Course Introduction
Principles of Economics Test Questions
Principles of Economics is an introductory course that explores the fundamental concepts and theories that form the foundation of economic analysis. Students learn about the basic principles of microeconomics and macroeconomics, including supply and demand, market structures, consumer behavior, production and costs, as well as national income, inflation, unemployment, and fiscal and monetary policy. The course emphasizes the application of economic reasoning to real-world issues, enabling students to understand how individuals, businesses, and governments make decisions about the allocation of scarce resources.
Recommended Textbook
ECON MACRO 6th Edition by William
A. McEachern
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19 Chapters
3854 Verified Questions
3854 Flashcards
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Page 2
Chapter 1: The Art and Science of Economic Analysis
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Sample Questions
Q1) You observe that grocery shoppers choose the shortest line at the checkout. This is an example of:
A) rational self-interest
B) selfishness
C) greed
D) blind materialism
E) altruism
Answer: A
Q2) In economics, marginal analysis:
A) has no practical applications or real-world uses.
B) eliminates incorrect decisions and bad choices.
C) involves comparing the additional costs and additional benefits of an activity.
D) involves examining only the total costs and total benefits of an activity.
E) guarantees an incorrect decision.
Answer: C
Q3) An economic model will produce poor predictions if it includes assumptions.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Economic Tools and Economic Systems
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209 Flashcards
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Sample Questions
Q1) Refer to Table 2.3, which shows the production possibilities frontier between the production of capital goods and consumer goods in an economy. Moving from D to B means _____
A) 1 unit of capital goods is given up for 7 units of consumer goods.
B) 2 units of capital goods are given up for 13 units of consumer goods.
C) 1 unit of capital goods is given up for 13 units of consumer goods.
D) 2 units of capital goods are given up for 28 units of consumer goods.
Answer: D
Q2) Refer to Table 2.1. You can spend $40 on going to the movies or eating at a restaurant, or both. What is the opportunity cost of spending all your money at the restaurant?
A) $0
B) $10
C) $20
D) $30
E) $40
Answer: E
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Chapter 3: Economic Decision Makers
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Sample Questions
Q1) Which of the following occurred during the Industrial Revolution?
A) Production became less reliant on highly specialized equipment.
B) A less efficient division of labor was promoted.
C) The use of machines in factory production increased.
D) The transaction costs of contracting with individual resource owners increased.
E) Technological development decreased the productivity of most workers.
Answer: C
Q2) Which of the following would indicate that a tax is regressive?
A) High-income earners pay $5,000 in taxes; low-income earners pay $2,000 in taxes.
B) Both high-income and low-income earners pay $200 each in taxes.
C) High-income earners pay 20 percent of their income in taxes; low-income earners pay 10 percent of their income in taxes.
D) Both high-income and low-income earners pay 10 percent of their income in taxes.
E) Low-income earners are exempt from taxes.
Answer: B
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Chapter 4: Demand, Supply, and Markets
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Sample Questions
Q1) Refer to the market supply schedule for pizza in Table 4.2. When the price increases from $6 to $15, what is the change in quantity supplied in the pizza market?
A) stays the same at 28 million pizzas
B) increases to 28 million pizzas
C) decreases by 28 million pizzas
D) increases by 12 million pizzas
E) decreases by 12 million pizzas
Q2) Refer to Table 4.6. In which of the following combinations is the change in the equilibrium quantity of a good indeterminate?
A) Box A and Box B
B) Box A and Box C
C) Box A and Box D
D) Box B and Box C
E) Box C and Box D
Q3) An increase in professors' salaries increases the supply of college education.
A)True
B)False
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Chapter 5: Introduction to Macroeconomics
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Sample Questions
Q1) Which of the following is a likely impact of an increase in the price level in an economy on the aggregate supply in the economy?
A) an increase in the quantity of real GDP supplied
B) a decrease in the quantity of real GDP supplied
C) a leftward shift of the aggregate supply curve
D) a rightward shift of the aggregate supply curve
E) an increase in the slope of the aggregate supply curve
Q2) Identify an example of a flow variable.
A) the volume of the federal government's debt in the current year
B) the population of a country in a particular year
C) an individual's total wealth
D) the amount of sales tax collected per year
E) the total unemployment in an economy
Q3) The federal debt is a stock variable that measures the net accumulation of prior federal deficits.
A)True
B)False
Q4) A federal budget deficit can simultaneously reduce inflation and unemployment. A)True B)False
Page 7
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Chapter 6: Tracking the U S Economy
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Sample Questions
Q1) Which approach to GDP adds up spending on all final goods and services produced in the United States during the year?
A) the intermediate goods and services approach
B) the final goods and services approach
C) the income approach
D) the expenditure approach
E) the double-counting approach
Q2) Which of the following is an example of an injection into the circular flow of income and expenditure?
A) consumption
B) exports
C) taxes
D) savings
E) government borrowing
Q3) Imports are leakages from the circular flow of income and expenditure model.
A)True
B)False
Q4) Gross domestic product (GDP) will increase if illegal drugs are made legal.
A)True
B)False
Page 8
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Chapter 7: Unemployment and Inflation
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Sample Questions
Q1) Unemployed workers who meet certain qualifications can receive unemployment benefits for up to _____
A) 1 month.
B) 3 months.
C) 6 months.
D) 1 year.
E) the time when they find employment.
Q2) After graduating from Harvard Law School, Anne started looking for a job. She could not find a job after looking for one week. Which of the following is true in this case?
A) This is an example of frictional unemployment.
B) This is an example of cyclical unemployment.
C) This is an example of seasonal unemployment.
D) She is underemployed.
E) She is a discouraged worker.
Q3) A sustained decrease in an economy's price level is known as deflation.
A)True
B)False
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Page 9
Chapter 8: Productivity and Growth
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Sample Questions
Q1) From 2010 to 2016, U.S. labor productivity growth has _____
A) increased.
B) been constant, on average.
C) grown at about 0.9 percent per year.
D) grown at about 3 percent per year.
E) grown at about 5 percent per year.
Q2) If an increase in capital per worker leads to increased output per worker, but by decreasing amounts as capital increases, the per-worker production function _____
A) is vertical.
B) has a decreasing slope.
C) has an increasing slope.
D) has a negative slope.
E) is horizontal.
Q3) Which of the following implies a decline in labor productivity in an economy?
A) a high rate of growth of capital formation
B) an improvement in input quality
C) a decrease in the production of goods and services
D) an increase in the budget surplus in the economy
E) a decrease in the prices of goods and services
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Page 10
Chapter 9: Aggregate Demand
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Sample Questions
Q1) Which of the following is illustrated by the distance between the aggregate expenditure line and the 45-degree line at each level of real GDP?
A) the level of saving in an economy
B) unplanned inventory change
C) planned investment undertaken in an economy
D) the marginal propensity to save
E) the marginal propensity to consume
Q2) Assuming that there is no capital depreciation and no business saving, what is the relationship between GDP and aggregate income in an economy?
A) GDP is greater than aggregate income.
B) GDP is less than aggregate income.
C) GDP is equal to aggregate income.
D) GDP is equal to aggregate income plus investment.
E) GDP is unrelated to aggregate income.
Q3) Purchases of existing commodities, such as gold and precious gems, are considered investment spending by economists.
A)True
B)False
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11
Chapter 10: Aggregate Supply
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Sample Questions
Q1) How much is the output gap if short-run output is $20.0 trillion and potential output is $21.0 trillion?
A) $20.0 trillion
B) +$1.0 trillion
C) -$1 trillion
D) -$0.1 trillion
E) $0
Q2) A recessionary gap is usually closed in the long run by a(n) _____
A) rightward shift of the short-run aggregate supply curve.
B) leftward shift of the short-run aggregate supply curve.
C) upward movement along a fixed short-run aggregate supply curve.
D) decrease in aggregate demand.
E) downward movement along a fixed short-run aggregate supply curve.
Q3) Refer to Exhibit 10.1, which shows the short-run aggregate supply (SRAS) curve of an economy. To the right of Y , _____
A) output levels are at the economy's potential.
B) output levels are more than the economy's potential.
C) output levels are less than the economy's potential.
D) unemployment is at the natural rate.
E) unemployment is higher than the natural rate.
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) Fiscal policy _____
A) uses the federal government's powers of spending and taxation to affect employment, the price level, and GDP.
B) uses the federal government's control over the money supply and interest rates to affect employment, the price level, and GDP.
C) can affect employment and prices, but not the level of GDP.
D) can affect employment and the level of GDP, but not the price level.
E) is most effective when employed by state governments rather than by the federal government.
Q2) Between 2010 and 2014, GDP growth _____
A) was weak, averaging 2.1 percent per year.
B) was strong, averaging 2.1 percent per year.
C) continued falling at a rate of 4.6 percent per year.
D) continued climbing at a rate of 4.6 percent per year.
E) neither increased nor decreased.
Q3) Equal increases in government purchases and in net taxes have equal but opposite effects on the level of real GDP demanded.
A)True
B)False
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Page 13
Chapter 12: Federal Budgets and Public Policy
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Sample Questions
Q1) The crowding in of private investment is more likely to occur when _____
A) there is a depreciation of domestic currency.
B) interest rates increase significantly.
C) a contractionary gap exists in an economy.
D) budget deficits lower expectations about economic growth.
E) an expansionary gap exists in an economy.
Q2) How much do American citizens own of the U.S. federal debt?
A) about 60 percent
B) about 40 percent
C) about 20 percent
D) about 10 percent
E) none
Q3) If the functional finance approach to federal budgeting is followed, the federal government's budget deficit should be zero.
A)True
B)False
Q4) Government deficits of one generation cannot affect the standard of living of the next generation.
A)True
B)False
Page 14
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Chapter 13: Money and the Financial System
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Sample Questions
Q1) _____ is money whose face value exceeds its production cost.
A) Seashell currency
B) Token money
C) A note
D) Coinage
E) Fiat money
Q2) Insurance that protects individuals from the loss of their bank deposits _____
A) makes bank officials especially careful about the loans and investments they make.
B) makes it virtually impossible for a bank to fail.
C) is so costly that few banks can afford it.
D) makes depositors less concerned about the safety of their money than the interest rate it is earning.
E) was introduced as a direct result of the financial problems of the 1970s and 1980s.
Q3) Banks earn a profit by offering loans at higher interest rates than they pay savers.
A)True
B)False
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Page 15
Chapter 14: Banking and the Money Supply
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Sample Questions
Q1) Bank deposits that earn interest but have no specific maturity date are called
A) cash in bank vaults.
B) savings deposits.
C) money market mutual fund accounts.
D) time deposits.
E) checkable deposits.
Q2) Which of the following enables commercial banks to create money?
A) required reserves
B) excess reserves
C) state and local government securities
D) U.S. government securities
E) net worth
Q3) Refer to Table 14.3 for the balance sheet of Leftbank. Leftbank's total reserves _____
A) rose by $9,000.
B) were not affected by this transaction.
C) fell by $9,000.
D) fell by $10,000.
E) rose by $10,000.
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Page 16
Chapter 15: Monetary Theory and Policy
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Sample Questions
Q1) Which of the following changes is most likely to be observed in the money market of a country experiencing a recession?
A) The demand curve for money will shift to the right.
B) The demand curve for money will shift to the left.
C) The quantity of money demanded will increase.
D) The quantity of money demanded will decrease.
E) The supply of money will fall.
Q2) If the Fed purchases U.S. government securities, gross domestic product _____
A) increases because the resulting increase in the interest rate leads to a decrease in investment.
B) increases because the resulting decrease in the interest rate leads to an increase in investment.
C) decreases because the resulting increase in the interest rate leads to a decrease in investment.
D) decreases because the resulting increase in the interest rate leads to an increase in investment.
E) decreases because the resulting decrease in the interest rate leads to an increase in investment.
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17
Chapter 16: Macro Policy Debate: Active or Passive?
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Sample Questions
Q1) Discretionary policy advocates believe _____
A) that there is a high cost associated with the use of discretionary policy.
B) that self-corrective forces in an economy work slowly.
C) that natural adjustments of wages and prices can help attain potential output.
D) in rational expectations.
E) that an active stabilization policy imposes troubling fluctuations in the price level and real GDP.
Q2) Which of the following pairs of lags are typically shorter for monetary policy than for fiscal policy?
A) the recognition lag and the implementation lag
B) the effectiveness lag and the decision-making lag
C) the decision-making lag and the implementation lag
D) the implementation lag and the effectiveness lag
E) the recognition lag and the effectiveness lag
Q3) An increase in price expectations shifts the long-run Phillips curve, but not the short-run Phillips curve.
A)True
B)False
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Chapter 17: International Trade
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Sample Questions
Q1) The Kennedy Round of GATT in the mid-1960s included new provisions against
A) free trade.
B) tariffs.
C) quotas.
D) dumping.
E) common markets.
Q2) Refer to Table 17.1, which shows the per-day production data of rice and T-shirts for two countries, Cambria and Bodoni. Based on the table, it can be said that Bodoni should produce rice and trade its rice for Cambria's T-shirts.
A)True
B)False
Q3) The top trading partner for U.S. exports in 2016 was _____ A) Canada.
B) China.
C) Ireland.
D) Japan.
E) Brazil.
Q4) Tariffs and quotas are the only two devices used to restrict foreign trade.
A)True
B)False
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Chapter 18: International Finance
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Sample Questions
Q1) Which of the following is true about the U.S. trade balance during the 1960s?
A) Imports and exports were equal.
B) Exports exceeded imports.
C) Imports exceeded exports.
D) When the economy expanded, the demand for imports increased.
E) When the economy expanded, the trade balance worsened.
Q2) Under fixed exchange rates, government officials have limited roles to play in the foreign exchange market.
A)True
B)False
Q3) Which of the following is a credit item in the U.S. balance of payments?
A) U.S. companies selling merchandise abroad
B) foreign companies selling merchandise to U.S. consumers
C) U.S. consumers sending money to foreign companies
D) immigrants to the United States sending money back to their families in their native countries
E) immigrants to the United States sending gifts back to their families in their native countries
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20
Chapter 19: Economic Development
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Sample Questions
Q1) Which of the following leads to an inefficient use of labor?
A) underemployment
B) a high rate of economic growth
C) overemployment
D) a high rate of growth of income
E) a high rate of inflation
Q2) In developing countries, unemployment among young workers is typically _____ that of older workers.
A) half
B) the same as
C) twice
D) 5 times
E) 10 times
Q3) One likely reason that a country is poor is that it _____
A) does not produce many goods and services.
B) has a low unemployment rate.
C) has a low birth rate.
D) enjoys a low infant mortality rate.
E) has a high literacy rate.
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Page 21