Introduction to Economics Test Bank
Course Introduction
Introduction to Economics provides a comprehensive overview of the fundamental principles that govern individual and collective decision-making regarding the allocation of resources. The course explores key concepts such as supply and demand, market equilibrium, opportunity cost, and the role of government in the economy. Students will examine how markets function, the impact of policy decisions, and real-world applications of economic theory, equipping them with analytical tools to better understand current economic issues and trends on both a national and global scale.
Recommended Textbook
Economics Private and Public Choice 14th Edition by
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Page 2
David A. Macpherson
Chapter 1: The Economic Approach
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Sample Questions
Q1) The difference between a positive economic statement and a normative statement is that
A)a positive statement must be true;a normative statement is often not true
B)a normative statement must be true;a positive statement is often not true
C)a positive statement can be proved;a normative statement cannot
D)a normative statement can be proved;a positive statement cannot
E)a positive economic statement is a moral judgment;a normative economic statement is not a moral judgment
Answer: C
Q2) Which of the following is not scarce?
A)an individual's time
B)air
C)pencils
D)automobiles
Answer: B
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Chapter 2: Asome Tools of the Economist
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Sample Questions
Q1) If the resources of an economy are being used inefficiently,it would be
A)possible to increase production of all goods simultaneously.
B)possible to increase production of one good only if production decreased for the other goods.
C)not possible to increase production of any good.
D)not possible to increase economic growth.
E)possible to increase production with no effort.
Answer: A
Q2) Even countries that depend primarily on market forces to resolve the basic economic questions will usually rely on the collective decision-making process to
A)determine the prices of goods and resources.
B)allocate goods that are essential to life.
C)determine the distribution of income among citizens.
D)define and enforce private-property rights and designate the acceptable forms of competitive economic behavior.
Answer: D
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Chapter 3: Asupply,demand,and the Market Process
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Sample Questions
Q1) If the demand for a good decreased,what would be the effect on the equilibrium price and quantity?
A)Price would increase,and quantity would decrease.
B)Price would decrease,and quantity would decrease.
C)Price would increase,and quantity would increase.
D)Price would decrease,and quantity would increase.
Answer: B
Q2) Suppose the demand for tacos decreases.What will happen to producer surplus in the market for tacos?
A)It increases.
B)It decreases.
C)It remains unchanged.
D)It may increase,decrease,or remain unchanged.
Answer: B
Q3) In economics,the demand for a good refers to the amount of the good people
A)would like to have if the good were free.
B)are willing to buy at various prices.
C)need to achieve a minimum standard of living.
D)will buy at alternative income levels.
Answer: B
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Chapter 4: Asupply and Demand: Applications and Extensions
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Q1) If the Federal government enacts a new excise tax of $1.50 per six-pack of beer.Which of the following is most likely to occur?
A)Consumers of beer will pay a higher price and buy a larger quantity.
B)Consumers of beer will pay a higher price,which will increase the profits of beer companies,inducing them to sell a larger quantity.
C)Consumers of beer will pay a higher price and buy a smaller quantity.
D)Consumers of beer will buy less wine from France.
Q2) Government programs such as Medicare substantially subsidize health care purchases by some consumers in the U.S.economy.Who benefits from these subsidies? How do they affect the price of health care? If you are not a recipient of this program,are you made better or worse off by the subsidy? Explain.
Q3) Refer to Figure 4-25.The price that buyers pay after the tax is imposed is
A)P .
B)P .
C)P .
D)impossible to determine from the figure.
Q4) Suppose the United Auto Workers union obtains a substantial wage increase for auto workers.How will this affect the market for automobiles?
Page 6
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Chapter 5: Difficult Cases for the Market and the Role of Government
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Sample Questions
Q1) If pollutants emitted by firms in the steel industry increase,but there is no increase in the costs borne by these firms,you could conclude that
A)pollution is not a serious problem in this industry.
B)the consumers of steel are unwilling to bear the costs of pollution generated from steel production.
C)pollution is an externality in this market,since producers and purchasers of steel do not bear the full costs of the pollution.
D)pollution creates an external benefit rather than an external cost in this case.
Q2) If education creates external benefits,
A)actual market outcomes provide less than the efficient quantity of education.
B)actual market outcomes provide more than the efficient quantity of education.
C)actual market outcomes provide a higher price than the efficient price of education.
D)the government should impose a depletion tax.
Q3) Is education a public good? Focus on whether it meets the two criteria for being a public good.
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Chapter 6: The Economics of Collective Decision-Making
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Sample Questions
Q1) Special-interest legislation is characterized by
A)concentrated costs and concentrated benefits
B)concentrated benefits and widespread costs
C)widespread benefits and widespread costs
D)widespread benefits and concentrated costs
E)zero costs
Q2) With a strong and active federal government,why do we need state and local governments?
Q3) Is calling a voter rationally ignorant the same as calling her irrational? Explain.
Q4) Legislation that contains a number of projects benefiting local interests at the expense of the general taxpayer is called
A)balanced-budget legislation.
B)pork-barrel legislation.
C)voucher legislation.
D)public-goods legislation.
Q5) Suppose domestic automobiles were allocated in the United States the way public education is allocated.Describe how this system might work.
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Chapter 7: Ataking the Nations Economic Pulse
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Sample Questions
Q1) Which of the following would count as an investment expenditure in national income accounting?
A)General Motors hires 10 electrical engineers.
B)Boeing purchases a new metal stretching machine used to produce airplane wings.
C)Ms.Quantum buys 100 shares of Microsoft stock.
D)A large corporation spends $10,000 per month on long-distance phone charges.
Q2) Which of the following would not be counted as part of this year's GDP?
A)the increase in the value of an antique automobile that was restored this year
B)the value of a new automobile at its sale price
C)the value of a used car at its sale price
D)a family's replacement of a worn-out washing machine with a new one
Q3) The GDP deflator is designed to adjust nominal GDP for changes in
A)the level of transfer payments.
B)the quality of goods over time.
C)the costs of economic bads such as pollution and crime.
D)the general level of prices over time.
Q4) What is the difference between real and nominal GDP? If the president of the United States (or your instructor)asked you to evaluate the economy over the past five years,which one would you use and why?
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Chapter 8: Economic Fluctuations, unemployment, and Inflation
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Q1) Economists use the term "business cycle" to refer to
A)the growth of small businesses into major corporations.
B)changes in products that occur from improved technology.
C)fluctuations in the level of real output and employment.
D)periods of increases and decreases in the rate of inflation.
Q2) Which of the following is true?
A)Frictional unemployment implies a lack of available jobs.
B)During a recession,cyclical unemployment will be low.
C)When an economy is at full employment,cyclical unemployment will be absent.
D)When an economy is at full employment,actual unemployment will be below the natural rate.
Q3) Refer to Table 8-3.What is the labor force participation rate of the economy?
A)25 percent
B)60 percent
C)75 percent
D)80 percent
Q4) Discuss the dangers of inflation;that is,why may it hurt an economy?
Q5) Evaluate the economic validity of the following statement: "Unemployed resources would not exist if the economy were operating efficiently."
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Chapter 9: Aan Introduction to Basic Macroeconomic Markets
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Q1) In the AD/AS model,the aggregate demand for goods and services is composed of the purchases made by
A)households and foreigners (net exports).
B)businesses,bondholders,and foreigners (net exports).
C)businesses and governments.
D)consumers,investors,governments,and foreigners (net exports).
Q2) The four key markets in the simple AD/AS model are
A)food,housing,clothing,and automobiles.
B)consumption,investment,bond,and foreign trade.
C)goods and services,resources,foreign exchange,and loanable funds.
D)labor,public goods,bond,and the stock market.
Q3) Raul borrowed $1,000 from Marta for a year and agreed to repay her $1,050 at the end of the year.If the inflation rate was 3 percent,what is the real rate of interest Marta received?
A)10 percent
B)5 percent
C)3 percent
D)2 percent
E)-2 percent
Page 11
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Chapter 10: Dynamic Change, economic Fluctuations, and the Ad-As Model
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Sample Questions
Q1) If the exchange rate value of the dollar depreciates relative to other currencies,we would expect
A)U.S.exports to decrease.
B)U.S.exports to increase.
C)U.S.imports to increase.
D)aggregate demand in the United States to decrease.
Q2) An anticipated change is an economic occurrence that
A)catches most people by surprise.
B)is foreseen by most economic participants.
C)is anticipated by economists but unforeseen by other people.
D)is foreseen by policy makers but unforeseen by the public.
Q3) When an economy is in a recession,
A)strong demand for investment funds will push interest rates upward.
B)strong demand for resources will push the prices of resources upward.
C)the real interest rate will tend to rise.
D)the unemployment rate will rise above its natural rate.
Q4) Which will cause a larger short-run increase in prices: an anticipated or unanticipated increase in aggregate demand? Will they cause the same increase in prices in the long run?
Page 12
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Chapter 11: Fiscal Policy: the Keynesian View and Historical Perspective
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Sample Questions
Q1) The Keynesian model provided an explanation for
A)the prolonged unemployment of the 1930s.
B)the double-digit inflation rates of the 1970s.
C)the high unemployment rates of the 1970s.
D)the high inflation rates of the 1930s.
Q2) Keynesian analysis indicates that an unexpected decline in aggregate demand will lead to
A)a reduction in inventories and an expansion in employment.
B)an increase in inventories and a reduction in output.
C)lower interest rates,which will stimulate aggregate demand and keep the economy at full employment.
D)a lower price level,which will quickly guide the economy to full-employment equilibrium.
Q3) Refer to Figure 11-3.When the economy is operating at point a,which of the following will be most likely to happen?
A)an increase in resource prices
B)a decrease in resource prices
C)the current output will be sustained in the future
D)an increase in aggregate demand
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Q4) How does Keynesian economic theory recommend that fiscal policy be conducted?
Chapter 12: Fiscal Policy, incentives, and Secondary Effects
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Q1) Which of the following is part of the synthesis view of fiscal policy?
A)During a severe recession,the best policy is a "balanced budget policy."
B)During a recession,higher real interest rates and lower net exports will help direct the economy back to full employment.
C)Since changes in discretionary policy are easy to time,fiscal policy should be altered in response to each minor disturbance.
D)Automatic stabilizers help reduce the fluctuations in aggregate demand and output.
Q2) The expansionary effects of an increase in government expenditures will tend to be offset,at least partially,if
A)government borrowing drives interest rates upward.
B)taxes are not also increased.
C)business decision makers and consumers become more optimistic as the result of the fiscal stimulus.
D)the economy is operating well below its full-employment capacity.
Q3) What is supply-side economics,and how does it differ from the Keynesian emphasis on fiscal policy?
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Chapter 13: Amoney and the Banking System
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Sample Questions
Q1) The nature and measurement of the money supply has become more difficult in recent years because of
A)the reduced use of pennies in transactions.
B)actions of the U.S.Congress that have reduced the power of the Fed to control the money supply.
C)legislation prohibiting the circulation of the dollar outside of the United States.
D)financial innovations,such as the introduction of interest-earning checking accounts and money market mutual funds.
Q2) Which of the following would appear on the liability side of the balance sheet of a commercial bank?
A)demand and other transaction deposits
B)loans outstanding
C)U.S.government securities
D)vault cash
Q3) Explain how the Fed would use its four tools to decrease and to increase the money supply.
Q4) Briefly explain the three functions of money.
Q5) What advantages does a money economy have over a barter economy?
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Chapter 14: Modern Macroeconomics and Monetary Policy
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Sample Questions
Q1) If changes in monetary policy are going to help stabilize the economy,they must
A)be expansionary.
B)be restrictive.
C)reduce the real rate of interest.
D)be properly timed.
E)stimulate aggregate demand.
Q2) What effect does expansionary monetary policy have on short-term real interest rates?
A)Expansionary monetary policy tends to push short-term interest rates upward.
B)Expansionary monetary policy tends to push short-term interest rates downward.
C)The effect of expansionary monetary policy on short-term interest rates is unpredictable.
D)Expansionary monetary policy has no effect on short-term interest rates.
Q3) A shift to a more expansionary monetary policy will
A)increase the long-term growth rate of the economy.
B)reduce the future rate of inflation.
C)Stimulate output and employment almost immediately.
D)Stimulate output and employment,but only after a time lag that is generally long and variable.
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Chapter 15: Stabilization Policy, output, and Employment
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Sample Questions
Q1) The interval between the recognition of a need for a policy change and when the policy change is instituted is called the:
A)recognition lag.
B)impact lag.
C)policy lag.
D)administrative lag.
Q2) According to the modern view of the Phillips curve,expansionary macroeconomic policy that leads to inflation will reduce unemployment
A)only if people underestimate the inflationary side effects of the policy.
B)only if people overestimate the inflationary side effects of the policy.
C)if people accurately anticipate the inflationary side effects of the policy.
D)only if monetary policy provides the macroeconomic stimulus.
Q3) The variables in the index of leading indicators are included in the index because
A)they are good indicators of the current rate of inflation.
B)they generally lag behind turns in the business cycle.
C)of their tendency to lead (or predict)turns in the business cycle.
D)they are good indicators of the current state of the economy.
Q4) Explain two reasons why economic forecasting can only be of limited use.
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Chapter 16: Creating an Environment for Growth and Prosperity
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Q1) Why do political instability and insecure property rights retard economic growth?
A)Fear that private property will be confiscated substantially reduces the incentive to invest and create wealth.
B)When property rights are insecure,foreign investors will be reluctant to invest in the country.
C)Savings will tend to flow out of a country if individuals fear their property is insecure. D)All of the above are correct.
Q2) Why is competition important? Do business firms operating in competitive markets have a strong incentive to serve the interests of consumers? Do business owners have to care about the interests of others if they are going to provide them with helpful products and services?
Q3) A 2 percent growth rate will bring about a doubling of real GDP in about how many years?
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Chapter 17: Institutions,policies,and Cross-Country
Differences in Income and Growth
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Q1) Which of the following adopted reforms that have substantially improved their economic freedom rating since 1980?
A)Ireland
B)Zimbabwe
C)Venezuela
D)Republic of Congo
Q2) Which of the following will be required for a country to move up the income ladder and achieve high-income status?
A)rapid growth of the money supply.
B)restrictions limiting the import of goods from other nations,particularly low-wage countries.
C)tax incentives that encourage consumption rather than investment
D)sustained economic growth
Q3) When considering the impact of institutions and policies on economic performance,it is most important to focus on
A)long-term economic growth.
B)short-term economic growth.
C)business cycle fluctuations.
D)the labor force participation rate of married women.
Page 19
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Chapter 18: Gaining From International Trade
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Q1) Refer to Figure 17-9.Without trade,the equilibrium price of carnations is
A)$8 and the equilibrium quantity is 300.
B)$6 and the equilibrium quantity is 200.
C)$6 and the equilibrium quantity is 400.
D)$4 and the equilibrium quantity is 500.
Q2) Over the five decades of GATT's existence,the average tariff rate of its members
A)fell from approximately 40 percent to less than 5 percent.
B)fell from approximately 70 percent to less than 40 percent.
C)rose from less than 5 percent to approximately 40 percent.
D)rose from less than 40 percent to approximately 70 percent.
Q3) Refer to Figure 17-14.Given the tariff described in the question above, A)the combined areas A + B + C + D represent the losses to domestic consumers from the tariff.
B)area C represents the government's revenue from the tariff.
C)area A represents the gain to domestic suppliers from the tariff.
D)all of the above are true.
Q4) What is the law of comparative advantage,and why is it important in international trade?
Q5) What is the difference between a tariff and a quota?
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Chapter 19: International Finance and the Foreign Exchange Market
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Q1) A depreciation of the U.S.dollar on the foreign exchange market will
A)make U.S.exports cheaper to foreigners.
B)make imports less expensive for U.S.consumers.
C)make U.S.exports more expensive for foreign consumers.
D)probably cause the United States to run a capital account surplus in the long run.
Q2) Would one expect the imports and exports between two countries to be approximately equal?
A)Yes;the foreign exchange rate assures that this will be the case.
B)Yes;this will always be the case unless one of the countries is treating the other unfairly.
C)No;there is no reason to expect that the purchases from and sales to any specific country will be equal because one country may not want to buy the items the other country produces at a low opportunity cost.
D)No;if they were approximately equal this would mean that neither country benefited from the trade.
Q3) Explain how an increase in the Mexican demand for American goods leads to a change in the Mexican peso relative to the U.S.dollar.
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Chapter 20: Consumer Choice and Elasticity
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Q1) All things equal,the price elasticity of supply
A)will be greater in the short run than in the long run.
B)will be greater in the long run than in the short run.
C)is the same for the short run and the long run.
D)approaches zero in the long run.
Q2) Suppose the athletic department wanted to increase revenues by decreasing ticket prices to football games.This would make sense only if the price elasticity of demand for football games was (in absolute value)
A)greater than 1.
B)equal to 1.
C)less than 1.
D)perfectly inelastic.
Q3) If the price of tickets to Disney World increases 10 percent,and as a result,attendance falls by 15 percent,the demand for the tickets is
A)elastic.
B)inelastic.
C)of unitary elasticity.
D)indeterminate.
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Chapter 21: Acosts and the Supply of Goods
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Q1) Which of the following would increase a firm's average total costs?
A)economies of scale
B)an increase in input prices
C)an improvement in technology
D)an increase in demand for the firm's product
Q2) The marginal cost of a good is
A)lower for competitive firms than for monopolists.
B)the cost of an additional unit.
C)equal to fixed cost at high output levels.
D)equal to variable cost when the firm is maximizing profit.
Q3) If the firm's fixed costs double while variable costs are unchanged,then
A)marginal cost more than doubles.
B)marginal cost doubles.
C)marginal cost remains unchanged.
D)average total cost remains unchanged.
E)average variable cost doubles.
Q4) If the ABC Company decides to take over the XYZ Corporation by purchasing all of the stock of XYZ,what does this tell us about the view ABC holds of XYZ?
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Chapter 22: Aprice Takers and the Competitive Process
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Q1) There are 1,000 identical firms in a price-taker industry.In the short run,total revenues of each firm exceed total costs.What will happen in the long run?
A)Nothing,because each firm is already maximizing its profits.
B)Many firms will enter the market and each firm will eventually operate at a loss.
C)Additional firms will enter the market,and price will be driven down to where each firm will be making just enough to stay in business.
D)Additional firms will enter the market,but the price will remain the same because the existing firms will not allow price to decrease.
Q2) If a firm is making zero economic profit,it
A)will be forced to shutdown and leave the market.
B)will also generally be making zero accounting profit.
C)is doing as well as typical firms in other markets.
D)will not survive in the long run.
Q3) If a technological advance lowers a firm's production costs,why do prices typically fall? Shouldn't the firm maintain the same price and earn economic profit?
Q4) Why is it considered "ideal" for price to just equal marginal cost?
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Chapter 23: Price-Searcher Markets With Low Entry Barriers
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Q1) A profit-maximizing price searcher will expand output to the point where
A)total revenue equals total cost.
B)marginal revenue equals marginal cost.
C)price equals average total cost.
D)price equals marginal cost.
Q2) The market for home-delivered pizza is extremely competitive in Introville,Utah,and prices continue to fall.Assume they have fallen so low that the 20 pizza delivery firms are all suffering economic losses.What will likely happen in the long run?
Q3) In the long run,neither competitive price takers nor competitive price searchers will be able to earn economic profits because
A)entry barriers into these markets are high,raising the costs of each firm.
B)the government will dictate moderate prices for these firms.
C)competition will force prices down to the level of per-unit production costs.
D)marginal revenue is always less than marginal cost when barriers to entry are low.
Q4) What type of model would be best if we wanted to analyze the market for fast food? Why?
Q5) What type of industry is the market for grocery products? Is over-capacity present?
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Chapter 24: Aprice-Searcher Markets With High Entry
Barriers
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Q1) Breaking a monopoly firm into several rival firms will be unlikely to improve economic efficiency when economies of scale are important because
A)several smaller firms will have higher per-unit costs than a single larger firm.
B)a single firm will have higher per-unit costs than several smaller firms.
C)it is harder to regulate many smaller firms than it is one large firm.
D)consumers will find it harder to choose among the products of many alternative sellers.
Q2) The cost and demand conditions for a monopolist are depicted in Figure 11-2.If the monopolist is maximizing profit,it will charge a price of
A)$30 and produce an output of 4,000.
B)$40 and produce an output of 4,000.
C)$40 and produce an output of 2,000.
D)more than $40.
Q3) Collusion among sellers will be less attractive when
A)it is difficult to determine if some firms are providing secret price cuts.
B)there are a small number of firms in the industry that are easily monitored.
C)the demand for the product is relatively stable.
D)the demand for the product is highly inelastic.
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Chapter 25: The Supply of and Demand for Productive Resources
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Q1) Assume that skilled labor costs twice as much as unskilled labor,a profit-maximizing firm will
A)always hire more skilled labor because it is more productive.
B)always hire more unskilled labor because it is cheaper.
C)hire until it equalizes the two marginal products.
D)hire until the marginal product of unskilled labor is one-half that of skilled labor.
E)hire until the marginal product of unskilled labor is two times that of skilled labor.
Q2) A change in the demand for a resource can be caused by which of the following?
A)a change in the demand for the final product that uses the resource as a factor of production
B)a change in the productivity of the resource
C)a change in the price of other resources that could be used as substitutes for the resource in question
D)all of the above
Q3) Cattle manure is an input often used in making fertilizer.Suppose a technique is discovered that can transform cattle manure into quality gasoline.What would happen in the fertilizer industry?
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Chapter 26: Earnings, productivity, and the Job Market
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Q1) The fact that some people will work hard to earn a lot of money while others will be content with much less income indicates that
A)worker preferences are an important source of earning differentials.
B)economics ranks one set of worker preferences as more desirable than another.
C)some people can be paid less for doing hard work while others have to be paid a premium for doing a similar task.
D)skill levels of laborers are a minor consideration in wage rate determination.
Q2) Evidence suggests that education raises the earnings of the workforce mainly by
A)increasing the marginal productivity of labor.
B)keeping young people out of the labor force,thereby reducing the supply of labor.
C)teaching workers how to demand more pay.
D)teaching people to read and write,although education beyond this point does not seem to increase worker productivity.
Q3) The major determinant of an individual's income is
A)whether or not her family is wealthy.
B)how well she gets along with her co-workers and boss.
C)how productive she is combined with demand for what she produces.
D)how much she enjoys the work.
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Chapter 27: Investment, the Capital Market, and the Wealth of Nations
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Q1) A company that mines coal on federally owned land is about to be told by the federal government that,beginning in five years,it must abandon the mine it expected to operate for another twenty years.This will mean a reduction in accounting profits beginning in five years.If the announcement of this ruling was made tomorrow,the price of the firm's stock would fall
A)in about five years,just before the reduction in accounting profits was to begin.
B)gradually,as the reduction in the firm's accounting profit drew near.
C)immediately by the full amount of the discounted value of the decrease in future profit.
D)immediately because some investors would panic irrationally,whereas smart investors would put the same value on the stock as before,up to the time of the decline in accounting profit.
Q2) Professor Smith completed a study that showed that 60 percent of all the students who graduated from her college purchased new cars.What might explain this?
Q3) If people prefer to consume goods now rather than in the future,how does anyone save money?
Q4) In a barter economy that had no form of currency,how could interest exist?
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Chapter 28: Income Inequality and Poverty
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Q1) Why don't we divide the economic pie evenly so that each person receives the same income?
Q2) Which of the following is accurate regarding income statistics?
A)Current annual income is also an accurate indicator of relative economic status for the same individual over a longer period such as a decade or lifetime.
B)When there is substantial income mobility,one's current position in the income distribution will not be a very good indicator as to what one's position will be a few years in the future.
C)Recent studies indicate that there is a strong positive relationship between the relative income position of a family and the relative income position of their children and grandchildren.
D)Even though annual income data camouflage the fact,high-income earners generally maintain their status year after year,while those with low current incomes tend to stay poor year after year.
Q3) The mythical country of Quitar has just established a policy to give very generous in-kind benefits to the nation's poor,currently defined as those earning less than $10,000 a year.Several years later,the poverty rate has not fallen.Why not?
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Chapter 29: Government Spending and Taxation
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Q1) Which of the following provides the bulk of revenue for the federal government?
A)corporate income taxes and grants from state and local governments
B)personal income and payroll taxes
C)user charges and funds borrowed from the general public
D)corporate income and sales taxes
Q2) Economic theory indicates that,the size of government will be
A)unrelated to economic growth.
B)negatively related to economic growth at all possible sizes of government.
C)positively related to economic growth at all possible sizes of government.
D)positively related to economic growth at small levels of government but is negatively related to economic growth as government becomes larger and larger.
Q3) Which of the following is the largest source of revenue for the federal government?
A)corporate income tax
B)payroll tax
C)personal income tax
D)user charges
Q4) How have the size and functions of government in the United States changed during the last century?
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Chapter 30: The Economics of Social Security
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Q1) When the current Social Security surpluses end and the bonds in the trust funds are reduced in order to make payments to retirees,the financing for the redemption of the trust fund bonds will come from
A)higher taxes or more government borrowing.
B)the surplus funds deposited in government banking accounts.
C)equity capital being liquidated.
D)the sale of private equities and securities that the government has been purchasing with the funds.
Q2) Given the current tax rate structure and promised benefit levels,persons that are currently 40 years old or younger can expect to earn approximately what real rate of return on their Social Security contributions?
A)0 percent
B)2 percent
C)10 to 12 percent
D)15 to 20 percent
Q3) Briefly explain why the Social Security system will face a "crisis" in the coming years.
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Chapter 31: The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity
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Q1) Compared to other investments such as bonds,historically a diverse set of stocks held over a lengthy time period (for example,30 or 40 years)has yielded a
A)low average real rate of return,and the variation in that return has been extremely high.
B)high average real rate of return,and the variation in that return has been relatively small.
C)low average real rate of return,and the variation in that return has been relatively small.
D)high average real rate of return,and the variation in that return has been extremely high.
Q2) During 1982-1997,stock prices increased substantially.Which of the following helped to boost stock prices during this period?
A)higher interest rates and rapid growth of corporate profits
B)lower interest rates and rapid growth of corporate profits
C)higher interest rates and slow growth of corporate profits
D)lower interest rates and slow growth of corporate profits
Q3) Many personal finance magazines such as Money and Smart Money routinely give advice as to which stocks to buy.Should you take their advice?
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Chapter 32: Great Debates in Economics: Keynes Versus Hayek
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Q1) The General Theory of John Maynard Keynes exerted a major impact on macroeconomics during the 20 century primarily because
A)it provided the only logically consistent view of what caused the Great Depression.
B)it provided a reasonable explanation of what went wrong during the Great Depression and what could be done to prevent it from happening again.
C)it explained how gross domestic product could be measured and why this was important.
D)it derived the conditions necessary for maximum efficiency of resource use and explained how these conditions could be achieved through central planning.
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Chapter 33: The Crisis of 2008: Causes and Lessons for the Future
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Q1) The Fed's low short-term interest rate policy from 2002-2004,along with housing regulations promoting low down-payment loans to sub-prime borrowers,encouraged
A)conventional 30-year,fixed rate mortgages which have relatively high default and foreclosure rates.
B)conventional 30-year,fixed rate mortgages which have relatively low default and foreclosure rates.
C)adjustable rate mortgages which have relatively low default and foreclosure rates.
D)adjustable rate mortgages which have relatively high default and foreclosure rates.
Q2) When housing prices fell during 2007,the mortgage default rate
A)declined as well.
B)responded in a similar manner as during other recent recessions.
C)increased substantially.
D)changed very little.
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Chapter 34: Lessons From the Great Depression
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Q1) Analysis of the Great Depression indicates that
A)even though monetary and fiscal policies were highly expansionary,they were unable to offset the economic plunge.
B)even though monetary policy was expansionary,restrictive fiscal policy dominated during the 1930s.
C)a reduction in tax rates could not prevent the economic downturn from spiraling into a depression.
D)the severity of the economic decline,if not its onset,was the result of perverse monetary,fiscal and regulatory policies.
Q2) Prolonged periods of monetary contraction,as was the case during the Great Depression,will likely result in
A)an increase in real output and employment.
B)an increase in loanable funds and upward pressure on the rate of inflation.
C)a decrease in output and downward pressure on prices.
D)a decrease in unemployment and upward pressure on prices.
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Chapter 35: Lessons From Japan and Canada
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Q1) In the latter part of the 1990s,Canada reduced government spending as a share of the economy and shifted the budget to a surplus.In the years that followed,the Canadian economy
A)experienced sharply higher rates of unemployment.
B)grew more rapidly than any of the world's large high-income economies.
C)experienced an economic slowdown that forced policy-makers to reverse the direction of fiscal policy.
D)continued to experience slow economic growth,which explains why this period is now referred to as Canada's "lost decade."
Q2) How did the fiscal policy response of Japan during the 1990s compare with that of the U.S.during the recession of 2008-2009?
A)Both countries responded with permanent tax cuts in an effort to stimulate supply-side effects.
B)Both countries responded with government spending programs financed by borrowing.
C)Japan's fiscal policy was restrictive,while U.S.fiscal policy was expansionary.
D)Japan continued to maintain budget surpluses,while the U.S.increased its budget deficits.
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Chapter 36: The Federal Budget and the National Debt
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Q1) At year-end 2010,the national debt of the United States was approximately
A)5 percent of GDP.
B)25 percent of GDP.
C)75 percent of GDP.
D)95 percent of GDP.
Q2) Which of the following is true?
A)A budget deficit will reduce the national debt.
B)A budget deficit will increase the national debt.
C)A balanced budget will increase the national debt.
D)A budget surplus will increase the national debt.
Q3) The U.S.Treasury both pays and receives almost all of the interest on that portion of the national debt that is held by
A)domestic investors.
B)foreign investors.
C)government agencies and the Federal Reserve system.
D)commercial banks.
Q4) If the U.S.government were to run a substantial budget deficit,what would be the effects on the economy under the new classical view?
Q5) What is the difference between the federal budget deficit and the national debt?
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Chapter 37: The Economics of Healthcare
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Q1) Which of the following is true?
A)Healthcare in Canada and most of the European countries is a socialized industry.
B)Socialization of the healthcare industry eliminates the problem of scarcity in the healthcare industry.
C)The high-income countries of Europe are able to provide as much healthcare,free of charge,as their citizens want.
D)All of the above are true.
Q2) Which of the following is fully tax deductible (it is either subtracted or excluded from taxable income)under the current tax system of the United States?
A)out-of-pocket medical expenses
B)healthcare insurance purchased through one's employer
C)healthcare insurance purchased directly by an individual or family
D)all of the above
Q3) How has public policy influenced the incentives of consumers to economize and suppliers to provide their services economically in the health-care industry?
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Chapter 38: Education: Problems and Performance
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Q1) Spending per student in American public elementary schools is ____ than that of most developed countries.
A)substantially less
B)slightly less
C)slightly more
D)substantially more
Q2) During the 2008-2009 school year,approximately how many students attended a charter school?
A)100,000
B)600,000
C)1,400,000
D)2,100,000
Q3) Competition between public and private schools is ____ at the college level than at the elementary and secondary level.
A)weaker
B)of similar intensity
C)stronger
D)less important
Q4) What does the evidence suggest regarding the effects of school choice programs?
Q5) What are charter schools? How do they differ from voucher programs?
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Chapter 39: Earnings Differences Between Men and Women
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Q1) The F/M earnings ratio for full-time workers
A)has been steadily declining.
B)has been roughly constant since 1980.
C)has increased significantly since 1980.
D)increased until 1980,but it has declined steadily during the last two decades.
Q2) During the last two or three decades,the educational and career choices of women have become
A)more like those of men,and the earnings of women have declined relative to those of men.
B)more like those of men,and the earnings of women have increased relative to those of men.
C)less like those of men,and the earnings of women have increased relative to those of men.
D)less like those of men,and the earnings of women have declined relative to those of men.
Q3) In 1961,____ percent of college degrees were earned by women.
A)19
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Chapter 40: Do Labor Unions Increase the Wages of Workers
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Q1) Which of the following states had the lowest incidence of union membership as a percent of all wage and salary workers in 2010?
A)New York,Hawaii,and Alaska
B)South Carolina,North Carolina,and Arkansas
C)Illinois,Michigan,and Ohio
D)Nevada,Hawaii,and Alaska
Q2) Which of the following statements is true?
A)The share of income going to labor has increased during periods when union membership has increased as a proportion of the U.S.labor force.
B)Inflation in the United States has tended to accelerate as the proportion of the U.S.labor force that is unionized has increased.
C)Higher wages in the unionized sectors of an economy will also push up wages in the nonunion sectors.
D)High real wages cannot be achieved and sustained without increases in output per worker hour.
Q3) If a firm operates in a competitive industry and its unionized labor force is successful in bargaining for a wage increase,where is the firm likely to get the money to pay the higher wages?
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Chapter 41: The Question of Resource Exhaustion
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Q1) Resource markets are like any other market in that
A)the increase in quantity supplied in response to a higher price will generally be greater in the long run than in the short run.
B)the amount demanded of a resource is inversely related to its price.
C)higher prices encourage people to search for substitutes.
D)all of the above are correct.
Q2) Generally,the elasticity of demand for an energy source in the long run will be
A)approximately equal to its elasticity of demand in the short run.
B)considerably more elastic than in the short run.
C)slightly less elastic than in the short run.
D)considerably less elastic than in the short run.
Q3) Proved reserves of natural gas and oil
A)will last only another five years at the current worldwide consumption rate.
B)reveal little about whether the world is about to run out of these resources since they are calculated at present levels of price and technology.
C)are just another way of measuring how many years civilization will continue.
D)indicate that the supply of petroleum will be depleted by the year 2020 unless governments adopt price controls and energy rationing.
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Chapter 42: Difficult Environmental Cases and the Role of Government
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Q1) When is the definition and enforcement of property rights especially difficult?
A)when many polluters harm a large group of people by emitting the same pollutant
B)when a single polluter is harming a single person or entity
C)when land is owned by a corporation
D)when the benefits of prosecution are clear
Q2) Economic analysis implies that one of the most effective ways to deal with potential damages from environmental pollution is to
A)declare the relevant resources to be public goods,owned by the public.
B)establish and enforce property rights for the resources that are being damaged,if possible.
C)allow the government to take over and control all natural resources.
D)enact legislation that makes all environmental pollution illegal.
Q3) Government regulation is
A)subject to the same problems of lack of information and lack of incentives for economic efficiency as centrally planned economies.
B)the only reliable way to improve environmental quality.
C)not subject to political concerns when it comes to environmental quality.
D)the most economically efficient way to reduce greenhouse gases.
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