Economics I Solved Exam Questions
Course Introduction
Economics I provides an introduction to the fundamental principles of microeconomics and macroeconomics. Covering key topics such as supply and demand, market equilibrium, consumer behavior, production, costs, market structures, and the basics of national income, inflation, and unemployment, this course equips students with a solid foundation to understand how individuals, firms, and governments make economic decisions. Emphasis is placed on the application of economic reasoning to real-world problems, encouraging critical thinking and analytical skills necessary for more advanced studies in economics and related fields.
Recommended Textbook
Macroeconomics 13th Edition by
Roger A. Arnold
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Page 2
Chapter 1: What Economics Is About
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Sample Questions
Q1) The effect of a decrease in interest rates upon economic growth is an example of positive economics.
A)True
B)False
Answer: True
Q2) Explain why the ceteris paribus assumption is essential when assessing an economic theory.Give an example to help support your answer.
Answer: Economists use the ceteris paribus assumption to isolate the relationship between two variables.It allows them to see the cause and effect relationships,without being confused by other possible influences.Examples will vary.
Q3) Is it possible for mandatory seatbelt laws to increase vehicle fatalities?
A) Yes,if the number of accidents increases by a greater percentage than the number of deaths per accident decreases.
B) No,because wearing seatbelts decreases the number of deaths per accident.
C) No,because wearing seatbelts decreases the number of accidents.
D) There is not enough information to answer the question.
Answer: A
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3
Chapter 2: Production Possibilities Frontier Framework
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Sample Questions
Q1) Refer to Exhibit 2-4.The opportunity cost of moving from point A to point B is
A) 60,000 copiers.
B) 40,000 copiers.
C) 20,000 copiers.
D) 20,000 fax machines.
E) 40,000 fax machines.
Answer: C
Q2) Production possibilities frontiers (PPFs)can shift outward,but they do not shift inward.
A)True
B)False
Answer: False
Q3) Refer to Exhibit 2-9.Who has the comparative advantage in the production of good A?
A) Alex
B) Adam
C) Both Alex and Adam
D) Neither Alex nor Adam
Answer: B
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Chapter 3: Supply and Demand: Theory
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Sample Questions
Q1) An economist says,"Technological advances have the power to lower the prices of many of the goods we buy." Here is how this works:
A) Technological advances lead to lower demand,which leads to lower prices.
B) Technological advances lead to greater supply,which leads to lower prices.
C) Technological advances lead to greater quantity supplied,which leads to lower prices.
D) Technological advances lead to lower taxes,which lead to greater supply,which leads to lower prices.
E) Technological advances lead to higher taxes,which lead to fewer subsidies,which lead to greater supply,which leads to lower prices.
Answer: B
Q2) The sum of consumers' surplus and producers' surplus is maximized at equilibrium. A)True
B)False
Answer: True
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Chapter 4: Prices: Free,controlled,and Relative
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Sample Questions
Q1) Refer to Exhibit 4-4.Which of the following statements is false?
A) Graph (1): A price ceiling set at P<sub>2</sub> would not have an impact on the market.
B) Graph (2): As supply increases,equilibrium price remains constant.
C) Graph (3): As demand increases,equilibrium quantity remains constant.
D) Graph (4): As supply increases,equilibrium quantity increases.
Q2) Refer to Exhibit 4-5.If a free market were allowed in the transplanted kidney market,then the equilibrium price would be P<sub>2</sub>.The number of kidneys transplanted would increase by _________ compared to the number transplanted at a price ceiling of P= $0.
A) (Q<sub>3</sub> - Q<sub>1</sub>)
B) (Q<sub>3</sub> - Q<sub>2</sub>)
C) (Q<sub>2</sub> - Q<sub>1</sub>)
D) Q<sub>2</sub>
Q3) If the minimum wage law sets a price floor that is below the equilibrium wage in the unskilled labor market,the minimum wage will create a shortage of unskilled labor.
A)True
B)False
Q4) List and describe the two major jobs performed by price.
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Chapter 5: Supply,demand,and Price: Applications
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Q1) Suppose that more people want to move from Miami to Phoenix than want to move from Phoenix to Miami.It is likely that U-Haul rates will be relatively ______________from Phoenix to Miami since the ___________________.
A) lower; demand for moving to Phoenix is greater than demand for moving to Miami B) higher; demand for moving to Phoenix is greater than the demand for moving to Miami
C) higher; supply of moving trucks is greater in Phoenix than in Miami D) lower; supply of moving trucks is lower in Phoenix than in Miami
Q2) If there is typically bumper-to-bumper traffic on a freeway at 5 p.m.,we can reduce (or eliminate)the traffic congestion by
A) building more freeways,which would shift the supply curve of freeway space rightward.
B) building more freeways,which would shift the supply curve of freeway space leftward. C) encouraging workers to carpool,which would shift the demand curve for freeway space rightward.
D) a and b
E) b and c
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Page 7
Chapter 6: Elasticity
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Sample Questions
Q1) Refer to Exhibit 6-2.The labor force participation rate in year 4 is
A) 12 1/2 percent.
B) 72 percent.
C) 87 1/2 percent.
D) 30 percent.
E) 80 percent.
Q2) Suppose that in an economy the structural unemployment rate is 1.1 percent,the frictional unemployment rate is 3.3 percent,and the unemployment rate is 3.1 percent.The natural unemployment rate is _________ percent and the cyclical unemployment rate is ___________ percent.
A) 7.5; 4.4
B) 0.2; 9.9
C) 4.4; -1.3
D) 2.2; 3.1
Q3) If the unemployment rate drops,then it necessarily follows that some of the people who were once unemployed are now employed.
A)True
B)False
Q4) Describe what the term "full employment" means to an economist.
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Chapter 7: Consumer Choice: Maximizing Utility and Behavioral Economics
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Sample Questions
Q1) Real GDP is the value of all __________ goods and services produced in a given year in __________ prices.
A) intermediate; that year's
B) intermediate; base-year C) final; that year's
D) final; base-year
Q2) Suppose that inventory investment is $20 billion and (total)investment is $680 billion.What does purchases of newly produced capital goods equal?
A) $715 billion
B) $785 billion
C) $750 billion
D) $35 billion
E) There is not enough information to answer this question.
Q3) Countries with a large GDP must also have a large per-capita GDP.
A)True
B)False
Q4) Describe the three different reasons that investment can rise.Explain how one of these three changes could be undesirable in terms of promoting the economic health and strength of the economy.
9
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Chapter 8: Production and Costs
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Sample Questions
Q1) Refer to Exhibit 8-1.Assume the economy is originally in equilibrium at point A.If wage rates rise,at which point is the economy most likely to end up in the short run?
A) A
B) B
C) C
D) D
Q2) A change in labor productivity shifts the __________ curve and a change in the exchange rate shifts the __________ curve.
A) SRAS; SRAS
B) AD; AD
C) SRAS; AD
D) AD; SRAS
E) none of the above
Q3) A falling interest rate affects the demand for consumer __________ and shifts the AD curve to the __________.
A) nondurables; right
B) nondurables; left
C) durables; right
D) durables; left
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Page 10
Chapter 9: Perfect Competition
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Sample Questions
Q1) Refer to Exhibit 9-5.Imagine an AD curve intersecting an SRAS curve at Point M on graph (1).Which point(s)would this correspond to on graph (2)?
A) A or B
B) C
C) E or F
D) F
E) G
Q2) Suppose the economy is self-regulating,the price level is 150,the quantity demanded of Real GDP and the quantity supplied of Real GDP in the short run both equal $4.3 trillion,and the quantity supplied of Real GDP in the long run is $4.1 trillion.Given all of this information,we can conclude that the economy ____________ in short run equilibrium,and that the price level in long run equilibrium will be _____________ than 150.
A) is not; less
B) is; more
C) is; less
D) is not; more
Q3) Describe the difference between business-cycle macroeconomics and economic-growth macroeconomics.
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Page 11
Chapter 10: Monopoly
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Sample Questions
Q1) Which of the following is a characteristic of consumption according to Keynes?
A) consumption depends on disposable income
B) consumption and disposable income have a direct relationship
C) when disposable income changes,consumption changes by less
D) a and c
E) a,b,and c
Q2) Refer to Exhibit 10-5.When TE is $700 billion,what will firms most likely do next?
A) Firms will increase production to increase inventories to their optimum levels.
B) Firms will neither increase nor decrease production since the economy is in equilibrium.
C) Firms will cut back production to reduce inventories to their optimum levels.
D) It is impossible to determine what firms are likely to do based on this information.
Q3) Refer to Exhibit 10-8.The consumption function is
A) C = 0.80(Yd).
B) C = $4,000 + 0.90(Yd).
C) C = $400 + 0.2(Yd).
D) C = $400 + 0.8(Yd).
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Chapter 11: Monopolistic Competition, oligopoly, and Game Theory
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Sample Questions
Q1) Refer to Exhibit 11-1.The economy is currently at point 1.In this situation,Keynesian economists would most likely propose
A) an increase in government purchases.
B) a decrease in government purchases.
C) an increase in taxes.
D) a and c
E) b and c
Q2) Expansionary fiscal policy is ineffective if
A) there are idle resources in the economy.
B) the MPC is less than 0.60.
C) the government has a budget surplus.
D) there is complete crowding out.
E) a and d
Q3) An example of contractionary fiscal policy is
A) an increase in government expenditures,or an increase in taxes,or both.
B) a decrease in government expenditures,or a decrease in taxes,or both.
C) an increase in government expenditures,or a decrease in taxes,or both.
D) a decrease in government expenditures,or an increase in taxes,or both.
E) increasing government expenditures while holding taxes constant.
Page 13
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Chapter 12: Government and Product Markets: Antitrust and Regulation
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Sample Questions
Q1) Money is defined by economists as
A) the market value of an asset.
B) the funds one receives during a specified period of time.
C) any good that is widely accepted in exchange and for the repayment of debts.
D) both b and c
E) all of the above
Q2) In a barter economy,people are _________ to specialize in the production of one good or service,compared to in a money economy.
A) more likely
B) less likely
C) equally likely
D) almost always going
Q3) In direct finance,funds are loaned and borrowed through a financial intermediary.
A)True
B)False
Q4) The existence and use of the Internet has lowered the transaction costs of making some exchanges.
A)True
B)False
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Chapter 13: Factor Markets: With Emphasis on the Labor Market
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Sample Questions
Q1) The simple deposit multiplier is
A) the reciprocal of the required reserve ratio.
B) always 1.
C) the same as the required reserve ratio.
D) different from bank to bank even if the required reserve ratio is the same for all banks.
Q2) If the Fed purchases government securities from commercial banks,the reserves of the banking system will immediately
A) increase by the amount of the purchase.
B) increase by more than the amount of the purchase.
C) remain constant.
D) decrease by the amount of the purchase.
E) decrease by more than the amount of the purchase.
Q3) Lowering the required reserve ratio __________ the simple deposit multiplier which will __________ the economy's money supply.
A) raises; increase
B) raises; decrease
C) lowers; increase
D) lowers; decrease
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Chapter 14: Wages,union,and Labor
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Sample Questions
Q1) The simple quantity theory of money predicts that changes in A) the money supply lead to strictly proportional changes in the price level.
B) the money supply do not affect the price level.
C) the price level lead to strictly proportional changes in velocity and GDP.
D) velocity lead to nearly proportional changes in the money supply.
Q2) An increase in the money supply that leads to an increase in expected inflation,which in turn leads to an increase in the interest rate,is best described as the A) liquidity effect.
B) income effect.
C) expectations effect.
D) adaptive expectations theory.
Q3) According to the simple quantity theory of money in the AD-AS framework,when the money supply decreases,the __________ curve shifts to the __________.
A) AD; left
B) AD; right
C) AS; left
D) AS; right
Q4) Describe the expectations (or Fisher)effect.
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Page 16
Chapter 15: The Distribution of Income and Poverty
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Sample Questions
Q1) Which of the following statements is true?
A) Interest rates are directly related to the price of old or existing bonds.
B) The monetarist transmission mechanism is indirect whereas the Keynesian transmission mechanism is direct.
C) The interest rate is the opportunity cost of holding money.
D) a and b
E) a,b and c
Q2) The quantity demanded of money decreases as the supply of money increases.
A)True
B)False
Q3) Assume that because of a long policy lag,the Fed starts implementing expansionary monetary policy too late,i.e.,at a time when the economy is already healing itself.As a result,the economy will probably move from an initial
A) recessionary gap to an even deeper recessionary gap.
B) recessionary gap to an inflationary gap.
C) inflationary gap to the natural level of Real GDP.
D) inflationary gap to a recessionary gap.
Q4) Describe the monetary policy known as inflation targeting.What are the three major issues that surround this practice?
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Chapter 16: Interest,rent,and Profit
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Sample Questions
Q1) Wages and prices are assumed to be completely inflexible in the new classical theory.
A)True
B)False
Q2) The economy is in long-run equilibrium when there is an incorrectly anticipated increase in aggregate demand brought about by expansionary monetary policy.Specifically,aggregate demand increases by more than people anticipate (bias downward).According to new classical theory,the price level will __________ and Real GDP will __________ in the short run.In the long run,the price level will be __________ than it was before aggregate demand increased.
A) rise; fall; higher
B) rise; rise; higher
C) fall; rise; lower
D) fall; rise; higher
E) rise; rise; lower
Q3) The original Phillips curve depicted an inverse relationship between wage inflation and unemployment.
A)True
B)False
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Page 18
Chapter 17: Market Failure: Externalities, public Goods, and
Asymmetric
Information
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Q1) An economy doubles in size every 20 years if it maintains a steady annual growth rate of about __________ percent.
A) 4.0
B) 2.8
C) 3.5
D) 2.0
Q2) Using the production function Real GDP = T (L,K),define the term production function and describe what each of the variables (T,L,and K)represents.When graphed with Real GDP on the vertical axis and labor on the horizontal axis,which variable(s)can shift the production function and which variable(s)can cause a movement along the production function?
Q3) Using the production function Real GDP = T (L,K),and the LRAS curve,describe the process by which a decline in interest rates impacts the use of capital and economic growth.
Q4) In the production function Real GDP = T (L,K),the T represents the tax coefficient.
A)True
B)False
Q5) List and describe four factors that can contribute to economic growth.
Page 19
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Chapter 18: Public Choice and Special-Interest-Group
Politics
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Q1) If the (average)tax rate falls by 20% and as a result the tax base rises by 20%,tax revenues will
A) rise.
B) decline.
C) remain unchanged.
D) There is not enough information given to answer this question.
Q2) Economist A believes that the expansionary fiscal policy --- in the form of increased government spending --- should be implemented to remove the economy from the recessionary gap it is currently in.This economist probably believes that A) crowding out will not present much of a problem.
B) crowding out will be a big problem.
C) crowding out is irrelevant to the degree of effectiveness of fiscal policy.
D) zero crowding out is unlikely.
E) c and d
Q3) Those economists who view the AS curve as being vertical see more government tools capable of raising Real GDP than do the economists who view the AS curve as being upward-sloping.
A)True
B)False
Page 20
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Chapter 19: Building Theories to Explain Everyday Life: From
Observations to Questions to Theories to Predictions
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Q1) In a simple majority vote,the losses to the losers are greater than the gains to the winners.It follows that the
A) outcome of the vote is efficient.
B) outcome of the vote is inefficient.
C) outcome of the vote will be nullified (most likely by the Courts).
D) vote has generated net benefits.
E) none of the above
Q2) The process whereby votes are exchanged to gain support for legislation is referred to as
A) logrolling.
B) rational ignorance.
C) simple majority voting.
D) special interest voting.
E) a and d
Q3) Political candidates tend to identify themselves as being "middle-of-the-roaders",while they tend to label their opponents as a member of the political fringe.
A)True
B)False
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Chapter 20: International Trade
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Q1) The instructors at College A are regularly late for their office hours.Based on a theory presented in the textbook,we would predict that the gap between the ______________student tuition and ___________equilibrium tuition is ___________ at College A.
A) lower; higher; small
B) higher; lower; small C) lower; higher; large
D) higher; lower; large
Q2) A theory is a perfect description of reality.
A)True
B)False
Q3) The higher the cost of talking on a cell phone in public (in terms of being perceived by others as rude)the less likely one is to do so.
A)True
B)False
Q4) There is no difference between building a theory and evaluating a theory. A)True
B)False
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Chapter 21: International Finance
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Q1) Arguments made against free trade include all of the following except
A) national defense considerations justify producing certain goods domestically whether the country has a comparative advantage in their production or not.
B) infant industries should be protected from free trade so that they may have time to develop and compete on an even basis with older,more established foreign industries.
C) dumping is an unfair trade practice that puts domestic producers of substitute goods at a disadvantage that they should be protected against.
D) free trade is inflationary and should be restricted in the domestic interest.
E) if foreign governments subsidize their exports,foreign firms that export are given an unfair advantage that domestic producers should be protected against.
Q2) The ability to produce a good at a lower opportunity cost than others is called a(n)__________ advantage.
A) complementary
B) comparative
C) natural
D) indigenous
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Chapter 22: The Economic Case for and Against
Government: Five Topics Considered
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Q1) There is a flexible exchange rate system and only two countries in the world,the United States and Mexico.The real interest rate in the United States rises relative to the real interest rate in Mexico.It follows that
A) the dollar will depreciate and the peso will appreciate.
B) the peso will depreciate and the dollar will appreciate.
C) both the peso and the dollar are likely to appreciate.
D) both the peso and the dollar are likely to depreciate.
Q2) If Americans demand goods produced in Mexico,it leads to a demand for Mexican pesos and a supply of U.S.dollars on the foreign exchange market.
A)True
B)False
Q3) Refer to Exhibit 35-5.Based on the information provided in this table,between Monday and Tuesday,the U.S.dollar ____________ against the Japanese yen and the yen _____________ against the U.S.dollar.
A) appreciated; appreciated
B) depreciated; appreciated
C) appreciated; depreciated
D) depreciated; depreciated
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Chapter 23: Stocks,bonds,futures,and Options
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Q1) To say that government sometimes functions as a "transfer mechanism," means that government sometimes
A) ends up transferring goods to individuals in return for taxes paid.
B) ends up transferring negative externalities into positive externalities.
C) ends up taking from group X to give to group Y.
D) transfers taxes into subsidies.
E) none of the above
Q2) It is possible for the government to remove individuals from a prisoner's dilemma setting and make them better off.
A)True
B)False
Q3) Which economist said,"This focus on distribution makes the significance of distributional issues (transfer issues)in political life relatively greater and the significance of widespread common interest in political life relatively smaller."?
A) John Maynard Keynes
B) Milton Friedman
C) David Friedman
D) Mancur Olson
E) David Ricardo
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Chapter 24: Stocks,bonds,futures,and Options
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Q1) Which of the following statements is false?
A) Another term for a Treasury bill is a T-bill.
B) Treasury notes mature in 2 to 10 years.
C) Treasury bonds are considered very safe investments,but Treasury bills are considered to be a more risky investment.
D) It is unlikely the federal government will default on its bond obligations.
Q2) Refer to Exhibit 38-2.If the closing price of Dasher's stock on the previous day was $17.50,what value goes in blank (A)?
A) -0.50
B) +0.50
C) -0.25
D) -0.75
E) There is not enough information given to answer this question.
Q3) The typical face value of a corporate bond is $1,000.
A)True
B)False
Q4) Describe the three main options available to a corporation when it needs to raise money so that it can invest in a new product or a new manufacturing technique.
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