Economic Systems
Mock Exam
Course Introduction
This course explores the fundamental structures and principles underlying different economic systems, including capitalism, socialism, communism, and mixed economies. Students will examine how societies organize the production, distribution, and consumption of goods and services, the allocation of resources, and the role of government and markets. Through comparative analysis, the course highlights the strengths and weaknesses of each system and considers their historical development, contemporary applications, and impact on global economic issues and policy.
Recommended Textbook
Economics Private and Public Choice 14th Edition by
David A. Macpherson
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6847 Verified Questions
6847 Flashcards
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Chapter 1: The Economic Approach
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Sample Questions
Q1) Which of the following is a positive economic statement?
A)reducing unemployment should be the highest priority of the federal government.
B)a reduction in the payroll tax will reduce the unemployment rate.
C)corporations should be prohibited from laying off workers during a recession.
D)the current unemployment rate is too high.
Answer: B
Q2) Economic choice and competitive behavior are the result of A)scarcity.
B)poverty.
C)public ownership of resources.
D)private ownership of resources.
Answer: A
Q3) The value of a good is A)subjective.
B)objective.
C)determined by a government statistical agency.
D)based on the cost of production.
Answer: A
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3
Chapter 2: Asome Tools of the Economist
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Sample Questions
Q1) "The economic wealth of this country was built primarily by some individuals profiting from a transaction,whereas others were harmed by that transaction." This statement indicates the speaker
A)fails to comprehend the idea that all voluntary trades benefit both parties involved.
B)fails to comprehend the fallacy of composition.
C)fails to understand the significance of the production possibilities curve.
D)uses the economic way of thinking.The statement is essentially correct.
Answer: A
Q2) Todd owns a truck that he values at $2,000.Susan,who does a lot of hauling,values the truck at $6,000.If these two are allowed to negotiate,which of the following will most likely occur?
A)Todd will sell the truck for $1,500.
B)Susan will buy the truck for $7,000.
C)The truck will be sold at a price greater than $2,000 but less than $6,000,and both parties will benefit.
D)Susan will benefit more than Todd if the truck is sold.
Answer: C
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Page 4
Chapter 3: Asupply,demand,and the Market Process
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Sample Questions
Q1) Suppose the demand for tacos decreases.What will happen to producer surplus in the market for tacos?
A)It increases.
B)It decreases.
C)It remains unchanged.
D)It may increase,decrease,or remain unchanged.
Answer: B
Q2) A decrease in the supply of a good will
A)decrease the demand for the good.
B)cause the price of the good to fall.
C)lead to an increase in the price of the good.
D)increase the quantity of the good bought and sold.
Answer: C
Q3) When property rights are well defined and markets are competitive,the
A)market equilibrium violates the conditions for economic efficiency.
B)market equilibrium is consistent with economic efficiency.
C)conditions necessary for economic efficiency no longer apply.
D)quantity supplied will rarely equal the quantity demanded.
Answer: B
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5
Chapter 4: Asupply and Demand: Applications and Extensions
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Sample Questions
Q1) The Laffer curve illustrates the principle that
A)when tax rates are quite high,reducing tax rates will increase tax revenue.
B)when tax rates are quite low,reducing tax rates will increase tax revenue.
C)when tax rates are quite high,reducing tax rates will decrease tax revenue.
D)increasing tax rates always increases tax revenue.
Q2) Suppose the demand curve for a good is highly elastic and the supply curve is highly inelastic.If the government taxes this good,
A)buyers and sellers will each share 50 percent of the burden,regardless of the elasticities of the demand and supply curves.
B)sellers will bear a larger share of the tax burden.
C)the distribution of the burden will depend upon whether the buyers or the sellers are required to send the tax to the government.
D)buyers will bear a larger share of the tax burden.
Q3) Which of the following examples illustrates a regressive income tax?
A)I earn $500 and pay $50 in taxes;you earn $1,000 and pay $90 in taxes.
B)I earn $500 and pay $50 in taxes;you earn $1,000 and pay $100 in taxes.
C)I earn $500 and pay $50 in taxes;you earn $1,000 and pay $110 in taxes.
D)I earn $500 and pay $50 in taxes;you earn $1,000 and pay $125 in taxes.
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Chapter 5: Difficult Cases for the Market and the Role of Government
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Sample Questions
Q1) When the consumption of a good generates an external benefit,
A)the private benefit consumers receive from the good will be higher than the true social benefit.
B)too much of the good will tend to be produced from the viewpoint of economic efficiency.
C)the community generally suffers an exactly offsetting external cost from the production of the good.
D)the market demand curve will understate the total benefits derived from consumption of the good,and as a result,too little of it will be produced and consumed.
Q2) A good is considered to be a public good if it
A)is a good produced by the government sector.
B)is both nonrival-in-consumption and nonexcludable.
C)benefits only a small group of consumers but is very costly to produce.
D)is a good whose production is financed by tax revenue.
Q3) Which of the following would be a protective function of government?
A)providing national defense
B)undertaking income redistribution
C)providing national parks
D)monopolizing mail delivery
Page 7
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Chapter 6: The Economics of Collective Decision-Making
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Sample Questions
Q1) Public choice analysis suggests that bureaucrats and public-sector managers have a strong incentive to
A)economize on their spending so more funds will be available for other government programs.
B)ensure that their budget is exactly the size that would be considered economically efficient.
C)expand their budgets to sizes beyond what would be considered economically efficient.
D)keep individual legislators fully informed as to every expenditure.
Q2) Legislation that offers immediate and easily recognized benefits,at the expense of costs that are observable only in the distant future,is often enacted,even when economic inefficiency results.In economics this is referred to as the
A)long-term effect.
B)political-fallacy effect.
C)shortsightedness effect.
D)inefficiency effect.
Q3) How does a voting structure that relies on unanimity for an action guarantee that no one will be adversely affected? Why isn't this type of decision making used more frequently?
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Page 8
Chapter 7: Ataking the Nations Economic Pulse
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Sample Questions
Q1) Anna,a U.S.citizen,works only in Germany.The value she adds to production in Germany is included
A)in U.S.GDP,but it is not included in German GDP.
B)in German GDP,but it is not included in U.S.GDP.
C)in both German GDP and U.S.GDP.
D)in neither German GDP nor U.S.GDP.
Q2) If the real GDP equals $100 billion this year and nominal GDP is $200 billion,the price level since the base year has increased
A)$200 billion
B)50 percent
C)$100 billion
D)100 percent
E)200 percent
Q3) If nominal or money GDP increases 6 percent in 2011 (compared to 2010),and real GDP increases 4 percent over the same period,which of the following must be true?
A)Exports exceeded imports.
B)The general price level as measured by the GDP deflator fell during 2011.
C)The economy entered a recession in 2011.
D)Inflation during 2011 was 2 percent.
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Page 9
Chapter 8: Economic Fluctuations, unemployment, and Inflation
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Sample Questions
Q1) Tara just graduated from college.In order to devote all her efforts to college,she didn't hold a job.She is going to cruise around the country on her motorcycle for awhile before she starts looking for work.As a result,the unemployment rate
A)increases,and the labor-force participation rate increases.
B)is unaffected,and the labor-force participation rate is unaffected.
C)increases,and the labor-force participation rate decreases.
D)increases,and the labor-force participation rate is unaffected.
Q2) Brian Vargo,an auto repair mechanic who remains unemployed because he refuses to work for less than $1,000 an hour,is
A)counted as part of the labor force.
B)considered frictionally unemployed.
C)an underemployed worker.
D)not counted as part of the labor force.
E)considered as productively active.
Q3) Actual GDP will be below potential GDP
A)when the economy is at full employment.
B)during an economic boom.
C)when resources are fully utilized.
D)during a recession.
Page 10
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Chapter 9: Aan Introduction to Basic Macroeconomic Markets
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Sample Questions
Q1) When an economy operates at its long-run potential output level,
A)aggregate demand will exceed aggregate supply in the goods and services market.
B)unemployment will decline to an abnormally low rate that cannot be sustained in the long run.
C)the actual rate of unemployment will exceed the natural rate of unemployment.
D)the natural and actual rates of unemployment will be equal.
Q2) Long-run equilibrium in the goods and services market requires that
A)aggregate supply equals aggregate demand and that decision makers correctly anticipate the level of prices.
B)the unemployment rate is zero.
C)prices are neither increasing nor decreasing.
D)aggregate supply be larger than aggregate demand.
Q3) Within the aggregate demand/aggregate supply framework,the quantity on the horizontal axis in the aggregate goods and services market represents the
A)total amount of government spending.
B)total real output (real GDP)of the economy.
C)total unemployment of the economy.
D)price level of the economy.
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Chapter 10: Dynamic Change, economic Fluctuations, and the Ad-As Model
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Sample Questions
Q1) During recessions,interest rates tend to fall because
A)consumers attempt to borrow money to make up for their falling income.
B)business borrowing for investment purposes tends to fall during recessions.
C)lower real resource prices create profit opportunities for banks.
D)recessions shift the economy's long-run aggregate supply curve to the left.
Q2) Which of the following factors would increase aggregate demand in the goods and services market?
A)an decrease in stock prices
B)an increase in the real interest rate
C)a decrease in real incomes abroad
D)increased optimism on the part of consumers and businesses
Q3) Within the framework of the AD/AS model,if consumers and investors become more pessimistic about the future direction of the economy,this will lead to a(n)
A)increase in aggregate demand.
B)decrease in aggregate demand.
C)increase in long-run aggregate supply (LRAS shifts to the right).
D)reduction in the natural rate of unemployment.
Q4) How does the self-correcting mechanism act to pull the economy out of a recession?
Page 12
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Chapter 11: Fiscal Policy: the Keynesian View and Historical Perspective
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Sample Questions
Q1) When the economy enters a recession,automatic stabilizers create
A)higher taxes.
B)more discretionary spending.
C)larger budget deficits.
D)larger budget surpluses.
Q2) Within the framework of the Keynesian model,if spending is abnormally low,
A)the economy will be in equilibrium at full employment,but inflation will be high.
B)equilibrium output will be less than the full-employment rate of output.
C)the equilibrium output rate will exceed the economy's full-employment capacity.
D)the actual rate of unemployment will be less than the natural rate of unemployment.
Q3) Keynesian countercyclical budget policy suggests that
A)a budget deficit is needed if the economy is operating at less than full employment.
B)a budget deficit should be planned during an inflationary boom.
C)the budget must be balanced if the national debt is growing more rapidly than the economy.
D)the budget should always be in balance
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Chapter 12: Fiscal Policy, incentives, and Secondary Effects
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171 Flashcards
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Sample Questions
Q1) Within the framework of the AD-AS model,an increase in savings by households will
A)increase the supply of loanable funds and reduce interest rates.
B)be offset by a decrease in savings by businesses.
C)cause long-run fluctuations in the rate of consumption.
D)result in a decline in aggregate demand,output,and employment.
Q2) Advocates of the crowding-out effect maintain that the large budget deficits during the recession of 2008-2009
A)stimulated output and employment,leading to a quicker recovery.
B)will lead to a slower recovery than would have been the case if government borrowing had been more restrained.
C)led to lower interest rates,stimulating private investment and consumption.
D)will lead to lower future taxes and more private spending as the economy recovers.
Q3) If decreased government borrowing drives down real interest rates in the United States,
A)private investment will tend to decline.
B)the dollar will depreciate leading to an increase in net exports.
C)an inflow of capital will cause the dollar to depreciate.
D)All of the above are true.
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Chapter 13: Amoney and the Banking System
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Sample Questions
Q1) In defining the money supply (M1),economists exclude savings deposits on the grounds that
A)the purchasing power of savings deposits is much less stable than that of checkable deposits and currency.
B)savings deposits are a form of investment and,thus,a better store of value than money.
C)savings deposits are liabilities of commercial banks,whereas checkable deposits are assets of the banks.
D)savings deposits are not generally used as a means of payment.
Q2) When individuals shift funds from money market mutual funds to no-load stock and bond mutual funds,
A)the growth rate of M1 will decline but the growth of M2 will be unaffected.
B)the growth rate of M2 will decline but the growth of M1 will be unaffected.
C)the growth rate of both M1 and M2 will decline.
D)the growth rate of both M1 and M2 will increase.
Q3) What advantages does a money economy have over a barter economy?
Q4) Why is there more than one definition of the money supply? What is the difference between them?
Q5) 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) In 2008,nominal GDP was equal to $14,265 billion while the M1 money supply was $1,423 billion.What was the velocity of the M1 money stock?
A)1.0
B)10.0
C)1.8
D)0.1
Q2) In the equation of exchange,V stands for A)velocity,or the annual rate at which money changes hands in the purchase of final products.
B)the investment component of aggregate demand.
C)the amount of money in circulation.
D)a constant equal to 3.1416,discovered by classical economists.
Q3) A decrease in the nominal (or money)interest rate would
A)encourage people to hold smaller money balances.
B)encourage people to hold larger money balances.
C)force the Fed to increase the money supply.
D)cause the real interest rate to rise.
Q4) According to the monetarists,what is the primary cause of a recession? Explain the steps by which reductions in the money supply lead to reductions in real output.
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Chapter 15: Stabilization Policy, output, and Employment
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Sample Questions
Q1) Under the adaptive expectations hypothesis,which of the following is the most likely long-run effect of a move to a more expansionary monetary policy?
A)higher prices and no change in real output
B)higher prices and expansion in real output
C)no change in prices but an expansion in real output
D)no change in either prices or real output
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) The Phillips curve illustrates the relationship between
A)change in the money supply and change in unemployment.
B)tax rates and tax revenues.
C)the equilibrium level of income and the employment rate.
D)inflation and unemployment.
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17
Chapter 16: Creating an Environment for Growth and Prosperity
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Sample Questions
Q1) In a market economy,what must an entrepreneur do in order to be successful?
A)purchase resources at lower prices than rivals
B)produce a good that can be sold for more than its production cost
C)obtain large subsidies from the government
D)hire workers at low wage rates
Q2) An open capital market affects a nation's economic growth by
A)channeling capital into productive projects and away from wasteful projects.
B)rewarding investors who find the most productive projects and invest in them.
C)making the lowest-cost capital available from around the world.
D)all of the above.
Q3) Which of the following is most likely to help the residents of a nation produce more goods and services and achieve higher income levels?
A)higher tax rates
B)a higher rate of investment
C)a smaller trade sector
D)greater use of taxation to transfer income from the rich to the poor
Q4) What are the primary sources of economic growth? Why are our real incomes and living standards today so much higher than those of our great grandparents 50 or 100 years ago? Why is the income per person so much higher in some countries than others?
Page 18
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Chapter 17: Institutions,policies,and Cross-Country
Differences in Income and Growth
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Sample Questions
Q1) When a low-income nation improves its institutions,so that growth results,one reason the growth may be more rapid than would result from a similar improvement in a developed nation that brings the same amount of added capital per worker to each nation,is that
A)adding capital has constant returns to scale,rather than diminishing returns,in each nation.
B)with diminishing returns to scale,and with richer nations starting with more capital per unit labor,the added capital produces smaller increments to production in the higher-income nations.
C)wage rates are lower in the low-income nation,and lower-income workers are more productive.
D)capital is always more productive in lower-income nations.
Q2) Private investment as a share of the economy tends to be higher in countries
A)with low levels of economic freedom.
B)with high levels of economic freedom.
C)with economic freedom ratings near zero.
D)that have experienced a sharp reduction in economic freedom during the most recent decade.
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Chapter 18: Gaining From International Trade
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Sample Questions
Q1) What are the effects of a tariff,and who benefits and who loses when tariffs are imposed? What are the effects of a quota,and who benefits and who loses when quotas are imposed?
Q2) When a country fixes the price of foreign exchange (in terms of the domestic currency)below equilibrium,which of the following will result?
A)A black market will develop for foreign exchange.
B)Residents of that country can buy as much foreign currency as they want.
C)There will be a surplus of foreign exchange.
D)A depreciation of the currency will restore equilibrium in the foreign exchange market.
Q3) Relative to a no-trade situation,if the United States imported wine,the U.S.domestic price of wine would
A)rise,but domestic output would fall.
B)decline,but domestic output would rise.
C)decline as would domestic output.
D)rise as would domestic output.
Q4) What benefits are to be gained from countries producing according to the law of comparative advantage? What if a country is absolutely more productive in all goods?
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Page 20
Chapter 19: International Finance and the Foreign Exchange Market
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Sample Questions
Q1) A nation's trade deficit will tend to expand when
A)its economy is expanding.
B)its economy is shrinking.
C)its investment environment is less attractive to foreigners.
D)both b and c above are true.
Q2) If the exchange rate between the U.S.dollar and the Mexican peso went from $1 US = 9 peso to $1 US = 10 peso,then
A)American goods have become less expensive for Mexicans.
B)Mexican goods have become more expensive for Americans.
C)American goods have become more expensive for Mexicans.
D)American exports to Mexico are likely to increase.
Q3) With time,an appreciation in the value of the nation's currency in the foreign exchange market would cause
A)the nation's imports to increase and exports to decline.
B)the nation's exports to increase and imports to decline.
C)both imports and exports to decline.
D)both imports and exports to rise.
Q4) 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) When a good is more broadly defined,
A)the more substitutes it has so the more elastic is its demand.
B)the fewer substitutes it has so the more elastic is its demand.
C)the more substitutes it has so the less elastic is its demand.
D)the fewer substitutes it has so the less elastic is its demand.
Q2) The price elasticity of supply
A)will be positive when supply is elastic and negative when it is inelastic.
B)will be negative when supply is elastic and positive when it is inelastic.
C)will always be positive.
D)will be positive when demand for the good is inelastic.
E)will be positive when demand for the good is elastic.
Q3) If the price of hamburger increases,the substitution effect works to
A)decrease the quantity of hamburger supplied.
B)increase the number of hamburger buns demanded.
C)decrease the quantity of hamburger demanded.
D)increase the number of hamburger buns supplied.
Q4) Fred,a poor college student,states: "I eat tuna sandwiches five times a week.When I graduate and get a real job,I will never purchase tuna again." Is Fred planning on breaking the law of demand?
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Chapter 21: Acosts and the Supply of Goods
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Sample Questions
Q1) Which of the following would cause a firm's cost curve to shift downward?
A)a decrease in resource prices
B)an increase in taxes
C)an increase in demand for the firm's product
D)a reduction in output
Q2) Long-run economies of scale exist when the long-run average cost curve
A)rises.
B)remains constant.
C)falls.
D)does not exist.
Q3) Which of the following would increase a firm's average total costs?
A)economies of scale
B)an increase in input prices
C)an improvement in technology
D)an increase in demand for the firm's product
Q4) If a firm's per-unit costs fall as it produces a larger output,
A)average variable cost must also decline as output expands.
B)marginal cost must also decline as output expands.
C)average fixed cost must be less than average variable costs.
D)marginal cost must be less than average total cost.
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Chapter 22: Aprice Takers and the Competitive Process
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Q1) If the ice cream industry is a competitive price-taker market and all ice cream producers are earning zero economic profit,what will be the impact of an increase in the demand for ice cream?
A)Firms will exit the ice cream industry in the long run since they are earning zero economic profit.
B)The firms will now be able to earn long-run economic profit assuming that barriers to entry remain low and new firms can enter the market.
C)A shortage of ice cream will develop.
D)The price of ice cream will rise initially,inducing the existing firms to expand output and new firms to enter the industry.
Q2) If a competitive price-taker firm is currently producing a level of output at which marginal cost exceeds marginal revenue,then
A)average revenue exceeds marginal cost.
B)the firm is earning a positive profit.
C)a one-unit decrease in output would increase the firm's profit.
D)All of the above are correct.
Q3) Regarding costs of production,can a firm ever be at a point that is not on the marginal cost curve? Explain.
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Page 24
Chapter 23: Price-Searcher Markets With Low Entry Barriers
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Sample Questions
Q1) In long-run equilibrium,output is expanded to the minimum long-run average total cost by
A)price takers but not by competitive price searchers.
B)competitive price searchers but not by price takers.
C)both competitive price searchers and price takers.
D)neither price takers nor competitive price searchers.
Q2) Refer to Figure 10-13.This firm will maximize profits by producing a quantity of output equal to
A)E and charging a price equal to A.
B)E and charging a price equal to D.
C)F and charging a price equal to H.
D)F and charging a price equal to C.
Q3) What is the maximum economic profit this firm depicted in Figure 10-2 will be able to earn?
A)zero
B)$20
C)$30
D)$100
Q4) What type of model would be best if we wanted to analyze the market for fast food? Why?
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Chapter 24: Aprice-Searcher Markets With High Entry
Barriers
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Sample Questions
Q1) In essence,patents grant their owners
A)a property right to new products and production processes that they have developed.
B)the exclusive right to use a newly developed process or product forever.
C)the right to use resources owned by their competitors.
D)an exemption from laws that prohibit price discrimination.
Q2) Even though a cartel is often profitable for its members,cartel arrangements contain the seeds of their own disintegration because
A)a price maintained above each cartel member's marginal cost provides each member with an incentive to offer secret price reductions to attract additional customers.
B)the profits earned by cartel members will induce others to enter the industry.
C)cartel members will attempt to garner more of the total profit for themselves by cheating on their agreement with other members.
D)all of the above are correct.
Q3) Monopoly is a word derived from Greek origins that means,roughly,single seller.Why is the definition of monopoly as single seller inadequate in economic terms?
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Chapter 25: The Supply of and Demand for Productive Resources
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Q1) If the price of cotton increases
A)consumers will buy more cotton clothes.
B)consumers will increase their purchases of clothing made of other materials.
C)clothing producers will stop making cotton clothes.
D)clothing producers will not be able to adjust their output.
Q2) As the price paid to a resource increases,
A)the supply of that resource will increase in the resource market.
B)the supply of that resource will decrease in the resource market.
C)resources will shift from other resource markets to this one.
D)resources will shift from this resource market to others.
E)resource usage will be unaffected.
Q3) If an advance in computer technology reduces the need for businesses to hire accountants,students majoring in accounting should expect
A)a lower rate of return on their human capital investment.
B)an increase in their employment prospects.
C)a higher wage rate than they were expecting when they selected their major.
D)an increase in the demand for accountants.
Q4) There is an Italian soccer player who makes more than $10 million a year.Why?
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Chapter 26: Earnings, productivity, and the Job Market
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Q1) The linkage between high productivity and high earnings is vitally important because
A)it provides individuals with a strong incentive to develop skills and engage in activities that others value highly.
B)high productivity (a large output per hour worked)is the key to high living standards.
C)it brings the self-interest of individuals into harmony with economic progress.
D)all of the above are true.
Q2) (I)Productivity growth in the United States since 1996 has been more rapid than it was during the previous two decades.
(II)Economists believe that the more rapid productivity growth since 1996 is in large part due to the computer revolution and related technological innovations.
A)Both I and II are true.
B)I is true;II is false.
C)I is false;II is true.
D)Both I and II are false.
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Chapter 27: Investment, the Capital Market, and the Wealth of Nations
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Q1) A student entering college wants to assess the value of investing in human capital.To determine whether the investment will be profitable,she should compare the A)value of her total expected future earnings with the total of her direct and indirect costs of college.
B)present discounted value of future earnings with the total of her direct and indirect costs of her education.
C)present discounted value of her additional future earnings as the result of the college education with the present discounted value of only her direct costs of college.
D)present discounted value of her additional future earnings as the result of the college education with the present discounted value of her direct and indirect costs of college.
Q2) If we want to produce more capital goods during the present time period,we must A)increase current consumption.
B)lower future consumption.
C)reduce current consumption.
D)reduce our savings rate.
Q3) 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) The sharp reduction in marginal tax rates during the 1980s
A)reduced the incentive of high-income Americans to work.
B)increased the incentive of high-income Americans to utilize tax shelters.
C)increased the unemployment rate of high-income Americans.
D)increased the visible income of high-income Americans.
Q2) If substantial income mobility is present,
A)there is considerable movement of individuals up and down the income ladder when income comparisons among the same individuals or households are made at different points in time.
B)annual income data are an accurate indicator of the long-term economic status of individuals and families.
C)the rich tend to stay rich and the poor tend to stay poor.
D)individuals and families move quite often among the geographic regions of a country but not among income groups.
Q3) Compared to low-income families,upper-income families are likely to
A)be larger in size.
B)be headed by an adult of prime working age (between 35 years and 64 years).
C)have more than one family member working.
D)be all of the above.
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Chapter 29: Government Spending and Taxation
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Q1) When the government borrows funds in order to pay for its current expenditures,
A)the government will have to repay the borrowed funds within five years.
B)the government can spend without having to increase taxes,either now or in the future.
C)future taxes will have to be higher in order to pay the interest on the borrowed funds.
D)the cost imposed on the private sector is virtually eliminated because taxes can remain constant.
Q2) How have the size and functions of government in the United States changed during the last century?
Q3) 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
Q4) Discuss how size of government can negatively affect economic growth.
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Chapter 30: The Economics of Social Security
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Q1) Social Security,officially known as Old Age and Survivors Insurance (OASI),
A)collects funds from current workers and invests them in order to provide these workers with a stream of income during the retirement phase of life.
B)is based on the same principles as private insurance programs.
C)is an intergenerational income transfer program.
D)is a voluntary savings program run by the government.
Q2) The net value to the federal government of the bonds currently held in the Social Security Trust Fund is
A)approximately $1 trillion.
B)now approaching $2 trillion.
C)greater than $2.5 trillion.
D)zero,because the federal government is both the payee and recipient of the interest and principal represented by these bonds.
Q3) In approximately what year will Social Security outlays begin to exceed revenues?
A)2008
B)2017
C)2050
D)3030
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Chapter 31: The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity
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Q1) Historically,when a diverse set of stocks is held over a lengthy time period,stocks have yielded a ____ rate of return,and the variation in the rate of return has been ____.
A)low;low
B)low;high
C)high;low
D)high;high
Q2) Does it ever make sense to purchase a stock that has never paid a dividend? Explain.
Q3) The market for new issues of stock is called the A)primary market.
B)secondary market.
C)The New York Stock Exchange (NYSE).
D)The Chicago Board of Trade.
Q4) Investment in a broad portfolio of stocks is most attractive for A)short-term investors.
B)long-term investors.
C)investors seeking a steady rate of return.
D)investors who will need the funds for other purposes in about 10 years.
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Chapter 32: Great Debates in Economics: Keynes Versus Hayek
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Q1) In his book The Road to Serfdom,Friedrich Hayek argued that the growth of government
A)was essential if the ups and downs of the business cycle were going to be controlled.
B)must be increased if western democracies were going to survive.
C)could only be achieved if monetary policy-makers were willing to expand the supply of money more rapidly.
D)endangered freedom and moved Western democracies toward tyranny,just as it had done in Nazi Germany and the Soviet Union.
Q2) Adam Smith stated,"The man of system is apt to be very wise in his own conceit.He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board." Which is true of this statement?
A)Keynes would tend to agree with the statement;Heyek would disagree with it.
B)Keynes would tend to disagree with the statement;Hayek would agree with it.
C)As the rap video indicates,both Keynes and Hayek strongly agree with this statement.
D)As the rap video indicates,both Keynes and Hayek strongly disagree with this statement.
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Chapter 33: The Crisis of 2008: Causes and Lessons for the Future
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Q1) Which of the following reforms would reduce the likelihood of a future financial crisis?
A)increased regulations that would make it more difficult for lenders to foreclose on borrowers who are delinquent on mortgage payments
B)expansion of government-sponsored lending in order to make loanable funds more readily available to sub-prime borrowers
C)institutional changes that would strengthen the property rights of shareholders and provide financial managers with a stronger incentive to pursue long-run objectives
D)frequent regulatory changes in order to search for and find the combination that would be most effective
Q2) Which of the following was a contributing factor to the housing boom and bust and the financial crisis of 2008?
A)An increase in the share of loans to sub-prime borrowers.
B)An increase in the share of loans extended to borrowers making only a small down payment.
C)An increase in adjustable-rate mortgages (ARMs)as a share of the total.
D)All of the above.
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Chapter 34: Lessons From the Great Depression
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Q1) The Great Depression was an era marked by
A)steady growth in GDP and a decline in the rate of unemployment.
B)a prolonged period of high unemployment and output substantially below its potential.
C)a large decline in the stock market followed by a steady recovery.
D)a failure of expansionary monetary policy to stimulate output and employment.
Q2) Which of the following statements about the Great Depression is correct?
A)The 1929 stock market crash explains the lengthy duration of the Great Depression.
B)The severity of the economic downturn,if not its onset,was the result of perverse monetary,fiscal,and regulatory policies.
C)The sharp decreases in tariff rates and tax rates cushioned the downturn and limited it to three years.
D)The Great Depression indicates that monetary policy affects prices but exerts little impact on output.
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Chapter 35: Lessons From Japan and Canada
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Q1) In response to high rates of unemployment and a large and growing debt as a share of the economy,in the latter half of the 1990s,Canada
A)increased government spending and shifted the federal budget toward a deficit.
B)reduced government spending and shifted the federal budget toward a surplus.
C)cut taxes and increased government spending.
D)held government spending constant as a share of the economy and increased taxes in order to balance the budget.
Q2) How did the fiscal policy response of Japan during the 1990s compare with that of the U.S.during the recession of 2008-2009?
A)Both countries responded with permanent tax cuts in an effort to stimulate supply-side effects.
B)Both countries responded with government spending programs financed by borrowing.
C)Japan's fiscal policy was restrictive,while U.S.fiscal policy was expansionary.
D)Japan continued to maintain budget surpluses,while the U.S.increased its budget deficits.
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Chapter 36: The Federal Budget and the National Debt
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Q1) When government debt is financed internally,future generations will
A)inherit a higher tax liability without additional interest income.
B)inherit neither higher taxes nor additional interest income.
C)inherit both higher taxes and additional interest income.
D)receive lower interest income and a lower tax liability.
Q2) Since 1960,there have been how many years of budget surplus?
A)5
B)10
C)20
D)30
Q3) If the federal government runs a budget deficit,but the budget deficit as a percent of GDP is less than the growth rate of real output,the
A)national debt will decrease as a share of GDP.
B)national debt will remain a constant share of GDP.
C)national debt will increase as a share of GDP.
D)size of the national debt (in dollar value)will decline.
Q4) According to the traditional (crowding-out)view,what impact do budget deficits have on the economy?
Q5) What is the difference between the federal budget deficit and the national debt?
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Chapter 37: The Economics of Healthcare
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Q1) If governments provide free healthcare services,
A)this illustrates that governments can provide healthcare more economically than private firms.
B)output and consumption of other goods will not be sacrificed.
C)resources with alternative uses are allocated to healthcare and there is an opportunity cost of these resources.
D)the opportunity cost of the resources used to supply healthcare is zero.
Q2) Given the current structure of health-care finance,which of the following is most likely to occur when the baby boom generation begins to retire and the elderly population increases rapidly during the years following 2010?
A)The demand for health-care services will decrease.
B)The prices of health-care services will grow less rapidly than has been the case during the last three decades.
C)The real (adjusted for inflation)expenditures on Medicare and the taxes to finance the program will tend to decline.
D)The health-care inflation and spending growth of recent decades will continue or even accelerate.
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Chapter 38: Education: Problems and Performance
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Q1) When the government both provides education and covers its costs through taxation,economic analysis indicates that
A)the government-operated schools can be expected to supply a high quality education at a low cost.
B)parents will be in a strong position to discipline poorly performing schools and make sure that the school their child attends is providing quality schooling.
C)public school administrators can be expected to care more about pleasing parents than about pleasing government officials and teachers' unions.
D)the parent/consumer will be in a weak position to make choices that will assure that their child receives a quality education at an economical cost.
Q2) Relative to other countries,U.S.spending per pupil for public elementary and secondary education is
A)among the lowest in the world.
B)roughly average when compared with other countries.
C)among the highest in the world.
D)higher than in most other developed countries but less than in developing countries.
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Chapter 39: Earnings Differences Between Men and Women
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Q1) "If it were not for employment discrimination against women,the average earnings of men and women would be equal." Is this statement true or false?
Q2) Since the 1970s,the percentage of women preparing for careers in professions has been ____,while the female/male earnings ratio has been ____ during this same period.
A)rising;declining
B)rising;increasing
C)falling;increasing
D)falling;declining
Q3) Women earn less on average than men.Which of the following would be the logical conclusion?
A)Women must be the victim of employment discrimination.
B)Women must be less productive.
C)Men must be more highly motivated and materialistic.
D)Without consideration of preferences and productivity factors,differences in unadjusted mean earnings do not necessarily reflect employment discrimination.
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Chapter 40: Do Labor Unions Increase the Wages of Workers
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Q1) Which of the following is not a cause of the decline in unionization in the United States?
A)deregulation in transportation and communication industries
B)increased foreign competition
C)growth in the number of smaller firms
D)an increase in the number of workers wishing to be union members
Q2) By raising their wages,unions typically
A)increase total productivity,which must rise proportionally with the wage rate.
B)encourage employers to find substitutes for union labor.
C)raise the wages of nonunion workers as well.
D)lower the prices consumers pay for the products produced by union firms.
Q3) While most industrial categories have experienced a decline in the percentage of workers unionized,which one of the following categories has seen a significant increase in unionization?
A)retail trades
B)the hotel and restaurant industry
C)the government sector
D)automobile manufacturing
Q4) What common goals,if any,do labor and management share?
Page 42
Q5) List some factors that might make the threat of a strike more effective.
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Chapter 41: The Question of Resource Exhaustion
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Q1) Which of the following statements is true about the demand for and/or the supply of natural resources?
A)The supply curve for natural resources is more elastic in the long run than in the short run.
B)The elasticity of demand for electricity,natural gas,and gasoline equals approximately 0.1 in both the short run and the long run.
C)Natural resources are demanded by consumers and producers in steadily growing amounts,so future shortages are inevitable.
D)The supply of many natural resources is finite;thus the long-run elasticity of supply must be zero.
Q2) An example of a renewable resource is A)coal.
B)oil.
C)timber.
D)diamonds.
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Chapter 42: Difficult Environmental Cases and the Role of Government
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Q1) 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
Q2) Regarding wealth and environmental quality,
A)richer people are more willing to make sacrifices to gain greater environmental quality.
B)poor nations are less resilient when faced with the threats caused by environmental degradation.
C)richer people are more able to make sacrifices to gain greater environmental quality. D)all of the above
Q3) Which of the following will likely have the strongest demand for large expenditures on environmental quality?
A)wealthy countries
B)poor countries
C)countries with air pollution problems
D)countries with water pollution problems
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