Economics for Business Mock Exam
Course Introduction
This course introduces students to the fundamental principles of economics with a focus on their practical application in the business environment. Topics include supply and demand analysis, market structures, pricing strategies, and the impact of government policies on business operations. Students will also explore concepts such as cost analysis, production decisions, and the global economic landscape. By examining real-world case studies, participants will develop the skills to make informed decisions, assess risk, and anticipate economic trends affecting businesses. This course enables future managers and entrepreneurs to understand how economic theories influence business strategies and outcomes.
Recommended Textbook Economics 20th Edition Volume I and Volume II by Campbell R. McConnell\McConnell 20e
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Chapter 22: Income Inequality Poverty and Discrimination
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Sample Questions
Q1) Which of the following groups has the highest poverty rate?
A) Age 65 or over.
B) Foreign-born (not citizens).
C) Hispanics.
D) Female-headed households.
Q2) The equality-efficiency trade-off suggests that:
A) welfare programs stimulate incentives to work.
B) inefficiencies result when incentives to produce are reduced.
C) noncash transfers are superior to cash transfers.
D) economic growth is the best means of reducing poverty.
Q3) An example of a social insurance program is ____________,whereas an example of a public assistance program is _______.
A) Temporary Assistance for Needy Families;unemployment compensation
B) Supplemental Security Income;unemployment compensation
C) Social Security;Supplemental Nutrition Assistance Program
D) Medicaid;Medicare
Q4) The standard data on income distribution do not include the value of noncash transfers as income.
A)True
B)False
Page 3
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Chapter 23: Health Care
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Sample Questions
Q1) Employer-provided private health insurance:
A) is unique to the United States and not typically found in other countries.
B) is the most common form of health care provision in industrialized countries.
C) substantially reduces the cost of health care provision relative to national health insurance schemes.
D) provides a small percentage of health care spending in the United States.
Q2) As a percentage of GDP,U.S.health care spending is higher than that of any other major industrial country.
A)True
B)False
Q3) Subsidies for those required to purchase health insurance under the personal mandate provision of the PPACA are:
A) limited to those whose income is less than 133 percent of the federal poverty line.
B) limited to those whose income is at or below the federal poverty line.
C) provided to some individuals in the upper half of the income distribution.
D) a fixed amount per person for those eligible to receive the subsidies.
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Chapter 24: Immigration
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Sample Questions
Q1) Any migration that affects the economies of the countries involved is referred to as "economic immigration."
A)True
B)False
Q2) "Backflows" occur when:
A) two countries send immigrants to each other in approximately equal numbers.
B) physical capital flows into a country that has lost labor due to migration.
C) immigrants send financial payments back to family in their country of origin.
D) migrants return to their home country.
Q3) Illegal immigrants displace domestic-born workers on a one-for-one basis.
A)True
B)False
Q4) Compensating wage differentials:
A) refer to the wage premium given to domestic-born workers.
B) refer to the wage premium necessary to attract illegal immigrant workers.
C) discourage illegal immigrants from entering low-wage labor markets.
D) will attract U.S.workers to undesirable jobs if the differential over less unpleasant work is sufficiently high.
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Chapter 25: An Introduction to Macroeconomics
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Sample Questions
Q1) Economists and policymakers are generally more concerned about nominal GDP than real GDP.
A)True
B)False
Q2) A sometimes short,sometimes extended period of declining output and living standards is referred to as a recession.
A)True
B)False
Q3) Prices tend to be sticky because:
A) firms are worried that frequent price changes would annoy consumers.
B) most firms have agreements with each other to fix prices at profit-maximizing levels.
C) government controls most prices.
D) foreign competition discourages domestic firms from price changes.
Q4) Demand shocks may be positive or negative.
A)True
B)False
Q5) Inflation reduces the purchasing power of a person's income and savings.
A)True
B)False
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Chapter 26: Measuring Domestic Output and National Income
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Sample Questions
Q1) A large underground economy results in an:
A) understated GDP.
B) overstated GDP.
C) understated GDP price index.
D) overstated GDP price index.
Q2) National income accountants can avoid multiple counting by:
A) including transfer payments in their calculations.
B) only counting final goods.
C) counting both intermediate and final goods.
D) only counting intermediate goods.
Q3) Which of the following activities is excluded from GDP,causing GDP to understate a nation's production?
A) The services of health care workers.
B) The services of military personnel.
C) The construction of new buildings.
D) Goods and services produced in the underground economy.
Q4) Within the circular flow model,the level of total resource income and total spending on output will be approximately equal.
A)True
B)False
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Chapter 27: Economic Growth
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Sample Questions
Q1) Real GDP per capita in the United States (as of 2010)exceeds that of France primarily because:
A) the United States had higher annual rates of growth than France from 1960 through 2010.
B) the United States has a much larger population than France.
C) the United States has a higher percentage of the working-age population in the labor force and because U.S.employees average about 14 percent more hours worked per year.
D) European Union rules severely limit France's access to technologies developed outside the region.
Q2) Follower countries achieve high rates of growth by adopting technologies developed by leader countries.
A)True
B)False
Q3) Given the annual rate of economic growth,the "rule of 70" allows one to:
A) determine the accompanying rate of inflation.
B) calculate the size of the GDP gap.
C) calculate the number of years required for real GDP to double.
D) determine the growth rate of per capita GDP.
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Chapter 28: Business Cycles, Unemployment, and Inflation
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Sample Questions
Q1) Inflation affects:
A) both the level and the distribution of income.
B) neither the level nor the distribution of income.
C) the distribution,but not the level,of income.
D) the level,but not the distribution,of income.
Q2) If actual GDP is less than potential GDP:
A) potential GDP will fall.
B) the price level will rise.
C) investment spending will fall.
D) the actual unemployment rate will be higher than the natural unemployment rate.
Q3) A college graduate using the summer following graduation to search for a job would best be classified as:
A) not officially a member of the labor force.
B) a part of structural unemployment.
C) a part of cyclical unemployment.
D) a part of frictional unemployment.
Q4) Unanticipated inflation helps some groups in the economy.
A)True
B)False
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Chapter 29: Basic Macroeconomic Relationships
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Sample Questions
Q1) With a marginal propensity to save of .4,the marginal propensity to consume will be:
A) 1.0 minus .4.
B) .4 minus 1.0.
C) the reciprocal of the MPS.
D) .4.
Q2) Tessa's break-even income is $10,000 and her MPC is 0.75.If her actual disposable income is $16,000,her level of:
A) consumption spending will be $14,500.
B) consumption spending will be $15,500.
C) consumption spending will be $13,000.
D) saving will be $2,500.
Q3) Investment spending in the United States tends to be unstable because:
A) expected profits are highly variable.
B) capital goods are durable.
C) innovation occurs at an irregular pace.
D) all of these contribute to the instability.
Q4) The average propensity to consume is defined as income divided by consumption.
A)True
B)False
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Chapter 30: The Aggregate Expenditures Model
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Sample Questions
Q1) (Advanced analysis)Answer the question on the basis of the following data for a private closed economy.The letters Y,C,S,and I are used to represent real GDP,consumption,saving,and investment respectively. \(\begin{array}{ccc} \underline{\text { GDP }(Y)} & \underline{\text { Consumption (C) }} & \underline{\text { Investment (I) }} \\
\$ \$ 0 & \$ 60 & \$ 30 \\
100 & 120 & 40 \\
200 & 180 & 50 \\
300 & 240 & 60 \\
400 & 300 & 70 \\
500 & 360 & 80
\end{array}\) The equation representing the consumption schedule for the economy is:
A) C = Y - .6S.
B) Y = C + S.
C) C = 60 + .4Y.
D) C = 60 + .6Y.
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Chapter 31: Aggregate Demand and Aggregate Supply
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Q1) Suppose that real domestic output in an economy is 20 units,the quantity of inputs is 10,and the price of each input is $4.Answer the following question on the basis of this information. Refer to the information.All else being equal,if the price of each input increased from $4 to $6,productivity would:
A) fall from 2 to 3.
B) fall from .50 to .33.
C) rise from 1 to 2.
D) remain unchanged.
Q2) The economy's long-run aggregate supply curve:
A) slopes upward and to the right.
B) is vertical.
C) is horizontal.
D) slopes downward and to the right.
Q3) Other things equal,an improvement in productivity will:
A) shift the aggregate demand curve to the left.
B) shift the aggregate supply curve to the left.
C) shift the aggregate supply curve to the right.
D) increase the price level.
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Chapter 32: The Balance of Payments, Exchange Rates, and Trade Deficits
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Sample Questions
Q1) If the MPS in an economy is .1,government could shift the aggregate demand curve rightward by $40 billion by:
A) increasing government spending by $4 billion.
B) increasing government spending by $40 billion.
C) decreasing taxes by $4 billion.
D) increasing taxes by $4 billion.
Q2) Tax increases and government spending cuts by state governments during recessions often reduce the expansionary impact of fiscal policy by the federal government.
A)True
B)False
Q3) Permanent tax reductions are more likely to be expansionary than temporary tax reductions.
A)True
B)False
Q4) In 2012,the U.S.public debt was about:
A) $16.4 trillion.
B) $6.8 trillion.
C) $5.3 trillion.
D) $11.9 trillion.
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Chapter 33: Money, Banking, and Financial Institutions
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Sample Questions
Q1) What are "mortgage-backed securities"?
A) Company stock shares for financial institutions that lend to home buyers.
B) Bonds backed by mortgage payments.
C) Treasury bills and savings bonds that banks sold to maintain liquidity during the mortgage default crisis.
D) Insurance against mortgage loan defaults.
Q2) Some economists are concerned that the financial rescue provided by the TARP will encourage financial investors and firms to take on greater risks in the future.This is an example of:
A) moral hazard.
B) adverse selection.
C) a prisoner's dilemma.
D) shadow banking.
Q3) A $20 bill is a:
A) gold certificate.
B) Treasury note.
C) Treasury bill.
D) Federal Reserve Note.
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Chapter 34: Money Creation
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Sample Questions
Q1) Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent.If the bank's required and excess reserves are equal,then its actual reserves:
A) are $1,000,000.
B) are $10,000.
C) are $20,000.
D) cannot be determined from the given information.
Q2) Which one of the following is presently a major deterrent to bank panics in the United States?
A) The legal reserve requirement.
B) The fractional reserve system.
C) The gold standard.
D) Deposit insurance.
Q3) Leverage in the financial system:
A) magnifies profits but reduces losses.
B) magnifies both profits and losses.
C) reduces profits but magnifies losses.
D) reduces both profits and losses.
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Chapter 35: Interest Rates and Monetary Policy
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Sample Questions
Q1) When the Fed pays interest on reserves held at Fed banks,the interest rate used is the discount rate.
A)True
B)False
Q2) Assume the reserve ratio is 25 percent and Federal Reserve Banks buy $4 million of U.S.securities from the public,which deposits this amount into checking accounts.As a result of these transactions,the supply of money is:
A) not directly affected,but the money-creating potential of the commercial banking system is increased by $12 million.
B) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $16 million.
C) directly reduced by $4 million and the money-creating potential of the commercial banking system is decreased by an additional $12 million.
D) directly increased by $4 million and the money-creating potential of the commercial banking system is increased by an additional $12 million.
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Chapter 36: Financial Economics
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Sample Questions
Q1) For any given financial asset,risk levels and average expected rates of return are:
A) independent of each other.
B) negatively related because assets with higher average expected rates of return sell for higher prices,which are inversely related to risk.
C) positively related because both are inversely related to the rate of inflation.
D) positively related because investors must be compensated for taking greater risks.
Q2) The vertical intercept of the Security Market Line is determined by the:
A) beta of the market portfolio.
B) discount rate.
C) risk-free interest rate.
D) risk premium.
Q3) Which of the following is an economic investment?
A) Shares of corporate stock.
B) U.S.savings bonds.
C) Newly built houses.
D) Bonds issued by private corporations.
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Chapter 37: Extending the Analysis of Aggregate Supply
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Sample Questions
Q1) Inflation accompanied by falling real output and employment is known as:
A) Laffer's law.
B) Okun's law.
C) stagflation.
D) the Phillips Curve.
Q2) According to the research of Christina Romer and David Romer,tax increases implemented to reduce an inherited budget deficit:
A) reduce real output by the same amount as any other tax increase.
B) reduce real output by more than other tax increases.
C) reduce real output by less than other tax increases.
D) increase real output,contrary to what occurs with other tax increases.
Q3) Suppose that the Consumer Price Index for a particular economy rose from 110 to 120 in year 1,120 to 130 in year 2,and 130 to 140 in year 3.We could conclude that this economy is experiencing:
A) accelerating inflation.
B) deflation.
C) disinflation.
D) a constant rate of inflation.
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Chapter 38: Current Issues in Macro Theory and Policy
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Sample Questions
Q1) If firms are paying efficiency wages,they:
A) may be reluctant to increase nominal wages when aggregate demand increases.
B) are highly vulnerable to import competition.
C) may be targeted for takeover by firms paying market wages.
D) may be reluctant to cut wages when aggregate demand declines.
Q2) The proposed monetary rule that would specify how the Fed should respond to changes in GDP and inflation rates is called the:
A) Keynesian rule.
B) Friedman rule.
C) Taylor rule.
D) Lucas rule.
Q3) In the insider-outsider theory:
A) insiders are workers who retain employment during recession.
B) insiders are managers who have more information about their firms' performance than outsiders.
C) insiders are "principals" and outsiders are "agents."
D) outsiders are foreigners.
Q4) In the insider-outsider theory,insiders are agents and outsiders are principals.
A)True
B)False
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Chapter 39: International Trade
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Sample Questions
Q1) A nation will neither export nor import a specific product when its:
A) domestic price equals the world price.
B) export supply curve lies above its import demand curve.
C) export supply curve is upsloping.
D) import demand curve is downsloping.
Q2) In comparing a tariff and an import quota,we find that:
A) the tariff and quota both generate the same amount of revenue for the U.S.Treasury.
B) the tariff generates revenue for the U.S.Treasury,but the quota does not.
C) the quota generates revenue for the U.S.Treasury,but the tariff does not.
D) neither the tariff nor the quota generates revenue for the U.S.Treasury.
Q3) It is impossible for a nation to have a comparative advantage in producing everything.
A)True
B)False
Q4) Which is an example of a nontariff barrier (NTB)?
A) An export subsidy.
B) An excise tax on the physical volume of imported goods.
C) Box-by-box inspection requirements for imported fruit.
D) An excise tax on the dollar value of imported goods.
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Chapter 40: The Balance of Payments, Exchange Rates, and Trade Deficits
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Sample Questions
Q1) Suppose interest rates fall sharply in the United States but are unchanged in Great Britain.Other things equal,under a system of freely floating exchange rates,we can expect the demand for pounds in the United States to:
A) decrease,the supply of pounds to increase,and the dollar to appreciate relative to the pound.
B) increase,the supply of pounds to increase,and the dollar may either appreciate or depreciate relative to the pound.
C) increase,the supply of pounds to decrease,and the dollar to depreciate relative to the pound.
D) decrease,the supply of pounds to increase,and the dollar to depreciate relative to the pound.
Q2) Under freely flexible (floating)exchange rates,if the dollar price of pounds rises,the pound price of dollars will fall.
A)True
B)False
Q3) A current account deficit will reduce U.S.foreign indebtedness.
A)True
B)False
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Chapter 41: The Economics of Developing Countries
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Q1) The idea that a person's productive efforts and his or her economic rewards are unrelated:
A) is the neocolonialism view of economic development.
B) describes the vicious circle of poverty.
C) is the surplus labor theory of economic development.
D) is the capricious universe view.
Q2) Which of the following does not correlate positively with economic growth?
A) Output per capita.
B) Life expectancy.
C) The percentage of the population engaged in agriculture.
D) The literacy rate.
Q3) Reduction of tariff barriers against DVC imports would benefit both the DVCs and the IACs.
A)True
B)False
Q4) The most important growth obstacle common to all DVCs is the lack of desire to increase their standards of living.
A)True
B)False
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Chapter 42: The United States and the Global Economy
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Sample Questions
Q1) Appreciation of the Mexican peso will:
A) make Mexico's exports and imports both more expensive.
B) make Mexico's exports more expensive and its imports less expensive.
C) make Mexico's exports less expensive and its imports more expensive.
D) increase Mexican exports.
Q2) If the exchange rate changes from $1 = 2 euros to $1 = 3 euros:
A) the dollar has appreciated in value.
B) the dollar has depreciated in value.
C) the dollar has neither appreciated nor depreciated,but the euro has appreciated in value.
D) U.S.exports to Europe will increase.
Q3) Approximately half of the U.S.international trade is with:
A) the nations of Eastern Europe.
B) the developing countries of Africa,Asia,and Latin America.
C) other industrialized nations,for example,Canada,Japan,and the countries of the European Union.
D) China.
Q4) The WTO is comprised of 28 European nations.
A)True
B)False
Page 23
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