Download Economics Exam Review: Page numbers at the end of the

Economics Exam Review: Page numbers at the end of the questions are only suggested
reading and more research may be required on your part to find the correct answer.
1. Which of the following is an example of using physical capital to save time and money? 6
a.
hiring more workers to do a job
b.
building extra space in a factory to simplify production
c.
switching from oil to coal to make production cheaper
d.
lowering workers’ wages to increase profits
2. What is the difference between a shortage and a scarcity? 4
a.
A shortage can be temporary or long-term, but scarcity always exists.
b.
A shortage results from rising prices; scarcity results from falling prices.
c.
A shortage is a lack of all goods and services; scarcity concerns a single item.
d.
There is no real difference between a shortage and a scarcity.
3. Which of the following are factors of production? 5
a.
capital and land
b.
scarcity and shortages
c.
technology and productivity
d.
economics and business decisions
4. Which of the following people is an entrepreneur? 5
a.
a person who earns a lot of money as a singer or dancer
b.
a person who creates a game and sells it to a game manufacturer
c.
a person who starts an all-organic cleaning supplies business that employs others
d.
a person who works as a highly-paid computer programmer
5. If you choose between two summer jobs, the one you do not choose is the ______ of your decision. 10
a.
trade-off
b.
opportunity cost
c.
decision at the margin
d.
opportunity at the margin
6. A production possibilities curve shows the relationship between the production of 13
a.
farm goods and factory goods.
b.
two types of farm goods.
c.
two types of factory goods.
d.
any two categories of goods.
7. Which is an example of an economic shortage? 4
a.
a farmer without enough water for crops
b.
too many jobs available
c.
a toy store without dolls
d.
too much bread on the store shelves
8. What must a nation’s economy do in order to improve the standard of living? 27
a.
remain stable
b.
grow
c.
reach economic equity
d.
allow central planning
9. Where are traditional economies usually found? 28
a.
in small communities that welcome change
b.
in large communities that welcome change
c.
in large communities that are able to deal with environmental disaster
d.
in small communities that avoid change
10. What “invisible hand” directs the free market? 33
a.
incentives and efficiency
b.
specialization
c.
circular flow
d.
competition
11. Why does the U.S. government intervene in the economy? 43
a.
to compete with private firms
b.
to limit foreign trade
c.
to promote the general welfare
d.
to restrict the banking industry
12. How can specialization benefit an economy? 30
a.
It stops unemployment.
b.
It makes production more efficient.
c.
It leads to competition.
d.
It makes labor easier to control.
1
13. What is one important advantage of a free market? 30
a.
It distributes goods equally.
b.
It protects the less fortunate.
c.
It is easy to regulate.
d.
It encourages growth.
14. Which of the following is the main incentive for a manufacturer to sell a product? 33
a.
making profits on sales
b.
putting others out of business
c.
pleasing the consumer
d.
helping the economy grow
15. In what kind of an economy does the government make all the decisions? 35
a.
mixed
b.
laissez-faire
c.
centrally planned
d.
free enterprise
16. What does “consumer sovereignty” mean in a free market economy? 34
a.
The customer is always right.
b.
Customers have the power to decide what gets produced.
c.
People with the most money are treated like royalty.
d.
Producers of goods are also customers.
17. Which of the following best describes the economy of the United States? 43
a.
free market
b.
centrally planned
c.
mixed, but on the side of centrally planned
d.
mixed, but on the side of free market
18. What is the profit motive? 51
a.
exchange of goods
b.
money that a business makes
c.
opportunity for success
d.
incentive to make money
19. What is considered a negative effect of government regulation? 55
a.
It is expensive for businesses to follow all the rules.
b.
It does not protect the well-being of the public.
c.
It protects consumers but harms the environment.
d.
It allows businesses to sell unsafe products.
20. What is one way the government might try to promote economic growth? 57
a.
raise taxes
b.
produce more goods
c.
increase spending
d.
reduce prices
21. What is one way new technology helps the United States improve its standard of living? 59
a.
prevents sudden price changes
b.
reduces unemployment
c.
increases economic stability
d.
increases productivity
22. What is one key feature of public goods? 62
a.
The more people use them, the more money they cost to provide.
b.
It would be difficult to make consumers pay individually to use them.
c.
Every consumer must be willing to pay for them.
d.
People who do not pay for them do not get to use them.
23. In a free enterprise system, how do consumers most often express their desires to businesses? 51
a.
e-mailing or texting the companies
b.
protesting and boycotting products
c.
buying or not buying products
d.
hiring lobbyists to speak for them
24. The price of home computers rises. According to the law of supply, what will computer makers do? 98
a.
make more computers
b.
make fewer computers
c.
stop making computers
d.
make the same number of computers
2
25. Which of the following contributed to the banking crisis that began in 2006? 263
a.
sub-prime mortgages
b.
wildcat banks
c.
savings and loans
d.
greenbacks
26. How are savers and borrowers linked? 279
a.
through stockbrokers
b.
through financial intermediaries
c.
through corporate bonds
d.
through capital loss
27. An example of expansionary fiscal policy would be cutting 395
a.
income taxes.
b.
government spending.
c.
production of consumers’ goods.
d.
workers’ wages.
28. Which statement best describes a major role of government in a free enterprise system? 54
a.
It controls all decisions about business activities, including profit levels.
b.
It forms companies and then allows individual managers to run them.
c.
It regulates businesses when the public interest is involved.
d.
It follows a strict policy of laissez-faire.
29. Why does the government promote progress in technology? 59
a.
to make the economy stronger and more efficient
b.
to reduces the economy’s dependence on government
c.
to slow an economy down for a long period of time
d.
to increase unemployment by making workers unnecessary
30. In a system of voluntary exchange, who makes the final decisions? 51
a.
producers
b.
buyers and sellers
c.
the government
d.
free riders
31. Why is legal equality important to the free enterprise system? 51
a.
Protecting lawyers will ensure good legal representation for businesses.
b.
Guaranteeing that all businesses have the same legal rights creates competition in the marketplace.
c.
Protecting equality ensures that businesses ignore the profit motive.
d.
Guaranteeing all people the same legal rights allows everyone to compete in the marketplace.
32. Which of the following is the best example of a public good? 62
a.
highway system
b.
shopping mall
c.
country club
d.
movie theater
33. Why does an economist create a market demand schedule? 89
a.
to learn what demands the market will make under unusual conditions
b.
to have an idea of how a market would change if conditions in an area changed
c.
to predict how all people will change their buying habits when prices change
d.
to show how various conditions can change an individual’s demand for a good
34. What does it mean when you have demand for a good or service? 88
a.
You can afford the good but may be unwilling to buy it.
b.
You want the good but may not have the money for it.
c.
You are able to buy the good but not at the given price.
d.
You are willing and able to buy the good at the given price.
35. If prices rise but income stays the same, what is the effect on the quantity demanded? 89
a.
Quantity demanded increases.
c.
More goods are bought.
b.
Fewer goods are bought.
d.
Demand stays the same.
36. How might advertising lead to a shift in the demand curve?95
a.
by increasing the popularity of inferior goods
b.
by leading to a shift in demographics
c.
by allowing the law of demand to operate freely
d.
by helping to create fads and trends
3
37. How does an increase in population affect the demand curve? 94
a.
A point on the curve moves down.
c.
b.
A point on the curve moves up.
d.
The entire curve shifts to the left.
The entire curve shifts to the right.
38. What does elasticity of demand measure? 97
a.
an increase in the quantity available
b.
how buyers will cut back or increase their demand when price rises or falls
c.
d.
a decrease in the quantity demanded
the amount of time consumers need to change their demand for a good
39. What effect does the availability of many substitutes have on the elasticity of demand for a good? 99
a.
Demand is elastic.
c.
Demand is unitary elastic.
b.
Demand is inelastic.
d.
Demand is not affected.
40. Why is demand for milk inelastic? 101
a.
There are many substitutes for milk.
b.
Buying milk takes a large portion of income.
c.
It is considered a necessity, not a luxury.
d.
It is considered a luxury, not a necessity.
41. Economists say that a demand curve is accurate only as long as the ceteris paribus assumption is true. This means that
91
a.
goods are used in place of one another.
b.
all things other than price hold constant.
c.
consumer desire for goods remains elastic.
d.
anticipated supply can keep up with prices.
42. Businesses often use information such as age, income level, and occupation to sell products to certain groups of people.
Such statistical data are called 94
a.
revenues.
c.
markets.
b.
complements.
d.
demographics.
43. The price of cranberry juice suddenly increases. As a result, Glenda begins drinking more grape juice, which is less
expensive, but tastes just as good to her. In this case, Glenda’s elastic demand is due to 99
a.
availability of substitutes.
c.
necessities versus luxuries.
b.
relative importance.
d.
change over time.
44. John gets a raise and decides to buy fancy pasta instead of cheaper instant noodles. Which phrase describes what
instant noodles are for John? 94
a.
unitary elastic
c.
market demand
b.
complements
d.
inferior goods
45. When the price of a product goes down, what happens to producers? 99
a.
Existing producers expand.
b.
Some produce less, and others leave the market.
c.
Existing firms continue their usual output.
d.
New firms enter the market.
46. What does a supply schedule show? 112
a.
quantity supplied at one price
b.
factors that could influence supply
c.
changes in costs of labor and parts
d.
supply for a good at many prices
47. A graph of the information in a supply schedule creates which of the following? 113
a.
a demand curve
b.
a supply curve
c.
the quantity of goods demanded
d.
the supply of goods available
48. How is profit determined? 120
a.
total revenue plus total cost
b.
marginal revenue minus marginal cost
c.
total revenue minus total cost
d.
marginal revenue plus marginal cost
49. How does specialization affect production? 120
a.
It increases cost.
b.
It makes workers more efficient.
c.
It decreases revenue.
d.
It slows down production.
4
50. What effect do rising input costs have on the price of a good? 123
a.
The good becomes dependent on government regulation.
b.
The good becomes cheaper to produce.
c.
The good becomes more expensive to produce.
d.
It has no effect on the cost of the good.
51. How does new technology generally affect production? 123
a.
It lowers cost and decreases supply.
b.
It lowers cost and increases supply.
c.
It increases cost and decreases supply.
d.
It has very little effect on production.
52. If a seller expects the price of a good to rise in the future, the seller will 126
a.
place these goods on the market immediately.
b.
increase production of the good.
c.
store these goods until the price goes up.
d.
increase the price of the good now.
53. When any effort by government causes the supply of a good to rise, what happens to the supply curve? 113
a.
It shifts to the left.
b.
It shifts to the right.
c.
A point on the curve moves up.
d.
The supply curve is not affected.
54. Ultimately, the main factor that drives decisions about production is the 111
a.
availability of natural resources.
b.
government regulations and rules.
c.
public need for better goods.
d.
desire to maximize profits.
55. A large increase in gas prices creates a demand for cars with good gas mileage. It takes months for car companies to
make these cars. How do you describe this market for cars? 102
a.
inelastic
b.
elastic
c.
static
d.
inferior
56. What happens to the price of a good or service when there is excess demand? 125
a.
The price stays the same.
c.
The government sets the price.
b.
The price goes up.
d.
The price goes down.
57. If a baker’s supply of bread exceeds the demand for bread, he should 125
a.
stop selling bread.
c.
sell only bread.
b.
lower the price of bread.
d.
raise the price of bread.
58. Which of the following are ways the government controls markets? 126
a.
price ceilings and price floors
b.
equilibrium price and equilibrium point
c.
shortages and surpluses
d.
subsidies and disequilibrium
59. What does a company generally do when demand for its goods goes up? 134
a.
It rations goods.
c.
It cuts prices.
b.
It raises prices.
d.
There is no set response.
60. During World War II, the United States used rationing to 152
a.
limit production
c.
b.
meet tremendous shortages
d.
give away goods
stop the black market
61. How does rationing encourage black markets? 152
a.
Rationing creates high demand.
b.
Rationing causes criminal behavior.
Rationing creates high supply.
Rationing wrecks the market.
c.
d.
62. What does a low price tell suppliers? 139
a.
Not enough of a product is being produced.
b.
Too much of a product is being produced.
c.
Demand for a product will go up.
d.
Demand for a product will go down.
63. What condition has been reached when buyers purchase exactly as much as sellers are willing to sell? 134
a.
supply and demand
c.
equilibrium
b.
shortage
d.
price floor
5
64. Elena is looking for an apartment. Which of the following is an example of her search costs? 135
a.
Elena pays movers $400 to help her move to the new apartment.
b.
Elena loses two days of pay when she misses work to look for an apartment.
c.
Elena pays $300 to stay at a hotel for four nights before the apartment is ready.
d.
Elena must pay an extra month’s rent before she can move into a new apartment.
65. Which newspaper headline will shift the demand curve for flu shots to the right? 134
a.
New Medicine Protects Against Flu Without Shot
b.
Wrong Flu Vaccine Sickens People
c.
Suppliers Produce a Surplus of Flu Vaccine
d.
Health Experts Predict Severe Flu Season
66. The fact that money can withstand the wear and tear that comes from being used over and over again is a measure of its
252
a.
portability.
b.
currency.
c.
durability.
d.
uniformity.
67. Divisibility means that money can be easily divided into 252
a.
smaller units of value.
b.
currency and coins.
c.
representative money and fiat money.
d.
different units of exchange.
68. The difference between representative money and fiat money is that 254
a.
representative money can be converted into silver or gold; fiat money cannot.
b.
representative money is worth more than fiat money.
c.
fiat money is counted in coins; representative money is counted in paper dollars.
d.
fiat money is more durable than representative money.
69. Two units of the same type of money must be the same in terms of what they will buy, which is the principle of 252
a.
functionality.
b.
value.
c.
pricing.
d.
uniformity.
70. Why is portability an important characteristic of money? 252
a.
It would be hard to use money if everyone did not accept it.
b.
It would be confusing if some dollar bills were worth more than others.
c.
If we could not carry money with us, it would be hard to use.
d.
If money did not last a long time, we could not use it to store value.
71. Which type of money has no value of its own but is valuable because it can be exchanged for something else of value?
254
a.
fiat
b.
representative
c.
commodity
d.
specie
72. Why would commodity money be hard to use in most societies? 254
a.
It is not backed by the government.
b.
It cannot be used to pay taxes.
c.
It is not valuable in and of itself.
d.
It is often not portable, durable, or divisible.
73. In the early years of the United States, the Federalists favored 257
a.
the use of banks to limit trade.
b.
a centralized banking system.
c.
state control of their own banks.
d.
repeal of the gold standard.
74. What is one reason the First Bank of the United States was established? 257
a.
The government needed a way to pay its Civil War debts.
b.
The money system was confusing because every state had its own currency.
c.
Alexander Hamilton believed that the state banks were too large and powerful.
d.
The national government wanted to own all the states’ gold and silver.
75. What is one banking reform the government made during the Great Depression? 261
a.
The government paid off loans for large corporations.
b.
The government created the Federal Reserve System.
c.
The government deregulated the banking industry.
d.
The government created the Federal Deposit Insurance Corporation.
6
76. What is a credit union? 270
a.
a bank that takes deposits but does not make loans
b.
a bank that specializes in retirement savings accounts
c.
a type of savings and loan that makes housing loans
d.
a cooperative lending institution for a particular group
77. How does a bank make most of its profit on its business? 269
a.
by collecting fees on credit card purchases
b.
by collecting fees on safe deposit boxes
c.
by receiving fees from the government for handling federal and state accounts
d.
by paying out less in interest on deposits than it earns in interest on loans
78. What is fractional reserve banking? 267
a.
Only some deposits must be paid on demand.
b.
Banks lend only some of their money as mortgages.
c.
People transfer money and pay bills electronically.
d.
Banks keep some money on hand and lend out the rest.
79. What is the difference between simple and compound interest? 248
a.
Simple interest is paid by consumers. Compound interest is paid by corporations.
b.
Simple interest is paid at a fixed rate that does not change. Compound interest is paid at an adjustable rate that
might go up or down.
c.
Simple interest is paid on the principal. Compound interest is paid on both the principal and the interest it earns.
d.
Simple interest is paid on credit card debt. Compound interest is paid on a mortgage or business loan.
80. Which of the following is an example of representative money? 254
a.
a fur coat
b.
diamonds
c.
gold earrings
d.
an IOU note
81. The main purpose of the FDIC is to make sure that 261
a.
commercial and investment banks do not fail.
b.
customers do not lose money if a bank fails.
c.
banks charge a fair amount of interest on loans.
d.
the government has enough gold to cover its expenses.
82. What is a prospectus?
a.
a pool of money from various investors
b.
a report monitoring an individual’s investments
c.
a collection of financial assets
d.
an investment report for potential investors
83. Why is a certificate of deposit considered such a safe investment? 283
a.
It is issued by a savings bank.
b.
It is guaranteed by the federal government.
c.
It pays a relatively high rate of interest.
d.
It offers a high degree of liquidity.
84. What is a mutual fund? 279
a.
a device for pooling the savings of many investors and investing in a variety of ways
b.
a group that makes loans to investors who sometimes have a history of not paying back their loans
c.
a group that borrows money from many different sources to lend to its members
d.
a company that collects money from people to insure their families against the loss of their income
85. How does a pension fund act as an investor? 279
a.
The fund lends money to those who are also investors in it.
b.
The company invests the money collected from employers and/or employees.
c.
The company uses money collected from the employees to finance the company.
d.
The fund uses its own money to invest, not the money that is invested in it.
86. Why might you choose an investment with high risk instead of one with low risk? 289
a.
for greater liquidity
b.
for a higher return
c.
to avoid losing money
d.
for a lower return
7
87. How can borrowing money from banks help businesses grow? 258
a.
They make higher profits.
b.
They invest the money.
c.
They borrow more savings.
d.
They buy mutual funds.
88. Why would investors buy a junk bond? 289
a.
They want to invest in a particular company although it may not pay off.
b.
They want a steady source of income with low risk.
c.
Junk bonds have a higher rating than municipal bonds.
d.
Junk bonds pay a potentially higher level of interest than other bonds.
89. Which of these is the most risky for investors?288
a.
corporate bonds
b.
savings bonds
c.
Treasury bonds
d.
municipal bonds
90. What does the New York Stock Exchange do? 294
a.
buys and sells stocks but not bonds for wealthy private investors
b.
handles stock and bond trading on the Internet only
c.
arranges stock and bond trading of many large and established companies
d.
arranges the buying and selling of blue chip stocks only
91. What kind of assets are traded using futures contracts? 295
a.
stocks
b.
bonds
c.
commodities
d.
real estate
92. What does the Dow Jones Industrial Average measure? 296
a.
prices of all stocks and bonds in the NYSE
b.
average prices of all U.S. stocks and bonds
c.
prices of all stocks sold on the NASDAQ
d.
average selling price of 30 top stocks in the NYSE
93. To finance the building of a new police station, a local government is most likely to issue a 288
a.
junk bond.
b.
treasury bond.
c.
municipal bond.
d.
money market bond.
94. What gives the U.S. government the right to collect taxes? 363
a.
custom of government
b.
state laws in all 52 states
c.
the U.S. Constitution
d.
an act of the U.S. Congress
95. Which of the following are two characteristics of a good tax? 367
a.
equity and elasticity
b.
simplicity and equity
c.
efficiency and complexity
d.
certainty and inelasticity
96. How is the federal income tax a progressive tax? 364
a.
The higher the income a person has, the higher the percentage that person pays in tax.
b.
A person with a higher income pays more tax, but the percentage is less.
c.
Two married people who file their taxes together will pay more taxes than a single person will.
d.
Children pay no taxes, regardless of whether they earn a large income.
97. Which of the following is a mandatory spending program? 375
a.
students loans
b.
defense
c.
veterans’ pensions
d.
disaster aid
8
98. The role of the Office of Management and Budget is 392
a.
to manage the collection of all U.S. taxes.
b.
to make compromises between the federal and state budgets.
c.
to manage the federal government’s budget.
d.
to suggest new rules for the Internal Revenue Service.
99. Why does the government sometimes use an expansionary fiscal policy? 395
a.
to encourage growth and try to stop or prevent a recession
b.
to expand the government’s control over non-defense spending
c.
to control the demand for consumer goods and services
d.
to slow down the economy because fast-growing demand can exceed supply
100.
a.
b.
c.
d.
An example of contractionary fiscal policy would be 395
cutting income taxes.
decreasing government spending.
increasing production of consumer goods.
expanding government regulation of private industry.
9