Course Introduction
Principles of Economics
Final Exam Questions
Principles of Economics introduces students to the fundamental concepts and theories that form the basis of economic analysis. The course covers both microeconomics focusing on individual consumers, firms, market structures, and resource allocation and macroeconomics, which addresses topics such as aggregate economic activity, inflation, unemployment, fiscal and monetary policy, and economic growth. Through real-world examples and theoretical frameworks, students will learn how economic principles apply to everyday decision-making and public policy, laying the groundwork for advanced study in economics and related fields.
Recommended Textbook
Economics USA 8th Edition Edition by Nariman Behravesh
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Page 2
Chapter 1: What is Economics
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Q1) A production possibilities curve is least helpful when it comes to analyzing which of the basic tasks facing an economic system?
A) determining what is produced
B) determining how goods are produced
C) determining how society's output is distributed
D) determining society's rate of growth
E) all the basic economic tasks facing an economic system
Answer: C
Q2) The expression "there's no such thing as a 'free lunch'" is
A) generally untrue.
B) irrelevant to the subject of economics.
C) a recognition that our capacity to produce goods is limited.
D) an example of normative economics.
E) applicable solely to the inefficient use of resources.
Answer: C
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Chapter 2: Markets and Prices
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Q1) In the mid-1980s buyers demanded 2.7 million bushels of wheat at $3 per bushel.In the mid-1990s buyers demanded about 2.4 million bushels of wheat at $3 per bushel.From this information it is clear that
A) demand decreased.
B) supply decreased.
C) demand was unchanged; only the quantity demanded fell.
D) the demand curve sloped upward.
E) the number of consumers in the market and their incomes rose.
Answer: A
Q2) A shift in a commodity's demand curve means that there has been a change in the A) amount currently available for consumption.
B) number of sellers.
C) costs of production.
D) amount demanded at each price level.
E) techniques of production.
Answer: D
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Chapter 3: The Business Firm: Organization,motivation,and
Optimal Input Decisions
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Q1) Diminishing marginal returns set in when adding the ________ salesperson.
A) first
B) second
C) third
D) fourth
E) fifth
Answer: C
Q2) The law of diminishing marginal returns CANNOT predict the effect of an additional unit of input when
A) all other inputs are fixed.
B) it is possible to vary the proportion in which the various inputs are used.
C) technology is changing.
D) output rises.
E) marginal product is falling.
Answer: C
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Page 5
Chapter 4: Getting Behind the Demand and Supply Curves
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Q1) Difficulties in coordinating and transmitting information in a large firm can lead to
A) increasing returns to scale.
B) falling long-run marginal cost curves.
C) L-shaped long-run average total cost curves.
D) decreasing returns to scale.
E) linear total cost functions.
Q2) The law of diminishing marginal utility means that as more of a commodity is consumed,total utility will
A) rise but at a declining rate.
B) fall steadily, eventually becoming negative.
C) remain unchanged until the individual is satiated.
D) generally be less than marginal utility.
E) fall when marginal utility falls.
Q3) The marginal cost of producing the first unit is
A) $5.
B) $10.
C) $16.
D) $20.
E) $30.
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Chapter 5: Market Demand and Price Elasticity
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Q1) If the income elasticity of demand for a good is negative
A) changes in income have no effect on consumption of the good.
B) a decrease in income causes consumption of the good to fall.
C) an increase in income causes consumption of the good to fall.
D) consumption of the good may increase or decrease without any change in income.
E) and if the good's price falls, income also falls.
Q2) Price elasticity of demand is the
A) change in quantity divided by the change in price.
B) ratio of quantity to price.
C) change in quantity divided by the change in price times the original price-quantity ratio.
D) change in price times the change in quantity divided by the original price-quantity ratio.
E) reciprocal of the original price-quantity ratio times the change in price.
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7
Chapter 6: Economic Efficiency,market Supply,and Perfect Competition
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Q1) Shortages typically arise when there are A) price floors.
B) equilibrium prices.
C) price ceilings.
D) fair prices.
E) scientific prices.
Q2) Many observers feel that price controls imposed during World War II were generally more effective than those imposed in the 1970s because A) there was more effective government enforcement.
B) the price ceilings were set below market equilibrium prices.
C) those imposed during the war tended to be more flexible than those in the 1970s.
D) they had the moral support of U.S. consumers.
E) the price freezes of the 1970s were short-run rather than long-run controls.
Q3) The typical producer in this market
A) faces a demand curve less elastic than the one shown.
B) minimizes total cost.
C) produces a tiny fraction of output 0X.
D) must produce at least 0Y.
E) must increase price to break even.
Page 8
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Chapter 7: Monopoly and Its Regulation
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Q1) The monopolist can set a price well above the competitive supply and demand level by
A) advertising to expand the market.
B) pushing the supply curve as far to the right as it will go.
C) restricting output.
D) using technology to speed production.
E) setting price equal to average cost.
Q2) Experience with public regulation of monopolies indicates that A) on the average, regulated prices are clearly lower than unregulated prices of the same item.
B) regulation provides a stronger set of incentives than competitive markets for firms to increase efficiency.
C) a decision to base a fair rate of return on either historical cost or replacement cost yields the same pricing result.
D) most public utility regulation should be in the hands of federal rather than state commissions.
E) if a firm is guaranteed a fixed amount of profit, it will be less efficient than if its profits depend on how efficiently it operates.
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9
Chapter 8: Monopolistic Competition,oligopoly,and Antitrust Policy
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Q1) A group of firms that produce similar goods is called a ________ group.
A) monopolistic
B) product
C) market
D) retail
E) homogeneous
Q2) The Federal Trade Commission Act declared that
A) tying contracts substantially lessen competition.
B) contracts and combinations in restraint of trade are illegal.
C) the rule of reason is reasonable.
D) perfect competition results in optimal efficiency and an optimal distribution of income.
E) unfair methods of competition in commerce are unlawful.
Q3) The downward-sloping demand curve of the monopolistic competitor
A) becomes horizontal in the long run.
B) results from the absence of any competition.
C) reflects product differentiation.
D) ensures the firm produces at minimum average cost in the long run.
E) indicates collusion among the members of the product group.
Page 10
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Chapter 9: Pollution and the Environment
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Q1) Opponents of zero economic growth as a means to reduce pollution argue that growth in productive capacity would
A) help produce the equipment required to reduce pollution.
B) encourage a more rapid growth in population.
C) shift resources from consumers to businesses, reducing the consumption of polluting goods.
D) redistribute income to more affluent people, who pollute less than poor people.
E) be the most effective way to slow the rate of technological change.
Q2) Which of the following policies would be LEAST desirable in helping to control pollution?
A) tax credits for pollution control equipment
B) federal grants-in-aid to municipal and regional agencies for waste cleanup
C) zero economic growth
D) direct regulation
E) effluent fees
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11
Chapter 10: The Supply and Demand for Labor
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Q1) The real wage
A) equals the amount of goods and services that can be bought with the money wage.
B) is the amount of money received per unit of time.
C) unlike the money wage, is unaffected by changes in the price level.
D) rises faster than the money wage as the price level rises.
E) is the money wage adjusted for changes in real output.
Q2) Wage differentials that persist in labor markets because of the inability of individuals to gain the training necessary to enter highly paid occupations are an example of A) noncompeting groups.
B) a derived demand.
C) perfectly competitive homogeneous labor markets.
D) a bilateral involvement.
E) a marginal attachment.
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12
Chapter 11: Interest,rent,and Profit
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Q1) If a surge of new inventions results in many profitable investment opportunities,the demand for loanable funds will
A) shift to the left, causing the interest rate to fall.
B) shift to the left, causing the interest rate to rise.
C) shift to the right, causing the interest rate to rise.
D) shift to the right, causing the interest rate to fall.
E) be unaffected, but the supply of loanable funds will rise.
Q2) The rate of return for an asset that costs $200,000 and promises to pay $40,000 net per year forever to its owner is ________ percent.
A) 10
B) 15
C) 20
D) 25
E) 100
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Chapter 12: Poverty,income Inequality,and Discrimination
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Sample Questions
Q1) Which of the following countries had the lowest per capita income in 2012?
A) Russia
B) France
C) Japan
D) Canada
E) Sweden
Q2) In the diagram
A) the tax rate is regressive over all incomes.
B) the dollar amount of tax liability falls as income rises.
C) all family incomes of less than $5,000 before taxes are raised to $5,000 with the negative tax payment.
D) families with incomes of $3,000 receive a $1,000 payment.
E) the amounts of negative and positive taxes balance out so the government will just break even.
Q3) Those at the lowest end of the income distribution are typically those who
A) have large amounts of inherited wealth.
B) are disabled, single, or lacking in employable skills.
C) hold jobs requiring extensive training.
D) have unique abilities or skills.
E) manage to obtain monopoly power.
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Chapter 13: Economic Growth
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Q1) According to economist Edward Denison,about one-half of the growth in the U.S.output for the period 1929 to 1969 was the result of
A) increases in population.
B) increases in government spending.
C) surpluses in the balance of payments.
D) increased capital investment.
E) increased output per unit of input.
Q2) Between 1980 and 2000,empirical estimates of the "education premium" rose from ________ percent.
A) 3 to 5
B) 10 to 40
C) 20 to 40
D) 40 to 80
E) 80 to 100
Q3) The Club of Rome study was concerned primarily with the ________ growth.
A) benefits of
B) costs of
C) sources of
D) limits to E) rates of
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Chapter 14: Public Goods and the Role of the Government
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Q1) One way government could intervene when external diseconomies exist in an industry is to act to
A)shift the industry demand curve to the right.
B) shift the industry supply curve to the left.
C) subsidize the industry to raise its profits.
D) encourage increased production of the industry's product.
E) make the industry's supply curve more nearly reflect the supply curve of a competitive industry.
Q2) A significant source of revenue for the federal government is ________ taxes.
A) personal income
B) sales
C) property
D) inheritance
E) import
Q3) The incidence of the tax on the seller is ________ per unit.
A) $1.40
B) $1
C) $0.60
D) $0.50
E) $0.40
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Chapter 15: National Income and Product
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Q1) A leading pioneer in the efforts to provide the first estimates of U.S.income and output was
A) Alexander Hamilton.
B) David Schoenmacher.
C) Franklin D. Roosevelt.
D) John Maynard Keynes.
E) Simon Kuznets.
Q2) In an economy as complex as ours,the only way to achieve a meaningful estimate of what we produce is to
A) reduce everything to a common denominator: money.
B) consider the number of hours of labor involved in production.
C) calculate the ultimate value of each product to our social welfare.
D) count only tangible products, not intangible services.
E) aggregate all financial transactions for a given year.
Q3) When computing GDP via the income approach,we must include
A) exports minus imports.
B) gross investment.
C) depreciation and indirect business taxes.
D) household savings and consumption.
E) government purchases of goods and services.
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Chapter 16: Business Fluctuations and Unemployment
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Q1) A significant problem with U.S.unemployment figures is that they
A) exclude people who are under 16 and actively looking for work.
B) change monthly, making measurement of the unemployment rate impossible.
C) exclude those who are self-employed.
D) are based on a selected sample of the population and miss counting large numbers of employed people.
E) do not indicate those who are underemployed or who have given up looking for work.
Q2) If the money supply is fixed,increases in the price level reduce
A) interest rates.
B) imports.
C) the rate of inflation.
D) total real output purchased.
E) the average money cost of each transaction.
Q3) The expansion phase of the cycle is best characterized by letter
A) A.
B) B.
C) C.
D) D.
E) E.
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Page 18
Chapter 17: The Determination of National Output and the Keynesian Multiplier
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Q1) An autonomous investment change of $2 billion in the first stage,with a multiplier of 2,leads to extra income in the third stage of ________ billion.
A) $4
B) $1
C) $0.5
D) $0.25
E) $0
Q2) When GDP is at its equilibrium value
A) firms' inventories will neither increase nor decrease unexpectedly.
B) employment and GDP are identical.
C) the multiplier is zero.
D) intended investment equals the 45-degree line.
E) consumption equals disposable income.
Q3) The average propensity to consume is the
A) fraction of an extra dollar of GDP that becomes disposable income.
B) share of GDP spent by households and businesses.
C) proportion of an extra dollar of disposable income that is spent on consumption.
D) percentage of disposable income that is consumed.
E) reciprocal of the marginal propensity to consume.
Page 19
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Chapter 18: Fiscal Policy and National Output
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Q1) The government can use fiscal policy to reduce inflation by A) increasing total spending.
B) modifying the tax laws to induce less personal saving.
C) increasing government expenditures.
D) increasing the budget deficit.
E) increasing the tax rate on personal income.
Q2) Higher personal tax rates
A) cause the relationship between consumption expenditures and GDP to become flatter.
B) increase household disposable income.
C) change the amount people want to spend out of each after-tax dollar but leave the spending percentage of pretax income unchanged.
D) cause equilibrium levels of GDP to rise.
E) are mandated by the Employment Act of 1946.
Q3) The greatest source of federal government tax receipts is the ________ tax.
A) personal income
B) corporate income
C) estate and gift
D) general sales
E) property
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Chapter 19: Inflation
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Q1) If national output is fixed and there is a 10 percent increase in total spending,the price level will
A) fall by 10 percent.
B) remain constant.
C) rise by 10 percent.
D) rise by 10 percent times the multiplier.
E) rise by 10 percent times the dollar value of output.
Q2) The most widely quoted measure of inflation in the United States is the
A) Phillips curve.
B) price output ratio.
C) consumer price index.
D) cost of living adjustment.
E) Dow Jones Industrial Average.
Q3) Inflation
A) hurts people living on fixed incomes.
B) inevitably tends to die out.
C) has been the experience of this country since its founding.
D) does not tend to redistribute income.
E) inevitably leads to deflation.
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Page 21
Chapter 20: Money and the Banking System
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Q1) In general,commercial banks receive their higher interest rates from
A) service charges on demand deposits.
B) loans that have a greater degree of risk.
C) the federal funds market.
D) foreclosures.
E) capital gains in the stock market.
Q2) Which letter best indicates the change in the balance sheet after the proceeds of the loan have been spent by the borrower?
A) a
B) b
C) c
D) d
E) e
Q3) To be considered money,a financial asset must
A) be convertible into gold or silver.
B) be coins, currency, or fractional reserve.
C) be issued by the Federal Reserve System.
D) serve as a medium of exchange, store of value, and standard of value.
E) be kept in banks.
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Page 22
Chapter 21: The Federal Reserve and Monetary Policy
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Q1) The chief spokesperson for U.S.monetary policy is the A) president of the United States.
B) secretary of the Treasury.
C) chairperson of the Council of Economic Advisers.
D) chairperson of the Joint Economic Committee of Congress.
E) chairperson of the Federal Reserve Board.
Q2) Over the 2001-03 period,the Fed steadily reduced the discount rate to 2 percent.These moves suggest that monetary policy was A) selective.
B) redundant.
C) tight.
D) autonomous.
E) easy.
Q3) The Federal Reserve System was established by Congress in A) 1887.
B) 1907.
C) 1913.
D) 1929.
E) 1934.
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Page 23
Chapter 22: Supply Shocks and Inflation
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Q1) Wage and price controls have been proposed primarily as a means for dealing with A) severe recessionary conditions.
B) decreases in the price level.
C) income policies.
D) situations resulting from irresponsible decreases in the money supply.
E) supply-side inflation.
Q2) Inflationary conditions that emerge because of specific resource shortages or scarcities are called ________ inflations.
A) cost-overrun
B) sedentary-spending
C) supply-side
D) demand-side
E) parity-price
Q3) Simultaneous high rates of inflation and unemployment are referred to as
A) push-pull inflation.
B) demand-pull inflation.
C) stagflation.
D) reflation.
E) prosperity.
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Page 24
Chapter 23: Productivity,growth,and Technology Policy
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Q1) The deep recessions experienced in many fast-growing East Asian economies in 1997-98
A) were unexpected by virtually all economists who had been studying the "Asian miracle."
B) produced a significant shortage in overall global capacity.
C) led to a continuing and deepening condition of economic stagnation over the entire region.
D) demonstrated that it is extremely unlikely that sustained economic growth can be accomplished in developing countries.
E) were a direct result of the Asian financial crisis.
Q2) As compared to earlier years,the rate of growth of labor productivity in the United States from the 1970s through the mid-1990s
A) increased dramatically.
B) increased slightly.
C) slowed considerably.
D) increased in the 1970s and declined in the late 1980s.
E) remained constant.
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Chapter 24: Surpluses,deficits,public Debt,and the Federal Budget
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Q1) According to the textbook discussion,the principal way in which one generation can impose a debt burden on succeeding generations is by
A) using up some of the nation's productive capacity.
B) engaging in war.
C) failing to balance the budget.
D) maintaining stable price levels.
E) failing to pay off the national debt.
Q2) The idea that,under certain circumstances,deficits can increase investment is known as
A) the structural deficit.
B) the crowd-out effect.
C) structural unemployment.
D) the crowd-in effect.
E) the Laffer effect.
Q3) During the last 30 years,the federal government budget has
A) failed to record a surplus in any year.
B) recorded a surplus only in the year 1984.
C) had surpluses scattered over 10 of these years.
D) been in surplus annually since 1995.
E) recorded a surplus for the years 1999-2001.
Page 26
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Chapter 25: Monetary Policy,interest Rates,and Economic Activity
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Q1) If prices double,the value of a dollar would A) double.
B) remain the same (be unaffected).
C) be halved.
D) decline by twice that amount.
E) fall to zero.
Q2) Adhering to a monetary rule,according to some economists,is superior to discretionary attempts to "lean against the wind" because A) it would virtually eliminate business fluctuations.
B) the success of monetary policy since World War II has demonstrated the effectiveness of such a rule.
C) the Fed would be free to concentrate on manipulating interest rates.
D) the lag between policy actions and their economic impact is highly variable and unpredictable.
E) it would allow for more successful fine-tuning of the economy.
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Chapter 26: Controversies Over Stabilization Policy
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Q1) In labor-management relationships,what are implicit contracts?
A) contracts imposed by outside arbitration panels
B) informal unwritten understandings between labor and management
C) agreements between management and union leaders that are kept secret from the rank and file members
D) contracts that do not specify a wage rate but ensure that workers get the current going rate
E) documents that spell out in detail the intent and meaning of the provisions in the formal contract
Q2) The belief that the self-regulating capabilities of a market economy are insufficient to ensure a stable,full-employment equilibrium is associated with A) monetarists.
B) Keynesians.
C) supply siders.
D) rational expectations theorists.
E) new classical macroeconomists.
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28
Chapter 27: International Trade
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Q1) The quantity of domestic goods that a country must give up to get a unit of imported goods is called
A) absolute advantage.
B) comparative advantage.
C) export subsidies.
D) terms of trade.
E) a quota.
Q2) For a country to specialize completely in one product,it must be assumed that
A) the country consumes all the production.
B) the cost of producing the product (in terms of other goods foregone) is constant.
C) the country has an absolute advantage in the production of that good.
D) sufficient technical information is available to indicate a comparative advantage in that good.
E) the country in question has a capitalistic system.
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29
Chapter 28: Exchange Rates and the Balance of Payments
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Q1) Under the gold standard,when a country increases the price of gold,it is said to have ________ its currency.
A) appreciated
B) devalued
C) accredited
D) releveraged
E) prefabricated
Q2) In 1985,the Japanese yen was quoted at 235 per dollar.In 2013,the quoted price was 104 per dollar.As a result,other things being equal,one would expect that
A) Japanese goods will become more expensive for U.S. buyers.
B) U.S. goods will become more expensive for Japanese buyers.
C) the Japanese will import less from and export more to the United States.
D) gold will flow from Japan to the United States.
E) the U.S. demand curve for yen will shift to the right and the dollar price of yen will fall.
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