Foundations of Economics Pre-Test Questions
Course Introduction
Foundations of Economics introduces students to the core principles and concepts that underpin economic analysis. The course covers the fundamentals of both microeconomics and macroeconomics, including supply and demand, market structures, consumer and producer behavior, national income, inflation, unemployment, and government intervention. Students will learn how individuals, firms, and governments make decisions regarding the allocation of scarce resources, and how these decisions affect market outcomes and the broader economy. The course equips students with analytical tools to better understand real-world economic issues and prepares them for more advanced studies in economics.
Recommended Textbook
Economics 20th Edition Volume I and Volume II by Campbell R. McConnell\McConnell 20e
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Chapter 22: Income Inequality Poverty and Discrimination
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Sample Questions
Q1) In the United States:
A) taxes decrease,but transfers increase,income inequality.
B) taxes increase,but transfers reduce,income inequality.
C) both taxes and transfers decrease income inequality.
D) both taxes and transfers increase income inequality.
Q2) Which of the following Gini ratios indicates the lowest degree of income inequality?
A) 0.71.
B) 0.55.
C) 0.31.
D) 0.45.
Q3) An example of a social insurance program is ____________,whereas an example of a public assistance program is _______.
A) Temporary Assistance for Needy Families;unemployment compensation
B) Supplemental Security Income;unemployment compensation
C) Social Security;Supplemental Nutrition Assistance Program
D) Medicaid;Medicare
Q4) Statistical discrimination is also known as occupational discrimination.
A)True
B)False
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Chapter 23: Health Care
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Sample Questions
Q1) The Patient Protection and Affordable Care Act prohibits insurance companies from denying coverage to anyone on the basis of a preexisting medical condition.
A)True
B)False
Q2) Defensive medicine refers to the idea that:
A) it is more cost-efficient to prevent illnesses than to cure them.
B) physicians may require unnecessary testing as a means of protecting themselves against malpractice suits.
C) doctors know much more about diagnosing and treating illnesses than do health care consumers.
D) physicians do not advertise their services or fees.
Q3) Health care expenditures coming directly out of consumers' pockets,primarily in the form of deductibles and copayments,account for what percent of U.S.health care spending?
A) 17 percent.
B) 33 percent.
C) 50 percent.
D) 83 percent.
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Chapter 24: Immigration
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Sample Questions
Q1) Illegal immigration helps improve the standard of living for U.S.citizens by keeping prices lower.
A)True
B)False
Q2) Which of the following countries has the largest number of immigrants,as a percentage of the labor force (as of 2007)?
A) Austria.
B) New Zealand.
C) United States.
D) Australia.
Q3) About ________ of recent annual labor force growth in the United States is the result of immigration.
A) one-tenth
B) one-fifth
C) one-third
D) one-half
Q4) Illegal immigrants displace domestic-born workers on a one-for-one basis.
A)True
B)False
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Chapter 25: An Introduction to Macroeconomics
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Sample Questions
Q1) Why are economists concerned about inflation?
A) Inflation generally causes unemployment rates to rise.
B) Real GDP is necessarily falling when there is inflation.
C) Inflation lowers the standard of living for people whose income does not increase as fast as the price level.
D) Inflation increases the value of peoples' saving and encourages overspending on goods and services.
Q2) Why are high rates of unemployment of concern to economists?
A) Higher rates of unemployment generally lead to higher inflation rates.
B) Environmental destruction is more prevalent when unemployment rates are high.
C) There is lost output that could have been produced if the unemployed had been working.
D) All of these options are reasons why economists are concerned about high unemployment rates.
Q3) In the short run,firms are more likely to respond to demand shocks by altering inventory levels than by changing how much they produce.
A)True
B)False
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Chapter 26: Measuring Domestic Output and National Income
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Sample Questions
Q1) In the second quarter (three-month period)of 2001,U.S.nominal GDP increased but U.S.real GDP declined.We can conclude that:
A) nominal income declined by more than personal income.
B) the price level rose by more than nominal GDP.
C) real wages declined by more than real GDP.
D) the price level fell by more than real GDP.
Q2) (Consider This)Capital is a:
A) flow,whereas gross investment and depreciation are stocks.
B) flow,as are gross investment and depreciation.
C) stock,as are gross investment and depreciation.
D) stock,whereas gross investment and depreciation are flows.
Q3) In national income accounting,the consumption category of expenditures includes purchases of:
A) both new and used consumer goods.
B) consumer durable goods and consumer nondurable goods but not services.
C) consumer durable goods,consumer nondurable goods,and services.
D) changes in business inventories.
Q4) Welfare payments to low-income families are included in national income.
A)True B)False
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Chapter 27: Economic Growth
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Sample Questions
Q1) (Consider This)Rising wages for women in the United States have increased:
A) the proportion of women working part time compared to working full time.
B) labor costs and thus shifted the nation's production possibilities curve inward.
C) average family size in the United States.
D) the percentage of married women in the workforce.
Q2) Labor productivity is defined as:
A) total output/worker-hours.
B) nominal GDP minus real GDP.
C) the ratio of real capital to worker-hours.
D) the annual increase in nominal GDP per worker.
Q3) Network effects are:
A) increases in the value of a product to each user,including existing users,as the total number of users rises.
B) reductions in per unit production cost as firms learn by doing.
C) increases in demand resulting from products being mentioned positively in a television program.
D) the change in real GDP resulting from a change in investment or government spending.
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Chapter 28: Business Cycles, Unemployment, and Inflation
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Sample Questions
Q1) Dr.Homer Simpson,an economics professor,decided to take a year off from teaching to run a commercial fishing boat in Alaska.That year,Professor Simpson would be officially counted as:
A) structurally unemployed.
B) frictionally unemployed.
C) not in the labor force.
D) employed.
Q2) (Consider This)Some economists believe that modest inflation,say 2-3 percent,might help reduce unemployment during recessions.Which of the following best explains their argument?
A) Inflation will cause workers' real income to decline,encouraging them to work harder to find more and better employment.
B) Higher prices will increase firm profitability,making them want to hire more workers.
C) Higher prices will correspond with higher wages,which will stimulate demand and employment.
D) Anticipating this inflation,consumers will increase spending to beat the price increases,increasing demand,output,and employment.
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Chapter 29: Basic Macroeconomic Relationships
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Sample Questions
Q1) Suppose a family's consumption exceeds its disposable income.This means that its:
A) MPC is greater than 1.
B) MPS is negative.
C) APC is greater than 1.
D) APS is positive.
Q2) If a $100 billion decrease in investment spending causes income to decline by $100 billion in the first round of the multiplier process and by $75 billion in the second round,income will eventually decline by:
A) $200 billion.
B) $300 billion.
C) $400 billion.
D) $500 billion.
Q3) If Trent's MPC is .80,this means that he will:
A) spend eight-tenths of any increase in his disposable income.
B) spend eight-tenths of any level of disposable income.
C) break even when his disposable income is $8,000.
D) save two-tenths of any level of disposable income.
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Chapter 30: The Aggregate Expenditures Model
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Sample Questions
Q1) If a lump-sum tax of $40 billion is imposed and the MPC is .6,the saving schedule will shift:
A) downward by $24 billion.
B) upward by $24 billion.
C) downward by $16 billion.
D) upward by $16 billion.
Q2) (Advanced analysis)Answer the question on the basis of the following information for a private open economy.The letters Y,C,I<sub>g</sub>,X,and M stand for GDP,consumption,gross investment,exports,and imports respectively.Figures are in billions of dollars. \(\begin{array} { l }
C = 40 + 0.8 Y \\
t _ { g } = \overline { I _ { g } } = 40 \\
X = \bar { X } = 20 \\
M = \bar { M } = 30
\end{array}\) The equilibrium GDP (=Y)in the economy is:
A) $200.
B) $245.
C) $320.
D) $350.
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Chapter 31: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) (Consider This)The idea that the price level readily moves upward but not downward is called the:
A) elevator effect.
B) escalator effect.
C) ratchet effect.
D) stair-step effect.
Q2) The determinants of aggregate supply:
A) are consumption,investment,government,and net export spending.
B) explain why real domestic output and the price level are directly related.
C) explain the three distinct ranges of the aggregate supply curve.
D) include resource prices and resource productivity.
Q3) Cost-push inflation is depicted as a rightward shift of the aggregate demand curve along an upsloping aggregate supply curve.
A)True
B)False
Q4) A decrease in aggregate demand will cause a greater decline in real output the:
A) less flexible is the economy's price level.
B) more flexible is the economy's price level.
C) steeper is the economy's AS curve.
D) larger is the economy's marginal propensity to save.
Page 12
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Chapter 32: The Balance of Payments, Exchange Rates, and Trade Deficits
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138 Flashcards
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Sample Questions
Q1) Economists refer to a budget deficit that exists when the economy is achieving full employment as a:
A) cyclical deficit.
B) cyclically adjusted deficit.
C) natural deficit.
D) nonrecurring deficit.
Q2) The American Recovery and Reinvestment Act of 2009:
A) created a $700 billion rescue package for financial institutions.
B) cut taxes by $152 billion,distributed primarily as rebate checks to taxpayers.
C) implemented a $787 billion package of tax cuts and government expenditure increases.
D) substantially lowered interest rates in an attempt to stimulate investment spending.
Q3) In 2012,the U.S.public debt was about:
A) $16.4 trillion.
B) $6.8 trillion.
C) $5.3 trillion.
D) $11.9 trillion.
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Chapter 33: Money, Banking, and Financial Institutions
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Sample Questions
Q1) Stock market price quotations best exemplify money serving as a:
A) store of value.
B) unit of account.
C) medium of exchange.
D) index of satisfaction.
Q2) The various lender-of-last-resort programs implemented by the Fed in response to the financial crisis of 2007 and 2008:
A) severely depleted the assets of the Federal Reserve.
B) have been little used,and therefore are ineffective.
C) increased the moral hazard problem by limiting losses from bad financial decisions.
D) were designed to offset the moral hazard created by the TARP and other bailout programs.
Q3) The central authority of the U.S.banking system is the:
A) Federal Open Market Committee (FOMC).
B) Board of Governors of the Federal Reserve.
C) Federal Monetary Authority.
D) Council of Economic Advisers.
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Chapter 34: Money Creation
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Sample Questions
Q1) Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion;legal reserve ratio = 0.20;excess reserves prior to the currency deposit = $0. Refer to the information.The $40 billion deposit of currency into checking accounts will create excess reserves of:
A) $20 billion.
B) $32 billion.
C) $40 billion.
D) $0.
Q2) If the monetary authorities want to reduce the monetary multiplier,they should:
A) lower the required reserve ratio.
B) raise the required reserve ratio.
C) increase bank reserves.
D) lower interest rates.
Q3) Which of the following describes the identity embodied in a balance sheet?
A) Net worth plus assets equal liabilities.
B) Assets plus liabilities equal net worth.
C) Assets equal liabilities plus net worth.
D) Assets plus reserves equal net worth.
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Chapter 35: Interest Rates and Monetary Policy
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Sample Questions
Q1) On a diagram where the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively,the total demand for money can be found by:
A) horizontally adding the transactions and the asset demand for money.
B) vertically subtracting the transactions demand from the asset demand for money.
C) horizontally subtracting the asset demand from the transactions demand for money.
D) vertically adding the transactions and the asset demand for money.
Q2) An increase in the legal reserve ratio:
A) increases the money supply by increasing excess reserves and increasing the monetary multiplier.
B) decreases the money supply by decreasing excess reserves and decreasing the monetary multiplier.
C) increases the money supply by decreasing excess reserves and decreasing the monetary multiplier.
D) decreases the money supply by increasing excess reserves and decreasing the monetary multiplier.
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Chapter 36: Financial Economics
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Sample Questions
Q1) The two most important investor preferences are a desire for high rates of return and a dislike of inflation.
A)True
B)False
Q2) Karen holds a $100 bond that pays $10 per year in interest.The minimum price Karen would have to be offered before she would sell the bond:
A) is $110.
B) is $125.
C) is $140.
D) depends on rates of return she could earn on other,similar investments.
Q3) Kelly buys a share of stock for $20 that she sells a year later for $15.Kelly's rate of return is:
A) positive 33 percent.
B) negative 33.3 percent.
C) negative 25 percent.
D) negative 75 percent.
Q4) An asset's price and rate of return are directly related.
A)True
B)False
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Chapter 37: Extending the Analysis of Aggregate Supply
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Sample Questions
Q1) The last few years of the 1990s in the United States were characterized by:
A) low inflation and high unemployment.
B) stagflation.
C) low inflation and low unemployment.
D) a high misery index.
Q2) Which of the following is a tenet of supply-side economics?
A) High marginal tax rates severely discourage work,saving,and investment.
B) Increases in social security taxes and other business taxes shift the aggregate supply curve to the right.
C) The Federal Reserve should adhere to a monetary rule that limits increases in the money supply to a 5 percent annual rate.
D) Transfer payments increase incentives to work.
Q3) Demand-pull inflation and cost-push inflation are identical concepts because both involve lower unemployment rates and rising prices.
A)True
B)False
Q4) The Laffer Curve shows the trade-off between the price level and tax rates.
A)True
B)False
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Chapter 38: Current Issues in Macro Theory and Policy
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Sample Questions
Q1) In the insider-outsider theory:
A) insiders are workers who retain employment during recession.
B) insiders are managers who have more information about their firms' performance than outsiders.
C) insiders are "principals" and outsiders are "agents."
D) outsiders are foreigners.
Q2) Which of the following is a component of the equation of exchange?
A) Consumption.
B) The interest rate.
C) Investment.
D) The velocity of money.
Q3) Suppose that,as expected,aggregate demand in the economy sharply declines.New classical economists say that the price level will _____________ and real output will
A) fall;remain constant
B) fall;fall
C) remain constant;fall
D) remain constant;rise
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Chapter 39: International Trade
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Sample Questions
Q1) Which of the following statements about the European Union (EU)is true?
A) All members of the EU use a common currency (the euro).
B) The EU has abolished most trade barriers among participating countries,and has common tariffs applied to non-EU goods.
C) The EU has eliminated most barriers to the trade of goods and services among participating nations but largely restricts the movement of labor and capital.
D) Trade within the EU is liberalized,but EU nations set most of their own policies with regard to trade with non-EU nations.
Q2) U.S.exports of goods and services (on a national income account basis)are about:
A) 20 percent of U.S.GDP.
B) 8 percent of U.S.GDP.
C) 28 percent of U.S.GDP.
D) 14 percent of U.S.GDP.
Q3) A nation's export supply curve is downsloping and its import demand curve is upsloping.
A)True
B)False
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Chapter 40: The Balance of Payments, Exchange Rates, and Trade Deficits
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Sample Questions
Q1) Two of the implications of large U.S.trade deficits for the United States are:
A) decreased current consumption and decreased indebtedness to foreigners.
B) reduced budget deficits and decreased indebtedness to foreigners.
C) reduced current consumption and higher saving.
D) increased current consumption and increased indebtedness to foreigners.
Q2) If in a system of fixed exchange rates the dollar price of euros is above the market equilibrium level:
A) gold will flow from the United States to Europe.
B) there will be a surplus of euros.
C) the U.S.government will have to ration euros to U.S.importers.
D) there will be a shortage of euros.
Q3) With which of the following countries does the United States have its largest goods and services deficit?
A) Canada.
B) Germany.
C) Japan.
D) China.
Q4) A current account deficit will reduce U.S.foreign indebtedness.
A)True
B)False
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Chapter 41: The Economics of Developing Countries
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Sample Questions
Q1) Capital flight refers to:
A) the tendency of large corporations of IACs to build new plants in the DVCs because labor is cheaper.
B) DVC citizens accumulating or investing their savings in the IACs.
C) the high international mobility of speculative funds caused by variations in exchange rates.
D) the tendency of DVCs to overinvest in commercial aircraft.
Q2) Which of the following is not a DVC policy likely to increase DVC economic growth?
A) Encouraging direct foreign investment.
B) Opening economics to world trade.
C) Establishing independent central banks.
D) Encouraging emigration of highly skilled workers.
Q3) DVCs tend to have permanent shortages of farm labor.
A)True
B)False
Q4) Most nations of the world are now IACs,not middle- and low-income DVCs.
A)True
B)False
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Chapter 42: The United States and the Global Economy
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Sample Questions
Q1) Which of the following nations is not a member of the eurozone?
A) Italy.
B) Spain.
C) Germany.
D) The United Kingdom.
Q2) Which of the following concepts provides the basic rationale for international trade?
A) Increasing opportunity costs.
B) Consumer sovereignty.
C) Comparative advantage.
D) The law of supply.
Q3) According to the concept of comparative advantage,a good should be produced in that nation where:
A) its domestic opportunity cost is greatest.
B) money is used as a medium of exchange.
C) its domestic opportunity cost is least.
D) the terms of trade are maximized.
Q4) The WTO is comprised of 28 European nations.
A)True
B)False
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