unit costs than several smaller firms.
C)it is harder to regulate many smaller firms than it is one large firm.
D)consumers will find it harder to choose among the products of many alternative sellers.
Q2) If the firms in an oligopolistic industry can collude effectively (from the firms' viewpoints),the resulting price and output in the market will be most similar to that of A)a competitive price-searcher market.
B)pure monopoly.
C)bilateral monopoly.
D)a competitive price-taker market.
Q3) One answer to the problem of natural monopoly is provision of the good by a government-owned and operated firm.Why is that option not used very often?
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Chapter 25: The Supply of and Demand for Productive Resources
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Q1) Because the demand for a resource is highly dependent upon the demand for the final goods that the resource helps produce,the demand for a resource is called a(n)
A)derived demand.
B)independent demand.
C)declining proportions demand.
D)elastic demand.
Q2) If the price of cotton increases
A)consumers will buy more cotton clothes.
B)consumers will increase their purchases of clothing made of other materials.
C)clothing producers will stop making cotton clothes.
D)clothing producers will not be able to adjust their output.
Q3) The notion that the demand for inputs depends on the demand for outputs is termed
A)inverse demand.
B)derived demand.
C)proportional demand.
D)complementary demand.
Q4) Why is it more expensive to acquire a new house in an urban area than in a rural area if the costs of labor and building materials are the same?
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Chapter 26: Earnings, productivity, and the Job Market
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Q1) Which of the following would cause the demand for plumbers to decrease?
A)an increase in the productivity of plumbers
B)a decline in the construction of housing
C)a law that mandated higher wages for plumbers
D)an increase in the number of plumbers who belong to a union
Q2) Which of the following is true?
A)Automated production processes are generally adopted regardless of whether they reduce costs.
B)Automated production processes eliminate jobs and,thereby,endanger our future living standards.
C)Cost-reducing automated production techniques will expand output directly and/or release scarce resources for the expansion of output in other areas.
D)Use of the most advanced technology will always minimize the cost of a productive activity.
Q3) The major determinant of an individual's income is
A)whether or not her family is wealthy.
B)how well she gets along with her co-workers and boss.
C)how productive she is combined with demand for what she produces.
D)how much she enjoys the work.
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Chapter 27: Investment, the Capital Market, and the Wealth of Nations
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Q1) If the interest rate was 6 percent,the combined net present value of two payments of $100,one to be received one year from now and the other two years from now,would be A)$89.00.
B)$94.34.
C)$183.34.
D)$200.00.
Q2) If the interest rate were 10 percent,the net present value of $100 to be received one year from now would be A)$90.
B)$90.91.
C)$100.
D)$110.
Q3) The money rate of interest that lenders pay for borrowed funds minus the real rate of interest equals the A)nominal rate of interest. B)present value of an asset. C)inflationary premium. D)productivity of capital.
Q4) In a barter economy that had no form of currency,how could interest exist?
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Chapter 28: Income Inequality and Poverty
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Q1) The poverty threshold income level is
A)adjusted annually for increases in real per capita income.
B)adjusted annually for changes in prices.
C)invariant to differences in the size and composition of families.
D)the highest income level that would leave one in the bottom quintile of income recipients.
Q2) Which of the following is accurate regarding income statistics?
A)Current annual income is also an accurate indicator of relative economic status over a longer period,such as a decade or lifetime.
B)Inequalities of income observed at one point in time with annual income data overstate the degree of true income inequality in lifetime income.
C)Recent studies indicate that the relative income position of a family generally determines the relative income position of their children and grandchildren.
D)High-income earners generally maintain their status year after year,whereas those with low current incomes tend to stay poor year after year.
Q3) Some people inherit money and wealth that they did nothing to earn.Why don't we tax inheritance at 100 percent?
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Chapter 29: Government Spending and Taxation
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Q1) Which of the following is true?
A)Real federal spending per person was approximately 50 times higher in 1900 than 1800.
B)Real federal spending per person grew more rapidly during the 19th century than during the 20th century.
C)Real federal spending per person was approximately 60 times greater in 1990 than in 1916.
D)Real federal spending per person has decreased significantly since 1964.
Q2) The administrative,enforcement,and compliance costs of collecting taxes in the United States sum to
A)between 1 and 2 percent of the revenues collected.
B)between 5 and 6 percent of the revenues collected.
C)between 12 and 15 percent of the revenues collected.
D)more than half of the revenues collected.
Q3) What percentage of Americans age 18 and over paid personal income taxes in 2009?
A)92 percent
B)75 percent
C)51 percent
D)33 percent
Q4) Discuss how size of government can negatively affect economic growth.
Page 31
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Chapter 30: The Economics of Social Security
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Q1) Which of the following is true?
A)The regressive nature of the Social Security benefit formula works to the advantage of groups with below average earnings.
B)Groups with an below average life expectancy gain from Social Security because they will typically draw retirement benefits over a more lengthy period of time.
C)The life expectancy of Hispanics at age 20 is generally lower than the figures for whites and blacks.
D)Hispanics derive a higher return from their Social Security taxes than whites,and substantially higher than blacks.
Q2) Which of the following is true?
A)Labor participation tends to increase as spousal earnings increase.
B)Social Security works to the disadvantage of low-wage workers due to their shorter life expectancy.
C)Low-wage workers derive a higher rate of return from their Social Security taxes than high-wage workers.
D)High-wage workers generally begin full-time work at younger ages than low-wage workers.
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Chapter 31: The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity
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Q1) Investors can make their investments in corporate stocks less risky by
A)purchasing shares of a mutual fund,which holds the stocks of many diverse corporations.
B)buying stocks and holding them each for only for short periods of time.
C)investing in firms that are in the same,rather than different,industries.
D)none of the above.
Q2) According to the random walk theory,which of the following is true?
A)Stock prices reflect all available information about factors that affect stock prices.
B)Future movements of stock prices are unpredictable.
C)Changes in stock prices are driven by surprise occurrences.
D)All of the above are true.
Q3) During 1982-1997,stock prices increased substantially.Which of the following helped to boost stock prices during this period?
A)higher interest rates and rapid growth of corporate profits
B)lower interest rates and rapid growth of corporate profits
C)higher interest rates and slow growth of corporate profits
D)lower interest rates and slow growth of corporate profits
Q4) Does it ever make sense to purchase a stock that has never paid a dividend? Explain.
Page 33
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Chapter 32: Great Debates in Economics: Keynes Versus Hayek
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Q1) John Maynard Keynes and Friedrich Hayek
A)had similar views with regard to the cause of the Great Depression and what might be done to prevent it from happening again.
B)both believed that perverse monetary policy was the primary cause of the ups and downs of the business cycle.
C)both believed that budget deficits and surpluses could be used to smooth the ups and downs of the business cycle.
D)had polar opposite views with regard to the underlying causes of economic booms and bust,but nonetheless their scholarly work commanded widespread respect among economists.
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Chapter 33: The Crisis of 2008: Causes and Lessons for the Future
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Q1) The primary objective of the monetary policy of the Fed should be A)low rates of unemployment.
B)the growth rate of real GDP.
C)the achievement of price stability.
D)the regulation of financial institutions.
Q2) The substantial increase in household debt relative to income since the mid 1980s meant that in 2008 many households
A)had little savings or other reserve assets for use to deal with unexpected expenditures.
B)could safely afford to purchase larger homes because housing is always a good investment.
C)could spend everything they earned because their interest obligations on outstanding credit were low.
D)would be able to easily adjust their current spending if their monthly payments on adjustable rate mortgages rose.
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Chapter 34: Lessons From the Great Depression
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Q1) Which of the following is true?
A)The Great Depression re-enforces the view that raising taxes in the midst of a severe recession is a bad idea.
B)The Great Depression clearly indicates that a prolonged period of monetary contraction will keep inflation low and promote monetary stability.
C)The Great Depression illustrates that trade restrictions will protect domestic industry and save jobs.
D)The Great Depression demonstrates that the political incentive structure during a severe downturn will encourage politicians to avoid frequent policy changes.
Q2) Which of the following factors contributed to a breakdown of the economy during the Great Depression?
A)a sharp increase in tax rates in 1932
B)a sharp decline in the money supply during 1929 through 1933
C)a sharp increase in tariff rates during 1930
D)all of the above
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Chapter 35: Lessons From Japan and Canada
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Q1) Demographic and economic analysis indicates that as a nation's population age 65 and older
A)declines,the tax burden on the current work force will increase.
B)expands,the tax burden on the current work force will decrease.
C)expands,the overall productivity of the population will increase.
D)expands,the overall productivity of the population will decline.
Q2) Which of the following is a similarity between the Japanese experience of the 1990s and the U.S.economic downturn in 2008-2009?
A)Stable real estate and stock market prices eventually led to an economic downturn.
B)Both Japan and the U.S.tightened lending standards and this eventually led to a substantial decline in real estate prices.
C)The collapse of stock and real estate prices led to the failure of highly leveraged banking and financial institutions.
D)Neither Japan nor the U.S.had experienced a recession since the time of the Great Depression.
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Chapter 36: The Federal Budget and the National Debt
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Q1) Indicate what might be done to restrain the tendency of the democratic process to generate budget deficits?
Q2) The national debt is
A)the difference between a nation's exports and imports of goods and services.
B)the sum of the personal debt of all citizens in the United States.
C)the cumulative effect of all past budget deficits and surpluses of the federal government.
D)equal to the current size of the budget deficit.
Q3) According to the traditional (crowding-out)view,large budget deficits during normal times will lead to
A)bank failures in the future.
B)a smaller capital stock in the future.
C)lower interest rates in the future.
D)a bankrupt government in the future.
Q4) Refer to Table ST8-1.In the first year,this country
A)ran a deficit of $210.
B)had a surplus of $10.
C)ran a deficit of $10.
D)had a surplus of $210.
Q5) What is the difference between the federal budget deficit and the national debt?
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Chapter 37: The Economics of Healthcare
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Q1) Special savings accounts that individuals could pay into directly and then use to pay medical bills or purchase a catastrophic health insurance plan are known as
A)flexible benefit accounts.
B)health savings accounts.
C)health-care savings bonds.
D)HMOs.
Q2) As the Medicare program is expanded to cover the cost of prescription drugs for the elderly,other things constant,this will lead to
A)an increase in demand and higher prices for prescription drugs.
B)an increase in demand and lower prices for prescription drugs.
C)reduction in demand and lower prices for prescription drugs.
D)reduction in demand and higher prices for prescription drugs.
Q3) In 2007,third-party payments accounted for approximately what percent of medical-care expenditures in the United States?
A)25 percent
B)46 percent
C)65 percent
D)86 percent
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Chapter 38: Education: Problems and Performance
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Q1) Since 1970,real spending per student in American public elementary schools has
A)fallen substantially.
B)fallen modestly.
C)not changed.
D)doubled
Q2) A school voucher program targeted towards low- and middle-income families would cause
A)racial and economic segregation among schools to rise.
B)per-pupil funding in the public schools to fall.
C)salaries for outstanding teachers to rise.
D)competition between public and private schools to fall.
Q3) When a good or service is supplied under competitive conditions,economic analysis indicates that with the passage of time,the quality of the product will
A)tend to improve,but its real price will generally rise.
B)tend to improve,and its real price will generally fall.
C)decline,and its real price will generally rise.
D)decline,and its real price will fall.
Q4) What are some of the criticisms of voucher programs? How would a voucher program be modified to address these concerns?
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Chapter 39: Earnings Differences Between Men and Women
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Q1) During the last two or three decades,the educational and career choices of women have become
A)more like those of men,and the earnings of women have declined relative to those of men.
B)more like those of men,and the earnings of women have increased relative to those of men.
C)less like those of men,and the earnings of women have increased relative to those of men.
D)less like those of men,and the earnings of women have declined relative to those of men.
Q2) Since 1980,the female/male annual earnings ratio of full-time workers has been ____,while the labor force participation rate of women has been ____ during this same period.
A)rising;declining
B)rising;increasing C)falling;increasing D)falling;declining
Q3) 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)."
Page 41
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Chapter 40: Do Labor Unions Increase the Wages of Workers
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Q1) Since 1970,union membership,as a percent of the labor force,
A)has remained virtually unchanged.
B)has increased,as more government workers have decided to unionize.
C)has decreased.
D)has gone through wild swings both up and down.
Q2) 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)weak foreign competition for the product union labor helps to produce C)high tariffs on goods produced by the union labor
D)favoritism in the allocation of government contracts to firms that employ union labor
Q3) Which of the following states had the highest incidence of union membership as a percent of all wage and salary workers in 2010?
A)New York
B)Arkansas
C)North Carolina
D)California
Q4) In a strike,what does the union have to lose? What does management lose?
Page 42
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Chapter 41: The Question of Resource Exhaustion
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Q1) If the prices of energy products rise sharply,consumers will most likely
A)sharply reduce their consumption of these products in both the short run and the long run.
B)reduce their consumption of these products slightly in the short run and more sharply in the long run.
C)reduce their consumption of these products sharply in the short run,but in the long run consumption will fall by only a small amount.
D)increase their consumption of these products slightly in the short run and more sharply in the long run.
Q2) In the United States,water purchases from the government
A)always cover the costs of water delivery.
B)are often subsidized for the user of water.
C)are not subsidized,because that would be inefficient.
D)almost never occur.
Q3) An example of a renewable resource is
A)coal.
B)oil.
C)timber.
D)diamonds.
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Chapter 42: Difficult Environmental Cases and the Role of Government
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Q1) "The United States should not sign the Kyoto Protocol,an international treaty that requires industrial nations to limit carbon dioxide emissions to 1990 levels." An economist should be expected to
A)disagree with this statement.The science on global warming is clearly known,and the Kyoto Protocol is the best,lowest cost,method to minimize the effects of global warming.
B)disagree with this statement.Even though much critical information is still missing,the Kyoto Protocol will certainly reduce carbon emissions enough to greatly reduce atmospheric warming.
C)agree with this statement.The benefits of a warming climate will unquestionably be greater than the costs.
D)probably agree with this statement.The costs of the Kyoto Protocol are great,and the expected impact from it on world temperatures over the next century is extremely small.
Q2) When is the definition and enforcement of property rights especially difficult?
A)When many polluters harm a large group of people with the same pollutant.
B)When a single polluter is harming a single person or entity.
C)When land is owned by a corporation.
D)When the benefits of prosecution are clear.
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