Question 1. 1. (TCO 5)
An increase in aggregate demand is most likely to be caused by a decrease in (Points : 4)
the wealth of consumers.
consumer and business confidence.
expected returns on investment.
the tax rates on household income.
Question 2. 2. (TCO 5) The long-run aggregate supply curve is (Points : 4)
upward-sloping and becomes steeper at output levels above the full-employment output.
upward-sloping and becomes flatter at output levels above the full-employment output.
Question 3. 3. (TCO 5) Which would most likely increase aggregate supply? (Points : 4)
An increase in the prices of imported products
An increase in productivity
A decrease in business subsidies
A decrease in personal taxes
Question 4. 4. (TCO 5) Disinflation refers to a situation where (Points : 4)
price level falls, but the rate of inflation does not.
Price level rises, but the rate of inflation does not.
the rate of inflation falls, but the price level does not.
the rate of inflation rises, but the price level does not.
Question 5. 5. (TCO 6) If a family’s MPC is .7, it means that the family is (Points : 4)
operating at the break-even point.
spending seven-tenths of any additional income.
spending 70 percent of its disposable income.
Question 6. 6. (TCO 7) Which definition(s) of the money supply include(s) only items which are directly and immediately usable as a medium of exchange? (Points : 4)
Neither M1 nor M2
M1 and M2
Question 7. 7. (TCO 7) Which of the following “backs” the value of money in the United States? (Points : 4)
Gold stored in the Federal Reserve Bank of New York
Acceptability of it as a medium of exchange
Willingness of foreign government to hold U.S. dollars
Size of the budget surplus in the U.S. government
Question 8. 8. (TCO 7) How many members can serve on the Board of Governors of the Federal Reserve System? (Points : 4)
Question 9. 9. (TCO 7) Which group is responsible for the policy of changing the money supply? (Points : 4)
Federal Open Market Committee
Office of Management and Budget
Thrift Advisory Council
Federal Advisory Council
Question 10. 10. (TCO 7) Other things being equal, an expansion of commercial bank lending (Points : 4)
changes the composition, but not the size, of the money supply.
is desirable during a period of demand-pull inflation.
reduces the money supply.
increases the money supply.
Question 11. 11. (TCO 7) During the financial crisis of 2007-2008, the FDIC increased deposit insurance coverage from (Points : 4)
$50,000 to $100,000 per account.
$100,000 to $250,000 per account.
$200,000 to $500,000 per account.
$500,000 to $1,000,000 per account.
Question 12. 12. (TCO 7) Which monetary policy tool was created in response to the financial crisis of 2007-2008? (Points : 4)
Term auction facility
Target federal funds rate
Open market operations
Question 13. 13. (TCO 7) The Federal Reserve could reduce the money supply by (Points : 4)
selling government bonds in the open market.
buying government bonds in the open market.
operating the term auction facility.
reducing the discount rate.
Question 14. 14. (TCO 8) Which of the following products is a leading import of the United States? (Points : 4)
Question 15. 15. (TCO 8) The principal concept behind comparative advantage is that a nation should (Points : 4)
maximize its volume of trade with other nations.
use tariffs and quotas to protect the production of vital products for the nation.
concentrate production on those products for which it has the lowest domestic opportunity cost.
strive to be self-sufficient in the production of essential goods and services.
Question 16. 16. (TCO 8) If a nation imposes a tariff on an imported product, then the nation will experience a(n) (Points : 4)
decrease in total supply and an increase in the price of the product.
decrease in demand and a decrease in the price of the product.
decrease in supply of, and an increase in demand for, the product.
increase in supply of, and a decrease in demand for, the product.
Question 17. 17. (TCO 8) A key difference between import quotas and voluntary export restraints (VERs) is that the (Points : 4)
domestic government administers the former, whereas the foreign government administers the latter.
foreign government administers the former, whereas the domestic government administers the latter.
one is a tax, whereas the other is a quantity limit.
one raises the price of the imported product involved, whereas the other one does not.
Question 18. 18. (TCO 8) Tariffs and import quotas would benefit the following groups, except (Points : 4)
consumers of the product.
domestic producers of the product.
workers in domestic firms producing the product.
the government of the importing country.
Question 19. 19. (TCO 8) A major goal of the World Trade Organization is to (Points : 4)
increase the protection of producers against foreign trade competition.
encourage bilateral trade agreements between nations.
liberalize international trade among nations.
maximize tariff revenue for governments.
Question 20. 20. (TCO 9) French and German farmers wanting to buy equipment from an American manufacturer based in the U.S. will be (Points : 4)
supplying dollars and also supplying euros in the foreign exchange market.
demanding dollars and also demanding euros in the foreign exchange market.
supplying dollars and demanding euros in the foreign exchange market.
supplying euros and demanding dollars in the foreign exchange market.
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Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments as a debit in the section on (Points : 4)
trade in services.
net international transfers.
Question 2. 2. (TCO 9) A trade deficit means a net (Points : 4)
inflow of payments for goods and services.
outflow of goods and services.
inflow of goods and services.
excess of exports over imports.
Question 3. 3. (TCO 9) If an American can purchase 40,000 British pounds for $90,000, the dollar rate of exchange for the pound is (Points : 4)
Question 4. 4. (TCO 9) When the exchange rate between pounds and dollars moves from $2 = 1 pound to $1 = 1 pound, we say that the dollar has (Points : 4)
Question 5. 5. (TCO 9) The monetary system for conducting international trade is usually described as a system of (Points : 4)
fixed exchange rates.
freely floating exchange rates.
a managed gold standard.
managed floating exchange rates.
Question 6. 6.(TCO 8) a) Explain four problems with the argument that trade protection is needed to protect American jobs. b) Describe the economic reasons why businesses use offshoring.(Points : 40)
Question 7. 7.
(TCO 6) a) Explain the tools used to pursue expansionary and contractionary fiscal policy. During which phases of the business cycle would each be appropriate? b) Explain what is meant by a built-in stabilizer and give two examples.(Points : 40)
Additional Questions (MCQs) Answered.
A purely competitive firm’s output is such that its marginal cost is $4 and marginal revenue is $5. Hint: remember that MR = P for Pure Competition and the Profit Maximizing rule. Assuming profit maximization, the firm should (Points : 4)
cut its price and raise its output.
raise its price and cut output.
leave price unchanged and raise output.
leave price unchanged and cut output.
Question 10. 10. (TCO 2) Which case below best represents a case of price discrimination? (Points : 4)
An insurance company offers discounts to safe drivers.
A major airline sells tickets to senior citizens at lower prices than to other passengers.
A professional baseball team pays two players with identical batting averages different salaries.
A utility company charges less for electricity used during “off-peak” hours, when it does not have to operate its less-efficient generating plants.
Question 11. 11. (TCO 3) A major reason that firms form a cartel is to (Points : 4)
reduce the elasticity of demand for the product.
enlarge the market share for each producer.
minimize the costs of production.
maximize joint profits.
Question 12. 12. (TCO 3) In the short run (Points : 4)
a firm cannot vary its output level.
all factors of production can be varied.
a firm can change its fixed inputs.
output is raised or reduced by changing the levels of variable inputs.
Question 13. 13. (TCO 4) A recession is a decline in (Points : 4)
the inflation rate that lasts six months or longer.
the unemployment rate that lasts six months or longer.
real GDP that lasts six months or longer.
potential GDP that lasts six months or longer.
Question 14. 14. (TCO 4) The unemployed are those people who (Points : 4)
do not have jobs.
are not employed but are seeking work.
are not working.
are not in the workforce.
Question 15. 15. (TCO 4) To avoid multiple counting in national income accounts (Points : 4)
only final goods and services should be counted.
intermediate goods and services should be counted.
both final and intermediate goods and services should be counted.
primary, intermediate, and final goods and services should be counted.
Question 16. 16. (TCO 4) Nominal GDP differs from real GDP because (Points : 4)
nominal GDP is based on constant prices.
real GDP is based on current prices.
real GDP is adjusted for changes in the price level.
nominal GDP is adjusted for changes in the price level.
Question 17. 17. (TCO 6) When the federal government uses taxation and spending actions to stimulate the economy it is conducting (Points : 4)
Question 18. 18. (TCO 6) Refer to the graph. What combination would most likely cause a shift from AD1 to AD2?
(Points : 4)
Increases in taxes and government spending
Decrease in taxes and increase in government spending
Increase in taxes and no change in government spending
Decreases in taxes and government spending
Question 19. 19. (TCO 6) Which of the following serves as an automatic stabilizer in the economy? (Points : 4)
Progressive income tax
Question 20. 20. (TCO 6) The lag between the time the need for fiscal action is recognized and the time action is taken is referred to as the (Points : 4)