Economics II
Exam Questions
Course Introduction
Economics II builds upon foundational economic principles, focusing on advanced topics in both microeconomics and macroeconomics. The course delves into market structures, resource allocation, consumer and producer behavior, and the role of government in economic systems. Students explore concepts such as monetary and fiscal policy, national income determination, inflation, unemployment, and international trade. Through theoretical analysis and real-world case studies, the course equips students with problem-solving skills essential for interpreting economic data and understanding the complexities of modern economies.
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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Sample Questions
Q1) An entrepreneur is:
A)an individual who has an education.
B)an organizer who seeks profitable opportunities and is willing to accept risks.
C)a person who is hired by a firm to manage its operations.
D)a person who earns profit without accepting any risks.
E)a person who is appointed by the board of directors of a firm for a term of five years.
Answer: B
Q2) In a circular-flow model,households supply all of the following except:
A)labor.
B)goods and services.
C)capital.
D)entrepreneurial ability.
E)natural resources.
Answer: B
Q3) The ceteris paribus assumption is the other-things-constant assumption.
A)True
B)False
Answer: True
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3
Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) A downward-sloping straight-line production possibilities frontier indicates:
A)that society cannot decide which good it prefers.
B)an absence of scarcity.
C)constant opportunity cost.
D)inefficiency.
E)specialization.
Answer: C
Q2) If people specialize in producing those goods for which they possess a comparative advantage,then an economy as a whole can produce a greater quantity of goods.
A)True
B)False
Answer: True
Q3) A medium of exchange must be:
A)approved by the government.
B)universally acceptable in exchange for goods and services.
C)easy to reproduce.
D)used to eliminate the specialization and division of labor.
E)used when a system of barter exists.
Answer: B
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Page 4
Chapter 3: Economic Decision Makers
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Sample Questions
Q1) During recent elections,consumer groups in various states attempted to get the sales tax on all medicines and drugs removed.They argued that such a tax is severely regressive.What is the economic interpretation of their statement?
A)The poor get ill more often than do the rich.
B)The poor pay higher prices for medicine and drugs than do the rich.
C)The poor pay a higher percentage of their income in taxes on medicine and drugs than do the rich.
D)All consumers pay too much money for medicine and drugs.
E)The sales tax discourages the poor from seeking medical treatment.
Answer: C
Q2) Which of the following taxes is most clearly based on the benefits-received principle of taxation?
A)Corporate income tax
B)Gasoline tax
C)Personal income tax
D)Payroll tax
E)Value added tax
Answer: B
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Chapter 4: Demand, supply, and Markets
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Sample Questions
Q1) The income effect refers to the impact of a change in:
A)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)money income of consumers on the demand for a good.
Q2) 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.
Q3) If butter and margarine are substitute goods,an increase in the price of butter is most likely to:
A)shift the demand curve for margarine rightward.
B)shift the demand curve for margarine leftward.
C)increase the quantity of margarine demanded.
D)decrease the quantity of margarine demanded.
E)decrease the price of margarine.
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Page 6
Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) The mercantilism policy failed to generate gains from trade for countries which adopted it because of:
A)increases in consumer spending.
B)high levels of federal debt.
C)supply-side shocks from the oil-exporting countries.
D)runaway inflation in the U.S.
E)retaliations from other countries.
Q2) The economic policy based on the incorrect theory that a nation's economic objective should be to accumulate precious metals in the public treasury is called
A)laissez-faire
B)deficit financing
C)socialism
D)mercantilism
E)capitalism
Q3) Macroeconomists test their theories using controlled economy-wide experiments of various kinds.
A)True
B)False
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Page 7
Chapter 6: Tracking the Useconomy
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Sample Questions
Q1) If a firm's inventory decreases,the gross domestic product (GDP)also decreases.
A)True
B)False
Q2) The price index in the base year always equals_____.
A)0
B)10
C)100
D)1
E)0.01
Q3) If a toy store overestimates the demand for a toy in 2004 and,as a result,has an unexpectedly large number of toys in stock at the end of the year,the value of the inventory of these toys will be considered as:
A)investment in 2004.
B)investment in 2005.
C)consumption in 2004.
D)consumption in 2005.
E)a part of GDP when the toys are sold.
Q4) Imports are leakages from the circular flow of income and expenditure model.
A)True
B)False
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) Consider an economy made up of 100 people sixteen years of age and older,60 of whom hold jobs,10 of whom are looking for work,and 15 of whom are retired.The number of people in the labor force is _____.
A)30
B)60
C)85
D)90
E)70
Q2) If the inflation rate in an economy is 5 percent and the income earned by workers increases by 5 percent,then _____.
A)nominal income declines and real income increases
B)both nominal income and real income increase by 5 percent
C)nominal income increases and real income declines
D)both nominal income and real income decrease by 5 percent
E)nominal income increases by 5 percent and real income is unchanged
Q3) An increase in the supply of loanable funds,other things constant,will increase the interest rate.
A)True
B)False
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Page 9
Chapter 8: Productivity and Growth
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Sample Questions
Q1) Which of the following is an example of industrial policy?
A)Government imposing a high rate of taxes on the profits of large corporate houses
B)Government spending more on the construction of roads and bridges than on education
C)Government imposing a high rate of taxes on the import of goods and services
D)Government charging lower rate of taxes on the import of goods and services
E)Government selling imported cash crops at a subsidized rate
Q2) Industrial market countries make up about _____ of the world population but produce more than _____ of the world's output.
A)16 percent; 50 percent
B)40 percent; 75 percent
C)40 percent; 58 percent
D)55 percent; 65 percent
E)38 percent; 55 percent
Q3) The most important factor in determining a nation's standard of living in the long run is the productivity of its resources.
A)True
B)False
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10
Chapter 9: Aggregate Demand
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Sample Questions
Q1) Exports minus imports equal net exports.
A)True
B)False
Q2) An increase in income in other countries,other things equal,would cause U.S._____.
A)exports to decrease and imports to increase
B)exports to increase and imports to increase
C)imports to decrease and exports to decrease
D)imports to increase and exports to remain unchanged
E)imports to remain unchanged and exports to increase
Q3) Along the consumption function,an increase in disposable income will:
A)cause autonomous consumption to rise.
B)shift the consumption function upward.
C)cause a corresponding downward shift of the saving function.
D)cause a movement along the given consumption function.
E)shift the consumption function downward.
Q4) The current level of investment depends on the current level of income.
A)True
B)False
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11
Chapter 10: Aggregate Supply
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Sample Questions
Q1) 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
Q2) An adverse supply shock generally decreases the price level and the real GDP.
A)True
B)False
Q3) Cyclical unemployment in an economy will be zero when:
A)there is an expansionary gap in the economy.
B)the economy is producing its natural rate of output.
C)there is a recessionary gap in the economy.
D)the actual price level is equal to the expected price level in the economy.
E)the actual price level exceeds the expected price level in the economy.
Q4) In the long run,the price level is determined by aggregate supply.
A)True
B)False
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) 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)A decrease in government spending
Q2) Which of the following groups did Clinton target after his stimulus package failed in 1993?
A)High-income households
B)Low-income households
C)Foreign investors
D)Only industrial workers
E)Households with the lowest MPC
Q3) Which of the following best describes stagflation?
A)Rising unemployment together with economic growth
B)Deflation coupled with a decline in money supply
C)Deficits coupled with rising unemployment
D)Rising unemployment and high inflation rates
E)Inflation coupled with balance of trade deficits
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Chapter 12: Federal Budgets and Public Policy
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Sample Questions
Q1) If a federal budget deficit causes crowding out,_____.
A)real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because the marginal propensity to consume decreases
B)real GDP does not increase by as much as the government purchases of goods and services multiplier would predict because investment decreases
C)interest rates fall,reducing the burden of the debt
D)firms become more willing to invest
E)interest rates fall,so that decreases in investment and government purchases of goods and services exactly offset the expansionary effect of the deficit
Q2) Which of the following is not a possible implication of federal budget deficits?
A)Crowding out
B)Increased interest rates
C)Inflation
D)Increased trade deficits
E)Depreciation of the dollar
Q3) Since 1970,the federal government budget has never been in surplus.
A)True
B)False
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Page 14
Chapter 13: Money and the Financial System
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Sample Questions
Q1) The actions of the Fed:
A)must be approved by the president and Congress.
B)must be approved by the president alone.
C)must be approved by Congress alone.
D)are not subject to approval by any branch of government.
E)are subject to the approval of the electorate.
Q2) People came to accept fiat money because they believed that others would accept it as well.
A)True
B)False
Q3) Paper money is a good example of commodity money.
A)True
B)False
Q4) The value of fiat money is fundamentally determined by the:
A)reputation of the bank that holds it.
B)reputation of the person who holds it.
C)value of the gold or silver for which it can be redeemed.
D)value of the commodities for which it can be traded.
E)value of comparable stocks and bonds.
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Chapter 14: Banking and the Money Supply
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Sample Questions
Q1) 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
Q2) If a bank has $1 million in assets and $50,000 in net worth,its liabilities must equal:
A)$50,000.
B)$1,050,000.
C)$50 million.
D)$1,000,000.
E)$950,000.
Q3) A higher discount rate generally decreases excess reserves.
A)True
B)False
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Chapter 15: Monetary Theory and Policy
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Sample Questions
Q1) If the money supply is $600,the price level is $2,and real GDP is $300,the velocity of money is _____.
A)1
B)150
C)300
D)600
E)1,200
Q2) The ultimate effect of a reduction in the money supply is:
A)a leftward shift of the aggregate demand curve.
B)a rightward shift of the short-run aggregate supply curve.
C)a movement upward along the aggregate demand curve.
D)a movement downward along the aggregate demand curve.
E)a movement upward along the short-run aggregate supply curve.
Q3) An identity is a relationship expressed in such a way that it is true by definition.
A)True
B)False
Q4) The higher the interest rate,the greater the preference for liquidity.
A)True
B)False
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Chapter 16: Macro Policy Debate: Active or Passive
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Sample Questions
Q1) An economy experiencing an expansionary gap:
A)operates in an environment in which labor shortages drive up money wages,real wages,and prices.
B)has an excess supply of labor due to rising money wages and prices.
C)will self-correct as rising money wages decrease faster than rising prices.
D)will experience rising money wages and prices but falling real wages.
E)will have excessive involuntary unemployment.
Q2) If an economy is at potential GDP and an expansionary policy is correctly anticipated,the result will be:
A)a short-run fall in output and employment.
B)little or no increase in GDP.
C)an increase in wages along with a dramatic fall in the price level.
D)a rapidly expanding economy.
E)a severe recession.
Q3) If an active approach is followed in closing an expansionary gap,_____.
A)the aggregate demand curve would shift rightward
B)the aggregate demand curve would shift leftward
C)the short-run aggregate supply curve would shift rightward
D)the short-run aggregate supply curve would shift leftward
E)there would be a movement up and to the left along the short-run supply curve
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Chapter 17: International Trade
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Sample Questions
Q1) A tariff is a tax on either imports or exports.
A)True
B)False
Q2) For each pair of jeans Casina produces,it gives up the opportunity to make 50 pounds of chocolate truffle.Marina can produce one pair of jeans for every 100 pounds of chocolate truffle it produces.Suppose the data is converted into production possibilities frontiers (PPFs),with constant opportunity costs,for both countries.While the pounds of chocolate truffle produced is measured on the vertical axis,the pairs of jeans produced are measured along the horizontal axis.Identify the correct statement in this case.
A)The slope of Marina's production possibilities frontier is equal to 50.
B)The slope of Marina's production possibilities frontier is flatter than Casina's.
C)The slope of Marina's production possibilities frontier is equal to 0.02.
D)The slope of Marina's production possibilities frontier is steeper than Casina's.
E)The slope of Casina's production possibilities frontier is equal to 0.01.
Q3) U.S.consumers would be better off if they bought only U.S.-produced goods.
A)True
B)False
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Page 19
Chapter 18: International Finance
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Sample Questions
Q1) The theory of _____ states that changes in the exchange rate reflect only changes in the price levels of two countries.
A)floating exchange rate
B)fixed exchange rate
C)flexible exchange rate
D)purchasing power parity
E)managed exchange rate
Q2) If $1 equals 2 euros,then 1 euro equals _____.
A)$4.00
B)$2.00
C)$0.50
D)$1.00
E)$0.25
Q3) Which of the following would increase the U.S.demand for foreign currency?
A)An increase in the U.S.demand for foreign goods
B)An increase in incomes abroad
C)A decrease in U.S.income
D)A decrease in the U.S.demand for foreign goods
E)An increase in U.S.real interest rate
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Page 20
Chapter 19: Economic Development
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Sample Questions
Q1) Industrial market countries are also referred to as:
A)developing countries.
B)low-income economies.
C)middle-income economies.
D)transitional economies.
E)high-income economies.
Q2) If the country of Zorg has a birth rate of greater than 2.2 births per woman,it is likely that Zorg is an industrial market country.
A)True
B)False
Q3) Suppose the best and the brightest professionals of the country of Eronia migrate to Glassen for work.The upside of this brain drain is:
A)the remittances sent to Eroniia.
B)the foreign aid sent to Eronia.
C)increase in gross domestic product of Eronia.
D)decreased labor supply in Eronia.
E)increased income inequality in Eronia.
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21