Principles of Economics
Midterm Exam
Course Introduction
Principles of Economics is an introductory course that explores the fundamental concepts and analytical tools of economic theory. Students learn about the behavior of individuals, firms, and governments in making choices under conditions of scarcity, as well as the role of markets in allocating resources. The course covers key topics such as supply and demand, market equilibrium, consumer and producer behavior, elasticity, market structures, and the impact of government intervention. Additionally, students are introduced to macroeconomic issues including economic growth, unemployment, inflation, and fiscal and monetary policy, providing a comprehensive foundation for further studies in economics and related fields.
Recommended Textbook
Macroeconomics 4th Australian Edition by Glenn Hubbard
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15 Chapters
2116 Verified Questions
2116 Flashcards
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Chapter 1: Economics: Foundations and Models
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160 Verified Questions
160 Flashcards
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Sample Questions
Q1) Which of the following statements about positive economic analysis is false?
A)Positive analysis uses an economic model to estimate the costs and benefits of different courses of action.
B)There is much more disagreement among economists over normative economic analysis than over positive economic analysis.
C)There is much more disagreement among economists over positive economic analysis than over normative economic analysis.
D)Unlike normative economic analysis, positive economic analysis can be tested.
Answer: C
Q2) Economists assume that rational people do all of the following except:
A)use all available information as they act to achieve their goals.
B)undertake activities that benefit others and hurt themselves.
C)weigh the benefits and costs of all possible alternative actions.
D)respond to economic incentives.
Answer: B
Q3) Scarcity is a problem that will eventually disappear as technology advances.
A)True
B)False
Answer: False
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Chapter 2: Choices and Trade Offs in the Market
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192 Verified Questions
192 Flashcards
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Sample Questions
Q1) Refer to Table 2.8. What is Scotland's opportunity cost of producing one guitar?
A)0.25 motorcycle
B)4 motorcycles
C)12 motorcycles
D)16 motorcycles
Answer: A
Q2) According to the production possibility model, if more resources are allocated to the production of physical and human capital, then which of the following is likely to happen?
A)Fewer goods will be produced for consumption today.
B)The production possibility frontier will be shifted inward in the future.
C)Future economic growth will decline.
D)The country's total production will fall.
Answer: A
Q3) When you purchase a new pair of jeans, you do so in the:
A)factor market.
B)input market.
C)product market.
D)resource market.
Answer: C
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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201 Verified Questions
201 Flashcards
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Sample Questions
Q1) Blu-ray players were introduced to the market in 2006, and new technology has allowed for the cost of manufacturing the players to decline significantly since the initial introduction. How did this change in technology affect the market for Blu-ray players?
A)The new technology caused an increase in the supply of Blu-ray players and a decrease in price of Blu-ray players.
B)The new technology caused an increase in the supply of Blu-ray players and an increase in price of Blu-ray players.
C)The new technology caused a decrease in the demand for Blu-ray players.
D)The new technology caused an increase in the quantity of Blu-ray players supplied.
Answer: A
Q2) If, in the market for peaches, the supply curve has shifted to the left:
A)the supply of peaches has increased.
B)the supply of peaches has decreased.
C)the quantity of peaches supplied has increased.
D)the quantity of peaches supplied has decreased.
Answer: B
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Chapter 4: Gdp: Measuring Total Production, Income and Economic Growth
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123 Flashcards
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Sample Questions
Q1) What is a 'final good'?
A)a good not used as an input in the production process
B)a natural resource used to produce a good
C)a good purchased as an input in the production process
D)a good used in the production of another good
Q2) If you buy shares, the dollar value is:
A)included in GDP under investment.
B)not included in GDP.
C)included in GDP under consumer expenditure.
D)included in GDP as a business expense.
Q3) The GDP deflator is a measure of the price level which is calculated as nominal GDP divided by real GDP and multiplied by 100.
A)True
B)False
Q4) 'Transfer payments' are not included in GDP because:
A)they are not purchases of goods or services.
B)their value is included in government expenditure.
C)they do not generate income.
D)their market value is difficult to measure.
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Chapter 5: Economic Growth, the Financial System and Business Cycles
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) Public saving is equal to taxation receipts, minus government purchases, minus transfer payments.
A)True B)False
Q2) Over the past 100 years, economic growth has ________ health, and health has ________ economic growth.
A)improved; worsened
B)improved; improved
C)worsened; improved
D)worsened; worsened
Q3) Let G = government purchases; T = taxes; TR = transfer payments. The budget surplus is defined as:
A)T - (G + TR)> 0.
B)T - (G + TR)< 0.
C)T + (G - TR)> 0.
D)T + (G + TR)> 0.
Q4) Long-run economic growth is measured by changes in real GDP per person over time.
A)True B)False
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Chapter 6: Long-Run Economic Growth: Sources and Policies
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118 Verified Questions
118 Flashcards
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Sample Questions
Q1) Which of the following policies is designed specifically to directly promote technological change in an economy?
A)government subsidisation of research and development
B)tax incentives to promote investment in new companies
C)laws to strengthen property rights
D)a vaccination program to combat infectious diseases
Q2) Although there are many benefits of globalisation for developing countries, what are some of the reasons given by people who do not support it?
Q3) The movement from A to B to C in Figure 6.1 illustrates:
A)an improvement in technology.
B)a decline in capital per worker.
C)diminishing returns to capital.
D)diminishing returns to labour.
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Page 8
Chapter 7: Unemployment
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Why are jobs continually being created and destroyed in the economy?
Q2) How is a 'retired person' classified?
A)as unemployed
B)as under-employed
C)as not in the labour force
D)as part-time employed
Q3) The demand for new motor vehicles falls due to high oil prices and a move by people toward a greater use of public transport. As a result, motor vehicle manufacturers sack some workers. This would be an example of:
A)structural unemployment.
B)cyclical unemployment.
C)natural unemployment.
D)frictional unemployment.
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Chapter 8: Inflation
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) What is 'hyperinflation'?
Q2) People who have borrowed money from banks at a fixed rate of interest will most likely:
A)experience losses if the inflation rate is higher than anticipated.
B)benefit if the inflation rate is lower than anticipated.
C)experience a rise in their real interest rate.
D)benefit if the inflation rate is higher than anticipated.
Q3) The 'inflation rate' measures the percentage increase in the price level from one year to the next.
A)True
B)False
Q4) The 'producer price index' tracks the prices firms receive for goods and services at all stages of production.
A)True B)False
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Chapter 9: Aggregate Expenditure and Output in the Short Run
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138 Verified Questions
138 Flashcards
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Sample Questions
Q1) If an increase in investment spending of $30 million results in a $300 million increase in equilibrium real GDP, then the multiplier is:
A)1.0.
B)10.
C)100.
D)0.1.
Q2) What is the 'marginal propensity to consume'?
Q3) What is the formula for the multiplier? Explain why this formula is considered to be too simple.
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Page 11
Chapter 10: Aggregate Demand and Aggregate Supply Analysis
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134 Flashcards
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Sample Questions
Q1) Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?
A)Potential GDP increases continuously.
B)Aggregate demand shifts to the right during most periods.
C)Aggregate supply shifts to the right except during periods when workers and firms expect higher wages.
D)Aggregate demand and potential GDP decrease continuously.
Q2) When potential GDP increases, short-run aggregate supply also increases, but long-run aggregate supply does not change.
A)True
B)False
Q3) In Figure 10.1, which of the points are possible long-run equilibriums?
A)A and B
B)A and C
C)A and D
D)B and D
Q4) 'Stagflation' occurs when short-run aggregate supply decreases.
A)True
B)False
12
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Chapter 11: Money, Banks and the Reserve Bank of Australia
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) What role does the Reserve Bank of Australia (RBA)have in the economy? Describe the structure of the RBA's Board and explain what 'open market operations' are.
Q2) Many international trade contracts are denominated in American dollars (US$), regardless of the currencies of the countries that are trading with each other. This is an example of money serving as a:
A)unit of account.
B)medium of exchange.
C)store of value.
D)standard of deferred payment.
Q3) The 'quantity' equation becomes the basis for a theory when we assume that velocity of money is constant.
A)True
B)False
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13
Chapter 12: Monetary Policy
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116 Flashcards
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Sample Questions
Q1) If the overnight cash rate falls, then ceteris paribus:
A)interest rates will fall and share prices will rise.
B)interest rates will rise and share prices will rise.
C)interest rates will fall and share prices fall.
D)interest rates will rise and share prices will fall.
Q2) Refer to Figure 12.5. In this figure, suppose the economy in Year 1 is at point A and expected in Year 2 to be at point B. Which of the following policies could the Reserve Bank of Australia use to move the economy to point C?
A)decrease income taxes
B)increase government spending
C)buy financial securities
D)sell financial securities
Q3) If the Reserve Bank of Australia sells financial instruments in the open market, net exports are likely to decrease.
A)True
B)False
Q4) The main goal of monetary policy in Australia is a low inflation rate.
A)True
B)False
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Chapter 13: Fiscal Policy
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163 Verified Questions
163 Flashcards
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Sample Questions
Q1) Use the following information to explain and draw a graph showing the short-run and long-run Phillips curves.
Natural rate of unemployment = 5%
Current rate of unemployment = 3%
Expected inflation rate = 2.9%
Current inflation rate = 6.2%
Q2) Assuming a fixed amount of taxes and a closed economy, calculate the value of the government purchases multiplier, the tax multiplier, and the balanced budget multiplier if the marginal propensity to consume equals 0.75.
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Page 15
Chapter 14: Macroeconomics in an Open Economy
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) A decrease in capital outflows from Australia will:
A)decrease the balance on the financial account.
B)increase the balance on the financial account.
C)increase the balance on the capital account.
D)decrease the balance on the current account.
Q2) Suppose that interest rates decrease in Japan and at the same time the Japanese economy is experiencing a recession. What will happen to the value of the dollar relative to the yen?
A)The dollar will appreciate relative to the yen.
B)The dollar will depreciate relative to the yen.
C)One would have to know the size of the demand shift relative to the supply shift to answer correctly.
D)There will be no change in the relative exchange rate.
Q3) The real exchange rate of British pounds to Australian dollars will increase if the British price level ________ and the nominal exchange rate of pounds to the dollar
A)increases; rises
B)decreases; rises
C)increases; falls
D)decreases; falls
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Chapter 15: The International Financial System
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145 Verified Questions
145 Flashcards
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Sample Questions
Q1) By the early 20th century, the majority of the world's major trading nations had adopted the:
A)gold standard.
B)managed float exchange rate system.
C)Bretton Woods exchange rate system.
D)floating exchange rate system.
Q2) Australians demand Japanese yen to:
A)enable them to export goods and services to Japan.
B)enable them to buy Japanese products.
C)allow Japanese businesses to import Australian products.
D)be able to supply Australian goods to Japan.
Q3) The Australian dollar was floated in:
A)1974.
B)1983.
C)1989.
D)2001.
Q4) What are 'capital controls'? Why might a financial crisis lead to a reconsideration of using capital controls and what problems might result from the reinstatement of capital controls?
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