4.
Economics deals primarily with the concept of
a.
scarcity.
b.
poverty.
c.
change.
d.
power.
ANSWER: a. scarcity.
TYPE: M SECTION: 1 DIFFICULTY: 1
22. Economists use the phrase “There is no such thing as a free lunch,” to illustrate
a.
how inflation increases prices.
b.
that to get one thing, we must give up something else.
c.
that nothing is free in a market economy.
d.
that if something looks too good to be true, it probably is.
ANSWER: b. that to get one thing, we must give up something else.
TYPE: M SECTION: 1 DIFFICULTY: 2
54. A marginal change is a
a.
long-term trend.
b.
large, significant adjustment.
c.
change for the worse, and so is usually short-term.
d.
small incremental adjustment.
ANSWER: d. small incremental adjustment.
TYPE: M SECTION: 1 DIFFICULTY: 1
86. In a market economy, economic activity is guided by
a.
the government.
b.
corporations.
c.
central planners.
d.
prices.
ANSWER: d. prices.
TYPE: M SECTION: 2 DIFFICULTY: 2
103. The invisible hand works to promote general well-being in the economy primarily
through
a.
government intervention.
b.
the political process.
c.
self interest.
d.
altruism.
ANSWER: c. self interest.
TYPE: M SECTION: 2 DIFFICULTY: 1
138. If the average income of an Australian is higher than the average income of a
Russian, it is most likely because
a.
productivity is higher in Australia than in Russia.
b.
Australia has a more industrial economy than Russia.
c.
there is more competition in Australia than in Russia.
d.
labor unions are more aggressive in Australia than in Russia.
ANSWER: a. productivity is higher in Australia than in Russia.
TYPE: M SECTION: 3 DIFFICULTY: 3
12. The most common data for testing economic theories come from
a.
carefully controlled and conducted laboratory experiments.
b.
traditional economies.
c.
historical episodes of economic change.
d.
centrally planned economies.
ANSWER: c. historical episodes of economic change.
TYPE: M SECTION: 1 DIFFICULTY: 2
38. The circular-flow diagram is a
a.
visual model of how the economy is organized.
b.
mathematical model of how the economy works.
c.
model that shows the effects of government on the economy.
d.
visual model of the relationship among money, prices, and businesses.
ANSWER: a. visual model of how the economy is organized.
TYPE: M SECTION: 1 DIFFICULTY: 2
72. The production possibilities frontier is a
a.
map which shows the frontier beyond which agriculture is unprofitable.
b.
map which shows areas of the world in which capitalist production is now
possible.
c.
graph which shows the various combinations of resources that can be used
to produce a given level of output.
d.
graph that shows the various combinations of output the economy can
possibly produce given the available resources and technology.
ANSWER: d. graph that shows the various combinations of output the economy can
possibly produce given the available resources and technology.
TYPE: M SECTION: 1 DIFFICULTY: 2
123. Which of the following is an example of a positive statement?
a.
Prices rise when the government prints too much money.
b.
If welfare payments increase, the world will be a better place.
c.
Inflation is more harmful to the economy than unemployment.
d.
The benefits to the economy of improved equity are greater than the costs
of reduced efficiency.
ANSWER: a. Prices rise when the government prints too much money.
TYPE: M SECTION: 2 DIFFICULTY: 2
125. Which of the following is an example of a normative statement?
a.
If the price of a product decreases, quantity demanded increases.
b.
Reducing tax rates on the wealthy would be good for the country.
c.
If the national saving rate were to increase, so would the rate of economic
growth.
d.
All of the above are correct.
ANSWER: b. Reducing tax rates on the wealthy would be good for the country.
TYPE: M SECTION: 2 DIFFICULTY: 2
5.
A market is a
a.
group of demanders and suppliers of a particular good or service.
b.
group of people with common desires.
c.
place where only sellers meet.
d.
place where only buyers come together.
ANSWER: a. group of demanders and suppliers of a particular good or service.
TYPE: M SECTION: 1 DIFFICULTY: 1
20. An example of a perfectly competitive market would be the
a.
cable TV market.
b.
soybean market.
c.
new car market.
d.
blue jean market.
ANSWER: b. soybean market.
TYPE: M SECTION: 1 DIFFICULTY: 2
64. If a decrease in income increases the demand for a good, then the good is
a.
a substitute good.
b.
a complement good.
c.
a normal good.
d.
an inferior good.
ANSWER: d. an inferior good.
TYPE: M SECTION: 2 DIFFICULTY: 2
8.
Which of the following is correct for an economy?
a.
Income is greater than production.
b.
Production is greater than income.
c.
Income always equals production.
d.
Income equals production only when saving is zero.
ANSWER: c. Income always equals production.
TYPE: M DIFFICULTY: 1 SECTION: 5.1
35. Roommates Grace and Kelly are sharing household chores and think they have an
even exchange. Other things the same, if instead they paid each other for the chores
the other did GDP would
a.
rise.
b.
fall.
c.
be unaffected because paid or not, household chores are not included in
GDP.
d.
be unaffected because paid or not, household chores are included in GDP.
ANSWER: a. rise.
TYPE: M DIFFICULTY: 1 SECTION: 5.2
50. An American company owns a fast food restaurant in Romania. The value of goods
and services it produces is included
a.
in both Romanian and U.S. GDP.
b.
partly in Romanian GDP and partly in U.S. GDP.
c.
in Romanian GDP, but not U.S. GDP.
d.
in U.S. GDP, but not Romanian GDP.
ANSWER: c. in Romanian GDP, but not U.S. GDP.
TYPE: M DIFFICULTY: 2 SECTION: 5.2
6.
The inflation rate is defined as the
a.
price level.
b.
change in the price level.
c.
price level divided by the price level in the previous period.
d.
percentage change in the price level from the previous period.
ANSWER: d. the percentage change in the price level from the previous period.
TYPE: M DIFFICULTY: 1 SECTION: 6.0
89. A Brazilian company produces soccer balls in the United States and exports all of
them. If the price of the company’s soccer balls increases, the GDP deflator
a.
and the CPI both increase.
b.
is unchanged and the CPI increases.
c.
increases and the CPI is unchanged.
d.
and the CPI are unchanged.
ANSWER: c. increases and the CPI is unchanged.
TYPE: M DIFFICULTY: 2 SECTION: 6.1
129. Which of the following is the most accurate statement about the relationship
between the nominal interest rate and the real interest rate?
a.
The real interest rate is the nominal interest rate times the rate of inflation.
b.
The real interest rate is the nominal interest rate minus the rate of inflation.
c.
The real interest rate is the nominal interest rate plus the rate of inflation.
d.
The real interest rate is the nominal interest rate divided by the rate of
inflation.
ANSWER: b. The real interest rate is the nominal interest rate minus the rate of inflation.
TYPE: M DIFFICULTY: 1 SECTION: 6.2