Economics Quizzes
In a market economy, persons undertaking an investment project must A. obtain approval from political authorities before the project can be undertaken. B. either personally supply the required funds or convince other investors to do so. C. use a corporation as a form of business organization. D. get the approval of several banks before the project can be undertaken.
B
When private ownership rights are clearly defined and well enforced, owners of resources A. have no incentive to consider the desires of others or the potential future value of the resource. B. have an incentive to develop and expand resources that are expected to be valuable in the future. C. have an incentive to consume the resource as quickly as possible before others seize it. D. have little incentive to take care of the resource or conserve it for the future.
B
High marginal tax rates will A. increase the incentive of people to earn. B. make it expensive for taxpayers to purchase tax deductible items. C. cause some people to work and earn less than would be the case if marginal tax rates were lower. D. attract workers from other countries where tax rates are lower.
C
Which of the following is not a basic freedom guaranteed by the U.S. Constitution? A. freedom of speech B. freedom of religion C. freedom to trade D. freedom of the press
C
The invisible hand principle indicates that competitive markets can help promote the efficient use of resources A. only if buyers and sellers really care, personally, about economic efficiency. B. even if business firms fail to produce goods efficiently. C. if, and only if, businesses recognize their social obligation to keep costs low and use resources wisely. D. even when market participants care only about their own self-interests rather than about the overall efficiency of resource use.
D
Compared to the private sector, the distinguishing characteristic of government is its A. monopoly on the legitimate use of force on adults. B. ability to consider the benefits of an action as well as its costs. C. ability to produce goods and services that people value. D. ability to escape the constraints imposed by scarcity.
A
A market failure in which a single firm produces all the output of the market, and other firms cannot enter to compete, is known as A. a monopoly. B. an externality. C. a public good. D. asymmetric information.
A
Adam Smith believed that if people were free to pursue their own interests, A. the public interest would be served quite well. B. less would be produced than if government planners were in charge of the economy. C. they would generally apply their talents to unproductive activities that would generate little value to society. D. they would have little incentive to undertake productive activities.
A
Because of the free-rider problem A. competitive markets will tend to undersupply public goods. B. the federal government spends too much on national defense. C. fireworks displays have become increasingly dangerous. D. poverty has increased.
A
Entrepreneurs are vitally important for economic progress because they A. innovate and discover new ways of bringing items of value to consumers willing to pay for them. B. stick with the tried and true methods rather than experimenting with new ways of doing things. C. rely on government grants and subsidies for the funding of research and development. D. rely on price controls to determine the prices charged for the items they bring to market.
A
If government is going to provide an environment for economic prosperity A. the self-interest of voters, politicians, and bureaucrats must be brought into harmony with efficient use of resources. B. it must run budget surpluses. C. it must run budget deficits. D. the percentage of citizens voting in major elections must increase.
A
If policy-makers want gasoline to be produced from corn-based ethanol, why is it necessary to subsidize it? A. Because it is more costly to produce gasoline from corn-based ethanol than from petroleum B. Because automobiles run better on gasoline produced from ethanol C. Because food prices are lower when gasoline is produced from corn-based ethanol D. Because gasoline would not be produced if it was not subsidized
A
Secure property rights promote economic progress because they A. encourage individuals to produce efficiently and undertake productive investments. B. weaken incentives to take actions that increase the value of resources. C. transfer the costs of a decline in property value to the government. D. discourage property owners from engaging in activities that provide value to others.
A
The purpose of buying insurance is to A. reduce the financial loss from a harmful and uncertain event. B. provide volume discounts for health care and other goods. C. provide an incentive for individuals to take greater precaution. D. provide a source of revenue to the government.
A
Under current legislation, Americans can place a fraction of their incomes into non-taxable, qualified college accounts. This policy _________ the incentive to save for college education. (Fill in the blank) A. decreases B. increases C. does not impact D. has an indeterminate impact on
B
Which of the following outstanding debts should Jillian pay off first? A. A three year loan of $5,000 at 0 percent a year from her mom. B. A $2,000 debt on a credit card charging 18 percent annually. C. A home equity loan of $10,000, which has an effective rate of 6 percent after her tax advantages are taken into account. D. A student loan of $40,000 with a fixed rate of 4 percent.
B
The political structure that is most consistent with economic growth and progress is A. rule by the majority. B. a dictatorship. C. limited government, protection of individuals from aggression by others, and decentralized political decision-making. D. centralization of power in the hands of an elected legislature and a president or prime minister.
C
Restrictions that limit sugar imports, subsidies for the production of corn-based ethanol, and federal spending on the bailout of the automobile industry in Michigan and the Upper Midwest all provide examples of government programs A. based on careful analysis of benefits relative to costs. B. designed to redistribute income from the rich to the poor. C. that reflect the political attractiveness of special-interest issues. D. that promote the general welfare.
C
The U.S. government subsidizes the production of ethanol from corn and requires gasoline to contain a specific percentage of ethanol. What are the unintended consequences of this program? 1. higher corn prices 2. higher prices for cornbread and tortillas, products made from corn 3. lower prices for gasoline because corn is a renewable resource A. 1 only B. 2 only C. 1 and 2 D. 1, 2 and 3
C
The term "pork-barrel legislation" refers to A. government spending programs financed with user charges. B. the exchange between legislators of their votes on issues. C. legislation that bundles together a number of projects, each benefiting local interests at the expense of general taxpayers. D. the actions of legislators who are willing to trade their political votes for campaign contributions from special interest groups.
C
Which of the following is the best example of an item that a real world savings account is designed to cover? A. the monthly payment for the lease of your apartment B. the purchase of the gasoline you use driving back and forth to work C. an unexpected expenditure to repair the transmission of your car D.funds you are setting aside for your retirement years
C
A monthly budget can help you achieve financial security by A. helping you choose stocks that are most likely to increase in price. B. reducing the likelihood that you will face unexpected expenditures for maintenance and repairs. C. expanding the borrowing limits on your existing credit cards and increasing the number of credit cards you hold. D. increasing your financial awareness and helping you allocate your funds more effectively.
D
As the time nears when you expect to use funds in your investment portfolio to make a down payment on a house, you will reduce your risk if you A. move all of your funds into a diverse holding of real estate stocks. B. move funds out of a managed equity fund and into individual stocks. C. move more of your assets into stocks and out of bonds. D. move more of your assets into bonds and out of stocks.
D
Economic analysis indicates that high tax rates will A. reduce productive activity. B. retard capital formation. C. promote wasteful use of resources. D. all of the above.
D
Even-handed enforcement of contracts fuels economic prosperity because it A. permits individuals to invade or infringe on the property rights of others. B. increases transaction costs. C. increases market uncertainty and the probability of contract violations. D. promotes gains from trade by keeping transaction costs low.
D
Financial insecurity in America is primarily the result of A. a shortage of financial planners and portfolio managers. B. the low incomes of Americans. C. the huge amount of time and complex knowledge required for basic financial planning. D. a low rate of personal saving and poor financial planning.
D
Income supplements large enough to significantly increase the economic status of poor people will A. encourage behavior that increases the risk of falling into poverty. B. reduce the incentive of transfer recipients to work and earn. C. encourage people to take steps to qualify for transfer benefits. D. all of the above.
D
The interest rates on outstanding credit card balances are generally high because A. there is little competition in this lending market. B. the banks price gouge consumers in this market. C. the administrative costs associated with these loans are low. D. the default rate on credit card loans is high and there are no assets backing these loans.
D
Which of the following would be most appropriate for an investor who is approaching retirement and concerned about inflation? A. corporate bonds B. a managed equity fund C. an indexed equity mutual fund D. Treasury Inflation Protected Securities (TIPS)
D
"Trade restrictions such as tariffs and quotas are like a blockade that a nation imposes on its own people." Is this statement true? A. Yes, both the trade restrictions and a blockade will reduce the gains from specialization and trade. B. No, trade restrictions will help the residents of a nation achieve a higher income level; a blockade will not. C. No, a blockade will help the residents of a nation achieve a higher income level; trade restrictions will not. D. Uncertain, the statement is true if the gains of the residents exceed those of foreigners; otherwise it is false.
A
If Apple Computer Corporation constitutes a sizeable share of your current stock holdings, the purchase of which of the following stocks would provide you with the greatest reduction in risk? A. McDonalds B. Hewlett Packard C. Gateway D. Dell Computer Corporation
A
Income channeled into a Roth IRA will A. be taxable now, but both growth of investment earnings will be tax free on withdrawal after retirement. B. reduce your current tax liability because funds paid into these plans are tax deductible. C. increase your current tax liability, but your future tax liability will be reduced. D. be particularly attractive to those with high incomes confronting high current marginal tax rates.
A
It is often substantially cheaper to own and operate a used car rather than a new one because A. the depreciation cost for a new car will almost always be substantially higher. B. the interest rate on a used car loan is generally lower. C. the maintenance cost of a new car is generally higher. D. this is a trick question. All things considered, the cost per mile traveled is generally cheapest if you buy a new car every year.
A
Money is A. whatever is generally used to pay for goods, services and resources. B. an object that is directly consumed. C. widely used in a barter economy. D. something that can be used to buy things but cannot be saved.
A
The theory that stock prices reflect all available information and that the future movement of stock prices is unpredictable is called the A. random walk theory. B. theory of compound interest. C. law of comparative advantage. D. law of large numbers.
A
Voluntary trade promotes economic progress because A. it moves goods, services and resources from people who value them less to individuals who value them more. B. it discourages businesses from seeking lower per-unit costs through adoption of mass production methods. C. it discourages trade based on the comparative advantage of suppliers. D. This is a trick question; voluntary exchange does not promote economic progress.
A
When a friend comes to you with an opportunity for investment you've never heard of, promising a high rate of return at low risk, which of the following is good advice? A. If it seems too good to be true, it is. B. Borrow the money to undertake this investment. C. Undertake the investment if you are approaching retirement. D. Big investments in projects proposed by friends is an important part of a diverse portfolio.
A
When economic losses are present in a market, firms will tend to A. exit from the market. B.raise their prices, because higher prices always lead to larger profits. C. lower their prices, regardless of cost, so they can capture more of the market. D. increase output.
A
When expansionary monetary policy pushes interest rates to artificially low levels, A. the demand for and prices of interest-sensitive goods, like housing, will increase. B. people will delay their purchases of interest-sensitive goods, like housing, into the future. C. the demand for interest-sensitive goods, like housing, will increase, but their prices will decline. D. the demand for and prices of interest-sensitive goods, like housing, will decline.
A
When services are provided and financed by local rather than higher levels of government and people can move freely among governmental units, A. competition among governmental units will help residents get more for their tax dollars. B. local governments will be in a strong position to exploit various groups of voters. C. there will be less incentive for government officials to operate efficiently than if there was only one centralized government. D. a local government will always be able to generate more revenues by raising taxes.
A
When services are provided and financed by local rather than higher levels of government and people can move freely among governmental units, A. people will be able to vote with their feet (choose combinations of taxation and government services more consistent with their preferences) as well as with their ballots. B. people will be able to vote only with their feet. C. people will be able to vote only with their ballots. D. local officials will have greater freedom to impose high taxes and provide lousy public services inefficiently.
A
Which of the following explains why elected representatives will find borrowing to be an attractive method of financing current government programs? A. The shortsightedness effect. B. Pork-barrel politics. C. The invisible hand principle. D. The public goods argument for government spending programs.
A
Which of the following is true of regulation? A. Regulatory agencies often ignore the secondary effects of their actions and fail to foresee future problems. B. Policy-makers are hesitant to call for new regulations even when it is clear they would help avert future crises. C. Mortgage lending and banking have historically been unregulated and therefore regulation in these sectors is unpopular. D. Past regulations have been effective at averting crises, but they are unpopular because they reduce the profitability of the regulated industry.
A
Which of the following provides the clearest evidence that a business firm is using resources productively? A. economic profit B. economic loss C. high wages paid to workers D.low wages paid to workers
A
Which of the following purchases would be most sensible to finance? A. a house B. a vacation C. a flat-screen television set D. an expensive jewelry item
A
Which of the following was an unintended consequence of regulations that made mortgage credit for the purchase of housing more readily available to persons with low and moderate incomes during the decade following 1995? A. An increase in loans to borrowers with sub-prime credit and later an increase in the default rate on these loans. B. A reduction in the demand for housing and weak housing prices during 2000-2005 C. A reduction in the default rate on mortgage loans because low and moderate income households take more pride in home ownership D. A downturn in housing construction because easier credit is bad for this industry
A
Which of the following would increase a country's Economic Freedom of the World rating? A. free trade and low taxes B. monetary instability and trade restrictions C. extensive regulation and restricted entry into markets D. reliance on central planning rather than open markets
A
Your comparative advantage in a specific area is determined by A. the market value of the skill relative to your opportunity cost of supplying it. B. the absolute value of the skill in the performance of a specific job. C. minimum wage laws, health and safety standards and marginal tax rates. D. the comparative positions of the wealthy, the middle income individuals and low income individuals.
A
Public choice analysis indicates that A. the shortsighted nature of the political process makes borrowing attractive to politicians. B. policy makers can be counted on to balance the budget except possibly during times of war. C. the legislator who is a spending "watch dog" will be able to save the constituents of her district a substantial amount of tax money. D. given the political incentive structure, the large number of budget deficits in recent years is surprising.
A
A budget will A. make it more attractive for you to buy a car every couple of years. B. help you focus on those expenditures that you value highly relative to cost. C. improve your credit standing so you can use borrowing to increase your current consumption. D. All of the above.
B
A competitive capital market is important to society because it directs resources toward projects that A. can be completed quickly. B. are valued more highly than their cost. C. have an outcome that is known with certainty. D. reduce the value of the resources employed.
B
An externality occurs when A. there are too few firms in a market, and therefore prices must be imposed externally by regulation. B. some of the costs or benefits of an action are imposed on a third party. C. the use of a good cannot be tied to the payment for the good. D. one side of a transaction has more accurate and complete information than the other side.
B
Basic economics indicates that the cornerstones of economic progress are A. centralized government, free elections, majority rule, and two legislative branches. B. private ownership, freedom of exchange, competitive markets, and monetary stability. C. representative democracy, a powerful chief executive office, protection of domestic business, and government regulation. D. free elections, the right to bear arms, a written constitution, and a powerful head of state.
B
Central planning is an ineffective method to organize an economy because A. most central planners are less intelligent than business entrepreneurs in market economies. B. central planners cannot possibly obtain all the information necessary to allocate resources efficiently. C. central planners do not respond predictably to incentives. D. central planners have inadequate funding to meet the needs of their constituents.
B
Consumers will tend to patronize those businesses that A. charge the lowest prices, regardless of quality. B. provide them with the most value for their expenditure. C. are licensed by the state. D. are licensed by the federal government.
B
During the last two centuries, after adjustment for inflation, A. corporate bonds have yielded an average annual real return of approximately 7 percent, compared to an average real return of about 3 percent for corporate stocks. B. corporate stocks have yielded an average annual real return of approximately 7 percent, compared to an average real return of about 3 percent for bonds. C. both corporate stocks and bonds have yielded an average annual real rate of return of about 3 percent. D. both corporate stocks and bonds have yielded an average annual real rate of return of about 7 percent.
B
Finding the occupation or business activity in which you are relatively more productive helps you earn more money than otherwise would be the case. This reflects the A. law of diversification. B. law of comparative advantage. C. principle of compound interest. D. law of large numbers.
B
Government-owned housing, as opposed to privately-owned housing, is generally A. better maintained and more attractive . B. poorly cared for and badly maintained. C. easier to purchase or rent. D. more durable and constructed to last longer.
B
Historically, the annual real rate of return on common stocks has been approximately 7 percent.At this rate of return, using the Rule of 70, how long will it take $10,000 to become $20,000 in terms of real purchasing power? A. 7 years B. 10 years C. 12 years D. 15 years
B
If a business firm continues to sustain losses, what usually happens in a market economy? A. It remains in business and the resources it is using continue to be employed. B. It goes out of business and the resources it was using become available for use in other areas. C. It reorganizes as a government-supported organization and the resources continue to be employed. D. It reorganizes as a nonprofit organization.
B
If a three-fourths majority of both houses of the U.S. Congress was required for approval of a spending project, economic analysis indicates that A. federal spending would increase sharply from the current level. B. the power of special interests would be diminished and federal spending reduced. C. the political power of special-interest groups would increase. D. inefficient government spending programs would expand.
B
If you are using a credit card prudently, you should A. make only the minimum payment each month. B. pay the balance in full each month. C. pay only the interest on any outstanding balance. D. gradually expand the amount borrowed to the card's credit limit.
B
In a free market economy, current consumption, saving and investment decisions A. are controlled largely by the government. B. shape the future course of the national economy. C. are necessarily controlled by big businesses. D. require protection from foreign forces if individuals desire wealth accumulation.
B
It makes sense for you to channel funds regularly into a "real world" savings account so you will A. have these funds during your retirement years. B. be prepared to deal with expenses like repairs that you know will occur in the future. C. be prepared to purchase items like gasoline and food that you buy regularly. D. have funds for a catastrophic expense that is likely to occur only once or twice during your lifetime.
B
Legal entitlement to scientific discoveries, inventions, innovations and intellectual property A. reduces the incentive to invest in research and development. B. encourages technological advancements. C. protects production on the basis of tradition, social customs and habits. D. results in an equal distribution of income and profits.
B
Successful entrepreneurs A. have high consumption rates and relatively low investment rates. B. provide new products and job opportunities for others. C. are not influenced by government tax policies. D. do not have to follow government regulations.
B
The lack of a profit motive in the political process means that A. the government is free to do things in the public interest without worrying about considerations of cost. B. it is difficult for the government to reliably direct resources toward productive activities. C. exchanges for votes can take place, and this leads to results that are the same as those of competitive markets. D. resources used by the government are free.
B
The secondary effects of an economic action refer to the A. best alternative that must be forgone as the result of a choice. B. the unintended consequences of a change that are not immediately identifiable but are felt over time. C. immediate and visible intended consequences of a change. D. impact on the availability of a resource needed to produce a good or service.
B
When overall production is taken into account, trade restrictions, such as those enacted by the Smoot-Hawley trade bill, A. save good paying jobs. B. neither create nor destroy jobs; they reallocate them. C. increase employment in the domestic industries that are most productive. D. reduce imports, without affecting the volume of exports.
B
When people take greater risks because they are covered by insurance (and will be paid if an accident occurs), this is known as A. adverse selection. B. moral hazard. C. an externality. D. coinsurance.
B
When resources are allocated by markets, profits and losses provide information about A. which products are priced too high and which are priced too low. B. which resources are being used productively and which resources should be allocated to other uses. C. which industries need to be subsidized and which need to be subject to additional regulation. D. which businesses should be taxed more heavily and which should be subsidized.
B
When the War on Poverty programs were instituted and transfer payments expanded in the last half of the 1960s, what happened to the poverty rate? A. After rising for several decades, the official poverty rate has been declining since 1968. B. After falling for several decades, the official poverty rate has been relatively constant since the late 1960s. C. The poverty rate declined prior to the War on Poverty period and it has continued to decline. D. The poverty rate rose prior to the War on Poverty period and has continued to rise.
B
When the government finances a shovel-ready project through taxes or borrowing, this will result in A. lower taxes or interest rates, which will reduce private sector employment. B. higher taxes or interest rates, which will reduce private sector employment. C. lower taxes or interest rates, which will increase private sector employment. D. higher taxes or interest rates, which will increase private sector employment.
B
Which of the following is a predictable, secondary effect of a sharp increase in gasoline prices? A. Producers will increase the production of gas guzzling vehicles. B. Producers will increase the production of fuel-efficient cars. C. the termination of research on the cost-effectiveness of alternative fuels to power automobiles. D. The federal government will place a quota on the number of fuel-efficient cars for sale, thus forcing consumers to purchase the gas guzzling vehicles.
B
Which of the following is an advantage of an indexed equity mutual fund relative to a managed equity fund? A. Indexed funds generally have better stock pickers. B. Indexed funds have lower operating costs because they engage in less stock trading. C. Indexed funds engage in more detailed research. D. The compensation of those directing indexed funds is generally higher than those directing managed funds.
B
Which of the following is true of occupational licensing laws? A. Occupational licensing requires that the competency of workers be certified, but no one is prohibited from providing their services in the licensed occupations. B. Occupational licensing laws reduce competition in some occupations and make it more difficult for new entrants to compete in these labor markets. C. Occupational licensing has become less common over the past 40 years in the U.S. D. Occupational licensing is mandated by the Occupational Safety and Health Administration in order to make employment safer for workers.
B
Which of the following is true? A. Large corporations earn profits, while smaller firms realize losses. B. Profits attract businesses to productive projects, while losses discourage them from undertaking unproductive activities. C. Profits indicate that businesses are over-charging customers, while losses suggest that they should raise customer prices. D. If corporations want to increase profits, they will always be able to do so by either increasing product prices or reducing employee wages.
B
Which of the following is true? A. Voters have a strong incentive to make well-informed choices when voting in state and federal elections. B. The rational ignorance effect indicates that voters have very little incentive to be well informed when making political choices. C. Political action is based on voluntary exchange and mutual agreement. D. Policies favored by a majority will assure that resources are allocated efficiently.
B
Which of the following statements is true? A. In recent decades, the income level of the average American has declined. B. The income of Americans is higher today than at any other time in history. C. The American middle class is a thing of the past. D. It takes more hours of work today to buy essential goods and services than at any time since World War II.
B
Which of these activities will most likely result in an external benefit? A. A college student buys a deck of cards to play solitaire in her dorm room. B. An elderly woman plants a flower garden on the vacant lot next to her house. C. An executive purchases a book to read on a business trip. D. A ten-year-old uses his allowance to buy new Nike shoes.
B
Competition among decentralized governmental units will A make it more difficult for citizens to satisfy their preferences with regard to the goods and services supplied by governments. B. evolve naturally because local governments will want to compete with each other. C. strengthen the incentive of governments to operate efficiently and cater to the views of citizens. D. result in wasteful duplication and inefficiency in production of governmental services.
C
Employers tend to prefer employees who display attitudes such as respectfulness, persistence, and trustworthiness because A. workers with these characteristics are easier to exploit and underpay. B. workers with these characteristics are easy to find. C. workers with these characteristics tend to be more productive. D. workers with these characteristics usually have lots of friends who can be customers.
C
Higher standards of living are the result of A. an increase in the general level of prices. B. trade restrictions that favor domestic industries over foreign competition. C. an increase in the availability of goods and services that people value. D. government subsidies that expand employment.
C
Income transfer payments are A. payments made to individuals who are employed by the government. B. payments made to individuals who provide goods and services to the government. C. transfers of income from taxpayers to recipients who do not provide related services for the payments. D. omitted from the government expenditure figures.
C
Inflation is A. a one time increase in the general level of prices. B. a one time increase in the price of an individual good or service. C. a persistent increase in the general level of prices. D. a persistent increase in the price of an individual good, service or resource.
C
Managed equity funds A. that have yielded attractive returns during the recent past can generally be counted on to yield similar returns in the future. B. generally outperform indexed equity mutual funds. C. that yielded a high rate of return in the recent past often perform poorly in the future. D. are tied directly to either the Consumer Price Index or Producer Price Index.
C
The framers of the U.S. Constitution sought to design a political system that would A. be based on majority rule. B. promote efficiency through central planning of the economy. C. limit the powers of the federal government and protect the rights of individuals. D. provide the federal government with virtually unlimited power to promote the general welfare.
C
The national debt is A. the difference between a nation's exports and imports of goods and services. B. the sum of the personal debt of all citizens in the United States. C. the cumulative effect of all past budget deficits and surpluses of the federal government. D. equal to the current size of the budget deficit.
C
The political attractiveness of tariffs, quotas, and other trade restrictions is primarily the result of A. the political clout of foreigners. B. the political clout of domestic consumers. C. the special interest nature of trade restrictions. D. the attractiveness of sound economic policies to elected political officials.
C
Wal-Mart is a low-wage firm and this indicates that it exploits its workers. Which of the following should cause one to question the validity of this statement? A. the high profits of Wal-Mart B. the large sales revenue of Wal-Mart C. No one is required to work for Wal-Mart and, therefore, it must attract workers by paying them more attractive wages than they could earn elsewhere. D. This is a trick question. Wal-Mart does exploit its workers and the below average wage of Wal-Mart employees illustrates this point.
C
When decentralized governmental units operate independently and compete with each other, governments will attract residents and expand their tax base when A. they increase their tax rates. B. they provide residents with fewer government services. C. they provide residents with desired services at an attractive tax cost. D. they discontinue desired government services in order to keep taxes low.
C
Which of the following is likely to be seen by an employer as a signal of low productivity in a potential employee? A. A high level of education. B. A long history of stable work experience. C. A rebellious, argumentative, contrary personality. D. A willingness to think entrepreneurially.
C
Which of the following is true? A. People who invest in the stock market are virtually certain to make money. B. Stock market investors can reduce their risk if they hold shares of specific stocks for only short periods of time. C. The risk of stock market investments can be reduced through the holding of a diverse portfolio of unrelated stocks over long periods of time. D. In the long run, corporate bonds can be expected to yield a higher real rate of return than ownership of stocks.
C
Which of the following items would be least prudent to purchase on credit A. an automobile B. a house C. a vacation D. a college education
C
Which of the following statements about automobile insurance is correct? A. Liability coverage pays for your car repairs after an accident. B. Only three states require drivers to purchase liability automobile insurance. C. Liability coverage pays other people for damage to themselves or their vehicle if they are injured by your driving. D. The premiums for an insurance policy will generally be higher if the deductibility level is higher.
C
How did people like Mark Zuckerberg of Facebook and the late Steve Jobs of Apple become so rich? A. mostly by stealing from those who were less fortunate B. by acquiring more years of schooling than almost anyone else C. by obtaining large subsidies from powerful politicians D. by providing highly valued goods and services to consumers at attractive prices
D
If a nation is going to achieve its full potential, it must have A. a low rate of savings and a high rate of current consumption. B. low real interest rates. C. a central planning agency to allocate investment funds. D. a mechanism to attract savings and channel them into productive investment projects.
D
Investing in housing (that is, buying a home) is A. always a good idea, because it will allow you to build equity. B. better than stocks, because housing investments are not risky. C. easily affordable for almost everyone. D. a risky investment and a costly decision to be undertaken with great care.
D
Suppose you are enjoying a conversation with a friend in your car, when a vehicle pulls up next to you with the audio system turned up to maximum, drowning out your conversation. Although the driver appears to be enjoying himself, this could be an example of A. a monopoly. B. a public good. C. an audio system failure. D. an externality.
D
The economic way of thinking indicates that personal benefits and costs influence the actions of A. consumers in the private sector but not voters in the public sector. B. producers in the private sector but not politicians in the public sector. C. taxpayers, but not recipients of government-provided goods and services. D. consumers, producers, voters, and politicians in both the private and the public sectors.
D
The experience of the 1930s indicates that substantial tax increases during a severe recession will result in A. an increase in the incentive to earn. B. an increase in tax revenues that will lead to a balanced budget. C. smaller budget deficits, which will speed an economic recovery. D. a reduction in output and employment.
D
Under a democratic representative government, legislators will have a strong incentive to support the positions of well-organized special-interest groups because A. these positions will be efficient, they will generate more benefits than costs. B. these position will be favored by the majority of voters. C. the special-interest voters are likely to be uninformed, while others will feel strongly about an issue. D. the special-interest voters will feel strongly about an issue, while others are likely to be uninformed.
D
When there are no constitutional constraints on democracy, politicians will A. impose high taxes that will lead to budget surpluses, which will eventually undermine economic progress. B. be reluctant to impose regulations and eventually unbridled market competition will undermine economic progress. C. be reluctant to run budget deficits during a recession and this failure will lead to economic instability and stagnation. D. find it advantageous to provide income transfers and other favors to interest groups in exchange for votes and political contributions, and this will eventually lead to budget deficits, high taxes, and economic stagnation.
D
Which of the following are additional costs you will have to pay to become a homeowner, on top of the actual price of the house? A. The cost of buying tools to care for the yard and the house, or paying someone to do this for you. B. Realtor commissions. C. Closing costs. D. All of the above.
D
Which of the following financial strategies will help you increase your wealth and future level of income? A. Regularly saving and investing a portion of your income B. Paying off the outstanding balance every month, if you use a credit card C. Getting by with a used economy car rather than buying a new one every couple of years D. All of the above will help you build wealth.
D
Which of the following is an expected result of unconstrained majoritarian democracy? A. The government persistently runs budget deficits. B. Funds are taken from taxpayers and transferred to well-organized, special-interest groups. C. Voters are uninformed on many issues. D. All of the above.
D
Which of the following is true? A. Most stockholders own stock because they want to run the business. B. The shareholders of a large well-established firm are guaranteed to earn a real rate of return of about seven percent in the future. C. Ownership of a corporate bond provides the bondholder with an ownership right to a fraction of the firm's future profits. D. Stock ownership makes it possible for investors to own a fractional share of a firm's future profits even if they do not participate in the operation of the firm.
D
Which of the following will reduce the effectiveness of centralized economic planning? A. The central planners will be unable to obtain sufficient information for a sound economic plan in a world of dynamic change. B. The central planners spending the funds of taxpayers will make poorer investment choices than investors spending their own money. C. The choices of the central planners will be influenced by political, rather than economic, considerations. D. All of the above.
D
Why do nations often impose trade barriers that make it difficult for their own citizens to trade with people in another country? A. Trade restrictions are a good way for a country to increase the income levels of its citizens. B. Trade restrictions improve the efficiency of resource use. C. Trade restrictions provide gains to domestic residents at the expense of foreigners. D. Trade restrictions often provide benefits to highly visible special interest groups while imposing a less visible cost on the general populace.
D
