Economics I Exam Bank
Course Introduction
Economics I introduces students to the fundamental principles and concepts of microeconomics and macroeconomics. The course explores the basics of market structures, supply and demand, consumer behavior, and the functioning of markets, as well as how households and firms interact within various economic systems. Students also examine broader economic indicators such as GDP, inflation, unemployment, and government policies affecting the economy. Through theoretical frameworks, real-world examples, and analytical tools, this course provides a foundational understanding of how economic agents make decisions and how economies operate at both the individual and aggregate levels.
Recommended Textbook
ECON MACRO 6th Edition by
William A. McEachern
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Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) Economists believe that:
A) people who choose to promote the interests of others cannot be acting rationally.
B) people show concern only for those whom they know personally.
C) charitable donations would disappear if tax deductions for charitable giving were eliminated.
D) the notion of self-interest rules out concern for others.
E) concern for the welfare of others is consistent with the concept of self-interest.
Answer: E
Q2) Which of the following statements regarding the basic economic problem of scarcity is correct?
A) The problem will exist only in countries that are not highly industrialized.
B) The problem will disappear as production increases.
C) The problem will disappear as technology improves.
D) The problem will exist as long as resources are available in limited amounts.
E) The problem will disappear as a person's income falls.
Answer: D
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Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) Absolute advantage is based on opportunity cost.
A)True
B)False
Answer: False
Q2) A point inside the production possibilities frontier illustrates a situation in which resources are not fully employed.
A)True
B)False
Answer: True
Q3) The direct exchange of one product for another without using money is called _____.
A) illegal.
B) efficient.
C) specialization.
D) e-money.
E) barter.
Answer: E
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Page 4
Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Contracts are enforced by:
A) the firms that make the contracts through buy-out clauses.
B) law firms that specialize in contract enforcement.
C) corporations specializing in contract writing and enforcement.
D) the government through the judicial system.
E) both households and firms through customer relations departments.
Answer: D
Q2) The movement of households from rural to urban settings increased the degree of specialization in factory production.
A)True
B)False
Answer: True
Q3) Cash or in-kind benefits given to individuals by the government are known as
A) interest.
B) dividends.
C) wages.
D) transfer payments.
E) charitable contributions.
Answer: D
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Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) An increase in professors' salaries increases the supply of college education.
A)True
B)False
Q2) The table below shows the quantity supplied and the quantity demanded of a good at different prices. If the market price of the good is $1.20, there will be a _____.
A) shortage of 30 units.
B) surplus of 30 units.
C) shortage of 60 units.
D) surplus of 60 units.
E) surplus of 20 units.
Q3) As the price of ballpoint pens increases, the demand for felt-tip pens can be expected to decrease.
A)True
B)False
Q4) The demand for an inferior good decreases as consumer income increases.
A)True
B)False
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Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) Which of the following is the significance of a country's price index?
A) It helps in measuring changes in the nominal interest rate in the country.
B) It helps in measuring the total disposable income of the country.
C) It helps in determining the country's real GDP each year.
D) It helps in measuring changes in the prices of only luxury goods.
E) It helps in measuring the demand for goods and services exported by the country.
Q2) Which of the following is not assumed to be constant along an aggregate supply curve?
A) the price level in an economy
B) the exchange rate between the domestic and a foreign currency
C) the state of technology used in production
D) the unemployment rate
E) resource prices
Q3) Identify the correct statement.
A) A budget deficit is a flow variable, while debt is a stock variable.
B) A budget deficit is a stock variable, while debt is a flow variable.
C) A budget deficit and debt are both stock variables.
D) The budget deficit decreases when aggregate demand decreases.
E) Debt increases when the budget deficit decreases.
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Page 7
Chapter 6: Tracking the U S Economy
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Sample Questions
Q1) If real gross domestic product (GDP) for a particular year is $5 trillion and the GDP price index for that year is 136, the nominal gross domestic product (GDP) for that year is
A) $3.7 trillion.
B) $4 trillion.
C) $6.8 trillion.
D) $27 trillion.
E) $68 trillion.
Q2) A shortcoming of national income accounting is that it ignores _____
A) the depreciation of manufactured capital.
B) spending by poor households who are receiving government transfer payments.
C) spending on intermediate goods.
D) the depletion of natural resources.
E) U.S. products that are sold overseas.
Q3) Transfer payments are injections into the circular flow of income and expenditure model.
A)True
B)False
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8
Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) Suppose inflation is expected to be 5 percent next year, and you and your employer agree to a 6 percent increase in your nominal, or monetary, wage. If inflation turns out to be 5%, what is your nominal wage increase?
A) 1 percent
B) minus 1 percent
C) 0 percent
D) minus 5 percent
E) 6 percent
Q2) Refer to Table 7.1, which shows data for males and females over 16 years old in the island of Palma. What is the adult unemployment rate?
A) 3.7 percent
B) 10.0 percent
C) 6.7 percent
D) 7.4 percent
E) 64.3 percent
Q3) An increase in the interest rate will increase the demand for loanable funds.
A)True
B)False
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Chapter 8: Productivity and Growth
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Sample Questions
Q1) Applied research is the search for knowledge without a clue about the end of the research.
A)True
B)False
Q2) The gross domestic product of Solvasa, a small island country, is $68 billion. The adult population of the country is 8.7 million, and 11.3 million citizens are below 18 years of age. The output per capita of Solvasa is approximately equal to _____
A) $7,800.
B) $3,400.
C) $6,017.
D) $5,201.
E) $6,950.
Q3) Per capita GDP in the United States has declined since 1950.
A)True
B)False
Q4) Industrial policy involves governments using taxes, subsidies, and regulations to nurture the development of specific industries.
A)True
B)False
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Chapter 9: Aggregate Demand
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Sample Questions
Q1) If households save $30 billion more at each level of income and the marginal propensity to consume (MPC) is 0.9, the aggregate expenditure line will _____
A) intersect the 45-degree line at a real GDP of $30 billion.
B) shift upward by $30 billion.
C) shift downward by $30 billion.
D) shift upward by $300 billion because of the multiplier effect.
E) shift downward by $300 billion because of the multiplier effect.
Q2) The relationship showing spending at each level of real gross domestic product or real income is known as the _____
A) aggregate expenditure line.
B) real GDP line.
C) income level.
D) spending level.
E) price level.
Q3) Purchases of existing commodities, such as gold and precious gems, are considered investment spending by economists.
A)True
B)False
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11
Chapter 10: Aggregate Supply
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Sample Questions
Q1) Given the aggregate demand curve, a beneficial supply shock will _____
A) increase potential output and the price level.
B) decrease potential output and the price level.
C) increase potential output and decrease the price level.
D) decrease potential output and increase the price level.
E) cause no change in potential output or the price level.
Q2) In the short run, there is a positive relationship between _____
A) inflation and unemployment.
B) inflation and real GDP.
C) the actual price level and the aggregate quantity supplied.
D) the actual price level and unemployment.
E) the actual price level and consumption spending.
Q3) If resource suppliers and demanders find out that the actual price level exceeds the expected price level, they will take corrective actions that will _____
A) cause an economy to move away from the potential output level.
B) raise the unemployment level above the natural rate of unemployment.
C) shift the aggregate demand curve for an economy.
D) shift the short-run aggregate supply curve of an economy.
E) lower the actual price level.
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Page 12
Chapter 11: Fiscal Policy
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Sample Questions
Q1) It has been estimated that the marginal propensity to consume out of tax rebate money is less than one-third.
A)True
B)False
Q2) When the government closes an expansionary gap with a change in government spending, the _____ in government spending leads to _____.
A) decrease; a decrease in both real GDP and the price level
B) decrease; a decrease in real GDP and an increase in the price level
C) decrease; an increase in both real GDP and the price level
D) decrease; an increase in real GDP and a decrease in the price level
E) increase; a decrease in both real GDP and the price level
Q3) How many years of contraction were there during the Great Depression?
A) 3
B) 4
C) 5
D) 6
E) 7
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Page 13
Chapter 12: Federal Budgets and Public Policy
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Sample Questions
Q1) Because of the giant deficits of recent years, a growing federal debt has been ____
A) central to the debate about monetary policy effectiveness.
B) central to the debate about fiscal policy effectiveness.
C) left out of the debate about fiscal policy effectiveness.
D) left out of the debate about monetary policy effectiveness.
E) central to discussion about the privatization of government.
Q2) Transfer payments are included in the government budget deficit but not included in the government purchases component of GDP.
A)True
B)False
Q3) If actions by the president and Congress reduce the federal government budget deficit, then interest rates will _____, the U.S. dollar will _____, and the foreign trade deficit will _____.
A) increase; appreciate; increase
B) increase; depreciate; increase
C) decrease; appreciate; decrease
D) decrease; depreciate; increase
E) decrease; depreciate; decrease
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Chapter 13: Money and the Financial System
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Sample Questions
Q1) The U.S. dollar is a good example of fiat money.
A)True
B)False
Q2) A major reason for the development of money market mutual funds in the 1970s was that _____
A) open-market operations were suspended.
B) bank deposit rates were capped at levels below market interest rates.
C) money-market funds offered more flexible checking privileges than banks.
D) they were considered to be safer than banks.
E) money markets did not exist until 1970.
Q3) One purpose of interest-rate ceilings was to _____
A) establish a ceiling on bank profits.
B) establish a floor on bank profits.
C) encourage competition in other areas.
D) eliminate the need for the FDIC.
E) reduce the chance of bank failures.
Q4) Money does not solve the double coincidence of wants problem unless it is generally acceptable.
A)True
B)False
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Chapter 14: Banking and the Money Supply
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Sample Questions
Q1) If you know the required reserve ratio, then you know how much each bank is holding in reserves.
A)True
B)False
Q2) To maximize its profit, a bank will _____
A) minimize the number transactions it engages in.
B) maximize required reserves.
C) minimize excess reserves.
D) maximize excess reserves.
E) minimize required reserves.
Q3) The economy is more efficient because:
A) savers develop expertise in evaluating creditworthiness.
B) borrowers develop expertise in structuring loans.
C) banks develop expertise in enforcing loan contracts.
D) banks reduce the transaction costs of channeling savings to creditworthy savers.
E) banks increase the transaction costs of channeling savings to creditworthy borrowers.
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Chapter 15: Monetary Theory and Policy
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Sample Questions
Q1) Exhibit 15.1 shows the interest rate on the vertical axis and the quantity of money on the horizontal axis. An increase in the interest rate will cause a movement from _____
A) point B to point A.
B) point A to point B.
C) D<sub>M</sub> to D<sub>M'</sub>.
D) D<sub>M</sub> to D<sub>M*</sub>.
E) point E to point D.
Q2) In the short run, money affects the economy through _____
A) changes in GDP.
B) changes in money demand.
C) changes in money supply.
D) changes in interest rates.
E) changes in price levels.
Q3) At a given point in time, if the demand for money increases _____
A) the interest rate will fall.
B) there will be a movement downward along the money demand curve.
C) there will be a movement upward along the money demand curve.
D) there will be a rightward shift of the money demand curve.
E) there will be a leftward shift of the money demand curve.
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Page 17
Chapter 16: Macro Policy Debate: Active or Passive?
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Sample Questions
Q1) One of the reasons fiscal and monetary policy can stimulate output and employment in the short run is that nominal wages increase faster than the price level.
A)True
B)False
Q2) The clearest trade-off between unemployment and inflation occurred from _____
A) 1960 to 1969.
B) 1964 to 1969.
C) 1970 to 1973.
D) 1974 to 1983.
E) 1984 to 1989.
Q3) The short-run Phillips curve is drawn for a given expected inflation rate, and so it shifts as inflation expectations change.
A)True
B)False
Q4) An increase in price expectations shifts the short-run Phillips curve, but not the long-run Phillips curve.
A)True
B)False
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Chapter 17: International Trade
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Sample Questions
Q1) A trade agreement reached among more than two countries is _____
A) a bilateral agreement.
B) a multilateral agreement.
C) the General Agreement on Tariffs and Trade (GATT).
D) Countries United for Free Trade (CUFT).
E) the International Development Fund.
Q2) If quota rights accrue to foreigners, then _____
A) the domestic economy is better off with a quota than with a tariff.
B) the domestic economy is worse off with a quota than with a tariff.
C) consumer surplus and economic welfare increase.
D) production costs decrease.
E) part of the decrease in consumer surplus is redistributed to the domestic government.
Q3) Refer to Exhibit 17.b, which shows the supply of a product in the United States. With a quota of Q' or more per month, the U.S. price would _____
A) change from P to P'.
B) change from P' to P.
C) be at P.
D) be at P'.
E) fall to zero.
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Page 19
Chapter 18: International Finance
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Sample Questions
Q1) Any decrease in the demand for foreign exchange, other things constant, will _____
A) reduce the number of foreign exchange units required to purchase dollars.
B) reduce the number of dollars required to purchase one unit of foreign exchange.
C) cause the dollar to depreciate.
D) cause the foreign currency to appreciate.
E) have no effect.
Q2) Those who simultaneously buy and sell currency to take advantage of exchange rate differences are called _____
A) speculators.
B) hedgers.
C) entrepreneurs.
D) arbitrageurs.
E) underwriters.
Q3) If the U.S. dollar depreciates, it becomes cheaper for U.S. residents to travel in foreign countries.
A)True
B)False
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Chapter 19: Economic Development
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Sample Questions
Q1) Which of the following leads to an inefficient use of labor?
A) underemployment
B) a high rate of economic growth
C) overemployment
D) a high rate of growth of income
E) a high rate of inflation
Q2) Under the U.S. Food for Peace program, the availability of low-priced food from abroad hurt the farmers of developing countries because _____ in those countries.
A) industrial goods became cheaper
B) services became cheaper
C) farm prices decreased
D) the demand for farm products increased
E) the price of inputs required for agriculture increased
Q3) People can make better use of resources if they _____
A) have inherited family wealth.
B) are living in developed countries.
C) are a part of the government.
D) are educated.
E) have invested in stocks and bonds in other nations.
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