Managerial Economics Test Bank
Course Introduction
Managerial Economics focuses on the application of economic theory, tools, and methodologies to solve practical problems and aid decision-making within organizations. The course equips students with analytical skills to interpret market dynamics, demand forecasting, production and cost analysis, pricing strategies, and risk assessment. Emphasizing the integration of economic principles with business management, it explores topics such as market structures, optimization techniques, and the impacts of government policies on firm behavior. Through case studies and real-world examples, students learn to apply economic reasoning to strategic planning and resource allocation in a managerial context.
Recommended Textbook
Macroeconomics 13th Edition by Roger A. Arnold
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24 Chapters
3454 Verified Questions
3454 Flashcards
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Chapter 1: What Economics Is About
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174 Flashcards
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Sample Questions
Q1) A person goes into a store and buys a computer for $1,210.In this case,price is acting as a
A) resource.
B) good.
C) rationing device.
D) capital instrument.
E) factor of production.
Answer: C
Q2) Which of the following statements is false?
A) Microeconomics is the branch of economics that deals with human behavior and choices as they relate to relatively small units-an individual,a firm,an industry,and a single market.
B) Macroeconomics is the branch of economics that deals with human behavior and choices as they relate to highly aggregate markets.
C) Positive economics attempts to determine what is.
D) Normative economics addresses what should be.
E) Positive and normative economics both address what should be.
Answer: E
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Chapter 2: Production Possibilities Frontier Framework
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Sample Questions
Q1) Country 1 produces two goods,A and B.Country 2 produces the same two goods.Currently,country 1 produces 100A and 200B and country 2 produces 300A and 700B.Which of the following statements is true?
A) If country 1 is on its production possibilities frontier,then country 2 must be on its PPF,too.
B) The PPF for country 1 is necessarily closer to the origin (or further to the left)than the PPF for country 2.
C) If country 1 is productive inefficient,then so is country 2.
D) Country 2 is operating on its PPF,but country 1 is clearly not operating on its PPF.
E) none of the above
Answer: E
Q2) Refer to Exhibit 2-2.If PPF<sub>2</sub> is the relevant production possibilities frontier,then point __________ is unattainable.
A) A
B) G
C) D
D) J
Answer: D
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) Which of the following is descriptive of the law of diminishing marginal utility?
A) The third hamburger consumed provides less utility than the second hamburger consumed.
B) The third hamburger is priced higher than the first hamburger.
C) As price falls,quantity demanded rises,ceteris paribus.
D) The price of a good rises as the costs of producing that good rise.
E) none of the above
Answer: A
Q2) On a supply-and-demand diagram,consider a price for which the horizontal distance to the supply curve exceeds the horizontal distance to the demand curve.There is a __________ at that price and the current price must be __________ the equilibrium price.
A) shortage; above B) shortage; below C) surplus; above
D) surplus; below
Answer: C
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Chapter 4: Prices: Free,controlled,and Relative
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Sample Questions
Q1) Refer to Exhibit 4-7.The number of unskilled workers who want to work at the minimum wage is
A) N<sub>3</sub>.
B) N<sub>1</sub>.
C) N<sub>2</sub>.
D) N<sub>2</sub> - N<sub>1</sub>.
Q2) Refer to Exhibit 4-11.Suppose that the government imposes a price ceiling in the market for good ABC at a price of $4.The result of the price ceiling would be a ____________ of ______ units of good ABC.
A) shortage; 20
B) surplus; 20
C) shortage; 60
D) surplus; 60
Q3) Refer to Exhibit 4-1.How many fewer units are bought and sold because of the price ceiling than would have been bought and sold at the equilibrium price?
A) 50
B) 60
C) 65
D) 100
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Chapter 5: Supply,demand,and Price: Applications
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Sample Questions
Q1) As the price of good Z falls,the quantity demanded of good Z rises,but the quantity supplied of good Z does not change.Based upon this information we can conclude that the demand curve for good Z is ________________ and the supply curve for good Z is ________________.
A) downward sloping; upward sloping
B) upward sloping; downward sloping
C) upward sloping; vertical
D) downward sloping; vertical
E) vertical; downward sloping
Q2) A toll of $1 per car is imposed on a road regardless of time of day.If the toll creates equilibrium travel flows at the busiest time of day,it will create a __________ at all other times.
A) surplus of space
B) shortage of space
C) zero money price for space
D) zero opportunity cost for space
Q3) People who buy houses in good-weather locations receive this benefit absolutely for free.
A)True
B)False
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Chapter 6: Elasticity
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Sample Questions
Q1) Jones lost his job in industry A,but he has skills that can be transferred to industry B (which is currently hiring).Smith lost a job in industry C,but his skills cannot be transferred to industry B or to any other industry.Jones is __________ unemployed and Smith is __________ unemployed.
A) structurally; frictionally
B) structurally; structurally
C) frictionally; frictionally
D) frictionally; structurally
Q2) Which of the following statements is false?
A) The sum of the unemployment rate and the employment rate always equals 100 percent.
B) The sum of the number of employed persons and the number of unemployed persons equals the civilian non-institutional population.
C) The labor force participation rate equals the number of persons in the civilian labor force divided by the number of persons in the total population.
D) a,b,and c
Q3) Describe what the term "full employment" means to an economist.
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Chapter 7: Consumer Choice: Maximizing Utility and Behavioral Economics
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Sample Questions
Q1) Which of the following statements is false?
A) For purposes of computing GDP,the purchases of new residential housing are considered investment although it is undertaken by the household sector.
B) Consumption includes spending on durable goods but not spending on services.
C) Investment includes fixed investment but not inventory investment.
D) b and c
Q2) In the calculation of national income,dividends paid to stockholders are part of
A) compensation of employees.
B) proprietors' income.
C) rental income.
D) net interest.
E) corporate profits.
Q3) Which of the following statements is true?
A) National income accountants consider the portion of corporate profits that is used to pay corporate profits taxes to be income earned by households but not received.
B) Net domestic product (NDP)is a smaller dollar amount than GDP.
C) Personal income includes transfer payments.
D) b and c
E) a,b,and c
Page 9
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Chapter 8: Production and Costs
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Sample Questions
Q1) If wage rates rise at the same time that labor productivity increases,what is the effect on short-run aggregate supply (SRAS)?
A) SRAS rises.
B) SRAS falls.
C) SRAS remains constant.
D) SRAS may rise,fall,or remain constant.
Q2) A rise in foreign real national income tends to raise U.S.__________,shifting the U.S.AD curve to the __________.
A) exports; left
B) exports; right
C) imports; left
D) imports; right
Q3) List and describe the three effects that help to explain why the aggregate demand (AD)curve slopes downward.
Q4) The real balance effect is one of the A) reasons why an AD curve is downward-sloping. B) shifters of an AD curve.
C) reasons why a short-run aggregate supply curve can be derived.
D) shifters of a short-run aggregate supply curve.
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Chapter 9: Perfect Competition
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Sample Questions
Q1) According to classical economists,if the amount of funds households save is greater than the amount of funds firms invest,then
A) the interest rate will fall,ultimately moving to a level where the amount of funds households plan to save equals the amount of funds firms plan to invest.
B) the interest rate will rise,ultimately moving to a level where the amount of funds households plan to save equals the amount of funds firms plan to invest.
C) the interest rate will remain constant and people will simply buy more goods.
D) more money will he used for leisure purposes,since households save in order to consume leisure at some later time.
E) none of the above
Q2) Which of the following statements is false?
A) The classical economists believed that government should manage the economy.
B) The classical economists believed in a policy of laissez-faire.
C) The classical economists believed that the economy was self-regulating.
D) The classical economists believed equilibrium output would be full-employment output.
Q3) Explain the policy implications of the classical economists' beliefs.
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Chapter 10: Monopoly
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Sample Questions
Q1) According to the Keynesian consumption function,an increase in disposable income will result in
A) a decrease in consumption.
B) an increase in consumption.
C) a decrease in investment.
D) an increase in investment.
Q2) Refer to Exhibit 10-8.The multiplier is
A) 0.20.
B) 4.
C) 20.
D) 5.
E) 0.80.
Q3) On a TE-TP diagram consider a level of Real GDP at which the vertical distance to the TE line is less than the vertical distance to the 45-degree line.This level of Real GDP is __________ its equilibrium level,with __________.
A) above; TE > TP
B) above; TE < TP
C) below; TE > TP
D) below; TE < TP
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Chapter 11: Monopolistic Competition, oligopoly, and Game Theory
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167 Flashcards
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Sample Questions
Q1) According to Keynesian theory,a recessionary gap can be closed using expansionary fiscal policy.
A)True
B)False
Q2) Expansionary fiscal policy actions include __________ government spending and/or __________ taxes,while contractionary fiscal policy actions include __________ government spending and/or __________ taxes.
A) increasing; increasing; decreasing; decreasing
B) decreasing; decreasing; increasing; increasing
C) increasing; decreasing; increasing; decreasing
D) decreasing; increasing; increasing; decreasing
E) increasing; decreasing; decreasing; increasing
Q3) An example of contractionary fiscal policy is
A) an increase in government expenditures,or an increase in taxes,or both.
B) a decrease in government expenditures,or a decrease in taxes,or both.
C) an increase in government expenditures,or a decrease in taxes,or both.
D) a decrease in government expenditures,or an increase in taxes,or both.
E) increasing government expenditures while holding taxes constant.
Q4) Explain how tax cuts can impact both aggregate demand and aggregate supply.Give an example of each.
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Chapter 12: Government and Product Markets: Antitrust and Regulation
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150 Flashcards
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Sample Questions
Q1) Compared to barter,money __________ transaction costs,making transactions __________ time-consuming.
A) increases; more B) increases; less C) reduces; more D) reduces; less
Q2) Bank ABC's reserve account at the Federal Reserve contains $44.5 million,its vault cash is $1.1 million,and its checkable deposits equal $400 million.If the required reserve ratio (r)is 10 percent,it follows that Bank ABC's required reserves equal __________ million,and its excess reserves equal __________ million.
A) $4.45; $1.1
B) $40; $5.6
C) $0.11; $5.6
D) $40; $4.5
Q3) The balance in a banking customer's checkable deposit account is the amount the bank owes the customer.
A)True
B)False
Q4) List and describe the three functions of money.
Page 14
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Chapter 13: Factor Markets: With Emphasis on the Labor Market
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180 Flashcards
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Sample Questions
Q1) Raising the required reserve ratio __________ the simple deposit multiplier which will __________ the economy's money supply.
A) raises; increase
B) raises; decrease
C) lowers; increase
D) lowers; decrease
Q2) When commercial banks borrow from other commercial banks,the immediate impact is that reserves in the banking system
A) increase.
B) decrease.
C) are unaffected.
D) first increase,then decrease.
E) first decrease,then increase.
Q3) Which of the following statements is false?
A) The Fed serves as the lender of last resort for banks.
B) The Fed serves as a fiscal agent for the U.S.Treasury.
C) A major responsibility of the Fed is to control the nation's money supply.
D) The federal government is the Fed's banker.
Q4) Summarize the history of how the Federal Reserve came to have twelve districts.
Page 15
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Chapter 14: Wages,union,and Labor
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Sample Questions
Q1) Refer to Exhibit 14-1.Starting from point A,a one shot,supply-side-induced inflation raises the price level in the economy to P<sub>2</sub>.Assuming no other changes,in the long run the economy is likely to settle at point
A) A.
B) B.
C) C.
D) D.
E) E.
Q2) The simple quantity theory of money predicts that changes in A) the money supply lead to strictly proportional changes in the price level. B) the money supply do not affect the price level. C) the price level lead to strictly proportional changes in velocity and GDP. D) velocity lead to nearly proportional changes in the money supply.
Q3) One example of one-shot inflation occurs when the SRAS curve shifts leftward.
A)True
B)False
Q4) In the simple quantity theory of money,the price level is assumed to be constant.
A)True
B)False
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Chapter 15: The Distribution of Income and Poverty
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Sample Questions
Q1) The money supply curve is usually horizontal.
A)True
B)False
Q2) As the interest rate __________,the quantity supplied of money __________ and the quantity demanded of money __________.
A) falls; rises; falls
B) rises; remains unchanged; falls
C) falls; remains unchanged; falls
D) rises; rises; rises
E) none of the above
Q3) Refer to Exhibit 15-4.In the row of this table containing blank (C),people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.
A) too much; too little
B) too little; too much
C) just the right amount; too little
D) just the right amount; too much
E) just the right amount; just the right amount
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Chapter 16: Interest,rent,and Profit
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Sample Questions
Q1) According to new Keynesian theory,if policy is correctly anticipated,increases in aggregate demand will stimulate the economy to higher levels of Real GDP and lower levels of unemployment in
A) the short run or the long run.
B) neither the short run nor the long run.
C) the short run,but not in the long run.
D) the long run,but not in the short run.
Q2) The real business cycle theory holds that the business cycle
A) originates as a result of factors affecting aggregate supply.
B) originates as a result of factors affecting aggregate demand.
C) is the result of correctly anticipated policies.
D) is the result of incorrectly anticipated policies.
Q3) One of the key assumptions of the new classical theory is that individuals form their expectations rationally.
A)True
B)False
Q4) Describe the policy ineffectiveness proposition (PIP).Be sure to state which economic theory the PIP is associated with and the assumptions that are necessary for this argument to hold.
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Chapter 17: Market Failure: Externalities, public Goods, and
Asymmetric
Information
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Sample Questions
Q1) Stan Laurel and Oliver Hardy acted separately in comedy shorts for the Hal Roach Studio for over a decade without greatly distinguishing themselves from hundreds of other screen comedians.Then in 1927,Roach writer-director Leo McCarey tried them out as a comedy team in one more routine short.Only then was the fantastic chemistry between "the fiddle and the bow" realized.The rest is immortality.This story relates to the "new growth theory" idea of
A) employee involvement.
B) rearranging.
C) exogeneity.
D) objects and ideas.
Q2) Refer to Exhibit 17-1.If there are 4 units of capital and 6 units of labor,________ units of output (Real GDP)will be produced.
A) 10
B) 5
C) 4
D) 20
Q3) In the production function Real GDP = T (L,K),the T stands for tax coefficient.
A)True
B)False
Page 19
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Chapter 18: Public Choice and Special-Interest-Group Politics
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Sample Questions
Q1) If the (average)tax rate falls by 20% and as a result the tax base rises by 20%,tax revenues will
A) rise.
B) decline.
C) remain unchanged.
D) There is not enough information given to answer this question.
Q2) Economist A believes the economy is self-regulating.Economist B believes that wages and prices are inflexible downward.Economist C believes that the AS curve is vertical.Economist D believes that crowding out is likely to be complete.Which economist is most likely to advocate for expansionary fiscal policy in the in the form of greater government spending to remove an economy from a recessionary gap?
A) Economist A
B) Economist B
C) Economist C
D) Economist D
Q3) All economists agree that some types of government spending are better for the economy than other types of spending.
A)True
B)False
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Chapter 19: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Sample Questions
Q1) Refer to Exhibit 32-1.The exhibit shows the breakdown of benefits and costs for a four-person town of a proposed $1,200 purchase of books for the public library.How will each of the four persons,A-D,vote? (The first answer in the list is how person A would vote,the second is how person B would vote,and so on,so that "for" indicates that the individual would be in favor of having the additional books purchased by the library.)
A) for; for; for; for
B) against; for; against; against
C) for; against; against; against
D) for; against; for; for E) none of the above
Q2) Politicians will usually
A) prefer to discuss means rather than ends.
B) prefer to discuss the issues in specific terms rather than in general terms.
C) not like to be perceived as either an extreme "right-winger" or an extreme "left-winger."
D) refer to their opponents as "middle-of-the-roaders."
Q3) Public choice deals exclusively with business decisions.
A)True
B)False
Page 21
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Chapter 20: International Trade
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Sample Questions
Q1) Anna gives Billy a gift of $200.We can be sure that Billy will
A) spend the $200 on what Anna hopes that he will spend it on.
B) save the $200,and not spend it on anything.
C) spend the $200 on whatever is next on Billy's list of things to buy.
D) spend the $200 on something that Anna does not want him to spend it on.
Q2) "The theory's predictions are consistent with what I believe,so now I have good reason to believe what the theory says." This statement is likely to have been made by a person who believes that
A) theories should be tested by gathering and analyzing data.
B) theories are descriptive of reality.
C) theories should be falsifiable or refutable.
D) b and c
E) none of the above
Q3) If a theory can predict those things that you should observe if it is right and can also predict those things that you should observe if it is wrong,it is said to have the virtue of falsifiability.
A)True
B)False
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Chapter 21: International Finance
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Sample Questions
Q1) Refer to Exhibit 34-6.Which of the following is true?
A) Country A has a comparative advantage in both cheese and wine.
B) Country B has a comparative advantage in both cheese and wine.
C) Country A has a comparative advantage in cheese,and country B has a comparative advantage in wine.
D) Country B has a comparative advantage in cheese,and country A has a comparative advantage in wine.
E) none of the above
Q2) With a quota,the __________ is greater than the __________.
A) loss in producers' surplus; gain in consumers' surplus
B) loss in consumers' surplus; loss in producers' surplus plus higher total revenues on the imported goods
C) loss in producers' surplus plus higher total revenues on the imported goods; consumers' surplus
D) tax; revenue
E) quota-determined price; quota-determined output
Q3) Tariffs raise the price of imported goods,but quotas rarely do.
A)True
B)False
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Page 23
Chapter 22: The Economic Case for and Against
Government: Five Topics Considered
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Q1) If the U.S.dollar appreciates in the foreign exchange market,U.S.exports will be __________ and U.S.imports will be __________.
A) relatively less expensive; relatively less expensive
B) relatively less expensive; relatively more expensive
C) relatively more expensive; relatively less expensive
D) relatively more expensive; relatively more expensive
E) unaffected; relatively less expensive
Q2) All economists agree that the European Union is an example of a true a optimal currency area.
A)True
B)False
Q3) The purchasing power parity theory predicts better in the __________ run,and when there __________ in inflation rates across countries.
A) long; is little difference
B) short; are large differences
C) long; are large differences
D) short; is little difference
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Chapter 23: Stocks,bonds,futures,and Options
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Q1) Describe the intended effects of the first-time home buyer tax credits granted by Congress and many state governments in 2009 and 2010.In addition,describe in detail the unintended effect of this type of legislation.
Q2) In the case of a negative externality,the government can use a ________________ to turn an inefficient outcome into an efficient one.In the case of a positive externality,the government can use a ________________ to turn an inefficient outcome into an efficient one.
A) tax; subsidy
B) subsidy; tax
C) tax; tax
D) subsidy; subsidy
Q3) Which of the following is usually discussed in the case against government?
A) special interest groups and transfers
B) the unintended effects of governments actions
C) removal from the prisoner's dilemma
D) a and b
E) none of the above
Q4) In making the case against government,discuss the two main points about special interest groups.
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Sample Questions
Q1) A bear market is one in which prices are expected to rise.
A)True
B)False
Q2) Which of the following statements is false?
A) The issuer of a bond is a borrower.
B) The person who buys a bond is a lender.
C) Interest earned on corporate bonds is exempt from federal income taxes.
D) The coupon rate on a bond is the percentage of the face value that the bondholder receives annually until the bond matures.
Q3) You turn to the Treasury bond market page of a newspaper and look under the column headed "Ask" and see that it says,"128:16" this indicates that
A) the price that the buyer is willing to pay for this bond is $128.16.
B) the price that the buyer is willing to pay for this bond is $1,280.16.
C) the price that the seller is willing to sell this bond for is $1,285.
D) the price that the seller is willing to sell this bond for is $128.16.
Q4) Another term for stocks is equity.
A)True
B)False
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