Economics II
Chapter Exam Questions
Course Introduction
Economics II builds upon foundational economic principles introduced in earlier courses by deepening students' understanding of both microeconomics and macroeconomics. This course explores advanced concepts such as market structures, game theory, income distribution, fiscal and monetary policy, international trade, and economic growth. Emphasis is placed on applying economic models to real-world scenarios, analyzing the impact of government interventions, and interpreting economic data. Through a blend of theoretical frameworks and practical examples, students gain the analytical tools necessary to critically assess economic issues and policy decisions in a global context.
Recommended Textbook
ECON MACRO 5th Edition by
William A. McEachern
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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Q1) Which of the following is a positive statement?
A)The unemployment rate of 7 percent or higher is a national disgrace.
B)Unemployment is a less important problem than inflation.
C)When the national unemployment rate is 7 percent,the unemployment rate among inner-city youth is often close to 40 percent.
D)Unemployment and inflation are equally important problems.
E)An inflation rate of 7 percent is too high.
Answer: C
Q2) An entrepreneur:
A)always makes a profit.
B)generally avoids risky situations.
C)claims the profit after other resource suppliers are compensated.
D)is a parasite that benefits by not paying other resources for their services.
E)is the manager who runs an enterprise and keeps the customers happy.
Answer: C
Q3) The behavior of the entertainment industry in a city is a microeconomics topic.
A)True
B)False
Answer: True
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Chapter 2: Economic Tools and Economic Systems
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Q1) The division of labor increases productivity because:
A)tasks can be assigned according to individual abilities.
B)workers who repeatedly perform the same tasks become bored.
C)each worker must learn each of the numerous tasks in the total production process.
D)the specialization of labor allows for the introduction of cheaper,less sophisticated production techniques.
E)managers can force workers to produce goods that are valued higher than the costs of producing them.
Answer: A
Q2) When drawing a production possibilities frontier for two goods,all of the following are usually assumed except one.Which is the exception?
A)The quantity of resources is rapidly growing.
B)Technology is fixed.
C)Resources can be shifted from the production of one good to the other.
D)The production possibilities frontier is drawn for a particular time period.
E)Resources are fully and efficiently employed.
Answer: A
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4
Chapter 3: Economic Decision Makers
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Q1) One thing that is not true about cooperatives is that they:
A)put out raw materials,like wool and cotton,to rural households that turn it into finished products.
B)pool resources to buy and sell more efficiently.
C)try to minimize costs.
D)operate with limited liability of members.
E)enjoy tax-exempt status.
Answer: A
Q2) Which of the following is not a government transfer program?
A)Unemployment compensation
B)Social Security
C)Food stamps
D)Medicare
E)Income taxes
Answer: E
Q3) Under a regressive income tax system,individuals with higher incomes pay higher marginal tax rates.
A)True
B)False
Answer: False
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Chapter 4: Demand, supply, and Markets
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Q1) Suppose the price of compact disks (CDs)increases,other things equal.Which of these is most likely to occur in the market for DVDs,a substitute?
A)The demand for DVDs is likely to decrease.
B)The demand for DVDs is likely to increase.
C)The quantity of DVDs demanded is likely to increase.
D)A decrease in the quantity of DVDs demanded is likely to decrease.
E)A decrease in the quantity of DVDs supplied is likely to decrease.
Q2) In case of a normal good,an increase in consumers' incomes would shift the:
A)demand curve inward.
B)supply curve inward.
C)supply curve outward.
D)supply and demand curves inward.
E)demand curve outward.
Q3) A surplus of shoes will cause:
A)a decrease in the supply of shoes.
B)a decrease in the demand for shoes.
C)an increase in the price of leather.
D)a rightward shift of the supply curve of shoes.
E)a decrease in the price of shoes.
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Page 6
Chapter 5: Introduction to Macroeconomics
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Q1) The failure of the mercantilism policy and the tax policy during the Great Depression proves that economic policies are meaningless and they do more harm than good.
A)True
B)False
Q2) 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.
Q3) Which of the following statements about leading economic indicators is true?
A)Most people refer to them before making any important spending decision.
B)They are the only economic indicators available to economists.
C)They indicate when an economy is in a recession or an expansion.
D)They foreshadow turning points in the business cycle.
E)They can predict precisely when turning points in an economy will occur.
Q4) A federal budget deficit can simultaneously reduce inflation and unemployment.
A)True
B)False
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Chapter 6: Tracking the Useconomy
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Q1) Marianne and Laura are both homemakers with children.When Laura starts to work as an unpaid volunteer at a hospital,she hires Marianne to care for her young child.In this context,the gross domestic product (GDP)will _____.
A)increase
B)decrease
C)remain unaffected
D)increase if Marianne cares for the child better than Laura
E)increase if Laura treats patients with more sincerity than the other volunteers
Q2) Which of the following is an example of an injection into the circular flow of income and expenditure?
A)Government spending
B)Imports
C)Disposable income
D)Net taxes
E)Saving
Q3) The value added method to measure GDP does not avoid double counting.
A)True
B)False
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8
Chapter 7: Unemployment and Inflation
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Q1) If two parties to a loan contract agree that the lender should earn an 8 percent increase in purchasing power as a result of a loan and if the inflation rate is 5 percent,the nominal interest rate is _____.
A)13 percent
B)8 percent
C)5 percent
D)3 percent
E)1 percent
Q2) The inflation experienced in the United States during the 1970s as a result of OPEC oil price increases is an example of:
A)demand-pull inflation.
B)hyperinflation.
C)cost-push inflation.
D)cyclical inflation.
E)disinflation.
Q3) The real interest rate can be negative.
A)True
B)False
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Chapter 8: Productivity and Growth
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Q1) In the long run,the economy needs applied research geared toward specific products more than it needs basic research,which is not motivated by or directed toward manufacturing.
A)True
B)False
Q2) Which of the following is assumed to be constant along a per-worker production function?
A)Output per worker
B)Capital per worker
C)Level of technology
D)Amount of capital
E)Amount of output
Q3) Which of the following countries had the highest percentage of young adults with a college degree in 2012?
A)Norway
B)Canada
C)Japan
D)France
E)Italy
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Page 10
Chapter 9: Aggregate Demand
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Q1) An increase in autonomous investment in an economy will _____.
A)shift the aggregate expenditure line upward
B)shift the aggregate expenditure line downward
C)result in an upward movement along the aggregate expenditure line
D)result in a downward movement along the aggregate expenditure line
E)increase aggregate expenditures only at high levels of income
Q2) The aggregate demand curve of an economy:
A)is downward sloping.
B)first declines and then becomes positively sloped.
C)is horizontal.
D)is vertical.
E)first rises and then becomes negatively sloped.
Q3) When current production of goods and services in an economy is greater than planned aggregate expenditure,_____.
A)inventories of goods and services will increase
B)firms will increase production to replenish depleted inventories
C)businesses and households will increase planned aggregate spending
D)the price level will automatically rise to restore equilibrium in the economy
E)leakages must equal planned injections
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Page 11
Chapter 10: Aggregate Supply
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Q1) Given a downward-sloping aggregate demand curve,if short-run aggregate supply increases,real GDP must increase and nominal GDP must fall.
A)True
B)False
Q2) When the economy is at its potential output level,which of the following is true?
A)The price level is higher than that expected by workers.
B)The nominal wage is equal to the real wage.
C)The unemployment rate is about 14 percent.
D)The economy is producing its maximum sustainable output.
E)The actual price level is less than the expected price level.
Q3) If the price level in the current year is much higher than the expected price level,_____.
A)firms will increase production beyond the economy's potential level
B)the unemployment rate will increase
C)firms will decrease production below the economy's potential level
D)the short-run aggregate supply curve will become steeper
E)the unemployment rate will fall to zero
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Page 12
Chapter 11: Fiscal Policy
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Sample Questions
Q1) An automatic stabilizer:
A)increases inflationary pressure during expansions.
B)Increases the drop in disposable income during recessions and increases the jump in disposable income during expansions.
C)reduces the drop in disposable income during recessions and reduces the jump in disposable income during expansions.
D)increases tax revenue relative to government spending throughout the business cycle.
E)decreases tax revenue relative to government spending throughout the business cycle.
Q2) If fiscal policy makers increase aggregate demand in an attempt to decrease the unemployment rate below the natural rate of unemployment,then:
A)the potential GDP will decrease.
B)the potential GDP will increase.
C)the only lasting impact of the policy is a higher price level.
D)the only lasting impact of the policy is higher real GDP.
E)the only lasting impact of the policy is lower real GDP.
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13
Chapter 12: Federal Budgets and Public Policy
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Q1) The crowding in of private investment is more likely to occur,when _____.
A)there is a depreciation of domestic currency
B)interest rates increase significantly
C)a contractionary gap exists in an economy
D)the deficits lower expectations about economic growth
E)an expansionary gap exists in an economy
Q2) If the functional finance approach to federal budgeting is followed,the federal government's budget deficit should be zero.
A)True
B)False
Q3) The budget deficit tends to decline during periods of recession and to increase during periods of economic recovery.
A)True
B)False
Q4) If a budget is cyclically balanced,the government should run a surplus when the economy experiences a contractionary gap.
A)True
B)False
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Page 14
Chapter 13: Money and the Financial System
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Q1) Interest-rate ceilings on deposits:
A)meant banks were guaranteed "cheap money" from depositors.
B)were imposed because without them,as was the case in the 1970s,banks couldn't be profitable.
C)led to banks losing deposits whenever market rates went above the ceiling rates.
D)are only effective when market rates are below the ceiling rates.
E)were developed by money market mutual funds as a marketing device.
Q2) Money market mutual funds:
A)offer higher rates of interest than bank checking accounts,but lack check-writing privileges.
B)offer higher rates of interest than bank checking accounts and also offer limited check-writing privileges.
C)usually pay lower rates of interest than bank checking accounts.
D)were originally developed and offered by banks to their customers.
E)usually do not offer any check-writing privileges.
Q3) Each member of the Federal Reserve's Board of Governors is appointed for life.
A)True
B)False
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Chapter 14: Banking and the Money Supply
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Q1) Suppose you bank at Bank A and you write a check to your friend,who banks at Bank
B.After the check clears,_____.
A)both Bank A's and Bank B's assets increase
B)both Bank A's and Bank B's assets decrease
C)Bank A's assets increase and Bank B's assets decrease
D)Bank A's assets decrease and Bank B's assets increase
E)there is an increase in the Federal Reserve's assets
Q2) Suppose a bank lends you $1,000 to purchase a car.Which of the following correctly represents the changes in the bank's balance sheet before you spend the money?
A)Assets: loans,+$1,000; Liabilities and net worth: checking deposits,+$1,000
B)Assets: loans,-$1,000,checking deposits,+$1,000; Liabilities and net worth: no change
C)Assets: loans,+$1,000,checking deposits,-$1,000; Liabilities and net worth: no change
D)Assets: checking deposits,+$1,000; Liabilities and net worth: loans,+$1,000
E)Assets: checking deposits,+$1,000; Liabilities and net worth: loans,-$1,000
Q3) Banks are permitted to lend all of their reserves.
A)True
B)False
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Page 16
Chapter 15: Monetary Theory and Policy
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Q1) An increase in the nominal interest rate,other things constant,will:
A)shift the money demand curve to the right.
B)shift the money demand curve to the left.
C)increase the quantity of money people choose to hold.
D)decrease the quantity of money people choose to hold.
E)have no impact on the money demand curve.
Q2) In the long run,if the money supply increases:
A)most of the resulting rise in nominal GDP will be a result of increases in the exchange rate.
B)most of the resulting rise in nominal GDP will be a result of increases in the price level.
C)most of the resulting rise in real GDP will be a result of increases in the price level.
D)most of the resulting rise in real GDP will be a result of increases in the interest rate.
E)most of the resulting rise in real GDP will be a result of increases in aggregate expenditure.
Q3) The higher the interest rate,the greater the preference for liquidity.
A)True
B)False
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Page 17
Chapter 16: Macro Policy Debate: Active or Passive
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Q1) The country of Glassen has experienced an expansionary gap for the last three years.The advocates of passive policy are likely to suggest a policy which causes
A)the short-run aggregate supply to shift to the left.
B)the short-run aggregate supply to shift to the right.
C)rising prices to shift the aggregate demand to the left.
D)wages to fall relatively quickly.
E)aggregate demand to shift to the right as wages increase.
Q2) Ms.Jones is a professor at a university.She strongly supports the rational expectations theory.She is likely to believe that the only time active policy has an impact on aggregate output is when:
A)an expansionary policy is implemented.
B)a recessionary policy is implemented.
C)policy changes are unannounced.
D)the economy has a recessionary gap.
E)the economy has an expansionary gap.
Q3) The long-run Phillips curve is located at the natural rate of unemployment.
A)True
B)False
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Page 18
Chapter 17: International Trade
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Questions
Q1) International trade equalizes the opportunity cost of producing any good around the world.
A)True
B)False
Q2) International trade is most likely to occur whenever:
A)nations have an absolute advantage in the production of goods.
B)all of the trading nations are self-sufficient.
C)world production equals world consumption.
D)each of the trading nations gains from trade.
E)labor is cheaper abroad.
Q3) During a year,the government of a country imposed a tariff on imported steel.The rationale behind this policy was that lower-priced imports had put the country's established steel industries in jeopardy of closing.This government policy was based on:
A)the declining industries argument.
B)the antidumping argument.
C)the infant industry argument.
D)the national defense argument.
E)the jobs and income argument.
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19
Chapter 18: International Finance
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Q1) The Bretton Woods agreement was reached:
A)immediately after the Civil War.
B)just before World War I.
C)just after World War I.
D)just after the Great Depression.
E)toward the end of World War II.
Q2) Devaluation of a domestic currency:
A)is also called revaluation.
B)refers to an increase in a floating exchange rate.
C)refers to a decrease in a floating exchange rate.
D)refers to an increase in a fixed exchange rate.
E)refers to a decrease in a fixed exchange rate.
Q3) Prior to World War I,the international financial system had operated on:
A)a floating exchange rate system.
B)a managed exchange rate system.
C)a laissez-faire exchange rate system.
D)the gold standard.
E)the dollar standard.
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20
Chapter 19: Economic Development
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Q1) The bulk of exports from developing countries is:
A)manufactured goods.
B)primary products.
C)services.
D)intermediate goods only.
E)capital equipment only.
Q2) Studies by the World Bank have emphasized that countries that have adopted trade liberalization policies have been successful.
A)True
B)False
Q3) Labor productivity depends on:
A)the quality of labor.
B)the volume of imports.
C)the size of an economy.
D)the volume of exports.
E)the proportion of the labor force that is unionized.
Q4) An aging population poses fiscal problems for any country.
A)True
B)False
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