Principles of Economics
Pre-Test Questions
Course Introduction
Principles of Economics provides a comprehensive introduction to the fundamental concepts and analytical tools used in both microeconomics and macroeconomics. The course explores how individuals, businesses, and governments make decisions regarding the allocation of scarce resources, the functioning of markets, the determination of prices, and the factors that influence economic growth, unemployment, and inflation. Students will gain a foundational understanding of supply and demand, opportunity cost, market equilibrium, fiscal and monetary policy, and the role of government in the economy. By the end of the course, learners will be equipped to analyze economic issues, evaluate policy options, and better understand the economic forces shaping our world.
Recommended Textbook
Survey of Economics 8th Edition by Irvin B. Tucker
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Page 2
Chapter 1: Introducing the Economic Way of Thinking
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Sample Questions
Q1) Money is one of our nation's resources (factors or means of production).
A)True
B)False
Answer: False
Q2) To abstract from reality in an economic model means that:
A) we include only a few of the essential aspects of reality.
B) the economic study surveys only a very limited period of time.
C) we include only those elements which support our hypothesis.
D) the model includes every aspect of the real world.
E) the model examines the actions of the consumers in the absence of producers and the government.
Answer: A
Q3) Which of the following is a macroeconomics topic?
A) Wages of textile workers in the Northeast.
B) The cost of producing 10,000 bookcases.
C) The economy's annual growth rate.
D) National demand for fish.
E) Effects of farm subsidies on food prices.
Answer: C
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Chapter 1: A: Appendix: Applying Graphs to Economics
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Sample Questions
Q1) In Exhibit 1A-6,as X increases along the horizontal axis,corresponding to points A-D on the line,the Y values remain unchanged at 20 units.The relationship between the X and Y variables is:
A) direct.
B) inverse.
C) independent.
D) undefined.
Answer: C
Q2) In Exhibit 1A-3,the slope for straight line AB is:
A) 3.
B) 1.
C) -1.
D) -5.
Answer: C
Q3) Straight line A-D in Exhibit 1A-6 shows that:
A) increasing value for X will increase the value of Y.
B) increasing value for X will decrease the value of Y.
C) increasing values for X does not affect the value of Y.
D) all of the above.
Answer: C
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Chapter 2: Production Possibilities,Opportunity Cost,and Economic Growth
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Sample Questions
Q1) A rightward (an outward)shift of a nation's production possibilities curve could be caused by:
A) a decrease in technology.
B) an increase in resources.
C) producing more consumer and fewer capital goods.
D) a decline in the labor force's level of education and skills.
Answer: B
Q2) A source of economic growth is:
A) unemployment.
B) inefficiency.
C) less resources.
D) greater entrepreneurship.
Answer: D
Q3) If an economy is operating at a point inside the production possibilities curve,
A) its resources are not being used efficiently.
B) the curve will begin to shift inward.
C) the curve will begin to shift outward.
D) This is a trick question because an economy cannot produce at a point inside the curve.
Answer: A
Page 5
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Chapter 3: Part 1: Market Demand and Supply
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Sample Questions
Q1) Which of the following is true for the law of demand?
A) Sellers increase the quantity of a good available as the price of the good increases.
B) An increase in price results from false needs.
C) There is an inverse relationship between the price of a good and the quantity of the good demanded.
D) Prices increase as more units of a product are demanded.
Q2) When economists say the supply of a product has decreased,they mean that:
A) the supply curve has shifted to the left.
B) the product price has decreased, and as a consequence, suppliers are producing less of the product.
C) producers are now willing to sell more of this product at each possible price.
D) the supply curve has shifted to the right.
Q3) In Exhibit 3-4,a shift in the supply curve from S to S represents a(n):
A) decrease in supply.
B) decrease in the quantity supplied.
C) increase in supply.
D) increase in the quantity supplied.
E) increase in demand.
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6
Chapter 3: Part 2: Market Demand and Supply
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Sample Questions
Q1) Surpluses cause prices to rise while shortages cause prices to fall.
A)True
B)False
Q2) Tickets to the Indiana-Purdue basketball game are usually sold out in advance of game day.This suggests:
A) the price of the tickets must be very high or else people would not consider them valuable.
B) the price is set below the equilibrium level.
C) the Indiana basketball stadium is relatively small.
D) everyone who attends the game will enjoy it.
Q3) Market equilibrium is:
A) defined as the condition in which there is neither a shortage or surplus.
B) defined as the condition under which the separately formulated plans of buyers and sellers exactly mesh when tested in the market.
C) represented graphically by the intersection of the supply and demand curves.
D) all of the above.
Q4) Surpluses cause prices to fall while shortages cause prices to rise.
A)True
B)False
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Chapter 4: Markets in Action
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Sample Questions
Q1) A price floor (support price)set above equilibrium:
A) is a minimum legal price set by government above equilibrium.
B) causes the quantity supplied to exceed the quantity demanded.
C) creates a surplus.
D) can represent the effect of a minimum wage.
E) all of the above.
Q2) A technological breakthrough lowers the cost of manufacturing DVDs.As a result,the market changes to a new equilibrium because of a(n):
A) upward movement along the demand curve for DVDs.
B) rightward shift in the demand curve for DVDs.
C) rightward shift in the supply curve for DVDs.
D) shortage of DVDs.
Q3) If the free market is called upon to provide public goods,then:
A) there will more goods provided than is optimal.
B) there will be fewer goods provided than is optimal.
C) the market will provide the optimal number of goods.
D) the market price will be correct, but the optimal amount of output will not be produced.
E) the firms will earn excess profit.
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Page 8
Chapter 5: Price Elasticity of Demand
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Sample Questions
Q1) If the demand curve for a good is elastic,consumers will spend more on that good when its price increases.
A)True
B)False
Q2) If New York City expects that an increase in bus fares will raise mass transit revenues,it must think that the demand for bus travel is:
A) elastic.
B) unit elastic.
C) inelastic.
D) perfectly inelastic.
E) 10.
Q3) In Exhibit 5-1,between points a and b,the price elasticity of demand measures:
A) 0.67.
B) 1.5.
C) 2.0.
D) 1.56.
E) 1.0.
Q4) What are the characteristics of the product that has an inelastic demand?
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Chapter 6: Production Costs
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Sample Questions
Q1) Economies of scale can be caused by all of the following except:
A) price discounts for large scale purchases.
B) labor specialization.
C) use of more productive equipment.
D) increases in the firm's average total cost.
E) more cost-efficient methods of marketing.
Q2) The ____ is the situation in which the marginal product of labor is greater than zero and declining as more labor is hired.
A) law of demand
B) law of diminishing supply
C) law of diminishing returns
D) law of returns to scale
Q3) What are the seven short run cost calculations? How are they related?
Q4) By filling in the blanks in Exhibit 6-12,the AFC of 3 pizzas is shown to be equal to:
A) $10.
B) $13.33.
C) $9.
D) $22.33.
E) $40.
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Chapter 7: Perfect Competition
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Sample Questions
Q1) A perfectly competitive firm in the short-run maximizes its profit by producing the output where:
A) marginal cost equals price.
B) marginal cost equals marginal revenue.
C) total revenue minus total cost is at a maximum.
D) all of the above.
Q2) In Exhibit 7-9,product price in this market is fixed at $7.This firm is currently operating where MR = MC.What do you advise this firm to do?
A) This firm should shut down.
B) This firm could increase profits by increasing output.
C) This firm could increase profits by decreasing output.
D) This firm should continue to operate at its current output.
E) This firm should decrease price.
Q3) A perfectly competitive firm's short-run supply curve is the:
A) segment of the marginal cost curve above average fixed cost.
B) segment of the marginal cost curve above the minimum level of average variable cost.
C) upward-sloping segment of the marginal cost curve.
D) both a and
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Page 11
Chapter 8: Monopoly
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Sample Questions
Q1) Why can a monopoly earn economic profits in the long run?
Q2) Suppose a monopolist's demand curve lies below its average variable cost curve.The firm will:
A) stay in operation in the short-run.
B) earn an economic profit.
C) earn an economic profit in the long run.
D) shut down.
Q3) Because monopolists are protected by high barriers to entry,they:
A) may be able to earn long-run economic profits.
B) will not minimize the per-unit cost of producing their output.
C) will price their product at the highest possible price.
D) seek economic profit; however, they are not able to earn it in the long run.
Q4) The marginal revenue of the second unit of output in Exhibit 8-2 is:
A) 10.
B) 20.
C) 30.
D) 40.
E) 60.
Q5) Under what conditions might a monopoly lose money?
Q6) What are the conditions for price discrimination?
Page 12
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Chapter 9: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) A cartel maximizes industry profit by:
A) eliminating quotas.
B) producing at the kink in its demand curve.
C) producing where MR = MC.
D) giving secret price concessions.
E) producing more output than a monopoly would.
Q2) An oligopoly market structure is characterized by firms closely watching their rivals' pricing policies.
A)True
B)False
Q3) Which of the following is characteristic of a monopolistically competitive firm?
A) The firm faces an upward-sloping demand curve.
B) The firm faces an inelastic demand curve.
C) The firm faces a horizontal demand curve.
D) The firm produces a differentiated product.
Q4) Critics of advertising argue that it:
A) lowers price by increasing competition.
B) results in more variety of products.
C) establishes brand loyalty, which promotes competition.
D) serves as a barrier to entry for new firms.
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Chapter 10: Labor Markets and Income Distribution
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Sample Questions
Q1) The social security tax is called FICA,which stands for:
A) Federal Investment Corporation of America.
B) Federal Income Contributions to Americans.
C) Funding from Individuals and Corporations in America.
D) Federal Insurance Contributions Act.
Q2) Which of the following is not included in census income?
A) wages and salaries.
B) property income.
C) cash welfare benefits.
D) in-kind transfers.
Q3) When a firm hires an additional unit of labor,the increase in a firm's total revenues is known as the marginal:
A) cost.
B) product.
C) utility product.
D) revenue product.
Q4) Official figures indicate that the percentage of persons below the poverty level in the U.S.is more today than it was in 1959.
A)True
B)False
Page 14
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Chapter 11: Gross Domestic Product
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Sample Questions
Q1) In Exhibit 11-5,disposable personal income (DI)is:
A) $5,127 billion.
B) $5,608 billion.
C) $6,254 billion.
D) $6,495 billion.
E) $7,082 billion.
Q2) As shown in Exhibit 11-3,using the expenditure approach,GDP is:
A) $1,000 billion.
B) $1,500 billion.
C) $1,775 billion.
D) $2,000 billion.
Q3) Which of the following is included in GDP?
A) The value of "free" household services provided by at-home spouses rather than a paid cook, maid, and baby sitter.
B) The value of unpaid-for volunteer time.
C) The unpaid-for services provided by the natural environment, such as breathable air.
D) Net exports: (value of exports - value of imports).
Q4) Why is it important to distinguish nominal GDP from real GDP?
Q5) Explain why GDP was never intended to be a measure of social well being.
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Chapter 12: Business Cycles and Unemployment
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Sample
Questions
Q1) The government's chief forecasting gauge for business cycles is the chained real GDP indicators.
A)True
B)False
Q2) Brian Vargo,an auto repair mechanic who remains unemployed because he refuses to work for less than $1,000 an hour,is:
A) counted as part of the labor force.
B) considered frictionally unemployed.
C) an underemployed worker.
D) not counted as part of the labor force.
E) considered as productively active.
Q3) A long and deep recession in the business cycle is:
A) unemployment.
B) a trough.
C) a recession.
D) a depression
E) unavoidable.
Q4) Cyclical unemployment is the result of the business cycle.
A)True
B)False
Page 16
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Chapter 13: Inflation
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Sample Questions
Q1) Which of the following is true of inflation?
A) It is an increase in the general price level of goods and services.
B) The purchasing power of money increases as the result of inflation.
C) Inflation is similar to interest payments on future money income, such as pensions and receipts from outstanding loans.
D) Inflation has no effect on real income.
Q2) Which of the following can create demand-pull inflation?
A) Excessive aggregate spending.
B) Sharply rising oil prices.
C) Higher labor costs.
D) Recessions and depressions.
Q3) Cost-push inflation is due to:
A) "too much money chasing too few goods".
B) the economy operating at full employment.
C) increases in production costs.
D) all of the above.
Q4) Demand-pull inflation is most pronounced during a recession (as opposed to the recovery phase of the business cycle).
A)True
B)False
Page 17
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Chapter 14: Aggregate Demand and Supply
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Sample Questions
Q1) The full employment level of real GDP can be represented on an aggregate supply and demand diagram as a(n):
A) vertical line.
B) upward-sloping line.
C) horizontal line.
D) downward-sloping line.
Q2) In the aggregate demand and supply model,the:
A) vertical axis measures the average price level.
B) horizontal axis measures real GDP.
C) aggregate supply curve is vertical at full-employment real GDP.
D) All of the above.
Q3) The total quantity of goods and services demanded by households,firms,foreigners,and government at varying price levels is:
A) gross domestic product.
B) aggregate demand.
C) aggregate expenditure.
D) total demand.
E) total expenditure.
Q4) How are demand-pull and cost-push inflation reflected in terms of the AD-AS model?
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Chapter 14: A: Appendix: The Self-Correcting Aggregate
Demand and Supply Model
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Sample Questions
Q1) Economic growth is measured by the percentage change in:
A) potential nominal GDP.
B) structural unemployment.
C) the rule of 72.
D) potential real GDP (LRAS).
Q2) Long-run full-employment equilibrium assumes:
A) a downward-sloping production function.
B) a downward-sloping long-run supply curve (LRAS).
C) the CPI index price level equals the equilibrium wage rate.
D) the CPI equals aggregate demand (AD) equals short-run aggregate supply (SRAS) equals long-run aggregate supply (LRAS).
Q3) In the long run,an increase in aggregate demand causes the price level to ____ and the long-run aggregate supply curve to ____.
A) decrease; decrease
B) increase; increase
C) decrease; remain unchanged
D) increase; remain unchanged
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Chapter 15: Fiscal Policy
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Sample Questions
Q1) Changes in government spending and/or taxes as the result of legislation,is called:
A) open market operations of the Federal Reserve.
B) discretionary fiscal policy.
C) balanced budget operations.
D) discretionary monetary policy.
Q2) The change in consumption divided by a change in income is called the:
A) consumption function.
B) marginal propensity to consume.
C) marginal propensity to spend.
D) spending function.
E) changing propensity to consume.
Q3) Programs that automatically increase government spending (relative to revenue)during a recession and automatically decrease government spending (relative to revenue)during an economic boom are called:
A) discretionary fiscal policy.
B) supply-side programs.
C) automatic stabilizers.
D) tax credits.
Q4) Discuss the differences between Keynesian and supply-side fiscal policies?
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Chapter 16: The Public Sector
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Sample Questions
Q1) Which of the following answers best reflects the ability-to-pay philosophy of taxation?
A) Property tax.
B) Progressive income tax.
C) Excise tax on gasoline.
D) Excise tax on cigarettes.
Q2) The term "public sector" refers only to federal government purchases of goods and services.
A)True
B)False
Q3) When a tax is regressive,as a person's income rises,the tax rate:
A) stays the same.
B) decreases.
C) increases.
D) increase and then decreases.
E) decreases and then increases.
Q4) A progressive income tax means the percentage of income paid in taxes decreases as income increases.
A)True
B)False
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Chapter 17: Federal Deficits,Surpluses,and the National Debt
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Sample Questions
Q1) The national debt is the:
A) difference between a nation's exports and imports of goods and services.
B) sum of the personal debt of all citizens in the United States.
C) indebtedness of the federal government in the form of outstanding interest-earning government security.
D) sum of the net personal debts of Americans to foreigners.
Q2) Supply-side economists argue that less government spending:
A) will contract the productive side of the economy.
B) will result in more crowding out.
C) causes higher rates of unemployment and inflation.
D) would cause interest rates to increase dramatically.
E) would make more investment capital available at lower rates of interest to the private sector.
Q3) An increase in fiscal deficit spending financed by borrowing will increase the national debt.
A)True
B)False
Q4) The entire national debt is owed to U.S.citizens.
A)True
B)False
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Chapter 18: Money and the Federal Reserve System
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Q1) The money supply known as M2:
A) includes large denomination time deposits.
B) excludes interest-earning checking accounts in savings and loans.
C) does not include money market mutual accounts.
D) includes savings accounts and small denomination time deposits.
E) includes large denomination repurchase agreements.
Q2) Economists who prefer a broader definition of money prefer the:
A) M4 measure of the money supply to the M1 measure.
B) M2 measure of the money supply to the M1 measure.
C) M3 measure of the money supply to the M2 measure.
D) prefer the M1 measure of the money supply to the M2 measure.
Q3) Which of the following is not one of the functions of the Federal Reserve?
A) Clearing checks.
B) Printing currency.
C) Supervising and regulating banks.
D) Controlling the money supply.
Q4) What is money? What are the three definitions of money in the United States?
Q5) Unused lines of credit on credit cards are part of M2.
A)True
B)False
Page 23
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Chapter 19: Money Creation
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Q1) If a bank that is subject to a 10 percent required reserve ratio has $20,000 in excess reserves,it can make new loans of:
A) $2,000.
B) $18,000.
C) $20,000.
D) $200,000.
Q2) The amount of assets that a bank must hold at all times is determined by the:
A) banks' actual reserves.
B) required reserve ratio.
C) actual reserve requirement.
D) fractional reserve requirement.
E) excess reserve requirement.
Q3) In a simplified banking system in which all banks are subject to a 10 percent required reserve ratio,a $1,000 open market sale by the Fed to a bank would cause the money supply to:
A) increase by $1,000.
B) increase by $100,000.
C) decrease by $10,000.
D) decrease by $1,000.
E) remain unchanged.
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Chapter 20: Monetary Policy
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Q1) In Exhibit 20-5,a shift in aggregate demand from AD to AD :
A) increases real GDP, and lowers the price level.
B) decreases real GDP, and lowers the price level.
C) increases real GDP, and raises the price level.
D) decreases real GDP, and raises the price level.
E) has no effect on real GDP and the price level because the economy can never reach full employment.
Q2) Which of the following correctly gives us the equation of exchange?
A) TR = PQ.
B) MV = VM.
C) MV = PQ.
D) TR = VM.
Q3) According to the Monetarists,the primary cause of inflation is:
A) large budget deficits.
B) high taxes.
C) rapid expansion of the money supply.
D) government expenditures that are large relative to the size of the economy.
Q4) The opportunity cost of holding money is measured by the rate of interest.
A)True
B)False
Page 25
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Chapter
Self-Correcting Aggregate Demand and Supply Model
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Q1) In Panel (a)of Exhibit 20A-2,an expansionary Keynesian government stabilization policy designed to move the economy from Y to Yp would shift the:
A) aggregate demand curve (AD)to the left.
B) aggregate demand curve (AD) to the right.
C) SRAS rightward.
D) LRAS rightward.
Q2) Assuming the economy is experiencing a recessionary gap,classical economists predict that:
A) wages will remain fixed.
B) monetary policy will sell government securities.
C) higher wages will shift the short-run aggregate supply curve leftward.
D) lower wages will shift the short-run aggregate supply curve rightward.
E) none of the above.
Q3) A policy to do nothing and allow the economy to self-correct or adjust without interference from the federal government is also called a(n)____ policy:
A) nonintervention
B) active
C) stabilization
D) fixed rule
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Chapter 21: International Trade and Finance
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Q1) Which of the following changes in the exchange rate represents an appreciation of the dollar?
A) 100 yen = $1 to 90 yen = $1
B) 1 yen = $.10 to 1 yen = $.08
C) 1 peso = $10 to 1 peso = $11
D) 200 francs = $10 to 190 francs = $10
Q2) Which of the following statements is true?
A) A tariff is a physical limit on the quantity of a good allowed to enter a country.
B) An embargo is a tax on an imported good.
C) A quota is a law that bars trade with another country.
D) When a nation exports more than it imports it is running a balance of trade surplus.
Q3) Which of the following is not an argument used in favor of protectionism?
A) To protect an "infant" industry.
B) To protect domestic jobs.
C) To preserve national security.
D) To protect against "unfair" competition because of cheap foreign labor.
E) To reduce prices paid by domestic consumers.
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Chapter 22: Economies in Transition
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Q1) An economic system that answers the What,How,and For Whom questions using prices determined by the interaction of the forces of supply and demand is a:
A) market economy.
B) command economy.
C) traditional economy.
D) none of the above.
Q2) The term "socialism" refers to which of the following?
A) A religion centered on community interaction.
B) An economic system characterized by private ownership of resources, and decentralized market allocation.
C) An economic system characterized by government ownership of resources and centralized allocation.
D) None of the above.
Q3) In Adam Smith's competitive market economy,the question of what goods to produce is determined by the:
A) "invisible hand" of the price system.
B) "invisible hand" of government.
C) "invisible hand" of public interest.
D) "visible hand" of laws and regulations.
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Chapter 23: Growth and the Less-Developed Countries
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Source URL: https://quizplus.com/quiz/41242
Sample Questions
Q1) Which of the following is a true statement?
A) The LDC classification is of the questionable accuracy.
B) GDP per capita ignores the degree of income distribution.
C) GDP per capita is affected by exchange rate changes.
D) GDP per capita does not account for the difference in the cost of living among nations.
E) All of the above are true.
Q2) Describe in general terms four or five characteristics of less-developed countries.
Q3) Which of the following is not a common characteristic of IACs?
A) Market-based economies.
B) Large stocks of technologically advanced capital.
C) Well-educated labor.
D) Low per capita energy consumption.
Q4) Which of the following is infrastructure?
A) Highways.
B) Bridges.
C) Airports.
D) All of the above.
Q5) What role does population growth play in economic development?
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