Economic Literacy
Pre-Test Questions
Course Introduction
Economic Literacy provides students with a foundational understanding of key economic concepts, principles, and systems that shape both individual decision-making and societal outcomes. The course explores topics such as supply and demand, market structures, the role of government in the economy, financial literacy, and basic macroeconomic indicators. Through real-world examples and interactive activities, students will develop the skills needed to analyze economic issues, interpret economic news, and make informed decisions as consumers, workers, and citizens in a global economy.
Recommended Textbook
Survey of Economics 8th Edition by Irvin B. Tucker
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27 Chapters
4541 Verified Questions
4541 Flashcards
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Page 2
Chapter 1: Introducing the Economic Way of Thinking
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Sample Questions
Q1) The television network newscaster reports that the national inflation rate the past year equaled 4 percent.This report would be of particular interest to a ____.
A) microeconomist.
B) normative economist.
C) macroeconomist.
D) Ceteris paribus.
E) social science economist.
Answer: C
Q2) Policies to create jobs in the nation are the concern of:
A) macroeconomics.
B) microeconomics.
C) both microeconomics and macroeconomics.
D) neither microeconomics nor macroeconomics.
Answer: A
Q3) The statement "American workers are lazy" is an example of positive economic analysis.
A)True
B)False
Answer: False
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Page 3
Chapter 1: A: Appendix: Applying Graphs to Economics
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Sample Questions
Q1) Suppose two variables are directly related.If one variable rises,then the other variable:
A) also rises.
B) falls.
C) remains unchanged.
D) reacts unpredictably.
Answer: A
Q2) A change in a third variable not on either axis of a graph is illustrated with a: A) horizontal or vertical line.
B) movement along a curve.
C) shift of a curve.
D) point of intersection.
Answer: C
Q3) As shown in Exhibit 1A-5,the slope of straight line CD:
A) decreases with increases in X.
B) increases with increases in X.
C) increases with decreases in X.
D) remains constant with changes in X.
Answer: D
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Chapter 2: Production Possibilities,Opportunity Cost,and Economic Growth
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Sample Questions
Q1) A production possibilities curve has "good X" on the horizontal axis and "good Y" on the vertical axis.On this diagram,the opportunity cost of good X,in terms of good Y,is represented by the:
A) distance to the curve from the horizontal axis.
B) distance to the curve from the vertical axis.
C) distance from the origin to the curve.
D) change in Y for each change in X along the curve.
Answer: D
Q2) Which of the following causes the production possibilities curve to shift to the right?
A)d and e.
B)c and e.
C)A war.
D)The development of a new technology that improves productivity.
E)The discovery of oil reserves.
Answer: A
Q3) Opportunity cost is the best alternative sacrificed for a chosen alternative.
A)True
B)False
Answer: True
5
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Chapter 3: Part 1: Market Demand and Supply
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Sample Questions
Q1) Which of the following will increase the demand for motorcycles?
A) A fall in the price of motorcycles.
B) A fall in insurance rates for motorcycles.
C) A fall in the price of automobiles.
D) A fall in buyers' incomes (assuming motorcycles are a normal good).
E) A fall in consumer preference for motorcycles.
Q2) The fact that price and quantity demanded are related negatively illustrates the:
A) law of supply.
B) law of quantity supply.
C) law of demand.
D) law of quantity demanded.
E) point that some facts are unobservable.
Q3) Which of the following corresponds to the definition of the supply curve?
A) It depicts a positive relationship between income and quantity supplied.
B) It depicts a positive relationship between technology and prices.
C) It depicts a positive relationship between prices and quantity supplied.
D) It depicts a negative relationship between prices and quantity supplied.
E) It depicts a proportional relationship between prices and quantity supplied.
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6
Chapter 3: Part 2: Market Demand and Supply
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Sample Questions
Q1) In Exhibit 3-8,if the price of radios was currently $45,there would be an ____ of ____ radios in this market.
A) Excess demand; 700
B) Excess demand; 500
C) Excess supply; 100
D) Excess supply; 600
E) Excess demand; 100
Q2) In Exhibit 3-14,assume that the market price of compact discs is $15 each.This price is:
A) an equilibrium price.
B) not an equilibrium price because there is an excess quantity demanded at a price of $15.
C) an equilibrium price because suppliers can store inventories in their warehouses.
D) not an equilibrium price because the quantity supplied of compact discs is greater than the quantity demanded.
Q3) Surpluses cause prices to rise while shortages cause prices to fall.
A)True
B)False
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Chapter 4: Markets in Action
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Sample Questions
Q1) Public goods differ from private goods in that:
A) they produce negative externalities.
B) they are not scarce.
C) their benefits cannot be denied to anyone.
D) their consumption must be regulated by the government.
E) their benefits are very narrow.
Q2) In the presence of positive externalities,a free market will choose a price which is too ____ and produce an output which is too ____ compared with the social optimum.
A) high; low
B) low; low
C) high; high
D) low; high
E) marginal; inequitable
Q3) A black market may arise when government imposes a price ceiling.
A)True
B)False
Q4) What are market failures? Discuss examples of market failures.What can government do to improve the results of market failures?
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Page 8
Chapter 5: Price Elasticity of Demand
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Sample Questions
Q1) The data in Exhibit 5-2 shows that price elasticity of demand is:
A) increasing as the price decreases.
B) decreasing as the price increases.
C) increasing as the quantity increases.
D) decreasing as the quantity decreases.
E) decreasing as the quantity increases.
Q2) Using Exhibit 5-3,whose elasticity of demand is greatest when the price falls from $7 to $6?
A) Albert
B) Betty
C) Carl
D) Dana
E) Edward
Q3) According to Exhibit 5-7,the demand for concert tickets is:
A) inelastic.
B) elastic.
C) unitary elastic.
D) perfectly elastic.
Q4) What are the characteristics of the product that has an inelastic demand?
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Chapter 6: Production Costs
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Sample Questions
Q1) Diseconomies of scale exist for all of the following reasons except:
A) bureaucratic inefficiencies.
B) management problems.
C) failures in information flows.
D) firm size is too small.
E) organizational problems.
Q2) The long run is a planning period:
A) during which the firm can vary all inputs including its plant size.
B) less than six months.
C) less than one year.
D) less than five years.
Q3) Implicit costs are best thought of as:
A) variable costs.
B) marginal costs.
C) accounting costs.
D) opportunity costs.
E) sunk costs.
Q4) Economic profit equals accounting profit minus implicit costs.
A)True
B)False
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Chapter 7: Perfect Competition
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Sample Questions
Q1) Which of the following is true of a perfectly competitive firm?
A) The firm is a price maker.
B) If the firm wishes to maximize profits it will produce an output level in which total revenue equals total cost.
C) The firm will not earn an economic profit in the long run.
D) The firm's short-run supply curve is its MC curve below its AVC curve.
Q2) In the short run,the profit maximizing (or minimizing)quantity of output for any firm to produce exists at that output level at which marginal revenue equals marginal cost.
A)True
B)False
Q3) Which of the following is a key characteristic of the long-run competitive equilibrium that distinguishes it from the short-run competitive equilibrium?
A) Free entry to reduce short-run profits, or free exit to reduce short-run losses.
B) Economic profits are positive, but cannot be negative.
C) Marginal revenue is greater than marginal cost.
D) Average revenue is less than average cost.
Q4) What are the pros and cons of a competitive market in the long run?
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11
Chapter 8: Monopoly
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Sample Questions
Q1) Suppose a monopolist and a perfectly competitive firm have the same cost curves.The monopolistic firm would:
A) charge a lower price than the perfectly competitive firm.
B) charge a higher price than the perfectly competitive firm.
C) charge the same price as the perfectly competitive firm.
D) refuse to operate in the short run unless an economic profit could be made.
E) refuse to operate in the short run if an economic loss was present.
Q2) A monopoly earns the most profit by charging a price where demand is inelastic.
A)True
B)False
Q3) A monopoly:
A) can increase price and increase output at the same time.
B) can charge any price it wants and still sell all of its output.
C) can sell any output it produces provided it accepts the market price.
D) must lower price in order to increase output.
E) faces a perfectly elastic demand curve.
Q4) A monopolist will charge a lower price and produce more output than if it was operating in a competitive market.
A)True
B)False
Page 12
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Chapter 9: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Which of the following statements best describes firms under monopolistic competition?
A) There is little price or quality competition.
B) The firms compete, using quality, location, advertising, and price.
C) Firms do not compete using advertising.
D) There is little competition between firms.
Q2) A cartel is an agreement among firms to divide output of a product among members.
A)True
B)False
Q3) Which of the following is a game theory strategy for oligopolists to avoid a low-price outcome?
A) Tit-for-tat
B) Price leadership
C) Cartel
D) All of the above
Q4) What are the characteristics of monopolistic competition?
Q5) What are the characteristics of an oligopoly?
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Chapter 10: Labor Markets and Income Distribution
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Sample Questions
Q1) The optimal number of workers to be hired by a firm operating in a competitive labor market is where:
A) P = MRP.
B) MP = MRP.
C) MRP = w.
D) P = w.
E) TWC = w.
Q2) An example of in-kind assistance to the poor is TANF.
A)True
B)False
Q3) The demand curve for labor of Coca-Cola manufacturers will not shift to the right if: A)d and e.
B)the price of Coca-Cola increases.
C)the firms innovate with new technology that raises labor productivity.
D)the price of Pepsi decreases.
E)Coca-Cola workers become unionized.
Q4) Explain why wage rates might rise a Joe's Quik-Print Shop if Joe replace his aging copy machines with state-of-the-art copy machines.
Q5) Describe the comparable worth controversy?
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Chapter 11: Gross Domestic Product
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Sample Questions
Q1) Which of the following is included in personal income but not in national income?
A) Compensation for workers.
B) Proprietors' income.
C) Corporate profits.
D) Social Security payments.
E) Rent.
Q2) In Exhibit 11-5,personal income (PI)is:
A) $6,254 billion.
B) $6,495 billion.
C) $6,013 billion.
D) $7,082 billion.
E) $7,637 billion.
Q3) In the four-sector circular flow model,households will use their incomes to do all but which one of the following?
A) Save.
B) Pay taxes.
C) Buy domestic goods and services.
D) Buy imported goods and services.
E) Invest.
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Page 15
Chapter 12: Business Cycles and Unemployment
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Sample Questions
Q1) Unemployment caused by a recession is called:
A) structural unemployment.
B) frictional unemployment.
C) involuntary unemployment.
D) cyclical unemployment
Q2) The point at which real GDP reaches a maximum during a business cycle is called the:
A) peak.
B) recession.
C) recovery.
D) trough.
Q3) Bob is unemployed because his skills have become obsolete due to technological advances.This is ____ unemployment.
A) frictional
B) structural
C) cyclical
D) abnormal
Q4) Industrial production is not a coincident indicator.
A)True
B)False
Page 16
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Chapter 13: Inflation
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Sample Questions
Q1) Deflation means a decrease in:
A) the rate of inflation.
B) the prices of all products in the economy.
C) homes, autos, and basic resources.
D) the general level of prices in the economy.
Q2) The base year in the consumer price index (CPI)is:
A) given a value of zero.
B) a year chosen as a reference for prices in all other years.
C) always the first year in the current decade.
D) established by law.
Q3) Inflation refers only to rising prices at a given time period.
A)True
B)False
Q4) According to the Bureau of Labor Statistics' survey,which category represents the largest expense for the typical urban family?
A) Housing.
B) Food and beverages.
C) Transportation.
D) Medical care.
Q5) Who is hurt and who benefits from inflation? Why?
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Chapter 14: Aggregate Demand and Supply
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Sample Questions
Q1) Suppose the price level falls.The result is that the:
A) aggregate supply curve would shift to the right.
B) aggregate supply curve would shift to the left.
C) general price level would rise causing a movement up the aggregate demand curve.
D) aggregate demand curve would slope downward because of the real balances effect.
Q2) To illustrate the classical argument that "supply creates its own demand," the aggregate supply curve should be drawn:
A) downward-sloping.
B) upward-sloping.
C) horizontal.
D) vertical.
Q3) An increase in the price level caused by a rightward shift of the aggregate demand curve is called:
A) cost-push inflation.
B) supply shock inflation.
C) demand shock inflation.
D) demand-pull inflation.
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18
Chapter 14: A: Appendix: The Self-Correcting Aggregate
Demand and Supply Model
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Sample Questions
Q1) Beginning from full-employment macro equilibrium,increase in government spending will cause real GDP to:
A) increase in the short run.
B) decline in the long run.
C) decline in the short run.
D) increase in the long run.
Q2) Economic growth is represented by a:
A) rightward shift of the rule of 72 curve.
B) movement along a production possibilities curve.
C) rightward shift in potential real GDP (LRAS).
D) leftward shift of the long-run aggregate supply curve (LRAS).
Q3) A decrease in nominal incomes causes a leftward shift in the short-run aggregate supply curve (SRAS).
A)True
B)False
Q4) The short-run aggregate supply curve (SRAS)is based on the theory that wages are flexible.
A)True
B)False
19
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Chapter 15: Fiscal Policy
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Sample Questions
Q1) Using the aggregate demand and supply model,expansionary fiscal policy will not affect the price level,but will restore full-employment GDP.
A)True
B)False
Q2) Mathematically,the value of the tax multiplier in terms of the marginal propensity to consume (MPC)is given by the formula:
A) MPC - 1.
B) (MPC - 1)/MPC.
C) 1/MPC.
D) 1-[1/(1 - MPC)].
Q3) Suppose the economy is on the classical range of the aggregate supply curve and has a problem with inflation.According to Keynesian theory,which of the following is an appropriate discretionary fiscal policy to use in this situation?
A) A reduction in the money supply.
B) Less government regulation.
C) Increase federal spending.
D) Higher taxes.
Q4) Discuss the differences between Keynesian and supply-side fiscal policies?
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Chapter 16: The Public Sector
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Sample Questions
Q1) Generally,most economists feel that a sales tax is:
A) regressive.
B) proportional.
C) progressive.
D) fair.
Q2) Sales and excise taxes are:
A) progressive.
B) proportional.
C) regressive.
D) fixed-revenue.
Q3) Under a progressive tax system,the tax rate increases as income increases.
A)True
B)False
Q4) Describe the major sources of tax revenue and expenditures for the federal government.
Q5) Since the 1950s,total expenditures in the United States nearly tripled to about 60 percent of GDP.
A)True
B)False
Q6) Describe the two basic philosophies of taxation fairness.
Page 21
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Chapter 17: Federal Deficits,Surpluses,and the National Debt
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Sample Questions
Q1) The national debt is:
A) the difference between a nation's exports and imports of goods and services.
B) the sum of the personal debt of all citizens in the United States.
C) the cumulative effect of all past budget deficits and surpluses of the federal government.
D) equal to the current size of the budget deficit.
Q2) Currently,the Social Security Trust Fund is running a:
A) deficit, which reduces the apparent size of the budget deficit.
B) surplus, which reduces the apparent size of the budget deficit.
C) surplus, which increases the apparent size of the budget deficit.
D) deficit, which increases the apparent size of the budget deficit.
Q3) The national debt is unlikely to cause national bankruptcy because the:
A) national debt can be refinanced by issuing new bonds.
B) interest on the public debt equals GDP.
C) national debt cannot be shifted to future generations for repayment.
D) federal government cannot refinance the outstanding national debt.
Q4) Bonds owned by financial institutions represent ownership of the national debt by the private sector.
A)True
B)False
Page 22
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Chapter 18: Money and the Federal Reserve System
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Sample Questions
Q1) Describe the functions of the Federal Reserve System.
Q2) The Monetary Control Act of 1980:
A) allowed savings and loan associations to offer checking accounts. B) allowed more institutions to offer checking account services. C) created greater competition among various financial institutions. D) all of the above.
E) none of the above.
Q3) Coins and dollar bills are money in the form of: A) barter.
B) currency.
C) capital stock.
D) investment.
Q4) The Federal Reserve System is a branch of the Treasury Department. A)True B)False
Q5) The chairman of its Board of Governors is appointed by the president; the Fed operates without independence from the executive branch of the government. A)True B)False
Page 23
Q6) What is money? What are the three definitions of money in the United States?
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Chapter 19: Money Creation
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Sample Questions
Q1) Economists estimate that the total lag for monetary policy is about:
A) 1-2 days.
B) 2 weeks to 1 month.
C) 3-12 months.
D) 2-4 years.
Q2) Assume a bank has total deposits of $100,000 and $20,000 is set aside to meet reserve requirements of the Fed.Its required reserve ratio is:
A) $20,000.
B) 20 percent.
C) 0.2 percent.
D) 1 percent.
Q3) The term "open market operations" refers to the:
A) loan-making activities of commercial banks.
B) effect of expansionary monetary policy on interest rates.
C) operation of competitive markets in the banking industry as the result of deregulation.
D) buying and selling of government securities by the Federal Reserve.
Q4) Reserve of banks appears on their balance sheet as liabilities.
A)True
B)False
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Chapter 20: Monetary Policy
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Sample Questions
Q1) Keynes called the money people hold in order to pay unforeseen or unexpected expenses the:
A) transactions demand for holding money.
B) precautionary demand for holding money.
C) speculative demand for holding money.
D) store of value demand for holding money.
Q2) Assume the demand for money curve is stationary and the Fed increases the money supply.The result is that people:
A) increase the supply of bonds, thus driving up the interest rate.
B) increase the supply of bonds, thus driving down the interest rate.
C) increase the demand for bonds, thus driving up the interest rate.
D) increase the demand for bonds, thus driving down the interest rate.
Q3) In the quantity theory of money:
A) the price level is a function of the supply of money.
B) the supply of money is a function of the price level.
C) the money supply and the price level are inversely related.
D) the money supply is controlled by the government.
Q4) The opportunity cost of holding money is measured by the rate of interest.
A)True
B)False
Page 25
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Chapter
Self-Correcting Aggregate Demand and Supply Model
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Sample Questions
Q1) In Panel (a)of Exhibit 20A-1,the economy is initially in short-run equilibrium at real GDP level Y and price level P .Classical theory argues:
A) the federal government must shift AD to AD as shown in Panel (b).
B) the federal government must shift SRAS to SRAS .
C) that SRAS will shift to SRAS without government intervention.
D) that AD will shift rightward without government intervention.
Q2) In Panel (b)of Exhibit 20A-2,the economy is initially in short-run equilibrium at real GDP level Y and price level P .If the federal government or Fed decides to intervene,it would most likely:
A) decrease taxes.
B) increase the money supply.
C) increase the level of government spending for goods and services.
D) decrease the level of government spending for goods and services.
Q3) Assuming an inflationary gap exists,classical economists believe that flexible wages will restore full employment.
A)True
B)False
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Page 26
Chapter 21: International Trade and Finance
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Sample Questions
Q1) If real interest rates in the United States are higher than those of our trading partners,what will tend to happen to the foreign exchange value of the dollar and the U.S.current account deficit or surplus?
A) The dollar will depreciate; the current account will move toward a deficit.
B) The dollar will depreciate; the current account will move toward a surplus.
C) The dollar will appreciate; the current account will move toward a deficit.
D) The dollar will appreciate; the current account will move toward a surplus.
Q2) The infant industry argument is based on the idea that:
A) competitive pressure from established foreign firms would encourage the infant industry's prospects for future growth.
B) failure to shelter these infant industries tends to lead to political instability.
C) small firms must be protected.
D) none of the above.
Q3) Which of the following transactions would be excluded in the capital account?
A) A Japanese citizen purchases a U.S. Treasury bill.
B) A Japanese citizen purchases an office building in Manhattan.
C) A U.S. citizen purchases a share of stock from a Japanese company.
D) An American purchases a Toyota.
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Chapter 22: Economies in Transition
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Sample Questions
Q1) In the former Soviet economy,the supreme planning board that transmitted economic decisions down to producing and consuming units was called the:
A) Soviet Ministry.
B) Polit Bureau.
C) Gosplan.
D) Soviet Central Committee for Economic Planning.
Q2) The term "socialism" refers to which of the following?
A) A religion centered on community interaction.
B) An economic system characterized by private ownership of resources, and decentralized market allocation.
C) An economic system characterized by government ownership of resources and centralized allocation.
D) None of the above.
Q3) Socialism is an economic system characterized by:
A) private ownership of resources and market decision-making.
B) government ownership of resources and centralized decision-making.
C) cooperation, sharing, and little central government.
D) a complex structure of rules and traditions that dictates decision-making.
Q4) Describe the differences between capitalism and socialism.
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Chapter 23: Growth and the Less-Developed Countries
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Sample Questions
Q1) Explain why the LDCs are unable to invest much in capital goods and human capital.
Q2) An industrially advanced country (IAC)is defined as a country with a GDP per capita among the top ____ countries in the world.
A) 5
B) 10
C) 20
D) 27
Q3) GDP per capita provides a reasonably accurate measurement of a country's income distribution.
A)True
B)False
Q4) Investment in both physical and human capital enhances economic growth because it:
A) increases consumption during the current period.
B) makes it possible for individuals to produce more goods and services per hour worked.
C) encourages firms to expand output by employing more low-productivity workers.
D) encourages workers to unionize and, thereby, fight for higher wages.
Q5) Describe the vicious cycle of poverty.What are the consequences of this cycle?
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