Economic Principles and Problems
Test Questions
Course Introduction
This course introduces students to the foundational principles of economics, exploring both microeconomic and macroeconomic perspectives. Students will examine how individuals, firms, and governments make choices in the face of scarcity, and how these choices shape the allocation of resources in society. Key topics include supply and demand, market structures, the role of government in the economy, national income determination, unemployment, inflation, and fiscal and monetary policy. Through real-world examples and problem-solving exercises, the course also addresses contemporary economic issues and challenges, equipping students with the analytical tools to better understand and critically evaluate economic events and policies.
Recommended Textbook
ECON MACRO 6th Edition by William A. McEachern
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3854 Verified Questions
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Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) Economic fluctuations are also known as:
A) the output decisions of individual firms.
B) the effect of a tariff on the demand for a good.
C) the factors that influence the spending decisions of particular households.
D) business cycles.
E) economic systems.
Answer: D
Q2) The "other-things-constant" assumption is also known as:
A) ceteris paribus.
B) prediction.
C) normative.
D) variable.
E) positive.
Answer: A
Q3) One problem with rent control is that policymakers often ignore its secondary effects.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) Yourealize that total output would increase if you did all the typing and your roommate did all the ironing. You are each _____
A) diversifying.
B) good producers.
C) better off as a result of specialization and exchange.
D) doing so because you get something in return.
E) acting out of concern for the other.
Answer: C
Q2) The law of comparative advantage says that a person should produce a good if he or she _____
A) has the greatest desire to consume the good.
B) has the lowest opportunity cost of producing the good.
C) has an absolute advantage in producing the good.
D) receives the highest marginal benefit from the good.
E) can produce the good at the same cost as another producer can.
Answer: B
Q3) Specialization often leads to gains in productivity for society as a whole.
A)True
B)False
Answer: True
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Which of the following taxes is based on the ability-to-pay principle?
A) toll on a bridge
B) income taxes
C) tax on gasoline
D) property taxes
E) user fees that collect the same amount from each person
Answer: B
Q2) Revenue for the state governments in the United States comes primarily from income and sales taxes.
A)True
B)False
Answer: True
Q3) Stockholders' shares in the profits of a corporation ______
A) increase in proportion to their years of stock ownership.
B) increase in proportion to their ownership of stock.
C) does not depend on the number of shares owned.
D) increase only if they participate in management decisions.
E) increase only if they attend stockholders' meetings.
Answer: B
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Page 5
Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) Which of the following will cause the demand curve for a normal good to shift to the right?
A) a decrease in income
B) an increase in the price of a complementary good
C) a decrease in the price of the good
D) an increase in the price of a substitute good
E) an expectation that the price of the good will decline in the future
Q2) When a market is in equilibrium, _____
A) producers earn economic profits.
B) production exhibits diminishing returns to scale.
C) market forces exert no pressure for price to change.
D) industry output is maximized.
E) market forces allow producers to charge the maximum price.
Q3) Other things constant, which of the following is likely to shift the market supply curve for corn in the short run?
A) a change in the price of corn
B) a change in the prices of pesticides
C) a change in the number of corn consumers
D) a change in the expectations of consumers about the future price of corn
E) a change in the money income of corn consumers
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Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) If all firms expect greater demand for their products or services, they will hire _____ resources like labor and capital and the economy will experience _____.
A) fewer; recession
B) fewer; growth
C) more; deflation
D) more; recession
E) more; growth
Q2) By a leading economic indicator, economists mean _____
A) an indicator of future economic activity.
B) an indicator that reflects economic fluctuations as they occur.
C) a highly accurate indicator that is easily measured.
D) an indicator that predicts the level of inflation in an economy.
E) any variable that follows changes in economic activity.
Q3) In the 1960s, government policy makers believed that they could _____
A) stabilize the economy by letting the market system solve all problems.
B) reduce unemployment by running federal budget surpluses.
C) eliminate the government's role in stabilization policy.
D) use changes in the money supply to virtually eliminate business cycles.
E) use taxation and government spending to fine-tune the economy.
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Page 7
Chapter 6: Tracking the U S Economy
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Sample Questions
Q1) _____ is counting an item's value more than once.
A) Intermediate goods and services
B) Final goods and services
C) The income approach
D) The expenditure approach
E) Double-counting
Q2) Which of the following is true of exports and imports?
A) Both imports and exports are added to a nation's gross domestic product (GDP).
B) Both imports and exports are subtracted from a nation's gross domestic product (GDP).
C) Imports are added to and exports are subtracted from a nation's gross domestic product (GDP).
D) Exports are added to and imports are subtracted from a nation's gross domestic product (GDP).
E) Neither imports nor exports are included in a nation's gross domestic product (GDP).
Q3) Gross domestic product (GDP) will increase if illegal drugs are made legal.
A)True
B)False
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) During periods of volatile inflation, there is _____ about the price of one good relative to another.
A) certainty
B) less uncertainty
C) greater uncertainty
D) important information
E) no information
Q2) Anticipated inflation causes more problems in an economy than unanticipated inflation.
A)True
B)False
Q3) When economists talk about full employment they mean _____
A) zero unemployment.
B) seasonal unemployment.
C) structural unemployment.
D) cyclical unemployment.
E) low unemployment.
Q4) Inflation can only be caused by an increase in aggregate demand.
A)True
B)False
Page 9
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Chapter 8: Productivity and Growth
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Sample Questions
Q1) The cumulative power of productivity growth _____
A) emphasizes the importance of short-term growth.
B) emphasizes the importance of long-term growth.
C) emphasizes the importance of the capital-labor ratio.
D) increases poverty in an economy.
E) leads to capital deepening.
Q2) What is human capital?
A) an increase in capital per worker that helps each worker produce more output
B) the conventions that encourage people to undertake productive activity
C) the skill, experience, and education of workers
D) output per hour of labor
E) machinery and equipment used to produce goods and services
Q3) _____ had the highest level of per capita real output in 2015.
A) Canada
B) The United States
C) Italy
D) France
E) Germany
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Chapter 9: Aggregate Demand
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Sample Questions
Q1) Linda earned an income of $3,000 per month, which has now increased to $3,500 per month. She saves 10 percent and spends the remainder on food, lodging, and other expenses. So far, she has managed to save $20,000. What is her consumption per month before and after the increase in income?
A) $2,700; $3,000
B) $3,000; $3,000
C) $2,700; $3,150
D) $3,150; $3,500
E) $3,000; $3,500
Q2) Which of the following is true of net taxes?
A) The level of net taxes varies directly with the level of transfer payments.
B) The level of net taxes varies inversely with the level of transfer payments.
C) Net taxes must always be less than zero.
D) Net taxes increase when income tax rates are reduced.
E) Net taxes increase when income decreases.
Q3) Movement along the aggregate expenditure line is caused by a change in the level of income.
A)True
B)False
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Page 11
Chapter 10: Aggregate Supply
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Sample Questions
Q1) Refer to Exhibit 10.1, which shows the short-run aggregate supply curve of an economy. If P is the price level prevailing in the economy, _____
A) there is an expansionary gap.
B) there is a recessionary gap.
C) the price level will rise.
D) the actual unemployment rate is above the natural rate.
E) potential output is greater than actual output.
Q2) Refer to Exhibit 10.7, which shows the equilibrium price level and real GDP in an aggregate demand-aggregate supply model. If prices are as expected at 130, then point Z is _____
A) a short-run and a long-run equilibrium.
B) a short-run equilibrium only.
C) a long-run equilibrium only.
D) neither a short-run nor a long-run equilibrium.
E) a medium-run equilibrium.
Q3) If resource prices are flexible, the long-run aggregate supply curve is vertical.
A)True
B)False
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) Suppose the government reduces its budget deficit at the same time that energy prices rise sharply. Which of the following is most likely to happen?
A) The price level will rise, since higher energy prices increase the cost of production.
B) Real GDP will fall since both events will tend to cause an economic contraction.
C) The price level will fall because the aggregate demand curve has shifted leftward.
D) Real GDP will rise as less government spending leads to more opportunities for the private sector.
E) Both the price level and real GDP will fall.
Q2) Which of the following factors did not contribute to the federal budget surpluses in the 1990s?
A) higher taxes on the rich
B) more federal government spending discipline
C) market globalization
D) slower consumer spending
E) rising business optimism based on technological innovation
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Chapter 12: Federal Budgets and Public Policy
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Sample Questions
Q1) Government deficits of one generation cannot affect the standard of living of the next generation.
A)True
B)False
Q2) The budget of an economy is said to be in deficit when _____
A) federal outlays exceed revenues.
B) federal revenues exceed outlays.
C) the anticipated inflation rate exceeds the actual rate.
D) there is a loss of value in the domestic currency with respect to one or more foreign currencies.
E) the anticipated interest rate exceeds the actual rate.
Q3) What would have happened if the debt ceiling had not been raised in early 2011?
A) The U.S. government would have raised taxes.
B) The U.S. government would have been in default.
C) The U.S. government would have increased borrowings.
D) The U.S. government would have paid down debt.
Q4) The U.S. government can continue to run a deficit as long as the cost of servicing the resulting debt remains manageable.
A)True
B)False
Page 14
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Chapter 13: Money and the Financial System
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Sample Questions
Q1) Which of the following statements is true?
A) Money-market mutual funds were originally introduced by the Federal Reserve Bank of New York.
B) Money-market mutual funds initially constituted serious competition to banks and thrifts for the deposits of savers.
C) Money-market mutual funds were not originally offered by commercial banks and still are not offered by them.
D) Money-market mutual funds represent a pooling of cash assets from many countries, like dollars, francs, and pesos.
E) Money-market mutual funds are not able to offer their customers check-writing privileges.
Q2) Each member of the Board of Governors of the Fed _____
A) is from the minority of the FOMC.
B) can have twelve presidential appointments.
C) is authorized to set reserve requirements by the Bank Acts of 1933 and 1935.
D) serves one nonrenewable term.
E) is elected by the member banks that own the Federal Reserve.
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Chapter 14: Banking and the Money Supply
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Sample Questions
Q1) In the United States, paper money is redeemable for gold.
A)True
B)False
Q2) A situation in which one side of the market has more reliable information than the other side is called _____
A) asymmetric information.
B) moral hazard.
C) adverse selection.
D) free-riding.
E) liquidity.
Q3) If the Fed decreases the required reserve ratio at a time when banks are holding no excess reserves, the Fed is _____
A) forcing banks to increase the money supply.
B) forcing banks to decrease the money supply.
C) making it possible for banks to increase the money supply but not forcing them to do so.
D) making it possible for banks to decrease the money supply but not forcing them to do so.
E) conducting open market operations but not changing the money supply.
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Page 16
Chapter 15: Monetary Theory and Policy
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Sample Questions
Q1) Which of the following changes will shift the money demand curve rightward?
A) an increase in the price level
B) a decrease in real GDP
C) a decrease in the nominal interest rate
D) an increase in the nominal interest rate
E) a decrease in the price level
Q2) In 2001, the FOMC became concerned about _____
A) high inflation.
B) robust economic growth.
C) strong consumer confidence.
D) waning consumer confidence.
E) strong capital spending.
Q3) In the aggregate demand-aggregate supply model in the short run, an increase in the money supply will lead to a(n) _____
A) increase in both the price level and real GDP.
B) increase in the price level only.
C) increase in real GDP and a decrease in the price level.
D) decrease in real GDP and an increase in the price level.
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17
Chapter 16: Macro Policy Debate: Active or Passive?
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Sample Questions
Q1) Sharp increases by OPEC in oil prices and crop failures around the world reduced aggregate supply, which sparked another outward shift of the Phillips curve _____
A) in 1974.
B) in 1984.
C) during the 1960s.
D) during the 1970s.
E) during the early 1980s.
Q2) If the price level increases more rapidly than expected, _____
A) output will decrease.
B) output will increase.
C) output will not change.
D) real wages will increase.
E) unemployment will increase.
Q3) The early Phillips curve showed a trade-off between unemployment and inflation because it was drawn for a period in which the main source of instability was aggregate demand.
A)True
B)False
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18
Chapter 17: International Trade
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Sample Questions
Q1) In determining comparative advantage, the cost of producing a good is measured in terms of _____
A) foreign currency.
B) domestic currency.
C) only gold.
D) marginal cost of the resources employed.
E) opportunities forgone.
Q2) The temporary sale abroad at prices below cost to eliminate competitors in that target market is called _____
A) cream skimming.
B) import substitution.
C) monopoly pricing.
D) predatory dumping.
E) arbitrage.
Q3) To reap the gains that arise from specialization, countries _____
A) engage in international trade.
B) should protect domestic industries.
C) should set up international trade barriers.
D) are subject to economies of scale.
E) must agree on how much of one good exchanges for another.
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Chapter 18: International Finance
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Sample Questions
Q1) Which of the following events would not be recorded in the U.S. balance of payments?
A) the increase in the money supply of a foreign nation
B) Oxfam America, a U.S. relief agency, sending rice to drought victims in sub-Saharan Africa
C) Bangladesh receiving a loan from the United States to complete an infrastructural project
D) the Pentagon stationing troops in Saudi Arabia
E) the United States exporting computer software and importing oil from Iraq
Q2) Critics of the system of flexible exchange rates allege that it _____
A) causes inflation.
B) causes unemployment.
C) gives central banks too little discretion over their money supplies.
D) restricts the growth of developing countries.
E) gives too much financial power to industrial countries.
Q3) The balance of payments can be thought of as the balance of economic transactions.
A)True
B)False
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Page 20
Chapter 19: Economic Development
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Sample Questions
Q1) Differences in stages of development among countries are reflected in a number of ways besides per capita income.
A)True
B)False
Q2) One likely reason that a country is poor is that it _____
A) has low productivity.
B) has a low unemployment rate.
C) has a low birth rate.
D) enjoys a low infant mortality rate.
E) has a high literacy rate.
Q3) Which of the following countries has the highest infant mortality rate?
A) Japan
B) Congo
C) the United States
D) Norway
E) Germany
Q4) If developed economies want to grow faster, they can do so with their existing technologies.
A)True
B)False
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