Economics Exam 2
If people work fewer hours, retire early, or forgo risky business ventures because of high marginal tax rates
A. the size and productivity of the labor supply will be reduced and productively will decline
If there is an excess demand for corn
B. corn prices will intend to increase
If a country is going to reach its full economic potential
B. restrictions that limit trade and increase the cost of doing business must be kept to a minimum
If states imposed trade barriers that reduced the volume of trade among people in the 50 states, would this increase output and income levels
B.No, the trade restrictions would reduce the gains from specialization and trade, and therefore output and income levels would decline
Lobbying efforts that erect roadblocks that limit entry into markets
C. consume valuable resources that could have been used for productive activities
Efficient and unbiased enforcement of contracts will
C. increase the volume of trade and decrease the risk and uncertainty associated with trade
Competition is vitally important in a market economy because
C. it weeds out high cost producers and directs production toward firms providing quality goods at economical prices
Which of the following is the most important aspect of monetary policy that will promote growth and prosperity?
C. keeping inflation low and the general price level relatively stable
The Freedom of the World index indicates that
C. low income countries can achieve high growth rates when policies consistent with economic freedom are followed
When will oil was in high demand in the middle of the nineteenth Century, Beaufort being hunted to excess because
D. No one owns the whales or the hunting rights, thus there was no incentive to conserve whales for the future
In a market economy, if the supply of oil declines relative to demand
D. Oil prices will rise, increasing the incentive to conserve, discovering you oil reserves, and develop alternative Technologies
Which of the following is the best way to assure that property is well kept and managed wisely?
D. Private ownership, because the failure to maintain property will directly result in a decline in the property's value
Why do nations impose trade barriers, such as those instituted during the Great Depression, that make it difficult for their own citizens ti trade with people in other countries?
D. Trade restrictions often provide benefits to highly visible special interest groups while imposing a less visible cost on the general populace
The argument that import restrictions save jobs and promote prosperity fails to recognize that
D. U.S imports provide people in other countries with the purchasing power required for the purchase of U.S exports
If higher tariffs, such as those enacted by the Smoot-Hawley trade bill, reduce the imports of the United States, which of the following will be most likely to occur?
D. U.S. exports will declines because foreigners will be earning fewer dollars needed to purchase goods and services from Americans
When price controls push the price of a good or resource above the market equilibrium
D. a surplus of the good will develop
The construction and development of machines, buildings, and equipment that will produce consumer goods, is know as
D. capital investment
Innovation and technological advancements are most likely to occur
D. in a competitive market economy
In voluntary exchange, if the seller of a product gains,
D. the buyer will also gain; mutual gain provides the foundation for exchange
Government regulations that limit entry into markets and favor some businesses over others
D. undermine the competitive process and retard economic progress
The law of comparative advantage explains why
A.Specialization and exchange will make it possible for trading partners to expand their joint output
When the property is privately owned, people have a strong incentive to use their property in ways that are highly valued by others because
A.The revenues generated by the property will be higher when it is used in this manner
Which of the following can be learned from the investment rates of Eastern Europe and the former Soviet Union during 1950-1990?
B. High rates of investment do not automatically guarantee economic progress
Which of the following was an underlying cause of the economic crisis of 2008?
B. Regulations requiring Fannie Mae, Freddie Mac, and other lending institutions to extend more low down payment loans to higher risk borrowers
What will be the effect of an increase in the payroll tax rate?
B. The cost of hiring workers will increase, resulting in a decline in employment
How do high tariffs and other restraints on international trade affect a nation's prosperity?
B. They prevent a nation from fully realizing gains from specialization, exchange, and competition
Which of the following would most likely to improve the efficiency of the capital market?
B. a legal system that clearly defines and enforces property rights
Private ownership allows people to decide how they will use their property,
B. as long as they do not invade or damage the property of others
When a nation specializes in areas where it has a comparative advantage and can trade freely
B. both the nation and its trading partners will be able to achieve a higher output as a result of the trade
When political authority overrides the rule of law and freedom of contract,
B. gains from trade will be undermined and diminished
Which of the following are most the important elements of an environment for economic growth?
B. sound institutions and sound government policies
Monetary policy in the United States is conducted by
B. the Federal Reserve
Which of the following is most important if money is going to promote trade and act as an efficient means of exchange?
B. the stability of its purchasing power across time periods
Which of the following is true of market competition?
C. Businesses do not like competition and will seek protection from it
The demand curve illustrates
C. The various quantities of a good or service consumers will purchase at alternative prices
A decrease in marginal tax rates will
C. allow taxpayers to keep more of what they earn
High marginal tax rates will
C. cause people to work, earn, and invest less that would be the case if marginal tax rates were lower
When investment funds are directed by a political decision makers rather than by the market
C. political influence, rather than market returns, will decide which projects will be undertaken
To be successful in a market economy a firm must
C. provide goods valued by consumers at economical prices
Regulations that make it costly to dismiss workers
C. reduce total employment because they also make it more costly to hire workers
According to the law of supply, if the seller of a product gains
C. someone else must lose an equal amount
When new technology replaces an established product, such as when digital music replaced CDs,
C. the new technologies and improved products will promote economic progress
The marginal tax rate
C. the percentage of tax that must be paid on an additional dollar of income earned
Which of the following describes the relationship between interest rates and interest sensitive goods, such as housing?
A. As interest rates decline, the demand for interest sensitive goods increases
How will foreign competition influence the domestic economy?
A. Foreign competition forces domestic producers to improve quality and keep costs down
Which of the following statements is true?
A. Opportunity costs will always be incurred when scarce resources are used to produce a good
When government regulations determine which businesses can enter and compete in a market,
A. bribes, political favoritism, and corruption are likely to be widespread
The Economic Freedom of the World index indicates the countries with more economic freedom
A. grow more rapidly than those that are less free
What is the source of persistent inflation?
A. rapid growth of money supply
The mechanism a market economy uses to attract savings and channel them into investments that are most likely to create wealth, is
A. the capital market
