Economic Literacy
Mock Exam
Course Introduction
Economic Literacy introduces students to the fundamental concepts and principles that underpin economic systems and decision-making. The course covers key topics such as supply and demand, market structures, personal finance, government intervention, and global economics. By exploring how individuals, businesses, and governments allocate limited resources, students gain practical knowledge to interpret everyday economic events, make informed financial choices, and understand the economic forces that shape society. Through real-world examples and interactive activities, the course aims to build a foundation of economic understanding essential for both personal and civic life.
Recommended Textbook
Economics The Basics 2nd Edition by Michael
Mandel
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19 Chapters
1210 Verified Questions
1210 Flashcards
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) Globalization is the exchange of ________________ among countries.
A) e-mail
B) telephone calls
C) goods, services, ideas, and people
D) money
Answer: C
Q2) Which of the following is part of the U.S.government's economic safety net?
A) Social Security.
B) Blue Cross and Blue Shield.
C) Church-affiliated food kitchens.
D) National Sisters of the Poor Welfare Agency.
Answer: A
Q3) Can economic competition be viewed as a positive force for growth and progress?
A) No, economic competition historically had neither a positive nor a negative effect.
B) No, because there is more poverty today than in the past.
C) Yes, because economic competition of any type always leads to growth and progress.
D) Yes, as long as it is conducted within a fair set of rules.
Answer: D
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Page 3
Chapter 2: Demand and Supply: The Basics of the Market Economy
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Sample Questions
Q1) Buyers and sellers who are geographically close are part of a national market. A)True
B)False
Answer: False
Q2) The market price is the typical price at which a good or service sells.
A)True
B)False
Answer: True
Q3) If you wished to sell glasses of lemonade,but were uncertain at what price to sell each glass,you would use a __________,if one were available,to assist in the decision.
A) calculator
B) demand schedule
C) opportunity schedule
D) negotiated price
Answer: B
Q4) Individuals in a market economy can be both buyers and sellers. A)True
B)False
Answer: True
Page 4
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Chapter 3: Market Equilibrium and Shifts
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Sample Questions
Q1) Inferior goods are characterized by _____ demand as a result of increased income.
A) higher
B) lower
C) no change in
D) sharp increases in
Answer: B
Q2) If a town begins requiring builders to build on one-acre lots,instead of smaller quarter-acre lots,the supply curve for new homes will
A) shift to the left.
B) shift to the right.
C) reach market equilibrium.
D) reflect equilibrium pricing.
Answer: A
Q3) A normal good is one whose demand rises sharply as income increases.
A)True
B)False
Answer: False
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Chapter 4: How Businesses Work
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Sample Questions
Q1) Many times,technology is _____ in the equipment a company buys.
A) embodied
B) not present
C) produced
D) part of the production process
Q2) If June can earn $1,500 in revenue from painting two houses,how much can she earn in revenue from painting three houses? (Assume she is just one housepainter in a large market of housepainters,and that she can easily find a third customer.)
A) Exactly $2,250.
B) Less than $2,250.
C) More than $2,250.
D) Exactly $4,500.
Q3) Economists generally assume that the main goal of most businesses in the economy is to
A) be responsible corporate citizens.
B) maximize profits.
C) provide jobs for the local population.
D) Avoid having to make very many decisions.
Q4) Explain how marginal product can be negative.
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Chapter 5: Competition and Market Power
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Sample Questions
Q1) A business can escape perfect competition by building a better,more innovative product.
A)True
B)False
Q2) A _______ monopoly is an industry in which it makes economic sense to have only one provider.
A) specific
B) original
C) natural
D) competitive
Q3) Marginal revenue is generally __________ for businesses that do not operate under conditions of perfect competition.
A) lower than the average cost
B) higher than the price
C) lower than the price
D) lower than the marginal product
Q4) Perfect competition requires a nonstandard product.
A)True
B)False
Q5) Over the long run,why do low-cost providers generally prevail?
Page 7
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Chapter 6: Government and the Economy
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Sample Questions
Q1) Which of the following programs that expanded the government's role in the economy was enacted by a Republican president?
A) The interstate highway program.
B) The Environmental Protection Agency (EPA).
C) The Occupational Safety and Health Administration (OSHA).
D) All of these were enacted by Republican presidents.
Q2) Rent-seeking behavior can sometimes cause
A) housing rental prices to increase.
B) a decrease in government spending.
C) corruption in public officials.
D) a sharp increase in economic activity.
Q3) The era of deregulation,when the role of the government in the economy steadily decreased,began
A) shortly after WWII.
B) in the mid-1970s.
C) with the presidency of Dwight Eisenhower.
D) with the presidency of Ronald Reagan.
Q4) What happened to government regulation in the aftermath of the oil shock of 1973?
Q5) What is income redistribution?
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Chapter 7: The First Step Into Macroeconomics
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Sample Questions
Q1) Which of the following describes an intermediate input?
A) A business-to-business sale where the product is used in the production process.
B) A business-to-consumer sale included in the GDP.
C) A wholesale transaction.
D) The production of a good that has not yet been sold or delivered.
Q2) What is macroeconomics?
Q3) The salaries paid to government employees are an example of a government input.
A)True
B)False
Q4) One of the only purchases a business can make that counts directly in the GDP is A) Software.
B) Copy paper.
C) Pencils.
D) Pens.
Q5) Gross domestic product does NOT include A) personal consumption.
B) intermediate inputs.
C) residential investment.
D) net exports.
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Chapter 8: Inflation
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Sample Questions
Q1) Core inflation includes energy and food cost increases.
A)True
B)False
Q2) As of 2009,the average household earned $49,777.In 1979,the average household earned $16,461.Although it appears as though incomes have tripled,other prices have risen too.This illustrates a concept known as A) deflation.
B) disinflation.
C) money illusion.
D) COLA.
Q3) The BLS has chosen 90 to represent the average 1982-1984 price level,and it now measures all other years relative to this base year.
A)True
B)False
Q4) A pure price change occurs
A) when inflation increases the price of an item.
B) when technology and quality improve an item.
C) when inflation exceeds expected inflation rates.
D) with unanticipated inflation.
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Chapter 9: Growth
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Sample Questions
Q1) What is the economic definition of productivity?
Q2) The production possibility frontier represents all the combinations of different goods and services that the economy is capable of producing at a given time.
A)True
B)False
Q3) In the past 50 years,the economy of the United States grew,causing
A) a higher standard of living for most citizens.
B) a higher standard of living for the employed.
C) a stagnant standard of living after adjusting for inflation.
D) a lower standard of living after adjusting for inflation.
Q4) Economic growth is driven by several factors,including
A) government investment in welfare.
B) a progressive tax on income.
C) education and skill levels of workers.
D) Social Security.
Q5) GDP growth on a year-to-year basis is called
A) nominal growth.
B) real growth.
C) short-term growth.
D) long-term growth.
11
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Chapter 10: Business Cycles, unemployment and Inflation
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Sample Questions
Q1) Generally,in a recession,more homes are built.
A)True
B)False
Q2) How is it possible for output to be greater than potential GDP?
Q3) What is the definition of the natural rate of unemployment?
Q4) The effects of a recession on auto companies are that ________ cars are demanded and prices generally __________.
A) fewer; fall
B) fewer; rise
C) more; fall
D) more; rise
Q5) What will happen in an economy if the actual GDP is too high relative to the potential GDP?
Q6) If the long-term labor force growth rate is 1.2% and the long-term productivity growth rate is 2.4%,then the A) potential growth rate is 3.6%.
B) short-term growth rate is 1.2%.
C) spending multiplier is 2.
D) real GDP per capita growth rate is 0.5%.
Q7) What are the definition and purpose of potential GDP?
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Chapter 11: Fiscal Policy
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Sample Questions
Q1) The short-term impact of government spending on demand schedules for goods and labor is
A) a shift to the left.
B) a decrease in inflation.
C) a shift to the right.
D) an increase in inflation.
Q2) In 2010,federal,state,and local governments spent an estimated
A) $5.5 trillion.
B) $3.5 billion.
C) $2.8 trillion.
D) $550 billion.
Q3) The amount of income people have left after taxes is called A) boot.
B) net profit.
C) excise income.
D) disposable income.
Q4) An increase in government spending can raise wages and prices in the short term.
A)True
B)False
Q5) What does the government have to do when there is a budget deficit?
Page 13
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Chapter 12: Monetary Policy
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Sample Questions
Q1) The Fed's response to the housing crisis of 2007 and 2008 was to A) encourage discount window borrowing.
B) reduce taxes on financial institutions.
C) raise the federal funds rate.
D) raise the reserve requirement.
Q2) Having government-issued money makes it easier for policy makers to A) completely prevent inflation.
B) keep wages high in certain key industries.
C) guide and control the economy.
D) keep oil prices stable.
Q3) Which of the following statements about monetary policy is true?
A) Unlike fiscal policy, there is no delay between the Fed's enacting a policy and the policy's effects.
B) The Fed's policies tend to take effect more quickly and with less political influence than fiscal policy.
C) Monetary policy has an equal impact on short-term and long-term interest rates.
D) The Fed controls most interest rates directly by telling banks and other financial institutions what interest rate they must charge for common loans.
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Chapter 13: The Financial Markets
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Sample Questions
Q1) Splitting money across different investments (diversification)reduces risk but also reduces the rate of return,according to the risk-return principle.
A)True B)False
Q2) For one person to be willing to lend money to another person,the interest rate must be high enough to compensate the lender for A) the risk of deflation and bearing the risk of default.
B) the time value of money and bearing the risk of default.
C) the opportunity cost of risk and the principal.
D) the certainty of default and the certainty of inflation.
Q3) The supply curve for loans to high-risk borrowers is _________ the supply curve for loans to low-risk borrowers.
A) below B) more elastic than C) to the right of D) to the left of
Q4) The S&P 500 is a list of the 500 most successful stock market investors.
A)True B)False
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Chapter 14: International Trade
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Sample Questions
Q1) A nation has a comparative advantage in producing a good,if
A) it has a higher standard of living than its trading partners.
B) more people in the country are employed in the production of the good than its trading partners.
C) it also has an absolute advantage in producing the good.
D) it has either a greater productivity advantage or a smaller productivity disadvantage.
Q2) Over the last two decades,trade worldwide has fallen (as a share of global output)because many countries have discovered that trade produces too many job losses.
A)True
B)False
Q3) The General Agreement on Tariffs and Trade (GATT),which later became the World Trade Organization (WTO),has increased tariffs in industrialized countries that can afford tariffs,while decreasing tariffs in less developed countries that cannot afford them.
A)True
B)False
Q4) How does expanding worldwide trade produce gains for all the nations that participate?
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Chapter 15: Technological Change
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Sample Questions
Q1) Which of the following would NOT encourage economic growth in the United States?
A) The development of artificial intelligence, allowing computers to fill jobs formerly occupied by human beings.
B) A limit on the number of foreign citizens who are permitted to study in high-level research institutions in the United States.
C) The development of a better Internet search engine.
D) An improvement in shipbuilding technology that allows large cargo ships to be built at lower cost, reducing the cost of trading with other countries.
Q2) A productivity-enhancing innovation has the effect of
A) shifting a supply curve to the right.
B) shifting a supply curve to the left.
C) shifting a demand curve to the right.
D) shifting a demand curve to the left.
Q3) Scientific investigations that have no immediately obvious commercial applications are called sterile research.
A)True
B)False
Q4) What is a patent,and how does it encourage innovation?
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Page 17
Chapter 16: Economics of the Labor Market
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Sample Questions
Q1) Which of the following is typically a result of government licensing requirements?
A) Competition in the licensed occupation is reduced.
B) Wages in the licensed occupation fall.
C) People in the industry begin to work longer hours and receive lower benefits.
D) The number of people working in the industry increases.
Q2) If an extra worker allows a child care center to care for an extra nine children a week,the weekly price of child care per child is $200,and the other workers are all paid wages and benefits totaling $500 per week,then the marginal revenue of that additional worker is
A) $4,500 per week.
B) $2,700 per week.
C) $1,800 per week.
D) The answer cannot be determined from the information provided.
Q3) Which of the following would be an effect of increased technology on the labor market?
A) People with fewer skills may face more difficulty getting a job.
B) The unemployment rate would tend to increase.
C) People with high levels of technical skill may see reduced compensation.
D) The advantage to gaining a college education would be reduced.
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Page 18
Chapter 17: The Distribution of Income
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Sample Questions
Q1) Which of the following statements is true?
A) Income distributions have not changed much in the United States in the past 30 years.
B) Progressive income tax structures are one method of making incomes more equal.
C) The poverty line has not been adjusted at all in the past 30 years.
D) Worldwide, no countries are catching up to the United States with respect to GDP per capita.
Q2) The Social Security and Medicare taxes in the United States,which are payroll taxes,fit the description of which of the following tax structures?
A) Regressive.
B) Proportional.
C) Progressive.
D) It depends on the income of the individual being taxed.
Q3) Why might people object to a regressive tax structure?
Q4) Why might education differences better explain the differences in income between whites and Hispanics than between men and women?
Q5) Give a brief explanation of the "superstar economy" as a factor in the widening of income inequality.
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Chapter 18: Economics of Retirement and Healthcare
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Sample Questions
Q1) Which group in the United States tends to spend the largest amount of money per person on healthcare?
A) Children and teens from infancy to 18.
B) Young and middle-aged people from 19 to 64.
C) Elderly people from 65 and up.
D) All groups spend about the same amount of money per person.
Q2) The name "401(k)" for some retirement plans is a reference to
A) the trademarked name of the first defined contribution retirement plan.
B) the section of the tax code that defines such plans.
C) a specific cell in the spreadsheet that a government official used to create these retirement plans.
D) a room number inside the Social Security Administration headquarters.
Q3) Which of the following groups is most likely to participate in an employer-sponsored retirement plan?
A) Low-wage workers.
B) Workers with defined benefit plans in small workplaces.
C) High-wage workers in part-time jobs.
D) High-wage workers in full-time jobs.
Q4) List the four possible responses to the Social Security financing gap.
Q5) Describe the problem demographic change presents for Social Security.
Page 20
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Chapter 19: Economics of Energy, the Environment, and Global Climate Change Glossary
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Sample Questions
Q1) Which of the following companies would benefit the most from a carbon tax?
A) An oil company.
B) A coal mining equipment manufacturer.
C) A producer of windmill turbines.
D) A trucking company.
Q2) To estimate the value of a statistical life,economists sometimes ask people how much they would be willing to pay to reduce their risk of death by a small amount.This method of determining the value of a statistical life is known as A) revealed preference.
B) stated preference.
C) the actuarial method.
D) the survey method.
Q3) Renewable energy sources,such as solar,hydro,and wind power,make up about half of all energy production in the world today.
A)True
B)False
Q4) List and briefly describe the four types of negative impacts from pollution.
Q5) Briefly describe revealed preference and stated preference as means of determining the value of a statistical life.
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