Economics I Practice Exam
Course Introduction
Economics I introduces students to the fundamental principles of microeconomics, focusing on how individuals and firms make choices in the face of scarcity. The course covers core topics such as supply and demand, elasticity, consumer and producer behavior, market structures, and the role of government in the economy. Students will develop analytical skills to understand how markets function, how prices are determined, and how resources are allocated. Through real-world examples and problem-solving exercises, students will gain a solid foundation for further studies in economics and related fields.
Recommended Textbook
ECON MACRO 6th Edition by William A.
McEachern
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) The interaction of economic decision makers:
A) is not based on marginal analysis.
B) determines how an economy's resources are allocated.
C) is not important in economic analysis.
D) occurs infrequently.
E) does not involve ordinary citizens.
Answer: B
Q2) Scarcity occurs when the amount people desire is less than the amount available at a zero price.
A)True
B)False
Answer: False
Q3) A rational decision maker will make a change only if:
A) the marginal benefit from the change exceeds the average benefit from the change.
B) there are no costs involved.
C) the change increases social welfare.
D) there is no uncertainty about the results of the change.
E) the expected marginal benefit exceeds the expected marginal cost.
Answer: E
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Page 3
Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) Refer to Exhibit 2.1, which shows the production for rice and T-shirts for two countries: Costa Rica and the United States. If the United States produces exactly half of its total production in each good, what will it produce?
A) 100 T-shirts and 100 tons of rice
B) 250 T-shirts and 250 tons of rice
C) 500 T-shirts and 500 tons of rice
D) 750 T-shirts and 750 tons of rice
E) 1000 T-shirts and 1000 tons of rice
Answer: C
Q2) A system characterized by the private ownership of some resources and the public ownership of other resources and where some markets are regulated by government is known as a(n)_____.
A) traditional system.
B) transitional system.
C) pure command system.
D) mixed system.
E) pure capitalism system.
Answer: D
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Which of the following best defines foreign exchange?
A) trade between two countries
B) the market where exporting and importing activities take place
C) the price of a currency relative to another currency
D) revenue from imports
E) the currency that the United States uses to buy goods from other countries
Answer: E
Q2) A common assumption that economists make about the behavior of elected officials is that they try to _____
A) maximize the size of their salaries.
B) maximize their control over the budget process.
C) maximize the number of votes they receive in the next election.
D) minimize the government's expenditures in order to balance the budget.
E) conform to the wishes of special interest groups so that the government behaves as a single, consistent decision maker.
Answer: C
Q3) The fastest-growing component of U.S. personal consumption is services.
A)True
B)False
Answer: True
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Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) The effect of a decrease in the price of personal computers on consumer demand, other things constant, is most likely to be represented by a _____
A) leftward shift of the demand curve for personal computers.
B) upward movement along the demand curve for personal computers.
C) rightward shift of the demand curve for personal computers.
D) downward movement along the demand curve for personal computers.
E) decrease in the slope of the demand curve for personal computers.
Q2) The income effect of a decrease in the price of legal services, a normal good, is a(n)
A) decrease in the demand for legal services.
B) decrease in the quantity demanded of legal services.
C) increase in the quantity supplied of lawyers.
D) increase in the quantity demanded of legal services.
E) increase in the supply of lawyers.
Q3) The income effect of a price change refers to the impact of a change in _____
A) the money income of consumers on the price of a good.
B) the relative price of a good on the demand for other goods.
C) the price of a good on a consumer's real income.
D) the price of a substitute good on a consumer's budget.
E) the money income of consumers on the demand for a good.
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Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) Which of the following would indicate the beginning of an expansionary phase in an economy?
A) a minor increase in the number of new firms
B) a decline in stock market prices
C) an improvement in consumer confidence
D) a slowdown in housing construction
E) a decrease in the number of orders for new equipment
Q2) The price index _____
A) represents the relationship between the economy's price level and aggregate output demanded.
B) shows how the economy's output changes over time.
C) is used to figure out real GDP each year.
D) aggregates output measured in dollars of constant purchasing power.
E) represents the relationship between the economy's price level and real GDP.
Q3) The word stagflation describes a situation in which _____
A) a higher price level occurs simultaneously with higher employment.
B) a lower price level occurs simultaneously with economic growth.
C) a higher price level occurs simultaneously with lower aggregate output.
D) a lower price level occurs simultaneously with federal budget deficits.
E) a higher price level occurs simultaneously with federal budget surpluses.
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Chapter 6: Tracking the U S Economy
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Sample Questions
Q1) Any diversion of income from the domestic spending stream is known as _____
A) government purchases.
B) investments.
C) injections.
D) leakages.
E) exports.
Q2) Which of the following is true of leakages and injections in the circular-flow model?
A) Leakages minus injections equal gross domestic product (GDP).
B) Injections minus leakages equal gross domestic product (GDP).
C) Leakages minus injections equal zero in equilibrium.
D) Leakages must be less than injections for an economy to be in equilibrium.
E) Leakages must be greater than injections for an economy to be growing.
Q3) Which of the following is true of leakages and injections in the circular-flow model?
A) Leakages minus injections equals gross domestic product (GDP).
B) Injections minus leakages equals gross domestic product (GDP.
C) Leakages minus injections equals zero in equilibrium.
D) Leakages must be less than injections for an economy to be in equilibrium.
E) Leakages must be greater than injections for an economy to be growing.
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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 6%, what is your real wage increase?
A) 1 percent
B) minus 1 percent
C) 0 percent
D) minus 5 percent
E) 6 percent
Q2) Inmates from the county prison who are on work release are counted as part of the labor force.
A)True
B)False
Q3) Which of the following decades was characterized by the highest inflation rate in the United States?
A) the 1920s
B) the 1930s
C) the 1950s
D) the 1970s
E) the 1960s
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Page 9
Chapter 8: Productivity and Growth
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Sample Questions
Q1) A group of musicians performing at a concert for charity in New York is an example of an industry cluster in economics.
A)True
B)False
Q2) Suppose the production possibilities frontier (PPF) of an economy has been plotted on a graph. If the horizontal axis of the graph measures the output of capital goods and the vertical axis measures the output of consumer goods, then a point outside the PPF represents _____
A) a smaller quantity of consumer goods than that represented by a point inside the PPF. B) an inefficient output combination of the two goods in the economy.
C) an unattainable output combination of the two goods in the economy.
D) an output combination of more consumer goods than capital goods.
E) a smaller quantity of capital goods than that represented by a point inside the PPF.
Q3) Refer to Exhibit 8.3, which shows a per-worker production function. A technological improvement would make point C attainable.
A)True
B)False
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Chapter 9: Aggregate Demand
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Sample Questions
Q1) Which of the following will shift the investment demand curve rightward?
A) higher interest rates
B) gloomy sales expectations
C) a cut in corporate taxes that raises after-tax profits
D) a decrease in the marginal propensity to consume
E) an increase in aggregate income
Q2) The main determinants of investment are the interest rates and expected profit.
A)True
B)False
Q3) Which of the following is true of net taxes?
A) The level of net taxes varies directly with the level of transfer payments.
B) The level of net taxes varies inversely with the level of transfer payments.
C) Net taxes must always be less than zero.
D) Net taxes increase when income tax rates are reduced.
E) Net taxes increase when income decreases.
Q4) Movement along the aggregate demand curve may be caused by a change in autonomous investment spending.
A)True
B)False
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Chapter 10: Aggregate Supply
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Sample Questions
Q1) Suppose an economy is initially in long-run equilibrium, and it then experiences a supply shock in the form of exceptionally high energy prices. Which of these will be true in this economy?
A) The short-run aggregate supply curve will shift leftward, and the long-run supply curve will shift rightward.
B) The short-run aggregate supply curve and the long-run aggregate supply curve will shift rightward.
C) The short-run aggregate supply curve will not shift, and the long-run aggregate supply curve will shift rightward.
D) The short-run aggregate supply curve will shift rightward, but the long-run aggregate supply curve will not shift.
E) The short-run aggregate supply curve and the long-run aggregate supply curve will shift leftward.
Q2) Floods in the Midwest that diminish farm output would shift the aggregate supply curve outward.
A)True
B)False
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12
Chapter 11: Fiscal Policy
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Sample Questions
Q1) Fiscal policy under the Reagan administration resulted in _____
A) higher budget deficits, which increased aggregate demand.
B) lower budget deficits, which decreased aggregate demand.
C) higher budget deficits, which decreased aggregate supply.
D) lower budget deficits, which stimulated aggregate supply.
E) increased government spending, which increased aggregate supply.
Q2) The unemployment problem becomes more severe if prices are sticky downward.
A)True
B)False
Q3) Which of the following measures did President Bush adopt in 2001 to get the economy moving again?
A) a hike in the wages of workers
B) a ten-year tax cut
C) an increase in taxes on high-income households
D) liquidation of money supply
E) Aa decrease in government spending
Q4) The American Recovery and Reinvestment Act passed in February 2009 was the largest measure of discretionary fiscal policy in U.S. history.
A)True
B)False
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Chapter 12: Federal Budgets and Public Policy
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Sample Questions
Q1) A biennial budget _____
A) is more useful than an annual budget as a tool of discretionary fiscal policy.
B) is implemented by the federal government, while an annual budget is implemented by state governments.
C) would ensure that cabinet members spend more time on administering an approved budget and defending a proposed budget.
D) would encourage cabinet members to focus more on running their agencies rather than being involved in budget deliberations.
E) would require shorter-term economic forecasts than an annual budget.
Q2) The federal budget experienced surpluses from _____
A) 1998 to 2001.
B) 2002 to 2006.
C) 1970 to 1973.
D) 1991 to 1994.
E) 1985 to 1988.
Q3) The U.S. federal debt as a percentage of GDP is currently on the rise.
A)True
B)False
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14
Chapter 13: Money and the Financial System
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Sample Questions
Q1) Whatever serves as a medium of exchange is _____
A) generally accepted in return for goods and services.
B) money as long as it is also the best such medium of exchange available.
C) money as long as it is the most widely used currency.
D) money as long as it is not also legal tender.
E) not money unless it continues to be backed by its issuing institution.
Q2) The chair of the Board of Governors of the Fed must resign when a new president is elected.
A)True
B)False
Q3) Any bank that uses deposits to make loans _____
A) operates on a 100 percent reserve system.
B) operates on a fractional reserve system.
C) does not operate on a reserve system.
D) does not keep reserves in its vaults.
E) charges an interest rate determined by the reserve ratio.
Q4) The United States has a dual banking system consisting of state banks and national banks.
A)True
B)False
Page 15
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Chapter 14: Banking and the Money Supply
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Sample Questions
Q1) If the simple money multiplier is 20, the required reserve ratio must be equal to
A) 5 percent.
B) 0 percent.
C) 10 percent.
D) 50 percent.
E) 20 percent.
Q2) When the Fed sells U.S. government securities to a member bank, the immediate effect on that bank's balance sheet is a(n) _____
A) decrease in assets and an increase in liabilities.
B) increase in assets and a decrease in liabilities.
C) increase in both assets and liabilities.
D) decrease in both assets and liabilities.
E) change in the type of assets the bank is holding, but no change in liabilities.
Q3) By reducing the required reserve ratio, the Fed can not only create excess reserves but also increase the money multiplier.
A)True
B)False
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Chapter 15: Monetary Theory and Policy
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Sample Questions
Q1) If the velocity of money is 10 and money supply is $100, then nominal GDP is _____
A) $1.
B) $10.
C) $100.
D) $1,000.
E) $2,000.
Q2) Exhibit 15.4 depicts short-run equilibrium in an aggregate demand-aggregate supply model. If the economy is at point "e" in the short run, which of these policies adopted by the Fed is likely to return it to long-run equilibrium?
A) a decrease in government spending
B) an increase in the tax rate
C) a decrease in the tax rate
D) a decrease in the money supply
E) an increase in the money supply
Q3) In the long run, increases in the money supply increase the economy's potential output level.
A)True
B)False
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17
Chapter 16: Macro Policy Debate: Active or Passive?
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Sample Questions
Q1) The natural rate of unemployment occurs at _____
A) the economy's nominal output.
B) the economy's real output.
C) the economy's potential output.
D) the nominal rate of inflation.
E) the real rate of inflation.
Q2) Those who favor an active approach to policy and those who favor a passive approach disagree not only on how quickly the government can act but also on how stable the economy basically is.
A)True
B)False
Q3) In the event of a recession, which of the following is the most likely policy stance of those who advocate a passive approach to economic policy?
A) cutting taxes
B) increasing government spending
C) reducing interest rates
D) increasing the money supply
E) doing nothing
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18
Chapter 17: International Trade
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Sample Questions
Q1) World output will be maximized if each country _____
A) attempts to be self-sufficient.
B) specializes in producing those goods in which it has a comparative advantage.
C) specializes in producing those goods in which it has an absolute advantage.
D) reduces its consumption possibilities.
E) equals its consumption possibilities.
Q2) One of the main motives for the United States to negotiate a free trade agreement with Mexico was to _____
A) increase immigration into the United States.
B) encourage Mexico's recent drive to achieve a more market-oriented economy.
C) attract more Mexican investment.
D) achieve political union with Mexico.
E) help foster the study of the Spanish language in the United States as a means to trading with all Spanish-speaking countries.
Q3) Relative to quotas, tariffs lead to a greater change in the quantity of a good demanded by consumers.
A)True
B)False
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19
Chapter 18: International Finance
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Sample Questions
Q1) The balance of payments always balances because each of the specific accounts must, by definition, be in balance.
A)True
B)False
Q2) In the balance-of-payments account, the outflow of payments to the rest of the world, are entered as _____
A) credits.
B) debits.
C) payments.
D) investments.
E) unilateral transfers.
Q3) The merchandise trade balance measures _____
A) the value of goods exported by different states within the country.
B) the value of all services exported minus the value of all services imported.
C) the value of all services imported minus the value of all services exported.
D) the value of all tangible products exported minus the value of all tangible products imported.
E) the value of all tangible products imported minus the value of all tangible products exported.
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Page 20
Chapter 19: Economic Development
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Sample Questions
Q1) What does USAID emphasize?
A) balance-of-payments loans
B) investments in defense industries
C) short-range plans to promote dependence on wealthy nations
D) long-range plans to meet the basic needs of the poor and to promote self-sufficiency
E) stability in foreign exchange markets
Q2) Which of the following statements is true of foreign aid received by a developing country?
A) Private international borrowing and lending are highly encouraged by the governments of developing countries.
B) Private international borrowing and lending are heavily restricted by the governments of developing countries.
C) Foreign aid permanently raises the standard of living in developing countries.
D) Foreign aid can help in eliminating corruption in developing countries.
E) Foreign aid to developing countries is coordinated by the United Nations.
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