Economics II Exam Bank
Course Introduction
Economics II builds upon the foundational concepts introduced in introductory economics by exploring advanced topics in both microeconomics and macroeconomics. The course delves deeper into market structures, consumer and producer behavior, game theory, and the role of government in the economy. Students will also examine macroeconomic indicators, models of economic growth, fiscal and monetary policies, and issues of unemployment and inflation. Through analytical frameworks and real-world applications, the course equips students with the tools necessary to understand and critically assess contemporary economic challenges and policies.
Recommended Textbook
Macroeconomics 2nd Edition by Daron Acemoglu
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15 Chapters
2642 Verified Questions
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Page 2
Chapter 1: The Principles and Practice of Economics
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Sample Questions
Q1) A recent news report stated that the unemployment rate in the country of Lithasia had increased from 10.2 percent to 18.2 percent between 2003 and 2013 and that the government has adopted strict fiscal measures to expand employment.Would this report be considered microeconomic or macroeconomic analysis?
Answer: This report pertains to macroeconomics.Macroeconomics refers to the study of an economy as a whole.Macroeconomics covers economy-wide phenomena,like the growth rate of a country's total economic output,the inflation rate,or the unemployment rate.
Q2) The impact of carbon taxes on the energy usage of individual households and firms is studied under ________.
A) microeconomics
B) macroeconomics
C) normative economics
D) positive economics
Answer: A
Q3) Define economics.Who are economic agents?
Answer: Economics is the study of how agents choose to allocate scarce resources and how these choices affect society.An economic agent is an individual or a group that makes choices.
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Page 3
Chapter 2: Economic Methods and Economic Questions
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Sample Questions
Q1) Zero correlation between two variables implies that ________.
A) both variables move in the same direction
B) the variables are not related to each other
C) both variables move in the opposite direction
D) change in one variable causes the other to change
Answer: B
Q2) Which of the following statements is true?
A) Empirical arguments can be supported without the use of data.
B) Using a large data set will strengthen the force of an empirical argument.
C) Using fewer observations will strengthen the force of an empirical argument.
D) The number of observations used does not affect the strength of an empirical argument.
Answer: B
Q3) Which of the following pairs of variables is likely to be positively correlated?
A) Income and consumption
B) Price and consumption
C) Education and unemployment
D) Availability of health care and death rate
Answer: A
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Page 4
Chapter 3: Optimization: Doing the Best You Can
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Sample Questions
Q1) If Project A has a cost of $2 and provides a benefit of $3 and Project B has a cost of $5 and provides a benefit of $8,which of the following statements is true?
A) The net benefit of Project A is $5.
B) An individual can optimize by choosing Project B.
C) Project A has a higher net benefit than Project B.
D) A shift from Project A to Project B increases the net benefit by $1.
Answer: B
Q2) Which of the following is an example of marginal analysis?
A) To determine the optimal number of workers, a firm calculates the net benefits of hiring an extra worker.
B) To determine the optimal amount of fertilizer to be used, a farmer calculates the total benefits of using a given amount of fertilizer.
C) To choose the optimal apartment to rent, an individual estimates the net benefits of renting an apartment close to his place of work.
D) To determine the optimal output that a firm should sell, the manager calculates the total revenue earned by selling different levels of output.
Answer: A
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Page 5
Chapter 4: Demand, Supply, and Equilibrium
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Sample Questions
Q1) Which of the following statements correctly describes a perfectly competitive market?
A) All participants in a perfectly competitive market are price-takers.
B) Haggling and bargaining is commonly observed in a perfectly competitive market.
C) In a perfectly competitive market, individual sellers and buyers can influence the market price.
D) Buyers in a perfectly competitive market pay different prices according to their individual demand.
Q2) Which of the following statements correctly describes a competitive market?
A) Buyers and sellers negotiate prices before making exchanges.
B) The market price for the same good varies from seller to seller.
C) A single seller sometimes has the ability to dictate the market price.
D) The market price is determined by the interaction of demand and supply.
Q3) What is the difference between the following two situations?
a)A shortage in the market for lightbulbs
b)A surplus in the market for lightbulbs
Illustrate your answers with the help of suitable diagrams.
Q4) What will happen to the equilibrium price and quantity of cars if there is an increase in the price of gasoline?
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Chapter 5: The Wealth of Nations: Defining and Measuring
Macroeconomic Aggregates
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Sample
Questions
Q1) A Chinese worker started working in the United States and earned an income of $10,000 during a certain year.This is likely to have led to a(n)________ in the same year.
A) increase in the U.S. GDP
B) increase in the U.S. GNP
C) increase in China's GDP
D) decrease in China's GDP
Q2) Which of the following is an example of a macroeconomic aggregate?
A) The total cost incurred by a firm
B) The income earned by a household
C) The annual inflation rate in an economy
D) The profit earned by an entrepreneur
Q3) Refer to the table above.If consumption expenditure increases to $200,000 in the next year,GDP will ________,all other variables remaining unchanged.
A) increase to $367,000
B) increase to $400,000
C) fall to $367,000
D) fall to $400,000
Q4) Why is home ownership a source of capital income?
Q5) Why are the values of inputs not included in the calculation of the GDP?
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Chapter 6: Aggregate Incomes
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Sample Questions
Q1) Which of the following is likely to happen if there is an increase in entrepreneurial activity in an economy?
A) The income per capita in the economy will fall.
B) The productivity of the economy will increase.
C) The inflation rate in the economy will decrease.
D) The exchange rate of its currency in the foreign exchange market will increase.
Q2) Perylia produced 10 million tons of wheat in a certain year,using a given stock of capital,K,and efficiency units of labor,L.It was able to increase production to 15 million tons within 2 years without any increase in its physical capital stock or the efficiency units of labor.Suppose wheat is the only good produced in Perylia.What is a likely reason for the increase in production? Explain with a suitable diagram.
Q3) Refer to the scenario above.How could research and development (R&D)lead to increases in productivity?
A) New technology allows for production of the same output at lower cost.
B) New natural resources are discovered.
C) Workers are better educated.
D) New technology allows for production of the same output with more inputs.
Q4) What role does research and development (R&D)play in increasing productivity?
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Page 8
Chapter 7: Economic Growth
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Sample Questions
Q1) The value of all equipment and structures in an economy is referred to as its
A) national income
B) physical capital stock
C) wealth
D) asset value
Q2) Over the past couple of decades,which have been the most common directions of change in the poverty rate and GDP per capita across the world's nations?
A) Most nations have increased their poverty rate and their GDP per capita.
B) Most nations have decreased their poverty rate and their GDP per capita.
C) Most nations have increased their poverty rate and decreased their GDP per capita.
D) Most nations have decreased their poverty rate and increased their GDP per capita.
Q3) Rapid population growth in Malthus's theory is constrained through ________.
A) higher fertility and mortality
B) reduced fertility and mortality
C) higher fertility and reduced mortality
D) reduced fertility and higher mortality
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9
Chapter 8: Why Isn't the Whole World Developed?
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Sample Questions
Q1) What are institutions? What is the institutions hypothesis of economic growth?
Q2) Certain countries remain backward because they nurture superstition and are suspicious of new technology.This argument is based on the ________.
A) culture hypothesis
B) geography hypothesis
C) capital hypothesis
D) location hypothesis
Q3) Institutions ________.
A) are mostly beyond human control
B) do not affect incentives
C) cannot be changed over time
D) place constraints on human behavior, and these constraints may not be absolute
Q4) Which of the following statements is true of creative destruction?
A) Creative destruction is generally bad for an economy.
B) Creative destruction is encouraged in economies with extractive institutions.
C) Creative destruction creates losses for some economic agents and benefits for others.
D) Creative destruction is a phenomenon that was prevalent before 1800.
Q5) Explain the differences between inclusive and extractive economic institutions.
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Chapter 9: Employment and Unemployment
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Sample Questions
Q1) Areas where whole industries disappear will most likely experience ________.
A) decreases in the unemployment rate
B) decreases in the labor force participation rate
C) decreases in the number of unemployed people
D) decreases in the number of possible workers
Q2) Wages that are higher than the current market wage ________.
A) dissuade workers from shirking
B) lower the productivity of workers
C) lower the aggregate price index
D) reduce the cost of production of various goods
Q3) Refer to the figure above.If a new technology is developed that increases the marginal productivity of all workers,what will happen to the labor supply curve?
A) It will shift left.
B) It will shift right.
C) It will remain the same.
D) It depends on how the labor demand curve shifts.
Q4) What causes the labor demand curve to shift? List three factors that can cause the labor demand curve to shift right.
Q5) What is downward wage rigidity?
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Chapter 10: Credit Markets
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Sample Questions
Q1) If Safeco Bank is shut down by the government,what possible scenarios could happen?
A) The FDIC steps in and pays the bank's depositors.
B) The FDIC transfers Safeco Bank to new ownership.
C) The FDIC pays the bank's debt and controls its operations for the next year.
D) Either A or B could happen.
Q2) Refer to the table above.What is the amount of Free Donut Bank's cash equivalents?
A) $110
B) $175
C) $245
D) $310
Q3) Refer to the scenario above.How much does Amateur Bank have in total liabilities?
A) $4,250
B) $4,950
C) $5,300
D) $5,500
Q4) List the various categories into which a bank's liabilities are divided.
Q5) Differentiate between asset management companies and venture capital funds.
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Chapter 11: The Monetary System
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Sample Questions
Q1) Before developing inflation expectations,Jenny reads through all available material on consumer price indexes and producer price indexes.Later,she also reads through recent magazines and newspapers to identify factors that could affect the inflation rate in the coming days.Jenny can be said to have ________.
A) adaptive expectations
B) rational expectations
C) marginal expectations
D) conditional expectations
Q2) Refer to the scenario above.Using 2016 as the base year,what was the real GDP of the economy in 2015?
A) $40,500
B) $49,500
C) $50,000
D) $52,500
Q3) The growth rate of a country's money supply in a particular year was 8.5 percent.What was the growth rate of real GDP if the inflation rate in the same year was 4 percent?
Q4) How does inflation act as a tax?
Q5) State two social benefits of inflation.
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Chapter 12: Short-Run Fluctuations
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Sample Questions
Q1) What is the longest an expansion could be?
A) Up to 5 years
B) Up to 7 years
C) Up to 10 years
D) Longer than 10 years
Q2) Which of the following terms refers to an unusually severe,prolonged recession,typically with an unemployment rate that exceeds 20 percent?
A) Depression
B) Inflation
C) Deflation
D) Stagflation
Q3) An economy's ________ during a recession.
A) labor demand curve shifts to the left
B) labor demand curve shifts to the right
C) labor supply curve shifts to the left
D) labor supply curve remains unaffected
Q4) What is likely to happen to labor demand,asset prices,and the number of layoffs if consumption in an economy falls?
Q5) Explain the term "labor hoarding."
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Chapter 13: Countercyclical Macroeconomic Policy
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Sample Questions
Q1) Contractionary fiscal policy leads to a ________.
A) rightward shift of the labor demand curve
B) leftward shift of the labor demand curve
C) rightward shift of the labor supply curve
D) leftward shift of the labor supply curve
Q2) A fiscal policy of subsidizing wages will lead to a(n)________ in ________.
A) increase; labor supply
B) increase; labor demand
C) decrease; labor supply
D) decrease; labor demand
Q3) Rapid growth in M2 is likely to lead to ________.
A) high levels of inflation
B) high real interest rates
C) low levels of investment
D) a low demand for labor
Q4) If the quantity of bank reserves held at the Fed increases,________.
A) banks make more loans
B) bank deposits decrease
C) the real interest rate increases
D) the M2 measure of money decreases
15
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Chapter 14: Macroeconomics and International Trade
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Sample Questions
Q1) Domestic residents can receive income-based payments in which of the following forms?
A) Exports, factor payments to foreigners, and transfers from foreigners
B) Imports, factor payments from foreigners, and transfers from foreigners
C) Exports, factor payments from foreigners, and transfers from foreigners
D) Imports, factor payments to foreigners, and transfers from foreigners
Q2) When the United States imports goods from other countries,the United States ________.
A) makes payments to other countries
B) receives payments from other countries
C) makes transfers to other countries
D) receives transfers from other countries
Q3) The U.S.government spent $5 million providing food and shelter to earthquake victims in Japan.This is an example of a(n)________.
A) export to Japan
B) import from Japan
C) factor payment to Japan
D) transfer payment to Japan
Q4) Why do the governments of some developing countries use tariffs to raise revenue?
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Chapter 15: Open Economy Macroeconomics
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Sample Questions
Q1) In the foreign exchange market,the lower the exchange rate is,________ will be.
A) the higher the demand for dollars
B) the higher the supply of dollars
C) the higher the quantity of dollars demanded
D) the higher the quantity of dollars supplied
Q2) Why was George Soros known as the "man who broke the Bank of England"?
Q3) A decrease in the interest rates in a country ________.
A) reduces net exports
B) increases net exports
C) does not affect net exports
D) results in an inflow of capital to the country
Q4) Refer to the figure above.When the real exchange rate is below R*,there is a trade surplus.
A)True
B)False
Q5) The nominal exchange rate is the ________.
A) ratio of imports to exports
B) interest rate charged on international capital flows
C) price of domestic currency in terms of foreign currency
D) ratio of prices of domestic goods to prices of foreign goods
Page 17
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