Econ Final Exam

Which of the following economic systems stresses free enterprise as a way of answering the basic questions of what to produce, how to produce and for whom to produce?

Market

People often follow the Dow Jones Industrial Average, the unemployment rate, and other measures of the economy. These measures are examples of

economic indicators

An economist would probably agree that the central problem in economics is

how to meet people's wants and needs

Economist explain that free trade among different people of different nations generally

offers consumers a greater selection of goods and services at a lower price

Of the following, economics is the best defined study of

people using their resources, producing and exchanging to satisfy their wants

The "ability to pay" principle of taxation states that

people with higher incomes should pay higher taxes than people with lower incomes

The part of the Federal Reserve System that has primary responsibility for controlling the nations money supply is

the Federal Open Market Committee

The legal reserve ratio is

the proportion of a bank's deposits that may not be used for loans

Which statement is true?

All of the above

Amal is a mechanic who owns a shop in Dearborn. He is a suspected terrorist supporter and has an extensive file at the FBI.

Amal has an incentive to use his tools and equipment carefully and productively

When a county specializes by producing things in which it has comparative advantage and then trades with other countries who specialize according to their comparative advantages,

the nation can obtain what it wants at lower oppertunity cost

The unemployment rate is a measure of

the percentage of the labor force that is not now employed but actively seeking work

If the market demand for a product is inelastic, then

the price effect is weak

A city decides to build a hospital in one of its vacant lots instead of a sports center or a shopping mall. The opportunity cost of building the hospital is

the sports center or shopping mall

Cacao beans are an important ingredient in making chocolate. If the price of cacao suddenly skyrocketed,

the supply curve of chocolate would shift to the left

In economics, the term supply means

the various amounts of something a producer wants to sell at different possible prices

In a free enterprise economy, a market-clearing price is determined by

the voluntary exchange between buyers and sellers

In a market economy, prices provide important information. This means that if eager consumers bid up the price of submarine sandwiches,

they are letting producers know they want more sandwiches produced

In a free enterprise economy, how do consumers signal businesses that they want more of a product?

they bid up the product's price

Market-clearing prices preform important task in a free enterprise economy. Which of the following is one of those task?

they provide information about consumers' wants and producers' cost

All community members are fishers or farmers, all children grow up to do the same work as their parents and all family members work to benefit of the community. Which type of economy is this?

traditional economy

Monetary policy differs form the fiscal policy in that the monetary policy is

under the control of the Federal Reserve System

An economist would probably agree that to make effective financial decisions, consumers should

weigh the cost and benefits of individual choices

An economist would most likely argue that effective economic decision-making is based on

weighing the cost and benefits of various options

Wage rates and labor productivity in the nation of Highland are 10 times those in the country of Lowland. According to economics,

Each nation's workers can complete successfully by working in those industries where each nation has a comparative advantage

Money can be anything that people generally accept in payment for goods and services. But the things that people have used as money throughout history have usually had certain qualities. Which of the following is NOT one of those qualities?

Gold backing

Markets sometimes have shortcomings that governments try to correct by intervening in the economy. Which of the following best describes the outcome of government intervention?

Government policies may solve some problems, but not necessarily. Government policies have shortcomings too.

Which fiscal policy would be most likely during a period of increased inflation?

Higher taxes and reduced government spending

If a company used all its resources to produce only pet food and pet toys, which of the following statements is true?

If more pet toys are produced, less pet food can be produced

Which of the following best describes the role of a central bank?

It supervises the banking system and regulates the supply of money and credit

Which of the following best explains the difference between the federal deficit and the national debt?

The federal deficit is the excess of current government spending over revenues while the national debt represents the sum of all past governments borrowing not yet paid back

Which of the following best defines the value of money?

The goods and serives that money can buy

Which statements explains why market economies can be compared to "giant polling booths"?

The goods and services produced are the ones consumers "vote" for with their dollars

Victor makes a loan of $100 for one year at 7 percent annual interest. During the year, the rate of inflation suddenly jumps. Which of the following would be true?

The higher inflation rate harms Victor because he will be repaid with dollars with less purchasing power

What would most likely happen if the reserve ratio for banks were cut in half?

The nation's money supply would increase

What determines the amount of money the banking system can create?

The reserve ratio established by the Federal Reserve

Which characteristics best explains why sea shells are not a form of money in our economy?

They are plentiful

Which of the following do economist agree is a legitimate argument in favor of trade barriers?

They can protect infant industries

Which group benefits if the dollar's exchange rate rises so that it is worth more foreign currency?

U.S. importers

The decision to convert a piece of farmland to city housing represents

a choice to allocate scarce resources to another use

The United States economy is best described as

a mixed economy with market and government elements

Market competition pushes a price up towards its market-clearing level. Which of the following best describes that competition?

competition among buyers

One method of calculating gross domestic product is to add

consumer spending, business investment, and government spending

Most economic systems attempt to address the problems associated with

the lack of resources necessary to meet the needs and wants of every person

If the price of gasoline were to triple, which of the following results would be most likely?

the market-clearing price of motel rooms would go down

The economic term SCARCITY is most often used to refer to

the condition of limited resources and unlimited wants

If the price of fish rises in supermarkets,

the demand curve for chickens will shift to the right

Circular Flow Model

Test 1

Which of the following was part of the teachings of Adam Smith?

- Benevolence among family and friends was important - People can best serve the interest of others by pursuing their own particular interest and making exchanges with others - A system of voluntary exchange enables each of us to rely on the cooperation and assistance of many people we never know - People left to their own ends and purposes will usually behave in a manner that is mutually beneficial to themselves and to society in general

7 shifters of demand

- change in income - change in number of buyers - number of substitute goods - number of complementary goods - change in weather/season - change in expectations - change in style/taste/habits

3 shifters of supply

- change in marginal cost - change in expectations - change in number of producers

Which of the following can affect the nations money supply?

- changes in the discount rate - open market operations - changes in reserve requirements

Households play important roles in the U.S. economy. They

- own resources such as labor and capital - exchange their labor for wages and salaries - purchase goods and services from businesses - consume goods and services

Which of the following describes a reason for the price effect as it applies to demand?

- people use more or fewer substitutes depending on a product' price - changes in a products price affect the buying power of peoples incomes - people use something in more but less valuable ways at lower prices than higher prices - peoples marginal utility decreases as additional units are consumed

The market economy model of production and distribution is based on which of the following?

- private property - market competition - entrepreneurship - price system

A currency's exchange rate often moves up or down because of changes in

- the worldwide demand for the currency - the worldwide supply of the currency

What do the following have in common: a protective tariff, detailed regulation imposed on imports, and import quotas?

Each is a barrier to international exchange

Economist explain that if citizens in a country stopped importing from other nations,

None of the above

The person who starts a business and brings together and organizes land, labor, and capital in order to produce a product is known as

None of the above

There would be no competition if there were no

None of the above

Which of the following is part of the money supply in the United States?

None of the above

If you receive a paycheck from your employer and deposit the check in your checking account, you now have more money in your account and your employer has less. Which of the following best describes the money you received in payment for your work?

Numbers in a bank computer

Which of the following has not been a traditional role of the FEDERAL government?

Paying for local police services

Most businesses are producing at or near capacity, the unemployment rate is very low, and consumer spending is brisk. Which part of the business cycle best describes these events?

Peak

Many things have been used as money throughout history. Which of the following best explains why money has evolved and changed over history?

People have continually looked for better things to use as a medium of exchange, store of value, and measure of prices

Which statement explains the reason for scarcity?

People's wants exceed the resources available

Which is the largest source of revenue for the federal government?

Personal income taxes

Which explains why firms in a market economy try to give consumers what they want at a price they are willing to pay?

Profits

Which statement describes the critical role played by profits in a market economy?

Profits encourage businesses to efficiently produce the things people want

Which of the following roles of government do Social Security and Medicare best illustrate?

Promoting economic security

Which of the following statements about scarcity is most likely true?

Scarcity affects government as well as individual consumers

Clarissa dropped out of high school. She has few technical skills, and all the good jobs in her community seem to require considerable knowledge and many skills. What category of unemployment is Clarissa's situation?

Structural

Graphs

Test 2

According to economics, a tax that takes $5,000 of Jay's yearly salry of $50,000 and $2,000 of Fran's $20,000 yearly salary would be

a proportional tax

Which of the following will cause sellers to offer a larger quantity of oranges at each and every price?

a successful harvest in all regions when oranges are grown

If you buy a car, you depend on the government to enforce and protect your property rights to the car. You depend on the government to do this for you

because free enterprise and markets by themselves font adequately establish and support the necessary rules or laws

In a voluntary exchange between two people or businesses,

both traders expect to benefit as a result of the exchange

According to the law of demand,

buyers purchase more at lower prices than at higher prices

The money supply

can have an effect on the prices we pay

Factory buildings, assembly line equipment and communications devices are examples of

capital

Business A decides to increase production of cars by buying new robots for the assembly line. This would be considered an investment in

capital resources

If the price of a product falls, producers are likely to

decrease production to bring marginal cost in line with the lower price

A family decides to buy a TV during a big sale. They consider buying a second one but decide against it because they don't value a second new set as much as their first one. This is an example of

diminishing personal value

The major expense of state and local government in recent years has been for

education

Country A has decided to improve the quality of its human capital. To accomplish this, Country A would most likely increase investment in its

education systems, job training programs, and medical care

Before the U.S. Congress approved NAFTA in 1993 and the Uruguay Round of GATT in 1994, opponents argued that

freer trade with lower-wage countries would undermine U.S. wages and jobs

The concept of economic scarcity refers mainly to decisions about

how resources are allocated

"An opportunity cost is incurred whenever a person makes a decision about __________." An economist would probably argue that this statement is BEST completed with the phrase

how to use limited economic resources

Managers, technical trainers, and accountants are examples of a company's

human resources

Gross domestic product

includes only the values of final goods and services produced during the year

The federal government can benefit from a period of inflation because

income rises during inflation and some people will move into higher tax brackets

The economic problem of scarcity is most clearly related to

individuals' wants exceeding the resources available

In a market economy, goods are most often to produced as a result of

interactions between buyers and sellers

Dick's Market must apportion the scare shelf space on a particular aisle between breakfast cereal (very profitable) and laundry detergent (moderately profitable). It decides to use the foot of shelf space for neither product, but instead stocks a good supple of doggie treats. Based on this information, one can conclude that the marginal cost of the decision

is the increased quantity of breakfast cereals it could have sold by using the foot of shelf space for this product

Raw stinky fertilizer, coal, squirrels and daffodils are examples of

land

"Irma normally makes 10 ceramic plates in a day, and earns $200. If she makes 11 plates, she earns $206. The increase in her daily revenue is the ______________ of making one extra plate per day." Which of the following best completes this statement?

marginal benefit

A teacher adopts a new policy stating that grades for homework assignments will be reduced for each day an assignment is late. This is an example of

marginal cost

In a command economy, decisions about what to produce are made by

national political leaders and government officials

According to the Adam Smith's principle of the "invisible hand," which of the following is MOST LIKELY to occur when a government in a mixed economy relaxes regulations within an industry?

new competitors will enter the market

Which of the following would happen to the demand for a product if its price goes up?

nothing happens to the product's demand

Entrepreneurs would most likely be involved in which of the following activities?

organizing resources to create new businesses

People who create goods and services are most commonly called

producers

The North America Free Trade Agreement

reduced trade barriers among the U.S., Canada, and Mexico

According to economics, a tax on bread would be a

regressive tax

A proportional tax

requires citizens to pay an equal percentage of their income to taxes

To an economist, factors of production are also called

resources

A student report that includes topic headings TARIFFS, QUOTAS, and EXPORT SUBSIDES probably is about

restrictions on foreign trade

An economist would most likely define a BENEFIT as something gainful that

satisfies specific needs or wants

By definition, consumers are most likely to use their money to

satisfy specific needs and wants

Market competition is one of the many types of competition. But all types of competition result from

scarcity

The major purpose of any economic system is to deal with problems caused by

scarcity of resources

As entrepreneurs develop new and better production methods, they

shift supply curves to the right

In the United States today, money consists of all of the folling EXCEPT

stocks

Consumers are LEAST likely to be defined as people that

supply goods and services

For many years the government has kept the price of milk above its market-clearing level. This has resulted in

surpluses of scarce milk

In economics a shortage of a product means

that the item's price is below its market-clearing level