Economics Mulitple Choice Questions

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1. Consider a production possibilities curve for the U.S. that puts capital goods on the vertical axis and consumer goods on the horizontal axis. How would the US production possibilities curve be affected in this case: the AIDS epidemic becomes rampant in America claiming millions of lives.

Answer

	A.	A movement from a point inside the curve to a point on or near the curve
	B.	A movement from a point on or near the curve to a point inside the curve
	C.	A shift in the entire curve outward (away from the origin of the graph).
	D.	A shift in the entire curve to inward (toward the origin of the graph).
	E.	A movement along the curve

1. Statement I: The interest rate is the price of money (loanable funds).

Statement II: Interest rates would rise if the supply of loanable funds increased.

Answer

	A.	Statement I is true and statement II is false.
	B.	Statement II is true and statement I is false.
	C.	Both statements are true.
	D.	Both statements are false.

1. Which of these relations is correct?

Answer

	A.	APC - APS = 1
	B.	MPC + MPS = 1
	C.	APC + MPC = 1
	D.	1 + MPC = MPS

1. When the MPC is 0.8, then the MPS must be:

Answer

	A.	0.9
	B.	0.8
	C.	0.4
	D.	0.2

1. What underlying factor causes the real GDP to be above the nominal GDP in early years of time series and below in the later years?

Answer

	A.	decreasing price levels
	B.	increasing price levels
	C.	increases in average income
	D.	decreases in the output of the economy

1. In order to measure real GDP

Answer

	A.	Current output should be calculated at base year prices.
	B.	Current output should be calculated at current prices.
	C.	Base year output should be calculated at current prices.
	D.	All of the statements are true.

1. After a business cycle trough a recovery follows

Answer

	A.	all of the time
	B.	most of the time
	C.	some of the time
	D.	none of the time

1. Which of the following statements is NOT true?

Answer

	A.	The supply of money decreases whenthe Federal Reserve buys securities from households or businesses.
	B.	Excess reserves are the amount by which actual reserves exceed required reserves.
	C.	Commercial bank reserves are an asset to commercial banks but a liability of the Federal Reserve Banks.
	D.	All of the above statements are false.

1. Statement I: If we run a federal budget deficit, the national debt will rise.

Statement II: If we run a federal budget surplus of $100 billion, the national debt will decline by $100 billion.

Answer

	A.	Statement I is true and statement II is false.
	B.	Statement II is true and statement I is false.
	C.	Both statements are true.
	D.	Both statements are false.

1. Which statement is true?

Answer

	A.	M1 is larger than M2
	B.	M1 + M2 = M3
	C.	M2 + large denomination time deposits = M3
	D.	M1 times M2 = M3

Top of Form

If interest rates fall, the quantity of money demanded

Answer

	A.	rises.
	B.	falls.
	C.	stays about the same.
	D.	It is impossible to determine an answer from the information provided in this question.

3 points

Question 17

The most powerful individual in the Federal Reserve System is the

Answer

	A.	senior member of the Federal Open Market Committee
	B.	Superintendent of the Board of Governors
	C.	Chairman of the Federal Reserve Board
	D.	New York District Bank President

3 points

Question 18

If all banks are subject to a uniform 20% reserve requirement and demand deposits are the only form of money, a $1,000 open market purchase by the Fed could ultimately cause the money supply to

Answer

	A.	increase by $1,000
	B.	decrease by $1,000
	C.	decrease by $5,000
	D.	increase by $5,000

3 points

Question 19

Which statement is TRUE?

Answer

	A.	More people are going to college, but our labor force is less educated.
	B.	Work study programs in our country allow over 5 million young people who chose not to go to college to get high paying, technical jobs.
	C.	Close to three million immigrants arrive in the United States every year.
	D.	None of the statements are true.

3 points

Question 20

Which statement is true?

Answer

	A.	In 2007 the personal savings rate in the United States was less than 1 percent.
	B.	The key to productivity growth is the use of deteriorating and obsolete capital.
	C.	Immigration has long been a tremendous drain on our economy and has slowed our rate of economic growth.
	D.	Less than 10 percent of our nation's economic growth is due to increases in productivity.

3 points

Question 21

Statement I: Our oil imports and our trade deficit with Japan and China together account for the majority of our overall trade deficit.

Statement II: Although the Chinese market is open to American producers, the Chinese people have very little income to purchase relatively expensive imported goods.

Answer

	A.	Statement I is true and statement II is false.
	B.	Statement II is true and statement I is false.
	C.	Both statements are true.
	D.	Both statements are false.

3 points

Question 22

Statement I: In order for two countries to trade good A for good B, one country has to be able to make good A more cheaply than the other country, and the other country has to be able to make good B more cheaply.

Statement II: Two countries would not trade with each other unless both benefit from trading.

Answer

	A.	Statement I is true and statement II is false.
	B.	Statement II is true and statement I is false.
	C.	Both statements are true.
	D.	Both statements are false.

3 points

Question 23

A movement along a demand curve, from one combination of price and quantity to a lower price and its higher quantity, is called:

Answer

	A.	an increase in quantity demanded
	B.	a decrease in quantity demanded
	C.	an increase in demand
	D.	a decrease in demand

3 points

Question 24

A movement along a supply curve represents:

Answer

	A.	a change in quantity supplied
	B.	a change in supply
	C.	an increase in supply
	D.	a decrease in supply

3 points

Question 25

Compared to the average total cost curve, the average variable cost cuve lies::

Answer

	A.	below the ATC curve
	B.	to the right of the ATC curve
	C.	above the ATC curve
	D.	to the left of the ATC curve

3 points

Question 26

If the marginal cost of printing the textbook you are using for this course is just $3, then what is the most reasonable conclusion you can reach?

Answer

	A.	The publisher is making a profit of at least 1000 percent.
	B.	The publisher needs to print and sell thousands of copies in order to take advantage of economies of scale.
	C.	The publisher has very low fixed costs.
	D.	The publisher has very high variable costs.

3 points

Question 27

Which statement is false?

Answer

	A.	The break-even point lies on the firm's short run supply curve.
	B.	The firm's short run and long run supply curves both run along the marginal cost curve.
	C.	In the short run a firm losing money will operate if the price is between the break even point and the shutdown point.
	D.	The lowest price acceptable to a firm in the short run is the break even point.

3 points

Question 28

Which is the most accurate statement?

Answer

	A.	In the long run the perfect competitor makes an economic profit.
	B.	Most perfect competitors are large firms.
	C.	In the long run the perfect competitor sells at cost.
	D.	The long and the short run for the perfect competitor are identical.

3 points

Question 29

Which statement is false?

Answer

	A.	The monopolist produces the entire industry supply.
	B.	The monopolist faces the industry demand curve.
	C.	A monopoly is generally the largest firm in the industry.
	D.	None is false.

3 points

Question 30

Which of the following is NOT true about a monopoly?

Answer

	A.	The demand curve for a monopoly's product is perfectly elastic
	B.	For any given output quantity, the price of the monopoly's product will exceed the marginal revenue from that amount.
	C.	If the monopoly maximizes profit, it will charge a price that exceeds marginal cost.
	D.	It must adjust output until marginal revenue equals marginal cost to maximize profit.

3 points

Question 31

The wastefulness of excess capacity is not considered totally bad by all economists because

Answer

	A.	advertisers make more income that is circulated to the rest of the economy.
	B.	excess capacity may allow for a greater diversity of products than available under other forms of competition.
	C.	the products would not be produced otherwise.
	D.	the monopolistically competitive firm allocated resources in a more efficient way than other market structure firms.

3 points

Question 32

In monopolistic competition, the firm in long run equilibrium would set output where:

Answer

	A.	marginal cost = marginal revenue
	B.	ATC reaches a minimum
	C.	AVC reaches a minimum
	D.	marginal cost = demand

3 points

Question 33

The greater are the barriers to entry into an industry

Answer

	A.	the more elastic will be the demand curves for existing firms.
	B.	the more likely that existing firms will enjoy large profits in the long run.
	C.	the lower will be short run profits.
	D.	the lower will be the average cost curves of existing firms.

3 points

Question 34

In the circular flow model, consumers

Answer

	A.	supply products and demand resources.
	B.	demand both products and resources.
	C.	supply both products and resources.
	D.	demand products and supply resources.

3 points

Question 35

During times of recession, Keynes thought governments should use which of these fiscal policy sets in order to help the economy achieve recovery.

Answer

	A.	raise taxes and run budget deficits.
	B.	raise taxes and run budget surpluses.
	C.	decrease taxes and run budget surpluses.
	D.	decrease taxes and run budget deficits.

3 points

Question 36

Assume that the population is 500 million, the labor force is 400 million, and 240 million people are employed. The unemployment rate is

Answer

		32%
		40%
		50%
		60%
		80%