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Economics Challenge 09 Practice Questions
1. If nominal GDP is $600 billion and, on average, each
dollar is spent three times per year, then the amount of
money demanded for transactions purposes will be:
$1800 billion.
$600 billion.
$200 billion.
$1200 billion.
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2. A fall in the price of milk, used in the production of
ice cream, will:
decrease the supply of ice cream, causing the supply
curve of ice cream to shift to the left.
increase the supply of ice cream, causing the supply
curve of ice cream to shift to the right.
cause a downward movement along the supply curve
of ice cream.
have no effect on the supply of ice cream.
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3. The law of supply:
reflects the amounts that producers will want to offer
at each price in a series of prices.
is reflected in a downsloping supply curve.
shows that the relationship between producer revenue
and quantity supplied is negative.
reflects the income and substitution effects of a price
change.
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Economics Challenge 09 Practice Questions
4. A price index is:
a comparison of the price of a market basket from a
fixed point of reference.
a comparison of real GDP in one period relative to
another.
the cost of a market basket of goods and services in a
base period divided by the cost of the same market
basket in another period.
a ratio of real GDP to nominal GDP.
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5. An increase in productivity will:
increase aggregate demand.
increase aggregate supply.
increase aggregate supply and aggregate demand.
decrease aggregate supply and aggregate demand.
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6. Rational behavior suggests that:
everyone will make identical choices.
resource availability exceeds economic wants.
individuals will make different choices because their
preferences and circumstances differ.
an individual's economic goals cannot involve tradeoffs.
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7. Which is regarded as an automatic stabilizer in the
economy?
interest rates
exchange rates
the inflation rate
the progressive income tax
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Economics Challenge 09 Practice Questions
8. A tariff can best be described as:
an excise tax on an exported good.
a government payment to domestic producers to
enable them to sell competitively in world markets.
an excise tax on an imported good.
a law that sets a limit on the amount of a good that can
be imported.
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9. An appropriate fiscal policy for a severe recession is:
a decrease in government spending.
a decrease in tax rates.
appreciation of the dollar.
an increase in interest rates.
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10. A contractionary fiscal policy can be illustrated by
a(n):
increase in aggregate demand.
decrease in aggregate demand.
increase in aggregate supply.
change in the price level.
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11. We would expect a decline in personal and
corporate income taxes to:
shift the aggregate demand curve rightward.
decrease consumption and investment spending.
decrease real output.
shift the aggregate supply curve leftward.
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Economics Challenge 09 Practice Questions
12. The paper money used in the United States is:
National Bank Notes.
Treasury Notes.
United States Notes.
Federal Reserve Notes.
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13. Suppose that the economy is in the midst of a
recession. Which of the following policies would be
consistent with active fiscal policy?
a Congressional proposal to incur a Federal surplus to
be used for the retirement of public debt
a reduction in agricultureal subsidies and veterans'
benefits
a postponement of a highway construction program
a reduction in Federal tax rates on personal and
corporate income
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14. The difference between M1 and M2 is that:
the former includes time deposits.
the latter includes small time deposits, noncheckable
savings accounts, money market deposit accounts, and
money market mutual fund balances.
the latter includes negotiable government bonds.
the latter includes cash held by commercial banks and
U.S. Treasury.
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Economics Challenge 09 Practice Questions
15. If the demand curve for computers increases:
more will be purchased at each possible price.
more will be demanded at lower prices.
more will be demanded at the same prices.
less will be purchased at each possible price.
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16. There is no control over price by firms in:
oligopoly.
pure monopoly.
pure competition.
monopolistic competition.
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17. Total revenue falls as the price of a good increases if
price elasticity of demand is:
elastic.
inelastic.
unitary elastic.
perfectly elastic.
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18. United States exports of goods and services are
about:
20 percent of U.S. GDP.
4 percent of U.S. GDP.
28 percent of U.S. GDP.
11 percent of U.S. GDP.
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Economics Challenge 09 Practice Questions
19. The central idea behind comparative advantage is
that a nation should:
compare its market economy with other nations.
pursue investment in capital goods as a means of
stimulating economic growth.
produce the product with the lowest domestic
opportunity cost.
use money as a medium of exchange to facilitate
specialization and trade.
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20. An economist for a bicycle company predicts that,
other things equal, a rise in consumer incomes will
increase the demand for bicycles. This prediction is
based on the assumption that:
there are many goods that are substitutes for bicycles.
there are many goods that are complementary to
bicycles.
there are few goods that are substitutes for bicycles.
bicycles are normal goods.
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21. The U.S. public debt:
refers to the debts of all units of government--Federal,
state, and local.
consists of the total debt of U.S. households,
businesses, and government.
refers to the collective amount that U.S. citizens and
businesses owe to foreigners.
consists of the historical accumulation of all Federal
government deficits and surpluses.
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Economics Challenge 09 Practice Questions
22. The total amount of income earned by U.S. resource
suppliers in a year is measured by:
gross domestic product.
national income.
personal income.
disposable income.
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23. The best measure of economic growth adjusted for
the population of a nation is the increase in:
aggregate demand over time.
real GDP per worker over time.
real GDP per capita over time.
real GDP per dollar of capital stock over time.
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24. Discretionary fiscal policy refers to:
any change in government spending or taxes that
destabilizes the economy.
the authority that the President has to change personal
income tax rates.
changes in taxes and government expenditures made
by Congress to stabilize the economy.
the changes in taxes and transfers that occur as GDP
changes.
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25. The relationship between investment and GDP is
shown by the:
consumption of fixed capital schedule.
saving schedule.
investment schedule.
consumption schedule.
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Economics Challenge 09 Practice Questions
26. Which is the correct match of an economic resource
and payment for that resource?
land and profit
labor and rental income
capital and interest income
entrepreneurial ability and wages
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27. Upon buying a car having airbags, Joe begins to
drive recklessly. This is an example of the:
principle-agent problem.
adverse selection problem.
moral hazard problem.
free-rider problem.
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28. Expansionary fiscal policy is so named because it:
involves an expansion of the nation's money supply.
necessarily expands the size of government.
is aimed at achieving greater price stability.
is designed to expand real GDP.
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29. Which of the following is a final good or service?
diesel fuel bought for a delivery truck
fertilizer purchased by a farm supplier
a haircut
Chevrolet windows purchased by a General Motors
assembly plant
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Economics Challenge 09 Practice Questions
30. A decrease in government spending will cause a(n):
increase in the quantity of real domestic output
demanded.
decrease in the quantity of real domestic output
demanded.
decrease in aggregate demand.
increase in aggregate demand.
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