Economics I Exam Review
Course Introduction
Economics I introduces students to the foundational principles of microeconomics and macroeconomics, focusing primarily on how individuals and firms make decisions within various market structures. Topics covered include demand and supply analysis, the theory of the firm, market equilibrium, consumer behavior, production and cost functions, and the role of government in the economy. The course also explores basic concepts of national income, inflation, unemployment, and fiscal and monetary policies, providing students with essential tools to analyze real-world economic issues.
Recommended Textbook
Macroeconomics 11th Edition by Michael Parkin
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Page 2
Chapter 1: What Is Economics
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Sample Questions
Q1) Making a choice at the margin means ________.
A) letting someone else choose for you
B) waiting until the last minute to make a choice
C) deciding to do a little bit more or a little bit less of an activity
D) making a choice by comparing the total benefit and the total cost
Answer: C
Q2) Statements about what ought to be are called
A) positive statements.
B) normative statements.
C) assumptions.
D) implications.
Answer: B
Q3) Entrepreneurs directly do all of the following except
A) create new ideas about what and how to produce.
B) make business decisions.
C) face risks that arise from making business decisions.
D) decide for whom goods and services are produced.
Answer: D
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3
Chapter 2: The Economic Problem
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Q1) The table above lists six points on the production possibilities frontier for grain and cars.What is the opportunity cost of producing the 5th ton of grain?
A) 16 cars per ton of grain
B) 6 cars per ton of grain
C) 3 cars per ton of grain
D) 2 cars per ton of grain
Answer: C
Q2) In the United States,Texas ranks number one in the amount of installed megawatts for wind power generation and Florida ranks number one in the number of beach vacations. These facts point out that
A) Texas has a comparative advantage in wind power generation.
B) Texas definitely has an absolute advantage in wind power generation.
C) Florida should produce more wind energy.
D) Florida can produce wind energy at a lower opportunity cost than can Texas.
Answer: A
Q3) As long as technology increases,economic growth is free.
A)True
B)False
Answer: False
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Chapter 3: Demand and Supply
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Sample Questions
Q1) The "law of demand" states that,other things remaining the same,the quantity demanded of any good is
A) inversely related to its price.
B) directly related to its price.
C) positively related to its price.
D) directly related to the supply of the good.
Answer: A
Q2) The above figures show the market for hamburger meat.Which figure(s) shows the effect of a nation-wide strike by butchers and meat-packers?
A) Figure B
B) Figure C
C) Figure D
D) Figures B and C
Answer: B
Q3) Gruel is an inferior good.Hence,a decrease in people's incomes
A) shifts the supply curve of gruel leftward.
B) decreases the quantity of gruel supplied.
C) shifts the demand curve for gruel rightward.
D) shifts the demand curve for gruel leftward.
Answer: C
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Chapter 4: Measuring GDP and Economic Growth
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Q1) A peak is the
A) lower turning point of a business cycle when an expansion ends.
B) lower turning point of a business cycle when a recession ends.
C) upper turning point of a business cycle when an expansion ends.
D) upper turning point of a business cycle when a recession ends.
Q2) The following data are estimates describing Ireland's economy in 2006 and 2007 (in millions of euros,in constant prices): 2006 2007
Consumption 84,000 89,000
Government expenditure 24,000 26,000
Investment 48,000 48,000
Exports 142,000 151,000
Imports 123,000 128,000
Subsidies 1,800 1,900
Taxes 500 500
Which of the following is true regarding Ireland's economy?
A) The change in GDP from 2006 to 2007 represented a peak in the business cycle.
B) GDP decreased from 2006 to 2007.
C) Net exports decreased from 2006 to 2007.
D) Consumption was 48 percent of Ireland's GDP in 2007.
Q3) How are changes in inventory treated in GDP?
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Chapter 5: Monitoring Jobs and Inflation
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Q1) Catherine quit her job in order to look for a new one; therefore,she is best considered as
A) frictionally unemployed.
B) structurally unemployed.
C) cyclically unemployed.
D) seasonally unemployed.
Q2) If the number of people unemployed is 100,the number of people employed is 1000,and the working-age population is 1400,then the unemployment rate is
A) 6.6 percent.
B) 10 percent.
C) 9.1 percent.
D) 7.1 percent.
Q3) Including marginally attached workers in the calculation of the unemployment rate would
A) increase the reported rate.
B) lower the reported rate.
C) not change the reported rate.
D) change the reported rate, but in an unpredictable manner.
Q4) Give an example of a frictionally unemployed person.
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Chapter 6: Economic Growth
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Q1) If the price level rises by 3 percent and workers' money wage rates increase by 2 percent,then the
A) quantity of labor demanded will decrease.
B) quantity of labor demanded will increase.
C) quantity of labor demanded does not change because there is no change in the real wage rate.
D) real wage rate increases.
Q2) An advance in technology that results in increased productivity results in a
A) rightward shift of the labor supply curve.
B) rightward shift of the labor demand curve.
C) rightward shift of both the labor supply and labor demand curves.
D) no change to the production function.
Q3) The classical growth theory shows how technology changes continually generate economic growth.
A)True
B)False
Q4) What factors raise the productivity of labor?
Q5) Describe ways that governments can promote faster economic growth.
Q6) List and explain the factors that can increase labor productivity.
Q7) What is the real wage rate?
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Chapter 7: Finance, Saving, and Investment
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Q1) At the beginning of the year,Tom's Tubes had a capital stock of 5 tube inflating machines.During the year,Tom scrapped 2 old machines and purchased 3 new machines.Tom's capital stock at the end of year equals
A) 1 machine.
B) 2 machines.
C) 3 machines.
D) 6 machines.
Q2) The Restoring American Financial Stability Act of 2010
A) cut the federal government's ties with Fannie Mae and Freddy Mac.
B) prohibits banks from selling mortgage backed securities, which were largely to blame for the financial market crisis in 2007-2008.
C) eliminated the Federal Deposit Insurance Corporation.
D) had restrictions that try to limit risky investment by banks.
Q3) If the nominal interest rate is 7 percent and the inflation rate is 1 percent,the real interest rate is approximately
A) 7 percent.
B) 6 percent.
C) 8 percent.
D) -6 percent.
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Chapter 8: Money, The Price Level, and Inflation
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Sample Questions
Q1) The above table has the demand for money schedule.
a) If the Fed sets the quantity of money equal to $1.0 trillion,what is the equilibrium interest rate?
b) If the Fed wants the interest rate to be 4 percent,what must it do?
Q2) "Because monetary policy must be approved by the president of the United States,the president is chair of the Federal Open Market Committee." Analyze the previous statement-is it correct or incorrect?
Q3) Which of the following is included in M1?
A) the $200 you charged on your credit card to purchase your textbooks
B) the $200 check you wrote to purchase your textbooks
C) the $200 in cash you used to purchase your textbooks
D) the $200 loan you arranged to purchase your textbooks
Q4) The real quantity of money is
A) inversely related to GDP.
B) measured in current dollars.
C) inversely related to the price level.
D) measured in constant dollars.
Q5) "Banks hold 100 percent of their customers' deposits as reserves." Is the previous statement correct or not?
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Chapter 9: The Exchange Rate and the Balance of Payments
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Q1) Suppose that U.S.inflation is 3 percent and Turkish inflation is 70 percent.The effect of this discrepancy on the foreign exchange market is that
A) the Turkish currency will depreciate.
B) the dollar will depreciate.
C) it is impossible for interest rate parity to hold.
D) the Turkish currency will appreciate.
Q2) The current account records all transactions below EXCEPT for
A) net exports of goods and services.
B) net interest income.
C) net foreign investment.
D) net transfers.
Q3) When the U.S.exchange rate rises and the expected future exchange rate does not change,the expected profit from buying U.S.dollars today
A) also rises
B) falls
C) does not change
D) may rise, fall, or stay the same
Q4) Why do people and firms in the United States supply dollars to the foreign exchange market?
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Chapter 10: Aggregate Supply and Aggregate Demand
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Q1) Which of the following statements is TRUE?
A) The long-run aggregate supply curve is upward sloping.
B) The long-run aggregate demand curve is upward sloping.
C) The short-run aggregate supply curve is vertical.
D) The long-run aggregate supply curve is vertical.
Q2) By using only the aggregate demand curve,we can determine
A) only the price level.
B) only the quantity of real GDP.
C) both the price level and quantity of real GDP.
D) neither the price level nor the quantity of real GDP.
Q3) According to the intertemporal substitution effect,when the price level rises and other things remain the same
A) the interest rate falls.
B) the interest rate rises.
C) the quantity of money increases.
D) government taxes rise.
Q4) If the money prices of resources changes,the LAS curve shifts.
A)True
B)False
Q5) How does the aggregate demand curve reflect an increase in aggregate demand?
Page 12
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Chapter 11: Expenditure Multipliers
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Q1) Suppose the MPC = 0.90 and there are no taxes or imports.What dos the multiplier equal?
If the initial equilibrium aggregate expenditure is $12 trillion,what will be the effect on aggregate expenditure of a $100 billion increase in investment?
Q2) When aggregate planned expenditure is less than real GDP,unplanned
A) consumption expenditure occurs.
B) investment occurs.
C) government expenditures are made.
D) exports are made.
Q3) Consumption expenditure decreases when ________ decreases.
A) the interest rate
B) the price level
C) disposable income
D) saving
Q4) The slope of the consumption function is
A) less than the slope of the 45-degree line but not equal to zero.
B) greater than the slope of the 45-degree line.
C) equal to the slope of the 45-degree line.
D) equal to zero.
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Chapter 12: Inflation, Jobs, and the Business Cycle
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Q1) During which decade did the United States suffer from the worst cost-push inflation?
A) 1960s
B) 1970s
C) 1980s
D) 1990s
Q2) The figure above shows the initial aggregate demand curve,AD ,the initial short-run aggregate supply curve,SAS ,and the long-run aggregate supply curve,LAS.The points in the figure show possible combinations of real GDP and the price level at which the economy of Atlantia is in macroeconomic equilibrium.The economy is initially at point
A.Atlantia's Central Bank then increases the quantity of money year after year.Draw the necessary curves in the figure to show the effects of this on Atlantia's real GDP and price level.
a) What happens to Atlantia's potential GDP?
b) In the short run,what happens to aggregate supply and aggregate demand?
c) What are the new short-run equilibrium real GDP and price level?
d) In the long run,what happens to aggregate supply and aggregate demand?
e) In the long run,what process is unfolding?
Q3) What is the factor that leads to business cycles in the monetarist cycle theory?
Q4) What are sources that can start a demand-pull inflation?
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Chapter 13: Fiscal Policy
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Sample Questions
Q1) A reason the government expenditure multiplier is larger than 1 is because A) investment increases when government expenditure increases.
B) government expenditure always increases.
C) government expenditure generates changes in consumption expenditure.
D) taxes are left unchanged.
Q2) A budget surplus occurs when government
A) outlays exceeds tax revenues.
B) tax revenues exceeds outlays.
C) tax revenues equals outlays.
D) tax revenues equal social security expenditures.
Q3) Splitting the fiscal imbalance between current and future generations is called A) genealogical accounting.
B) actuarial accounting.
C) generational imbalance.
D) actuarial balance.
Q4) Personal income taxes are the largest source of revenue for the federal government.
A)True
B)False
Q5) How can discretionary fiscal policy be used to close a recessionary gap?
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Chapter 14: Monetary Policy
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Q1) To fight a recession the Fed will
A) raise the federal funds rate.
B) lower the federal funds rate.
C) increase the budget deficit.
D) decrease taxes.
Q2) The current chairman of the Federal Reserve is
A) Ben Bernanke.
B) Alan Greenspan.
C) Paul Volcker.
D) Milton Friedman.
Q3) At the end of 2012,the Fed was buying about $100 billion of securities per month,a much higher amount than normal.These purchases would ________ the value of the dollar on foreign exchange markets thereby ________ U.S.exports.
A) raise; increasing
B) raise; decreasing
C) lower; increasing
D) lower; decreasing
Q4) A decrease in the supply of loanable funds decreases the real interest rate.
A)True
B)False
Page 16
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Chapter 15: International Trade Policy
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Sample Questions
Q1) The infant industry argument is based on the idea of A) dynamic comparative advantage.
B) absolute productivity advantage.
C) global monopoly.
D) countervailing duties.
Q2) Which of the following is an effective counter argument to the claim that protectionism saves domestic jobs?
A) Protectionism eliminates domestic jobs in export industries.
B) Imports create jobs in this country for people selling and servicing imported items.
C) The cost of saving domestic jobs through protectionism may be high.
D) all of the above
Q3) Give a brief description of the history of tariffs in the U.S.
Q4) A country specializes in the production of goods for which it has a comparative advantage. We find that
A) some producers and consumers win, some lose, but overall the gains exceed the losses
B) all producers win
C) all consumers win
D) producers win, consumers lose, but overall the gains exceed the losses
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Chapter 16: Introduction
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Q1) Country X devoted 70 percent of its resources to consumption,while Country Y devoted 80 percent to consumption.Other things being equal,you can predict that
A) Country X's opportunity cost of economic growth is lower than Country Y's.
B) Country Y's rate of capital accumulation is higher than Country X's
C) Country Y's economy will grow faster than Country X's.
D) Country X's economy will grow faster than Country Y's.
Q2) Jelly beans and popcorn are substitutes.A fall in the price of a bag of jelly beans will ________ the demand for popcorn and the price of popcorn will ________.
A) increase; rise
B) increase; fall
C) decrease; fall
D) decrease; rise
Q3) Which of the following is NOT a factor of production?
A) mineral resources
B) money
C) a computer programmer
D) a commercial aircraft
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Chapter 17: Monitoring Macroeconomic Performance
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Q1) A significant decline in activity spread across the economy,lasting more than a few months is called
A) a recession.
B) an expansion.
C) a peak.
D) inflation.
Q2) GDP is defined as
A) gross demanded prices.
B) generally demanded product.
C) gross domestic product.
D) generally demanded prices.
Q3) In the expenditure approach to measuring GDP,the components of GDP are
A) consumption, investment, government expenditure, and net exports.
B) consumption, taxes, saving, and investment.
C) inflation, unemployment, saving, and investment.
D) frictional unemployment, structural unemployment, and cyclical unemployment.
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Chapter 18: Macroeconomic Trends
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Sample Questions
Q1) When money is accepted as payment in a market transaction,it is functioning as A) a factor that shifts the aggregate production function
B) the velocity of circulation.
C) a medium of exchange.
D) the real interest rate.
Q2) An increase in the productivity will ________ potential GDP,________ employment,and ________ the real wage.
A) decrease; increase; raise
B) increase; increase; raise C) increase; decrease; lower D) increase; increase; lower
Q3) The velocity of circulation is
A) equal to the price level multiplied by real GDP.
B) the same as the aggregate demand curve.
C) the average number of times a dollar bill is used in a year to buy the goods and services in GDP.
D) increased when the Fed lowers the required reserve ratio.
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Chapter 19: Macroeconomic Fluctuations
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Sample Questions
Q1) The growth rate of productivity is a major feature of A) Keynesian and monetarist economists.
B) monetarist economists.
C) real business cycle economists.
D) why the marginal propensity to consume is less than 1.0.
Q2) The presence of imports ________ the size of the ________.
A) increases; government budget deficit
B) increases; multiplier
C) decreases; multiplier
D) decreases; government budget deficit
Q3) Keynesians and monetarists believe that economic fluctuations are caused
A) by shifts in both the AS and AD curves.
B) largely by shifts in the AD curve.
C) changes in the structural deficit.
D) by fiscal policy.
Q4) The Keynesian aggregate expenditure model focuses on changes in A) the price level.
B) real GDP.
C) potential GDP.
D) the SAS curve.
Page 21
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Chapter 20: Macroeconomic Policy
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Sample Questions
Q1) An example of a fiscal policy designed to increase real GDP is
A) a cut in taxes.
B) an increase in taxes.
C) a decrease in government expenditure.
D) None of the above answers is correct.
Q2) If net taxes are less than government outlays,the government sector has a budget ________ and government saving ________.
A) surplus; is positive
B) deficit; cannot be used for discretionary fiscal policy
C) deficit; is negative
D) None of the above answers is correct.
Q3) The crowding out effect refers to
A) the presence of the Ricardo-Barro effect.
B) how a cyclical budget deficit changes over the business cycle.
C) government investment crowding out private investment.
D) the wealth effect's impact on the aggregate demand curve.
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