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ECON 101 - COURSE EXAM
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ECON 101 – PRINCIPLES OF ECONOMICS (McConnell)
Multiple Choice. Choose the best answer and mark it on the answer sheet provided.
1.
Assume the relationship between unemployment and inflation is such that a low
rate of unemployment results in a high rate of inflation and vice versa. On the
basis of this relationship we can say that:
a.
the goals of full employment and price level stability are compatible.
b.
the goals of full employment and price level stability are conflicting.
c.
society should seek to eliminate inflation even if it means a high level of
unemployment.
d.
society should seek to eliminate unemployment even if it means a high
rate of inflation.
2.
Which of the following has to do with the notion that generalizations which apply
to individuals are also always valid for a group?
a.
the law of large numbers
b.
the law of averages
c.
the fallacy of composition
d.
the post hoc, ergo propter hoc fallacy
e.
the fallacy of limited decisions
3.
"Consumers spend their incomes to get the maximum benefit or satisfaction from
the goods and services they purchase." This is a reflection of:
a.
resource scarcity and the necessity of choice.
b.
rational behavior.
c.
marginal costs which exceed marginal benefits.
d.
the tradeoff problem which exists between competing goals.
4.
As used in economics, the notion of scarce resources means that:
a.
mineral deposits are only available in finite amounts.
b.
resources are not so plentiful that all material wants can be fulfilled.
c.
some resources are free while others have price tags on them.
d.
the quantities available of some resources exceed the demand for them.
5.
Which of the following is not an illustration of the notion of opportunity cost?
a.
A growing economy can produce more consumer goods and more capital
goods at the same time.
b.
If I buy a pizza, I will not be able to afford a movie.
c.
Resources devoted to consumer goods production are not available for
capital goods production.
d.
The land a Kansas farmer plants in wheat is not available for corn
production.
e.
The production of more military goods means fewer resources are
available for civilian goods.
6.
Assume the demand curve for product X shifts to the right. This might be caused
by:
a.
a decline in income if X is an inferior good.
b.
a decline in the price of Z if X and Z are substitute goods.
c.
a change in consumer tastes which is unfavorable to X.
d.
an increase in the price of Y if X and Y are complementary goods.
e.
a decline in income if X is a normal good.
7.
Assuming competitive markets with typical supply and demand curves, which of
the following statements is correct?
a.
An increase in supply with a decrease in demand will result in an increase
in price.
b.
An increase in supply with no change in demand will result in an increase
in price.
c.
An increase in supply with no change in demand will result in a decline in
sales.
d.
An increase in demand with no change in supply will result in an increase
in sales.
e.
An increase in demand with no change in supply will result in a decline in
sales.
8.
Given a downsloping demand curve and an upsloping supply curve for a product,
the imposition of an excise tax on this product will:
a.
increase equilibrium price and quantity.
b.
decrease equilibrium price and quantity.
c.
decrease equilibrium price and increase equilibrium quantity.
d.
increase equilibrium price and decrease equilibrium quantity.
e.
have no impact upon equilibrium price and quantity.
9.
The most efficient combination of resources in producing any output is that
combination which:
a.
comes closest to using the same quantities of land, labor, capital, and
entrepreneurial ability.
b.
can be obtained for the smallest monetary outlay.
c.
uses the smallest total quantity of all resources.
d.
conserves most on the use of labor.
10.
Which of the following best describes the "invisible hand" concept?
a.
The desires of resource suppliers and producers to further their own selfinterest will automatically further the public interest.
b.
The nonsubstitutability of resources gives rise to a conflict between
private and public interests and the need for government intervention
c.
Mixed capitalism is the best system for overcoming the scarce resourcesunlimited wants problem.
d.
Central direction by the government will improve resource allocation in a
capitalistic economy.
11.
If there are important spillover benefits associated with the consumption of a
product, it can be said that:
a.
government should enact legislation to prohibit the production of the
commodity.
b.
special excise taxes should be levied on producers of the product.
c.
the market demand curve understates the relative importance of the
product and resources are therefore underallocated to its production.
d.
the market supply curve for the product lies too far to the right to provide
an efficient allocation of resources.
12.
Assume that in year 1 your average tax rate is 20 percent on a taxable income of
$20,000. If the marginal tax rate on the next $10,000 of taxable income is 30
percent, what will be the average tax rate if your taxable income rises to $30,000?
a.
7 percent
b.
30 percent
c.
16 percent
d.
about 23 percent
e.
about 12 percent
13.
With respect to local finance it is correct to say that:
a.
death and gift taxes are the major source of revenue and most expenditures
are for hospitals and health services.
b.
the corporate income tax is the major source of revenue and natural
resource development the major type of expenditure.
c.
property taxes are the basic source of revenue and education the major
type of expenditure.
d.
sales and excise taxes are the major source of revenue and highway
construction and maintenance the major type of expenditure.
14.
The circular flow model reveals that an increase in American exports will:
a.
reduce revenue to American businesses and increase money income to
American resource suppliers.
b.
decrease output and money income in the rest of the world, further
boosting our imports.
c.
increase revenue to American businesses and increase money income to
American resource suppliers.
d.
increase American imports by more than the increase in exports.
15.
The main problem posed by trade blocs for nonmember nations is that:
a.
member nations may achieve growth rates which exceed those of
nonmember nations.
b.
nonmembers must exchange their currencies for foreign monies before
they can engage in export or import transactions.
c.
nonmembers face tariffs which member nations do not.
d.
member nations refuse to participate in tariff negotiations sponsored by
GATT.
Answer questions 16-18 on the basis of the following national income data. All figures
are in billions of dollars
Personal taxes
Net private domestic investment
Net exports
National income
U.S. exports
Gross private domestic investment
Disposable income
Indirect business taxes
Undistributed corporate profits
Proprietors' income
Net foreign factor income earned in the U.S.
$23
33
6
278
20
56
220
32
15
45
0
16.
Refer to the above data. Consumption of fixed capital:
a.
cannot be calculated.
b.
is $23
c.
is $14
d.
is $32
e.
is $26
17.
Refer to the above data. Personal consumption expenditures
a.
cannot be calculated
b.
are $231
c.
are $225
d.
are $205
e.
are $183
18.
Refer to the above data. The gross domestic product is:
a.
$328
b.
$402
c.
$382
d.
$333
19.
Suppose there are 5 million unemployed workers seeking jobs. After a period of
time, 1 million of them become discouraged over their job prospects and cease to
look for work. As a result of this, the official unemployment rate would:
a.
increase in the short run but eventually decline.
b.
increase.
c.
decline.
d.
be unchanged.
20.
Which of the following formulas is correct? Percentage change in:
a.
price level approximates percentage change in real income minus
percentage change in nominal income.
b.
real income approximates percentage change in nominal income minus
percentage change in price level.
c.
nominal income approximates percentage change in price level minus
percentage change in real income.
d.
real income approximates percentage change in price level minus
percentage change in nominal income.
21.
The relationship between aggregate consumption and aggregate income is such
that:
a.
an inverse and stable relationship exists between consumption and income.
b.
a direct, but very volatile, relationship exists between consumption and
income.
c.
a direct and quite stable relationship exists between consumption and
income
d.
the two are always equal.
22.
The saving schedule is such that as aggregate income increases by a certain
amount saving:
a.
increases by the same amount as the increase in income.
b.
does not change.
c.
increases, but by a smaller amount.
d.
increases by an even larger amount.
23.
Which of the following statements is correct for a private closed economy?
a.
Saving equals planned investment only at the equilibrium level of
domestic output.
b.
All levels of domestic output where planned investment exceeds saving
will be too high for equilibrium.
c.
Planned and actual investment are identical at all possible levels of
domestic output.
d.
Saving equals actual investment only at the equilibrium level of domestic
output.
e.
Saving equals planned investment at all possible levels of domestic output.
24.
If a nation imposes tariffs and quotas on foreign products, the immediate effect
will be to:
a.
reduce the rate of domestic inflation.
b.
increase efficiency in the world economy.
c.
increase domestic output and employment.
d.
reduce domestic output and employment.
25.
Suppose government finds it can increase the equilibrium real GDP $45 billion by
increasing government purchases by $18 billion. On the basis of this information
we can say that the:
a.
MPS in this economy is .4.
b.
MPC in this economy is 04.
c.
balanced-budget multiplier does not apply in this economy.
d.
multiplier is 3.
26.
The aggregate expenditures model and the aggregate demand curve can be
reconciled because, other things being equal, in the aggregate expenditures model:
a.
changes in the price level have no effect on the equilibrium level of GDP.
b.
an increase in the price level increases the real value of wealth.
c.
the level of aggregate expenditures and therefore the level of real GDP
vary inversely with the price level.
d.
the level of aggregate expenditures and therefore the level of real GDP
vary directly with the price level.
27.
Suppose that the price of each input increased for $5 to $8. The per unit cost of
production in the above economy would:
a.
rise by $1.50 and the aggregate supply curve would shift to the right
b.
rise by 60 percent and the aggregate supply curve would shift to the left.
c.
rise by 60 percent and the aggregate demand curve would shift tot he left.
d.
fall by $1.50 and the aggregate demand curve would shift to the right.
28.
Suppose an economy which has a MPS of 0.2 is experiencing a $50 billion
inflationary gap (aggregate expenditure model) and is operating in the vertical
range of its aggregate supply curve (AD-AS model). If this economy wishes to
return the price level to its previous level, it must shift its aggregate demand
curve:
a.
leftward by $50 billion
b.
rightward by $50 billion.
c.
leftward by $250 billion.
d.
leftward by $10 billion.
29.
Which of the following fiscal actin would be the most effective in curbing
inflation?
a.
incurring a budget deficit by borrowing from the public
b.
incurring a budget surplus which is used to retire debt held by commercial
banks
c.
incurring a budget surplus and impounding that surplus
d.
incurring a budget surplus which is used to retire debt held by the public
30.
Which one of the following best describes the net 3export effect associated with
an expansionary American fiscal policy?
a.
domestic interest rate falls, foreign demand for dollars rises, dollar
appreciates, and net exports increase.
b.
domestic interest rate falls, foreign demand for dollars rises, dollar
appreciates, and net exports fall.
c.
domestic interest rate rises, foreign demand for dollars falls, dollar
depreciates, and net exports increase.
d.
domestic interest rate rises, foreign demand for dollars increases, dollar
appreciates, and net exports decline.
31.
Which of the following statements best describes the relationship between the real
value or purchasing power of the monetary unit and the price level? The
purchasing power of money:
a.
and the price level vary inversely.
b.
and the price level vary directly during recessions, but inversely during
inflations.
c.
and the price level vary directly, but not proportionately.
d.
and the price level vary directly and proportionately.
e.
is not related in any immediate way to the level of prices.
32.
An important routine function of the Federal Reserve Bank is to:
a.
supervise the liquidation of the assets of bankrupt state banks.
b.
help large commercial banks develop correspondent relationships with
smaller commercial banks.
c.
advise commercial banks as to the most profitable ways of reinvesting
profits.
d.
provide facilities by which commercial banks and thrift institutions may
collect checks.
e.
help new commercial banks sell capital stock.
33.
Which of the following is a true statement?
a.
The bank and thrift share of total financial assets has increased
dramatically since 1980.
b.
The vast bulk of investment in the major nations is financed, not from
internal saving, but from funds from abroad.
c.
The world's financial markets have become increasingly integrated
d.
International stock and bond funds cannot be sold in the United States.
34.
Assume the Standard Toy Company negotiates a loan for $5,000 from the Metro
National Bank and receives a demand deposit for that amount in exchange for its
promissory note (IOU). As a result of this transaction:
a.
the supply of money is increased by $5,000.
b.
the supply of money declines by the amount of the loan.
c.
a claim has been "demonetized."
d.
the Metro Bank acquires reserves from other banks.
35.
If borrowers take a portion of their loans as currency rather than demand deposits,
the maximum amount by which the commercial banking system can increase the
money supply by lending will:
a.
decrease because the legal reserve ratio varies directly with the amount of
currency in circulation.
b.
increase because currency is the basis for all demand-deposit creation.
c.
decrease because the amount of reserves transferred to other banks will
diminish.
d.
increase because commercial banks can lend by the reciprocal of the
amount of currency in circulation.
36.
Assume the legal reserve ratio is 25 percent and the Fourth National Bank
borrows $10,000 from the Federal Reserve Bank in its district. As a result:
a.
commercial bank reserves are increased by $10,000.
b.
the supply of money automatically declines by $7,500.
c.
commercial bank reserves are increased by $7,500.
d.
the supply of money is automatically increased by $10,000.
e.
the commercial banking system must reduce the supply of money by
$40,000.
37.
If the economy were encountering a severe recession, proper monetary and fiscal
policies would call for:
a.
selling government securities, raising the reserve ratio, lowering the
discount rate, and a budgetary surplus.
b.
buying government securities, reducing the reserve ratio, reducing the
discount rate, and a budgetary deficit.
c.
buying government securities, raising the reserve ratio, raising the
discount rate, and a budgetary surplus.
d.
buying government securities, reducing the reserve ratio, raising the
discount rate, and a budgetary deficit.
e.
selling government securities, reducing the reserve ratio, reducing the
discount rate, and budgetary deficit.
38.
Which of the following is correct?
a.
A tight money policy will cause the dollar to appreciate and American net
exports to increase.
b.
A tight money policy will cause the dollar to appreciate and American net
exports to decrease.
c.
A tight money policy will cause the dollar to depreciate and American net
exports to increase.
d.
A tight money policy will cause the dollar to depreciate and American net
exports to decrease.
39.
According to monetarists, a fiscal deficit will be associated with an increase in
real output:
a.
regardless of the character of accompanying changes in M or V.
b.
only if it is accompanied by an increase in the demand for money.
c.
only if it is accompanied by an increase in the supply of money.
d.
only if it is financed by selling government bonds to the public.
40.
Which of the following statements is correct?
a.
The monetarist aggregate supply curve is relatively steep, while the
Keynesian aggregate supply curve is relatively flat.
b.
Both monetarists and Keynesians feel that the aggregate supply curve is
relatively flat.
c.
Both monetarists and Keynesians feel that the aggregate supply curve is
relatively steep.
d.
The monetarist aggregate supply curve is relatively flat, while the
Keynesian aggregate supply curve is relatively steep.
41.
Other things equal, an increase in the price level will:
a.
shift the aggregate supply curve to the right.
b.
shift the aggregate demand curve to the right.
c.
cause a movement up a short-run aggregate supply curve.
d.
cause a movement down an aggregate demand curve.
42.
Which one of the following is not a component of "employment and training
policy," designed to shift the Phillips Curve inward?
a.
antidiscrimination law
b.
vocational education
c.
the minimum wage
d.
job information policy
43.
Critics of supply-side economics:
a.
argue that a tax cut will increase aggregate demand by more than it
increases real output.
b.
contend that the relationship between tax rates and economic incentives is
small and of uncertain direction.
c.
believe that a decline in tax rates will give rise to budget deficits.
d.
make all of the above points.
44.
Which of the following allegedly understat3es the true size of the Federal budget
deficit?
a.
inclusion of government spending on the savings and loan (S&L) bailout
b.
inclusion of the social security surplus
c.
inclusion of Federal excise tax receipts
d.
inclusion of current transfer payments
45.
Which of the following represents the mainstream view of the link between
budget deficits and trade deficits?
a.
budget deficit occurs, interest rate rises, dollar depreciates, trade deficit
occurs
b.
budget deficit occurs, saving increases, interest rate falls, trade deficit
occurs
c.
budget deficit occurs, interest rate rises, dollar appreciates, trade deficit
occurs
d.
budget deficit occurs, saving increases, interest rates remain unchanged,
dollar appreciates, trade deficit occurs
46.
Which of the following statements is correct?
a.
Our population is currently about 120 million.
b.
Improved education and training of labor is the most important source of
American productivity growth.
c.
The "average" American factory worker has about 16 years of formal
education.
d.
The capital-labor ratio (the amount of real capital used per worker) has
increased historically.
47.
Which of the following is not a rebuttal to the doomsday scenarios?
a.
The scenarios are based on the unrealistic assumption that present
population trends will continue.
b.
The scenarios underestimate the capabilities of technological progress to
resolve the problems associated with the increasing relative scarcity of
natural resources.
c.
The scenarios underestimate the role of the price system as a feedback
mechanism.
d.
World population has been declining and will continue to decline.
48.
"Industrial policy" refers to:
a.
government efforts to control product prices so that American products
will be more competitive in world markets.
b.
tax policies which allow all firms to deduct research and development
spending in calculating their corporate income taxes.
c.
governmental policies designed to encourage the expansion of highproducing industries and to hasten the decline of low-productivity
industries.
d.
the use of antimonopoly laws to enhance the competitiveness of industry.
49.
Suppose we find that the price elasticity of demand for a product is 3.5 when its
price is increased by 2 percent. We conclude that quantity demanded:
a.
increased by 7 percent.
b.
decreased by 7 percent.
c.
decreased by 9 percent.
d.
decreased by 12 percent.
50.
Which of the following generalizations is not correct?
a.
The larger an item is in one's budget, the greater the price elasticity of
demand.
b.
The price elasticity of demand is greater for necessities than it is for
luxuries.
c.
The larger the number of closed substitutes available, the greater will be
the price elasticity of demand for a particular product.
d.
The price elasticity of demand is greater the longer the time period under
consideration.
51.
If the price of product X rises, then the resulting decline in the amount purchased
will:
a.
necessarily increase the consumer's total utility from his aggregate
purchases.
b.
increase the marginal utility of this good.
c.
increase the total utility from purchases of this good.
d.
reduce the marginal utility of this good.
52.
Suppose you have a limited money income and you are purchasing products A
and B whose prices happen to be the same. To maximize your utility you should
purchase A and B in such amounts that:
a.
their marginal utilities are the same.
b.
their total utilities are the same.
c.
their marginal and total utilities are proportionate.
d.
the income and substitution effects associated with each are equal.
53.
the fact that most medical care purchases are financed through insurance:
a.
has no effect on health care consumption because aggregate costs are the
same regardless of payment method.
b.
reduces the amount of health care consumed
c.
has decreased health care costs and therefore reduced aggregate health
care expenditures.
d.
increased the amount of health care consumed.
54.
The first, second, and third workers employed by a firm add 24, 18, and 9 units to
total product respectively. On the basis of this information we can say that:
a.
the marginal product of the third worker is 9.
b.
the total product of the three workers is 51.
c.
the average product of the three workers is 17.
d.
all of the above are true.
55.
As a firm produces successive units of output in the short run we would expect:
a.
TVC to increase initially by declining amounts, but eventually increase by
increasing amounts.
b.
TVC to increase initially by increasing amounts, but eventually by
decreasing amounts.
c.
TFC to increase by constant amounts.
d.
the sum of TVC and TFC to increase initially by increasing amounts, but
eventually by decreasing amounts.
56.
Which of the following is characteristic of a purely competitive seller's demand
curve?
a.
Price and marginal revenue are equal at all levels of output.
b.
Average revenue is less than price.
c.
Its elasticity is "1" at all levels of output.
d.
It is the same as the market demand curve.
57.
The notion that a firm should produce up to the point where the added revenue
from the sale of an extra unit of output is equal to the added cost of producing it is
known as the:
a.
output-maximizing rule.
b.
profit-maximizing rule.
c.
close-down rule.
d.
break-even rule.
58.
Which of the following is a potential shortcoming of the competitive market
system?
a.
The consequent distribution of income might conflict with prevailing
standards of equity.
b.
The system makes no provision for the production of public goods.
c.
Product standardization tends to restrict the range of consumer choice.
d.
Spillover costs and benefits may interfere with allocative efficiency.
e.
All of the above are possible shortcomings of a competitive market
system.
59.
A pure monopolist:
a.
will realize an economic profit if price exceeds ATC at the equilibrium
output.
b.
will realize an economic profit if ATC exceeds MR at the equilibrium
output.
c.
will realize an economic loss if MC intersects the downsloping portion of
MR.
d.
always realizes an economic profit.
60.
If a regulatory commission imposes upon a nondiscriminating natural monopoly a
price which is equal to marginal cost and below average total cost at the resulting
output, then:
a.
the firm will realize an economic profit.
b.
the firm will break even.
c.
allocative efficiency will be worsened.
d.
the firm must be subsidized or it will go bankrupt.
61.
A monopolistically competitive industry combines elements of both competition
and monopoly. It is correct to say that the competitive element results from:
a.
a relatively large number of firms and the monopolistic element from
product differentiation.
b.
product differentiation and the monopolistic element from high entry
barriers.
c.
a perfectly elastic demand curve and the monopolistic element from low
entry barriers.
d.
a highly inelastic demand curve and the monopolistic element from
advertising and product promotion.
62.
Suppose an empirical study of advertising concludes that firms which do a great
deal of advertising have considerable monopoly power and large profits. On the
basis of this information one can infer that:
a.
advertising creates entry barriers and thereby generates monopoly and
profits.
b.
firms which have monopoly power and substantial profits spend more
lavishly on advertising.
c.
advertising is a pro-competitive force in the economy.
d.
either a and b might be a correct interpretation of the findings.
63.
"The benefits of advertising include lower information costs, lower search costs,
lower product prices, and the more rapid introduction of new products. "This
statement is consistent with:
a.
the traditional view of advertising.
b.
the new perspective of advertising.
c.
the anticompetitive view of advertising.
d.
all available empirical research on the effects of advertising.
e.
none of the above.
64.
Three major means of collusion by oligopolists are:
a.
cartels, gentlemen's agreements, and price leadership.
b.
market sharing, mutual interdependence, and product differentiation.
c.
cartels, kinked-demand pricing, and product differentiation.
d.
gentlemen's agreements, P = MC pricing, and mutual interdependence.
65.
In which of the following industry structures is the entry of new firms the most
difficult?
a.
pure monopoly
b.
oligopoly
c.
monopolistic competition
d.
pure competition
66.
If one worker can pick $30 worth of grapes and two workers together can pick
$50 worth of grapes, we can say that the:
a.
marginal revenue product of each worker is $25.
b.
marginal revenue product of the first worker is $20.
c.
marginal revenue product of the second worker is $20.
d.
data given do not permit the determination of the marginal revenue
product of either worker.
67.
Suppose a technological improvement increases the productivity of a firm's
capital and, simultaneously, its workers' union negotiates a wage increase. We
can predict that:
a.
the firm will use relatively more capital and relatively less labor.
b.
the firm will us relatively more labor and relatively less capital.
c.
inputs of capital and labor will be unchanged.
d.
the firm's equilibrium output will necessarily increase.
68.
The profit-maximizing and the least-cost combination of inputs are:
a.
the result of unrelated decisions.
b.
always identical.
c.
such that the minimization of costs always results in profit maximization.
d.
such that the maximization of profits always entails the least-cost
combination of inputs.
69.
If a firm hiring a certain type of labor under purely competitive conditions:
a.
its labor demand curve will be perfectly elastic at the market-determined
wage rate.
b.
the labor supply curve will lie above the marginal labor cost curve.
c.
the labor supply and marginal labor (resource) cost curves will coincide
and be upsloping.
d.
the labor supply and marginal labor (resource) cost curves will coincide
and be perfectly elastic.
70.
A firm might choose to pay its employees a wage higher than that which would
clear the market because:
a.
the higher wage raises the opportunity cost of shirking.
b.
the higher wage may shift the labor demand curve to the left.
c.
the firm will have higher turnover, allowing "new blood" to invigorate
older workers who have a greater tendency to shirk.
d.
this policy reduces the proportion of experienced to inexperienced
workers, resulting in a lower overall wage bill.
71.
Which of the following correctly describes the cause-effect chain which links the
money market and the market for domestic output?
a.
A decrease in the money supply will increase the interest rate, reduce
investment, and increase the level of domestic output.
b.
A decrease in the money supply will reduce the interest rate, increase
investment, and increase the level of domestic output.
c.
An increase in the money supply will reduce the interest rate, increase
investment, and increase the level of domestic output.
d.
An increase in the money supply will reduce the interest rate, reduce
investment, and reduce the level of domestic output.
72.
Which of the following is incorrect?
a.
The nominal interest rate is the rate of interest expressed in terms of
current dollars.
b.
The real interest rate is the rate of interest expressed in terms of dollars of
constant or inflation-adjusted value.
c.
The nominal interest rate is the real interest rate less the rate of inflation.
d.
During periods of inflation the nominal interest rate will exceed the real
interest rate.
73.
"Capitalist income" (corporate profits, interest, and rent) has:
a.
declined sharply since 1900 because of the growing strength of labor
unions.
b.
remained approximately constant in this century.
c.
increased significantly because of rising rents.
d.
fallen in this century because of the declining importance of corporations.
74.
The Coase throrem states that:
a.
government should levy excise taxes on firms which generate spillover or
external costs.
b.
taxes should be levied such that they change private behavior as little as
possible.
c.
bargaining between private parties will remedy externality problems
where property rights are clearly defined, the number of people involved
are few, and bargaining costs are small.
d.
trading of votes to secure favorable voting outcomes may increase
efficiency.
75.
Suppose a firm offers its workers a "cafeteria plan" in which it allows workers to
allocate a set amount of fringe benefit money toward specific insurance. Mary,
who has five kids needing braces, selects the family dental coverage. This is an
example of the:
a.
free-rider problem
b.
principle-agent problem
c.
adverse selection problem.
d.
moral hazard problem
e.
Coase theorem.
76.
Which of the following statements are most consistent with the benefits-received
principle of taxation?
a.
A childless couple should not be required to pay taxes for the support of
public schools.
b.
Prosperous corporations should pay substantial taxes even if they use few
government goods and services.
c.
The best tax is the income tax.
d.
People with high incomes should pay more taxes than people with low
incomes.
77.
The property tax may be regressive even though wealthy people own much more
taxable property than do poor people. The reason for this is that:
a.
marginal and average tax rates on property tend to converge.
b.
wealthy people can evade property taxes while poor people cannot.
c.
property taxes are shifted.
d.
in practice property tax rates are regressive.
78.
The fallacy of limited decisions indicates that:
a.
government decisions increase at an increasing rate as a nation advances
industrially.
b.
economic scarcity limits the number of consumer decisions to the number
of producer decisions.
c.
competitive markets will limit the number of choices available to
consumers and producers.
d.
the more decisions government makes, the fewer decisions private
households and businesses will have to make.
79.
One defense of industrial concentration is the contention that:
a.
large market shares and high profits result from superior products.
b.
monopolies and oligopolies often pay higher than market wage rates.
c.
monopolists and oligopolists can force resource suppliers to supply inputs
at lower-than competitive prices.
d.
the prices which monopolists and oligopolists charge equal average total
cost in the long run.
80.
Which of the following statements best describes the concept of an industrial
policy?
a.
Use low-interest loans, loan guarantees, special tax treatment, and foreign
trade protection to strengthen certain American industries.
b.
Concentrate on antitrust enforcement and free-trade to strengthen
competition.
c.
Provide tuition and living expense allowances to students for vocational
and college education.
d.
Leave the development of high-tech industries to Germany and Japan and
concentrate on service industries in the United States.
81.
Which of the following is correct?
a.
The rapid expansion of foreign incomes will reduce American agricultural
exports.
b.
A decrease in the international value of the dollar will reduce American
agricultural exports.
c.
An increase in the international value of the dollar will reduce American
agricultural exports.
d.
Changes in the international value of the dollar have no effect on
American agricultural exports.
82.
In view of the fact that government price supports cause surplus production,
government policies have been designed to:
a.
increase demand and decrease supply of farm products.
b.
decrease demand and increase supply of farm products.
c.
increase demand and increase supply of farm products.
d.
decrease demand and decrease supply of farm products.
83.
Farm programs such as those of the United States and the European Union:
a.
encourage the United States and the European Union to use tariffs and
quotas to restrict agricultural imports.
b.
cause United States and European Union farmers to produce more than
domestic consumers want to purchase.
c.
depress world market prices for agricultural products.
d.
do all of the above.
84.
A person wishing to make a case that income inequality is actually less than that
described by the standard Census data might argue that:
a.
the Census data fail to include cash transfers as income.
b.
the Census data fail to include the value of noncash transfers as income.
c.
the lifetime distribution of income is more equal than the annual
distribution.
d.
all of the above are true.
e.
both b and c are true.
85.
A basic problem associated with negative income tax (NIT) plans is that:
a.
such plans will necessarily be more costly than the aggregate of existing
welfare programs.
b.
it will be extremely difficult to determine which families are eligible for
benefits.
c.
there are conflicts between the goals of eliminating poverty, maintaining
work incentives, and restraining program costs.
d.
the required bureaucracy would exceed that associated with existing
welfare programs.
86.
Given the availability of the Medicaid program, why are so many poor people
uninsured?
a.
Because only a fixed percentage of the population can participate in
Medicaid at any time.
b.
Because many poor people earn enough that they do not qualify for
Medicaid.
c.
Because nonincome requirements screen many poor people from the
program.
d.
Because only native-born Americans are eligible for the program.
87.
Which of the following is correct?
a.
The number of physicians per 100,000 of population has been decreasing.
b.
The average income of physicians is the highest of all major professions.
c.
As compared to other major professions, physicians earn the highest rate
of return on their educational investments.
d.
The "target income hypothesis" suggests that an increase in the supply of
physicians would reduce patient fees.
88.
One of the criticisms of national health insurance is that the shift from insurance
premiums to taxes in financing health care will:
a.
redistribute income toward greater equality.
b.
necessarily increase the public debt.
c.
redistribute income toward greater inequality.
d.
necessarily reduce the growth of real wages.
89.
Which of the following best describes the central philosophy of the Taft-Hartley
Act?
a.
All labor legislation must be stated in very general terms because labormanagement relations occur in a dynamic environment.
b.
Unrestricted collective bargaining is the basic prerequisite to industrial
peace.
c.
Wage rates must persistently increase over time in order to maintain
purchasing power and full employment in the economy.
d.
There is a need for a certain amount of government control over labormanagement relations and collective bargaining to protect the public
interest.
90.
Which of the following would not be expected to reduce the male-female earnings
gap?
a.
an increased tendency of females to maintain employment through their
child-bearing years
b.
an increased tendency of females to pursue higher paying professional
careers
c.
passage of comparable worth legislation
d.
a resurgence of interest by females in traditional female jobs
91.
If country A can produce both goods X and Y more efficiently, that is, with
smaller absolute amounts of resources, than can country B:
a.
mutually advantageous specialization and trade between A and B may still
be possible.
b.
we can conclude that A is an "advanced" economy and B is "less
developed."
c.
d.
92.
it will necessarily be advantageous for B to import both X and Y from A.
then there is not possible basis for mutually advantageous specialization
and trade between A and B.
Which is an example of a nontariff barrier (NTB)?
a.
an export subsidy
b.
an excise tax on imported goods
c.
box-by-box inspection requirements for imported fruit
d.
most-favored nation (MFN) status
93.
Research studies indicate that:
a.
tariffs are a relatively cheap way to preserve American jobs.
b.
American producers gain more from tariffs than American consumers
lose.
c.
the costs of trade restrictions are proportionately higher for high-income
groups than for low-income groups.
d.
the revenue from tariffs equals the total cost which tariffs impose on
consumers.
e.
none of the above conclusions are true.
94.
Which one of the following, other things equal, will directly alter the United
States balance of trade?
a.
an increase in official reserves
b.
a decrease in U.S. merchandise exports
c.
an increase in net transfers
d.
a decrease in capital outflows from the United States
95.
Suppose interest rates fall sharply in the United States but are unchanged in Great
Britain. Other things unchanged, under a system of freely floating exchange rates
we can expect the demand for pounds in the united States to:
a.
decrease, the supply of pounds to increase, and the dollar to appreciate
relative to the pound.
b.
increase, the supply of pounds to increase, and the dollar may either
appreciate or depreciate relative to the pound.
c.
increase, the supply of pounds to decrease, and the dollar to depreciate
relative to the pound.
d.
decrease, the supply of pounds to increase, and the dollar to depreciate
relative to the pound.
96.
"Investment in kind" refers to the possibility that:
a.
LDCs will invest for the purpose of becoming less dependent upon world
markets.
b.
a LDC will overinvest in industries wherein it has a comparative
advantage and in so doing will disrupt its development program.
c.
newly established manufacturing industries may expand by reinvesting
their profits.
d.
surplus labor in, say, agriculture can be diverted to the production of
simple capital goods such as earthen dams.
97.
Which of the following best describes the vicious circle of poverty?
a.
Government spending for public goods tends to be inflationary and this
undermines incentives to save and invest.
b.
Higher incomes increase consumption at the expense of capital
accumulation which cause income to fall.
c.
Low per capita incomes cause low levels of saving and investment which
in turn mean low productivity and therefore low incomes.
d.
A growing national income increases the demand for money which
increases the interest rate and reduces investment.
98.
With respect to foreign aid the LDCs desire:
a.
that aid be in the form of short-term loans rather than grants.
b.
that aid be made automatic and increased to 0.7 percent of each advanced
nation's output.
c.
a phasing out of aid on the grounds that it has been politically, rather than
economically, motivated.
d.
a phasing out of aid on the grounds that it has been detrimental to
development.
99.
Enterprise managers and workers in the former Soviet Union often resisted
innovations in production methods because:
a.
production targets were often increased when innovation occurred.
b.
there was a chronic shortage of computers.
c.
workers could not be reallocated geographically
d.
innovations ordinarily increased dependence on world markets.
100.
Private foreign investment in Russia is impeded by:
a.
uncertainty as to who has the authority to sign contracts and issue license.
b.
difficulties in obtaining needed inputs.
c.
a substandard infrastructure.
d.
all of the above.
Student Name_______________________________Student #________________
Course ECON 101- PRINCIPLES OF ECONOMICS (McConnell)
Date___________________
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