Multiple Choice Answers

Question 1
Which statement is true?
A. A depression followed both World War I and World War II.
B. A depression followed neither World War I nor World War II.
C. A depression followed World War I, but not World War II.
D. A depression followed World War II but not World War I.
Question 2
There was full employment in:
A. 1929 and 1942.
B. neither 1929 nor 1942.
C. 1929 only.
D. 1942 only.
Question 3
Between 1939 and 1944 our national output:
A. rose by 50%.
B. nearly doubled.
C. rose by 150%.
D. nearly tripled.
Question 4
The early 1930s was a period of:
A. inflation and deflation.
B. neither inflation nor deflation.
C. inflation.
D. deflation.

Question 5
The name of Andrew Carnegie is most closely associated with the __________ industry.
A. steel
B. rubber
C. meatpacking
D. chemical
Question 6
The transcontinental railroads were completed in the 25 years:
A. before the Civil War.
B. after the Civil War.
C. after 1890.
D. after the 20th century began.
Question 7
The term “the affluent society” was coined by:
A. Michael Harrington.
B. John Kenneth Galbraith.
C. Karl Marx.
D. Adam Smith.
Question 8
In order to raise our rate of economic growth we would need to:
A. increase the level of labor or capital.
B. reduce the level of labor.
C. spend more on military goods.
D. spend more on consumer goods.
Question 9
Human wants are:
A. relatively limited.
B. relatively unlimited.
C. easily satisfied.
D. about equal to our productive capacity.
Question 10
Whom of the following is NOT an entrepreneur?
A. Henry Ford (Ford Motor Company)
B. Tim Berners-Lee (creator of the World Wide Web)
C. John David Rockefeller (Standard Oil)
D. Bill Gates (Microsoft)
Question 11
Which of the following is an example of capital?
A. Money in a Swiss bank account
B. A bulldozer
C. A CD by Metallica
D. A Dracula costume for Halloween
Question 12
Tommy spends most of his monthly budget on $3 video game rentals or $6 packets of Pokemon cards. The opportunity cost to Tommy of an extra packet of Pokemon cards is:
A. one video game rental.
B. two video game rentals.
C. the cost of the Pokemon cards.
D. zero.
Question 13
The invisible hand is:
A. perfect competition.
B. the profit motive.
C. government direction.
D. the mixed economy.

Question 14
Hitler’s Germany was an example of a __________ economic system.
A. Capitalist
B. Fascist
C. Communist
D. Socialist
Question 15
Karl Marx said that:
A. whoever controls a society’s capital controls that society.
B. in the long run capitalism would survive.
C. the U.S.S.R.’s communist system was “state capitalism.”
D. capitalists and workers generally have the same economic interests.
Question 16
Private ownership of most of the means of production is common to:
A. capitalism and communism.
B. capitalism and fascism.
C. capitalism and socialism.
D. fascism and communism.
Question 17
Sweden and Norway would best be described as __________ countries.
A. Capitalist
B. Fascist
C. Communist
D. Socialist
Question 18
At equilibrium, quantity demanded __________ equals quantity supplied.
A. always
B. usually
C. sometimes
D. never
Question 19
When the market price is higher than the equilibrium price, there is:
A. a surplus.
B. a shortage.
C. both a shortage and a surplus.
D. neither a shortage nor a surplus.
Question 20
A decrease in demand means that quantity demanded falls:
A. at least one price.
B. at a few prices.
C. at most prices.
D. at all prices.
Part 2
Question 1
The largest component of GDP is:
A. net exports.
B. investment.
C. consumption.
D. government purchases.
Question 2
The consumption function:
A. is a relationship between annual consumption and annual disposable income in an economy.
B. will shift upward if aggregate household wealth declines.
C. implies that annual consumption in an economy will be zero if disposable income is zero.
D. is a flat line with zero slope.

Question 3
(Some Data is missing here)
How much is autonomous consumption when disposable income is $800 billion?
A. $0
B. $2 Trillion
C. $4 Trillion
D. $6 Trillion
Question 4
Autonomous consumption is NOT influenced by:
A. aggregate household wealth.
B. expectations of future income and wealth.
C. aggregate household debt.
D. disposable income.
Question 5
The lunch you buy in your school cafeteria is classified as:
A. a consumer durable.
B. a consumer nondurable.
C. a service.
D. either a consumer nondurable or a service because it fits into both categories.
Question 6
Which one of these would NOT constitute investment?
A. Someone buys 100 shares of Exxon-Mobil
B. Exxon-Mobil purchases 20 new oil rigs
C. General Motors builds a new assembly plant
D. Macy’s remodels its stores
Question 7
Net investment:
A. plus depreciation equals gross investment.
B. minus depreciation equals gross investment.
C. equals gross investment plus depreciation.
D. plus gross investment equals depreciation.
Question 8
In the Islamic Middle East inheritance laws were:
A. designed to keep land in units large enough to sustain a family.
B. conducive to the formation of accumulation of capital.
C. designed to easily and quickly divide up partitioned goods.
D. flexible enough to accommodate new economic conditions.
Question 9
Investment includes the purchase of:
A. stock options of Enron.
B. software by an accounting firm.
C. global positioning units for cruise missiles by the government.
D. new chalk by a local school board.
Question 10
The most important reason that corporations developed in Western Europe earlier than in the Middle Eastern countries was because of:
A. the type of business.
B. religious differences.
C. the transportation system.
D. the stages of economic development.
Question 11
The largest source of federal tax revenue comes from:
A. individual income taxes.
B. social insurance receipts.
C. corporation income taxes.
D. excise taxes.

Question 12
The Social Security tax is: regressive
A. direct and progressive.
B. direct and regressive.
C. indirect and progressive.
D. indirect and regressive.
Question 13
An excise tax is a(n):
A. tax on earnings.
B. tax on profits.
C. income tax.
D. sales tax.
Question 14
Which of the following is a transfer payment?
A. The president’s salary
B. Veterans’ benefits
C. The NASA budget
D. Provision of national parks
Question 15
An example of a tax that is generally regarded to be progressive is the:
A. federal income tax.
B. excise tax on gasoline.
C. state sales tax.
D. payroll tax.
Question 16
The most-favored nation clause of the WTO agreement stipulates that:
A. no member nation may impose a tariff on the goods of any other member nation.
B. all member nations must offer all other member countries the same trade concessions as any other member country.
C. each member may designate another member as a favored nation, providing that nation with trade concessions.
D. all member nations must sell their goods to other member nations at cost.
Question 17
If more foreign tourists visited the United States, this would:
A. lower our merchandise trade imbalance.
B. lower our overall trade imbalance.
C. raise our merchandise trade imbalance.
D. raise our overall trade imbalance.
Question 18
Each of the following is a characteristic of the European Union EXCEPT that:
A. workers from any EU country could seek work in any other member country.
B. is the fourth largest integrated market.
C. its population and GDP are comparable to those of the United States.
D. freight is able to move anywhere within the EU without checkpoint delays and paperwork.
Question 19
The trading bloc that has eliminated all internal tariffs is:
A. the European Union.
C. Mercosur.
D. The World Trade Organization.
Question 20
Which statement is true?
A. Since the early 1990s the U.S. trade deficit has risen slightly.
B. Net exports has always been positive.
C. The U.S. exports more services than merchandise (in terms of dollars).
D. The U.S. balance of trade was positive for most of the 20th century.
Question 1
At equilibrium GDP:
A. savings = investment, but aggregate demand does not equal aggregate supply.
B. savings = investment and aggregate demand = aggregate supply.
C. savings does not equal investment and aggregate demand does not equal aggregate supply.
D. savings does not equal investment, but aggregate demand = aggregate supply.
Question 2
Say’s law states that:
A. we can have inflation or a recession, but never both at the same time.
B. the normal state of economic affairs is a recession.
C. demand creates its own supply.
D. supply creates its own demand.
Question 3
Each of the following supports the classical theory of employment EXCEPT:
A. Say’s law.
B. wage-price flexibility.
C. the interest mechanism.
D. government spending programs.
Question 4
To fight a depression, Keynes said that the government should:
A. do nothing.
B. raise taxes.
C. spend money on carefully chosen projects.
D. spend a lot of money.
Question 5
Classical economists believed that:
A. if saving exceeded investment, prices and interest rates would rise as business accumulated unwanted inventories.
B. flexible prices and wages could not restore an economy to full employment if the interest rate were rigid.
C. our economy was either at, or tended toward full employment.
D. voluntary unemployment reflected economic inefficiency.
Question 6
The amount of real output that will be made available by sellers at various price levels is called the:
C. aggregate supply.
D. real balance effect
Question 7
The principal cause of the Great Depression of the 1930s was a collapse in:
A. aggregate demand.
B. aggregate supply.
C. the average price level.
D. government spending.
Question 8
The aggregate demand curve shows a(n):
A. positive relationship between prices and quantities.
B. inverse relationship between the price level and the aggregate quantity demanded.
C. independent relationship between the price level and the aggregate quantity demanded.
D. inverse relationship between the product price and the quantity of a good demanded.
Question 9
When aggregate supply exceeds aggregate demand:
A. explosive inflations occur.
B. the economy is in disequilibrium.
C. planned saving will equal planned investment.
D. inventories rise.
Question 10
Keynes’s analysis of the Great Depression led to which of the following recommendations regarding government policy?
A. An annually balanced budget
B. A decrease in government spending
C. An increase in government spending
D. An increase in taxes
Question 11
Budget deficits are appropriate during:
A. recessions, but not inflations.
B. inflations, but not recessions.
C. recessions and inflations.
D. neither recessions nor inflations.
Question 12
Each of the following is an example of discretionary fiscal policy EXCEPT:
A. public works spending.
B. making the automatic stabilizers more effective.
C. changes in tax rates.
D. the unemployment insurance program.
Question 13
During recessions:
A. savings rise.
B. corporations pay much less corporate income taxes.
C. less people collect unemployment benefits.
D. the government will raise taxes and run a budget surplus.
Question 14
In the 1930s, John Maynard Keynes said that our main economic problem was:
A. weak aggregate demand.
B. too much government spending.
C. big budget deficits.
D. high interest rates.
Question 15
According to __________, deficits cause crowding-out.
A. the federal government
B. keynesians
C. monetarists
D. classical theorists
Question 16
A deficit is created when:
A. the government is taking in more than it is paying out.
B. there are lower taxes and higher government spending.
C. the government is paying out more than it is taking in.
D. government spending is predominantly overseas.
Question 17
When government expenditures in a given year exceed tax receipts, there exists:
A. a budget surplus.
B. a budget deficit.
C. public revenue.
D. full-employment taxation.

Question 18
An illustration of the term “automatic stabilizer” is provided by:
A. the tendency of tax collections to rise as the economy moves into a recession.
B. the tendency of tax collections to fall as the economy moves into a recession.
C. increases in tax rates as the economy moves into a recession.
D. decreases in tax rates as the economy moves into a recession.
Question 19
The multiplier effect occurs because:
A. as saving levels increase, a greater pool of loanable funds is available for investment spending by businesses.
B. increases in income cause a chain reaction of spending by many businesses and individuals.
C. increases in income cause tax revenues to increase, thereby stimulating increases in government spending levels.
D. businesses copy the spending decisions of their competitors.
Question 20
Which of the following is NOT an example of a fiscal policy lag?
A. Decision
B. Monetary
C. Impact
D. Deficit
Part 6
Question 1
Precautionary cash balances:
A. are invested in insurance policies by people who are highly risk-averse.
B. were emphasized by classical writers on monetary theory.
C. are intended primarily for unexpected expenditures.
D. grow when individuals acquire personal lines of credit.
Question 2
Money is NOT:
A. a medium of exchange.
B. a standard of value.
C. a store of value.
D. the exclusive means of holding wealth.
Question 3
The first bankers were:
A. goldsmiths.
B. printers.
C. storekeepers.
D. innkeepers.
Question 4
One of the main results of the Depository Institutions Deregulation and Monetary Control Act of 1980 may be to:
A. lessen the number of financial institutions in the United States.
B. increase the number of financial institutions in the United States.
C. discourage the formation of big, nationwide, all-purpose financial institutions.
D. make it easier for the member banks to borrow money from the Federal Reserve District Banks.
Question 5
Commercial banks are required by law to hold reserves. These reserves are specified as percentages of a bank’s:
A. total assets.
B. total liabilities.
C. checkable deposit liabilities.
D. holdings of government securities.
Question 6
Foreigners, especially __________, consider American dollars, particularly one hundred dollar bills, as a much better medium of exchange and standard of value than there owns currencies.
A. Germans
B. Brazilians
C. Asians
D. Russians
Question 7
Barter involves:
A. money.
B. specialization.
C. a double coincidence of wants.
D. demand deposits.
Question 8
The largest United States bank in 2008 was:
A. BankAmerica.
B. Citigroup.
C. J.P. Morgan Chase.
D. Security Pacific.
Question 9
Which is NOT a job of the Federal Reserve?
A. Check clearing
B. Issuing currency
C. Insuring bank deposits
D. Controlling the rate of growth of the money supply
Question 10
The Federal reserve Board has the power to change reserve requirements within legal limits. The limits for checkable deposits are between __________ percent.
A. 8 and 14
B. 10 and 12
C. 15 and 20
D. 6 and 8

Question 11
When the Fed engages in a tight money policy, the price of government bonds tend to:
A. fall.
B. rise.
C. remain constant.
D. move in the same direction as the bonds’ market interest rate return.
Question 12
Passage of the Depository Institutions Deregulation and Monetary Control Act of 1980:
A. created uniform reserve requirements for all financial institutions.
B. resulted in an increase in the number of financial institutions in the United States.
C. discouraged the formation of big, nationwide, all-purpose financial institutions.
D. meant that vault cash would no longer count toward bank reserves.
Question 13
Lowering tax rates was the main priority of the:
A. classicals.
B. Keynesians.
C. monetarists.
D. supply-siders.
Question 14
Which of the following theories of expectations holds that individuals use all information available in forming expectations?
A. Rational expectations theory
B. Certainty equivalent theory
C. Expected value analysis
D. Adaptive expectations theory
Question 15
Which of the following would be most likely to suggest reducing the money supply as a way to end a prolonged inflation?
A. Monetarist
B. Keynesian
C. Economic behaviorists
D. Classical economist
Question 16
The only school of economics that could be construed as advocating big government are the:
A. classicals.
B. Keynesians.
C. monetarists.
D. supply-siders.
Question 17
Which is the most accurate statement?
A. The quantity theory of money and the equation of exchange are two ways of saying exactly the same thing.
B. The crude quantity theory of money very accurately describes the relation between the money supply and the price level.
C. According to the crude quantity theory, Q and V are constants.
D. One of our main economic problems has been that the equation of exchange has not been balanced.
Question 18
Proponents of the monetarist approach to economic stabilization think that the growth of the money supply should be approximately equal to the:
A. prime rate.
B. long-term average growth of real output.
C. real interest rate.
D. growth of federal expenditures.
Question 19
A conclusion of the theory of rational expectations is that the impact of discretionary fiscal policies designed to shift the aggregate demand curve will:
A. result in no net change in aggregate demand.
B. be anticipated and compensated for, causing no significant change in real GDP or employment levels.
C. be completely opposite of the intended result.
D. be incorrectly evaluated by most economists.
Question 20
According to the classical economists, if the quantity of money that people wanted to save was greater than the amount that people wanted to invest:
A. there would be a recession.
B. there would be inflation.
C. the interest rate would fall.
D. the interest rate would rise.
Part 7
Question 1
Virtually all LDCs spend a major part of their budgets on
A. medical care.
B. family planning programs.
C. implementing improved technology.
D. armaments.
Question 2
Leaders in the lower level underdeveloped countries can enhance per capita income by
A. providing better health care
B. encouraging citizens to leave the cities and enter agricultural production
C. encouraging smaller families
D. implementing a social security program
Question 3
In 2006, which one of these would have been considered the poorest country in the world?
A. Liberia
B. Ethiopia
C. Burundi
D. Nigeria
Question 4
Which statement is true?
A. Because of their large populations, India and China have relatively high per capita GDPs
B. The only way to industrialize is to build up capital in the form of new plant and equipment.
C. The NICs have the highest per capita GDPs in the world.
D. We find GDP per capita by dividing GDP into population.
Question 5
Which statement is true about the Malthusian theory?
A. It predicts that famine can easily be averted.
B. It is an application of the law of diminishing returns.
C. It is unduly optimistic.
D. It has proven true in most countries.
Question 6
The age of mass consumption truly arrived in the
A. 1950s
B. 1920s
C. 1930s
D. 1960s
Question 7
Each of the following would be an example of technological change, except
A. increases in output due to increases in capital.
B. improvements in the qualities of resources.
C. improved knowledge about how to combine resources.
D. the introduction of totally new production processes.
Question 8
Through the 1970s and 1980s most of our productivity was in the _________ sector.
A. services
B. agriculture
C. manufacturing
D. technology
Question 9
Which of the following would not be expected to increase labor productivity?
A. Technological advance
B. The acquisition of more education and training by the labor force
C. An increase in the size of the labor force
D. The realization of economies of scale
Question 10
According to Thomas Robert Malthus, the wage rate would be depressed to the subsistence level because of
A. the power of monopolies.
B. the desire of capitalists to exploit the working class.
C. the natural tendency of population to grow more rapidly than the production of food.
D. the long-run downward trend in investment.
Question 11
The lowest the poverty rate during the last 40 years was in
A. 1960.
B. 1988.
C. 1973.
D. 1979.
Question 12
Charles Murray believed that the antipoverty programs of the 1960s and 1970s
A. drastically reduced the level of poverty.
B. slightly reduced the level of poverty.
C. had no impact on the level of poverty.
D. caused more poverty.
Question 13
William Julius Wilson believes that the rise of black urban poverty was caused by each of the following except
A. the rise of welfare dependency.
B. racism.
C. the decline of smokestack industries.
D. the exodus from the ghettos of the black middle and working classes.
Question 14
Between 1994 and 2005 our welfare rolls
A. rose sharply.
B. stayed about the same.
C. declined somewhat.
D. declined sharply.
Question 15
A study by Kathryn Edin and Laura Lein found that
A. virtually all single mothers—whether working or receiving public assistance—had to supplement their income with money from relatives, boyfriends, or the absent father of their children.
B. most welfare families lived very comfortably on their public assistance checks, supplemented by Medicaid, public housing, and food stamps.
C. only half the number of Americans officially below the poverty line were actually poor.
D. government assistance hurt the poor much more than it helped the poor.
Question 16
The conservative theory of poverty blames _____ for welfare dependency.
A. the poor
B. the government
C. both the poor and the government
D. neither the poor nor the government
Question 17
Which group has the highest poverty rate from among these groups?
A. Children under 18
B. Persons over 65
C. White males
D. Members of working class families
Question 18
_________________ breeds poverty.
A. joblessness
B. poverty
C. discrimination
D. welfare
Question 19
The biggest anti-poverty program in the United States is
A. public assistance payments.
B. unemployment insurance benefits.
C. Social Security benefits.
D. the negative income tax.
Question 20
Almost half of the world’s population lives on less then _______ dollar(s) per day.
A. one
B. five
C. two
D. three
Part 8
Question 1
If we restrict our imports:
A. a greater tariff will be imposed.
B. our exports will decline.
C. we would have very little support from economists.
D. we would definitely solve all our trade problems.
Question 2
A hollow corporation:
A. makes goods abroad and ships them to the United States.
B. makes goods in the United States and ships them abroad.
C. imports foreign goods and puts its own name on them.
D. makes goods in the United States and has them sold abroad under another company’s name.
Question 3
The economics profession nearly unanimously backs:
A. a balance of trade deficit.
B. budget surpluses.
C. budget deficits.
D. free trade.
Question 4
When only a specified amount of a good can be imported into a country during a year, that good is subject to a(n):
A. subsidy.
B. tariff.
C. quota.
D. export restriction.
Question 5
At the core of the American trade problem is that:
A. Americans spend too much on consumption.
B. the dollar is too low.
C. the Japanese are excluding American products by means of high protective tariffs.
D. American manufacturers are too quality conscious and should instead concentrate on reducing costs.
Question 6
The principle of comparative advantage:
A. applies only when the gold standard is in effect.
B. is the basic reason that the United States has been running trade deficits.
C. states that it is advantageous to export more than you import.
D. states that total output is greatest when each product is made by the country that has the lowest opportunity cost.
Question 7
The least applicable argument for protection of U.S. industry against foreign competition is the __________ argument.
A. national security
B. infant industry
C. low wage
D. employment
Question 8
The Chinese economic expansion since the early 1980s and the Japanese economic expansion from the late 1940s through the 1980s were:
A. virtually identical.
B. both dependent on the American market.
C. based in the economic principles of Karl Marx.
D. based on closing their domestic markets to American goods and services.
Question 9
Tariffs and quotas result in:
A. a rise in the price that consumers in the importing country must pay.
B. an over allocation of resources to relatively efficient industries.
C. an increase in the foreign demand for domestically produced goods.
D. an under allocation of resources to relatively inefficient industries.
Question 10
Who does NOT gain when a tariff is imposed?
A. Domestic producers of the good
B. Domestic workers in the protected industry
C. Domestic consumers of the good
D. Domestic suppliers in the protected industry
Question 11
Since 1900, international finance has been based on all of these EXCEPT:
A. the gold standard.
B. the silver standard.
C. fixed exchange ratios.
D. freely floating exchange rates.
Question 12
A U.S. importer of French wine would pay in:
A. dollars.
B. gold.
C. euros.
D. special drawing rights.
Question 13
Depreciation of the dollar relative to the yen means that the:
A. dollar price of the yen has fallen.
B. yen prices of Japanese goods have increased to the Japanese.
C. dollar prices of imported goods from Japan have increased.
D. yen are less expensive to Americans.
Question 14
Appreciation of the euro relative to the dollar means that the:
A. dollar price of the euro has fallen.
B. euro price of gold has risen.
C. euro prices of U.S. goods exported to the nation’s that adopted the euro as its currency have fallen.
D. euro is cheaper for Americans.
Question 15
Which statement is true?
A. The U.S. is both the world’s leading creditor nation and the leading debtor nation.
B. The U.S. is neither the world’s leading creditor nation nor the world’s leading debtor nation.
C. The U.S. is the world’s leading creditor nation and not the world’s leading debtor nation.
D. The U.S. is the world’s leading debtor nation and not the world’s leading creditor nation.
Question 16
If the foreign exchange rate of $1 is equivalent to 5 Swiss francs, then 1 Swiss franc is worth:
A. $5.
B. 50 cents.
C. 20 cents.
D. 5 cents.
Question 17
Under a system of freely flexible (floating) exchange rates an American trade deficit with Mexico will tend to cause:
A. the United States government to ration pesos to American importers.
B. a flow of gold from the United States to Mexico.
C. an increase in the peso price of dollars.
D. an increase in the dollar price of pesos.
Question 18
The demise of the gold standard led to:
A. more international trade.
B. greater and greater devaluation.
C. freely floating exchange rates.
D. balance-of-payment surpluses.
Question 19
The summary of the flows of goods, services, assets, and currency in and out of a country in a particular year is the:
A. balance of income statement.
B. balance of payments.
C. balance of trade.
D. trade deficit.