Contemporary Economic Issues
Test Bank
Course Introduction
Contemporary Economic Issues explores the most pressing economic challenges facing societies today, such as globalization, income inequality, unemployment, environmental degradation, and the impact of technological change. The course examines the theoretical frameworks and empirical evidence underlying these issues, drawing on current research and case studies to analyze policy responses undertaken by governments and international organizations. Students will develop critical thinking skills, learn to interpret economic data, and assess the effectiveness of different solutions to real-world problems, equipping them with the tools necessary for an informed understanding of the dynamic global economy.
Recommended Textbook
Macroeconomics 12th Edition by Roger A. Arnold
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26 Chapters
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Page 2
Chapter 1: What Economics Is About
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Sample Questions
Q1) Which of the following would NOT be considered a macroeconomic topic?
A)the reasons for a decline in the price of crude oil
B)the cause of a downturn in the economy
C)the effect of the government budget deficit on inflation
D)the causes of inflation and unemployment
Answer: A
Q2) Which of the following is not one of the four broad categories of resources?
A)labor
B)government
C)capital
D)entrepreneurship
E)land
Answer: B
Q3) The author of the textbook defines economics as the
A)science of efficiency.
B)science of scarcity.
C)study of markets.
D)study of human activity.
Answer: B
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Page 3
Chapter 2: Production Possibilities Frontier Framework
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Sample Questions
Q1) A decrease in the quantity of resources available causes a movement down along a given PPF.
A)True
B)False
Answer: False
Q2) An increase in the quantity of resources available
A)shifts the PPF leftward.
B)shifts the PPF rightward.
C)moves the economy to a new point up along a given PPF.
D)moves the economy to a new point down along a given PPF.
Answer: B
Q3) Refer to Exhibit 2-5.Which of the following labeled points are productive efficient?
A)A,B,C,D,and E
B)B,C and D only
C)C only
D)All of the points are productive efficient.
E)None of the points are productive efficient.
Answer: A
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) Which of the following is descriptive of the law of diminishing marginal utility?
A)The third hamburger consumed provides less utility than the second hamburger consumed.
B)The third hamburger is priced higher than the first hamburger.
C)As price falls,quantity demanded rises,ceteris paribus.
D)The price of a good rises as the costs of producing that good rise.
E)none of the above
Answer: A
Q2) A change in price will lead to a change in __________ and to a change in __________,while a change in government subsidies will lead to a change in __________ and a change in the number of buyers will lead to a change in
A)quantity demanded;quantity supplied;supply;demand
B)demand;quantity supplied;supply;quantity demanded
C)quantity demanded;supply;quantity supplied;demand
D)quantity supplied;quantity demanded;demand;supply
E)quantity demanded;demand;quantity supplied;supply
Answer: A
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Page 5
Chapter 4: Prices: Free, controlled, and Relative
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Sample Questions
Q1) Refer to Exhibit 4-1.How many fewer units are exchanged because of the price ceiling than would have been exchanged at the equilibrium price?
A)50
B)60
C)65
D)100
Q2) If the minimum wage is set above the equilibrium wage,then
A)more people will work than at the equilibrium wage.
B)the same number of people will work as at the equilibrium wage.
C)fewer people will want to work than at the equilibrium wage.
D)there will be fewer labor hours purchased by employers than at the equilibrium wage.
E)none of the above
Q3) Refer to Exhibit 4-6.Suppose the minimum wage is set at $7.The result will be
A)a surplus of unskilled workers.
B)a shortage of unskilled workers.
C)no effect on the market for unskilled labor.
D)none of the above
Q4) List and describe the two major jobs performed by price.
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Chapter 5: Supply,demand,and Price: Applications
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Q1) The supply curve for space on a freeway is perfectly vertical at any given point in time.
A)True
B)False
Q2) If the price of a good ____________,the demand for its complements will
A)rises;fall B)falls;rise C)falls;fall
D)rises;rise E)a and b
Q3) When universities charge students less than the equilibrium tuition for admission,they have to impose some nonprice-rationing device.
A)True
B)False
Q4) As discussed in the textbook,describe some policy changes the government could make in order to make it easier for people to buy houses.Using supply and demand analysis,explain how these policy changes could indirectly lead to fewer people being able to afford to purchase a home.
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Chapter 6: Macroeconomic Measurements, part I: Prices and Unemployment
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Sample Questions
Q1) If there are 10 job losers,12 job leavers,13 reentrants,and 12 new entrants,then there are __________ unemployed persons.
A)35
B)47
C)25
D)37
E)There is not enough information to answer the question.
Q2) A(n)__________ is a person who was previously employed,hasn't worked for some time,and is currently reentering the labor force.
A)discouraged worker
B)entrant
C)reentrant
D)job loser
E)job leaver
Q3) Most unemployed persons fall into the category of job loser.
A)True
B)False
Q4) Describe what the term "full employment" means to an economist.
Page 8
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Chapter 7: Macroeconomic Measurements, part II: GDP and Real GDP
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Sample Questions
Q1) Which of the following would not be included in the calculation of this year's GDP?
A)a headlight bulb purchased at Joe's Auto Supply by Olivia to replace a burnt out bulb in her car
B)a headlight bulb purchased by Ford Motor Co.from a supplier
C)a headlight bulb produced but not sold this year and thus ending up as inventory
D)none of the above,i.e. ,all would be included
Q2) Macroeconomists define consumption as
A)purchases by the business sector.
B)wearing away and breakdown of capital goods.
C)the difference between imports and exports.
D)purchases by the household sector.
Q3) In the United States,the largest expenditure component in GDP is
A)gross private domestic investment.
B)government purchases of goods and services.
C)consumption expenditures.
D)net exports.
E)none of the above
Q4) Explain why GDP figures do not necessarily measure happiness or well-being.
Page 9
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Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) A fall in the price level changes the purchasing power of money.This is relevant to the __________ effect.
A)international trade
B)real balance
C)aggregate demand
D)interest rate
E)aggregate supply
Q2) Assume that the economy is currently in short-run equilibrium,then personal income taxes decline.Describe the correct sequence of events that happen as the economy adjusts to a new short-run equilibrium (be sure to state what the impact would be on the price level and Real GDP).
Q3) Which set of changes is definitely predicted to raise the price level in the short run?
A)The money supply falls and wage rates rise.
B)The money supply falls and wage rates fall.
C)The money supply rises and wage rates fall.
D)Labor productivity rises and there is a beneficial supply shock.
E)The prices of nonlabor inputs rise and individuals expect higher (future)incomes.
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Chapter 9: Classical Macroeconomics and the
Self-Regulating Economy
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Sample Questions
Q1) An inflationary gap exists when AD and SRAS
A)fail to intersect.
B)intersect to the right of Natural Real GDP.
C)intersect to the left of Natural Real GDP.
D)both have a positive slope.
Q2) Refer to Exhibit 9-5.Point G on graph (2)would correspond to the intersection of an AD curve and a SRAS curve at which point(s)on graph (1)?
A)I or J
B)K
C)L or M
D)I or L
E)J or M
Q3) If the economy is in a recessionary gap,
A)Real GDP is greater than Natural Real GDP.
B)Real GDP is equal to Natural Real GDP.
C)Real GDP is less than Natural Real GDP.
D)the (actual)unemployment rate is less than the natural unemployment rate.
E)a and d
Q4) Describe how Say's law can hold in a money economy,according to the classical economists.
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Chapter 10: Keynesian Macroeconomics and Economic
Instability: a Critique of the Self-Regulating Economy
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Sample Questions
Q1) Economist Brown believes that changes in aggregate demand affect only the price level,and economist Black believes that changes in aggregate demand affect only Real GDP.What does the aggregate supply (AS)curve look like for each economist?
A)For economist Brown the AS curve is vertical and for economist Black the AS curve is horizontal.
B)For economist Brown the AS curve is horizontal and for economist Black the AS curve is vertical.
C)For economist Brown the AS curve is upward sloping and for economist Black the AS curve is downward sloping.
D)For economist Brown the AS curve is downward sloping and for economist Black the AS curve is upward sloping.
Q2) In the simple Keynesian model,there are three simplifying assumptions.One of these assumptions is:
A)no consumption
B)no investment
C)no exports or imports
D)a and b
E)a,b,and c
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Chapter 11: Fiscal Policy and the Federal Budget
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Sample Questions
Q1) The United States currently has a progressive income tax structure.
A)True
B)False
Q2) Suppose the government increases spending on public education by $700 million and individual spending on private education drops by $700 million.This is an example of
A)incomplete crowding out.
B)complete crowding out.
C)zero crowding out.
D)a and c
E)none of the above
Q3) If a person predicts that a cut in income tax rates will decrease income tax revenues,he or she implicitly assumes that the percentage __________ in the tax base will be __________ the percentage cut in the tax rate.
A)rise;less than B)rise;greater than C)rise;equal to D)fall;equal to E)none of the above
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Chapter 12: Money,banking,and the Financial System
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Sample Questions
Q1) Which of the following statements is false?
A)Currency is money,but money is more than just currency.
B)M1 is a component of M2.
C)Retail money market mutual funds are part of M2,but institutional money market mutual funds are not.
D)Credit cards are money since they are widely accepted for purposes of exchange.
E)Money reduces the transaction costs of making exchanges.
Q2) To a bank,a loan the bank has made to its borrowers is classified as A)an asset.
B)a liability.
C)vault cash.
D)excess reserves.
E)bank capital.
Q3) List and describe the three functions of money.
Q4) Explain why it is not necessary for paper money to be backed by some commodity (e.g.gold)before it can have value.
Q5) The Fed pays banks interest on bank deposits held on reserve at the Fed. A)True B)False
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Chapter 13: The Federal Reserve System
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Sample Questions
Q1) Suppose the Fed sells a $50,000 U.S.Treasury security to Martha,a member of the public.If Martha writes a check to the Fed in order to buy this security,the money in her checking account will be transferred to
A)the Fed,and now the Fed will have $50,000 more in reserves than it had before.
B)her bank,and now her bank will have $50,000 more in reserves than it had before.
C)the Fed,and now it is as if the money doesn't exist.
D)the Treasury,and now the Treasury will have $50,000 more in reserves than it had before.
Q2) The sale of government securities by the Fed
A)decreases the supply of money.
B)increases the supply of money.
C)decreases the demand for money.
D)increases the demand for money.
Q3) List and describe five of the eight major functions or responsibilities of the Fed.
Q4) List and describe the three major monetary policy tools the Federal Reserve can use to increase the money supply.Be specific in your response regarding which direction the tool would need to change in order for the money supply to grow.
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Chapter 14: Money and the Economy
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Sample Questions
Q1) Both the monetarist view of the economy and the simple quantity theory of money hold that velocity is constant.
A)True
B)False
Q2) Refer to Exhibit 14-1.A continued increase in the money supply by the Fed is likely to take the economy along which of the following paths?
A)A-E-B-H-C
B)A-D-B-I-C
C)A-D-F-H-C
D)A-D-B-H-C
E)A-E-B-I-C
Q3) If the Fed increases its open market purchases of government securities,it exerts a downward pressure on the interest rate.Such a phenomenon is usually referred to as the ___________________ effect.
A)income
B)substitution
C)open market
D)liquidity
E)expectations
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Page 16
Chapter 15: Monetary Policy
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Sample Questions
Q1) According to the monetarist transmission mechanism,a decrease in the money supply __________ aggregate demand.
A)directly increases
B)indirectly increases
C)directly decreases
D)indirectly decreases
E)equals the increase in
Q2) Economist Smith favors an activist monetary policy.He says that if the economy is going to be stabilized over time,it is necessary to fine-tune the money supply to the particular economic conditions that exist.What would economist Jones,who favors rules-based monetary policy,say to economist Smith?
A)Because of long lags,activist monetary policy is likely to be destabilizing rather than stabilizing.
B)There have been times when activist monetary policy has worked well.
C)There have been times when a constant-money-growth-rate rule has worked poorly.
D)Flexibility is desirable when it comes to monetary policy.
Q3) Describe the monetary policy known as inflation targeting.What are the three major issues that surround this practice?
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Chapter 16: Expectations Theory and the Economy
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Sample Questions
Q1) The simultaneous occurrence of high inflation and high unemployment is called A)reverberation.
B)disinflation.
C)stagflation.
D)"fooling."
Q2) The economy is in long-run equilibrium when government unexpectedly increases aggregate demand.The expected inflation rate is slow to adjust to the higher (actual)inflation rate.If follows that in the short run,according to the Friedman natural rate theory,__________ rises and the __________ falls.
A)the unemployment rate,price level
B)Real GDP rises,unemployment rate
C)nominal interest rate,real interest rate
D)the unemployment rate,Real GDP level
E)none of the above
Q3) According to Milton Friedman,there are two Phillips curves,a short-run one and a long-run one.
A)True
B)False
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Chapter 17: Economic Growth: Resources, technology, ideas, and Institutions
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Sample Questions
Q1) Refer to Exhibit 17-3 Assume that the starting point on the production function is point
A.After an increase in the quantity of labor,there would be a ______________________ which would shift the LRAS curve from LRAS<sub>1</sub> to _______________ resulting in _______________..
A)movement along the production function to point C;LRAS<sub>2</sub>;economic growth
B)shifting upward of the production function to point B;LRAS<sub>2</sub>;economic growth
C)movement along the production function to point C;LRAS<sub>3</sub>;a shrinking economy
D)shifting upward of the production function to point B;LRAS<sub>3</sub>;a shrinking economy
Q2) Two Harvard economists,Robert Barro and Rachel McCleary,have researched the role that ________________ plays in economic growth.
A)religion
B)meta-ideas
C)technology
D)human resource development
Q3) List and describe four factors that can contribute to economic growth.
Page 19
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Chapter 18: The Financial Crisis of 2007-2009
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Sample Questions
Q1) For financial institutions,securitization is the means by which regulatory capital arbitrage lowers capital requirements.
A)True
B)False
Q2) The answer is,"They are mortgage loans granted to persons who might have low credit ratings." The question is:
A)What are traditional loans?
B)What are collateralized debt obligations?
C)What are subprime mortgage loans?
D)What are securitized loans?
Q3) In the early 2000s,the Fed's ____________ interest rate policy had several effects.Among these effects were a _______________ in mortgage interest rates and a(n)____________ in the size of loans taken out by mortgage borrowers.
A)high;decline;decrease
B)low;decline;increase
C)low;rise;increase
D)high;rise;increase
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Chapter 19: Debates in Macroeconomics Over the Role and Effects
of Government
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Q1) In the early 19th century,the main lobbyists behind passage of the Factory Acts were the women and children who were being exploited.
A)True
B)False
Q2) The model predicting victory in a two-person race for the candidate closer to occupying the center of the voter distribution is built on the assumption that A)people always vote for the Democratic candidate if they are Democrats and for the Republican candidate if they are Republicans.
B)people vote for the candidate who comes closer to matching their own views.
C)most people don't vote unless the election is predicted to be close.
D)none of the above
Q3) A public choice theorist would be most likely to say that government failure is a consequence of the A)actions of selfish and corrupt politicians.
B)rational behavior of the participants of the political process.
C)irrational behavior of voters.
D)irrational behavior of special interest groups.
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Page 21
Chapter 20: Public Choice and Special-Interest-Group
Politics
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Q1) The _________________ the opportunity cost of bad behavior,the _________________ likely one is to exhibit bad behavior.
A)higher;less B)lower;more C)higher;more D)lower;less E)a and b
Q2) Which of the following statements is true?
A)The motivation to try to explain something is at the heart of building a theory.
B)If a theory makes people uncomfortable then it should be discarded or ignored.
C)In order for a theory to be valid it must be a perfect description of reality.
D)Building a theory and evaluating a theory are the same thing.
Q3) There is no difference between building a theory and evaluating a theory.
A)True B)False
Q4) Scientists prefer to advance irrefutable theories,rather than refutable theories. A)True B)False
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Chapter 21: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Q1) The answer is: "It allows the inhabitants of a country to consume at a level beyond its production possibilities frontier." What is the question?
A)What do newly discovered resources do?
B)What does technology do?
C)What does specialization and international trade do?
D)What does specialization do?
E)a and b
Q2) Refer to Exhibit 34-6.The opportunity cost of 1 unit of cheese in terms of units of wine is __________ for country B.
A)1
B)5
C)10
D)15
Q3) Major U.S.exports include automobiles and aircraft.
A)True
B)False
Q4) Tariffs raise the price of imported goods,but quotas rarely do.
A)True
B)False
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Chapter 22: International Trade
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Q1) Suppose that the exchange rate between the U.S.dollar and the Mexican peso starts out at $0.12 per peso,and then changes to $0.09 per peso.The result will be that Americans will buy __________ pesos because Mexican goods become relatively __________ expensive.
A)fewer;more
B)fewer;less
C)more;more
D)more;less
Q2) Advocates of a fixed exchange rate system argue that fixed exchange rates promote international trade.
A)True
B)False
Q3) In the long run,the purchasing power parity theory predicts exchange rates accurately,particularly when there is a large difference in inflation rates across countries. A)True
B)False
Q4) One example of an optimal currency area is the states within the United States.
A)True
B)False
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Chapter 23: International Finance
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Q1) With an increase in the budget deficit,the open-economy outcome compared to the closed-economy outcome features a ___________ in Real GDP.
A)larger increase
B)smaller increase
C)larger decrease
D)smaller decrease
Q2) If the United States buys inputs from France and the dollar appreciates relative to the euro,then Americans will have to pay ________________ for foreign inputs,and the U.S.SRAS curve will shift __________________.
A)less;rightward
B)less;leftward
C)more;rightward
D)more;leftward
Q3) All economists agree that the worldwide benefits of globalization are likely to be greater than the worldwide costs.
A)True
B)False
Q4) Describe three factors that have led to the recent push toward globalization.
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Chapter 24: Globalization and International Impacts on the Economy
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Q1) Some people see the government as being more heavily involved in taking sides than in serving the common interest.
A)True
B)False
Q2) Refer to Exhibit 37-1,where the higher the number,the better the position for the person to whom the number is connected.Jaden and Karen are currently in box 4,each receiving 10.they would like to move to box 1,where each receives 12.Without someone to ________________ their agreement,moving from box 4 is
A)enforce;likely
B)enforce;unlikely
C)break;unlikely
D)break;likely
E)There is not enough information to answer the question.
Q3) The answer is,"Because of the free rider problem." The question is:
A)Why can't the government produce nonexcludable public goods?
B)Why can't the market produce nonexcludable public goods?
C)Why do negative externalities exist?
D)Why do positive externalities exist?
E)b and d
Page 26
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Chapter 25: The Economic Case for and Against
Government: Five Topics Considered
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Q1) A futures contract is a contract in which the seller agrees to provide a given good to the buyer on a predetermined future date at an agreed-upon price.
A)True
B)False
Q2) You turn to the bond market page of a newspaper and look under the column headed "Bonds" and see that it says,"Gemco 5 3/4 13" this indicates that
A)the coupon rate on this bond is 5.75 percent.
B)this bond will mature 13 years from the date that it was first issued.
C)the current yield on this bond is 5.75 percent.
D)a and b
E)all of the above
Q3) Explain the differences between a corporate bond,a municipal bond,and a Treasury bond.Which of these would be the least risky investment,and why?
Q4) The Wilshire 5000 stock index is made up of the stocks of 5,000 of the largest U.S.companies.
A)True
B)False
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Chapter 26: Stocks, bonds, futures, and Options
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Q1) Which of the following statements is true?
A)There are more farms today than at the beginning of the 20th century.
B)An individual farmer prefers good weather to bad weather,but farmers as a group may prefer bad weather to good weather,especially if the demand for their products is inelastic.
C)Income elasticity of demand measures the responsiveness of a change in quantity supplied to changes in income.
D)a and b
E)b and c
Q2) In 2014,the federal government disbanded the practices of fixed direct payments and countercyclical payments to farmers.
A)True
B)False
Q3) Supply-restricting policies are intended to shift the
A)supply curve to the left.
B)supply curve to the right.
C)demand curve to the left.
D)demand curve to the right.
E)b and d
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