Economics Practice Questions
Course Introduction
Economics is the study of how individuals, businesses, and societies allocate limited resources to satisfy their unlimited wants and needs. This course explores fundamental economic principles, including supply and demand, market structures, consumer behavior, and the role of government in the economy. Students will examine both microeconomic and macroeconomic concepts, such as production, inflation, unemployment, and fiscal and monetary policies. Through real-world examples and problem-solving activities, the course provides a foundational understanding of economic systems and their impact on decision-making and societal well-being.
Recommended Textbook
Macroeconomics 12th Edition by Roger
A. Arnold
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26 Chapters
3323 Verified Questions
3323 Flashcards
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Page 2
Chapter 1: What Economics Is About
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) If variable X rises as a result of variable Y falling,then X and Y have an inverse relationship.
A)True
B)False
Answer: True
Q2) According to economists,money is a resource.
A)True
B)False Answer: False
Q3) A rationing device is a method used to resolve who gets what of available goods and resources.
A)True
B)False
Answer: True
Q4) Scarcity occurs in both wealthy societies and poor societies.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Production Possibilities Frontier Framework
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Sample Questions
Q1) If the economy is on the production possibilities frontier (PPF),the economy is
A)productive inefficient.
B)operating with no unemployed resources.
C)productive efficient.
D)b and c
E)none of the above
Answer: D
Q2) A PPF is a straight line as a result of
A)constant opportunity costs.
B)increasing opportunity costs.
C)decreasing opportunity costs.
D)scarcity.
E)choice.
Answer: A
Q3) Refer to Exhibit 2-1.The opportunity cost of moving from point B to A is
A)10,000 units of butter.
B)20,000 units of butter.
C)50,000 units of guns.
D)the maximum amount of butter that can be produced with available resources.
Answer: B
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) Refer to Exhibit 3-6.If an increase in income causes the demand for good X to shift from D<sub>1</sub> to D<sub>3</sub>,then good X is
A)a normal good.
B)an inferior good.
C)a substitute good.
D)a complementary good.
E)a neutral good.
Answer: B
Q2) In moving along a demand curve,everything is held constant except buyers' income.
A)True
B)False
Answer: False
Q3) Supply curves are ________________ upward sloping.
A)always
B)usually
C)rarely
D)never
Answer: B
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Chapter 4: Prices: Free, controlled, and Relative
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Sample Questions
Q1) A deadweight loss is the loss to society of not producing the supply-and-demand determined level of output.
A)True
B)False
Q2) Refer to Exhibit 4-3.If P<sub>1</sub> is a price ceiling,the highest price for good Y,which is tied (a tie-in sale)to good X,is
A)P<sub>1</sub>.
B)P<sub>2</sub>.
C)P<sub>3</sub>.
D)P<sub>3</sub> - P<sub>1</sub>.
E)P<sub>1</sub> + P<sub>2</sub>.
Q3) A price ceiling set below the equilibrium price will A)clear the market for the good.
B)result in a shortage of the good.
C)result in a surplus of the good.
D)induce new firms to enter the industry.
Q4) What condition is necessary for a price ceiling to have an impact on a market?
Describe at least three of the effects that a price ceiling can have on a market.Give a hypothetical numerical example to help support your answer.
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Chapter 5: Supply,demand,and Price: Applications
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Sample Questions
Q1) When the government _____________ mortgage lending standards,the indirect result is likely to be _____________ home prices.
A)lowers;higher B)increases;lower C)lowers;lower D)increases;higher E)a and b
Q2) Refer to Exhibit 5-5.If the airline charges price P<sub>1</sub> for both aisle seats and middle seats,the result will be
A)a surplus of middle seats and the equilibrium quantity of aisle seats.
B)a surplus of aisle seats and the equilibrium quantity of middle seats.
C)a shortage of middle seats and the equilibrium quantity of aisle seats.
D)a shortage of aisle seats and the equilibrium quantity of middle seats.
Q3) People who buy houses in good-weather locations receive this benefit absolutely for free.
A)True
B)False
Q4) Using proper economic terminology,describe why Mexican restaurants often provide chips and salsa for free to their customers.
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Chapter 6: Macroeconomic Measurements, part I: Prices and Unemployment
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Sample Questions
Q1) The base year is the year
A)in which prices are unstable.
B)in which prices are lowest.
C)in which prices are highest.
D)that serves as a reference point or benchmark.
E)in which nominal output is largest.
Q2) Discouraged workers are not counted as unemployed because they are working.
A)True
B)False
Q3) The number of employed persons plus the number of unemployed persons equals the number of persons
A)in the total population.
B)in the civilian noninstitutional population.
C)in the civilian labor force.
D)not in the labor force.
E)none of the above
Q4) Structural unemployment results primarily from automation and long-lasting changes in demand.
A)True B)False
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Chapter 7: Macroeconomic Measurements, part II: GDP and Real GDP
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Sample Questions
Q1) Which of the following is a nonmarket good?
A)the corn you grow in your home garden and consume
B)the clothes you sew and sell to a neighbor who pays you by writing you a check
C)the self-portrait hanging in your den
D)a and c
E)a,b,and c
Q2) Corporate profits can be broken into three categories: dividends,undistributed profits,and corporate profits taxes.
A)True
B)False
Q3) In 1820 the country with the highest per capita GDP was ______________________.In 1900 the country that ranked #1 in terms of per capita GDP was ___________________ and fifty years later the top ranking was held by
A)the Netherlands;New Zealand;the United States.
B)the Netherlands;Australia;Switzerland.
C)the United States;the United States;the United States.
D)Austria;Australia;New Zealand.
Q4) With respect to the business cycle,describe the difference between the expansion phase and the recovery phase.
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Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) An appreciation of the U.S.dollar against foreign currencies tends to __________ U.S.net exports and shift the U.S.AD curve to the __________.
A)raise;right
B)raise;left
C)lower;right
D)lower;left
Q2) In short-run equilibrium,the quantities supplied and demanded of Real GDP can be less than or greater than Natural Real GDP.
A)True
B)False
Q3) Refer to Exhibit 8-3.A shift in aggregate demand from AD<sub>1</sub> to AD<sub>2</sub> could have been the result of
A)a decrease in the price level.
B)an increase in the price level.
C)a decrease in interest rates (which was not prompted by a change in the price level).
D)an increase in interest rates (which was not prompted by a change in the price level).
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Chapter 9: Classical Macroeconomics and the
Self-Regulating Economy
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Sample Questions
Q1) If the economy is currently in a recessionary gap,the SRAS curve intersects the AD curve to the left of Natural Real GDP.
A)True
B)False
Q2) If an economy's institutional production possibilities frontier (institutional PPF)shifts rightward,the economy's
A)natural unemployment rate rises.
B)natural unemployment rate falls.
C)Natural Real GDP declines.
D)physical PPF shifts leftward.
E)physical PPF shifts rightward.
Q3) If Real GDP is greater than Natural Real GDP,the economy is in a(n)
A)frictional gap.
B)structural gap.
C)recessionary gap.
D)inflationary gap.
Q4) Describe how Say's law can hold in a money economy,according to the classical economists.
Q5) Explain the policy implications of the classical economists' beliefs.
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Chapter 10: Keynesian Macroeconomics and Economic
Instability: a Critique of the Self-Regulating Economy
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183 Verified Questions
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Sample Questions
Q1) Refer to Exhibit 10-1.At Q<sub>3</sub>,there is a tendency for Real GDP to A)rise.
B)fall.
C)remain unchanged.
D)There is not enough information to answer this question.
Q2) Many economists argue that the labor market may take a long time for wages to adjust to new equilibrium level.
A)True
B)False
Q3) John Maynard Keynes drew many economists ______________ the classical view.The classical view held that a market economy __________ regulate itself to avoid long periods of excessive unemployment.
A)toward;can
B)toward;cannot
C)away from;can
D)away from;cannot
Q4) As portrayed in terms of total expenditures (TE)and total production (TP),discuss at least three assumptions that sum up the workings of the simple Keynesian model.
Q5) Describe Keynes' criticism of Say's law in a money economy.
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Chapter 11: Fiscal Policy and the Federal Budget
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162 Verified Questions
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Sample Questions
Q1) Define crowding out.Give a hypothetical numerical example to show the difference between complete crowding out and incomplete crowding out.Explain how complete and incomplete crowding out could impact the effectiveness of fiscal policy.
Q2) Suppose Congress increases income taxes.This is an example of
A)expansionary fiscal policy.
B)expansionary monetary policy.
C)contractionary fiscal policy.
D)contractionary monetary policy.
Q3) An example of expansionary fiscal policy is
A)an increase in government spending,or an increase in taxes,or both.
B)a decrease in government spending,or a decrease in taxes,or both.
C)an increase in government spending,or a decrease in taxes,or both.
D)a decrease in government spending,or an increase in taxes,or both.
E)holding government spending constant while increasing taxes.
Q4) Crowding out results when an increase in government spending leads to declines in consumption,investment,and/or net exports.
A)True
B)False
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Page 13
Chapter 12: Money,banking,and the Financial System
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Sample Questions
Q1) When people in a barter economy began to accept the good that had greater acceptability than all other goods,they weren't trying to create the institution of money.They were simply trying to __________.
A)get along with their neighbors.
B)become rich.
C)make trading easier for themselves.
D)pay lower prices.
E)none of the above
Q2) The Chinese government has prohibited anyone in China from dealing with bitcoin exchanges.
A)True
B)False
Q3) Bank A has $25,500 in required reserves.The required reserve ratio is 10 percent.Bank A has checkable deposits of
A)$2,550.
B)$255,000.
C)$2,550,000.
D)$25,500.
Q4) Describe the differences between M1 and M2.
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Chapter 13: The Federal Reserve System
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Sample Questions
Q1) The Fed
A)can examine the books of a member bank without warning.
B)can examine the books of a member bank after giving advance notice.
C)can examine the books of a member bank with the bank's permission.
D)is never allowed to see the books of a privately owned bank.
Q2) When one commercial bank borrows from another commercial bank,it pays the __________ rate.
A)discount
B)bank interest
C)federal funds
D)prime
E)none of the above
Q3) When the Federal Reserve system was being created,some people thought that there should be as few district banks as possible to enhance efficiency and for ease of operation.
A)True
B)False
Q4) The discount rate is sometimes also known as the primary credit rate.
A)True
B)False
Page 15
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Chapter 14: Money and the Economy
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Sample Questions
Q1) According to Milton Friedman,continued inflation is always and everywhere
A)a supply-side phenomenon.
B)caused by continued decreases in aggregate supply.
C)caused by continued increases in the budget deficit.
D)a monetary phenomenon.
E)none of the above
Q2) A monetarist would argue that
A)small changes in M could be offset by changes in V and not cause changes in P.
B)changes in M in the short run can cause Real GDP to fall.
C)prices and wages are flexible.
D)b and c
E)a,b and c
Q3) When Milton Friedman said that inflation is always and everywhere a monetary phenomenon,he was referring to
A)one-shot inflation
B)supply-induced inflation
C)continued inflation
D)hyperinflation (high rates of inflation)
E)all kinds of inflation
Q4) Describe the expectations (or Fisher)effect.
Page 16
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Chapter 15: Monetary Policy
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Sample Questions
Q1) The rules-based monetary policy reads: The money supply will increase 3 percent each year.If the average annual growth rate in Real GDP is 2 percent and velocity increases by 1 percent each year,it follows that
A)the price level will,on average,rise 2 percent a year.
B)the price level will rise 2 percent this year.
C)in some years the price level will rise by more than in other years.
D)in some years the price level may not change at all.
E)a,c and d
Q2) Persons who argue against the deliberate use of fiscal and monetary policies to smooth out the business cycle are referred to as
A)nonactivists.
B)fine-tuners.
C)activists.
D)b and c
E)none of the above
Q3) Changes in the money market have an impact upon the bond market.
A)True
B)False
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Chapter 16: Expectations Theory and the Economy
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Sample Questions
Q1) Describe the policy ineffectiveness proposition (PIP).Be sure to state which economic theory the PIP is associated with and the assumptions that are necessary for this argument to hold.
Q2) For the period 1961 to 1969,the Phillips curve for the United States displayed the same shape that A.W.Phillips found for the United Kingdom for the period 1861 to 1913---it was A)horizontal.
B)vertical.
C)downward sloping.
D)upward sloping.
Q3) When everyone correctly anticipates that the Fed will buy government securities,then they know that prices will increase.Which of the following adjustments is not likely to occur?
A)Workers will negotiate higher wages.
B)Suppliers of resources will demand higher prices for their resources.
C)Producers will prevent the price level from increasing and hurting their sales.
D)Producers will raise prices.
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18
Chapter 17: Economic Growth: Resources, technology, ideas, and Institutions
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Sample Questions
Q1) New growth theory holds that technology is __________ and that the more resources that go to develop technology,the __________ technology that is produced. A)exogenous;more and better B)exogenous;less C)endogenous;more and better D)endogenous;less
Q2) Refer to Exhibit 17-3 Assume that the starting point on the production function is point A.After an increase in the technology coefficient,there would be a ______________________ which would shift the LRAS curve from LRAS<sub>1</sub> to _______________ resulting in _______________..
A)movement along the production function to point C;LRAS<sub>2</sub>;economic growth
B)shift upward of the production function to point B;LRAS<sub>2</sub>;economic growth
C)movement along the production function to point C;LRAS<sub>3</sub>;a shrinking economy
D)shift upward of the production function to point B;LRAS<sub>3</sub>;a shrinking economy
Q3) List and describe four factors that can contribute to economic growth.
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Chapter 18: The Financial Crisis of 2007-2009
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Sample Questions
Q1) According to Alan Greenspan,the type of inflation that the Taylor Rule is best at addressing is
A)asset-price inflation
B)product-price inflation
C)both asset-price and product-price inflation
D)demand-induced-one-shot inflation
E)supply-induced one-shot inflation
Q2) Suppose the Fed lowers its federal funds rate target.The Fed probably seeks to
A)lower the actual federal funds rate.
B)raise the actual federal funds rate.
C)leave unchanged the actual federal funds rate
D)b or c
E)a or c
Q3) A bank with a leverage ratio of 9 to 1 has
A)$9 in assets for every $1 in liabilities.
B)$9 in assets for every $1 in capital.
C)$1 in assets for every $9 in capital.
D)$1 in assets for every $9 in liabilities.
Q4) Describe the differences between traditional and nontraditional lending practices.Under which category do subprime loans belong?
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Chapter 19: Debates in Macroeconomics Over the Role and Effects
of Government
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Sample Questions
Q1) Constitutional economists
A)assert that within a given set of institutions,constraints,laws and rules,outcomes might be the same no matter who is elected to office.
B)study the type of constraints that individuals might seek to place upon themselves in order to achieve some objective that doesn't seem achievable in a non-constrainable environment.
C)assert that better outcomes arise from changing the political party in power at any given point in time than from changing institutions and constraints.
D)b and c
E)a and b
Q2) The model predicting victory in a two-person race for the candidate closer to occupying the center of the voter distribution is built on the assumption that A)people always vote for the Democratic candidate if they are Democrats and for the Republican candidate if they are Republicans.
B)people vote for the candidate who comes closer to matching their own views.
C)most people don't vote unless the election is predicted to be close.
D)none of the above
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Page 21
Chapter 20: Public Choice and Special-Interest-Group
Politics
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Sample Questions
Q1) Explain what it means to say that a theory is falsifiable or refutable? Give a specific example to help support your answer.
Q2) Theory A predicts that the higher the opportunity cost of having a child,the fewer children a woman will have.Which of the following is evidence against the theory if opportunity cost is measured in terms of foregone salary?
A)women with high-paying jobs have more children than women with low-paying jobs. B)women with low-paying jobs have more children than women with high-paying jobs.
C)men married to women with high-paying jobs want more children than men married to women with low-paying jobs.
D)the mothers of women with high-paying jobs will want their daughters to have children more than the mothers of women with low-paying jobs will want their daughters to have children.
E)none of the above
Q3) There is no difference between building a theory and evaluating a theory.
A)True
B)False
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Chapter 21: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Sample Questions
Q1) Smith argues that American producers cannot compete with foreign producers because wages are lower in foreign countries than in the United States.Smith is
A)advancing the foreign export subsidies argument for protectionism.
B)making the mistake of believing that high wages mean high costs.
C)advancing the antidumping argument for protectionism.
D)making the mistake of believing that productivity is higher in foreign countries than in the United States.
E)none of the above
Q2) Refer to Exhibit 34-3.The world price is P<sub>W</sub>.If a tariff is imposed,the price rises to P<sub>W</sub> + T.Because of the tariff,producers' surplus is __________ by an amount equal to the area of __________.
A)increased;1 + 2
B)decreased;1
C)increased;3 + 4
D)increased;1
E)decreased;3
Q3) Major U.S.exports include automobiles and aircraft.
A)True
B)False
Page 23
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Chapter 22: International Trade
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Sample Questions
Q1) In the foreign exchange market between dollars and pesos,the demand for dollars by Mexicans creates the supply of pesos.
A)True
B)False
Q2) If labor is immobile between two countries,changes in relative demand for goods and services may pose major economic problems
A)whether exchange rates are flexible or fixed.
B)but the problems will not be as significant as they would be if labor were mobile.
C)when exchange rates are flexible,but not when they are fixed.
D)when exchange rates are fixed,but not when they are flexible.
Q3) Americans buying Japanese cars create a
A)demand for U.S.dollars and supply of Japanese yen.
B)demand for both U.S.dollars and Japanese yen.
C)supply of U.S.dollars and demand for Japanese yen.
D)supply of both U.S.dollars and Japanese yen.
Q4) One example of an optimal currency area is the states within the United States.
A)True
B)False
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Chapter 23: International Finance
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Sample Questions
Q1) Describe at least three forces in the world which could change to push the world in the direction of antiglobalization.
Q2) One study from the United Kingdom (cited in the textbook)showed that almost ______ times as many firms that faced global competition reported innovations in product or process compared to firms that did not face global competition.
A)three
B)six
C)nine
D)twelve
Q3) As the dollar depreciates,the dollar price of imported goods _________,ultimately shifting the United States AD curve __________________.
A)rises;rightward
B)rises;leftward
C)falls;rightward
D)falls;leftward
Q4) In recent years,tariff rates have declined in the United States,China,and India.
A)True
B)False
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Chapter 24: Globalization and International Impacts on the Economy
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Sample Questions
Q1) If government removes two people from a prisoner's dilemma setting (and,in the process,requires that the two persons pay taxes for the service that government provides),it holds that on net
A)each of the two persons is better off.
B)each of the two persons is worse off.
C)one person is better off and the other person is worse off.
D)a,b,or c
E)none of the above
Q2) Person A argues that government is unnecessary and often does more harm than good.Economist A disagrees.What does economist A --- who believes that there is a legitimate case that can be made for government --- most likely say to support his position?
A)Government almost always does more good than harm.
B)Without government,life would be anarchy.
C)There are some things that individuals want done that can't get done without government.
D)There are better people going into government work than are going into the private sector.
E)none of the above
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Chapter 25: The Economic Case for and Against
Government: Five Topics Considered
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Sample Questions
Q1) Describe the three main options available to a corporation when it needs to raise money so that it can invest in a new product or a new manufacturing technique.
Q2) In reading the stock market quotes in the newspaper,the column with the heading "P/E" gives the
A)number of shares of the stock traded that day.
B)dividend per share divided by the closing price per share.
C)stock symbol for the company.
D)latest closing price per share divided by the latest available earnings per share.
Q3) The term after the bell means after the closing of the stock market.
A)True B)False
Q4) A stock with a price-earnings ratio of 11.2 means that the stock is selling for a closing share price that is 11.2 times its latest available net earnings per share.
A)True B)False
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Chapter 26: Stocks, bonds, futures, and Options
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Sample Questions
Q1) Refer to Exhibit 39-3.If P<sub>3</sub> is a price support,the amount sold on private markets is
A)Q<sub>1</sub>.
B)Q<sub>2</sub>.
C)Q<sub>3</sub>.
D)Q<sub>2</sub> - Q<sub>3</sub>.
E)Q<sub>1</sub> - Q<sub>3</sub>.
Q2) If the demand for foodstuffs is inelastic,which of the following positions would be most beneficial to Farmer Jones?
A)Bad weather for Jones and good weather for all other farmers.
B)Bad weather for all farmers except Jones (who witnesses good weather).
C)Bad weather for all farmers.
D)Good weather for all farmers.
E)There is not enough information to answer the question.
Q3) Under a target price system,the government can adjust the deficiency payment paid to a farmer by deciding to pay some percentage of the difference between the target price and the market price.
A)True
B)False
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