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Economics Multiple Choice

1. The members of the Board of Governors are appointed by
A) the president. C) the Federal Reserve district banks.
B) Congress. D) the member banks.

2. Intermediate products are
A) goods that are purchased by the government.
B) goods that are transferred to the states.
C) products produced by the federal government but consumed by the states.
D) products produced by business firms for resale by other firms.

3. When inflation occurs
A) money gains in value.
B) money loses value.
C) the value of money is unaffected.
D) the value of demand deposits falls but the value of currency is unaffected.
E) inflation has nothing to do with money.

4. John Maynard Keynes
A) agreed with classical writers that strong automatic pressures drive market economies to full employment.
B) focused on attaining the long-run macroeconomic goal of high, but stable economic growth.
C) argued that a market economy might become stuck in a short-run equilibrium in which substantial capital and labor lay idle.
D) argued that short-run equilibrium occurs only at full employment.

5. Monetary policy consists of
A) actions taken by both the legislative and executive branches of government to control the nation's money supply.
B) actions taken by Congress to control the nation's money supply.
C) actions taken by the Federal Reserve System to control the nation's money supply.
D) actions taken by the executive branch of government to control the nation's money supply.

6. Price ceilings or price controls have the effect of
A) decreasing quantity supplied and increasing quantity demanded.
B) decreasing both quantity supplied and quantity demanded.
C) increasing quantity supplied and decreasing quantity demanded.
D) increasing both quantity supplied and quantity demanded.

7. Money is created when someone
A) takes out a bank loan. C) spends money.
B) pays back a bank loan. D) saves money.

8. The demand for money schedule shows that the quantity of money that people want to hold
A) rises with the level of income. C) falls as the interest rate rises.
B) falls as income rises. D) falls as the real price of money rises.

9. What is the aggregate supply curve?
A) a curve showing the various quantities of total real output that business will purchase for investment at various alternative price levels
B) a curve showing the various quantities of total real output that will be offered for sale at various alternative price levels
C) a curve showing the various quantities of goods and services that households will provide at various alternative price levels
D) a curve showing business investment at various alternative price levels

10. Which of the following is not demonstrated by a production possibility curve?
A) scarcity B) opportunity cost C) necessity for choice due to scarcity D) price

11. Real GDP is
A) the final estimate of GDP for a period.
B) GDP unadjusted for inflation.
C) GDP adjusted for inflation.
D) total income minus indirect business taxes.

12. The Federal Reserve conducts
A) only monetary policy. C) both monetary and fiscal policy.
B) only fiscal policy. D) neither monetary nor fiscal policy.

13. Which of the following is money?
A) A credit card B) A check C) A share of corporate stock D) None of these

14. Each of the following is an example of an economic resource except
A) land. B) money. C) capital. D) labor.

15. A ________________________ is a legal person.
A) proprietorship B) partnership C) corporation D) business firm

16. Federal funds are
A) reserves that are loaned out on a very short-term basis by one bank to another bank.
B) loans banks make to their most credit-worthy customers.
C) required bank reserve.
D) funds owned by the Federal Reserve system.

17. The CPI is calculated by
A) summing the prices of all consumption goods in the economy.
B) multiplying the rate of inflation in the economy times the unemployment rate.
C) surveying a group of consumers and asking them about their monthly expenditures on necessities.
D) pricing a basket of goods and services purchased by a typical urban household.

18. Fiscal policy deals with each of the following EXCEPT
A) the money supply. C) taxation.
B) government spending. D) the federal budget.

19. When the supply of a good increases and the demand stays the same
A) the price of the good will rise.
B) the price of the good will fall and quantity will not change.
C) the price of the good will remain the same.
D) the price of the good will fall and quantity will rise.

20. When the Fed wants to increase the money supply it
A) raises the discount rate. C) sells U.S. government securities.
B) raises reserve requirements. D) buys U.S. government securities.

21. A demand schedule can be presented
A) only as a table. C) as a table and a graph.
B) only as a graph. D) as neither a table or a graph.

22. Budget deficits are appropriate during
A) recessions, but not inflations. C) recessions and inflations.
B) inflations, but not recessions. D) neither recessions nor inflations.

23. The total of our current and capital accounts
A) will always be zero. C) will always be positive.
B) will always be negative. D) may be positive or negative.

24. A business firm with limited liability would be a
A) proprietorship. B) partnership. C) corporation.

25. To fight a depression Keynes said that the government should
A) do nothing.
B) raise taxes.
C) spend money on carefully chosen projects.
D) spend a lot of money.

26. Inflation is
A) a rise in the price of every good and service.
B) a rise of exactly a specified percentage in the price of every good or service.
C) a rise in the average price level.
D) a rise in average prices of at least 10 percent a year.

27. A decrease in demand means that quantity demanded falls
A) at least one price. B) at a few prices. C) at most prices. D) at all prices.

28. If the economy dips into a recession
A) automatic stabilizers will cause tax receipts to fall and transfer payments to rise.
B) automatic stabilizers will cause tax receipts to rise and transfer payments to fall.
C) discretionary fiscal policy will generate increased transfer payments and lower tax receipts.
D) discretionary fiscal policy will reduce government outlays and increase tax receipts.
E) nothing will happen to the federal budget unless the President and Congress take specific corrective action.

29. Monetary policy includes all of the following EXCEPT
A) changes in government spending on goods and services.
B) changes in reserve requirements.
C) changes in the discount rate.
D) buying and selling government securities on the open market.

30. Expansionary fiscal policy involves
A) a decrease in government spending and/or an increase in taxes.
B) only an increase in taxes.
C) an increase in government spending and/or a decrease in taxes.
D) only a decrease in government spending.

31. Structural unemployment results from
A) changes in business inventories.
B) changes in interest rates.
C) changes in both technology and the changing demand for products.
D) all of the above.

32. An increase in the money supply is likely to
A) lower interest rates.
B) raise interest rates.
C) decrease the quantity of money demanded.
D) both b and c.

33. The main job of the Fed is to
A) control the rate of growth of the money supply.
B) manage the national debt.
C) provide low-interest loans to all financial institutions.
D) none of the above.

34. Which one of the following is counted in GDP?
A) government spending C) intermediate goods
B) transfer payments D) leisure time

35. Discouraged workers
A) are primarily manufacturing employees who have been displaced by machinery.
B) are comprised mainly of the cyclically unemployed, laid off because of recession.
C) are people who have stopped looking for work because they believe they will not be able to find employment.
D) are those workers who leave regular employment and work in the underground economy.
E) are temporarily between jobs.

36. A Fed sale of government securities leads to _____ in bank reserves and ________ in the money supply.
A) an increase, an increase C) a decrease, a decrease
B) an increase, a decrease D) a decrease, an increase

37. Open market operations are
A) the buying and selling of United States government securities by the Fed.
B) borrowing by banks from the Fed.
C) the selling of United States government securities by the United States Treasury.
D) raising or lowering reserve requirements by the Fed.

38. A tariff can best be described as
A) an excise tax on an imported good.
B) a government payment to domestic producers to enable them to sell competitively in world markets.
C) an excise tax on an exported good.
D) a law which sets a limit upon the amount of a good which can be imported.

39. We have business cycles of
A) the same length and amplitude.
B) the same length but of different amplitudes.
C) the same amplitude but of different lengths.
D) different lengths and amplitudes.

40. The interest rate is set by
A) supply and demand. C) the U.S. Treasury Department.
B) law. D) government edict.

41. When supply rises and demand stays the same,
A) equilibrium price rises. C) equilibrium price is not affected.
B) equilibrium price falls. D) equilibrium quantity falls.

42. The larger the reserve ratio the
A) smaller the deposit expansion multiplier.
B) larger the deposit expansion multiplier.
C) less the impact of an increase in reserves.

43. The term recession refers to
A) a period of decline in real GDP for two business quarters.
B) a fall in the general level of real wages.
C) a fall in the CPI.
D) a fall in the rate of increase of real per capita GDP.
E) a prolonged period of falling prices.

44. When the Swiss franc appreciates relative to the dollar
A) it becomes less expensive in terms of the dollar.
B) it takes fewer dollars to buy a Swiss franc.
C) it takes more dollars to buy a Swiss franc.
D) none of the above.

45. Each of these is true at equilibrium except that
A) quantity demanded is equal to quantity supplied.
B) the market is said to clear.
C) demand and supply are equal.
D) the buyers can buy as much as they want at the market price.
E) the sellers can sell as much as they want at the market price.

46. The discount rate refers to
A) the penalty paid by risky bank borrowers; that is, the amount of interest they pay in excess of the prime rate.
B) the rate at which banks write off bad loans.
C) the rate at which assets lose their real value as a result of inflation.
D) the rate at which money loses its value as a result of inflation.
E) the rate of interest that the Fed charges on loans to commercial banks.

47. Gross Domestic Product is the total market value of all
A) commodities sold in a year. C) production during a year.
B) services produced in a year. D) consumer goods sold in a year.

48. An import quota is
A) a tax on imported goods.
B) revenue producing for state governments but not the federal government.
C) always tied to a foreign nation's trade policies toward American goods sold in that country.
D) deflationary.
E) a limit on the quantity of foreign goods that can be sold in a nation's domestic market.

49. Transfer payments are
A) such things as imputed rent and underground activity.
B) included in the national income account.
C) excluded from the personal income account.
D) included in the gross domestic product account.
E) excluded from the gross domestic product account because they do not reflect current production.

50. Bank deposit creation is limited by
A) reserve requirements
B) the interest rate.
C) whether a bank is nationally or state chartered.
D) whether a bank is in a large city or rural area.

51. We would not need to economize if
A) the government printed more money.
B) there was no scarcity.
C) there was less output of goods and services.
D) everyone received a big pay increase.

52. A production possibilities curve shows
A) that in order to acquire more of one good, none of the alternative good must be given up.
B) that in order to acquire more of one good, some of the alternative good must be given up.
C) that any amount of goods could be produced by society if people worked harder.
D) various combinations of guns and butter that can be produced under conditions of 6 percent unemployment.

53. Entrepreneurship is
A) the financial capital necessary to launch a new business.
B) the talent to develop new products and processes and to organize production to make goods and services available.
C) unskilled labor.
D) the physical capital resources used to produce goods and services.

54. Resources include
A) land, labor, and money. D) corporations and partnerships.
B) entrepreneurship and capital. E) monopoly and pure competition.
C) capital and money.

55. If supply increases and demand remains unchanged, equilibrium quantity will _______ and equilibrium price will ______________.
A) rise, rise B) fall, fall C) fall, rise D) rise, fall

56. As price declines, quantity demanded goes _______ and quantity supplied goes ________.
A) up, up B) down, down C) up, down D) down, up

57. An increase in supply means that quantity supplied rises
A) at least one price. B) at a few prices. C) at most prices. D) at all prices.

58. When the market price is lower than the equilibrium price, there is
A) a surplus. C) both a shortage and a surplus.
B) a shortage. D) neither a shortage nor a surplus.

59. At equilibrium, each of these is true except
A) quantity demanded equals quantity supplied.
B) the price has no tendency to change.
C) market price equals equilibrium price.
D) there may be a shortage or a surplus.

60. Private ownership of most of the means of production is common to
A) capitalism and communism. C) capitalism and socialism.
B) capitalism and fascism. D) fascism and communism.

61. The government performs each of the following economic functions except
A) collecting taxes. C) issuing regulations.
B) spending. D) operating the price mechanism.

62. An example of a public good would be
A) a plane ride from Miami to Dallas.
B) flood control protection from the Tennessee Valley Authority (TVA).
C) a commuter's trip to work by car from Berkeley to Chicago.
D) a ride on a Greyhound bus from Phoenix to Los Angeles.

63. Market failure means that
A) the law of supply and demand has stopped functioning.
B) our resources are not allocated efficiently.
C) the stock market has crashed.
D) prices are no longer reliable indicators of how much things cost.

64. Statement I. Pollution is an example of an externality.

Statement II. Mowing your lawn provides an external benefit.
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.

65. Adam Smith
A) was a Scottish professor of philosophy.
B) wrote The Wealth of Nations.
C) said that the entrepreneur is motivated by self-interest.
D) coined the term "the invisible hand," which means that the profit motive guides economic resources which effectively promotes the public interest.
E) all of the above.

66. An external cost occurs when
A) some of the benefits derived from the production or consumption of some good or service are enjoyed by a third party.
B) the production or consumption of some good or service inflicts costs on a third party without compensation.
C) private costs exceed social costs.
D) private costs exceed private benefits.

67. In a progressive tax structure,
A) the marginal tax rate exceeds the average tax rate.
B) vertical equity exists.
C) the average tax rate rises as income falls.
D) all of the above

68. Clark Kent, a middle-aged bachelor, quit his news reporter job and currently is looking for a better job. The BLS counts Clark as
A) not in the labor force. D) a discouraged worker.
B) employed. E) functionally employed.
C) unemployed.

69. Fiscal policy deals with each of the following EXCEPT
A) the money supply. C) taxation.
B) government spending. D) the federal budget.

70. Unemployment due to the length of time it takes to find employment upon entering the labor force or voluntarily between jobs is called
A) cyclical unemployment. C) structural unemployment.
B) frictional unemployment. D) natural unemployment.

Solution Preview

Multiple Choice.... 1. The members of the Board of Governors are appointed by
A) the president.

2. Intermediate products are

D) products produced by business firms for resale by other firms.

3. When inflation occurs
B) money loses value.

4. John Maynard Keynes
C) argued that a market economy might become stuck in a short-run equilibrium in which substantial capital and labor lay idle.

5. Monetary policy consists of

C) actions taken by the Federal Reserve System to control the nation's money supply.

6. Price ceilings or price controls have the effect of
A) decreasing quantity supplied and increasing quantity demanded.

7. Money is created when someone
C) spends money.

8. The demand for money schedule shows that the quantity of money that people want to hold
D) falls as the real price of money rises.

9. What is the aggregate supply curve?
B) a curve showing the various quantities of total real output that will be offered for sale at various alternative price levels

10. Which of the following is not demonstrated by a production possibility curve?
D) price

11. Real GDP is
C) GDP adjusted for inflation.

12. The Federal Reserve conducts
A) only monetary policy.

13. Which of the following is money?
B) A check

14. Each of the following is an example of an economic resource except
B) money.

15. A ________________________ is a legal person.
C) corporation

16. Federal funds are
A) reserves that are loaned out on a very short-term basis by one bank to another bank.

17. The CPI is calculated by
D) pricing a basket of goods and services purchased by a typical urban household.

18. Fiscal policy deals with each of the following EXCEPT
A) the money supply. ...

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