Business Economics
Question Bank
Course Introduction
Business Economics provides students with an understanding of the economic principles and concepts that underpin business decision-making. The course explores topics such as demand and supply analysis, market structures, cost and production theory, pricing strategies, and the impact of government policies on business operations. By applying microeconomic and macroeconomic theories to real-world business scenarios, students learn to assess market environments, forecast economic trends, and make informed managerial decisions that drive organizational growth and competitiveness.
Recommended Textbook
Macroeconomics 9th Edition by Andrew
B. Abel
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1566 Verified Questions
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Chapter 1: Introduction to Macroeconomics
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Sample Questions
Q1) Adam Smith's idea of the "invisible hand" says that given a country's resources and its initial distribution of wealth,the use of markets will
A)insulate a nation from the effects of political instability.
B)eliminate problems of hunger and dissatisfaction.
C)eliminate inequalities between the rich and the poor.
D)make people as economically well off as possible.
Answer: D
Q2) A set of ideas about the economy that have been organized in a logical framework is called
A)empirical analysis.
B)a methodology.
C)economic theory.
D)data development.
Answer: C
Q3) In the United States,monetary policy is determined by
A)the Federal Reserve.
B)the president.
C)private citizens.
D)the Treasury Department.
Answer: A
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Chapter 2: The Measurement and Structure of the National Economy
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Sample Questions
Q1) The accounting framework used in measuring current economic activity is called A)the U.S. expenditure accounts.
B)the national income accounts.
C)the flow of funds accounts.
D)the balance of payments accounts.
Answer: B
Q2) Government statisticians adjust GDP figures to include estimates of
A)the value of homemaking (work done within the home).
B)the underground economy.
C)child-rearing services provided by stay-at-home parents.
D)the costs of pollution to society.
Answer: B
Q3) The value of a producer's output minus the value of the inputs it purchases from other producers is called the producer's A)surplus.
B)profit.
C)value added.
D)gross product.
Answer: C
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Chapter 3: Productivity, output, and Employment
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Sample Questions
Q1) If Jeff's wage rate rises,he decides to work more hours.From this,we can infer that A)for Jeff, the substitution effect is greater than the income effect.
B)for Jeff, the substitution effect is equal to the income effect.
C)for Jeff, the substitution effect is less than the income effect.
D)Jeff is confused.
Answer: A
Q2) Suppose the economy's production function is Y = AK<sup>0.3</sup><sup>N</sup><sup>0.7</sup><sup>.</sup>If K = 2000,N = 100,and A = 1,then Y = 246.If A rises by 10 percent,and K and N are unchanged,by how much does Y increase?
A)5%
B)10%
C)15%
D)20%
Answer: B
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Chapter 4: Consumption, saving, and Investment
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Sample Questions
Q1) Which of the following machines has the lowest user cost? Machine A costs $15,000 and depreciates at a rate of 25%,machine B costs $10,000 and depreciates at a rate of 20%,machine C costs $20,000 and depreciates at a rate of 10%,and machine D costs $17,000 and depreciates at a rate of 11%.The expected real interest rate is 0%.
A)Machine A
B)Machine B
C)Machine C
D)Machine D
Q2) Rachel earns nothing during her learning period,1100 during her working period,and nothing during her retirement period.She has initial assets of 300.The real interest rate is zero.Rachel is not allowed to borrow by the banks.Whenever possible,Rachel wants to smooth consumption between periods.How much will she save during her working period?
A)400
B)550
C)700
D)950
Q3) What is the marginal propensity to consume,and why is it always less than one?
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Chapter 5: Saving and Investment in the Open Economy
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Sample Questions
Q1) Suppose output is $35 billion,government purchases are $10 billion,desired consumption is $15 billion,and desired investment is $6 billion.Absorption is equal to
A)$25 billion.
B)$31 billion.
C)$35 billion.
D)$39 billion.
Q2) Suppose output is $1000 billion,government purchases are $200 billion,desired consumption is $700 billion,and desired investment is $150 billion.Net foreign lending would be equal to
A)-$150 billion.
B)-$50 billion.
C)$50 billion.
D)$150 billion.
Q3) When future labor income falls in a large open economy,it causes the current account to ________ and investment to ________.
A)fall; rise
B)rise; remain unchanged
C)fall; fall
D)rise; rise
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Chapter 6: Long-Run Economic Growth
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Sample Questions
Q1) Which of the following changes would lead,according to the Solow model,to a higher level of long-run output per worker?
A)A lower level of capital per worker
B)An increase in the saving rate
C)A rise in the rate of population growth
D)A decrease in productivity
Q2) In the Solow model,if f(k)= 2k<sup>0.5</sup>,s = 0.25,n = 0.1,and d = 0.4,what is the value of k at equilibrium?
A)1
B)2
C)3
D)4
Q3) Steady-state consumption per worker is
A)larger in the short run than in the long run.
B)less than steady-state investment per worker.
C)less than steady-state saving per worker.
D)steady-state production per worker minus steady state investment per worker.
Q4) Describe the main ideas of endogenous growth theory.What does it have to say about the role of government in economic growth?
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Chapter 7: The Asset Market, money, and Prices
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Sample Questions
Q1) An increase in the real interest rate would cause an increase in the real demand for money
A)no matter what the change in expected inflation.
B)if expected inflation fell by less than the rise in the real interest rate.
C)if expected inflation fell by the same amount as the rise in the real interest rate.
D)if expected inflation fell by more than the rise in the real interest rate.
Q2) Bonds sold by the U.S.government that offer a certain real interest rate are known as A)zero-coupon bonds.
B)Treasury Inflation-Protected Securities.
C)denominalized securities.
D)savings bonds.
Q3) A developing country does not have enough taxes to cover its expenditures and is unable to borrow.This government would be most likely to cover its deficit by
A)purchasing government bonds from the public.
B)selling government bonds to the public.
C)selling newly issued government bonds directly to the central bank.
D)buying newly issued government bonds directly from the central bank.
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Chapter 8: Business Cycles
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Sample Questions
Q1) Who officially determines whether the economy is in a recession or expansion?
A)The president of the United States
B)The U.S. Congress
C)The Federal Reserve Board of Governors
D)The National Bureau of Economic Research
Q2) A decrease in government spending on the park system would cause
A)the aggregate demand curve to shift to the right.
B)the aggregate demand curve to shift to the left.
C)a movement down and to the right along the aggregate demand curve.
D)a movement up and to the left along the aggregate demand curve.
Q3) By 1937,when a new recession began in the midst of the Great Depression,
A)GDP had almost recovered to its 1929 level, but unemployment was still above the 1929 level.
B)unemployment had almost fallen back to its 1929 level, but GDP had yet to recover to its 1929 level.
C)neither GDP nor unemployment had returned to near their 1929 levels.
D)both GDP and unemployment had returned to near their 1929 levels.
Q4) Suppose labor supply declined.Would this affect the aggregate demand curve or the aggregate supply curve? What would be the effect on output and the price level?
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Chapter 9: The Is-Lmad-As Model
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Sample Questions
Q1) A temporary adverse supply shock directly causes
A)a shift down and to the left of the IS curve.
B)a shift to the left of the FE line.
C)a shift down and to the right of the LM curve.
D)a shift up and to the right of the IS curve.
Q2) Identify changes in three variables that would cause the FE line to shift to the right.
Q3) For each of the following changes,which equilibrium curve (IS,LM,or FE)is shifted? Draw the change in the underlying demand or supply curves (for example,money demand and supply for the LM curve)and show how the equilibrium curve changes.
(a)Expected inflation increases.
(b)The future marginal productivity of capital increases.
(c)Labor supply decreases.
(d)Future income declines.
(e)There's a temporary beneficial supply shock.
(f)The nominal interest rate on money rises.
Q4) Describe the differences between classical and Keynesian economists in terms of their views about monetary neutrality.
Q5) Describe what happens to the FE line if government purchases increase.
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Chapter 10: Classical Business Cycle Analysis
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Sample Questions
Q1) A temporary increase in government purchases in the classical model would
A)shift the production function to the right.
B)shift the marginal product of labor curve to the left.
C)shift the labor demand curve to the right.
D)shift the labor supply curve to the right.
Q2) Assuming money neutrality in the classical model,a 10% increase in the nominal money supply would cause
A)a 10% increase in the real money supply.
B)a 10% decrease in the real money supply.
C)no change in the real money supply.
D)a less-than-10% change in the price level due to a shift in the aggregate supply curve.
Q3) A jobless recovery occurs when
A)no jobs are created in an economy after a recession ends.
B)employment continues to fall at the beginning of a recovery.
C)only low-quality jobs are created in a recovery.
D)most of the new jobs created in a recovery are overseas.
Q4) Why do many economists believe that money affects output? What is the empirical evidence in support of that belief?
Q5) Define real shocks,define nominal shocks,and give an example of each.
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Chapter 11: Keynesianism: the Macroeconomics of Wage and Price Rigidity
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Sample Questions
Q1) In the efficiency wage model,if the real wage is higher than the market-clearing wage so that there is an excess supply of labor
A)firms will hire new workers at lower wages.
B)firms will replace high-paid workers with low-paid, formerly unemployed workers.
C)employers will not hire workers who are willing to work for a lower wage.
D)firms will demand a higher level of effort from existing employees.
Q2) According to the efficiency wage model,firms will pay the real wage that
A)maximizes workers' marginal productivity.
B)maximizes the marginal productivity of capital and the marginal productivity of labor together.
C)maximizes effort per dollar of real wage.
D)minimizes hiring and training costs to the firm.
Q3) In the Keynesian model,when the economy is not in long-run equilibrium,then the short-run equilibrium point is not on which curve?
A)SRAS
B)FE
C)IS
D)LM
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Chapter 12: Unemployment and Inflation
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Sample Questions
Q1) A difficulty faced by policymakers who wish to use the unemployment rate as a guide to whether the economy is weak or strong is that
A)the natural rate of unemployment is hard to measure.
B)the natural rate of unemployment almost never changes.
C)policymakers must use data on output to tell whether the unemployment rate is too high or too low.
D)the impact of policy on the economy is subject to long and variable lags.
Q2) The short-run Phillips curve is the relation between inflation and unemployment that holds for a given natural rate of unemployment and a
A)given rate of inflation.
B)given expected rate of inflation.
C)given level of unemployment.
D)given expected level of unemployment.
Q3) Phillips's research looked at British data on
A)unemployment and inflation.
B)unemployment and nominal wage growth.
C)inflation and nominal wage growth.
D)unemployment and output.
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Chapter 13: Exchange Rates, business Cycles, and
Macroeconomic Policy in the Open Economy
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Sample Questions
Q1) When a group of countries agree to share a common currency,they are said to have formed a
A)currency union.
B)welfare state.
C)monetary alliance.
D)monetary cartel.
Q2) When the domestic currency strengthens under a fixed exchange-rate system,this is called
A)a depreciation.
B)an appreciation.
C)a devaluation.
D)a revaluation.
Q3) Describe how the euro was created.What are the benefits of the monetary union? What are the costs?
Q4) When the euro falls in value relative to other currencies,then
A)goods imported into Europe rise in price.
B)European exports rise in price.
C)neither European exports nor imports rise in price.
D)both European exports and imports rise in price.
Q5) What is purchasing power parity? Why might it not hold?
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Chapter 14: Monetary Policy and the Federal Reserve System
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Q1) The Taylor rule relates
A)the nominal Fed funds rate to inflation over the past year and the deviation of output from full-employment output.
B)the growth rate of the monetary base to the growth rate of nominal GDP and the change in velocity over the past year.
C)the nominal Fed funds rate to the growth rate of nominal GDP and the change in velocity over the past year.
D)the growth rate of the monetary base to inflation over the past year and the deviation of output from full-employment output.
Q2) When U.S.banks borrow from one another,they must pay the
A)discount rate.
B)prime rate.
C)Fed funds rate.
D)Interbank Offer Rate.
Q3) The Fed can reduce the money supply by reducing A)the currency-deposit ratio.
B)the monetary base.
C)reserve requirements.
D)the discount rate.
Page 16
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Chapter 15: Government Spending and Its Financing
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Sample Questions
Q1) From 1995 to 2001,the debt-GDP ratio in the United States
A)steadily fell.
B)steadily increased.
C)was about constant.
D)fell from 1995 to 1998, then rose sharply.
Q2) Assume that in an all-currency economy the real interest rate is 4%,the expected rate of inflation is 8%,and the nominal interest rate is 12%.The monetary base equals $50 billion.The real seignorage revenue collected by the government would equal
A)$4 billion.
B)$6 billion.
C)$8 billion.
D)$12 billion.
Q3) If the deficit is 0.08 times GDP,the existing debt-GDP ratio is 0.8,and the growth rate of nominal GDP is 0.05,then the change in the debt-GDP ratio is
A)+0.08
B)+0.04.
C)0)
D)-0.08.
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