Introduction to Economics
Final Exam Questions
Course Introduction
Introduction to Economics provides students with a foundational understanding of how economies function at both the individual and societal levels. The course covers fundamental concepts such as scarcity, choice, supply and demand, market structures, the role of government, and the basics of macroeconomic and microeconomic theory. Through real-world examples and engaging discussions, students learn how economic decisions impact households, businesses, and governments, and gain insights into contemporary economic issues and policies that shape our world.
Recommended Textbook
Economics 20th Edition Volume I and Volume II by Campbell R. McConnell\McConnell 20e
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Page 2
Chapter 22: Income Inequality Poverty and Discrimination
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Q1) In 2011,the highest quintile of households in the U.S.income distribution received about:
A) 43 percent of total income.
B) 55 percent of total income.
C) 62 percent of total income.
D) 51 percent of total income.
Q2) Which is correct?
A) Wealth is less equally distributed than income and therefore increases income inequality.
B) Wealth is more equally distributed than income and therefore increases income inequality.
C) Wealth is less equally distributed than income and therefore decreases income inequality.
D) Wealth is more equally distributed than income and therefore decreases income inequality.
Q3) Which of the following would most likely increase income inequality?
A) Improvements in public education.
B) Greater monopoly power among product sellers.
C) Greater equality in the distribution of wealth.
D) Fewer differences in working conditions across occupations.
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Chapter 23: Health Care
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Q1) (Consider This)Which of the following best explains why hospital charges of $25 per aspirin are not unusual?
A) Government payments for Medicare and Medicaid patients do not cover hospitals' fixed costs,so these costs must be distributed to other patients and their private insurance providers.
B) Government exercises no cost control for Medicare and Medicaid,so hospitals get away with charging those patients $25 for an aspirin.
C) Pharmaceutical companies have monopoly power over hospitals,allowing them to charge high prices for medications.
D) Hospitals distribute a medically advanced form of aspirin that costs more to produce.
Q2) The health care industry currently absorbs about 18 percent of U.S.gross domestic product.
A)True
B)False
Q3) About three-fourths of all health care costs are paid out of pocket by patients.
A)True
B)False
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Chapter 24: Immigration
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Sample Questions
Q1) According to estimates,what percentage of agricultural workers in the United States are illegal immigrants?
A) 12.
B) 19.
C) 25.
D) 50.
Q2) Remittances and backflows of experienced workers:
A) reduce the efficiency gains from migration.
B) reverse wage equalization that occurred with the original migration.
C) exacerbate the problem of "brain drain" from developing nations.
D) redistribute gains toward the original emigrant nation.
Q3) "Beaten paths" from one country to another:
A) discourage migration to that country because of a perception that all of the good jobs have already been taken.
B) discourage migration by increasing the cost of moving.
C) encourage migration by providing employment contacts and job information.
D) are more prevalent the greater the distance between the two countries.
Q4) "Backflows" are payments made by immigrants back to their home countries.
A)True
B)False
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Chapter 25: An Introduction to Macroeconomics
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Q1) In the very short run,firms tend to respond to demand shocks by changing their prices.
A)True
B)False
Q2) Kara's Kittens typically produces and sells at its optimal (lowest per-unit cost)level of 30 scratching posts per week.Kara's also maintains an inventory of 20 scratching posts.If prices are sticky and there is a positive demand shock this week resulting in demand for 40 scratching posts,we would expect Kara's to:
A) sell the additional scratching posts out of its inventory and rebuild the inventory later when a negative demand shock occurs.
B) permanently expand production to 40 scratching posts per week.
C) raise prices on scratching posts.
D) introduce a new line of scratching posts.
Q3) When economists refer to "investment," they are describing a situation where:
A) people are buying shares of corporate stock.
B) resources are devoted to increasing future output.
C) money is saved in a bank account.
D) financial assets are purchased in the hope of a monetary gain.
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Chapter 26: Measuring Domestic Output and National Income
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Q1) Answer the question on the basis of the following information: Only three goods are produced in an economy in the following amounts: A = 10,B = 30,C = 5.The current year per unit prices of these three goods are A = $2,B = $3,and C = $1. (Advanced analysis)Refer to the information.If the per unit prices of the three goods were each $1 in a base year used to construct a GDP price index,then real GDP in the current year is:
A) $110.
B) $115.
C) $45.
D) $160.
Q2) Within the circular flow model,the level of total resource income and total spending on output will be approximately equal.
A)True
B)False
Q3) Nominal GDP is adjusted for price changes through the use of:
A) the Consumer Price Index (CPI).
B) the Producer Price Index (PPI).
C) the GDP price index.
D) exchange rates.
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Chapter 27: Economic Growth
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Q1) An economy with an average growth rate of 10 percent can expect to see its real GDP double in approximately 7 years.
A)True
B)False
Q2) Real GDP per capita is found by:
A) adding real GDP and population.
B) subtracting population from real GDP.
C) dividing real GDP by population.
D) dividing population by real GDP.
Q3) Economies of scale refer to:
A) the idea that proprietorships are less bureaucratic and therefore more efficient than corporations.
B) public investments in highways,schools,utilities,and such.
C) the fact that large producers may be able to use more efficient technologies than smaller producers.
D) the reallocation of labor from less-productive to more-productive uses.
Q4) Improvements in technology are considered a demand factor in economic growth.
A)True
B)False
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Chapter 28: Business Cycles, Unemployment, and Inflation
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Q1) The phase of the business cycle in which real GDP declines is called:
A) the peak.
B) an expansion.
C) a recession.
D) the trough.
Q2) Unanticipated inflation benefits debtors at the expense of creditors.
A)True
B)False
Q3) Which of the following is correct?
A) During the Great Recession,unemployment rates for men rose above those of women.
B) Unemployment rates for African-American and white workers are approximately the same.
C) Teenagers experience approximately the same unemployment rates as do adults.
D) Laborers are less vulnerable to unemployment than are professional workers.
Q4) The type of unemployment associated with recessions is called:
A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment.
D) seasonal unemployment.
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Chapter 29: Basic Macroeconomic Relationships
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Q1) The multiplier is:
A) 1/MPC.
B) 1/(1 + MPC).
C) 1/MPS.
D) 1/(1 - MPS).
Q2) The multiplier is defined as:
A) 1 - MPS.
B) change in GDP × initial change in spending.
C) change in GDP/initial change in spending.
D) change in GDP - initial change in spending.
Q3) Given the consumption schedule,it is possible to graph the relevant saving schedule by:
A) subtracting the MPC from 1 at each level of income.
B) subtracting investment from consumption at each level of GDP.
C) plotting the horizontal differences between the consumption schedule and the 45-degree line.
D) plotting the vertical differences between the consumption schedule and the 45-degree line.
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Chapter 30: The Aggregate Expenditures Model
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Q1) In a mixed open economy,if aggregate expenditures exceed GDP:
A) I<sub>g</sub> + X + G = C<sub>a</sub>.
B) C<sub>a</sub> + I<sub>g</sub> + X<sub>n</sub> + G < domestic output.
C) I<sub>g</sub> > S.
D) I<sub>g</sub> + X + G > S<sub>a</sub> + M + T.
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. \(\begin{array} { l }
C = 40 + 0.8 Y \\
t _ { g } = \overline { I _ { g } } = 40 \\
X = \bar { X } = 20 \\ M = \bar { M } = 30
\end{array}\) Refer to the information.International trade in this case:
A) has an expansionary effect on GDP.
B) has a contractionary effect on GDP.
C) has no effect on GDP.
D) is causing inflation in this economy.
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Chapter 31: Aggregate Demand and Aggregate Supply
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Q1) Suppose that nominal wages fall and productivity rises in a particular economy.Other things equal,the aggregate:
A) demand curve will shift leftward.
B) supply curve will shift rightward.
C) supply curve will shift leftward.
D) expenditures curve will shift downward.
Q2) An increase in net exports will shift the:
A) aggregate expenditures curve upward and the aggregate demand curve rightward.
B) aggregate expenditures curve upward and the aggregate demand curve leftward.
C) aggregate expenditures curve downward and the aggregate demand curve rightward.
D) aggregate expenditures curve downward and the aggregate demand curve leftward.
Q3) If the price level increases in the United States relative to foreign countries,then American consumers will purchase more foreign goods and fewer U.S.goods.This statement describes:
A) the output effect.
B) the foreign purchases effect.
C) the real-balances effect.
D) the shift-of-spending effect.
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Chapter 32: The Balance of Payments, Exchange Rates, and Trade Deficits
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Q1) The average tax rate required to service the public debt is roughly measured by:
A) the absolute size of the debt.
B) the debt as a fraction of the GDP.
C) interest on the debt as a percentage of the GDP.
D) the ratio of government spending to the GDP.
Q2) The operational lag of fiscal policy refers to the time that elapses between the beginning of a recession or inflation and the certain awareness that it is actually happening.
A)True
B)False
Q3) Permanent tax reductions are more likely to be expansionary than temporary tax reductions.
A)True
B)False
Q4) Financing wartime expenditures by increasing internally held public debt permits a nation to defer a part of the economic cost of war.
A)True
B)False
Page 13
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Chapter 33: Money, Banking, and Financial Institutions
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Sample Questions
Q1) The seven members of the Board of Governors of the Federal Reserve System are:
A) appointed by the president with the confirmation of the Senate.
B) elected by Congress from a slate of nominees provided by the president.
C) appointed by the Senate Finance Committee.
D) appointed by the presidents of the 12 Federal Reserve Banks.
Q2) Checkable deposits are classified as money because:
A) they can be readily used in purchasing goods and paying debts.
B) banks hold currency equal to the value of their checkable deposits.
C) they are ultimately the obligations of the Treasury.
D) they earn interest income for the depositor.
Q3) Other things equal,an excessive increase in the money supply will:
A) increase the purchasing power of each dollar.
B) decrease the purchasing power of each dollar.
C) have no impact on the purchasing power of the dollar.
D) reduce the price level.
Q4) Currency (paper money plus coins)constitutes about:
A) 24 percent of the U.S.M1 money supply.
B) 45 percent of the U.S.M1 money supply.
C) 51 percent of the U.S.M1 money supply.
D) 55 percent of the U.S.M1 money supply.
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Chapter 34: Money Creation
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Q1) Which of the following are all assets to a commercial bank?
A) Demand deposits,stock shares,and reserves.
B) Vault cash,property,and reserves.
C) Vault cash,property,and stock shares.
D) Vault cash,stock shares,and demand deposits.
Q2) If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement,the bank will:
A) have $45 of additional excess reserves.
B) be capable of lending an additional $500.
C) be capable of lending no more than an additional $50.
D) have $50 of required reserves.
Q3) The amount of reserves that a commercial bank is required to hold is equal to:
A) the amount of its checkable deposits.
B) the sum of its checkable deposits and time deposits.
C) its checkable deposits multiplied by the reserve requirement.
D) its checkable deposits divided by its total assets.
Q4) If the reserve requirement is 20 percent,the monetary multiplier will be 4.
A)True
B)False
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Chapter 35: Interest Rates and Monetary Policy
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Q1) Changes in the interest rate are more likely to affect investment spending than consumer spending.
A)True
B)False
Q2) If the Fed wants to discourage commercial bank lending,it will:
A) increase the interest paid on reserves held at the Fed.
B) decrease the interest paid on reserves held at the Fed. C) buy government securities from commercial banks.
D) lower the federal funds rate target.
Q3) (Advanced analysis)Assume the equation for the total demand for money is L = 0.4Y + 80 - 4i,where L is the amount of money demanded,Y is gross domestic product,and i is the interest rate.If gross domestic product is $200 and the interest rate is 10 (percent),what amount of money will society want to hold?
A) $200.
B) $120.
C) $320.
D) $160.
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Chapter 36: Financial Economics
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Sample Questions
Q1) The beta for an asset considered to be risk-free:
A) can be any positive number.
B) is negative.
C) equals zero.
D) equals 1.
Q2) $200 invested in a savings account paying an annual interest rate of 5 percent will be worth how much at the end of five years,assuming all interest earned remains in the account?
A) $1,250.
B) $250.
C) $267.25.
D) $255.26.
Q3) The vertical intercept of the Security Market Line is determined by the:
A) beta of the market portfolio.
B) discount rate.
C) risk-free interest rate.
D) risk premium.
Q4) An expansionary monetary policy will shift the Security Market Line down. A)True B)False
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Chapter 37: Extending the Analysis of Aggregate Supply
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Q1) An adverse aggregate supply shock:
A) automatically shifts the aggregate demand curve rightward.
B) causes the Phillips Curve to shift leftward and downward.
C) can be caused by a boost in the rate of growth of productivity.
D) can cause stagflation.
Q2) Which of the following statements is true?
A) The short-run aggregate supply curve is downsloping.
B) The short-run aggregate supply curve is vertical.
C) The long-run aggregate supply curve is vertical.
D) The long-run aggregate supply curve is upsloping.
Q3) Suppose that the Consumer Price Index for a particular economy rose from 110 to 120 in year 1,120 to 130 in year 2,and 130 to 140 in year 3.We could conclude that this economy is experiencing:
A) accelerating inflation.
B) deflation.
C) disinflation.
D) a constant rate of inflation.
Q4) There is no trade-off between unemployment and inflation in the long run.
A)True
B)False
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Chapter 38: Current Issues in Macro Theory and Policy
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Q1) The real-business cycle theorists see aggregate supply as the "active" factor in causing business cycles and aggregate demand as a "passive" factor.
A)True
B)False
Q2) Mainstream economists contend that,as stabilization tools:
A) discretionary fiscal policy is effective,but discretionary monetary policy is not.
B) discretionary monetary policy is effective,but discretionary fiscal policy is not.
C) both discretionary fiscal policy and discretionary monetary policy can be effective if appropriately used.
D) discretionary fiscal policy and discretionary monetary policy cause more instability than they cure.
Q3) The real-business-cycle theory:
A) is a monetarist view of the business cycle.
B) is the mainstream view of the business cycle.
C) assumes that the supply of money is constant.
D) says that macro instability results from shifts in the long-run aggregate supply curve.
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Chapter 39: International Trade
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Questions
Q1) In a two-nation model,the equilibrium world price will occur where:
A) one nation's export supply curve intersects the other nation's import demand curve.
B) exports are exactly twice the level of imports.
C) both nations' export supply curves are horizontal.
D) both nations' import demand curves are vertical.
Q2) Answer the question on the basis of the following information about the cost ratios for two products-fish (F)and chicken (C)-in countries Singsong and Harmony.Assume that production occurs under conditions of constant costs and these are the only two nations in the world. Singsong: 1F = 2C
Harmony: 1F = 4C
Refer to the given information.Which one of the following would not be feasible terms for trade between Singsong and Harmony?
A) 1 fish for 2½ chicken
B) 1 fish for 3 chicken
C) 1 chicken for 1/5 of a fish
D) 1 chicken for 1/3 of a fish
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Chapter 40: The Balance of Payments, Exchange Rates, and Trade Deficits
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Q1) In international financial transactions,what are the only two things that individuals and firms can exchange?
A) Currency and real assets.
B) Services and manufactured goods.
C) Preexisting assets and currently produced goods and services.
D) Currency and currently produced goods and services.
Q2) The financial account balance is a nation's:
A) net investment income minus its net transfers.
B) exports of goods and services minus its imports of goods and services.
C) sale of real and financial assets to people living abroad minus its purchases of real and financial assets from foreigners.
D) domestic investment spending minus domestic saving.
Q3) In 2012,the capital account in the U.S.balance of payments was in:
A) deficit,and larger than the current account deficit.
B) surplus,and larger than the current account surplus.
C) balance,with no deficit or surplus.
D) deficit,and smaller than the current account deficit.
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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Q1) Many countries remain poor because they currently are poor.This statement summarizes the:
A) infrastructure problem.
B) vicious circle of poverty.
C) demographic transition problem.
D) problem of capital flight.
Q2) Economic growth in the DVCs might increase if IACs:
A) reduce their tariffs and import quotas.
B) encourage more immigration of high-skilled DVC workers.
C) outlaw direct private investment abroad by IAC corporations.
D) discourage capital flight to the DVCs.
Q3) Rapid population growth can be an obstacle to economic development:
A) because it can translate a relatively large increase in real output into a small increase in real output per capita.
B) because more investment will be required to simply maintain the quantity of capital goods per person.
C) because it may lead to the overutilization and therefore ecological degradation of farmland.
D) for all of these reasons.
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Chapter 42: The United States and the Global Economy
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Q1) If incomes rise rapidly in the United States and U.S.preferences for foreign goods strengthen,we would expect:
A) the dollar to appreciate in value.
B) the dollar to depreciate in value.
C) the dollar price of foreign monies to decrease.
D) U.S.exports to increase.
Q2) American critics of the WTO argue that free international trade and investment will:
A) reduce U.S.imports.
B) reduce employment in developing nations.
C) undermine environmental and labor protections in the United States.
D) increase immigration from low-income to high-income nations.
Q3) The most-favored-nation clause in reciprocal trade agreements means that any tariff reductions the United States negotiates with a specific nation will automatically apply to many other nations.
A)True
B)False
Q4) France,Germany,and Italy are all members of the eurozone.
A)True
B)False
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