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Economic Survey
Mr. Rubin de Celis
Chapter 3 Exam – American Free Enterprise
1. Which of the following is an example of government encouraging innovation?
a) Regulations require that cigarette packages advise consumers of health risks.
b) Patents and copyrights are issued by the government.
c) A government agency constructs a dam.
d) Pollution permits are issued by the government.
2. The value of the goods and services produced by an economy is called
a) The gross domestic product.
b) the study of macroeconomics.
c) the study of microeconomics.
d) a business cycle fluctuation.
3. The minimum income needed to support a household is called
a) the standard of living.
b) the poverty threshold.
c) a cash transfer.
d) an in-kind benefit.
4. One way Americans seek to maintain their high standard of living is by constantly improving
a) technology.
b) microeconomic policy.
c) patents and copyrights.
d) macroeconomic policy.
5. Social Security provides
a) healthcare for children.
b) cash payments to those who lose their jobs.
c) insurance on retirement accounts.
d) retirement payments to the elderly.
6. Public disclosure laws require
a) governments to disclose their standards for certification and licensure.
b) companies to protect private property.
c) companies to give information about their products.
d) individuals to use only written contracts.
7. The idea that everyone can compete in the marketplace is called
a) voluntary exchange.
b) open opportunity.
c) the profit motive.
d)private property rights.
8. Which of the following goals is generally outside the realm of a free enterprise government?
a) keeping the economy stable and secure so that investors can invest and consumers can buy
b) preventing sudden price shifts that hurt consumers and producers
c) monitoring and regulating banks and protecting deposits by insuring them
d) deciding what products need to be produced and controlling the prices so that all citizens
may benefit
9. The free rider problem suggests that
a) public transportation competes with private transportation systems.
b) many services would be eliminated if government stopped collecting taxes and relied on
voluntary contributions.
c) citizens should be able to consume only what they pay for.
d) public goods do not require government aid.
10. Which of the following is an example of a public good?
a) skyscraper
b) bridge
c) car
d) milk
11. What are the three main goals of the government in its attempt to keep the economy running
smoothly?
a) high interest rates, steady growth, and regulated prices
b) high employment, steady growth, and stable prices
c) well-regulated banks, slow growth, and low prices
d) rapid business cycles, rapid growth, and fair prices
12. Temporary Aid to Needy Families (TANF) is an example of
a) an in-kind benefit.
b) Social Security.
c) a welfare program.
d) government health insurance.
13. Negative externalities are present when
a) there has been a market failure.
b) the government controls what is produced.
c) the economy is in recession.
d) consumers do not purchase as much as expected.
14. The fundamental purpose of the free enterprise system is to
a) give consumers the freedom to make their own economic choices.
b) provide each person with the necessities of life.
c) offer educational opportunity to all so as to assure the growth of the economy.
d) ensure efficiency and equality.
15. The public interest is
a) the concerns of the public as a whole.
b) the right to buy and sell goods.
c) the right of individuals to have safe products.
d) a property right guaranteed by law.
16. Which statement describes a public good?
a) Everyone who uses it pays for it.
b) It is commercially viable.
c) It is funded by the private sector without government incentives.
d) The benefit to the public is worth the cost to government.
17. The Fifth Amendment to the U.S. Constitution states that
a) citizens cannot have their property taken by the government without just compensation.
b) Congress has the power to issue patents to inventors.
c) government has the right to levy taxes based on income.
d) it is sometimes necessary for government to restrict certain freedoms.
18. The study of the economic behavior and decision making of entire economies is
a) microeconomics.
b) the business cycle.
c) macroeconomics.
d) the gross domestic product.
19. Pollution caused by automobiles is an example of
a) an inefficient allocation of resources.
b) a positive externalities
c) a negative externalities
d) the public sector.
20. Which of the following is NOT one of policymakers' chief desires as they seek to stabilize the
economy?
a) high employment
b) steady growth
c) stable prices
d) the elimination of externalities
21. Unemployment compensation helps provide economic
a) equity.
b) stability.
c) freedom.
d) growth.
22. Since the founding of the United States, the role of government in the economy has
a) decreased.
b). increased.
c) been eliminated.
d) had no impact on individual economic choices.
23. Zoning regulations are an example of
a) a pure market economy.
b) a traditional economy.
c) the role of government in regulating economic activities.
d) the lack of government involvement in economic activities.
24. A free enterprise system involves trade-offs between
a) state and federal government.
b) customs and beliefs.
c) businesses in the same industry.
d) individual gain and social equity.
25. Which of the following is an example of a good?
a) a tune-up
b) an oil change
c) a car wash
d) a car
26. Another name for capitalism, an economic system based on private ownership of productive
resources
a) free enterprise
b) free contract
c) private sector
d) free rider
27. The concept that everyone has the same economic rights under the law
a) welfare
b) externality
c) legal equity
d) subsidy
28. The ability of everyone to enter and compete in the marketplace of his or her own free choice
a) open opportunity
b) legal equality
c) externality
d) free contract
29. Government programs designed to protect people from economic hardships
a) externality
b) welfare
c) free rider
d) safety net
30. Government aid to the poor
a) free rider
b) subsidy
c) safety net
d) welfare
1.
5 True/False Questions
31. profit motive → goods and services that are provided by the government and consumed by the
public as a group
True
False
32. work ethic → a person who chooses not to pay for a good or service but who benefits form it
when it is provided
True
False
33. free rider → a person who chooses not to pay for a good or service but who benefits form it
when it is provided
True
False
34. private property rights → the concept that people have the right and privilege to control their
possessions as they wish
True
False
35. free contract → a person who chooses not to pay for a good or service but who benefits form it
when it is provided
True
False
Part II – Short answer. In preparing your answer, cite specific examples from your text and information
from your other sources.
1.
Because the market is vulnerable to business cycles, the government creates public policies that
aim to stabilize the economy. What are the three main outcomes policymakers pursue to stabilize the
economy? Briefly explain each in your discussion.
2.
What characteristics differentiate private goods from public goods? Explain.
3.
Describe the main programs through which the government redistributes income. How are they
different from in-kind benefits?
4.
How might the invention of a new, more powerful fuel source for cars and trucks affect the
country's production possibility frontier? Give a possible explanation for the movement, if any, of the
PPC. Include in your discussion what will happen to the nation's GDP and the nation's overall standard
of living. Include a diagram of the PPC.
5.
Do high taxes encourage or discourage inventiveness? Explain.