Contemporary Economic Issues
Pre-Test Questions
Course Introduction
Contemporary Economic Issues explores current topics and problems facing the global and national economies, including trends in economic growth, unemployment, inflation, income inequality, globalization, and environmental sustainability. The course encourages students to analyze and critically assess how economic theory applies to real-world events, policies, and crises. Through review of case studies, recent data, and debates, students gain an understanding of the dynamic nature of economic issues and develop informed perspectives on how societies manage scarce resources, make policy decisions, and address emerging challenges in an interconnected world.
Recommended Textbook
ECON MACRO 5th Edition by
William A. McEachern
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19 Chapters
2883 Verified Questions
2883 Flashcards
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) Consumers need information to make good choices.In the context of this information,which of the following is correct?
A)Advertising is always harmful to consumers.
B)Information is scarce and therefore valuable.
C)Brand names offer no informational content.
D)Acquiring more information is always rational.
E)Marginal analysis does not apply to the acquisition of information.
Answer: B
Q2) Which of the following is an example of a normative economic statement?
A)If the money supply falls,interest rates will rise.
B)Teenage unemployment would be lower if there were no minimum wage.
C)The quantity of shirts sold increases as the price of shirts decreases.
D)The federal government's total spending should be reduced.
E)If interest rates go up,then construction activity will fall.
Answer: D
Q3) "There should be less discrimination against women" is an example of a positive economic statement.
A)True
B)False
Answer: False
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Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) Which economic question does the decision to give all of the butter an economy produces to the homeless answer?
A)What to produce?
B)How to produce?
C)For whom to produce?
D)Who has a comparative advantage in butter production?
E)Who has an absolute advantage in butter production?
Answer: C
Q2) Barter is:
A)illegal in the United States.
B)an efficient system of exchange.
C)most useful when there is much specialization and international trade.
D)only possible if money is used as a medium of exchange.
E)the direct exchange of goods without the use of money.
Answer: E
Q3) The economic question of "what to produce" is often referred to as the distribution question.
A)True
B)False
Answer: False
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Trade restrictions can take any of the following forms except one.Which is the exception?
A)Tariffs
B)Free trade agreements
C)Quotas
D)Voluntary trade restrictions
E)Health and safety restrictions
Answer: B
Q2) The overall U.S.balance of payments:
A)shows a deficit.
B)shows a surplus.
C)is the merchandise trade balance.
D)equals exports minus imports.
E)shows how deficits in one account are exactly offset by surpluses in other accounts.
Answer: E
Q3) The fastest-growing component of U.S.personal consumption is services.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Demand, supply, and Markets
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Sample Questions
Q1) Which of the following is most likely to shift the supply curve for a product to the right?
A)An increase in the price of a resource used in the good's production
B)The expectation of a higher price in the near future
C)An increase in the price of the product
D)A decrease in the price of an alternative good
E)An improvement in the technology for producing the good
Q2) The impact of a $200 increase in income on quantity of housing demanded would be called an income effect.
A)True
B)False
Q3) The income effect of an increase in the price of backpacks,a normal good,is a(n):
A)decrease in the demand for backpacks.
B)decrease in the quantity of backpacks demanded.
C)decrease in the supply of backpacks.
D)increase in the quantity of backpacks demanded.
E)increase in the quantity supplied of backpacks.
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Chapter 5: Introduction to Macroeconomics
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Q1) Long-term growth in production in an economy can be partially explained by:
A)improvements in the rules of the game that facilitate production and exchange.
B)the peaks and troughs of the business cycle or economic fluctuations.
C)trade surpluses that lead to accumulations of precious metals.
D)federal government budget deficits.
E)a gradual but consistent increase in the price level.
Q2) Due to the implementation of the Troubled Asset Relief Program and the American Recovery and Reinvestment Act,the Federal budget deficit _____.
A)doubled
B)tripled
C)stayed the same
D)decreased significantly
E)quadrupled
Q3) Which of these describes the real gross domestic product?
A)Gross domestic product from which depreciation costs have been deducted
B)Gross domestic product that has been adjusted for changes in the price level
C)Gross domestic product from which taxes have been deducted
D)Gross domestic product that has been adjusted for changes in exchange rate
E)Gross domestic product that has been adjusted for changes in interest rates
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Page 7
Chapter 6: Tracking the Useconomy
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Q1) The immediate effect of a purchase of a government bond on the gross domestic product (GDP)is_____.
A)a decrease in consumption
B)an increase in government spending
C)an increase in investment
D)a decrease in investment
E)nonexistent,since no real goods and services have been produced
Q2) If a toy store overestimates the demand for a toy in 2004 and,as a result,has an unexpectedly large number of toys in stock at the end of the year,the value of the inventory of these toys will be considered as:
A)investment in 2004.
B)investment in 2005.
C)consumption in 2004.
D)consumption in 2005.
E)a part of GDP when the toys are sold.
Q3) Imports are leakages from the circular flow of income and expenditure model.
A)True
B)False
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8
Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) Unanticipated inflation penalizes:
A)those who are saving.
B)those who are borrowing.
C)governments.
D)those who are in high-growth industries where wages are growing faster than prices.
E)those who can't find jobs at any wage rate.
Q2) The unemployment rate will increase whenever there is a(n):
A)increase in the number of unemployed persons.
B)increase in the number of unemployed persons relative to the size of the labor force.
C)increase in the size of the U.S.population but no change in the number of unemployed persons.
D)increase in the size of the labor force.
E)increase in the size of the U.S.population and a decrease in the number of unemployed persons.
Q3) During periods of inflation,the real value of a given amount of nominal dollars decreases.
A)True
B)False
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Chapter 8: Productivity and Growth
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Sample Questions
Q1) In order for society to have a rising standard of living,output must grow:
A)at a slower rate than the labor force.
B)at the same rate as the population.
C)faster than the population.
D)at a slower rate than the population.
E)at a slower rate than infrastructure.
Q2) Which of the following would increase labor productivity?
A)A labor deepening production method
B)A decrease in the amount of capital per unit of labor
C)A lower unemployment rate
D)Recruitment of new and young labor force
E)An increase in the education level of per unit of labor
Q3) Applied research is the search for knowledge without a clue about the end of the research.
A)True
B)False
Q4) The productivity growth slowdown of the late 1970s and early 1980s may have been due,in part,to the environmental and workplace safety regulations.
A)True
B)False
Page 10
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Chapter 9: Aggregate Demand
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Sample Questions
Q1) Exports minus imports equal net exports.
A)True
B)False
Q2) An increase in real disposable income will:
A)increase the value of net exports of a country.
B)decrease the value of net exports of a country.
C)increase government purchases.
D)decrease government purchases.
E)increase net taxes.
Q3) The slope of the consumption function equals the marginal propensity to consume.
A)True
B)False
Q4) The current level of investment depends on the current level of income.
A)True
B)False
Q5) If consumption is greater than income,saving must be negative.
A)True
B)False
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Chapter 10: Aggregate Supply
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Sample Questions
Q1) Which of the following supply shocks would shift the aggregate supply curve inward?
A)A decrease in business taxes
B)A decrease in gasoline taxes
C)A decrease in the cost of raw materials
D)A decrease in agricultural output
E)A decrease in the amount and cost of government regulation
Q2) In the long run,an economy will produce its potential output if:
A)workers mistakenly believe that nominal wages equal real wages.
B)the expectations of workers and firms are the same in the long and short run.
C)wages and prices are sufficiently flexible.
D)the price level is high.
E)the price level is low.
Q3) The nominal cost per unit of output rises when production is pushed beyond an economy's potential output.
A)True
B)False
Q4) If resource prices are flexible,the long-run aggregate supply curve is vertical.
A)True
B)False
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) Because the income tax structure is progressive,the amount of taxes paid is a
A)constant fraction of income throughout the business cycle.
B)larger fraction of income in expansions than in contractions
C)smaller fraction of income in expansions than in contractions
D)decreasing function of income in both expansions and contractions
E)constant amount at all levels of output and income
Q2) Given the desire of politicians to get reelected,they might try in the short run to use
A)a contractionary monetary policy
B)an expansionary fiscal policy
C)an expansionary monetary policy
D)tax increases
E)automatic stabilizers to control demand
Q3) Unemployment insurance is an example of a discretionary fiscal policy.
A)True
B)False
Q4) Discretionary fiscal policy works by shifting the aggregate demand curve.
A)True
B)False
Page 13
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Chapter 12: Federal Budgets and Public Policy
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Sample Questions
Q1) The long-run opportunity cost of government spending crowding out private investment:
A)equals about 10 percent of GDP.
B)lowers interest rates and results in lower interest income for U.S.resource owners.
C)would be greater if the government's expenditures were invested in building better highways and a more educated workforce.
D)results from the corresponding contractionary gap.
E)would be greater if the government's expenditures were devoted to increasing retirement benefits rather than to educating the work force.
Q2) A spike in "All Other Outlays" of the federal government in 2009 was due to:
A)an increase in the financial aid given to Greece earlier that year.
B)an increase in the expenditures on Social Security and Medicare.
C)the fiscal stimulus package passed earlier that year.
D)a sudden increase in military expenditure as a result of the war in Iraq.
E)an increase in the national debt earlier that year.
Q3) Since 1970,the federal government budget has never been in surplus.
A)True
B)False
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Chapter 13: Money and the Financial System
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Sample Questions
Q1) Compared to many other countries,the United States has:
A)fewer banks,with assets distributed more evenly.
B)fewer commercial banks,with assets concentrated in a few large banks.
C)more banks,with assets concentrated in a few large banks.
D)more commercial banks,with deposits widely distributed among the banks.
E)more commercial banks,with deposits concentrated in a few large banks.
Q2) Which of the following is true if a nation's official money fails to serve as a medium of exchange?
A)Nothing will replace money to help facilitate exchange.
B)There will be an increase in economic efficiency.
C)Resources will divert from production to exchange.
D)Transactions costs of exchange will decrease.
E)Fewer barter exchanges will be completed.
Q3) The reserve ratio is the ratio of:
A)Federal Reserve member banks to nonmember banks.
B)Federal Reserve nonmember banks to member banks.
C)Federal Reserve member banks to all U.S.banks.
D)a bank's total deposits to its reserves.
E)a bank's reserves to its total deposits.
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Page 15
Chapter 14: Banking and the Money Supply
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Q1) The Fed relies primarily on the discount rate to control the money supply.
A)True
B)False
Q2) When a check is cleared against Bank A after being deposited at Bank B,_____.
A)both Bank A's and Bank B's liabilities increase
B)both Bank A's and Bank B's liabilities decrease
C)Bank A's liabilities increase and Bank B's liabilities decrease
D)Bank A's liabilities decrease and Bank B's liabilities increase
E)there is an increase in the liabilities of the Federal Reserve
Q3) If the Fed buys a $1,000 U.S.government bond from a bank,it pays for it by giving the bank $1,000 in reserves-reserves that it simply creates out of thin air.
A)True
B)False
Q4) The Fed tries to prevent major financial crises through its control of financial markets.
A)True
B)False
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16
Chapter 15: Monetary Theory and Policy
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Sample Questions
Q1) For interest rates to remain stable during economic expansions,the money supply should:
A)decrease at a faster rate than the demand for money.
B)grow at the same rate as money demand.
C)grow at a faster rate than money demand.
D)grow at a slower rate than money demand.
E)decrease at a slower rate than the demand for money.
Q2) Which of these is most likely to lower the velocity of money?
A)A commercial innovation that facilitates exchange
B)A low inflation rate
C)A decline in the effectiveness of money as a store of wealth
D)A high inflation rate
E)A weekly pay for workers instead of a monthly pay
Q3) The opportunity cost of holding money is measured by the:
A)interest rate.
B)liquidity lost by holding money.
C)money supply curve.
D)inflation rate.
E)cost of cashing in financial assets.
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Page 17
Chapter 16: Macro Policy Debate: Active or Passive
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Sample Questions
Q1) Economist Alban William Phillips believed that:
A)the Fed should follow a policy rule because it does not know the lag structure.
B)the Fed should follow a policy rule to avoid monetary surprises.
C)there is an inverse relationship between inflation and unemployment.
D)private sector spending is inherently unstable.
E)government spending is inherently unstable.
Q2) In general,the faster inflationary expectations adjust,the:
A)less macro policy can influence unemployment.
B)better discretionary policy can be expected to work.
C)slower the adjustment of the short-run Phillips curve.
D)stronger the case for active policy.
E)more effectively a policy can influence unemployment.
Q3) When self-correction works to eliminate an expansionary gap,_____.
A)both money wages and real wages increase
B)money wages increase while real wages decrease
C)both money wages and real wages decrease
D)money wages decrease while real wages increase
E)money wages remain unchanged
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Chapter 17: International Trade
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Sample Questions
Q1) Suppose the government of an importing country is considering imposing either a tariff that would result in imports falling to 1 million units per year or an import quota of 1 million units per year.Which of the following would be true in such a case?
A)The U.S.consumers would lose more consumer surplus in the case of tariffs than quotas.
B)The U.S.producers would gain more in the case of quotas than tariffs.
C)The change in quantity demanded would be greater in the case of tariffs than quotas.
D)The tariff revenue would go to U.S.government; quota benefits may go to foreign producers.
E)The U.S.export market would shrink more in the case of quotas than tariffs.
Q2) It is possible for one country to have a comparative advantage in the production of all products.
A)True
B)False
Q3) International trade equalizes the opportunity cost of producing any good around the world.
A)True
B)False
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Chapter 18: International Finance
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Sample Questions
Q1) The statistical discrepancy:
A)is always positive but less than 1.
B)is always negative and greater than 1.
C)must be reduced to zero and eliminated from the balance of payments before the records become official.
D)is a residual factor that indicates the net error in the balance of payments data.
E)is a record of all transactions between residents of two countries over a specified period.
Q2) Which of the following statements is true of speculators?
A)There is no risk involved in speculative activity.
B)They simultaneously buy and sell a currency in different markets.
C)They hope to profit by trading a currency at a different exchange rate later.
D)Their actions do not affect exchange rates.
E)Their actions are exactly like those of arbitrageurs.
Q3) The balance of payments always balances because each of the specific accounts must,by definition,be in balance.
A)True
B)False
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Chapter 19: Economic Development
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Sample Questions
Q1) Which of the following is true about the GNI of the United States?
A)It includes profits earned by a Mercedes factory in Alabama.
B)It excludes profits earned by General Electric in India.
C)It includes profits earned by a Ford factory set up in Chennai.
D)It stands for General Native Income.
E)It is the difference between the value of U.S.exports and imports.
Q2) The World Bank classifies countries into the three following major groups:
A)high-income economies,middle-income economies,and low-spending economies.
B)high-spending economies,middle-spending economies,and low-spending economies.
C)super-high-income economies,middle-income economies,and low-income economies.
D)high-income economies,middle-income economies,and zero-income economies.
E)high-income economies,middle-income economies,and low-income economies.
Q3) Which of the following is not true of the World Bank?
A)It is an economic development institution
B)It is affiliated with the United Nations
C)It offers low-fee checking accounts to anyone in the world
D)It estimates output per capita figures
E)It uses output per capita figures to classify economies
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