Economics Practice Test

20. Which of the following is a limit on the number of a particular item that can be imported from a particular country? A) a quota B) a tariff C) an embargo D) a standard

A) a quota

45. How are MOST public goods and services paid for in the United States? A) by taxes B) by user fee C) by charitable donations from individuals D) by charitable donations from corporations

A) by taxes

47. If the price of new cars decreases slightly, the demand for new cars is likely to increase greatly. This market situation is an example of A) demand elasticity B) demand inelasticity C) supply elasticity D) supply inelasticity

A) demand elasticity

67. When the U.S. Government hires postal workers and FBI agents l, it makes transactions in the A) factor market B) product market C) public market D) property market

A) factor market

85. The BEST strategies to insure an economy's long-term growth are to A) invest in technology and human capital B) increase the labor supply and decrease wages C) decrease profits and increase wages D) maintain firm price ceilings and price floors

A) invest in technology and human capital

52. Which of the following is an example of government transfer payments? A) medicare payments to the poor and elderly B) interest payments on the national debt C) salary payments to government employees D) payments to private industries involved in highway construction

A) medicare payments to the poor and elderly

82. Which is the BEST example of a progressive tax in the United States? A) personal income tax B) excise tax C) property tax D) Social Security tax

A) personal income tax

11. Which basic economic problem does the U.S. Share with all other nations? A) scarcity of resources B) lack of technology C) lack of public services D) too much government control

A) scarcity of resources

42. Which one of the following might benefit from spiraling rates of inflation? A) someone who has borrowed money B) someone who has lent out money C) an investor D) a saver

A) someone who has borrowed money

35. Which group in the United States establishes the nation's monetary policy? A) the Federal Reserve B) the Senate C) the House of Representatives D) the president's Cabinet

A) the Federal Reserve

64. Salaries for workers trained in advanced technology are higher because A) the demand for them is high, compared to the supply B) the supply of them is high, compared to the demand C) government subsidies pay the salaries of most technology workers D) government price floors guarantee minimum salaries for technology workers

A) the demand for them is high, compared to the supply

6. In the past 20 years, computers have increased the productivity of the American economy. This is one reason for A) the shift to the right from curve AB to curve EF B) the shift to the left from curve AB to curve CD C) movement down from point G to point H D) movement up from point H to point G

A) the shift to the right from curve AB to curve EF

41. Which of these choices is the MOST likely effect of a strong U.S. Dollar? A) travel abroad becomes more affordable for Americans B) U.S. Imports become more expensive C) U.S. exports increase D) the U.S. trade deficit improves

A) travel abroad becomes more affordable for Americans

71. To obtain goods and services, people in a capitalist economy depend MOSTLY on A) voluntary exchange B) public goods and services C) government regulation D) communal ownership

A) voluntary exchange

39. Melissa wants to buy a living room set that costs $1,800. She could get a 4-year personal loan from a bank at a fixed annual interest rate of 8.7%. She could also get a 4-year loan from a finance company that charges 8.5%, compounded annually. Which answer correctly compares the total costs of the loan with simple interest and the loan with compound interest? A) S: $62.64, C: $69.22 B) S: $626.40, C: $694.52 C) S: $31.70, C: $31.32 D) S: $317.00, C: $313.20

B) S: $626.40, C: $694.52

90. If, in one year, the federal government takes in $50 billion dollars in taxes and spends $49 billion, the nation has A) a budget deficit B) a budget surplus C) a positive balance of payments D) no national debt

B) a budget surplus

66. A reduction in the demand for U.S. Exports will usually result in A) an increase in the international value of the dollar B) a decrease in the international value of the dollar C) a decrease in the value of foreign currency in the United States D) a decrease in the price of foreign imports in the United States

B) a decrease in the international value of the dollar

23. Which of the following is an example of entrepreneurship? A) a person who invests in computer stocks B) a person who starts a new online business C) a person who takes a job with a high-tech firm D) a person who buys land and builds herself a new house

B) a person who starts a new online business

77. After working in a chain bookstore for ten years, Janice decided to leave the company and open her own bookstore. To raise capital, she sold all the stock she had bought in the chainstore, rented space downtown, ordered books, stacked the shelves, and opened for business. Janice's store is an example of A) a corporation B) a sole proprietorship C) a partnership D) an oligopoly

B) a sole proprietorship

4. If a nation's imports for one year are worth $5.2 billion and its exports are worth $5.3 billion the same year, that nation definitely has A) a trade deficit, or negative trade balance B) a trade surplus, or positive trade balance C) a negative balance of payments D) a positive balance of payments

B) a trade surplus, or positive trade balance

57. Since the early 1960s, the U.S. Government has forbidden all imports from Cuba. This situation is an example of A) a quota B) an embargo C) a tariff D) a subsidy

B) an embargo

79. When nations focus on producing the things they make MOST efficiently and then trade for other goods, the result is usually A) a decrease in the variety and total amount B) an increase in the variety and total amount of goods available worldwide C) a increase in the variety, but a decrease in the total amount of goods available D) an increase in the total amount, but a decrease in the variety of goods available

B) an increase in the variety and total amount of goods available worldwide

12. Of the following, which situation might cause the shift to the left of the supply curve from S1 to S2? A) good weather leads to an increase in the blueberry crop B) bad weather leads to a reduction in the blueberry crop C) new scientific studies show that eating blueberries is good for your health D) the government increases subsidies to blueberry growers

B) bad weather leads to a reduction in the blueberry crop

61. If the unemployment rate of a nation is slowly beginning to rise and the GDP is slowly beginning to fall, which phase of the business cycle is beginning? A) expansion, or upturn B) contraction, or downturn C) recession D) depression

B) contraction, or downturn

17. Which type of business organization has the advantage of limited liability but the disadvantage of less control over business decisions? A) partnership B) corporation C) sole proprietorship D) perfect competition

B) corporation

40. If the government's fiscal policy is designed to expand the economy, which action would Congress be MOST likely to take? A) buy government bonds B) decrease income taxes C) lower the discount rate D) decrease government spending

B) decrease income taxes

29. In which of the following situations are two nations MOST likely to trade? A) each nation has an absolute advantage in producing one of the two products both want B) each nation has a comparative advantage in producing on of the two products both want C) neither nation has an absolute advantage in producing either product D) neither nation has a comparative advantage in producing either product

B) each nation has a comparative advantage in producing one of the two products both want

25. Which of the following is a disadvantage of choosing an insurance policy with a higher deductible, rather than a lower deductible? A) higher premiums B) higher out-of-pocket costs for claims C) higher coverage limit on claims D) lower coverage limit on claims

B) higher out-of-pocket costs for claims

58. A sales tax is considered a regressive tax because A) it has a more serious impact on the rich than the poor B) it has a more serious impact on the poor than the rich C) it decreases sales for all types of businesses D) it decreases sales for small businesses more than sales for large businesses

B) it has a more serious impact on the poor than the rich

73. If a bank charges 4% interest on loans, how much interest will it pay on savings? A) 4% B) less than 4% C) more than 4% D) the discount rate

B) less than 4%

38. Which of the following is true about a rational economic decision? A) marginal costs exceed marginal benefits B) marginal benefits exceed marginal costs C) opportunity costs are less than marginal benefits D) opportunity costs are balanced by total benefits

B) marginal benefits exceed marginal costs

7. Product differentiation, or branding, is a characteristic of firms in which kind of market structure? A) perfect competition B) monopolistic competition C) monopoly D) oligopoly

B) monopolistic competition

86. Public schools and highways are examples of A) private goods B) public goods C) transfer payments D) market failures

B) public goods

83. If government fiscal policy is intended to stop spiraling inflation rates, which action would Congress be MOST likely to take? A) reduce income taxes B) reduce government spending C) reduce the discount rate D) reduce the sales tax

B) reduce government spending

48. What is one result of the North American Free Trade Agreement (NAFTA)? A) increased trade barriers among the United States, Canada, and Mexico B) reduced trade barriers among the United States, Canada, and Mexico C) increased tariffs for European imports into North America D) reduced quotas for Japanese imports into North America

B) reduced trade barriers among the United States, Canada, and Mexico

72. Using labor in an assembly line in the manufacturing process is an example of worker A) diversification B) specialization C) inefficiency D) marginalization

B) specialization

15. Which currency depreciated in value? A) the euro B) the dollar C) both D) neither

B) the dollar

46. Which government decision below represents possible effects of deregulation? A) the government strengthens antipollution measures against factories, leading to cleaner air but higher prices B) the government lessens control of the TV industry, leading to more choices but higher prices for consumers C) the government forbids age discrimination in the workplace, leading to fairer or higher practices D) the government controls prices charged by public utilities, resulting in affordable energy but declining service

B) the government lessens control of the TV industry, leading to more choices but higher prices for consumers

55. What is the MOST important function of government patents in a market economy? A) to protect consumers from being cheated B) to allow entrepreneurs to earn profits C) to allow one corporation to benefit from the ideas of another D) to protect sole proprietors from corporate takeovers

B) to allow entrepreneurs to earn profits

84. Which kind of insurance is also an investment plan? A) term life insurance B) whole life insurance C) property insurance D) disability insurance

B) whole life insurance

1. How are economic questions answered in a command economy? A) By producers B) By Consumers C) By the government D) By supply and demand

C) By the government

27. Leo and Alex have a car washing business. Currently, each man washes a car and then waxes that car by himself. The BEST way to improve their efficiency would be if A) Leo and Alex wash and wax each car together B) Leo waxes Alex's cars and Alex waxes Leo's cars C) Leo washes all the cars and Alex waxes all the cars D) one day, Leo washes all the cars, while Alex waxes; the next day, they switch jobs

C) Leo washes all the cars and Alex waxes all the cars

75. Steve had $10,000 in his savings account when his bank declared bankruptcy. Which of the following is true? A) Steve lost all of his savings B) Steve lost half of his savings C) Steve got all of his money back D) Steve may get some of his money back

C) Steve got all of his money back

87. The BEST example of a natural monopoly is A) a drug company B) a software company C) a public utility D) a steel company

C) a public utility

8. Which worker BEST illustrates the problem of cyclical unemployment? A) a factory worker whose skills are no longer marketable B) a college graduate who turns down one job because she wants a better one C) a sales rep laid off during an economic downturn D) a landscaper who can't find a job in the winter

C) a sales rep laid off during an economic downturn

49. One major difference between banks and credit unions is that A) banks offer savings accounts and loans, while credit unions offer only credit cards B) banks charge simple interest, while credit unions charge compound interest C) banks are profit-making firms while credit unions are non-profit institutions D) credit unions are profit-making firms, while banks are non-profit institutions

C) banks are profit-making firms while credit unions are non-profit institutions

37. A person who opposes free trade would MOST likely A) support a reduction in tariffs B) call for an end to quotas C) call for supporting American jobs D) oppose protectionist policies

C) call for supporting American jobs

13. If aggregate demand is increasing sharply, while aggregate supply is increasing very slowly, which result is MOST likely? A) a business boom B) an economic slowdown C) demand-pull inflation D) a decline in GDP

C) demand-pull inflation

68. Which choice BEST describes an area that a macroeconomist might specialize in? A) how advertising affects the demand for automobiles B) how prices in the steel industry are determined by labor costs C) how U.S. Fiscal policy affects the U.S. Unemployment rate D) how medical costs are affected by demand for emergency services

C) how U.S. Fiscal policy affects the U.S. Unemployment rate

60. Which sentence BEST describes the organization of the Federal Reserve System? A) it consists of all the banks and credit unions in the United Systems B) it consists of one large bank in Washington, D.C. And the U.S. Mint C) it consists of 12 regional banks and the Federal Open Market Committee D) it consists of the president, the Cabinet, and the Congress

C) it consists of 12 regional banks and the Federal Open Market Committee

81. Which kind of economy do MOST nations in the world have today? A) command B) market C) mixed D) traditional

C) mixed

33. Two advantages of a market economy, as compared with a command economy are A) more security and more equity B) more control over prices and wages C) more freedom and more efficiency D) more limits on profits and more public goods

C) more freedom and more efficiency

31. Which sentence describes the MOST likely effect of a U.S. Tariff on imports? A) reduced trade barriers for American exports abroad B) more choices and lower prices for American consumers C) more sales for some American firms and less sales for others D) a positive American trade balance and a positive balance of payments

C) more sales for some American firms and less sales of others

78. The market for gasoline is controlled by a few large companies whose pricing decisions are interdependent, which sometimes lead to "price wars". This market is an example of what kind of market structure? A) monopoly B) monopolistic competition C) oligopoly D) perfect competition

C) oligopoly

53. Imagine that the government put a maximum limit on the price of gasoline, a limit that was lower than the equilibrium price that would be established in a free market. What name do economists give the resulting price and supply situation? A) price floor; shortage B) price floor; surplus C) price ceiling; shortage D) price ceiling ; surplus

C) price ceiling; shortage

44. Which issue below might a professor of microeconomics specialize in? A) cause of rising unemployment rates in the United States B) effects of declining GDP in European nations C) relationship of supply and demand in the housing market D) evaluating the effectiveness of monetary policy vs. fiscal policy

C) relationship of supply and demand in the housing market

21. Workers with a cost of living adjustment in their contracts A) receive raises every month B) can never be fired or laid off C) suffer less from inflation than other workers D) suffer more from inflation than other workers

C) suffer less from inflation than other workers

9. Shirts Tractors US: 120 160 China: 100 40 Which one of these conclusions CANNOT be drawn from the data? A) the United States has an absolute advantage in the production of shirts B) the United States has an absolute advantage in the production of tractors C) the United States has a comparative advantage in the production of shirts D) the United States has a comparative advantage in the production of tractors

C) the United States has a comparative advantage in the production of shirts

16. Henry decides to deposit $50 of his birthday money into his college savings account, rather than spending it on a video game. What is the opportunity cost of his decision? A) the interest he will earn on his savings B) a better chance of going to college C) the enjoyment he misses by not buying the game D) the opportunity he gains by pleasing his parents

C) the enjoyment he misses by not buying the game

56. What is the relationship between the national debt and the government's budget deficit this year? A) there is no connection between them B) they are the same C) this year's budget deficit adds to the size of the national debt D) the national debt guarantees a budget deficit this year

C) this year's budget deficit adds to the size of the national debt

2. Money serves as a standard of value because A) we spend it B) we save it C) we compare prices D) we earn profits

C) we compare prices

19. In which situation might the Federal Reserve sell government securities and raise the discount rate? A) in a recession B) in a depression C) when the inflation rate is high D) when aggregate supply is too high

C) when the inflation rate is high

5. Darrell deposited $650 in a savings account with a simple interest rate of 3.2% per year. If he made no other deposits or withdrawals, how much interest had he earned at the end of 2 years? A) $2.08 B) $20.80 C) $4.16 D) $41.60

D) $41.60

3. In Year 1, the cost of a market basket of goods was $840. In Year 2, the cost of the same basket was $875. Which figure below is closest to the consumer price index for Year 2? A) $35 B) $875 C) 10.5 D) 104

D) 104

51. Which of the following represents an investment in human capital? A) a company invests in new computers for on-the-job use B) a company hires 100 new employees in all branches of its corporation C) a company raises wages for all factory workers and office workers D) a company offers free job-related education to employees

D) a company offers free job-related education to employees

14. Which of the following statements about the disadvantages of credit cards is FALSE? A) many credit cards charge annual fees B) credit card finance charges are compounded monthly C) credit cards charge variable, rather than fixed, rates of interest D) credit cards are not often useful in an emergency

D) credit cards are not often useful in an emergency

10. A person who invests in mutual funds is choosing an investment that A) has the lowest risks and lowest returns B) has the highest risks and the highest returns C) has the highest risks and the lowest returns D) has a balance of low risk/low return and high risk/high return options

D) has a balance of low risk/low return and high risk/high return options

80. The BEST solution to the problem of structural unemployment is A) using fiscal policy to expand the economy and create more jobs B) raising the minimum wage so that untrained workers earn as much as trained workers C) encouraging workers who have lost high-paid jobs to take lower-paid jobs D) retraining those whose skills are no longer marketable

D) retraining those whose skills are no longer marketable

28. Which sentence describes market conditions at the equilibrium, or market clearing, price? A) supply is greater than demand B) demand is greater than supply C) price ceilings determine supply and demand D) supply and demand are equal

D) supply and demand are equal

76. Which of the following is an example of a price floor? A) a rent-controlled apartment B) a variable interest rate C) the exchange rate D) the minimum wage

D) the minimum wage

88. A disadvantage shared by sole proprietorships and partnerships is A) little control over decision making B) inability to specialize mc) responsibility to stockholders D) unlimited liability

D) unlimited liability

65. Your creditworthiness, or ability to get a loan, depends on A) only your income and your current debts B) only the assets you can use as collateral C) only your history of paying bills and repaying loans D) your income, debt, assets, and credit history

D) your income, debt, assets, and credit history