Questions:
1) Why do consumers have to make tradeoffs in deciding what to consume?
A. there are not enough of all goods produced.
B. they are limited by a budget constraint.
C. the prices of goods vary.
D. not all goods give them the same amount of satisfaction.
2) Economics does not study correct or incorrect behaviors, but rather it assumes that economic agents make the best decisions given their knowledge of the costs and benefits. What term best describes this behavior?
A. selfishly
B. emotionally
C. rationally
D. equitably
3) Consider a good whose consumption takes place publicly. On what factors would your decision to buy that good depend?
A. only on the price of the good, and not on other factors, such as other people's actions.
B. only on how many other people buy the good, and not on the good itself.
C. only on the characteristics of the good itself and not on other people/s actions.
D. both on the characteristics of the product and on how many other people are buying it.
4) What might you call an outward shift of a nation's production possibilities frontier?
A. a situation in which a country produces more of one good and less of another.
B. an impossible situation.
C. rising prices of the two goods on the production possibilities frontier model.
D. economic growth.
5) If a commercial dairy farm wants to raise funds to purchase feeding troughs, in which market does it do so?
A. dairy products market.
B. factor market.
C. product market.
D. output market.
6) Which of the following countries is not close to the free market benchmark?
A. Singapore.
B. Germany.
C. North Korea.
D. Canada.
7) If a 35 percent increase in price of golf balls led to an 42 percent decrease in quantity demanded, then the demand for golf balls is
A. relatively elastic.
B. relatively inelastic.
C. perfectly elastic.
D. unit-elastic.
8) Economists in general
A. Incorporate tastes into economic models only to the extent that tastes determine whether pairs of goods are substitutes or complements.
B. Believe that they must be able to explain people's tastes in order to explain what happens when tastes change.
C. Do not believe that people's tastes determine demand and therefore they ignore the subject of tastes.
D. Do not try to explain people's tastes, but they do try to explain what happens when tastes change.
9) Price elasticity of demand measures
A. how responsive sales are to a change in buyers' incomes.
B. how responsive sales are to changes in the price of a related good.
C. how responsive quantity demanded is to a change in price.
D. how responsive suppliers are to price changes.
10) Which of the following is evidence of a surplus of bananas?
A. The quantity demanded of bananas is greater than the quantity supplied.
B. The price of bananas is lowered in order to increase sales.
C. The equilibrium price of bananas rises due to an increase in demand.
D. Firms raise the price of bananas.
11) At a product's equilibrium price
A. the product's demand curve crosses the product's supply curve.
B. the quantity of the product demanded is greater than the quantity of the product supplied.
C. the quantity of the product demanded is less than the quantity of the product supplied.
D. the product's demand curve is the same as the product's supply curve.
12) Danielle Ocean pays for monthly pool maintenance for her home swimming pool. Last week the owner of the pool service informed Danielle that he will have to raise his monthly service fee because of increases in the price of pool chemicals. How is the market for pool maintenance services affected by this?
A. There is a decrease in the supply of pool maintenance services.
B. There is a decrease in the demand for pool maintenance services.
C. There is a decrease in the quantity of pool maintenance services supplied.
D. There is an increase in the supply of pool maintenance services.
13) Which of the following best explains why unemployment rates are higher in the European economies than in the United States?
A. European industries pay a lower wage rate than industries in the United States.
B. Unemployment benefits are more generous in Europe than in the United States.
C. Workers in Europe are less productive than workers in the United States.
D. More Europeans go to school fulltime and are therefore not able to participate in the labor market.
14) At low wages, the labor supply curve for most people slopes upward because
A. the demand for labor is perfectly elastic at low wages.
B. as wages increase the opportunity cost of leisure increases.
C. as wages increase income also increases unless hours worked decrease.
D. the supply of labor is perfectly inelastic at low wages.
15) Let MP = marginal product, P = output price, and W = wage, then the equation that represents the condition where a competitive firm would hire another worker is
A. P × MP = W.
B. P × W > MP.
C. P × MP > W.
D. P × MP < W.
16) An individual's labor supply curve shows
A. the relationship between the quantity of hours worked and total income earned by that individual.
B. the maximum wage rates offered to that individual by various potential employers.
C. the relationship between wages and the quantity of labor that she is willing to supply.
D. the relationship between wages and the quantity of labor that a firm is willing to employ.
17) Which of the following will not cause the labor demand curve to shift to the right?
A. an increase in the market wage rate
B. an increase in the price of the firm's product
C. a technological improvement that increases labor productivity
D. an increase in human capital in the labor force
18) The labor supply for an industry would decrease if
A. a greater percentage of women want to work outside the home.
B. the wage rate falls.
C. the percentage of the population from age 16 to 65 decreases.
D. the government welcomes foreign workers into the country.
19) Private costs
A. are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.
B. are borne by producers of a good while social costs are borne by government.
C. are borne by consumers of a good while social costs are borne by government.
D. are borne by producers of a good while social costs are borne by society at large.
20) Which of the following is an example of a common resource?
A. taxicab services
B. the Sumatran tiger population in the world
C. rabbit fur
D. the stock of knowledge in the public domain
21) Which of the following displays these two characteristics: nonrivalry and nonexcludability in consumption?
A. common resources
B. public goods
C. private goods
D. quasi-public goods
22) A monopoly is a seller of a product
A. without a well-defined demand curve.
B. with many substitutes.
C. without a close substitute.
D. with a perfectly inelastic demand.
23) One reason why the coffeehouse market is competitive is that
A. consumption takes place in public.
B. demand for specialty coffee is very high.
C. it is trendy and therefore is likely to have a customer following.
D. barriers to entry are low.
24) The reason that the coffeehouse market is monopolistically competitive rather than perfectly competitive is because
A. entry into the market is blocked.
B. barriers to entry are very low.
C. there are many firms in the market.
D. products are differentiated.
25) Which of the following goods is directly counted in GDP?
A. the plastic bags that Subway purchases to wrap its sandwiches
B. the lettuce that Subway purchases for its sandwiches
C. the bread that Subway purchases for its sandwiches
D. a 12-inch Subway sandwich purchased by a student
26) Which of the following would be directly counted in GDP in 2010?
A. kitchen cabinets purchased from Home Depot in 2010 to be installed in a house built in 1997
B. kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a brand new country-style home
C. kitchen cabinets built in 1887, extracted from the 1887 home, and installed in a farm house built in 1950
D. none of the these
27) Gross domestic product understates the total production of final goods and services because of the omission of
A. exports.
B. inflation.
C. intermediate goods.
D. the underground economy.
28) Which of the following is an objective of fiscal policy?
A. high rates of economic growth
B. discovering a cure for AIDs
C. health care coverage for all Americans
D. energy independence from Middle East oil
29) If the economy is slipping into a recession, which of the following would be an appropriate fiscal policy?
A. a decrease in oil prices
B. a decrease in taxes
C. a decrease in government purchases
D. an increase in the money supply and a decrease in interest rates
30) Before the Great Depression of the 1930s, the majority of government spending took place at the ________ and after the Great Depression the majority of government spending took place at the ________.
A. federal level; state level
B. federal level; state and local levels
C. local level; federal level
D. state and local levels; federal level
31) Which of the following functions of money would be violated if inflation were high?
A. medium of exchange
B. certificate of gold
C. store of value
D. unit of account
32) In economics, money is defined as
A. any asset people generally accept in exchange for goods and services.
B. the total amount of salary, interest, and rental income earned during a year.
C. the total value of one's assets minus the total value of one's debts, in current prices.
D. the total value of one's assets in current prices.
33) Dollar bills in the modern economy serve as money because
A. people have confidence that others will accept them as money.
B. they have value as a commodity independent of their use as money.
C. they can be redeemed for gold by the central bank.
D. they are backed by the gold stored in Fort Knox.
34) In an economy with ________, there are more prices than in an economy with ________.
A. fiat money; barter
B. money; barter
C. fiat money;commodity money
D. barter; money
35) The M1 measure of the money supply equals
A. currency plus checking account balances plus traveler's checks plus savings account balances.
B. currency plus checking account balances.
C. currency plus checking account balances plus traveler's checks.
D. paper money plus coins in circulation.
36) The M2 measure of the money supply equals
A. M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares.
B. savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares.
C. M1 plus savings account balances plus small-denomination time deposits.
D. savings account balances plus small-denomination time deposits plus traveler's checks.
37) If the central bank can act as a lender of last resort during a banking panic, banks can
A. encourage the public to borrow directly from the central bank, and this will worsen the banking panic.
B. satisfy customer withdrawal needs and eventually restore the public's faith in the banking system.
C. borrow more and more money from the central bank, and this will lower its reserves and decrease the public's faith in the banking system.
D. call in their loans to their customers and eventually restore the public's faith in the banking system.
38) Money market mutual funds sell shares to investors and use the money to buy
A. overseas assets through foreign direct investment.
B. foreign currency.
C. short-term securities.
D. mortgage-backed securities.
39) To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency, the Federal Reserve could
A. lower bank taxes.
B. buy Treasury securities.
C. raise the discount rate.
D. raise the required reserve ratio.
40) The goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of ________, it also can achieve the goal of ________ simultaneously.
A. stability of financial markets; a low current account deficit
B. high employment; lowering government spending
C. economic growth; a low current account deficit
D. high employment; economic growth
41) Monetary policy refers to the actions the
A. Federal Reserve takes to manage government spending and taxes to pursue its economic objectives.
B. President and Congress take to manage the money supply and interest rates to pursue their economic objectives.
C. Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives.
D. President and Congress take to manage government spending and taxes to pursue their economic objectives.
42) The Federal Reserve System's four monetary policy goals are
A. price stability, low government budget deficits, low current account deficits, and low rate of bank failures.
B. low government budget deficits, low current account deficits, high employment, and a high foreign exchange value of the dollar.
C. low rate of bank failures, high reserve ratios, price stability, and economic growth.
D. price stability, high employment, economic growth, and stability of financial markets and institutions.
43) Table 2-3
Serena Haley
Bracelets 8 9
Necklaces 16 12
Refer to Table 2-3. What is Haley's opportunity cost of making a bracelet?
A. 2 necklaces
B. 3/4 of a bracelet
C. 3 bracelets
D. 1 1/3 necklaces
44) Table 2-3
Serena Haley
Bracelets 8 9
Necklaces 16 12
Refer to Table 2-3. Which of the following statements is true?
A. Haley has an absolute advantage in making necklaces and Serena in making bracelets.
B. Haley has an absolute advantage in making both products.
C. Serena has an absolute advantage in making both products.
D. Haley has an absolute advantage in making bracelets and Serena in making necklaces.
45) Comparative advantage means the ability to produce a good or service
A. at a higher profit level than any other producer.
B. at a lower selling price than any other producer.
C. at a lower opportunity cost than any other producer.
D. of a higher quality than any other producer.
46) If there is currently a surplus of dollars, which of the following would you expect to see in the foreign exchange market?
A. There will be a decrease in the supply of dollars.
B. The dollar will appreciate.
C. The dollar will depreciate.
D. There will be a decrease in the demand for dollars.
47) Currency traders expect the value of the dollar to fall. What effect will this have on the demand for dollars and the supply of dollars in the foreign exchange market?
A. Demand for dollars will decrease, and supply of dollars will decrease.
B. Demand for dollars will increase, and supply of dollars will decrease.
C. Demand for dollars will increase, and supply of dollars will increase.
D. Demand for dollars will decrease, and supply of dollars will increase.
48) If the dollar appreciates against the Mexican peso,
A. The value of Mexican imports to the United States does not change.
B. Mexican imports to the U.S. become more expensive.
C. U.S. exports to Mexico become less expensive.
D. U.S. exports to Mexico become more expensive.
49) You decide to work in Japan for the next 10 years, accumulate some savings, then move back to the United States and convert your savings from yen to dollars. At the time of your move, economists predict that consumers in the United States have reignited their love of Japanese products, especially hybrid cars, and expect that this strong preference for Japanese products will continue for the next decade. How should this influence your decision to work and save in Japan?
A. You should be encouraged as the growing U.S. preference for Japanese goods should increase the value of the yen to the dollar and raise the value of your savings when converted to dollars.
B. You should be discouraged as the growing U.S. preference for Japanese goods should increase the value of the yen to the dollar and decrease the value of your savings when converted to dollars.
C. You should be discouraged as the growing U.S. preference for Japanese goods should decrease the value of the yen to the dollar and decrease the value of your savings when converted to dollars.
D. You should be encouraged as the growing U.S. preference for Japanese goods should decrease the value of the yen to the dollar and raise the value of your savings when converted to dollars.
50) If relative purchasing power between the United States and Argentina is 3.22 pesos per dollar, under which circumstances would we say that the dollar is overvalued?
A. if the actual exchange rate between the dollar and the Argentinean peso is 3 pesos per dollar
B. if the actual exchange rate between the dollar and the Argentinean peso is 3.22 pesos per dollar
C. if the actual exchange rate between the dollar and the Argentinean peso is 4 pesos per dollar
D. if the actual exchange rate between the dollar and the Argentinean peso is 0.22 pesos per dollar
51) If the purchasing power of the dollar is greater than the purchasing power of the euro, purchasing power parity predicts that the exchange rate will
A. not fluctuate and stay constant in the long run.
B. increase if the exchange rate is greater than 1 euro per dollar.
C. decrease if the exchange rate is less than 1 euro per dollar.
D. be equal to the relative purchasing power across the currencies in the long run.
52) China has been accused of deliberately undervaluing its currency, the yuan, in order to
A. maintain purchasing power parity.
B. increase its exports.
C. increase its imports.
D. prevent deflation.
53) Shares of stock and long-term debt, including corporate and government bonds and bank loans, are bought and sold on
A. commodity markets.
B. the stock market.
C. capital markets.
D. foreign exchange markets.
54) What two countries each accounted for more than 25% of all foreign purchases of U.S. stocks and bonds in 2008?
A. Mexico and Canada
B. Japan and Mexico
C. China and the United Kingdom
D. Japan and India