Contemporary Economic Issues
Mock Exam
Course Introduction
Contemporary Economic Issues explores the major economic challenges and debates facing societies today. The course examines topics such as globalization, poverty and inequality, unemployment, inflation, environmental sustainability, and the impact of technological change on labor markets. Through case studies and analysis of current events, students will develop a deeper understanding of the forces shaping economic policy and their effects on local and global scales. Critical thinking and discussion are emphasized to evaluate possible solutions and anticipate future trends.
Recommended Textbook
Macroeconomics 13th Edition by Roger
A. Arnold
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3454 Verified Questions
3454 Flashcards
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Chapter 1: What Economics Is About
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Sample Questions
Q1) Scarcity occurs in both wealthy societies and poor societies.
A)True
B)False
Answer: True
Q2) The coordinates of point A are 400 units of X and 40 units of Y.The coordinates of point B are 480 units of X and 60 units of Y.With X on the horizontal axis and Y on the vertical axis,the slope of the line between points A and B is
A) + 0.25
B) + 4.00
C) + 0.33
D) - 4.00
E) - 0.25
Answer: A
Q3) The slope of a straight line is always equal to either 1.0 or -1.0.
A)True
B)False
Answer: False
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Chapter 2: Production Possibilities Frontier Framework
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Sample Questions
Q1) Refer to Exhibit 2-3.If PPF<sub>1</sub> is the relevant production possibilities frontier,society may move to PPF<sub>2</sub> as a result of
A) an increase in resources.
B) a decrease in resources.
C) an increase in technology.
D) both a and c
E) both b and c
Answer: D
Q2) If Luke can bake bread at a lower opportunity cost than Jason,and Jason can produce paintings at a lower opportunity cost than Luke,it follows that A) Luke has a comparative advantage in paintings and Jason has a comparative advantage in baking bread.
B) Both Luke and Jason have a comparative advantage in baking bread.
C) Both Luke and Jason have a comparative disadvantage in producing paintings.
D) Luke has a comparative advantage in baking bread and Jason has a comparative advantage in producing paintings.
E) There is not enough information to answer the question.
Answer: D
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) When the price of a good is $65,the quantity demanded of a good is 80 units,and the quantity supplied of the good is 40 units.For every $10 increase in the price of this good,quantity demanded falls by 10 units and quantity supplied rises by 10 units.The equilibrium price of this good is ___________and the equilibrium quantity of this good is _________ units.
A) $55; 30
B) $75; 50
C) $75; 70
D) $85; 50
E) $85; 60
Answer: E
Q2) In moving along a demand curve,everything is held constant except buyers' income.
A)True
B)False
Answer: False
Q3) Demand takes into account goods,but not services.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Prices: Free,controlled,and Relative
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Sample Questions
Q1) Refer to Exhibit 4-9.Suppose that the government imposes a price ceiling at a price of $10._________ units would be exchanged in a free market,and ____________ units would be exchanged with the price ceiling in effect.
A) 150; 220
B) 150; 70
C) 110; 180
D) 150; 90
Q2) Which of the following is false?
A) When the U.S.government imposed price ceilings on gasoline,the result was a surplus of gasoline.
B) When the U.S.government imposed price ceilings on gasoline,the result was a shortage of gasoline.
C) If a price ceiling is imposed below the equilibrium price in a given market,the result is a shortage in that market.
D) First-come-first-served is a commonly used rationing device.
Q3) What condition is necessary for a price ceiling to have an impact on a market?
Describe at least three of the effects that a price ceiling can have on a market.Give a hypothetical numerical example to help support your answer.
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Chapter 5: Supply,demand,and Price: Applications
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Q1) Refer to Exhibit 5-6.Under law 1 a renter has 30 days to vacate an apartment after being served with an eviction notice.Under law 2,the renter has 90 days to vacate after being served with an eviction notice.This graph shows that the supply of apartments is____________ under law 1 than under law 2,and thus apartment rent is _______________ under law 1 than under law 2.
A) less; lower
B) less; higher
C) greater; lower D) greater; higher
Q2) If a college sets its tuition __________ the equilibrium tuition,then it will have to use some form of nonprice-rationing device to determine who will be accepted for admission to the college. A) above B) below C) equal to D) all of the above
Q3) Discuss three possible solutions for reducing traffic congestion on freeways.Be sure to explain what effect each would have on the supply and/or demand for freeway space.
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Page 7
Chapter 6: Elasticity
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Sample Questions
Q1) The CPI was 154 in one year and 165 the following year.How much did prices rise between these two years?
A) 5.46 percent
B) 6.67 percent
C) 7.14 percent
D) 0.07 percent
Q2) If the CPI is 100 in the base year and 106 in the current year,how much did prices rise between the base year and the current year?
A) 6 percent
B) 106 percent
C) 1.06 percent
D) 0.06 percent
E) 60 percent
Q3) The employment rate equals the number of
A) employed persons divided by the number of unemployed persons.
B) unemployed persons divided by the civilian non-institutional population.
C) employed persons divided by the civilian labor force.
D) employed persons divided by the civilian non-institutional population.
E) none of the above
Q4) Describe what the term "full employment" means to an economist.
Page 8
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Chapter 7: Consumer Choice: Maximizing Utility and Behavioral Economics
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Sample Questions
Q1) Look at the following data: durable goods = $300 billion; nondurable goods = $450 billion; services = $900 billion; fixed investment + inventory investment = $200 billion; government purchases = $400 billion; exports = $40 billion; imports = $85 billion.GDP is equal to
A) $2,205 billion.
B) $2,375 billion.
C) $1,855 billion.
D) $1,010 billion.
E) There is not enough information to answer the question.
Q2) Investment equals inventory investment added to
A) business purchases of new capital goods.
B) purchases of new residential housing.
C) fixed investment.
D) business purchases of new capital goods and purchases of new residential housing.
E) either c or d
Q3) Draw an appropriate diagram to represent the business cycle and label each of the five phases.Provide a brief description of each phase.
Q4) List and explain the two different approaches used to measure GDP.
Page 9
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Chapter 8: Production and Costs
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Sample Questions
Q1) The AD curve shows the various amounts of real output that people are willing and able to
A) buy at different income levels.
B) buy at different price levels.
C) sell at different profit levels.
D) sell at different price levels.
E) none of the above
Q2) In a two-country world,an increase in foreign input prices,ceteris paribus,
A) shifts the SRAS curve leftward,causing the price level to increase.
B) shifts the SRAS curve leftward,causing the price level to decrease.
C) shifts the SRAS curve rightward,causing the price level to increase.
D) shifts the SRAS curve rightward,causing the price level to decrease.
E) does not affect the SRAS curve or the price level.
Q3) Part of the story of the interest rate effect is that a lower price level causes
__________ in the demand for credit,which then causes the interest rate to
A) a decrease; fall
B) a decrease; rise
C) an increase; fall
D) an increase; rise
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Chapter 9: Perfect Competition
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Sample Questions
Q1) According to classical economists,if interest rates are flexible,
A) saving will equal investment.
B) saving may be greater than investment.
C) saving may be less than investment.
D) any of the above
Q2) Refer to Exhibit 9-3.If the economy is in short-run equilibrium at point C,
A) the (actual)unemployment rate is less than the natural unemployment rate.
B) the (actual)unemployment rate is equal to the natural unemployment rate.
C) the (actual)unemployment rate is greater than the natural unemployment rate.
D) the relationship between the (actual)unemployment rate and the natural unemployment rate cannot be determined from the available information.
Q3) The number of unpaid internships is more likely to rise in an economy when the economy is in a recessionary gap and wage rates are constant than when wage rates are falling.
A)True
B)False
Q4) Explain how it is possible for the economy to produce at a point beyond its institutional production possibilities frontier (PPF),but not beyond its physical PPF.
Q5) Explain the policy implications of the classical economists' beliefs.
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Chapter 10: Monopoly
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Sample Questions
Q1) Autonomous spending rises by $10 billion and Real GDP rises by $50 billion.What does the marginal propensity to save equal?
A) 0.10
B) 0.20
C) 0.80
D) 0.90
E) 0.50
Q2) If the multiplier is 5,then the MPC must be
A) 1/5.
B) 1/6.
C) 3/4.
D) 4/5.
E) 2/3.
Q3) Keynes's major work,The General Theory of Employment,Interest and Money,was published during the
A) late 1800s.
B) mid-1700s.
C) 1930s.
D) Panic of 1907.
Q4) Describe Keynes' criticism of Say's law in a money economy.
Page 12
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Chapter 11: Monopolistic Competition, oligopoly, and Game Theory
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Sample Questions
Q1) To eliminate an inflationary gap,Keynesian theory indicates that government should A) increase taxes.
B) decrease taxes.
C) increase government purchases.
D) decrease government purchases.
E) either a or d
Q2) If the economy is on the downward-sloping portion of the Laffer curve,a(an)__________ in tax rates will __________ tax revenues. A) decrease; reduce B) increase; raise C) decrease; raise D) decrease; not change E) increase; not change
Q3) Explain how tax cuts can impact both aggregate demand and aggregate supply.Give an example of each.
Q4) A "flat tax" is another term for a regressive tax. A)True B)False
Page 13
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Chapter 12: Government and Product Markets: Antitrust and Regulation
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Sample Questions
Q1) "Barter" implies that
A) to get one good or service,an individual offers another.
B) to get one good or service,an individual offers money.
C) to get a check,an individual offers a good or service.
D) different kinds of money are exchanged for each other.
E) none of the above
Q2) Money's basic advantage as compared to barter is that
A) everybody has money but not everyone has the opportunity to barter.
B) a money system relies on a double coincidence of wants.
C) money reduces transaction costs.
D) money is the only medium you can use to store your wealth.
Q3) Refer to Exhibit 12-1.The required reserve ratio is
A) 0.10.
B) 0.15.
C) 0.20.
D) 0.25.
E) 0.30.
Q4) Describe the differences between M1 and M2.
Page 14
Q5) Describe the circumstances under which the M1 money supply could fall while the M2 money supply remains constant at the same time.
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Chapter 13: Factor Markets: With Emphasis on the Labor Market
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Sample Questions
Q1) The boundaries of the Federal Reserve districts were determined based on trade patterns between cities.
A)True
B)False
Q2) When a bank repays a _________________ loan,the Fed _____________________ the bank's reserve account.
A) overnight; subtracts the repayment from B) overnight; adds the repayment to C) discount; adds the repayment to D) discount; subtracts the repayment from
Q3) Refer to Exhibit 13-2.What word (up or down)should go in the place of blank (1)and blank (2),respectively?
A) up; up
B) up; down
C) down; up
D) down; down
Q4) Lowering the required reserve ratio raises the simple deposit multiplier.
A)True
B)False
15
Q5) Explain the major differences between the Federal Reserve and the U.S.Treasury.
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Chapter 14: Wages,union,and Labor
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Sample Questions
Q1) In the equation of exchange,GDP divided by the money supply is equal to
A) M.
B) V.
C) P.
D) Q.
Q2) Both the monetarist view of the economy and the simple quantity theory of money hold that velocity is constant.
A)True
B)False
Q3) The increase in the interest rate due to a higher expected inflation rate is called the __________ effect.
A) expectations
B) Fisher
C) liquidity
D) income
E) a or b
Q4) One-shot inflation can result from an increase in aggregate demand or an increase in aggregate supply.
A)True
B)False
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Chapter 15: The Distribution of Income and Poverty
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Q1) Which of the following statements is likely to be made by an economist who believes in activist monetary policy? (1)The more closely monetary policy can be designed to meet the particulars of a given economic environment,the better.(2)Because of long and uncertain time lags,activist monetary policy may be destabilizing rather than stabilizing.(3)There is sufficient flexibility in wages and prices in modern economies to allow the economy to equilibrate in reasonable speed at the natural level of Real GDP.(4)The "same-for-all-seasons" monetary policy is the way to proceed.(5)There is evidence that monetary policy in the mid-1970s caused a recession.
A) (1),(2),and (3)
B) (1),(4),and (5)
C) (1)and (5)
D) (4)and (5)
E) (1),(3),and (4)
Q2) If the money market is in the liquidity trap,it is operating in the __________ segment of the __________ demand curve.
A) vertical; investment
B) vertical; money
C) horizontal; investment
D) horizontal; money
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Chapter 16: Interest,rent,and Profit
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Q1) According to new classical economists,if a decrease in aggregate demand is correctly anticipated,the short-run aggregate supply curve will shift __________ at the same time the AD curve shifts _________ so that there will be no change in Real GDP.
A) rightward; rightward
B) leftward; rightward
C) leftward; leftward
D) rightward; leftward
E) none of the above
Q2) Wages and prices are assumed to be completely inflexible in the new classical theory.
A)True
B)False
Q3) For the period 1961 to 1969,the Phillips curve for the United States displayed the same shape that A.W.Phillips found for the United Kingdom for the period 1861 to 1913---it was
A) horizontal.
B) vertical.
C) downward sloping.
D) upward sloping.
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Chapter 17: Market Failure: Externalities, public Goods, and
Asymmetric
Information
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Q1) New growth theory holds that technology is __________ and that the more resources that go to develop technology,the __________ technology that is produced.
A) exogenous; more and better
B) exogenous; less
C) endogenous; more and better
D) endogenous; less
Q2) _______________________ specifies the relation between technology and the factor inputs to output.
A) Neoclassical growth theory
B) Meta-ideas
C) The LRAS curve
D) A production function
Q3) In the production function Real GDP = T (L,K),the T represents the _____________ coefficient,the L represents ________________ and the K represents
A) tax; labor; capital
B) technology; labor; capital
C) technology; labor; knowledge
D) technology; livestock; knowledge
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Chapter 18: Public Choice and Special-Interest-Group
Politics
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Q1) Economist A believes that the expansionary fiscal policy --- in the form of increased government spending --- should be implemented to remove the economy from the recessionary gap it is currently in.This economist probably believes that
A) crowding out will not present much of a problem.
B) crowding out will be a big problem.
C) crowding out is irrelevant to the degree of effectiveness of fiscal policy.
D) zero crowding out is unlikely.
E) c and d
Q2) With respect to monetary policy,some economists argue in favor of a rules-based system,while other economists argue in favor of discretion for the Fed.
A)True
B)False
Q3) All economists agree that a monetary rule is preferable to a discretionary Fed. A)True
B)False
Q4) The use of a monetary rule is one way to remove politics from monetary policy. A)True
B)False
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Chapter 19: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Q1) The state of choosing not to acquire information because the costs of acquiring the information are greater than the benefits is referred to as
A) logrolling.
B) rational ignorance.
C) market failure.
D) government failure.
Q2) A college professor berates his political science students for being uninformed on current political and government issues.For example,most of them do not know who represents them in the U.S.House of Representatives.He tells his students that they will never get very far in life by staying so uninformed and uninterested.The professor is probably overlooking the fact that
A) people are uninformed and uninterested in only some things-not all things.
B) his students could be choosing rational ignorance.
C) by not taking out time to find out certain things,his students have more time to study for his tests.
D) a,b,and c
E) none of the above
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Page 21
Chapter 20: International Trade
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Sample Questions
Q1) Explain what it means to say that a theory is falsifiable or refutable? Give a specific example to help support your answer.
Q2) Kristie currently spends her $1,000 a week income as follows: $500 on X,$300 on Y,and $200 on Z.Her mother then gives her a $100 bill and tells her to use it to buy more Z.Kristie actually takes the $100 her mother gave to her,adds $40 to the $200 she usually spends on Z,and buys $240 worth of Z.Did Kristie's mother's $100 go to buy only Z?
A) Yes,because Kristie used her mother's actual $100 bill to buy Z.
B) No,because if it had,Kristie would have bought $300 worth of Z.Some of Kristie's mother's money went for what Kristie had next on her list of desired purchases.
C) Yes,since Kristie bought $240 worth of Z,and the amount of money her mother gave her is less than $240.
D) There is not enough information to answer the question.
Q3) There is a direct relationship between the opportunity cost of bad behavior in a public venue and the use of bad behavior in that venue.
A)True
B)False
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Chapter 21: International Finance
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Q1) Which of the following is an example of a trade restriction?
A) quotas
B) tariffs
C) dumping
D) a and b
E) a,b,and c
Q2) Refer to Exhibit 34-6.Which of the following terms of trade would both countries agree on?
A) 1 unit of wine = 2.5 units of cheese
B) 1 unit of wine = 1.5 units of cheese
C) 2.5 units of wine = 1 unit of cheese
D) 1.5 units of wine = 1 unit of cheese
E) none of the above
Q3) The sale of goods abroad at a price below their cost and below the price charged in the domestic market is called
A) priming.
B) coping.
C) invading.
D) dumping.
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Page 23
Chapter 22: The Economic Case for and Against
Government: Five Topics Considered
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Q1) Under a fixed exchange rate system,if the dollar price of a Mexican peso is below its equilibrium level,the peso is said to be
A) depreciable.
B) undervalued.
C) overvalued.
D) appreciable.
E) none of the above
Q2) When the official dollar price of a foreign currency is set below its equilibrium level,the foreign currency
A) has been depreciated.
B) is overvalued.
C) is undervalued.
D) is devalued.
E) is revalued.
Q3) The foreign exchange market is the market where
A) goods and services of different countries are exchanged.
B) currencies of different countries are exchanged.
C) transportation services for foreign goods are contracted.
D) either a or c
E) none of the above
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Chapter 23: Stocks,bonds,futures,and Options
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Q1) When a negative externality exists,_______________________ and thus _______________ intervention may be needed to achieve efficiency.
A) external costs are necessarily greater than private costs; government
B) social costs equal private costs; no government
C) social costs are less than private costs; government
D) social costs are greater than private costs; government
E) none of the above
Q2) One of the objectives of the health-care reform bills passed in March 2010 was to bring _____________ people into the pool of insured persons so that insurance policies would become ________________.However,provisions in the bill are likely to make the average cost of an insurance policy _____________ than it would have been without reform.
A) fewer; cheaper; lower
B) fewer; more expensive; lower
C) more; cheaper; lower
D) more; cheaper; higher
E) none of the above
Q3) List and describe the three different types of transfers discussed in this chapter.Give a hypothetical example of each to help support your answer.
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Page 25
Chapter 24: Stocks,bonds,futures,and Options
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Q1) Refer to Exhibit 38-2.If the closing price of Dasher's stock on the previous day was $17.50,what value goes in blank (A)?
A) -0.50
B) +0.50
C) -0.25
D) -0.75
E) There is not enough information given to answer this question.
Q2) A person buys a bond with a face value of $10,000 for $9,325.Each year until the maturity date the bond buyer receives $750 from the issuer of the bond.The yield on the bond is
A) 8.04 percent.
B) 7.5 percent.
C) 10.0 percent.
D) 6.75 percent.
E) There is not enough information to answer the question.
Q3) The term after the bell means after the closing of the stock market.
A)True
B)False
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