ECON125-HK2.

Question 1

2 points

Which of the following economic systems abolishes all private property?

		communism
		socialism
		fascism
		all of the above

Question 2

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The profit motive is one characteristic of a command economy.

	True
	False

Question 3

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In a market system, the government enforces laws ensuring that private enterprises and conditions of competition will prevail.

	True
	False

Question 4

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The most common type of business in the United States is the corporation.

	True
	False

Question 5

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Laissez-faire is a policy of no government intervention in the economic activities of individuals and businesses.

	True
	False

Question 6

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In a partnership, each partner’s liability is limited to his or her contribution to the partnership.

	True
	False

Question 7

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There are no government-regulated markets in the U.S. economy.

	True
	False

Question 8

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Which of the following is not among the United States’ economic goals?

		full employment
		stable prices
		healthy economic growth
		equal distribution of income

Question 9

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Under the U.S. market system, land and capital goods are owned mainly by

		the federal government
		individuals and firms
		local governments
		state governments

Question 10

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The biggest disadvantage of a sole proprietorship is the lack of distinction between the business and the owner.

	True
	False

Question 11

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In the United States, marketing cooperatives are most commonly found in the agriculture industry.

	True
	False

Question 12

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Self-interest is a major tenet of economic liberalism.

	True
	False

Question 13

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Which of the following is considered a command economy?

		communism
		socialism
		fascism
		all of the above

Question 14

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Economics is considered a physical science.

	True
	False

Question 15

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The difference between a capital good and a consumer good depends on

		the purpose for which it is used
		how it was produced
		what it is
		how quickly it is used up

Question 16

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Positive economics deals with “what is” as opposed to “what ought to be.”

	True
	False

Question 17

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Production is the creation or addition of utility.

	True
	False

Question 18

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Consumption is the ultimate end of economic activity.

	True
	False

Question 19

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The relationship between the price of a book and the number of volumes purchased would be an example of microeconomics.

	True
	False

Question 20

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An example of a macroeconomic model is

		the price of chicken influences the quantity of chicken bought
		the size of the total national output depends on the size of total spending
		the output of a product is influenced by the cost of production for the product
		all of the above

Question 21

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The largest share of the total income of the United States is currently being distributed in the form of

		interest
		rent
		wages
		profits

Question 22

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Which of the following areas of study is included in the field of macroeconomics?

		electricians’ wage rates
		monopolistic pricing
		price of automobiles
		general price level

Question 23

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The total value of the goods and services produced over a period of time represents an economy’s

		planned savings
		total income
		total wealth
		capital

Question 24

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Stocks and bonds are counted as part of total wealth.

	True
	False

Question 25

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The stock of labor talents and skills is known as

		a public good
		the functional distribution
		human capital
		enterprise

Question 26

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One cause for the uneven standard of living throughout the world is the uneven distribution of resources.

	True
	False

Question 27

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In exercising the principle of comparative advantage, a nation with no absolute advantage should produce a commodity in which it faces a lower opportunity cost than its trading partners face.

	True
	False

Question 28

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Government regulations which affect entrepreneurial activities within a nation also affect total output and the standard of living.

	True
	False

Question 29

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A need to make choices exists because of

		scarcity of resources
		the abundance of goods
		unlimited human needs and wants
		both (a) and (c)

Question 30

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The principle of comparative advantage applies to

		individuals only
		business firms only
		nations only
		individuals, businesses, and nations

Question 31

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Economics can be defined as the study of choices.

	True
	False

Question 32

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Suppose that Country A has an absolute advantage over country B in the production of both wheat and cloth. The opportunity cost of 1 unit of wheat is 2 units of cloth in Country A and 3 units of cloth in Country B. If each country specializes in producing the good in which it is relatively more efficient and then trades for the other good, it follows that

		all the resulting gains in consumption will go to Country A
		all the resulting gains in consumption will go to Country B
		each country will experience half the resulting gains in consumption
		the allocation of the resulting consumption gains will be determined by bargaining between the two countries.

Question 33

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Exercising the principle of comparative advantage between nations primarily involves

		specialization
		transportation costs
		currency exchange rates
		domestic income tax rates

Question 34

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An example of technological development is to increase output through

		raising pay
		working longer hours
		hiring more workers
		using better machines

Question 35

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An economy’s production possibilities curve could shift outward as a result of a(n)

		increased level of technology
		reduction in the quantity of capital goods
		decrease in the production of goods
		decrease in the amount of available resources

Question 36

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A nation needs an abundance of all productive resources in order to attain a high standard of living.

	True
	False

Question 37

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To solve their basic long-term economic problems, developing countries primarily need

		food
		clothing
		technical assistance
		shelter

Question 38

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A surplus quantity will occur when

		quantity demanded is greater than quantity supplied
		price is above equilibrium
		demand is elastic
		price is below equilibrium

Question 39

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A change in demand would be illustrated by

		a drop in price, which causes people to buy more
		an increase in price, which causes people to buy less
		a change in people’s preferences that causes them to buy either more or less than before
		all of the above

Question 40

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If 12 units of a good are sold when the price is $1 per unit, and 8 units are sold at a price of $1.50 per unit, then demand is

		elastic
		inelastic
		of indeterminate elasticity
		unit elastic

Question 41

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The more substitutes for a good, the more elastic its demand tends to be.

	True
	False

Question 42

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A demand curve generally

		is a straight horizontal line
		is a straight vertical line
		slopes downward to the right
		slopes downward to the left

Question 43

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The quantity supplied and price tend to vary

		inversely
		independently
		in an unrelated fashion
		directly

Question 44

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Price elasticity of demand tends to be greater for substitute items than for complementary goods.

	True
	False

Question 45

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To maintain a price below the equilibrium price,

		demand must increase
		supply must increase
		the government must set a ceiling price
		supply must decrease

Question 46

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An increase in demand will cause the demand curve to

		move to the right
		move to the left
		become more vertical
		become more horizontal

Question 47

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Price ceilings usually create surpluses since supply is increased.

	True
	False

Question 48

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Price floors can create shortages if price floors are above market prices.

	True
	False

Question 49

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When the supply of a product increases but the demand for the product remains unchanged, the equilibrium price of the product will

		fall, and equilibrium quantity will decrease
		be unaffected
		first rise and then return to the original price level
		fall, and equilibrium quantity will increase

Question 50

2 points

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On a price/quantity graph, a straight horizontal demand curve

		has zero price elasticity
		is perfectly elastic
		is perfectly inelastic
		is perfectly unit elastic

ECON125-HK2. ECONOMICS FOR MANAGERS (ECON125-HK2) > TAKE ASSESSMENT: EXAM 2

Question 1

2 points

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A firm is making a profit under conditions of monopolistic competition if, at the equilibrium output,

		AR is above MR
		MR is above AR
		AR is above AVC
		AR is above ATC

Question 2

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Firms in monopolistic competition sell a similar but differentiated product.

	True
	False

Question 3

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A major characteristic of a monopoly is the ability of the monopolist to influence price.

	True
	False

Question 4

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The Federal Trade Commission

		prevents mergers that substantially lessen competition
		rules on the antitrust activities of labor unions
		issues patents
		polices deceptive advertising

Question 5

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If a monopolist lowers its price from $45 to $42 in order to increase its sales volume, marginal revenue

		equals $45
		equals $42
		is less than $42
		is between $45 and $42

Question 6

2 points

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The first act to declare monopolies illegal in the United States was the

		Sherman Antitrust Act
		Clayton Act
		Federal Trade Commission Act
		Robinson-Patman Act

Question 7

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One company that retained its monopoly position for years through control of raw materials was

		Aluminum Company of America (ALCOA)
		Proctor & Gamble
		Ford Motor Company
		U.S. Steel

Question 8

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Monopsony is a market condition in which there is only one seller.

	True
	False

Question 9

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If firms in monopolistic competition are earning short-run profits,

		barriers to entry will allow the profits to continue in the long run
		total supply in the market will decrease in the long run as firms reduce output to keep prices high
		the entry of new firms will eliminate the profits in the long run
		each existing firm will experience an increase in its average revenues in the long run

Question 10

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Oligopoly is a market structure in which

		there are only two sellers
		there are relatively few producers
		no firm can influence price
		there are many producers

Question 11

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All firms in monopolistic competition must sell at the same price.

	True
	False

Question 12

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The major characteristic of a monopoly is

		the degree of control over price it can exercise
		its ability to produce numerous products
		its price elasticity of demand
		its source of revenue

Question 13

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Under which type of market structure is the firm’s pricing decision the most difficult?

		perfect competition
		monopoly
		monopolistic competition
		oligopoly

Question 14

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Under perfect competition, if a firm is suffering a loss,

		MR exceeds ATC
		AR equals AVC
		AR equals ATC
		AR is less than ATC

Question 15

2 points

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The difference between the price firms would be willing to accept for their goods and the price they actually receive is called

		consumer surplus
		consumer efficiency
		allocative efficiency
		producer surplus

Question 16

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In the long run, under conditions of perfect competition, market forces come into play to

		enhance profits
		increase demand
		eliminate profits
		separate MR and AR

Question 17

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Under conditions of perfect competition, an individual producer

		always maximizes output
		operates where MR equals MC
		never suffers a loss
		operates where MR is greater than MC

Question 18

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If all firms adhere to the conditions of perfect competition, short-run losses are avoided.

	True
	False

Question 19

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If a firm in a perfectly competitive industry is producing at a point where TR equals TC and the market demand increases, then the firm will be making

		economic profits; it will expand output
		economic profits; output will not change
		normal profits; output will expand
		normal profits; output will not change

Question 20

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In perfect competition, if the market price is at the same level as the minimum point of the firm’s average total cost curve, the best the firm can hope for is to break even.

	True
	False

Question 21

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In a perfectly competitive industry, if TR exceeds TC, then in the long run

		firms will exit the industry
		new firms will enter the industry
		there will be no change in the number of firms
		the market supply will shift to the left

Question 22

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A prime example of perfect competition is the U.S. auto industry.

	True
	False

Question 23

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Elaine’s firm is in a perfectly competitive industry. Why doesn’t Elaine try to sell more of her product by lowering its price below the market price?

		her demand curve is not elastic
		doing so would be considered unethical price chiseling
		her competitors would not allow it
		she can sell all she wants at the market price

Question 24

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Which of the following is correct when the perfectly competitive firm is producing its long-run equilibrium output level?

		MR equals MC
		AR equals ATC
		P equals MC
		all of the above

Question 25

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Under conditions of perfect competition, short-run equilibrium does not necessarily exist where

		profit is maximized or loss minimized
		MR = AR
		MR = MC
		MR = ATC

Question 26

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According to the simple circular flow concept, whenever planned investment is less than planned saving

		inventories accumulate
		output increases
		prices rise
		employment increases

Question 27

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In the circular flow, investment refers to spending on

		government bonds
		certificates of deposit
		capital goods
		consumer goods

Question 28

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Inventory accumulation occurs whenever

		output is less than spending
		output exceeds spending
		investment exceeds saving
		a deficit budget occurs

Question 29

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A decrease in investment can cause a decrease in the price level without affecting total output.

	True
	False

Question 30

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In the circular flow, nonprofit institutions are

		counted as businesses
		excluded
		treated separately
		counted as households

Question 31

2 points

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During a period of unemployment, a deficit budget will most likely have which of the following effects on business activity?

		increase total output
		cause prices to rise
		have a neutral effect
		cause prices and total output to fall

Question 32

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An increase in planned savings always results in an increase in planned investment.

	True
	False

Question 33

2 points

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If the federal government spends less than it receives from taxes,

		it has a surplus budget with injections exceeding leakages
		it has a deficit budget with injections exceeding leakages
		it has a deficit budget with leakages exceeding injections
		it has a surplus budget with leakages exceeding injections

Question 34

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In the simple circular flow model, if planned I exceeds planned S, then

		the economy is not at equilibrium
		the size of the circular flow is increasing
		if the economy is at full employment, then prices will rise
		all of the above

Question 35

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If inventories are accumulating, income must be greater than spending.

	True
	False

Question 36

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Whenever exports exceed imports (and other planned injections equal other planned leakages), the economy

		remains stable
		expands
		contracts
		deflates

Question 37

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Which of the following statements concerning the circular flow model is (are) correct?

		an increase in planned savings always generates an increase in planned investment spending
		planned investment spending is an injection into the circular flow
		increased investment always results in decreased savings
		all of the above

Question 38

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It is true that a stable economy occurs when

		total injections into the circular flow are large enough to make up for government tax leakages
		total leakages from the circular flow are great enough to offset the effects of government spending
		total planned leakages from the circular flow are exactly equal to total planned injections into the circular flow
		actual saving is equal to planned investment

Question 39

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In a mature industry, all firms operate with constant returns to scale.

	True
	False

Question 40

2 points

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If the accounting profit equals $200,000 and implicit costs equal $40,000, the economic profit equals

		$240,000
		$200,000
		$160,000
		$40,000

Question 41

2 points

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If the firm produces one more unit of output and total cost rises from $1,000 to $1,050, marginal cost is

		$1,050
		$1,000
		$2,050
		$50

Question 42

2 points

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The major factor accounting for diseconomies of scale is management inefficiency.

	True
	False

Question 43

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Average revenue (AR) is equal to

		total revenue/output
		total revenue minus total cost
		price per unit
		both (a) and (c)

Question 44

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The average fixed cost remains constant even in the long run.

	True
	False

Question 45

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A production function is

		a technique for determining the most profitable rate of output
		the relationship between a combination of inputs and a quantity of output
		an important factor in determining the shape of the long-run supply curve
		all of the above

Question 46

2 points

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If the selling price of a product is $10, the average total cost is $8, and total sales are 5,000 units, the total profit will be

		$5,000
		$8,000
		$10,000
		$20,000

Question 47

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The production function relates outputs to inputs.

	True
	False

Question 48

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As units of input are added to the productive process, the marginal product

		increases
		decreases
		remains the same
		declines then rises

Question 49

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The average product decreases any time the marginal product is decreased.

	True
	False

Question 50

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If output changes in fixed proportion to a change in all of a firm’s productive resources, the firm has

		constant marginal returns
		constant returns to scale
		decreasing marginal returns
		decreasing returns to scale

ECON125-HK2. ECONOMICS FOR MANAGERS (ECON125-HK2) > TAKE ASSESSMENT: EXAM 3

Question 1

2 points

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If planned investment decreases, the multiplier will decrease the equilibrium income.

	True
	False

Question 2

2 points

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The change in the level of planned spending that results from a change in the price level is indicated by the movement of the economy along a given

		aggregate expenditure curve
		aggregate demand curve
		aggregate supply curve
		both (a) and (b)

Question 3

2 points

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In the Keynesian model, whenever unplanned inventory increases occur in the economy, production is likely to

		speed up slowly
		slow down
		remain unchanged
		speed up immediately

Question 4

2 points

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If planned construction investment increases by $30 billion and the MPC is two-thirds, total output will increase by

		$30 billion
		$20 billion
		$45 billion
		$90 billion

Question 5

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Keynes recommended the use of government deficit spending to overcome widespread unemployment.

	True
	False

Question 6

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According to the Keynesian analysis, as income increases, the marginal propensity to consume will rise.

	True
	False

Question 7

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Say’s Law states that

		supply is greater than demand
		supply is less than demand
		demand generates supply
		supply generates demand

Question 8

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The time lags lead monetarists to contend that monetary policy is counterproductive.

	True
	False

Question 9

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The classical doctrine assumed that the normal equilibrium position for the economy was at full employment.

	True
	False

Question 10

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According to the Keynesian analysis, equilibrium occurs at the point where total aggregate expenditure equals total output.

	True
	False

Question 11

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In the Keynesian model, the most important influence on planned consumption is

		the interest rate
		expectations
		disposable income
		the price level

Question 12

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The multiplier is the reciprocal of the marginal propensity to consume.

	True
	False

Question 13

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Aggregate expenditure in the U.S. economy includes spending for U.S. output by

		households and businesses, but not governments
		households, businesses, and the federal government, but not state and local governments
		households, businesses, and all governments except foreign ones
		households, businesses, and governments, both domestic and foreign

Question 14

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The bulk of the M1 money supply is made up of

		silver dollars and gold bars
		checkable deposits
		travelers checks
		money market funds

Question 15

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If a new cash deposit creates excess reserves of $5,000 and the required reserve ratio is 10 percent, the banking system can increase the money supply by a maximum of

		$50,000
		$500
		$5,000
		$4,500

Question 16

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An increase in the velocity of money can have an effect similar to that of an increase in the money supply.

	True
	False

Question 17

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If a bank has $60,000 in legal reserves and is subject to a 10 percent reserve requirement, it could have outstanding checkable deposits to the extent of

		$60 million
		$600,000
		$6 million
		$60,000

Question 18

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If a worker’s money wage increases at a faster pace than the CPI, his or her real wage will rise.

	True
	False

Question 19

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The Treasury issues all paper currency today.

	True
	False

Question 20

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Funds that earn a fixed rate of interest and must be held for a stipulated period of time are known as

		checkable deposits
		time deposits
		savings deposits
		money market funds

Question 21

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Included in the official U.S. money supply are

		U.S. government bonds
		corporate stocks
		checkable deposits
		all of the above

Question 22

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The U.S. money supply measure that consists of currency plus travelers checks and checkable deposits is referred to as

		M1
		M2
		M3
		M1 + M2

Question 23

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The quantity theory of money assumes that

		the national economy tends to operate at less than full
		the velocity of money is unstable
		the national economy tends to operate at full employment
		the velocity of money varies with changes in interest rates

Question 24

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If the CPI in City A is 150 and the CPI in City B is 135,

		the dollar has greater purchasing power in City B
		prices are higher in City A than they are in City B
		City B must be using a different base year
		none of the above

Question 25

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The value or purchasing power of the dollar can be obtained by dividing $1 by the CPI.

	True
	False

Question 26

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Stored value and smart cards are forms of electronic banking.

	True
	False

Question 27

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Each Federal Reserve Bank has its own board of directors.

	True
	False

Question 28

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The First Bank of the United States was chartered by

		the federal government
		the state of New York
		the city of New York
		Suffolk County

Question 29

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All members of the Board of Governors are members of the Fed’s Open Market Committee.

	True
	False

Question 30

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The Federal Reserve System was established in

		1980
		1913
		1864
		1791

Question 31

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Members of the Board of Governors are

		appointed by Congress
		selected by the U.S. President
		elected by member banks
		selected by the U.S. Treasury Department

Question 32

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By buying government securities, the Federal Open Market Committee adds to member banks’ reserves.

	True
	False

Question 33

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The Board of Governors of the Federal Reserve System is

		under the jurisdiction of the U.S. President
		responsible to the Secretary of the U.S. Treasury
		independent within the U.S. government
		responsible to the Council of Economic Advisors

Question 34

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The members of the Board of Governors of the Federal Reserve System are appointed by the U. S. President.

	True
	False

Question 35

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Various studies have recommended changes in the Federal Reserve structure and policy that include

		having Congress set the discount rate
		placing monetary policy in the control of Congress
		dissolving the Board of Governors
		making each appointment to the Board of Governors a lifetime appointment

Question 36

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If the Federal Open Market Committee desired to tighten credit, it would

		buy securities in the open market
		sell securities in the open market
		lower the discount rate
		raise the discount rate

Question 37

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Competition in U.S. banking has been increased by

		the expansion of interstate banking
		the expansion of foreign bank branches into the United States
		the movement of brokerage houses and large corporations into traditional banking activities
		all of the above

Question 38

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If a Federal Reserve Bank wanted to tighten the money supply, it would

		lower the reserve requirement
		buy securities in the open market
		raise the discount rate
		lower the discount rate

Question 39

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The existence of undistributed corporate profits tends to cause

		NNP to be smaller than GDP
		national income to be larger than personal income
		national income to be smaller than NNP
		personal income to be larger than disposable personal income

Question 40

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National income is equivalent to total earnings in the form of wages, rent, interest, and profits.

	True
	False

Question 41

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The GDP counts durable goods only during their year of production.

	True
	False

Question 42

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Imports constitute a minus figure in national income accounting.

	True
	False

Question 43

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GDP overstates national income because it does not make any adjustment for national debt.

	True
	False

Question 44

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The national income accounts for the United States are prepared by the

		Bureau of Labor Statistics
		U.S. Department of Commerce
		Federal Reserve Board
		President Council of Economic Advisors

Question 45

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Excluded from the GDP are

		military services
		postal services
		medical services
		nonmonetary transactions

Question 46

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The difference between GDP and final sales equals

		depreciation
		exports
		imports
		net inventory change

Question 47

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In dollar value, the nominal GDP in the United States is in the vicinity of

		between 3 and 4 billion
		between 4 and 5 billion
		between 4 and 5 trillion
		between 10 and 12 trillion

Question 48

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The GDP and NI figures are not equal because

		business profits are included in GDP but not in NI
		depreciation and indirect taxes are included in GDP but not in NI
		all taxes must be deducted from GDP to arrive at NI
		none of the above

Question 49

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Current disposable income can be adjusted for price changes and population changes to yield real per capita disposable income.

	True
	False

Question 50

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Personal consumption expenditures account for approximately two-thirds of the GDP in the United States.

	True
	False

ECON125-HK2. ECONOMICS FOR MANAGERS (ECON125-HK2) > TAKE ASSESSMENT: EXAM 4

Question 1

2 points

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U.S. workers have

		neither substantial geographic nor occupational mobility
		both substantial geographic and occupational mobility
		substantial geographic mobility but not occupational mobility
		substantial occupational mobility but not geographic mobility

Question 2

2 points

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Many economists believe that increases in the minimum wage tend to create a labor surplus.

	True
	False

Question 3

2 points

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The rate of unemployment that can be expected from normal frictional unemployment in an otherwise fully employed labor force is known as the

		natural rate of unemployment
		full-employment unemployment rate
		structural unemployment rate
		Humphrey-Hawkins unemployment rate

Question 4

2 points

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If workers are changing jobs voluntarily and it takes a while for them to find new jobs, they are an example of

		structural unemployment
		frictional unemployment
		technological unemployment
		none of the above

Question 5

2 points

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Underemployment includes employed workers not performing at full capacity.

	True
	False

Question 6

2 points

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The Humphrey-Hawkins Act’s target rates for unemployment and inflation were reached by their target date of 1983.

	True
	False

Question 7

2 points

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Which type of unemployment is the most difficult to cure?

		functional
		seasonal
		cyclical
		structural

Question 8

2 points

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The idea of the natural rate of unemployment is that

		frictional and structural causes prevent employment in the economy from ever becoming 100 percent of the labor force
		each industry has its average turnover rate, and this rate determines its natural rate of unemployment
		the market system requires that a pool of unemployed people be available to limit the power of workers
		none of the above

Question 9

2 points

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The total U.S. labor force excludes members of the armed services stationed outside the United States.

	True
	False

Question 10

2 points

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The Full Employment and Balanced Growth Act set a 1983 U.S. inflation rate target of

		1 percent
		2 percent
		3 percent
		4 percent

Question 11

2 points

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The total labor force includes all persons in the noninstitutional population who are either working or seeking work.

	True
	False

Question 12

2 points

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The natural rate of unemployment is usually

		equal to the full-employment rate of unemployment
		higher than the full-employment rate of unemployment
		lower than the full-employment rate of unemployment
		double the full-employment rate of unemployment

Question 13

2 points

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If the percentage of the population that is below the poverty line has decreased, then the number of

		poor must have increased
		poor must have decreased
		poor may have increased
		people above the poverty line must have increased

Question 14

2 points

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If a Lorenz curve were constructed for the distribution of wealth, the curve would

		indicate greater inequality for wealth than income
		indicate less inequality for wealth than income
		be identical to the Lorenz curve for income
		be a straight line from the origin

Question 15

2 points

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The total number of people in poverty has changed little since the late 1960s.

	True
	False

Question 16

2 points

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The poverty rate for blacks is almost three times that for whites.

	True
	False

Question 17

2 points

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If everyone had the same income, the Lorenz curve would become the line of income equality.

	True
	False

Question 18

2 points

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The official poverty threshold line is adjusted annually for

		income taxes
		inflation
		average household size
		average family size

Question 19

2 points

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In 2004, households with incomes less than $22,629 received

		3.4 percent of aggregate income
		5.7 percent of aggregate income
		8.2 percent of aggregate income
		10 percent of aggregate income

Question 20

2 points

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Nonfamily households earn less than 50 percent of the income earned by family households.

	True
	False

Question 21

2 points

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The Lorenz curve shows the

		percent of families on the vertical axis and percent of income on the horizontal axis
		percent of families on the horizontal axis and the cumulative percent of income on the vertical axis
		cumulative percent of income on the vertical axis and the cumulative percent of families on the horizontal axis
		cumulative percent of families on the vertical axis and the cumulative percent of income on the horizontal axis

Question 22

2 points

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A minimum wage rate job raises a family out of poverty.

	True
	False

Question 23

2 points

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In discussing the distribution of income among families, the term “lowest fifth” indicates

		the poorest five percent of families
		the poorest twenty percent of families
		the smallest twenty percent of families
		the percentage of families receiving one-fifth of the income

Question 24

2 points

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If income were distributed solely according to productivity, some individuals would not receive any income.

	True
	False

Question 25

2 points

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Cost-push inflation is characterized by

		the wage-price spiral
		administered pricing
		stagflation
		the multiplier

Question 26

2 points

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Inflation and unemployment can never exist at the same time.

	True
	False

Question 27

2 points

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To most effectively combat inflation by raising taxes, the government should

		target funds that would otherwise be held idle
		also increase government spending
		target households with low marginal propensities to consume
		target funds that would otherwise be spent on consumption or investment

Question 28

2 points

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During an inflationary period, the Fed is inclined to purchase government securities to combat inflation.

	True
	False

Question 29

2 points

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In the 1970s, the war in Vietnam caused a fiscal drag on the economy.

	True
	False

Question 30

2 points

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Government policies designed to lower aggregate demand in order to combat inflation are known as

		expansionary policies
		contractionary policies
		anti-growth policies
		recession policies

Question 31

2 points

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During the 1990–1991 recession, the U.S. government’s large budget deficits and budget reduction commitments limited its ability to use fiscal policy to stimulate the economy.

	True
	False

Question 32

2 points

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When the U.S. Treasury sells bonds to the public to finance government spending and then the Fed buys the bonds through open-market purchases, the Fed is

		monetizing the debt
		decreasing the money supply
		decreasing bank reserves
		increasing the difficulty of raising funds for government spending

Question 33

2 points

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Fiscal policy deals with

		interest rates
		the money supply
		the government budget
		bank credit

Question 34

2 points

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In the late 1960s, a 10 percent surcharge on U.S. personal and corporate income taxes was imposed as an expansionary measure.

	True
	False

Question 35

2 points

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If the government finances increased spending strictly through higher taxes, this action

		increases the multiplier effect
		has no impact on the multiplier effect
		decreases the multiplier to a value greater than one
		decreases the multiplier to one

Question 36

2 points

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The Economic Recovery Tax Act of 1981 reduced personal income taxes by 25 percent over a three-year period.

	True
	False

Question 37

2 points

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Jawboning by the Carter Administration proved to be an unsuccessful contractionary policy.

	True
	False

Question 38

2 points

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The U.S. economy has experienced no minor cycles since World War II.

	True
	False

Question 39

2 points

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Agricultural explanations of the business cycle are not as important today as they were 50 to 75 years ago, because today

		agricultural production is more mechanized
		agricultural production is a smaller portion of the total economy
		agricultural production is greater
		we eat less

Question 40

2 points

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The underconsumption theory is classified as a real or physical cause of the business cycle.

	True
	False

Question 41

2 points

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During the expansion phase of the business cycle, profit margins increase due to a widening cost-price relationship.

	True
	False

Question 42

2 points

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Which of the following is the most valid expression of a theory of underconsumption as a cause of business cycles?

		capital goods production encroaches on consumer goods production
		income equals production, but not all income is used for current purchasing power
		people want more goods than the economy is capable of producing; therefore, they must cut their consumption expectations
		the economy provides insufficient purchasing power to buy back the goods it produces

Question 43

2 points

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A recession occurs whenever there’s a decline in real GDP for two or more successive quarters.

	True
	False

Question 44

2 points

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Involuntary inventory accumulation may occur during the contracting phase of the business cycle.

	True
	False

Question 45

2 points

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A hurricane is considered an external force in business cycle analysis.

	True
	False

Question 46

2 points

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During the contraction phase of the business cycle,

		prices fall relative to costs, reducing profit margins
		costs fall relative to prices, reducing profit margins
		prices fall relative to costs, increasing profit margins
		costs fall relative to prices, increasing profit margins

Question 47

2 points

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An example of an external force in business fluctuations is

		falling interest rates due to lagging demand in a contraction
		a devaluation in the nation’s currency
		variations in inventories
		the lag between price changes and cost changes

Question 48

2 points

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Economists use the phrase “business cycle” when discussing

		movements in interest rates
		changes in economic productivity
		fluctuations in employment
		fluctuations in total output around the trend

Question 49

2 points

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The underinvestment theory is classified as a monetary cause of the business cycle.

	True
	False

Question 50

2 points

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As the economy moves into the trough of the business cycle, there is a sizable reduction in the output of capital goods.

	True
	False

ECON125-HK2. ECONOMICS FOR MANAGERS (ECON125-HK2) > TAKE ASSESSMENT: EXAM 5

Question 1

2 points

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Overseas investments by U.S. citizens are recorded as credit items in the capital account of the U.S. balance of payments.

	True
	False

Question 2

2 points

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Under a fixed or controlled exchange rate system, if the United States wanted to increase the value of the dollar, it could buy foreign currencies with dollars.

	True
	False

Question 3

2 points

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Since World War II, international exchange rates have been

		fixed all the time
		floating all the time
		fixed most of the time until the early 1970s, and floating most of the time since then
		determined by the use of exchange controls

Question 4

2 points

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Under a system of fixed exchange rates, excess demand for foreign currency at the official exchange rate would cause

		the exchange rate to rise
		the exchange rate to fall
		the government to buy foreign currency from the country’s importers
		the government to sell foreign currency to the country’s importers

Question 5

2 points

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The course of international monetary policy is directed primarily by the

		Federal Reserve
		World Bank
		International Monetary Fund
		leaders of the Group of Seven nations

Question 6

2 points

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Overseas investments by U.S. citizens show up in the U.S. balance of payments as

		credit items
		debit items
		current account items
		investment income

Question 7

2 points

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A debit item on the U.S. balance of payments is any transaction that

		results in a loss by U.S. sellers
		results in a loss by U.S. buyers
		makes foreigners use up their holdings of U.S. dollars
		makes U.S. dollars available to foreigners

Question 8

2 points

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Under the gold standard, a country that is experiencing a gold outflow

		has a balance of payments deficit
		has a shrinking money supply
		is experiencing a fall in output
		all of the above

Question 9

2 points

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When a U.S. citizen invests in foreign assets, the transaction is recorded in the balance of payments as a

		credit in capital account
		debit in the capital account
		credit in the current account
		debit in the current account

Question 10

2 points

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Since World War II, the importance of gold in international exchange has increased.

	True
	False

Question 11

2 points

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A freely floating exchange rate exists when

		governments set pegs for the exchange rate but occasionally adjust them
		offshore banks determine the exchange rate
		supply and demand forces are allowed to determine the rate at which currencies are exchanged for each other
		governments use international reserves only to influence exchange rates

Question 12

2 points

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An appreciation of the U.S. dollar would

		encourage foreigners to invest in the United States
		discourage foreigners from buying U.S. goods
		discourage the travel abroad of U. S. citizens
		encourage foreign travel in the United States

Question 13

2 points

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Under the gold standard, a country experiencing a gold outflow

		has a balance of payments surplus
		had an increasing money supply
		experienced a decline in output
		experienced an increase in output

Question 14

2 points

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Under a system of floating exchange rates, increased demand of U.S. citizens for Japanese goods will cause

		the Japanese yen to depreciate against the U.S. dollar
		the U.S. dollar to appreciate against the Japanese yen
		the Japanese yen to appreciate against the U.S. dollar
		the exchange rate between the Japanese yen and the U.S. dollar to remain unchanged

Question 15

2 points

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Under the gold standard, a nation experiencing chronic trade deficits had to increase its money supply while reducing its holdings of gold.

	True
	False

Question 16

2 points

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Appreciation of the U.S. dollar encourages travel abroad by U.S. citizens.

	True
	False

Question 17

2 points

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If trade between the United States and Canada were totally free of restrictions, the incomes of most Canadian workers would decrease.

	True
	False

Question 18

2 points

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The revenue and protective purposes of a tariff are largely incompatible.

	True
	False

Question 19

2 points

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Using tariffs to support diversification of a nation’s industrial structure

		has little application to developing countries
		is based on the need to protect high domestic wages
		is based on the need to make the economy less vulnerable to demand fluctuations for its products
		is designed to encourage specialization by the nation’s producers in just one or a few goods

Question 20

2 points

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In comparing a revenue tariff versus a protective tariff on the same good, a revenue tariff would tend to be

		less than a protective tariff
		greater than a protective tariff
		equal to a protective tariff
		greater than or equal to a protective tariff

Question 21

2 points

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The General Agreement on Tariffs and Trade (GATT) was replaced by the World Trade Organization (WTO).

	True
	False

Question 22

2 points

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The rule of origin defines the maximum percentage of a country’s exported product that can be sold in the United States.

	True
	False

Question 23

2 points

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Tariff protection

		encourages the optimum use of scarce resources
		has no impact on use of scarce resources
		prevents the optimum use of scarce resources
		eliminates the scarcity of resources

Question 24

2 points

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A provision that permits raising tariffs if domestic producers are suffering under an existing tariff is known as

		a trading bloc
		exchange control
		antidumping
		an escape clause

Question 25

2 points

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Beginning in 2002, Economic Monetary Union members no longer print their own money.

	True
	False

Question 26

2 points

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Chile has been invited to join the European Union.

	True
	False

Question 27

2 points

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The principle of comparative advantage is associated with

		restricting consumer choices
		greater production at higher prices
		specialization and exchange
		comparing the efficiency of alternative tariffs

Question 28

2 points

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The primary function of the Export-Import Bank is to assist in

		guaranteeing markets for U.S. importers
		financing exports from the United States
		providing foreign currency to U.S. banking institutions
		reducing tariff rates between trading nations

Question 29

2 points

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Exports from China into the U.S. have most seriously impacted the

		automobile industry
		furniture industry
		travel industry
		cosmetics industry

Question 30

2 points

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Although political arguments strongly favor free trade, most decisions affecting international trade are made in the economic arena.

	True
	False

Question 31

2 points

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Who does not gain when a tariff is imposed?

		domestic producers of the good
		domestic workers in the protected industry
		domestic consumers of the good
		domestic suppliers in the protected industry

Question 32

2 points

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The Export-Import Bank is owned by 150 nations, including the United States.

	True
	False

Question 33

2 points

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Consider a tariff levied on the importer of a consumer good. The tariff is ultimately paid by

		the importer
		the consumer
		competing foreign firms
		competing domestic firms

Question 34

2 points

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The size of the national debt relative to GDP will not be reduced by

		paying off some of the debt
		lowering the federal deficit
		having the GDP grow faster than the debt
		having creditors forgive part of the debt

Question 35

2 points

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In the United States, income is taxed only by the federal government.

	True
	False

Question 36

2 points

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Whether a tax is shifted forward or backward depends on the price elasticities of demand and supply.

	True
	False

Question 37

2 points

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Which of the following taxes is not collected from the consumer on the final sale of goods and services?

		consumption tax
		national sales tax
		value-added tax
		flat tax

Question 38

2 points

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The full-employment balanced budget always shows a surplus.

	True
	False

Question 39

2 points

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The government’s ability to repay the national debt is governed only by the total assets of the economy.

	True
	False

Question 40

2 points

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When the federal budget is used as a tool for economic stabilization, the ideal goal is to

		balance the budget over the entire business cycle
		balance the budget each year
		balance the budget during expansions
		run a surplus during contractions

Question 41

2 points

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As a percentage of GDP, the U.S. national debt held by the public is larger than in any major European country.

	True
	False

Question 42

2 points

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A consumption tax is usually collected on

		wages and salaries
		interest income
		dividend income
		none of the above

Question 43

2 points

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When the government uses tax revenue to pay off portions of the national debt, total purchasing power in the economy

		increases
		decreases
		is not affected at any level
		remains the same but changes individually

Question 44

2 points

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As interest rates rise,

		the temptation to borrow increases
		the cost of carrying the national debt rises
		the likelihood of a surplus budget increases
		the need for deficit spending to reinvigorate the economy grows

Question 45

2 points

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A balanced federal budget

		cannot have an expansionary effect on the economy
		can have an expansionary effect on the economy if the government finances spending with taxes on idle funds
		can have an expansionary effect on the economy if the government finances spending with taxes on funds that would have been used for private consumption
		can have an expansionary effect on the economy if the government finances spending with taxes on funds that would have been used for private investment

Question 46

2 points

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The U.S. income tax is based on the principle of

		cost of service
		benefit received
		ability to pay
		equality of sacrifice

Question 47

2 points

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The U.S. national debt has declined continuously as a percentage of GDP since World War II.

	True
	False

Question 48

2 points

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Which of the following is not a necessary characteristic for a tax to qualify as a good tax?

		justifiability
		convenience
		being economical
		equality

Question 49

2 points

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The equality-of-sacrifice doctrine would require larger taxes from higher-income groups.

	True
	False

Question 50

2 points

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The sales tax is proportional with respect to the tax base of the amount of purchases.

	True
	False

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