1)Economics does not study correct or incorrect behaviors, but rather it assumes
that economic agents make the best decisions given their knowledge of the costs and
benefits. What term best describes this behavior?
2) By definition, what is economics the study of?
A. how to make money in the stock market.
B. supply and demand.
C. the choices people make to attain their goals, given their scarce resources.
D. how to make money in a market economy.
3) What is the term in economics by which a group of buyers and sellers of a product
come together to trade?
4) Which of the following statements describes the actions of producers in the
circular flow model?
A. hire resources sold by households in the factor market.
B. spend earnings from resource sales on goods and services in the product market.
C. sell goods and services in the input market.
D. and households spend earnings from resource sales on goods and services in the
5) If a commercial dairy farm wants to raise funds to purchase feeding troughs, in
which market does it do so?
A. factor market.
B. dairy products market.
C. output market.
D. product market.
6) Which of the following is not a critical function of the government in facilitating
the operation of a market economy?
A. ensuring an equal distribution of income to all citizens.
B. enforcing contracts.
C. protecting private property.
D. enforcing property rights.
7) If demand is inelastic, the absolute value of the price elasticity of demand is
A. greater than one.
B. greater than the absolute value of the slope of the demand curve.
D. less than one.
8) Economists in general
A. Do not believe that people's tastes determine demand and therefore they ignore
the subject of tastes.
B. Incorporate tastes into economic models only to the extent that tastes determine
whether pairs of goods are substitutes or complements.
C. Do not try to explain people's tastes, but they do try to explain what
happens when tastes change.
D. Believe that they must be able to explain people's tastes in order to explain what
happens when tastes change.
9) A demand curve which is ________ represents perfectly inelastic demand, and a
demand curve which is ________ represents inelastic demand.
A. vertical; downward sloping
B. upward sloping; horizontal
C. downward sloping; vertical
D. horizontal; downward sloping
10) A decrease in the price of GPS systems will result in
A. a decrease in the demand for GPS systems.
B. an increase in the supply of GPS systems.
C. a smaller quantity of GPS systems supplied.
D. a larger quantity of GPS systems supplied.
11) At a product's equilibrium price
A. the product's demand curve is the same as the product's supply curve.
B. the product's demand curve crosses the product's supply curve.
C. the quantity of the product demanded is less than the quantity of the product
D. the quantity of the product demanded is greater than the quantity of the product
12) If, for a product, the quantity supplied exceeds the quantity demanded, the
market price will fall until
A. the quantity demanded exceeds the quantity supplied. The market will then be in
B. quantity demanded equals quantity supplied. The market price will then
equal the equilibrium price.
C. all consumers will be able to afford the product.
D. quantity demanded equals quantity supplied. The equilibrium price will then be
lower than the market price.
13) Marginal revenue product of labor for a competitive seller is
A. the change in total product from hiring one more worker.
B. the marginal revenue of the product multiplied by the output price.
C. the output price multiplied by the quantity sold.
D. equal to the marginal product of labor multiplied by the output price.
14) Let MP = marginal product, P = output price, and W = wage, then the equation
that represents the condition where a competitive firm would hire another worker is
A. P × MP = W.
B. P × W > MP.
C. P × MP > W.
D. P × MP < W.
15) Marginal revenue product for a perfectly competitive seller is equal to
A. the output price multiplied by the total product of labor.
B. the marginal cost of production.
C. the change in total revenue that results from hiring another worker.
D. the output price multiplied by the number workers hired.
16) An individual's labor supply curve shows
A. the maximum wage rates offered to that individual by various potential
B. the relationship between the quantity of hours worked and total income earned
by that individual.
C. the relationship between wages and the quantity of labor that a firm is willing to
D. the relationship between wages and the quantity of labor that she is willing
17) A firm's demand for labor curve is also called its
A. marginal revenue product of labor curve.
B. marginal benefit of labor curve.
C. marginal valuation curve.
D. marginal factor cost of labor curve.
18) A decrease in the wage rate causes
A. a decrease in labor's productivity.
B. an increase in the quantity of labor demanded.
C. a rightward shift of the firm's labor demand curve.
D. a leftward shift of the firm's labor demand curve.
19) Which of the following displays these two characteristics: nonrivalry and
nonexcludability in consumption?
A. common resources
B. public goods
C. private goods
D. quasi-public goods
20) Which of the following is an example of a quasi-public good?
A. crime prevention
B. cable television
C. organic apples
D. stock of knowledge in the public domain
21) Which of the following displays these two characteristics: rivalry and
A. a common resource
B. a public good
C. a private good
D. a quasi-public good
22) A monopoly is a seller of a product
A. without a well-defined demand curve.
B. with many substitutes.
C. without a close substitute.
D. with a perfectly inelastic demand.
23) The labor supply for an industry would decrease if
A. the percentage of the population from age 16 to 65 decreases.
B. a greater percentage of women want to work outside the home.
C. the wage rate falls.
D. the government welcomes foreign workers into the country.
24) A characteristic found only in oligopolies is
A. products that are slightly different.
B. break even level of profits.
C. interdependence of firms.
D. independence of firms.
25) The Philippines and Vietnam have roughly the same size population. Suppose the
GDP of the Philippines is $1,000 billion and the GDP of Vietnam is $10,000 billion.
You should conclude
A. a typical person in Vietnam is more than 10 times as well off as the typical person
in the Philippines.
B. a typical person in Vietnam is 10 times as well off as the typical person in the
C. it is not possible to make a good comparison of the economic well being of a
typical individual in the 2 countries without additional information.
D. a typical person in Vietnam is less than 10 times as well off as the typical person
in the Philippines.
26) Gross domestic product understates the total production of final goods and
services because of the omission of
A. intermediate goods.
B. the underground economy.
27) Gross domestic product is calculated by summing up
A. the total quantity of goods and services produced in the economy during a period
B. the total quantity of goods and services in the economy.
C. the total market value of final goods and services produced in the economy
during a period of time.
D. the total market value of goods and services in the economy.
28) Fiscal policy refers to changes in
A. federal taxes and purchases that are intended to achieve macroeconomic
B. state and local taxes and purchases that are intended to achieve macroeconomic
C. the money supply and interest rates that are intended to achieve macroeconomic
D. federal taxes and purchases that are intended to fund the war on terrorism.
29) If the economy is slipping into a recession, which of the following would be an
appropriate fiscal policy?
A. a decrease in government purchases
B. an increase in the money supply and a decrease in interest rates
C. a decrease in oil prices
D. a decrease in taxes
30) Which of the following is an objective of fiscal policy?
A. health care coverage for all Americans
B. energy independence from Middle East oil
C. high rates of economic growth
D. discovering a cure for AIDs
31) Which of the following assets is most liquid?
D. savings account
32) If credit card balances rise in the economy, then M1 will ________ and M2 will
A. not change; not change
B. increase; increase
C. increase; decrease
D. not change; increase
E. decrease; increase
33) Economists estimate that ________ of U.S. currency is outside the United States and
held primarily by ________.
A. less than one quarter; foreign banks and foreign governments
B. over half; households and firms in countries where there is little confidence
in the local currency
C. less than one quarter; households and firms in countries where there is little
confidence in the local currency
D. over half; foreign banks and foreign governments
34) The M2 measure of the money supply equals
A. M1 plus savings account balances plus small-denomination time deposits
plus noninstitutional money market fund shares.
B. savings account balances plus small-denomination time deposits plus traveler's
C. M1 plus savings account balances plus small-denomination time deposits.
D. savings account balances plus small-denomination time deposits plus
noninstitutional money market fund shares.
35) The M1 measure of the money supply equals
A. currency plus checking account balances plus traveler's checks plus savings
B. paper money plus coins in circulation.
C. currency plus checking account balances plus traveler's checks.
D. currency plus checking account balances.
36) Which of the following is one of the most important benefits of money in an
A. Money encourages people to produce all of their own goods (self-sufficiency) and
therefore increases economic stability.
B. Money allows for the exchange of goods and services.
C. Money makes exchange easier, leading to more specialization and higher
D. Money allows for the accumulation of wealth.
37) Open market operations refer to the purchase or sale of ________ to control the
A. U.S. Treasury securities by the U.S. Treasury
B. corporate bonds and stocks by the U.S. Treasury
C. U.S. Treasury securities by the Federal Reserve
D. corporate bonds and stocks by the Federal Reserve
38) Which of the following determines the amount of money the banking system as a
whole can create?
A. the quantity of bank reserves
B. the quantity of vault cash held by banks
C. the gold reserves held by the Federal Reserve
D. the limit on profits by banks imposed by the U.S. Congress
39) Money market mutual funds sell shares to investors and use the money to buy
A. overseas assets through foreign direct investment.
B. mortgage-backed securities.
C. short-term securities.
D. foreign currency.
40) The goals of monetary policy tend to be interrelated. For example, when the Fed
pursues the goal of ________, it also can achieve the goal of ________ simultaneously.
A. high employment; lowering government spending
B. high employment; economic growth
C. economic growth; a low current account deficit
D. stability of financial markets; a low current account deficit
41) The Federal Reserve System's four monetary policy goals are
A. low rate of bank failures, high reserve ratios, price stability, and economic
B. low government budget deficits, low current account deficits, high employment,
and a high foreign exchange value of the dollar.
C. price stability, high employment, economic growth, and stability of financial
markets and institutions.
D. price stability, low government budget deficits, low current account deficits, and
low rate of bank failures.
42) The Federal Reserve's two main ________ are the money supply and the interest
A. policy tools
B. monetary policy targets
C. fiscal policy targets
D. fiscal tools
43) Specializing in the production of a good or service in which one has a
comparative advantage enables a country to do all of the following except
A. increase the variety of products that it can consume with no increase in
B. engage in mutually beneficial trade with other nations.
C. consume a combination of goods that lies outside its own production possibilities
D. produce a combination of goods that lies outside its own production
44) Table 2-3 Serena Haley Bracelets 8 9 Necklaces 16 12 Refer to Table 2-3. Which
of the following statements is true?
A. Serena has an absolute advantage in making both products.
B. Haley has an absolute advantage in making both products.
C. Haley has an absolute advantage in making bracelets and Serena in making
D. Haley has an absolute advantage in making necklaces and Serena in making
45) Table 2-3 Serena Haley Bracelets 8 9 Necklaces 16 12 Refer to Table 2-3. What is
Haley's opportunity cost of making a bracelet?
A. 3 bracelets
B. 3/4 of a bracelet
C. 1 1/3 necklaces
D. 2 necklaces
46) How does an increase in a country's exchange rate affect its balance of trade?
A. An increase in the exchange rate reduces imports, raises exports, and reduces the
balance of trade.
B. An increase in the exchange rate raises imports, reduces exports, and
reduces the balance of trade.
C. An increase in the exchange rate reduces imports, raises exports, and increases
the balance of trade.
D. An increase in the exchange rate raises imports, reduces exports, and increases
the balance of trade.
47) For each bottle of wine that Italy produces, it gives up the opportunity to make
10 pounds of cheese. France can produce 1 bottle of wine for every 25 pounds of
cheese it produces. Which of the following is true about the comparative advantage
between the two countries?
A. Italy has the comparative advantage in wine.
B. France has the comparative advantage in wine and cheese.
C. France has the comparative advantage in wine.
D. Italy has the comparative advantage in cheese.
48) When the market value of the dollar rises relative to other currencies around the
world, we say that
49) If the dollar appreciates against the Mexican peso,
50) If the purchasing power of the dollar is greater than the purchasing power of the
euro, purchasing power parity predicts that the exchange rate will
51) If interest rates in the United States rise
A. the value of the dollar will fall as foreign investors increase their holdings of U.S.
52) The three most important international financial centers today are
53) China has been accused of deliberately undervaluing its currency, the yuan, in
54) What two countries each accounted for more than 25% of all foreign purchases
of U.S. stocks and bonds in 2008?