Contemporary Economic Issues
Practice Questions
Course Introduction
This course provides an in-depth exploration of major economic issues and challenges facing societies in the 21st century. Students will examine topics such as globalization, income inequality, unemployment, climate change, technological disruption, and financial crises. Through case studies, discussions, and critical analysis, the course encourages students to evaluate policy responses, assess the impact of global events on economies, and develop an informed perspective on the dynamic nature of contemporary economic problems.
Recommended Textbook macroeconomics principles and policy 12th edition by william j. baumol
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Chapter 1: What Is Economics?
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Sample Questions
Q1) A theory is an explanation of the causal mechanism behind observed phenomena.
A)True
B)False
Answer: True
Q2) A horizontal line always has a slope of one.
A)True
B)False Answer: False
Q3) A horizontal line has a slope of 0.
A)True
B)False
Answer: True
Q4) A theory is an abstraction used often by economists to
A) describe a problem.
B) keep all assumptions in their proper places.
C) explain why things work the way they do.
D) describe a hierarchical ordering of facts.
E) arrange variables into a graphical format.
Answer: C
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Chapter 2: The Economy: Myth and Reality
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Sample Questions
Q1) If California were a separate economy,it would be the ____ largest economy on earth.
A) second
B) third
C) fifth
D) eighth
Answer: D
Q2) Which of the following is the best definition of openness?
A) The average of imports expressed as a share of GDP.
B) The average of goods traded in markets expressed as a share of GDP.
C) The average of imports and exports expressed as a share of GDP.
D) The average trade balance expressed as a share of GDP.
E) The average of exports expressed as a share of GDP.
Answer: C
Q3) The government redistributes income to the poor,primarily through A) progressive taxes.
B) transfer payments.
C) government purchases.
D) both a and b.
Answer: D
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Chapter 3: The Fundamental Economic Problem: Scarcity and
Choice
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Sample Questions
Q1) The divergence between money costs and opportunity costs is the least in which of the following situations?
A) China uses millions of otherwise unemployable workers to build roads with picks and shovels.
B) Wilhelm, an engineer at Exxon, is drafted-his army salary is $2,000 per month.
C) Colleen quits her job to stay at home and raise her children.
D) A university, using a private contractor, builds a field house on land it purchased at full market value from a local farmer.
Answer: D
Q2) Increasing opportunity cost tends to occur if
A) management is disorganized.
B) markets do not equate money and opportunity cost.
C) production is inefficient.
D) resources are scarce.
E) resources are specialized.
Answer: E
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Chapter 4: Supply and Demand: An Initial Look
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Sample Questions
Q1) A decrease in price of a certain good most likely will lead to
A) an increase in quantity demanded and an increase in demand.
B) an increase in quantity demanded but no change in demand.
C) an increase in demand but no change in quantity demanded.
D) no change in demand and no change in quantity demanded.
Q2) A shortage will tend to occur at which price in Figure 4-21?
A) P1
B) P2
C) P3
Q3) Changes in consumer preference toward small,imported automobiles have shifted their demand curves downward and to the left.
A)True
B)False
Q4) Tampering with the price mechanism
A) can be efficient for a while.
B) cannot be attempted in a market economy.
C) can enhance societal welfare if done properly.
D) often produces undesired side effects.
Q5) Price floors are typically accompanied by a standard series of symptoms.What are they?
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Chapter 5: An Introduction to Macroeconomics
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Sample Questions
Q1) GDP in 2011 would not include the resale of a house built in 2000.
A)True
B)False
Q2) Technically speaking,in what year did the "Great Recession" end?
A) 1933
B) 1935
C) 2007
D) 2009
E) It had not ended as of 2011.
Q3) The primary benefit to the macroeconomy of increasing government spending is a(n)
A) decrease in the price level.
B) decrease in real GDP.
C) increase in the price level.
D) decrease in the unemployment rate.
Q4) Gross Domestic Product includes the sale of intermediate goods and services.
A)True
B)False
Q5) Why do price levels increase when government adopts fiscal or monetary policy to correct the economy when it faces a recession and high unemployment?
Page 7
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Chapter 6: The Goals of Macroeconomic Policy
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Sample Questions
Q1) Sharon buys some common stock in 1990 for $10,000 and sells it in 2000 for $15,000.During the same period,prices have risen by 75 percent.The net result of Sharon's stock purchases is that she will
A) pay no taxes because she earned negative real capital gains.
B) lose purchasing power and have to pay taxes anyway.
C) earn a real capital gain of $5,000 plus 75 percent.
D) earn a real capital gain of $15,000 minus 75 percent.
Q2) The amount of goods and services the economy could produce if the labor force is fully employed is called
A) nominal GDP.
B) real GDP.
C) actual GDP.
D) potential GDP.
Q3) Which of the following countries has not experienced hyperinflation in the twentieth century?
A) Germany
B) Russia
C) Argentina
D) United States
Q4) High unemployment is socially wasteful.Why?
Page 8
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Chapter 7: Economic Growth: Theory and Policy
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Sample Questions
Q1) From 1973 to 1995 the growth rate of labor productivity in the U.S.was approximately
A)-0.8%.
B)1.4%.
C)2.9%.
D)5.1%.
Q2) From 1973 to 1995,productivity of labor in the U.S.
A) declined because of reduced capital formation.
B) declined because of slower technological improvement.
C) increased because of expanded technological improvement.
Q3) Which period of recent U.S.history shows the lowest rates of productivity growth?
A) 1948-1973
B) 1973-1995
C) 1995-2000
D) All periods had similar growth rates.
Q4) Economists are still puzzled why growth rates in the United States fell from 1973 to 1995.
A)True
B)False
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Chapter 8: Aggregate Demand and the Powerful Consumer
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Sample Questions
Q1) Most people base their current consumption spending at least partially on A) short-run debt.
B) long-run debt.
C) long-run real interest rates.
D) long-run income.
Q2) Government-produced goods are added to GDP at A) their market value.
B) the value they have to their users.
C) the value of the inputs used to produce them.
D) the value Congress places on them.
Q3) Gross private domestic investment in the United States consists of three components:
A) stocks, bonds, and mutual funds.
B) automobiles, trucks, and houses.
C) plant, equipment, & software, houses, and inventories.
D) plant, equipment, & software, houses, and net exports.
Q4) Capital goods are counted the same as consumer goods in the national product accounts.
A)True B)False
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Chapter 9: Demand-Side Equilibrium: Unemployment or
Inflation?
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Sample Questions
Q1) In Figure 9-3,saving at equilibrium GDP is.
A) $1,200 billion.
B) $1,000 billion.
C) $800 billion.
D) $600 billion.
E) $400 billion.
Q2) The MPC in the U.S.economy has been estimated to be near 0.95.If this is an accurate measure,then the numerical value for the multiplier would be A)0.9.
B)1.8.
C)9.5.
D)10.0.
E)20.0.
Q3) If inventory levels are decreasing,then we should expect business firms to A) decrease prices.
B) decrease output.
C) lay off workers.
D) increase output.
Q4) Define the terms recessionary gap and inflationary gap.Why do they occur?
Q5) What is meant by the concept of a "coordination failure" in macroeconomics?
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Chapter 10: Bringing in the Supply Side: Unemployment and Inflation?
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Sample Questions
Q1) In 1973,the U.S.experienced a decline in output and high inflation.
A)True
B)False
Q2) In Figure 10-1,what is the equilibrium level of real GDP and equilibrium price?
A) $6,000 billion real GDP and price level of 110
B) $5,000 billion real GDP and price level of 120
C) $5,000 billion real GDP and price level of 110
D) $7,500 billion real GDP and price level of 100
Q3) An increase in wages will cause the aggregate supply curve to
A) shift outward.
B) shift inward.
C) become flatter.
D) become steeper.
Q4) If wages or prices of other inputs change,the aggregate supply curve will shift to another position.
A)True
B)False
Q5) Using the concepts of aggregate demand and aggregate supply,explain how the economy reaches an equilibrium level of real GDP and price level.
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Chapter 11: Managing Aggregate Demand: Fiscal Policy
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Sample Questions
Q1) Explain why a change in income tax rates causes the consumption schedule to change slope.
Q2) In the middle of a severe recession,Congress passes an increase in the level of unemployment benefits.This would be considered by economists as a A) positive tax.
B) negative tax.
C) form of government purchases.
D) variable tax.
Q3) The oversimplified formula for the multiplier is misleading because it ignores the effects of
A) price-level changes.
B) the foreign sector.
C) variable taxes.
D) All of the above are correct.
Q4) Supply-side tax cuts are more likely to have the intended beneficial effect on A) budget deficits.
B) consumer spending.
C) investment spending.
D) net exports.
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Chapter 12: Money and the Banking System
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Sample Questions
Q1) The increase in bank supervision in the U.S.in the 1980s and early 1990s was due to an increase in bank
A) profits.
B) ownership of common stocks.
C) failures.
D) deposits and loans.
Q2) Why are checking account balances included in the M1 definition of the money supply?
A) They are a traditional form of money that pre-dates paper money.
B) They are used to make so many payments.
C) They are backed by gold and silver.
D) They pay interest.
Q3) If you have a checking account at Citibank,the account is a liability of the bank. A)True
B)False
Q4) When people trade goods for money,money is being used as a medium of exchange.
A)True
B)False
Q5) Why are credit cards not considered part of the money supply?
Page 14
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Chapter 13: Monetary Policy: Conventional and
Unconventional
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Sample Questions
Q1) If the Fed raises the discount rate,what will be the effect on the money supply?
A) It will decrease the money supply.
B) It will increase the money supply.
C) No change in the money supply.
D) Not enough data to give an answer.
Q2) The Fed's principal objective is to
A) make profits to pay into the U.S. Treasury.
B) collect tax revenues.
C) supervise the business decisions of banks.
D) manage the money supply and interest rates.
Q3) Technically,the Federal Reserve district banks are corporations whose stockholders are the
A) state governments in each district.
B) citizens of the United States.
C) Departments of Treasury and Commerce.
D) member banks.
Q4) Explain the relationship between interest rates and (1)investments in housing,and (2)business investments.
Q5) How does a central bank influence the lending capacity of the banks?
Q6) Why does the economy's aggregate demand curve have a negative slope? Page 15
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Page 16
Chapter 14: The Financial Crisis and the Great Recession
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Sample Questions
Q1) Which of the following was not a factor that contributed to the subprime mortgage crisis?
A) f security derived from FDIC insurance on mortgage loans
B) lower down payments
C) households devoting 25% or more of their income to mortgage payments
D) lending to households with adverse credit ratings
Q2) As a result of Lehman's collapse,real GDP first began to fall in
A) the fourth quarter of 2007.
B) the second quarter of 2008.
C) the third quarter of 2008.
D) the first quarter of 2009.
Q3) Which elements of GDP were affected by the financial crisis and the lack of available credit?
A) consumption and business investment only
B) consumption and government spending only
C) consumption, business investment and government spending only
D) consumption, business investment, government spending and imports/exports
Q4) Subprime mortgages frequently featured small or zero down payments.
A)True
B)False
Page 17
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Chapter 15: The Debate over Monetary and Fiscal Policy
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Sample Questions
Q1) A scatter diagram of money growth rates and inflation rates from 1982 to 2010 indicates
A) a clear direct relationship between money growth and inflation.
B) a clear indirect relationship between money growth and inflation.
C) no clear relationship between money growth rates and inflation.
D) that inflation is always and everywhere a monetary phenomenon.
Q2) In 1996,if nominal GDP was about $8.5 thousand billion.The stock of money was
A) about the same as this.
B) much less than this.
C) much more than this.
D) unrelated to this number.
Q3) The Fed's quick response to the threat to the economy after September 11,2001,makes a strong case for
A) a rules-based monetary policy regime.
B) a discretionary-based monetary policy regime.
C) the superiority of fiscal policy.
D) the dominant role of Congress in activist policy.
Q4) Velocity is calculated as nominal GDP/money stock.
A)True
B)False
Page 18
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Chapter 16: Budget Deficits in the Short and Long Run
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Sample Questions
Q1) Explain why the portion of the national debt owed to foreigners is a serious matter,whereas the portion owed to U.S.citizens is of less concern.Why does the U.S.national debt pose less of a problem than the debts of Greece in 2010?
Q2) The national debt is the
A) result of previous budget deficits.
B) result of rising interest rates.
C) result of previous budget surpluses.
D) result of efficient balancing.
Q3) The share of the net national debt owned by foreign individuals,businesses,and governments increased to 80% in 2010.
A)True
B)False
Q4) Expansionary fiscal policy normally lowers interest rates.
A)True
B)False
Q5) When the economy has substantial additional saving,deficit spending will have a large "crowding out" effect.
A)True
B)False
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Chapter 17: The Trade Off between Inflation and Unemployment
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Q1) In what way do policy makers have to face a trade-off between inflation and unemployment?
A) The cost of reducing inflation by restrictive fiscal and monetary policies is a temporary increase in unemployment.
B) The cost of reducing inflation by restrictive fiscal and monetary policies is a permanent increase in unemployment.
C) The cost of reducing unemployment by expansionary fiscal and monetary policies is virtually nonexistent.
D) The cost of reducing unemployment by expansionary fiscal and monetary policies involves higher inflation during recessions.
Q2) If the short-run Phillips curve has a very steep slope,the A) structural deficit will grow during inflation.
B) structural deficit will fall during recession.
C) inflation costs of reducing unemployment are relatively low.
D) inflation costs of reducing unemployment are relatively high.
Q3) An economy eliminates a recessionary gap by reducing wages and prices.
A)True B)False
Q4) What is the effect of supply-side inflation on the short-run Phillips curve?
Page 20
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Chapter 18: International Trade and Comparative Advantage
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Sample Questions
Q1) Variability in exchange rates of currencies used in international trade
A) causes a complete breakdown of trade.
B) renders the theory of gains from trade null in practice.
C) brings with it a host of complications in trade policy.
D) has no impact on trade.
Q2) Is the call for protection on the basis of "infant industry" valid?
A) No, because protection has no place in industrial development.
B) No, protection is always improper.
C) Uncertain, economic theory has no answer to this question.
D) Yes, although it can be overstated and abused.
Q3) A quota sets the maximum amount of a good that is permitted into a country. A)True
B)False
Q4) Compare and contrast the effects of a quota and a tariff on imports.Be sure to include both short-run and long-run effects in your answer.
Q5) If one country has an absolute advantage in every commodity,there is no reason for it to trade.
A)True B)False
Page 21
Q6) How can tariffs lead to a situation in which all parties to a trade lose?
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Chapter 19: The International Monetary System: Order or Disorder?
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Sample Questions
Q1) In 2008-2009,Iceland and several Baltic states increased their interest rates.One would expect which of the following?
A) U.S. bond prices will fall and the dollar will appreciate.
B) U.S. bond prices will rise and the dollar will appreciate.
C) U.S. bond prices will fall and the dollar will depreciate.
D) U.S. bond prices will rise and the dollar will depreciate.
Q2) If Japanese tourists visit Yellowstone Park,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) Define the following terms and explain their importance to the study of macroeconomics:
a.exchange rate
b.depreciation
c.devaluation
d.fixed exchange rates
Q4) Explain three factors that would cause the dollar to appreciate.
Q5) Discuss the problems associated with the Bretton Woods system.
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Chapter 20: Exchange Rates and the Macroeconomy
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Sample Questions
Q1) In the spring of 2002,the United States imposed tariffs on imported steel to protect the jobs of American steel workers and protect the production of the American steel industry.Why might this policy not work to increase overall employment in the United States?
Q2) In an open economy,aggregate supply consists of domestic production
A) plus imports.
B) plus exports.
C) minus imports.
D) minus exports.
Q3) Which of the situations illustrated in Figure 20-3 shows the effects of a currency appreciation leading to real GDP growth?
A) 1
B) 2
C) 3
D) 4
Q4) If (T G)= (X IM),then (S I)
A) is greater than zero.
B) is zero. C) is less than zero. D) cannot be calculated.
Page 24
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