Economics I Exam Practice Tests
Course Introduction
Economics I introduces the fundamental principles and concepts of microeconomics, focusing on how individuals, households, and firms make decisions regarding the allocation of limited resources. Topics include supply and demand analysis, market equilibrium, elasticity, consumer and producer behavior, the theory of the firm, and various market structures such as perfect competition, monopoly, and oligopoly. The course also explores the role of government intervention in markets, the impact of taxation and subsidies, and the economic rationale behind policy decisions. Through real-world examples and problem-solving exercises, students develop critical thinking skills and an understanding of how economic forces shape everyday life.
Recommended Textbook
Macroeconomics 12th Edition by Michael Parkin
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Chapter 1: What Is Economics?
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Sample Questions
Q1) If there is an inverse relationship between variable x and variable y, then an increase in the value of variable x will be accompanied by
A) an increase in the value of variable y.
B) a decrease in the value of variable y.
C) no change in the value of variable y.
D) variable y reaching its maximum value.
Answer: B
Q2) The slope of the line in the above figure is
A) -10.
B) 10.
C) 5.
D) -5.
Answer: D
Q3) On a graph, an upward-sloping curve that is flatter as you move away from the origin indicates a
A) positive relationship with an increasing slope.
B) positive relationship with a decreasing slope.
C) negative relationship with an increasing slope.
D) negative relationship with a decreasing slope.
Answer: B
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Chapter 2: The Economic Problem
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Q1) The above table shows production points on Sweet-Tooth Land's production possibilities frontier. What is the opportunity cost of one chocolate bar if Sweet-tooth Land moves from point C to point D?
A) 30 cans of cola per chocolate bar
B) 10 cans of cola per chocolate bar
C) 3 cans of cola per chocolate bar
D) 1/3 can of cola per chocolate bar
Answer: C
Q2) A key factor that leads to economic growth is
A) human capital accumulation.
B) increasing current consumption.
C) avoiding the opportunity cost of investment.
D) Both answers A and B are correct.
Answer: A
Q3) In the United States, the government coordinates most of the economic activity. A)True
B)False
Answer: False
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Page 4
Chapter 3: Demand and Supply
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Sample Questions
Q1) Which of the following influences does NOT shift the supply curve?
A) a rise in the wages paid workers who produce the good
B) the development of new technology
C) people deciding that they want to buy more of the product
D) a decrease in the number of suppliers
Answer: C
Q2) The above figures show the market for hamburger meat. Which figure shows the effect of a newly invented machine which grinds beef at twice the speed previously possible?
A) Figure A
B) Figure B
C) Figure C
D) Figure D
Answer: D
Q3) An increase in technology will shift the good's supply curve rightward.
A)True
B)False
Answer: True
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Chapter 4: Measuring GDP and Economic Growth
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Sample Questions
Q1) A trend shows
A) the degree of correlation between two variables.
B) the general tendency for a variable to rise or fall.
C) the scale used to measure to variables.
D) the increases in one variable.
Q2) Which of the following is TRUE regarding the chain-weighted output index method?
I.It is the method used to measure the growth rate of nominal GDP.
II.It uses data from the current year and from the previous year.
III.It is a method of measuring the growth rate of real GDP.
A) I and II
B) II and III
C) I and III
D) I, II and III
Q3) Using the information in the table above, calculate the government's budget deficit or surplus.
A) $2
B) -$4
C) -$10
D) $4
Q4) Investment, as included in GDP, consists of what?
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Chapter 5: Monitoring Jobs and Inflation
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Q1) Give an example of a structurally unemployed person.
Q2) Suppose the country of Tiny Town experienced frictional unemployment. This frictional unemployment would
A) definitely signal that the country is in a recession.
B) be considered a natural occurrence in a growing economy.
C) signal that there are more job leavers than job losers.
D) signal that the number of discouraged workers is growing.
Q3) Structural unemployment is
A) associated with the changing of jobs in a dynamic economy.
B) associated with general downturns in the economy.
C) associated with changes in technology that change required job skills.
D) very short-term unemployment.
Q4) Because of a bank merger, Ms. Davis lost her position as Vice President and had to seek work with other banks. Ms. Davis has the skills necessary to find a new job, thus she is best considered as
A) frictionally unemployed.
B) cyclically unemployed.
C) structurally unemployed.
D) naturally unemployed.
Q5) What is a "marginally attached worker"?
Page 7
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Chapter 6: Economic Growth
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Sample Questions
Q1) The assumption that population growth will lead to a fall in real GDP per person rate back to subsistence level is
A) accepted by all economists today.
B) associated with Malthusians.
C) part of the neoclassical school of growth theory.
D) central to the new growth theory.
Q2) ________ predicts that real GDP per person can grow indefinitely.
A) New growth theory
B) Classical growth theory
C) Profit growth theory
D) Neoclassical growth theory
Q3) The demand for labor curve is
A) upward sloping at potential GDP and downward sloping elsewhere.
B) vertical at potential GDP.
C) downward sloping.
D) upward sloping because firms demand labor.
Q4) How does the new growth theory explain economic growth?
Q5) What happens to the real wage rate and potential GDP if population increases?
Q6) Explain how the labor market and the production function determine potential GDP.
Page 8
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Chapter 7: Finance, Saving, and Investment
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Sample Questions
Q1) People expect an inflation rate of 5 percent and the real interest rate is positive. Consequently the nominal interest rate will be
A) more than 5 percent.
B) 5 percent.
C) less than 5 percent.
D) Without more information it is impossible to tell if the nominal interest rate will be more than, less than, or equal to 5 percent.
Q2) "An increase in the real interest rate increases the quantity of investment." Is the previous statement correct or incorrect?
Q3) Which of the following are major influences on the expected profit from an investment?
I.technology advances
II.stock market behavior
III.accounting practices
A) I only
B) I and II
C) I and III
D) II and III
Q4) How does expected future income affect saving supply?
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Chapter 8: Money, the Price Level, and Inflation
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Sample Questions
Q1) If nominal GDP is $12 trillion, the price level is 120, and the quantity of money is $4 trillion, what is the velocity of circulation?
A) 3
B) 2.5
C) 30
D) 25
Q2) In October of 20142, the interest rate on money market accounts was about 0.2 percent. In 2007, the interest rate on money market accounts was about 4.0 percent. What has been the impact on the demand for money curve from this fall in the interest rate?
A) the money demand curve shifted to the right
B) the money demand curve shifted to the left
C) there was a downward movement along the demand for money curve
D) there was an upward movement along the demand for money curve
Q3) Liquidity ________.
A) is the property of money being instantly convertible into assets
B) increases when a consumer has more credit cards
C) is how quickly an asset loses its worth
D) is the property of assets being instantly convertible into money
Q4) What are the three functions of money?
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Chapter 9: The Exchange Rate and the Balance of Payments
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Sample Questions
Q1) The exchange rate is the
A) opportunity cost of pursuing a nation's comparative advantage.
B) price of one country's currency expressed in terms of another country's currency.
C) ratio between imports and exports.
D) interest rate that is charged on risk-free international capital flow.
Q2) Other things remaining the same, if the expected future exchange rate rises, the demand curve for U.S. dollars shifts ________ and the supply curve of U.S. dollars shifts
A) rightward; rightward
B) rightward; leftward
C) leftward; rightward
D) leftward; leftward
Q3) When the demand for a currency permanently increases, that nation's central bank can maintain its fixed exchange rate indefinitely.
A)True
B)False
Q4) What is the relationship between net borrower, net lender, debtor nation, and creditor nation?
11
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) In the short-run, a rise in the money wage rate leads to
A) an increase in the price level and an increase in real GDP.
B) an increase in the price level and a decrease in real GDP.
C) an increase in the price level, but no change in real GDP.
D) no change in the price level, but an increase in real GDP.
Q2) Which of the following changes while moving along the aggregate demand curve?
A) future incomes of households
B) the price level
C) the amount of money in the economy
D) future profits from investment projects
Q3) In the short run, a supply shock that shifts the short-run aggregate supply curve leftward raises the price level and decreases real GDP.
A)True
B)False
Q4) The data in the above table show that when the price level is 120
A) the unemployment rate is below its natural rate.
B) the unemployment rate is above its natural rate.
C) money wages rates will rise in the future.
D) the long-run aggregate supply curve will shift leftward in the future.
Q5) What are the substitution effects that affect aggregate demand?
Page 12
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Chapter 11: Expenditure Multipliers
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Sample Questions
Q1) How do firms respond to unplanned inventory changes? What is the effect on their production and GDP?
Q2) If disposable income increases
A) the consumption function shifts upward.
B) there is a movement upward along the consumption function.
C) the consumption function shifts downward.
D) there is movement downward along the consumption function.
Q3) The multiplier is the ratio of the
A) change in real GDP to the change in autonomous expenditures.
B) equilibrium level of real GDP to the change in induced expenditures.
C) change in induced expenditures to the change in autonomous expenditures.
D) change in autonomous expenditures to the change in real GDP.
Q4) If real disposable income increases by $1500, consumption expenditures will A) stay constant.
B) decrease by less than $1500.
C) increase by less than $1500.
D) increase by more than $1500.
Q5) "If the income tax rate is high enough, the multiplier can be negative." Is the previous statement correct or incorrect?
Q6) What is unplanned investment? How does it occur?
Page 13
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Chapter 12: The Business Cycle, Inflation, and Deflation
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Sample Questions
Q1) Movements upward along the short-run Phillips curve result from
A) expected increases in the inflation rate.
B) unexpected increases in the inflation rate.
C) expected decreases in the inflation rate.
D) unexpected decreases in the inflation rate.
Q2) According to the real business cycle theory, an increase in the price of a resource (such as oil), that decreases the demand for loanable funds will ________ employment and ________ real GDP.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Q3) The ________ cycle theory states that only unexpected fluctuations in aggregate demand are the main source of business cycles.
A) new Keynesian
B) new classical
C) Keynesian
D) monetarist
Q4) What is demand-pull inflation?
Q5) What is the factor that leads to business cycles in the monetarist cycle theory?
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) Generational accounting does NOT investigate issues involving A) the budget deficit.
B) government obligations such as Social Security.
C) the ownership of corporate stock.
D) the burden of taxes.
Q2) The difference between automatic fiscal policy and discretionary fiscal policy is that
A) Congress initiates automatic fiscal policy.
B) the President has nothing to do with discretionary fiscal policy.
C) Congress must pass laws implementing discretionary fiscal policy.
D) the President initiates discretionary fiscal policy.
Q3) To eliminate the fiscal imbalance the government could
A) lower benefits and lower tax rates.
B) increase benefits and increase tax rates.
C) lower benefits and increase tax rates.
D) increase benefits and lower tax rates
Q4) What is the government expenditure multiplier?
Q5) All developed countries have about the same ratio of government deficit to GDP. A)True B)False
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Chapter 14: Monetary Policy
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Q1) If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rate ________ and the quantity of reserves ________.
A) falls; increases B) rises; increases C) falls; decreases D) rises; decreases
Q2) A decrease in the supply of loanable funds decreases the real interest rate. A)True B)False
Q3) Suppose that the market for reserves is in equilibrium and then the Federal Reserve decreases the quantity of reserves by $2 billion. The federal funds rate will ________ and the supply of loanable funds will ________.
A) rise; increase B) rise; decrease C) fall; increase D) fall; decrease
Q4) In the aggregate demand/aggregate supply framework, lowering the federal funds rate has what short-run effects on real GDP?
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Chapter 15: International Trade Policy
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Q1) When considering rent seeking, which of the following is TRUE?
A) The anti-free trade group generally will lobby more than the pro-free trade group.
B) The pro-free trade group generally will lobby more than the anti-free trade group.
C) Usually only the anti-free trade group is concerned about what is best for society at large.
D) Only the pro-free trade group is concerned about the government's revenue from tariffs.
Q2) One reason that international trade is restricted is that
A) the individual gain to parties who benefit from the protection will be much larger than the individual loss to parties who lose.
B) the government completely pays the losers from international trade for their losses.
C) protectionism benefits consumers.
D) the government cannot measure the cost of protectionism.
Q3) Quotas are less damaging to an economy than are tariffs.
A)True
B)False
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