Economics II
Review Questions
Course Introduction
Economics II builds upon the foundational principles introduced in introductory economics, deepening students' understanding of both microeconomic and macroeconomic theories. The course covers topics such as market structures, factor markets, public goods, externalities, and government intervention, as well as national income accounting, economic growth, inflation, and unemployment. Through real-world examples and quantitative analysis, students examine how economic agents respond to policy changes and market forces. Critical thinking and analytical skills are emphasized to prepare students for more advanced studies and to apply economic reasoning to contemporary issues.
Recommended Textbook
ECON MACRO 6th Edition by William
A. McEachern
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19 Chapters
3854 Verified Questions
3854 Flashcards
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) A rational individual gives more to charity when such contributions receive favorable tax treatment.
A)True
B)False
Answer: True
Q2) Which of the following is the best definition of economics?
A) An investigation of the evolutionary process of mankind
B) A study of society as a system of interconnected parts
C) A study of how people deal with the problem of scarcity
D) An examination of the structure and the role of the government in an economy
E) A study of how to conduct free and fair elections in a country
Answer: C
Q3) College graduates with history or literature as their major tend to earn more than those who choose more quantitative disciplines like economics.
A)True
B)False
Answer: False
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Chapter 2: Economic Tools and Economic Systems
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Sample Questions
Q1) A straight-line production possibilities frontier indicates that _____
A) the problem of scarcity does not exist.
B) resources are imperfect substitutes.
C) opportunity costs are constant.
D) technology is rapidly expanding.
E) some resources are not being used efficiently.
Answer: C
Q2) Charging interest is banned under Islamic law. This is an example of an economy that is _____
A) transitional.
B) market.
C) pure command.
D) interest driven.
E) based on custom or religion.
Answer: E
Q3) It is possible for one person to have an absolute advantage in something even if she has no comparative advantage in anything.
A)True
B)False
Answer: False
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Chapter 3: Economic Decision Makers
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225 Flashcards
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Sample Questions
Q1) Trade restrictions can take any of the following forms except one. Which of the following is the exception?
A) tariffs
B) free-trade agreements
C) quotas
D) voluntary trade restrictions
E) health and safety restrictions
Answer: B
Q2) Since 1930, U.S. government spending as a percent of GDP has _____
A) increased.
B) decreased by 5 percent every year.
C) stayed the same.
D) showed no particular trend.
E) decreased by 2 percent every year.
Answer: A
Q3) It is difficult to exclude individuals from the use of public goods and services.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) If Good A and Good B are complements, then a decrease in the price of Good B
A) increases the quantity demanded of Good A.
B) decreases the demand for Good A.
C) increases the demand for Good A.
D) decreases the quantity demanded of Good A.
E) increases the demand for Good B.
Q2) Recently, it has been discovered that lobsters grown on lobster farms can feed on algae, which is a cheaper lobster food. As a result of this discovery, _____.
A) the supply curve of lobsters will shift to the left
B) the supply curve of lobsters will shift to the right
C) there will be an increase in the quantity of lobsters supplied
D) there will be a decrease in the quantity of lobsters supplied
E) both supply and demand curves will shift to the right
Q3) When the suppliers of a good that can be easily stored expect its price to increase in the future, they will reduce its current supply.
A)True
B)False
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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 aggregate demand curve slopes downward because households feel poorer after a decrease in the price level.
A)True
B)False
Q3) The mercantilism policy failed to generate gains from trade for countries that adopted it because of _____
A) increases in consumer spending.
B) high levels of federal debt.
C) supply-side shocks from oil-exporting countries.
D) runaway inflation in the United States.
E) retaliations from other countries.
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Chapter 6: Tracking the U S Economy
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Sample Questions
Q1) The base year for a price index is the year _____
A) in which prices were lowest.
B) in which prices were highest.
C) in which real output was the largest.
D) in which prices were stable.
E) that serves as a reference point.
Q2) Transfer payments are injections into the circular flow of income and expenditure model.
A)True
B)False
Q3) Gross private domestic investment consists of _____
A) spending by individual households on automobiles and durable goods.
B) spending by businessman on office furniture.
C) net additions to business inventories.
D) spending by government on welfare benefits.
E) spending by households on stocks and bonds.
Q4) If the real gross domestic product (GDP) is $5 trillion for a particular year and the GDP price index is 140, then the nominal GDP is $7 trillion.
A)True
B)False
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) Tony lent Dave $1,000 for one year with the understanding that Dave would repay $1,070. If the actual inflation rate was 7 percent, then the real rate of interest Tony received is _____.
A) 14 percent
B) 7 percent
C) 4 percent
D) 0 percent
E) 7 percent
Q2) Since the end of World War II, the U.S. price level has _____
A) increased tenfold.
B) increased by an average of 10 percent each year.
C) increased and decreased with equal regularity, leaving the price level almost constant.
D) increased by 50 percent.
E) doubled.
Q3) An increase in the interest rate will increase the demand for loanable funds.
A)True
B)False
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Chapter 8: Productivity and Growth
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Sample Questions
Q1) If a nation moves upward along its per-worker production function relating output per worker to capital per worker, then _____
A) labor productivity rises.
B) labor productivity falls.
C) the amount of capital decreases, other things constant.
D) labor input decreases.
E) the productivity of capital rises.
Q2) Which of the following is the single most important determinant of a nation's standard of living in the long run?
A) high economic growth rates
B) developing a market economy of conscious design
C) higher prices for the necessities of life
D) productivity of its resources
E) developing agricultural self-sufficiency
Q3) Productivity measures _____
A) how efficiently resources are turned into goods and services.
B) how efficiently goods and services are consumed by consumers.
C) the level of skills embodied in a unit of labor.
D) the ratio of inputs to a specific amount of output.
E) the availability of resources in an economy.
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Chapter 9: Aggregate Demand
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Sample Questions
Q1) Net taxes are _____
A) taxes plus transfer payments.
B) taxes minus transfer payments.
C) an injection into the economic system.
D) consumption after taxes.
E) government spending minus taxes.
Q2) Identify the correct statement.
A) An increase in the price level in an economy will increase the real value of dollar-denominated assets.
B) An increase in the price level in an economy will shift the aggregate expenditure line upward.
C) An increase in the price level in an economy will decrease the equilibrium level of output demanded.
D) An increase in the price level in an economy will decrease the real GDP demanded along the aggregate demand curve.
E) An increase in the price level in an economy will shift the aggregate demand curve rightward.
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Chapter 10: Aggregate Supply
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Sample Questions
Q1) Which of the following is true in the short run but not in the long run?
A) Actual output is equal to potential output.
B) Actual output can exceed potential output.
C) Structural unemployment can exist.
D) Frictional unemployment can exist.
E) Real and nominal GDP can differ.
Q2) If costs increase, what happens to the aggregate supply curve?
A) It shifts rightward.
B) It shifts leftward.
C) Prices move up along the curve.
D) Prices move down along the curve.
E) There is no change.
Q3) An expansionary gap is equal to _____
A) real GDP minus nominal GDP.
B) nominal GDP minus real GDP.
C) the actual short-run output minus potential output.
D) the actual price level minus the expected price level.
E) the actual long-run real GDP minus the actual short-run disposable income.
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) Which of the following is not a weakness of fiscal policy as a tool of economic stabilization?
A) It is ineffective in dealing with stagflation.
B) Its correct implementation depends on an accurate estimate of potential output.
C) It is subject to lags.
D) It affects only aggregate demand but does not have any impact on aggregate supply.
E) Households may not respond to changes they perceive as permanent.
Q2) The top 10 percent of earners pay about _____ of federal income taxes collected.
A) 70 percent
B) 60 percent
C) 50 percent
D) 40 percent
E) 30 percent
Q3) Classical economists believed that the economy automatically moves toward equilibrium at full employment.
A)True
B)False
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Chapter 12: Federal Budgets and Public Policy
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Sample Questions
Q1) What happens to deficits during expansions?
A) They increase, because tax revenues decline while spending programs increase.
B) They decrease, because tax revenues decline while spending programs decrease.
C) They increase, because personal income and corporate profits increase, boosting tax revenue.
D) They decrease, because personal income and corporate profits increase, boosting tax revenue.
E) They decrease during recessions and increase during expansions.
Q2) When a budget is not approved in time, _____
A) agencies operate on the basis of continuing resolutions.
B) agencies operate on the basis of a budget resolution developed by budget committees.
C) agencies tend to shut down.
D) the president can force Congress to act.
E) agencies borrow from the Federal Reserve.
Q3) Between 1990 and 2000, expenditures by the federal government on defense as a proportion of total federal spending increased.
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) If the purchasing power of a dollar measured in terms of the base year was $0.41, what was the price index?
A) 238
B) 244
C) 41
D) 42
E) 100
Q3) If the price index was 100, the purchasing power of a dollar measured in terms of the base year was _____
A) $2.38.
B) $0.24.
C) $0.41.
D) $4.10.
E) $1.00.
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Chapter 14: Banking and the Money Supply
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Sample Questions
Q1) If you returned a $5 Federal Reserve note to the Fed, you could receive _____
A) $5 in silver.
B) $5 in gold.
C) 5 one-dollar bills.
D) 10 one-dollar bills.
E) a small gold bar.
Q2) Banks earn a profit on the difference between _____
A) the interest charged from depositors and the interest offered to borrowers.
B) the interest charged on loans and the interest paid on deposits.
C) the deposit and loan balances.
D) outstanding loans and interests.
E) dividends and interests.
Q3) In the money and credit expansion process, the total change in checkable deposits is equal to the initial change in excess reserves _____
A) multiplied by the required reserve ratio.
B) plus the change in required reserves.
C) divided by the reciprocal of the required reserve ratio.
D) multiplied by the reciprocal of the required reserve ratio.
E) divided by the change in required reserves.
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Page 16
Chapter 15: Monetary Theory and Policy
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Sample Questions
Q1) An increase in the money supply leads to a(n) _____
A) decline in interest rates, an increase in investment, and an increase in aggregate demand.
B) decline in interest rates, a decrease in investment, and an increase in aggregate demand.
C) decline in interest rates, an increase in investment, and a decline in aggregate demand.
D) increase in interest rates, an increase in investment, and an increase in aggregate demand.
E) decline in interest rates, a decline in investment, and a decline in aggregate demand.
Q2) If the Fed sells U.S. government securities to drain reserves from banks, which of the following is most likely to occur?
A) The demand for money will increase and the interest rate will rise.
B) The money supply will increase and the interest rate will fall.
C) The interest rate will rise and the quantity of money demanded will fall.
D) The money supply will decrease and the interest rate will fall.
E) The interest rate will fall and the quantity of money demanded will increase.
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Page 17
Chapter 16: Macro Policy Debate: Active or Passive?
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Sample Questions
Q1) Refer to Exhibit 16.2, which shows the price level, real GDP, and potential output for an economy. According to those who favor an active approach to policy, the economy can attain equilibrium at potential output if _____
A) the SRAS curve shifts to the left.
B) the SRAS curve shifts to the right.
C) money supply remains constant.
D) government spending is decreased.
E) aggregate demand increases.
Q2) Refer to Exhibit 16.3. An expansionary monetary policy and higher wage agreements will eventually cause the short-run aggregate supply curve in to shift _____, intersecting ____ at point _____, the economy's potential output.
A) leftward, AD', a
B) leftward, AD', b
C) leftward, AD', c
D) leftward, A', a
E) leftward, AD, b
Q3) The effectiveness lag for monetary policy is short.
A)True
B)False
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Page 18
Chapter 17: International Trade
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Sample Questions
Q1) Refer to Table 17.1, which shows the per-day production data of rice and T-shirts for two countries, Cambria and Bodoni. Based on the table, it can be said that Bodoni should produce rice and trade its rice for Cambria's T-shirts.
A)True
B)False
Q2) U.S. exports of goods and services amounted to _____ in 2016, or _____ of GDP.
A) $2.0 trillion; 12 percent
B) $2.0 trillion; 6 percent
C) $1.0 trillion; 12 percent
D) $1.0 trillion; 6 percent
E) $2.7 trillion; 15 percent
Q3) As a result of the Uruguay Round, average tariffs fell to _____ of the value of imports.
A) 40 percent
B) 20 percent
C) 10 percent
D) 6 percent
E) 4 percent
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19
Chapter 18: International Finance
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Sample Questions
Q1) Refer to Exhibit 18.1. A shift of the demand curve from D' to D will _____
A) decrease the exchange rate from E' to E.
B) increase the exchange rate from E to E'.
C) cause the foreign currency to appreciate.
D) cause the domestic currency to depreciate.
E) cause the supply curve to shift.
Q2) If under the gold standard, the dollar was worth one ounce of gold, and the British pound was worth one ounce of gold, then one British pound was worth _____
A) $5.
B) $20.
C) $4.
D) $1.
E) half an ounce of gold.
Q3) Under the Bretton Woods agreement, the world monetary system operated exactly like the gold standard of the pre-World War I era.
A)True
B)False
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Chapter 19: Economic Development
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Sample Questions
Q1) Laws, customs, conventions, and other institutional elements that sustain an economy fall under the category of _____
A) the rules of the game.
B) human capital.
C) natural resources.
D) financial institutions.
E) capital infrastructure.
Q2) Unemployment occurs when _____
A) people do not work because they are not happy with the work environment.
B) people are unwilling to work at the prevailing market wage rate.
C) people prefer leisure over work.
D) people do not work because they are physically unable to work.
E) people are willing and able to work but cannot find jobs.
Q3) Foreign aid that goes through international bodies such as the World Bank is known as _____
A) unilateral transfer.
B) multilateral assistance.
C) bilateral assistance.
D) remittance.
E) government assistance.
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