Survey of Economics Practice Questions
Course Introduction
Survey of Economics provides a broad introduction to the fundamental principles of microeconomics and macroeconomics, equipping students with an understanding of how economic systems operate on both individual and national levels. The course covers essential topics such as supply and demand, market structures, consumer behavior, production and costs, government intervention, inflation, unemployment, fiscal and monetary policy, and international trade. Emphasis is placed on applying economic reasoning to real-world issues and current events, enabling students to analyze the economic implications affecting individuals, businesses, and society as a whole.
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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) In economics,the term marginal refers to
A)the change or difference between two alternatives.
B)man-made resources as opposed to natural resources.
C)the satisfaction a consumer receives from a good.
D)holding everything else constant in the analysis.
Answer: A
Q2) The term ceteris paribus means that
A)everything is changing.
B)all variables except those specified are constant.
C)no one knows which variables will change and which will remain constant.
D)the basic postulate of economics does not apply for the case being considered.
Answer: B
Q3) "The money and resources currently being devoted to the War on Terrorism reduces the quantity of other goods that we are able to supply." This statement most clearly illustrates which of the following?
A)the fallacy of composition.
B)the idea that association is not causation.
C)the concept of opportunity cost.
D)the difference between positive and normative economics.
Answer: C
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Chapter 2: Asome Tools of the Economist
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Sample Questions
Q1) Your opportunity cost of attending a football game is
A)the subjective value of the disappointment you will feel if your team loses.
B)the monetary cost of the drinks and food you purchase at the game.
C)the price of the ticket.
D)the highest valued alternative forgone because of the time and money required to attend the game.
Answer: D
Q2) Which of the following would be most likely to increase your opportunity cost of attending college?
A)a recession in the economy that made finding a job more difficult
B)receiving a very attractive offer to start a job today that would permit you to earn about 50 percent more than you expected to make after graduation
C)the retirement of your favorite professor under whom you hoped to study during the next semester
D)information indicating that salaries were declining and that there were very few openings for college graduates in your field
Answer: B
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Chapter 3: Asupply,demand,and the Market Process
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Sample Questions
Q1) Which of the following would be the best example of consumer surplus?
A)Jane pays $30 a month for phone service even though it is worth $70 to her.
B)Sam refuses to pay $10 for a haircut because it is only worth $8 to him.
C)Fred buys a car for $4,000,the maximum amount that he would be willing to pay for it.
D)When Sue purchases a candy bar for $.50,she uses a $20 bill to pay for it.
Answer: A
Q2) In which statement(s)is "demand" used correctly?
(I)"An increase in the price of hot dogs will reduce the demand for hot dogs."
(II)"An increase in the price of hot dogs will reduce the demand for hot dog buns."
A)in both statements I and II
B)in statement I only
C)in statement II only
D)in neither statements I nor II
Answer: C
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Chapter 4: Asupply and Demand: Applications and Extensions
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Sample Questions
Q1) A subsidy is defined as
A)a payment that must be made to the government whenever a good or service is sold.
B)the number of trades that are eliminated from a market when a tax is imposed.
C)the difference between total revenue and total cost for a business firm.
D)a payment to either the buyer or seller of a good or service,usually on a per-unit basis,when a good or service is purchased.
Q2) Refer to Figure 4-20.The amount of the tax per unit is
A)$1.
B)$2.
C)$3.
D)$5.
Q3) A progressive tax is defined as a tax for which the
A)average tax rate rises as income increases.
B)average tax rate falls as income increases.
C)average tax rate remains constant at all levels of income.
D)dollar tax liability of those with higher income is more than the dollar tax liability of those with lower income.
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Chapter 5: Difficult Cases for the Market and the Role of Government
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Sample Questions
Q1) As more and more resources are dedicated to an activity
A)the benefits will increase proportionately.
B)the benefits will become smaller and smaller while the costs will rise.
C)the demand for that activity will increase.
D)the costs will be offset by the benefits received from the activity.
Q2) If production of a good creates external benefits,a competitive market will likely produce
A)less output than would maximize profit.
B)more output than would maximize profit.
C)less output than is efficient.
D)more output than is efficient.
Q3) Which of the following is the best example of a public good?
A)long distance telephone service
B)national defense
C)an amusement park
D)the electric service of a public utility
Q4) Sparkle-Bright toothpaste is a new product that advertises it will give you fresh breath and shiny,white teeth.You buy a tube for $1.99,and after brushing,you have both bad breath and dull teeth.Is there a role for the public sector in this situation?
Page 7
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Chapter 6: The Economics of Collective Decision-Making
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Sample Questions
Q1) Joella is a third-grade public school teacher who doesn't own a car and uses public transportation.According to public choice theory,which of the following four politicians for a public office would Joella be most likely to vote for in the upcoming election?
A)Politician A proposes increasing the property tax on personal automobiles and using the money to increase teacher salaries by 10 percent.
B)Politician B proposes an across-the-board increase in state income tax rates and using the money to increase the benefits paid to unemployed workers.
C)Politician C proposes increasing the property tax on personal automobiles and using the money to increase the benefits paid to unemployed workers.
D)Politician D proposes an across-the-board increase in state income tax rates and using the money to improve the highway system.
Q2) Which of the following is an example of a transfer payment?
A)wages paid to military personnel
B)benefits paid to Social Security recipients
C)purchase of aircraft by the Department of Defense
D)payments made to a contractor for construction of a highway
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Chapter 7: Ataking the Nations Economic Pulse
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Sample Questions
Q1) Economists generally use GDP to measure a nation's total output because it is
A)equal to the sales value of all transactions conducted during a period and thus can be easily calculated.
B)the best available measure of the true costs of producing consumer goods.
C)unaffected by changes in the prices of products over time.
D)a relatively reliable measure of the value of all final product goods and services produced during a specific time period.
Q2) Suppose the consumer price index (CPI)for Year X is 130.This means the average price of goods and services is
A)currently $130.
B)130 percent more in Year X than in the base year.
C)130 percent more in the base year than in Year X.
D)priced at 30 percent more in Year X than in the base year.
Q3) The GDP deflator is designed to adjust nominal GDP
A)for changes in the unemployment rate.
B)for changes in prices.
C)for problems that arise because of externalities.
D)for changes in interest rates.
Q4) Explain the two approaches to calculating GDP.
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Chapter 8: Economic Fluctuations, unemployment, and Inflation
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Sample Questions
Q1) Which of the following will most likely occur during the expansionary phase of a business cycle?
A)Real GDP declines,and the rate of unemployment increases.
B)Real GDP declines,and the rate of inflation is unchanged.
C)Real GDP increases,and rate of unemployment falls.
D)Real GDP is unchanged,and the rate of inflation is unchanged.
Q2) During a recession,which of the following will be true?
A)The actual rate of unemployment will be lower than the natural rate.
B)Actual GDP will be lower than potential GDP.
C)The employment/population ratio will increase substantially.
D)Actual inflation will be higher than was anticipated.
Q3) If the consumer price index (CPI)was 125 at year-end of 2008 and 132.5 at year-end 2009,inflation during 2009 was
A)zero;prices were stable during 2009.
B)6.0 percent.
C)7.5 percent.
D)12.5 percent.
Q4) What is the natural rate of unemployment,and how does it relate to the concept of potential (or full-employment)GDP?
Page 10
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Chapter 9: Aan Introduction to Basic Macroeconomic Markets
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Sample Questions
Q1) Other things constant,a decrease in aggregate demand will lead to
A)a decrease in the demand for resources.
B)an increase in the demand for resources.
C)an increase in the general level of prices.
D)a reduction in the natural rate of unemployment.
Q2) If the dollar appreciates relative to the Yen,it can be said that A)Japanese citizens respect the United States more.
B)the dollar increases in value within the United States.
C)the Yen depreciates relative to the dollar.
D)it takes more dollars to buy Yen.
Q3) Which of the following markets coordinates transactions with foreigners that involve the exchange of currency?
A)the resource market
B)the stock market
C)the foreign exchange market
D)the loanable funds market
Q4) What are the three reasons why the aggregate demand curve slopes downward? Give an example of each.
11
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Chapter 10: Dynamic Change, economic Fluctuations, and the Ad-As Model
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Sample Questions
Q1) Within the AD/AS model,which one of the following adjustments will cause the economy to return to its long-run capacity when output is temporarily greater than the economy's long-run potential?
A)Lower wage rates and resource prices reduce short-run aggregate supply.
B)Lower interest rates increase aggregate demand and,thereby,stimulate output.
C)Higher wage rates and resource prices reduce short-run aggregate supply.
D)A decrease in prices reduces aggregate demand.
Q2) From mid-year 2006 to year-end 2008,housing prices
A)fell by approximately 30 percent,leading to a sharp reduction in aggregate demand.
B)increased by approximately 30 percent leading to a sharp increase in aggregate demand.
C)declined by a smaller about than in previous recessions.
D)were unchanged,but a sharp decline in stock prices reduced aggregate demand.
Q3) Which of the following will most likely increase the economy's long-run aggregate supply?
A)advances in technology
B)unfavorable weather conditions in agricultural areas
C)an increase in the expected inflation rate
D)a low rate of investment
Page 12
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Chapter 11: Fiscal Policy: the Keynesian View and Historical Perspective
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Sample Questions
Q1) According to the Keynesian view,if policy makers thought the economy was about to enter an inflationary boom,which of the following would be most appropriate?
A)a tax increase
B)a planned increase in the budget deficit
C)an increase government expenditures
D)a tax decrease
Q2) Is there any way to conduct fiscal policy and avoid the lags involved with discretionary policy?
Q3) If an economy were experiencing a high rate of unemployment as the result of weak aggregate demand,a Keynesian economist would be most likely to recommend A)a reduction in taxes coupled with a reduction in government expenditures of equal size.
B)an increase in government expenditures coupled with an increase in taxes of equal size.
C)a reduction in taxes,without any offsetting reduction in government expenditures.
D)maintenance of a balanced budget.
Q4) How does Keynesian economic theory recommend that fiscal policy be conducted?
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Chapter 12: Fiscal Policy, incentives, and Secondary Effects
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Sample Questions
Q1) Refer to Figure 12-3.If an economy is currently operating at Y ,which of the following would a new classical economist be most likely to favor?
A)higher taxes and reductions in expenditures in order to shift the budget toward a surplus
B)lower taxes and increase in expenditures in order to shift the budget toward a deficit
C)a balanced budget
D)no government action and reliance on the self-corrective mechanism
Q2) Other things constant,a reduction in marginal tax rates will tend to increase aggregate supply because the lower taxes will increase
A)disposable income,which will induce an increase in consumption and aggregate supply.
B)business optimism,which will increase both investment and aggregate supply.
C)savings,which will lead to lower interest rates,an increase in consumption,and an increase in aggregate supply.
D)the attractiveness of productive activity relative to leisure and tax avoidance.
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Chapter 13: Amoney and the Banking System
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Sample Questions
Q1) If debit cards become more widely used by consumers and businesses,which of the following is most likely to happen?
A)Currency holdings will remain the same,but the M1 money supply will fall.
B)The amount of currency held by the public will increase.
C)Less money will be held as currency and more money will be held in bank accounts,which will increase the reserves of banks unless the Fed takes offsetting actions.
D)The money supply will be unaffected because debit card expenditures are considered the equivalent of cash.
Q2) The sale of government securities by the Fed will cause
A)a decrease in both the monetary base and the money supply.
B)an increase in both the monetary base and the money supply.
C)an increase in the monetary base but no change in the money supply.
D)a decrease in the monetary base but no change in the money supply.
Q3) Refer to Table 13-2.If the reserve requirement is 20 percent,this bank
A)has $10,000 of excess reserves.
B)needs $10,000 more reserves to meet its reserve requirements.
C)needs $5,000 more reserves to meet its reserve requirements.
D)just meets its reserve requirement.
Q4) What advantages does a money economy have over a barter economy?
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Chapter 14: Modern Macroeconomics and Monetary Policy
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Sample Questions
Q1) An unanticipated increase in the money supply will lead to
A)a decline in interest rates,an increase in investment,and an increase in aggregate demand.
B)a decline in interest rates,a decrease in investment,and an increase in aggregate demand.
C)a decline in interest rates,an increase in investment,and a decline in aggregate demand.
D)an increase in interest rates,an increase in investment,and an increase in aggregate demand.
E)a decline in interest rates,a decline in investment,and a decline in aggregate demand.
Q2) The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be lower interest rates followed by dollar
A)depreciation,and an increase in the current account deficit.
B)depreciation,and a decrease in the current account deficit.
C)appreciation,and an increase in the current account deficit.
D)appreciation,and a decrease in the current account deficit.
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Chapter 15: Stabilization Policy, output, and Employment
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Sample Questions
Q1) In terms of the Phillips curve,the experience of the 1970s indicates that macro-policy
A)can permanently reduce unemployment if we are willing to tolerate higher inflation.
B)can reduce unemployment in the long run if we are willing to tolerate higher inflation.
C)may be able to reduce unemployment but cannot retard inflation.
D)may be able to reduce unemployment in the short run,but there is little evidence that expansionary policies can reduce unemployment permanently.
Q2) The Phillips curve depicts the relationship between
A)the federal debt and unemployment.
B)wage rates and aggregate demand.
C)the equilibrium level of income and the employment rate.
D)inflation and unemployment.
Q3) Which of the following would suggest that monetary policy is restrictive?
A)falling commodity prices
B)depreciation of the foreign exchange value of the dollar
C)a rising M1 money supply
D)an increase in the rate of inflation
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Chapter 16: Creating an Environment for Growth and Prosperity
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Q1) Which of the following is most important if a country is going to achieve and sustain rapid economic growth?
A)large government expenditures as a share of GDP
B)institutions and policies that are supportive of competition (open markets)and freedom of exchange.
C)free elections and political democracy
D)monetary policy makers who are willing to expand the supply of money rapidly
Q2) When a nation's institutional environment is more favorable,it will A)attract more physical investment.
B)encourage individuals to invest more heavily in human capital.
C)encourage the development and efficient use of natural resources.
D)all of the above.
Q3) The poor economic performance of countries located in tropical areas is due to A)their hot climate.
B)poor institutional quality in these countries.
C)a lack of natural resources.
D)not enough foreign aid.
Q4) Frequently,politicians enact restrictive trade policies to protect domestic industries.How does economic theory predict this will affect the efficiency of economic organization?
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Chapter 17: Institutions,policies,and Cross-Country
Differences in Income and Growth
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Q1) In order to achieve a high rating on the Economic Freedom of the World index,a country must
A)provide for the even-handed protection of private property and rely primarily on open markets and voluntary exchange to coordinate economic activity.
B)use central planning to direct investment and resolve the three basic economic problems of what,how,and for whom goods will be produced.
C)protect domestic businesses from foreign rivals who generally provide shoddy products.
D)protect domestic workers from businesses that are unwilling to pay high wages and provide quality working conditions.
Q2) Which of the following calculates the cost of purchasing a specific bundle of goods and services in each country and uses this measure to convert the incomes of different countries to a common currency so they may be more accurately compared?
A)the consumer price parity (CPP)method
B)the purchasing power parity (PPP)method
C)the GDP deflator exchange (GDPDE)method
D)the inflation conversion factor (ICF)method
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Chapter 18: Gaining From International Trade
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Q1) As a result of a tariff on imports,
A)imports will fall,exports will fall,and total output will decline.
B)imports will fall,exports will rise,and total output will decline.
C)imports will rise,exports will fall,and total output will expand.
D)imports will rise,exports will rise,and total output will expand.
Q2) Refer to Figure 17-10.A result of the tariff is that,relative to the free-trade situation,the quantity of saddles imported decreases by
A)Q - Q .
B)Q - Q .
C)Q - Q .
D)Q - Q + Q - Q .
Q3) Many products consumed by Americans are imported.Imports account for the largest share of which of the following products consumed by Americans?
A)civilian airplanes
B)automobiles
C)construction equipment
D)radio and television sets
Q4) What is the difference between a tariff and a quota?
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Page 20
Chapter 19: International Finance and the Foreign Exchange Market
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Q1) If the exchange rate between the U.S.dollar and the Japanese yen went from $1 US = 100 yen to $1 US = 80 yen,then
A)Japanese goods have become less expensive for Americans.
B)Japanese goods have become more expensive for Americans.
C)American goods have become more expensive for the Japanese.
D)American exports to Japan are likely to fall.
Q2) Because the United States purchases more cars,stereos,and other goods from Japan than Japan purchases from the United States,it is often said that the United States has a "trade deficit" with Japan.Does this mean that the U.S.balance of payments is running a deficit? How would you more accurately characterize the effect that trade with Japan has on the balance of payments?
Q3) Figure 18-1 illustrates supply and demand for U.S.dollars and British pounds in the foreign exchange market.If the dollar price of pounds is $1.20,which of the following is true?
A)There is an excess supply of pounds,and the dollar price of pounds will rise.
B)There is an excess demand for pounds,and the dollar price of pounds will rise.
C)There is an excess supply of pounds,and the dollar price of pounds will fall.
D)There is an excess demand for pounds,and the dollar price of pounds will fall.
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Chapter 20: Consumer Choice and Elasticity
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Q1) If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price,demand is classified as A)unstable.
B)relatively inelastic.
C)relatively elastic.
D)of unitary elasticity.
Q2) If the demand for a product increases as the result of an increase in income,it can be concluded that the A)product is an inferior good.
B)demand for the product is inelastic.
C)price elasticity of demand for the product equals unity.
D)product is a normal good.
Q3) If a Krispy Kreme doughnut shop near campus increases its prices by 5 percent,but revenues from its sales are unchanged,the price elasticity of demand for the services offered by the doughnut shop must be A)elastic.
B)of unitary elasticity.
C)inelastic.
D)equal to 0.5.
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Page 22
Chapter 21: Acosts and the Supply of Goods
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Q1) Which of the following is true for a firm with the costs illustrated in Figure 8-11?
A)Marginal costs exceed average total cost when output is 15.
B)Marginal costs exceed average total cost when output is 20.
C)Marginal costs exceed average total cost when output is 25.
D)The firm's total fixed cost exceeds 40.
Q2) Which one of the following decisions most clearly reflects a lack of understanding of the concept of sunk costs?
A)You pay to have your car towed back to the repair shop because it was not fixed properly the first time.
B)You decide to get a master's degree because you cannot find a job in the field in which you majored.
C)You decide to purchase a piece of machinery for your business that will eliminate three employees' positions.
D)You study eight hours for a final exam even though there is no way now that you can pass the course.
Q3) If the ABC Company decides to take over the XYZ Corporation by purchasing all of the stock of XYZ,what does this tell us about the view ABC holds of XYZ?
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Chapter 22: Aprice Takers and the Competitive Process
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Q1) When competition is present,self-interested business decision makers have a strong incentive to
A)produce efficiently.
B)ignore the wishes of customers who are also self-interested.
C)adopt technological improvements slowly in order to avoid making wrong decisions
D)maximize price in order to maximize profits.
Q2) Regarding costs of production,can a firm ever be at a point that is not on the marginal cost curve? Explain.
Q3) Suppose product price is fixed at $24;MR = MC at Q = 200;AFC = $6;AVC = $25.What do you advise this firm to do?
A)Increase output.
B)Decrease output.
C)Shut down operations.
D)Stay at the current output;the firm is earning a profit of $1,400.
E)Stay at the current output;the firm is losing $1,400.
Q4) Even if a firm is optimistic about the future,why should it shut down if it cannot cover its variable cost? If it does shut down,are there ramifications not mentioned in the textbook?
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Page 24
Chapter 23: Price-Searcher Markets With Low Entry Barriers
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Q1) Many small U.S.cities are served by only one or two airlines.If a price increase in these markets allows other airlines to quickly and easily enter the market and compete,economists would call these markets
A)contestable markets.
B)high entry markets.
C)conventional markets.
D)monopolistic markets.
Q2) What is the maximum economic profit this firm depicted in Figure 10-9 will be able to earn?
A)zero profit
B)$200 profit
C)$400 profit
D)$600 profit
Q3) What price should a competitive price-searcher firm with the cost and demand conditions depicted in Figure 10-2 charge if it wants to maximize its profit?
A)$5
B)$7
C)$8
D)$10
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Chapter 24: Aprice-Searcher Markets With High Entry
Barriers
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Sample Questions
Q1) The firm in Figure 11-18,a monopolist that maximizes profit by charging all customers the same price,is making a profit of
A)$0
B)$234
C)$482
D)$960
E)$468
Q2) A monopoly is best defined as
A)a single seller of a product that has characteristics very similar to the products produced in other industries.
B)a single seller of a well-defined product for which there are no good substitutes operating in a market with high barriers to entry.
C)a market in which a small number of rival sellers produce the entire market output. D)any firm operating in a contestable market.
Q3) Monopoly is a word derived from Greek origins that means,roughly,single seller.Why is the definition of monopoly as single seller inadequate in economic terms?
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Chapter 25: The Supply of and Demand for Productive Resources
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Q1) Jim Smith runs a company that sells encyclopedia sets for $200 each.When he employs 5 workers,they can sell 20 sets per week,whereas only 17 sets are sold when 4 workers are employed.What is the weekly marginal revenue product of the fifth worker?
A)$3
B)$200
C)$600
D)$4,000
Q2) 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.
Q3) According to the principle of marginal productivity,if
A)the product price is less than MRP,the firm is using too little of the input.
B)the price of an input rises,the quantity demanded of the input will increase.
C)MRP is greater than product price,the firm should reduce the use of the input.
D)price of the input equals MRP,the firm is maximizing profit.
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Chapter 26: Earnings, productivity, and the Job Market
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Q1) Other things the same,the wages in an occupation are likely to be higher the more A)dangerous the job.
B)prestigious the work environment of the occupation.
C)desirable the location of the job.
D)pleasant the working conditions.
Q2) Working conditions,prestige,variety,location,employee freedom,and employee responsibilities are all examples of
A)the tools of employment discrimination.
B)sociological factors affecting employment.
C)pecuniary job characteristics.
D)non-pecuniary job characteristics.
Q3) If there is employment discrimination against minorities,this will cause the A)supply of their services to increase,and their wages to fall.
B)demand for their services to decline,and their wages to fall.
C)supply of their services to decline,and their wages to rise.
D)demand for their services to decline,and their wages to rise.
Q4) Joanne states: "The best way to increase the wages of workers is to increase worker productivity." Is Joanne correct? Why or why not?
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Chapter 27: Investment, the Capital Market, and the Wealth of Nations
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Q1) In a world of perfect knowledge and communication,competitive markets,and no uncertainty,
A)there would be neither economic profits nor economic losses.
B)economic profits would exist,but losses would be eliminated.
C)economic profits and losses would exist to a greater degree than presently is the case.
D)there would be economic profits;there is not enough information to comment on economic losses.
Q2) If an investment project costing $2,700 was expected to yield $1,000 (to be received at year end)for each of the next three years,a profit-maximizing entrepreneur would
A)definitely undertake the project.
B)never undertake the project.
C)undertake the project if the interest rate exceeded 12 percent.
D)undertake the project if the interest rate was 5 percent or less.
Q3) The net present value of $1,000 received one year from now will
A)increase with the interest rate.
B)exceed $1,000 as long as the interest rate is positive.
C)exceed the net present value of $1,000 to be received two years from now.
D)equal $1,100 if the current interest (discount)rate is 10 percent.
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Chapter 28: Income Inequality and Poverty
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Q1) As shown in Figure 15-3,20 percent of families earned a cumulative share of about ____ percent of income.
A)5
B)10
C)30
D)50
Q2) If the marginal productivity of labor was the sole determinant of household income in the U.S. ,then
A)no households would be poor according to the official government definition of poverty.
B)no households would be poor according to a relative definition of poverty.
C)the distribution of income would be unequal.
D)every household would have sufficient income to meet biological needs.
Q3) Why don't we divide the economic pie evenly so that each person receives the same income?
Q4) Suppose you had the choice of attending two universities.University A pays all of its professors the same wage and awards the same raises.University B pays each professor according to market wages and productivity.Which university would you rather attend and why?
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Chapter 29: Government Spending and Taxation
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Q1) When the number of families with someone employed by the government is added to those receiving income from transfer programs,the share of American families receiving income from the government is
A)less than 20 percent
B)approximately 50 percent of the total
C)approximately 62 percent of the total
D)a little more than 75 percent of the total
Q2) Which of the following is true?
A)In 1916,the per person real government expenditures were approximately 60 times greater than in 1800.
B)Prior to 1929,government expenditures at the state and local levels were substantially smaller than federal expenditures.
C)Real federal spending per person was approximately 80 times greater in 2010 than in 1916.
D)All of the above are true.
Q3) As real incomes grow,what happens to federal tax revenues as a share of the economy?
Q4) How have the size and functions of government in the United States changed during the last century?
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Chapter 30: The Economics of Social Security
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Q1) As the baby boom generation retires in the future,Social Security will have to
A)reduce benefits to retirees.
B)increase taxes on workers.
C)borrow money.
D)utilize some combination of a,b,and c.
Q2) Which of the following tends to increase the attractiveness of a retirement system based on savings and investment rather than pay-as-you-go principles?
A)a persistent increase in the number of workers relative to the number of retirees
B)a large number of workers relative to the number of retirees
C)a reduction in the number of workers relative to the number of retirees
D)a persistent increase in the life expectancy of retirees.
Q3) The Social Security Trust Fund
A)will provide a stream of future revenue for the federal government.
B)is a "pot" of money set aside for the payment of future benefits.
C)is a net asset of the U.S.Treasury worth approximately $2 trillion.
D)is of zero asset value to the federal government.
Q4) 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) A firm's stock price will be higher when the interest rate is ____ and the value of the firm's expected future profits are ____.
A)lower;larger
B)lower;smaller
C)higher;larger
D)higher;smaller
Q2) If the interest rate were 5 percent,how much would people be willing to pay for a stock that was certain to yield a $10 per share stream of net earnings continuously in the future?
A)$10
B)$20
C)$200
D)$400
E)$2,000
Q3) The stock price of a firm is primarily a reflection of the A)firm's current net earnings per share.
B)firm's expected future net earnings per share.
C)discounted value of the firm's expected future net earnings per share.
D)firm's current net earnings per share multiplied by the interest rate.
E)book value of the firm.
Page 33
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Chapter 32: Great Debates in Economics: Keynes Versus Hayek
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Q1) According to the Keynesian view,capitalism
A)is a highly productive form of economic organization that works best when government intervention is least.
B)experiences booms and busts because of the instability of private investment that is driven by fickle changes in business optimism.
C)experiences booms and busts that are primarily the result of inappropriate monetary policy.
D)experiences fluctuations in aggregate demand that cannot be controlled with fiscal policy.
Q2) Adam Smith stated,"The man of system is apt to be very wise in his own conceit.He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board." Which is true of this statement?
A)Keynes would tend to agree with the statement;Heyek would disagree with it.
B)Keynes would tend to disagree with the statement;Hayek would agree with it.
C)As the rap video indicates,both Keynes and Hayek strongly agree with this statement.
D)As the rap video indicates,both Keynes and Hayek strongly disagree with this statement.
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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 describes the relationship between interest rates and interest-sensitive goods,such as housing?
A)As interest rates decline,the demand for interest-sensitive goods increases.
B)As interest rates decline,the demand for interest-sensitive goods decreases.
C)As interest rates increase,the demand for interest-sensitive goods increases,driving prices upward.
D)As interest rates increase,the demand for interest-sensitive goods decreases,driving prices upward.
Q2) The mortgage-backed securities issued by investment banks caused many investment banks to fail when
A)stock prices declined by approximately 40 percent in 2008.
B)housing prices increased rapidly beginning in 2002.
C)federal regulators required investment banks to maintain more capital against their residential housing loans than was true for commercial business loans.
D)the default rates of the mortgages financed by the securities increased sharply.
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Chapter 34: Lessons From the Great Depression
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Q1) The Great Depression illustrates that monetary policy is
A)effective against inflation but incapable of dealing with a decline in output.
B)a source of economic instability if utilized inappropriately.
C)incapable of reversing an economic downturn when the money supply is increasing at a constant rate.
D)incapable of reversing a major downturn unless the recession stems from inflation.
Q2) Fiscal policy analysis indicates that large tax increases during a severe recession will result in
A)an increase in the incentive to earn and the maintenance of a balanced federal budget.
B)higher tax revenues and an expansion in government spending.
C)smaller budget deficits,which will speed an economic recovery.
D)a reduction in aggregate demand and a worsening of the recession.
Q3) Monetary policy from 1929 to 1933,and again in 1937 to 1938,was characterized by
A)monetary expansion,which led to deflation.
B)monetary contraction,which led to deflation.
C)monetary expansion,which led to inflation.
D)monetary contraction,which led to inflation.
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Chapter 35: Lessons From Japan and Canada
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Q1) Why might Japan have been misled into believing it was following an expansionary monetary policy during the 1990s?
A)The M1 money supply was expanding at a rapid rate during the 1990s.
B)The general level of prices continued to rise in Japan throughout the 1990s.
C)When decision-makers expect inflationary conditions,nominal interest rates will be low,as they were in Japan during the 1990s.
D)Low interest rates are often indicative of expansionary monetary policy,but if deflation is expected,this will not be the case.
Q2) If interest rates fall to near zero and consumers expect a decline in the price levels in the coming year,what would this indicate?
A)highly expansionary monetary policy
B)restrictive monetary policy,but an anticipation of future inflationary conditions
C)highly restrictive monetary policy and an anticipation of deflation in the future
D)an unanticipated decrease in the money supply
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Chapter 36: The Federal Budget and the National Debt
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Q1) Since 1960,there have been how many years of budget surplus?
A)5
B)10
C)20
D)30
Q2) As the size of a nation's outstanding debt gets larger and larger relative to the size of the economy,
A)eventually it will become difficult for the country to borrow in global credit markets.
B)the country will have to pay higher real interest rates in order to induce investors to purchase its bonds.
C)at some point,the country will be more or less forced to bring spending into line with revenues in order to maintain the confidence of investors.
D)all of the above are correct.
Q3) Indicate what might be done to restrain the tendency of the democratic process to generate budget deficits?
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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Q1) The growth of third-party payments (payments by insurers and the government)of healthcare services during the last four decades has been accompanied by
A)a reduction in expenditures on healthcare as a share of the economy.
B)an increase in the sensitivity of consumers to the prices of healthcare services.
C)persistent increases in the prices of healthcare services and rapid growth in the total expenditures on healthcare.
D)an increase in the incentive of suppliers to provide healthcare services at a low cost.
Q2) (I)The Medicare program is financed by general tax revenue and provides low-income families with access to health care either free or at a low cost. (II)The Medicaid program covers the bulk of the health-care costs of the elderly and is financed mostly through a tax on the wages and salaries of current workers.
A)I is true;II is false.
B)I is false;II is true.
C)Both I and II are true.
D)Both I and II are false.
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Chapter 38: Education: Problems and Performance
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Q1) During the 2008-2009 school year,approximately how many students attended a charter school?
A)100,000
B)600,000
C)1,400,000
D)2,100,000
Q2) Which of the following is true?
A)The current achievement scores of American students are lower than during the late 1960s.
B)Real spending per student in American public elementary and secondary schools has changed little since the 1960s.
C)The achievement scores of American students are higher than those of students in most developed countries.
D)Real spending per student in American public elementary and secondary schools has declined since the 1960s.
Q3) What does the evidence suggest regarding the effects of school choice programs?
Q4) What are charter schools? How do they differ from voucher programs?
Q5) What are some of the criticisms of voucher programs? How would a voucher program be modified to address these concerns?
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Chapter 39: Earnings Differences Between Men and Women
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Q1) Which of the following is true?
A)Due to anti-employment discrimination legislation that was passed in the early 1960s,there was a large increase in the earnings of women relative to men in the 1960s and 1970s.
B)The female/male earnings ratio for full-time workers has been virtually constant since 1980.
C)The number of women preparing for careers as professionals has increased substantially since the 1980s.
D)In recent years only about 40 percent of those completing college degrees were women.
Q2) The earnings difference between men who have never been married and women is
A)significantly less than the earnings difference between married men and women.
B)about the same as the earnings difference between married men and women.
C)significantly more than the earnings difference between married men and women.
D)modestly more than the earnings difference between married men and women.
Q3) In 1961,____ percent of college degrees were earned by women.
A)19
B)29
C)39
D)51
Page 41
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Chapter 40: Do Labor Unions Increase the Wages of Workers
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Q1) Which of the following statements is true for the U.S.economy?
A)Higher wages in the unionized sectors of the economy push up wages in the nonunion sectors as well.
B)Inflation tends to accelerate when the proportion of the labor force that is unionized increases.
C)Union workers currently receive wages that are 15 to 20 percent higher,on average,than similar nonunion workers.
D)When we compare similar union and nonunion workers,we find virtually no difference in the wages they receive.
Q2) Which of the following will tend to lower the ability of a union to increase the wages of its members?
A)strong competition from nonunion labor
B)threat of a strike
C)increased demand for union labor
D)all of the above
Q3) List some factors that might make the threat of a strike more effective.
Q4) Why is it that the airline pilots union will likely be stronger and more effective than the fruit pickers union?
Q5) In a strike,what does the union have to lose? What does management lose?
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Chapter 41: The Question of Resource Exhaustion
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Q1) "Doomsday" predictions about the imminent depletion of one or more of our vital natural resources usually are
A)correct but are not reflected by relative price changes within our market economy.
B)overstated because of arithmetic calculation mistakes.
C)overstated because they disregard human responses to relative price changes.
D)understated because substitutes for such natural resources are also becoming less available.
Q2) According to water resource economists
A)water is seldom in short supply anywhere in the world.
B)we are not running out of water,but specific places do run short of water,given the status of their water supply arrangements and ease (or lack of)transferability of water among users.
C)the world is running out of water,just as it is running out of accessible oil.
D)there is no workable way to make water markets function properly,because in the end,we can't make more water the way we can make more bread or automobiles.
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Chapter 42: Difficult Environmental Cases and the Role of Government
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Q1) Regarding wealth and environmental quality,
A)richer people are more willing to make sacrifices to gain greater environmental quality.
B)poor nations are less resilient when faced with the threats caused by environmental degradation.
C)richer people are more able to make sacrifices to gain greater environmental quality.
D)all of the above
Q2) Providing citizens with enforceable property rights to resources
A)increases resource conservation and decreases wasteful resource use.
B)promotes economic prosperity and thus increases demand for environmental quality.
C)provides people with a strong incentive not to damage the privately owned resources of others.
D)does all of the above.
Q3) The scientific evidence on the causes and consequences of global warming
A)is clear and indisputable.
B)is uncertain and variable.
C)indicates global warming should be stopped regardless of cost.
D)is of no importance to economists.
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