Unit 6 Economics Review

Why might it be a bad idea to create money to cover budget deficits? A. It can slow down the economy. B. It can cause inflation. C. It can increase the national debt. D. It can cause deflation.

B. It can cause inflation.

Which of these economists believed strongly in monetarism, the idea that the money supply is the most important factor in economic performance? A. Milton Friedman B. David Ricardo C. John Maynard Keynes D. Adam Smith

A. Milton Friedman

A nation with high energy consumption MOST LIKELY has A. a low literacy rate. B. a high level of specialization. C. a lack of solid infrastructure. D. a poor quality of life.

B. a high level of specialization.

What is the first step in the federal budget process? A. Congress debates and compromises on budget B. executive branch creates budget C. federal agencies propose spending D. President signs or vetoes budget

C. federal agencies propose spending

Which of the following is considered a problem associated with a large national debt? A. hyperinflation B. low interest rates C. foreign ownership of debt D. little demand for government bonds

C. foreign ownership of debt

Which is a cost of participating in free trade agreements? A. Trade wars may result. B. Multinationals may lose business. C. Health and safety laws may increase. D. Domestic products may not be able to compete with imported goods.

D. Domestic products may not be able to compete with imported goods.

How might a budget deficit be related to the national debt? A. A deficit adds to the debt. B. The debt adds to a deficit. C. A deficit subtracts from the debt. D. The debt subtracts from a deficit.

A. A deficit adds to the debt.

Which is an example of how trade barriers can affect you as an American consumer? A. A trade barrier increases the price of foreign goods Americans buy. B. A trade barrier makes it impossible for Americans to buy foreign goods. C. A trade barrier gives American consumers greater access to foreign goods. D. A trade barrier keeps the prices of foreign goods the same as the prices of American goods.

A. A trade barrier increases the price of foreign goods Americans buy.

What would be likely to happen if the Fed raised reserve requirements? A. Banks would call in loans. B. Lending would increase. C. Inflation would rise. D. The money supply would grow.

A. Banks would call in loans.

Whose economic ideas and beliefs most closely match this statement: "Let the free enterprise system solve economic problems, not the government"? A. Milton Friedman B. Franklin Roosevelt C. John Maynard Keynes D. John Kenneth Galbraith

A. Milton Friedman

Why is it difficult to time the use of monetary policy to control business cycles? A. Monetary policy takes effect slowly, and business cycles are hard to predict. B. Monetary policy takes effect slowly, but business cycles change quickly. C. Monetary policy takes effect quickly, but business cycles change slowly. D. Monetary policy does not affect business cycles.

A. Monetary policy takes effect slowly, and business cycles are hard to predict.

When John Maynard Keynes said, "In the long run we are all dead," what serious economic point was he making? A. People with limited savings could not afford to wait for the market, on its own, to restore equilibrium. B. Classical economists did not care enough about people to promote government intervention in the economy. C. A deep recession could continue for so long that everyone who was alive at the start of it would be dead by the time it ended. D. Classical economics, with its outmoded ideas, was as good as dead in the new era of demand-side economics.

A. People with limited savings could not afford to wait for the market, on its own, to restore equilibrium.

Why did colonialism slow the development of many LDCs? A. Their dependency on European powers prevented the development of industry. B. Their low graduation rates prevented development of skilled laborers. C. Their lack of natural resources prevented proper farming and irrigation. D. Their lack of employment opportunities prevented the transition to free enterprise.

A. Their dependency on European powers prevented the development of industry.

How do entitlement programs affect the creation of the federal budget? A. Their funding is dictated by law, so policy-makers cannot change spending on them. B. They are frequently cut during budget negotiations between the President and Congress. C. They provide flexibility for policy-makers so that they can more easily increase discretionary spending. D. They are not part of the federal budget and so have no impact on creation of it.

A. Their funding is dictated by law, so policy-makers cannot change spending on them.

Which of the following BEST describes economic development? A. a process through which a nation improves its people's well-being B. a process through which a nation achieves full employment C. a process through which a nation reduces energy consumption D. a process through which a nation achieves a per capita GDP that meets basic needs

A. a process through which a nation improves its people's well-being

Under what circumstances might the Federal Reserve enact an easy money policy? A. businesses are laying off workers and GDP goes down B. businesses are hiring new workers and GDP goes up C. businesses are using more robots and GDP reaches record levels D. unemployment is nearing record low levels

A. businesses are laying off workers and GDP goes down

To succeed, sustainable development requires the participation of A. the governments of LDCs. B. the World Trade Organization. C. NGOs. D. the World Bank.

A. the governments of LDCs.

Absolute advantage is based on the ability to produce a good with A. the greatest efficiency. B. the highest opportunity cost. C. the highest price. D. the most resources.

A. the greatest efficiency.

Why did a crisis caused by risky loans in the United States lead to a worldwide recession? A. the interconnectedness of the world's financial markets B. the speed with which the news traveled to Europe and Asia C. the openness of new free market economies to foreign investment D. the rapid expansion of remittances withdrawn from U.S. banks

A. the interconnectedness of the world's financial markets

Why does the consumption of a large amount of nonessential goods indicate a high level of development? A. It suggests that the people rely on subsistence agriculture for most of their goods. B. It suggests that the people have more than enough income to meet their basic needs. C. It suggests that the country has lowered its infant mortality rate to near zero. D. It suggests that the country has raised its literacy rate above that of its neighbors.

B. It suggests that the people have more than enough income to meet their basic needs.

How might the owner of a store selling imported food react to a rise in the value of the U.S. dollar? A. The owner would be upset because prices on what she sells would fall, increasing sales. B. The owner would be pleased because prices on what she sells would fall, increasing sales. C. The owner would be upset because prices on what she sells would rise, decreasing sales. D. The owner would be pleased because prices on what she sells would rise, increasing sales.

B. The owner would be pleased because prices on what she sells would fall, increasing sales.

What is an exchange rate? A. The amount that a country's currency has appreciated. B. The value of one nation's currency in relation to another nation's currency. C. The relationship between the value of a nation's exports and the value of its imports. D. The present value of a country's currency in relation to its past value.

B. The value of one nation's currency in relation to another nation's currency.

What effect would expansion of Japanese auto production probably have on U.S. auto production? A. an increase in jobs due to increased competition B. a loss of jobs due to increased supply C. no change because the production is in a foreign country D. a need to retrain workers in an entire industry

B. a loss of jobs due to increased supply

The use of the right monetary policy tools at the right time can help A. even out interest rates B. even out the business cycle C. increase interest rates D. increase the business cycle

B. even out the business cycle

Capital that originates in other countries is called A. internal financing. B. foreign investment. C. debt rescheduling. D. foreign aid.

B. foreign investment.

Which of the following is a basic tool the Fed can use to implement monetary policy? A. money multiplier formula B. open market operations C. deficit spending D. prime rate

B. open market operations

Who owns multinational corporations? A. entrepreneurs B. shareholders C. American companies D. foreign companies

B. shareholders

Fiscal policy is the use of government spending and revenue to influence A. businesses. B. the economy. C. politicians. D. voters.

B. the economy.

Which of the following is the BEST example of an effect of globalization? A. A high speed train carries passengers from New York City to Washington, D.C. in just three hours. B. The owner of an auto shop in California orders parts from a supplier in Florida on a mobile phone. C. A gardener in Iowa discovers that the manual for her new tiller has directions written in five languages. D. An Asian American takes over the position of chief executive officer at a firm headquartered in Oklahoma.

C. A gardener in Iowa discovers that the manual for her new tiller has directions written in five languages.

Why is a single currency beneficial for trade purposes? A. It helps nations maintain a positive balance of trade. B. It allows nations to trade on the foreign exchange market. C. It allows nations to trade without using an exchange rate. D. It gives nations the option to use a flexible exchange-rate system.

C. It allows nations to trade without using an exchange rate.

Which explains the role of the federal budget in fiscal policy? A. It places limits on the spending plans approved by Congress. B. It helps prevent government from accidentally pursuing a contractionary policy. C. It estimates government revenue and authorizes government spending for each year. D. It sets targets for businesses so that they know what to charge and spend in the upcoming year.

C. It estimates government revenue and authorizes government spending for each year.

What is the effect of the decrease in demand for U.S. exports on the trade deficit? A. It has had no impact on the trade deficit. B. It has eliminated the trade imbalance. C. It has contributed to a positive balance of trade. D. It has contributed to a negative balance of trade.

C. It has contributed to a positive balance of trade.

Why is per capita GDP a good tool for measuring different countries' relative levels of development? A. It provides a direct measure of a country's level of specialization. B. It provides a direct measure of a country's level of consumption. C. It provides an average of the GDP across a whole population. D. It provides the total value of all goods and services produced in a year.

C. It provides an average of the GDP across a whole population.

Why do the discount rate, federal funds rate, and prime rate have a limited impact on the long-term growth of the economy? A. They have little effect on borrowing. B. They don't affect how consumers spend money. C. They are interest rates on short-term loans. D. They have no impact on savings or investment.

C. They are interest rates on short-term loans.

Which is an advantage of international trade agreements? A. Trade agreements place limits on imports. B. Trade agreements place limits on exports. C. Trade agreements increase consumer choice. D. Trade agreements create fixed prices for goods.

C. Trade agreements increase consumer choice.

Which of the following goods should a country import? A. a product in which it has a comparative advantage B. a good produced at a lower opportunity cost at home C. a raw material that costs less to import than to extract D. a raw material that is basic to production of other imported goods

C. a raw material that costs less to import than to extract

How might lowering income taxes during an economic downturn decrease the national debt? A. by weakening the economy, decreasing revenues, and increasing the deficit B. by weakening the economy, decreasing revenues, and decreasing the deficit C. by stimulating the economy, increasing revenues, and decreasing the deficit D. by stimulating the economy, decreasing revenues, and increasing the deficit

C. by stimulating the economy, increasing revenues, and decreasing the deficit

What must American workers do to ensure that the United States remains "the world's most successful economy"? A. find jobs that do not require a college education B. change occupations in order to earn higher wages C. remain productive by keeping their skills up-to-date D. demand wages that meet the standard for their industry

C. remain productive by keeping their skills up-to-date

If a farmer in a LDC cannot afford to purchase a tractor or a mechanized harvester, he or she lacks A. the natural resources to make the land fertile. B. the nutrition to make workers more productive. C. the physical capital to increase farm output. D. the human capital that can take advantage of technology.

C. the physical capital to increase farm output.

What is money creation? A. the printing of money by the Treasury B. the loaning out of money by commercial banks C. the process by which money enters into circulation D. the generating of wealth through economic activity

C. the process by which money enters into circulation

How did President Reagan apply supply-side economics to promote economic recovery in the 1980s? A. through a stimulus package B. through increased spending C. through a tax cut D. through spending cuts

C. through a tax cut

Which of the following is TRUE of most LDCs, in comparison to developed countries? A. They have higher literacy rates. B. They have lower infant mortality rates. C. Women have much higher literacy rates than men. D. Children are much less likely to receive a full primary education.

D. Children are much less likely to receive a full primary education.

How do producers identify a good in which they have a comparative advantage? A. It is a good that uses the most resources to produce. B. It is a good that most promotes interdependence. C. It is a good most suited to the skills and knowledge of the labor force. D. It is a good in which a producer has the lowest opportunity cost compared to other producers.

D. It is a good in which a producer has the lowest opportunity cost compared to other producers.

Why does the infant mortality rate relate to a country's level of development? A. It is a predictor of the adult literacy rate. B. It is a indicator of the percentage of students in primary school. C. It is an indicator of employment opportunities. D. It is an indicator of nutrition and healthcare.

D. It is an indicator of nutrition and healthcare.

Which of the following distinguishes newly industrialized countries (NICs) from other LDCs? A. NICs are less developed than other LDCs. B. NICs have lower per capita GDP than most LDCs. C. NICs rely more on subsistence agriculture than most LDCs. D. NICs consume a greater amount of energy than most LDCs.

D. NICs consume a greater amount of energy than most LDCs.

If you lived across from Mexico, in El Paso, TX, what objection might you have to NAFTA? A. The agreement would lead to a common currency. B. Trade between the U.S. and Canada would decrease. C .Too many companies would move to the United States. D. Pollution from less-regulated factories in Mexico could cross the border.

D. Pollution from less-regulated factories in Mexico could cross the border.

Why, according to critics, do multinational corporations fail to bring many jobs to the less developed countries in which they operate? A. The goal of multinationals is to make high-quality products. B. The cost of paying wages would cut too deeply into profits. C. The best jobs go to managers in the home office. D. The majority of tasks are done by machines, not workers.

D. The majority of tasks are done by machines, not workers.

What is a major concern about Fed policies that lower interest rates and increase lending? A. They might lead to budget surpluses. B. They might force banks to call in loans. C. They might crowd out foreign investment. D. They might produce growing inflation.

D. They might produce growing inflation.

What kind of government budget best reflects an expansionary fiscal policy? A. a budget that decreases government spending and increases taxes B. a budget that decreases government spending and reduces taxes C. a budget that increases government spending and increases taxes D. a budget that increases government spending and reduces taxes

D. a budget that increases government spending and reduces taxes

What causes the crowding-out effect? A. low interest rates B. a poor economy C. a growing economy D. large government borrowing

D. large government borrowing

Which concept provides the economic reason for nations to specialize in what they produce? A. resource equality B. self-sufficiency C. physical capital D. scarcity

D. scarcity

Why does inside lag affect fiscal policy more than monetary policy? A.The federal government can enact fiscal policy more quickly than the Federal Reserve can enact monetary policy. B.The federal government can enact monetary policy more quickly than the Federal Reserve can enact fiscal policy. C.The Federal Reserve can enact fiscal policy more quickly than the federal government can enact monetary policy. D.The Federal Reserve can enact monetary policy more quickly than the federal government can enact fiscal policy.

D.The Federal Reserve can enact monetary policy more quickly than the federal government can enact fiscal policy.