Economic Policy
Final Exam Questions
Course Introduction
Economic Policy explores the formulation, implementation, and evaluation of government interventions designed to influence economic outcomes at local, national, and international levels. This course covers core topics such as fiscal and monetary policies, taxation, public expenditure, regulatory frameworks, and trade policy. Students analyze the objectives, effectiveness, and unintended consequences of various policy tools, using real-world case studies and empirical data. The course also considers the roles of political institutions, economic theory, and ethical considerations in shaping policy decisions, equipping students to critically assess contemporary policy debates and their impact on economic growth, stability, and social welfare.
Recommended Textbook
Economics Private and Public Choice 14th Edition by
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David A. Macpherson
Chapter 1: The Economic Approach
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Sample Questions
Q1) Ralph wants to buy some milk and a box of cereal.If Ralph buys 4 gallons of milk at $3.00 per gallon,the box of cereal costs $2.00.If he buys 5 gallons of milk,the box of cereal is free.For Ralph,the marginal cost of buying a fifth gallon of milk is: A)zero.
B)$1.00.
C)$2.00.
D)$3.00.
Answer: B
Q2) "There is no such thing as a free lunch." This statement best reflects the fact that A)consumers are unwilling to pay for a good unless it provides them with value. B)an opportunity cost is always present when scarce resources are used to produce a good.
C)it generally requires enormous effort to search out the best place to eat lunch. D)the value of a good to consumers will decrease as they have more of it.
Answer: B
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3
Chapter 2: Asome Tools of the Economist
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Sample Questions
Q1) If Matt trades two candy bars to Andy in exchange for one baseball card,
A)Matt must have valued the baseball card more than the two candy bars.
B)Andy must have valued the two candy bars more than the baseball card.
C)Matt must lose an equal amount if Andy gains.
D)Both a and b are correct,c is incorrect.
Answer: D
Q2) Which of the following will most likely occur under a system of clearly defined and enforced private property rights?
A)Resource owners will fail to conserve vital resources,even if they expect their supply to be highly limited in the future.
B)Resource owners will ignore the wishes of others,including others who would like to use the resource that is privately owned.
C)Resource owners will fail to consider the wishes of potential future buyers when they decide how to employ privately owned resources.
D)Resource owners will gain by discovering and employing their resources in ways that are highly valued by others.
Answer: D
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Chapter 3: Asupply,demand,and the Market Process
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Sample Questions
Q1) "He [the producer] intends only his gain,and he is in this,as in many other cases,led by an invisible hand to promote an end which was no part of his intention." What is the "invisible hand" referred to in this statement?
A)the elasticity of the market demand curve
B)the power of government when decisions are made democratically
C)the guidelines and regulations set for his industry by the government
D)the incentive structure accompanying market prices
Answer: D
Q2) Which of the following would lead to an increase in the demand for fast food in Houston?
A)an increase in Houston's population
B)a decrease in average consumer income in Houston
C)a front page newspaper article in Houston stating that fast food is very bad for your health
D)a decrease in the average price charged by sit-down restaurants
Answer: A
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Chapter 4: Asupply and Demand: Applications and Extensions
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Sample Questions
Q1) A price ceiling set below an equilibrium price tends to cause persistent imbalances in the market because
A)Quantity demanded exceeds quantity supplied but price cannot rise to remove the shortage.
B)Quantity demanded exceeds quantity supplied but price cannot fall to remove the surplus.
C)Quantity supplied exceeds quantity demanded but price cannot rise to remove the shortage.
D)Quantity supplied exceeds quantity demanded but price cannot fall to remove the surplus.
Q2) Which of the following will most likely occur when government price controls fix the price of a good above market equilibrium?
A)Waiting lines to buy the good will develop.
B)The quality of the good will deteriorate.
C)Consumers will buy more than they would at the market equilibrium price.
D)A surplus of the good will develop.
Q3) Joanne states,"If raising the minimum wage to $10 an hour is good,like Senator Largess suggests,then raising it to $20 an hour would be twice as good." Is Joanne correct? Why or why not?
Page 6
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Chapter 5: Difficult Cases for the Market and the Role of Government
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Sample Questions
Q1) Figure 5-3 illustrates the market for a product that generates an external benefit.D is the private market demand curve,while D is the demand curve including the external benefit.Which of the following is true?
A)Relative to economic efficiency,output of the good will be too large and the price too low.
B)Relative to economic efficiency,output of the good will be too large and the price too high.
C)Relative to economic efficiency,output of the good will be too small and the price too low.
D)Relative to economic efficiency,output of the good will be too small and the price too high.
Q2) When consumers cannot tell the difference at the time of sale between high-quality products and those with defects,strong sales of the low-quality products will tend to depress price and drive the high-quality products from the market.Economists call this A)the curse of advertising.
B)the imperfect information problem.
C)the brand name problem.
D)an open-access resource.
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Chapter 6: The Economics of Collective Decision-Making
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Sample Questions
Q1) Figure 6-1 illustrates the four possibilities of the distribution of costs and benefits among voters for a government project.For which type would the government most likely fail to undertake many projects that would be considered efficient or productive (in other words,do too few of them relative to economic efficiency)?
A)type A
B)type B
C)type C
D)type D
Q2) Which of the following factors explains why managers of government agencies (the public sector)have little incentive to operate efficiently?
A)It is relatively easy for voters to detect operational inefficiency in the public sector and do something to correct it.
B)Public-sector managers face fierce competition.
C)Public-sector managers have no fear of losses and bankruptcy when operational efficiency is not achieved.
D)All of the above explain why government agencies have little incentive to be efficient.
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Chapter 7: Ataking the Nations Economic Pulse
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Sample Questions
Q1) Why is it important to use real rather than nominal GDP figures when making comparisons of output across time periods?
A)The real GDP figures are a better measure of changes in the general level of prices.
B)The real figures will reflect changes in the quantity of output and not changes in the general level of prices.
C)The real figures will reflect changes in the general level of prices as well as changes in the quantity of output.
D)The real GDP figures adjust for changes in the level of employment.
Q2) Which of the following would be included in this year's GDP?
A)the value of a used car,at its sale price
B)the value of a new domestic automobile,at its sale price
C)a sale of Microsoft stock from one individual to another
D)the face value of a life insurance policy paid to a woman at the death of her husband
Q3) Explain the two approaches to calculating GDP.
Q4) The consumer price index is calculated using a fixed basket of goods.Will this always give an accurate representation of the changing cost of living to consumers? Why or why not?
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Chapter 8: Economic Fluctuations, unemployment, and Inflation
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Sample Questions
Q1) The current U.S.unemployment insurance program tends to
A)increase the incentive to switch occupations.
B)reduce the time workers stay unemployed.
C)make it more costly for unemployed workers to turn down available jobs.
D)raise the unemployment rate.
Q2) The primary cause of frictional unemployment is
A)the low level of the current minimum wages.
B)the lack of and cost of acquiring information about available job opportunities.
C)a mismatch of the skills of unemployed workers with the skills needed for job openings.
D)discouraged workers who quit looking for a job after extended periods of unsuccessful job search.
Q3) If the nominal interest rate was 12 percent and the inflation rate was 10 percent in 1980,while the nominal interest rate was 7 percent and the inflation rate was 2 percent in 2011,then
A)real rates were higher in 2011.
B)real rates were higher in 1980.
C)credit was more expensive in 1980.
D)credit was cheaper in 2011 because the nominal rate was lower.
Page 10
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Chapter 9: Aan Introduction to Basic Macroeconomic Markets
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Sample Questions
Q1) Answer the following questions:
a.What is a bond?
b.If bonds make fixed payments every year,explain how a reduction in market interest rates will increase the price of the bond in the market.
Q2) Other things constant,a decrease in resource prices will lead to
A)reduced profits and a reduction in short-run aggregate supply.
B)increased profits and a reduction in short-run aggregate supply.
C)reduced profits and an increase in short-run aggregate supply.
D)increased profits and an increase in short-run aggregate supply.
Q3) Which of the following situations would you prefer if you planned to borrow money?
A)The nominal interest rate is 5 percent,and future prices are expected to be stable.
B)The nominal interest rate is 9 percent,and expected inflation is 7 percent.
C)The nominal interest rate is 4 percent,and expected inflation is 1 percent.
D)The nominal interest rate is 25 percent,and expected inflation is 22 percent.
Q4) Under what circumstances will inflation help borrowers at the expense of lenders? Under what circumstances will both parties be unaffected? Which scenario would you expect in the long run?
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Chapter 10: Dynamic Change, economic Fluctuations, and the Ad-As Model
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Sample Questions
Q1) Which of the following,other things the same,would make the price level decrease and real GDP increase?
A)long-run aggregate supply shifts right
B)long-run aggregate supply shifts left
C)aggregate demand shifts right
D)aggregate demand shifts left
Q2) Which of the following contributed to the crisis of 2008?
A)a doubling of the price of imported oil during 2007-2008
B)a sharp increase in the price of housing during 2008
C)inclement weather in 2008
D)falling resource prices and a reduction in the cost of production
Q3) Which of the following shifts both short-run and long-run aggregate supply to the left?
A)a decrease in the actual rate of inflation
B)a decrease in the expected rate of inflation
C)a decrease in the capital stock
D)a drought in the Midwest agricultural areas.
Q4) Which will cause a larger short-run increase in prices: an anticipated or unanticipated increase in aggregate demand? Will they cause the same increase in prices in the long run?
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Chapter 11: Fiscal Policy: the Keynesian View and Historical Perspective
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Sample Questions
Q1) If the government owes $10.0 trillion and then borrows $700 billion more this year,this leads to
A)a debt of $700 billion and a deficit of $10.7 trillion.
B)a debt of $10.7 trillion and a deficit of $700 billion.
C)a debt of $9.3 trillion and a deficit of $700 billion.
D)a debt of $10.0 trillion and a deficit of $9.3 trillion.
E)a debt of $10.7 trillion and a deficit of zero.
Q2) The expenditure multiplier is used to calculate the change in
A)spending caused by a change in income.
B)equilibrium income resulting from a change in interest rates.
C)equilibrium income resulting from an independent change in spending.
D)investment caused by a change in consumption.
Q3) As the marginal propensity to consume (MPC)increases,the spending multiplier
A)increases.
B)decreases.
C)remains constant.
D)becomes indefinable.
Q4) Is there any way to conduct fiscal policy and avoid the lags involved with discretionary policy?
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Q5) How does Keynesian economic theory recommend that fiscal policy be conducted?
Chapter 12: Fiscal Policy, incentives, and Secondary Effects
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Q1) The crowding-out effect implies that a
A)budget surplus will be highly effective against inflation.
B)budget deficit is likely to stimulate aggregate demand and cause inflation.
C)budget deficit will increase real interest rates and,thereby,retard private spending.
D)budget surplus will retard aggregate demand and throw the economy into a downward spiral.
Q2) The new classical model states that a
A)budget surplus will effectively retard inflation that comes from excess demand.
B)budget deficit will have no impact on real interest rates.
C)budget deficit will increase the real interest rate.
D)substitution of debt for tax financing will increase aggregate demand and real output.
Q3) Supply-side economics stresses that high marginal tax rates
A)are the key to maintaining a balanced budget.
B)are an effective short-run countercyclical tool to promote recovery from a recession.
C)discourage people from working harder and using their resources productively.
D)encourage people to work,supply resources,and use them more efficiently.
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Chapter 13: Amoney and the Banking System
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Sample Questions
Q1) When the actual reserves held by a bank exceed the legal requirement,the bank
A)will have to borrow from the Fed.
B)has excess reserves,which can be used to extend additional loans.
C)cannot extend additional loans.
D)will have to reduce its outstanding loans.
Q2) Suppose the Treasury sells $10 billion of newly issued Treasury bills to the Fed and uses the proceeds to increase government spending by $10 billion.How will this affect the money supply and the national debt?
A)The money supply will increase;the national debt will decline.
B)The money supply will decline;the national debt will increase.
C)The money supply will be unaffected;the national debt will increase.
D)Both the money supply and the national debt will increase.
Q3) Refer to Table 13-1.If $1,000 is deposited into the First Bank of Mason City,and the bank takes no other actions,it's
A)total reserves will increase by $200.
B)liabilities will decrease by $1,000.
C)assets will increase by $1,000.
D)required reserves will increase by $800.
Q4) Briefly explain the three functions of money.
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Chapter 14: Modern Macroeconomics and Monetary Policy
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Sample Questions
Q1) An increase in the money supply
A)lowers the interest rate,causing a decrease in investment and an increase in GDP.
B)lowers the interest rate,causing an increase in investment and a decrease in GDP.
C)lowers the interest rate,causing an increase in investment and an increase in GDP.
D)raises the interest rate,causing an increase in investment and an increase in GDP.
E)raises the interest rate,causing a decrease in investment and a decrease in GDP.
Q2) If the Fed anticipates that the conditions illustrated by AD and SRAS in Figure 14-2 will be present in the near future,it should
A)shift to a more restrictive policy.
B)shift to a more expansionary policy.
C)request that Congress raise tax rates.
D)refuse to buy any more U.S.securities.
Q3) Indicate how changes in monetary policy are transmitted to the goods and services market? Discuss for the case of an expansion in the money supply.
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Chapter 15: Stabilization Policy, output, and Employment
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Q1) What will actual unemployment be (in relation to the natural rate)in each of the following cases? Use a graph of the modern Phillips curve in your answer.
a.Decision makers underestimate inflation.
b.Decision makers overestimate inflation.
c.Decision makers correctly forecast inflation.
Q2) According to the theory of rational expectations,errors in predicting inflation will A)be biased upward more often than not.
B)be purely random.
C)tend to be biased downward when inflation is rising,and tend to be biased upward when inflation is falling.
D)tend to be biased upward when inflation is rising,and tend to be biased downward when inflation is falling.
Q3) What is the index of leading indicators,and what is it used for?
Q4) Explain the three lags that make it difficult to time changes in discretionary policy properly.
Q5) How has macro-policy changed since the 1970s? How have the views of economists on the trade-off between inflation and unemployment changed?
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Chapter 16: Creating an Environment for Growth and Prosperity
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Q1) Which of the following would be most likely to help the residents of a nation produce a larger output and consume a wide variety of products at economical prices?
A)imposition of tariffs on imported goods
B)quotas that protect domestic businesses against foreign producers that pay workers low wages
C)free trade
D)exchange rate controls
Q2) High income countries with larger governments as a share of GDP have generally
A)grown less rapidly than their counterparts with smaller governments.
B)experienced less deadweight losses resulting from taxes and/or government borrowing.
C)seen the government decrease in size as real GDP rises.
D)been able to be more economically efficient.
Q3) When the residents of a nation are free to trade with foreigners,domestic producers will be able to
A)export more goods for which they are a high-cost supplier.
B)supply a larger quantity of goods they can produce at a relatively low cost.
C)charge higher prices then would otherwise be the case.
D)survive in the marketplace even if they do not produce efficiently.
Page 18
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Chapter 17: Institutions,policies,and Cross-Country
Differences in Income and Growth
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Q1) Which of the following will be required for a country to move up the income ladder and achieve high-income status?
A)rapid growth of the money supply.
B)restrictions limiting the import of goods from other nations,particularly low-wage countries.
C)tax incentives that encourage consumption rather than investment
D)sustained economic growth
Q2) Democracy tends to best promote economic freedom when there is
A)checks on the power of both the executive and legislative majorities.
B)constitutional protection of private property rights.
C)political decentralization.
D)all of the above.
Q3) Which of the following is true regarding the growth record of less-developed countries (LDC's)during the past quarter of a century?
A)Some are among the fastest growing countries in the world.
B)Some are among the slowest growing countries in the world.
C)The most populous,less-developed countries have experienced declining per capita income levels.
D)All of the above are true.
Page 19
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Chapter 18: Gaining From International Trade
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Q1) Opening trade between two nations would
A)shift their production possibilities curves outward.
B)shift their production possibilities curves inward.
C)leave the production possibilities unchanged and increase their consumption possibilities.
D)leave the production possibilities unchanged and decreased their consumption possibilities.
Q2) Refer to Figure 17-10.With the tariff,the domestic price and domestic quantity demanded are
A)P and Q .
B)P and Q .
C)P and Q .
D)P and Q .
Q3) If the U.S.imposed an import quota on beef,then in the U.S.
A)exports and imports would rise.
B)exports and imports would fall.
C)exports would rise and imports would fall.
D)exports would fall and imports would rise.
Q4) What is the difference between a tariff and a quota?
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Chapter 19: International Finance and the Foreign Exchange Market
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Q1) Explain how an increase in the American demand for German goods leads to a change in the German Mark relative to the U.S.dollar.
Q2) If a U.S.dollar exchanges for 0.6 English pounds,the dollar price of a pound is A)$0.60.
B)$1.50.
C)$1.67.
D)$1.75.
Q3) If on Tuesday you can buy 125 yen per U.S.dollar and on Wednesday you can buy 120 yen per U.S.dollar,
A)both the U.S.dollar and the yen have appreciated.
B)both the U.S.dollar and the yen have depreciated.
C)the U.S.dollar has appreciated and the yen has depreciated.
D)the U.S.dollar has depreciated and the yen has appreciated.
Q4) What are the three categories of transactions in the balance of payments? Give an example of each.
Q5) Although popular opinion frequently portrays trade deficits (actually,account deficits)as "bad," can you present economic reasons why a trade deficit might be considered "good"?
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Chapter 20: Consumer Choice and Elasticity
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Q1) If an increase in the excise tax imposed on cigarettes pushes the price per pack up by 20 percent,and the quantity sold declines by 8 percent as a result,the price elasticity of demand for cigarettes is equal to A)-0.2.
B)-0.4.
C)-0.8.
D)-5.
Q2) Suppose Microsoft announces it is cutting the prices of some of its software titles (mainly games)by 25 percent.Assuming that Microsoft is seeking to increase revenues,it must believe that the elasticity of demand for these products is A)elastic.
B)inelastic.
C)of unitary elasticity.
D)perfectly inelastic.
Q3) The demand for a product is likely to be more elastic when A)the share of the total budget spent on the product is small. B)more complementary products are available.
C)the consumer has a short time to adjust to price changes. D)more good substitutes for the product are available.
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Chapter 21: Acosts and the Supply of Goods
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Q1) According to Figure 8-4,at what output would a properly constructed marginal cost curve cross the ATC curve? A)2
D)5
Q2) Al's Donuts produces about 600 dozen doughnuts daily.If flour prices increase 20 percent
A)only marginal cost will shift up.
B)only marginal cost and average total cost will shift up.
C)marginal cost,average variable cost,and average total cost will shift up.
D)marginal cost,average total cost,and average fixed cost will shift up.
Q3) The owners of a business
A)are paid the market rate of return for resources they supply to the firm.
B)are residual income claimants.
C)have little incentive to monitor shirking on the part of employees.
D)have little incentive to provide their employees with an incentive system that encourages operational efficiency.
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Chapter 22: Aprice Takers and the Competitive Process
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Q1) A price-taker firm is currently producing 50 units of output at an average total cost of $3 per unit.If the market price is $7,then the firm's total economic profit is
A)$4.
B)$150.
C)$200.
D)$350.
Q2) In short-run equilibrium,a competitive price-taker firm
A)may earn a profit or a loss.
B)always earns a profit.
C)never earns a profit.
D)earns a profit only if the firm has no fixed cost.
Q3) Suppose the minimum average total cost (ATC)of a firm competing in a competitive price-taker market was $1.00 per unit and that the firm's minimum average variable cost (AVC)was $.80 per unit.If the market price was $.75 per unit,a profit-seeking firm would
A)shut down immediately.
B)produce where MR = MC in the short run.
C)shut down in the long run but remain in business in the short run.
D)do both b and c.
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Chapter 23: Price-Searcher Markets With Low Entry Barriers
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Q1) Entrepreneurial judgment requires
A)the ability to use perfect information about the suture to your advantage.
B)the ability to discover new approaches or solutions to complex problems.
C)the use of government regulations to prevent competition
D)that a firm make a profit.
Q2) Long-run equilibrium in a competitive price-searcher market requires that
A)the demand curve intersect the average cost curve.
B)the demand curve be tangent to the average cost curve.
C)price be equal to marginal cost.
D)quantity produced be at the point where average cost is at a minimum.
Q3) The traditional view of competitive price-searcher markets holds that this type of market structure is inefficient because
A)there are too few firms to reach an efficient level of competition.
B)barriers to entry are high.
C)excessive advertising is encouraged.
D)consumers are not allowed a sufficient amount of choice in which to express their individual preferences.
Q4) Why do the airlines charge less for passengers who stay over Saturday night and purchase their tickets two weeks in advance?
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Chapter 24: Aprice-Searcher Markets With High Entry
Barriers
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Q1) In Figure 11-21,the increase in consumer surplus that occurs when price is set equal to marginal cost rather than at the profit-maximizing level,as it would be in an unregulated monopoly,is shown by area
A)abc
B)adf
C)cef
D)dfeg
E)bcfd
Q2) Which of the following is an important side effect of government licensing and other grants of monopoly power?
A)The number of options available to consumers is increased.
B)Competition is enhanced.
C)Firms will produce more efficiently.
D)Rent-seeking is encouraged.
Q3) Being a monopolist in the market
A)guarantees a positive short-run profit.
B)guarantees a positive long-run profit.
C)does not invalidate the profit-maximization rule to produce where MR = MC.
D)All of the above are correct.
Page 26
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Chapter 25: The Supply of and Demand for Productive Resources
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Q1) Profit-maximizing firms will expand their employment of each variable resource until A)the Marginal Revenue Product (MRP)of the resource is just equal to the price of the resource.
B)other firms realize they can't compete.
C)the MRP of the resource is below the cost of the resource.
D)the MRP of the resource is above the cost of the resource.
Q2) Refer to Table 12-5.At which number of workers does diminishing marginal product begin?
A)2
B)3
C)4
D)5
Q3) If coal and oil are substitute inputs in the production of electricity,an increase in the price of oil
A)will increase the demand for coal.
B)will reduce the demand for coal.
C)will increase the supply of coal.
D)will reduce the supply of coal.
E)will not affect the demand for coal.
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Chapter 26: Earnings, productivity, and the Job Market
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Q1) Two workers are employed in the same job by the same firm;however,they are paid different wage rates.This could be explained by differences in
A)the income effect
B)the price of the firm's output
C)their marginal products due to differences in ability
D)working conditions
E)risk
Q2) Which of the following is most likely to increase the market wage rate in a job category?
A)The employer provides a generous pension plan.
B)The work is widely viewed as safe and not stressful.
C)The job is widely viewed as interesting and prestigious.
D)The job requires employees to move from city to city quite often.
Q3) Automated production methods are only attractive when they
A)are undertaken in heavily unionized sectors of the economy.
B)reduce per-unit costs.
C)replace workers.
D)decrease labor productivity.
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Chapter 27: Investment, the Capital Market, and the Wealth of Nations
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Q1) The real rate of interest is the
A)money rate of interest plus the inflationary premium.
B)money rate of interest minus the inflationary premium.
C)yield one can expect to receive on loanable funds without taking significant risk.
D)risk component associated with the ownership of real assets.
Q2) Discounting is a procedure used to
A)determine the present value of income or costs expected in the future.
B)adjust future income for the effects of inflation.
C)adjust the money interest rates for the effects of inflation.
D)compare the value of income after taxes with its value prior to taxes.
Q3) Investment in capital goods only makes sense when
A)the capital goods can be used to increase the future output of consumption goods.
B)the savings rate of a country is low.
C)the interest rate is high and people have a positive rate of time preference.
D)economies are organized along capitalist lines.
Q4) Erin just won Lotto America,which will pay her $40 million over the next 20 years at a rate of $2 million a year.Is Erin $40 million richer today?
Q5) In a barter economy that had no form of currency,how could interest exist?
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Chapter 28: Income Inequality and Poverty
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Q1) In 2009,the percentage of all U.S.families officially considered to be in poverty was approximately
A)5 percent.
B)11 percent.
C)22 percent.
D)31 percent.
Q2) Data suggest that the large increase in government spending on income transfers over the past three decades has been accompanied by A)a reduced poverty rate for the nonelderly.
B)a more equal distribution of income.
C)fewer single-parent families because a married couple receives benefits twice as large.
D)none of the above.
Q3) This year,Bob earned a total of $9,000.As a result,he received $9,000 less in government transfers.Therefore,his implicit marginal tax rate is A)zero.
B)25 percent.
C)50 percent.
D)100 percent.
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Chapter 29: Government Spending and Taxation
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Q1) Compared to the situation during the first 125 years of the United States (1790-1915),today total government expenditures are ____ share of the economy,and a greater proportion of those expenditures take place at the ____ level(s).
A)a smaller;federal
B)about the same;federal
C)a larger;federal
D)a larger;state and local
Q2) Given the current structure of the Social Security and Medicare programs,the retirement of the baby boom generation during the years following 2010 will be most likely to
A)reduce government expenditures on health care and income transfers.
B)increase government expenditures on health care and income transfers.
C)result in large budget surpluses.
D)result in lower tax rates.
Q3) What percentage of federal spending was financed by borrowing during 2009-2010?
A)approximately 10 percent
B)approximately 20 percent
C)approximately 40 percent
D)more than 50 percent
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Chapter 30: The Economics of Social Security
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Q1) The Social Security program is primarily a
A)compulsory retirement income program set up on sound insurance principles.
B)forced-savings program where workers save during their working years and receive the principal and interest on these savings at retirement.
C)program designed to tax current workers in order to provide benefits for current retirees.
D)voluntary savings program run by the government.
Q2) The Social Security system is currently generating tax revenues that exceed the benefits paid to recipients.This surplus is
A)being invested in foreign bonds,which will provide Americans with a source of income when the baby boom generation retires.
B)being invested in government bonds,which will require an increase in general tax revenues when the bonds come due.
C)separated from other government revenue so politicians will not spend the money during the current period.
D)being channeled into earmarked private savings accounts.
Q3) Briefly explain why the Social Security system will face a "crisis" in the coming years.
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Chapter 31: The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity
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Q1) Which of the following is true?
A)Managed equity funds that have yielded attractive returns during the last 5 or 10 years can generally be counted on to yield similar returns in the future.
B)Managed funds generally outperform indexed equity mutual funds.
C)An investment strategy that yielded a high rate of return in the past will often be disastrous in the future.
D)Indexed equity mutual funds are usually tied directly to either the Consumer Price Index or the GDP deflator.
Q2) Since 1802,the American stock market has yielded an average annual real return (the return adjusted for inflation)of approximately
A)3 percent.
B)5 percent.
C)7 percent
D)11 percent.
Q3) Many personal finance magazines such as Money and Smart Money routinely give advice as to which stocks to buy.Should you take their advice?
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Chapter 32: Great Debates in Economics: Keynes Versus Hayek
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Q1) John Maynard Keynes and Friedrich Hayek
A)had similar views with regard to the cause of the Great Depression and what might be done to prevent it from happening again.
B)both believed that perverse monetary policy was the primary cause of the ups and downs of the business cycle.
C)both believed that budget deficits and surpluses could be used to smooth the ups and downs of the business cycle.
D)had polar opposite views with regard to the underlying causes of economic booms and bust,but nonetheless their scholarly work commanded widespread respect among economists.
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Chapter 33: The Crisis of 2008: Causes and Lessons for the Future
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Q1) What was the original stated purpose of Fannie Mae and Freddie Mac?
A)to allow the government to extend loans directly to low-income and minority households
B)to help provide liquidity in the secondary mortgage markets
C)to operate as non-profit entities that would provide competition for for-profit mortgage companies
D)to take on mortgages going into default in order to prevent them from going into foreclosure
Q2) Which of the following is most central to the understanding of the economic crisis of 2008?
A)the decline of the stock market in late 2007
B)the housing boom (2001-2005)and bust (2007-2008)
C)the sharp rise in oil prices in 2008
D)unethical investment practices beginning in 2000
Q3) An analysis of housing prices between 1987 and 2008 indicates that prices
A)increased sharply in the five years leading up to the housing bust in 2007.
B)were relatively stable before dropping sharply in 2001.
C)rose steadily during the 1990s,but declined sharply beginning in 2001.
D)were erratic,but there was no discernable trend during either the 1990s or 2000-2006.
Page 35
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Chapter 34: Lessons From the Great Depression
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Q1) Which of the following conditions during 2008-2009 most closely paralleled the economic conditions of the Great Depression?
A)record-high unemployment rates for a period of many years
B)a sharp and prolonged contraction in the money supply
C)significant increases in taxes and trade restrictions in order to counter budget deficits
D)frequent policy changes that generated an unstable and unpredictable economic climate
Q2) Based on the experience of the Great Depression and the New Deal,which one of the following strategies would be most likely to stimulate recovery from a serious economic recession?
A)increase trade restrictions and tariffs to save jobs and enhance tax revenue
B)a reduction in the money supply in order to strengthen the dollar and combat inflation
C)keep taxes low in order to stimulate production and minimize the decline in personal and business income
D)institute frequent policy changes in order to search for and find the policy combination that would be most effective
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Chapter 35: Lessons From Japan and Canada
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Q1) Canada had a high rate of unemployment and sluggish economy during the first half of the 1990s.During the latter half of the 1990s,Canada
A)reduced government spending as a share of the economy,shifted the budget toward a surplus,and the economy achieved solid economic growth in the years that followed.
B)increased government spending as a share of the economy,shifted the budget toward a deficit,and the economy achieved solid economic growth in the years that followed.
C)reduced government spending as a share of the economy,shifted the budget toward a surplus,and the economy quickly fell into a severe recession.
D)increased government spending as a share of the economy,shifted the budget toward a deficit,and the inflation rate soared to double-digit levels.
Q2) Which of the following responded to an economic downturn with a shift to a more expansionary monetary policy?
A)Japan in the 1990s
B)the U.S.during the Great Depression
C)the U.S.in response to the recession of 2008-2009
D)none of the above
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Chapter 36: The Federal Budget and the National Debt
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Q1) Widespread acceptance of the Keynesian theory of fiscal policy
A)caused most economists to reject the public choice view of budget deficits.
B)relaxed the political pressure to balance the budget and,hence,paved the way for the persistent budget deficits of the last five decades.
C)was based on the view that continual budget deficits would help stabilize the economy.
D)increased the pressure for a constitutional amendment mandating that the federal government balance its budget.
Q2) Which of the following is a valid concern about the national debt for a country whose debt is held entirely by its citizens?
A)The welfare of future generations will be directly related to the per capita size of the national debt that they inherit.
B)Growth of the national debt will eventually lead to the bankruptcy of the government.
C)When the debt comes due,future generations may be unable to pay it off.
D)If the increases in the national debt reduce private expenditures on capital formation,future generations may have lower incomes because they will inherit a smaller stock of capital.
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Chapter 37: The Economics of Healthcare
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Sample Questions
Q1) During the 1965-2009 period,the price index of healthcare services
A)declined slightly relative to the overall consumer price index.
B)fell by approximately 50 percent compared to the overall consumer price index.
C)increased at twice the rate of the overall consumer price index.
D)rose during a brief period following the passage of Medicare and Medicaid but has been relatively stable since that time.
Q2) Healthcare price controls will lead to
A)more innovative healthcare treatments.
B)waiting lines and lengthy delays for treatment.
C)higher quality healthcare services.
D)an increase in the supply of healthcare services.
Q3) Third-party payments by either the government or an insurance company accounted for ____ of the 2009 healthcare expenditures,compared to ____ paid by third parties in 1960.
A)40 percent;20 percent
B)20 percent;40 percent
C)86 percent;45 percent
D)96 percent;73 percent
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Chapter 38: Education: Problems and Performance
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Q1) If elementary and secondary schooling were produced entirely by private firms and purchased by parents with their own money,
A)parents would have a strong incentive to search out those schools offering their children the best education at the best value.
B)schools would better cater to the desires of parents and supply education more efficiently.
C)schools would face much stronger competition from one another that would tend to increase the quality of schooling.
D)all of the above would occur.
Q2) Which of the following has been raised as a criticism of school voucher programs?
A)The primary beneficiaries of voucher programs would be low-income families since they can now send their children to private schools.
B)Voucher programs would cause salaries for outstanding teachers to fall.
C)Funding for public schools would decline,which would cause their quality to deteriorate.
D)Voucher programs would cause the level of competition between public and private schools to fall.
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Chapter 39: Earnings Differences Between Men and Women
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Q1) The proportion of degrees earned by women in which of the following fields has increased since 1970?
A)economics
B)engineering
C)architecture
D)all of the above
Q2) When employment discrimination results from the personal prejudices of employers,
A)only legal requirements will be able to reduce the amount of employment discrimination.
B)competitive markets will generally tend to promote discrimination as firms try to lower their costs to increase their profits.
C)competitive markets will tend to make it costly for employers to discriminate,reducing the amount of discrimination.
D)none of the above will be true.
Q3) Evaluate the following: "Employers who discriminate against women will have lower costs than rival firms that hire employees strictly on the basis of merit (productivity)."
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Chapter 40: Do Labor Unions Increase the Wages of Workers
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Q1) Since 1970,union membership,as a percent of the labor force,has
A)remained virtually unchanged.
B)increased slightly.
C)declined steadily.
D)increased significantly.
Q2) Measured as a share of the labor force,union membership was at its highest level in the United States during the
A)1930s
B)1950s
C)1970s
D)1990s
Q3) The share of the labor force that was unionized fell from more than 30 percent in the 1950s to less than 15 percent in the 2000s.During this time period,the share of national income allocated to labor (in contrast to capital)
A)decreased by approximately 10 percent.
B)decreased by more than 15 percent.
C)increased by 10 percent.
D)was virtually unchanged.
Q4) What common goals,if any,do labor and management share?
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Chapter 41: The Question of Resource Exhaustion
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Q1) Water,when it is not tradeable among current and potential users,is often kept that way
A)by governments who demand tight controls on who gets the water.
B)by nature,as water cannot be easily moved from place to place in large quantities.
C)to protect fish and other wildlife,rather than for any other reason.
D)by monopoly owners in the private sector.
Q2) If proved reserves of a mineral amount to twelve years of use at the current rate of consumption,
A)it is likely,though not certain,that we will run out of that mineral in about twelve years.
B)we are likely to run out of the mineral in less than twelve years if our rate of use has been increasing.
C)if the good becomes more scarce relative to supply in the future,its price will rise and thereby encourage both conservation and exploration.
D)if proved reserves diminish,lower prices will extend the day of exhaustion well into the future.
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Chapter 42: Difficult Environmental Cases and the Role of Government
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Q1) Government regulation is
A)subject to the same problems of lack of information and lack of incentives for economic efficiency as centrally planned economies.
B)the only reliable way to improve environmental quality.
C)not subject to political concerns when it comes to environmental quality.
D)the most economically efficient way to reduce greenhouse gases.
Q2) Which of the following would illustrate an example that leads to high transaction costs when dealing with pollution?
A)air quality in New York City
B)water pollution caused by a large number of firms located near the same river
C)noise pollution near a busy airport
D)all of the above
Q3) When is the definition and enforcement of property rights especially difficult?
A)when many polluters harm a large group of people by emitting the same pollutant
B)when a single polluter is harming a single person or entity
C)when land is owned by a corporation
D)when the benefits of prosecution are clear
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