Economics for Business Final Exam
Course Introduction
Economics for Business provides an essential introduction to economic principles and their application within the business environment. The course explores key topics such as market structures, supply and demand, pricing strategies, and the impact of government policy on business decisions. Students will examine how macroeconomic factors like inflation, unemployment, and economic growth influence managerial choices, and gain practical skills in using economic analysis to solve real-world business problems. Through case studies and contemporary examples, the course equips learners with the analytical tools needed to make informed decisions in a constantly changing global marketplace.
Recommended Textbook
Macroeconomics 12th Edition by Michael Parkin
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Page 2
Chapter 1: What Is Economics?
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Q1) You have the choice of going to Hawaii for a week, staying at work for the week, or spending the week skiing. If you decide to go to Hawaii, the opportunity cost is
A) the value of working and skiing.
B) the value of working or skiing, depending on which you would have done rather than go to Hawaii.
C) working, because you would be giving up a week's pay.
D) none of the above if you enjoy the time spent in Hawaii.
Answer: B
Q2) Human capital is
A) all capital owned by individuals, but not by corporations or governments.
B) all capital owned by individuals or corporations, but not by governments.
C) machinery that meets or exceeds federal safety standards for use by humans.
D) the skill and knowledge of workers.
Answer: D
Q3) The slope of a line is the change in the y-axis variable divided by the change in the x-axis variable.
A)True
B)False
Answer: True
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Page 3
Chapter 2: The Economic Problem
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Sample Questions
Q1) In the figure above, the opportunity cost of moving from point C to point D is
A) the loss in production in the health care sector.
B) the increase in production in the education sector.
C) zero.
D) the loss in production in the education sector.
Answer: A
Q2) The production possibilities frontier itself shows
A) the maximum amount of resources available at any given time.
B) combinations of goods and services that do not fully use available resources.
C) the maximum rate of growth of output possible for an economy.
D) the maximum levels of production that can be attained.
Answer: D
Q3) A tradeoff is illustrated by
A) a point inside the PPF.
B) a point outside the PPF.
C) a change in the slope of the PPF.
D) the negative slope of the PPF.
Answer: D
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4
Chapter 3: Demand and Supply
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Q1) If the demand curve for bottled water shifts rightward and the supply curve of bottled water shifts leftward, the equilibrium
A) price of bottled water definitely increases.
B) price of bottled water definitely decreases.
C) quantity of bottled water definitely increases.
D) quantity of bottled water definitely decreases.
Answer: A
Q2) There is a technological advance in the production of a good and simultaneously also an increase in the expected future price. Which of the following will happen?
A) The equilibrium price will rise because the supply curve shifts rightward.
B) The equilibrium price falls because the supply curve shifts leftward.
C) The technological improvement shifts the supply curve rightward while the increase in the expected future price shifts the supply curve leftward. The net effect is not known.
D) The demand curve shifts rightward and the supply curve does not shift.
Answer: C
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Chapter 4: Measuring GDP and Economic Growth
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Sample Questions
Q1) Nominal GDP is
A) real GDP adjusted for price changes.
B) GDP valued at prices of that year.
C) GDP valued at constant prices.
D) real GDP valued at base year prices.
Q2) A common definition of a recession is a period of time
A) of at least 6 months during which real GDP decreases.
B) with an increase in real economic output from the previous period.
C) with no change in real GDP.
D) with no change in the dollar (money) value of economic output.
Q3) Purchasing power parity prices are used to construct GDP data that
A) do not omit the underground economy.
B) can be used to make more valid comparisons between one country and another.
C) is a proper measure of economic welfare.
D) adjust for differences in population.
Q4) A trend shows
A) the degree of correlation between two variables.
B) the general tendency for a variable to rise or fall.
C) the scale used to measure to variables.
D) the increases in one variable.
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Chapter 5: Monitoring Jobs and Inflation
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Q1) Suppose there are 100 million in the labor force, and 6 million unemployed people. During the next month, 200,000 people lose their jobs and 300,000 find jobs. The new total of employed persons is ________ and the new unemployment rate is
A) 100.1 million; 5.8 percent
B) 100 million; 6.1 percent
C) 94.1 million; 5.9 percent
D) 93.9 million; 6.1 percent
Q2) Full employment occurs when
A) structural unemployment is zero.
B) cyclical unemployment is zero.
C) frictional unemployment is zero.
D) cyclical and frictional unemployment are zero.
Q3) The labor force participation rate is
A) 67.1 percent.
B) 64.0 percent.
C) 95.7 percent.
D) 56 percent.
Q4) How does the Current Population Survey determine if a person should be counted in the labor force?
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Chapter 6: Economic Growth
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Sample Questions
Q1) An increase in a nation's population results in A) an upward shift in the production function.
B) a movement along the production function.
C) a leftward shift in the labor supply curve.
D) Both answers A and C are correct.
Q2) Suppose real GDP for a country is $13 trillion in 2015, $14 trillion in 2016, $15 trillion in 2017, and $16 trillion in 2018. Over this time period, the real GDP growth rate is A) increasing.
B) decreasing.
C) constant.
D) negative.
Q3) Moving along the aggregate production function, all of the following are held constant EXCEPT
A) labor.
B) capital.
C) human capital.
D) technology.
Q4) Explain how the labor market and the production function determine potential GDP.
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Chapter 7: Finance, Saving, and Investment
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Sample Questions
Q1) Which of the following influences household saving?
I.The real interest rate
II.Disposable income
III.Expected future income
A) I only
B) I and II
C) I and III
D) I, II, and III
Q2) ________ increases households' saving.
A) A decrease in the real interest rate
B) A tax cut that increases disposable income
C) Higher expected future income
D) A stock market boom that increases the purchasing power of households' wealth
Q3) A nation's investment must be financed by
A) national saving only.
B) the government's budget deficit.
C) borrowing from the rest of the world only.
D) national saving plus borrowing from the rest of the world.
Q4) What is the relationship between the real interest rate, the supply of loanable funds and the demand for loanable funds?
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Chapter 8: Money, the Price Level, and Inflation
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Sample Questions
Q1) In the figure above, if the interest rate is 8 percent, people demand $0.1 trillion
A) less money than the quantity supplied and bond prices will rise.
B) less money than the quantity supplied and bond prices will fall.
C) more money than the quantity supplied and bond prices will fall.
D) more money than the quantity supplied and bond prices will rise.
Q2) Given a desired reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans of
A) $0.
B) $20.
C) $80.
D) $120.
Q3) Which of the following is NOT an asset of the Federal Reserve System?
A) mortgage-backed securities
B) reserves of depository institutions
C) U.S. government securities
D) None of the above are correct because they are all assets of the Federal Reserve.
Q4) Describe how financial innovation has affected the demand for money.
Q5) How do banks create liquidity?
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) The People's Bank of China has
A) allowed a flexible exchange rate to boost exports.
B) managed its exchange rate to help control inflation.
C) strictly followed a fixed exchange rate to boost exports.
D) purchased U.S. dollars to appreciate the yuan.
Q2) In the foreign exchange market, how does a change in expected future U.S. exchange rate affect the supply of dollars?
Q3) The private sector balance is equal to ________.
A) income minus consumption minus net taxes
B) income minus consumption minus investment
C) saving minus investment
D) income minus consumption
Q4) When a country has a negative current account, that country is
A) borrowing from the rest of the world.
B) lending to the rest of the world.
C) running a government budget surplus.
D) None of the above is correct.
Q5) What happens in the foreign exchange market if the U.S. interest rate increases? What is the effect on the exchange rate?
Q6) What balance of payment account records foreign investment between countries? Page 11
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) The short-run aggregate supply curve shifts leftward when the A) price level increases.
B) general level of technology advances.
C) money wage rate increases.
D) availability of on-the-job training expands to all workers.
Q2) Suppose the price level, the money wage, and the price of all other resources rise by 10 percent. This set of changes leads to
A) an upward movement along the LAS curve.
B) a downward movement along the LAS curve.
C) an upward movement along the SAS curve.
D) a leftward shift of the LAS curve.
Q3) Aggregate demand is the relationship between the quantity of real GDP demanded and the ________.
A) price level
B) money wage rate
C) real wage rate
D) nominal GDP demanded
Q4) Give examples of factors that decrease aggregate demand. Which way does the aggregate demand curve shift?
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Chapter 11: Expenditure Multipliers
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Sample Questions
Q1) If the marginal propensity to save is 0.6, then the marginal propensity to consume is
A) 0.6.
B) 0.4.
C) 1.0.
D) More information is needed in order to calculate the correct answer.
Q2) Using the above table, if disposable income is $400, saving is
A) -$50.
B) $0.
C) $50.
D) $100.
Q3) When investment is less than planned investment, aggregate planned expenditure is ________ than actual aggregate expenditure and inventories are ________ than planned.
A) greater; greater
B) greater; less
C) less; greater
D) less; less
Q4) Explain the basic idea of the expenditure multiplier and the role consumers play in determining its magnitude.
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Chapter 12: The Business Cycle, Inflation, and Deflation
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Q1) Keynes used the term "animal spirits" to represent
A) changes in people's consumption expenditures.
B) the ease of forecasting.
C) fluctuations in business confidence.
D) investment based on hard facts about the future.
Q2) Which of the following CORRECTLY describes the new classical cycle theory of the business cycle?
A) An unexpected change in the quantity of money can trigger a business cycle.
B) An expected tax rate change can trigger a business cycle.
C) An unexpected change in the price of oil can trigger a business cycle.
D) Rational expectations keep the money wage from changing quickly.
Q3) The Keynesian explanation of the business cycle is based on
A) the inability of government policy-makers to predict the future course of the economy.
B) shifts in monetary policy undertaken by the Federal Reserve.
C) fluctuations in business confidence.
D) unstable inflationary expectations.
Q4) Describe how a demand-pull inflation can occur.
Q5) What is the factor that leads to business cycles in the monetarist cycle theory?
Page 15
Q6) Distinguish between the short-run and long-run Phillips curves.
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) An increase in the income tax rate ________ employment and ________ potential GDP.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Q2) Suppose the government of Japan increases its expenditure on goods and services. In the short run, this increase will
A) shift the AD curve in Japan rightward.
B) shift the AD curve in Japan leftward.
C) cause the price level in Japan to fall.
D) None of the above answers is correct.
Q3) The structural deficit or surplus is the
A) difference between actual government outlays and actual government receipts.
B) change in national debt that will result from current budgetary policies.
C) government budget deficit or surplus that would occur if the economy were at potential GDP.
D) actual government budget deficit or surplus minus expenditures for capital improvements.
Q4) What is the government expenditure multiplier?
Page 16
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Chapter 14: Monetary Policy
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Sample Questions
Q1) In October 2008, central banks around the world coordinated a decrease in interest rates. Ben Bernanke, then Chairman of the Federal Reserve, stated that "policy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant."
If all the banks enacted the policy simultaneously, which of the following expenditure components would increase in the United States?
I.exports
II.consumption
III.investment
A) I, II and III
B) II and III only
C) II only
D) I and III only
Q2) During the financial crisis of 2008-2009, the Fed's actions to supply reserves to the banking system was an attempt to
A) limit the troubling rise in asset prices.
B) increase the public's belief that their deposits were insured.
C) help the U.S. Treasury finance the TARP.
D) make certain that banks had enough liquidity to avoid collapse.
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17
Chapter 15: International Trade Policy
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Sample Questions
Q1) What is "rent seeking?" How does it apply to restricting imports?
Q2) A voluntary export restraint
A) is like a tariff.
B) is a very common form of trade barrier.
C) is like a quota on foreign exports.
D) Both answers B and C are correct.
Q3) When does the domestic government gain the MOST revenue?
A) when it imposes a tariff
B) when it imposes an import quota
C) when it negotiates a voluntary export restraint
D) The amount of revenue it gains is the same with a tariff and a voluntary export restraint.
Q4) Quotas are less damaging to an economy than are tariffs.
A)True
B)False
Q5) Less developed countries, compared to industrialized ones, are more likely to have higher tariff rates.
A)True
B)False
Q6) What is dumping?
Page 18
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