Fundamentals of Economics Solved Exam Questions
Course Introduction
Fundamentals of Economics introduces students to the basic principles and concepts underlying the study of economics. The course covers essential topics such as supply and demand, market structures, consumer and producer behavior, and the role of government in the economy. Students will also explore macroeconomic concepts including economic growth, inflation, unemployment, and fiscal and monetary policy. Through real-world examples and analytical tools, this course helps learners develop a foundational understanding of how individuals, businesses, and societies make choices to allocate scarce resources efficiently.
Recommended Textbook Survey of Economics 8th Edition by Irvin B. Tucker
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Page 2
Chapter 1: Introducing the Economic Way of Thinking
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Sample Questions
Q1) Normative economics deals with ____ and positive economics deals with ____.
A) what should be; what is
B) fiction; fact
C) microeconomics; macroeconomics
D) negative aspects; positive aspects
E) changing circumstances; same circumstances
Answer: A
Q2) The sub-discipline of economics that focuses especially on individual markets is:
A) normative economics.
B) positive economics.
C) microeconomics.
D) macroeconomics.
E) econometrics.
Answer: C
Q3) Campaign speeches normally include normative economic statements.
A)True
B)False
Answer: True
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Chapter 1: A: Appendix: Applying Graphs to Economics
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Sample Questions
Q1) A horizontal line has an infinite slope.
A)True
B)False
Answer: False
Q2) In Exhibit 1A-4,as X increases along the horizontal axis,corresponding to points A-D on the line,the Y value remains unchanged at 40 units.The relationship between the X and Y variables is:
A) direct.
B) inverse.
C) independent.
D) undefined.
Answer: C
Q3) A graph is one method of expressing a model.
A)True
B)False
Answer: True
Q4) A downward-sloping line has a negative slope.
A)True
B)False
Answer: True
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Chapter 2: Production Possibilities,Opportunity Cost,and Economic Growth
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Sample Questions
Q1) Of all the points on the production possibilities curve,only one point represents an efficient point.
A)True
B)False
Answer: False
Q2) Using a production possibilities curve,a technological advance that increases the amount of output for the same amount of inputs would be illustrated as a(n):
A) flattening of the curve.
B) movement from one point to another point along the curve.
C) outward shift of the curve.
D) movement from a point on the curve to a point inside the curve.
Answer: C
Q3) Marginal analysis examines the effects of additions to or subtractions from a current situation.
A)True
B)False
Answer: True
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Page 5
Chapter 3: Part 1: Market Demand and Supply
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Sample Questions
Q1) A market demand curve:
A) is the sum of the demand curves of all the individuals in a particular market.
B) is determined by the demand of those who purchase in quantity.
C) is always horizontal.
D) cannot be estimated.
E) never includes demand by the government.
Q2) A curve that is derived by summing horizontally individual demand curves is called:
A) aggregate supply.
B) market supply.
C) aggregate demand.
D) market demand.
Q3) If people buy less chewing gum at every price when their incomes fall,then:
A) chewing gum is a normal good.
B) the demand for chewing gum is positively sloped.
C) demand for chewing gum has increased.
D) the price of chewing gum has increased.
E) there has been a decrease in population that changed demand.
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6
Chapter 3: Part 2: Market Demand and Supply
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Sample Questions
Q1) In Exhibit 3-16,assume that the market price of chairs is $15 each.This price is:
A) an equilibrium price.
B) not an equilibrium price, since there is an excess demand at a price of $10.
C) an equilibrium price, since suppliers can store inventories in their warehouses.
D) not an equilibrium price, since the rate at which chairs are being supplied is greater than the rate at which they are being demanded.
Q2) In Exhibit 3-14,if the market price of compact discs is initially $15,a movement toward equilibrium would require:
A) no change, because an equilibrium already exists.
B) the price to fall below $15 and both the quantity supplied and the quantity demanded to fall.
C) the price to remain the same, but the supply curve to shift to the left.
D) the price to fall below $15, the quantity supplied to fall, and the quantity demanded to rise.
Q3) The price system eliminates scarcity.
A)True
B)False
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Page 7
Chapter 4: Markets in Action
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Sample Questions
Q1) One likely result of a price ceiling is that:
A) a surplus of product would result.
B) the price charged in the market would be above the equilibrium price.
C) the price charged in the market would be the equilibrium price.
D) the available product must be rationed.
E) the market supply curve will shift to the right.
Q2) In Exhibit 4-8,a movement from A to B is best explained by:
A) an increase in income and in the number of suppliers.
B) an increase in the price of other goods.
C) an increase in the population.
D) a decrease in income and an improvement in the technology used to produce the good.
E) equilibrium quantity increases and the equilibrium price change is indeterminate.
Q3) If the supply curve decreases while the demand curve remains unchanged,the equilibrium price would decrease.
A)True
B)False
Q4) Discuss the impact of demand and supply changes on market equilibrium price and quantity.Express this graphically.
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Chapter 5: Price Elasticity of Demand
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Sample Questions
Q1) Within different price ranges along a linear demand curve,elasticities are:
A) constant.
B) different.
C) equal.
D) the same as slope.
E) negative 1.
Q2) If Sam,the Pizza Man,lowers the price of his pizzas from $6 to $5 and finds that sales increase from 400 to 600 pizzas per week,then the demand for Sam's pizzas in this range is:
A) price inelastic.
B) price elastic.
C) unit elastic.
D) cross elastic.
E) income inelastic.
Q3) The price elasticity of demand coefficient for a good will be lower:
A) if there are few substitutes for the good.
B) if expenditure on it is a small part of one's budget.
C) both a and b are true.
D) neither a nor b are true.
Q4) What are the characteristics of the product that has an inelastic demand?
Page 9
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Chapter 6: Production Costs
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Sample Questions
Q1) Implicit costs are:
A) the opportunity costs of using resources owned by the entrepreneur in his/her own business.
B) payments the business owner must make on borrowed funds.
C) costs which vary as the level of output varies.
D) those payments the business owner makes in cash.
E) the payments the business owner makes for public relations, such as donations to charity.
Q2) What is the shape of the average fixed cost curve for a firm in the short run?
A) U-shaped.
B) A curve that constantly increases as output expands and eventually approaches infinity at high rates of output.
C) A vertical line.
D) A curve that declines as output expands and approaches the horizontal-axis when output is large.
Q3) Each short-run average total cost curve is tangent at its lowest point to the long-run average cost curve.
A)True
B)False
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Page 10
Chapter 7: Perfect Competition
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Sample Questions
Q1) In the short run,the profit maximizing (or minimizing)quantity of output for any firm to produce exists at that output level at which marginal revenue equals marginal cost.
A)True
B)False
Q2) A perfectly competitive firm sells its output for $100 per unit and marginal cost is $100 per unit.To maximize short-run profit,the firm should:
A) increase output.
B) decrease output.
C) maintain its current output.
D) shut down.
Q3) Market structure is defined as the:
A) number of firms in each industry.
B) similarity of the product sold.
C) ease of entry into and exit from the market.
D) all of the above.
Q4) A perfectly competitive market is characterized by highly advertised goods.
A)True
B)False
Q5) What are the characteristics of the perfectly competitive market?
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Chapter 8: Monopoly
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Sample Questions
Q1) A perfectly competitive firm is a price taker,but a monopoly is a price maker.
A)True
B)False
Q2) A profit-maximizing monopolist will continue expanding output as long as:
A) marginal revenue exceeds marginal cost.
B) marginal revenue is positive.
C) the cost of producing an additional unit exceeds the marginal revenue derived from the unit.
D) economic profit is more than zero.
Q3) In order for a monopolist to earn a pure economic profit in short-run equilibrium,price must exceed average total cost.
A)True
B)False
Q4) Which of the following is true for a pure monopolist?
A) The firm has a perfectly elastic demand curve.
B) The firm will always earn an economic profit.
C) The demand curve is above the marginal revenue curve.
D) None of the above is true.
Q5) What is the shut-down rule for any firm?
Q6) Why can a monopoly earn economic profits in the long run?
Page 12
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Chapter 9: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) Which of the following best describes a cartel?
A) As a monopolist, a group of monopolistically competitive firms that jointly reduce output and raise the price.
B) As a monopolist, a group of cooperating oligopolists that jointly reduce output and raise the price.
C) A monopolist that reduces output and raises price.
D) A group of identical non-cooperative oligopolists that are able to reproduce a monopoly equilibrium through price rivalry.
Q2) A monopolistically competitive firm will:
A) maximize profits by producing where MR = MC.
B) not likely earn an economic profit in the long run.
C) shut down if price is less than average variable cost.
D) all of the above.
Q3) In the long run,which of the following is true for the firm shown in Exhibit 9-1?
A) The firm's demand curve shifts leftward.
B) The firm's average total cost curve shifts upward.
C) Neither a nor b are possible.
D) Both a and b are possible.
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Chapter 10: Labor Markets and Income Distribution
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Sample Questions
Q1) In a competitive labor market a firm will continue to employ workers for as long as an additional worker's marginal revenue product is below the wage rate.
A)True
B)False
Q2) An increase in the demand for a product will shift the demand curve for labor producing the product to the left.
A)True
B)False
Q3) Of the following demographic groups,which has the lowest poverty rate in the U.S.?
A) Families headed by a female with no adult male present.
B) Families in which the "head of the household" has not attained a high-school education.
C) Families headed by a male with no adult female present.
D) Families in which the "head of the household" has attained at least a bachelor's degree from a college or university.
Q4) Wage discrimination means minority workers are paid unequal wages.
A)True
B)False
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14
Chapter 11: Gross Domestic Product
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Sample Questions
Q1) GDP does count:
A) state and local government purchases.
B) spending for new homes.
C) changes in inventories.
D) none of the above.
E) all of the above.
Q2) The lower portion of the circular flow model contains factor markets in which households provide:
A) labor, money, and machines.
B) savings, spending, and investment.
C) natural resources, labor, and capital.
D) output of all final goods and services produced.
Q3) If exports rise and imports fall,then:
A) GDP will increase.
B) GDP will decrease.
C) GDP may remain unchanged.
D) net exports will fall.
E) transfer will rise.
Q4) Discuss the components of GDP using the expenditure approach.
Q5) Why is it important to distinguish nominal GDP from real GDP?
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Chapter 12: Business Cycles and Unemployment
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Sample Questions
Q1) In an economic expansion,people used their charge cards to purchase many goods.Now the economy is in a recession and people must use much of their reduced incomes to pay back debts.If employees manufacturing the goods people used to buy are laid off,they will suffer from:
A) cyclical unemployment.
B) structural unemployment.
C) permanent unemployment.
D) frictional unemployment.
E) underemployment.
Q2) Lori Field is homemaker.Last week,she was busy with her normal household chores.She is:
A) a member of the civilian labor force who is employed.
B) a member of the civilian labor force who is unemployed.
C) a member of the civilian labor force who is underemployed.
D) a discouraged worker who is not a member of the labor force.
E) not a member of the labor force.
Q3) In the United States,the unemployment rate for blacks is roughly the same as the unemployment rate for whites.
A)True
B)False
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Chapter 13: Inflation
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Sample Questions
Q1) Demand-pull inflation is most pronounced during a recession (as opposed to the recovery phase of the business cycle).
A)True
B)False
Q2) Last year the Jones family earned $40,000.This year their income is $42,000.In an economy with an inflation rate of 10 percent,which of the following is correct?
A) The Jones' nominal income and real income have both fallen.
B) The Jones' nominal income and real income have both risen.
C) The Jones' nominal income has increased and their real income has fallen.
D) The Jones' nominal income has decreased and their real income has risen.
Q3) A sustained decrease in the price level is known as deflation.
A)True
B)False
Q4) Cost-push inflation is a result of an increase in the per unit costs of production.
A)True
B)False
Q5) Who is hurt and who benefits from inflation? Why?
Q6) What are some criticisms of the CPI as a measure of inflation?
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Chapter 14: Aggregate Demand and Supply
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Sample Questions
Q1) In Exhibit 14-1,as production increases,firms resort to offering higher-wage rates to attract the dwindling supply of unemployed resources in:
A) the segment labeled ab.
B) the segment labeled bc.
C) the segment labeled cd.
D) both segment bc and segment cd.
E) the entire curve.
Q2) The quantity of real GDP rises with the price level,ceteris paribus.
A)True
B)False
Q3) The aggregate supply curve is horizontal in the intermediate range.
A)True
B)False
Q4) A reduction in regulation will shift the aggregate:
A) supply curve leftward.
B) supply curve rightward.
C) demand curve leftward.
D) demand curve rightward.
Q5) How are demand-pull and cost-push inflation reflected in terms of the AD-AS model?
18
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Chapter 14: A: Appendix: The Self-Correcting Aggregate
Demand and Supply Model
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Sample Questions
Q1) The long-run aggregate supply curve (LRAS)corresponds to full-employment real GDP with zero frictional and structural unemployment.
A)True
B)False
Q2) Long-run full-employment equilibrium assumes:
A) a downward-sloping production function.
B) a downward-sloping long-run supply curve (LRAS).
C) the CPI index price level equals the equilibrium wage rate.
D) the CPI equals aggregate demand (AD) equals short-run aggregate supply (SRAS) equals long-run aggregate supply (LRAS).
Q3) As shown in Exhibit 14A-1 and assuming the aggregate demand curve shifts from AD and AD ,the full-employment level of real GDP is:
A) $12 billion.
B) $8 billion.
C) $150 billion.
D) unable to be determined.
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Chapter 15: Fiscal Policy
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Sample Questions
Q1) If no fiscal policy changes are made,suppose the current aggregate demand curve will increase horizontally (shift rightward)by $1,000 billion and cause inflation.If the marginal propensity to consume is 0.90,federal policymakers could follow Keynesian economics and restrain inflation by decreasing:
A) government spending by $100 billion.
B) taxes by $100 billion.
C) taxes by $1,000 billion.
D) government spending by $1,000 billion.
Q2) In Exhibit 15-8,supply-siders claimed that the shift from AS to AS would occur if the government:
A) increased tax rates and increased the amount of government regulation.
B) increased tax rates and decreased the amount of government regulation
C) increased tax rates and decreased the amount of government regulation,
D) decreased tax rates and decreased the amount of government regulation..
E) decreased tax rates and decreased the amount of government regulation.,
Q3) Discuss the differences between Keynesian and supply-side fiscal policies?
Q4) The tax multiplier equals 1 : spending multiplier.
A)True
B)False
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Chapter 16: The Public Sector
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Sample Questions
Q1) A rational person may remain less than fully informed on an issue to be decided in an election.
A)True
B)False
Q2) In Exhibit 16-4,line A represents a(n):
A) regressive tax.
B) progressive tax.
C) proportional tax.
D) ability-to-pay tax.
Q3) If a person is concerned that an additional $1,000 income will move him/her into a new tax bracket,that person is worried about the:
A) proportional rate.
B) regressive tax rate.
C) marginal tax rate.
D) flat tax rate.
Q4) What are the public choice theory arguments against government involvement in the economy?
Q5) State and local property taxes are regressive.
A)True
B)False
21
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Chapter 17: Federal Deficits,Surpluses,and the National Debt
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Sample Questions
Q1) An increase in a budget deficit financed by borrowing can increase interest rates and reduce investment spending thereby creating lower rates of economic growth.
A)True
B)False
Q2) Currently,the national debt is approximately:
A) 50 percent of GDP.
B) 60 percent of GDP.
C) 90 percent of GDP.
D) 120 percent of GDP.
Q3) If the national debt rises to the debt ceiling and there is currently a budget ____,the Congress and the President must agree to ____ the debt ceiling or else the federal government will have insufficient funds to pay its bills and will be forced to shut down.
A) surplus, lower
B) deficit, raise
C) surplus, lower.
D) none of the above
Q4) Does government borrowing crowd out private sector spending?
Q5) Can the U.S.federal government go broke as a result of a large national debt?
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Chapter 18: Money and the Federal Reserve System
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Sample Questions
Q1) The money supply known as M2:
A) includes large denomination time deposits.
B) excludes interest-earning checking accounts in savings and loans.
C) does not include money market mutual accounts.
D) includes savings accounts and small denomination time deposits.
E) includes large denomination repurchase agreements.
Q2) M1 includes savings accounts.
A)True
B)False
Q3) Which of the following is not counted as part of M1?
A) Coins.
B) Federal Reserve notes or " paper money."
C) Passbook savings deposits.
D) Checkable deposits.
Q4) Which of the following is not a component of the M1 money supply?
A) Checkable deposits.
B) Large-denomination (more than $100) bills.
C) Interest-earning checking deposits.
D) Outstanding balances on credit cards.
Q5) Describe the functions of the Federal Reserve System.
Page 23
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Chapter 19: Money Creation
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Q1) How can the Fed increase the money supply? How can the Fed decrease the money supply? Be specific.
Q2) If the Fed decides to engage in an open market operation to increase the money supply,what will it do?
A) Sell Treasury bonds, bills, or notes on the bond market.
B) Buy Treasury bonds, bills, or notes on the bond market.
C) Increase the required reserve ratio.
D) Increase the fed funds rate.
Q3) When the Fed decreases the required reserve ratio,then the:
A) ability of banks to make loans is restricted.
B) ability of banks to make loans is enhanced.
C) ability of banks to make loans is unaffected.
D) interest rate that banks pay to the Fed to borrow money is reduced.
E) interest rate that banks pay other banks to borrow money is decreased.
Q4) When the discount rate rises,the cost:
A) of loans to bankers, best customers goes up.
B) of loans between banks rises.
C) of international loans rises.
D) to savings and loans of borrowing money from the public falls.
E) to banks of borrowing from the Fed falls.
Page 24
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Chapter 20: Monetary Policy
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Sample Questions
Q1) Keynesians identify three principal motives for demanding money.They are the:
A) transactions demand, precautionary demand, and liquidity motive.
B) transactions demand, precautionary demand, and convertibility motive.
C) transactions demand, speculative demand, and volatility motive.
D) transactions demand, speculative demand, and liquidity motive.
E) transactions demand, speculative demand, and precautionary demand.
Q2) Other things being equal,an increase in the rate of interest causes a(n):
A) upward movement along the demand for money curve.
B) downward movement along the demand for money curve.
C) rightward shift of the demand for money curve.
D) leftward shift of the demand for money curve.
Q3) Monetarists believe that an increase in the money supply will lead to:
A)both c and d.
B)all of the following.
C)an increase in the price level.
D)an increase in nominal GDP
E)an increase in real GDP.
Q4) Investment is lowered by expansionary monetary policy.
A)True
B)False
Page 25
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Chapter
Self-Correcting Aggregate Demand and Supply Model
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Q1) Assume the economy is in short-run equilibrium at a real GDP below its potential real GDP.According to Keynesian theory,which of the following policies should be followed?
A) The Federal Reserve should increase the money supply.
B) The federal government should increase spending.
C) The federal government should do nothing because the economy will self correct to potential real GDP.
D) All of the above.
Q2) As shown in Panel (b)of Exhibit 20A-2,assume the economy adopts a classical nonintervention policy.Which of the following would cause the economy to self-correct?
A) Competition among firms for workers increases the nominal wage and SRAS shifts rightward.
B) Long-run equilibrium will be established at Y and P .
C) Long-run equilibrium will be established at Yp and P .
D) Competition among unemployed workers decreases nominal wages and SRAS shifts rightward.
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26
Chapter 21: International Trade and Finance
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Sample Questions
Q1) Exhibit 21-5 displays the international currency market for yen in terms of dollars and dollars in terms of yen.The supply curve in graph 5(B)is determined by:
A) U.S. citizens attempting to purchase Japanese-made goods.
B) Japanese attempting to purchase U.S.-made goods.
C) U.S. businesses attempting to sell to the Japanese.
D) Japanese businesses attempting to sell to the U.S.
E) the U.S. government attempting to unload dollars to the international market.
Q2) A tariff has the effect of:
A) raising the price of the exported product.
B) increasing the demand for the exported product.
C) increasing the demand for the imported product.
D) increasing the supply of the imported product.
E) raising the price of the imported product.
Q3) In Exhibit 21-3,the United States has a comparative advantage in producing: A) potatoes.
B) wheat.
C) both.
D) neither.
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Chapter 22: Economies in Transition
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Sample Questions
Q1) Adam Smith wrote that the:
A) economic problems of eighteenth-century England were caused by free markets.
B) government should control the economy.
C) pursuit of private self interest promotes the public interest in a market economy.
D) public or collective interest is not promoted by people pursuing their self interest.
Q2) In the real world,most economic systems are:
A) market economies.
B) command economies
C) mixed economies.
D) traditional economies.
Q3) Economic efficiency and economic freedom are commonly cited as two major benefits of socialism.
A)True
B)False
Q4) In traditional economies,people base economic decisions on the precedents established by previous generations.
A)True
B)False
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Page 28
Chapter 23: Growth and the Less-Developed Countries
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Sample Questions
Q1) The poorest regions in the world,as measured by GDP per capita,are:
A) Latin America and the Caribbean.
B) the Middle East and North Africa.
C) Sub-Saharan Africa and South Asia.
D) Australia and New Zealand.
Q2) Which of the following is not a characteristic of most less-developed countries?
A) Inadequate human capital.
B) Inadequate capital goods.
C) High population growth rate.
D) Inadequate water supplies.
E) High productivity.
Q3) Less-developed countries are poor for all of the following reasons except one.Which one?
A) They do not produce many goods and services.
B) Labor productivity is low.
C) Investment funds tend to flow abroad
D) Investment in human capital is very low.
E) The labor force is too small.
Q4) What role does population growth play in economic development?
Q5) Describe the vicious cycle of poverty.What are the consequences of this cycle?
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