Economic Principles and Problems
Exam Materials
Course Introduction
This course offers an introduction to the foundational principles of economics, exploring both microeconomic and macroeconomic concepts. Students will develop an understanding of how individuals, firms, and governments make decisions regarding the allocation of scarce resources, considering concepts such as opportunity cost, supply and demand, market equilibrium, and elasticity. The course also examines real-world economic challenges, including inflation, unemployment, market failure, and the role of government intervention. Through case studies and problem-solving exercises, students gain practical tools to analyze contemporary economic issues and policies.
Recommended Textbook
Macroeconomics 5th Edition by
R. Glenn Hubbard
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19 Chapters
4854 Verified Questions
4854 Flashcards
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Page 2
Chapter 1: Economics: Foundations and Models
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211 Flashcards
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Sample Questions
Q1) In the first six months of 2003,branches of Commerce Bank in New York City were robbed 14 times.The New York City Police recommended steps the bank could take to deter robberies,including the installation of plastic barriers called "bandit barriers." The police were surprised the bank did not take their advice.According to a deputy commissioner of police,"Commerce does very little of what we recommend.They've told our detectives they have no interest in ever putting in the barriers." It would seem that Commerce bank would have a strong incentive to install "bandit barriers" to deter robberies.Why wouldn't they do it?
A)The banks would rather delay installation of any theft deterring equipment in anticipation of new lower cost innovations in the security devices market.
B)The banks must have weighed the cost of installing bandit barriers against the benefits and decided that they have "no interest in ever putting in the barriers."
C)The banks are concerned that "bandit barriers" would send the wrong message to customers - that the bank is unsafe.
D)The banks probably resent any interference from the police department.
Answer: B
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Page 3
Chapter 2: Trade-Offs,comparative Advantage,and the Market System
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239 Flashcards
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Sample Questions
Q1) The payment received by suppliers of entrepreneurial skills is called rent.
A)True
B)False
Answer: False
Q2) An increase in population shifts the production possibility frontier inwards over time.
A)True
B)False
Answer: False
Q3) The basis for trade is absolute advantage,not comparative advantage.
A)True
B)False
Answer: False
Q4) If you can produce more of something than others with the same resources,you have
A)a comparative advantage.
B)an absolute advantage.
C)an efficient production system.
D)a free-market economy.
Answer: B
Page 4
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Chapter 3: Where Prices Come From: the Interaction of
Demand and Supply
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Sample Questions
Q1) In recent years the cost of producing wines in the U.S.has increased largely due to rising rents for vineyards.At the same time,more and more Americans prefer wine over beer.Which of the following best explains the effect of these events in the wine market?
A)The supply curve has shifted to the left and the demand curve has shifted to the right.As a result there has been an increase in the equilibrium quantity and an uncertain effect on the equilibrium price.
B)Both the supply and demand curves have shifted to the right.As a result,there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.
C)Both the supply and demand curves have shifted to the right.As a result,there has been an increase in both the equilibrium price and the equilibrium quantity.
D)The supply curve has shifted to the left and the demand curve has shifted to the right.As a result,there has been an increase in the equilibrium price and an uncertain effect on the equilibrium quantity.
Answer: D
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Chapter 4: Economic Efficiency, government Price Setting, and Taxes
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Sample Questions
Q1) Refer to Table 4-6.The equations above describe the demand and supply for Aunt Maud's Premium Hand Lotion.The equilibrium price and quantity for Aunt Maud's lotion are $20 and 30 thousand units.What is the value of producer surplus?
A)$600 thousand
B)$300 thousand
C)$150 thousand
D)$30 thousand
Q2) Refer to Table 4-2.The table above lists the highest prices five consumers are willing to pay for a concert ticket.If the price of one ticket rises from $20 to $38
A)only three tickets will be sold.
B)consumer surplus decreases from $62 to $12.
C)consumer surplus increases from $88 to $142.
D)no one will buy a ticket.
Q3) Economists ________ that price controls are desirable.
A)are in agreement
B)are reluctant to state
C)never believe
D)only recently agree
Q4) What is meant by the term "economic efficiency"?
Page 6
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Chapter 5: The Economics of Health Care
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Sample Questions
Q1) On average,people in the United States spend a smaller percentage of their income on health care than do people in most other countries.
A)True B)False
Q2) The United Kingdom has a health care system under which the government owns most of the hospitals and employs most of the doctors.
A)True B)False
Q3) Doctors have ________ incentive to control their costs when consumers ________ for a visit to the doctor's office.
A)more; only pay a deductible
B)less; only pay a deductible
C)less; pay entirely out of pocket
D)more; have a third-party payer that pays
Q4) Refer to Figure 5-1.At the efficient equilibrium, A)economic surplus is maximized.
B)economic surplus is minimized.
C)economic surplus is zero.
D)economic surplus is negative.
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Chapter 6: Firms,the Stock Market,and Corporate Governance
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276 Flashcards
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Sample Questions
Q1) Total dividend payments plus retained earnings divided by outstanding stock shares equals
A)the price-earnings ratio.
B)earnings per share.
C)the dividend yield.
D)the year-to-date percentage change.
Q2) Who operates and controls a corporation in its day-to-day activities?
A)the board of directors
B)stockholders
C)employees
D)management
Q3) Donnie's Donuts incurs $450,000 per year in explicit costs and $200,000 in implicit costs.The bakery earns $800,000 in revenues and has $2 million in net worth.Based on this information,what is the economic profit for Donnie's Donuts?
A)$150,000
B)$350,000
C)$600,000
D)$1.2 million
Q4) What is a corporate bond and what does it specify?
Page 8
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Chapter 7: Comparative Advantage and the Gains From International Trade
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Sample Questions
Q1) Free trade refers to trade between countries
A)that is without shipping costs.
B)that is licensed by both governments.
C)that is without restrictions.
D)of products which are free to low-income consumers.
Q2) Refer to Table 7-6.Prior to trade,what was the opportunity cost to produce 1 belt in Estonia?
A)1/2 of a sword
B)4/5 of a sword
C)1.25 swords
D)2 swords
Q3) A tariff is a tax imposed by a government on imports.
A)True
B)False
Q4) Dumping refers to
A)selling inferior products to unsuspecting consumers.
B)selling a product for a price below its cost of production.
C)exporting products that do not meet domestic safety standards.
D)illegally avoiding tariffs by selling products on the black market.
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Q5) What was the GATT,why was it established,and why and with what was it replaced?
Chapter 8: GDP: Measuring Total Production and Income
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Sample Questions
Q1) Assuming that the United States is the domestic economy,________ are goods and services produced by ________ and purchased by ________.
A)exports; foreign countries; the United States
B)exports; the United States; the United States
C)imports; foreign countries; foreign countries
D)imports; foreign countries; the United States
Q2) If the GDP deflator is less than 100,which will be higher: nominal GDP or real GDP? Why?
Q3) Which of the following is likely to increase measured GDP?
A)A greater number of women decide to stay at home and provide day care for their children under age 5.
B)Marijuana becomes legal to grow and sell.
C)Tax rates increase and more people attempt to underreport their income for tax purposes.
D)More people decide to do their own lawn maintenance and give up using a professional service.
Q4) Why do we subtract import spending from total expenditures?
Q5) If the value added of a firm is positive,will the firm necessarily have positive profits?
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Page 10
Chapter 9: Unemployment and Inflation
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292 Flashcards
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Sample Questions
Q1) Jack just received a promotion at work and now works 50 hours per week instead of 35.As a result,
A)the unemployment rate increased.
B)the unemployment rate decreased.
C)the labor force participation rate increased.
D)neither the unemployment rate nor the labor force participation rate changed.
Q2) When the price of gasoline rises,some consumers begin riding their bikes more frequently or riding the bus instead of driving their cars.The fact that the CPI does not fully account for such changes in consumer behavior is called
A)outlet bias.
B)increase in quality bias.
C)substitution bias.
D)discrimination bias.
Q3) An advantage of the establishment survey over the household survey of the labor market is that the establishment survey
A)is based on actual payrolls,rather than on unverified answers.
B)includes the number of self-employed persons.
C)includes persons employed at newly opened firms.
D)provides an estimate of the number of persons unemployed.
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Page 11
Chapter 10: Economic Growth, the Financial System, and Business Cycles
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257 Flashcards
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Sample Questions
Q1) Refer to Scenario 10-1.Based on the information above,what is the level of public saving?
A)$0
B)$1 trillion
C)$2 trillion
D)negative $1 trillion (a deficit of $1 trillion)
Q2) How does a decrease in the tax rate on income earned on saving affect saving,investment,the interest rate,and economic growth?
Q3) In a closed economy,public saving plus private saving is equal to A)investment.
B)taxes minus transfers.
C)the budget surplus.
D)the budget deficit.
Q4) Which one of the following is not considered a financial intermediary?
A)a bank
B)a pension fund
C)an insurance company
D)a credit counselor
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Q5) Explain and show graphically how government deficits can "crowd out" private investment.
Chapter 11: Long-Run Economic Growth: Sources and Policies
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268 Flashcards
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Sample Questions
Q1) Creative destruction means that
A)firms develop new products that replace old products in the economy,thereby encouraging economic growth.
B)economic growth can only be sustained if capital depreciates rapidly.
C)knowledge capital can be created through a system of government subsidies for education and research and development.
D)research and development should only be financed if research and development is incremental (a result of making small changes to existing products).
Q2) Refer to Figure 11-4.The movement from E to B to D in the figure above illustrates
A)an improvement in technology.
B)a decline in capital per worker.
C)diminishing returns to capital.
D)diminishing returns to labor.
Q3) An economic growth model explains
A)changes in real GDP per capita in the long run.
B)how changes in the money supply affect real interest rates.
C)changes in government tax policies over time.
D)the growth rate of the price level over time.
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Chapter 12: Aggregate Expenditure and Output in the Short Run
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306 Flashcards
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Sample Questions
Q1) Ceteris paribus,how does a recession in the United States affect U.S.net exports?
Q2) An decrease in the price level in the United States will shift the aggregate expenditure line downward.
A)True
B)False
Q3) Which of the following will cause a direct increase in consumption spending?
A)an increase in planned investment
B)an increase in government spending
C)an increase in disposable income
D)a decrease in net export spending
Q4) You review a salesman's income over a 5-year period.You note it fluctuates tremendously from year to year,yet his consumption of goods and services remains consistently at the same level,year after year.Does this mean that income is not a determinant of consumption,or could something else explain his behavior?
Q5) The formula for the multiplier is (1 - MPC).
A)True
B)False
Q6) What is the main reason for changes in GDP in the short run?
Page 14
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Chapter 13: Aggregate Demand and Aggregate Supply Analysis
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Sample Questions
Q1) Using an aggregate demand graph,illustrate the impact of an increase in the price level on aggregate demand.
Q2) Which of the following models focuses on how productivity shocks explain fluctuations in real GDP?
A)the monetarist model
B)the new classical model
C)the real business cycle model
D)the new Keynesian model
Q3) Starting from long-run equilibrium,use the basic aggregate demand and aggregate supply diagram to show what happens in both the long run and the short run when there is an increase in wealth.
Q4) An increase in the price level will
A)shift the aggregate demand curve to the left.
B)shift the aggregate demand curve to the right.
C)move the economy up along a stationary aggregate demand curve.
D)move the economy down along a stationary aggregate demand curve.
Q5) Explain the three reasons the aggregate demand curve slopes downward.
Q6) Briefly describe monetarism and the monetary growth rule.
Q7) Explain why the long-run aggregate supply curve is vertical.
Q8) What is a supply shock,and why might a supply shock lead to stagflation? Page 15
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Page 16
Chapter 14: Money, banks, and the Federal Reserve System
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280 Verified Questions
280 Flashcards
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Sample Questions
Q1) Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent.If the Federal Reserve raises the required reserve ratio to 15 percent,then the bank will now have excess reserves of
A)$0.
B)-$5 million.
C)$5 million.
D)$15 million.
Q2) The sale of Treasury securities by the Federal Reserve will,in general,
A)not change the money supply.
B)not change the quantity of reserves held by banks.
C)increase the quantity of reserves held by banks.
D)decrease the quantity of reserves held by banks.
Q3) Which of the following is not a function of the Federal Reserve System,or the "Fed"?
A)acting as a lender of last resort
B)acting as a banker's bank
C)performing check clearing services
D)insuring deposits in the banking system
E)taking actions to control the money supply
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Chapter 15: Monetary Policy
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Sample Questions
Q1) The Fed can directly lower the inflation rate.
A)True
B)False
Q2) The Federal Reserve's two main ________ are the money supply and the interest rate.
A)monetary policy targets
B)policy tools
C)fiscal policy targets
D)fiscal tools
Q3) The Fed can use expansionary monetary policy to lower interest rates to stimulate aggregate demand.
A)True
B)False
Q4) The argument advanced by Milton Friedman for adopting a monetary growth rule is that
A)active monetary policy potentially destabilizes the economy.
B)the Fed can control the money supply,but not the level of interest rates.
C)a constant rate of growth in the money supply would eliminate the booms and recessions that make up the business cycle.
D)the growth rate of M1 has been unstable.
Page 18
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Chapter 16: Fiscal Policy
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Sample
Questions
Q1) Federal government expenditures,as a percentage of GDP,
A)have risen since the early 1950s to the present.
B)have fallen since the early 1950s to the present.
C)rose from 1950 to 1991,fell from 1992 to 2001,and have risen from 2001 to the present.
D)rose from 1950 to 2001 and then fell from 2001 to the present.
E)rose from 1950 to 1980,fell from 1981 to 2001,and have risen from 2001 to the present.
Q2) A change in consumption spending caused by income changes is ________ change in spending,and a change in government spending that occurs to improve roads and bridges is ________ change in spending.
A)an induced; an autonomous
B)an expansionary; a contractionary
C)an autonomous; an induced
D)a contractionary; an expansionary
Q3) Does expansionary fiscal policy directly increase the money supply? Isn't it true that the president and Congress fight recessions by spending more money?
Q4) How can tax simplification be beneficial to the economy?
Q5) What is the "tax wedge"?
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Page 19
Chapter 17: Inflation, unemployment, and Federal Reserve Policy
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Sample Questions
Q1) Refer to Figure 17-1.Suppose that the economy is currently at point A,and the unemployment rate at A is the natural rate.What policy would the Federal Reserve pursue if it wanted the economy to move to point B in the long run?
A)Buy treasury bills.
B)Sell treasury bills.
C)Raise the discount rate.
D)Decrease the money supply.
E)No policy will move the economy to point B in the long run.
Q2) What impact does monetary policy have on the long-run Phillips curve?
A)Monetary policy can only shift the long-run Phillips curve to the left.
B)Monetary policy shifts the long-run Phillips curve to the right or left,depending on whether monetary policy is expansionary or contractionary.
C)Monetary policy can only shift the long-run Phillips curve to the right.
D)Monetary policy has no impact on the long-run Phillips curve.
Q3) If workers accurately predict the rate of inflation,is there a short-run trade-off between inflation and unemployment,as predicted by the Phillips curve? Why or why not?
Q4) When will an increase in aggregate demand not result in lower unemployment rates in the short run?
Page 20
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Chapter 18: Macroeconomics in an Open Economy
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Sample Questions
Q1) The balance of payments includes which three accounts?
A)the current account,the financial account,and the capital account
B)the capital flows account,the financial account,and the trade account
C)the net investment account,the net exports account,and the net transfers account
D)the balance of trade account,the net foreign investment account,and statistical discrepancy
Q2) The price of domestic goods in terms of foreign goods is referred to as
A)the nominal exchange rate.
B)the relative inflation rate.
C)the current account balance.
D)the real exchange rate.
Q3) What's the difference between the nominal exchange rate and the real exchange rate?
Q4) When the market value of the dollar falls relative to other currencies around the world,we say that
A)the dollar has appreciated.
B)the dollar has depreciated.
C)the demand for dollars has decreased.
D)the supply of dollars has decreased.
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Chapter 19: The International Financial System
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Sample Questions
Q1) Which of the following explains why purchasing power parity does not completely explain long-run fluctuations in exchange rates?
A)Some goods and services produced in any country are not traded internationally.
B)Consumer preferences for goods and services across countries are very similar.
C)Most countries do not impose barriers to trade.
D)Most countries have free markets with little,if any,government regulation.
Q2) The "Big Mac Theory of Exchange Rates" tests the accuracy of the purchasing power parity theory.In July 2013,the Economist reported that the average price of a Big Mac in the United States was $4.56.In Mexico,the average price of a Big Mac at that time was 37 pesos.If the exchange rate between the dollar and the peso was 13.60 pesos per dollar,explain how it would be profitable to buy Big Macs in Mexico instead of in the United States.
Q3) Which aspects of globalization help to increase growth in the world economy?
Q4) In a fixed exchange rate system,speculation regarding an expected revaluation or devaluation of a currency makes it more difficult to maintain the existing exchange rate.
A)True
B)False
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