Course Introduction
Survey of Economics Exam
Questions
Survey of Economics offers a comprehensive introduction to the fundamental concepts of both microeconomics and macroeconomics. Students will explore topics such as supply and demand, market structures, consumer behavior, production, costs, economic growth, inflation, unemployment, and the role of government in the economy. Emphasis is placed on understanding real-world economic issues and developing analytical skills to interpret current events, evaluate policy decisions, and apply economic reasoning to everyday situations. The course is designed for students seeking a broad overview of economic principles without extensive technical or mathematical requirements.
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) 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
Q2) If economics is correct in its assumption that people are rational,why then would anyone choose to smoke cigarettes?
Answer: Even though the harmful effects of cigarette smoking are documented,more than 20 percent of the U.S.adult population continues to smoke.The economic model of rational choice suggests that individuals weigh the marginal benefit of smoking an additional cigarette (the pleasure obtained)against the marginal costs (the pecuniary cost,the price of the cigarette,and the risk of being afflicted by smoking-related diseases,discounted by the probability).Since the likelihood of getting a smoking-related disease increases with age,it is not surprising that more people elect to give up the habit as they get older.
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Chapter 2: Asome Tools of the Economist
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257 Verified Questions
257 Flashcards
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Sample Questions
Q1) A point on the production possibilities curve represents a combination of goods that is
A)inefficient.
B)efficient.
C)unattainable.
D)attainable.
Answer: B
Q2) A production possibilities curve graphically represents the maximum quantities of two products produced when all resources in the economy are being used efficiently.If an economy operates at a point inside its production possibilities curve, A)it lacks the resources necessary to produce at full employment.
B)it is utilizing some resources inefficiently.
C)it does not confront the problem of scarce goods relative to unlimited wants.
D)it does not exist in the real world since it is impossible for an economy to operate inside its production possibilities curve.
Answer: B
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4
Chapter 3: Asupply,demand,and the Market Process
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Sample Questions
Q1) Which of the following would reduce the price of DVD players and increase the quantity sold?
A)an increase in the demand for DVD players
B)a decrease in the demand for DVD players
C)a decrease in the supply of DVD players
D)an increase in the supply of DVD players
Answer: D
Q2) Economists would say that the demand for tacos is
A)relatively inelastic because there are very few close substitutes available.
B)relatively elastic because there are many substitutes for tacos.
C)increasing because of reports of Mad Cow Disease.
D)relatively inelastic because its demand curve is flatter.
Answer: B
Q3) If consumer purchases of a good are highly sensitive to the price of the good,this is illustrated by a
A)demand curve that is relatively flat (more horizontal).
B)demand curve that is relatively steep (more vertical).
C)supply curve that is relatively flat (more horizontal).
D)supply curve that is relatively steep (more vertical).
Answer: A
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Chapter 4: Asupply and Demand: Applications and Extensions
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Sample Questions
Q1) Taxes create deadweight losses because they
A)reduce profits of firms.
B)distort incentives.
C)cause prices to rise.
D)create revenue for the government.
Q2) When a price floor is imposed above the equilibrium price of a commodity,
A)quantity demanded will be greater than quantity supplied for the good.
B)the quantity demanded by consumers will be greater than at the equilibrium price.
C)a shortage of the good will develop.
D)a surplus of the good will develop.
Q3) Rent controls generally fix the price of rental housing below market equilibrium.Economic analysis suggests these controls
A)are effective in helping the poor find housing.
B)improve the quality of housing available to consumers.
C)create a surplus of rental housing.
D)reduce the future supply of rental housing.
Q4) Joanne states,"If raising the minimum wage to $10 an hour is good,like Senator Largess suggests,then raising it to $20 an hour would be twice as good." Is Joanne correct? Why or why not?
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) National defense is considered a public good because there appears to be no limits to the nonrivalry-in-consumption characteristic,and exclusion of nonpayers is impossible.Are there any other goods that so perfectly meet both public goods criteria?
Q2) Suppose the actions of the producers of a good impose an external cost which results in the actual market price of $25 and market output of 1,000 units.How does this outcome compare to the efficient,ideal equilibrium?
A)The efficient price would higher than $25 while the efficient output would be less than 1,000 units.
B)The efficient price would be higher than $25 while the efficient output would be greater than 1,000 units.
C)The efficient price would be lower than $25 while the efficient output would be less than 1,000 units.
D)The efficient price would be lower than $25 while the efficient output would be greater than 1,000 units.
Q3) Why is a stable monetary system essential for the smooth operation of a market system? What would an unstable monetary system be like? Why isn't a barter economy just as efficient as an economy with money?
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Page 7
Chapter 6: The Economics of Collective Decision-Making
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Sample Questions
Q1) Other things constant,if both the benefits and costs of a public-sector activity are widespread among voters,the political process will generally result in the
A)rejection of productive activities and acceptance of unproductive activities.
B)acceptance of both productive and unproductive activities.
C)rejection of both productive and unproductive activities.
D)acceptance of productive activities and rejection of unproductive activities.
Q2) Economic analysis suggests that bureaucrats and public-sector managers have a strong incentive to
A)make sure that their budgets are as small as possible so more funds will be available for other government programs.
B)expand their budgets to sizes beyond what would be considered economically efficient.
C)ensure that their budgets are exactly the size that would be considered economically efficient.
D)economize on their spending and return unspent funds to the general treasury.
Q3) Suppose we coupled the pay of Congress with the federal budget,so that for every billion dollars of deficit spending,a lawmaker's pay would be reduced $1,000.How would this affect fiscal policy?
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Chapter 7: Ataking the Nations Economic Pulse
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Sample Questions
Q1) Which of the following would increase GDP?
A)You buy 100 shares of Wal-Mart stock.
B)Your car is destroyed by a fire,and you purchase a two-year-old car to replace it.
C)Your car is damaged by a fire,and you hire a mechanic to repair it.
D)Your car is damaged by a fire,and you reduce the number of hours you work to repair the car yourself.
Q2) Use of real GDP to measure changes in national output from one period to another can be misleading if
A)the price level is different for the two periods.
B)the share of production carried out in the nonmarket sector is different for the two periods.
C)the bundle of goods produced during the periods is quite similar.
D)the size of the export-import sector differs for the two periods.
Q3) The consumer price index is designed to measure the extent to which
A)the cost of a typical bundle (market basket)of consumer goods has changed over time.
B)consumers have increased their spending over time.
C)GDP is allocated to consumers,rather than to business or government,over time.
D)prices paid by employers to resource owners have changed over time.
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Page 9
Chapter 8: Economic Fluctuations, unemployment, and Inflation
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Sample Questions
Q1) The expansionary phase of the business cycle is characterized by
A)decreasing real output and increasing unemployment.
B)decreasing real output and declining unemployment.
C)increasing real output and increasing unemployment.
D)increasing real output and declining unemployment.
Q2) Full employment is the rate of employment that results when
A)all the labor resources of the economy are employed full time.
B)cyclical unemployment has reached its maximum.
C)everybody who wants a job can find one.
D)only frictional and structural unemployment are present.
Q3) Tom loses his job and immediately begins looking for another.Other things the same,the unemployment rate
A)increases,and the labor-force participation rate decreases.
B)increases,and the labor-force participation rate is unaffected.
C)is unaffected,and the labor-force participation rate increases.
D)decreases,and the labor-force participation rate is unaffected.
Q4) Inflation isn't costly just because prices are going up.After all,inflation means salaries and wages are going up as well.If higher prices are not the problem,discuss two important aspects of inflation that are costly.
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Chapter 9: Aan Introduction to Basic Macroeconomic Markets
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Sample Questions
Q1) Which of the following best characterizes the circular flow of income?
A)Households buy goods and services from businesses,and businesses sell goods and services to households.
B)The government purchases resources from businesses and households and then sells goods and services to businesses and households.
C)Businesses buy resources from the government,and households buy goods and services from businesses.
D)Businesses buy resources from households,and households use their income to buy goods and services from businesses.
Q2) Americans needing foreign currencies get those currencies from a bank.The ultimate source of these currencies is
A)U.S.investments abroad.
B)U.S.sales to foreign countries.
C)U.S.purchases of foreign goods,services,and assets.
D)the International Monetary Fund.
Q3) Suppose that your bank pays 5 percent interest on your savings account balance.Is this the nominal or real interest rate? What would be your real interest rate?
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Page 11
Chapter 10: Dynamic Change, economic Fluctuations, and the Ad-As Model
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Sample Questions
Q1) Within the AD/AS model,if consumers increase their savings and cut back on their spending,the
A)natural rate of unemployment will increase.
B)real interest rate will decrease and,thereby,cushion the reduction in consumption spending.
C)real interest rate will increase because of the higher rate of saving.
D)long-run aggregate supply will decrease to restore equilibrium.
Q2) With regard to the business cycle,most modern economists believe that
A)once a recession starts,market forces are incapable of preventing the economy from plunging deeper and deeper into a depression.
B)market economies will experience lengthy periods of recession pretty much regardless of what policy makers do.
C)the economy's self-corrective mechanism will quickly restore full employment regardless of the choices made by policy makers.
D)lower real interest rates and reductions in real resource prices will help direct an economy out of recession.
Q3) How does the self-correcting mechanism act to pull the economy out of a recession?
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Chapter 11: Fiscal Policy: the Keynesian View and Historical Perspective
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Sample Questions
Q1) When Keynesian equilibrium is present,
A)aggregate demand for goods and services will equal the current rate of output.
B)business inventories will be increasing.
C)full employment must be present.
D)the actual rate of unemployment must equal the natural rate of unemployment.
Q2) According to the Keynesian view,the prolonged unemployment of the Great Depression
A)was surprising because Keynesians believed that wage rates would decline and direct the economy to full employment.
B)was surprising because Keynesians believed that lower interest rates would direct the economy to full employment.
C)resulted because the total expenditures on goods and services were less than the full-employment rate of output.
D)resulted because the federal government ran large budget deficits during the 1930s.
Q3) Is there any way to conduct fiscal policy and avoid the lags involved with discretionary policy?
Q4) What is fiscal policy? What is the relationship between fiscal policy and the federal budget?
Page 13
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Chapter 12: Fiscal Policy, incentives, and Secondary Effects
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Sample Questions
Q1) Which of the following most clearly indicates that fiscal policy is becoming more expansionary?
A)an increase in the budget deficit relative to GDP
B)a reduction in the budget deficit relative to GDP
C)an increase in the budget surplus relative to GDP
D)an increase in the nominal (dollar)size of the budget deficit
Q2) Ricardian Equivalence maintains that an increase in government spending financed by debt will result in a corresponding increase in
A)savings,in anticipation of future taxes.
B)output and consumption,stimulated by the additional government spending.
C)consumer spending,in anticipation of lower future taxes.
D)aggregate demand,because the additional spending was financed by borrowing rather than current taxation.
Q3) An increase in subsidies and other government spending during a recession is likely to result in
A)an increase in rent-seeking activity.
B)an increase in productive projects and a reduction in unproductive projects.
C)a decrease in the level of future taxes.
D)greater reliance on profits and losses in the allocation of resources.
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Page 14
Chapter 13: Amoney and the Banking System
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Sample Questions
Q1) You deposit a $1,000 scholarship check in the bank.If the required reserve ratio is 10 percent,explain how the banking system will create new money and how much money can potentially be created.
Q2) The tool used most frequently by the Fed to control the money supply is
A)changes in the premiums charged for FDIC deposit insurance.
B)open market operations.
C)changes in the discount rate.
D)changes in reserve requirements.
Q3) In practice,money supply and short-term interest rates are determined by the
A)Treasury and Commerce departments.
B)Federal Open Market Committee.
C)Board of Governors.
D)House and Senate.
Q4) When the Federal Reserve System wants to increase the money supply,what does it typically do?
A)It purchases U.S.government securities.
B)It increases the discount rate.
C)It increases the required reserve ratio.
D)It sells bonds on the open market.
Q5) Briefly explain the three functions of money.
Page 15
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Chapter 14: Modern Macroeconomics and Monetary Policy
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Sample Questions
Q1) In the situation shown in Figure 14-6,how could the Fed return the economy to potential output?
A)decrease government spending
B)increase taxes
C)decrease taxes
D)shift to a more restrictive monetary policy
E)shift to a more expansionary monetary policy
Q2) Indicate how changes in monetary policy are transmitted to the goods and services market? Discuss for the case of an expansion in the money supply.
Q3) Cross country data illustrates that rapid expansion in the supply of money over a lengthy period of time (for example,a decade)leads to
A)rapid growth of real output.
B)a low real rate of interest.
C)high rates of inflation.
D)an inflow of capital and a high rate of investment.
Q4) Why do individuals choose to hold part of their wealth in money rather than in other types of assets? Discuss the benefits and costs of holding money.
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Chapter 15: Stabilization Policy, output, and Employment
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Sample Questions
Q1) The modern view of the Phillips curve indicates that expansionary macroeconomic policy
A)will reduce the unemployment rate if policy makers are willing to accept the required rate of inflation.
B)will reduce the unemployment rate only when people underestimate the inflationary effects of the expansionary policy.
C)will reduce the unemployment rate only when people overestimate the inflationary effects of the expansionary policy.
D)will reduce the unemployment rate if people accurately anticipate the inflationary effects of the expansionary policy.
Q2) During the 1900-1950 period,
A)the growth of real GDP was more stable than has been the case since 1950.
B)unemployment seldom exceeded 4 percent of the labor force.
C)double-digit swings in real GDP during a single year were not uncommon.
D)the money supply was increased at a constant annual rate of between 4 percent and 6 percent throughout the period.
Q3) What is the index of leading indicators,and what is it used for?
Q4) Explain two reasons why economic forecasting can only be of limited use.
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Chapter 16: Creating an Environment for Growth and Prosperity
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Q1) Which of the following will tend to retard the growth and prosperity of a country?
A)imposition of price controls and regulations that restrain domestic and international trade
B)an expansionary monetary policy that leads to high rates of inflation
C)high marginal tax rates
D)all of the above
Q2) Which of the following would be most likely to improve the standard of living of a less-developed country?
A)development of strong labor unions.
B)more foreign investment,attracted by the expectation of economic and political stability.
C)adoption of trade barriers (higher tariffs and quotas).
D)widespread use of price controls to allocate goods and resources.
Q3) A 7 percent growth rate will bring about a doubling of real GDP in about how many years? A)1 B)7
C)10
D)70
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Chapter 17: Institutions,policies,and Cross-Country
Differences in Income and Growth
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Q1) Countries that have adopted liberal reforms and substantially increased their economic freedom rating in recent years
A)experienced falling income levels per capita during 1995-2009.
B)grew slowly during 1995-2009.
C)achieved impressive growth rates of real GDP per person during 1995-2009.
D)have grown less rapidly than high income industrial economies.
Q2) The Economic Freedom of the World index is a measure of the consistency of a nation's institutions and policies with
A)political democracy.
B)economic freedom.
C)an Egalitarian distribution of income.
D)economic nationalism.
Q3) Countries with lower levels of economic freedom tend to have
A)lower levels of economic growth
B)higher levels of per person income
C)higher levels of investment
D)all of the above
Q4) 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) Suppose that in the absence of trade,the U.S.price for bicycles was higher than the world price for bicycles.Would allowing international trade mean that the United States would import or export bicycles? Who in the United States would benefit and who would lose with a free trade policy,and would the gains be greater than the losses?
Q2) American textile manufacturers and union members have often lobbied successfully for restrictive quotas limiting the importation of textile products.The major impact of these quotas is
A)a permanent reduction in unemployment in the United States.
B)lower prices for American consumers and an improvement in the quality of textile products available.
C)higher prices for American consumers,a narrower selection of products,and less competition in the U.S.textile industry.
D)long-run profits in the U.S.textile industry that are substantially above market equilibrium.
Q3) "Economists have demonstrated that imports benefit consumers while causing losses to producers,and exports benefit producers while causing losses to consumers.In the balance then,international trade neither benefits nor hurts a nation as a whole."
Evaluate this statement.
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Page 20
Chapter 19: International Finance and the Foreign Exchange Market
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Sample Questions
Q1) A pair of Nike tennis shoes costs $90 in the United States.If the exchange rate between the United States and Mexico is 0.10 ($0.10 = 1 peso),then that same pair of shoes would cost ____ pesos.
A)90
B)900
C)1,000
D)9,000
Q2) A nation's trade deficit will tend to shrink when
A)its economy is expanding.
B)its economy is shrinking.
C)its investment environment is less attractive to foreigners.
D)b and c are true.
Q3) Other things constant,which of the following will most likely cause the dollar to appreciate on the exchange rate market?
A)higher interest rates in the United States
B)a relatively low rate of inflation in the United States
C)high rates of income growth in Europe
D)all of the above
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Chapter 20: Consumer Choice and Elasticity
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Sample Questions
Q1) If the quantity demanded of a product fell from 11,000 to 10,000 when price rose from $9 to $10,the price elasticity of demand over this range is equal to approximately A)-0.1.
B)-0.05.
C)-0.9.
D)-1.1.
Q2) If John's marginal benefit derived from the consumption of another candy bar is greater than the price of the candy bar,
A)John will not purchase any more candy bars.
B)John will increase his total satisfaction by purchasing the candy bar.
C)the opportunity cost of the candy bar is lower than the price.
D)John will decrease his total utility if he purchases the candy bar.
Q3) Between $3 and $4,the price elasticity of the demand curve depicted in Figure 7-6 is A)relatively inelastic.
B)approximately equal to -0.33.
C)approximately equal to -3.
D)both a and b.
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Chapter 21: Acosts and the Supply of Goods
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Q1) Which of the following would shift a firm's short-run cost curves downward?
A)an advance in technology
B)an increase in employees' wages
C)an increase in the demand for the firm's product
D)an increase in excise taxes levied on the firm's product
Q2) The most important implicit cost generally omitted from the accounting statement of a firm is the
A)rental cost of machinery.
B)cost of compliance with government regulations.
C)opportunity cost of the equity capital invested by the owners.
D)accounting cost incurred as the result of tax compliance.
Q3) The sum of the explicit and implicit costs incurred in the production process is called A)fixed cost.
B)sunk cost.
C)marginal cost.
D)total cost.
Q4) 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?
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Chapter 22: Aprice Takers and the Competitive Process
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Q1) Refer to Table 9-1.If the market price of tomatoes rose to $570 per ton,how many tons per month would the Tuckers produce if they were maximizing profit? A)6
B)7
C)8
D)9
Q2) Farmer Fanny sells her crops in a competitive price-taker market.If she produces 500 bushels for total revenue of $2,500 and if harvesting the 501st bushel would raise her total cost from $2,500 to $2,505,her
A)revenue will increase by $10 if she harvests the 501st bushel
B)revenue will fall by $5 if she harvests the 501st bushel
C)average fixed cost will rise if she harvests the 501st bushel
D)profit will fall by $10 if she harvests the 501st bushel
E)profit will remain unchanged if she harvests the 501st bushel
Q3) In the short run,a firm that is a price taker will stay in business as long as
A)price equals average revenue.
B)marginal revenue is greater than or equal to marginal cost.
C)price exceeds average variable cost.
D)price is less than average variable cost.
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Page 24
Chapter 23: Price-Searcher Markets With Low Entry Barriers
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Q1) Airlines generally charge travelers willing to stay over Saturday night lower fares because
A)these travelers have lower incomes,and therefore,the airlines would like to help them.
B)it cost less to transport travelers willing to stay over a Saturday night.
C)the demand of these travelers is elastic,and therefore,the lower fares generate more revenue.
D)the demand of these travelers is inelastic,and therefore,the lower fares generate more revenue for the airlines.
Q2) If a market is contestable,the market will be characterized by
A)minimum-cost production methods and a competitive (normal)profit rate.
B)high barriers to entry and a small number of suppliers.
C)prices in excess of production costs and mergers leading to monopoly.
D)a large number of suppliers offering a homogeneous product.
Q3) When you go to a grocery store,most candy bars of a given size sell for virtually the same price.Can we conclude that this is evidence of collusion on the part of candy bar manufacturers?
Q4) What type of model would be best if we wanted to analyze the market for fast food? Why?
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Page 25
Chapter 24: Aprice-Searcher Markets With High Entry
Barriers
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Q1) Which of the following is the best explanation of why a lack of information is a problem when the government wants to impose price regulation on a monopolist?
A)the government does not have information about which firms are monopolies.
B)firms that are monopolies do not have information about their level of profit or about potential competition.
C)consumers do not have information about which firms are competitive and which firms are monopolies.
D)regulators do not have information about the demand and marginal costs of the firms that they regulate.
Q2) Empirical studies show that the after-tax accounting profits of manufacturing corporations are approximately what percent of sales?
A)1 percent
B)5 percent
C)15 percent
D)25 to 30 percent
Q3) Suppose all automobile manufacturers have collusively agreed to sell their cars at a uniform price.If a firm wanted to break this agreement and not be detected,what would be one way to do this?
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Chapter 25: The Supply of and Demand for Productive Resources
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Q1) Which of the following is an example of an investment in human capital?
A)a law student who works as a waiter in the summer
B)on-the-job training received by an apprentice welder
C)payments into a retirement pension plan by a skilled laborer
D)all of the above are correct.
Q2) One way to invest in human capital is by
A)increasing your education.
B)avoiding on-the-job training programs.
C)doing nothing;it is impossible to improve your human capital.Human capital is solely determined by the abilities that you are born with.
D)investing in physical capital.
Q3) When a firm decides to hire more workers because local wage rates have decreased,this is an example of A)market failure.
B)substitution in production.
C)labor exploitation.
D)substitution in consumption.
Q4) Why is it more expensive to acquire a new house in an urban area than in a rural area if the costs of labor and building materials are the same?
Page 27
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Chapter 26: Earnings, productivity, and the Job Market
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Q1) Wages in the United States are higher than wages in China primarily because
A)worker productivity is higher in the United States.
B)in the United States,less capital is required per employee.
C)China has more natural resources that employees can work with.
D)the United States has more people and,therefore,a larger number of skilled workers.
Q2) Everything else equal,wages are likely to be higher when
A)the location of the job is more desirable.
B)the work environment is more prestigious.
C)more skill is required to perform well on the job.
D)the work is safer.
Q3) Which of the following is true?
A)The majority of millionaires received most of their wealth through an inheritance.
B)The percentage of the population that are millionaires in inflation-adjusted dollars has been stable since the 1970s.
C)About one-third of millionaires have college degrees.
D)More than 75 percent of American millionaires have college degrees.
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Chapter 27: Investment, the Capital Market, and the Wealth of Nations
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Q1) The experience of the former Soviet bloc countries illustrates that high rates of investment may fail to promote rapid economic growth when a country
A)uses central government planning rather than capital markets to allocate investment funds.
B)has a strong education system.
C)has secure property rights.
D)has a tax system that encourages savings.
Q2) The money rate of interest is the
A)real rate of interest minus the inflationary premium.
B)real rate of interest plus the inflationary premium.
C)real rate of interest divided by the inflationary premium.
D)inflationary premium minus the real interest rate.
Q3) Economists refer to the desire of consumers for goods now rather than in the future as
A)a positive rate of time preference.
B)the rational expectations hypothesis.
C)roundabout methods of production.
D)the inflationary premium.
Q4) In a barter economy that had no form of currency,how could interest exist?
Page 29
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Chapter 28: Income Inequality and Poverty
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Q1) The phenomenon that describes how transfer programs,which significantly reduce the adversities of poverty,also reduce the opportunity cost of choices that often lead to poverty is known as
A)the implicit marginal tax rate.
B)Gibson's paradox.
C)the Phillips curve
D)the Samaritan's dilemma.
Q2) Imagine two countries,Lebos and Egap,that have identical average annual incomes.In Lebos,the poorest families one year almost always end up as the richest families the next year and become middle-income families the year after that.In Egap,however,the poor remain poor and rich remain rich.Which of the following is true about the two countries?
A)The measured distribution of annual income in any given year is more equal in Lebos than in Egap.
B)The measured distribution of annual income in any given year is more equal in Egap than in Lebos.
C)The measured distribution of annual income in any given year will be the same in Lebos and Egap.
D)The distribution of lifetime income is more equal in Egap than in Lebos.
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Page 30
Chapter 29: Government Spending and Taxation
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Q1) Increased spending on which of the following items is most likely to increase the size of government during the years following 2010?
A)education
B)Social Security and Medicare
C)agricultural subsidies
D)transportation (roads and airports)
Q2) How has the structure of the personal income tax changed and the share of taxes paid by various income groups changed in recent decades?
Q3) Which of the following is true?
A)In 2002,national defense accounted for more than half of federal spending.
B)Federal spending on national defense has increase rapidly during the last several decades.
C)Federal spending on health care programs such as Medicare and Medicaid has increased rapidly during the last several decades.
D)Federal spending in the aftermath of hurricane Katrina expanded over 50%.
Q4) As real incomes grow,what happens to federal tax revenues as a share of the economy?
Q5) Discuss how size of government can negatively affect economic growth.
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Chapter 30: The Economics of Social Security
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Q1) The current Social Security system works to the disadvantage of blacks primarily because the
A)average annual earnings of blacks are generally lower than other groups.
B)average life expectancy of blacks is generally less than other groups.
C)Social Security tax rates imposed on blacks are higher than those imposed on other groups.
D)Social Security benefit formula is disadvantageous to blacks.
Q2) When the Social Security system enters its deficit years and the bonds held in the trust funds are drawn down,
A)overall taxes will be reduced as the trust funds are used to pay benefits to retirees.
B)the payroll taxes used to finance Social Security benefits can be reduced because the trust funds will be sufficient to pay the retirement benefits of the baby boom generation.
C)income and other federal taxes will have to be raised (or additional funds will have to be borrowed)in order to redeem the bonds held by the trust fund.
D)income taxes will have to be reduced in order to keep the revenues and expenditures of the Social Security system in balance.
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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 indicates why the role of vigilant investors and investment fund managers is important for the efficient operation of an economy?
A)These investors generally serve on the boards of directors of corporations.
B)These investors tend to buy and sell stocks in a way that rewards good management.
C)These investors help allocate capital efficiently among firms and among investment projects.
D)Both b and c are true.
Q2) If Apple Computer Corporation constitutes a sizeable share of your current stock holdings,the purchase of which of the following stocks would provide you with the greatest reduction in risk?
A)Hewlett-Packard
B)IBM
C)Dell Computer Corporation
D)Wal-Mart
Q3) Many personal finance magazines such as Money and Smart Money routinely give advice as to which stocks to buy.Should you take their advice?
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33
Chapter 32: Great Debates in Economics: Keynes Versus Hayek
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Q1) In his book The Road to Serfdom,Friedrich Hayek argued that the growth of government
A)was essential if the ups and downs of the business cycle were going to be controlled.
B)must be increased if western democracies were going to survive.
C)could only be achieved if monetary policy-makers were willing to expand the supply of money more rapidly.
D)endangered freedom and moved Western democracies toward tyranny,just as it had done in Nazi Germany and the Soviet Union.
Q2) According to Friedrich Hayek and his followers,the booms and busts of the business cycle are primarily the result of
A)fluctuations in aggregate demand.
B)the "animal spirits" of private investors.
C)excessive credit expansion and artificially low interest rates that trigger malinvestment.
D)the unwillingness of political decision-makers to follow the advice of macroeconomists who know how to alter fiscal policy in a manner that would virtually eliminate the ups and downs of the business cycle.
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Page 34
Chapter 33: The Crisis of 2008: Causes and Lessons for the Future
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Q1) Which of the following contributed to the rising mortgage default and foreclosure rates and the eventual economic crisis of 2008?
A)tightened mortgage lending standards and the reduction of loanable funds during 2001-2005
B)the increase in the greed of Wall Street bankers and other commercial lenders
C)the substantial increase in sub-prime and adjustable rate mortgages as a share of the total during 2001-2006
D)the increase in the household savings rate during the two decades following 1985
E)the increase in fixed rate mortgages as a share of the total during the decade prior to the crisis
Q2) Are new regulations likely to prevent a future financial crisis?
A)Yes,regulatory agencies have been effective at anticipating the secondary effects of new regulations.
B)Yes,industries that were highly regulated were unaffected by the Crisis of 2008.
C)No,regulators have a poor record with regard to foreseeing future problems.
D)No,current regulations could have prevented the Crisis of 2008,but were largely ignored.
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Page 35
Chapter 34: Lessons From the Great Depression
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Q1) Based on the experience of the Great Depression and the New Deal,which one of the following strategies would be most likely to stimulate recovery from a serious economic recession?
A)increase trade restrictions and tariffs to save jobs and enhance tax revenue
B)a reduction in the money supply in order to strengthen the dollar and combat inflation
C)keep taxes low in order to stimulate production and minimize the decline in personal and business income
D)institute frequent policy changes in order to search for and find the policy combination that would be most effective
Q2) Which of the following factors contributed to a breakdown of the economy during the Great Depression?
A)a sharp increase in tax rates in 1932
B)a sharp decline in the money supply during 1929 through 1933
C)a sharp increase in tariff rates during 1930
D)all of the above
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Chapter 35: Lessons From Japan and Canada
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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) During and following the severe recession of 2008-2009,the fiscal policy of the United States was
A)similar to the response of Japan to a severe recession during the early 1990s.
B)similar to the response of Canada to an economic crisis during the latter half of the 1990s.
C)dramatically different than the response of Japan to a severe recession during the early 1990s.
D)similar to the highly successful fiscal policy of the United states during the 1990s: government expenditures were reduced as a share of GDP and the budget was shifted toward a surplus.
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Chapter 36: The Federal Budget and the National Debt
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Q1) Which of the following portions of the national debt impose a net interest burden on the federal government?
A)treasury bonds held by government agencies
B)treasury bonds held by private investors
C)treasury bonds held by the Federal Reserve system
D)treasury bonds held in the Social Security Trust Fund
Q2) During 2009 and 2010,the federal government financed approximately ______ percent of its spending through borrowing.(Fill in the blank)
A)20
B)30
C)40
D)60
Q3) If households fail to recognize that debt-financing represents a future liability (in the form of higher taxes),they will tend to consume
A)less and pass less net wealth on to future generations.
B)more and pass more net wealth on to future generations.
C)less and pass more net wealth on to future generations.
D)more and pass less net wealth on to future generations.
Q4) What is the difference between the federal budget deficit and the national debt?
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Chapter 37: The Economics of Healthcare
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Sample Questions
Q1) In 2007,third-party payments accounted for approximately what percent of medical-care expenditures in the United States?
A)25 percent
B)46 percent
C)65 percent
D)86 percent
Q2) Which of the following would help control the future growth of healthcare prices and expenditures?
A)an increase in the share of healthcare costs paid for either directly or from personal medical savings accounts
B)the substitution of catastrophic (high deductibility)health insurance for low co-payment plans
C)more reliance on expansion in the supply of medical services rather than stimulation of demand
D)all of the above
Q3) How has public policy influenced the incentives of consumers to economize and suppliers to provide their services economically in the health-care industry?
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Chapter 38: Education: Problems and Performance
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Q1) What are some of the criticisms of voucher programs? How would a voucher program be modified to address these concerns?
Q2) The parents of children in charter schools are
A)mostly white and almost exclusively high-income recipients.
B)less satisfied with their children's schools than are parents of children in traditional public schools.
C)about equally satisfied with their children's schools as are parents of children in traditional public schools.
D)more satisfied with their children's schools than are parents of children in traditional public schools.
Q3) Spending per elementary student in the United States is ____ than that of most developed countries,and real spending per student in American public elementary and secondary schools has ____ between 1970 and 2009.
A)greater;fallen
B)greater;risen
C)less;risen
D)less;fallen
Q4) What are charter schools? How do they differ from voucher programs?
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Chapter 39: Earnings Differences Between Men and Women
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Q1) If an employer could really hire women who were willing and able to do the same work as men for 20 percent less,profit-seeking employers would have
A)a strong incentive to hire more women,which would shrink this differential.
B)little incentive to hire women,since hiring men would still be more profitable.
C)a strong incentive to hire fewer women,and this would reduce the wage gap between men and women.
D)a strong incentive to hire fewer women,which would expand the wage gap between men and women to an even higher level.
Q2) Given the traditional responsibility for monetary earnings in the family,men were more likely than women to
A)have continuous labor force participation.
B)move in order to get a higher-paying job.
C)accept jobs with long hours,uncertain schedules,and out-of-town travel.
D)do all of the above.
Q3) Evaluate the following: "Employers who discriminate against women will have lower costs than rival firms that hire employees strictly on the basis of merit (productivity)."
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Chapter 40: Do Labor Unions Increase the Wages of Workers
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Q1) The share of the labor force that was unionized increased from approximately 10 percent in 1930 to more than 30 percent in 1955.During these 25 years,the share of national income allocated to labor (in contrast to capital)
A)remained virtually constant.
B)increased approximately 10 percent.
C)increased between 15 and 25 percent.
D)increased 17.6 percent.
Q2) In a strike,what does the union have to lose? What does management lose?
Q3) Which of the following factors will reduce considerably the ability of a union to raise the wages of its workers?
A)an elastic demand for the goods produced by union labor
B)a five-year apprenticeship before one can qualify for jobs held by union members
C)high tariffs on goods produced by the union labor
D)favoritism in the allocation of government contracts to firms that employ union labor
Q4) What common goals,if any,do labor and management share?
Q5) Why is it that the airline pilots union will likely be stronger and more effective than the fruit pickers union?
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Chapter 41: The Question of Resource Exhaustion
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Q1) Forests in the United States have,in recent decades, A)expanded substantially in the amount of wood grown.
B)been steadily declining in acreage and in wood produced.
C)been cut and cleared at a faster and faster rate.
D)shown no trend in growth or shrinkage.
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) The overall trend in resource prices has been A)upward.
B)downward.
C)constant.
D)increasing exponentially.
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Chapter 42: Difficult Environmental Cases and the Role of Government
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Q1) Pollution from a privately owned factory that seriously harms a privately owned forest will,if property rights are strongly protected,
A)not result in penalties to the polluter,who has a right to use his property as he wishes.
B)make the polluter liable for any damages done to the forest.
C)be ignored under the law,in favor of the polluting factory owner.
D)never occur.
Q2) Which of the following would illustrate an example that leads to high transaction costs when dealing with pollution?
A)air quality in New York City
B)water pollution caused by a large number of firms located near the same river
C)noise pollution near a busy airport
D)all of the above
Q3) It can be difficult to define and enforce property rights against damaging pollutants when
A)many polluters are harming one person.
B)many polluters harm the same large group of people with the same pollutant.
C)the harms are difficult to quantify.
D)All of the above are true.
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