Economics I Final Exam Questions
Course
Introduction
Economics I provides an introduction to the fundamental principles of microeconomics and macroeconomics. The course covers topics such as supply and demand, market equilibrium, consumer and producer behavior, elasticity, and the role of government in the economy. Students also explore the functioning of markets, the measurement of economic performance, and basic concepts like inflation, unemployment, and economic growth. Through real-world examples and analytical tools, students develop a foundational understanding of how economic agents make decisions and how those decisions impact the broader economy.
Recommended Textbook
Macroeconomics 5th Edition by R. Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Q1) Scarcity refers to the situation in which
A)unlimited wants exceed limited resources.
B)unlimited resources exceed limited wants.
C)a country's population is larger than its resource base.
D)a nation's poverty level increases faster than its population.
Answer: A
Q2) Which of the following generates allocative efficiency in a market economy?
A)national government intervention
B)voluntary exchange between buyers and sellers
C)United Nations rules for competition
D)equity
Answer: B
Q3) How are the fundamental economic decisions determined in Canada?
A)Individuals,firms,and the government interact in a market to make these economic decisions.
B)These decisions are made by the country's elders who have had much experience in answering these questions.
C)The government decides because Canada is a centrally planned economy.
D)The United Nations decides because Canada is a developing economy.
Answer: A
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Chapter 2: Trade-Offs,comparative Advantage,and the Market System
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Sample Questions
Q1) Why are music,television,and movie companies concerned about their products being posted to Internet websites such as YouTube?
Answer: These companies believe that their intellectual property rights are being violated when the unauthorized use of their material appears on these websites,and this reduces their ability to sell CDs and DVDs of this material.
Q2) If a vineyard wants to raise funds to purchase a new bottling machine,it does so in the
A)factor market.
B)output market.
C)product market.
D)alcoholic beverages market.
Answer: A
Q3) Refer to Table 2-6.What is James's opportunity cost of making a wagon?
A)2 tricycles
B)1/2 of a wagon
C)1/2 of a tricycle
D)3/4 of a wagon
Answer: A
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Q1) In recent years the cost of producing wines in the U.S.has increased largely due to rising rents for vineyards.At the same time,more and more Americans prefer wine over beer.Which of the following best explains the effect of these events in the wine market?
A)The supply curve has shifted to the left and the demand curve has shifted to the right.As a result there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.
B)Both the supply and demand curves have shifted to the right.As a result,there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.
C)Both the supply and demand curves have shifted to the right.As a result,there has been an increase in both the equilibrium price and the equilibrium quantity.
D)The supply curve has shifted to the left and the demand curve has shifted to the right.As a result,there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.
Answer: D
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Q1) A tax is imposed on employers and workers that are used to fund Social Security and Medicare.This tax is sometimes referred to as
A)the Income Security Tax.
B)the federal income tax.
C)the ACIF.
D)the payroll tax.
Q2) Refer to Figure 4-9.What is the size of the unit tax?
A)$8
B)$5
C)$3
D)cannot be determined from the figure
Q3) Economists have shown that the burden of a tax is
A)greater on the buyer when the tax is collected from the buyer.
B)greater on the seller when the tax is collected from the seller.
C)greater on the buyer when the tax is collected from the seller and greater on the seller when the tax is collected from the buyer.
D)the same whether the tax is collected from the buyer or the seller.
Q4) What area on a supply and demand graph represents producer surplus?
Q5) What is deadweight loss? When is deadweight loss equal to zero?
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Chapter 5: The Economics of Health Care
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Q1) Refer to Figure 5-1.The efficient equilibrium price is
A)$60.
B)$50.
C)$40.
D)<$40.
Q2) The Pre-Existing Condition Insurance Plan is a federally administered part of the Affordable Care Act,and is designed for people with pre-existing medical conditions to obtain insurance.By offering health insurance to all U.S.citizens with pre-existing medical conditions,the Pre-Existing Condition Insurance Plan
A)eliminates asymmetric information for the insurer,but not for the insured.
B)eliminates asymmetric information for the insured,but not for the insurer.
C)eliminates asymmetric information for both the insurer and the insured.
D)reduces,but does not eliminate,,asymmetric information for both the insurer and the insured.
Q3) Insurance companies use deductibles and coinsurance to reduce moral hazard.
A)True
B)False
Q4) How can increases in a country's total income improve health?
Q5) What is health insurance?
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Chapter 6: Firms,the Stock Market,and Corporate Governance
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Q1) The central role of ________ in a market economy is bringing together savers and borrowers.
A)corporations
B)sole proprietors
C)financial intermediaries
D)stock exchanges
Q2) Economists refer to the conflict between the interests of shareholders and the interests of top management as
A)a stock-equity problem.
B)a liability problem.
C)a principal-agent problem.
D)a financial intermediary problem.
Q3) Before its IPO,Facebook was an example of a private firm.As a private firm,Facebook was
A)not subject to government regulations and taxation.
B)run by stockholders and a board of directors.
C)run by its founder,Mark Zuckerberg.
D)not legally allowed to raise funds through venture capital firms.
Q4) What was the source of the problems encountered by many financial firms during the late 2000s?
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Chapter 7: Comparative Advantage and the Gains From International Trade
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Q1) If the U.S.government implements a tariff on Chinese tire imports all of the following would be made worse off except
A)U.S.consumers.
B)American tire retailers.
C)Chinese tire manufacturers.
D)American tire manufacturing workers.
Q2) ________ is the ability to produce more of a good or service than competitors when using the same amount of resources.
A)Absolute advantage
B)Comparative advantage
C)Trade superiority
D)Trade autarky
Q3) Refer to Figure 7-2.With the tariff in place,the United States consumes
A)18 million pounds of coffee.
B)20 million pounds of coffee.
C)26 million pounds of coffee.
D)38 million pounds of coffee.
Q4) One of the main sources of comparative advantage is natural resources.
A)True
B)False
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Chapter 8: GDP: Measuring Total Production and Income
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Sample Questions
Q1) An example of business fixed investment spending is
A)a purchase of a home by a household.
B)a purchase of a computer by an accounting firm.
C)a purchase of a bond by General Electric Corporation.
D)$200 million of unsold cars at a car dealership.
Q2) Between 2013 and 2014,if an economy's exports rise by $8 billion and its imports fall by $8 billion,by how much will GDP change between the two years,all else equal?
A)Net exports will increase GDP by $8 billion.
B)The increase in exports is offset by the decrease in imports,so there is no change in net exports and no effect on GDP.
C)Net exports will increase GDP by $16 billion.
D)Net exports will decrease GDP by $8 billion.
Q3) The values of real GDP and real GNP are almost the same in countries where a significant fraction of domestic production takes place in foreign-owned firms.
A)True
B)False
Q4) What are the differences between national income,personal income,and disposable personal income?
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Page 10
Chapter 9: Unemployment and Inflation
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Q1) Refer to Table 9-14.The real average hourly earnings for 1965 in 1982-1984 dollars equal
A)$1.28.
B)$6.49.
C)$8.28.
D)$15.45.
Q2) The Bureau of Labor Statistics has taken several steps to reduce the bias in the consumer price index.Which of the following is not one of the steps taken to reduce the bias?
A)using statistical methods to reduce the size of the quality bias
B)updating the market basket every two years,rather than every 10 years
C)incorporating substitutions by consumers when prices of specific products rise rapidly
D)conducting a point-of-purchase survey to track where consumers actually make their purchases
Q3) During a deflationary period,
A)the nominal interest rate is less than the real interest rate.
B)the real interest rate is less than the nominal interest rate.
C)the price level rises.
D)the nominal interest rate does not change.
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Chapter 10: Economic Growth, the Financial System, and Business Cycles
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Sample Questions
Q1) The budget deficit is defined as
A)T - (G + TR),and this is negative.
B)T - (G + TR),and this is positive.
C)T + (G - TR),and this is negative.
D)T + (G + TR),and this is negative.
Q2) The only way the standard of living of the average person in a country can increase is if ________ increases faster than ________.
A)production; population
B)population; GDP per capita
C)population; production
D)population; income
Q3) If labor productivity growth slows down in a country,this will
A)accelerate the increase in real GDP per capita.
B)accelerate the increase in nominal GDP.
C)slow down the increase in real GDP per capita.
D)slow down the increase in nominal GDP.
Q4) How have government policies and programs affected the volatility of the business cycle in the United States since 1950? Explain and provide at least two specific examples of policies or programs that may have had an impact.
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Chapter 11: Long-Run Economic Growth: Sources and Policies
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Q1) Over the last three decades in the United States,services have become a smaller fraction of GDP relative to goods.
A)True
B)False
Q2) Foreign portfolio investment occurs when an individual or firm buys stock or bonds issued in another country.
A)True
B)False
Q3) Increasing the growth rate of GDP per capita and sustaining this growth rate in an economy can
A)increase infant mortality.
B)increase standards of living.
C)increase the level of poverty.
D)lower life expectancy.
Q4) Lack of investment in strong education and health care systems
A)causes a deterioration in human capital and a decline in labor productivity.
B)causes a decline in physical capital and a decline in labor productivity.
C)increases human capital and cause a decline in labor productivity.
D)causes a deterioration in human capital and an increase in physical capital.
Q5) Describe the process of "creative destruction" using a specific example.
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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Sample Questions
Q1) Why do economists care about aggregate expenditures?
Q2) Refer to Figure 12-1.If the economy is at point J,what will happen?
A)Inventories have fallen below their desired level,and firms decrease production.
B)Inventories have fallen below their desired level,and firms increase production.
C)Inventories have risen above their desired level,and firms decrease production.
D)Inventories have risen above their desired level,and firms increase production.
Q3) Consumption spending is $22 million,planned investment spending is $7 million,actual investment spending is $7 million,government purchases are $9 million,and net export spending is $3 million.Based on this information,which of the following is true?
A)There was an unplanned change in inventories.
B)Aggregate expenditure is equal to GDP.
C)Aggregate expenditure is greater than GDP.
D)Aggregate expenditure is less than GDP.
Q4) What are the four categories of aggregate expenditure?
Q5) What is the main reason for changes in GDP in the short run?
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Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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Q1) Higher personal income taxes
A)increase aggregate demand.
B)increase disposable income.
C)decrease aggregate demand.
D)both B and C
Q2) The level of real GDP in the long run is called
A)potential GDP.
B)short-run GDP.
C)frictional GDP.
D)low-capacity GDP.
Q3) A decrease in the price level will
A)shift the short-run aggregate supply curve to the left.
B)shift the short-run aggregate supply curve to the right.
C)move the economy up along a stationary short-run aggregate supply curve.
D)move the economy down along a stationary short-run aggregate supply curve.
Q4) An increase in aggregate demand results in a(n)________ in the ________.
A)recession; long run
B)expansion; long run
C)expansion; short run
D)recession; short run
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Chapter 14: Money, banks, and the Federal Reserve System
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Q1) Among potential stores of value,money
A)offers the highest rate of return.
B)increases in value during periods of inflation.
C)has the advantage of being the most liquid asset.
D)provides more services than the other assets.
Q2) Fiat money is generally issued by
A)private banks.
B)central banks.
C)brokerage firms.
D)major multinational corporations.
Q3) If banks do not loan out all their excess reserves,then the real world multiplier is A)smaller than 1/RR.
B)larger than 1/RR.
C)equal to 1/RR.
D)not related to 1/RR.
Q4) A person's wealth is the same as his income.
A)True
B)False
Q5) What is the principle monetary policy tool used by the Fed.Why?
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Chapter 15: Monetary Policy
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Q1) When the Federal Reserve System was established in 1913,its main policy goal was
A)encouraging strong economic growth.
B)promoting price stability.
C)preventing bank panics.
D)keeping employment high.
Q2) With a monetary growth rule as proposed by the monetarists,during a recession the rate of growth of the money supply would
A)decrease.
B)increase.
C)not change.
D)decrease or increase depending on economic conditions.
Q3) Inflation targeting is a framework for carrying out monetary policy whereby
A)the central bank adopts a rigid target for inflation and ignores declines in output.
B)the central bank commits to achieving a publicly announced level of inflation.
C)the central bank commits to achieving a target level of inflation which is never announced publicly.
D)the central bank commits to a monetary growth rule.
Q4) What problems can high inflation rates cause for the economy?
Q5) List the Fed's four main monetary goals.
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Chapter 16: Fiscal Policy
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Sample Questions
Q1) An increase in government spending increases the supply of money in our economy.
A)True
B)False
Q2) The tax multiplier equals the change in ________ divided by the change in ________.
A)taxes; equilibrium real GDP
B)equilibrium real GDP; taxes
C)taxes; consumption spending
D)consumption spending; taxes
Q3) The tax increases necessary to fund future Social Security and Medicare benefit payments would be
A)small,and have little effect on economic growth.
B)small,but could discourage work effort,entrepreneurship and investment,thereby slowing economic growth.
C)large,but would have little effect on economic growth.
D)large,and could discourage work effort,entrepreneurship and investment,thereby slowing economic growth.
Q4) What is expansionary fiscal policy? What is contractionary fiscal policy?
Q5) How can tax simplification be beneficial to the economy?
Q6) What is fiscal policy,and who is responsible for fiscal policy?
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Chapter 17: Inflation, unemployment, and Federal Reserve Policy
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Q1) Refer to Figure 17-5.Consider the Phillips curves shown in the above graph.We can conclude from this graph that
A)the natural rate of unemployment in this economy is 5.5 percent.
B)the expected rate of inflation in this economy is 10 percent.
C)ceteris paribus,a fall in the rate of inflation to 5 percent will increase unemployment to 7.5 percent in the short run.
D)All of the above are correct.
Q2) With which of the following statements would a "real business cycle" theorist most closely agree?
A)"Monetary policies have the greatest impact on real GDP when they are anticipated."
B)"Expansionary monetary policy allows the central bank to control inflation and unemployment simultaneously."
C)"Wages adjust rapidly to changes in inflation as long as expectations are formed rationally."
D)"Technological shocks to the economy affect only aggregate demand in the short run."
Q3) How would you expect the Fed to respond to a negative supply shock in the economy?
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Chapter 18: Macroeconomics in an Open Economy
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Q1) Refer to the Article Summary.All else equal,a depreciation of the Indian rupee relative to a currency such as the U.S.dollar should ________ the current account balance in India and therefore ________ the financial account balance in India.
A)increase; increase B)increase; decrease C)decrease; increase D)decrease; decrease
Q2) Contractionary monetary policy should increase foreign financial investment in the United States.
A)True
B)False
Q3) An increase in the demand for American-made goods will
A)increase the supply of dollars on the foreign exchange market.
B)decrease the supply of dollars on the foreign exchange market.
C)increase the demand for dollars on the foreign exchange market.
D)decrease the demand for dollars on the foreign exchange market.
Q4) How is the impact of contractionary monetary policy different in an open economy than in a closed economy?
Q5) Explain the relationship between net exports and net foreign investment.
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Chapter 19: The International Financial System
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Q1) The Bretton Woods exchange rate system was a
A)floating exchange rate system.
B)managed float exchange rate system.
C)fixed exchange rate system.
D)flexible exchange rate system.
Q2) If the GDP deflator in the United States is 114,and the GDP deflator in Ukraine is 142,which of the following exchange rates would the theory of purchasing power parity predict in the long run? (The Ukrainian currency is the hryvnia.)
A)0.80 hryvnias per dollar
B)1.25 hryvnias per dollar
C)2.80 hryvnias per dollar
D)28 hryvnias per dollar
Q3) The model of purchasing power parity is the only way to determine whether a country's currency is undervalued or overvalued.
A)True
B)False
Q4) Will the use of the euro help increase economic growth in countries in the European Union? Will it help individual countries using the euro in times of recession? Explain.
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