General Economics
Exam Materials
Course Introduction
General Economics provides a comprehensive overview of fundamental economic principles, concepts, and analytical frameworks that underpin how economies function. This course introduces students to the core ideas of microeconomics and macroeconomics, including supply and demand, market structures, consumer and producer behavior, national income, inflation, unemployment, fiscal and monetary policy, and international trade. Emphasis is placed on understanding how individual choices, government policies, and global events influence economic outcomes. By the end of the course, students will be equipped with the analytical tools to critically evaluate economic issues, interpret economic data, and understand the economic context of current events.
Recommended Textbook
macroeconomics principles and policy 12th edition by william j. baumol
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Page 2
Chapter 1: What Is Economics?
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Q1) Which of the following mathematical expressions represents the equation of a straight line with a slope of zero at all points on a graph with Y on the vertical axis and X on the horizontal axis?
A) Y = a + X
B) X = bY
C) X = a
D) Y = a
Answer: D
Q2) Which of the following is an example of an externality?
A) Drug abuse affecting David's health.
B) Sara taking a break from work.
C) A transaction between two parties, affecting them alone.
D) Tom's smoking affecting his roommate's health.
Answer: D
Q3) In the short run,efforts to reduce the unemployment rate are likely to cause
A) a decrease in the inflation rate.
B) an increase in the inflation rate.
C) no change in the inflation rate.
D) Uncertain-economists have found no relationship between the two variables.
Answer: B
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Chapter 2: The Economy: Myth and Reality
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Q1) The U.S.economy is relatively open in terms of economic activity related to international trade.
A)True
B)False
Answer: False
Q2) Inputs,or factors of production,include
A) labor.
B) machinery.
C) natural resources.
D) all of the above.
Answer: D
Q3) An industry can be defined as
A) the group of all firms that sell a product.
B) any company that produces and sells something.
C) the set of buyers of a particular good or service.
D) the top companies that sell something.
Answer: A
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Chapter 3: The Fundamental Economic Problem: Scarcity and
Choice
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Q1) President Barack Obama pushed forward a national health care plan to increase the availability of medical care for all Americans.How would one determine the opportunity cost of the proposal?
Answer: Every decision by government has an opportunity cost,as would any decision made by consumers or businesses.One would have to determine the best forgone alternative,be it national defense,a space station,the Superconducting Super Collider,the environment,or a tax cut.Each of these has a "value," even if it is hard to put a price tag on it.Clearly,determining the opportunity cost of such a complex decision is not easy in practice.
Q2) In Figure 3-2,at point B
A) it is impossible to increase production of consumer goods.
B) it is impossible to increase production of capital goods.
C) it is possible to increase production of both capital goods and consumer goods simultaneously.
D) it is impossible to increase production of both capital goods and consumer goods simultaneously.
Answer: D
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Chapter 4: Supply and Demand: An Initial Look
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Q1) A supply curve can be thought of as
A) a graphical display of "market potential."
B) a graphical representation of the information in a supply schedule.
C) showing the maximum quantities that firms are able to produce.
D) a forecasting tool.
E) All of the above are correct.
Q2) A change in the price of important inputs will change the quantity supplied but will not shift the supply curve.
A)True
B)False
Q3) Refer to Table 4-1.At $4,what is the shortage?
A) 0
B) 1,500
C) 3,000
D) 4,500
E) 6,000
Q4) Explain the effect of the following changes on equilibrium price and quantity of a commodity:
(a)increase in average incomes.
(b)increase in population.
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Chapter 5: An Introduction to Macroeconomics
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Q1) The tax cut of 2001 turned out to be well-timed because it caused a
A) rightward shift of the aggregate demand curve.
B) rightward shift of the aggregate supply curve.
C) leftward shift of the aggregate demand curve.
D) leftward shift of the aggregate supply curve.
Q2) What was suggested by Keynes to move the economy out of a depressed state?
A) The invisible hand
B) The price mechanism
C) Monetary and fiscal policy
D) Zero government intervention
Q3) GDP in 2011 would not include the resale of a house built in 2000.
A)True
B)False
Q4) During the first year of the Bush administration in 2001,the American economy
A) increased its already rapid growth rate.
B) experienced high levels of inflation.
C) slowed in its rate of economic growth.
D) experienced a decrease in the rate of unemployment.
Q5) Why do price levels increase when government adopts fiscal or monetary policy to correct the economy when it faces a recession and high unemployment?
Page 7
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Chapter 6: The Goals of Macroeconomic Policy
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Q1) Potential GDP is an estimate of the economy's ability to produce goods and services if the
A) labor force is fully employed.
B) price level is stable.
C) trade balance is zero.
D) federal budget is balanced.
Q2) If the discouraged workers were included in the labor force,
A) the unemployment rate would fall.
B) the labor force would decrease.
C) the employment rate would rise.
D) the unemployment rate would rise.
Q3) Recent research suggests that the federal minimum wage law
A) clearly causes significant unemployment.
B) causes unemployment for teenagers.
C) causes unemployment for high wage workers.
D) may not cause much, if any, unemployment.
Q4) The incentive to lend increases as the real rate of interest decreases.
A)True
B)False
Q5) Distinguish between real rate of interest and nominal rate of interest.
Page 8
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Chapter 7: Economic Growth: Theory and Policy
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Q1) When the economy devotes more of its resources to investment goods,it must devote fewer resources to consumer goods.
A)True
B)False
Q2) The "cost disease of personal services" phenomenon helps explain why medical care has become so expensive.
A)True
B)False
Q3) Workforce explanations of the productivity changes in the 1973-1995 period include
A) rising SAT scores.
B) declining SAT scores.
C) rising educational attainment.
D) falling levels of average educational attainment.
Q4) Poor health in developing countries encourages economic growth because working is a matter of life and death.
A)True
B)False
Q5) Describe the three pillars of productivity growth.
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Chapter 8: Aggregate Demand and the Powerful Consumer
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Q1) Which of the following observations concerning GDP calculations is t?
A) Goods and services produced by governments are valued at market price.
B) Inventories are treated as if they are yet to be sold.
C) Goods produced but not sold during the year are counted in that year's GDP.
D) Goods that firms add to their inventories do not count in the GDP.
Q2) What is disposable income? How is it calculated?
Q3) Why do permanent tax cuts have a greater impact on consumption than temporary tax cuts?
A) Permanent tax cuts have a greater effect on expected long-run inflation.
B) Permanent tax cuts are perceived as minor while temporary tax cuts are larger and more effective.
C) Permanent tax cuts cause movement along the consumption function, while temporary tax cuts shift the consumption function.
D) Permanent tax cuts affect expectations of long-run income more than temporary tax cuts.
Q4) If U.S.consumers become more optimistic about their future income and wealth,the consumption function will shift upward.
A)True
B)False
Page 10
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Chapter 9: Demand-Side Equilibrium: Unemployment or
Inflation?
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Q1) For a given price level,an upward shift of the expenditures schedule corresponds to an
A) inward shift of the aggregate demand curve.
B) outward shift of the aggregate demand curve
C) outward shift of the aggregate supply curve.
D) inward shift of the aggregate supply curve.
Q2) The concept that increases in spending cause larger increases in equilibrium GDP is known as the
A) profiler.
B) mystifier.
C) multiplier.
D) depreciator.
Q3) Why does an increase in the price level cause a decrease in real GDP demanded?
A) Consumer wealth increases.
B) Net exports will increase.
C) Interest rates decrease and cause higher investment.
D) Net exports will decrease.
Q4) Where does equilibrium occur in an income expenditure diagram? What would be the effect if production is at either on the left or right side of the equilibrium point?
11
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Chapter 10: Bringing in the Supply Side: Unemployment and Inflation?
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Q1) Increases in the availability of natural resources will affect the aggregate supply curve such that it
A) shifts inward and becomes flatter.
B) shifts inward.
C) shifts outward.
D) becomes flatter.
E) becomes steeper.
Q2) If aggregate quantity demanded exceeds aggregate quantity supplied,we can expect an unplanned
A) depletion of inventories, causing firms to raise prices.
B) depletion of inventories, causing firms to lower prices.
C) accumulation of inventories, causing firms to raise prices.
D) accumulation of inventories, causing firms to lower prices.
Q3) In our modern economy,the adjustment process necessary to eliminate a recessionary gap is very rapid.
A)True
B)False
Q4) Using the concepts of aggregate demand and aggregate supply,explain how the economy reaches an equilibrium level of real GDP and price level.
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Chapter 11: Managing Aggregate Demand: Fiscal Policy
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Q1) ____ is the income actually available to the consumers that determines aggregate demand.
A) Nominal income
B) Net domestic product
C) Income corrected for depreciation
D) Disposable income
Q2) If the MPC in the U.S.was low,it would increase the value of the multiplier.
A)True
B)False
Q3) Which graph in Figure 11-2 best reflects a Keynesian view of the impact of a $500-per-person tax cut?
A) 1
B) 2
C) 3
D) 4
Q4) Supply-side tax cuts are more likely to have the intended beneficial effect on A) budget deficits.
B) consumer spending.
C) investment spending.
D) net exports.
Page 13
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Chapter 12: Money and the Banking System
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Q1) On the Micronesian island of Yap,the money that is primarily used as currency is
A) paper money.
B) wheels made of stone.
C) gold.
D) shells and gems.
Q2) When a bank makes loans with excess reserves,it
A) creates money.
B) destroys money.
C) alters the composition of M1.
D) leaves the money supply unchanged.
Q3) "Near monies" are
A) stocks, bonds, and real estate.
B) U.S. notes and Federal Reserve notes.
C) included in the M1 definition of the money supply.
D) liquid assets that are close substitutes for money.
E) All of the above are correct.
Q4) Many economists believe that the difference between savings accounts and checking accounts is disappearing.
A)True
B)False
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Chapter 13: Monetary Policy: Conventional and
Unconventional
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Q1) What will happen to the demand for reserves if real GDP increases?
A) It will shift outward.
B) It will shift inward.
C) It will remain unchanged.
D) It depends on what happens to interest rates.
Q2) If the Fed sells $5 million in government bonds,how much will the money supply change?
A) It will increase by $5 million.
B) It will increase by more than $5 million.
C) It will decrease by $5 million.
D) It will decrease by more than $5 million.
Q3) The opportunity cost of holding excess reserves will be lower at an 8 percent federal funds rate in comparison to a 10 percent federal funds rate.
A)True
B)False
Q4) In its original role as "lender of last resort" the Fed was supposed to
A) lend money to people in regions without banks.
B) lend money to developing nations.
C) keep the money supply from drying up during financial panics.
D) provide mortgage lending to returning soldiers.
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Chapter 14: The Financial Crisis and the Great Recession
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Q1) In hindsight,mortgage-backed securities implied very limited risk because the underlying mortgages were spread across different geographic areas.
A)True
B)False
Q2) Expansionary monetary policy is essentially finished once the Fed reduces the federal funds rate to zero.
A)True
B)False
Q3) The first signs of major financial problems associated with the financial sector and real estate investment appeared in 2009.
A)True
B)False
Q4) What amount of money was appropriated by Congress for the Troubled Asset Relief Program?
A) $225 billion
B) $252 billion
C) $700 billion
D) $787 billion
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Chapter 15: The Debate over Monetary and Fiscal Policy
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Q1) How does the shape of the aggregate supply curve affect macroeconomic analysis and policy making? Illustrate your answer with the appropriate graphs.
Q2) As the interest rate increases,the velocity of money will increase as well.
A)True
B)False
Q3) The objective of the Fed and the government is to
A) prevent asset bubbles by recognizing them in real time.
B) mitigate the consequences of asset bubbles by recognizing them in real time.
C) prevent asset bubbles by recognizing bad lending practices.
D) mitigate the consequences of asset bubbles by recognizing bad lending practices.
Q4) An expansionary monetary policy is most likely to produce an inflationary effect with little impact on output when the economy
A) is near full employment and the aggregate supply curve is horizontal.
B) is near full employment and the aggregate supply curve is vertical.
C) has substantial unemployment and the aggregate supply curve is vertical.
D) has substantial unemployment and the aggregate supply curve is horizontal.
Q5) How do lags affect stabilization policy? Your answer should include three specific types of lags.
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Chapter 16: Budget Deficits in the Short and Long Run
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Q1) Economic principles suggest that we should focus on balancing the budget rather than balancing aggregate supply and aggregate demand.
A)True
B)False
Q2) The Troubled Asset Relief Program (TARP)totaled ____ and the fiscal stimulus package of 2009 totaled ____.
A) $1.4 trillion; $800 billion
B) $1.4 trillion; $700 billion
C) $700 billion; $800 billion
D) $700 billion; $1.4 trillion
Q3) If in fiscal year 2010,the federal government receives $2.2 trillion in revenues and spends $3.5 trillion for goods and services,the national debt will
A) increase by $2.2 trillion.
B) increase by $1.3 trillion.
C) decrease by $1.3 trillion.
D) decrease by $2.2 trillion.
Q4) What is "crowding out"? Why is it important in discussions of fiscal policy? Use an appropriate diagram to illustrate your answer.
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Chapter 17: The Trade Off between Inflation and Unemployment
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Q1) Figure 17-4 shows four movements of the inflation rate and the unemployment rate.Which panel shows the movement associated with a "supply shock" like those of the 1970s?
A) 1
B) 2
C) 3
D) 4
Q2) If the U.S.economy had grown faster than it actually did from 2009 to 2010,the unemployment rate would have been higher.
A)True
B)False
Q3) Which of the following observations concerning the Phillips curve is not t?
A) They are normally upward-sloping.
B) They are more commonly constructed for price inflation.
C) They depict the inverse relation between wage inflation and unemployment.
D) They depict the rate of unemployment on the horizontal axis.
Q4) The period from the late 1990s to the winter of 2000 was marked by falling unemployment rates and falling inflation rates as well.How does economic theory explain this apparent violation of the Phillips curve model?
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Chapter 18: International Trade and Comparative Advantage
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Q1) If a country begins to import more of a commodity,one can normally expect the price of the commodity to
A) remain unchanged in that nation.
B) rise and then fall below where it was originally.
C) rise in that nation.
D) drop in that nation.
Q2) The danger of using the national defense argument to protect domestic industries necessary to wage war is that
A) it has no validity on non-economic grounds.
B) it is unrelated to the United States' ability to wage war.
C) other nations will retaliate with tariffs against U.S. producers of war material.
D) industries with only the most peripheral relationship to defense are likely to invoke this argument on their behalf.
Q3) Comparative advantage is illustrated by the slopes of production possibilities frontiers.
A)True
B)False
Q4) How can tariffs lead to a situation in which all parties to a trade lose?
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Chapter 19: The International Monetary System: Order or Disorder?
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Q1) The Bretton Woods agreements were ended when the A) European Common Market was formed.
B) OPEC countries raised the price of oil.
C) United States was forced to devalue its currency.
D) United States recognized Red China.
Q2) The purchasing power parity theory of exchange rate determination maintains that A) the exchange rate between two nations' currencies is determined by the percent of gold that backs each nation's currency.
B) the exchange rate between two nations' currencies adjusts to reflect differences in the price levels in the two nations.
C) in the short run, exchange rates are determined by central bank intervention in the currency markets.
D) the exchange rate between two currencies is determined by the debt that each nation owes to the World Bank.
Q3) In order to "defend" its overvalued currency,Argentina in 2002 had to reduce its A) interest rates.
B) tax levels.
C) holdings of foreign reserves.
D) balance of payments surpluses.
Page 21
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Chapter 20: Exchange Rates and the Macroeconomy
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Q1) An appreciation of the Japanese yen relative to the U.S.dollar will
A) increase aggregate demand in the United States.
B) increase aggregate supply in the United States.
C) increase aggregate demand in Japan.
D) decrease aggregate supply in Japan.
Q2) In Figure 20-7,there are three aggregate expenditure functions (C + I + G + X IM)for an open economy.Which of the following would cause a movement from C to B?
A) a European economic expansion
B) an appreciation of the dollar
C) a depreciation of the dollar
D) an increase in the money supply
Q3) When the dollar depreciates,the cost to Americans of foreign goods
A) rises and the CPI falls.
B) rises and the CPI rises.
C) falls and the CPI rises.
D) falls and the CPI falls.
Q4) The sum of capital inflows and the trade balance must be zero.
A)True
B)False
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