Principles of Macroeconomics
Test Preparation
Course Introduction
Principles of Macroeconomics introduces students to the fundamental concepts and analytical tools used to understand the overall performance of national economies. The course explores key topics such as the measurement of gross domestic product (GDP), inflation, unemployment, economic growth, fiscal and monetary policy, and international trade. Students will examine how governments and central banks influence economic activity and stabilize economies through policy interventions. Emphasis is placed on understanding real-world economic issues, developing critical thinking skills, and applying macroeconomic models to analyze contemporary economic events and policy debates.
Recommended Textbook
Economics Private and Public Choice 14th Edition by
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Page 2
David A. Macpherson
Chapter 1: The Economic Approach
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Sample Questions
Q1) The basic difference between macroeconomics and microeconomics is that
A)microeconomics is concerned with aggregate markets and the entire economy,while macroeconomics is concerned with specific individual markets.
B)macroeconomics is concerned with policy decisions,while microeconomics applies only to theory.
C)microeconomics is concerned with individual markets and the behavior of people and firms,while macroeconomics is concerned with aggregate markets and the entire economy.
D)macroeconomics is concerned with positive economics,while microeconomics is concerned with normative economics.
Answer: C
Q2) Which of the following is a positive economic statement?
A)The federal minimum wage should be raised to $6.50 per hour.
B)The United States spends too much on national defense.
C)Higher rates of investment lead to higher rates of economic growth.
D)Economics is more interesting to study than history.
Answer: C
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Chapter 2: Asome Tools of the Economist
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Sample Questions
Q1) The notion that specialization in goods that one can produce at a low opportunity cost will make it possible for trading partners to produce a larger joint output is called
A)the law of absolute advantage.
B)the law of comparative advantage.
C)the law of production possibilities.
D)the exchange maximum principle.
Answer: B
Q2) According to the law of comparative advantage,a particular task is performed most efficiently by the individual with the lowest A)wage rate.
B)tax liability.
C)net worth.
D)opportunity cost.
Answer: D
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4
Chapter 3: Asupply,demand,and the Market Process
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Sample Questions
Q1) Refer to Figure 3-23.The movement from point A to point B on the graph would be caused by
A)an increase in price.
B)a decrease in price.
C)a decrease in the price of a substitute good.
D)an increase in income.
Answer: B
Q2) According to the law of supply,as the price of a good decreases
A)buyers will buy more of the good.
B)sellers will produce more of the good.
C)buyers will buy less of the good.
D)sellers will produce less of the good.
Answer: D
Q3) Farmers can choose to produce eggs or milk.If there is an increase in the price of milk then what will be the effect in the egg market?
A)The quantity of eggs demanded will increase.
B)Egg demand will decrease.
C)Egg supply will increase.
D)Egg supply will decrease.
Answer: D
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Chapter 4: Asupply and Demand: Applications and Extensions
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Sample Questions
Q1) The imposition of price ceilings on a market often results in
A)an increase in investment in the industry.
B)a persistent surplus in the market.
C)an increase in expenditures in the black-market.
D)lower prices being offered on the black market.
Q2) If the government wants to raise tax revenue and shift most of the tax burden to the consumers,it would impose a tax on a good with a A)flat (elastic)demand curve and a steep (inelastic)supply curve.
B)steep (inelastic)demand curve and a flat (elastic)supply curve.
C)steep (inelastic)demand curve and steep (inelastic)demand curve.
D)flat (elastic)demand curve and a flat (elastic)supply curve.
Q3) A black market is
A)a market that operates outside the legal system,either by selling illegal goods or by selling goods at illegal prices.
B)a market where goods and services can be obtained at lower prices.
C)a government-mandated market where controls are placed on prices.
D)a market where exchanges are made using bartering.
Q4) Suppose the United Auto Workers union obtains a substantial wage increase for auto workers.How will this affect the market for automobiles?
Page 6
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Chapter 5: Difficult Cases for the Market and the Role of Government
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Sample Questions
Q1) People who receive the benefit of a good without contributing to its costs of production are called
A)contributors in kind.
B)free riders.
C)frequent flyers.
D)cost maximizers.
Q2) Because the benefits derived from an activity decline as it is expanded,it is generally
A)wise to undertake all actions that generate benefits.
B)efficient to stop well before perfection is achieved.
C)best to continue as long as it is possible to derive some additional benefits.
D)unwise to engage in activities for which the benefits decline as you do more of it.
Q3) General agreement exists that the legitimate economic functions of government include
A)protection against invasions from a foreign power.
B)provision of goods that cannot easily be provided through markets.
C)the maintenance of a framework of rules within which people can interact peacefully with one another.
D)all of the above.
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Chapter 6: The Economics of Collective Decision-Making
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Sample Questions
Q1) Which of the following increases the political power of special interest groups and makes counterproductive government action more likely?
A)logrolling and pork barrel legislation
B)the rational-ignorance effect
C)public goods
D)both a and b,but not c
Q2) Pork-barrel legislation typically bundles the pet projects of several special interest groups.Such legislation
A)is frequently enacted,even though the overall benefits to society are less than the overall costs to society.
B)seldom benefits special interest groups.
C)usually,if successful,helps the majority of taxpayers.
D)seldom passes because social benefits are far smaller than social costs.
Q3) In 2008,the combined expenditures of federal,state,and local governments in the United States were approximately
A)14 percent of GDP.
B)24 percent of GDP.
C)35 percent of GDP.
D)44 percent of GDP.
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Chapter 7: Ataking the Nations Economic Pulse
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Sample Questions
Q1) Refer to Table 7-8.Gross domestic product equals
A)$5,500.
B)$5,650.
C)$5,800.
D)$6,650.
Q2) The 2008 box office receipts for the movie The Dark Knight were $997 million.By way of comparison,the 1975 receipts for Jaws were $470.6 million.If the Consumer Price Index was 53.8 in 1975 and 215.3 in 2008,which of the following is true?
A)The real receipts of The Dark Knight were almost four times greater than those for Jaws.
B)The real receipts of Jaws were about 88 percent greater than those for The Dark Knight.
C)The real receipts of The Dark Knight were more than three times those for Jaws.
D)The real receipts of Jaws were about 33 percent greater than those for The Dark Knight.
Q3) What is the difference between real and nominal GDP? If the president of the United States (or your instructor)asked you to evaluate the economy over the past five years,which one would you use and why?
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Page 9
Chapter 8: Economic Fluctuations, unemployment, and Inflation
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Sample Questions
Q1) The natural rate of unemployment is not zero because A)some workers will always have few skills.
B)unemployment will always rise during the recessionary phase of the business cycle.
C)the economy is characterized by dynamic change and imperfect information. D)not every member of society is capable of participating in the labor force.
Q2) Economists define full employment as the level of employment that results when A)the economy is in an economic boom.
B)the rate of unemployment is zero.
C)the rate of unemployment has fallen to its historical low of approximately two percent.
D)the rate of unemployment is normal,considering both frictional and structural factors.
Q3) As of 2011,which of the following groups had the highest unemployment?
A)males,aged 16 through 19
B)females,aged 20 through 24
C)males,aged 25 and over
D)females,aged 25 and over
Q4) Discuss the dangers of inflation;that is,why may it hurt an economy?
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Page 10
Chapter 9: Aan Introduction to Basic Macroeconomic Markets
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Sample Questions
Q1) Suppose people expect inflation to be 3 percent during the next several years.When the real interest rate is 5 percent,the money,or nominal interest rate,will be
A)1 percent.
B)4 percent.
C)7 percent.
D)8 percent.
Q2) If the actual price level is lower than the expected price level reflected in long-term contracts,
A)many firms will find production more profitable than they had expected and will increase the quantity of output supplied
B)many firms will find production less profitable than they had expected and will decrease the quantity of output supplied
C)many firms will find production more profitable than they had expected and will decrease the quantity of output supplied
D)many firms will find production less profitable than they had expected and will increase the quantity of output supplied
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Chapter 10: Dynamic Change, economic Fluctuations, and the Ad-As Model
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Sample Questions
Q1) Which of the following will most likely increase long-run aggregate supply?
A)an increase in the rate of investment
B)an increase in resource prices
C)an increase in the minimum wage
D)an increase in the expected inflation rate
Q2) The economy depicted in Figure 10-8 is in
A)short-run equilibrium at less than the full-employment output level.
B)short-run equilibrium at an output level beyond full employment.
C)long-run equilibrium at point a.
D)long-run equilibrium at point b.
Q3) If the general level of prices is higher than business decision makers anticipated when they entered into long-term contracts for raw materials and other resources,which of the following is most likely to occur?
A)a recession
B)output less than the economy's long-run potential
C)a sharp reduction in imports
D)an unemployment rate that is less than the economy's natural rate of unemployment
Q4) How does the self-correcting mechanism act to pull the economy out of a recession?
Page 12
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Chapter 11: Fiscal Policy: the Keynesian View and Historical Perspective
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Sample Questions
Q1) Which of the following is most likely to lead to an increase in current consumption?
A)an increase in personal income tax rates
B)an increase in one's expected future income
C)a decrease in one's marginal propensity to consume
D)an increase in the interest rate
Q2) The primary tool of fiscal policy is
A)the money supply.
B)the stock market.
C)the federal budget.
D)regulation of the bond market.
Q3) When the unemployment rate is low,the impact of additional spending on real output will
A)be larger than when the unemployment rate is high.
B)be smaller than when the unemployment rate is high.
C)be the same as when the unemployment rate is high.
D)place downward pressure on the general level of prices,leading to deflation.
Q4) Is there any way to conduct fiscal policy and avoid the lags involved with discretionary policy?
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Q5) How does Keynesian economic theory recommend that fiscal policy be conducted?
Chapter 12: Fiscal Policy, incentives, and Secondary Effects
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Sample Questions
Q1) Which of the following most accurately indicates the political incentive to spend and/or tax?
A)Politicians will find tax increases more attractive than increases in government expenditures.
B)Voters will generally support higher taxes in order to eliminate budget deficits.
C)Politicians are rewarded for raising taxes and punished for providing programs that benefit their constituents.
D)Politicians are rewarded for providing programs that benefit their constituents and punished for raising taxes.
Q2) Public choice analysis indicates that politicians will find
A)budget deficits more attractive than budget surpluses.
B)budget surpluses more attractive than budget deficits.
C)budget deficits attractive during an economic boom,but surpluses attractive during a recession.
D)tax increases more attractive than increases in government spending.
Q3) What is supply-side economics,and how does it differ from the Keynesian emphasis on fiscal policy?
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14
Chapter 13: Amoney and the Banking System
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Sample Questions
Q1) As the number of goods and services increases,barter becomes
A)easier because the chance of there being a double coincidence of wants increases.
B)harder because the chance of there being a double coincidence of wants increases.
C)easier because the chance of there being a double coincidence of wants decreases.
D)harder because the chance of there being a double coincidence of wants decreases.
E)easier because people have more choice.
Q2) Open-market purchases by the Fed make the money supply
A)increase,which tends to increase the value of money.
B)increase,which tends to decrease the value of money.
C)decrease,which tends to decrease the value of money.
D)decrease,which tends to increase the value of money.
Q3) Compared to a barter economy,using money increases efficiency by reducing
A)transaction costs.
B)the need to exchange goods.
C)the need to specialize.
D)inflation.
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15
Chapter 14: Modern Macroeconomics and Monetary Policy
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Sample Questions
Q1) In the short run,which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?
A)an increase in real output
B)a decrease in real output
C)an improvement in technology,which will stimulate growth in the long run
D)an increase in prices proportional to the increase in the money supply
Q2) The highest interest rates in the world are found in countries
A)that have followed a monetary policy that is highly restrictive.
B)with governments that have run large budget surpluses.
C)with governments that have run sizable budget deficits.
D)that have followed an expansionary monetary policy that resulted in high rates of inflation.
Q3) According to the monetarists,which of the following is true?
A)Instability in the money supply is the primary cause of economic instability.
B)A reduction in the money supply will cause consumers to increase spending.
C)A reduction in the money supply will cause a proportional reduction in wages and prices,leaving output unchanged.
D)A rapid growth rate of the money supply will lead to a rapid growth rate of real GDP.
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Page 16
Chapter 15: Stabilization Policy, output, and Employment
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Sample Questions
Q1) Which of the following is a major area of disagreement between activists and nonactivists?
A)Activists believe discretionary macroeconomic policy can be applied in a manner that will enhance economic stability.Nonactivists disagree.
B)Activists believe monetary policy is more potent than fiscal policy.Nonactivists disagree.
C)Activists believe changes in monetary and fiscal policy exert their effects instantaneously.Nonactivists think they work only with a substantial lag.
D)Nonactivists think macroeconomic policy is sometimes motivated by the pursuit of political gain.Activists disagree.
Q2) Under the adaptive expectations theory,expansionary monetary and fiscal policies designed to reduce the unemployment rate will be
A)ineffective in the long run.
B)ineffective in the short run.
C)noninflationary.
D)all of the above.
Q3) What are the two theories about how expectations are formed? Discuss each.
Q4) Explain two reasons why economic forecasting can only be of limited use.
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Page 17
Chapter 16: Creating an Environment for Growth and Prosperity
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Sample Questions
Q1) The "rule of 70" is a simple rule
A)70 divided by the growth rate) that approximates the number of years it will take for income to double at various growth rates.
B)70 multiplied by the growth rate) that approximates the number of years it will take for income to double at various growth rates.
C)70 divided by the percentage of population over age 70) that can be used to approximate a nation's growth of real GDP.
D)70 multiplied by the percentage of population over age 70) that can be used to approximate a nation's growth of real GDP.
Q2) A 2 percent growth rate will bring about a doubling of real GDP in about how many years?
A)1
B)2
C)35
D)70
Q3) How do high marginal tax rates influence the growth and prosperity of countries? What type of tax policy is needed to foster economic efficiency and growth?
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Page 18
Chapter 17: Institutions,policies,and Cross-Country
Differences in Income and Growth
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Q1) Countries that have a higher degree of economic freedom tend to
A)invest a larger share of their output,but the productivity of that investment is lower than for economies that are less free.
B)invest a smaller share of their output,but the productivity of that investment is higher than for economies that are less free.
C)invest a larger share of their output and the productivity of that investment is higher than for the economies that are less free.
D)invest a smaller share of their output and the productivity of that investment is lower than for economies that are less free.
Q2) Countries with more economic freedom tend to invest a ____ share of their GDP and the productivity of that investment is ____ than for countries that are less free.(Fill in the blanks. )
A)larger;higher
B)larger;lower
C)smaller;higher
D)smaller;lower
Q3) What are some of the key economic factors that characterize countries with poor growth records?
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Chapter 18: Gaining From International Trade
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Sample Questions
Q1) Economists consider tariffs to be
A)necessary for the protection of domestic industries and the achievement of full employment.
B)harmful to domestic consumers.
C)obstacles that hinder voluntary exchange and gains from trade.
D)both b and c above
Q2) Which of the following is most likely to increase U.S.exports?
A)The government gives subsidies to U.S.firms that export goods or services.
B)The government reduces the size of the budget surplus.
C)The United States unilaterally reduces its restrictions on foreign imports.
D)Taxes on domestic saving rise.
Q3) Which of the following restricts the volume of international trade?
A)stable prices
B)tariffs
C)the law of comparative advantage
D)stable international monetary system
Q4) "Trade restrictions will stop foreign imports,which will increase American employment and protect American jobs." Most economists realize this argument is wrong.Can you explain why?
Q5) What is the difference between a tariff and a quota?
Page 20
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Chapter 19: International Finance and the Foreign Exchange Market
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Q1) Which of the following would most likely cause a nation's currency to appreciate?
A)an increase in inflation of the nation's trading partners
B)an increase in the nation's domestic inflation rate
C)a decrease in domestic real interest rates
D)an increase in real interest rates abroad
Q2) Which one of the following is a credit in the U.S.current account?
A)the purchase of a U.S.car by a German
B)the purchase of insurance from Lloyd's of London by an American
C)a trip to Mexico by an American student
D)the purchase of Japanese bonds by an American investor
Q3) Which one of the following would be recorded as a credit in the U.S.balance of payments accounts?
A)the purchase of an European-made car by an American
B)the purchase of insurance from Lloyd's of London by an American business firm
C)the purchase of an American-made computer by an European business
D)the purchase of Japanese bonds by an American investor
Q4) Although popular opinion frequently portrays trade deficits (actually,account deficits)as "bad," can you present economic reasons why a trade deficit might be considered "good"?
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Chapter 20: Consumer Choice and Elasticity
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Sample Questions
Q1) The marginal value of a commodity to a consumer
A)increases as more of the good is consumed.
B)is exactly equal to price for all units purchased by the consumer.
C)is measured by the height of the individual consumer's demand curve.
D)is equal to the area above the price and below the individual consumer's demand curve.
Q2) If Mr.Smith thinks the last dollar spent on shirts yields more satisfaction than the last dollar spent on cola,and Smith is a utility-maximizing consumer,he should
A)decrease his spending on cola.
B)decrease his spending on cola and decrease his spending on shirts.
C)decrease his spending on shirts.
D)increase his spending on cola and decrease his spending on shirts.
Q3) A good that takes up a very large percentage of the consumer's budget will tend to have
A)an elastic demand.
B)a perfectly elastic demand.
C)an inelastic demand.
D)an upward-sloping demand curve.
E)very many substitutes.
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Page 22
Chapter 21: Acosts and the Supply of Goods
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Q1) Economies of scale imply that within some range a firm can increase the size of operation and
A)total cost will decrease.
B)fixed cost will decrease.
C)average total cost will decrease.
D)average total cost will increase.
E)average variable cost will decrease.
Q2) The AB Manufacturing Company has hired an economist to evaluate its financial situation.She explains to the board of directors that the company is making zero economic profit.Should the company go out of business?
Q3) At what output does the firm depicted in Figure 8-6 minimize its per-unit cost of production?
A)Q
B)Q
C)Q
D)an output beyond Q
Q4) James opened a baseball manufacturing operation,and initially the more balls he made,the lower the per-unit cost.Now,as output expands,his per-unit costs are rising.He concludes that diseconomies of scale have set in.Is he correct? Why?
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Chapter 22: Aprice Takers and the Competitive Process
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Q1) Which one of the following factors is not an explanation of the positive relationship between market price and quantity supplied?
A)The law of diminishing returns makes it more costly for firms to expand output quickly.
B)As price increases,some less efficient firms will enter the market.
C)For most firms,unit costs decrease as output increases in the long run.
D)As all firms in an industry hire more factors of production,the prices paid for them often increase.
Q2) Amy runs a business in a market where all firms are price takers.Bill suggests that she lower her price to attract even more business.Should Amy follow Bill's suggestion,or should she even consider raising her price?
Q3) Historically,most economists have referred to markets where firms are price takers as
A)purely competitive markets.
B)monopoly markets.
C)open-door markets.
D)price-searcher markets.
Q4) Why is it considered "ideal" for price to just equal marginal cost?
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Chapter 23: Price-Searcher Markets With Low Entry Barriers
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Q1) In the short run,Fed Ex,a price searcher wishing to maximize profits or minimize losses,should produce the output that
A)equates marginal cost with marginal revenue.
B)equates marginal cost with price.
C)corresponds to the lowest point on the average variable cost curve.
D)corresponds to the lowest point on the average total cost curve.
Q2) Which of the following most closely approximates the conditions of a competitive price-searcher market?
A)the market for Grade A eggs,which is characterized by a large number of firms producing a homogeneous product
B)the restaurant industry,which is characterized by firms producing a differentiated product in a market with low entry barriers
C)local cable television service,where a licensed supplier competes with firms offering satellite service
D)the market for jumbo aircraft,where one major domestic firm competes with one major foreign firm
Q3) What type of industry is the market for grocery products? Is over-capacity present?
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Chapter 24: Aprice-Searcher Markets With High Entry
Barriers
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Sample Questions
Q1) When economists talk about a barrier to entry,they are referring to
A)a factor that makes it difficult for potential competitors to enter a market.
B)the opportunity cost of equity capital that is incurred by a firm producing at minimum total cost.
C)the downward-sloping portion of the long-run average total cost curve.
D)the declining output experienced as additional units of a variable input are used with a given amount of a fixed input.
Q2) Cartel members have an incentive to cheat on cartel agreements because
A)the cartel cannot maximize profits.
B)the cartel price is the competitive price.
C)the demand curve for the firm is more elastic than the cartel's demand curve.
D)the industry profit would be higher under competitive conditions.
Q3) Which of the following is true?
A)Competitive forces are present even in markets with high barriers to entry.
B)Quality competition is an unimportant element of the competitive process.
C)Profitability and high prices discourage technological change and the development of substitute products.
D)Government regulations have substantially increased the quality of American manufacturing products in recent years.
Page 26
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Chapter 25: The Supply of and Demand for Productive Resources
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Q1) Unions often attempt to obtain stricter certification requirements and/or longer apprenticeships.These changes will tend to raise union workers' wages because they
A)create unnecessary unemployment.
B)shift the labor supply curve leftward.
C)decrease the marginal product of labor.
D)increase the demand for the product.
Q2) Refer to Table 12-4.What is total output when 4 workers are hired?
A)30
B)40
C)120
D)160
Q3) Ceteris paribus,a decrease in the demand for automobiles will
A)increase the price of automobiles.
B)increase the quantity supplied of automobiles.
C)decrease the demand for automobile workers.
D)increase the demand for automobile workers.
Q4) Why is a college graduate more likely to get a job in management than is someone with only a high school diploma,even when the job has nothing to do with a specific type of education?
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Chapter 26: Earnings, productivity, and the Job Market
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Sample Questions
Q1) Other things constant,which of the following job characteristics would be most likely to result in a higher pay rate for the job?
A)The employer provides low cost child-care services on the premises.
B)The job is widely viewed as prestigious.
C)The job requires substantial amounts of stressful out-of-town travel.
D)The job involves working in pleasant surroundings.
Q2) As far as contributions to a professional sports team's bottom line are concerned,players generally receive
A)about what they are worth.
B)about half of what they are worth.
C)about twice what they are worth.
D)about ten times more than what they are worth.
Q3) If all persons had identical preferences and productivity factors (ability,skill level,education,experience,etc. ),the highest paying jobs would be the most
A)prestigious.
B)convenient.
C)undesirable.
D)easily learned.
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Chapter 27: Investment, the Capital Market, and the Wealth of Nations
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Q1) If the money rate of interest is 9 percent and the real rate of interest 6 percent,the inflationary premium is
A)3 percent.
B)6 percent.
C)9 percent.
D)12 percent.
Q2) If a nation is going to benefit fully from technological advances and entrepreneurial ideas,it must
A)be relatively easy for persons from diverse backgrounds to try out their ideas at a relatively low cost.
B)have a mechanism that will bring unsound projects to a halt.
C)have a central investment authority that will review projects and decide which should be undertaken.
D)be both a and
Q3) In a barter economy that had no form of currency,how could interest exist?
Q4) Erin just won Lotto America,which will pay her $40 million over the next 20 years at a rate of $2 million a year.Is Erin $40 million richer today?
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Chapter 28: Income Inequality and Poverty
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Q1) Use the following two statements to answer this question.
(I)In a market system,resource prices both provide incentives for the efficient allocation of resources and determine income distribution.
(II)Income and wealth are neither created nor destroyed,they are just fixed-sized pies to be allocated among individuals.
A)Both I and II are true.
B)Both I and II are false.
C)I is true;II is false.
D)I is false;II is true.
Q2) The sharp reduction in marginal tax rates during the 1980s
A)reduced the incentive of high-income Americans to work.
B)increased the incentive of high-income Americans to utilize tax shelters.
C)increased the unemployment rate of high-income Americans.
D)increased the visible income of high-income Americans.
Q3) The mythical country of Quitar has just established a policy to give very generous in-kind benefits to the nation's poor,currently defined as those earning less than $10,000 a year.Several years later,the poverty rate has not fallen.Why not?
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Page 30
Chapter 29: Government Spending and Taxation
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Q1) Which of the following is the largest source of revenue for the federal government?
A)corporate income tax
B)payroll tax
C)personal income tax
D)user charges
Q2) Compared to the situation during the first 125 years of the United States (1790-1915),today total government expenditures are ____ share of the economy,and a greater proportion of those expenditures take place at the ____ level(s).
A)a smaller;federal
B)about the same;federal
C)a larger;federal
D)a larger;state and local
Q3) In 2010,federal expenditures on income transfers,health care,national defense,and interest on the national debt accounted for
A)less than 20 percent of federal spending.
B)about 40 percent of federal spending.
C)approximately 50 percent of federal spending.
D)more than 85 percent of federal spending.
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Chapter 30: The Economics of Social Security
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Sample Questions
Q1) The payments made to the beneficiaries of the Social Security program are financed by
A)insurance premiums previously paid into the system by the beneficiaries.
B)current receipts derived from the Social Security payroll tax.
C)income derived from funds that were previously invested in stocks and bonds.
D)governmental savings accounts based on the amount of funds the recipient previously paid into the system.
Q2) The current surplus of the Social Security system is expected to become a deficit sometime around 2018 because the
A)payroll tax rate is scheduled to decline at that time.
B)number of workers relative to the number of Social Security recipients will decline as the baby boom generation moves into the retirement phase of life.
C)stock market is not expected to perform nearly as well during the next two decades as was the case during the 1980s and 1990s.
D)growth rate of the U.S.economy is expected to slow during the next two decades.
Q3) Briefly explain why the Social Security system will face a "crisis" in the coming years.
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Chapter 31: The Stock Market: Its Function, Performance, and Potential As an Investment Opportunity
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Q1) Which of the following represents a method for a firm to obtain funds for growth and product development?
A)use of retained earnings
B)borrowing money
C)selling stock
D)all of the above
Q2) The current market value of a stock option contract to purchase 1,000 shares of IBM stock at a price of $100 that can be exercised five years from now would
A)increase if the expected future price of IBM stock rose.
B)increase if the expected future price of IBM stock fell.
C)decrease if the expected future price of IBM stock rose.
D)remain unchanged regardless of the expected future price of IBM stock.
Q3) Jane is a 22-year-old college graduate.She has just started working at a job that pays her $75,000 per year.Since you have had an economics course,Jane asks you for advice on where to invest the money she is saving for her retirement.What do you recommend?
Q4) Does it ever make sense to purchase a stock that has never paid a dividend? Explain.
Page 33
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Chapter 32: Great Debates in Economics: Keynes Versus Hayek
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Q1) What did Keynes and Hayek believe about government central planning?
A)Both believed that central planning could be used to allocate resources efficiently.
B)Both believed that perverse political incentives would undermine the ability of central planners to allocate resources efficiently.
C)Keynes believed that government central planning could improve on market outcomes;Hayek disagreed,arguing that both political incentives and insufficient information would undermine their ability to do so.
D)Keynes believe that central planning would fail because the policy-makers did not have sufficient information to plan efficiently;Hayek believed that efficient central planning was possible if political decisions were made democratically.
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Chapter 33: The Crisis of 2008: Causes and Lessons for the Future
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Q1) Which of the following was the result of Fannie Mae and Freddie Mac being both privately-owned and government-sponsored enterprises?
A)Their government sponsorship increased their cost of acquiring loanable funds.
B)They were unable to earn profits and pay dividends to their shareholders.
C)Congressional regulations exerted little or no impact on their business operations.
D)Their activities were more susceptible to political influence and favoritism.
Q2) Which of the following was an underlying cause of the economic crisis of 2008?
A)a failure of government to impose regulations on Fannie Mae,Freddie Mac,and other mortgage lenders
B)the imposition of government regulations on Fannie Mae,Freddie Mac,and other lending institutions that eroded the conventional lending standards in place prior to the mid-1990s
C)greedy mortgage lenders who extended risky loans to sub-prime borrowers even though the regulators were trying to limit these loans
D)federal housing regulations that made it difficult for Fannie Mae,Freddie Mac,and other lending institutions to obtain sufficient loanable funds for the finance of housing construction
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Page 35
Chapter 34: Lessons From the Great Depression
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Sample Questions
Q1) The National Industrial Recovery Act,passed in 1933,was an attempt to A)break monopolies and cartels,and introduce competition into several different industries.
B)fix prices,wages,and quotas for several industries in an effort to keep prices high.
C)lower corporate taxes and remove collusive behavior in an effort to keep U.S.firms competitive with foreign manufacturers.
D)create a stable economic environment that would encourage investment and expansion in the industrial sector of the economy.
Q2) Which of the following is an important lesson that can be drawn from the experience of the Great Depression?
A)Frequent shifts in monetary policy can help smooth out unstable economic conditions during a recession.
B)Trade restrictions can "save jobs" and expand total employment during an economic downturn.
C)The good intentions of political decision-makers are no substitute for sound policy.
D)The federal government should always balance its budget during a recession.
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Chapter 35: Lessons From Japan and Canada
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Sample Questions
Q1) Demographic and economic analysis indicates that as a nation's population age 65 and older
A)declines,the tax burden on the current work force will increase.
B)expands,the tax burden on the current work force will decrease.
C)expands,the overall productivity of the population will increase.
D)expands,the overall productivity of the population will decline.
Q2) What is the relationship between monetary policy and interest rates?
A)Expansionary monetary policy will always result in an increase in interest rates.
B)Restrictive monetary policy will tend to push interest rates up,unless people expect deflation to occur,in which case interest rates will decline to low levels.
C)Expansionary monetary policy will tend to push interest rates up,unless people expect inflation to occur,in which case interest rates will remain low.
D)Restrictive monetary policy will always result in a decrease in interest rates.
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Chapter 36: The Federal Budget 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 bonds.
D)sum of the net personal debts of Americans to foreigners.
Q2) Currently,the strategy of the Social Security system is to run surpluses to prepare for the retirement of the baby boom generation.The effectiveness of this strategy is being undermined because
A)rising interest rates make it more expensive for Social Security to borrow.
B)inflation is reducing the value of the Social Security surplus.
C)the trust fund is being used to finance current government expenditures,and the bonds held by the trust fund are an obligation of the U.S.Treasury.
D)the federal budget surplus reduces the Social Security surplus.
Q3) At year-end 2010,the national debt of the United States was approximately
A)5 percent of GDP.
B)25 percent of GDP.
C)75 percent of GDP.
D)95 percent of GDP.
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Page 38
Chapter 37: The Economics of Healthcare
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Sample Questions
Q1) Healthcare price controls will lead to
A)more innovative healthcare treatments.
B)waiting lines and lengthy delays for treatment.
C)higher quality healthcare services.
D)an increase in the supply of healthcare services.
Q2) If a third party pays a larger and larger share of the purchasing price of a good,economic theory indicates that
A)the total expenditures (including those made by the third party)on the good will decline.
B)the demand for the good will decrease.
C)consumers will have a stronger incentive to economize on their use of the good.
D)suppliers will have less incentive to provide the good at low prices.
Q3) Which of the following grew rapidly after the passage of the Medicare and Medicaid programs in the mid-1960s?
A)the share of healthcare expenditures financed directly by the consumer
B)the share of healthcare expenditures financed by third parties
C)the prices of healthcare relative to the prices of other goods and services
D)both b and c
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Chapter 38: Education: Problems and Performance
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Source URL: https://quizplus.com/quiz/26276
Sample Questions
Q1) Increasing competition between schools will tend to
A)increase their cost.
B)decrease their cost.
C)decrease their quality.
D)do both b and c
Q2) When the government both provides education and covers its costs through taxation,economic analysis indicates that
A)the government-operated schools can be expected to supply a high quality education at a low cost.
B)parents will be in a strong position to discipline poorly performing schools and make sure that the school their child attends is providing quality schooling.
C)public school administrators can be expected to care more about pleasing parents than about pleasing government officials and teachers' unions.
D)the parent/consumer will be in a weak position to make choices that will assure that their child receives a quality education at an economical cost.
Q3) What are charter schools? How do they differ from voucher programs?
Q4) What does the evidence suggest regarding the effects of school choice programs?
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Chapter 39: Earnings Differences Between Men and Women
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Sample Questions
Q1) Women earn less on average than men.Which of the following would be the logical conclusion?
A)Women must be the victim of employment discrimination.
B)Women must be less productive.
C)Men must be more highly motivated and materialistic.
D)Without consideration of preferences and productivity factors,differences in unadjusted mean earnings do not necessarily reflect employment discrimination.
Q2) Which of the following is true?
A)Employers who discriminate against women will have lower costs than rival firms that hire employees strictly on the basis of merit (productivity).
B)On average,the number of hours worked per year by women in the labor force is greater than the hours worked by men in the labor force.
C)The female/male earnings ratio is substantially higher for never married persons than for those married with a spouse present.
D)As the proportion of women preparing for careers as professionals has increased in recent decades,the earnings of women have declined relative to those for men.
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Chapter 40: Do Labor Unions Increase the Wages of Workers
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Sample Questions
Q1) The demand for union labor is usually determined by A)the number of union members.
B)the strength of the union.
C)the total value of the union labor in the production process.
D)market conditions outside the union's direct control.
Q2) A union representing a group of workers will tend to be stronger when A)there are no good substitutes for the labor services of the unionized workers.
B)the domestic producers of the good produced by the unionized workers face intense competition from foreign suppliers of the good.
C)the cost of employing the unionized workers is a large part of the total cost of the product that they produce.
D)the demand for the good produced by the unionized workers is highly elastic.
Q3) What characteristics of both the product market and the labor market enhance the likelihood that a union will be effective?
Q4) In which of the following occupations is union membership the highest?
A)sales
B)transportation
C)construction
D)government
Page 42
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Chapter 41: The Question of Resource Exhaustion
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Sample Questions
Q1) Non-renewable resources are those that
A)are not renewed by nature,but their supply can be easily expanded by humans.
B)are naturally renewed by nature;timber provides an example.
C)are not renewed by nature,at a significant rate.
D)cannot be recycled,by their very nature.
Q2) Doomsday forecasts about running out of natural resources,with dire consequences,
A)have occurred at least as far back in time as the 16th century.
B)have generally been correct,and resources today are nearly all rising in price.
C)seldom are taken seriously enough by the public.
D)began to be heard for the first time after Earth Day of 1970.
Q3) When natural resources are not traded,or where markets are not allowed to function as well as they can under a system of well-defined property rights,the problems of ____ and ____ are common.
A)higher taxes;increased regulation
B)waste;scarcity
C)inflation;unemployment
D)slow growth;fluctuating currency values
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Page 43
Chapter 42: Difficult Environmental Cases and the Role of Government
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Sample Questions
Q1) The burning of fossil fuels may cause global warming.Considering both the science and the reactions of crops,human health,and other factors across differing climates,economists generally agree that
A)to protect the interests of future generations,the buildup of carbon dioxide must soon be stopped.
B)any climate change,if it actually occurs,will be extremely costly.
C)there will be both costs and benefits if the climate warms.
D)all people will be worse off if the climate warms.
Q2) Most scientists agree that
A)if global warming continues for another century,the sea levels will rise substantially,imposing costs much larger than the cost of preventing the warming.
B)the earth has warmed about one degree Fahrenheit in the past century.
C)global warming will substantially reduce future rates of economic growth and lead to sharp reductions in living standards.
D)regulations like those outlined in the Kyoto Protocol will substantially reduce global warming.
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