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Economics Assessments 1.1.1 Scarcity, Choice, Opportunity Costs, and Comparative Advantage – Using examples, explain how scarcity, choice, opportunity costs affect decisions that households, businesses, and governments make in the market place and explain how comparative advantage creates gains from trade. 1. Willie loves ice cream. He has found a store that sells ice cream cones at a bargain price of $0.50 each. He has just eaten two of these cones but has not decided to buy a third one. Which of the following statements best explains the economic principle at work in Willie’s decision not to buy a third cone? A. Consumers weigh the additional costs and benefits before choosing to buy more goods. B. Consumers spend freely to increase business activity so that the price of goods will drop. C. Consumers save more by buying larger quantities. D. Consumers buy more at lower prices. Answer: A 2. Juan, Darrell, and Anita all want to go out with their friends on Saturday night but first they must clean their house. Use the idea of comparative advantage to decide who should do what chore in order to get the household chores done the fastest. Chore Vacuum/Dust Do the laundry Clean the Kitchen/Bath Juan 35 minutes 60 minutes 20 minutes Darrell 50 minutes 30 minutes 25 minutes Anita 25 minutes 50 minutes 35 minutes A. Darrell should vacuum/dust; Anita should clean the kitchen/bath; Juan should do the laundry. B. Darrell should do the laundry; Anita should clean the kitchen/bath; Juan should vacuum/dust. C. Darrell should do the laundry; Anita should vacuum/dust; Juan should clean the kitchen/bath D. Darrell and Anita should clean the whole house; Juan should do nothing. Answer: C Economics Assessments – May 2009 1 3. NXTX Incorporated currently has 10 workers. It would like to expand and hire more workers. Each additional worker will cost the company $100 per day. According to the information in the table below, how many workers in total should NXTX Incorporated employ to maximize its profits? Number of Total Revenue A. 11 Workers per Day B. 12 10 $1,000 C. 13 11 $1,250 D. 14 12 $1,325 Answer: A 13 $1,385 14 $1,400 4. One country enjoys a comparative advantage over another in producing oil when A. B. C. D. it has more oil than the other country. it can produce oil at a lower opportunity cost than the other country. it does not need to import oil. it wants to export as much oil as possible. Answer: B 1.12 Entrepreneurship – Identify the risks, returns and other characteristics of entrepreneurship that bear on its attractiveness as a career. 1. The owners of Grass Cutters, a lawn-mowing service, decide to purchase four additional mowers because demand for their services is increasing. The owners make this decision projecting that the output, total costs, and total revenues of their business will change in which of the following ways? A. B. C. D. Output Increase Increase Increase Decrease Total Costs Increase Increase Decrease Decrease Total Revenues Increase Decrease Increase Increase Answer: A 2. Which of the following actions is an example of an improvement in human capital? A. B. C. D. Carlos hires three workers for his business. Frank’s Furniture trains employees to use computers. Tasha applies for a job as an engineer. The city of Upland builds a new nursing home. Answer: B Economics Assessments – May 2009 2 3. Recently, the hourly wage that parents are willing to pay babysitters increased dramatically. Higher pay will most likely cause which of the following changes in how babysitters divide their out-of-school time between babysitting and other activities? A. B. C. D. Time Spent Babysitting No change Increase Decrease Increase Time Spent on Other Activities Decrease Decrease No change Increase Answer: B 1.2.1 Business structures-Compare and contrast the functions and constraints facing economic institutions including small and large businesses, labor unions, banks, and households. 1. Which is the first step a labor union takes when negotiating contracts with employers? A. B. C. D. Engage in collective bargaining Start a plant lockout Demand binding arbitration Call for a strike Answer: A 2. If one of a firm’s fixed costs rises, A. B. C. D. its profit-maximizing output level will increase. its profit-maximizing output level will decrease. its profit-maximizing output level will not change. it would likely increase its price. Answer: C 3. What is one way to lower the cost of production? A. B. C. D. Hire additional workers Create new technologies Use more resources Cut more resources Answer: B Economics Assessments – May 2009 3 1.2.2 Price in the Market – Analyze how prices send signals and provide incentives to buyers and sellers in a competitive market. 1. Auto dealers begin to offer new cars for sale with no down payment required and an interest rate of 0 percent. Which of the following is likely to occur? A. B. C. D. Sales of new cars will decrease. More consumers will buy new cars. More people will use public transportation. Prices of used cars will increase. Answer: B 2. Which of the following would most likely result in the market price of a good falling? A. B. C. D. Rising demand with falling supply Falling demand with rising supply Rising demand with unchanging supply Falling demand with falling supply Answer: B 3. A discount is a form of A. B. C. D. resource. capital. incentive. consumption. Answer: C 1.2.3 Investment, Productivity and Growth – Analyze the role investments in physical (e.g., technology) and human capital (e.g., education) play in increasing productivity and how these influence the market. 1. An entrepreneur is considering spending money on research to develop an efficient way to increase productivity. What is the most important decision on whether or not to spend this money? A. B. C. D. The size of the plant required for increasing productivity. The number of competitors making similar changes. The increase in profit expected from increasing productivity. The degree to which consumers consider the product a necessity. Answer: C Economics Assessments – May 2009 4 2. Which of the following strategies is generally considered an effective means of enhancing a country’s long-term economic growth? A. B. C. D. Decreasing the money supply Decreasing government spending Increasing spending on education and training Increasing the international value of the country’s currency Answer: C 3. Why are people sometimes considered a resource? A. B. C. D. People’s labor is exchanged for wages or salaries. People can buy houses and pay rent. People have children and pets. People trade goods and supplies. Answer: A 1.3.1 Law of Supply – Explain the law of supply and analyze the likely change in supply when there are changes in prices of the productive resources (e.g., labor, land, capital including technology), or the profit opportunities available to producers by selling other goods or services, or the number of sellers in a market. 1. If the cost of sugar rises and sugar is a major ingredient in jelly beans, then the jelly bean A. B. C. D. demand curve shifts to the left. supply curve shifts to the left. supply curve shifts to the right. demand and supply curves both shift to the right. Answer: B 2. Which of the following is most likely to benefit a debtor? A. B. C. D. Unanticipated deflation Anticipated deflation Unanticipated inflation Anticipated inflation Answer: B Economics Assessments – May 2009 5 1.3.2 Law of Demand – Explain the law of demand and analyze the likely change in demand when there are changes in prices of the goods or services, availability of alternative (substitute or complementary) goods or services, or changes in the number of buyers in a market created by such things as change in income or availability of credit. 1. A new technology increases the speed of computers without increasing production costs. What is the likely effect of this technology? A. B. C. D. The price of new computers will decline. The price of new computers will increase. The demand for new computers will decline. The demand for new computers will increase. Answer: D 2. Stephanie’s Waterbeds faces the demand shown below for its beds. Each bed costs $300 to produce (no matter how many are made). What price should Stephanie charge to maximize her profits? Price (per bed) Quantity Demanded (per day) A. $1,000 $1,000 1 B. $900 $900 2 C. $800 $800 3 D. $700 Answer: D $700 4 $600 5 3. When people’s incomes increase, the demand for roses and the price of roses are most likely to change in which of the following ways? A. B. C. D. Demand for Roses Decrease Decrease Increase Increase Price Decrease Increase Decrease Increase Answer: D Economics Assessments – May 2009 6 1.3.3 Price, Equilibrium, Elasticity, and Incentives – Analyze how prices change through the interaction of buyers and sellers in a market including the role of supply, demand, equilibrium, elasticity, and explain how incentives (monetary and non-monetary) affect choices of households and economic organizations. 1. Which of the following defines the equilibrium price for a product in a competitive market? A. B. C. D. The price that most consumers are willing to pay for the product. The price at which business makes the maximum revenue. The price that is equal to the total cost of producing and marketing the product. The price at which the quantity supplied is the same as the quantity demanded. Answer: D 2. With existing resources in the economy, what is the result of movement from point D to point C? A. B. C. D. Production of more cotton and less coal Production of less cotton and more coal Production of more cotton and more coal Production of less cotton and less coal Answer: B 3. A bike shop in a small town has received a shipment of 10 new bicycles. The shop offers the bikes for sale at a price of $300 each. At this price, however, there are only two people in town who are willing to buy a bicycle. This situation can be described as A. B. C. D. disequilibrium. shortage. surplus. both a and c are correct. Answer: D Economics Assessments – May 2009 7 1.4.1 Public Policy and the Market – Analyze the impact of a change in public policy (such as an increase in the minimum wage, a new tax policy, or a change in interest rates) on consumers, producers, workers, savers, and investors. 1. Distortions in the market which may require government intervention may be caused by A. B. C. D. the existence of monopoly power in a market or industry. imperfect information among consumers and businesses. the existence of externalities. all of the above. Answer: D 2. Which one of the following is not an example of the use of government fiscal policy? A change in A. B. C. D. the size of the budget deficit. interest rates. government spending on the National Health Service. A tax imposed on imports of goods and services. Answer: B 1.4.2 Government and Consumers – Analyze the role of government in protecting consumers and enforcing contracts, (including property rights), and explain how this role influences the incentives (or disincentives) for people to produce and exchange goods and services. 1. As consumers have become more concerned about the amount of saturated fat in their diet the demand for chicken has increased while the demand for beef has fallen. If other factors remain constant, the result is likely to be A. B. C. D. a decrease in the quantity supplied of chicken. an increase in the quantity of supplied of beef. a rise in the market price of chicken. a rise in the market price of beef. Answer: C 2. Which one of the following creates an incentive for firms to reduce pollution? A. B. C. D. An increase in negative externalities as firms increase their output. Government subsidies paid to firms that increase their output. Tax levies on firms that cause pollution. The failure of the government to tax firms that cause pollution. Answer: C Economics Assessments – May 2009 8 3. Which one of the following is the best guide to the likely trend rate of economic growth of a country? An increase in A. B. C. D. labor and capital productivity. net exports of goods and services. government spending on welfare benefits. consumer spending. Answer: A 1.4.3 Government Revenue and Services – Analyze the ways in which local and state governments generate revenue (e.g., income, sales, and property taxes) and use that revenue for public services (e.g., parks and highways). 1. In the United States, which of the following forms of taxation currently represents the largest source of tax revenue for the federal government? A. B. C. D. Property tax Sales tax Corporate income tax Personal income Answer: D 2. Anthony’s Accountants is the only employer of accountants in the island of Fairisle. The table gives the demand and supply of accountants on Fairisle. The marginal cost of hiring a sixth accountant is _____ an hour. A. B. C. D. $50 $65 $30 $55 Answer: C Economics Assessments – May 2009 Wage rate (dollars per hour) 15 20 25 30 35 40 45 9 Quantity of Quantity of labor demanded labor supplied (workers per day) 9 3 8 4 7 5 6 6 5 7 4 8 3 9 1.4.4 Functions of Government – Explain the various functions of government in a market economy including the provision of public goods and services, the creation of currency, the establishment of property rights, the enforcement of contracts, correcting for externalities and market failures, the redistribution of income and wealth, regulation of labor (e.g., minimum wage, child labor, working conditions), and the promotion of economic growth and security. 1. Country X and Country Y have similar populations and natural resources. Which of the following best explains why Country X would have a higher rate of economic growth than Country Y? A. B. C. D. Country X invests more in education. Country X imports more consumer goods Country X places higher taxes on businesses. Country X pays larger salaries to government officials. Answer: A 2. Which one of the following is likely to result from an increase in government subsidies paid to local bus companies? A. B. C. D. A reduction in average vehicles traveling to work. An increase in the real incomes of city dwellers using public transport. An increase in traffic congestion. A fall in the number of bus operators. Answer: A 3. The price of lasagna increases by 20% and as a result the demand for red wine falls by 5%. We can conclude from this information A. B. C. D. The two goods are close compliments. The two goods are weak substitutes. The two goods are weak complements. The two goods are close substitutes. Answer: C 1.4.5 Economic Incentives and Government – Identify and explain how monetary and nonmonetary incentives affect government officials and voters and explain how government policies affect the behavior of various people including consumers, savers, investors, workers, and producers. Economics Assessments – May 2009 10 2.1.1 Income – Describe how individuals and businesses earn income by selling productive resources. 1. Which one of the following is most likely to improve the wages of American workers? A. B. C. D. An increase in business inventories An increase in productivity. An increase in interest rates. None of the above. Answer: B 2.1.2 Circular Flow and the National Economy – Using the concept of circular flow, analyze the roles of and the relationships between households, business firms, financial institutions, and government and nongovernmental agencies in the economy of the United States. 2.1.3 Financial Institutions and Money Supply – Analyze how decisions by the Federal Reserve and actions by financial institutions (e.g., commercial banks, credit unions) regarding deposits and loans, impact the expansion and contraction of the money supply. 1. What happens to most of the money deposited in checking accounts at a commercial bank? A. B. C. D. It is used to pay the bank’s expenses. It is loaned to other bank customers. It is kept in bank’s vault until depositors withdraw the funds. It is paid to owners of the bank as a return on their investment. Answer: B 2.1.4 Money Supply, Inflation, and Recession – Explain the relationships between money supply, inflation, and recessions. 1. The most basic measure of the money supply in the United States consists of which of the following? A. B. C. D. Gold certificates, silver certificates, and precious metals Treasury bills, Treasury notes, and Treasury bonds Credit card accounts, charge accounts, and savings accounts Checking account deposits, paper currency, and coins Answer: D Economics Assessments – May 2009 11 2. Which of the following is most likely to benefit a debtor? A. B. C. D. Unanticipated deflation Anticipated deflation Unanticipated inflation Anticipated inflation Answer: B 3. What economic policy would most likely be used to combat a recession when inflation is low? A. B. C. D. An increase in taxes. An increase in the money supply. An increase in stock market prices. A rise in the consumer price index. Answer: B 2.1.5 Gross Domestic Product (GDP) and Economic Growth – Use GDP data to measure the rate of economic growth in the United States and identify factors that have contributed to this economic growth. 1. Economic growth is measured by a positive change in which of the following? A. B. C. D. The money supply The Producer Price Index The Gross Domestic Product The balance of payments Answer: C 2. When the real Gross Domestic Product (GDP) is declining, that period is referred to as a recession. When that trend stops and economic activity begins to rise again it is known as a A. B. C. D. peak. cycle. trough. gap. Answer: C Economics Assessments – May 2009 12 3. Which of the following is the least likely to contribute to economic growth? A. B. C. D. Technological advances Labor force education Increased access to resources Tighter government regulation Answer: D 2.1.6 Unemployment – Analyze the character of different types of unemployment including frictional, structural, and cyclical. 2.1.7 Economic Indicators – Using a number of indicators, such as GDP, per capita GDP, unemployment rates, and Consumer Price Index, analyze the characteristics of business cycles, including the characteristics of peaks, recessions, and expansions. 1. The purchasing power of people’s incomes is most affected by A. B. C. D. the inflation rate. the trade deficit. the balance of payments. the unemployment rate. Answer: A 2. Which one of the following is the most widely used measure of inflation? A. B. C. D. The Consumer Price Index The Index of Leading Economic Indicators The prime rate The Federal Funds rate Answer: A Economics Assessments – May 2009 13 3. Which best describes the calculation of GNP or Gross National Product? A. The total value of goods and services produced domestically, plus income earned by citizens outside the country, less foreigner’s income from domestic production. B. The total value of goods and services produced domestically by all workers. C. The total value of goods and services produced domestically less production costs except wages paid. D. The total value of goods and services produced domestically, less income from foreign workers producing domestically, less the total value of goods consumed domestically. Answer: A 2.1.8 Relationship Between Expenditures and Revenue (Circular Flow) – Using the circular flow model, explain how spending on consumption, investment, government and net exports determines national income; explain how a decrease in total expenditures affects the value of a nation’s output of final goods and services. 1. What is most likely to happen when consumers increase their purchases of goods and services? A. B. C. D. Businesses will increase production, and workers will receive more income. Businesses will increase production, and workers will receive less income. Businesses will decrease production, and workers will receive more income. Businesses will decrease production, and workers will receive less income. Answer: A 2.1.9 American Economy in the World – Analyze the changing relationship between the American economy and the global economy including, but not limited to, the increasing complexity of American economic activity (e.g., outsourcing, off-shoring, and supplychaining) generated by the expansion of the global economy. 1. Which of the following industries in the United States is not an example of monopolistic competition? A. B. C. D. Electric service providers Fast food restaurants Cosmetics companies Athletic shoe manufacturers Answer: A Economics Assessments – May 2009 14 2. With which of the following nations did the United States have the largest trade deficit in 2005? A. B. C. D. Japan Mexico Canada China Answer: D 2.2.1 Federal Government and Macroeconomic Goals – Identify the three macroeconomic goals of an economic system (stable prices, low unemployment, and economic growth). 1. A goal of the Federal Reserve System is to __________________. A. B. C. D. set the tax rate keep the economy stable maintain high interest rates provide tax money to the government Answer: B 2. Which of the following is not associated with the study of macroeconomics? A. B. C. D. Inflation National unemployment rates Production factors Individual consumer practices Answer: D 3. Which of the following affects economic growth the least? A. B. C. D. Educating the labor force Increasing government regulation Advances in technology Access to resources Answer: B Economics Assessments – May 2009 15 2.2.2 Macroeconomic Policy Alternatives – Compare and contrast differing policy recommendations for the role of the Federal government in achieving the macroeconomic goals of stable prices, low unemployment, and economic growth. 1. Which of the following has been most important in reducing poverty over time? A. B. C. D. Taxes Economic growth International trade Government regulations Answer: B 2. A politician proposes reducing business taxes, a move she says will encourage risk-taking entrepreneurship. This proposed cut in business taxes is intended to stimulate the economy mainly through A. B. C. D. an increase in aggregate supply. a decrease in aggregate supply. a decrease in aggregate demand. an increase in aggregate demand. Answer: A 2.2.3 Fiscal Policy and its Consequences – Analyze the consequences – intended and unintended – of using various tax and spending policies to achieve macroeconomic goals of stable prices, low unemployment, and economic growth. 1. Which of the following actions does the United States federal government commonly take to finance a budget deficit? A. B. C. D. Printing more money Imposing import quotas Borrowing from the public Expanding public-works projects Answer: C Economics Assessments – May 2009 16 2. Suppose that the federal government initially has a balanced budget. Which of the following changes in government tax revenues and expenditures over time will definitely lead to an increase in the national debt? A. B. C. D. Tax Revenue Increase Increase Decrease No Change Expenditures No Change Decrease Increase Decrease Answer: C 3. In the 1930s, which government agency was created to prevent more bank failures in an attempt to promote economic growth? A. B. C. D. FCC CCC FDIC WPA Answer: C 2.2.4 Federal Reserve and Monetary Policy – Explain the roles and responsibilities of the Federal Reserve System and compare and contrast the consequences – intended and unintended – of different monetary policy actions of the Federal Reserve Board as a means to achieve macroeconomic goals of stable prices, low unemployment, and economic growth. 1. What consumer behavior is the Federal Reserve Board trying to encourage when it implements a loose monetary policy? A. B. C. D. Increased saving and reduced spending Decreased saving and increased spending Increased saving and spending Decreased saving and spending Answer: B 2. Which of the following is a policy tool of the Federal Reserve? A. B. C. D. Raising or lowering income taxes Increasing or decreasing unemployment benefits Buying or selling government securities Increasing or decreasing government spending Answer: C Economics Assessments – May 2009 17 3. When the Federal Reserve Bank lowers the reserve requirement A. B. C. D. investors will purchase “open market” bonds. banks must hold less money. people will deposit more money. banks will create more money. Answer: D 2.2.5 Government Revenue and Services – Analyze the ways in which governments generate revenue on consumption, income and wealth and use that revenue for public services (e.g., parks and highways) and social welfare (e.g., social security, Medicaid, Medicare). 1. How do federal income taxes and transfer payments, such as unemployment compensation, affect the distribution of personal income in the United States after taxes and transfers? A. Federal income taxes make the distribution of income more equal, but transfers make it less equal. B. Federal income taxes make the distribution of income less equal, but transfers make it more equal. C. Both federal income taxes and transfers make the distribution of income less equal. D. Both federal income taxes and transfers make the distribution of income more equal. Answer: D 3.1.1 Major Economic Systems – Give examples of and analyze the strengths and weaknesses of major economic systems (command, market and mixed), including their philosophical and historical foundations (e.g., Marx and the Communist Manifesto, Adam Smith and the Wealth of Nations). 1. All of the following are characteristics of oligopolies EXCEPT A. B. C. D. large expenditures on advertising and product development. the existence of significant barriers to entry. the non-existence of significant barriers to entry. extensive price competition to gain market share. Answer: D Economics Assessments – May 2009 18 2. The 1917 victory of the communists in Russia was a contradiction of Marxist theory because Russia was A. B. C. D. already ruled by a socialist government. involved in World War I. mainly an agricultural society. not considered to be a military power. Answer: C 3.1.2 Developing Nations – Assess how factors such as availability of natural resources, investments in human and physical capital, technical assistance, public attitudes and beliefs, property rights and free trade can affect economic growth in developing nations. 3.1.3 International Organizations and the World Economy – Evaluate the diverse impact of trade policies of the World Trade Organization, World Bank, or International Monetary Fund on developing economies of Africa, Central America, or Asia, and the developed economies of the United States and Western Europe. 3.1.4 GDP and Standard of Living – Using current and historical data on real per capita GDP for the United States, and at least three other countries (e.g., Japan, Somalia, and South Korea) construct a relationship between real GDP and standard of living. 1. Which of the following is the best measure for comparing the material standard of living among people in different nations? A. B. C. D. Imports and exports per capita Real gross domestic product per capita Consumer price index Real interest rates Answer: B Economics Assessments – May 2009 19 3.1.5 Comparing Economic Systems – Using the three basic economic questions (e.g., what to produce, how to produce, and for whom to produce), compare and contrast a socialist (command) economy (such as North Korea or Cuba) with the Capitalist as a mixed, free market system of the United States. 1. In a command economy, how are the prices of goods and services determined? A. B. C. D. Market forces of supply and demand The central government Independent agencies and independent regulators Business owners Answer: B 2. Which of the following best describes the primary role of an economic system? A. B. C. D. To respond to market failure. To address equity concerns to improve fairness. To determine the allocation of limited resources. To protect domestic producers from foreign competition. Answer: C 3.1.6 Impact of Transitional Economies – Analyze the impact of transitional economies, such as in China and India, on the global economy in general and the American economy in particular. 3.2.1 Absolute and Comparative Advantage – Use the concepts of absolute and comparative advantage to explain why goods and services are produced in one nation or locale versus another. 1. International trade and specialization most often lead to which of the following? A. B. C. D. An increase in a nation’s productivity. A decrease in a nation’s economic growth in the long term. An increase in a nation’s import tariffs. A decrease in a nation’s standard of living. Answer: A Economics Assessments – May 2009 20 3.2.2 Domestic Activity and World Trade – Assess the impact of trade policies (i.e. tariffs, quotas, export subsidies, product standards and other barriers), monetary policy, exchange rates, and interest rates on domestic activity and world trade. 1. Two countries are currently trading with each other. The countries agree to remove all trade restrictions on products traded between them. Which of the following is most likely to decrease? A. B. C. D. The variety of goods available. The prices of imported goods. The quality of goods available. The amount of imported goods. Answer: B 2. Which of the following best explains why domestic industries are often successful in convincing Congress to place tariffs on certain imported products? A. The revenue generated from the tariffs is less than the revenue from taxes on products produced by the industry. B. The revenue generated from the tariffs is greater than the benefits of the tariffs to the industry. C. The cost to any one consumer is small, and the benefits to the industry are large. D. The benefit to any one consumer is large, and the cost to the industry is small. Answer: C 3. Trade restrictions, such as the imposition of import tariffs, usually result in higher product prices. Despite this increase, which of the following is often the primary economic motivation for a government to impose such restrictions? A. B. C. D. The government is responding to help domestic producers. The government is responding to help domestic consumers. The government wants to increase the demand for products subject to the tariffs. The government wants to raise revenue to pay for the tariffs. Answer: A 3.2.3 Exchange Rates and the World Trade – Describe how interest rates in the United States impact the value of the dollar against other currencies (such as the Euro), and explain how exchange rates affect the value of goods and services of the United States in other markets. 3.2.4 Monetary Policy and International Trade – Analyze how the decisions made by a country’s central bank (or the Federal Reserve) impact a nation’s international trade. Economics Assessments – May 2009 21 3.2.5 The Global Economy and the Marketplace – Analyze and describe how the global economy has changed the interaction of buyers and sellers, such as in the automobile industry. 1. Because Country A has no domestic sources of wood, it imports all its wood from woodproducing countries. If the price of wood in wood-producing countries rises substantially, which of the following is most likely to occur. A. B. C. D. Country A will import more wood to meet rising demand. Country A will impose a tariff on wood imports. Housing prices in Country A will increase as wood imports become more expensive. Profits in other wood-producing countries will increase because of increased exports to Country A. Answer: C 2. A newspaper reports, “Coffee growers in Brazil and Colombia organized to consider world coffee supply levels.” If this group should decide to act in a concerted effort for the benefit of the group as a whole, the likely result is A. B. C. D. increased coffee production and prices. decreased coffee production and increased prices. increased prices with no change in coffee production. increased coffee production and decreased prices. Answer: B 4.1.1 Scarcity and Opportunity Costs – Apply concepts of scarcity and opportunity costs to personal financial decision making. 1. What is the opportunity cost of buying a new car? A. The value of other goods and services you could have purchased with the money you spent on the car. B. The price you paid for the car. C. The cost of operating and maintaining the car. D. The difference between what the car costs now and what a similar car like it will cost a year from now. Answer: A Economics Assessments – May 2009 22 4.1.2 Marginal Benefit and Cost – Use examples and case studies to explain and evaluate the impact of marginal benefit and marginal cost of an activity on choices and decisions. 1. As more labor is added to a fixed amount of input, the rate at which output goes up begins to decrease. This is called A. B. C. D. diminishing marginal utility. diminishing marginal productivity. diminishing marginal costs. diminishing marginal profit. Answer: C 4.1.3 Personal Finance Strategy – Develop a personal finance strategy for earning, spending, saving and investing resources. 1. James borrows $10,000 from the bank. By the time the loan is repaid, James has paid the bank $10,400. What does the additional $400 represent? A. B. C. D. Inflation rate Purchasing power of money Interest Investment Answer: C 4.1.4 Key Components of Personal Finance – Evaluate key components of personal finance including, money management, saving and investment, spending and credit, income, mortgages, retirement, investing (e.g., 401K, IRAs), and insurance. 1. Which of the following is true of people with poor credit histories? A. They will earn higher rates of interest on savings accounts than people with good credit histories. B. They will earn lower rates of interest on savings accounts than people with good credit histories. C. They will be charged higher rates of interest on loans than people with good credit histories. D. They will be charged lower rates of interest on loans than people with good credit histories. Answer: C Economics Assessments – May 2009 23 4.1.5 Personal Decisions – Use a decision-making model (e.g., stating a problem, listing alternatives, establishing criteria, weighing options, making the decision, and evaluating the result) to evaluate the different aspects of personal finance including careers, savings and investing tools, and different forms of income generation. 4.1.6 Risk Management Plan – Develop a risk management plan that uses a combination of avoidance, reduction, retention, and transfer (insurance). 1. Drought conditions create water shortages. Assuming that water consumption can be measured for each household, select the water policy below that is most likely to cause the greatest reduction in water use by urban households. A. Give water to users with instructions to use it wisely. B. Charge a flat (constant) fee of $50 per household, irrespective of the amount of water used. C. Raise the price of water from 2 cents to 50 cents per gallon with the biggest water users (per capita) paying the highest price per gallon. D. Charge $20 per month and limit household consumption to last year’s monthly. Answer: C 2. An entrepreneur is considering spending money on research to develop a more efficient way to produce a product. What is the most important factor in the decision on whether or not to spend this money? A. B. C. D. The size of the plant needed to produce the product. The number of competitors producing a similar product. The increase in profit expected from producing the product. The degree to which consumers consider the product a necessity. Answer: C Economics Assessments – May 2009 24