Survey of Economics
Final Test Solutions
Course Introduction
This course provides an overview of fundamental economic concepts, including the principles of microeconomics and macroeconomics. Students will explore topics such as supply and demand, market structures, fiscal and monetary policy, international trade, and the role of government in economic activity. Through real-world examples and current events, the course aims to develop economic literacy and analytical skills that enable students to understand how economies function and the impact of economic decisions on individuals and society.
Recommended Textbook
Macroeconomics 12th Edition by Roger A. Arnold
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26 Chapters
3323 Verified Questions
3323 Flashcards
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Chapter 1: What Economics Is About
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) Let X be the number of hours you spend studying for an exam on Wednesday afternoon and Y be your chances of winning the Wednesday night state lottery.What kind of a relationship do you most likely expect between X and Y?
A)direct
B)inverse
C)linear
D)45-degree line
E)independent
Answer: E
Q2) The condition in an economy that makes a "rationing device" a necessity is:
A)the economy is organized around free markets.
B)the economy is centrally planned by the government.
C)scarcity exists.
D)there are fewer types of goods than there are people in the economy. Answer: C
Q3) The slope of a straight line is always equal to either 1.0 or -1.0.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Production Possibilities Frontier Framework
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Sample Questions
Q1) Refer to Exhibit 2-4.The line joining points A and D is called the A)production function frontier.
B)utility function.
C)production possibilities frontier.
D)demand curve.
Answer: C
Q2) When an economy is not using all of its resources,it is producing at a point below its production possibilities frontier.
A)True
B)False
Answer: True
Q3) The point where the PPF intersects the horizontal axis is A)unattainable.
B)attainable and productive efficient.
C)attainable but productive inefficient.
D)attainable and neither productive efficient nor productive inefficient.
Answer: B
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) If the demand curve for a good shifts leftward,
A)quantity demanded is less at each price.
B)quantity demanded remains constant at each price.
C)quantity demanded is greater at each price.
D)demand is greater at each price.
Answer: A
Q2) Which of the following is true about the relationship between price and quantity supplied?
A)There is always a direct relationship between price and quantity supplied.
B)There is always an inverse relationship between price and quantity supplied.
C)There is usually a direct relationship between price and quantity supplied.
D)There is usually an inverse relationship between price and quantity supplied.
Answer: C
Q3) "As the price of apples goes up,the demand for apples goes down." The author of this statement
A)implies that price and demand are unrelated.
B)uses the word "demand" when he should use the word "supply."
C)uses the word "demand" when he should use the words "quantity demanded."
D)implies that demand and price have a direct relationship.
Answer: C
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Chapter 4: Prices: Free, controlled, and Relative
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Sample Questions
Q1) Refer to Exhibit 4-4.Which of the following is false?
A)Graph (1): There is a shortage when price is P<sub>3</sub>.
B)Graph (2): As supply increases,equilibrium quantity remains constant.
C)Graph (3): As demand increases,equilibrium price remains constant.
D)Graph (4): As supply changes,equilibrium price stays the same.
Q2) What condition is necessary for a price floor to have an impact on a market?
Describe two effects that a price floor can have on a market.
Q3) Someone says,"Even though the equilibrium wage rate is $8 an hour in the unskilled labor market,if we impose a minimum wage of $10 an hour,no one currently working will lose his or her job." This person must believe that the
A)demand curve for unskilled labor is vertical.
B)demand curve for unskilled labor is downward-sloping.
C)supply curve for unskilled labor is downward-sloping.
D)supply curve for unskilled labor is horizontal.
E)none of the above.
Q4) List and describe the two major jobs performed by price.
Q5) Buyers always prefer lower prices to higher prices.
A)True
B)False
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Chapter 5: Supply,demand,and Price: Applications
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Sample Questions
Q1) Refer to Exhibit 5-3 which shows the demand and supply of a college athlete.Suppose that NCAA rules limit the amount that the college can pay this athlete,such that their payment can not exceed the cost of attending the college (currently,$8,000).What is the consumers' surplus for the college (with respect to this one athlete)?
A)area 1
B)area 2
C)area 1 + 2 + 3
D)area 1 + 2
Q2) The space on the freeway is fixed at any instant of time.A supply curve that shows this is
A)perfectly horizontal.
B)upward sloping.
C)downward sloping.
D)perfectly vertical.
Q3) Economists perceive a college applicant's grade point average and standardized test scores (such as SAT and ACT scores)to be rationing devices.
A)True
B)False
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Chapter 6: Macroeconomic Measurements, part I: Prices and Unemployment
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Sample Questions
Q1) A worker is underemployed if she is working at a job for which her skills far exceed the requirements for the job.
A)True
B)False
Q2) Is it possible for the economy to be at full employment and still have some people who are unemployed?
A)No,full employment means that no one is unemployed.
B)Yes,since full employment exists if the economy is operating at the natural unemployment rate and there is always some natural unemployment.
C)Yes,since full employment exists if the economy is operating at the frictional unemployment rate and there is always some frictional unemployment.
D)Yes,since full employment equals the sum of the cyclical unemployment rate and the natural unemployment rate,and there is always some cyclical unemployment.
E)none of the above
Q3) Describe the terms frictional unemployment,structural unemployment,and cyclical unemployment.Give a hypothetical example of each to help support your answer.
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Chapter 7: Macroeconomic Measurements, part II: GDP and Real GDP
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Sample Questions
Q1) Why do economists prefer to compare Real GDP figures for various years instead of GDP figures?
A)Because when GDP in one year is higher than in another year,there is no way to tell why it is higher.Is it because output is higher,prices are higher,etc.? This is not the case with Real GDP.If Real GDP is higher in one year than in another year,it is because output is higher.
B)Because when GDP in one year is higher than in another year,there is no way of knowing if the quality of goods produced is higher in one year than the other.This is not the case with Real GDP.If Real GDP is higher in one year than in another year,it is because the quality of the goods produced is higher.
C)Actually the question is incorrect.Economists prefer to compare GDP figures instead of Real GDP figures.
D)Because Real GDP is easier to compute than GDP.
E)Because when GDP in one year is higher than in another year,there is no way to tell if the quality of life is higher in one year than the other.This is not the case with Real GDP.If Real GDP is higher in one year than in another year,it is because the quality of life is higher.
Q2) List and explain the two different approaches used to measure GDP.
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Chapter 8: Aggregate Demand and Aggregate Supply
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Sample Questions
Q1) If labor productivity rises at the same time that there is a beneficial supply shock,what is the effect on short-run aggregate supply (SRAS)?
A)SRAS rises.
B)SRAS falls.
C)SRAS remains constant.
D)SRAS may rise,fall,or remain constant.
Q2) The short-run aggregate supply curve shows the various amounts of real output that producers are willing to
A)sell at different profit levels.
B)sell at different price levels.
C)buy at different income levels.
D)buy at different price levels.
Q3) Refer to Exhibit 8-2.Based on the given change,what word (rises or falls)should go in blank (9)and blank (10),respectively,to summarize the resulting impact on short run equilibrium?
A)rises;rises
B)falls;falls
C)rises;falls
D)falls;rises
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10
Chapter 9: Classical Macroeconomics and the
Self-Regulating
Economy
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Sample Questions
Q1) An economy is producing its Natural Real GDP when the unemployment rate is equal to the __________ unemployment rate.
A)frictional
B)structural
C)sum of the frictional unemployment rate and the structural
D)seasonal
E)cyclical
Q2) If the economy is currently operating below its institutional production possibilities frontier (institutional PPF),it is
A)in long-run equilibrium.
B)in a recessionary gap.
C)in an inflationary gap.
D)definitely not self-regulating.
E)b and d
Q3) If the economy is self-regulating and in an inflationary gap, A)wages and prices will fall.
B)wages will rise,but prices will fall.
C)wages and prices will rise.
D)wages will fall,but prices will rise.
E)neither wages nor prices will change.
Page 11
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Chapter 10: Keynesian Macroeconomics and Economic
Instability: a Critique of the Self-Regulating Economy
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Sample Questions
Q1) When total expenditure (TE)exceeds total production (TP),inventory levels rise unexpectedly,which sends a signal to firms that they have overproduced,so they cut back on production.
A)True
B)False
Q2) If total production (TP)is less than total expenditures (TE),it follows that A)optimum inventory levels fall.
B)firms have underproduced.
C)firms increase the quantity of goods they produce.
D)b and c
E)a,b,and c
Q3) A decline in housing prices can help to push the economy into a recessionary gap. A)True
B)False
Q4) What type of relationship exists between the marginal propensity to consume (MPC)and the multiplier? Explain why this relationship exists,giving a hypothetical numerical example to help support your answer.
Q5) Discuss how the Great Depression contributed to the development of Keynesian economics.
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Chapter 11: Fiscal Policy and the Federal Budget
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Sample Questions
Q1) In 2013,federal government spending made up approximately __________ percent of GDP in the United States.
A)14
B)23
C)34
D)44
E)54
Q2) The AD curve shifts to the right with an increase in taxes or a decrease in government purchases.
A)True
B)False
Q3) If there is complete crowding out,the change in Real GDP that results from a given change in autonomous spending will be A)zero.
B)greater than if there was incomplete crowding out.
C)infinite.
D)There is not enough information to answer the question.
Q4) List and describe three of the five different lags that can occur which may impede the effectiveness of the use of fiscal policy.
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Chapter 12: Money,banking,and the Financial System
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Sample Questions
Q1) Bank A has checkable deposits of $800,000 and total reserves of $200,000.If the required reserve ratio is 0.11,the bank has required reserves of
A)$600,000.
B)$88,000.
C)$112,000.
D)$22,000.
Q2) Ninth National Bank holds $200 million in checkable deposits and $18,000,000 in total reserves.With a required reserve ratio of 8 percent,how much in excess reserves is Ninth National holding?
A)$1,440,000
B)$218,000,000
C)$17,440,000
D)$16,000,000
E)$2,000,000
Q3) Credit cards are a widely accepted form of money.
A)True
B)False
Q4) List and describe the three functions of money.
Q5) Describe the differences between M1 and M2.
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Chapter 13: The Federal Reserve System
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Sample Questions
Q1) Here is how an open market sale works: A commercial bank __________ government securities to (from)the Fed,which lowers the bank's deposits at the __________ and __________ the bank's __________.
A)buys;Fed;lowers;reserves
B)sells;Treasury;raises;reserves C)sells;Fed;raises;reserves
D)buys;Treasury;lowers;liabilities E)none of the above
Q2) Discuss in detail the three things mentioned in the text that the Federal Reserve did to deal with the 2007-2009 financial crisis.
Q3) Under a free banking arrangement,when people increase the demand for money a process would begin which would end with a(n)_________________ in the supply of money,______________ government intervention.
A)increase;with some B)decrease;with some C)decrease;without the need for D)increase;without the need for
Q4) List and describe five of the eight major functions or responsibilities of the Fed.
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Page 15
Chapter 14: Money and the Economy
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Sample Questions
Q1) According to Milton Friedman,continued inflation is always and everywhere
A)a supply-side phenomenon.
B)caused by continued decreases in aggregate supply.
C)caused by continued increases in the budget deficit.
D)a monetary phenomenon.
E)none of the above
Q2) Refer to Exhibit 14-2.The economy moves from point 1 to 2 to 3 to 4 to 5 to 6 to 7.What explains this?
A)an initial decrease in SRAS,followed by alternating rises in AD and decreases in SRAS
B)continued increases in AD
C)continued decreases in SRAS
D)an initial rise in the price level,followed by a decrease in SRAS,and then alternating increases in AD and decreases in SRAS
E)continued increases in SRAS
Q3) One-shot inflation can originate
A)only on the demand side of the economy.
B)only on the supply side of the economy.
C)on the demand side or the supply side of the economy.
D)on neither the demand side nor the supply side of the economy.
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Page 16
Chapter 15: Monetary Policy
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Sample Questions
Q1) Which of the following statements is likely to be made by an economist who does not believe in activist monetary policy? (1)The more closely monetary policy can he designed to meet the particulars of a given economic environment,the better.(2)Because of long and uncertain time lags,activist monetary policy may be destabilizing rather than stabilizing.(3)There is sufficient flexibility in wages and prices in modern economies to allow the economy to equilibrate in reasonable speed at the natural level of Real GDP, (4)The "same-for-all-seasons" monetary policy is the way to proceed.(5)There is evidence that monetary policy in the mid-1970s caused a recession.
A)(1), (2),and (3)
B)(1), (4),and (5)
C)(2), (3),and (4)
D)(3), (4),and (5)
E)(1)only
Q2) According to the Taylor Rule: if the inflation rate is 2% and the GDP gap is 3%,what does the federal funds rate target equal?
A)9.5 percent
B)7.5 percent
C)5.5 percent
D)8.5 percent
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Chapter 16: Expectations Theory and the Economy
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Sample Questions
Q1) The economy is in long-run equilibrium when government unexpectedly increases aggregate demand.The expected inflation rate is slow to adjust to the higher (actual)inflation rate.If follows that in the short run,according to the Friedman natural rate theory,__________ rises and the __________ falls.
A)the unemployment rate,price level
B)Real GDP rises,unemployment rate
C)nominal interest rate,real interest rate
D)the unemployment rate,Real GDP level
E)none of the above
Q2) The Samuelson and Solow Phillips curve suggested a(n)__________ relationship between the rate of change in __________ and the unemployment rate.
A)direct;real wage rates
B)inverse;money wage rates
C)inverse;prices
D)direct;prices
E)none of the above
Q3) Rational expectations theory is also known as the Friedman fooling theory.
A)True
B)False
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Page 18
Chapter 17: Economic Growth: Resources, technology, ideas, and Institutions
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Sample Questions
Q1) If a country's economic growth rate is 4 percent a year,approximately how many years will it take to double its Real GDP?
A)22.2
B)25.0
C)15.6
D)17.5
E)8.8
Q2) Refer to Exhibit 17-2.Assume that the starting point is always point 1.Which of the production function graphs shown, (a)or (b),represents an increase in the quantity of labor,and which represents an increase in the quantity of capital,respectively?
A)(a); (a)
B)(b); (a)
C)(a); (b)
D)(b); (b)
Q3) Describe new growth theory.Explain how it differs from neoclassical growth theory.
Q4) Using the labor market,the production function Real GDP = T (L,K),and the LRAS curve,describe the process by which a decrease in income taxes impacts economic growth.
Page 19
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Chapter 18: The Financial Crisis of 2007-2009
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Sample Questions
Q1) Describe three of the ways that the U.S.federal government responded to the financial crisis of 2007-2009 and to the resulting problems in the real sector of the economy.Be sure to include in your answer the government's specific intent in each of these actions.
Q2) In February 2009,Congress passed (and President Obama signed)a $787 billion fiscal stimulus bill in an attempt to improve the economy.
A)True
B)False
Q3) Which of the following is an example of a participant in the financial sector?
A)commercial banks
B)investment banks
C)hedge funds
D)brokerage firms
E)all of the above
Q4) In the early 2000s,banks lowered lending standards to comply with the Community Reinvestment Act.
A)True
B)False
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Chapter 19: Debates in Macroeconomics Over the Role and Effects
of Government
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Sample Questions
Q1) Public choice refers to
A)the decisions and decision-making processes that individuals go through to solve public problems.
B)political decisions made in the interest of the public at large.
C)the application of economic principles and tools to public-sector decision making.
D)the process that individuals undergo to decide what goods and services they will purchase and consume.
E)the process that individuals undergo to decide whether or not they will pursue a career government service.
Q2) Public choice theorists say that the greater the number of potential voters in an election,the __________ the perceived benefits of voting held by each voter,and so the __________ the likely percentage turnout of voters.
A)greater;lower
B)greater;higher
C)smaller;lower
D)smaller;higher
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21
Chapter 20: Public Choice and Special-Interest-Group
Politics
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Q1) The higher the cost of talking on a cell phone in public (in terms of being perceived by others as rude)the less likely one is to do so.
A)True
B)False
Q2) A person tends to be ______________ likely to lose her temper with a boss than with a friend because the opportunity cost of losing her temper with her boss tends to be _____________ than the opportunity cost of losing her temper with her friend.
A)less;higher
B)more;higher
C)less;lower
D)more;lower
Q3) If a theory can predict those things that you should observe if it is right and can also predict those things that you should observe if it is wrong,it is said to have the virtue of falsifiability.
A)True
B)False
Q4) Explain what it means to say that a theory is falsifiable or refutable? Give a specific example to help support your answer.
Page 22
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Chapter 21: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Q1) As discussed in the textbook,various studies in the past have shown that there are ________________ degrees of separation between any two people in the world.Social media would be expected to _______________ the number of degrees of separation,making the world ________________.
A)5 to 7;reduce;"smaller"
B)8 to 10;reduce;"bigger"
C)5 to 7;raise;"bigger"
D)8 to 10;raise;"bigger"
Q2) Refer to Exhibit 34-7.The world price of good X is $15.Under a policy of free trade,the U.S.production of good X would be
A)10 units.
B)20 units.
C)25 units.
D)50 units.
E)none of the above
Q3) Countries that engage in specialization and trade can consume at a level beyond their production possibilities frontier.
A)True
B)False
Page 23
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Chapter 22: International Trade
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Questions
Q1) When exports of American goods increase,this __________ the demand for U.S.dollars and at the same time __________ foreign currencies. A)increases;increases the supply of B)decreases;increases the supply of C)increases;decreases the supply of D)increases;increases the demand for E)none of the above
Q2) Which of the following exchange rates between the dollar and the peso would a Mexican buyer of American goods most prefer?
A)$0.10 = 1 peso
B)$0.08 = 1 peso
C)$0.06 = 1 peso
D)$0.04 = 1 peso
Q3) The current international monetary system is best described as a A)fixed exchange rate system.
B)flexible exchange rate system.
C)managed flexible exchange rate system.
D)dollar standard.
E)gold standard.
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Page 24
Chapter 23: International Finance
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Q1) The J-curve summarizes the phenomenon that occurs when import spending initially falls after a depreciation of a country's currency and then import spending later rises.
A)True
B)False
Q2) In a two-country world,an increase in the real interest rate in the domestic economy (relative to the real interest rate in the foreign economy)shifts
A)the domestic AD curve leftward and the domestic SRAS curve rightward.
B)the domestic AD curve rightward and the domestic SRAS curve leftward.
C)both the domestic AD curve and the domestic SRAS curve rightward.
D)both the domestic AD curve and the domestic SRAS curve leftward.
E)the domestic AD curve leftward and does not affect the domestic SRAS curve.
Q3) Suppose the price level in Germany rises,ceteris paribus.This ________________ United States net exports,ultimately shifting the United States AD curve
A)stimulates;rightward
B)stimulates;leftward
C)depresses;rightward
D)depresses;leftward.
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Chapter 24: Globalization and International Impacts on the Economy
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Q1) Government can overcome the free rider problem by collecting taxes and using the funds to provide individuals with nonexcludable public goods that they want to buy but the market cannot provide.
A)True
B)False
Q2) Consider a setting in which there is a negative externality,but no positive externality.The market outcome is __________________;government can bring about the ___________________ outcome if it sets a tax equal to the __________________.
A)efficient;inefficient;MSC
B)efficient;inefficient;MEC
C)inefficient;efficient;MEC
D)inefficient;efficient;MPC
E)inefficient;efficient;MSB
Q3) Tiffany gives $50 to Jeremy for his birthday.This is an example of a(n)
A)involuntary transfer.
B)involuntary-voluntary transfer.
C)voluntary transfer.
D)gift.
E)c and d
Page 26
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Chapter 25: The Economic Case for and Against
Government: Five Topics Considered
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Sample Questions
Q1) A person buys a bond with a face value of $10,000 for $9,325.Each year until the maturity date the bond buyer receives a coupon payment of $650 from the issuer of the bond.The coupon rate on the bond is
A)9.11 percent.
B)6.5 percent.
C)7.0 percent.
D)6.75 percent.
Q2) A share of stock is
A)a claim on the assets of the corporation that gives the purchaser an ownership right in the corporation.
B)the share of profits distributed to stockholders.
C)a promise to pay for the use of someone else's money.
D)a promise to loan money to someone.
E)a and b
Q3) What is the Dow Jones Industrial Average (DJIA)? Give a description of why the DJIA was first created,how it is computed,and how it has evolved over time.
Q4) Describe the three main options available to a corporation when it needs to raise money so that it can invest in a new product or a new manufacturing technique.
Page 27
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Chapter 26: Stocks, bonds, futures, and Options
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Sample Questions
Q1) Increased productivity in the agricultural sector during much of the twentieth century shifted the
A)demand curve for farm products rightward.
B)supply curve of farm products leftward.
C)demand curve for farm products leftward.
D)supply curve of farm products rightward.
Q2) Refer to Exhibit 39-2.Given a target price of P<sub>1</sub>,what is the total deficiency payment made by the government?
A)(P<sub>1</sub> - P<sub>2</sub>)x Q<sub>2</sub>
B)(P<sub>1</sub> - P<sub>0</sub>)x Q<sub>2</sub>
C)P<sub>1</sub> x Q<sub>1</sub>
D)P<sub>0</sub> x Q<sub>0</sub>
Q3) Refer to Exhibit 39-5.Low price elasticity of demand for corn coupled with unpredictable weather makes both price and total revenue in the market for corn extremely volatile.Which of the supply curves would result in the least volatility?
A)S<sub>1</sub>.
B)S<sub>2</sub>.
C)S<sub>3</sub>.
D)The changes are not dependent upon elasticity of supply.
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