Economics Test

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Question 1

1. 1) _________ economies are the most effective at promoting economic growth.

	a.	Command
	b.	Closed
	c.	Open
	d.	Inflationary

3 points

Question 2

1. 1) Limiting the immigration of highly educated professionals hurts U.S. economic growth because

	a.	it restricts the supply of high human capital workers and the new ideas they could potentially generate.
	b.	it restricts the knowledge base of the workforce.
	c.	immigrants always cost less to hire than native workers do.
	d.	both a. and b.

3 points

Question 3

1. 1) Economic growth is positively related to all of the following except

	a.	import tariffs.
	b.	the rate of investment.
	c.	the rate of saving.
	d.	the growth of technology.

3 points

Question 4

1. 1) Supply-side inflation can be caused by a continual

	a.	increase in aggregate demand while aggregate supply remains unchanged.
	b.	decrease in aggregate supply while aggregate demand remains unchanged.
	c.	increase in aggregate supply while aggregate demand remains unchanged.
	d.	decrease in aggregate demand while aggregate supply significantly decreases.

3 points

Question 5

1. 1) The aggregate demand curve would shift to the right as a result of

	a.	a drop in the foreign exchange value of a dollar.
	b.	tax increases.
	c.	a drop in the price level.
	d.	a decrease in the amount of money in circulation.

3 points

Question 6

1. 1) The total of all planned real expenditures in the economy is

	a.	aggregate GDP.
	b.	aggregate consumption.
	c.	aggregate spending.
	d.	aggregate demand.

3 points

Question 7

1. 1) Consider this statement: “Persistent inflation in a growing economy is possible only if the aggregate demand curve shifts rightward over time at a faster pace than the rightward progression of the long-run aggregate supply curve.” This statement is describing:

	a.	demand-side inflation.
	b.	supply-side inflation.
	c.	demand- and supply-side inflation.
	d.	neither demand- nor supply-side inflation.

3 points

Question 8

1. 1) Which of the following best exemplifies Say’s Law?

	a.	The more you consume the less additional satisfaction you receive from additional consumption of the good.
	b.	A decrease in the price of a good leads to larger amounts of the good being purchased.
	c.	The production of a $4000 Plasma TV set creates demand for other goods and services valued at $4000.
	d.	Increases in labor eventually lead to smaller and smaller increases in output.

3 points

Question 9

1. 1) All of the following will shift the short-run aggregate supply curve and long-run aggregate supply curve except for

	a.	a depletion of raw materials.
	b.	a temporary change in raw materials.
	c.	decreased competition.
	d.	increased education and training for the labor force.

3 points

Question 10

1. 1) The LRAS curve is vertical because unemployment is at its ________________.

	a.	natural rate
	b.	frictional rate
	c.	cyclical rate
	d.	structural rate

3 points

Question 11

1. 1) Which of the following factors will shift the short-run aggregate supply curve but not the long-run aggregate supply curve?

	a.	an economy-wide decrease in wages.
	b.	Improvements in technology
	c.	A permanent decrease in oil production
	d.	A decrease in capital

3 points

Question 12

1. 1) In the Keynesian model, equilibrium national income

	a.	occurs at the point where the consumption function crosses the 45 degree line.
	b.	equals planned consumption, investment, government, and net export expenditures.
	c.	equals planned consumption, investment, government, and import expenditures.
	d.	occurs when the national propensity to consume equals the multiplier.

3 points

Question 13

1. 1) If MPS is .25 and a nation’s autonomous spending increases by $150,000, then real GDP should increase by how much?

	a.	$500,000
	b.	$600,000
	c.	$700,000
	d.	$800,000

3 points

Question 14

1. According to the identity DI=C+S, the relationship between MPC and MPS indicates that the entire decrease in household disposable income

	a.	is distributed between consumption and saving.
	b.	is invested and saved.
	c.	is saved.
	d.	is invested.

3 points

Question 15

1. Saving is the portion of

	a.	investment that is spent on machinery.
	b.	the stock of consumption.
	c.	disposable income that is not consumed.
	d.	disposable income that is consumed.

3 points

Question 16

1. There are several time lags involved when fiscal policy is applied. The first hurdle faced by a government is

	a.	the time it takes Congress to pass the bill to enact the policy.
	b.	recognizing that the economy is facing a problem that could be solved by applying fiscal policy.
	c.	the time it takes for the policy to have an effect on the economy.
	d.	the time it takes Congress to decide upon the type of fiscal policy to be used.

3 points

Question 17

1. 1) Fiscal policy refers to

	a.	changes in the money supply.
	b.	changes in the amount of physical capital in the economy.
	c.	discretionary changes in government spending and taxes.
	d.	changes in the interest rate.

3 points

Question 18

1. 1) You are a member of Congress. The economy is currently experiencing a recessionary gap. Which of the following are fiscal policies that Congress can enact in an attempt to correct the economy?

	a.	A decrease in the interest rate and increase in the money supply.
	b.	An increase in government spending and a decrease in the tax rate.
	c.	An increase in the money supply and a decrease in the tax rate.
	d.	A decrease in government spending and an increase in the tax rate.

3 points

Question 19

1. 1) Since the 1940’s more often than not the U.S. federal government has

	a.	steadily reduced its borrowing.
	b.	run a budget surplus.
	c.	run a budget deficit.
	d.	run a balanced budget.

3 points

Question 20

1. 1) Generally, a larger U.S. trade deficit is accompanied by a

	a.	a larger U.S. federal budget deficit.
	b.	a smaller U.S. federal budget deficit.
	c.	a smaller U.S. national debt.
	d.	decreased borrowing by the U.S. government.

3 points

Question 21

1. 1) Which of the following is a reason for the resurgent U.S. budget deficit since 2001?

	a.	Lower U.S. government spending but even lower tax receipts
	b.	Larger tax receipts outweighed by even larger government expenditures
	c.	Higher interest rates
	d.	Tax revenue not keeping pace with growth in spending

3 points

Question 22

1. 1) A natural consequence of the government continually spending more than what it takes in through tax receipts, ceteris paribus, is that

	a.	consumption takes up a larger percentage of the economic activity.
	b.	investment takes up a larger percentage of the economic activity.
	c.	government spending takes up a larger percentage of the economic activity.
	d.	net exports take up a larger percentage of the economic activity.

3 points

Question 23

1. 1) If 25 -33 year old's in nation X have an average MPC = 1.07, while 65-70 year old's in nation X have an MPC of .66, then

	a.	both sets of citizens are net savers.
	b.	the younger citizens in nation X are dissavers, while the older citizens in nation X are net savers.
	c.	the younger citizens in nation X are net savers, while the older citizens in nation X are dissavers.
	d.	both sets of citizens are dissavers.

3 points

Question 24

1. 1) What is the difference between government budget deficit and government debt?

	a.	Budget deficits indicate a governments tendency to spend more than the revenue that it brings in, while public debt is the amount of borrowing private households have collectively demonstrated.
	b.	Budget deficits indicate a governments tendency to earn more revenue that it spends, while public debt is the amount of borrowing private households have collectively demonstrated.
	c.	Budget deficits indicate a governments tendency to spend more than the revenue that it brings in, while public debt is the amount of borrowing the government takes on to support this difference.
	d.	Budget deficits indicate a governments tendency to spend the exact amount of revenue that it brings in, while public debt is the amount of borrowing the government takes on to support this difference.

3 points

Question 25

1. The Fed's initiation of contractionary monetary policy is intended to achieve which of the following?

	a.	Decreasing price levels
	b.	Lower interest rates
	c.	Increased consumption spending
	d.	both a. and b.

3 points

Question 26

1. 1) Please examine the following annual data:

Disposable Income Consumption Savings

$35,000 $36,500 -($1,500)

$48,000 $43,100 $4,900

$65,000 $58,000 $7,000

What is MPC for the household above when it earns higher amounts of income?

	a.	.55 and .88
	b.	.51 and .88
	c.	.41 and .80
	d.	.61 and .91

5 points

Question 27

1. 1) Please examine the following annual data:

Disposable Income Consumption Savings

$35,000 $36,500 -($1,500)

$48,000 $43,100 $4,900

$65,000 $58,000 $7,000

If the above household earns below $35,000, they will probably

	a.	net save.
	b.	dis-save.
	c.	break-even.
	d.	urge government for more fiscal policy.

5 points

Question 28

1. In the long-run, Keynesian and Classical economists believe

	a.	real GDP can be affected by a shift outward in the AD curve.
	b.	real GDP is affected by a change in real wages.
	c.	real GDP is unaffected by a change in the price level.
	d.	real GDP is reflective of an employment level just below full employment.

5 points

Question 29

1. Fiscal policy has _______ effect on the economy than monetary policy.

	a.	a smaller
	b.	a bigger
	c.	the same
	d.	no effect

5 points

Question 30

1. Throughout the globe, nations with more efficient governments tend to

	a.	no change in per capita real GDP compared to nations with inefficient governments.
	b.	have higher per capita real GDP amongst its citizens.
	c.	have lower per capita real GDP amongst its citizens.
	d.	have stronger tendencies toward borrowing from the World Bank.