Economics for Business Midterm
Exam
Course Introduction
Economics for Business provides students with a comprehensive understanding of fundamental economic principles and how they apply to real-world business situations. The course covers essential topics such as supply and demand, market structures, pricing strategies, and the role of government in the economy. Students learn to analyze both microeconomic and macroeconomic environments, assess business opportunities and threats, and make informed managerial decisions. By integrating economic theory with practical business applications, the course equips students with the analytical tools necessary to solve complex business problems and navigate an ever-changing economic landscape.
Recommended Textbook
CoreMacroeconomics 3rd Edition by
Eric Chiang
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16 Chapters
4462 Verified Questions
4462 Flashcards
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Page 2
Chapter 1: Exploring Economics
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Sample Questions
Q1) Most economists agree that there is no legitimate role for government to play in the economy.
A)True
B)False
Answer: False
Q2) Which of the following is a microeconomic statement?
A) The unemployment rate fell by 2%.
B) All businesses in the United States experienced a decrease in revenues of 5% due to the recession.
C) About 15% of the teachers were laid off last week.
D) GDP increased by 6% last quarter.
Answer: C
Q3) The concept of scarcity:
A) exists in all societies.
B) affects only greedy people.
C) is the cause of poverty.
D) used to be a problem,but is not an issue for modern industrial nations.
Answer: A
Q4) Is understanding recessions a microeconomic or a macroeconomic issue? Explain.
Answer: Macroeconomic;it is a national issue.
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Chapter 2: Production, Economic Growth, and Trade
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Sample Questions
Q1) Which of the following is NOT an example of an improvement to human capital?
A) students taking a course in economics
B) increasing the number of machines available to workers
C) an intensive apprenticeship program
D) an employee learning to use Microsoft Access
Answer: B
Q2) (Figure: Pork and Corn PPF)Using the graph,if we are operating at the economy's potential output,then production can be at points:
A) b or h.
B) c or f.
C) h or g.
D) g or d.
Answer: B
Q3) Which of the following restricts our choices so that we must make tradeoffs?
A) time and money
B) money and personal preferences
C) time and personal preferences
D) time,money,and personal preferences
Answer: A
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Page 4
Chapter 3: Supply and Demand
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Sample Questions
Q1) Long-term shortages and surpluses are almost always the result of automatic market adjustments.
A)True
B)False
Answer: False
Q2) Markets work as if they are:
A) guided as if by an "invisible hand," according to Adam Smith.
B) corrected by forces of government.
C) corrected by corporate forces.
D) corrected by labor unions.
Answer: A
Q3) The component common to all markets is the transaction.
A)True
B)False
Answer: True
Q4) If the price of cotton used in making trousers increases,then the supply curve for trousers will shift to the left.
A)True
B)False
Answer: True
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Chapter 4: Markets and Government
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Sample Questions
Q1) (Figure: Understanding Price Ceilings and Floors)In the graph,if the government sets a price of $25,this is an example of an:
A) effective price ceiling.
B) effective price floor.
C) efficient price ceiling.
D) efficient price floor.
Q2) In theory,markets left alone should be competitive;however,when they are not,government can promote competition in the marketplace.
A)True
B)False
Q3) Intrade was efficient at predicting major events and elections because people are motivated to make accurate predictions based on personal opinions.
A)True
B)False
Q4) If a price ceiling is set above the market price,it is ineffective.
A)True
B)False
Q5) Will producer surplus rise or shrink when prices fall below equilibrium?
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Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) When the National Activity Index is at zero,the economy is growing at _____ rates.Negative values imply _____ trends.Positive values imply that growth is _____ the long-term trend.
A) rapidly;slowing;equal to B) slowly;accelerating;equal to C) historical;slowing;faster than D) historical;accelerating;slower than
Q2) Which of the following statements is TRUE about the National Activity Index?
A) When the index has a zero value,the economy has reached a trough.
B) Negative values always mean the economy is in a recession.
C) Positive values indicate the economy may face a period of increasing inflation.
D) Negative values mean the economy is growing more slowly than its long-term trend.
Q3) Holding other expenditures constant,if imports fall by $20 billion and exports fall by $10 billion,then GDP:
A) rises by $10 billion.
B) falls by $10 billion.
C) falls by $30 billion.
D) rises by $30 billion.
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7
Chapter 6: Measuring Inflation and Unemployment
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Sample Questions
Q1) The consumer price index measures private goods as well as public goods.
A)True
B)False
Q2) To convert a nominal change to a real change in dollar terms,the base year index must be set at 100.
A)True
B)False
Q3) The twin perils of the modern macroeconomy are said to be:
A) government and the trade deficit.
B) unemployment and the trade surplus.
C) inflation and unemployment.
D) inflation and the trade deficit.
Q4) A cost-of-living index measures the amount of expenditures needed to maintain a certain standard of living,while a cost-of-goods index measures the amount of expenditures needed to purchase a given basket of goods.
A)True
B)False
Q5) Full employment is defined as zero unemployment.
A)True
B)False
8
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Chapter 7: Economic Growth
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Sample Questions
Q1) Explain why real GDP per capita is a good indicator of how an economy grows over time.
Q2) Over the past century,when worker productivity rose:
A) real wages rose.
B) fewer public goods were available.
C) nominal prices rose.
D) capital fell.
Q3) One reasonably objective measure for infrastructure is the Index of Economic Freedom,which incorporates information about freedoms in _____ categories.
A) 10
B) 25
C) 100
D) 500
Q4) Economic growth is largely due to increases in labor,increases in capital,and improvements in technology.
A)True
B)False
Q5) What are the advantages of a stable financial system?
Q6) What are the factors that affect total factor productivity?
Page 9
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Chapter 8: Aggregate Expenditures
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Sample Questions
Q1) Equilibrium in the Keynesian model requires that withdrawals be the same as:
A) deposits.
B) debits.
C) credits.
D) injections.
Q2) If the marginal propensity to consume is 0.8 and the government reduces taxes by $5 billion,equilibrium income will:
A) fall by $25 billion.
B) rise by $25 billion.
C) rise by $20 billion.
D) fall by $20 billion.
Q3) In an economy with three sectors (household,business,and government),government spending is $5 billion,taxes are $4 billion,and investment is $4 billion.If the economy is in equilibrium,then saving is:
A) $1 billion.
B) $4 billion.
C) $5 billion.
D) $9 billion.
Q4) Where does equilibrium occur in the simple Keynesian model?
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Chapter 9: Aggregate Demand and Supply
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Sample Questions
Q1) The concept of the vertical long-run aggregate supply curve is inconsistent with the classical model.
A)True
B)False
Q2) The _____ is vertical at full employment.
A) short-run aggregate supply curve
B) long-run aggregate supply curve
C) short-run aggregate demand curve
D) long-run aggregate demand curve
Q3) The multiplier is calculated by using the formula 1 divided by the marginal propensity to save.
A)True
B)False
Q4) When the price of a product falls,causing consumers to purchase more of that product and less of other products,it is the:
A) income effect.
B) substitution effect.
C) wealth effect.
D) interest rate effect.
Q5) Why does the wealth effect not apply to assets such as houses or artwork?
Page 11
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Chapter 10: Fiscal Policy and Debt
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Sample Questions
Q1) A problem with supply-side fiscal policies is that they:
A) don't work.
B) take longer to work than demand-side fiscal policies.
C) only increase inflation.
D) only decrease inflation.
Q2) Disposable income is equal to:
A) Y - T.
B) Y + T.
C) T - Y.
D) X - M.
Q3) _____ is known for showing that reducing tax rates could increase tax revenues.
A) Robert Lucas
B) Irving Fisher
C) John Galbraith
D) Arthur Laffer
Q4) Most studies estimate the overall multiplier of the 2009 stimulus to be between:
A) 0 and 1.
B) 1.5 and 2.
C) 3 and 3.5.
D) 5 and 6.
Page 12
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Chapter 11: Saving, Investment, and the Financial System
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Sample Questions
Q1) Mortgage debt is a type of short-term debt.
A)True
B)False
Q2) Money is anything that is accepted in exchange for other goods and services or for the payment of debt.
A)True
B)False
Q3) If the government offers firms investment tax credits for building new factories,the after-tax rate of return _______,causing the loanable funds __________ curve to shift ______,leading to __________ interest rates.
A) rises;demand;rightward;higher
B) rises;demand;leftward;higher
C) falls;demand;leftward;lower
D) rises;supply;rightward;lower
Q4) What are the key functions of financial institutions?
Q5) Checking account balances are
A) part of M1 but not part of M2.
B) part of M1 and part of M2.
C) part of M2 but not part of M1.
D) not part of either M1 or M2.
Page 13
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Chapter 12: Money Creation and the Federal Reserve
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Sample Questions
Q1) The Fed has been successful at keeping the federal funds rate near the target.
A)True
B)False
Q2) If a bank's required reserve ratio is 10%,an initial injection of $2,000 would increase the overall money supply by up to:
A) $200.
B) $2,000.
C) $10,000.
D) $20,000.
Q3) A bank's equity is the sum of its assets and liabilities.
A)True
B)False
Q4) Which of the following is NOT a lag inherent in monetary policy?
A) interest rate lag
B) information lag
C) recognition lag
D) decision lag
Q5) How could this practice have contributed to the decline in lending?
Q6) How do banks reduce the risk of a solvency crisis?
Q7) What is the structure of the Federal Reserve System in the United States?
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Chapter 13: Monetary Policy
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Sample Questions
Q1) What would the Federal Reserve likely do to rein in an overheating economy?
Q2) In the long run,changes in the money supply will NOT change output according to: A) classical economists and monetarists.
B) classical economists.
C) Keynesian monetary theory.
D) monetarists.
Q3) If the unemployment rate is 4.5% and the inflation rate is 6%,the Fed will most likely:
A) lower the discount rate.
B) buy bonds.
C) lower the reserve requirement.
D) sell bonds.
Q4) If the Federal Reserve tries to target inflation near 2%,the inflation rate is 1.5%,and output is 2.3% below potential GDP,the target federal funds rate according to the Taylor rule is 4.4%.
A)True B)False
Q5) Tight monetary policy is likely to decrease imports.
A)True
B)False
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Chapter 14: Macroeconomic Policy: Challenges in a Global Economy
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Sample Questions
Q1) Assume that nominal wages increase 10% and productivity increases 20%.Using the equation for the Phillips curve,inflation is:
A) 10%.
B) 20%.
C) 30%.
D) -10%.
Q2) The natural rate of unemployment is the rate at which inflation equals expected inflation,resulting in zero price pressures in the economy.
A)True
B)False
Q3) The simultaneous occurrence of rising inflation and rising unemployment is called:
A) deflation.
B) stagflation.
C) disinflation.
D) disintermediation.
Q4) Briefly describe how the last credit crisis developed in the U.S.economy and how it precipitated the worldwide recession.
Q5) What happens when the actual inflation rate is more than the expected rate?
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Chapter 15: International Trade
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Sample Questions
Q1) It takes Melissa eight hours to produce a bushel of corn and two hours to wash and polish a car.It takes Greg six hours to produce a bushel of corn and one hour to wash and polish a car.Therefore:
A) Melissa has a comparative advantage in producing corn.
B) Melissa has a comparative advantage in washing cars.
C) Melissa has an absolute advantage in producing corn.
D) Melissa has an absolute advantage in washing cars.
Q2) Which of the following statements is NOT true?
A) The law of comparative and absolute advantage benefits everyone all the time.
B) If the price of U.S.grain is cheaper than that of Russian grain,U.S.producers will have an absolute advantage compared to Russian producers.
C) If the price of U.S.grain is cheaper than that of Russian grain,then trade between the two countries will depend on the terms of trade.
D) If U.S.grain is cheaper than Russian grain,and U.S.producers sell cheap grain to Russia,not everyone in Russia will benefit.
Q3) NAFTA has a provision that protects plants,animals,and natural resources.
A)True
B)False
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17
Chapter 16: Open Economy Macroeconomic
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Sample Questions
Q1) Which action is an effect of a contractionary policy under a fixed exchange rate system?
A) Net transfers rise.
B) The capital account becomes positive.
C) The trade balance worsens.
D) Imports drop and exports rise.
Q2) When the value of one currency falls relative to another currency,the first currency has:
A) depreciated.
B) moved sideways.
C) appreciated.
D) lost parity.
Q3) If capital is perfectly mobile and a country has floating exchange rates,expansionary _____ policy will be _____ and contractionary _____ policy will be _____.
A) fiscal;reinforced;monetary;hampered
B) fiscal;hampered;monetary;reinforced
C) fiscal;reinforced;fiscal;hampered
D) monetary;hampered;monetary;reinforced
Q4) List the common reasons one country would peg its currency to another.
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