Download Economics Practice Test 5

Economics - 2006 RLC
1)
Monopolies are price
takers and can only
“take” one price.
A) True
B) False
2)
3)
4)
Corporations have limited
liability advantages over
other legal forms of
business.
A) True
B) False
The Law of Demand states
that as an individual’s
income rises, the
individual will buy more.
A) True
B) False
Taxes are more likely
placed on price inelastic
goods.
A) True
B) False
11)
12)
13)
14)
When economic profits are
zero, entrepreneurs
receive no money income.
A) True
B) False
15)
6)
Pollution is an example of
an externality benefit.
A) True
B) False
16)
7)
Inflation is two
consecutive quarters of
rising GDP.
A) True
B) False
5)
8)
9)
10)
The Federal Reserve sells
government securities to
fight inflation.
A) True
B) False
The United States has its
largest trade deficit with
Japan.
A) True
B) False
China has surpassed the
United States as the
largest economy in the
world.
A) True
B) False
A government set price
ceiling below market
prices will create a
shortage.
A) True
B) False
21)
Competitive markets tend
to be efficient.
A) True
B) False
22)
A progressive tax is one
where taxes increase at a
constant tax rate as
income increases.
A) True
B) False
23)
In terms of number, most
firms are corporations.
A) True
B) False
Most air pollution is in
lower developed
countries which do not
have pollution control
laws.
A) True
B) False
24)
A higher price indicates to
buyers that the product is
relatively scarcer.
A) True
B) False
Government deficits are
funded through the sale
of corporate bonds.
A) True
B) False
25)
Buying a bond gives the
buyer a share in the
ownership of the
company.
A) True
B) False
Increased regulation of air
pollution has decreased
the cost of producing in
the United States.
A) True
B) False
26)
When supply decreases,
the equilibrium price in
the market will
A) increase.
B) fluctuate.
C) decrease.
D) stay the same.
27)
When demand decreases,
the equilibrium price in
the market will
A) stay the same.
B) decrease.
C) increase.
D) fluctuate.
28)
When demand decreases
less than supply
decreases, equilibrium
price will
A) increase.
B) fluctuate.
C) decrease.
D) stay the same.
A monopolistic
competitive industry is
controlled by one firm
that sets prices.
A) True
B) False
Sole proprietorships
produce most of the
goods and services in the
United States.
A) True
B) False
17)
Higher real interest rates
in lending markets tend
to increase borrowing,
and decrease saving.
A) True
B) False
18)
Decreasing the reserve
requirement increases the
money supply.
A) True
B) False
19)
A normal profit is
considered a payment in
excess of the costs of
production.
A) True
B) False
20)
profits are always greater
than zero in the long run.
A) True
B) False
In competitive market
structures, economic
34)
29)
When supply decreases
more than demand
increases, equilibrium
quantity will
A) decrease.
B) fluctuate.
C) increase.
D) stay the same.
30)
Suppose two countries
trade. Country A produces
wheat and trades with
Country B for corn. What
is the likely outcome?
A) Both countries gain
B) Country A gains,
country B loses
C) Country A loses,
country B gains
D) Both countries lose
31)
32)
33)
The federal funds rate is
A) the rate banks charge
their best customers.
B) the rate for home
equity lines of credit.
C) the rate the federal
reserve charges
commercial banks.
D) the rate banks charge
each other on overnight
loans.
To fight inflation,
policymakers would
A) increase government
spending and increase the
money supply.
B) increase government
spending and decrease
the money supply.
C) decrease government
spending and increase the
money supply.
D) decrease government
spending and decrease
the money supply.
Which of the following
approaches to pollution
control have had the most
dramatic results in
decreasing pollution?
A) Lawsuits and individual
bargaining
B) Individual bargaining
C) Regulation and
individual bargaining
D) Markets for pollution
rights and regulation
35)
36)
Which of the following
market structures have
economic profits
competed away by new
firms entering the
industry in the long run?
A) Monopoly and pure
competition
B) Monopolistic
competition and oligopoly
C) Monopolistic
competition and pure
competition
D) Monopoly and oligopoly
Consumers expect a
surplus for a product to
develop in a market.
What is the likely effect
on consumers’ demand
for this product today?
A) Decrease
B) Stay the same
C) Fluctuate
D) Increase
What is the correct fiscal
policy when a recession is
caused by a decrease in
aggregate demand?
A) Decrease government
spending and increase
taxes
B) Increase government
spending and increase
taxes
C) Increase government
spending and decrease
taxes
D) Decrease government
spending and decrease
taxes
37)
Suppose demand and
supply increase by equal
amounts. What happened
to the equilibrium price?
A) Price increases
B) Price stays the same
C) Price fluctuates
D) Price decreases
38)
Firms maximize profits
when producing where?
A) Price=average cost
B) Marginal
revenue=marginal cost
C) Price=average variable
cost
D) Marginal
profit=marginal loss
39)
Suppose the price of crude
oil rises, what effect will
this likely have on supply
of gasoline?
A) Supply will fluctuate
B) Increase supply
C) Supply stays the same
D) Decrease supply
40)
Which market structure is
most likely economically
efficient?
A) Oligopoly
B) Pure competition
C) Monopoly
D) Monopolistic
competition
41)
When price rises on a
price inelastic good, what
happens?
A) Quantity demanded
decreases, but by a
smaller percentage
B) Demand decreases
C) Quantity demanded
increases
D) Quantity demanded
decreases, but by a larger
percentage
42)
Suppose the real income
of workers rises, what is
the likely response of
demand for inferior
goods?
A) Demand fluctuates
B) Demand increases
C) Demand decreases
D) Demand stays the same
43)
The United States’ four
largest trading partners
are:
A) Canada, China, Japan,
and Mexico.
B) Canada, China, Saudi
Arabia, and Korea.
C) Canada, Italy,
Germany, and France.
D) Canada, China,
Germany, and Japan.
44)
A vertical supply curve has
an elasticity of supply of
A) one.
B) negative one.
C) zero.
D) infinity.
45)
Suppose the governments
of the world raise
business taxes, what is
the likely effect on
supply?
A) Supply stays the same
B) Supply increases
C) Supply decreases
D) Supply fluctuates
46)
47)
48)
49)
50)
In the long run, if the
dollar appreciates and the
yen depreciates,
A) U.S. imports from
Japan will decrease.
B) U.S. exports to Japan
will increase.
C) U.S. imports from
Japan will increase.
D) Japanese imports from
the U.S. will increase.
Suppose the real income
of workers rises, what is
the likely response to the
demand for normal goods?
A) Demand decreases
B) Demand stays the same
C) Demand increases
D) Demand fluctuates
what should each
specialize in?
A) Tom paints, Pam does
accounting
B) Pam paints and does
accounting, Tom does
nothing
C) Pam paints, Tom does
accounting
D) Pam paints, Tom paints
51)
52)
If the dollar appreciates
versus the yen, the
following is true:
A) the yen buys fewer
dollars.
B) nothing happens to the
value of the yen, just the
value of the dollar.
C) the dollar buys fewer
yen.
D) the yen buys more
dollars.
Which of the following
describes a tariff?
A) Bureaucratic
regulations which make it
more difficult for imports
to cross borders.
B) Taxes placed on
imports.
C) Limits on the number of
imports crossing the
borders.
D) Subsidies on exports.
Tom and Pam can both
paint and do accounting.
Pam is better at both. She
is ten times the painter
and five times the
accountant. According to
comparative advantage,
53)
54)
Increased government
regulations will likely
have what effect on the
costs of production and
supply in product
markets?
A) Costs increase, supply
decreases
B) Costs decrease, supply
increases
C) Costs increase, supply
increases
D) Costs decrease, supply
decreases
The Law of Supply says the
following about price and
quantity:
A) when price increases,
quantity supplied
increases.
B) when price increases,
quantity supplied
decreases.
C) when price increases,
quantity supplied stays
the same.
D) when price decreases,
quantity supplied
increases.
In the long run, economic
profits are possible in
which market structures?
A) Monopoly and oligopoly
B) Monopoly and pure
competition
C) Oligopoly and
monopolistic competition
D) Monopoly and
monopolistic competition
The optimal level of
pollution for society is
when
A) the marginal benefits of
pollution equal the
marginal costs of
pollution.
B) the profits for firms is
maximized.
C) there is zero pollution.
D) the pollution is
externalized.
55)
Trade barriers will
A) provide more goods and
services for consumers.
B) increase domestic
efficiency.
C) decrease world prices
for products.
D) increase domestic
prices.
56)
Short run economic profits
in purely competitive
markets will result in
A) exit of firms.
B) entry of new firms and
the competing away of
economic profit.
C) barriers to entry which
will prevent entry, and
profits will stay the same.
D) entry of new firms and
the elimination of existing
firms.
57)
Short run losses in
competitive markets will
result in
A) barriers to entry.
B) entry of firms to gain
market share.
C) exit of firms.
D) entry of new firms and
the elimination of existing
firms.
58)
Which of the following
describes a quota?
A) A subsidy for exports
B) A minimum amount (of
an import) allowed to
cross a border
C) A maximum amount (of
an import) allowed to
cross a border
D) A tax on imports
59)
Suppose Singapore can out
produce Malaysia in shoes
and in computers.
Suppose Singapore and
Malaysia have the
following opportunity
costs: Singapore 1 million
shoes = 2 million
computers, Malaysia 1
million shoes = 1 million
computers. What would
each country produce?
A) Singapore computers,
Malaysia computers, no
shoes
B) Singapore shoes,
Malaysia shoes, no
computers
C) Singapore shoes,
Malaysia computers
D) Singapore computers,
Malaysia shoes
60)
A) Increase the interest
rate
B) No effect on the
interest rate
C) The interest rate will
decrease temporarily,
then return to its original
level.
D) Decrease the interest
rate
Suppose the Federal
Reserve implements
discretionary monetary
policy to fight inflation.
Which of the following
would they do?
A) Sell government
securities, raise the
reserve requirement,
lower interest rates
B) Sell government
securities, raise the
reserve requirement,
raise interest rates
C) Buy government
securities, raise the
reserve requirement,
lower interest rates
D) Buy government
securities, lower the
reserve requirement,
lower interest rates
65)
61)
Expansionary fiscal policy
will likely cause a
A) budget surplus.
B) balanced budget.
C) budget deficit.
D) trade surplus.
67)
The implicit cost of an
entrepreneur is a
payment equal to a(n)
A) normal profit.
B) monopoly profit.
C) economic profit.
D) windfall profit.
62)
Expansionary fiscal policy,
which leads to higher
interest rates and less
private investment, is
called the
A) deficit effect.
B) interest rate effect.
C) export effect.
D) crowding out effect.
68)
An economic profit is
equal to?
A) Revenue minus average
cost
B) Price minus average
cost
C) Total revenue minus
total cost
D) Total revenue minus
average cost
63)
64)
Contractionary fiscal
policy is used to fight
A) recession.
B) inflation.
C) fiscals.
D) deflation.
An expansionary monetary
policy will likely have
what effect on the
nominal interest rate?
66)
69)
An easy money or
expansionary monetary
policy is used to fight
A) recession.
B) inflation.
C) deficits.
D) disinflation.
An expansionary fiscal
policy will
A) decrease taxes and
increase government
spending.
B) decrease taxes and
decrease government
spending.
C) increase taxes and
increase government
spending.
D) increase taxes and
decrease government
spending.
Getting rid of
environmental laws will
A) increase supply in
product markets.
B) decrease pollution.
C) decrease supply in
product markets.
D) have no effect on
pollution or supply.
70)
A minimum wage will most
likely result in
A) more employment and
a shortage of jobs.
B) less employment and a
shortage of workers.
C) more employment and
a surplus of workers.
D) less employment and a
surplus of workers.
71)
In competitive labor
markets, workers
A) are exploited.
B) are paid more than they
are worth.
C) are frequently not paid.
D) are paid equal to their
contribution to a firm’s
revenue.
72)
The following describes a
monopsony:
A) a competitive labor
market.
B) a market which pays
fair wages.
C) a single firm controlling
the product market.
D) a labor market
controlled by a single
firm.
73)
The following describes a
proportional tax:
A) tax rate stays the same
no matter what income
level.
B) tax rate rises as income
rises.
C) tax amount goes down
as income rises.
D) tax amount stays the
same no matter what
income level.
74)
Entitlement spending is
that portion of budget
referred to as
A) interest payments.
B) discretionary spending.
C) military spending.
D) mandatory spending.
75)
The Federal Government
collects most of its tax
revenue from
A) corporate income tax.
B) excise tax.
C) payroll tax.
D) personal income tax.
76)
77)
78)
The Federal Government’s
biggest expenditure is on
A) pensions and income
security.
B) health.
C) interest on the debt.
D) national defense.
In pure monopoly, firms
maximize profits
A) at the highest price
possible.
B) at the lowest price
possible.
C) where marginal revenue
equals marginal cost.
D) at the same price as in
pure competition.
84)
Local Government collects
most of its tax revenue
from
A) state income taxes.
B) sales taxes.
C) estate taxes.
D) property taxes.
The merger of two firms
with unrelated products is
called a
A) conglomerate merger.
B) vertical merger.
C) horizontal merger.
D) multinational.
85)
If the price of DVDs
increase and consumers
buy fewer DVD players,
A) DVDs and DVD players
are substitutes.
B) DVDs and DVD players
are inferior goods.
C) DVDs and DVD players
are normal goods.
D) DVDs and DVD players
are complements.
State Government collects
most of its tax revenue
from
A) state income tax.
B) estate tax.
C) property tax.
D) sales tax.
80)
Which of the following
best describes pure
competition?
A) Easy entry,
differentiated product
B) Lots of firms, barriers
to entry
C) Standardized product,
barriers to entry
D) Easy entry,
standardized product
82)
83)
Local Government’s
biggest expenditure is on
A) housing.
B) highways.
C) sewage and garbage.
D) education.
79)
81)
D) produce more than
competitive industries.
Which of the following
best describes monopoly?
A) Barrier to entry, lots of
firms
B) Easy entry, one firm
C) Price chooser, one firm
D) Price chooser, lots of
firms
Monopolies tend to
A) be less inefficient.
B) charge cheaper prices
than competitive
industries.
C) restrict output, and
charge higher prices than
competitive industries.
86)
If the price of coffee
increases and this results
in the demand for tea
increasing,
A) coffee and tea are
inelastic.
B) coffee and tea are
complements.
C) coffee and tea are
substitute goods.
D) coffee and tea are
addictive goods.
C) Two or more partners
operating a business
D) A legal entity separate
from the shareholders
89)
A business failure resulting
in the owners also losing
their homes is likely
A) a partnership.
B) a limited liability
company.
C) a franchise.
D) a corporation.
90)
In pure competition, firms
are
A) price choosers.
B) price takers.
C) price indifferent.
D) price lovers.
91)
When examining the
money stock, M1 refers to
A) currency and checkable
deposits.
B) savings, currency, and
time deposits.
C) savings deposits and
checkable deposits.
D) savings and currency.
92)
Gross Investment refers to
A) government spending
on public goods.
B) business spending on
capital.
C) individuals purchasing
stocks and bonds.
D) retirement accounts.
93)
Which legal form of
business may issue stock?
A) Corporations
B) Unincorporated firms
C) Sole proprietorships
D) Partnerships
87)
Which market structure is
a price taker?
A) Monopolistic
competition
B) Oligopoly
C) Pure monopoly
D) Pure competition
94)
Firms which produce the
same final product and
merge are called
A) conglomerate mergers.
B) extra mergers.
C) horizontal mergers.
D) vertical mergers.
88)
Which of the following
describes a sole
proprietorship?
A) A business owned and
operated by one person
B) A franchise
95)
Which of the following
best describes the
sources of investment
funds available to
corporations?
A) Reinvested profits and
personal savings
B) Stocks, bonds,
reinvested profits, and
bank loans
C) Bank loans and stocks
D) Personal savings
96)
Stocks are often
considered
A) lagging indicators.
B) leading indicators.
C) coincident indicators.
D) random variables.
97)
Which of the following
describes oligopolies best?
A) Small firms, price
competitors
B) Large firms, nonprice
competitors
C) Large firms, price
competitors
D) Small firms, mutually
interdependent
98)
Which if the following best
describes monopolistic
competition?
A) Barrier to entry, one
firm
B) Easy entry,
differentiated product
C) Barrier to entry,
differentiated product
D) Easy entry, one firm