Economic Analysis
Exam Practice Tests
Course Introduction
Economic Analysis provides students with the foundational tools and concepts needed to understand how individuals, businesses, and governments make decisions regarding the allocation of resources. The course covers key principles of microeconomics and macroeconomics, including demand and supply, market equilibrium, consumer behavior, production costs, market structures, and the impact of government policies. Through theoretical models and real-world applications, students learn to critically analyze economic issues, interpret data, and evaluate the outcomes of various market interventions. This course develops analytical skills essential for solving complex economic problems and informed decision-making in both personal and professional contexts.
Recommended Textbook
Macroeconomics A Contemporary Introduction 9th Edition by William A. McEachern
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26 Chapters
3954 Verified Questions
3954 Flashcards
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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147 Verified Questions
147 Flashcards
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Sample Questions
Q1) When constructing an economic model, economists
A)rely mostly on their own value judgments and ignore the far more complex world of facts
B)always try to duplicate reality by including all available information
C)use assumptions that are true for the individual but never true for the whole economy
D)must rely on simplifying assumptions that abstract from the complexity of the real world
E)are primarily concerned with making realistic assumptions
Answer: D
Q2) Rent is the payment received by resource owners for the use of their natural resources.
A)True
B)False
Answer: True
Q3) The behavior of the entertainment industry in Detroit is a microeconomic topic.
A)True
B)False
Answer: True
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Chapter 2: Economic Tools and Economics Systems
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195 Verified Questions
195 Flashcards
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Sample Questions
Q1) The law of comparative advantage does not apply to A)entire nations
B)natural resources like air and sunshine
C)individuals
D)firms
E)regions of a country
Answer: B
Q2) If an economy is operating at a point inside the production possibilities frontier, then
A)some of the nation's resources are unemployed
B)the production decisions are made by the government
C)unlimited resources must satisfy scarce desires
D)there is a scarcity of human resources relative to human wants therefore society must have some mechanism for making choices
E)society is paying too much for wages
Answer: A
Q3) It is impossible for one person to have a comparative advantage in all tasks.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Economic Decision Makers
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200 Verified Questions
200 Flashcards
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Sample Questions
Q1) A large number of businesses are organized as sole proprietorships because it is easy for them to acquire large sums of financing.
A)True
B)False
Answer: False
Q2) The increased labor force participation of married women in the United States is most often explained by
A)declining productivity in agricultural production
B)a rise in average household size
C)increased education and an increased demand for labor
D)the decreased opportunity cost of working in the home
E)declining productivity in household production
Answer: C
Q3) Goods and services produced by the government are sold at prices that are set to recover production costs.
A)True
B)False
Answer: False
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Chapter 4: Demand Supply and Markets
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232 Verified Questions
232 Flashcards
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Sample Questions
Q1) The substitution effect of a price change describes what happens to the shift in demand for a good when its price changes.
A)True
B)False
Q2) For which of the following would the income effect of a price change be greatest?
A)ballpoint pens
B)air travel to Australia
C)chewing gum
D)haircuts
E)college textbooks
Q3) The most important characteristic of the equilibrium price is that it
A)guarantees that producers earn profit
B)clears the market, leaving neither a surplus nor a shortage
C)maximizes the quantity demanded
D)minimizes the quantity demanded
E)guarantees that all buyers who desire the product will get it
Q4) The slope of the demand curve for a normal good must be positive.
A)True
B)False
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Chapter 5: Introduction to Macroeconomics
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165 Verified Questions
165 Flashcards
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Sample Questions
Q1) If all firms expect greater demand for their products or services, they will hire __________ resources (e.g., labor and capital) and the economy will experience
A)fewer; recession
B)fewer; growth
C)more; federal budget deficits
D)more; recession
E)more; growth
Q2) According to Keynes, the policy of incurring budget deficits will cause the equilibrium price level to __________ and equilibrium output to __________.
A)rise; rise
B)rise; fall
C)fall; rise
D)fall; fall
E)remain the same; remain the same
Q3) Economic strength overseas can give the U.S. economy a lift.
A)True
B)False
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7
Chapter 6: Tracking the Us Economy
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213 Verified Questions
213 Flashcards
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Sample Questions
Q1) The State of the USA is a nonprofit organization that is developing "a key national indicator" system for the United States.
A)True
B)False
Q2) To accurately measure the growth rate of output between two years, one should use
A)gross domestic product
B)net domestic product
C)real net investment
D)real gross domestic product
E)disposable income
Q3) Suppose that the economy is in equilibrium with the government budget in surplus and with exports less than imports. According to the circular flow model,
A)saving must exceed investment
B)saving must be less than investment
C)saving must equal investment
D)saving could be greater than or equal to investment
E)it is impossible to determine anything about saving and investment using the given information
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8
Chapter 7: Unemployment and Inflation
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201 Verified Questions
201 Flashcards
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Sample Questions
Q1) If Dave loans funds at 2 percent while the inflation rate is 4 percent, his real rate of interest is -2 percent.
A)True
B)False
Q2) Construction workers at times face high rates of unemployment because their work is both seasonal and subject to wide swings over the business cycle.
A)True
B)False
Q3) Frictional unemployment refers to unemployment that results from
A)a mismatch of skills
B)being in the wrong geographical location
C)taking the time to find the best job
D)seasonal decreases in demand for labor
E)a recession in the economy
Q4) As a result of the hyperflation in Zimbabwe, GDP fell by 50%.
A)True
B)False
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Chapter 8: Productivity and Growth
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124 Verified Questions
124 Flashcards
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Sample Questions
Q1) Which of the following is most likely to increase productivity growth, as measured using GDP statistics?
A)reduced capital formation
B)decreased human capital
C)increased research and development
D)increased government regulation
E)higher prices for raw materials
Q2) The rules of the game refer to
A)any factor that facilitates production and exchange, such as tax laws and property rights
B)a gradual but consistent change in the price level until a fair price is attained
C)the set of election laws that ensure that all elections are fair
D)the requirements placed on firms in earning a profit
E)the requirements that households must supply labor to firms
Q3) Most economists agree that the most important factor contributing to the recent reduction in U.S. labor productivity growth rate has been the increased level of government regulation.
A)True
B)False
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Page 10
Chapter 9: Aggregate Expenditure
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187 Verified Questions
187 Flashcards
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Sample Questions
Q1) A household's net wealth is the value of
A)its current income minus the value of all its liabilities
B)all its assets minus their tax liabilities
C)all its assets minus the value of all its liabilities
D)all its assets minus its income
E)its current income minus its tax liabilities
Q2) Which of the following would not shift the consumption function?
A)a change in household wealth
B)a change in the price level
C)a change in household disposable income
D)a change in the level of unemployment
E)a change in the rate of interest
Q3) If the U.S. price level increases, other things equal, U.S. net exports
A)increase
B)decrease
C)remain constant, since net exports are assumed to be constant
D)increase only if the marginal propensity to import also increases
E)increase only if there is lower inflation abroad
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Chapter 10: Aggregate Expenditure and Aggregate Demand
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160 Verified Questions
160 Flashcards
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Sample Questions
Q1) In an economy without a government and without international transactions, aggregate expenditure at each level of income is equal to
A)consumption plus saving
B)planned investment plus saving
C)disposable income plus the price level
D)consumption plus planned investment
E)planned investment minus saving
Q2) Suppose that a pair of graphs represents a situation in which both the aggregate expenditure line and the aggregate demand curve have shifted. You can conclude that the shift of the aggregate expenditure line was caused by a change in
A)disposable income
B)the price level
C)the level of income
D)autonomous investment
E)the level of real GDP
Q3) When the real estate market in the United States crashed in 2006, it caused a significant decline in net wealth.
A)True
B)False
Page 12
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Chapter 11: Aggregate Supply
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213 Verified Questions
213 Flashcards
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Sample Questions
Q1) Potential output will decrease if
A)there is an increase in the price level
B)there is a decrease in the price level
C)there is technological change that increases labor productivity
D)workers choose shorter work schedules in order to enjoy more leisure time
E)the nation's capital stock increases
Q2) The main effect of an increase in the capital stock is a(n)
A)rightward shift of the long-run aggregate supply curve
B)rightward shift of the aggregate demand curve
C)leftward shift of the long-run aggregate supply curve
D)leftward shift of the aggregate demand curve
E)increase in price and output levels
Q3) In the short run, if the economy is operating below potential output and if the aggregate supply curve shifts outward, then the price level will
A)decrease and output will increase
B)increase and output will decrease
C)decrease and output will decrease
D)increase and output will increase
E)increase and output will remain unchanged
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Page 13
Chapter 12: Fiscal Policy
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242 Verified Questions
242 Flashcards
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Sample Questions
Q1) Which of the following best illustrates the use of discretionary fiscal policy?
A)Congress provides $1 billion in relief aid for hurricane victims.
B)Congress appropriates $500 million to help the needy, and the appropriation is financed by a tax on wealth.
C)Income tax receipts are smaller because of a decline in real GDP during a recession.
D)The Federal Reserve tightens credit when it receives news of accelerating inflation.
E)Congress passes a bill authorizing $2 billion in additional spending when it receives news of a deepening recession.
Q2) Which of the following is not true about classical economists?
A)They criticized mercantilism as an economic system.
B)They advocated laissez-faire policies to promote economic growth.
C)They believed the economy would naturally tend toward full employment.
D)They believed prices and wages react slowly to market changes.
E)They discouraged government intervention in markets.
Q3) Government transfer payments are a good example of an automatic stabilizer.
A)True
B)False
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Page 14
Chapter 13: Federal Budgets and Public Policy
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158 Verified Questions
158 Flashcards
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Sample Questions
Q1) Some economists have theorized that increases in the deficit have little or no expansionary effect because families reduce their spending by an equivalent amount in order to protect the economic security of their offspring.
A)True
B)False
Q2) A federal capital budget would include spending on buildings, highways, computers, and military equipment.
A)True
B)False
Q3) If the government runs a cyclically balanced budget, its revenue will equal its expenditure
A)each year
B)at each phase of the business cycle
C)over the course of the business cycle
D)only during expansions
E)only during recessions
Q4) The federal budget has been in deficit in all but 9 years since 1960.
A)True
B)False
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Chapter 14: Money and the Financial System
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209 Verified Questions
209 Flashcards
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Sample Questions
Q1) Eileen puts $10,000 in a federally insured checking account at the First National Bank. Norma borrows $10,000 from the First National Bank, flies to a South Pacific island, and is never heard from again. Which of the following is true?
A)Eileen will lose her $10,000.
B)Eileen will lose her $10,000 if she and Norma are related.
C)Eileen will lose her $10,000 if the First National Bank makes all of its loans to people who run off to South Pacific islands.
D)Eileen will not lose her $10,000 no matter what happens to the First National Bank.
E)Eileen will not lose her $10,000 unless there is a run on the First National Bank.
Q2) Specialization of labor means that
A)production requires a special kind of labor
B)the overall skill level of labor is increasing
C)individuals produce goods that they are relatively good at producing and trade for those that they do not produce
D)individuals achieve self-sufficiency in production
E)exchange within the economy consists of trading in services
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Chapter 15: Banking and the Money Supply
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229 Verified Questions
229 Flashcards
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Sample Questions
Q1) Net Worth on a bank's balance sheet is
A)equal to assets plus liabilities
B)sometimes called the owners' equity
C)equal to assets minus reserves
D)the same thing as net profits
E)on the asset side of the balance sheet
Q2) If r is the required reserve ratio, which of the following is the simple money multiplier?
A)r
B)1/(1 - r)
C)1 - r
D)1/r
E)r<sup>2</sup>
Q3) If banks choose not to lend out their excess reserves then the money supply will not eapand.
A)True
B)False
Q4) Banks are permitted to lend all of their reserves.
A)True
B)False
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Chapter 25: The Algebra of Income and Expenditure
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17 Verified Questions
17 Flashcards
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Sample Questions
Q1) If Y = C + I + G + (X - M) (where C = $100, I = $50, G = $50, and X - M = -$10) the equilibrium level of Y equals
A)$150
B)$180
C)$190
D)$200
E)$210
Q2) The nation of Omega has an MPC of 0.70 and an MPM of 0.15. Therefore, Omega's spending multiplier is
A)1.18
B)2.22
C)3.33
D)1.43
E)This question cannot be answered without knowing the MPS
Q3) If the net export function is 500 - 0.15Y, then an increase in income of $1,000 will decrease net exports by $150.
A)True
B)False
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Chapter 16: Monetary Theory and Policy
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185 Verified Questions
185 Flashcards
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Sample Questions
Q1) When people exchange money for financial assets, the interest rate rises.
A)True
B)False
Q2) For the quantity theory of money to yield useful predictions,
A)fiscal policy must be ineffective in altering aggregate demand
B)fiscal policy must be effective in altering aggregate demand
C)the economy must be operating at the potential level of real Gross Domestic Product
D)velocity must be stable or predictable
E)velocity must be unstable
Q3) If the Fed sells government securities to banks, eventually we expect
A)the price level to increase
B)planned investment expenditures to increase
C)aggregate demand to increase
D)short-run aggregate supply to increase
E)interest rates to increase
Q4) If the situation is serious enough, the FOMC may act between regular meetings.
A)True
B)False
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Chapter 17: Macro Policy Debate: Active or Passive
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190 Verified Questions
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Sample Questions
Q1) Problems facing active policy decisions include
A)both c and d
B)all of the following
C)timing problems related to lags and self-correction
D)that the natural unemployment rate is uncertain
E)the self-correcting forces in the economy don't work well
Q2) In general, the faster inflationary expectations adjust,
A)the less macro policy can influence unemployment
B)the better discretionary policy can be expected to work
C)the slower the adjustment of the short-run Phillips curve
D)the stronger the case for active policy
E)none of the above
Q3) An important implication of the natural rate hypothesis is that regardless of concerns about __________, the government policy that results in __________ is generally the optimal long-run policy.
A)unemployment; low inflation
B)inflation; low unemployment
C)unemployment; low interest rates
D)inflation; low interest rates
E)inflation; a stable foreign exchange rate
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Chapter 26: The Algebra of Demand-Side Equilibrium
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22 Verified Questions
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Sample Questions
Q1) The balanced budget multiplier is equal to A)1
B)1 ÷ (1 - MPC)
C)1 ÷ (1 - MPS)
D)zero
E)Y - Y<sup>*</sup>
Q2) If the MPC equals the 2/3, then the net tax multiplier equals A)-2
B)-1/2
C)-3
D)-2/3
E)-1/3
Q3) If the marginal propensity to consume is 0.8 and the proportional income tax rate is 0.25, by how much would the equilibrium level of real GDP demanded increase if government purchases rose by $50 billion?
A)$50 billion
B)$100 billion
C)$500 billion
D)$125 billion
E)$275 billion
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Chapter 18: International Trade
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163 Flashcards
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Sample Questions
Q1) In Exhibit 18-5, if the world price of a baseball is $3 and a tariff of $1 per baseball is imposed in the United States, which area represents the amount of tariff revenue the United States government collects?
A)a
B)b
C)c
D)f
E)e
Q2) Which of the following factors is the most significant in determining the pattern of international trade?
A)absolute advantage
B)diplomatic expertise
C)comparative advantage
D)overpowering military strength
E)a country's size relative to another country's
Q3) If U.S. consumption falls short of U.S. production, the U.S. imports the difference.
A)True
B)False
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Chapter 19: International Finance
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231 Verified Questions
231 Flashcards
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Sample Questions
Q1) The exchange rate is the
A)ratio of exports to imports
B)interest rate the U.S. government charges on international transactions
C)pricing policy of goods scheduled for export
D)price of one nation's currency in terms of another nation's currency
E)price that central banks charge each other for currency exchanges
Q2) Foreign nations' demand for dollars increases as
A)Americans travel abroad
B)foreigners purchase American goods
C)Americans purchase foreign goods
D)Americans buy foreign stocks or bonds
E)Americans send cash gifts abroad
Q3) If the U.S. dollar appreciates, it becomes cheaper for Australians to visit their relatives in the United States.
A)True
B)False
Q4) Weak economies with shrinking incomes tend to buy more of everything, including imports.
A)True
B)False
Page 23
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Chapter 20: Economic Development
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) How many countries in the world have failed to come up with the rules of the game that lead to sustained economic growth?
A)none
B)most
C)half
D)one
E)There is not enough data to answer this question
Q2) There is a tremendous range in productive performance around the world.
A)True
B)False
Q3) Which of the following creates an obstacle to pursuing freer international trade?
A)Consumers do not recognize their potential gains
B)Losses are widespread
C)Domestic producers do not recognize their potential losses
D)Government has plenty of political will and support to remove trade barriers
E)Consumers can easily organize to demand free trade
Q4) In 2010 the unemployment rate in Zimbabwe was 95%
A)True
B)False
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Chapter 21: National Income Accounts
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Sample Questions
Q1) Personal income equals national income minus personal taxes.
A)True
B)False
Q2) Disposable income is commonly referred to as take home pay.
A)True
B)False
Q3) Factors that explain the differences between National Income and Personal Income include all of the following, except one. Which is the exception?
A)Social Security contributions paid by employers
B)corporate income taxes
C)undistributed corporate profits
D)government and business transfers
E)indirect business taxes
Q4) In Exhibit 6-5, Gross Domestic Product equals
A)$365 billion
B)$390 billion
C)$420 billion
D)$375 billion
E)$385 billion
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Chapter 22:Understanding Graphs
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Sample Questions
Q1) Using the values in Exhibit 1-7, calculate the slope of a line graphed with x on the horizontal axis and y on the vertical axis.
A)0.5
B)2
C)1.5
D)100
E)the slope cannot be determined without additional information
Q2) In Exhibit 1-3, for any value of x, the
A)value of y is larger on curve A than on curve B
B)value of y is smaller on curve A than on curve B
C)value of y is the same on curve A as on curve B
D)slope of line A is increasing
E)slope of line B is negative
Q3) In Exhibit 1-2, at x = 10, the
A)value of y is larger on curve A than on curve B
B)value of y is smaller on curve A than on curve B
C)value of y is the same on curve A as on curve B
D)slope of line A is negative
E)slope of line B is positive
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Page 26
Chapter 23:Variable Net Exports
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Sample Questions
Q1) A decrease in the value of the U.S. dollar relative to other currencies will increase U.S. exports.
A)True
B)False
Q2) U.S. net exports will fall if
A)U.S. income rises
B)U.S. income falls
C)U.S. imports decrease
D)the value of the U.S. dollar falls
E)U.S. exports increase and U.S. imports are autonomous
Q3) A decrease in the value of the U.S. dollar relative to foreign currencies would lead to a(n)
A)increase in U.S. exports
B)decrease in U.S. imports
C)increase in both U.S. imports and U.S. exports
D)increase in U.S. exports and a decrease in U.S. imports
E)decrease in U.S. exports and an increase in U.S. imports
Q4) As U.S. income rises, U.S. imports will rise.
A)True
B)False
Page 27
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Chapter 24: Variable Net Exports Revisited
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Sample Questions
Q1) If net exports increase by $450 billion at every level of income, equilibrium real GDP demanded will
A)increase by $450 billion
B)decrease by $450 billion
C)increase by more than $450 billion because of the multiplier effect
D)increase by less than $450 billion
E)decrease by more than $450 billion because of the multiplier effect
Q2) Adding net exports to aggregate expenditure always
A)increases real GDP
B)shifts the aggregate expenditure line down
C)increases the slope of the aggregate expenditure line
D)decreases the slope of the aggregate expenditure line
E)decreases GDP
Q3) Imports are a leakage from the circular flow.
A)True
B)False
Q4) The formula for the spending multiplier in model with variable net exports trade equals 1/(MPS + MPM).
A)True
B)False
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