ECO212 Pre Test
xoon1) According to economics, what causes us to have to make choices?
A.
unlimited resources.
B.
unemployment.
C.
greed.
D.
scarcity.
2) Consider a good whose consumption takes place publicly. On what factors
would your decision to buy that good depend?
A.
B.
C.
D.
only on the price of the good, and not on other factors, such as other
people’s actions.
both on the characteristics of the product and on how many other people
are buying it.
only on how many other people buy the good, and not on the good itself.
only on the characteristics of the good itself and not on other people/s
actions.
3) Why do consumers have to make tradeoffs in deciding what to consume?
A.
there are not enough of all goods produced.
B.
not all goods give them the same amount of satisfaction.
C.
they are limited by a budget constraint.
D.
the prices of goods vary.
4) Which of the following is not a critical function of the government in
facilitating the operation of a market economy?
A.
enforcing contracts.
B.
protecting private property.
C.
ensuring an equal distribution of income to all citizens.
D.
enforcing property rights.
5) Which of the following countries is not close to the free market benchmark?
A.
Singapore.
B.
Canada.
C.
Germany.
D.
North Korea.
6) If a commercial dairy farm wants to raise funds to purchase feeding troughs,
in which market does it do so?
A.
dairy products market.
B.
output market.
C.
factor market.
D.
product market.
7) If a 35 percent increase in price of golf balls led to an 42 percent decrease in
quantity demanded, then the demand for golf balls is
A.
relatively elastic.
B.
unitelastic.
C.
relatively inelastic.
D.
perfectly elastic.
8) Economists in general
A.
B.
Incorporate tastes into economic models only to the extent that tastes
determine whether pairs of goods are substitutes or complements.
Do not try to explain people's tastes, but they do try to explain what
C.
D.
happens when tastes change.
Do not believe that people's tastes determine demand and therefore they
ignore the subject of tastes.
Believe that they must be able to explain people's tastes in order to
explain what happens when tastes change.
9) A demand curve which is ________ represents perfectly inelastic demand,
and a demand curve which is ________ represents inelastic demand.
A.
upward sloping; horizontal
B.
downward sloping; vertical
C.
vertical; downward sloping
D.
horizontal; downward sloping
10) Which of the following is evidence of a surplus of bananas?
A.
The quantity demanded of bananas is greater than the quantity supplied.
B.
Firms raise the price of bananas.
C.
The equilibrium price of bananas rises due to an increase in demand.
D.
The price of bananas is lowered in order to increase sales.
11) A decrease in the price of GPS systems will result in
A.
an increase in the supply of GPS systems.
B.
a smaller quantity of GPS systems supplied.
C.
a decrease in the demand for GPS systems.
D.
a larger quantity of GPS systems supplied.
12) Danielle Ocean pays for monthly pool maintenance for her home swimming
pool. Last week the owner of the pool service informed Danielle that he will
have to raise his monthly service fee because of increases in the price of pool
chemicals. How is the market for pool maintenance services affected by this?
A.
There is a decrease in the supply of pool maintenance services.
B.
There is an increase in the supply of pool maintenance services.
There is a decrease in the quantity of pool maintenance services
supplied.
There is a decrease in the demand for pool maintenance services.
C.
D.
13) At low wages, the labor supply curve for most people slopes upward because
A.
as wages increase the opportunity cost of leisure increases.
B.
the supply of labor is perfectly inelastic at low wages.
C.
as wages increase income also increases unless hours worked decrease.
D.
the demand for labor is perfectly elastic at low wages.
14) Marginal revenue product for a perfectly competitive seller is equal to
A.
the output price multiplied by the number workers hired.
B.
the output price multiplied by the total product of labor.
C.
the change in total revenue that results from hiring another worker.
D.
the marginal cost of production.
15) Let MP = marginal product, P = output price, and W = wage, then the equation
that represents the condition where a competitive firm would hire another worker
is
A.
P × MP < W.
B.
P × MP = W.
C.
P × MP > W.
D.
P × W > MP.
16) An individual's labor supply curve shows
A.
B.
C.
D.
the relationship between wages and the quantity of labor that she is willing to
supply.
the maximum wage rates offered to that individual by various potential
employers.
the relationship between wages and the quantity of labor that a firm is willing
to employ.
the relationship between the quantity of hours worked and total income
earned by that individual.
17) Which of the following will not cause the labor demand curve to shift to the
right?
A.
a technological improvement that increases labor productivity
B.
an increase in the price of the firm's product
C.
an increase in human capital in the labor force
D.
an increase in the market wage rate
18) A decrease in the wage rate causes
A.
a rightward shift of the firm's labor demand curve.
B.
an increase in the quantity of labor demanded.
C.
a leftward shift of the firm's labor demand curve.
D.
a decrease in labor's productivity.
19) Which of the following displays these two characteristics: nonrivalry and
nonexcludability in consumption?
A.
private goods
B.
public goods
C.
quasipublic goods
D.
common resources
20) Which of the following displays these two characteristics: rivalry and
nonexcludability?
A.
a private good
B.
a public good
C.
a quasipublic good
D.
a common resource
21) Which of the following is an example of a quasipublic good?
A.
organic apples
B.
cable television
C.
stock of knowledge in the public domain
D.
crime prevention
22) The reason that the coffeehouse market is monopolistically competitive rather
than perfectly competitive is because
A.
there are many firms in the market.
B.
barriers to entry are very low.
C.
products are differentiated.
D.
entry into the market is blocked.
23) Which of the following is the best example of an oligopolistic industry?
A.
the pharmaceutical industry
B.
the beef market
C.
public education
D.
the beauty products industry
24) One reason why the coffeehouse market is competitive is that
A.
consumption takes place in public.
B.
demand for specialty coffee is very high.
C.
barriers to entry are low.
D.
it is trendy and therefore is likely to have a customer following.
25) Gross domestic product understates the total production of final goods and services
because of the omission of
A.
exports.
B.
the underground economy.
C.
inflation.
D.
intermediate goods.
26) Which of the following would be directly counted in GDP in 2010?
A.
B.
C.
D.
kitchen cabinets purchased from Home Depot in 2010 to be installed in a
house built in 1997
kitchen cabinets built in 1887, extracted from the 1887 home, and installed in
a brand new countrystyle home
kitchen cabinets built in 1887, extracted from the 1887 home, and installed in
a farm house built in 1950
none of the these
27) Gross domestic product is calculated by summing up
A.
B.
C.
D.
the total market value of final goods and services produced in the economy
during a period of time.
the total quantity of goods and services in the economy.
the total market value of goods and services in the economy.
the total quantity of goods and services produced in the economy during a
period of time.
28) Which of the following does not reflect the state of the tax system in the United States
today?
A.
B.
C.
D.
Many taxpayers use software or professional tax preparation companies to
file their income taxes.
The tax laws have become increasingly simplified as private citizens have
demanded these changes.
The tax laws are used to achieve macroeconomic goals of high employment
and economic growth.
The tax laws are used to achieve social policy goals such as energy
conservation.
29) Which of the following would be classified as fiscal policy?
A.
C.
The federal government cuts taxes to stimulate the economy.
The federal government passes tax cuts to encourage firms to reduce air
pollution.
A state government cuts taxes to help the economy of the state.
D.
The Federal Reserve cuts interest rates to stimulate the economy.
B.
30) Before the Great Depression of the 1930s, the majority of government spending took
place at the ________ and after the Great Depression the majority of government
spending took place at the ________.
A.
federal level; state level
B.
state and local levels; federal level
C.
federal level; state and local levels
D.
local level; federal level
31) Dollar bills in the modern economy serve as money because
A.
people have confidence that others will accept them as money.
B.
they are backed by the gold stored in Fort Knox.
C.
they have value as a commodity independent of their use as money.
D.
they can be redeemed for gold by the central bank.
32) Economists estimate that ________ of U.S. currency is outside the United States and
held primarily by ________.
A.
B.
C.
D.
less than one quarter; foreign banks and foreign governments
over half; households and firms in countries where there is little confidence in
the local currency
less than one quarter; households and firms in countries where there is little
confidence in the local currency
over half; foreign banks and foreign governments
33) In economics, money is defined as
A.
any asset people generally accept in exchange for goods and services.
B.
the total value of one's assets in current prices.
C.
the total amount of salary, interest, and rental income earned during a year.
the total value of one's assets minus the total value of one's debts, in current
prices.
D.
34) The M2 measure of the money supply equals
A.
savings account balances plus smalldenomination time deposits plus
noninstitutional money market fund shares.
B.
C.
D.
savings account balances plus smalldenomination time deposits plus
traveler's checks.
M1 plus savings account balances plus smalldenomination time deposits
plus noninstitutional money market fund shares.
M1 plus savings account balances plus smalldenomination time deposits.
35) Which of the following is one of the most important benefits of money in an
economy?
A.
Money allows for the accumulation of wealth.
B.
Money allows for the exchange of goods and services.
Money encourages people to produce all of their own goods (selfsufficiency)
and therefore increases economic stability.
Money makes exchange easier, leading to more specialization and higher
productivity.
C.
D.
36) Which of the following functions of money would be violated if inflation were
high?
A.
store of value
B.
unit of account
C.
medium of exchange
D.
certificate of gold
37) To offset the effect of households and firms deciding to hold less of their
money in checking account deposits and more in currency, the Federal Reserve
could
A.
buy Treasury securities.
B.
raise the required reserve ratio.
C.
lower bank taxes.
D.
raise the discount rate.
38) To increase the money supply, the Federal Reserve could
A.
raise the required reserve ratio.
B.
raise the discount rate.
C.
lower transfer payments.
D.
decrease income taxes.
E.
conduct an open market purchase of Treasury securities.
39) Which of the following determines the amount of money the banking system as
a whole can create?
A.
the quantity of bank reserves
B.
the quantity of vault cash held by banks
C.
the gold reserves held by the Federal Reserve
D.
the limit on profits by banks imposed by the U.S. Congress
40) Toll Brothers, a residential home builder, did well during the recession in 2001
but did not do so well in 2007 after the housing bubble burst. The reason for this is
A.
B.
C.
D.
the Fed lowered interest rates in 2001 but did not believe that cutting the
interest rate in 2007 would be enough to revive the housing market.
the Fed lowered interest rates in 2001 but raised interest rates in 2007 to help
fight inflation.
the Fed raised interest rates in 2001 but lowered interest rates in 2007 to
revive the housing market.
the Fed raised interest rates in 2001 but did not believe that cutting the
interest rate in 2007 would be enough to revive the housing market.
41) The Federal Reserve System's four monetary policy goals are
A.
B.
C.
D.
low rate of bank failures, high reserve ratios, price stability, and economic
growth.
low government budget deficits, low current account deficits, high
employment, and a high foreign exchange value of the dollar.
price stability, low government budget deficits, low current account deficits,
and low rate of bank failures.
price stability, high employment, economic growth, and stability of financial
markets and institutions.
42) If the probability of losing your job remains ________, a recession would be a
good time to purchase a home because the Fed usually ________ interest rates
during this time.
A.
high; lowers
B.
low; lowers
C.
low; does not change
D.
low; raises
E.
high; raises
43) For each bottle of wine that Italy produces, it gives up the opportunity to make 10
pounds of cheese. France can produce 1 bottle of wine for every 25 pounds of cheese it
produces. Which of the following is true about the comparative advantage between the
two countries?
A.
Italy has the comparative advantage in wine.
B.
Italy has the comparative advantage in cheese.
C.
France has the comparative advantage in wine.
D.
France has the comparative advantage in wine and cheese.
44) Comparative advantage means the ability to produce a good or service
A.
at a lower opportunity cost than any other producer.
B.
at a lower selling price than any other producer.
C.
at a higher profit level than any other producer.
D.
of a higher quality than any other producer.
45) Table 23
Serena Haley
Bracelets
8
9
Necklaces
16
12
Refer to Table 23. Which of the following statements is true?
A.
Serena has a comparative advantage in making both products.
B.
Haley has a comparative advantage in making both products.
Haley has a comparative advantage in making necklaces and Serena in
making bracelets.
Haley has a comparative advantage in making bracelets and Serena in
making necklaces.
C.
D.
46) If the dollar appreciates against the Mexican peso,
A.
U.S. exports to Mexico become less expensive.
B.
Mexican imports to the U.S. become more expensive.
C.
The value of Mexican imports to the United States does not change.
D.
U.S. exports to Mexico become more expensive.
47) If there is currently a surplus of dollars, which of the following would you expect to see
in the foreign exchange market?
A.
There will be a decrease in the supply of dollars.
B.
The dollar will appreciate.
C.
The dollar will depreciate.
D.
There will be a decrease in the demand for dollars.
48) How does an increase in a country's exchange rate affect its balance of trade?
A.
B.
C.
D.
An increase in the exchange rate raises imports, reduces exports, and
increases the balance of trade.
An increase in the exchange rate raises imports, reduces exports, and
reduces the balance of trade.
An increase in the exchange rate reduces imports, raises exports, and
reduces the balance of trade.
An increase in the exchange rate reduces imports, raises exports, and
increases the balance of trade.
49) If the purchasing power of the dollar is greater than the purchasing power of the euro,
purchasing power parity predicts that the exchange rate will
A.
not fluctuate and stay constant in the long run.
B.
increase if the exchange rate is greater than 1 euro per dollar.
C.
decrease if the exchange rate is less than 1 euro per dollar.
be equal to the relative purchasing power across the currencies in the long
run.
D.
50) Destabilizing speculation refers to
A.
B.
C.
D.
any depreciation of a country's currency as a result of longrun adjustments
to purchasing power parity.
actions taken by the International Monetary Fund that increase lending to
countries who have pegged their currencies against the dollar.
actions taken by currency traders to sell a currency that is undervalued.
actions taken by investors who sell a country's currency in anticipation of
buying it back later at a lower price.
51) If relative purchasing power between the United States and Argentina is 3.22 pesos
per dollar, under which circumstances would we say that the dollar is "overvalued"?
A.
B.
C.
D.
if the actual exchange rate between the dollar and the Argentinean peso is 3
pesos per dollar
if the actual exchange rate between the dollar and the Argentinean peso is
3.22 pesos per dollar
if the actual exchange rate between the dollar and the Argentinean peso is 4
pesos per dollar
if the actual exchange rate between the dollar and the Argentinean peso is
0.22 pesos per dollar
52) China has been accused of deliberately undervaluing its currency, the yuan, in order
to
A.
maintain purchasing power parity.
B.
increase its exports.
C.
increase its imports.
D.
prevent deflation.
53) Shares of stock and longterm debt, including corporate and government bonds and
bank loans, are bought and sold on
A.
commodity markets.
B.
the stock market.
C.
capital markets.
D.
foreign exchange markets.
54) The three most important international financial centers today are
A.
Tokyo, London, and New York.
B.
New York, Los Angeles, and London.
C.
London, Tokyo, and Beijing.
D.
San Francisco, Paris, and Mexico City.
12 years ago
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