Quizes Economics

ECONOMICS:PRINCIPLES AND PRACTICES

Section Quizzes

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TO THE TEACHER

With Section Quizzes you are able to evaluate your students’ knowledge and comprehensionof key ideas and concepts on a daily basis. One quiz is provided for every section ofEconomics: Principles and Practices. Various types and formats of questions are provided,which allow for the different learning abilities of your students.

Answers to the quizzes can be found at the back of the booklet.

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1 2 3 4 5 6 7 8 9 10 047 07 06 05 04 03 02

C ONTENTSChapter 1 What Is Economics?

1 Scarcity and the Science of Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Basic Economic Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Economic Choices and Decision Making . . . . . . . . . . . . . . . . . . . . . . . . . 3

Chapter 2 Economic Systems and Decision Making1 Economic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Evaluating Economic Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Capitalism and Economic Freedom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Chapter 3 Business Organizations1 Forms of Business Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Business Growth and Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Other Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Chapter 4 Demand1 What Is Demand? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 Factors Affecting Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Elasticity of Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Chapter 5 Supply1 What Is Supply? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 The Theory of Production. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Cost, Revenue, and Profit Maximization . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Chapter 6 Prices and Decision Making1 Prices as Signals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 The Price System at Work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 Social Goals vs. Market Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Chapter 7 Market Structures1 Competition and Market Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 Market Failures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203 The Role of Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Chapter 8 Employment, Labor, and Wages1 The Labor Movement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222 Resolving Union and Management Differences . . . . . . . . . . . . . . . . . . . . . 233 Labor and Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 Employment Trends and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Chapter 9 Sources of Government Revenue1 The Economics of Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262 The Federal Tax System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273 State and Local Tax Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284 Current Tax Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Chapter 10 Government Spending1 The Economics of Government Spending . . . . . . . . . . . . . . . . . . . . . . . . . . 302 Federal Government Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313 State and Local Government Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . 324 Deficits, Surpluses, and the National Debt . . . . . . . . . . . . . . . . . . . . . . . . 33

Chapter 11 Money and Banking1 The Evolution of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342 Early Banking and Monetary Standards . . . . . . . . . . . . . . . . . . . . . . . . . . 353 The Development of Modern Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Chapter 12 Financial Markets1 Savings and the Financial System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372 Investment Strategies and Financial Assets . . . . . . . . . . . . . . . . . . . . . . . . 383 Investing in Equities, Futures, and Options . . . . . . . . . . . . . . . . . . . . . . . . 39

Chapter 13 Economic Performance1 Measuring the Nation’s Output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402 GDP and Changes in the Price Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413 GDP and Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 424 Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Chapter 14 Economic Instability1 Business Cycles and Fluctuations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442 Unemployment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453 Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464 Poverty and the Distribution of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Chapter 15 The Fed and Monetary Policy1 The Federal Reserve System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482 Monetary Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493 Monetary Policy, Banking, and the Economy . . . . . . . . . . . . . . . . . . . . . . . 50

Chapter 16 Achieving Economic Stability1 The Cost of Economic Instability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512 Macroeconomic Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523 Stabilization Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 534 Economics and Politics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Chapter 17 International Trade1 Absolute and Comparative Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . 552 Barriers to International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563 Financing and Trade Deficits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Chapter 18 Comparative Economic Systems1 The Spectrum of Economic Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 582 The Rise and Fall of Communism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593 The Transition to Capitalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 604 The Various Faces of Capitalism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Chapter 19 Developing Countries1 Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 622 A Framework for Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633 Financing Economic Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Chapter 20 Global Economic Challenges1 The Global Demand for Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 652 Economic Incentives and Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 663 Applying the Economic Way of Thinking . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Answer Key . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

S CARCITY AND THE SCIENCE OF ECONOMICS

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Section Quizzes 1

Multiple Choice: In the blank at the left write the letter of the choice that bestcompletes the statement or answers the question. (10 points each)

6. Which of the following is NOT a basic economic question?

a. WHAT to produce b. WHEN to producec. FOR WHOM to produce d. HOW to produce

7. What is the fundamental problem of economics?

a. scarcity b. capitalc. the factors of production d. labor

8. Which of the following lists the four factors of production?

a. land, labor, wants, entrepreneurs b. land, labor, capital, scarcityc. labor, needs, capital, entrepreneurs d. land, labor, capital, entrepreneurs

9. Which of the following is NOT a capital good?

a. a bulldozer at a construction site b. a cash register at a clothing storec. an oven at a bakery d. a television set for sale at an appliance store

10. The study of economics includes all of the following EXCEPT

a. description. b. prediction. c. production. d. analysis.

SCORE

A1. scarcity

2. need

3. land

4. capital

5. Gross Domestic Product

Ba. factor of production that includes natural resources

not created by humans

b. a basic requirement for survival

c. dollar value of all final goods, services, and struc-tures produced within a country’s borders in a12-month period

d. condition that results from society not havingenough resources to produce all the things peoplewould like to have

e. factor of production that involves risk takers insearch of profits

f. factor of production that includes tools, equipment,machinery, and factories used in the production ofgoods and services

Matching: Match each item in Column A with the items in Column B. Write thecorrect letters in the blanks. (10 points each)

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B ASIC ECONOMIC CONCEPTS


6. For something to have value, it must

a. cost a lot of money. b. have utility.c. be on sale. d. never go out of style.

7. Which of the following is an example of a service?

a. hair spray b. a haircutc. scissors d. a blow dryer

8. Which of the following is an example of a good?

a. a car b. a tune-upc. a car wash d. an oil change

9. Specialization refers to

a. the process of creating goods and services. b. the use of the four factors of production.c. arranging work so that individual workers d. performing one task relatively more efficiently

do fewer tasks than before. than another.

10. What is economic interdependence?

a. people’s reliance on each other to provide b. the ability to produce all goods and servicesgoods and services

c. the relationship between the four factors d. the result of a division in laborof production

SCORE

A1. good

2. service

3. market

4. productivity

5. human capital

Ba. work that is performed for someone

b. location or other mechanism that allows buyers andsellers to exchange a certain economic product

c. an item that is economically useful or satisfies aneconomic want

d. basic requirements for survival

e. the sum of the skills, abilities, health, and motivationof people

f. a measure of the amount of output produced by agiven amount of inputs in a specific period of time

Matching: Match each item in Column A with the items in Column B. Write the correctletters in the blanks. (10 points each)

E CONOMIC CHOICES AND DECISION MAKING

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Section Quizzes 3

SCORE


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A1. opportunity cost

2. production possibilities frontier

3. trade-offs

4. free enterprise economy

5. standard of living

Ba. alternative choices

b. where consumers and privately owned businessesanswer the three basic economic questions

c. the quality of life based on the possession of thenecessities and luxuries that make life easier

d. the cost of the next best alternative when a choiceis made

e. diagram representing various combinations of goodsand services an economy can produce when allresources are fully employed

f. a tool that can be used to help make an economicdecision by identifying alternatives and criteria toevaluate the alternatives


6. Which of the following best describes the relationship between trade-offs and opportunity costs?

a. Opportunity costs are incurred when b. Opportunity costs are the opposite of trade-offs.trade-offs are made.

c. Trade-offs lower the opportunity costs of an d. Trade-offs occur when there are no opportunity economic decision. costs.

7. Imagine you decide to purchase a soccer ball for $35. Which of the following is an opportunity cost ofyour decision?

a. the time spent deciding to spend your money b. something else that could have been boughtc. $35 in cash d. the time spent making the purchase and the tax

paid on the ball

8. Which of the following is NOT a characteristic of a production possibilities frontier?

a. It illustrates the concept of opportunity costs. b. It is based on full employment of all resources.c. It is used by economists as a tool for d. It indicates the ideal production levels for goods

description and analysis. and services.

9. The study of economics helps people to

a. become better decision makers. b. make wise choices for political candidates.c. understand the free-enterprise system. d. all of the above

10. Which of the following is NOT an example of economic decision making?

a. writing a thesis b. building simple modelsc. using cost-benefit analysis d. taking small, incremental steps

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E CONOMIC SYSTEMS


6. Which of the following is NOT a strength of a market economy?

a. It can adjust to change over time. b. It gives producers and consumers freedom.c. It has decentralized decision making. d. It supports all of its people equally.

7. All of the following are weaknesses of a command economy EXCEPT that it

a. requires a large decision-making bureaucracy. b. provides few incentives for people to work hard.c. lacks the flexibility to deal with minor problems. d. can change direction drastically in a short time.

8. Which of the following societies are examples of traditional economies?

a. United States, Japan, Germany b. African Mbuti, Australian Aboriginesc. North Korea, Cuba d. South Africa, Egypt, Democratic Republic

of the Congo

9. What type of economy recently collapsed in the communist bloc countries of Eastern Europe and the former Soviet Union?

a. a traditional economy b. a command economyc. a market economy d. a free enterprise economy

10. Who would you most likely find participating in a market economy?

a. a government official deciding how much b. a teenage girl deciding how to spend the extra wheat to plant this season money she earned working overtime

c. a hunter deciding where to hunt to provide d. a worker deciding to leave his job early becausehis family with a meal that night the production quota has been met

SCORE

A1. economic system

2. traditional economy

3. command economy

4. market economy

5. market economy advantage

Ba. economic system in which basic economic decisions

are made by a central authority

b. economic system in which basic economic activitystems from ritual, habit, or custom

c. economic system in which traditional, command,and market economies are mixed

d. an organized way of providing for the wants andneeds of a society

e. economic system in which basic economic decisionsare made by people and firms acting in their ownbest interests

f. relatively small degree of government interference


E VALUATING ECONOMIC PERFORMANCE

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Section Quizzes 5

SCORE


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A1. economic efficiency

2. price stability

3. Social Security

4. fixed income

5. economic freedom

Ba. an income that does not increase even though

prices go up

b. an economic goal that is based on the desire ofpeople to use resources wisely

c. an economic goal that is based on a sense of fairness

d. an economic goal that is based on the desire ofpeople to make their own decisions

e. an economic goal that is based on preventinginflation

f. a federal program of disability and retirement benefits


6. Which of the following is NOT a major economic and social goal of the United States?

a. economic interdependence b. economic securityc. economic growth d. economic efficiency

7. Economic goals are important because they

a. tell us WHAT and HOW to produce. b. answer the FOR WHOM to produce question.c. help people determine if an economic system d. tell the government what kinds of regulations

meets their needs. are needed.

8. Which is an example of economic growth?

a. When a new ball bearing plant opens, 1,500 b. The price of vegetables increases sharply in the jobs are created. spring.

c. An employer is fined for refusing to hire d. A man decides to quit working as a waiter and women to fill new job openings. begin a career in marketing.

9. Why is economic growth an important goal of the United States?

a. Americans have a strong sense of fairness. b. Economic growth leads to price stability.c. Americans believe that it is the only way d. Economic growth is needed to better satisfy the

to achieve economic equality. wants and needs of a growing population.

10. Which of the following is NOT an example of a trade-off among social and economic goals?

a. An increase in the minimum wage raises b. A trade barrier protects jobs in the United States.unemployment.

c. A military dictator seizes control of a nation’s d. An increase in property taxes funds a new high government. school.

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C APITALISM AND ECONOMIC FREEDOM


6. All of the following are characteristics of capitalism EXCEPT

a. private property rights. b. economic freedom.c. profit motive. d. government control.

7. What is another term for a modified private enterprise economy?

a. mixed economy b. pure capitalismc. command economy d. free enterprise

8. Why are entrepreneurs important in a free enterprise economy?

a. Entrepreneurs do not pay taxes. b. Entrepreneurs help define the seven economic and social goals.

c. Entrepreneurs pay high wages to their d. Entrepreneurs start new businesses.employees.

9. How do consumers exercise their power in the American economy?

a. by deciding what to purchase b. by working for businessesc. by becoming entrepreneurs d. by saving their money

10. Who plays the roles of protector, consumer, regulator, and promoter of economic goals in the UnitedStates?

a. entrepreneurs b. governmentc. businesses d. workers

SCORE

A1. capitalism

2. profit motive

3. competition

4. voluntary exchange

5. mixed economy

Ba. the struggle among sellers to attract consumers

while lowering costs

b. economy in which free economic activity is subjectto some government intervention and regulation

c. the driving force that encourages people and organizations to improve their material well-being

d. a characteristic of capitalism in which buyers andsellers freely and willingly engage in market transactions

e. concept that the consumer is the ruler of the market

f. economic system in which private citizens own thefactors of production


F ORMS OF BUSINESS ORGANIZATION

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Section Quizzes 7


6. What is the most common form of business organization in the United States?

a. sole proprietorship b. partnershipc. corporation d. limited partnership

7. What is the main strength of the corporate form of business organization?

a. ease of raising financial capital b. ease of establishmentc. ease of management d. freedom from business income taxes

8. A government document granting permission to create a corporation is called a

a. dividend. b. charter.c. bond. d. proxy.

9. Basic ownership of a corporation, including voting rights, takes the form of

a. bonds. b. preferred stock.c. partnerships. d. common stock.

10. All of the following are strengths of the partnership form of business organization EXCEPT

a. ease of management. b. limited life.c. ease of establishment. d. lack of special taxes.

SCORE

A1. sole proprietorship

2. limited life

3. limited partnership

4. corporation

5. bankruptcy

Ba. a business owned and run by one person

b. business organization in which at least one partneris not active in the daily running of the business

c. business organization in which all partners areresponsible for the management and financial obligations of the business

d. business organization recognized by law as a separate legal entity having all the rights of an individual

e. a firm ceases to exist when the owner dies, quits, orsells the business

f. a court-granted permission to an individual or busi-ness to cease or delay debt payments


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B USINESS GROWTH AND EXPANSION


6. A corporation that has at least four businesses, each making unrelated products, none of which is respon-sible for a majority of its sales, is called a

a. multinational. b. horizontal corporation.c. conglomerate. d. vertical merger.

7. Horizontal mergers involve

a. two or more firms in different countries. b. two or more firms that produce the same kind of product.

c. two or more firms involved in different steps d. two or more firms that produce different of manufacturing or marketing. products.

8. Which of the following statements is true?

a. All conglomerates are multinationals. b. All multinationals are conglomerates.c. A conglomerate is another term for d. A multinational is often a conglomerate.

a multinational.

9. Which are important for their ability to move resources, products, and financial capital across nationalboundaries with relative ease?

a. corporations b. conglomeratesc. mergers d. multinationals

10. What is a major reason for conglomerate mergers?

a. diversification b. multinationalsc. unlimited life d. conglomeration

SCORE

A1. merger

2. net income

3. depreciation

4. multinational

5. vertical merger

Ba. a non-cash charge a firm takes for the general wear

and tear on its capital goods

b. a corporation that has operations in a number ofdifferent countries

c. determined by subtracting expenses, including taxes,from revenue

d. business combination of firms involved in differentsteps of manufacturing or marketing

e. a combination of two or more businesses to form asingle firm

f. business combination involving firms that producethe same kind of product


O THER ORGANIZATIONS

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Section Quizzes 9


6. Which of the following is an example of a service cooperative?

a. Greenville Teachers’ Credit Union b. Association of Manufacturing Workersc. Better Business Bureau d. Mason Chamber of Commerce

7. Which of the following best illustrates the indirect role of government?

a. a state park b. a city’s fire departmentc. the Tennessee Valley Authority d. regulation of public utilities

8. All of the following are typical Chamber of Commerce activities EXCEPT

a. educational programs. b. demonstrating against new housing developments.

c. neighborhood clean-up campaigns. d. lobbying for favorable business legislation.

9. Which of the following is most likely NOT a nonprofit organization?

a. church b. neighborhood associationc. public school d. corner grocery store

10. Why are government controls needed on public utilities?

a. Public utilities are investor- or municipal-owned. b. Public utilities usually have no competition.c. Public utilities provide important public services. d. Public utilities are responsible for water and

electric services.

SCORE

A1. nonprofit organization

2. cooperative

3. labor union

4. collective bargaining

5. professional association

Ba. negotiations between representatives of labor and

management

b. business organization that promotes the welfare ofits members and the community

c. economic institution that works in a businesslikemanner but does not seek financial gain

d. organization of workers formed to represent itsmembers’ interests in various employment matters

e. group of people in a specialized occupation thatworks to improve the working conditions, skill levels,and public perceptions of the profession

f. voluntary association of people formed to carry onsome kind of economic activity that will benefit itsmembers


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HAT IS DEMAND?


6. The Law of Demand states that

a. more will be purchased at low prices than at b. less will be purchased at low prices than at high ones. high ones.

c. approximately the same amount will be d. all people have the ability, desire, and willingnesspurchased at low prices than at higher prices. to buy.

7. The demand curve is always

a. upward sloping. b. downward sloping. c. level. d. irregular.

8. Buying only one instead of two sodas at lunch time describes what concept?

a. demand b. consumerismc. marginal utility d. diminishing marginal utility

9. All of the following must exist for there to be demand EXCEPT

a. a desire to buy a product. b. producers to sell a product.c. an ability to buy a product. d. a willingness to buy a product.

10. Which of the following statements does NOT describe the demand curve?

a. Prices are listed on the vertical axis. b. Quantities demanded are listed on the horizontal axis.

c. The demand curve represents the various d. It shows the demand for a product over time combinations of prices and quantities rather than at a given point in time.demanded that could occur in the market.

SCORE

A1. microeconomics

2. demand curve

3. demand

4. marginal utility

5. diminishing marginal utility

Ba. graph showing the quantity demanded at each and

every price at a given time

b. the decrease in satisfaction or usefulness receivedfrom each additional unit of a product

c. the desire, ability, and willingness to buy a product

d. listing that shows the quantity demanded at all pos-sible prices at a given time

e. area of economics that deals with behavior anddecision making of small units

f. the extra usefulness or satisfaction a person getsfrom acquiring or using one more unit of a product


W

F ACTORS AFFECTING DEMAND

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Section Quizzes 11


6. Which of the following would cause a change in the quantity demanded for a product?

a. changing consumer tastes b. increasing consumer incomec. decreasing the price of the product d. changing prices of related products

7. How does the demand curve respond to an increase in demand?

a. The curve shifts left. b. The curve shifts right.c. There is movement along the curve. d. There is no change in the curve.

8. All of the following would cause a change in demand of a product EXCEPT

a. a decrease in consumer income. b. the substitution effect.c. changing consumer tastes. d. an increase in the price of related products.

9. All of the following are examples of complements EXCEPT

a. butter and margarine. b. flashlights and batteries.c. peanut butter and jelly. d. cameras and film.

10. A change in the number of consumers can cause

a. the demand curve to shift. b. a substitution effect.c. the market demand curve to shift. d. prices to fall.

SCORE

A1. change in quantity demanded

2. income effect

3. substitution effect

4. substitutes

5. complements

Ba. change in quantity demanded due to a change in

price that alters a consumer’s real income

b. illustrated by movement along the demand curve

c. products that tend to be used together

d. a change in quantity demanded due to a change inthe relative price of a product

e. the demand for an economic product varies inverselywith its price

f. products that can be used in place of other products


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E LASTICITY OF DEMAND


6. Total expenditures are determined by

a. multiplying the price of a product by the b. measuring the elasticity of a product.quantity demanded.

c. dividing the price of the product by demand. d. dividing the demand for the product by its price.

7. The relationship between the change in price and total expenditures for an elastic demand curve is

a. variable. b. unit elastic. c. inverse. d. direct.

8. All of the following are determinants of demand elasticity EXCEPT

a. whether the purchase of the product can b. whether there are adequate substitutes for the be delayed. product.

c. whether the purchase of the product requires d. whether the product has utility.a large portion of income.

9. A company decreases the price of a gallon of milk by 10 percent and the company’s total revenues fall significantly. What term best describes the demand for milk?

a. elastic b. inelastic c. unit elastic d. demand elastic

10. All of the following products have relatively inelastic demand EXCEPT

a. a physician’s services. b. tobacco products. c. stereo equipment. d. prescription drugs.

SCORE

A1. elasticity

2. demand elasticity

3. elastic

4. unit elastic

5. inelastic

Ba. the extent to which a change in price causes a

change in the quantity demanded

b. describes demand when a given change in pricecauses a relatively smaller change in the quantitydemanded

c. describes demand when a given change in pricecauses a proportional change in the quantitydemanded

d. analysis of the effects of a price change to deter-mine elasticity

e. a measure of responsiveness that shows how adependent variable such as quantity responds to anindependent variable such as price

f. describes demand when a given change in pricecauses a relatively larger change in the quantitydemanded


HAT IS SUPPLY?

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Section Quizzes 13


6. The Law of Supply states that

a. the quantity supplied varies inversely with b. the quantity supplied varies irregularly with its price. its price.

c. the quantity demanded varies inversely with d. the quantity supplied varies directly with its price.its price.

7. All of the following can cause an increase in supply EXCEPT

a. a decrease in the cost of inputs. b. fewer sellers in the marketplace.c. an increase in productivity. d. a change in taxes or subsidies.

8. Which product is likely to have the most elastic supply curve?

a. ice cream cones b. automobilesc. ships d. dishwashing machines

9. The supply curve is

a. downward sloping. b. level. c. upward sloping. d. irregular.

10. Increased government regulations can cause the supply curve to

a. shift to the left. b. shift to the right.c. increase. d. decrease.

SCORE

A1. supply

2. quantity supplied

3. supply curve

4. supply elasticity

5. subsidy

Ba. amount that producers bring to the market at any

given price

b. measure of the way in which quantity suppliedresponds to a change in price

c. a graph showing the various quantities supplied at each and every price that might prevail in themarket

d. the amount of a product that would be offered forsale at all possible prices that could prevail in themarket

e. listing of quantities that would be offered for sale atall possible prices that could prevail in a market

f. a government payment to an individual, business, orother group to encourage or protect a certain typeof economic activity


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T HE THEORY OF PRODUCTION


6. All of the following are stages of production EXCEPT

a. increasing returns. b. diminishing returns.c. equaling returns. d. negative returns.

7. The period of production that allows producers to change only the amount of the variable input calledlabor is

a. the long run. b. the short run.c. the production function. d. a stage of production.

8. A production function shows

a. changes in output in response to changes b. changes in input that result from changes in in input. output.

c. the optimum level of production. d. the optimum level of the four factors of production.

9. In what order do the three stages of production occur?

a. negative returns, diminishing returns, b. diminishing returns, increasing returns, negative increasing returns returns

c. increasing returns, diminishing returns, d. increasing returns, negative returns, diminishing negative returns returns

10. The stages of production are based on

a. the way total product changes over time. b. the way marginal product changes as variable inputs are added.

c. the way inputs change in response to d. the way output changes independent of input.business decisions.

SCORE

A1. Law of Variable Proportions

2. production function

3. raw materials

4. marginal product

5. total product

Ba. concept that describes the relationship between

changes in output to different amounts of a singleinput while other inputs are held constant

b. a period of production that allows producers tochange the amount of all inputs

c. total output produced by a firm

d. the extra output or change in total product causedby the addition of one more unit of variable input

e. unprocessed natural products used in production

f. states that in the short run, output will change asone input is varied while the others are held constant


C OST, REVENUE, AND PROFIT MAXIMIZATION

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Section Quizzes 15


6. Cost-benefit decision making that compares the extra benefits to the extra costs of an action is called

a. marginal revenue. b. marginal costs.c. marginal analysis. d. marginal output.

7. The total cost of production is determined by

a. adding fixed and variable costs. b. adding marginal and fixed costs.c. multiplying fixed and variable costs. d. multiplying marginal and fixed costs.

8. All of the following are examples of variable costs EXCEPT

a. labor. b. freight.c. interest payments on bonds. d. electricity.

9. If a business’s fixed costs are large relative to its variable costs, it is likely to

a. be more profitable than a firm whose fixed b. produce in Stage III of the production function.costs are small relative to variable costs.

c. produce durable goods rather than services. d. operate longer hours than a firm whose fixed costs are small relative to variable costs.

10. Profit is maximized when

a. marginal cost is less than marginal revenue. b. marginal cost is equal to marginal revenue.c. marginal cost is greater than marginal revenue. d. marginal cost is growing at the same rate as

marginal revenue.

SCORE

A1. fixed cost

2. variable cost

3. marginal cost

4. total revenue

5. e-commerce

Ba. cost that a business incurs even if the plant is idle

and output is zero

b. extra cost incurred when a business produces oneadditional unit of a product

c. sum of the fixed and variable costs

d. cost that changes when the business rate of opera-tion or output changes

e. electronic business or exchange conducted over theInternet

f. the number of units sold multiplied by the averageprice per unit


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P RICES AS SIGNALS SCORE


A1. price

2. price flexibility

3. rationing

4. rebate

5. ration coupon

Ba. system under which an agency allocates products

b. allows the market economy to accommodatechange

c. signals that convey information to buyers and sellers

d. a ticket or receipt that entitles the holder to obtain acertain amount of a product

e. the monetary value of a product as established bysupply and demand

f. a partial refund of the original price of the product


6. Prices perform the allocation function well because they do all of the following EXCEPT

a. provide neutrality, favoring neither the b. provide flexibility, absorbing unexpected producer or consumer. “shocks.”

c. enable the government to use rationing. d. provide ways for consumers to make decisions.

7. All of the following are characteristics of rationing EXCEPT

a. rationing is often viewed as unfair. b. rationing creates high administrative costs.c. rationing decreases the incentive to work. d. rationing provides an efficient link between

producers and consumers.

8. In a market economy, a high price is a signal for

a. producers to produce more and buyers to b. producers to produce more and buyers to buy less. buy more.

c. producers to produce less and buyers to d. producers to produce less and buyers to buy less. buy more.

9. In a market economy, a low price is a signal for

a. producers to produce more and buyers to b. producers to produce more and buyers tobuy less. buy more.

c. producers to produce less and buyers to d. producers to produce less and buyers to buy less. buy more.

10. Economists think of prices as a “system” because

a. they help buyers and sellers allocate resources b. they convey information to the government.between markets.

c. they convey information to other countries. d. they make rationing necessary at times.

T HE PRICE SYSTEM AT WORK

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Section Quizzes 17


6. In a competitive market, the adjustment process moves toward market

a. equilibrium. b. surplus.c. shortage. d. model.

7. If there is a shortage in a market, the price is likely to

a. increase. b. decrease.c. remain the same. d. fluctuate.

8. If there is a surplus in a market, the price is likely to

a. increase. b. decrease.c. remain the same. d. fluctuate.

9. The theory of competitive pricing represents

a. a model by which to measure the b. an important theory in economics.performance of other less competitive markets.

c. a set of ideal conditions and outcomes. d. all of the above

10. An economic model is described by all of the following EXCEPT

a. it is a set of assumptions that can be listed in b. it can be used to help analyze behavior.a table, illustrated with a graph, or even stated algebraically.

c. it can be used to predict outcomes. d. it is usually so complex that it can be understood only by economists.

SCORE

A1. economic model

2. market equilibrium

3. surplus

4. equilibrium price

5. shortage

Ba. a set of assumptions that can be used to help ana-

lyze behavior and predict outcomes

b. the price at which neither a surplus or shortage of aproduct exists

c. a situation in which prices are relatively stable andthe quantity supplied is equal to the quantitydemanded

d. a situation in which the quantity demanded isgreater than the quantity supplied

e. an item priced particularly low to attract customers

f. a situation in which the quantity supplied is greaterthan the quantity demanded at a given price


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S OCIAL GOALS VS. MARKET EFFICIENCY


6. Which of the following is an example of a price ceiling?

a. minimum wage b. “free lunch” programc. rent control d. government subsidies

7. Price ceilings that are artificially low are likely to create

a. a price floor. b. a surplus.c. an equilibrium. d. a shortage.

8. Price floors that are artificially high are likely to create

a. a price ceiling. b. a surplus.c. an equilibrium. d. a shortage.

9. Why might a government interfere in a market economy by setting prices?

a. to achieve the goals of equity and security b. to insure an entrepreneur’s profitc. to distort market outcomes d. to allow the price system to transmit accurate

information

10. What is meant by the phrase “markets talk”?

a. Market changes are written about in b. Government officials base decisions on the newspapers and magazines. stock market.

c. Businesspeople rely on good communication d. Markets reflect the thoughts and feelings ofto conduct business. buyers and sellers.

SCORE

A1. price ceiling

2. price floor

3. target price

4. nonrecourse loan

5. deficiency payment

Ba. a check sent to producers that makes up the differ-

ence between the actual market price and thetarget price

b. the lowest legal price that can be paid to mostworkers

c. floor price for farm products

d. carries neither a penalty nor further obligation torepay if not paid back

e. a maximum legal price that can be charged for aproduct

f. partial refund of the original price of a product


C OMPETITION AND MARKET STRUCTURES

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Section Quizzes 19


6. Perfect competition is characterized by all of the following EXCEPT

a. a small number of buyers and sellers. b. well-informed buyers and sellers.c. identical products. d. independent buyers and sellers.

7. A monopoly based on the absence of other sellers in a certain location is called

a. an oligopoly. b. a natural monopoly.c. a geographic monopoly. d. economies of scale.

8. Monopolistic competition is separated from pure competition by

a. collusion. b. profit maximization.c. product differentiation. d. imperfect competition.

9. Oligopoly is a market structure with a great deal of

a. competition among firms. b. interdependence among firms. c. independence among firms. d. profits among firms.

10. A monopoly’s prices are determined by

a. competing firms. b. market equilibrium.c. perfect competition. d. the monopoly.

SCORE

A1. perfect competition

2. nonprice competition

3. oligopoly

4. collusion

5. economies of scale

Ba. market structure in which a few very large sellers

dominate the industry

b. market situation in which a large number of well-informed and independent buyers and sellersexchange identical products

c. market situation in which there is only one seller ofa product that has no close substitutes

d. the use of advertising, giveaways, or other promo-tional campaigns to convince buyers one product isbetter than another

e. a situation in which the average cost of productionfalls as the firm gets larger

f. a formal agreement to set prices or to otherwisebehave in a cooperative manner


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M ARKET FAILURES


6. All of the following may lead to a market failure EXCEPT

a. resource mobility. b. inadequate competition.c. insufficient information. d. prices do not reflect the costs of production.

7. Which of the following is NOT a public good?

a. community park b. fire departmentc. armed forces d. movie theater

8. What is the result of inadequate competition?

a. the development of a monopoly b. artificial shortages and higher pricesc. excessive political influence by businesses d. all of the above

9. Positive and negative externalities are called market failures because

a. they cause imperfect competition. b. they lead to higher prices.c. their costs and benefits are not reflected in d. they provide public goods.

the market prices paid by buyers and sellers.

10. Which of the following is an example of resource mobility?

a. an engineer asking for a higher wage b. an aircraft factory laying off engineersc. an engineer taking a job at a different factory d. an aircraft factory selling its products overseas

SCORE

A1. market failure

2. externality

3. negative externality

4. positive externality

5. public goods

Ba. an unintended side effect that either benefits or

harms an uninvolved third party

b. an unwanted harm, cost, or inconvenience sufferedby a third party because of actions by others

c. products that are collectively consumed by everyone

d. condition necessary for a competitive free enterpriseeconomy

e. a benefit received by a third party that had nothingto do with the activity that generated the benefit

f. occurs when any one of the four conditions neces-sary for a competitive free enterprise economy issignificantly altered


T HE ROLE OF GOVERNMENT

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Section Quizzes 21


6. Which of the following antitrust laws was enacted first?

a. Federal Trade Commission Act b. Clayton Antitrust Actc. Sherman Antitrust Act d. Robinson-Patman Act

7. The federal law that first outlawed price discrimination is the

a. Federal Trade Commission Act. b. Clayton Antitrust Act.c. Sherman Antitrust Act. d. Robinson-Patman Act.

8. Public disclosure supports competition by

a. providing buyers and sellers with information. b. revealing competitive trade secrets.c. converting private businesses into d. concentrating information in the hands of the

government agencies. government.

9. Which of the following would most likely be subject to government monopoly regulations?

a. a computer software company b. a large oil companyc. a local restaurant d. a local cable company

10. The government takes part in the United States economy to

a. encourage competition and fair play. b. prevent monopolies and reduce costs of imperfect competition.

c. regulate industries in which monopolies serve d. all of the abovethe public good.

SCORE

A1. trusts

2. Clayton Antitrust Act

3. price discrimination

4. Robinson-Patman Act

5. cease and desist order

Ba. strengthened previous legislation regarding price

discrimination

b. built on Sherman Antitrust Act by extending govern-ment powers against monopolies

c. an FTC ruling requiring a company to stop an unfairbusiness practice

d. legally formed combinations of corporations or companies

e. practice of charging customers different prices forthe same product

f. requirement that businesses reveal information tothe public


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T HE LABOR MOVEMENT


6. All of the following are methods used by unions EXCEPT

a. a strike. b. a picket.c. a boycott. d. a lockout.

7. Unions are important in today’s economy because

a. they played a major role in promoting legislation affecting wages today.b. they played a major role in promoting legislation affecting working conditions today.c. they have a membership of nearly 16.3 million people.d. all of the above

8. The Great Depression

a. turned popular opinion against unions. b. turned popular opinion in favor of unions.c. destroyed the labor movement. d. gave rise to the first unions.

9. The National Labor Relations Board was created by the

a. Norris-LaGuardia Act. b. Wagner Act.c. Fair Labor Standards Act. d. Taft-Hartley Act.

10. All of the following factors helped give rise to unions EXCEPT

a. early government support. b. low pay.c. little job security. d. poor working conditions.

SCORE

A1. macroeconomics

2. craft/trade union

3. strike

4. boycott

5. right-to-work law

Ba. a mass refusal to buy products from targeted

employers or companies

b. refusal to let employees work until managementdemands are met

c. area of economics that deals with the economy as awhole

d. a state law making it illegal to force workers to joina union as a condition of employment

e. an association of skilled workers who perform thesame kind of work

f. a refusal to work until certain demands are met


R ESOLVING UNION AND MANAGEMENT DIFFERENCES

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Section Quizzes 23


6. What do right-to-work laws prohibit?

a. mandatory union membership b. collective bargainingc. compulsory arbitration d. adding grievance procedures to final contracts

7. In a modified union shop, workers

a. must join a union soon after they are hired and remain members for the duration of their jobs.b. do not have to belong to a union to be hired and cannot be made to join one to keep their jobs.c. are not required to join a union but must pay union dues.d. none of the above

8. Which of the following generally occurs first in union-management negotiations?

a. mediation b. arbitration c. fact-finding d. collective bargaining

9. A woman joins a package shipping firm as a truck driver. She is required to join the labor union six weeksafter she starts work, and she must remain a member. What type of union arrangement exists at the firm?

a. closed shop b. union shop c. modified union shop d. agency shop

10. When labor and management bring in a neutral third party to help settle a dispute, they are resolvingtheir differences through

a. arbitration. b. fact-finding. c. mediation. d. injunction.

SCORE

A1. closed shop

2. union shop

3. grievance procedure

4. arbitration

5. injunction

Ba. a provision in the collective bargaining process for

resolving issues that may arise in the future

b. a court order not to act (for example, strike or lock-out workers)

c. a type of collective bargaining in which both sidesagree to place their differences before a third partywhose decision will be accepted as final and binding

d. arrangement in which the employer agrees to hireonly union members

e. arrangement in which workers are not required tojoin a union but must pay union dues

f. arrangement in which workers must join a unionsoon after they are hired and must remain membersfor the duration of their jobs


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L ABOR AND WAGES


6. Which of the following is NOT a theory used to explain differences in wages?

a. traditional theory of wage determination b. theory of equilibrium wage ratec. theory of negotiated wages d. signaling theory

7. Regional differences in wage rates are influenced by all of the following factors EXCEPT

a. cost of living. b. location.c. labor mobility. d. labor grades.

8. Labor mobility refers to

a. the ability and willingness of workers to obtain more education to move into higher paying jobs.b. the ability and willingness of workers to relocate in markets where wages are higher.c. the ability and willingness of workers to move between labor grades.d. all of the above

9. The traditional theory of wage determination holds that differences in wage rates can be explained by

a. supply and demand. b. regional differences.c. collective bargaining. d. labor mobility.

10. The wage theory that states that differences in wage rates are determined by collective bargaining is the

a. traditional theory of wage determination. b. theory of equilibrium wage rate.c. theory of negotiated wages. d. signaling theory.

SCORE

A1. unskilled labor

2. semiskilled labor

3. wage rate

4. equilibrium wage rate

5. skilled labor

Ba. people who have enough mechanical abilities and

skills to operate machines that require a minimumamount of training

b. people who are able to operate complex equipmentand can perform their tasks with little supervision

c. people who work with their hands because theylack the training and skills required for other tasks

d. wage that leaves neither a surplus or a shortage inthe labor market

e. people with the highest level of knowledge-basededucation and managerial skills

f. standard amount of pay given for work performed


E MPLOYMENT TRENDS AND ISSUES

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SCORE


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A1. two-tier wage system

2. glass ceiling

3. set-aside contract

4. current dollars

5. constant dollars

Ba. dollars that are not adjusted for inflation

b. guaranteed contract reserved exclusively for a targeted group

c. dollars adjusted to remove inflation

d. wage, fringe benefit, or work rule given up whenlabor contracts are renegotiated

e. system that keeps high wages for current workers,but has a much lower wage for newly hired workers

f. invisible barrier that obstructs advancement


6. All of the following are reasons for declining union membership EXCEPT

a. many employers have made a determined effort to keep unions out of their businesses.b. many new workers are second-income earners who tend to accept lower wages.c. unions ceased to improve working conditions for their members.d. the expense of union-made goods has hurt sales and led to lay-offs.

7. All of the following are reasons women receive less pay than men EXCEPT

a. women have different skills. b. women tend to enter lower paying fields.c. women encounter discrimination. d. women do not work as hard as men do.

8. Comparable worth refers to

a. the value of a job to society. b. equal pay for different types of work that are equally demanding.

c. the minimum wage. d. the relative worth of men and women in the workplace.

9. In constant dollars, the minimum wage has

a. decreased since 1968. b. remained the same since 1968.c. increased since 1968. d. fluctuated since 1968.

10. The Civil Rights Act of 1964 accomplished all of the following EXCEPT

a. it prohibited wage and salary discrimination between men and women.b. it prohibited employment discrimination on the basis of gender, race, color, religion, and national

origin.c. it established the Equal Employment Opportunity Commission.d. it allowed the government to bring suit against a company for discrimination.

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T HE ECONOMICS OF TAXATION


6. Taxes can have all of the following economic effects EXCEPT

a. altering resource allocation. b. changing consumer behavior.c. affecting a nation’s productivity and growth. d. removing sources of revenue.

7. The three criteria for effective taxes are

a. efficiency, simplicity, and regressiveness. b. efficiency, simplicity, and progressiveness.c. equity, progressiveness, and efficiency. d. equity, simplicity, and efficiency.

8. The ability-to-pay principle of taxation states that

a. only people who have the ability to pay should be taxed.b. those who benefit from government services should pay for them.c. people should be taxed according to their ability to pay.d. the government should assess taxes only if it is clear that citizens will have the ability to pay.

9. An exception or oversight in the tax law that allows some people and businesses to avoid paying taxes iscalled a

a. sin tax. b. tax loophole.c. marginal tax. d. tax exception.

10. Paying $1,000 tax on $10,000 of taxable income, $4,000 on $20,000 of taxable income, and $20,000 on$60,000 of taxable income in an example of a tax system that is

a. proportional. b. regressive.c. progressive. d. average.

SCORE

A1. sin tax

2. individual income tax

3. sales tax

4. progressive tax

5. regressive tax

Ba. high tax designed to raise revenue and reduce con-

sumption of a socially undesirable product

b. tax that imposes a higher percentage rate of taxa-tion on persons with high incomes than on thosewith low incomes

c. complex tax on people’s earnings

d. simple tax levied on most consumer purchases

e. tax that imposes the same percentage rate of taxa-tion on everyone, regardless of income

f. tax that imposes a higher percentage rate of taxa-tion on persons with low incomes than on thosewith high incomes


T HE FEDERAL TAX SYSTEM

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Section Quizzes 27


6. The individual income tax is a(n)

a. proportional tax. b. progressive tax.c. regressive tax. d. excise tax.

7. What is the single largest source of revenue for the federal government?

a. corporate income taxes b. FICA taxesc. individual income taxes d. user fees

8. The government uses indexing to revise tax brackets so that workers do not pay higher taxes just because

a. of individual income taxes. b. they are unemployed.c. they are married. d. of inflation.

9. The payroll taxes that are deducted directly from people’s paychecks are

a. medicare and Social Security. b. individual income and Social Security.c. corporate income and medicare. d. FICA and individual income.

10. The gift tax is used to prevent people from avoiding the

a. excise tax. b. estate tax.c. income tax. d. customs duty.

SCORE

A1. Internal Revenue Service

2. FICA

3. excise tax

4. estate tax

5. gift tax

Ba. tax on the manufacture or sale of selected items

b. tax on donations of money or wealth

c. branch of the Treasury Department in charge of col-lecting taxes

d. tax on the transfer of property when a person dies

e. federal tax used to pay for Social Security andmedicare

f. tax on people’s earnings


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S TATE AND LOCAL TAX SYSTEMS


6. The largest source of revenue for states is

a. property taxes. b. sales taxes.c. income taxes. d. intergovernmental revenues.

7. The property tax that raises the most revenue for local governments is the tax on

a. automobiles. b. intangible personal property.c. real estate. d. tangible personal property.

8. The three largest sources of revenue for local governments are

a. utility and liquor store income, property tax, and intergovernmental revenues.b. utility and liquor store income, property tax, and sales taxes.c. sales taxes, intergovernmental revenue, and property tax.d. sales taxes, intergovernmental revenue, and utility and liquor store income.

9. Which is an example of intangible personal property?

a. a necklace b. a bondc. a fur coat d. an automobile

10. All of the following tax deductions can appear on a payroll withholding statement EXCEPT

a. federal excise taxes. b. FICA taxes.c. federal income taxes. d. state income taxes.

SCORE

A1. intergovernmental revenue

2. property tax

3. tax assessor

4. sales tax

5. public lotteries

Ba. fastest-growing source of state revenues in the

1980s

b. second largest source of revenue for state governments

c. person who assigns value to property for tax purposes

d. funds collected by one level of government that aredistributed to another level of government forexpenditures

e. a tax on tangible and intangible possessions

f. real estate, buildings, and anything permanentlyattached to them


C URRENT TAX ISSUES

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6. The alternative minimum tax did all of the following EXCEPT

a. ensured people pay a minimum tax of b. made it difficult for the very rich to avoid taxes.20 percent.

c. replaced the capital gains tax. d. limited the use of loopholes in the tax code.

7. Which of the following is a disadvantage of the value-added tax (VAT)?

a. The VAT is hard to avoid. b. The VAT is invisible to consumers.c. The VAT is easy to collect. d. The VAT’s incidence is widely spread.

8. Which of the following is NOT an advantage of a flat tax?

a. The flat tax is simple. b. The flat tax closes or minimizes most tax loopholes.

c. The flat tax removes behavior incentives in d. The flat tax would reduce the need for the tax code. accountants and larger portions of the IRS.

9. What prompted federal tax reform in 1986?

a. The tax code favored the rich and powerful. b. The tax laws were too old.c. Not enough tax revenues were being raised. d. Taxes were being collected inefficiently.

10. Overall, who benefited most from tax reform in 1997?

a. politicians b. the lowest 20 percent of wage and income earners

c. the top 20 percent of wage and d. the middle 60 percent of wage and income earners income earners

SCORE

A1. accelerated depreciation

2. investment tax credit

3. alternative minimum tax

4. capital gains

5. value-added tax

Ba. reduction in business taxes tied to investment in

new plants and equipment

b. profits from the sale of an asset held for 12 months

c. final burden of a tax

d. tax placed on the value that manufacturers add ateach stage of production

e. personal income rate that applies whenever theamount of taxes paid falls below some designatedlevel

f. larger than normal depreciation charges whichallowed firms to reduce federal income tax payments


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T HE ECONOMICS OF GOVERNMENT SPENDING


6. The two broad categories of government spending are

a. defense and welfare. b. the purchase of goods and services and payments to disadvantaged groups.

c. public and private. d. payments and transfers.

7. Public sector spending first began to rise significantly in the

a. 1920s. b. 1940s.c. 1960s. d. 1980s.

8. How much money does the public sector spend each year?

a. thousands of dollars b. millions of dollarsc. billions of dollars d. trillions of dollars

9. All of the following are examples of transfer payments EXCEPT

a. the purchase of fighter jets. b. Social Security.c. unemployment compensation. d. funds to build interstate highways.

10. All of the following are effects of increased government spending EXCEPT

a. a direct change in the allocation of resources. b. an indirect change in the allocation of resources.c. an alteration in the distribution of income. d. a decrease in competition between the public

and private sectors.

SCORE

A1. per capita

2. public sector

3. private sector

4. transfer payment

5. distribution of income

Ba. part of the economy made up of private individuals

and privately-owned businesses

b. per person

c. transfer payment one level of government makes toanother

d. way in which income is allocated among families,individuals, or other designated groups in the economy

e. payment for which the government receives neithergoods nor services

f. part of the economy made up of federal, state, andlocal governments


F EDERAL GOVERNMENT EXPENDITURES

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Section Quizzes 31


6. Government health expenditures include a joint federal-state insurance program for low-income personscalled

a. medicare. b. OSHA.c. Medicaid. d. Social Security.

7. All of the following are examples of discretionary spending EXCEPT

a. defense expenditures. b. Coast Guard expenditures.c. welfare programs. d. medicare.

8. Who formulates the federal budget?

a. the Senate b. the House of Representativesc. the president d. the Congressional Budget Office

9. What role does the Office of Management and Budget (OMB) play in establishing the federal budget?

a. The OMB assembles the budget under presidential guidelines.b. The OMB approves the final budget.c. The OMB evaluates the economic impact of proposed congressional actions on the budget.d. The OMB determines how the money in the budget will be distributed among the major categories of

spending.

10. In addition to the interest rate, what determines how much interest the federal government spends on thefederal debt?

a. how much money it raises b. how much money it borrowsc. how much money it spends d. how much money it invests

SCORE

A1. federal budget

2. fiscal year

3. mandatory spending

4. discretionary spending

5. appropriations bill

Ba. programs that must receive annual authorization

b. amount by which federal government expendituresexceed revenues

c. an act of Congress that allows federal agencies tospend money for specific purposes

d. annual plan outlining proposed revenues and expen-ditures for the coming year

e. spending authorized by law that continues withoutthe need for annual approvals of Congress

f. a 12-month financial planning period that may ormay not coincide with the calendar year


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S TATE AND LOCAL GOVERNMENT EXPENDITURES


6. Of the four categories listed below, which accounts for the largest amount of local expenditures?

a. insurance trust funds b. public utilitiesc. highways d. higher education

7. All of the following are local officials with approval power for spending EXCEPT

a. the mayor. b. the council.c. the judge. d. the tax assessor.

8. Which of the following is NOT an example of a local government?

a. school districts b. municipalitiesc. neighborhood associations d. counties

9. Who pays for the maintenance on the state highway linking Tyler, Texas, with Corsicana, Texas?

a. Tyler b. Corsicanac. Texas d. the federal government

10. Of the four categories listed below, which accounts for the largest amount of state expenditures?

a. police protection b. public utilitiesc. elementary and secondary education d. higher education

SCORE

A1. balanced budget amendment

2. intergovernmental expenditures

3. insurance trust funds

4. elementary and secondary education

5. interest on debt

Ba. state funds invested for use when people retire,

become unemployed, or are injured on the job

b. costs incurred by both state and local governmentsfor borrowing money

c. constitutional amendment requiring that annualspending not exceed revenues

d. largest category of state spending

e. funds used to support state colleges and universities

f. major spending responsibility of local governments


D EFICITS, SURPLUSES, AND THE NATIONAL DEBT

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Section Quizzes 33

SCORE


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10, 4


6. From the choices below, identify when the federal government began significant deficit spending.

a. 1960s b. 1970s c. 1980s d. 1990s

7. Which of the following statements best describes the relationship of the federal deficit to the federaldebt?

a. The federal deficit is another term for the federal debt.b. The federal deficit leads to borrowing, which adds to the federal debt.c. The federal debt leads to borrowing, which adds to the federal deficit.d. The federal debt is the opposite of the federal deficit.

8. Which of the following is an example of an entitlement payment?

a. federal money given to a contractor in exchange for military uniformsb. federal money given to a senior citizen as a Social Security paymentc. federal money spent to pay interest on the federal debtd. federal money spent to build a new public highway

9. All of the following are differences between the federal debt and private debt EXCEPT

a. the federal debt is owed to ourselves, rather than to others.b. the federal government does not have to repay the debt by a specific date.c. the federal debt is the total amount of money borrowed from investors.d. the federal government does not lose purchasing power.

10. All of the following are effects of the federal debt EXCEPT

a. income distribution is altered. b. purchasing power is transferred.c. incentives to work, save, and invest d. interest rates are lowered.

are decreased.

A1. deficit spending

2. federal debt

3. trust funds

4. crowding-out effect

5. entitlement

Ba. spending in excess of revenues collected

b. broad social programs for eligible individuals

c. amount borrowed to finance deficit spending

d. budget with neither a surplus or deficit

e. accounts used to fund types of expenditures

f. higher-than-normal interest rates that are caused byheavy government borrowing

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T HE EVOLUTION OF MONEY


6. Money functions as all of the following EXCEPT

a. a store of value. b. a monetary standard.c. a medium of exchange. d. a measure of value.

7. A “mutual coincidence of wants” is

a. difficult to achieve in a barter economy. b. easy to achieve in a barter economy.c. impossible to achieve in a barter economy. d. difficult to achieve in a money economy.

8. Early colonists in Virginia used tobacco as

a. specie. b. fiat money.c. commodity money. d. wampum.

9. What is the origin of the American dollar?

a. the Austrian taler and wampum b. the Spanish peso and shillingsc. wampum and shillings d. the Spanish peso and Austrian taler

10. To be a successful medium of exchange, money must be all of the following EXCEPT

a. easily available. b. portable.c. durable. d. easily divisible.

SCORE

A1. money

2. medium of exchange

3. measure of value

4. fiat money

5. specie

Ba. ingots or bars of precious metals

b. money in the form of coins made from silver or gold

c. a common denominator that can be used to expressworth in terms that most individuals understand

d. money by government decree

e. any substance that serves as a medium of exchange,a measure of value, and a store of value

f. something accepted by all parties as payment forgoods and services


E ARLY BANKING AND MONETARY STANDARDS

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SCORE


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A1. monetary standard

2. legal tender

3. Treasury coin notes

4. gold standard

5. inconvertible fiat money standard

Ba. paper currency issued by the Treasury that was

redeemable in both gold and silver

b. mechanism designed to keep the money supplyportable, durable, divisible, and limited in supply

c. monetary standard under which the basic currencyunit is equivalent to, and can be exchanged for, aspecific amount of gold

d. uniform currency backed by government bonds

e. a monetary standard under which the fiat moneysupply cannot be converted into gold or silver by itscitizens

f. fiat currency that must be accepted in payment fordebts


6. Under what monetary standard does the United States currently operate?

a. the gold standard b. the inconvertible fiat money standardc. the silver standard d. the greenback standard

7. All of the following were problems with banking before the Civil War EXCEPT

a. state banks issued their own currencies. b. wildcat banks printed large amounts of currency.c. many banks issued more currency than d. the economy grew faster than the gold stock.

they could back.

8. Which of the following statements about a gold standard is FALSE?

a. The government cannot print too much b. People feel more secure about their money.paper currency.

c. It is easier to expand the money supply. d. The government risks draining its gold reserves.

9. Greenbacks and United States notes were issued to

a. raise money to finance the Civil War. b. stabilize the monetary supply.c. change the monetary standard. d. pay interest on the federal debt.

10. Created during the Civil War, the National Banking System

a. was made up of banks chartered by the federal government.b. resulted in shifting the paper money supply from being entirely privately-issued to being entirely

publicly-issued.c. eventually replaced state-chartered banks.d. all of the above

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T HE DEVELOPMENT OF MODERN BANKING


6. The Federal Reserve System is

a. owned by the government. b. unable to lend money to other banks.c. publicly controlled. d. under the authority of Congress.

7. Which of the following statements about the Great Depression is FALSE?

a. Thousands of banks failed. b. Banking reforms followed the Great Depression.c. Runs on banks were common. d. A new banking system was created.

8. The federal agency that insures bank deposits in the event of a bank failure is the

a. DDA. b. FDIC.c. FSLIC. d. Fed.

9. One of the oldest thrift institutions in the United States is the

a. mutual savings bank. b. savings and loan association. c. credit union. d. savings bank.

10. Which of the following institutions experienced serious crisis and reform during the 1980s?

a. mutual savings banks b. commercial banksc. savings and loan associations d. credit unions

SCORE

A1. Federal Reserve System

2. thrift institution

3. mutual savings bank

4. credit union

5. savings and loan association

Ba. depository institution that invests the majority of its

funds in home mortgages

b. depositor-owned financial organization operatedonly for the benefit of its depositors

c. bank that caters to the interests of business andcommerce

d. financial institutions that accepted the deposits ofsmall investors

e. nonprofit service cooperative that is owned by, andoperated for, the benefit of its members

f. system that functions as the central bank of theUnited States


S AVINGS AND THE FINANCIAL SYSTEM

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Section Quizzes 37


6. Saving is necessary for

a. a traditional economy. b. mutual funds.c. financial assets. d. capital formation.

7. The financial institutions that bring together funds that savers provide and then lend those funds to othersare called

a. mutual funds. b. financial systems.c. financial assets. d. financial intermediaries.

8. All of the following are examples of financial assets EXCEPT

a. bonds. b. savings books.c. mutual funds. d. certificates of deposit.

9. All of the following are examples of nonbank financial institutions EXCEPT

a. credit unions. b. finance companies.c. life insurance companies. d. real estate investment trusts.

10. What sector(s) of the economy provide(s) the most savings?

a. the federal government b. the public sectorc. state and local governments d. households and businesses

SCORE

A1. savings

2. financial system

3. financial assets

4. pension

5. mutual fund

Ba. regular payment intended to provide income

security to someone who has worked a certain number of years

b. the dollars that become available in the absence ofconsumption

c. company that sells stock in itself to individualinvestors and invests this money in other stocks andbonds

d. network of savers, investors, and financial institu-tions that work together to transfer savings toinvestors

e. institutions that bring together the funds that saversprovide and lend them to others

f. claims on the property and the income of the borrower


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I NVESTMENT STRATEGIES AND FINANCIAL ASSETS


6. All of the following are considered the main components of bonds EXCEPT

a. coupon. b. maturity.c. par value. d. yield.

7. A bond’s principal, or total amount borrowed, is called its

a. investment potential. b. par value.c. rating. d. insured rate.

8. A market in which money is loaned for periods of more than one year is known as a

a. capital market. b. money market.c. primary market. d. secondary market.

9. A bond’s current yield is determined by

a. adding the annual interest to the purchase price.b. subtracting the annual interest from the purchase price.c. dividing the annual interest by the purchase price.d. dividing the purchase price by the annual interest.

10. High return on an investment is associated with

a. no risk. b. low risk.c. high risk. d. estimated probabilities of outcomes.

SCORE

A1. 401(k) plan

2. CDs

3. junk bonds

4. municipal bonds

5. IRAs

Ba. long-term, tax-sheltered time deposits that an

employee can set up as part of a retirement plan

b. bonds issued by state and local governments

c. exceptionally risky bonds

d. a tax-deferred investment and savings plan that actsas a personal pension fund for employees

e. United States government obligations with maturi-ties of two to 10 years

f. loans investors make to financial institutions


I NVESTING IN EQUITIES, FUTURES,AND OPTIONS

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Section Quizzes 39


6. The great majority of stocks in the United States are traded on

a. Wall Street. b. the New York Stock Exchange.c. the over-the-counter market. d. the American Stock Exchange.

7. The Efficient Market Hypothesis argues that

a. stocks are always priced about right and bargains are hard to find.b. stocks are usually priced low and bargains are easy to find.c. stocks are usually priced high and bargains are hard to find.d. stocks are always priced about right and bargains are easy to find.

8. All of the following are securities exchanges EXCEPT

a. the New York Stock Exchange. b. the American Stock Exchange.c. the NASDAQ. d. the Chicago Stock Exchange.

9. Which stock market’s performance does the Dow-Jones Industrial Average reflect?

a. the over-the-counter market b. the American Stock Exchangec. the global stock exchange d. the New York Stock Exchange

10. All of the following are examples of futures trading EXCEPT

a. a futures contract. b. a spot transaction.c. a call option. d. a put option.

SCORE

A1. equities

2. securities exchanges

3. over-the-counter market

4. futures contract

5. options

Ba. agreement to buy or sell at a specific date at a

predetermined price, with the option to withdraw

b. stocks that represent ownership shares in corporations

c. market in which a transaction is made immediatelyat the prevailing price

d. places where buyers and sellers meet to trade securities

e. agreement to buy or sell at a specific date at a predetermined price

f. electronic marketplace for securities that are nottraded on an organized exchange


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M EASURING THE NATION’S OUTPUT


6. All of the following are included in GDP EXCEPT

a. the income from a garage sale. b. the value of a new car.c. the value of a new house. d. the sale of an ice cream cone.

7. Which of the following statements about GNP is FALSE?

a. GNP measures the output of all Americans, b. GNP is based on GDP.including those who produce goods outside of the country.

c. GNP is smaller than GDP in the United States. d. GNP is the most important measure of the economy’s overall performance.

8. All of the following are basic sectors of the United States economy EXCEPT

a. the income sector. b. the consumer sector.c. the government sector. d. the investment sector.

9. Which is the best measure of the nation’s income?

a. GDP b. GNPc. ROW d. NNP

10. Which of the following statements about sectors and incomes is FALSE?

a. The consumer sector receives its income in the form of disposable personal income.b. The business sector receives its income from depreciation and retained earnings.c. The foreign sector receives its income from borrowed savings.d. The government sector receives its income from taxes.

SCORE

A1. national income accounting

2. Gross Domestic Product

3. Gross National Product

4. Net National Product

5. output-expenditure model

Ba. dollar value of all final goods, services, and struc-

tures produced in one year with labor and propertysupplied by U.S. residents

b. dollar amount of all final goods and services pro-duced within a country’s national borders in a year

c. system of statistics and accounts that track overalleconomic performance

d. macroeconomic model used to analyze the econo-my’s performance

e. products used in making other products alreadycounted in GDP

f. calculated by subtracting depreciation from GNP


G DP AND CHANGES IN THE PRICE LEVEL

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Section Quizzes 41


6. What is the implicit GDP price deflator?

a. a price index that measures price changes in GDPb. a measure designed to record the effects of inflation on consumersc. a price index that records the prices businesses received. a method used to calculate current GDP

7. To construct a price index, all of the following are needed EXCEPT

a. a base year. b. the current inflation rate.c. a market basket. d. the price of market basket items.

8. Economists know it is important to track inflation because

a. it distorts prices. b. it distorts statistics about overall economic performance.

c. it makes prices rise. d. it worries many people.

9. All of the following statements about real GDP are true EXCEPT

a. real GDP reflects what the GDP would be if b. real GDP removes the distortion of inflation the purchasing power of the dollar had not from GDP.changed from what it was in its base year.

c. real GDP is the same as current GDP. d. real GDP is the same as GDP in constant dollars.

10. Which of the following is the correct way to calculate real GDP?

a. Divide constant GDP by the implicit GDP price deflator and then multiply by 100.b. Divide current GDP by the implicit GDP price deflator and then multiply by 100.c. Multiply current GDP by the implicit GDP price deflator.d. Multiply constant GDP by the implicit GDP price deflator.

SCORE

A1. market basket

2. price index

3. real GDP

4. consumer price index

5. producer price index

Ba. GDP not adjusted to remove the distortion of

inflation

b. price index of about 90,000 items in 364 categories

c. GDP adjusted to remove the distortion of inflation

d. a statistical series that can be used to measurechanges in prices over time

e. a representative selection of goods and services

f. index of prices received by domestic producers fortheir output


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G DP AND POPULATION


6. The official count of all people in the United States is called

a. the urban population. b. the fertility rate.c. the rural population. d. the decennial census.

7. Since colonial times, the rate of growth of the United States population has

a. steadily increased. b. steadily decreased.c. remained constant. d. varied frequently.

8. Which best describes the movement of the center of population of the United States?

a. north to south b. south to northc. east to west d. west to east

9. All of the following factors affect population growth EXCEPT

a. demographers. b. fertility rate.c. life expectancy. d. net immigration.

10. Since colonial times, the average size of a household in the United States has

a. increased. b. decreased.c. remained the same. d. decreased and then increased.

SCORE

A1. center of population

2. fertility rate

3. net immigration

4. population pyramid

5. dependency ratio

Ba. point where the country would balance if it could

be laid flat and if everyone weighed the same

b. the net change in population caused by peoplemoving into and out of the country

c. average remaining life span of people who reach agiven age

d. number of births that 1,000 women are expected toundergo in their lifetime

e. ratio based on the number of children and elderlyfor every 100 persons in the working age bracket of18 through 64.

f. bar graph that shows the breakdown of populationby age and gender


E CONOMIC GROWTH

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Section Quizzes 43


6. Real GDP per capita is the preferred measure of economic growth over the long run because

a. current GDP cannot be accurately measured. b. prices and the population change over time.c. the standard of living can be measured only d. labor productivity changes over time.

in the short run.

7. The United States experienced almost no growth in real GDP per capita

a. between 1929 and 1939. b. between 1940 and 1970.c. during the 1970s. d. in the late 1990s.

8. Which of the following statements about economic growth is FALSE?

a. Economic growth raises the standard of living. b. Economic growth helps solve domestic problems.c. Economic growth decreases the tax base. d. Economic growth helps foreign trade partners.

9. Which of the following factors affect economic growth?

a. land b. capitalc. labor d. all of the above

10. Increasing productivity results in

a. increasing economic growth. b. decreasing economic growth.c. stabilization of economic growth. d. sporadic economic growth.

SCORE

A1. growth triangle

2. standard of living

3. tax base

4. capital-to-labor ratio

5. labor productivity

Ba. total capital stock divided by the number of workers

in the labor force

b. incomes and properties that may be taxed

c. table that shows annual compound rates of growthbetween selected periods of time

d. quality of life based on the possession of necessitiesand luxuries that make life easier

e. ratio of output produced per unit of labor input

f. resources that can be replenished


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B USINESS CYCLES AND FLUCTUATIONS


6. What are the two phases of the business cycle?

a. peak and trough b. depression and recessionc. depression and expansion d. recession and expansion

7. A severe recession with high unemployment, acute shortages, and excess manufacturing capacity isknown as

a. a trend line. b. a depression.c. a trough. d. a business fluctuation.

8. Which of the following factors did NOT contribute to the Great Depression?

a. disparity in the distribution of income b. easy and plentiful creditc. massive government spending for d. the global economy

wartime goods

9. All of the following factors contribute to business cycles EXCEPT

a. capital spending. b. business fluctuations.c. inventory adjusting. d. industrial innovation.

10. The index of leading indicators

a. predicted the Great Depression. b. is completely reliable.c. is used to predict changes in business cycles. d. was designed to detect external shocks.

SCORE

A1. business cycles

2. business fluctuations

3. peak

4. trough

5. recession

Ba. point in the business cycle when real GDP stops

increasing

b. nonsystematic upturns and downturns of real GDP

c. point in the business cycle when real GDP stopsdecreasing

d. severe economic state with high unemployment,acute shortages, and excess manufacturing capacity

e. period during which real GDP declines for two quar-ters in a row, or six consecutive months

f. systematic upturns and downturns of real GDP


U NEMPLOYMENT

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Section Quizzes 45


6. When a construction worker cannot work because of a winter snowstorm, he is

a. cyclically unemployed. b. structurally unemployed.c. seasonally unemployed. d. frictionally unemployed.

7. A telephone receptionist loses his job when a computerized voice mail system is installed at his office. He is

a. seasonally unemployed. b. frictionally unemployed.c. cyclically unemployed. d. technologically unemployed.

8. An assembly line worker in an automobile plant is laid off during a recession. She is

a. seasonally unemployed. b. frictionally unemployed.c. cyclically unemployed. d. technologically unemployed.

9. The unemployment rate understates employment conditions for all of the following reasons EXCEPT

a. some workers are “between jobs” for one reason or another.b. some people who worked in high-paying jobs may be working in minimum-wage jobs that they do

not want.c. some people who worked in full-time jobs may be working in part-time jobs that they do not want.d. some people may have become too frustrated or discouraged to look for work in the past four weeks.

10. To an economist, full employment is reached when the unemployment rate drops below

a. 1 percent. b. 2.5 percent.c. 3.5 percent. d. 4.5 percent.

SCORE

A1. unemployment rate

2. frictional unemployment

3. structural unemployment

4. cyclical unemployment

5. technological unemployment

Ba. results from changes in the weather or changes in

the demand for certain products

b. occurs when a fundamental change in the opera-tions of the economy reduces the demand forworkers and their skills

c. number of unemployed persons divided by the totalnumber of persons in the civilian labor force

d. unemployment caused by workers who are“between jobs”

e. unemployment directly related to swings in the busi-ness cycle

f. occurs when workers with less skills, talent, or edu-cation are replaced by machines that do their jobs


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I NFLATION


6. To calculate the inflation rate, economists

a. divide the change in the price level by the ending price level and divide by 100.b. divide the change in the price level by the ending price level and multiply by 100.c. divide 100 by the change in the price level.d. divide the change in the price level by the beginning price level and multiply by 100.

7. All of the following are theories regarding the cause of inflation EXCEPT

a. government deficit. b. wage-price spiral.c. cost-pull. d. excessive monetary growth.

8. An economist who attributes inflation to no single group is holding to the

a. demand-pull theory of inflation. b. cost-push theory of inflation.c. wage-price spiral theory of inflation. d. excessive monetary growth theory of inflation.

9. According to the excessive monetary growth theory of inflation, extra money in the economy is spent,leading to a

a. wage-price effect. b. cost-push effect.c. demand-pull effect. d. government deficit effect.

10. All of the following are consequences of inflation EXCEPT

a. the dollar buys less. b. speculation increases.c. interest rates decrease. d. the distribution of income is altered.

SCORE

A1. price level

2. deflation

3. creeping inflation

4. galloping inflation

5. hyperinflation

Ba. intense form of inflation that can go as high as 100

to 300 percent per year

b. the relative magnitude of prices at one point in time

c. an increase in the general price level

d. a decrease in the general price level

e. inflation in the range of 500 percent a year andabove

f. inflation in the range of 1 to 3 percent per year


P OVERTY AND THE DISTRIBUTION OF INCOME

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Section Quizzes 47


6. If all families received exactly the same income, the Lorenz curve would appear as

a. an upward sloping curve. b. a diagonal line.c. a downward sloping curve. d. a horizontal line.

7. Which of the following is NOT a reason for income inequality?

a. economic growth b. educationc. wealth d. discrimination

8. To an economist, an individual is living in poverty if

a. his or her income is below a certain level. b. he or she is uneducated.c. he or she has difficulty finding work. d. his or her abilities are below average.

9. About how many Americans are currently living in poverty?

a. less than 1 million b. between 1 and 15 millionc. between 15 million and 30 million d. more than 30 million

10. The income gap has widened since 1980 for all of the following reasons EXCEPT

a. a structural change in the economy that changed from goods production to service production.b. a growing gap between well-educated and poorly-educated workers.c. a growth in monopoly power.d. declining unionism.

SCORE

A1. Lorenz curve

2. poverty guidelines

3. welfare

4. food stamps

5. workfare

Ba. government-issued coupons that can be redeemed

for food

b. economic and social programs that provide regularassistance from the government or private agenciesbecause of need

c. program that requires welfare recipients to providelabor in exchange for benefits

d. graph that illustrates how much the actual distribu-tion of income varies from an equal distribution

e. tax that would make cash payments to certaingroups below the poverty line

f. annual dollar amounts used to evaluate the moneyincome that families and unrelated individualsreceive


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T HE FEDERAL RESERVE SYSTEM


6. The Fed is owned by

a. member banks. b. the federal government.c. all banks. d. the people of the United States.

7. Which banks are members of the Fed?

a. all state banks b. some state banks and some national banksc. some state banks and all national banks d. all state banks and all national banks

8. Which one of the following is NOT part of the Federal Reserve System?

a. the Board of Governors b. the Federal Open Market Committeec. the Federal Advisory Council d. the Comptroller of the Currency

9. The Fed is responsible for all of the following EXCEPT

a. regulating holding companies. b. supervising foreign banks in the United States.c. approving bank mergers. d. regulating credit unions.

10. The Fed provides all of the following services EXCEPT

a. overseeing the activities of the b. check clearing.Treasury Department.

c. enforcing consumer legislation. d. maintaining currency and coins.

SCORE

A1. member bank

2. Federal Open Market Committee

3. bank holding company

4. currency

5. coins

Ba. makes decisions about the growth of the money

supply and the level of interest rates

b. commercial banks that are members of, and holdstock in, the Fed

c. metallic forms of money

d. paper component of the money supply

e. corporation that owns one or more banks

f. gives the Fed the authority to extend truth-in-lending disclosures


M ONETARY POLICY

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Section Quizzes 49


6. When a bank keeps $12 from a $100 deposit as legal reserves, it is using

a. the Federal Reserve System. b. a fractional reserve system.c. a legal reserve system. d. a fractional deposit system.

7. What does a bank use to make loans?

a. excess reserves b. reserve requirementsc. legal reserves d. member bank reserves

8. All of the following actions by the Fed would promote an easy money policy EXCEPT

a. increasing the reserve requirement. b. buying government securities.c. lowering the discount rate. d. announcing that it anticipates adopting an

easy money policy.

9. All of the following actions by the Fed would promote a tight money policy EXCEPT

a. increasing the reserve requirement. b. selling government securities.c. having an official testify to Congress that a d. lowering the discount rate.

tight money policy is likely.

10. All of the following are tools of monetary policy EXCEPT

a. selective credit controls. b. moral suasion.c. tight money controls. d. open market operations.

SCORE

A1. monetary policy

2. reserve requirement

3. excess reserves

4. discount rate

5. margin requirements

Ba. rule stating that a percentage of every deposit be

set aside as legal reserves

b. the interest the Fed charges on loans to financialinstitutions

c. credit rules pertaining to loans for specific commodi-ties or purposes

d. minimum deposits left with a stockbroker to beused as down payments to buy other securities

e. the expansion and/or contraction of the money sup-ply in order to influence the cost and the availabilityof credit

f. legal reserves in excess of the reserve requirement


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M ONETARY POLICY, BANKING,AND THE ECONOMY


6. The quantity theory of money holds that excessive increases in the monetary supply

a. must keep pace with inflation. b. increase interest rates.c. lead to inflation. d. decrease interest rates.

7. The dilemma faced by the Fed when considering monetary policy is the choice between

a. inflation and interest rates. b. inflation and monetizing the debt.c. interest rates and reserves. d. monetizing the debt and interest rates.

8. At times the Fed monetizes the debt in order to

a. keep inflation from rising. b. keep interest rates from rising.c. keep the deficit from rising. d. keep interest rates from falling.

9. The Fed remains largely independent from politics for all of the following reasons EXCEPT

a. the Fed is privately owned by its member banks.b. members of the Board of Governors serve 14-year terms.c. the Fed sets interest rates with an eye towards the long-term health of the economy.d. the president and Congress appoint new members to vacant seats on the Board of Governors.

10. The Fed has defined different categories of money, M1 and M2, according to the money’s

a. source. b. function.c. form. d. value.

SCORE

A1. prime rate

2. quantity theory of money

3. real rate of interest

4. M1

5. M2

Ba. the market rate of interest minus the rate of

inflation

b. the best or lowest interest rate commercial bankerscharge their customers

c. represents the components of the money supplythat most closely conform to money’s role as a storeof value

d. changes in the supply of money affect the generallevel of prices

e. creating extra money to offset deficit spending

f. represents the components of the money supplythat most closely match money’s role as a mediumof exchange


T HE COST OF ECONOMIC INSTABILITY

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Section Quizzes 51


6. Which is an example of the uncertainty caused by economic instability?

a. A politician is reelected. b. A consumer delays a purchase.c. A manufacturer increases output. d. An economist measures the GDP gap.

7. The social costs of economic instability include all of the following EXCEPT

a. stagflation. b. wasted resources.c. political instability. d. crime and damage to family values.

8. Which of the following statements is FALSE?

a. A healthy economy helps the country deal with its social problems.b. Economic instability is at the root of all social problems.c. Economic instability can lead to reduced spending on social programs.d. A healthy economy helps people feel more certain about the future.

9. Economists measure the cost of economic instability with

a. the misery index. b. the GDP gap.c. constant GDP. d. both a and b

10. Economic instability wastes all of the following EXCEPT

a. human resources. b. natural resources. c. tax revenues. d. capital resources.

SCORE

A1. stagflation

2. GDP gap

3. misery index

4. social costs

5. economic costs

Ba. price of economic instability in human terms

b. period of healthy growth and low inflation

c. price of economic failures that waste the resourcesof the nation and its people

d. period of stagnant growth combined with inflation

e. difference between the actual GDP and the poten-tial GDP that could be produced if all resources werefully employed

f. sum of the monthly inflation and unemploymentrates


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M ACROECONOMIC EQUILIBRIUM


6. Macroeconomic equilibrium is

a. determined by the intersection of the supply curve and the demand curve.b. determined by the aggregate supply curve.c. determined by the intersection of the aggregate supply curve and the aggregate demand curve.d. determined by the aggregate demand curve.

7. What effect would a decrease in production costs for all firms have on the aggregate supply curve?

a. The curve would level off. b. The curve would shift to the right.c. The curve would shift to the left. d. The curve would not change.

8. What effect would a decrease in consumer savings have on the aggregate demand curve?

a. The curve would level off. b. The curve would shift to the right.c. The curve would shift to the left. d. The curve would not change.

9. The aggregate demand curve has the slope it does because

a. it must intersect the aggregate supply curve. b. people are willing to purchase less at higher prices.

c. there is a single money supply of a fixed size d. the market tends toward equilibrium.in the economy at any one time.

10. All of the following would cause aggregate supply to increase EXCEPT

a. an increase in labor productivity. b. an increase in interest rates.c. the development of new technologies. d. a decrease in government regulation.

SCORE

A1. aggregate supply curve

2. aggregate demand curve

3. macroeconomic equilibrium

4. downward

5. upward

Ba. slope of the aggregate supply curve

b. the level of real GDP consistent with a given pricelevel

c. slope of the aggregate demand curve

d. shows the quantity of real GDP that would be pur-chased at various price levels

e. total value of goods and services that all firmswould produce in a specific period of time at variousprice levels

f. shows the amount of real GDP that could be pro-duced at various price levels


S TABILIZATION POLICIES

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Section Quizzes 53


6. All of the following are elements of the Keynesian economic framework EXCEPT

a. the consumption function. b. the multiplier.c. the Laffer curve. d. the accelerator.

7. All of the following are related to demand-side policies EXCEPT

a. fiscal policy. b. monetarism.c. Keynesian economics. d. the output-expenditure model.

8. Those who favor supply-side policies would tend to support the government playing

a. an expanded role in the economy. b. a reduced role in the economy.c. no role in the economy. d. a role in monetary policies only.

9. Unemployment insurance and federal entitlement programs are two examples of

a. supply-side policy. b. monetarism.c. wage-price controls. d. automatic stabilizers.

10. Which of the following policies would likely be favored by a monetarist?

a. increasing the money supply at a steady rate determined by growth in real GDP and productivityb. increasing government spending to offset a reduction in spending in the investment sectorc. lowering business tax rates to provide an incentive for businesses to produce mored. deregulating industries to minimize the government’s role in the economy

SCORE

A1. fiscal policy

2. Keynesian economics

3. monetarism

4. Laffer curve

5. supply-side economics

Ba. set of actions designed to lower unemployment by

stimulating aggregate demand

b. policies designed to stimulate output and lowerunemployment by increasing production

c. federal government’s attempt to stabilize the econo-my through taxing and government spending

d. programs that automatically trigger benefits ifchanges in the economy threaten people’s incomes

e. hypothetical relationship between federal tax ratesand tax revenues

f. doctrine that places primary importance on control-ling the money supply to stabilize the economy


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E CONOMICS AND POLITICS


6. The use of discretionary fiscal policy has declined for all of the following reasons EXCEPT

a. the relatively short duration of recessions.b. government gridlock.c. Congressional budget caps have limited federal spending.d. the government usually knows of upcoming recessions far in advance.

7. The United States relies most on which of the following policies?

a. passive fiscal policies b. structural fiscal policiesc. discretionary fiscal policies d. monetary policy

8. All of the following describe economists EXCEPT

a. economists have different backgrounds and experiences.b. economists are sharply divided into competing schools of thought with little overlap of ideas and

beliefs.c. economists sometime seem to offer conflicting advice.d. economists are continually seeking new answers to new problems.

9. Which is the best description of the role of the Council of Economic Advisers?

a. report economic developments and b. carry out monetary policypropose strategies

c. implement presidential economic policies d. keep the public informed about economic issues

10. A president might ignore the recommendations of professional economic advisers in order to

a. avoid an unpopular decision. b. adhere to the principles of political economics.c. avoid participating in economic politics. d. maintain presidential monetary authority.

SCORE

A1. Council of Economic Advisers

2. discretionary fiscal policy

3. passive fiscal policy

4. structural fiscal policy

5. political economics

Ba. three-member group that reports on economic

developments and recommends strategies to thepresident

b. policy that does not require a new or special actionto take effect

c. term for economics in the 1800s

d. policy that someone must choose to implement

e. policy put in operation to strengthen the economyin the long run

f. describes political concern for economic effects


A BSOLUTE AND COMPARATIVE ADVANTAGE

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Section Quizzes 55


6. The basis for international trade stems from

a. absolute advantage. b. the differences in production costs from one country to another.

c. bartering. d. the similarity in production costs from one country to another.

7. The United States imports

a. thousands of dollars in products each year. b. millions of dollars in products each year.c. billions of dollars in products each year. d. trillions of dollars in products each year.

8. Which of the following is proof that international trade is beneficial?

a. the concept of absolute advantage b. the concept of comparative advantagec. the fact that free nations choose to trade d. the fact that different regions in the United

States specialize in economic activities

9. The ability of a country to produce more of a given product is

a. absolute advantage. b. comparative advantage.c. specialization. d. international trade.

10. The ability of a country to produce a good at a relatively lower opportunity cost is

a. absolute advantage. b. comparative advantage.c. specialization. d. international trade.

SCORE

A1. exports

2. imports

3. absolute advantage

4. comparative advantage

5. international trade

Ba. limit placed on the quantities of a product that can

be imported

b. goods and services that one country buys fromother countries

c. a country’s ability to produce a product relativelymore efficiently than another country

d. goods and services that a country produces andthen sells to other countries

e. a country’s ability to produce more of a given prod-uct than another country

f. exchange of goods and services among the nationsof the world


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B ARRIERS TO INTERNATIONAL TRADE


6. All of the following are means to restrict international trade EXCEPT

a. quotas. b. tariffs.c. trade deficits. d. import licenses.

7. The most frequent argument used to support trade barriers is that they

a. promote national defense. b. promote infant industries.c. protect domestic jobs. d. keep American money in the United States.

8. Which of the following liberalized free trade among Canada, the United States, and Mexico in the 1990s?

a. the Reciprocal Trade Agreements Act b. the General Agreement on Tariffs and Tradec. the World Trade Organization d. the North American Free Trade Agreement

9. All of the following were direct results of the 1930 Smoot-Hawley Tariff EXCEPT

a. twenty-three countries signed the General Agreement on Tariffs and Trade.b. the price of many imported goods rose nearly 70 percent.c. other nations retaliated with similarly high tariffs.d. international trade nearly came to a halt.

10. In recent years international trade has been

a. at a standstill. b. flourishing.c. decreasing. d. nonexistent.

SCORE

A1. tariff

2. dumping

3. protectionists

4. free traders

5. balance of payments

Ba. people who favor few or no trade restrictions

b. tax placed on imports to increase their price in thedomestic market

c. selling products abroad for less than it cost to pro-duce them at home

d. a deficit in the balance of payments

e. people who favor trade barriers that protect domes-tic industries

f. the difference between the money a country paysto, and receives from, other nations when itengages in international trade


F INANCING AND TRADE DEFICITS

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Section Quizzes 57


6. Foreign exchange is necessary in international trade because

a. each country has its own monetary system. b. the United States went off the gold standard.c. international trade is conducted in d. it prevents a devaluation of the currency.

foreign markets.

7. For most of the 1900s, the world depended on

a. fixed exchange rates. b. floating exchange rates.c. the gold standard. d. flexible exchange rates.

8. The trade-weighted value of the dollar explains that when the dollar is strong,

a. the trade deficit decreases. b. the trade deficit is not affected.c. the trade deficit increases. d. international trade increases.

9. What problem is most directly associated with a trade deficit?

a. devaluation of a nation’s currency b. unemployment in import industriesc. inflation d. fixed exchange rates

10. Today, most economists view trade deficits as

a. needing legislated exchange rate b. needing legislated quotas to correct.adjustments to correct.

c. needing legislated tariffs to correct. d. needing no legislation because they are largely self-correcting.

SCORE

A1. foreign exchange rate

2. floating exchange rate

3. trade deficit

4. trade surplus

5. trade-weighted value of the dollar

Ba. system under which the forces of supply and

demand establish the value of one country’s currency in terms of another country’s currency

b. system under which the price of one currency isfixed in terms of another

c. occurs when the value of imported productsexceeds the value of exported products

d. index showing the strength of the dollar against agroup of foreign currencies

e. occurs when the value of exported products exceedsthe value of imported products

f. the price of one country’s currency in terms ofanother country’s currency


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T HE SPECTRUM OF ECONOMIC SYSTEMS


6. What is a major advantage of socialism?

a. It is more efficient than capitalism. b. More people share in the benefits of society.c. It results in low production costs. d. It is free from economic instability.

7. All of the following are disadvantages of socialism EXCEPT

a. it is normally less efficient than capitalism. b. taxes are generally higher in socialist countries.c. socialism ignores the production of many d. special interests often become entrenched and

public goods. hold great political influence.

8. A major disadvantage of capitalism is that it

a. ignores poor people and the less productive b. provides for too much individual freedom.members of society.

c. relies on supply and demand to set prices. d. answers the basic economic questions in a decentralized manner.

9. All of the following are disadvantages of communism EXCEPT

a. fear of unemployment and inadequate b. few individual freedoms.social services.

c. little incentive to innovate and produce. d. inefficient centralized planning.

10. All of the following are advantages of communism EXCEPT

a. the equality of workers’ wages. b. public goods and services are provided to everyone.

c. the lack of uncertainty in career choices, job d. consumers’ needs are satisfied.placement, and job security.

SCORE

A1. socialism

2. communism

3. capitalism

4. Great Depression

5. efficiency

Ba. evidence of the instability of capitalism

b. economic system in which the means of productionare privately owned

c. main advantage of capitalism

d. economic system in which the government ownsand runs the majority of the basic productiveresources

e. political and economic framework where all proper-ty is collectively owned and labor is organized forthe common advantage of the community

f. what determines prices under capitalism


T HE RISE AND FALL OF COMMUNISM

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Section Quizzes 59


6. Who led the revolution that overthrew the Russian government in 1917?

a. Joseph Stalin b. Vladimir Ilyich Leninc. Mikhail Gorbachev d. Boris Yeltsin

7. Lenin introduced his New Economic Policy (NEP) to

a. industrialize the Soviet Union. b. collectivize Soviet agriculture.c. reintroduce some capitalist methods. d. organize a Five-Year Plan.

8. In 1928 the Soviet Union underwent a forced transformation from an agricultural to an industrial econo-my under

a. the Gosplan. b. the Five-Year Plan.c. perestroika. d. the Soviet Plan.

9. All of the following led to the collapse of the Soviet economy EXCEPT

a. a lack of worker incentives. b. a reliance on production quotas.c. inadequate supply of consumer goods. d. the introduction of a market economy.

10. Who attempted to restructure the Soviet Union’s economy through his policy of perestroika?

a. Vladimir Ilyich Lenin b. Joseph Stalinc. Mikhail Gorbachev d. Boris Yeltsin

SCORE

A1. Five-Year Plan

2. collectivization

3. Gosplan

4. perestroika

5. storming

Ba. fundamental restructuring of the Soviet economy

and government

b. a comprehensive, centralized economic plandesigned to achieve rapid industrialization

c. practice of rushing production at the end of themonth to make up for the slower pace at the begin-ning of the month

d. the forced common ownership of all agricultural,industrial, and trading enterprises

e. small peasant farms collected into a single unit forjoint operation

f. the central planning authority in the former SovietUnion


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T HE TRANSITION TO CAPITALISM


6. All of the following are problems with capitalism EXCEPT

a. a system of privatization must be developed.b. communist ruling classes must have their political power solidified.c. the threat of economic instability must be confronted.d. workers must learn to live with a new set of incentives.

7. In Poland, Hungary, and the Czech Republic, the transition to privatization was facilitated

a. by the military. b. by holding free elections.c. with aid from the United States. d. by using vouchers.

8. All of the following countries are currently involved in the transition to capitalism EXCEPT

a. Russia. b. Czech Republic.c. Cuba. d. Chile.

9. What factor accelerated the move toward capitalism in Mexico?

a. the Great Leap Forward b. Solidarityc. NAFTA d. privatization

10. Which statement best describes the current role of capitalism in China?

a. China is acting in a capitalist manner by privatizing industries and introducing market reforms.b. The Chinese government is allowing experiments in capitalism.c. China has had a capitalist economy since 1949.d. The Chinese government has forbidden any capitalist activities.

SCORE

A1. privatization

2. Solidarity

3. black market

4. Great Leap Forward

5. vouchers

Ba. Polish labor union established by Lech Walesa in

1980

b. China’s second Five-Year Plan

c. forced common ownership of all agricultural, indus-trial, and trading enterprises

d. certificates given or sold at very low prices and thenexchanged for shares of privatized companies

e. the conversion of state-owned factories and proper-ty to private ownership

f. market in which entrepreneurs and merchants sellgoods illegally


T HE VARIOUS FACES OF CAPITALISM

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Section Quizzes 61


6. All of the following have contributed to Japan’s rapid economic growth in the 1970s and 1980s EXCEPT

a. intense worker loyalty. b. the ability and willingness to develop new technology.

c. a high cost of living. d. a partially closed economy.

7. During the 1990s Japan experienced

a. unprecedented economic growth. b. unprecedented industrial growth.c. expansion in the banking field. d. stagnation and recession.

8. Prior to 1997, the most successful Asian Tiger was

a. Singapore. b. Taiwan.c. South Korea. d. Hong Kong.

9. The Asian Tiger with the smallest per capita GNP is

a. Singapore. b. Taiwan.c. South Korea. d. Hong Kong.

10. During the 1990s, Sweden

a. had a purely socialist economy. b. had a purely capitalist economy.c. retreated from socialism. d. retreated from capitalism.

SCORE

A1. keiretsu

2. infrastructure

3. collateral

4. transparency

5. Asian Tigers

Ba. property or other security used to guarantee repay-

ment of a loan

b. requiring a large amount of capital per person

c. a tightly knit group of Japanese firms governed byan external board of directors

d. Hong Kong, Singapore, Taiwan, and South Korea

e. network of public goods necessary to support alarge population

f. term for making business deals visible to everyone


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E CONOMIC DEVELOPMENT


6. Which of the following statements about developing countries is FALSE?

a. The international community helps developing countries because they believe it is their moral responsibility to help those who have less than they do.

b. The international community helps developing countries to ensure a stable supply of raw materials.c. The international community helps developing countries to promote particular political ideologies.d. The international community helps developing countries to prevent international trade competition.

7. The gap in per capita income between industrialized and developing countries

a. is the same as it has been for decades. b. is getting wider.c. is getting smaller. d. does not exist.

8. How is population an obstacle to economic development in developing countries?

a. The populations of many developing nations are too small to support healthy economies.b. The populations of many developing nations are too large for available resources to support.c. The populations of many developing nations are growing too slowly.d. The populations of many developing nations are shrinking rapidly.

9. All of the following are barriers to economic development in developing nations EXCEPT

a. limited natural resources. b. corruption in government.c. inadequate capital flight. d. war and its aftermath.

10. There are many developing countries in all of the following regions EXCEPT

a. North America. b. Africa.c. South America. d. Asia.

SCORE

A1. developing countries

2. zero population growth

3. capital flight

4. International Monetary Fund

5. World Bank

Ba. countries whose average per capita GNP is a fraction

of that in more industrialized countries

b. legal or illegal export of a nation’s currency and for-eign exchange

c. international corporation that makes loans and pro-vides financial assistance to developing countries

d. condition of balance between average number ofbirths and deaths

e. money borrowed from foreign banks and government

f. advises all nations on monetary and fiscal policies


A FRAMEWORK FOR DEVELOPMENT

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Section Quizzes 63


6. A country overcomes the barriers of primitive equilibrium and begins rapid economic growth. In whatstage of economic development is the country?

a. semidevelopment b. transitionc. takeoff d. high development

7. In what stage of development is the United States economy?

a. semidevelopment b. transitionc. takeoff d. high development

8. Which of the following is a World Bank recommendation that applies to both industrialized and develop-ing countries?

a. increase financial support b. improve the climate for free enterprisec. invest in people d. revise macroeconomic policies

9. All of the following are actions industrialized nations could take to help developing nations EXCEPT

a. reducing trade barriers. b. improving the climate for free enterprise.c. increasing financial support. d. supporting policy reforms.

10. All of the following are actions developing nations could take to help developing countries EXCEPT

a. increasing financial support. b. investing in the education and welfare of people.c. lowering trade barriers to promote d. revising macroeconomic policies.

international trade.

SCORE

A1. primitive equilibrium

2. takeoff

3. high development

4. semidevelopment

5. transition

Ba. final stage of economic development

b. fourth stage of economic development

c. second stage of economic development

d. sixth stage of economic development

e. third stage of economic development

f. first stage toward economic development


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F INANCING ECONOMIC DEVELOPMENT


6. For a developing country to improve economically, it must have

a. foreign investment. b. capital.c. loans from international agencies. d. soft loans from international agencies.

7. Which of the following economies developed by saving in a market economy?

a. Chile b. Cubac. China d. Hong Kong

8. The Organization of Petroleum Exporting Countries (OPEC) is an example of

a. a free-trade area. b. a cartel.c. a customs union. d. an international agency.

9. All of the following are examples of development with external funds EXCEPT

a. producing more than is consumed. b. attracting foreign private investment.c. obtaining assistance from industrialized d. borrowing from international agencies.

countries.

10. What is the world’s single largest market in terms of population and output?

a. the European Union b. the Organization of Petroleum Exporting Countries (OPEC)

c. North America d. the United States

SCORE

A1. expropriation

2. soft loans

3. free-trade area

4. customs union

5. cartel

Ba. group of producers or sellers who agree to limit the

production or sale of a product to control prices

b. agreement in which countries reduce trade barriersand tariffs among themselves

c. loans that may never be paid back

d. agreement in which countries abolish tariffs andtrade restrictions among themselves and adopt uni-form tariffs for nonmember countries

e. taking over of foreign property without payment

f. customs union consisting of European membernations


T HE GLOBAL DEMAND FOR RESOURCES

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Section Quizzes 65


6. Which statement best summarizes Malthus’s argument about population growth?

a. Population increases at a constant rate while resources increase geometrically.b. Population increases geometrically while resources decrease at a constant rate.c. Population increases geometrically while resources increase at a constant rate.d. Population increases geometrically while resources decrease geometrically.

7. When did Malthus publish his Essay on the Principles of Population?

a. 1698 b. 1798c. 1898 d. 1998

8. All of the following are nonrenewable energy sources EXCEPT

a. oil. b. coal.c. natural gas. d. solar power.

9. All of the following are renewable energy sources EXCEPT

a. nuclear energy. b. hydroelectric power.c. biomass. d. solar energy.

10. In general, interest in renewable sources of energy has

a. decreased in recent years. b. increased in recent years.c. been discouraged by the government. d. been encouraged by oil companies.

SCORE

A1. subsistence

2. nonrenewable resources

3. embargo

4. gasohol

5. aquifers

Ba. fundamental economic problem

b. state in which a population produces only enoughto support itself

c. underground water-bearing rock formations

d. fuel that is a mixture of 90 percent unleaded gaso-line and 10 percent ethanol

e. resources that cannot be replenished once they areused

f. restriction on the export or import of a commodityin trade


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66 Section Quizzes

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E CONOMIC INCENTIVES AND RESOURCES


6. In general, the price system

a. helps promote the conservation of b. is the reason resources are scarce.scarce resources.

c. must be regulated to conserve scarce d. controls the scarcity of resources.resources.

7. Which statement accurately describes the effects of deregulation of natural gas prices in the 1960s?

a. The price of natural gas increased. b. Exploration and production of natural gas increased.

c. Demand for natural gas decreased and d. all of the abovesupplies were conserved.

8. In general, businesses pollute

a. to damage the environment. b. to challenge government regulations.c. to lower production costs. d. to protest pollution taxes.

9. Government efforts to reduce pollution include all of the following EXCEPT

a. taxing pollution. b. legislating pollution standards.c. taking over polluting industries. d. issuing pollution permits.

10. According to an economist, what makes a resource scarce?

a. It is nonrenewable. b. The quantity demanded exceeds the quantity supplied.

c. It has a relatively high price. d. It is polluted.

SCORE

A1. glut

2. pollution

3. acid rain

4. pollution permits

5. pollution tax

Ba. contamination of air, water, or soil by the discharge

of poisonous or noxious substances

b. substantial undersupply

c. substantial oversupply

d. mixture of water and sulfur dioxide that makes amild form of sulfuric acid

e. tax companies pay according to the amount of pol-lutants they release

f. federal permits allowing public utilities to releasepollutants into the air


A PPLYING THE ECONOMIC WAY OF THINKING

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Section Quizzes 67


6. The National Council on Economic Education recommends that the last step in economic decision makingshould be to

a. determine the personal or broad social goals to be obtained.b. select the economic concepts needed to understand the problem and use them to appraise the merits

of each solution.c. decide which alternative best leads to the attainment of the most goals or the most important goal.d. state the problem or issue.

7. All of the following statements about cost-benefit analysis are true EXCEPT

a. firms use cost-benefit analysis when they make decisions to produce or purchase equipment.b. government agencies use cost-benefit analysis when they evaluate programs.c. individuals use cost-benefit analysis when they make decisions.d. economists use cost-benefit analysis when they decide what to write in textbooks.

8. Which economic system is best able to adapt to changing world conditions?

a. capitalism b. communism c. socialism d. traditional

9. Many countries have discovered that it is necessary to modify pure capitalism to

a. be ruthlessly efficient. b. be the only remaining economic system.c. satisfy economic goals. d. lessen its dominance in the world.

10. The study of economics is useful because

a. it offers a lot of information. b. it helps people become better decision makers.c. economists can earn good salaries. d. it can help students make good grades.

SCORE

A1. National Council on Economic Education

2. cost-benefit analysis

3. modified free enterprise economy

4. capitalism

5. marginal analysis

Ba. economic system that largely failed in the 1900s

b. comparing the costs of an action with its benefits

c. the dominant economic force in today’s world

d. important economic decision making tool thatexamines the costs and benefits at the margin

e. organization dedicated to the improvement of eco-nomic literacy in the United States

f. free enterprise economy with some governmentinvolvement


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Chapter 1

Section 1.1

1. d 6. b

2. b 7. a

3. a 8. d

4. f 9. b

5. c 10. c

Section 1.2

1. c 6. b

2. a 7. b

3. b 8. a

4. f 9. d

5. e 10. a

Section 1.3

1. d 6. a

2. e 7. b

3. a 8. d

4. b 9. d

5. c 10. a

Chapter 2

Section 2.1

1. d 6. d

2. b 7. d

3. a 8. b

4. e 9. b

5. f 10. b

Section 2.2

1. b 6. a

2. e 7. c

3. f 8. a

4. a 9. d

5. d 10. c

Section 2.3

1. f 6. d

2. c 7. a

3. a 8. d

4. d 9. a

5. b 10. b

Chapter 3

Section 3.1

1. a 6. a

2. e 7. a

3. b 8. b

4. d 9. d

5. f 10. b

Section 3.2

1. e 6. c

2. c 7. b

3. a 8. d

4. b 9. d

5. d 10. a

Section 3.3

1. c 6. a

2. f 7. d

3. d 8. b

4. a 9. d

5. e 10. b

Chapter 4

Section 4.1

1. e 6. a

2. a 7. b

3. c 8. d

4. f 9. a

5. b 10. d

Section 4.2

1. b 6. c

2. a 7. b

3. d 8. b

4. f 9. b

5. c 10. c

Section 4.3

1. e 6. a

2. a 7. c

3. f 8. d

4. c 9. b

5. b 10. c

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Section Quizzes 69

ANSWER KEY

Chapter 5

Section 5.1

1. d 6. d

2. a 7. b

3. c 8. a

4. b 9. c

5. f 10. a

Section 5.2

1. f 6. c

2. a 7. b

3. e 8. a

4. d 9. c

5. c 10. b

Section 5.3

1. a 6. c

2. d 7. a

3. b 8. c

4. f 9. d

5. e 10. b

Chapter 6

Section 6.1

1. e 6. c

2. b 7. d

3. a 8. a

4. f 9. d

5. d 10. a

Section 6.2

1. a 6. a

2. c 7. a

3. f 8. b

4. c 9. d

5. d 10. d

Section 6.3

1. e 6. c

2. b 7. d

3. c 8. b

4. d 9. a

5. a 10. d

Chapter 7

Section 7.1

1. b 6. a

2. d 7. c

3. a 8. c

4. f 9. b

5. e 10. d

Section 7.2

1. f 6. a

2. a 7. d

3. b 8. d

4. e 9. c

5. c 10. c

Section 7.3

1. d 6. c

2. b 7. b

3. e 8. a

4. a 9. d

5. c 10. d

Chapter 8

Section 8.1

1. c 6. d

2. e 7. d

3. f 8. b

4. a 9. b

5. d 10. a

Section 8.2

1. d 6. a

2. f 7. b

3. a 8. d

4. c 9. b

5. b 10. c

Section 8.3

1. c 6. b

2. a 7. d

3. f 8. b

4. d 9. a

5. b 10. c

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ANSWER KEY

Section 8.4

1. e 6. c

2. f 7. d

3. b 8. b

4. a 9. a

5. c 10. a

Chapter 9

Section 9.1

1. a 6. d

2. c 7. d

3. d 8. c

4. b 9. b

5. f 10. c

Section 9.2

1. c 6. b

2. e 7. c

3. a 8. d

4. d 9. a

5. b 10. b

Section 9.3

1. d 6. d

2. e 7. c

3. c 8. a

4. b 9. b

5. a 10. a

Section 9.4

1. f 6. c

2. a 7. b

3. e 8. c

4. b 9. a

5. d 10. c

Chapter 10

Section 10.1

1. b 6. b

2. f 7. b

3. a 8. d

4. e 9. a

5. d 10. d

Section 10.2

1. d 6. c

2. f 7. a

3. e 8. c

4. a 9. a

5. c 10. b

Section 10.3

1. c 6. b

2. d 7. d

3. a 8. c

4. f 9. c

5. b 10. d

Section 10.4

1. a 6. c

2. c 7. b

3. e 8. b

4. f 9. c

5. b 10. d

Chapter 11

Section 11.1

1. e 6. b

2. f 7. a

3. c 8. c

4. d 9. d

5. b 10. a

Section 11.2

1. b 6. b

2. f 7. d

3. a 8. c

4. c 9. a

5. e 10. d

Section 11.3

1. f 6. c

2. d 7. d

3. b 8. b

4. e 9. a

5. a 10. c

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Section Quizzes 71

ANSWER KEY

Chapter 12

Section 12.1

1. b 6. d

2. d 7. d

3. f 8. c

4. a 9. a

5. c 10. d

Section 12.2

1. d 6. d

2. f 7. b

3. c 8. a

4. b 9. c

5. a 10. c

Section 12.3

1. b 6. c

2. d 7. a

3. f 8. c

4. e 9. d

5. a 10. b

Chapter 13

Section 13.1

1. c 6. a

2. b 7. d

3. a 8. a

4. f 9. b

5. d 10. c

Section 13.2

1. e 6. a

2. d 7. b

3. c 8. b

4. b 9. c

5. f 10. b

Section 13.3

1. a 6. d

2. d 7. b

3. b 8. c

4. f 9. a

5. e 10. b

Section 13.4

1. c 6. b

2. d 7. a

3. b 8. c

4. a 9. d

5. e 10. a

Chapter 14

Section 14.1

1. f 6. d

2. b 7. b

3. a 8. c

4. c 9. b

5. e 10. c

Section 14.2

1. c 6. c

2. d 7. d

3. b 8. c

4. e 9. a

5. f 10. d

Section 14.3

1. b 6. d

2. d 7. c

3. f 8. c

4. a 9. c

5. e 10. c

Section 14.4

1. d 6. b

2. f 7. a

3. b 8. a

4. a 9. d

5. d 10. c

Chapter 15

Section 15.1

1. b 6. a

2. a 7. c

3. e 8. d

4. d 9. d

5. c 10. a

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72 Section Quizzes

ANSWER KEY

Section 15.2

1. e 6. b

2. a 7. a

3. f 8. a

4. b 9. d

5. d 10. c

Section 15.3

1. b 6. c

2. d 7. a

3. a 8. b

4. f 9. d

5. c 10. b

Chapter 16

Section 16.1

1. d 6. b

2. e 7. a

3. f 8. b

4. a 9. d

5. c 10. c

Section 16.2

1. f 6. c

2. d 7. b

3. b 8. b

4. c 9. c

5. a 10. b

Section 16.3

1. c 6. c

2. a 7. b

3. f 8. b

4. e 9. d

5. b 10. a

Section 16.4

1. a 6. d

2. d 7. d

3. b 8. b

4. e 9. a

5. c 10. a

Chapter 17

Section 17.1

1. d 6. b

2. b 7. c

3. e 8. c

4. c 9. a

5. f 10. b

Section 17.2

1. b 6. c

2. c 7. c

3. e 8. d

4. a 9. a

5. f 10. b

Section 17.3

1. f 6. a

2. a 7. a

3. c 8. c

4. e 9. a

5. d 10. d

Chapter 18

Section 18.1

1. d 6. b

2. e 7. c

3. b 8. a

4. a 9. a

5. c 10. d

Section 18.2

1. b 6. b

2. d 7. c

3. f 8. b

4. a 9. d

5. c 10. c

Section 18.3

1. e 6. b

2. a 7. d

3. f 8. c

4. b 9. c

5. d 10. a

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Section Quizzes 73

ANSWER KEY

Section 18.4

1. c 6. c

2. e 7. d

3. a 8. d

4. f 9. c

5. d 10. c

Chapter 19

Section 19.1

1. a 6. d

2. d 7. b

3. b 8. b

4. f 9. c

5. c 10. a

Section 19.2

1. f 6. c

2. e 7. d

3. a 8. d

4. b 9. b

5. c 10. a

Section 19.3

1. e 6. b

2. c 7. d

3. b 8. b

4. d 9. a

5. a 10. a

Chapter 20

Section 20.1

1. b 6. c

2. e 7. b

3. f 8. d

4. d 9. a

5. c 10. b

Section 20.2

1. c 6. a

2. a 7. d

3. d 8. b

4. f 9. c

5. e 10. b

Section 20.3

1. e 6. c

2. b 7. d

3. f 8. a

4. c 9. c

5. d 10. b

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Section Quizzes 75

Teacher’s Notes

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Teacher’s Notes

Quizes Economics

Documents

turned popular opinion

vladimir ilyich lenin

sherman antitrust act

clayton antitrust act

changing consumer tastes

wage andincome earners

intangible personal property

population increases geometrically