Economic Principles and Problems
Final Exam Questions
Course Introduction
This course offers a comprehensive introduction to fundamental economic principles and the practical problems they address in modern society. Students will explore concepts such as scarcity, opportunity cost, supply and demand, market equilibrium, and the role of government in the economy. The course examines both microeconomic and macroeconomic perspectives, emphasizing how individuals, businesses, and governments make decisions in the face of limited resources. Through real-world examples and case studies, students will gain insights into economic issues such as inflation, unemployment, international trade, and economic growth, developing the analytical skills needed to understand and evaluate economic policies and their impacts on society.
Recommended Textbook
Fundamentals of Economics 6th Edition by William Boyes
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Page 2
Chapter 1: Economics and the World Around You
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Sample Questions
Q1) An example of an opportunity cost is the time you forgo to eat a "free lunch."
A)True
B)False
Answer: True
Q2) Specialization according to comparative advantage followed by trade, that is, the exchange of goods produced, allows everyone to acquire more of the goods they want.
A)True
B)False
Answer: True
Q3) A person has a comparative advantage in producing a good if that person
A) can produce the good at a lower absolute cost than anyone else.
B) can produce the good at a lower opportunity cost than anyone else.
C) can do a better job than anyone else.
D) spends less money in out-of-pocket expenses than anyone else.
E) can produce the good at a higher opportunity cost than anyone else.
Answer: B
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Chapter 2: Markets and the Market Process
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Sample Questions
Q1) Even in the United States, not all allocation is carried out in a market because, in some cases, people
A) want more of the product.
B) want less of the product.
C) do not like the market outcome.
D) support the market outcome.
E) disagree with a random allocation.
Answer: C
Q2) What incentives are created under a market allocation scheme?
A) Fairness
B) Equality for all
C) To be first
D) To be in favor with or match up with government's rules
E) To acquire purchasing ability (to obtain income and wealth)
Answer: E
Q3) The market demand curve is determined by adding the individual demand curves in a vertical direction.
A)True
B)False
Answer: False
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Chapter 3: Applications of Demand and Supply
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Sample Questions
Q1) Specialization according to comparative advantage can
A) generate more output than being self-sufficient
B) make economies be less dependent on others
C) is very costly and hard to implement
D) cause too much of one type of good to be produced
E) All of these
Answer: A
Q2) Individual states may set their own minimum wage
A) at any time, regardless of the federal minimum wage
B) if their wage exceeds the federal level
C) only if it is below the federal level
D) by filing an application with the federal department of labor
E) only in times of emergency
Answer: B
Q3) "Efficiency" means you get the same amount at a higher cost.
A)True
B)False
Answer: False
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Chapter 4: The Firm and the Consumer
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Sample Questions
Q1) Price elasticity of demand is the
A) change in price due to a change in quantity demanded.
B) change in quantity demanded due to a change in price.
C) change in total expenditure due to a change in price.
D) percentage change in quantity demanded due to a percentage change in price.
E) percentage change in price due to a percentage change in quantity demanded.
Q2) A demand curve that is a vertical line is perfectly elastic.
A)True
B)False
Q3) Which of the following is a characteristic of an item that has price-elastic demand?
A) A small number of competitors
B) Many substitutes
C) A short time period under consideration
D) A product that accounts for a small percentage of consumers' incomes
E) A necessity for survival
Q4) The demand for drugs by an addict is more elastic than demand for a potential addict.
A)True
B)False
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Chapter 5: Costs and Profit Maximization
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Sample Questions
Q1) In Figure 5.3, what is the curve marked I?
A) Demand
B) Marginal revenue
C) Average revenue
D) Marginal cost
E) Average total cost
Q2) The opportunity cost of going to the movies is the price of entry into the movies.
A)True
B)False
Q3) To maximize profits, a firm should produce the output level where total revenue equals total cost.
A)True
B)False
Q4) When the marginal-revenue curve is falling, the average-revenue curve is also falling.
A)True
B)False
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Chapter 6: Competition
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Sample Questions
Q1) A monopolist will earn
A) normal profit in the short run.
B) normal profit in the long run.
C) positive economic profit as long as entry is blocked.
D) less profit than if it were monopolistically competitive.
E) greater economic profit as entry becomes available.
Q2) The problem with cartels is
A) strategic deterrence.
B) producers have an incentive to cheat.
C) marginal cost does not equal marginal revenue.
D) profits are always negative.
E) there are not enough members.
Q3) As competitors enter a market, demand becomes more ____, meaning the demand curve shifts ____ and becomes ____.
A) inelastic; in; steeper
B) inelastic; out; flatter
C) elastic; in; flatter
D) elastic; in; steeper
E) elastic; out; flatter
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Page 8
Chapter 7: Business, Society, and the Government
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Sample Questions
Q1) An externality exists when
A) the benefits from consuming the service affect only the purchasers of that service.
B) every person in a market system has a chance to influence how much of a product should be produced.
C) the price of the private transaction does not reflect all the costs of the items involved in that transaction.
D) the costs of producing a service affect only the sellers of that service.
E) only the buyers and sellers are affected by the production of a product or service.
Q2) In general, the market system is the most efficient allocation mechanism because A) government oversight ensures market efficiency.
B) no monopolies are allowed to be created.
C) everyone has an equal part in determining the market outcome.
D) in pursuing their self-interest, people create efficiency.
E) of all of these.
Q3) Government policy toward big business involves two areas: antitrust and regulation.
A)True B)False
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Chapter 8: Government Intervention Versus Free Markets
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Sample Questions
Q1) If the interest rate falls, the supply of lumber in the future will shift in.
A)True
B)False
Q2) If the market demand for illegal drugs consists of addicts and those who might experiment with the drug at the right price (casual users), we can say that the
A) market demand curve is almost horizontal.
B) demand curve by addicts is inelastic.
C) demand curve by casual users is inelastic.
D) demand curve by addicts is perfectly elastic.
E) demand curve by addicts is elastic.
Q3) The laws of economics do apply to the medical arena, but they have simply not been allowed to operate fully.
A)True
B)False
Q4) Renewable resources are natural resources that can be replenished.
A)True
B)False
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Chapter 9: An Overview of the National and International Economies
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Sample Questions
Q1) The complete circular flow model does not include
A) barter exchanges among consumers.
B) international trade.
C) government spending and taxes.
D) payments for net exports.
E) household spending.
Q2) Most U.S. trade is conducted with developing countries.
A)True
B)False
Q3) If there is a surplus in a country's international trade, then
A) net exports exceed transfer payments.
B) macroeconomic equilibrium does not exist.
C) the value of net exports is positive.
D) the value of net exports is zero.
E) the value of net exports is negative.
Q4) The government imposes taxes as a means to finance public goods and services, to redistribute income, and to correct for negative externalities.
A)True
B)False
11
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Chapter 10: Macroeconomic Measures
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Sample Questions
Q1) Since the 1980s, the U.S. current account deficit has been financed by
A) large outflows of domestic capital to other countries.
B) large inflows of capital from private foreign investment in the United States.
C) loans by U.S. residents to the government.
D) large inflows of foreign government capital.
E) the Tax Reform Act of 1986, which increased income taxes for the wealthy.
Q2) A country that is a net creditor
A) shows a deficit in its current account.
B) receives more tax revenue from its citizens than it returns in transfer payments.
C) lends more funds to foreigners than it borrows.
D) shows a surplus in its financial account.
E) sells more bonds to the rest of the world than it buys from the rest of the world.
Q3) Real GDP is a measure of the quantity of final goods and services produced, and it is obtained by eliminating the influence of price changes from the nominal GDP statistics.
A)True
B)False
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Page 12
Chapter 11: Unemployment, Inflation, and Business Cycles
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Sample Questions
Q1) The three types of indicators classified by the Department of Commerce are
A) leading, contractionist, and passed indicators.
B) leading, coincident, and lagging indicators.
C) primary, contractionist, and passed indicators.
D) optimal, contractionist, and passed indicators.
E) optimal, coincident, and lagging indicators.
Q2) In Table 11.3, what was the purchasing power of the dollar in 2005 relative to the base year 2002 (rounded to two decimal places)?
A) $.09
B) $.91
C) $.93
D) $1.09
E) None of these numbers is correct.
Q3) If a student borrowed $5,000 at 6 percent to pay for this year's college expenses and the annual inflation rate turns out to be 8 percent, then the student's purchasing power for the year has increased.
A)True
B)False
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13
Chapter 12: Macroeconomic Equilibrium: Aggregate
Demand and Supply
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Sample Questions
Q1) Household expenditures increase as a result of A) population growth.
B) higher personal income taxes.
C) a depreciation of the domestic currency.
D) reduced consumer confidence.
E) a higher domestic price level.
Q2) An upward-sloping aggregate supply curve indicates that
A) higher prices lead to less consumption.
B) higher prices lead to increased production.
C) lower prices lead to increased production.
D) the amount of real GDP produced falls as prices increase.
E) lower prices decreases the supply of labor.
Q3) Business cycles are linked to the interaction between the
A) foreign exchange rate and the balance of payments account.
B) aggregate demand and aggregate supply curves.
C) demand and supply curves for a particular good.
D) substitution and the wealth effect.
E) long-run aggregate supply curve and the aggregate resource curve.
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) If crowding out exists, the expansionary effect of government spending will be
A) smaller than intended.
B) negative.
C) infinite.
D) larger than intended.
E) unchanged.
Q2) When federal expenditures grow faster than tax revenues, the government will experience a(n)
A) declining budget deficit.
B) declining national debt.
C) increasing budget surplus.
D) increasing budget deficit.
E) balanced budget.
Q3) Taxes on international trade are very important in developing countries because A) developing countries import a lot of goods.
B) developing countries export a lot of goods.
C) developing countries both export and import a lot of goods.
D) they are easy to collect as goods must pass through customs inspection.
E) they are the only type of taxes collected.
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Page 15
Chapter 14: Money and Banking
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Sample Questions
Q1) In the United States today, there are approximately 90,000 depository institutions.
A)True
B)False
Q2) Refer to Table 14.2. What are Arizona Savings Bank's required reserves?
A) $10,000,000
B) $7,000,000
C) $3,000,000
D) $2,000,000
E) $1,000,000
Q3) The Eurocurrency market consists of deposits and loans denominated in Euros.
A)True
B)False
Q4) Liquidity refers to the
A) ability of an asset to be exchanged for goods and services.
B) difference between real and nominal money values.
C) ability of money to be a store of value.
D) availability of credit as a form of money.
E) ability of a precious metal to be converted into spendable bank notes.
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Page 16
Chapter 15: Monetary Policy
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Sample Questions
Q1) The money supply function is
A) downward sloping.
B) upward sloping.
C) vertical.
D) horizontal.
E) horizontal at first and then upward sloping.
Q2) An increase in the money supply leads to an increase in equilibrium real GDP only if the
A) aggregate demand curve is horizontal.
B) aggregate supply curve is vertical.
C) investment function is horizontal.
D) aggregate supply curve is not vertical.
E) investment function is upward sloping.
Q3) The demand for money is based on a
A) necessity demand and a luxury demand.
B) demand for liquidity and a demand for wealth.
C) speculative demand, a transactions demand, and a precautionary demand.
D) demand for cash, a demand for securities, and a demand for real estate.
E) consumption demand, an investment demand, and a government demand.
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Page 17
Chapter 16: Macroeconomic Policy, Business Cycles, and Growth
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Sample Questions
Q1) The slope of the short-run Phillips curve is consistent with the
A) long-run tradeoff between the unemployment rate and inflation.
B) long-run tradeoff between inflation and GDP.
C) short-run tradeoff between the money supply and interest rates.
D) short-run tradeoff between business productivity and wage contracts.
E) short-run tradeoff between the unemployment rate and inflation.
Q2) The money supply increases when, other things being equal,
A) the government surplus rises.
B) the amount of government borrowing rises.
C) tax revenues increase.
D) government spending increases.
E) the government deficit falls.
Q3) The money supply declines when, other things being equal,
A) government spending exceeds borrowing.
B) borrowing exceeds tax revenues and there is a deficit.
C) borrowing exceeds the government fiscal deficit.
D) government spending exceeds tax revenues.
E) government spending exceeds borrowing and there is a surplus.
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Chapter 17: Issues in International Trade and Finance
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Sample Questions
Q1) According to the data in Table 17.1, Germany has an absolute advantage in producing
A) machinery, but not food.
B) food, but not machinery.
C) both machinery and food.
D) neither machinery nor food.
E) Cannot be determined from the information provided.
Q2) "Fair trade, not free trade" is a slogan that is inconsistent with the doctrine of comparative advantage.
A)True
B)False
Q3) Labor productivity differences are the only explanation given by economists to address the question of why countries produce the goods they do.
A)True
B)False
Q4) The comparative advantage in a specific good can shift over time from one country to another because goods experience a product life cycle.
A)True B)False
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Chapter 18: Globalization
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Sample Questions
Q1) The movement of people across international borders is
A) an alternative to globalization.
B) a result of the race to the bottom.
C) greatly limited by government policies.
D) a buffer against speculative attacks.
E) all of these.
Q2) The substantial increase in the volume of international telephone calls is due to all of the following except:
A) the decrease in price of international telephone calls.
B) the increase in the number of Internet users.
C) concerns about safety of international travel.
D) the increase in technology
E) the demise of telegram services.
Q3) International organizations are funded by corporations, not governments.
A)True
B)False
Q4) Most intelligent people agree that there are no negative side effects associated with globalization.
A)True
B)False
Page 20
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