Economics for Business Practice Questions
Course Introduction
Economics for Business introduces students to fundamental economic principles and their application within a business context. The course explores microeconomic and macroeconomic concepts such as supply and demand, market structures, pricing strategies, cost analysis, and the impact of government policies on business operations. By examining real-world business scenarios, students learn to interpret economic data, assess market trends, and make informed decisions that drive organizational success. Emphasis is placed on developing analytical skills and understanding how economic forces shape the competitive environment in which businesses operate.
Recommended Textbook
Economics Principles and Applications 6th Edition by Robert E. Hall
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35 Chapters
4566 Verified Questions
4566 Flashcards
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Page 2
Chapter 1: What Is Economics
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178 Verified Questions
178 Flashcards
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Sample Questions
Q1) Suppose that the Council of Economic Advisers tells the President that "the unemployment rate is 4 percent." The President responds,"That rate is still too high." The President's statement is
A) a normative statement
B) a positive statement
C) empirically verifiable by checking economic data
D) an indisputable statistical fact
E) an incorrect positive statement
Answer: A
Q2) Understanding the distinction between positive and normative economic statements is important because it
A) enables us to derive better forecasts of macroeconomic aggregates such as GDP
B) explains why economics is not a physical science
C) is the primary distinction between macroeconomics and microeconomics
D) provides a framework for understanding differences among economists
E) enables us to see the rationale behind economic models
Answer: D
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Chapter 2: Scarcity,choice,and Economic Systems
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146 Verified Questions
146 Flashcards
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Sample Questions
Q1) Combinations of goods outside the production possibilities curve
A) are unattainable given society's technology and resources
B) are combinations that have already been consumed
C) go beyond basic necessities
D) result from involuntary unemployment
E) are the result of economic recessions
Answer: A
Q2) A person has an absolute advantage in producing a good if he can A) produce it using fewer resources than another person
B) produce it while sacrificing less than another person in terms of foregone output
C) corner the market
D) use other peoples' money to produce it
E) work out some long term payment plan for financing the good Answer: A
Q3) If Bob has an absolute advantage over Pete in both typing and woodworking,then Bob also has a comparative advantage over Pete in both activities.
A)True
B)False
Answer: False
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Page 4
Chapter 2: Scarcity, choice, and Economic Systems: Part A
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Sample Questions
Q1) Which of the following would shift the demand curve for new college textbooks to the right?
A) an increase in the price of new college textbooks
B) a decrease in the price of new college textbooks
C) an increase in the price of used college textbooks
D) a decrease in the population of college students
E) a decrease in the wealth of college students
Answer: C
Q2) If an improvement in production technology causes a decrease in production costs,the result is a(n)
A) decrease in quantity supplied
B) increase in demand
C) increase in supply
D) improvement is working conditions
E) increase in quantity supplied
Answer: C
Q3) Both the supply and demand curves can shift due to changes in income.
A)True
B)False
Answer: False
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Chapter 4: Working With Supply and Demand
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58 Flashcards
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Sample Questions
Q1) If an excise tax is imposed on shoes,
A) government tax revenue will fall
B) the market price of shoes will decrease
C) the supply curve will shift downward
D) the equilibrium quantity demanded will decrease
E) the equilibrium quantity supplied will increase
Q2) In Figure 4-2,if the government imposes a price ceiling of $4,the result will be
A) equilibrium
B) excess supply
C) no different than before the price ceiling is imposed
D) excess demand
E) the demand shifts leftward and supply shifts rightward
Q3) Gary buys a house for $200,000 using $10,000 of his own money and gets a mortgage for the remaining $190,000.If the value of the house increases 7%,what will be the percentage increase in Gary's investment?
A) 25%
B) 7%
C) 14%
D) 70%
E) 140%
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Chapter 5: Elasticity
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Sample Questions
Q1) When a one-percent change in price is accompanied by a larger percent change in quantity demanded,
A) demand is inelastic
B) supply is elastic
C) the good is a normal good
D) the good is an inferior good
E) demand is elastic
Q2) A local store noticed that when it increased the price of milk from $2.50 to $3.50 per gallon,it sold 33% less milk.Since everything else remained the same,we would say the
A) demand for milk is perfectly elastic
B) demand for milk is elastic
C) demand for milk is perfectly inelastic
D) demand for milk is unitary elastic
E) law of supply does not apply in this situation
Q3) If a 10 percent rise in the price of bananas leads to a 20 percent reduction in the quantity of bananas demanded,then the price elasticity of demand is 2.00.
A)True
B)False
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Chapter 6: Consumer Choice
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Sample Questions
Q1) A change in the price of one good leads to all of the following,except one.Which is the exception?
A) a change in the slope of the budget line
B) a new point of consumer utility maximization
C) a change in the trade-off between the two goods
D) a change in the marginal utility of each unit of the good
E) a change in the marginal utility per dollar spent on the good
Q2) The change in total utility arising from a one-unit increase in consumption of a good is referred to as
A) average utility
B) the principle of diminishing marginal utility
C) real income
D) marginal utility
E) price
Q3) For a normal good,the substitution and income effects of a price decrease work in the same direction to increase the quantity demanded of that good.
A)True
B)False
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8
Chapter 7: Production and Cost
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Sample Questions
Q1) A firm's total cost of production is the
A) employees' opportunity cost
B) owners' opportunity cost
C) owners' opportunity cost minus the employees' opportunity cost
D) owners' opportunity cost plus the employees' opportunity cost
E) employees' opportunity cost minus the owners' opportunity cost
Q2) Which of the following is most likely to be a fixed input in the short run for Joe's Garage?
A) the grease used to lubricate cars
B) the part-time labor employed to repair cars
C) the inventory of replacement parts
D) the electricity used to heat and light the garage
E) the garage used to repair cars
Q3) Suppose that minimum efficient scale is approximately 20 percent of maximum potential market demand.In that case,
A) there will be approximately 20 firms in the market
B) we should expect to see a few large competitors
C) we should expect to see many small competitors
D) we should expect a natural monopoly to emerge
E) minimum efficient scale is too small for perfect competition to exist
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Chapter 8: How Firms Make Decisions: Profit Maximization
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Sample Questions
Q1) If a firm chooses to produce output at the point where MR equals MC,
A) then TR - TC will be maximized if there is a profit
B) economic profits will be zero
C) there will be positive accounting profits
D) there will be positive economic profits
E) average cost must equal average revenue
Q2) Figure 8-4 indicates data for the total cost curve and the demand curve facing Jonathan's Riding Mower Shop.The quantities indicated are potential daily sales.Jonathan's profit-maximizing sales level is
A) 8 or 9 units
B) 5 units
C) 10 units
D) 6 units
E) 7 units
Q3) If marginal cost exceeds marginal revenue,
A) the firm can increase profits by increasing output
B) the firm will lower profits by increasing output
C) the firm is maximizing profits
D) total cost exceeds total revenue
E) average cost equals average revenue
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Chapter 9: Perfect Competition
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Sample Questions
Q1) At which point in Figure 9-7 would a perfectly competitive firm earn the same profit,or suffer the same loss,by producing rather than by shutting down?
A) A
B) B
C) C
D) D
E) F
Q2) If the firms in a perfectly competitive market are continually operating where their total costs exceed their total revenue in the short run,then in the long run
A) the number of firms in the market will remain unchanged
B) the number of firms in the market will increase
C) the number of firms in the market will decrease
D) existing firms will increase their plant sizes
E) existing firms will increase their output
Q3) The model of perfect competition cannot be fruitfully used to analyze markets that don't perfectly fit the description of this market type.
A)True
B)False
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11
Chapter 9: Perfect Competition: Part A
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Sample Questions
Q1) One of the defining characteristics of a perfectly competitive market is
A) both buyers and sellers are well informed about the market
B) a small number of buyers
C) high barriers to entry
D) a small number of buyers but a large number of sellers
E) buyers are better informed about the market than sellers
Q2) In perfect competition,technological advances will allow economic profits for A) all firms.
B) only the firm developing the new technology.
C) early adopters.
D) none of the firms,as the advance will be immediately adopted by all of them.
Q3) Diminishing marginal returns are the reason why some industries have positively-sloped long-run average cost curves.
A)True
B)False
Q4) In a perfectly competitive market,a technological advance allows all firms to earn higher economic profits in the long run.
A)True
B)False
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Chapter 10: Monopoly
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Sample Questions
Q1) Which of the following would be considered rent-seeking activity?
A) A software firm using lawsuits to drive competitors out of business.
B) A technology firm investing in extremely expensive capital equipment.
C) A large firm trying to charge lower prices than its competitors.
D) An auto manufacturer using features and styling to differentiate its models from its competitors'.
Q2) An example of a barrier to entry is
A) patent law
B) government regulations
C) cost of advertising
D) economies of scale
E) all of the above
Q3) Assuming no price discrimination,the firm illustrated in Figure 10-22 will have total costs approximately equal to
A) $2,500
B) $34,000
C) $37,500
D) $43,750
E) $8,750
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Page 13
Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Monopolistically competitive firms are similar to perfectly competitive firms in the sense that both face horizontal demand curves for their product.
A)True
B)False
Q2) The demand curve facing a monopolistic competitor is
A) a horizontal line at the market price
B) upward sloping
C) perfectly elastic
D) perfectly inelastic
E) downward sloping
Q3) One strategic barrier that may keep new firms out of a market is
A) producing where marginal cost equals marginal revenue
B) a low minimum efficient scale
C) bounded markup pricing
D) efficiency wages,which may make it impossible for new entrants to compete profitably
E) excess capacity,which may serve as a signal to new entrants to stay away
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Chapter 12: Labor Markets
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Sample Questions
Q1) In a perfectly competitive labor market,if any one firm decreases the amount of labor it employs,the most likely result will be that the
A) market wage rate will rise
B) firm's revenue and cost will fall
C) market wage will fall
D) firm's revenue and cost will rise
E) firm's revenue will fall,but its cost will remain unchanged
Q2) A change in the wage rate causes a firm's labor demand curve to shift.
A)True
B)False
Q3) A labor market differs from a product market because
A) in a labor market,firms are suppliers and households are demanders
B) the usual laws of economics do not apply to labor markets
C) supply and demand are only relevant for labor markets
D) supply and demand are only relevant for product markets
E) in a labor market,firms are demanders and households are suppliers
Q4) The wage rate is constant along a firm's labor demand curve.
A)True
B)False
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Chapter 12: labor Markets: Part A
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86 Flashcards
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Sample Questions
Q1) In the vicious cycle of discrimination,
A) a lower wage causes current job discrimination
B) a lower wage causes premarket discrimination
C) premarket discrimination leads directly to current job discrimination
D) employee discrimination causes employer discrimination
E) premarket discrimination leads to lower human capital investment
Q2) Statistical discrimination
A) arises from employer prejudice
B) arises from consumer prejudice
C) does not involve prejudice by employers or consumers
D) is illegal in the United States
E) tends to reduce the profits of profit-maximizing firms
Q3) Wage differentials between groups can occur as a result of
A) job market discrimination and premarket discrimination only
B) differences in education,job experience,and geographic location only
C) job market discrimination and differences in education and job experience only
D) premarket discrimination and differences in geographic location only
E) premarket discrimination,job market discrimination,and differences in education,job experience,and geographic location
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Page 16
Chapter 13: Capital and Financial Markets
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Sample Questions
Q1) Which of the following types of bond typically has the highest yields? (The letters are Moody's ratings. )
A) a federal government bond
B) a corporate bond rated Aaa
C) a corporate bond rated Aa
D) a corporate bond rated A
E) a corporate bond rated Baa
Q2) Which of the following would increase the value of a firm's stock?
A) a decrease in the firm's present profit
B) a decrease in the anticipated growth rate of future profits
C) an increase in the perceived riskiness of future profits
D) a fall in the interest rate
E) an anticipated increase in the interest rate
Q3) The interest rate on U.S.government securities is often called the
A) prime rate
B) public discount
C) riskless rate
D) superior rate
E) universal discount
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Page 17
Chapter 14: Economic Efficiency and the Competitive Ideal
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Sample Questions
Q1) At any quantity at which the demand curve lies above the supply curve,
A) economic efficiency is achieved
B) the cost of producing the last unit exceeds its value to some consumer
C) marginal cost exceeds the market price
D) the market is Pareto efficient
E) the value of the last unit to some consumer exceeds the cost of producing it
Q2) The market demand curve indicates
A) the minimum price someone would be willing to pay for each unit of a good
B) the cost of producing each unit of a good
C) the price someone pays for each unit of a good
D) how many people will purchase a good at each possible price
E) the maximum price someone would be willing to pay for each unit of a good
Q3) An individual seller's producer surplus on a unit of a good is
A) zero in perfect competition
B) zero in monopoly
C) greater than the buyer's consumer surplus on that unit
D) an example of a side payment
E) the difference between the price the seller receives and the cost of producing that unit.
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Page 18
Chapter 15: Governments Role in Economic Efficiency
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Sample Questions
Q1) The rights of a co-owner to a share of a firm's profits are
A) protected under tort law
B) protected under contract law
C) not protected under any form of law
D) protected under antitrust law
E) less valuable than the costs of pursuing action against the company
Q2) In a single-price monopoly market
A) total benefit (the sum of consumer and producer surplus)is as large as it can possibly be
B) price and output are higher than they would be in an otherwise similar perfectly competitive market
C) price and output are lower than they would be in an otherwise similar perfectly competitive market
D) the quantity produced is artificially low,thereby creating an inefficiency
E) the price charged is artificially low,thereby creating an inefficiency
Q3) The Sherman Antitrust Act prohibits price fixing by competitors,monopolization of a market,and attempts to monopolize a market.
A)True
B)False
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Page 19
Chapter 16: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) If free international trade is compromised by the imposition of an import quota or tariff,
A) all of the following are true
B) import-competing producers in the country that imposes the tariff or quota will be able to sell a larger quantity at higher prices
C) consumers of import goods will obtain a larger quantity at lower prices
D) workers in export industries will find more jobs
E) consumers of export goods will obtain a larger quantity,although only at higher prices
Q2) One factor that might lead to reduced trade or incomplete specialization is
A) absolute advantage
B) comparative advantage
C) government-enacted barriers to trade
D) constant opportunity cost
E) decreasing opportunity cost
Q3) If Armenia can produce rugs more efficiently than any other country,it does not necessarily benefit from producing rugs for international trade.
A)True
B)False
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Chapter 17: What Macroeconomics Tries to Explain
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Sample Questions
Q1) If real GDP is increasing at a 2 percent annual rate while the unemployment rate is 7 percent,the economy is
A) not achieving full economic potential
B) experiencing an increase of 2 percent in real annual per capita GDP
C) experiencing a slump
D) experiencing high prices and low inflation
E) producing along its production possibilities frontier
Q2) The Employment Act of 1946 directed the federal government to pursue the three objectives of maximizing employment,production,and purchasing power.
A)True
B)False
Q3) During the expansion phase of a business cycle
A) employment and output are both at a peak
B) employment and output are both rising
C) employment is falling and output is rising
D) unemployment is rising and output is falling
E) employment is rising and output is falling
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Chapter 18: Production, income, and Employment
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Sample Questions
Q1) This year,Shirts Inc.purchased $1,000 worth of silk from the Silky Silkworm Company,$100 worth of buttons from Barney's Buttons,and $200 worth of thread from Tracy's Thread Company.Shirts Inc.sold the shirts they produced for $2,000.As a result of these transactions,how much did Shirts Inc.contribute to GDP this year?
A) $700
B) $1,300
C) $2,000
D) $2,700
E) $3,300
Q2) Which of the following people would be considered employed in the Census Bureau's Household Survey?
A) A homemaker working 20 hours cleaning her house
B) A person paid to work 2 hours per week cleaning houses
C) A child shoveling neighbors' driveways for money
D) A person volunteering full-time at a local hospital
E) A laid-off carpenter looking for a job
Q3) U.S.residents bear the burden of unemployment equally.
A)True
B)False
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Page 22
Chapter 19: The Price Level and Inflation
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Sample Questions
Q1) An index number is important only in a relative sense -- in comparison to an index number from another period.
A)True
B)False
Q2) If you believe that the inflation rate is likely to be high over the next ten years,you would want to
A) have a pension with raises indexed to the CPI if you were going to be retiring
B) obtain a variable rate mortgage
C) not obtain any fixed rate consumer loans
D) pay off all of your existing fixed rate loans
E) be a shareholder of a bank because their profits are going to increase dramatically
Q3) The Consumer Price Index excludes all of the following,except one.Which one is included in the CPI?
A) Services purchased directly by consumers
B) Raw materials
C) Services purchased by the government
D) Machinery purchased by firms
E) Intermediate goods purchased by firms
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23
Chapter 20: The Classical Long-Run Model
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Sample Questions
Q1) Classical economists believed that production could be stuck below its full employment level for a long period of time.
A)True
B)False
Q2) Which of the following best describes the aggregate production function if output is measured on the vertical axis and the number of workers employed is measured on the horizontal axis? The curve is
A) downward sloping and becomes flatter as the number of workers employed increases
B) downward sloping and becomes steeper as the number of workers employed increases
C) downward sloping with the same slope throughout
D) upward sloping and becomes steeper as the number of workers employed increases
E) upward sloping and becomes flatter as the number of workers employed increases
Q3) Saving and taxes are considered leakages from the spending stream.
A)True
B)False
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Chapter 20: Part A: The Classical Model in an Open Economy
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Sample Questions
Q1) In the classical model with an open economy,an increase in government purchases always causes complete crowding out.
A)True B)False
Q2) In the classical model with an open economy,an increase in the trade deficit as a result of a tax cut,causes a decline in the interest rate,attracting more loanable funds from abroad.
A)True B)False
Q3) In the classical model with an open economy,an increase in government purchases can affect a country's exchange rate,causing its imports and exports to change.
A)True B)False
Q4) In the classical model with an open economy,an increase in government purchases may not cause complete crowding out,but crowding out will be complete worldwide.
A)True B)False
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Chapter 21: Economic Growth and Rising Living Standards
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Sample Questions
Q1) Any pro-growth policy that increases investment requires
A) an eventual increase in GDP
B) increased production of consumption goods
C) decreased production of capital goods
D) a sacrifice of current consumption spending
E) reduced government spending
Q2) The track record of foreign assistance
A) is not very clear.
B) shows that it have been very successful in helping poor countries.
C) has enhanced the protection of private property rights in less developed countries.
D) has drastically reduced corruption in less developed countries.
E) has made most economists skeptical.
Q3) Government policies that help increase the skills of the workforce or that subsidize employment more directly would
A) decrease employment and increase output
B) increase employment and decrease output
C) increase employment and increase output
D) increase unemployment and decrease output
E) increase unemployment and increase output
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Page 26
Chapter 22: Economic Fluctuations
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Sample Questions
Q1) You are reading a newspaper article that refers to expansions and contractions in the economy.The references are to changes in
A) wage rates
B) inflation rates
C) movements in exchange rates
D) real GDP
E) investment expectations
Q2) Suppose a major computer virus struck the nation's computers and all hard drives were erased.What would happen in the labor market?
A) The real wage would increase and so would employment.
B) The real wage would not change,but employment would decrease.
C) The real wage would increase and employment would decrease.
D) The real wage would decrease and so would employment.
E) The real wage would decrease and employment would increase.
Q3) Say's law will prevent recessions only if a critical assumption of the classical model holds: That the interest rate adjusts until saving is equal to business and government borrowing.
A)True
B)False
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Page 27
Chapter 23: The Short-Run Macro Model
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Sample Questions
Q1) Whenever there is an increase in autonomous consumption spending,there will be
A) an upward shift of the aggregate expenditure line causing equilibrium GDP to rise
B) an upward shift of aggregate expenditure line,but no change in equilibrium GDP
C) no change in the aggregate expenditure line,but equilibrium GDP will rise
D) an upward shift of the aggregate expenditure line,causing equilibrium GDP to fall
E) no change in the aggregate expenditure line or equilibrium GDP
Q2) The marginal propensity to consume tells us the intercept of the consumption function.
A)True
B)False
Q3) Which of the following would cause the consumption function to shift down?
A) A decrease in disposable income
B) A decrease in taxes
C) An increase in taxes
D) An increase in the marginal propensity to consume
E) None of the above
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28
Chapter 24: Fiscal Policy
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Sample Questions
Q1) In the short run,the impact of a $50 billion spending package on GDP will be
A) greater than $50 billion because of the multiplier effect
B) less than $50 billion because of the tax code
C) greater than $50 billion because of the tax code
D) exactly $50 billion
E) greater than $50 billion because of crowding out
Q2) If the expenditure multiplier is 6.5,the tax multiplier is
A) 7.5
B) 5.5
C) -5.5
D) -6.5
E) -7.5
Q3) Under what condition can the U.S.government continue to pay interest on a rising debt without eventually needing to increase the average tax rate?
A) If the national debt grows at the same rate as nominal GDP
B) If the nominal interest on the national debt grows faster than nominal GDP
C) If the total interest payments on the national debt grow faster than nominal GDP
D) If the national debt grows faster than nominal GDP
E) If the real interest on the national debt grows faster than real GDP
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Page 29
Chapter 25: Money,banks,and the Federal Reserve
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Sample Questions
Q1) In the United States between 1790 and the Civil War,who issued paper currency?
A) The Federal Reserve System
B) The U.S.Treasury Department
C) The U.S.Congress
D) The British government
E) Private banks.
Q2) Which of the following would not be considered money in the hands of the public?
A) cash hidden under a mattress
B) a bank's vault cash
C) cash in the cash register of a hardware store
D) cash stored in the hardware store's vault
E) cash in your wallet
Q3) If the reserve requirement is 0.2 and demand deposits are $800 (assume no earlier loans),the banks can lend out
A) $800
B) $80
C) $640
D) $160
E) $960
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Page 30
Chapter 26: The Money Market and Monetary Policy
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Sample Questions
Q1) The secondary market for bonds is a market for
A) bonds that is smaller than the primary market
B) bonds that are not first-class
C) previously issued bonds
D) bonds that are not substitutes for bonds found in the primary market
E) newly issued bonds
Q2) The federal funds rate is the rate at which
A) banks loan money to the Fed
B) the Fed loans money to banks
C) one regional Federal Reserve bank loans money to another regional Federal Reserve bank
D) one bank loans money to another.
E) regional Federal Reserve banks loan money to a local bank.
Q3) The secondary market for bonds is
A) where new issues of bonds are purchased
B) of less importance to our economy than is the primary market
C) of less importance to our economy than the stock market
D) where bonds that were issued in previous periods are purchased
E) a key determinant of the money supply
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Chapter 26: Feedback Effects From GDP to the Money
Market
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Sample Questions
Q1) An increase in government spending will lead to which of the following?
A) an increase in equilibrium GDP,a decrease in money demand,a decrease in the interest rate,and an increase in investment spending
B) a decrease in equilibrium GDP,a decrease in money demand,an increase in the interest rate,and a decrease in investment spending
C) an increase in equilibrium GDP,an increase in money demand,an increase in the interest rate,and an increase in investment spending
D) a decrease in equilibrium GDP,a decrease in money demand,a decrease in the interest rate,and an increase in investment spending
E) an increase in equilibrium GDP,an increase in money demand,an increase in the interest rate,and a decrease in investment spending
Q2) The rise in equilibrium GDP shifts the money demand curve to the left.
A)True
B)False
Q3) Crowding out is important only in the classical model.
A)True
B)False
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Page 32
Chapter 27: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) Which of the following would shift the aggregate demand curve to the left?
A) increases in government purchases,investment spending,autonomous consumption,taxes or the money supply
B) decreases in government purchases,investment spending,autonomous consumption,or the money supply
C) increases in government purchases,investment spending,autonomous consumption or the money supply
D) decreases in government purchases,investment spending,autonomous consumption,taxes or an increase in the money supply
E) only increases in government purchases
Q2) An increase in the price level will increase the interest rate,which will decrease investment spending and shift aggregate demand to the left.
A)True
B)False
Q3) Recovery from the 1990-91 recession occurred because wages fell and the aggregate supply curve shifted downward.
A)True
B)False
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33
Chapter 28: Inflation and Monetary Policy
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Sample Questions
Q1) Which of the following is a reason why the money demand curve might shift?
A) an increase in the interest rate
B) a change in the money supply
C) open market purchases of bonds by the Federal Reserve
D) changes in the required reserve ratio
E) new methods of making payments that replace money
Q2) The natural rate of unemployment in the United States
A) has consistently equaled 6 percent
B) has increased as the federal budget deficit has fallen
C) is similar to the natural rate in European countries
D) has increased in recent years
E) is now unusually high because so many women have entered the labor force
Q3) The Fed does not try to reduce frictional unemployment because it
A) is easier to eliminate with fiscal policy
B) is not a serious social problem
C) has microeconomic solutions
D) signals a strong economy
E) rarely exceeds a 1 percent rate
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34
Chapter 29: Exchange Rates and Macroeconomic Policy
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Sample Questions
Q1) If the U.S.purchased $100 billion in foreign assets and foreigners purchased $50 billion of U.S.assets,which of the following is true?
A) Net exports equal -$50 billion.
B) Exports total $100 billion.
C) There is a trade deficit.
D) Net exports equal $50 billion.
E) Imports total $50 billion.
Q2) The concern of economists with respect to the trade deficit is whether it is
A) sustainable at current levels.
B) desirable at current levels.
C) under-specified.
D) overestimated.
E) the result of the financial crisis.
Q3) If the Bank of Japan buys yen to prevent the yen from appreciating,
A) it is probably also trying to profit from that operation
B) it is probably also trying to maintain an interest rate target
C) it is engaging in bilateral arbitrage
D) it is engaging in a managed float
E) it is wasting its time and effort
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Page 35
Chapter 30: Appendix-finding Equilibrium GDP
Algebraically
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Sample Questions
Q1) If autonomous consumption is $1,000,the MPC is 0.75,net taxes are $500,investment spending is $800,and government purchases equals $500,and NX = $0,what is equilibrium GDP?
A) $1,800
B) $1,925
C) $2,566.7
D) $7,200
E) $7,700
Q2) If I = $2,000,G = $4,000,T = $1,000,NX = $0,autonomous consumption = $1,000 and the marginal propensity to consume is 0.6,what is the equilibrium value of output?
A) $16,000
B) $7,000
C) $6,400
D) $3,840
E) $8,000
Q3) If net taxes are included in the model,the equation that shows consumption at each level of income is: C = a + b(Y - T)or C = a + bY - bT.
A)True
B)False
Page 36
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Chapter 31: Appendix: Capital and Leverage
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Q1) Deleveraging is the process of reducing leverage,and therefore increasing the risk to capital from any further declines in asset prices.
A)True
B)False
Q2) The simple leverage ratio is defined as:
A) Depreciation of an asset / Value of an asset
B) Current assets / current liabilities.
C) Equity of an asset / Value of an asset
D) Value of an asset / Equity of an asset.
E) Equity of an asset / Original cost of an asset.
Q3) It is easy for one financial institution to reduce its leverage by acting alone,but when many financial institutions try to do the same thing at once,asset prices fall rapidly and bank capital declines for all such institutions.
A)True
B)False
Q4) Just as greater leverage multiplies a bank's potential profits,it also multiplies a bank's potential losses.
A)True
B)False
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