Foundations of Economics Question Bank
Course Introduction
Foundations of Economics introduces students to the core principles underpinning economic theory and practice. This course covers basic concepts such as scarcity, supply and demand, opportunity cost, and market equilibrium, providing insight into how individuals, businesses, and governments make choices about resource allocation. Students explore both microeconomic and macroeconomic perspectives, gaining an understanding of topics like consumer behavior, production, pricing, economic systems, and the role of government intervention in markets. By the end of the course, students will be equipped with analytical tools to interpret real-world economic issues and to evaluate the impact of economic policies on society.
Recommended Textbook
Economics The Basics 2nd Edition by Michael Mandel
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19 Chapters
1210 Verified Questions
1210 Flashcards
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Chapter 1: Introduction
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Sample Questions
Q1) Which of the following does NOT explain why there are so many disagreements among economists?
A) In some cases, there aren't enough data to answer the question.
B) In some cases, the controversy is aggravated by political agendas.
C) In some cases, individuals may stand to gain from policy changes.
D) In some cases, economists have simply not investigated the issue at hand.
Answer: D
Q2) Technological change is a key force in shaping today's economy.
A)True
B)False
Answer: True
Q3) One measurement of economic prosperity is
A) the happiness index.
B) the gross domestic policy.
C) interest rates.
D) the gross domestic product.
Answer: D
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Chapter 2: Demand and Supply: The Basics of the Market Economy
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Sample Questions
Q1) What determines a market supply schedule?
Answer: By combining the quantity supplied by all businesses in a given market at different prices,the market supply schedule indicates the amount of a product or service all sellers are willing to provide at those prices.
Q2) What does an upward-sloping supply curve mean?
Answer: As the price increases,the quantity supplied generally increases,causing the line to slope upward.Suppliers are generally willing to invest in more production to increase supply if they are going to be paid more for the product or service.More profit also tends to attract more suppliers of the same product or service.
Q3) Which of the following is an example of a product that is sold primarily in a local market?
A) Cheese.
B) Butter.
C) Milk.
D) Oil.
Answer: C
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4
Chapter 3: Market Equilibrium and Shifts
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Sample Questions
Q1) The price at which the quantity supplied equals the quantity demanded is the A) market price.
B) equilibrium quantity.
C) equilibrium price.
D) satiation point.
Answer: C
Q2) The gap between quantity supplied and quantity demanded is usually closed over time by the
A) demand curve.
B) supply curve.
C) market mechanism.
D) invisible face.
Answer: C
Q3) Excess demand generally causes prices to go down.
A)True
B)False
Answer: False
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Page 5
Chapter 4: How Businesses Work
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Sample Questions
Q1) Businesses have two types of cost: fixed and variable.
A)True
B)False
Q2) Explain how marginal product can be negative.
Q3) A production function tells you,given the inputs,what the output will be.
A)True
B)False
Q4) Marginal cost generally ________ quantity produced.
A) rises with B) decreases with C) stays the same with varying D) is not related to
Q5) Average product is not as reliable an indicator of how a business is doing as it used to be because of A) variable expenses. B) fixed expenses.
C) outsourcing labor. D) outsourcing profit.
Q6) Explain,with an example,the type of short-term decisions retailers often have to make.
Page 6
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Chapter 5: Competition and Market Power
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Sample Questions
Q1) Companies will often spend considerable amounts of money to create a ____________ in regards to their brand name.
A) market effect
B) product orientation
C) relational effect
D) reputation effect
Q2) In perfect competition,if there are no barriers to entry,only the lowest-cost businesses survive over the long run.
A)True
B)False
Q3) In perfect competition,P = MC means
A) Profit equals marginal cost.
B) Price equals market cost.
C) Price equals marginal cost.
D) Profit equals market cost.
Q4) Monopolies generally _____________ technology and globalization.
A) grow with
B) thrive with
C) are reduced in number by D) are unaffected by
Page 7
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Chapter 6: Government and the Economy
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Sample Questions
Q1) What happened to government regulation in the aftermath of the oil shock of 1973?
Q2) Deregulation (the reduction of government intervention)began with the oil price shock of 1973.
A)True
B)False
Q3) The Wage and Price Controls of 1971 were an example of
A) command approach intervention.
B) free enterprise.
C) market-based economics.
D) a balanced approach.
Q4) Corruption is
A) the creation of oxidized material on metal.
B) legal activities to promote a viewpoint.
C) illegal activities to create an unfair advantage.
D) found only within local governments.
Q5) What is income redistribution?
Q6) The New Deal was a government outgrowth of World War I.
A)True
B)False
Page 8
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Chapter 7: The First Step Into Macroeconomics
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Sample Questions
Q1) The term "gross domestic purchases" refers to
A) the amount spent by U.S. consumers, business, and government on final goods and services.
B) the amount spent only by U.S. consumers on final goods and services.
C) the amount spent only by businesses on final goods and services.
D) the amount spent only by government on final goods and services.
Q2) The BEA is the
A) Bureau of Educational Administration.
B) Bureau of Economic Alliances.
C) Bureau of Economic Analysis.
D) Bureau of Educational Analysis.
Q3) The GDP per capita tells us
A) the amount of output each person would get if the economic pie were sliced evenly.
B) the amount of output each worker would get if the economic pie were sliced evenly.
C) the ratio of the maximum amount of output any person gets to the minimum amount of output each person gets.
D) the average amount of output each person gets, adjusted for inequality.
Q4) How are net exports calculated?
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Page 9
Chapter 8: Inflation
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Sample Questions
Q1) Unexpectedly high inflation tends to hurt _______ most.
A) borrowers
B) lenders
C) policy makers
D) businesses
Q2) Expected inflation is
A) anticipating inflation over 2% from year to year.
B) the amount of inflation that households and businesses expect will continue into the future.
C) the opposite of disinflation.
D) based on inflation-adjusted averages year to year.
Q3) The BLS has chosen 90 to represent the average 1982-1984 price level,and it now measures all other years relative to this base year.
A)True
B)False
Q4) Hyperinflation is
A) a moderate increase in prices from year to year.
B) a very rapid increase in prices from year to year.
C) inflation calculated using new technology.
D) inflation calculated based on the CPI model.
Page 10
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Chapter 9: Growth
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Sample Questions
Q1) Investment in physical capital means
A) hiring more employees.
B) purchasing equipment and buildings.
C) purchasing supplies.
D) taking out loans.
Q2) Which does an expanding economy NOT do?
A) Free up resources for the public sector.
B) Boost living standards for the poor.
C) Create a lower real GDP.
D) Allow the middle class to enjoy more luxuries.
Q3) The inputs used in the aggregate production function do not include which of the following?
A) Education and skill levels.
B) Knowledge.
C) Average price levels.
D) The number of workers in a country.
Q4) A growing economy is non-zero-sum.
A)True
B)False
Q5) What could low productivity growth in a country suggest?
Page 11
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Chapter 10: Business Cycles, unemployment and Inflation
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Sample Questions
Q1) An example of a generally recession-resistant business is
A) consumer electronics.
B) health care.
C) automobiles.
D) boats.
Q2) How can fighting inflation cause a recession?
A) The Federal Reserve raises interest rates to intentionally slow down the economy.
B) Businesses lay off workers as a way to keep prices from rising too fast.
C) The federal government orders businesses to reduce prices, which raises interest rates.
D) Households stop buying goods and services in response to higher prices.
Q3) Since the 1970s,the most common causes of recessions have been
A) negative supply shifts and negative demand shifts.
B) negative supply shifts and inflation fighting.
C) problems in financial markets and inflation fighting.
D) problems in financial markets and negative demand shifts.
Q4) How is it possible for output to be greater than potential GDP?
Q5) What is the definition of the natural rate of unemployment?
Q6) What is the definition of the output gap?
Page 12
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) The government funds its spending by taxation and borrowing.
A)True
B)False
Q2) What is the multiplier effect?
Q3) If the spending multiplier is 1.2,then a $100 billion increase in government spending will increase private sector spending by
A) $100 billion.
B) $120 billion.
C) $83.3 billion.
D) $20 billion.
Q4) Government spending is funded by a system of
A) checks and balances.
B) policies and laws.
C) states and cities.
D) taxation and borrowing.
Q5) The portion that households spend of each dollar they receive is called the A) after-tax incentive.
B) marginal propensity to consume.
C) marginal after-tax income.
D) natural tendency to consume.
Page 13
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Chapter 12: Monetary Policy
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Sample Questions
Q1) Cutting the interest rate paid on reserves should make banks
A) less willing to use their funds for lending.
B) more willing to use their funds for lending.
C) less willing to meet the margin requirement.
D) more willing to meet the margin requirement.
Q2) In the United States and in virtually every other country,the printing of money is
A) Strictly a government monopoly.
B) Open to the free market so that different monies can compete for acceptance with one another.
C) Limited by the supplies of gold and silver the central bank holds in reserve.
D) A privilege that is allowed only to banks that are members of the Federal Reserve System.
Q3) When the Federal Reserve acts as a lender of last resort,it is making sure that banks have the money they need to continue to operate.
A)True
B)False
Q4) How does a "rules-based" approach to monetary policy differ from "discretionary intervention"?
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Page 14
Chapter 13: The Financial Markets
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Sample Questions
Q1) The main way corporations and governments raise money is through
A) the stock market.
B) the bond market.
C) loans from banks.
D) the equity credit channel.
Q2) Bonds are considered fixed-income securities because they pay a fixed amount of interest per quarter or per year for the term of the loan.
A)True
B)False
Q3) Measures of the prices of groups of stocks,such as the Dow Jones Industrial Average and the S&P 500,are called
A) Mutual funds.
B) Secondary markets.
C) Index funds.
D) Stock indexes.
Q4) Why is the interest rate on U.S.Treasury securities lower than on other types of bonds?
Q5) Show,using a supply and demand diagram,why we would expect a stronger economy to result in higher interest rates.
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Chapter 14: International Trade
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Sample Questions
Q1) Which of the following might you believe if you say that "it's their fault" that the United States runs a trade deficit?
A) Other countries have used nontariff barriers to keep out U.S. exports.
B) U.S. manufacturers are incompetent and unable to compete with foreign producers.
C) American consumers borrow too much to buy imported goods like cars and electronics.
D) The United States is a successful rich economy that can afford a lot of imports.
Q2) A nation has a comparative advantage in producing a good,if
A) it has a higher standard of living than its trading partners.
B) more people in the country are employed in the production of the good than its trading partners.
C) it also has an absolute advantage in producing the good.
D) it has either a greater productivity advantage or a smaller productivity disadvantage.
Q3) What is the difference between absolute advantage and comparative advantage? Which one is most important for determining what a country will specialize in producing?
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Chapter 15: Technological Change
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Sample Questions
Q1) Which of the following would be an example of basic research?
A) Studies of the atmosphere on Neptune.
B) Research into gene therapy to treat Alzheimer's disease.
C) Studies of circuit miniaturization for applications in computers.
D) A pharmaceutical company's research into a chemical compound that could reduce the growth rate of cancer cells.
Q2) Scientific investigations that have no immediately obvious commercial applications are called sterile research.
A)True
B)False
Q3) Which of the following best fits the definition of basic research?
A) Research into a process that converts radioactive fly ash from coal-burning power plants into bricks.
B) Research into mosquito physiology to find vulnerabilities to be exploited by future pesticides.
C) A study of parallel universes.
D) Research into ultra capacitors that store electrical energy for use in hybrid vehicles.
Q4) What is a patent,and how does it encourage innovation?
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Chapter 16: Economics of the Labor Market
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Sample Questions
Q1) If the government passes legislation shortening the workweek from 40 hours to 35 hours,with overtime pay required for more than 35 hours,which of the following would occur?
A) Employers would face lower labor costs because they would save five hours a week of wages.
B) Employers would face higher labor costs because they would have to pay overtime or train more workers to get the same quantity of work done.
C) The demand for labor hours would increase.
D) The supply of labor would decrease.
Q2) Globalization has had a positive effect on private sector labor union membership rates.
A)True
B)False
Q3) Between 2005 and 2010,the increase in the foreign-born labor force was
A) about equal to the increase in the native-born labor force.
B) about twice as large as the increase in the native-born labor force.
C) about half as large as the increase in the native-born labor force.
D) the only source of labor-force growth.
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Page 18
Chapter 17: The Distribution of Income
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Sample Questions
Q1) How has global trade affected income inequality? Explain briefly.
Q2) In the last two decades,women have completely closed the gender earnings gap. A)True
B)False
Q3) People tend to earn higher incomes as they mature and gain experience in the workforce.As a consequence of this income mobility,
A) statistics on income may understate inequality.
B) redistribution from high-income individuals to low-income individuals may encourage innovation and economic growth.
C) statistics on income may overstate inequality.
D) the overall poverty rate may rise as the population ages.
Q4) An income tax is regressive if
A) lower-income households pay a larger share of their income in taxes than higher-income households.
B) most of the tax revenue is used to benefit lower-income households.
C) higher-income households pay a larger share of their income in taxes than lower-income households.
D) most of the tax revenue is used to benefit higher-income households.
Q5) Why might people object to a regressive tax structure?
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Chapter 18: Economics of Retirement and Healthcare
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Sample Questions
Q1) According to the life cycle model discussed in the textbook,people tend to borrow while young,pay off debt and build wealth in their middle age,and live off savings during their retirement.
A)True
B)False
Q2) What problems with healthcare did President Obama attempt to address with the health insurance reform bill he signed in 2010,and how were those problems addressed?
Q3) The "individual mandate" included in President Obama's health insurance reform bill was designed to address which problem?
A) The moral hazard problem.
B) The healthcare uncertainty problem.
C) The healthcare poverty problem.
D) The adverse selection problem.
Q4) Which of the following is a way in which Social Security benefits could be cut?
A) An increase in the rate of inflation.
B) A higher retirement age.
C) A smaller penalty for early retirement.
D) An increase in the payroll tax rate.
Q5) List the four possible responses to the Social Security financing gap.
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Chapter 19: Economics of Energy, the Environment, and Global Climate Change Glossary
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Sample Questions
Q1) Energy conservation is a shift in economic activities to make the use of energy less costly.
A)True
B)False
Q2) Which of the following is NOT an example of a negative externality?
A) Damage to homes and businesses caused by a forest fire ignited by lightning.
B) Noise from a neighbor's motorcycle as he prepares to ride to work at 5a.m.
C) Fertilizer on a farmer's field that enters a river and promotes algae growth and kills fish downstream.
D) Secondhand cigarette smoke.
Q3) One of the characteristics of the cap-and-trade system is that
A) there is no way to ensure that pollution is reduced below some allowable total amount.
B) it is inflexible, and does not respond well to differences in the marginal cost of pollution reduction.
C) it is more expensive than a command-and-control system.
D) it reduces the economic damage that would have been done by a command-and-control system.
Q4) Describe the two main categories of responses to global climate change.
Page 21
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