General Economics
Pre-Test Questions
Course Introduction
General Economics provides an introduction to the fundamental principles and concepts of economics, exploring both microeconomic and macroeconomic perspectives. The course covers topics such as supply and demand, market structures, consumer behavior, production and costs, and the role of government in economic activity. Students will also examine key macroeconomic indicators, national income, inflation, unemployment, and the basics of fiscal and monetary policy. Throughout the course, real-world examples and case studies are used to illustrate the application of economic theory to everyday decision-making and current policy issues.
Recommended Textbook
Essentials of Economics 6th Edition by R.
Glenn Hubbard
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Page 2
Chapter 1: Economics: Foundations and Models
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Sample Questions
Q1) Suppose when the price of laptops fall,college students buy more laptops.This implies that
A) there is a positive relationship between laptop prices and quantities purchased by college students.
B) there is a negative relationship between laptop prices and quantities purchased by college students.
C) there is a direct relationship between laptop prices and quantities purchased by college students.
D) there is a one-to-one relationship between laptop prices and quantities purchased by college students.
Answer: B
Q2) There is often a trade-off between
A) productive efficiency and allocative efficiency.
B) limited and unlimited resources.
C) voluntary and involuntary exchanges.
D) economic efficiency and economic equity.
Answer: D
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Page 3
Chapter 2: Trade-Offs, Comparative Advantage, and the Market System
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Q1) For a person to have a comparative advantage in producing a product,he must be able to produce that product at a higher opportunity cost than his competitors.
A)True
B)False
Answer: False
Q2) The payment received by suppliers of entrepreneurial skills is called wages.
A)True
B)False
Answer: False
Q3) The slope of a production possibilities frontier measures the ________ of producing one more unit of a good.
A) marginal revenue
B) total revenue
C) marginal cost
D) opportunity cost
Answer: D
Q4) List the four broad categories of factors of production. Answer: labor,capital,natural resources,and entrepreneurship
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Chapter 3: Where Prices Come From: The Interaction of
Demand and Supply
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Sample
Questions
Q1) Suppose a positive technological change in the production of disease-resistant corn caused the price of corn to fall.Holding everything else constant,how would this affect the market for wheat (a substitute for corn)?
A) The supply of wheat would increase and the equilibrium price of wheat would decrease.
B) The demand for wheat would decrease and the equilibrium price of wheat would decrease.
C) The demand for wheat would increase because consumers could afford to buy more wheat and corn.
D) The demand for wheat would decrease and the equilibrium price of wheat would increase.
Answer: B
Q2) Holding everything else constant,a decrease in the price of GPS systems will result in
A) an decrease in the quantity of GPS systems demanded.
B) an increase in the demand for GPS systems.
C) a decrease in the supply of GPS systems.
D) an increase in the quantity of GPS systems demanded.
Answer: D
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Chapter 4: Market Efficiency and Market Failure
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Sample Questions
Q1) All renters benefit from rent control and all landlords lose.
A)True
B)False
Q2) Brett buys a new cell phone for $100.He receives consumer surplus of $80 from the purchase.How much does Brett value his cell phone?
A) $180
B) $100
C) $80
D) $20
Q3) Refer to the Article Summary.Assuming the findings are correct and all else equal,people who do not shop at Whole Foods or Trader Joe's can still benefit from living near the stores,as is shown by the higher home values.As a result,the marginal social benefit from living near a Whole Foods or Trader Joe's is ________ the marginal private benefit to those who shop at these stores.
A) equal to
B) greater than
C) less than
D) unrelated to
Q4) What is producer surplus? What does producer surplus measure?
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Chapter 5: The Economics of Health Care
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Sample Questions
Q1) Substantial co-payments are typically not required as a part of the health care system in
A) Canada and the United Kingdom.
B) Japan and Canada.
C) the United States and Japan.
D) Japan and the United Kingdom.
Q2) A typical consumer of health care in the United States
A) pays the full price of his or her health care.
B) pays more than the full price of his or her health care.
C) does not pay any of the price of his or her health care.
D) does not pay the full price of his or her health care.
Q3) The U.S.Bureau of Labor Statistics forecasts that ________ fastest-growing occupations over the next 10 years will be in health care.
A) over 95 percent of the
B) less than 2 of the 10
C) 13 of the 20
D) just under half of the
Q4) Briefly describe changes in life expectancy,average height,and infant mortality in the United States since 1850.
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Chapter 6: Firms, The Stock Market, and Corporate Governance
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Sample Questions
Q1) What is corporate governance?
Q2) Information in a firm's financial statements
A) helps the firm's managers make decisions.
B) assists investors who are considering buying the firm's stock.
C) guide resource allocation in the economy.
D) all of the above
Q3) In the United States,________ profits are taxed at both the corporate level and when investors receive dividends.
A) a sole proprietor's
B) a partnership's
C) corporate
D) all of the above
Q4) Juliana,Gabrielle,and Marcela want to start a business they are the only owners and the company does not issue stock.The type of business they want to start is a
A) sole proprietorship.
B) partnership.
C) corporation.
D) Any of the above could be correct.
Q5) What is the difference between retained earnings and dividends?
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Chapter 7: Consumer Choice and Elasticity
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Sample Questions
Q1) Studies on consumer behavior have found that most people value fairness enough that they will refuse to participate in transactions they consider unfair,even if they are worse off as a result.How does this affect a firm's decision to raise prices in the event of a temporary increase in demand?
Q2) Marge buys 5 CDs and 7 DVDs.The marginal utility of the 5th CD and the marginal utility of the 7th DVD are both equal to 30 utils.Can we say that this is the optimal combination of CDs and DVDs for Marge?
A) No. We need to know her preferences for CDs and DVDs.
B) Yes.
C) No. For this to be the optimal combination, the total utility from her purchase of CDs needs to equal the total utility from her purchase of DVDs.
D) No. If this was the optimal combination, the marginal utility per dollar of the 5th CD and the 7th DVD would be equal.
Q3) A consumer maximizes her total utility from a bundle of goods when her marginal utility from each good is equal.
A)True
B)False
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Page 9
Chapter 8: Technology,Production,and Costs
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Sample Questions
Q1) If the average variable cost curve is above the marginal cost curve,then
A) marginal costs must be decreasing.
B) average variable costs must be increasing.
C) marginal costs must be increasing.
D) marginal costs can be either increasing or decreasing.
Q2) As output increases,average fixed cost gets smaller and smaller.
A)True
B)False
Q3) If another worker adds 9 units of output to a group of workers who had an average product of 7 units,then the average product of labor
A) will remain the same.
B) will increase.
C) will decrease.
D) and what will happen to it cannot be determined.
Q4) At the minimum efficient scale
A) all possible economies of scale have not been exhausted.
B) the firm has achieved the lowest possible average cost of production.
C) any increases in the scale of operation will encounter further economies of scale.
D) marginal cost is at its minimum.
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Chapter 9: Firms in Perfectly Competitive Markets
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Sample Questions
Q1) Suppose the equilibrium price in a perfectly competitive industry is $10 and a firm in the industry charges $12.Which of the following will happen?
A) The firm will sell more output than its competitors.
B) The firm's revenue will increase.
C) The firm will not sell any output.
D) The firm's profits will increase.
Q2) Which of the following statements is true?
A) A long-run competitive equilibrium can only be achieved in constant-cost industries.
B) When an industry achieves a long-run competitive equilibrium, industry output will not change in the future.
C) A long-run competitive equilibrium outcome is not economically efficient.
D) When an industry reaches a long-run competitive equilibrium, the typical firm in the industry breaks even.
Q3) In the short run,a profit-maximizing firm will shut down if its total revenue is greater than its variable costs.
A)True
B)False
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11
Chapter 10: Monopoly and Antitrust Policy
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Sample Questions
Q1) A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of
A) control of a key raw material.
B) network externalities.
C) economies of scale.
D) a perfectly inelastic demand curve.
Q2) Assume a hypothetical case where an industry begins as perfect competition and then becomes a monopoly.As a result of this change
A) price will be higher, output will be lower, and the deadweight loss will be eliminated.
B) consumer surplus will be smaller, producer surplus will be greater, and there will be a reduction in economic efficiency.
C) price will be higher, consumer surplus will be greater, and output will be greater.
D) consumer surplus will be smaller and producer surplus will be greater. There will be a net increase in economic surplus.
Q3) What is the difference between a monopoly's marginal revenue curve and a perfect competitor's marginal revenue curve?
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Chapter 11: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) An oligopolist's demand curve is
A) identical to that of a perfectly competitive firm.
B) identical to that of a monopolistically competitive firm.
C) vertical on a price-quantity diagram.
D) unknown because a response of firms to price changes by rivals is uncertain.
Q2) Refer to Table 11-4.Victoria's profit-maximizing quantity (Q)and price (P)are
A) Q = 3; P = $7.
B) Q = 4; P = $6.
C) Q = 5; P = $5.
D) Q = 6; P = $4.
Q3) In monopolistic competition,if a firm produces a highly desirable product relative to its competitors,the firm will be able to raise its price without losing any customers.
A)True
B)False
Q4) Refer to Figure 11-8.Based on the diagram,one can conclude that A) some existing firms will exit the market.
B) new firms will enter the market.
C) the industry is in long-run equilibrium.
D) firms achieve productive efficiency.
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Chapter 12: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Which of the following statements about the underground economy is true?
A) The underground economy in developing countries amounts to less than 10% of measured GDP.
B) Most transactions that occur in the underground economy are included in the calculation of GDP.
C) Excluding underground economy production from measured GDP causes errors in GDP growth estimates in the long run.
D) Income that is earned but not reported as income for tax purposes is included in the calculation of GDP.
Q2) Refer to Table 12-21.Consider the data above for a simple economy: Using 2013 as the base year,calculate nominal GDP,real GDP,and the GDP deflator for 2018.Show your work.
Q3) The GDP deflator in year 2 is 105,using year 1 as the base year.This means that,on average,the cost of goods and services is
A) 5% higher in year 2 than in year 1.
B) 105% higher in year 2 than in year 1.
C) 5% higher in year 1 than in year 2.
D) 105% higher in year 1 than in year 2.
Q4) Give two reasons why GDP does not reflect total production in an economy.
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Page 14
Chapter 13: Unemployment and Inflation
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Sample Questions
Q1) The Bureau of Labor Statistics has taken several steps to reduce the bias in the consumer price index.Which of the following is not one of the steps taken to reduce the bias?
A) using statistical methods to reduce the size of the quality bias
B) updating the market basket every two years, rather than every 10 years
C) incorporating substitutions by consumers when prices of specific products rise rapidly
D) conducting a point-of-purchase survey to track where consumers actually make their purchases
Q2) Suppose that at the beginning of a loan contract,the real interest rate is 4% and expected inflation is currently 6%.If actual inflation turns out to be 7% over the loan contract period,then
A) borrowers gain 1% of the loan value.
B) lenders gain 1% of the loan value.
C) borrowers lose 3% of the loan value.
D) lenders gain 3% of the loan value.
Q3) Currently,the base year for the CPI is the average of prices in the years 1982 to 1984.
A)True
B)False
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Page 15
Chapter 14: Economic Growth, The Financial System, and Business Cycles
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Sample Questions
Q1) Which of the following increases labor productivity?
A) an increase in the aggregate hours of work
B) decreases in the availability of computers and factory buildings
C) inventions of new machinery, equipment, or software
D) a decline in the health of the population
Q2) According to the National Bureau of Economic Research,the United States has experienced ________ recessions since 1950.
A) 4
B) 7
C) 10
D) 15
Q3) Which of the following does not describe governmental policy actions that are helpful in supporting growth in an economy? Governmental policies that A) avoid playing any role in developing communication systems.
B) provide secure rights to private property.
C) establish an independent court system that enforces contracts.
D) facilitate the development of an efficient financial system.
Q4) What is labor productivity? How does a country's standard of living relate to labor productivity?
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Chapter 15: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) Which of the following is one reason for the decline in aggregate demand that led to the recession of 2007-2009?
A) falling oil prices
B) an increase in net exports
C) the end of the housing bubble
D) a decline in government spending
Q2) In 2005,Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico.This subsequently drove up natural gas,gasoline,and heating oil prices.As a result,this should
A) shift the short-run aggregate supply curve to the left.
B) shift the short-run aggregate supply curve to the right.
C) move the economy up along a stationary short-run aggregate supply curve.
D) move the economy down along a stationary short-run aggregate supply curve.
Q3) The ________ shows the relationship between the price level and quantity of real GDP demanded.
A) consumer price index
B) aggregate expenditure line
C) 45-degree line
D) aggregate demand curve
Q4) Explain the three reasons the aggregate demand curve slopes downward.
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Chapter 16: Money,Banks,and the Federal Reserve System
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Sample Questions
Q1) Refer to Table 16-1.Suppose a transaction changes a bank's balance sheet as indicated in the T-account,and the required reserve ratio is 10 percent.As a result of the transaction,the bank has excess reserves of A) $0.
B) $400.
C) $3,600.
D) $4,000.
Q2) Which of the following statements regarding the use of gold as money is false?
A) The money supply would be easy to control because of the predictability of new gold discoveries.
B) It is durable.
C) It has value other than money.
D) It is acceptable to traders.
Q3) The largest proportion of M1 is made up of A) currency.
B) checking account deposits.
C) traveler's checks.
D) savings account deposits.
E) time deposits.
Q4) What is the principle monetary policy tool used by the Fed.Why?
Page 18
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Chapter 17: Monetary Policy
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Sample Questions
Q1) A repurchase agreement is the same as an open market purchase of Treasury securities.
A)True
B)False
Q2) Although the Federal Reserve had traditionally made discount loans only to commercial banks,in response to the financial crisis in 2008 the Fed made ________ eligible for discount loans as well.
A) the Treasury Department
B) mortgage brokers
C) savings banks
D) primary dealers
Q3) Lowering the interest rate will
A) decrease spending on consumer durables.
B) increase investment projects by firms.
C) decrease spending on new homes.
D) decrease the value of the dollar and lower net exports.
Q4) Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.
A)True
B)False
Page 19
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Chapter 18: Fiscal Policy
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Sample Questions
Q1) To combat a recession with discretionary fiscal policy,Congress and the president should
A) decrease government spending to balance the budget.
B) decrease taxes to increase consumer disposable income.
C) lower interest rates and increase investment by increasing the money supply.
D) raise taxes on interest and dividends, but not on personal income.
Q2) A decrease in individual income taxes ________ disposable income,which ________ consumption spending.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
Q3) An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________.
A) increase; rise; falls
B) increase; fall; rises
C) decrease; rise; falls
D) decrease; fall; rises
Q4) What is expansionary fiscal policy? What is contractionary fiscal policy?
Page 20
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Chapter 19: Comparative Advantage, International Trade, and Exchange Rates
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Sample Questions
Q1) Free trade refers to trade between countries
A) that is without shipping costs.
B) that is licensed by both governments.
C) that is without restrictions.
D) of products which are free to low-income consumers.
Q2) Refer to Table 19-12.What is the opportunity cost to produce 1 belt in Estonia?
A) 1/3 of a sword
B) 3/5 of a sword
C) 1.67 swords
D) 5 swords
Q3) Examples of comparative advantage show how trade between two countries can make each better off.Compared to their pre-trade positions,trade makes both countries better off because in each country
A) total employment is greater.
B) total consumption of goods is greater.
C) wages are higher.
D) total welfare is greater.
Q4) What does it mean for a country to have a comparative advantage in producing a product?
Page 21
Q5) What is a tariff?
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