ECON 232 Study guide
When inflation occurs, the purchasing power of money varies _____ with the price level. A. inversely B. directly during recessions but inversely during expansions C. directly but not proportionately D. directly and proportionately
A
. Professor López got his first mobile phone A. when he was dealing drugs for the Mexican Mafia B. during the Clinton Administration C. when the Pixel XL came out D. none of the above
B
If there is a major increase in political uncertainty, this would count as a A. Positive shock to the economy B. Negative shock to the economy C. Neutral shock to the economy D. Could be any of the above E. None of the above
B
In order to promote a good economy, the Fed uses _____ as a policy instrument A. taxation and spending B. controlling the money supply C. economic regulation D. foreign exchange
B
In today's U.S. economy the money supply is controlled by the: A. U.S. Treasury. B. Federal Reserve System. C. Senate Committee on Banking and Finance. D. U.S. Congress.
B
In today's U.S. economy, the dollar is backed by people's trust in A. gold B. the Federal Reserve System C. the U.S. Treasury D. Bitcoin
B
Of the four phases of the business cycle, the one in which real GDP increases is called: A. peak. B. expansion. C. contraction. D. trough.
B
Suppose checkable deposits increase by $40 billion and currency in circulation decreases by $40 billion, ceteris paribus, then A. M1 money supply will decline. B. M1 money supply will not change. C. M2 money supply will decline. D. M2 money supply will increase.
B
Full-employment output is also called: A. zero-unemployment output. B. equilibrium output. C. potential output. D. zero-savings output.
C
11. When using the economic way of thinking, the phrase "people make incremental choices" refers to the concept known as A. opportunity cost B. purposeful behavior C. unlimited wants D. marginal analysis
D
7. A category of money would be a. commodity money. b. representative money. c. fiat money. d. all of the above. e. none of the above.
D
For the next four questions, consider the following production possibilities information: Russia Brazil Choice Steel Grain Steel Grain A 4 0 8 0 B 3 5 6 6 C 2 10 4 12 D 1 15 2 18 E 0 20 0 24 37. Based on the listed production possibilities, production in . A. both Russia and Brazil are subject to the law of increasing opportunity costs. B. Brazil is subject to decreasing costs, but production in Russia occurs under increasing opportunity costs. C. Russia is subject to increasing costs, but production in Brazil occurs under constant opportunity costs. D. both Russia and Brazil is subject to constant opportunity costs.
D
Suppose you go to the dining hall and try to pay with a 100 trillion Zimbabwean dollar bill. The cashier happens to be an expert on money. She will look at you funny and say, "you should know that the Zimbabwean dollar is _____." A. a very weak store of value B. not an accepted medium of exchange here C. can be sold on EBay D. all of the above E. none of the above
D
The Dot-com bubble of 1999-2000 was A. an economic shock that thrust the U.S. economy as a whole into recession B. an event that didn't have any macroeconomic consequences C. a destruction of about $1 trillion worth of housing stock D. an economic shock that remained isolated to the tech sector and the western region E. the last significant asset bubble in the U.S. economy
D
The theory of Aggregate Demand is most closely associated with the economist: A. Frederic Bastiat B. F. A. Hayek C. Milton Friedman D. Ben Stein E. John Maynard Keynes
E
. People accept money as a medium of exchange because _________. A. they know they can use it to make future purchases B. the government guarantees it as a means of payment. C. it is a monetary unit for measuring and comparing the relative values of goods. D. it is declared as legal tender by the government.
A
. Structural unemployment is caused by a. creative destruction. b. recessions. c. the transformation of the US into a service economy. d. expansion of trade with Asia and Latin America e. the changing seasons of the year.
A
13. Which of the following is a labor resource? A. a computer programmer B. a computer C. silicon (sand) used to make computer chips D. software used by a firm
A
4. The economic way of thinking considers the scientific method as A. used by economists and other social scientists to formulate and test hypotheses. B. also known as the economic perspective. C. applicable to human behavior in markets but not in governments. D. not applicable to economics because economics deals with human beings.
A
6. In building models, the economic way of thinking A. starts by making simplifying assumptions. B. includes all available information. C. must use mathematical equations. D. attempts to exactly duplicate the real world
A
9. Macroeconomics approaches the study of economics from the viewpoint of A. entire economys. B. governmental units. C. the operation of specific product and resource markets. D. individual firms.
A
9. The Federal Reserve System was created _______. A. in 1913 by an act of Congress B. in 1929 in response to the stock market crash C. at the American founding during the central bank debates D. to allow inflation in the economy E. to control international trade around the world
A
Checkable deposits are classified as money because: A. they are usually but not always accepted as a medium of exchange B. banks hold currency equal to the value of their checkable deposits. C. they are ultimately the obligations of the Treasury. D. they earn interest income for the depositor. E. all of the above
A
Currency held in the vault of First National Bank is: A. not counted as part of M1. B. counted as part of M2, but not M1. C. only counted as part of M1 if it was deposited into a checking account. D. counted as part of M1. E. none of the above
A
For the next THREE questions, suppose Lorenzo (age 7) and Ivana (age 4) can make two different kinds of sandwiches—Jam (J) and Cheese (C)—according to the following opportunity cost ratios. Assume constant costs. Lorenzo: 1J = 3C Ivana: 1J = 4C 29. For Ivana, the opportunity cost of making C: A. is 1/4 a Jam. B. is 4 Jam. C. should be zero under child labor laws D. becomes lower depending on how many C's he has made that day.
A
If Russia and Brazil specialize on the basis of comparative advantage: A. Brazil will produce steel and Russia will produce grain. B. Brazil will produce both steel and grain. C. Russia will produce both steel and grain and Brazil will produce neither. D. Russia will produce steel and Brazil will produce grain.
A
If actual GDP is $340 billion and we have a negative GDP gap of $20 billion then potential GDP must be: A. $360 billion. B. $300 billion. C. $320 billion. D. $20 billion.
A
In the United States, the trend in real GDP has experienced long run _____ with short run ____. A. growth in real GDP; boom-bust cycles of output B. steadily increasing unemployment; steady levels of output C. constant labor productivity; bust-boom cycles of output D. growth in real GDP; steady levels of output E. decline in real GSP; steady rates of dollar inflation
A
The GDP gap measures the difference between: A. Actual GDP and Potential GDP. B. Actual Disposable Income and Potential Disposable Income. C. National Domestic Product and Gross Domestic Product. D. Nominal GDP and Real GDP. E. none of the above
A
The double coincidence of wants problem associated with barter refers to the fact that: A. for exchange to occur each seller must have a product that some buyer wants. B. money must be used as a medium of exchange or trade will never occur. C. specialization is restricted by the size or scope of a market. D. buyers in resource markets and sellers in product markets can never engage in exchange.
A
Use this information to answer the next three questions: Marco earns $50 per hour and Carlos earns $30 per hour at their respective jobs. Marco can design a new website in 20 hours and can build a new deck in 40 hours. Carlos can design a new website in 40 hours and can build a new deck in 50 hours If Marco and Carlos specialize according to comparative advantage then Marco will only _______ and Carlos will only ______. A. design websites; build decks B. design websites; design websites C. build decks; build decks D. build decks; design websites
A
Use this information to answer the next three questions: Marco earns $50 per hour and Carlos earns $30 per hour at their respective jobs. Marco can design a new website in 20 hours and can build a new deck in 40 hours. Carlos can design a new website in 40 hours and can build a new deck in 50 hours. If Marco and Carlos specialize according to comparative advantage and exchange with each other, Marco can gain up to $_______ and Carlos can gain up to $_______. A. 500; 300 C. 2000; 900 B. 1000; 1500 D. 500; 600 E. 100; 500
A
When you see a price tag on an item at the outlet mall, this is an example of the ________ function of money: A. unit of account. B. standard of deferred payments. C. store of value. D. medium of exchange.
A
1. When people exchange primarily by means of barter, they _____: A. usually are in Soviet style centrally planned economies. B. face the problem of double coincidence of wants. C. are not able to exchange goods for goods. D. are taking dollar volume out of the money supply of U.S. economy.
B
10. In the economic way of thinking, the term "incentives" refers to A. costs and benefits of government intervention B. benefits and costs associated with any choice made by an individual C. employers paying workers a bonus at the end of the year D. unlimited wants but limited resources
B
12. When analyzing entire societies, the economic way of thinking assigns A. greater weight to domestic workers' well being than to foreign workers' B. equal weight to individuals' well being C. equal weight to people's opportunity costs D. greater weight to the well being of children than to adults
B
15. The four factors of production are A. land, labor, capital, and money. B. land, labor, capital, and entrepreneurial ability. C. labor, capital, technology, and entrepreneurial ability. D. labor, capital, entrepreneurial ability, and money.
B
16. The main function of the entrepreneur is to A. make routine pricing decisions. B. combine inputs of production into valuable output. C. purchase capital. D. create market demand.
B
18. Which of the following will not produce an outward shift of the production possibilities curve? A. upgrading the quality of a nation's human resources B. reducing unemployment C. increasing the quantity of a society's labor force D. improving a society's technological knowledge
B
2. In the economic way of thinking, the phrase ceteris paribus represents a __________ that means _____. A. purposeful behavior; all other things equal B. simplifying assumption; all other things equal C. purposeful behavior; people seek utility D. simplifying assumption; people seek utility
B
8. One of the four functions that money serves is A. to accumulate wealth B. a unit of account. C. a method of saving. D. all of the above.
B
About the time your professor was getting too old to count train cars, caboose operators became . a. cyclically unemployed (but you're never too old to count train cars) b. structurally unemployed (but you're never too old to count train cars) c. frictionally unemployed (but you're never too old to count train cars) d. none of the above (but you're never too old to count train cars)
B
Ceteris paribus, a significant increase in the money supply will A. increase the purchasing power of each dollar. B. decrease the purchasing power of each dollar. C. have no impact on the purchasing power of the dollar. D. reduce the price level.
B
In order for mutually beneficial trade to occur between two otherwise isolated nations: A. each nation must have an absolute advantage in at least one good. B. each nation must have a comparative advantage in at least one good. C. each nation must face constant costs in the production of the good it exports. D. one nation must have an absolute and a comparative advantage in most goods.
B
Specialization in production is economically beneficial primarily because it: A. allows everyone to have a job which they like. B. permits the production of a larger output for any particular amounts of resources. C. facilitates trade by bartering. D. guarantees full employment. E. none of the above
B
The phase of the boom-bust cycle when will the economy shows falling real output and rising unemployment is A. expansion. B. recession. C. peak. D. trough.
B
When people open savings accounts in our modern economy, they are using money primarily as a: A. method of exchange. B. store of value. C. unit of discount. D. standard of cost.
B
. Assume that before specialization and trade, Russia produced combination C and Brazil produced combination B. If these two nations now specialize completely based on comparative advantage, the total increased production from specialization will be: A. 8 tons of steel. B. 1 ton of grain and 2 tons of steel. C. 8 tons of grain. D. 2 tons of grain and 4 tons of steel.
C
1. Which one of the following expressions best states the idea of opportunity cost? A. "A penny saved is a penny earned." B. "He who hesitates is lost." C. "There is no such thing as a free lunch."
C
10. _______ is an economist who has been Chair of the Federal Reserve System A. Alan Parsons B. Ben Stein C. Janet Yellen D. All of the above E. None of the above
C
17. The production possibilities curve illustrates the basic principle that A. the production of more of any one good will in time require smaller and smaller sacrifices of other goods. B. an economy will automatically obtain full employment of its resources. C. if all the resources of an economy are in use, more of one good can be produced only if less of another good is produced. D. an economy's capacity to produce increases in proportion to its population size.
C
19. The production possibilities curve A. shows all of those levels of production that are consistent with a stable price level. B. indicates that any combination of goods lying outside the curve is economically inefficient. C. is a frontier between all combinations of two goods that can be produced and those combinations that cannot be produced. D. shows all of those combinations of two goods that are most preferred by socie
C
5. Economic models A. are useless because they are not based on laboratory experimentation. B. that are true for individuals are typically not true for the economy as a whole. C. are generalizations based on hypotheses tested and supported with observed facts. D. are simplifications of the real world and therefore of no application to real situations.
C
7. In the economic way of thinking, the term "all other things equal" means that A. economists are only interested in understanding two aspects of the world at a time. B. many contingencies are going to affect the variable under consideration. C. a complex problem has been simplified to its most important parts D. all possible contingencies are being accounted for.
C
8. The economic way of thinking starts with analysis of A. irrational individuals who behave randomly B. presidents and prime ministers C. rational individuals who seek more utility D. rational individuals who seek more opportunity cost
C
A large negative GDP gap is likely to coincide with: A. an excess of imports over exports. B. a low rate of unemployment. C. a high rate of unemployment. D. a sharply rising price level.
C
According to the labor data above, the percentage of people who have given up looking for work but still want a job is. a) 5.25% of the adult population b) 14.3% of the Labor Force c) 7.6% of the Labor Force d) Both (a) and (c) e) None of the above
C
Banks are one class of financial intermediaries because they A. are not regulated by the Federal Reserve B. have balance sheets that include Treasury bonds among their assets C. make loans with deposits D. both (a) and (c) E. both (b) and (c)
C
For the next THREE questions, consider the following production possibilities information: France United States Choice Bread Wine Bread Wine A 50 0 30 0 B 40 5 24 24 C 30 10 18 48 D 20 15 12 72 E 10 20 6 96 F 0 25 0 120 France's opportunity costs of producing bread is and the U.S.'s opportunity costs of producing wine is . a. 1/2; 1/4. b. 100; 120. c. 1/2; 1/6. d. 1/6; 1/2.
C
For the next THREE questions, consider the following production possibilities information: France United States Choice Bread Wine Bread Wine A 50 0 30 0 B 40 5 24 24 C 30 10 18 48 D 20 15 12 72 E 10 20 6 96 F 0 25 0 120 The country with the absolute advantage in making bread is and the country with the comparative advantage in producing wine is . A. U.S.; U.S. B. U.S.; France C. France; U.S. D. France; France
C
For the next THREE questions, consider the following production possibilities information: France United States Choice Bread Wine Bread Wine A 50 0 30 0 B 40 5 24 24 C 30 10 18 48 D 20 15 12 72 E 10 20 6 96 F 0 25 0 120 The country with the comparative advantage in making bread is and the country with the absolute advantage in producing wine is . A. U.S.; U.S. B. U.S.; France C. France; U.S. D. France; France
C
For the next THREE questions, suppose Lorenzo (age 7) and Ivana (age 4) can make two different kinds of sandwiches—Jam (J) and Cheese (C)—according to the following opportunity cost ratios. Assume constant costs. Lorenzo: 1J = 3C Ivana: 1J = 4C . If Ivana and Lorenzo specialize based on comparative advantage then: A. Lorenzo will make both C and J. B. Ivana will make all the C and all the J. C. Ivana will make C and Lorenzo will make J. D. Lorenzo will make C and Ivana will make J
C
In defining money as M1, economists exclude time deposits like CDs because: A. the intrinsic value of time deposits is nil. B. the purchasing power of time deposits is less stable than checkable deposits and currency. C. they are not directly or immediately a medium of exchange. D. they are not recognized by the Federal government as legal tender.
C
Money functions as: A. tyranny of the 1%. B. a unit of discount. C. a medium of exchange. D. a good investment.
C
Recurring upswings and downswings in an economy's real GDP over time are called: A. bi cycles. B. recession cycles. C. kaboom cycles. D. hemline cycles E. none of the above
C
Specialization in production: A. allows society to avoid the coincidence-of-wants problem. B. allows society to avoid immigration. C. allows the same availability of productive resources to generate greater production. D. allows society to have fewer capital goods. E. both (B) and (C).
C
Suppose you are thinking of buying a new Honda Civic, and you're calculating how much the monthly payment will reduce your ability to buy other goods. In doing so, you are using money primarily as: A. a medium of exchange. B. a store of value. C. a unit of account. D. an economic investment.
C
The United States and other developed economies are wealthy. In terms of basic economic principles, how is wealth created in society? A. people follow mutually beneficial rules enacted by smart congressional legislation 5 B. people work for large corporations that specialize in producing mutually beneficial quantities of goods and services C. people specialize according to comparative advantage and engage in mutually beneficial exchange D. people vote for governments that subsidize domestic producers to create jobs E. both (C) and (D)
C
The existence of discouraged workers causes the U-3 unemployment rate to _____ the actual conditions of underutilized labor. a. correctly state b. overstate 2 c. understate d. either understate or overstate but not correctly state.
C
Use this information to answer the next three questions: Marco earns $50 per hour and Carlos earns $30 per hour at their respective jobs. Marco can design a new website in 20 hours and can build a new deck in 40 hours. Carlos can design a new website in 40 hours and can build a new deck in 50 hours. 32. Marco's opportunity cost of building one deck is $_____ and Carlos's opportunity cost of designing one website is $_____. A. 2000; 1000 C. 2000; 1200 B. 1000; 1000 D. 1000;120 E. 1000; 1500
C
. According to the labor data below, the unemployment rate is _________ and the labor force participation rate is __________ Adult population 200 million Labor force 150 million Employed persons 138.75 million Discouraged workers 10.5 million a) 7%; 60.4% b) 0.7%; 99.3% c) 5.6%; 69.4% d) 7.5%; 75%
D
14. Which of the following is a capital resource? A. a computer programmer B. a corporate bond issued by a computer manufacturer C. silicon (sand) used to make computer chips D. software used by a firm
D
20. Any point inside the production possibilities curve indicates A. the presence of technological change. B. that resources are imperfectly substitutable among alternative uses. C. the presence of inflationary pressures. D. that more output could be produced with the available resources. E. none of the above.
D
21. If you're stranded on an island with another person, dividing labor enhances your productivity by: A. allowing you both take advantage of your different abilities and skills. B. avoiding the loss of time needed to shift from one task to another. C. allowing you both to hone your skills at certain tasks. D. all of the above. E. none of the above.
D
28. During periods of rapid inflation, money may cease to work as a medium of exchange A. unless it has been designated legal tender. B. unless it is backed by gold. C. because it is too scarce for everyone to have enough for transactions. D. because people and businesses will not want to accept it in transactions.
D
3. In assuming that friction does not exist when calculating the Earth's gravitational pull, physicists are making a ________. A. maximizing assumption B. obvious mistake C. minor error of omission D. Simplifying assumption
D
6. In different times and places, _________ has been used as a commodity money A. cigarettes in WWII POW camps B. giant round stones in Polynesia C. tobacco leaves in colonial Carolina D. all of the above E. none of the above
D
According to the labor data above, the percentage of people who have given up looking for work but still want a job is A. 5.25% of the adult population B. 14.3% of the Labor Force C. 7.6% of the Labor Force D. Both (a) and (c) E. None of the above
D
Asset bubbles can shock the macroeconomy because A. previous capital investments must be shifted from unprofitable to profitable uses B. household wealth decreases which leads to decreased consumption spending C. labor becomes unemployed as job shift from unprofitable to profitable industries D. all of the above E. none of the above
D
For the next THREE questions, suppose Lorenzo (age 7) and Ivana (age 4) can make two different kinds of sandwiches—Jam (J) and Cheese (C)—according to the following opportunity cost ratios. Assume constant costs. Lorenzo: 1J = 3C Ivana: 1J = 4C If Ivana and Lorenzo completely specialize according to their comparative advantage A. They can become better off by trading with each other. B. The most Ivana will pay for each Jam is 4 Cheese. C. The most Ivana will pay for each Jam is 1 Cheese. D. Both (A) and (B) E. Both (A) and (C)
D
For the next four questions, consider the following production possibilities information: Russia Brazil Choice Steel Grain Steel Grain A 4 0 8 0 B 3 5 6 6 C 2 10 4 12 D 1 15 2 18 E 0 20 0 24 In Russia the opportunity cost of 1 ton of grain: A. is 3 tons of steel. B. diminishes with the level of grain production. C. is 5 tons of steel. D. is 1/5 of a ton of steel.
D
Gross Domestic Product is the sum of expenditures on: A. Consumption, Investment, Government, and Exports B. Roads and Regulations by governments. C. Durable and non-durable Consumption, Investment, and Foreign Sector D. Consumption, Investment, Government, and Net Exports
D
If actual GDP is less than potential GDP: A. potential GDP will fall. B. the price level will rise. C. investment spending will fall. D. the actual unemployment rate will be higher than the natural unemployment rate.
D
In his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith wrote about the increased output people get by the division of labor. In what setting was Adam Smith's account? A. dairy farm C. classroom B. pencil mill D. pin factory E. none of the above
D
In your country, the labor force participation rate is very low and the unemployment rate is also very low. Which of the following answers explains why this may be the case? a. A large percentage of the population in your country is children. b. A large percentage of the population is aging and thus has retired. c. A large percentage of the population is unemployed. d. Many willing and able workers have given up looking for a job. e. None of the answers are correct.
D
Savings are transferred from savers to borrowers through financial intermediaries like A. loanable funds B. prison funds C. real estate brokers D. commercial banks E. both (a) and (d)
D
Suppose there is a negative GDP gap of $150 billion and we know that potential GDP is $1,330 billion, then actual GDP is: A. not calculable from the given information. B. $1,480 billion. C. $1,330 billion. D. $1,180 billion.
D
The Fed's dual mandate is to ensure A. price volatility and stable unemployment B. stable prices and stable unemployment C. full inflation and full employment D. price level stability and full employment E. price inflation and full employment
D
The causes of business cycles around the world include A. positive supply shocks. B. negative productivity shocks. C. changes in the money supply. D. a wide range of positive or negative shocks.
D
The double coincidence of wants problem associated with barter refers to the fact that: A. for exchange to occur each seller must have a product that some buyer wants. B. money must be used as a medium of exchange or trade will never occur. C. specialization is restricted by the size or scope of a market. D. buyers in resource markets and sellers in product markets can never engage in exchange.
D
The official definition of a recession is a period in which: A. cyclical unemployment decreases for more than a few months. B. real GDP decreases for two consecutive quarters. C. demand-pull inflation is present in a significant part of the economy for several months. D. a significant and widespread decline in economic activity for more than a few months.
D
When thinking about the causes of boom-bust cycles, economists might include A. unexpected financial bubbles that eventually burst. B. shocks to the money supply by the nation's central bank. C. supply shocks caused by major innovations. D. all of the above. E. both (A) and (B).
D
Why have improved communications technologies lowered frictional unemployment over time? a. Many people who used to be frictionally unemployed are now employed in the technology sector. b. The Internet has made it easier and faster for people to search for jobs that require their particular skill sets. c. Online job sites have made posting job openings easier and faster for employers. d. (b) and (c) only e. All of the above
D
1. Which of the following individuals would the Bureau of Labor Statistics count as part of the Labor Force? a. Fish, who is a student at Tamale Tech and works only part time. b. Lopie, a former NBA player, who is kicking back in Miami working in his dad's restaurant. c. Jonesey who was laid off from a GM plant in Detroit and moved in with his mom while he looks for work. d. Shiatzi, a working mother of three young kids. e. All of the above
E
22. Comparative advantage is a situation in which _______. A. some people are more competitive than other people B. some people can produce a specific good at lower opportunity cost than other people can C. some people can produce more of a specific product than other people can D. there is a basis for specialization and exchange E. both (B) and (D)
E
In modern, globalized economies like the United States, the M1 measure of the money supply includes: A. currency in bank vaults and in circulation plus checkable deposits. B. currency, checkable deposits, and Series E bonds. C. coins, paper currency, checkable deposits, and credit balances with brokers. D. paper currency, coins, gold certificates, and time deposits. E. none of the above is correct
E
Recurring upswings and downswings in an economy's real GDP over time are called: A. bi cycles. B. recession cycles. C. kaboom cycles. D. hemline cycles E. none of the above
E
Shocks to the economy might include: A. Natural events such as hurricanes and mudslides B. Geopolitical events such as threat of war C. Financial crises D. Rapid Technological Change E. Any of the above
E
Suppose the Federal Reserve decides that the economy needs expansionary monetary policy. To achieve this the Fed A. uses open market operations B. starts dropping money from helicopters around the country C. buys bonds from financial intermediaries D. both (b) and (c) E. both (a) and (c)
E
Which of the following individuals would the Bureau of Labor Statistics count as unemployed? a. Fidellseworth who retired four months ago. b. Meredith who is collecting disability benefits. c. Victor who just celebrated his fifteenth birthday and wants a job. d. Rocky who is on active military duty in Iraq. e. None of the above.
E
