Economics Final Study Guide
1. The Federal Reserve regulates the required reserve ratio in order to a. change the discount rate more easily. b. discourage banks from making risky loans. c. reduce lags in monetary policy. d. control the amount of money in circulation.
d. control the amount of money in circulation.
23. After World War II, the U.S. gave money to countries in Asia to help them rebuild. What is this an example of? a. foreign aid b. foreign portfolio investment c. debt rescheduling d. foreign direct investment
a
25. In which of the following situations would someone have to pay a gift tax? a. Your grandmother gives you $13,000 toward college. b. Your cousin gets a job paying $32,000 a year. c. A relative dies and leaves you $13,000 in the will. d. Your cousin gives you a car worth $1,700.
a
26. How do economists calculate GDP for one year using the expenditure approach? a. Add together all the amounts spent on final goods and services. b. Add the amounts spent on goods and services to the incomes received. c. Add up all the incomes received. d. Subtract the amounts received as income from the goods and services.
a
28. What is a major advantage of a franchise? a. The parent company provides training. b. The parent company has strict standards. c. The franchisee can choose suppliers. d. A franchisee can launch new products.
a
34. What is a major advantage of a sole proprietorship? a. The owner has full control over business. b. The owner has no liability for business debts. c. Human capital is unlimited. d. Finding good employees is easy.
a
37. Which of the following causes excess demand? a. The market price is below the equilibrium price. b. The demand curve shifts to the left. c. The quantity supplied is greater than the demand. d. The government provides subsidies to producers.
a
4. Which of the following events could cause a good's supply curve to shift to the right? a. new technology to produce the good b. a minimum wage increase c. higher taxes on the good d. raw materials shortage
a
46. What does a supply schedule show? a. supply for a good at many prices b. factors that could influence supply c. changes in costs of labor and parts d. quantity supplied at one price
a
50. Why does a bank sometimes hold excess reserves? a. to be sure it can meet customer demands b. to protect themselves from the high cost of borrowing c. to make check clearing easier d. to make interest rates go up
a
56. Which of the following is an example of state spending? a. public safety b. defense spending c. city parks d. Social Security
a
57. Gross National Product or (GDP) Adjusted for inflation is called what? a. real GDP. b. nominal GDP. c. national income. d. net national product.
a
59. Which newspaper headline will shift the demand curve for flu shots to the right? a. Health Experts Predict Severe Flu Season b. Suppliers Produce a Surplus of Flu Vaccine c. Wrong Flu Vaccine Sickens People d. New Medicine Protects Against Flu Without Shot
a
63. What is one reason some nations are concerned about multinational corporations? a. Multinationals can sometimes gain excessive political power. b. Multinationals prevent host countries from engaging in free trade. c. Multinationals prevent citizens in the host country from getting jobs. d. Multinationals can gain control over the host country's exports.
a
7. The main purpose of the FDIC is to make sure that a. customers do not lose money if a bank fails. b. commercial and investment banks do not fail. c. the government has enough gold to cover its expenses. d. banks charge a fair amount of interest on loans.
a
70. Which of the following is a characteristic of a traditional economy? a. It revolves around the family unit. b. It has a high standard of living. c. It is usually based on light industrial production. d. It encourages innovation and change.
a
74. What was the trade-off of the Soviet Union's focus on heavy industry? a. Fewer consumer goods were produced. b. Everyone became poor. c. It was a better investment. d. It created fewer jobs.
a
75. What is the biggest factor that leads a country to specialize in certain products? a. the resources of the nation b. the demand for those products within the country c. the ability to trade with other nations d. the needs of its citizens
a
77. The equilibrium wage for doctors is high because the a. supply of doctors is relatively low and the demand is relatively high. b. supply of doctors is relatively high and the demand is relatively low. c. demand for doctors tends to be lower relative to supply. d. demand for doctors is relatively equal to the supply.
a
16. What do Social Security taxes pay for? a. support for unemployed b. wages to federal workers c. benefits to older citizens d. training for low- income people
c
What is one example of discretionary spending? a. education b. Medicare c. Social Security d. Medicaid
a
17. Which of the following is handled by individuals instead of government in a free market economy? a. mass transit b. investment options c. public education d. national defense
b
18. Economists try to predict changes in the business cycle by anticipating a. opinion polls. b. movements in real GDP. c. population shifts. d. political elections.
b
22. An economy in which all the boys become farmers when they are adults, just as their fathers and grandfathers did, would be an example of a a. centrally planned economy b. traditional economy c. command economy d. free market economy
b
33. What do people supply in return for factor payments? a. innovation, profit, or goods b. land, labor, or capital c. innovation, labor, or trade d. services, goods, or traditions
b
35. Which of the following is considered a cause of inflation? a. Demand is less than supply. b. Producers raise prices to meet higher costs. c. Wages go down. d. There is not enough money in the economy.
b
42. Which of the following best describes the economy of the United States? a. free market b. mixed, but more like a free market c. mixed, but more centrally planned d. centrally planned
b
43. Which of the following is generally a sign that a country is developed? a. low literacy rate b. high per capita energy use c. high levels of people farming to feed themselves d. low numbers of people living in cities
b
45. What action would be recommended by an economist who believes that economies emerge slowly from recessions? a. Wait until the economy corrects itself. b. Enact new nationwide fiscal and monetary policies. c. Reduce the supply of money. d. Allow regional banks to make individual decisions.
b
49. Imperfect competition is usually caused by a. new commodities. b. barriers to entry. c. identical products. d. free markets.
b
55. Which of the following will happen if the price of butter goes up? a. The demand curve for margarine moves to the left. b. The demand for margarine increases. c. The demand for butter increases. d. The demand curve for butter moves to the right.
b
60. Your running shoes were produced by RunnerPro. The company designed the shoes in the United States but made them in Singapore. What kind of company is RunnerPro? a. trade association b. multinational corporation c. general partnership d. producer cooperative
b
64. Jessica has an advanced degree in chemistry. However, a laboratory will not hire her until she learns how to use the latest software. Which of these conditions describes Jessica's situation? a. seasonal unemployment b. structural unemployment c. underemployment d. frictional unemployment
b
66. Each payday, some of your pay is withheld as payroll deductions for Social Security. What happens to the money that is withheld? a. It is redistributed as cash transfers to workers who are injured on the job. b. It is redistributed as cash transfers to retired and disabled people. c. It is put into an account under your name to earn interest until you retire. d. It is used to provide medical benefits to Americans over 65.
b
67. What is one measure of a nation's human capital? a. savings that citizens have in the bank b. educational level of the population c. number of people who can work d. number of telephones per capita
b
73. Why are public goods examples of market failure? a. They show that the free enterprise system does not work. b. They show that the free market cannot distribute certain resources efficiently. c. They show that competition in the free market is dangerous. d. They show that the private sector is more efficient than the public sector.
b
76. What effect does the availability of many substitutes have on the elasticity of demand for a good? a. Demand is unitary elastic. b. Demand is elastic. c. Demand is inelastic. d. Demand is not affected.
b
2. What is the government's role in controlling externalities in the American economy? a. Government tries to limit all externalities to stop market failures. b. Government tries to encourage positive and limit negative externalities. c. Government tries to encourage all externalities to increase competition. d. Government tries to limit positive and encourage negative externalities.
b. Government tries to encourage positive and limit negative externalities.
10. Which of the following is the best argument in favor of free trade? a. Countries with the fewest trade barriers have the highest standard of living. b. Countries with the fewest trade barriers are members of trade organizations. c. Free trade protects a country's infant industries. d. Free trade allows a country to impose sanctions on a trading partner.
c
11. What state does a free market move toward naturally? a. shortage b. surplus c. equilibrium d. disequilibrium
c
13. What is one reason that membership in labor unions is dropping? a. Workers will not pay union dues. b. Unions oppose skilled labor. c. Manufacturing jobs have decreased. d. More men have joined the workforce.
c
15. What is one action an employer can take to lower wage levels? a. Hire only union workers. b. Stop wage discrimination. c. Replace some workers with machines. d. Hire workers with more experience.
c
21. Which of the following is the kind of decision that can be made at the margin? a. whether or not to go on a vacation b. whether or not to build an extra room on a home c. whether or not to hire new workers d. whether to have a dog or a cat as a pet
c
31. Which of the following describes the Chinese economy? a. mixed, but on the side of free market b. free market c. mixed, but on the side of centrally planned d. centrally planned
c
36. In monopolistic competition, what happens when a firm begins to charge an excessive price for its product? a. Consumers will boycott the product. b. The firm will not sell enough of the product and go out of business. c. Consumers will choose a rival firm's product instead. d. The government will regulate the price of the product.
c
38. What type of policy can the Federal Reserve use to slow an expanding economy that is causing high inflation? a. expand the money supply b. lower interest rates c. cut the money supply d. increase tax cuts
c
41. What might happen if the government creates more money to cover a large deficit? a. unemployment b. crowding-out effect c. hyperinflation d. recession
c
48. How long can a family collect aid from the Temporary Assistance for Needy Families program? a. as long as necessary b. a maximum of two years c. a maximum of five years d. a maximum of ten years
c
58. All goods and services are scarce because a. greedy people want too many goods. b. some goods cost more than others. c. resources are limited. d. things are either needs or wants.
c
6. Which is a service the Fed provides to all banks? a. serving on the Federal Open Market Committee b. voting for the Fed's Board of Governors c. borrowing money from the Fed d. receiving stock in the Fed
c
62. What is one way that host countries usually benefit from the presence of multinational corporations? a. increased imports b. higher protective tariffs c. increased employment opportunities d. greater political freedom
c
65. Suppose the economy is slowing. In response, the Federal Reserve increases the money supply. What could happen if the economy comes out of recession by itself just as this monetary policy takes effect? a. Individuals could lose their homes. b. Businesses could no longer borrow. c. Inflation could rise. d. The economy could slow again.
c
69. What impact can political pressures have on fiscal policy? a. State and local governments often refuse to implement unpopular federal fiscal policies. b. Citizens vote overwhelmingly for candidates who support contractionary fiscal policies. c. Elected officials often make policy decisions based on voter reaction rather than long-term effects. d. Because all citizens are involved in the budget process, setting fiscal policy takes a long time.
c
78. What do Social Security taxes pay for? a. transportation and training expenses for low-income people b. support for people who are temporarily unemployed c. benefits to older citizens and people with certain disabilities d. wages to federal workers and military personnel
c
8. The consumer price index measures the prices of certain items each month. Which items are measured? a. food and necessary services required to operate a Business b. food items grown by rural farmers c. goods and services purchased by an urban consumer d. nonfood items purchased by adult consumers
c
80. Where does the United States stand as a participant in international trade? a. It is primarily an importer. b. It is primarily an exporter. c. It is a major importer and exporter. d. It is largely self-sufficient.
c
12. An economist who focuses on microeconomics might study which of the following? a. inflation b. unemployment c. Fiscal Policy d. household credit card debt
d
14. How can expectations about the future change what consumers buy now? a. Demand for a good will rise if the good is expected to be plentiful. b. Demand for a good will drop if the price is expected to stay the same. c. Demand for a good is not related to future expectations. d. Demand for a good will go up if its price is expected to rise.
d
19. A country is changing from a centrally planned economy to a free market economy. What will be one difficulty for citizens in this country? a. Farmers will have to grow the crops that the government instructs them to. b. Only poor quality goods will become available to consumers. c. Entrepreneurs will have fewer opportunities to start new businesses. d. Workers will lose job security and guaranteed incomes.
d
20. What is one thing that causes aggregate demand to go up? a. Price levels stay the same. b. Aggregate supply goes up. c. Price levels increase. d. Price levels go down.
d
24. Economists say that a demand curve is accurate only as long as the ceteris paribus assumption is true. This means that a. goods are used in place of one another. c. consumer desire for goods remains elastic. b. anticipated supply can keep up with prices. d. all things other than price hold constant.
d
27. A bank is offering 5 percent interest on its savings account. If the inflation rate is 4 percent, how much return would customers actually make on their savings? a. 5 percent b. 9 percent c. 4 percent d. 1 percent
d
29. What is the main source of funding for most local public schools? a. state sales taxes b. federal income taxes c. payroll taxes d. local property taxes
d
3. What is one thing that happens when the tax rate goes up? a. People have more money to spend on goods and services. b. Foreign governments are forced to borrow from the U.S. government. c. Businesses have more money to invest in new plants and equipment. d. The government has more money to invest in infrastructure.
d
30. You need a new computer. To buy one, you will need a loan. Why should you choose a bank loan instead of a loan from a finance company? a. Banks usually keep only a fraction of their funds on hand to lend. b. Finance companies have fewer outlets than banks. c. Banks make their profits by lending money. d. Finance companies usually charge higher interest rates than banks.
d
32. What is an example of a positive external shock? a. Demand for new houses increases the value of land. b. China plans to import more corn from the United States next year. c. A new advertisement causes people to buy more corn flakes. d. Good weather leads to a good harvest.
d
39. What is the production possibilities frontier or curve?a. a line that shows when resources are underutilized b. a line that shows how resources can best be used in the future c. a line that shows the only way resources can be used d. a line that shows how much can be made so resources are best used
d
44. The following lists are nations with mixed economies. In which list is the free market most dominant? a. France, North Korea, South Africa, Argentina b. Russia, Peru, Columbia, Canada c. Cuba, Greece, China, United States d. United States, United Kingdom, Singapore, Canada
d
47. When would bank examiners begin to check on a member bank more often? a. when the bank accepts new deposits b. when the bank borrows from another bank c. when the bank maintains excess reserves d. when the bank has a low net worth
d
5. Which of the following is the best example of a public good? a. shopping mall b. country club c. movie theater d. highway system
d
51. Why do public goods demonstrate the limitations of a free market economy? a. They allow governments to control most economic decisions. b. They prevent consumers from making economic decisions. c. They allow consumers to make all of the economic decisions. d. They allow government to make some economic decisions.
d
52. What age group in the United States has the largest percentage of its members living in poverty? a. young adults b. the elderly c. the middle aged d. children
d
53. Businesses multiply the price they charge for a good by the quantity sold to calculate a. market demand. c. elastic demand. b. profit shares. d. total revenue.
d
54. What has reduced the severity of changes to real GDP in the U.S. economy since World War II? a. Internal Revenue Service aids b. federal payments to states c. income equalizers d. automatic stabilizers
d
61. The largest source of income for banks is a. payments from the FDIC. b. fees charged for checking accounts. c. money deposited in savings accounts. d. interest received from loans.
d
68. Ruth runs a bakery whose supply is highly elastic. When the price of baked goods falls, Ruth will a. increase production to balance the loss of profit. b. close the bakery and open a store that sells perfume. c. try to find a way to increase prices again. d. make up the lost revenue by cutting production costs.
d
71. What do people use mortgages to buy? a. automobiles b. technology c. college supplies d. property
d
72. Why does the government protect inventors and authors by offering them patents and copyrights? a. to regulate the business cycle b. to strengthen American culture c. to encourage free trade d. to promote innovation
d
79. Which of the following are major expenses for local governments? a. public libraries and public universities b. public health and national defense c. unemployment benefits and fire protection d. public school systems and law enforcement
d
9. When the eighth worker is hired, the marginal product of labor becomes negative. This is because a. there are fewer workers available to make more shoes. b. the workers are making more shoes than the demand. c. the need for a greater supply of shoes has decreased. d. there are more workers than are needed, disrupting output.
d