Course Introduction
Economics for Business
Textbook Exam Questions
Economics for Business introduces students to the core principles of microeconomics and macroeconomics, emphasizing their application in real-world business contexts. The course explores how market mechanisms, consumer behavior, and production decisions influence firm strategy, pricing, and competition. Students learn to analyze economic trends, interpret key indicators, and evaluate the impact of government policies on the business environment. Through case studies and practical examples, the course equips learners with the analytical tools required for effective decision-making in todays dynamic and global economy.
Recommended Textbook
Macroeconomics 8th Edition by Andrew Abel
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15 Chapters
1417 Verified Questions
1417 Flashcards
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Page 2
Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) An open economy is a national economy that
A)doesn't interact economically with the rest of the world.
B)has a stock market that is open to traders from anywhere in the world.
C)has extensive trading and financial relationships with other national economies.
D)has established diplomatic relations with most other national economies.
Answer: C
Q2) The highest and most prolonged period of unemployment in the United States over the last 125 years occurred during A)World War II.
B)the 1890s Depression.
C)the 1990-1991 recession.
D)the Great Depression of the 1930s.
Answer: D
Q3) Following World War I and World War II,the United States had a A)small trade surplus.
B)small trade deficit.
C)large trade deficit.
D)large trade surplus.
Answer: D
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Page 3
Chapter 2: The Measurement and Structure of the National Economy
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Sample Questions
Q1) By Marks buys a one-year German government bond (called a bund)for $400.He receives principal and interest totaling $436 one year later.During the year the CPI rose from 150 to 162,but he had thought the CPI would be at 159 by the end of the year.By Marks had expected the real interest rate to be ________,but it actually turned out to be ________.
A)8%; 1%
B)6%; 3%
C)3%; 1%
D)1%; 3%
Answer: C
Q2) Private disposable income equals
A)GNP - taxes + transfers + interest.
B)NNP - taxes + transfers + interest.
C)national income - taxes + transfers + interest.
D)national income - taxes - transfers + interest.
Answer: A
Q3) How are net exports,net factor payments from abroad,and the current account balance related?
Answer: NX + NFP = CA.
Page 4
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Chapter 3: Productivity, Output, and Employment
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Sample Questions
Q1) The ________ is the number of unemployed divided by the labor force and the ________ is the number of employed divided by the adult population.
A)unemployment rate; employment rate
B)unemployment rate; employment ratio
C)unemployment ratio; participation rate
D)discouraged worker ratio; employment rate
Answer: B
Q2) According to Okun's Law,if the natural rate of unemployment is 5% and the actual unemployment rate is 4%,what is the level of full employment output if output equals $10,125 billion?
A)$10,328 billion
B)$10,226 billion
C)$10,025 billion
D)$9,926 billion
Answer: D
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5
Chapter 4: Consumption, Saving, and Investment
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Sample Questions
Q1) A temporary decrease in government purchases would cause
A)a rightward shift in the saving curve and a leftward shift in the investment curve.
B)a rightward shift in the saving curve and a rightward shift in the investment curve.
C)a rightward shift in the saving curve,but no shift in the investment curve.
D)no shift in the saving curve,but a leftward shift in the investment curve.
Q2) If the government reduces the effective tax rate on capital (in a closed economy),then the real interest rate ________ and saving ________.
A)falls; declines B)falls; increases
C)rises; increases D)rises; declines
Q3) An increase in expected future output while holding today's output constant would
A)increase today's desired consumption and increase desired national saving.
B)increase today's desired consumption and decrease desired national saving.
C)decrease today's desired consumption and increase desired national saving.
D)decrease today's desired consumption and decrease desired national saving.
Q4) What is the marginal propensity to consume,and why is it always less than one?
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6
Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) Suppose output is $35 billion,government purchases are $10 billion,desired consumption is $15 billion,and desired investment is $6 billion.Absorption is equal to
A)$25 billion.
B)$31 billion.
C)$35 billion.
D)$39 billion.
Q2) In a small open economy,describe what happens when an increase in wealth causes national saving to decline.Explain the impact on the real interest rate,saving,investment,net exports,and absorption in equilibrium.
Q3) Assuming no change in the effective tax rate on capital,a decrease in the government budget deficit will reduce the current account deficit if and only if the decrease in the budget deficit
A)reduces desired national saving.
B)increases desired national saving.
C)reduces desired national investment.
D)increases desired national investment.
Q4) What determines the interest rate in a small open economy?
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Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) Briefly explain the shape of the per-worker production curve in the Solow model.If investment per worker initially exceeds saving per worker,how is the steady state capital-labor ratio achieved?
Q2) Over the past year,productivity grew 1%,capital grew 2%,and labor grew 2%.If the elasticities of output with respect to capital and labor are 0.3 and 0.7,respectively,how much did output grow?
A)1%
B)2%
C)3%
D)4%
Q3) Edward Denison found that labor's contribution to output growth in the United States since 1929 was attributable to all the factors below EXCEPT A)rising population.
B)an increase in the percentage of the population in the labor force.
C)an increase in the number of hours worked per person.
D)higher educational levels.
Q4) Describe the main ideas of endogenous growth theory.What does it have to say about the role of government in economic growth?
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Page 8
Chapter 7: The Asset Market, Money, and Prices
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Sample Questions
Q1) Suppose real money demand is L = 0.8 Y - 100,000 (r + ?e).
If the nominal money supply is 12,000,real output is 15,000,the real interest rate is .02,and the expected inflation rate is .01,then the price level is
A)3/4.
B)1)
C)4/3.
D)3)
Q2) By spreading her investments out over many different assets,an investor achieves
A)a higher expected return.
B)increased risk.
C)diversification.
D)greater liquidity.
Q3) If real money demand doubles while the nominal money supply is unchanged,what happens to the price level?
A)The price level increases by a factor of four.
B)The price level doubles.
C)The price level is unchanged.
D)The price level falls by one-half.
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Chapter 8: Business Cycles
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Sample Questions
Q1) The high point in the business cycle is referred to as the A)turning point.
B)peak.
C)boom.
D)trough.
Q2) Stock and Watson found that monetary policy was responsible for about ________% of the reduction in output volatility that occurred in the mid-1980s.
A)0 to 10
B)10 to 20
C)20 to 30
D)30 to 40
Q3) Who officially determines whether the economy is in a recession or expansion?
A)The president of the United States
B)The U.S.Congress
C)The Federal Reserve Board of Governors
D)The National Bureau of Economic Research
Q4) Identify the comovement (i.e.,direction and timing)of the following variables over a business cycle: (a)industrial production; (b)unemployment; (c)nominal interest rates; (d)nominal money supply growth; and (e)investment.
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Chapter 9: The IS-LM/AD-AS Model
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Sample Questions
Q1) Use the IS-LM model to determine the effects of each of the following on the general equilibrium values of the real wage,employment,output,the real interest rate,consumption,investment,and the price level.
(a)Tougher immigration laws reduce the working-age population.
(b)There's increased volatility in the prices of stocks and bonds.
(c)The government tries to achieve tax equity by an increase in the corporate tax rate.
(d)Increased computerization reduces stock market brokerage costs.
Q2) The FE line
A)is horizontal.
B)is vertical.
C)slopes downward.
D)slopes upward.
Q3) Calculate the real money supply growth rate when the nominal money supply increases by 10% and the price level increases by each of the following percentages: a)2%; b)8%; c)10%; d)15%.
Q4) If the money supply is increased,which curve shifts in the IS-LM model? What direction does it shift? What is the intuition behind this shift?
Q5) Describe what happens to the FE line if government purchases increase.
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Chapter 10: Classical Business Cycle Analysis
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Sample Questions
Q1) In the classical model,a temporary increase in government purchases causes
A)a decrease in output and the real interest rate.
B)a decrease in output and an increase in the real interest rate.
C)an increase in output and a decrease in the real interest rate.
D)an increase in output and the real interest rate.
Q2) According to real business cycle theory,which of the following events is least likely to cause a recession?
A)A decline in the money supply
B)A decline in the capital stock
C)A decline in productivity
D)A decline in labor supply
Q3) The theory that real shocks to the economy are the primary cause of business cycles is
A)monetarism.
B)Keynesian theory.
C)real business cycle theory.
D)Hamiltonian theory.
Q4) Use the classical IS-LM model to show the effects of a temporary decrease in government purchases on the equilibrium levels of output,the real interest rate,employment,the real wage,and the price level.
Page 12
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Chapter 11: Keynesianism: The Macroeconomics of Wage and Price Rigidity
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Sample Questions
Q1) The cost to a firm of producing one more unit of output
A)usually exceeds the firm's price.
B)is significantly less than the firm's price for purely competitive firms operating in long-run equilibrium.
C)usually equals the firm's price for monopolistically competitive firms.
D)is the firm's marginal cost.
Q2) Using the Keynesian model,the effect of a decrease in the effective tax rate on capital would be to cause ________ in the real interest rate and ________ in output in the long run.
A)an increase; no change
B)a decrease; no change
C)an increase; an increase
D)no change; a decrease
Q3) In the Keynesian model,what are the effects (on output,the real interest rate,and the price level)of an adverse productivity (i.e.,aggregate supply)shock?
Q4) Describe the situation of the Japanese economy in the 1990s.What should the Japanese government have done differently,according to critics,to improve the economy?
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Q5) Why might firms pay an efficiency wage rather than a market-clearing wage?
Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) Ball found that the disinflation of the early 1980s in the United States had a sacrifice ratio of about
A)0)
B)1)
C)2)
D)3)
Q2) In the expectations-augmented Phillips curve,? = ?e - 3(u - 0.05).When ? = 0.06 and ?e = 0.03,the unemployment rate is
A)0)04.
B)0)05.
C)0)06.
D)0)07.
Q3) Based on the theory of the expectations-augmented Phillips curve,if the expected inflation rate is 2%,the short-run Phillips curve will A)have a kink at an inflation rate of 2%.
B)be the same as the long-run Phillips curve.
C)intersect the long-run Phillips curve at the natural unemployment rate,when the inflation rate is 2%.
D)be horizontal at an expected inflation rate of 2%.
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Page 14
Chapter 13: Exchange Rates,Business Cycles,and
Macroeconomic Policy in the Open Economy
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Sample Questions
Q1) You have just noticed that the dollar appreciated and you suspect that the American government was behind this change.Which would you choose as the most likely cause of this appreciation in the real exchange rate?
A)An increase in the money supply
B)A decrease in the money supply
C)A temporary increase in government purchases
D)A temporary decrease in taxes
Q2) A decrease in foreign output would cause the domestic country's net exports to ________ and cause the domestic country's IS curve to ________.
A)rise; shift up
B)rise; shift down
C)fall; shift up
D)fall; shift down
Q3) A decline in the exchange rate could have been caused by which of these factors?
A)A decline in domestic output (income)
B)An increase in the domestic real interest rate
C)A decline in the world demand for domestic goods
D)An increase in foreign output (income)
Q4) What is purchasing power parity? Why might it not hold?
Page 15
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Chapter 14: Monetary Policy and the Federal Reserve System
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Sample Questions
Q1) There is ________ relationship between inflation and central bank independence and ________ relationship between long-run rates of unemployment and central bank independence.
A)a negative; no
B)a negative; a negative
C)a positive; no
D)a positive; a negative
Q2) Suppose there was a banking crisis.The money supply would shrink by the greatest amount if the public ________ their currency-deposit ratio and the banks ________ their reserve-deposit ratio.
A)decreased; decreased
B)decreased; increased
C)increased; decreased
D)increased; increased
Q3) Describe the Taylor rule.If the Fed were following the rule,what would the nominal Fed funds rate be if inflation over the past year were 4% and output were 1% below its full-employment level?
Q4) Was the money multiplier stable during the Great Recession? Why would an unstable money multiplier pose a problem for monetary policy?
Page 16
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) Which of the following would not act as an automatic stabilizer?
A)Unemployment insurance
B)Government purchases
C)Personal income taxes
D)Corporate income taxes
Q2) The largest source of tax receipts for the government is
A)personal taxes.
B)contributions for social insurance.
C)taxes on production and imports.
D)corporate taxes.
Q3) The current deficit minus net interest is called the A)primary deficit.
B)net current deficit.
C)current surplus.
D)primary current deficit.
Q4) The primary deficit is equal to A)outlays - tax revenues.
B)government purchases + transfers + net interest - tax revenues.
C)outlays + net interest - tax revenues.
D)government purchases + transfers - tax revenues.
Page 17
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