Econ National Challenge
Which of the following is true of a Supply Shock? A) It changes the price level B) It affects only the marginal interest rates C) It can always be anticipated D) It does not harm the economy
A - A supply shock is any abrupt change in Supply. They can be positive or negative
If the Reserve Requirement for Banks is 5% and 1st National Bank has $50 million in deposits, how much must they keep on Reserve?
$2.5 million
If prices increase 12% and wages increases 8%, what is the Real Inflation Rate?
4%
In 1976 nominal GDP grew by 11 percent and real GDP grew by 5 percent. What was the inflation rate?
6%
A country that produces more than the domestic quantity demanded at the world price will likely A) Export B) Import C) Increase prices D) Decrease prices
A
If total exports exceeds total imports, what is the U.S. experiencing? A) A Trade Surplus B) A Trade Deficit C) A Balance of Trade D) A Budget Surplus
A
In the Circular Flow Model A) Business buys from households in the factor market B) Households buy from business in the factor market C) Households buy from government in the factor market D) Households sell to business in the Product market
A
The Long run average cost curve is often referred to in business as A) The Planning Curve B) Capital Growth Illustration C) Total Product Curve D) Production Possibilities Curve
A
What determines the value of the U.S. dollar in relation to foreign currencies? A) The Supply and Demand of the various currencies in relation to Supply and Demand of U.S. dollars B) Trade regulations C) Government orders D) Tariffs
A
What federal agency maintains the Consumer Price Index? A) Bureau of Labor Statistics B) The Federal Reserve C) Department of the Treasury D) The White House
A
What is an advantage of Corporations over Sole Proprietorships? A) Limited Liability B) Ease of management C) No separate taxes D) More personal satisfaction
A
What is the percentage change in Quantity Demanded divided by in order to reach the Price Elasticity of Demand? A) Percentage Change in Price B) Change in Price C) Percent Change in Quantity Demanded D) Change in Supply
A
What is the term for a person who uses goods and services without paying for them? A) Free Rider B) External Costs C) Outlier Costs D) Coase Theorem
A
What type of demand is associated with perfectly competitive firms? A) Elastic B) Inelastic C) Unitary
A
If the economy is in recession and an income tax rate is implemented, what will be the effect? A) An increase in unemployment B) A decrease in unemployment C) A decrease in the price level D) An increase in consumer spending
A (firms would also have to pay higher taxes - both Corporate and Payroll)
What Fiscal Policy would be most beneficial to combat a severe recession? A) Increase Government Spending B) Decrease Government Spending C) Increase Personal Income Taxes D) Federal Reserve Selling Securities E) Federal Reserve Buying Securiteis
A (remember Fiscal is government taxing and spending; Fed actions are Monetary Policy)
What type of unemployment is it when an assembly line worker is replaced by a machine?
Structural
What would be the logical economic response to encourage a positive externality in society, such as a honey bee farm?
Subsidize it
What is the term for two products, when the price of one increases, the Demand for the other increases?
Substitute Goods
What are the 4 basic questions all economies must answer?
1. What is produced, 2. How is it produced, 3. Who produces what, 4. How are goods and services distributed
GATT was an international agreement after World War II that had the effect of A) Decreasing trade restrictions between nations B) Making the U.S. dollar the world's currency C) Creating the European Common Market D) Driving Communist China to enact radical policies
A - General Agreement on Tariffs and Trade
What function of money makes it the perfect replacement for barter? A) Medium of Exchange B) Store of Value C) Unit of Accounting
A - both parties accept it readily
If more people decide to hold currency instead of keeping it in a bank, what is likely the result? A) An increase in interest rates B) An increase in reserve requirements C) An increase in disposable income D) An increase in employment
A - if fewer people put money in banks, demand for that money will have banks increasing interest rates to attract deposits
What is the term for a situation where the Long-run average total costs fall as quantity produced increases? A) Economies of Scale B) Diseconomies of Scale C) Efficiency D) Sunk Capital Costs
A - which is why Fed Ex can deliver packages cheaper than Joe Shmo's Delivery Service
If there were a labor productivity increase, what would be the effect on GDP and the Price Level?
An increase in GDP, a decrease in Price Level (because with increased output, Supply will increase, lowering prices. Remember Ceteris Paribus)
A negative externality is when A) A firm loses money B) A firm has an internal cost not seen in the profit/loss statement C) An external cost of production is imposed on the public D) The price of a product goes up after demand increases
C
An increase in U.S. tariffs on foreign produced steel would benefit all of the following EXCEPT: A) Domestic Steel producers B) U.S. Steel workers C) Domestic Steel Users D) Domestic Iron makers
C
All the money a nation owes its citizens and others, from all years combined is called the A) Budget Deficit B) National Debt C) Budget Surplus D) Balance Budget
B
The U.S. Fiscal Budget in 2019 was A) $1.4 trillion B) $4.4 trillion C) $7 trillion D) $11 trillion
B
The government imposes a price ceiling of $10 on igloo thermoses, which is below the equilibrium price of $20. What effect will this have on the market for thermoses (thermosi?) ? A) Excess Quantity Supplied B) Excess Quantity Demanded C) Supply Curve will shift outward D) Demand Curve will shift outward
B
Tomato Soup is said to be an inferior good when... A) The demand rises as income rises B) The demand rises as income falls C) The supply rises as income rises D) The supply rises as income falls
B
What is the Quantity Demand Curve's relationship to price? A) Positive B) Negative C) Integrated D) Relative
B
What type of tax requires everyone to pay the same fraction of income regardless of income? A) Lump Sum tax B) Proportional tax C) Regressive tax D) Progressive tax
B
Which of the following would shift the long run aggregate supply curve to the right? A) Increase in the price of resources B) An increase in productivity C) An increase in the Federal Budget Deficit D) A decrease in the labor force
B
As national income increases, the demand for money increases due to: A) An increase in interest rates B) An increase in consumption C) An increase in consumer confidence D) An increase in the demand for foreign currency
B (this is the real income effect; the more money you have, the more you spend)
All things constant, if there is an increase in U.S. exports, then there will be A) An increase in U.S. demand for foreign currency B) An decrease in the Supply of foreign currency C) A decrease in U.S. GDP D) A decrease in U.S. interest rates
B - foreign countries are converting their currency to dollars to buy U.S. goods
What type of money has another use other than its use as money? A) Representative B) Commodity C) Fiat
B - like horses trade by plains indians
A well known cat magazine has come out and stated "Tuxedo Cats (like Maddie Ross), are the best to own because they are so smart." What is the likely market effect? A) In increase in the price of Persian cats, a substitute for Tuxedo cats B) I decrease in the price of Persian cats, a substitute for Tuxedo cats C) An increase in the production cost of Tuxedo cats A) A decrease in the price of Tuxedo cats
B - sure hope you got this one right, Grant!
When inflation is unanticipated, which of the following groups benefits: savers, borrowers or lenders? A) Savers only B) Borrowers only C) Lenders only D) Savers and Borrowers only E) Savers and Lenders only
B - the value of what borrowers owe actually decreases; savers lose value and Lenders see the value of loans issued go down.
What unpopular measure would a Keynesian to deal with inflation in an economy: A) Increase government spending B) Increase income taxes C) Decrease imports D) Increase the money supply
B - this has been done a couple of times before, but was really not effective because lawmakers reduced the tax increase to be fairly unsubstantial. This is sometimes called "Bridging the Inflationary Gap"
How many Federal Reserve Banks are there? A) 50 B) 12 C) 4 D) 1
B - we are in the St. Louis District
You enjoy syrup with your pancakes. What happens if the price of pancakes increases? A) The supply curve for syrup will shift left B) The demand curve for syrup will shift left C) The demand curve for syrup will shift right D) The demand curve for pancakes will shift right
B) - Because they are complementary goods
What is the term for the time in the stock market buyers outnumber sellers and prices rise?
Bull Market
Apples Oranges 1000 0 900 100 800 200 700 300 What is the Opportunity Cost for going from 700 to 900 units of Apples? A) 1000 units of oranges B) 800 units of oranges C) 200 units of oranges D) 100 units of oranges
C
U.S. GDP in 2019 was close to A) $1 trillion B) $9 trillion C) $21 trillion D) $50 trillion
C
What determines the value of the dollar in the United States? A) Governmental regulation B) The amount of gold the U.S. possesses C) The goods and services dollars can buy D) The marginal propensity to save
C
Which below best illustrates a Monopolistic Market? A) Over the past 10 years many small firms have entered the market for emergency medical care B) The supply of oil is determined by a few nations in the Middle East C) Cable TV keeps prices above Marginal Costs and creates a profit in the long run D) The price of suntan lotion increases in the summer
C
The Coronavirus took a big toll on Starbucks. Their sales fell from 1,000/day to 500/day and they lowered their price from $2/cup to $1/cup. How much revenue did they lose? A) $2,000 B) $1,000 C) $1,500 D) $500
C - (1,000 x 2) - (500 x 1)
If a farmer can produce 1 pound of tomatoes in 2 hours and 1 pound of oranges in 4 hours, what is the opportunity cost of producing 1 pound of oranges? A) 1/2 pound of tomatoes B) 1 pound of tomatoes C) 2 pounds of tomatoes D) 1 pound of oranges
C - That's 4 hours to produce 1 pound of oranges. In 4 hours, you can produce 2 pounds of tomatoes.
In a totally free market economy, the government A) Is not needed B) Directs production and distribution C) Only establishes and protects property rights D) Regulates key production in vital industries
C - This is in pure capitalism
Number of Workers Total Production 0 0 1 10 2 25 3 45 4 70 5 94 6 115 With which worker does the firm maximize marginal product? A) 1 B) 3 C) 4 D) 5 E) 6
C - his marginal product is 25; with worker #5, marginal product falls to 24
Which of the following would increase the standard of living in an economy? A) An increase in taxes B) An increase in the number of banks C) An increase in labor productivity D) An increase in the labor force
C - more goods and services would be produced. Remember Standard of Living is defined by consumption of Goods and Services
What tax is normally assessed on the benefits received principle? A) Income Tax B) Social Security Tax C) Gasoline Tax D) Sales Tax
C - the more you drive (and use the roads), the more you pay
What Economic Resource describes equipment and buildings?
Capital
What is the term to refer to a hypothetical situation in which all other factors other than the one being studied are held constant?
Ceteris Paribus
What is the term for two products, when the price of one increases, the Demand for the other decreases?
Complementary Goods
In Economics, what model is it assumed is used by people in making choices?
Cost/Benefit Analysis
Full Employment is sometimes defined as this type of Unemployment being eliminated:
Cyclical
If rent cost $200 and 10 people are willing to rent, then rent increases to $300 and only 7 people are willing to rent, what ratio expresses the Price Elasticity of Demand? A) 5/3 B) -5/3 C) 3/5 D) -3/5
D
What type of unemployment is defined as someone who is between jobs, and may be present during Full employment? A) Structural B) Cyclical C) Seasonal D) Frictional
D
Which is the best example of a Public Good? A) An ice cream cone purchased at Baskin Robbins B) A salmon caught off the coast of Alaska C) Christmas presents under the tree D) A bomber jet purchased for the Air Force
D
Who is the current chairman of the Federal Reserve? A) Ben Bernanke B) Janet Yellen C) Alan Greenspan D) Jerome Powell
D
Which statement would be supported by a classical economist? A) There is equilibrium with imports and exports B) There is only cyclical unemployment C) Inflation is not a serious problem D) The economy is self-correcting when disequilibrium occurs
D - Classical economics emphasized Laissez-faire theory and believes disequilibrium (shortages/surpluses) will be corrected by the market itself
In a perfectly competitive market all of the following are true EXCEPT: A) Producers are price takers B) There are many small firms C) Entry and Exit to markets is costless D) Firms produce different products E) There are no transaction costs
D - Identical (or nearly identical) products are sold. C and E costs are small, but they are not absent. A - Producers have no control over price, and B is very true
Nash equilibrium is achieved when A) Each firm chooses its own strategy regardless of other firm's strategies B) The firm's strategy maximizes the utility of another firm C) The least desirable strategy of the firm is achieved D) Firms choose their strategy given the strategy other firms have chosen
D - John Nash was subject of the Russell Crowe film "A Beautiful Mind"
Each of the following is a determinant of Supply EXCEPT: A) Taxes B) Technology C) Price of Inputs D) Tastes and Preferences
D - That's a determinant of Demand
If the economy were experiencing high inflation, which would be the appropriate Monetary policy to pursue? A) Lower Interest Rates B) Decrease the Reserve Requirement C) Buy Open Market Securities D) Sell Open Market Securities
D - This would take money out of the economy
If Bob's candy store sold 500 lollipops at $2 each one year, and the next year they doubled the quantity sold, what is Bob's Marginal Revenue per product that second year? A) $2,000 B) $1,000 C) $4 D) $2
D - Total Revenue second year was $2,000 divided by number sold (1,000) = 2
Which action is most likely to support a Loose Money Policy? A) Decrease in Government Spending B) Purchase of Open-Market Securities C) Increased Income Tax D) Decrease of Reserve Requirements
D - banks would be able to lend more
What element allows monopolistically competitive firms some control over price? A) Control of raw materials B) Little competition C) Easy Entry and Exit D) Customer loyalty
D - like breakfast cereals; demand tends to be inelastic
What would NOT be included in the M1 (money supply)? A) Cash B) Travelers Checks C) Money in Checking Accounts D) Certificates of Deposit
D - only checkable deposits are part of M1
What is true of oligopolies? I - A few large firms II - All products are identical III - High entry/exist costs A) I only B) II only C) I and II only D) I and III only
D - products are similar, not identical
Between 2015 and 2019 the unemployment rate fell from 6.5% to 5.9, while the inflation rate fell from 2.9% to 1.3%. What explains these results? A) The aggregate demand curve shifted right B) The aggregate demand curve shifted left C) The aggregate supply curve shifted right D) The aggregate supply curve shifted left
D - the only explanation for more workers and lower prices is less Supply
What economist is considered the founder of Comparative Advantage theory in Free Trade
David Ricardo - its his division you compete in!
What action regarding taxes and spending is the best solution for recession?
Decrease Taxes, Increase Spending
Domestic inflation tends to _________________________ a nation's currency relative to other nation's with stable prices.
Devalue
The Barter System is economically inefficient because it requires this:
Double Coincidence of Wants
Each of these is a component of Gross Domestic Product EXCEPT: A) Government Goods and Services B) Corporate Goods and Services C) Consumer Goods and Services D) Net Exports E) Depreciation
E - these others are GDP by Economic activity; GDP can also be counted by Income categories (Wages, Interest, Rent and Profit)
Each of the following will affect the Quantity of ice cream an ice cream parlor is willing to Supply EXCEPT: A) Price of Ice Cream is lowered B) A new machine speeds up production time C) Sugar costs double D) A heat wave is affecting the local area E) A sales tax is placed on ice cream
E - this will affect the Demand, all other factors will affect Supply
What type of good would Saltine Crackers be if your income decreases 17%, but your Quantity Demand of Saltine Crackers increases 5%?
Inferior Good
According to Keynesian Economics, what effect would an increase in investment have on Aggregate Demand?
It would increase it (Economic definition of investment is not putting money in an account, but in purchase of land and capital to expand)
What effect would an increase in the marginal propensity to consume have in the Spending Multiplier?
It would increase the Spending Multiplier (the Spending Multiplier is a factor that tells you the effect any injection of new money will have on the economy).
What would happen to the Production Possibilities Curve if the nation became more efficient in producing oil?
It would shift outward
What relationship exist between Marginal Revenue and Marginal Costs where profit is maximized?
Marginal Revenue equals Marginal Costs
What type of good would hot dogs be if your income increases 12% and your Quantity Demand of Hot Dogs goes up 6%?
Necessity
What is the Federal Reserve's main day-to-day tool in controlling money Supply?
Open Market Operations (Buying/Selling Treasury Bills, Bonds and Notes)
What type of Elasticity is demonstrated by a 10% increase in price and an 8% decrease in Quantity Demanded?
Price Inelasticity
What does CPI measure
Price Level (consumer price index)
The introduction increased this aspect of production in society:
Specialization
What market situation would arise if the market clearing price of Apartments is $800, but the current price of apartments is $900?
Surplus
If the government wants to increase Aggregate Demand, should it implement a tax increase, or a tax cut?
Tax Cut
What would be the logical economic response to deter a negative externality in society, such as smoking?
Tax it
What will be the result in the Money Supply if the Federal Reserve lowers the Reserve Requirement for banks?
The Money Supply will increase
The Supply Curve slopes upward because
The Profit Motive (also, higher prices attract resources from other uses)
What will be the outcome in the Supply and Demand model if the technology of furniture production improves?
The Supply Curve will Shift to the Right
What was the title of Adam Smith's 1776 Textbook?
The Wealth of Nations
What is the term in economics for the costs of completing an economic transaction, such as contracts and commission?
Transaction Costs
True-False: All participants in Economic Societies respond to incentives.
True
What type of Elasticity is demonstrated by a 5% increase in price and a 5% decrease in Quantity Demanded?
Unitary Elasticity
When is a producer said to have a Comparative Advantage?
When the producer has a smaller Opportunity Cost in producing that good
