Economic Principles and Problems
Chapter Exam Questions
Course Introduction
This course offers a comprehensive introduction to the fundamental principles of economics, focusing on both microeconomic and macroeconomic concepts. Students will explore the mechanisms of market behavior, the role of government intervention, consumer choice, and production decisions by firms. In addition, the course examines broader economic issues such as inflation, unemployment, fiscal and monetary policy, and global trade. Through real-world examples and case studies, students will develop analytical skills to understand and address key economic problems facing individuals, businesses, and societies.
Recommended Textbook Survey of Economics 8th Edition by Irvin B. Tucker
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Page 2
Chapter 1: Introducing the Economic Way of Thinking
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Sample Questions
Q1) Economics could be defined as the study of scarcity.
A)True
B)False
Answer: True
Q2) What is an economic theory or model? What constitutes a "good" economic theory or model?
Answer: An economic theory is a simplified version of reality.It is a general statement about the causal relationship between economic phenomena based on facts.A truly "good" theory will predict well,explain economic behavior,indicate to what extent the predicted outcome is expected to occur,and indicate how long it will take for the predicted outcome to be observed.
Q3) The statement "American workers are lazy" is an example of positive economic analysis.
A)True
B)False
Answer: False
Q4) Policies to determine the price of troll dolls are a concern of macroeconomics.
A)True
B)False
Answer: False
Page 3
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Chapter 1: A: Appendix: Applying Graphs to Economics
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Sample Questions
Q1) A graph is one method of expressing a model.
A)True
B)False
Answer: True
Q2) Measured between two points on a curve,the ratio of the change in the variable on the vertical axis to the change in the variable on the horizontal axis is the:
A) axis.
B) slope.
C) dependent curve.
D) independent curve.
Answer: B
Q3) A direct relationship is expressed graphically as a:
A) positively sloped line or curve.
B) negatively sloped line or curve.
C) horizontal line.
D) vertical line.
Answer: A
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Chapter 2: Production Possibilities,Opportunity Cost,and Economic Growth
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Sample Questions
Q1) A local restaurant offers an "all you can eat" Sunday brunch for $12.Susan eats four servings,but leaves half of a fifth helping uneaten.Why?
A) Her marginal value of a serving of brunch has fallen below $12.
B) Her marginal value of a serving has fallen below $2.36 ($12 divided by 5 servings).
C) Her marginal value of food has fallen to zero.
D) The total value she places on brunch today exactly equals $12.
Answer: C
Q2) In Exhibit 2-15,the economy will experience the most future economic growth if it chooses what point now?
A) J.
B) K.
C) M.
D) N.
E) P.
Answer: D
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Page 5
Chapter 3: Part 1: Market Demand and Supply
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Sample Questions
Q1) Other things being equal,the effects of an increase in the price of computers would best be represented by which of the following?
A) A movement up along the demand curve for computers.
B) A movement down along the demand curve for computers.
C) A leftward shift in the demand curve for computers.
D) A rightward shift in the demand curve for computers.
Q2) If consumer incomes go up and cars are a normal good,the effect on the demand for cars ceteris paribus,will be a(n):
A) upward movement along the demand curve for cars.
B) downward movement along the demand curve for cars.
C) rightward shift in the demand curve for cars.
D) leftward shift in the demand curve for cars.
Q3) Which of the following is closest to the definition of demand?
A) People's willingness to supply goods at specific prices.
B) People's willingness to buy goods and services at given prices.
C) People's expectations of lower prices of goods and services.
D) Producer's expectations of selling more goods.
E) The interaction of people's willingness to buy and sell goods.
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6
Chapter 3: Part 2: Market Demand and Supply
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Q1) When there is a shortage of a product in a market the:
A) price will fall.
B) price must be below the equilibrium price.
C) price must be above the equilibrium price.
D) producers will reduce output and sales will fall.
Q2) According to the law of supply,price and quantity supplied are inversely related,ceteris paribus.
A)True
B)False
Q3) All of the following apply to the description of a market in equilibrium except:
A) quantity supplied equals quantity demanded.
B) the intersection of the supply and demand curves.
C) no excess supply exists.
D) no excess demand exists.
E) the price of the good is falling.
Q4) When the price of a good is below its equilibrium level,a:
A) shortage puts upward pressure on the price.
B) surplus puts downward pressure on the price.
C) shortage puts downward pressure on the price.
D) surplus puts upward pressure on the price.
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Chapter 4: Markets in Action
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Sample Questions
Q1) Which of the following is a public good?
A) Air traffic control.
B) National defense.
C) Clean air.
D) All of the above.
Q2) A price floor is a price set below equilibrium by government and it creates a shortage.
A)True
B)False
Q3) Which of the following is an example of a negative externality?
A) Planting flowers in your front yard.
B) Talking loudly when others are trying to study economics.
C) People donating money to charity.
D) The price of bread increases.
E) Accidentally pushing someone as you try to cross the street.
Q4) Exhibit 4-1 shows that at a price of $3.00,
A) the market is in equilibrium.
B) there will be excess quantity demanded.
C) there will be excess quantity supplied.
D) there is a price ceiling in effect.
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Chapter 5: Price Elasticity of Demand
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Q1) Elasticity measures how "sensitive" consumers are by measuring their change in ____ as the price of the product changes.
A) attitude
B) income
C) quantity demanded
D) supply
E) taxes
Q2) Which statement about price elasticity of demand along a linear demand curve is true?
A) As the quantity demanded increases, so does the buyer's sensitivity to price.
B) When price elasticity of demand is equal to 1, consumers are indifferent to subtle price changes.
C) The ratio of current price to quantity demanded is a good estimate of the elasticity of demand.
D) As the prices of goods increase, the elasticity of demand increases.
E) When an individual buys 4 units of a good his/her elasticity of demand for each unit increases.
Q3) What happens to total revenue given a price increase and demand is inelastic? Why?
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Page 9
Chapter 6: Production Costs
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Sample
Questions
Q1) By filling in the blanks in Exhibit 6-12,the AVC of 4 pizzas is shown to be equal to:
A) $10.
B) $9.50.
C) $19.50.
D) $40.
E) $78.
Q2) Suppose that a small business takes in monthly revenue of $100,000.Labor,rental,energy,and other purchased input costs are $70,000.The owner/entrepreneur could earn $5,000 per month in another job,and the owner/entrepreneur could get a return of $5,000 each month if she sold her business and invested the net proceeds in a financial asset,such as a treasury bond.Which of the following correctly describes her monthly economic profit?
A) $100,000.
B) $90,000.
C) $70,000.
D) $30,000.
E) $20,000.
Q3) What is the difference between economic and accounting profit? Why is a distinction between them important?
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Page 10
Chapter 7: Perfect Competition
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Sample Questions
Q1) If a perfectly competitive firm charges more than the market price,then it loses all of its customers.
A)True
B)False
Q2) In Exhibit 7-2,economic profit for the firm is at a maximum when output per week equals:
A) zero units.
B) 100 units.
C) 200 units.
D) 250 units.
E) 300 units.
Q3) As shown in Exhibit 7-12,if the price is OD,the firm's total revenue at its most profitable level of output is:
A) OZID.
B) OYHD.
C) OXLD.
D) OYFB.
Q4) What are the pros and cons of a competitive market in the long run?
Q5) What are the characteristics of the perfectly competitive market?
Q6) What is a firm's short run supply curve?
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Chapter 8: Monopoly
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Sample Questions
Q1) There is only one gas station within hundreds of miles.The owner finds that when she charges $3 a gallon,she sells 199 gallons a day,and when she charges $2.99 a gallon,she sells 200 gallons a day.The marginal revenue of the 200th gallon of gas is:
A) $.01.
B) $1.
C) $2.99.
D) $3.
E) $600.
Q2) According to the information provided in Exhibit 8-7,if the Rudd Ice Company was a monopoly and is currently charging a price of $10,what would you advise Rudd to do?
A) Stay where he is currently operating because he is charging the profit-maximizing price.
B) Increase price and increase output.
C) Decrease price and increase output.
D) Increase output and hold price constant.
E) Increase price and hold output constant.
Q3) Under what conditions might a monopoly lose money?
Q4) What is the shut-down rule for any firm?
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Page 12
Chapter 9: Monopolistic Competition and Oligopoly
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Sample Questions
Q1) A monopolistically competitive firm will:
A) maximize profits by producing where MR = MC.
B) not likely earn an economic profit in the long run.
C) shut down if price is less than average variable cost.
D) all of the above.
Q2) Cartels are legal in the United States.
A)True
B)False
Q3) Which of the following is the result of competing through advertising for a monopolistically competitive firm?
A) Long-run average costs shift downward.
B) The firm's demand curve become flatter and shifts inward.
C) The firm's demand curve keeps the same slope and shifts inward.
D) Long-run average costs shift upward.
Q4) Product differentiation makes the demand for a monopolistically competitive firm's product:
A) perfectly elastic.
B) more elastic than for a monopoly.
C) more inelastic than for a monopoly.
D) perfectly inelastic.
Page 13
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Chapter 10: Labor Markets and Income Distribution
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Sample Questions
Q1) The number of workers hired by a firm at a particular wage rate can be calculated if you know which of the following?
A)c and d.
B)Product supply curve.
C)Marginal product of labor.
D)Marginal factor cost.
E)Marginal revenue product of labor.
Q2) The poverty line:
A) separates those on welfare from those not on welfare.
B) equals three times an economy food budget.
C) equals the median income level.
D) all of the above.
Q3) In the United States,families headed by single women have higher poverty rates than families headed by single men or by married couples.
A)True
B)False
Q4) An example of in-kind assistance to the poor is TANF.
A)True
B)False
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Chapter 11: Gross Domestic Product
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Sample Questions
Q1) Refer to Exhibit 11-1.What is this country's net exports?
A) $35.
B) $-35.
C) $379.
D) $-379.
Q2) Gross domestic product (GDP)is a satisfactory measure of both economic "goods" and "bads".
A)True
B)False
Q3) Increased production,but not increased inflation,will result in higher:
A) nominal GDP.
B) money GDP.
C) real GDP.
D) current dollar GDP.
Q4) GDP does count:
A) state and local government purchases.
B) spending for new homes.
C) changes in inventories.
D) none of the above.
E) all of the above.
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Chapter 12: Business Cycles and Unemployment
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Sample Questions
Q1) The combination of frictional and structural unemployment is the:
A) cyclical rate of unemployment.
B) transitional rate of unemployment.
C) civilian rate of unemployment.
D) natural rate of unemployment.
Q2) Frictional unemployment refers to:
A) people who are out of work and have no job skills.
B) short periods of unemployment needed to match jobs and job seekers.
C) people who spend relatively long periods out of work.
D) unemployment related to the ups and downs of the business cycle.
Q3) Cyclical unemployment refers to unemployment resulting from:
A) a mismatch of skills.
B) being in the wrong geographical location.
C) the time and monetary cost of finding the best job.
D) a recession.
Q4) Cyclical unemployment is caused by:
A) shifts in the job skills required in the economy.
B) seasonal layoffs.
C) declines in real GDP.
D) cyclical changes in the job skills among workers.
Page 16
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Chapter 13: Inflation
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Q1) Which of the following statements is true?
A) Deflation is an increase in the general level of prices.
B) The consumer price index (CPI) measures changes in the average prices of consumer goods and services.
C) Disinflation is an increase in the rate of inflation.
D) Real income is the actual number of dollars received over a period of time.
E) The real interest rate equals the nominal rate of interest plus the inflation rate.
Q2) The base year in the consumer price index (CPI)is:
A) given a value of zero.
B) a year chosen as a reference for prices in all other years.
C) always the first year in the current decade.
D) established by law.
Q3) Deflation:
A) was prevalent during the oil shocks of the 1970s.
B) will cause consumers' purchasing power to shrink.
C) has been persistent in the U.S. economy since the Great Depression.
D) none of the above.
Q4) Who is hurt and who benefits from inflation? Why?
Q5) What are some criticisms of the CPI as a measure of inflation?
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Chapter 14: Aggregate Demand and Supply
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Q1) A shift in the aggregate supply curve in Exhibit 14-2 from AS to AS would be caused by a(n):
A) decrease in input prices.
B) increase in input prices.
C) increase in real GDP.
D) decrease in real output.
Q2) The classical approach to a downturn in the business cycle was for the government to do nothing.
A)True
B)False
Q3) When price level in the United States rises,
A) there is a increased demand for borrowed money.
B) producers' demand for new machinery increases, contributing to an increase in aggregate demand.
C) Americans tend to buy more foreign goods and services.
D) the French, Canadians, and Japanese would find our exports more attractive.
E) to replenish the value of your real wealth, you would save less and consume more.
Q4) How are demand-pull and cost-push inflation reflected in terms of the AD-AS model?
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Chapter 14: A: Appendix: The Self-Correcting Aggregate
Demand and Supply Model
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Q1) As shown in Exhibit 14A-6,and assuming the aggregate demand curve shifts from AD to AD ,the full-employment level of real GDP is:
A) $10 billion.
B) $4 billion.
C) $100 billion.
D) unable to be determined.
Q2) A decrease in nominal incomes causes a leftward shift in the short-run aggregate supply curve (SRAS).
A)True
B)False
Q3) An aggregate supply curve with a positive slope is associated with an economy in which:
A) input prices and final goods prices always change by the same amount.
B) firms expect output prices to be unaffected by changes in input prices.
C) nominal wages and salaries do not change much in the short run.
D) firms expect consumer demand to be unaffected by changes in prices of final goods.
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Chapter 15: Fiscal Policy
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Sample Questions
Q1) When an economy dips into recession,automatic stabilizers will:
A) enlarge the budget deficit (or reduce the surplus).
B) reduce the budget deficit (or increase the surplus).
C) ensure that the budget remains in balance.
D) expand the supply of money and, thereby, stimulate aggregate demand.
Q2) The school of economic thought which argues that through tax reductions,and deregulation,government creates the proper incentives for the private sector to increase aggregate supply is known as the:
A) rational expectations school.
B) neo-Keynesian school.
C) supply-Side school.
D) new Classical school.
E) classical school.
Q3) When the MPC gets smaller,the spending multiplier:
A) gets larger.
B) gets smaller.
C) stays the same.
D) gets smaller at low real GDP, and larger at high real GDP.
E) gets larger at low real GDP, and smaller at high real GDP.
Q4) Discuss the differences between Keynesian and supply-side fiscal policies?
Page 20
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Chapter 16: The Public Sector
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Sample Questions
Q1) Which of the following is a regressive tax?
A) A state tax of 5 percent of income.
B) A local sales tax of 5 percent.
C) The federal individual income tax.
D) A federal flat tax of 30 percent.
Q2) Which of the following statements is false?
A) The largest source of state and local governments tax revenue is sales and excise taxes.
B) The largest source of federal government tax revenue is individual income taxes.
C) A sales tax on food is a regressive tax.
D) A proportional tax is equal to a fixed dollar amount.
Q3) There is no difference between government expenditures or outlays and government purchases or spending.
A)True
B)False
Q4) Public choice theory argues that one reason for rational voter ignorance is the indivisibility of public service.
A)True
B)False
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Chapter 17: Federal Deficits,Surpluses,and the National Debt
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Sample Questions
Q1) Currently,the U.S.national debt is more than $20 trillion.
A)True
B)False
Q2) According to the crowding-out view,budget deficits will:
A) reduce interest rates.
B) increase interest rates and retard private investment.
C) reduce the investments of foreigners in the United States.
D) increase the capital stock available to future generations.
Q3) Which of the following is true?
A) The size of the national debt currently is about the same size as it was during World War II.
B) The national debt increases in size whenever the federal government has a surplus budget.
C) The national debt's size decreased steadily after 1980.
D) The current U.S. national debt is over $13.0 trillion.
Q4) As the investment demand curve becomes steeper,the crowding-out effect will become smaller.
A)True
B)False
Q5) Can the U.S.federal government go broke as a result of a large national debt?
Page 22
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Chapter 18: Money and the Federal Reserve System
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Q1) The members of the Federal Reserve Board of Governors serve:
A) 6-year terms.
B) 4-year terms.
C) 10-year terms.
D) 14-year terms.
E) 2-year terms.
Q2) Credit cards are money because they serve the three functions of money.
A)True
B)False
Q3) The Federal Reserve System was created by an act of Congress in 1933 in an effort to end a wave of bank failures brought on the Great Depression.
A)True
B)False
Q4) The Federal Reserve's most important function is to change the money supply in order to smooth out the business cycle.
A)True
B)False
Q5) Who runs the Federal Reserve System? Describe the organizational structure of the Fed.
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Chapter 19: Money Creation
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Q1) In Exhibit 19-2,if Springfield National finds that it has excess reserves of $300,then the required reserve ratio must be:
A) 30 percent.
B) 0.30 percent.
C) 0.80 percent.
D) 0.20 percent.
E) 20 percent.
Q2) The required reserve ratio is required reserves stated as a percentage of the money supply.
A)True
B)False
Q3) In a system in which all banks have a uniform reserve requirement,the money multiplier is equal to 1 divided by the prime rate.
A)True
B)False
Q4) In a system in which all banks have a uniform reserve requirement,the money multiplier is equal to 1 divided by the required reserve ratio.
A)True
B)False
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Chapter 20: Monetary Policy
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Q1) According to the quantity theory of money,which one of the following economic variables would change in response to an increase in the money supply?
A) prices
B) real income
C) velocity
D) employment
Q2) The equation of exchange states:
A) MV = PQ.
B) MP = VQ.
C) MP = V/Q.
D) V = M/PQ.
Q3) As the interest rate decreases,the quantity of money people will hold:
A) decreases.
B) increases.
C) stays the same.
D) rises and then falls.
E) falls and then rises.
Q4) Investment is lowered by expansionary monetary policy.
A)True
B)False
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Chapter
Self-Correcting Aggregate Demand and Supply Model
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Q1) Assume that the economy depicted in Panel (b)of Exhibit 20A-1 is in short-run equilibrium where AD equals SRAS .Keynesian theory argues:
A) nominal wages will fall as long as employment remains above the natural level of unemployment.
B) lower wages will result in a shift from SRAS to SRAS .
C) long-run equilibrium will be established at Yp and P .
D) government intervention must shift AD rightward to AD .
Q2) In Panel (b)of Exhibit 20A-1,the economy is initially in short-run equilibrium at real GDP level Y and price level P .If the federal government decides to intervene,it would most likely:
A) increase taxes.
B) decrease the money supply.
C) increase the level of government spending for goods and services.
D) decrease the level of government spending for goods and services.
Q3) Assuming the economy is in a recession,Keynesian economists predict that:
A) wages will remain fixed.
B) monetary policy will sell government securities.
C) higher wages will shift the short-run aggregate supply curve leftward.
D) lower wages will shift the short-run aggregate supply curve rightward.
Page 26
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Chapter 21: International Trade and Finance
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Q1) A tax levied on imported goods is called a(n):
A) excise tax.
B) quota.
C) foreign profits tax.
D) tariff.
Q2) If U.S.buyers purchased $500 billion of foreign goods and foreign buyers purchased $400 billion of U.S.goods,the U.S.balance of trade would be:
A) -$100 billion.
B) $100 billion.
C) $400 billion.
D) none of the above.
Q3) Exhibit 21-5 displays the international currency market for yen in terms of dollars and dollars in terms of yen.The supply curve in graph 5(B)is determined by:
A) U.S. citizens attempting to purchase Japanese-made goods.
B) Japanese attempting to purchase U.S.-made goods.
C) U.S. businesses attempting to sell to the Japanese.
D) Japanese businesses attempting to sell to the U.S.
E) the U.S. government attempting to unload dollars to the international market.
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Chapter 22: Economies in Transition
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Q1) Which of the following is a characteristic of socialism?
A) Rejection of central planning.
B) Government ownership of all factors of production.
C) Government ownership of most of the factors of production.
D) Private ownership of all factors of production.
Q2) Adam Smith believed that the pursuit of the public interest is also the best way to promote the private self interest.
A)True
B)False
Q3) Which of the following is one common criticism of capitalism?
A) Poor product quality and little product diversity.
B) Inefficiency of nationalized industries.
C) Inability to adjust quickly to changing economic conditions.
D) Inadequate environmental protection.
Q4) Which of the following applies to a real-world socialistic economy?
A) Private ownership of all factors of production.
B) Government ownership of all factors of production.
C) Government ownership of most of the factors of production.
D) Lack of central planning.
Q5) Describe the differences between capitalism and socialism.
Page 28
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Chapter 23: Growth and the Less-Developed Countries
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Q1) In general,GDP per capita is highly correlated with alternative measures of quality of life.
A)True
B)False
Q2) GDP per capita provides a reasonably accurate measurement of a country's income distribution.
A)True
B)False
Q3) The vicious circle of poverty makes it difficult for an LDC to:
A) establish political institutions.
B) control inflation.
C) save and invest.
D) fix its exchange rate.
Q4) If real GDP is increasing more rapidly than population:
A) population must be declining.
B) the country will have to export more than it imports.
C) the general level of prices must be increasing.
D) per capita real GDP will be increasing.
Q5) Describe the vicious cycle of poverty.What are the consequences of this cycle?
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Q6) What role does population growth play in economic development?
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