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ECO 405 Week 11 Quiz – Strayer University New

ECO/405 Week 11 Quiz – Strayer

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Quiz 10 Chapter 14 and 15

Government Spending, Taxation, And The National Debt: Who Wins And Who Loses?

Multiple Choice Questions

1. The Fears Of People Concerning The Size Of Government Are
A. Always Without Any Foundation
B. Well-Founded In Some Instances And Not Well-Founded In Some Instances
C. Difficult To Appreciate
D. Due To Low Income And Low Educational Levels Of Many People
E. Based Solely On Economic Efficiency

2. The Fears Of People Concerning Distribution Of Taxes Are Related To
A. Equity Or Justice In Taxation
B. Ample Evidence That There Are Tax Inequities In The Tax System At All Levels Of Government
C. The Complete Lack Of Understanding That People Have About The Purpose Of Taxes
D. Both (A) And (B)
E. All Of The Above

3. Total Government Expenditures Currently Represent Approximately What Percentage Of Gdp?
A. 20%
B. 30%
C. 40%
D. 50%
E. 10%

4. A Cash Payment From The Government To An Individual, Based On Need, Is An Example Of A
A. Transfer Payment
B. Government Purchase Of A Service
C. Government Purchase Of A Good
D. Transaction Payment
E. Government Receipt

5. A Payment From The Government To A Federal Employee Is A
A. Transfer Payment
B. Government Purchase Of A Service
C. Government Purchase Of A Good
D. Transaction Payment
E. Government Receipt

6. An Efficient Level Of Government Expenditures Is That Level Where
A. Total Costs Are Minimized
B. Total Benefits Are Maximized
C. Marginal Benefits Are Equal To Marginal Costs
D. Marginal Benefits Are Greater Than Marginal Costs
E. Marginal Benefits Are Less Than Marginal Costs

7. Public Goods And Services Have Characteristics That Make Them
A. Possible To Exclude People From Consuming Them
B. Less Available For One Person When Another Consumes Them
C. Easy To Provide Through Private Markets
D. All Of The Above
E. None Of The Above

8. The Size Of Government Is Growing At
A. A Slower Rate Than The Rest Of The Economy
B. Approximately The Same Rate As The Rest Of The Economy
C. A Faster Rate Than The Rest Of The Economy
D. Twice The Rate Of The Rest Of The Economy
E. A Negative Rate

9. Assuming Negative Externalities In Production, The Type Of Government Action That Could Bring About An Efficient Level Of Production Would Be
A. A Tax Levied On Each Unit Produced Equal To Marginal External Costs
B. A Tax Levied On Each Unit Produced Greater Than Marginal External Costs
C. A Subsidy To Consumers Equal To Marginal External Benefits
D. A Subsidy To Consumers Greater Than Marginal External Benefits
E. None Of The Above

10. Assuming Positive Externalities In Consumption, The Type Of Government Action That Could Bring About An Efficient Level Of Production Would Be
A. A Tax Levied On Each Unit Produced Equal To Marginal External Costs
B. A Tax Levied On Each Unit Produced Greater Than Marginal External Costs
C. A Subsidy On Each Unit Consumed Equal To Marginal External Benefits
D. A Subsidy On Each Unit Consumed Greater Than Marginal External Benefits
E. None Of The Above

11. Shifting Income From Those Who Are Relatively Productive To Those Who Are Relatively Unproductive, Say Through Taxes And Subsidies, Must Be Based On
A. Sound Economic Principles
B. The Laws Of Demand And Supply
C. The Values Of People As To What Constitutes A “Fair” Distribution Of Income
D. Marginal Cost And Marginal Benefit
E. Both (A) And (D)

12. A National Crime Lab Used To Prevent Criminal Activity Nationwide Is An Example Of A
A. Negative Externality
B. Positive Externality
C. Transfer Payment
D. Public Good
E. Private Good

13. Tax Equity Means That
A. All People Should Pay Equal Taxes
B. Only The “Rich” Should Pay Taxes
C. People In The Same Economic Circumstances Should Pay Equal Taxes, And People In Different Economic Circumstances Should Pay Unequal Taxes
D. The Distribution Of Income After Taxes Should Be Equal
E. None Of The Above

14. An Efficient Tax Would Be A Tax For Which
A. The Excess Burden” From Taxes Is Zero
B. Taxes Should Have A Neutral Effect On The Operation Of The Economy
C. Taxes Should Be Levied At Progressive Rates
D. (A) And (B)
E. All Of The Above

15. According To The Equimarginal Principle, The Efficient Level Of Government Expenditures Occurs When The Benefit Of The Last Dollar Spent For Each Government Purchase Is
A. Greater Than The Benefit Of The Last Dollar Spent In The Private Sector
B. Less Than The Benefit Of The Last Dollar Spent In The Private Sector
C. Equal To The Benefit Of The Last Dollar Spent In The Private Sector
D. Paid For Out Of Current Tax Collections
E. None Of The Above

16. An Efficient Level Of Government Expenditures Is That Level At Which
A. Marginal Benefits Exceed Marginal Costs
B. Total Benefits Equal Total Costs
C. The Net Benefits To Society Are Maximized
D. The Total Costs Are Minimized
E. None Of The Above

17. Where Marginal Benefits Are Greater Than The Marginal Costs, Government Expenditures Should
A. Be Increased
B. Remain The Same
C. Be Decreased Then Increased To Their Original Level
D. Be Increased Then Decreased To Their Original Level
E. Do None Of The Above

18. Characteristics Of Public Goods And Services Include Which Of The Following?
A. The Demand For These Goods And Services Is Divisible On The Basis Of Individual Quantity Demanded
B. The Supply Of These Goods And Services Is Generally Not Divisible Into Small Units
C. These Goods And Services Are Easily Provided By The Market System
D. The Costs Of These Goods Fall On Other Than The Buyer
E. None Of The Above

19. Which Of The Following Is An Example Of A Public Good Or Service?
A. A Public Highway
B. Free Cheese Offered By The Government
C. Food Stamps
D. Social Security
E. Automobiles

Questions 20 – 24 Refer To The Graph Below.

20. Assuming No External Benefits Or Costs, The Efficient Price And Quantity Would Be
A. P2, Q2
B. P2, Q1
C. P1, Q1
D. P0, Q0
E. P0, Q2

21. Suppose There Are External Benefits Associated With The Production Of The Good. The Efficient Price And Quantity Are
A. P2, Q2
B. P2, Q1
C. P1, Q1
D. P0, Q0
E. P0, Q2

22. If External Benefits Are Associated With The Consumption Of The Good, Consumers Could Be Induced To Purchase The Efficient Quantity If The Price Were Set At
A. P2
B. P1
C. P0
D. 0
E. None Of The Above

23. To Assure Consumers Purchase The Efficient Quantity When There Are Positive External Benefits, The Government Would Lower Price To
A. P2
B. P1
C. P2- P1
D. P0- P1
E. P0

24. Marginal External Benefits Are Represented On The Graph As The Distance
A. Ab
B. Q2a
C. Ea
D. Cf
E. Af

25. Which Of The Following Is The Major Tax Source Of The Federal Government?
A. Income Taxes
B. Excise Taxes
C. Property Taxes
D. Wealth Taxes
E. Sales Taxes

26. A Progressive Tax Rate Means That The Ratio Of Tax Collections To Income
A. Falls As Income Rises
B. Rises As Income Rises
C. Remains The Same As Income Rises
D. Either (A) And (B)
E. May Fall, Rise, Or Remain The Same As Income Rises

27. In The Us, Major Sources Of Tax Revenues Are:
A. Income Taxes At The Federal Level, Property Taxes At The State Level
B. Sales Taxes At The Federal Level And Income Taxes And Property Taxes At The State Level
C. Income Taxes At The Federal Level And Income And Sales Taxes At The State Level
D. Income Taxes At The Federal Level And Payroll Taxes At The State Level

28. The Ability To Pay The Principle Of Taxation Suggests That People With More Income Should Pay More Taxes. This Means That
A. Progressive Income Rates Are Consistent With The Ability To Pay Principle
B. Proportional Income Rates Are Consistent With The Ability To Pay Principle
C. Regressive Income Rates May Or May Not Be Consistent With The Ability To Pay Principle Depending On The Rate Of Regression
D. Sales Taxes Are Consistent With The Ability To Pay Principle
E. None Of The Above

Questions 29 – 33 Refer To The Graph Below.

29. The Demand Curve For This Product Can Be Described As
A. Perfectly Elastic
B. Perfectly Inelastic
C. Unitary Elastic
D. Hyper Elastic
E. Price Elastic

30. Given Demand Curve D, If An Output Tax Per Unit Of P- P2 Is Levied On This Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. It Can Not Be Determined

31. Which Of The Following Shifts Represents The Effect Of An Output Tax Levied On This Good?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above

32. Which Of The Following Shifts Represents The Effect Of A Tax On This Good Levied Independent Of Output?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above

33. Given Demand Curve D, If A Tax Independent Of Output Is Levied On This Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. Cannot Be Determined

Questions 34 – 38 Refer To The Graph Below.

34. The Demand Curve For This Product Can Be Described As
A. Perfectly Elastic
B. Perfectly Inelastic
C. Unitary Elastic
D. Hyper Elastic
E. Price Elastic

35. Given Demand Curve D, If An Output Tax Per Unit Of P- P1 Is Levied On This Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. Cannot Be Determined

36. Which Of The Following Shifts Represents The Effect Of An Output Tax Levied On This Good?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above

37. Which Of The Following Shifts Represents The Effect Of A Tax On This Good Levied Independent Of Output?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above

38. Given Demand Curve D, If A Tax Independent Of Output Is Levied On This Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. Cannot Be Determined

39. An Output Tax Will Be Shifted Completely
A. Backward If Demand Is Price Inelastic
B. Forward If Demand Is Perfectly Price Inelastic
C. Forward If Demand Is Price Elastic
D. Backward, Regardless Of Elasticity
E. All Of The Above

40. A Tax Levied Independent Of Output, Such As A Tax Levied On Net Income Of Corporations, Will
A. Be Shifted If Demand Is More Elastic Than Supply
B. Be Shifted If Supply Is More Elastic Than Demand
C. Not Be Shifted In The Short Run If The Most Profitable Output Has Been Selected Before The Tax
D. Be Shifted In The Short Run If The Most Profitable Output Has Been Selected Before The Tax
E. Do None Of The Above

41. Government Borrowing Is Argued To Have The Effect Of Raising Interest Rates—The “Crowding-Out Effect.” In Conjunction With Government Spending, Does Government Spending And Borrowing Have A Positive Or Negative Impact On The Economy?
A. Negative, Since Borrowing Exceeds Spending
B. A Positive Impact, Since Expenditures Often Exceed Borrowing
C. A Neutral Effect, Since The Budget Is Always In Balance
D. Government Spending And Borrowing Have A Minimal Effect On The Economy
E. Government Spending And Borrowing Must Be Considered Separately

42. The Gasoline Tax Is Often Used To Illustrate The Benefits Received Principle Of Taxation Because
A. Everyone Benefits From The Gasoline Tax
B. Those Who Pay The Tax Receive Benefits, Since The Revenues Are Used For Road And Highway Construction And Maintenance
C. The Amount We Pay Is Consistent With Our Incomes
D. Everyone Knows When They Pay The Tax
E. The Gasoline Tax Is A Poor Example Of The Benefits Received Principle

43. Vertical Equity Implies That
A. People In Different States Should Pay The Same Taxes
B. People With Comparable Incomes Should Pay The Same Taxes
C. People In Different Economic Circumstances Should Pay Different Amounts
D. Taxes Should Rise As The Size Of Your Family Increases
E. Taxes Should Be Based Upon How Tall The Taxpayer Is

44. Proportional Tax Rates Mean That The Ratio Of Tax Collection To Income
A. Falls As Income Rises
B. Rises, As Income Rises
C. Remains The Same As Income Rises
D. Rises As Income Falls
E. Falls As Income Falls

45. Regressive Tax Rates Mean That The Ratio Of Tax Collections To Income
A. Falls As Income Rises
B. Rises As Income Rises
C. Remains The Same As Income Rises
D. Remains The Same As Income Falls
E. Falls As Income Falls

46. The Us Federal Personal Income Tax Is An Example Of A(N)
A. Regressive Tax Rate Structure
B. Proportional Tax Rate Structure
C. Progressive Tax Rate Structure
D. More Regressive Than Proportional Tax Rate Structure
E. Equitable Tax Rate Structure

47. If Demand For A Product Is Perfectly Inelastic, An Output Tax Will Be Shifted
A. Completely Backward
B. Completely Forward
C. Completely To The Poor
D. Completely To The Rich
E. Completely To The Producer

48. A Tax That Is Shifted Forward Is A Tax That Falls On
A. The Consumer In The Form Of Higher Prices
B. The Producer Through Lower Sales
C. The Government
D. Foreign Investors
E. None Of The Above

49. A Tax That Is Shifted Backward Is A Tax That Falls On
A. The Consumer In The Form Of Higher Prices
B. The Owners Of Resources In The Form Of Lower Resource Prices
C. The Government
D. Foreign Investors
E. None Of The Above

50. At The Federal Level, The Largest Revenue Generating Tax Is The
A. Corporate Income Tax
B. Personal Income Tax
C. Property Tax
D. Sales Tax
E. Customs Duty

51. If The Ratio Of Tax Collections To Income Rises As Income Rises, Then The Tax Rate Is
A. Regressive
B. Proportional
C. Progressive
D. Regressive Then Proportional
E. None Of The Above

52. The Federal Government Lowered Tax Rates In
A. 1986 And 2001
B. 1986
C. 2001
D. Neither Year
E. 1909 And Has Raised Them Ever Since

53. Suppose There Are Two Individuals Who Each Earn $25,000 Per Year. One Individual Pays $2,500 In Taxes And The Other Pays $2,000. This Is A Violation Of
A. The Benefits Received Principle
B. The Ability To Pay Principle
C. Vertical Equity
D. Horizontal Equity
E. None Of The Above

54. Suppose One Individual Earns $25,000 Per Year And Another Individual Earns $15,000 Per Year. If The Individual Earning $25,000 Per Year Pays $750 More Per Year In Taxes Than The Person Earning $15,000, This Is An Illustration Of
A. The Benefits Received Principle
B. The Ability To Pay Principle
C. The Equal Tax Treatment Principle
D. The Equitable Payment Doctrine
E. None Of The Above

55. If We Levy A Tax On Profits That Is Neither Shifted Neither Forward Nor Backward, It Is
A. An Output Tax
B. An Input Tax
C. A Tax Independent Of Output
D. A Tax Dependent On Output
E. None Of The Above

56. The Federal Tax System In The United States Can Be Described As
A. Regressive
B. Highly Progressive
C. Slightly Progressive
D. Proportional
E. None Of The Above

57. A Tax System That Will Not Alter The Distribution Of Income Is
A. Proportional
B. Regressive
C. Slightly Progressive
D. Very Progressive
E. None Of The Above
58. Which Of The Following Countries Has The Lowest Taxes Collected (As A Percent Of Gdp)?
A. The United States
B. Germany
C. Italy
D. France
E. The United Kingdom

59. The Highest Effective Federal Tax Rate In The United States Is Approximately
A. 10%
B. 15%
C. 20%
D. 24%
E. 34%
60. The Highest Effective Federal Tax Rate In The United States Falls On Which Income Category?
A. The Lowest Quintile
B. The Middle Quintile
C. The Top 10%
D. The Top 5%
E. The Top 1%

61. The Single Most Important Source Of Tax Revenue For The Local Governments In The United States Is The
A. Real Property Tax
B. Personal Income Tax
C. National Sales Tax
D. Cigarette Tax
E. Inheritance Tax

62. Enforcement And Collection Of Personal Income Taxes Is The Responsibility Of The
A. Treasury Department
B. Individual State Governments
C. Federal Reserve System
D. Internal Revenue Service
E. Department Of Labor

63. The Federal Government Uses Taxes To
A. Generate Revenue
B. Encourage Saving For Education And Retirement
C. Discourage Certain Behaviors
D. Promote The Purchase Of Houses
E. Do All Of The Above

64. The 1986 Tax Reform Act ________ The Number Of Tax Brackets And _______ The Highest Tax Bracket.
A. Increased; Increased
B. Increased; Decreased
C. Decreased; Increased
D. Decreased; Decreased
E. Decreased; Did Not Change

65. Since 2004, The Highest Personal Income Tax Bracket Has Been
A. 10%
B. 15%
C. 25%
D. 28%
E. 35%

66. The Economic Growth And Taxpayer Relief Reconciliation Act Passed By Congress And Signed By President George W. Bush Did Which Of The Following?
A. Immediately Cut Federal Tax Rates By One-Third
B. Gave A $300 Check To Each Taxpayer
C. Decreased The Tax On Income From Financial Investments
D. Decreased The Federal Budget Deficit
E. Increased The Number Of Personal Income Tax Brackets

67. The First Budget Surplus Since 1969 Occurred In
A. 1993
B. 1995
C. 1998
D. 1999
E. 2000

68. The Budget Surpluses Of The Late 1990’s And The Early 2000’s Could Be Attributed To Which Of The Following Government Policies?
A. The Value Added Tax Act
B. The Tax Reform Act Of 1986
C. The Economic Growth And Taxpayer Relief Reconciliation Act
D. Increased Government Debt
E. All Of The Above

69. If A Government Bond With A Maturity Value Of $10,000 Sells For $9,000 And Pays Annual Interest Of $1,000, What Is The Rate Of Interest On The Bond?
A. 1%
B. 10%
C. 11.1%
D. 88.9%
E. 90%

70. An Increase In Government Borrowing Will Cause Which Of The Following?
A. A Decrease In The Demand For Loanable Funds
B. A Decrease In The Supply Of Bonds
C. An Increase In The Interest Rate
D. An Increase In The Price Of Bonds
E. All Of The Above

71. Federal Debt Reduction Will Cause Which Of The Following?
A. A Decrease In The Interest Rate
B. An Increase In Private Investment
C. A Decrease In The Supply Of Bonds
D. An Increase In The Price Of Bonds
E. All Of The Above

72. The Federal Government Ended Its Most Recent Period Of Budget Surpluses And Returned To Deficits In
A. 1999
B. 2000
C. 2001
D. 2002
E. 2003

73. The Federal Deficit Was Increased In 2002 As A Result Of
A. The 2001 Recession
B. The War On Terrorism
C. The 2001 Tax Cut
D. Increased Defense Spending
E. All Of The Above

74. Retiring The Federal Debt Will
A. Decrease The Supply Of Government Bonds
B. Increase Government Bond Prices
C. Lower The Interest Rate On Government Bonds
D. Decrease The Demand For Money
E. Do All Of The Above

True / False Questions

75. The Fears That People Have Concerning Government Are Related To The Size Of Government And The Distribution Of Taxes.

76. Some Of The Fears That People Have Concerning Government Are Well-Founded And Some Are Not.

77. Government Expenditures Have Grown Faster Than The Gdp Since 1958, Representing About Fifty Percent Of Gdp Today.

78. Government Transfer Payments, Such As Public Assistance Payments And Social Security Payments, Have Been A Constant Percentage Of The Gdp Since 1960.

79. Government Purchases Of Goods And Services Have Remained A Constant Percentage Of The Gdp For The Last Two Decades.

80. Before An Intelligent Decision Can Be Made About Whether Government Is Too Large Or Small, The Benefits And Costs Must Be Weighed.

81. An Efficient Level Of Government Expenditures Is That Level Where Net Benefits To Society Are Maximized.

82. Public Goods And Services Can Be Supplied In The Market Because They Are Easily Divisible Into Small Units And Can Be Priced To The Individual Demander.

83. The Existence Of Externalities In Production Or Consumption Does Not Negate The Possibility That These Goods And Services Can Be Supplied Efficiently In The Market.

84. A Great Deal Of Government Activity Is Based On The Idea That People In Society Should Determine The Extent To Which The Distribution Of Income Should Be Altered.

85. The Major Tax Source Of The Federal Government Is The Highly Regressive Sales Tax.

86. The Federal Income Tax System Results In A Mildly Progressive Tax Structure.

87. The Major Tax Source Of State Governments Is The Property Tax.

88. Progressive Income Tax Rates Are Consistent With The Ability To Pay Principle Of Taxation But Are Inconsistent With The Tax Criterion Of Economic Efficiency.

89. The Relative Tax Treatment Doctrine Would Call For All Taxpayers To Pay Equal Taxes.

90. Since Gasoline Taxes Are Used Primarily To Finance Highways, Gasoline Taxes Can Be Defended On The Benefits Received Principle Of Taxation.

91. The Excess Tax Burden Is In The Form Of The Loss In Private Production That May Take Place If Incentives To Work And To Produce Are Discouraged.

92. A Tax Levied On Each Unit Produced Will Likely Be Shifted Forward And Backward Depending Upon The Elasticities Of Demand And Supply.

93. If An Output Tax Is Levied On A Product That Has A Perfectly Elastic Demand, The Tax Will Be Shifted Completely To The Consumer In The Form Of Higher Prices.

94. Federal Budget Deficits Occurred Throughout The 1970’s And 1980’s But In The Late 1990’s Deficits Turned Into Budget Surpluses.

95. The Tax Reform Act Of 1986 Increased The Highest Marginal Tax Rate To 50% From 38%.

96. In General, A Tax Levied On Net Income Of A Corporation Would Be Shifted To Consumers In The Short Run.

97. Tax Equity Would Probably Be Reduced If Federal Tax Exclusions, Such As Interest On State And Local Government Securities, Were Eliminated.

98. Demand For Public Goods And Services Is Not Generally Divisible On The Basis Of Individual Quantity Demanded.

99. The Tax Base Is What A Tax Is Levied On, Such As Income, Sales, Or The Value Of Property.

100. Regressive Tax Rates Mean That The Ratio Of Tax Collection To Income Rises As Income Rises.

101. Tax Equity Means That All People Should Pay Equal Taxes.

102. An Output Tax Will Be Shifted Completely Forward If Demand Is Price Elastic.

103. According To The Equimarginal Principle, The Efficient Level Of Government Expenditures Occurs When The Benefit Of The Last Dollar Spent For Each Purchase Is Greater Than The Last Dollar Of Cost.

104. When Marginal Benefits Equal Marginal Costs Then Net Benefits Are Maximized.

105. Horizontal Equity Means That People In Identical Economic Positions Should Pay Equal Taxes.

106. Transfer Payments Are Government Expenditures For Currently Produced Goods And Services.

107. In The Absence Of Externalities, Government Actions Are Needed To Ensure The Efficiency Of The Market System.

108. According To The Equal Tax Treatment Doctrine, People In Identical Economic Circumstances Should Pay Equal Taxes.

109. The Equal Tax Treatment Doctrine Pertains To Vertical Equity.

110. The Federal Tax System Is Much More Progressive Than Is Generally Believed.

111. The Economic Growth And Taxpayer Relief Reconciliation Act, The Job Creation And Worker Assistance Act, And The Jobs And Growth Tax Relief Act Each Reduced Effective Tax Rates On Income.

112. The United States Has Not Had A Federal Budget Surplus Since The 1960s.

113. The Personal Income Tax Is The Single Most Important Source Of Tax Revenue For The Federal Government Of The United States.

114. The Enforcement And Collection Of The Personal Income Tax Is The Responsibility Of The Internal Revenue Service.

115. There Are Currently 14 Tax Brackets Ranging From 11% To 50%.

116. The Federal Government Uses The Tax Code To Encourage Certain Behaviors.

117. Bond Prices And Interest Rates Are Inversely Related.

118. The First Budget Surplus Since 1969 Occurred In 1998.

119. A Budget Deficit Occurs When Tax Revenues Exceed Government Spending.

120. A Lower Interest Rate Encourages Private Investment Spending.

121. The National Debt Is The Sum Of Past Budget Deficits.

122. The Government Owes Almost One Third Of The National Debt To Itself.

123. An Increase In Government Borrowing Increases The Demand For Loanable Funds.

124. An Increase In Government Borrowing Increases The Supply Of Loanable Funds.

125. The Federal Budget Has Been In Deficit Each Year Since The Beginning Of The 1970s.

Chapter 15

Social Security And Medicare: How Secure Is Our Safety Net For The Elderly?

Multiple Choice Questions

1. Government Programs That Guarantee Citizens Financial Benefits For Events Beyond Their Personal Control And That Are Financed Through Tax Revenues Are Called
A. Social Insurance Programs
B. Entitlement Programs
C. Private Insurance Programs
D. Welfare Programs
E. Transfer Programs

2. The Largest Social Insurance Program In The United States Is
A. Temporary Assistance For Needy Families
B. Social Security
C. Medicaid
D. Federal Flood Insurance
E. Job Corps

3. The Most Significant Factor That Threatens The Financial Stability Of The Social Security System Is The
A. Increasing Number Of Young Workers
B. Relatively High Rates Of Social Security Taxes
C. Population Bulge Created By The “Baby Boom” Generation
D. Generosity Of Current Social Security Benefits
E. Threat Of Foreign Workers Entering The U.S. Due To Nafta

4. Which Of The Following Nations Was The First To Offer Its Citizens A Modern Social Insurance Program?
A. United States
B. Great Britain
C. Russia
D. Germany
E. Japan

5. In The United States, Social Security Was Established In When President Signed The Social Security Act Into Law.
A. 1903; Theodore Roosevelt
B. 1929; Herbert Hoover
C. 1965; Lyndon Johnson
D. 1865; Abraham Lincoln
E. 1935; Franklin Roosevelt

6. Which Of The Following Statements Is Concerning The Scope Of The Social Security Program?
A. Social Security Has Narrowed Its Scope Over Time To Focus On The Economic Stability Of The Individual
B. The Scope Of Social Security Has Remained Constant Throughout Its History
C. Social Security Has Broadened Its Scope Over Time To Focus On The Economic Stability Of The Family
D. The Scope Of Social Security Has Always Focused On The Family Unit
E. None Of The Above

7. How Many Americans Receive A Monthly Check From The Social Security Administration?
A. Fewer Than 10 Million
B. More Than 50 Million
C. About 27 Million
D. Roughly 38 Million
E. More Than 100 Million

8. As Originally Designed, Social Security Was To Be Financed As A
A. Private Insurance Program
B. Pure Income Transfer Program
C. Pay-As-You-Go Insurance Program
D. Fully-Funded Insurance Program
E. Means-Tested Benefits Program

9. How Are Social Security Tax Revenues Allocated Today?
A. They Are Used To Pay Today’s Social Security Beneficiaries, And Any Extra Is Placed Into The Social Security Trust Fund
B. All Of Today’s Revenues Are Placed In The Social Security Trust Fund To Pay For Tomorrow’s Beneficiaries
C. Tax Revenues Are Placed Into Accounts For Each Worker Who Will Draw Upon The Balance When They Retire
D. The Revenues Are Invested In Government Securities And In The Stock Market
E. No One Really Knows

10. Current Projections Estimate That The Social Security Trust Fund Will Be Completely Depleted
A. In Late 2003
B. During 2010-2020
C. In About 100 Years
D. Around 2100
E. Before 2040

11. Given The Way Social Security Is Financed, Which Of The Following Is ?
A. Social Security Results In A Transfer Of Income From The Old To The Young
B. Social Security Results In A Transfer Of Income From The Young To The Old
C. Social Security Has A Neutral Effect On The Nation’s Income Distribution
D. The Purchasing Power Of The Elderly Has Been Diminished By Social Security Taxes
E. (A) And (D)

12. Social Security Taxes Are
A. Paid Only By Workers
B. Levied On Salaries And Wages
C. Paid Only By Employers
D. Paid By Both Workers And Employers
E. (B) And (D)

13. Currently, The Total Combined Tax Rate Collected By Social Security Is
A. 21.6% Of Earnings
B. 15.3% Of Earnings
C. 7.65% Of Earnings
D. 6.20% Of Earnings
E. 1.45% Of Earnings

14. Which Of The Following Is Concerning Social Security’s Retirement Benefit Structure?
A. All Eligible Retired Workers Are Entitled To The Same Benefits
B. High Wage Workers Receive A Greater Percentage Of Past Earnings In Benefits Than Low Wage Workers
C. Retired Female Workers Are Entitled To Higher Benefits Than Retired Male Workers
D. Low Wage Workers Receive A Greater Percentage Of Past Earnings In Benefits Than Do High Wage Workers
E. Retired Workers Living In Cities Receive Larger Benefits Than Those Living In Rural Areas

15. Most Of Today’s College Student Population Will Be Eligible To Receive Full Social Security Retirement Benefits When They Reach The Age Of
A. 62
B. 65
C. 67
D. 70
E. 72

16. The Cost Of Living Adjustment (Cola) Employed By Social Security Is Based On The
A. Current Level Of Gdp
B. Local Rate Of Inflation
C. Consumer Price Index
D. Producer Price Index
E. Annual Poverty Threshold

17. How Many Elderly Households Receive Social Security Benefits?
A. More Than 90%
B. Less Than 50%
C. About 75%
D. Only About 15%
E. None Of The Above

18. Which Of The Following Statements Is ?
A. 20% Of Elderly Households Receive Social Security As Their Only Source Of Income
B. Approximately 90% Of Elderly Households Receive Social Security Benefits
C. Just Under 30% Of Elderly Households Receive Private Pension Benefits
D. For Nearly Two Thirds Of Elderly Households, Social Security Represents More Than 50% Of Total Income
E. None Of The Above. All Are

19. If People Choose To Work Fewer Hours Because The Social Security Tax Reduces Their Real Wage, Their Behavior Is Dominated By The
A. Substitution Effect
B. Bequest Effect
C. Income Effect
D. Wealth Effect
E. Real Wage Effect

20. If People Choose To Work More Hours Because The Social Security Tax Reduces Their Real Wage, Their Behavior Is Dominated By The
A. Substitution Effect
B. Bequest Effect
C. Income Effect
D. Wealth Effect
E. Real Wage Effect

21. Empirical Evidence Suggests That Social Security Has _______ The Overall Supply Of Labor.
A. Had No Effect On
B. Reduced
C. Increased
D. Stimulated
E. Done None Of The Above To

22. Social Security May Increase The Level Of Personal Saving Due To
A. The Retirement Effect
B. The Bequest Effect
C. The Wealth Substitution Effect
D. (A) And (B)
E. (B) And (C)

23. Empirical Studies Indicate That Social Security Has
A. Increased The Level Of Personal Savings
B. Had A Neutral Effect On The Level Of Personal Savings
C. Reduced The Level Of Personal Savings
D. Increased The Number Of Older Workers
E. Raised The Average Age At Which Workers Choose To Retire

24. The Effect Of Social Security On Personal Savings Is Important Because
A. The Level Of Savings Determines The Pool Of Investment Funds
B. Savings Are Necessary To Finance The Social Security Trust Fund
C. Personal Savings Are Negatively Related To Economic Growth
D. Savings Are A Major Source Of Income For All Elderly Households
E. The Level Of Savings Reflects The Magnitude Of Future Consumption

25. Why Can’t Social Security Rely On A Strict Pay-As-You-Go Financial Structure?
A. The Current Generation Of Workers Is Too Small To Support Future Retirees
B. A Pay-As-You-Go Financial Structure Is Inherently Unstable
C. The Current Generation Of Retirees Will Bankrupt The System Before The “Baby Boom” Retires
D. Inflation Erodes The Value Of Contributions That Must Be Saved To Pay Future Retirees
E. None Of The Above

26. The Most Simple And Direct Way To Postpone The Looming Social Security Financial Crisis Is To
A. Invest Social Security Taxes In The Stock Market
B. Raise Social Security Taxes And/Or Lower Benefits
C. Privatize The Social Security Administration
D. Eliminate The Social Security System And Force Everyone To Buy Private Insurance
E. Subsidize Social Security With General Tax Revenues

27. The Most Significant Argument Against Privatizing Social Security Is That
A. Benefits Would Have To Be Cut
B. It Has Not Worked In Other Countries
C. Future Benefits Levels Cannot Be Guaranteed
D. It Is Too Complicated To Be Practical
E. Taxes Would Have To Be Raised

28. Why Do Some People Favor Investing The Social Security Trust Fund In The Stock Market?
A. Because For Most Beneficiaries The Historic Return On Their Social Security Taxes Has Been Less Than What Would Have Been Earned If Those Dollars Were Invested In The Stock Market
B. Because Investment In The Stock Market Will Guarantee Higher Rates Of Return Over The Long Run For All Retirees
C. Because Investments In The Stock Market Carry Very Little Risk And Offer The Potential For Excessive Short-Run Gains With Little Or No Potential For Loss
D. Because The Stock Market Offers The Safest Form Of Investment
E. All Of The Above

Questions 29 – 33 Refer To The Graph Below.

29. The Results Of The Retirement Effect Are Illustrated On The Graph As A Movement From Point
A. E To F
B. A To C
C. E To G
D. F To E
E. None Of The Above

30. The Results Of The Bequest Effect Are Illustrated On The Graph As A Movement From Point
A. E To F
B. A To C
C. E To G
D. F To E
E. None Of The Above

31. The Results Of The Wealth Substitution Effect Are Illustrated On The Graph As A Movement From Point
A. E To F
B. A To C
C. E To G
D. F To E
E. None Of The Above

32. A Change In Consumption From Ce To Cf Could Be Caused By Which Of The Following?
A. The Bequest Effect
B. The Retirement Effect
C. The Wealth Substitution Effect
D. All Of The Above
E. None Of The Above

33. A Movement From Point E To Point F As A Result Of Social Security Would Result In Which Of The Following Costs To Society? A Long-Run Movement To
A. Ppc Cd Rather Than Gh
B. Ppc Gh Rather Than Cd
C. Point B Rather Than Point A
D. Point A Rather Than Point B
E. If To Cf

34. If I Start Saving More During My Working Life Because I Anticipate Retiring Earlier Thanks To Social Security, I Am Exhibiting Which Of The Following Effects?
A. Retirement
B. Bequest
C. Wealth Substitution
D. Opportunity Cost
E. None Of The Above

35. If I Spend More Each Year Because I Know That I Will Receive Social Security Payments When I Retire, I Am Exhibiting Which Of The Following Effects?
A. Retirement
B. Bequest
C. Wealth Substitution
D. Opportunity Cost
E. None Of The Above

36. If I Put Extra Into A Savings Account So That I Can Leave Assets To My Children To Compensate Them For Their Payments Into The Social Security System, I Am Exhibiting Which Of The Following Effects?
A. Retirement
B. Bequest
C. Wealth Substitution
D. Opportunity Cost
E. None Of The Above

37. If Inflation Increases, What Will Happen To The Social Security Cola? It Will
A. Expire
B. Increase
C. Decrease
D. Be Divided Among Social Security Recipients
E. Be Added To The Social Security Trust Fund

38. “An Agreement To Pay A Premium To A Company In Return For A Guarantee Of Financial Benefits In The Event Of An Undesired Circumstance” Defines
A. Social Insurance
B. Private Insurance
C. Private Investment
D. Asset Management
E. Retirement Savings

39. Social Insurance Uses Tax Revenues To Guarantee Citizens Financial Benefits For Events Including
A. Old Age
B. Disability
C. Poor Health
D. Death Of A Spouse
E. All Of The Above

40. If A Program’s Benefits Are Funded By Interest Earned On Accumulated Payments, It Is Which Type Of System?
A. An Investment System
B. A Fully Funded Scheme
C. An Interest Scheme
D. A Pay-As-You-Go System
E. An Endowed System

41. If A Program’s Benefits Are Funded Out Of Current Payments, It Is Which Type Of System?
A. An Investment System
B. A Fully Funded Scheme
C. A Pyramid Scheme
D. A Pay-As-You-Go System
E. An Endowed System

42. When Was The Medicare Program Established?
A. 1935
B. 1945
C. 1955
D. 1965
E. 1975

43. Today, The Health Care Sector Of The U.S. Economy Accounts For About Percent Of National Income.
A. 3
B. 5
C. 8
D. 12
E. 18

44. A Person With Health Insurance Will Tend To
A. Have A Lower Demand For Health Care Services
B. Have A Much Greater Concern For Preventive Care
C. Buy A Lower Quantity Of Health Care At A Higher Price
D. Demand More Health Care Services Than A Person Without Insurance
E. Do None Of The Above

45. The Payment And Delivery Of Health Care Service Under A Managed Care System Is Based On
A. A Fee-For-Service Market Principle
B. A Prearranged Schedule Of Fixed Prices
C. The Ability To Pay Principle
D. Price Negotiation Between The Consumer And Provider
E. None Of The Above

46. The Medicare Program
A. Was Established As A Socialistic Takeover Of Health Care Providers
B. Has Reduced The Demand For Health Care Services
C. Affects Persons 65 And Older, Regardless Of Income
D. Enrolls All Poor People Regardless Of Age
E. Does None Of The Above

47. Part C Of The Medicare Program (Medicare + Choice)
A. Provides Health Care Plan Choices To The Beneficiaries Of Medicare
B. Restricts Medicare Beneficiaries To A Simple Fee-For-Service Health Care Plan
C. Provides Comprehensive Health Insurance Coverage For All Poor People
D. Is Only Available To Disabled Retirees Receiving Social Security
E. Does None Of The Above

48. A Potential Benefit Of Managed Care Plans To Medicare Enrollees Is That These Plans
A. Typically Require Less Cost Sharing
B. Provide A Higher Quality Of Health Care
C. Provide A Greater Quantity Of Health Care
D. Require Less Paper Work
E. Do All Of The Above

49. Part A Of The Medicare Program (Hospital Insurance) Is Financed Primarily By
A. A Monthly Premium
B. A 2.9% Tax Levied On Wages And Salaries
C. An Allocation From General Tax Revenues
D. User Fees Paid By Patients
E. Insurance Deductibles

50. What Percent Of The Average Health Care Dollar Spent In The United States Comes Directly From The Consumer?
A. 100
B. 83
C. 50
D. 34
E. 12

51. Which Of The Following Factors Has Contributed Most To The Tremendous Increase In Health Care Expenditures Experience In The U.S. During The Past Fifty Years?
A. Health Care Inflation
B. The Aging Of The Population
C. Increased Public Support For Health Care
D. Private Health Insurance
E. Growth In Medicaid

52. Which Of The Following Receives The Largest Share Of Expenditures Made On Health Care In The United States?
A. Physicians
B. Nursing Homes
C. Hospitals
D. Personal Health Care Product And Service Providers
E. Pharmacies

53. In A Fee-For-Service Health Care System, Consumers Pay The
A. Insurance Company A Fee Every Time They Use A Service
B. Full Cost Of The Services They Receive
C. Hmo When They Receive Care
D. Doctor A Small Payment Called A “Co-Pay.”
E. Prearranged, Fixed Fee For Services They Receive

54. How Are Payments To Health Care Providers Determined Under A Managed Care System? By The
A. Government
B. Market
C. Insurance Company And The Provider
D. Provider And The Consumer
E. Ama (American Medical Association)

55. Which Of The Following Is An Example Of A Managed Health Plan?
A. Hmo
B. Ppo
C. Pos
D. Physicians Network
E. All Of The Above

Questions 56 – 59 Refer To The Graph Below.

56. With A Market Allocation Of Medical Services, Equilibrium Quantity Will Be
A. 0
B. 50
C. 2,000
D. 2,800
E. 4,000

57. If Medical Care Is Provided Free Of Charge, What Quantity Will Be Demanded?
A. 0
B. 2,000
C. 2,800
D. 4,000
E. An Infinite Amount

58. If Medical Care Is Provided Free Of Charge, What Quantity Will Be Supplied?
A. 0
B. 50
C. 2,000
D. 2,800
E. 4,000

59. The Supply Of Medical Services In This Market Is
A. Elastic
B. Inelastic
C. Unit Elastic
D. Price Elastic
E. Infinite

60. Under Most Insurance Systems, Patients Are Responsible For Which Of The Following Payments For Health Care Services?
A. Deductible
B. Co-Insurance
C. Fee-For-Service Charges
D. All Of The Above
E. None Of The Above

61. A Patient May Be Required To Pay A Percentage Of The Cost Of Their Health Care Above The Fixed Fee They Pay. This Is Known As
A. The Deductible
B. Co-Insurance
C. Fee-For-Service
D. The Health Care Tax
E. Medicare Tax

62. If Your Insurance Company Agrees To Pay A Fixed Fee For You To Receive A Given Treatment (For Example, $5,000 For An Appendectomy), The Company Is Using Which Of The Following?
A. A Fee-For-Service System
B. A Managed Care System
C. A Co-Insurance System
D. A Prospective Payment System
E. A Social Insurance System

63. If Your Deductible Is $200 And You Pay Co-Insurance Of 20%, How Much Will You Have To Pay For A $3,000 Hospital Stay?
A. $200
B. $560
C. $600
D. $760
E. $800

64. If Your Deductible Is $400 And You Have Co-Insurance Of 25%, How Much Will You Have To Pay For A $5,000 Hospital Stay?
A. $400
B. $1,150
C. $1,250
D. $1,550
E. $1,650

Questions 65 – 69 Refer To The Graph Below.

65. If Patients Pay The Full Price For Office Visits, What Price Will Be Charged In The Market?
A. $0
B. $25
C. $50
D. $75
E. More Than $75

66. If Patients Pay The Full Price For Of Office Visits, How Many Office Visits Will They Make?
A. 0
B. 30
C. 50
D. 70
E. More Than 70

67. If A Third Party Guarantees A Maximum Patient Price Of $25, What Quantity Of Office Visits Will Patients Demand?
A. 0
B. 30
C. 50
D. 70
E. More Than 70

68. If A Third Party Guarantees A Maximum Patient Price Of $25, What Total Price Must Be Paid Per Office Visit To Assure The Quantity Of Office Visits Demanded Will Be Provided?
A. $0
B. $25
C. $50
D. $75
E. More Than $75

69. If A Third Party Guarantees A Maximum Patient Price Of $25, How Much Must The Third Party Pay Per Office Visit?
A. $0
B. $25
C. $50
D. $75
E. More Than $75

70. Health Insurance Results In
A. An Increase In The Quantity Of Health Care Demanded
B. An Increase In The Quantity Of Health Care Provided
C. An Increase In The Total Cost Of Providing Health Care
D. All Of The Above
E. None Of The Above

71. The Medicare Modernization Act, Passed In 2003, Established
A. The First Long Term Care Coverage For Medicare Recipients
B. Lowered Deductibles For Most Medicare Recipients
C. Added A Prescription Drug Benefit To The Medicare Program
D. Instituted Stringent Price Controls On The Fees Doctors And Hospitals Can Charge
E. Restricted The Benefits That High Income Medicare Recipients Can Receive

72. The Prescription Drug Benefit That Is Part Of The Medicare Modernization Act Of 2003 Requires That Recipients Pay:
A. A Monthly Premium
B. A Co-Pay
C. A Deductible
D. All Of The Above
E. None Of The Above, These Benefits Are Provided To Recipients At No Charge

True / False Questions

73. Social Insurance Is Private Insurance Purchased By The Government.

74. Programs That Provide Citizens With Benefits For Events That Are Beyond An Individual Person’s Control Are Called Social Insurance Programs.

75. Both Social Security And Medicare Are Social Insurance Programs.

76. The Major Underlying Factor That Endangers Social Security’s Financial Stability Is The Population Bulge Created By The “Baby Boom” Generation.

77. The United States Was The First Nation To Provide Social Insurance Programs For Its Citizens.

78. The Original Design Of The Social Security System Called For A Pay-As-You-Go Financing Scheme.

79. The Social Security Act Was Signed Into Law By President Franklin Roosevelt In 1935.

80. Over Time, Social Security Has Evolved To Focus More On The Family And Less On The Individual.

81. Currently, About 20 Million Americans Receive Social Security Benefits.

82. All American Citizens Are Entitled To Receive Social Security And Medicare Benefits When They Retire.

83. Today, Social Security Is Financed Under A Pay-As-You-Go Financial System.

84. All Current Social Security Taxes Collected By The Government Are Used To Pay Current Beneficiaries, With Nothing Left Over.

85. Social Security And Medicare Are Financed Through A Flat Tax On Wages Paid Up To A Predetermined Limit.

86. Workers And Their Employers Share The Burden Of Social Security Taxes.

87. The Social Security Trust Fund Currently Has A Negative Balance.

88. Social Security Benefits Are Adjusted Each Year For Inflation Using The Consumer Price Index (Cpi).

89. About 50% Of All Elderly Households Receive Some Form Of Social Security Benefits.

90. Today, In The Aggregate, Social Security Accounts For Over 35% Of Senior Citizens’ Income.

91. Without Social Security, Nearly 50 Percent Of Elderly Households Would Live Below The Poverty Threshold.

92. The Substitution Effect Of Social Security Taxes Causes Some People To Work More Hours.

93. The Income Effect Of Social Security Taxes Causes Some People To Work Less Hours.

94. Studies Show That Social Security Has Caused Some Workers To Retire Earlier Than They Would If Social Security Did Not Exist.

95. The Bequest Effect Of Social Security Causes Some People To Save Less During Their Lifetimes.

96. The Empirical Evidence Suggests That, Overall; Social Security Causes People To Increase Their Personal Savings.

97. Because Social Security Increases Savings, More Funds Are Available For Investment In The Overall Economy.

98. Current Estimates Indicate That The Social Security Trust Fund Will Be Depleted Before 2040.

99. A Modest Increase In Taxes Could Postpone Social Security’s Financial Crisis For Decades.

100. Privatization Of The Social Security System Would Reduce The Financial Risks Faced By Retiring Workers.

101. Chile And Other Nations Have Successfully Privatized All Or Part Of Their Social Insurance Programs.

102. Oasdi Is Social Security’s Medical Insurance Program.

103. The Most Important Factor Explaining The Growth In Personal Health Care Expenditures On Hospital And Physician Services Is Higher Prices For These Services.

104. Third-Party Payments Increase The Efficiency Of Medical Markets.

105. A Dominant Feature Of The U.S. Health Care Industry Is Price Competition Among Providers.

106. Medicare And Medicaid Have Reduced The Demand For Health Care Services.

107. The Purpose Of A Prearranged Payment And Delivery System, Such As A Managed Care Plan, Is To Take Away Any Incentive For The Provider To Supply Unnecessary Care.

108. The Demand For Health Services Is Characterized By Well-Informed Consumers.

109. The Medicare Program Affects Persons Aged 65 And Older, Regardless Of Their Income Level.

110. A Consumer With Health Insurance Is Likely To Buy More Health Services Than One Who Is Not Insured.

111. A Reduction In The Price Of Medical Services Will Cause The Demand Curve To Shift To The Right.

112. Health Care Providers Are Paid The Amount Of A Patient’s Deductible By The Health Insurance Company.

113. The Amount A Patient Must Pay Above The Deductible Is Known As Co-Insurance.

114. Projections Indicate That The Medicare Hi Program Will Be Depleted Of Funds By 2025.

115. More Than 70% Of All Privately Insured Employees Are Covered By Managed Care Plans.

116. The Medicare Program Could Be Secured By An Increase In The Payroll Tax That Supports The Program.

117. The Medicare Program Could Be Secured By Increasing Premiums, Deductibles And Co Payments.

118. Medicare’s Fee-For-Service Plan Provides Incentives For Supplying Excessive Services.

119. Managed Care Plans Provide Incentives For Supplying Excessive Services.

120. Third-Party Payments For Health Care Increase The Quantity Of Services Demanded.

121. Third-Party Payments For Health Care Decrease The Price Consumers Pay For Services.

122. The Fee-For-Service Delivery And Payment System Is The Primary Means By Which Most Elderly Americans Receive Their Health Care.

123. Third-Party Payments For Health Care Result In Less Usage Of The Health Care System.

124. Managed Care Leads To Higher Costs Of Providing Health Care Services.

125. Investments Of Social Security Tax Payments Result In High Returns On The Contributions Made By Taxpayers.

ECO 405 Week 9 Quiz – Strayer University New

ECO/405 Week 9 Quiz – Strayer

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Quiz 8 Chapter 11 and 12

Economic Growth: Why Is The Economic Road So Bumpy?

Multiple Choice Questions

1. Which Of The Following Is Consistent With Economic Growth?
A. Lower Unemployment
B. Increased Gdp
C. Increased Aggregate Demand
D. Increased Sales
E. All Of The Above

2. Why Is Economic Growth An Important Economic And Social Issue?
A. Economic Growth Leads To Improvements In Our Standard Of Living
B. Lower Levels Of Unemployment And Poverty Can Be Achieved Through Economic Growth
C. A Growing Economy Provides Consumers With More Choices And Opportunities
D. All Of The Above
E. Economic Growth Is Not An Important Economic Issue

3. Which Of The Following Statements Is About Economic Growth?
A. Economic Growth Is A Short-Run Process
B. Growth Of An Economy Is Generally A Smooth Process That Occurs Over Time
C. Economic Growth Is A Long-Run Process Resulting From The Compounding Of Many Events
D. To Measure Economic Growth, Economists Analyze Changes In The National Debt
E. The U.S. Economy Has Never Experienced A Year Of Negative Economic Growth

4. Which Of The Following Is The Most Commonly Used Measurement Of Economic Growth? Changes In
A. Real Gdp
B. The Money Supply
C. Nominal Gdp
D. The Federal Government Debt
E. The Level Of International Trade

5. Why Do Small Differences In Economic Growth Rates Today Result In Significant Differences In The Level Of Economic Activity In The Future?
A. Growth Rates Discount Over Time
B. Economic Growth Compounds Year After Year
C. Economics Grow In An Arithmetic Fashion
D. Business Cycles Are Less Likely At Higher Rates Of Growth
E. All Of The Above

6. Countries A And B Start Out With Real Gdp Equal To $1,000. If Country A Grows At A Rate Of 5% While Country B Grows At A Rate Of 10%, What Is Country A’s Level Of Real Gdp After 3 Years?
A. $1,000
B. $1,050
C. $1,158
D. $1,500
E. $2,500

7. Countries A And B Start Out With Real Gdp Equal To $1,000. If Country A Grows At A Rate Of 5% While Country B Grows At A Rate Of 10%, What Is Country B’s Level Of Real Gdp After 3 Years?
A. $1,000
B. $1,100
C. $1,210
D. $1,300
E. $1,331

8. Of The Following, Which Of The Following Values Most Closely Approximates The Average Annual Rate Of Growth For The U.S. Economy Since 1960?
A. 1.65%
B. 10.22%
C. 5.35%
D. 4.02%
E. 3.26%

9. Which Decade Resulted In The Lowest Average Annual Rate Of Economic Growth In The U.S.?
A. 1950s
B. 1960s
C. 1970s
D. 1980s
E. Unknown

10. Which Of The Following Decades Had The Highest Average Annual Rate Of Economic Growth In The U.S.?
A. 1930s
B. 1960s
C. 1970s
D. 1980s
E. 1990s

11. What Term Is Used To Describe An Erratic Short-Run Fluctuation In Economic Activity Around The Long-Run Trend?
A. Economic Depression
B. Economic Boom
C. Business Cycle
D. Recession
E. Diminishing Returns

12. Which Of The Following Is Not A Phase Of Every Business Cycle?
A. Trough
B. Expansion
C. Contraction
D. Depressions
E. Peak

13. Which Of The Following Lists The Four Phases Of The Business Cycle In The Correct Sequence?
A. Expansion, Peak, Contraction, Trough
B. Expansion, Contraction, Peak, Trough
C. Expansion, Peak, Contraction, Depression
D. Expansion, Peak, Depression, Trough
E. Peak, Recession, Trough, Depression

14. Which Phase Of The Business Cycle Best Describes An Economy That Is Experiencing A Positive Rate Of Economic Growth?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

15. When The Economy Ends An Expansion, It Enters Which Phase Of The Business Cycle?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

16. A Decline In The Level Of Economic Activity Occurs During Which Phase Of The Business Cycle?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

17. When Economic Output Hits A Short-Run Economic Low, The Economy Is In Which Phase Of The Business Cycle?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

18. An Exceptionally Strong And Prolonged Contraction Is Known As
A. A Trough
B. A Recession
C. An Economic Bust
D. A Super Contraction
E. A Business Cycle

19. The Last Depression Experienced By The U.S. Economy Occurred
A. During The 1970s
B. In 1982
C. During The 1930s
D. Between 1974-1975
E. In 1990

20. What Is The Average Length Of A Typical Business Cycle In The Modern U.S. Economy?
A. 12 Months
B. 36 Months
C. 60 Months
D. 95 Months
E. 120 Months

21. Which Group Is Responsible For Announcing The Dates For Each Phase Of A U.S. Business Cycle?
A. The Federal Reserve
B. The National Bureau Of Economic Research
C. The Department Of Commerce
D. The Bureau Of Labor Statistics
E. The Federal Business Cycle Committee

22. The Most Commonly Used Tool To Forecast Future Changes In Economic Activity Is The
A. Leading Economic Indicators Index
B. Supply Of Money
C. Unemployment Rate
D. Lagging Economic Indicators Index
E. Federal Budget Deficit

23. The Economic Variables That Make Up The Leading Economic Indicators Index Tend To Move In The ______ Direction As Overall Economic Output And Do So _____ Changes In Real Gdp.
A. Opposite; Prior To
B. Same; After
C. Opposite; After
D. Same; Prior To
E. Same; Simultaneously As

24. Which Of The Following Is Not About Business Cycles?
A. All Business Cycles Have Four Distinct Phases
B. The Average Length Of A U.S. Business Cycle Is About 60 Months
C. Since 1960, The U.S. Has Experienced Six Complete Business Cycles
D. The Last Economic Depression In The U.S. Occurred In The 1930s
E. The Turning Points Of A Business Cycle Can Be Easily Predicted

25. What Do You Call Business Cycle Theories Based On The Belief That Economic Activity Follows General Trends Of Optimism And Pessimism?
A. Theories Of Expectations
B. Real Business Cycle Theories
C. Theories Of Innovation
D. Theories Of Externalities
E. Sunspot Theories

26. Which Of The Following Economists Is Associated With The Business Cycle Theory Of Innovations?
A. John Maynard Keynes
B. William Stanley Jones
C. Joseph Schumpeter
D. Ansel Sharp
E. Adam Smith

27. Monetary Theories Of The Business Cycle Postulate That Cycles Are Strongly Influenced By The Policy Actions Of The
A. U.S. Congress
B. Federal Reserve
C. World Trade Organization
D. National Bureau Of Economic Research
E. U.S. Department Of Commerce

28. Which Of The Following Focuses Primarily On Aggregate Supply Variables?
A. Theory Of Expectations
B. Exogenous Theories
C. Monetary Theories
D. Real Business Cycle Theories
E. Jevons’ Sunspot Theory

29. What Was The First Theory Put Forth By An Economist To Explain The Phenomena Of Business Cycles?
A. Inventory Theory
B. Schumpeter’s Theory Of Innovation
C. Real Business Cycle Theories
D. Theory Of Expectations
E. Jevons’ Sunspot Theory

30. What Are The Two Primary Determinants Of Economic Growth?
A. The Availability Of Resources And Productivity Factors
B. Technology And Money
C. The Quantity Of Capital And The Quantity Of Money
D. The Ability To Trade And The Size Of The Labor Force
E. Comparative Advantage And The Law Of Diminishing Returns

31. What Is The Result Of A Growing Labor Force?
A. Lower Rates Of Interest In The Capital Market
B. Higher Rates Of Unemployment
C. The Economy’s Production Possibilities Curve Shifts Outward
D. The Economy’s Production Possibilities Curve Shifts Inward
E. The Economy’s Rate Of Growth Must Slow To Accommodate More People

32. Which Of The Following Terms Is Used To Describe The Purchase Of Capital?
A. Savings
B. Consumption
C. Technology
D. Investment
E. Production

33. Why Does Spending On Capital Tend To Increase Economic Growth More Than Spending Of Consumption Goods? Because
A. Capital Lasts Longer Than Consumer Goods
B. Capital Can Be Used To Produce Future Goods And Services
C. Capital Puts Technology To Use
D. People Prefer To Invest In Capital In Order To Generate Income
E. Capital Purchases Are Taxed At A Lower Rate Than Consumption Purchases

34. What Was The Primary Opportunity Cost Of The Former Soviet Union’s Policy To Heavily Invest In Capital For Economic Growth?
A. An Inability To Trade With Other Nations
B. Democracy
C. Foregone Consumer Goods
D. Technological Innovations
E. Foregone Military Goods

35. Initially 10 Workers Produce 100 Units Of Output In An Economy. The Next Year, 20 Workers Produce 250 Units Of Output In The Same Economy. Productivity In The Economy Has
A. Doubled
B. More Than Doubled
C. Increased
D. Decreased
E. Not Changed

36. Which Of The Following Is The Best Definition Of “Productivity”?
A. A Measurement Of How Efficiently Resources Are Converted Into Goods And Services Through A Production Process
B. A Measurement Of How Technology Increases The Ability Of An Economy To Produce Goods And Services
C. The Ratio Of Inputs To Output
D. The Quantity Of Goods And Services Produced During A Given Period Of Time By Labor
E. The Total Output Produced In An Economy Given Its Set Of Resources And The Current State Of Technology

37. How Do You Calculate The Average Product Of Labor?
A. Total Quantity Of Inputs Divided By Total Output
B. The Average Number Of Workers Times The Average Level Of Output Produced
C. Total Output Produced Divided By Total Units Of Labor Employed
D. Total Units Of Labor Employed Divided By The Total Output Produced
E. The Average Number Of Labor Units Employed Times The Quantity Of Capital Employed

38. In An Economy, 100 Workers Can Produce 500 Units Of Output And 110 Workers Produce 600 Units Of Output. Which Of The Following Is ? The Average Product With
A. 100 Workers Is 500
B. 100 Workers Is 5
C. 110 Workers Is 600
D. 10 Workers Is 100
E. Both A) And C)

39. In An Economy, 10 Workers Can Produce 500 Units Of Output And 20 Workers Produce 800 Units Of Output. Which Of The Following Is ? The Average Product With
A. 10 Workers Is 500
B. 10 Workers Is 5
C. 20 Workers Is 800
D. 20 Workers Is 300
E. 20 Workers Is 40.

40. What Is Technology?
A. The Tools Of Production
B. The Human Input Of Production
C. Computers, Robots, And Factories
D. The Means And Methods Of Production
E. The Mix Of Labor And Capital Used In Production

41. Which Of The Following Is Cited As Contributing To The Recent Slowdown In Economic Growth?
A. Slower Rates Of Technological Advancement
B. Changes In Composition Of The Labor Force
C. Low Rates Of Saving And Investment
D. Government Regulation And Public Debt
E. All Of The Above

42. How Has The Increasing Importance Of The U.S. Service Sector Contributed To The Slowdown In Economic Growth?
A. Services Are Less Important To The Economy Than Goods
B. The Productivity Of The Service Sector Is Hard To Accurately Measure
C. Most Investment Takes Place In The Goods Producing Sector Of The Economy
D. Services Cannot Be Easily Exported To Foreign Nations
E. Technological Advances Have Had A Smaller Impact On The Service Sector

43. What Is The “Crowding Out” Effect?
A. Consumption Spending Is Reduced Because Of Spending On Capital
B. Capital Spending Is Reduced Because People Purchase Great Quantities Of Consumer Goods
C. Private Investment Is Reduced Because Government Borrowing Diverts Dollars Away
D. Government Spending Creates A Larger Demand For Capital Goods
E. Savings Is Insufficient To Support The Level Of Capital Investment In The Economy

44. Which Of The Following Is A “Pro-Growth” Economic Policy?
A. Raising The Tax On Capital Gains
B. Encouraging People To Save Less
C. Reducing Public Dollars Available For Education
D. Investing In Human Capital
E. None Of The Above

45. How Much Does The Federal Government Spend Annually On Research And Development?
A. Less Than 1% Of Gdp
B. About 10% Of Gdp
C. More Than 25% Of Its Budget
D. Zero
E. Exactly 5% Of Its Budget

46. Which Theories Concerning The Business Cycle Focus On Factors Outside Of The Economy?
A. Expectations Theories
B. Inventory Theories
C. Exogenous Theories
D. Monetary Theories
E. Theories Of Innovation

47. The Economic Growth Of An Economy Is Generally Measured By Examining Changes In
A. Employment
B. Real Gdp
C. Income
D. Government Revenues
E. Current Gdp

48. Which Of The Following Statements Is ?
A. The U.S. Economy Grew At A Higher Rate In The 1980s Than It Did In The 1960s
B. The Leading Economic Indicators Index Is Useful For Predicting Economic Recessions, But Not Economic Expansions
C. The Economist Most Often Associated With Theories Of Innovation Used To Explain Business Cycles Is Milton Friedman
D. A Small Reduction In Economic Growth Can Have Large Long-Run Effects On Real Gdp
E. All Of The Above Statements Are

49. How Many Complete Business Cycles Has The U.S. Experienced Since 1960?
A. 7
B. 1
C. 12
D. 2
E. 23

50. Relative To The Past, Business Cycles In The U.S. Are Becoming
A. Shorter In Duration
B. More Severe
C. Longer In Duration
D. (A) And (B)
E. Non-Existent

51. Which Of The Following Is Responsible For Officially Tracking The Index Of Leading Economic Indicators?
A. The U.S. Department Of Commerce
B. The Conference Board
C. The Bureau Of Labor Statistics
D. The Council Of Economic Advisors
E. The Federal Reserve Board Of Governors

52. Which Of The Following Is Not A Component Of The Index Of Leading Economic Indicators?
A. Stock Market Prices
B. An Index Of Consumer Expectations
C. New Building Permits Granted
D. Real Money Supply
E. None Of The Above. All Are Part Of The Index

53. In Response To An Economic Recession, Monetary Theories Of The Business Cycle Predict That The Federal Reserve Would
A. Increase The Supply Of Money To Create An Expansion
B. Reduce The Supply Of Money To Create An Expansion
C. Raise Interest Rates To Increase Real Economic Growth
D. Increase The Demand For Money To Bring About Economic Growth
E. Lower Taxes To Avoid A Full Depression

54. Which Famous Economist Is Associated With The Sunspot Theory Of Business Cycles?
A. Joseph Schumpeter
B. Milton Friedman
C. William Stanley Jevons
D. John Maynard Keynes
E. Charles Alan Register

55. Which Set Of Theories Can Be Used To Explain All Business Cycles?
A. Exogenous Theories
B. Theories Of Innovation
C. Inventory Theories
D. Monetary Theories
E. None Of The Above. No One Theory Can Explain Every Business Cycle

56. For An Economy To Expand Its Investment In The Production Of Capital Goods, It Must
A. Enhance Its Current Level Of Technology
B. Forego Some Production Of Consumer Goods And Services
C. Expand Its Geographic Territory
D. Increase Its Real Supply Of Money
E. Reduce The Level Of Savings By Consumers

57. The Quantity Of Capital In The U.S. Economy Has Grown At A Rate ________ The Growth In The Labor Force.
A. Slower Than
B. About The Same As
C. Faster Than
D. Only Half As Much As
E. Unknown

58. Human Capital Refers To
A. Foregone Earnings Of Students Enrolled In College
B. Money Required To Enroll In Educational Programs
C. Slaves Owned By Capitalists
D. Skills And Training That Increase A Worker’s Productivity
E. Factories And Equipment Owned By Workers

59. The First Decade Of The 21st Century Has Been Characterized By ______.
A. A Booming Economy Through The Period
B. A Recession At The Start Of The Decade, Followed By A Slow Recovery And Then A Second Recession
C. Stagflation
D. One Recession Followed By An Unprecedented Economic Boom
E. None Of The Above

60. Which Of The Following Statements Is ?
A. In The Foreseeable Future, Real Gdp Will Grow Slower Than The U.S. Population
B. Based On Past Economic Performance, It Is Likely That Standards Of Living In The U.S. Will Fall During The Early Part Of The 21st Century
C. Real Per Capita Gdp Will Likely Increase In The Near Future Due In Part To The Slowdown In The Rate Of Population Growth
D. In Economics, The Past Is A Very Poor Predictor Of The Future
E. The Rate Of Economic Growth Does Not Affect Individual People

Questions 61 – 65 Refer To The Graph Below.

61. An Economy’s Production Possibilities Curve Will Shift Out The Farthest In 2017 If It Chooses To Operate At Which Point In 2012?
A. A
B. B
C. C
D. F
E. E

62. An Increase In Labor Resources Will Cause Which Of The Following Shifts On The Graph?
A. Bf To Ag
B. Ag To Bf
C. D To C
D. C To D
E. D To E

63. Economic Growth Is Represented On The Graph As A Movement From
A. Bf To Ag
B. Ag To Bf
C. D To C
D. C To D
E. D To E

64. An Increase In Productivity Is Consistent With Which Of The Following Movements?
A. Bf To Ag
B. Ag To Bf
C. D To C
D. C To D
E. D To E

65. A Movement From Point D To Point C Is Consistent With
A. An Increase In Capital Goods Without A Decrease In Consumer Goods
B. Technological Change Between 2012 And 2017
C. An Increase In Productivity Between 2012 And 2017
D. All Of The Above
E. None Of The Above

Questions 66 – 70 Refer To The Graph Below.

66. An Economic Expansion Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

67. An Economic Contraction Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

68. A Peak In The Business Cycle Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

69. A Trough In The Business Cycle Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

70. The Straight Line On The Graph Represents
A. An Economic Expansion
B. An Economic Contraction
C. A Business Cycle
D. A Long-Run Growth Trend
E. A Boom Period

71. The Longest Sustained Period Of Economic Growth In Modern U.S. History Occurred During The
A. 1920s
B. 1950s
C. 1960s
D. 1980s
E. 1990s

72. Which Of The Following Factors Was Not One Of The Reasons Why A Recession Started In 2008?
A. The Collapse Of A Speculative Bubble In The Real Estate Market
B. A Spike In Interest Rates
C. A Significant Rise In The World Price Of Oil
D. A Series Of Financial Fraud Schemes In The Financial Industry
E. All Of The Above

73. The Decline That Occurred In Real Gdp In The Fourth Quarter Of 2008 Was ________ .
A. The Smallest Decrease On Record
B. The Average Reduction
C. Smaller Than The Decrease In The Third Quarter
D. The Largest In Over 50 Years
E. There Was No Decline In Real Gdp During 2008
74. Which Of The Following Contributed To The Inflation-Free Economic Expansion Of The 1990s And Early 2000s?
A. Fed Policies To Raise Interest Rates
B. An Increase In Aggregate Supply
C. Improvements In Productivity
D. Improvements In Technology
E. All Of The Above

75. Productivity Gains In The 1990s Were A Result Of Which Of The Following?
A. Capital Investment
B. Improved Labor Quality
C. Technological Progress
D. Increased Use Of Computers
E. All Of The Above

76. Saving In An Economy Is Important For Economic Growth Because
A. If Households Don’t Save, They Cannot Consume In The Future
B. Without Saving, Aggregate Demand Increases
C. One Person’s Saving Is Another Person’s Consumption
D. It Is The Source Of Funds For Investment
E. Of None Of The Above; Saving Is Not Important For Economic Growth

77. Which Of The Following Is Not Something That Will Increase Economic Growth?
A. Expenditures On Research And Development
B. Increased Education
C. Using Resources To Develop Additional Capital
D. Replacing Old Machinery
E. All Of The Above Will Increase Economic Growth

78. According To Real Business Cycle Theory, The Primary Factor That Increases Aggregate Supply Is
A. Savings
B. Increases In The Size Of The Labor Force
C. Technological Improvements
D. Government Spending
E. Reductions In Regulation

True / False Questions

79. Economic Growth Is Necessary To Create New Jobs, Increase Incomes, And Raise Standards Of Living.

80. Economic Growth Is An Important Social Issue, But It Is Not Related To Other Problems Such As Unemployment And Poverty.

81. Economists Consider Economic Growth As A Short-Run Process.

82. Between 1960 And The Mid-1990s, The American Economy More Than Tripled Its Level Of Real Gdp.

83. During The Past Three Decades, The U.S. Economy Experienced Significant Periods Of Growth Without Interruption.

84. Even Small Differences In Growth Rates Can Result In Significant Gaps In Gdp Between Two Countries Over The Long Run.

85. Economic Growth Compounds Over Time.

86. The U.S. Economy Has Never Experienced A Year Of Negative Economic Growth.

87. U.S. Economic Growth Rates In The 1990s Have Been Higher Than Those Experienced In The 1960s.

88. An Erratic Short-Run Fluctuation In Economic Activity Around The Long-Run Trend Is Called A Business Cycle.

89. Every Business Cycle Has Four Distinct Phases; Expansion, Peak, Contraction, And Trough.

90. Strong Economic Expansions Are Sometimes Referred To As Economic Booms.

91. Another Name For The Trough Of A Business Cycle Is Recession.

92. Each Phase Of A Business Cycle Has Approximately The Same Duration.

93. Since Wwii, The Average Length Of A Typical U.S. Business Cycle Is Approximately 60 Months.

94. Given Modern Data Collection Techniques, It Is Very Easy To Identify When The Economy Is About To Move Into The Next Phase Of A Business Cycle.

95. In The U.S., The Official Dates For Each Phase Of A Business Cycle Are Determined After The Fact By The National Bureau Of Economic Research (Nber).

96. The Index Of Leading Economic Indicators Is Used By Economists To Forecast Changes In Economic Performance Over Time.

97. The Components Of The Index Of Leading Economic Indicators Tend To Change Prior To Changes In The Economy As A Whole.

98. The Components Of The Index Of Leading Economic Indicators Lead Changes In The Aggregate Economy, But Move In An Opposite Direction.

99. Economists Have Agreed Upon One Widely Accepted Theory To Explain Business Cycle Behavior.

100. Expectations About The Future Influence The Economic Decisions That People Make Today.

101. Joseph Schumpeter Theorized That Business Cycles Were Determined Primarily By Long-Run Waves Of Innovation.

102. Monetary Theories Of Business Cycles Are Based On How The Federal Reserve Manages The Money Supply In Response To Changing Economic Conditions.

103. Real Business Cycle Theorists Postulate That Economic Fluctuations Are Primarily Due To Changes In Aggregate Demand.

104. Jevons’ Sunspot Theory Of The Business Cycle Is Widely Used By Economists Today To Forecast Future Levels Of Economic Activity.

105. The Primary Determinants Of Economic Growth Include The Availability Of Resources And Productivity Factors.

106. As An Economy’s Labor Force Increases In Size, Its Production Possibilities Frontier Shifts Outward.

107. The U.S. Labor Force Has Not Grown Substantially During The Past Four Decades.

108. The Term Investment Is Used To Describe The Purchase Of Consumer Goods By Households In The Economy.

109. Investments In Capital Goods Increase An Economy’s Ability To Produce Consumer Goods In The Future.

110. In Recent Years, Capital Has Grown At A Slower Rate Than The Labor Force Within The U.S. Economy.

111. Productivity Is A Measure Of How Efficiently Resources Are Converted Into Goods And Services Through A Production Process.

112. The Total Output Produced Divided By The Total Units Of Labor Employed Is Called The Average Product Of Labor.

113. Productivity Is Not Influenced By The Law Of Diminishing Returns.

114. The Average Level Of Educational Attainment In The U.S. Has Been Gradually Declining Since The Mid-1970s.

115. Technology Refers To The Means And Methods Of Production.

116. On Average, The U.S. Economy Has Grown About 3.12% Annually Since 1960.

117. The U.S. Economy Grew At A Faster Rate In The 1980s Relative To The 1960s.

118. In The 1990s, The U.S. Economy Grew At An Average Annual Rate Of Only 2.1%.

119. The Rate Of Technological Growth In The U.S. Economy Is Higher Today Than It Was In The 1960s.

120. Capital Accumulation In An Economy Is Dependent Upon Savers To Provide Funds For Investors.

121. The Increasing Importance Of The Service Sector In The American Economy May Lead To An Overestimation Of Economic Growth.

122. Some Forms Of Government Regulation Of Business May Reduce Productivity And Therefore Contribute To The Slowdown Of Economic Growth.

123. “Crowding Out” Occurs When Government Borrowing To Finance Its Debt Diverts Funds Away From The Private Sector.

123. The Size Of The American Economy Will Double Within The Next Ten Years.

125. Currently, The Population Of The U.S. Is Growing At A Faster Rate Than Real Gdp Is Growing.

126. To Stimulate Additional Economic Investment, Some Policy Makers Favor Increasing The Tax Rate On Capital Gains.

127. Government Policies That Subsidize Higher Education Should Stimulate Labor Productivity And Enhance Long-Run Economic Growth.

128. The U.S. Government Spends Less Than 1% Of Gdp On Research And Development Each Year.

129. In Economics, The Past Is A Very Poor Predictor Of The Future.

130. The Slowdown In The Rate Of Population Growth Has Increased The Growth Rate In The Real Per Capita Gdp For The U.S.

131. The Rate Of Economic Growth Affects Everyone Living In An Economy.

132. Most Economic Forecasts Of The Near Future Predict That The Standard Of Living In The United States Will Fall.

133. One Strategy To Promote Economic Growth Is To Encourage People To Save More.

134. Savings Can Only Occur When The Economy Is In The Expansion Phase Of A Business Cycle.

135. A Reduction In Savings Will Lead To A Reduction In The Level Of Investment.

136. The Average Annual Rate Of Growth For The U.S. Economy During The Twentieth Century Was Between 3% And 3.5%.

137. The Most Important Determinants Of Economic Growth Are The Availability Of Resources And Productivity Factors.

138. Close Examination Of The Recent History Of Real Gdp In The U.S. Reveals That The Rate Of Economic Growth Has Been Diminishing Over Time.

Chapter 12

Money, Banking, And The Financial System: Old Problems With New Twists

Multiple Choice Questions

1. Commercial Banks Operate
A. By Attracting Deposits And Making Loans
B. Both Pay And Charge Interest
C. By Engaging In Financial Intermediation
D. All Of The Above
E. Under The Control Of State Governments

2. Commercial Banks
A. Attract Deposits By Offering To Pay Interest
B. Sell New Issues Of Stocks And Bond
C. Operate On A Non-Profit Basis
D. Attract Deposits By Offering Free Toasters
E. None Of The Above

3. Commercial Banks
A. Started By Offering Credit To Wealthy Landowners
B. Began As Goldsmiths That Provided Receipts To Customers Who Stored Their Gold With The Goldsmith
C. Operate In Both The Primary And Secondary Financial Markets
D. Operate Only In Cities With Major Financial Markets
E. Began In Germany

4. A Financial Intermediary
A. Seeks Deposits
B. Makes Loans
C. Matches Up Savers And Borrowers
D. All Of The Above
E. Operates In Between Two Banks

5. Investment Banks
A. Make Loans To Individual Households To Buy Houses And Cars
B. Work With Corporations To Finance Their Operations Through Primary Financial Markets
C. Work With Corporations To Finance Their Operations Through Secondary Financial Markets
D. Work With Investments From Private Individuals
E. None Of The Above

6. A Stock Is
A. A Financial Instrument That Provides Ownership Rights To Shareholders
B. A Financial Instrument That Provides Annual Payments Of Interest
C. A Financial Instrument That Is Traded Only In Primary Financial Markets
D. A Financial Instrument That Is Bought And Sold By Commercial Banks
E. All Of The Above

7. A Dividend
A. Must Be Paid By A Commercial Banks
B. Must Be Paid By Corporations To Owners Of The Company’s Stock
C. Is A Distribution Of A Corporation’s Profits To Stockholders
D. Is A Financial Instrument That Is Bought And Sold By Commercial Banks
E. None Of The Above

8. Corporations Raise Funds In
A. The Money Market
B. The Primary Financial Market
C. The Secondary Financial Market
D. Both The Primary And Secondary Financial Markets
E. None Of The Above

9. When A Person Buys A Stock On A Stock Exchange They Are Participating In
A. The Money Market
B. The Primary Financial Market
C. The Secondary Financial Market
D. Both The Primary And Secondary Financial Markets
E. None Of The Above

10. Insurance Policies
A. Require An Initial, One-Time Payment By Policy Holders But No Further Outlay
B. Make Payments To Policy Holders On A Monthly Basis
C. Require A Regular Payment Of Insurance Premiums By Policy Holders
D. Require An Initial Payment And Regular Payments Of Insurance Premiums By Policy Holders
E. None Of The Above

11. The Financial Crisis Of 2008 Affected
A. Only Commercial Banks
B. Only Investment Banks
C. Only Insurance Companies
D. All Of The Above
E. The Revenues Of Only State Governments

12. In The Early Years Of The American Republic, The First Bank Of The United States Was Established Through The Efforts Of
A. Thomas Jefferson
B. George Washington
C. James Madison
D. Alexander Hamilton
E. Aaron Burr

13. During Most Of The 1800s, The Federal Monetary Authority Was Called
A. The Bank Of America
B. The Bank Of Washington
C. The First National Bank
D. The Third Bank Of The United States
E. None Of The Above

14. Throughout The History Of The U.S., Until The Creation Of The Federal Reserve System In 1913, The Monetary System Was
A. Characterized By A Series Of Panics And Periods Of Instability
B. Under The Control Of The Second Bank Of The United States
C. The Product Of The Work Of President Andrew Jackson
D. Based Upon The English System
E. Under The Supervision Of The Us Mint

15. Prior To The Creation Of The Federal Reserve System, The Money Supply
A. Was Very Stable And Highly Valued
B. Was Comprised Of Currency Printed By The Department Of The Treasury
C. Was Produced By Local Banks And Often Traded At A Discount
D. Was Available Only To Bank Depositors
E. Was Comprised Of Gold

16. Money Serves As
A. A Unit Of Account
B. A Store Of Value
C. A Medium Of Exchange
D. All Of The Above
E. An Emblem Of Personal Wealth

17. When You Use Dollar Bills To Pay For A Purchase At A Store, Money Is Serving Which Function?
A. A Medium Of Exchange
B. A Measure Of Value
C. A Store Of Value
D. A Barter Facilitator
E. All Of The Above

18. When You Compare A Dollar’s Worth Of Apples To A Dollar’s Worth Of Oranges, Money Is Serving Which Function?
A. A Medium Of Exchange
B. A Measure Of Value
C. A Store Of Value
D. A Barter Facilitator
E. A Measure Of Wealth

19. If You Keep Some Cash In A Safe Place So That You Have It To Use Later, Money Is Serving Which Function?
A. A Medium Of Exchange
B. A Measure Of Value
C. A Store Of Value
D. A Barter Facilitator
E. All Of The Above

20. Banking Regulation Is Intended To Prevent
A. Bank Failures
B. Excess Bank Profits
C. Bank Losses
D. Banks From Selling Securities
E. Banking Monopolies

21. The Gramm-Leach-Bliley Act Allows Banks To
A. Sell Insurance
B. Underwrite Insurance
C. Sell Securities
D. Invest In Real Estate
E. Do All Of The Above

22. Money Is “Liquid” Because
A. It Loses Value With Inflation
B. Coins Can Be Melted To Use Their Metal To Make Goods
C. It Serves As A Measure Of Value
D. It Does Not Have To Be Sold To Buy Goods And Services
E. It Is A Valuable Asset

23. Which Of The Following Is Of A Fractional Reserve Banking System?
A. Banks Must Hold All Of Depositors’ Deposits In Their Vaults
B. Banking Is Only A Fraction Of The Services Banks Provide To Their Customers
C. Banks Lend Out Part Of Their Depositors’ Deposits
D. The Reserve Ratio Is 100%
E. Banks May Not Hold Excess Reserves

24. If The Reserve Ratio Is 10% And A New Demand Deposit Of $10,000 Is Made, What Is The Maximum Deposit Creation Possible?
A. $1,000
B. $9,000
C. $10,000
D. $90,000
E. $100,000

25. If The Reserve Ratio Is 10% And A New Demand Deposit Of $5,000 Is Made, What Is The Maximum Deposit Creation Possible?
A. $500
B. $4,500
C. $5,000
D. $45,000
E. $50,000

26. If The Reserve Ratio Is 20% And A New Demand Deposit Of $10,000 Is Made, What Is The Maximum Deposit Creation Possible?
A. $1,500
B. $10,000
C. $15,000
D. $40,000
E. $50,000

27. Money Does Not Serve As A
A. Medium Of Exchange
B. Store Of Value
C. Measure Of Value
D. Price Index
E. It Serves As All Of The Above

28. M1 Includes
A. Currency And Coins In Circulation, Traveler’s Checks, Demand Deposits At Commercial Banks, And Other Checkable Deposits
B. Currency And Coins In Circulation, All Demand Deposits, And All Time Deposits
C. All Demand Deposits And All Time Deposits
D. Just Currency And Coins In Circulation
E. None Of The Above

29. Banks Make Loans From Their
A. Required Reserves
B. Excess Reserves
C. Net Worth
D. U.S. Government Securities
E. None Of The Above

30. Which Of The Following Is Among The Assets Of A Commercial Bank?
A. Demand Deposits
B. Net Worth
C. Any Liability
D. Loans And Investments
E. Time Deposits

31. M2 Includes
A. M1, Plus Savings And Time Deposits Of Small Denomination, And Money Market Mutual Funds
B. M1 Plus Savings And Time Deposits Of Large Denomination (Over $100,000)
C. M1 Plus Banks Acceptances And Treasury Bills
D. M1 Plus Currency And Demand Deposits
E. None Of The Above

32. The Basic Money Supply Is
A. Composed Of Small Denomination Time Deposits Plus Coin And Currency Held By The Nonbank Public
B. Composed Of Assets That Are Completely Liquid And Easily Accessible
C. Our Broadest Measure Of Money
D. Simply The Coins And Currency Held By The Nonbank Public
E. None Of The Above

33. Excess Reserves Refer To
A. Reserves That Banks Are Required By Law To Hold
B. The Major Assets Of The Bank
C. Reserves A Bank Holds In Case Of Unexpected Case Needs
D. Reserves Over And Above The Bank’s Required Reserves
E. None Of The Above

34. The Money Multiplier Is
A. 1/R
B. Er
C. R/E
D. E/R
E. 1+1/Er

35. Suppose The Legal Reserve Requirement Is 0.20, And A Bank Has Excess Reserves Of $1,000,000. The Ultimate Increase In The Money Supply Will Be
A. $2,000,000
B. $200,000
C. $800,000
D. $5,000,000
E. $500,000

36. The Inflation Rate And The Growth In The Money Supply Are
A. Usually Inversely Related
B. Usually Directly Related
C. Never Directly Related
D. Not Related To One Another
E. Negatively Related

37. Who Controls The Aggregate Volume Of Demand Deposits In The Banking System?
A. The U.S. Treasury
B. The Federal Reserve Board Of Governors
C. Congress
D. Bankers
E. The President Of The United States

38. To Reduce Inflationary Pressures, The Federal Reserve Authorities Should
A. Sell Government Securities, Raise Reserve Requirements, And Lower The Discount Rate
B. Sell Government Securities, Lower Reserve Requirements, And Lower The Discount Rate
C. Buy The Government Securities, Raise Reserve Requirements, And Raise The Discount Rate
D. Sell Government Securities, Raise Reserve Requirements, And Raise The Discount Rate
E. Buy Government Securities, Decrease Reserve Requirements, Decrease The Discount Rate

39. If The Open Market Committee Of The Federal Reserve Sells Securities, This Action Will
A. Decrease The Money Supply
B. Increase The Money Supply
C. Reduce The Reserve Requirement
D. Decrease The Discount Rate
E. Do None Of The Above

40. When A Central Bank Wants To Increase The Money Supply, It
A. Sells Bonds
B. Buys Bonds
C. Sells Good And Services
D. Buys Goods And Services
E. Does None Of The Above

41. The Federal Reserve Can Decrease The Supply Of Money By
A. Selling U.S. Government Securities
B. Buying U.S. Government Securities
C. Selling Goods And Services
D. Buying Goods And Services
E. Decreasing The Reserve Requirement

42. The Federal Open Market Committee (Fomc) Is Highly Concerned With
A. The National Unemployment Rate
B. The Growth Of Real Gdp
C. Interest Rates
D. The Level Of The Stock Market
E. All Of The Above

43. When The Open Market Committee (Fomc) Purchases Government Securities, Their Actions Are An Attempt To
A. Raise Interest Rates
B. Lower Interest Rates
C. Reduce Borrowing
D. Raise The Inflation Rate
E. Influence Voters In The Next Presidential Election

44. When The Fed Increases The Money Supply, It Generally Has The Effect Of
A. Making Banks More Profitable
B. Increasing The Value Of Stocks
C. Lowering Interest Rates
D. Lowering The Inflation Rate
E. Increasing The Size Of Bank Deposits

45. When The Fed Wishes To Increase The Money Supply, It Can Do So By
A. Purchasing Government Securities Through Open Market Operations
B. Lowering The Discount Rate
C. Reducing The Reserve Requirement
D. All Of The Above
E. Increasing The Size Of Bank Deposits

Questions 46 – 49 Refer To The Graph Below.

46. Suppose That The Fed Has Increased The Money Supply. This Is Shown In The Diagram By
A. Q1 To Q0
B. Q0 To Q1
C. Ms1
D. Ms2
E. None Of The Above

47. Based On The Diagram, The Opportunity Cost Of Money Is Higher If
A. The Interest Rate Is I0
B. The Interest Rate Is I1
C. The Money Supply Is Curve Ms1
D. The Money Supply Is Curve Ms2
E. The Opportunity Cost Of Money Is Not Shown In The Diagram

48. A Shift From Ms1 To Ms2 Would Be The Result Of
A. An Increase In Aggregate Demand
B. An Increase In Aggregate Supply
C. A Decision By The Fed To Purchase Government Securities By The Fomc
D. A Decision By The Fed To Sell Government Securities By The Fomc
E. A Change In The Stock Market

49. If The Fed Wanted To Stimulate Business Investment, It Could Do So By
A. Increasing Interest Rates From I1 To I0
B. Decreasing The Money Supply From Ms2 To Ms1
C. Increasing The Money Supply From Ms1 To Ms2
D. Raising The Reserve Requirement
E. Increasing The Discount Rate

50. The Equation Of Exchange Is
A. Mp = Qv
B. Mv = Pq
C. M = V/Pq
D. P = Q/Mv
E. Pv = Qm

51. The Value Of Money Varies
A. Directly With The Interest Rate
B. Directly With The Price Level
C. Directly With The Volume Of Employment
D. Inversely With The Price Level
E. With None Of The Above

52. According To The Equation Of Exchange,
A. The Right-Hand Side Will Equal The Left-Hand Side Only If Velocity Does Not Change From Year To Year
B. Velocity Must Be Constant
C. An Increase In The Quantity Of Money Will Lead To An Increase In The Price Level, Other Things Constant
D. Prices Cannot Change
E. All Of The Above

53. The Quantity Theory Of Money Emphasizes
A. Government Taxation Policies
B. Government Spending Policies
C. Labor Productivity
D. Changes In The Money Supply
E. None Of The Above

54. A Key Assumption In The Quantity Theory Of Money Is That
A. The Supply Of Money Is Increasing At A Constant Rate
B The Price Level Is Stable Over Long Periods Of Time
C. The Level Of Output Of Goods And Services Changes Frequently In Response To Changes In Velocity
D. The Velocity Of Money Is Constant
E. None Of The Above

55. The Residential Housing Market Saw Remarkable Increases In
A. Housing Prices At The End Of The 1990’s And Through The First Half Of The 2000’s
B. Housing Prices At The End Of The 1980’s And Beginning Of The 1990’s
C. Foreclosure Rates At The End Of The 1990’s And Through The First Half Of The 2000’s
D. Foreclosure Rates At The End Of The 1980’s And Beginning Of The 1990’s
E. Both A And C

56. The Growth In The Residential Real Estate Market Is Largely A Product Of
A. A Large Increase In The Demand For Housing
B. An Unexpected Growth In Us Population
C. A Decline In Housing Prices
D. A Tightening Of Government Policies That Restrict Homeownership
E. A Decrease In Mortgage Availability

57. The Federal National Mortgage Association (Or Fannie Mae) Was Created To
A. Make Mortgages Hard To Obtain
B. Make Mortgages Less Likely To Go Into Foreclosure
C. Make A Larger Market In Mortgages By Establishing A Secondary Financial Market In Mortgages
D. Make Mortgages Available To New Immigrants To The Us
E. None Of The Above

58. A Mortgage Backed Security Is
A. A Share Of Common Stock Based Upon Home Mortgages
B. A Financial Instrument That Reduces Risk By Pooling Together A Large Number Of Mortgages Into One Asset
C. A Financial Instrument Developed To Reduce Liquidity In The Housing Market
D. A Financial Instrument That Is The Combination Of Only Subprime Mortgages
E. All Of The Above

59. A Subprime Mortgage
A. Made Obtaining A Mortgage Easier For Low Income Households
B. Is A Mortgage That Does Not Meet The Requirements For A Conventional Mortgage
C. Is Usually Structured As An Adjustable Rate Mortgage
D. All Of The Above
E. Is No Different From A Conventional Mortgage

60. A Collateralized Debt Obligation (Or Cdo)
A. Is Generally Riskier Than A Single Debt Of An Equal Value
B. Sells For A Lower Price Than Re-Sales Of Individual Mortgages That Comprise Them
C. Is Sold In The Primary Financial Market
D. Is A Financial Instrument That Obscures The Underlying Risks Of The Mortgages That Comprise Them
E. Is Always A Bad Financial Investment

61. The Interest Rate On An Adjustable Rate Mortgage (Arm) Is
A. Set To Equal The Fed Funds Rate
B. Adjusted On A Daily Basis
C. Set To Rise At The End Of Every Year For The Life Of The Mortgage
D. Adjusted Periodically Based Upon Current Market Conditions
E. Adjusted Based Upon The Value Of The House Purchase

62. Home Equity Loans
A. Allow A Home Owner To Recapture Some Of The Increase In The Value Of Their Home Without Selling The Home
B. A Way For Homeowners To Issue Stock, Or Equity, In Their Home
C. Only Used When Home Prices Are Increasing
D. A Way For The Market To Eliminate Paper Profits
E. None Of The Above

63. Besides Homeowners, Who Attempted To Profit From Increasing Home Prices During The Housing Bubble In The Early Part Of The 2000s?
A. Large Corporations
B. Speculators
C. Foreign Investors
D. Individuals Who Had Low Incomes
E. All Of The Above

64. A Credit Default Swap
A. Is What Happens When Homeowners Swap Their Mortgages With Their Neighbors
B. Is A Way For Investors In Collateralized Debt Obligations (Or Cdo’s) To Make Even More Money
C. Is A Way For Investors In Collateralized Debt Obligations (Or Cdo’s) To Reduce The Risk Of An Increase In Mortgage Foreclosures
D. Is A Way For Investors To Increase The Risks To Homeowners
E. Exists Only In Markets With Subprime Mortgages

65. Assets That Are “Marked To Market” Will Be Priced At
A. Their Original Purchase Price
B. Their Original Purchase Price Less The Depreciation Of The Asset
C. A Price That Is Equal To The Original Purchase Price Plus The Rate Of Inflation
D. A Price That Is Based Upon The Asset’s Current Market Value
E. A Price Determined In The Stock Market

66. Many Large Banks And Wall Street Investment Firms Got Into Financial Problems Due To
A. Investments In Subprime Mortgages
B. Required Payments On Credit Default Swaps
C. Failures Of Collateralized Debt Obligations Resulting From Home Foreclosures
D. Having To Mark Down A Significant Number Of Their Assets Due To The “Mark To Market” Accounting Requirement
E. All Of The Above

67. The Federal Government Stepped In During 2008 To Prevent Several Commercial Banks And Investment Banks From Failing Based Upon The Idea That
A. They Were “Too Big To Fail”
B. Any Business Failure Would Hurt Shareholders
C. These Banks Made Large Political Contributions And This Was A Way For Politicians To Pay Them Back
D. Government Would Make Large Profits By Doing So
E. None Of The Above

68. In Late 2008, The Us Treasury Department Began
A. Closing Banks That Were Not Following Regulations
B. To Implement The Troubled Asset Relief Program (Tarp)
C. Raising Interest Rates To Stimulate The Economy
D. Engaging In Open Market Operations
E. To Implement The Opening Of A New Bank Of The United States

69. Each Of The Following Is A Financial Intermediary Except
A. Commercial Banks
B. Investment Banks
C. Insurance Companies
D. Credit Unions
E. All Of The Above Are Financial Intermediaries

70. A Capital Gain Exists
A. When One Political Party Increases The Number Of Its Members In Congress
B. When An Interest Payment Is Made
C. When The Price Of An Asset Goes Up
D. When The Price Of An Asset Exceeds The Price Paid For It
E. When Taxes Are Paid On The Asset

71. Liquidity Of An Asset Increases When
A. It Is Easier To Convert The Asset Into Cash
B. The Asset’s Value Is Below Its Original Price
C. The Asset Is Purchased
D. The Asset Depreciates
E. The Asset Is Put On The Market

72. When A Share Of Stock Is Sold On The New York Stock Exchange, It Is Traded
A. In A Prime Financial Market
B. In A Primary Financial Market
C. For A Promise To Pay A Fixed Return
D. To Another Stock Exchange
E. In A Secondary Financial Market

73. The Financial Crisis That Began In 2008 Is A Result Of All Of The Following Except
A. The Bursting Of The Dot.Com Bubble
B. Problems In The Residential Real Estate Market
C. Changes In Accounting Rules About Asset Valuation
D. Large Firms Taking On Assets Whose Value Was Not Well Determined
E. Policies That Allowed Many Unqualified Homebuyers To Receive Mortgages That They Could Not Pay

74. Historically, Many Commercial Banks Began As
A. Coffee Houses And Taverns Where Stocks Were Traded
B. Jewelry Stores That Specialized In The Sale Of Precious Stones
C. Businesses That Engaged In Small Loans
D. Goldsmiths That Held Stores Of Gold For Their Customers
E. None Of The Above

75. An Increase In The Reserve Requirement Can
A. Decrease Interest Rates
B. Increase Liquidity
C. Decrease The Money Supply
D. Increase The Money Supply
E. Decrease The Profits Of Banks

True / False Questions

76. Commercial Banks Are Financial Intermediaries But Insurance Companies Are Not.

77. Investment Banks Assist Corporations In Issuing Stocks And Bonds In The Primary Financial Market.

78. Silversmiths Became Banks When They Started Lending Out Money Based Upon The Excess Silver That They Held For Their Customers.

79. Residential Real Estate Is Generally Considered To Be More Liquid Than A Savings Account.

80. The Us Has, Over Its History, Had Only One National Bank, That Is, A Bank Of The United States.

81. The Most Important Function Of Money Is As A Medium Of Exchange.

82. If The Supply Of Money Decreases, The Value Of A Dollar Increases.

83. The Key To The Federal Reserve’s Control Over The Money Supply Is Its Ability To Create Money By Making Loans.

84. A Commercial Banking System With Excess Reserves Has The Ability To Create Money In The By Making Loans.

85. A Credit Union, Unlike A Bank, Is Not A Financial Intermediary, Since It Is A Cooperative Banking Venture.

86. In The U.S. Banking System, The Ratio Of A Bank’s Reserves And Its Outstanding Deposits Is Usually Less Than One.

87. During Inflationary Periods, The Federal Reserve Should Lower The Discount Rate So That Member Banks May More Easily Obtain Needed Reserves To Enable Them To Increase Their Loans.

88. The Money Supply Consists Primarily Of Gold, Silver, And Other Metals Held By The Government.

89. Monetary Policy Refers To Control Of The Money Supply By The Federal Reserve Authorities.

90. Appropriate Federal Reserve Actions To Combat Inflation Are An Increase In The Discount Rate, An Increase In The Reserve Ratio And The Sale Of Government Securities.

91. The Reserve Ratio Is The Rate Of Interest Charged Commercial Banks When They Borrow From The Federal Reserve.

92. During Inflationary Periods, The Federal Reserve Should Buy Securities So That Commercial Banks Will Have More Reserves To Loan Out.

93. One Of The Main Functions Of Banks Is To Create Money.

94. When A Bank Makes A Loan To One Of Its Customers, It Increases Its Liabilities.

95. The Maximum Demand Deposit Creation Possible From A New Deposit Is Derived From The Equation D = E X 1/R.

96. The Discount Rate Is The Ratio Of Demand Deposits To Reserves That Banks Have To Maintain.

97. Policy Actions That Affect Changes In The Growth Rate Of The Money Supply To Keep Interest Rates At Levels That Promote Economic Stability And Growth Are Called “Fine Tuning” Policies.

98. The Issue Of The Appropriate Monetary Policy Target Has Been Resolved To The Satisfaction Of All Policy Makers.

99. The Quantity Theory Of Money States That Increases In The Money Supply Cause Increases In Both The Price Level And Output.

100. A Credit Union Is A Cooperative Banking Venture Where The Members Or Owners Of The Organization Have A Common Employer Or Union.

101. The Main Purpose Of The Fed Is To Control The Rate Of Interest.

102. The Annual Growth Rate In The Money Supply Has Been Held Constant By The Federal Reserve.

103. The Quantity Theory Of Money Stresses The Importance Of The Velocity Of Money.

104. The Money Multiplier Is Derived From The Legal Reserve Requirement.

105. An Increase In The Supply Of Money Will Decrease Interest Rates.

106. The Federal Reserve Open Market Committee’s Primary Function Is To Open New Banks.

107. The Discount Rate Charged By The Federal Reserve, Is Lower For More Creditworthy Banks.

108. Any Time The Discount Rate Increases, The Money Supply Also Increases.

109. If The Required Reserve Ratio Is Increased By The Fed, One Could Assume That The Fed Is Attempting To Control Inflation.

110. Prior To The Enactment Of The Monetary Control Act Of 1980, State-Chartered Banks Had The Option Of Whether Or Not They Wanted To Be A Member Of The Federal Reserve System.

111. Interest Rates Increase Or Decrease So That An Equilibrium Exists In The Money Market.

112. The Federal Government, Through The Work Of Agencies Like The Federal National Mortgage Association, Has Worked To Increase The Supply Of Funds Available To Mortgage Lenders.

113. A Policy Implemented By The Clinton Administration Resulted In Tighter Financial Requirements For Less Creditworthy Borrowers, So That Financial Markets Were Less Risky.

114. A Subprime Mortgage Is A Mortgage Issued To A Highly Qualified Borrower At Reduced Interest Rates.

115. Subprime Mortgages And Home Equity Loans Contributed Little To The Increase In The Demand For Residential Real Estate, Increasing Prices Dramatically.

116. A Homeowner Whose House Is Worth $500,000 But Who Owes $600,000 On Their Mortgage Is A Good Candidate For A Home Equity Loan, So That The Homeowner Can Build Their Equity.

117. Collateralized Debt Obligations Are A Way That Lenders Can Reduce The Risk Of Individual Mortgage Lending.

118. Collateralized Debt Obligations Always Exclude Subprime Mortgages, Because These Are Too Risky For Most Investors.

119. A Credit Default Swap Is One Way That Lenders Can Offset Some Of The Risks Associated With Investing In Subprime Mortgages.

120. A Number Of Banks Encountered Problems Because A Change In Accounting Rules Required Firms To Mark Assets At Their Original Purchase Price.

121. Borrowers Who Obtain A Mortgage Will Always Find That Their Mortgage Payments Rise Over Time.

122. The Definition Of The Money Supply Called M1 Includes All Of The Assets Included In The Definition Of M2.

123. An Increase In The Required Reserve Ratio Will Allow Banks To Create Less Money.

124. The Open Market Committee Of The Federal Reserve System Meets Regularly To Determine The Required Reserve Ratio.

125. Because Of Recent Changes In The Regulatory System, Commercial Banks Are Able To Offer A Smaller Variety Of Financial Products And Services Than In The Past.

126. The Distinctions Between Commercial Banks And Other Financial Institutions Has Blurred In Recent Years.

127. Large Corporations Enter The Secondary Financial Market To Provide Themselves Adequate Liquidity To Conduct Their Day To Day Operations.

128. Stockholders Can Receive A Capital Gain When They Purchase A Financial Asset.

129. Stocks And Bonds Are Essentially Interchangeable Financial Assets, Since Owners Of Both Of These Instruments Receive Regular Interest Payments.

130. When Ben Bernanke Became Fed Chairman, The Federal Reserve Began Explicitly Announcing Money Supply Targets.

ECO 405 Week 8 Quiz – Strayer University New

ECO/405 Week 8 Quiz – Strayer

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Quiz 7 Chapter 10

Chapter 10

Competition In The Global Marketplace: Should We Protect Ourselves From International Trade?

Multiple Choice Questions

1. Which Of The Following Statements Is Most Accurate?
A. Historically, There Has Been Conflict Between Groups Wanting To Suppress Trade And Groups Wanting To Peg Exchange Rates
B. Since The Late 1940s, Import Restrictions Have Fallen
C. Resentment Of Imports Always Increases During Economic Expansions
D. The U.S. Government Engaged In A Free Trade Campaign Up To The End Of World War Ii
E. None Of The Above

2. Which Of The Following Is Part Of The “Protectionist” Perspective On International Trade?
A. Imports Are Responsible For Crowding Out Domestic Goods From The Market And Thereby Reduce American Jobs
B. Trade Restrictions Are Needed To Protect Key Industries Vital To National Security
C. Imports Should Be Restricted To Remedy The Balance Of Trade Deficit
D. Both (A) And (C)
E. All Of The Above

3. In A Free Market, Who Benefits From Voluntary Exchange?
A. Buyers
B. Sellers
C. Both Buyers And Sellers
D. The Government Only
E. Nobody

4. Why Is International Trade Important? International Trade
A. Increases The Variety And Availability Of Consumer Goods In An Economy
B. Expands The Production Possibilities Of A Nation’s Economy
C. Increases An Economy’s Gdp
D. Allows Nations To Specialize In The Production Of Goods According To Comparative Advantage
E. Does All Of The Above

5. Which Of The Following Is Not Used As A Protectionist Argument?
A. Imports Crowd U.S. Goods Out Of The Market
B. Imports Reduce The Demand For Domestic Labor Leading To Higher Unemployment
C. Our Industries Cannot Compete Successfully Against Those In Other Countries That Pay Much Lower Wages
D. Imports Raise Living Standards Above What They Would Otherwise Be
E. All Of The Above Are Used As Protectionist Arguments

6. The Fundamental Reason Countries Engage In Trade Is That
A. It Enables Each Country To Improve Its Standard Of Living
B. Domestic Markets Are Continually Shrinking
C. Powerful Special Interest Groups Benefit From Exchange
D. Trade Allows Countries To Save Some Of Their Resources For The Future
E. All Of The Above

7. Omega Can Produce Either Two Microcomputers Or Ten Tv Sets. Alpha Can Produce One Microcomputer Or Five Tv Sets. Which Of The Following Statements Is Correct?
A. Alpha Has A Comparative Disadvantage In Producing Both Products
B. Both Countries Have A Comparative Advantage In Producing Microcomputers
C. The Countries Are Unlikely To Engage In Trade In These Two Items
D. Labor Costs Are Obviously Too High In Alpha
E. All Of The Above

8. Which Of The Following Will Give Rise To U.S. Demand For Foreign Exchange?
A. U.S. Sales Of Airplanes To Japanese Buyers
B. U.S. Investments Abroad
C. U.S. Purchases Of French Perfume
D. Both (B) And (C)
E. All Of The Above

9. A Country Has A Comparative Advantage In The Production Of Any Good That It Can Produce
A. At A Lower Absolute Cost Than Can Other Countries
B. With Less Labor Than Can Other Countries
C. With A Smaller Sacrifice Of Some Alternative Good Or Service Than Can Other Countries
D. For Export
E. All Of The Above

10. Which Of The Following Is Not A Reason That Countries Have Comparative Advantages In The Production Of Some Goods And Comparative Disadvantages In The Production Of Other Goods? Differences In
A. Technological “Know-How.”
B. Exchange Rates
C. Literacy Rates
D. Natural Resources
E. Labor Force Quality

Questions 11 – 15 Refer To The Graph Below.

11. Assuming An Initial Combination Of 75 Million Loaves Of Bread And 150 Million Gallons Of Milk, The Country Represented Would Refuse To Enter Into Any Trade Relationships In Which The Cost Of Importing
A. Bread Exceeds Two Gallons Of Milk Per Loaf
B. Milk Exceeds One Loaf Of Bread Per Gallon
C. Milk Exceeds Two Loaves Of Bread Per Gallon
D. Both (A) And (B)
E. None Of The Above

12. The Opportunity Cost Of A Million Gallons Of Milk Is How Many Millions Of Loaves Of Bread For This Country?
A. 0.5
B. 1
C. 2
D. 150
E. 300

13. The Opportunity Cost Of A Million Loaves Of Bread Is How Many Millions Of Gallons Of Milk For This Country?
A. .5
B. 1
C. 2
D. 150
E. 300

14. If This Country Has A Comparative Advantage In The Production Of Bread And Produces Only Bread While Trading With Another Country For Milk, Which Of The Following Is Of Its Consumption Possibilities Curve?
A. It Shifts Out Parallel To The Ppc
B. Its Vertical Intercept Increases
C. Its Horizontal Intercept Increases
D. All Of The Above
E. None Of The Above

15. If This Country Has A Comparative Advantage In The Production Of Milk And Produces Only Milk While Trading With Another Country For Bread, Which Of The Following Is Of Its Consumption Possibilities Curve?
A. It Shifts Out Parallel To The Ppc
B. Its Vertical Intercept Increases
C. Its Horizontal Intercept Increases
D. All Of The Above
E. None Of The Above

Questions 16 – 20 Refer To The Graph Below.

16. Without Trade, The Republic Of Alpha’s Production Possibilities Curve Is Ab. If Consumption Along The Curve A1b Is Possible With Trade, Alpha Must Have A Comparative Advantage In The Production Of
A. Bread
B. Milk
C. Both Bread And Milk
D. Neither Bread Nor Milk
E. It Cannot Be Determined With The Information Given

17. Without Trade, The Republic Of Alpha’s Production Possibilities Curve Is Ab. With No Trade, Alpha’s Consumption Possibilities Curve Is
A. Ab
B. A1b
C. Cb
D. C1b
E. Cc1

18. Without Trade, The Republic Of Alpha’s Production Possibilities Curve Is Ab. The Cost Of Producing Bread In Alpha (In Terms Of Millions Of Gallons Of
Milk) Is
A. .5
B. 1
C. 2
D. 100
E. 200

19. Without Trade, The Republic Of Alpha’s Production Possibilities Curve Is Ab. For Alpha To Be Willing To Trade Milk For Bread, A Million Loaves Of Bread Would Have To Cost Less Than
A. 0.5 Million Gallons Of Milk
B. 1 Million Gallons Of Milk
C. 2 Million Gallons Of Milk
D. 0.5 Million Loaves Of Bread
E. Alpha Would Not Trade Milk For Bread

20. If Alpha Produces 100 Million Loaves Of Bread, With Trade (And Consumption Possibilities Curve A1b) It Can Consume How Many Gallons Of Milk?
A. 0
B. 100
C. 200
D. 300
E. 400

21. An Exchange Rate Is
A. The Price Of One Country’s Currency In Terms Of The Monetary Units Of Another Country
B. The Rate At Which One Good Exchanges For Another
C. The Price Of Gold In Terms Of The U.S. Dollar
D. The Fee Charged For Exchanging One Currency For Another
E. None Of The Above

22. Which Of The Following Demands Kenyan Shillings?
A. U.S. Importers Of Kenyan Goods
B. U.S. Investors In Kenya
C. U.S. Tourists Visiting Kenya
D. All Of The Above
E. None Of The Above

23. Which Of The Following Supplies Kenyan Shillings?
A. U.S. Exporters To Kenya
B. Kenyan Tourists Returning Home
C. U.S. Importers Of Kenyan Goods
D. All Of The Above
E. None Of The Above

24. The Largest Part Of U.S. Demand For Foreign Currencies Arises From
A. Increases In Investments Abroad
B. Imports Of Merchandise
C. Gifts That Persons In The U.S. Sent Abroad
D. Foreign Aid Transfers From The U.S. To Developing Countries
E. None Of The Above

25. The Largest Part Of The U.S. Supply Of Foreign Currency Arises From
A. Investments Made By Foreigners In The U.S
B. Exports Of Merchandise
C. Net Investment Income
D. Gifts That Persons Abroad Send Persons In The U.S
E. None Of The Above

Questions 26 – 30 Refer To The Graph Below.

26. In Equilibrium, The Price Of A British Pound, In Terms Of U.S. Dollars, Is
A. $1.50
B. $1.25
C. $.8
D. $.67
E. None Of The Above

27. In Equilibrium, The Price Of A U.S. Dollar, In Terms Of British Pounds, Is
A. $1.50
B. $1.25
C. $.8
D. $.67
E. None Of The Above

28. Which Of The Following Could Cause An Increase In The Equilibrium Exchange Rate?
A. An Increase In U.S. Investment In Britain
B. An Increase In U.S. Imports From Britain
C. An Increase In The Number Of U.S. Tourists Traveling To Britain
D. All Of The Above
E. None Of The Above

29. Pegging The Exchange Rate At $1.25
A. Imposes A Price Floor
B. Results In A Balance Of Payments Problem
C. Will Increase British Demand For U.S. Exports
D. Will Increase U.S. Demand For British Imports
E. Will Do Of The Above

30. Pegging The Exchange Rate At $1.25 Will Result In
A. A Shortage Of ≤20 Million Pounds Per Month
B. A Surplus Of ≤20 Million Pounds Per Month
C. A Shortage Of ≤40 Million Pounds Per Month
D. A Surplus Of ≤40 Million Pounds Per Month
E. None Of The Above

Questions 31 – 35 Refer To The Graph Below.

31. If D And S Are The Relevant Supply And Demand Curves, An Increase In Nigerian Travelers To The U.S. Would Result In Which Of The Following Changes In The Graph? A Movement From
A. S To S1
B. S1 To S
C. R1 To R
D. Q2 To Q1
E. Q To Q

32. Which Of The Following Could Cause A Shift In The Supply Curve From S To S1? An Increase In
A. U.S. Exports To Nigeria
B. Nigerian Exports To The U.S
C. U.S. Travelers To Nigeria
D. All Of The Above
E. None Of The Above

33. An Increase In U.S. Investment In Nigeria Will Have Which Effect On R? It Will
A. Increase
B. Decrease
C. Remain The Same
D. Be Pegged At R1
E. Not Be Able To Be Determined

34. If D And S Are The Relevant Demand And Supply Curves, Pegging The Exchange Rate At R1. Will Result In
A. A Shortage Of Q2q Niara Per Month
B. A Surplus Of Q2q Niara Month
C. A Shortage Of Q2q1 Niara Per Month
D. A Surplus Of Q2q1niara Pounds Per Month
E. None Of The Above

35. If D And S Are The Relevant Demand And Supply Curves, Pegging The Exchange Rate At R1
A. Imposes A Price Floor
B. Results In A Balance Of Payments Problem
C. Will Increase British Demand For U.S. Exports
D. Will Increase U.S. Demand For British Imports
E. Will Do All Of The Above

36. Import Restrictions, Like Tariffs And Quotas, Can Protect Domestic Jobs
A. At A Low Price
B. By Changing The Consumption Tastes Of Domestic Buyers
C. At A High Price
D. Without Any Effect On An Economy
E. By Changing The Structure Of The Economy

37. Free Trade Can Result In What Impact On An Economy?
A. A Net Increase Or Decrease In Overall Employment
B. A Reduction In The Efficiency Of An Economy
C. Free Trade Always Harms An Economy
D. Free Trade Always Increases Total Employment
E. No Impact At All

38. The Exchange Rate Ceiling On The Dollar Price Of The Pound Will Result In
A. A Surplus Of Pounds
B. A Balance Of Payments Deficit
C. A Balance Of Payments Surplus
D. An Increase In U.S. Exports To Great Britain
E. Undervaluation Of The Dollar Relative To The Pound

39. Which Of The Following Curves Represents The Maximum Combination Of Goods And Services That Can Be Consumed In An Economy When All Its Resources Are Efficiently Used?
A. Market Demand Curve
B. Production Possibilities Curve
C. Market Supply Curve
D. Consumption Possibilities Curve
E. Resource Possibilities Curve

40. With International Trade, Which Of The Following Curves For An Economy Will Shift Outward?
A. Consumption Possibilities
B. Production Possibilities
C. Demand
D. Supply
E. Marginal Revenue

41. A Nation That Enjoys A Lower Opportunity Cost In The Production Of Goods, Relative To Another Nation, Is Said To Have A(N)
A. Market Advantage
B. Absolute Advantage
C. Comparative Advantage
D. Relative Cost Advantage
E. Production Advantage

42. Suppose That On Mars, Martians Must Give Up 2 Widgets To Produce 1 Gadget. On Venus, Venusians Must Give Up ½ Widget To Produce 1 Gadget. Which Of The Following Is ?
A. Venus Has A Comparative Advantage In Gadgets
B. Mars Has A Comparative Disadvantage In Gadgets
C. Venus Should Specialize In Gadgets And Trade With Mars For Widgets
D. Mars Should Specialize In Widgets And Trade With Venus For Gadgets
E. All Of The Above

43. The Price Of One Nation’s Currency In Terms Of Another Is Called
A. The Exchange Rate
B. The International Trade Rate
C. A Tariff
D. A Balance Of Trade Account
E. The Capital Account

44. Assuming Everything Else Constant, An Increase In The Demand For Russian Rubles Will
A. Reduce The Price Of Rubles
B. Increase The Exchange Rate For Rubles
C. Cause A Surplus Of Rubles
D. Reduce Exports To Russia
E. All Of The Above

45. Economists Generally Agree That International Trade Restrictions
A. Improve Economic Well-Being And The General Standard Of Living
B. Generate Significant Costs To Consumers In The Form Of Higher Prices And Reduced Quantity Of Goods
C. Increase Gross Domestic Product And Lower The Rate Of Unemployment In The Long Run
D. Are Important To The Overall Health Of The Economy
E. Reduce The Severity Of Business Cycles By Limiting Recessions

46. The Primary Factor Affecting The Demand For Any Nation’s Currency Is
A. The Nation’s Current Standing With The United Nations
B. The Demand For The Products Produced By That Nation
C. The Size Of The Nation’s Domestic Economy
D. The Amount Of Gold Reserves Held By That Nation
E. None Of The Above

47. Which Of The Following Are Forms Of International Trade Restrictions?
A. Tariffs
B. Quotas
C. Voluntary Restraint Agreements
D. All Of The Above
E. None Of The Above

48. What Do You Call Taxes Placed On Imports?
A. Tariffs
B. Quotas
C. Voluntary Restraint Agreements
D. Exchange Rates
E. Dumping Taxes

49. Which Of The Following Will Occur When A Tariff Is Placed On Imported Sugar?
A. The Price Of Imported Sugar Will Rise
B. The Price Of Domestic Sugar Will Rise
C. The Price Of Imported And Domestic Sugar Will Rise
D. The Price Of Sugar Will Fall
E. More Sugar Will Become Available In The Marketplace

50. Which Of The Following Is A Statement?
A. Quotas Increase The Availability Of Imported Goods
B. Tariffs Reduce The Price Of Domestically Produced Goods
C. Unlike Tariffs, Quotas Will Reduce The Price Of Imports
D. Quotas Result In Greater Profits For Foreign Producers
E. A $1,000 Tariff On Japanese Cars Will Result In A $1,000 Increase In Their Price

51. A Tariff Leads To A Leftward Shift Of The _______Curve, Resulting In ______ Prices And __________ Imports.
A. Demand; Lower; Greater
B. Supply; Lower; Lower
C. Supply; Higher; Lower
D. Demand; Higher; Lower
E. Consumption Possibilities; Higher; Lower

52. Which Of The Following Will Not Result From A Tariff?
A. Higher Import Prices
B. Higher Prices Of Goods For Consumers
C. Less Availability Of Goods For Consumers
D. Price Increases For Exported Goods
E. Import Duty Revenue For The Government

53. When A Quota Is Enforced On An Imported Good, The Supply Curve For That Good
A. Shifts To The Left
B. Becomes Horizontal At The Import’s Price
C. Becomes Vertical At The Quota Limit
D. Shifts To The Right
E. Becomes Non-Existent

54. Which Of The Following Statements About Quotas Is ? Quotas
A. Reduce The Availability Of Imported Goods For Consumers
B. Reduce The Profits Of Foreign Producers
C. Increase The Price Of Imports
D. Increase The Price Of Domestically Produced Substitutes
E. Are Used As A Means To Restrict International Trade

55. Which Of The Following Is A Likely Result Of A Country Engaging In Free Trade?
A. Jobs Are Lost In The Export Sector
B. Jobs Are Gained In The Import Sector
C. The Price Of Imports Falls
D. Product Variety Decreases
E. All Of The Above

56. Protecting An Industry That Is Vital To National Security From International Competition Is
A. The Infant Industry Argument
B. An Economic, Rather Than Political, Argument
C. The Key Industry Argument
D. An Argument Against Protectionism
E. None Of The Above

57. A New Industry Producing Cutting-Edge Products Should
A. Be Protected From International Competition, According To The Key Industry Argument
B. Be Protected From International Competition, According To The Infant Industry Argument
C. Not Be Protected Until Later Stages, When The Market Is Fully Developed
D. Not Be Protected, According To The Infant Industry Argument
E. None Of The Above

58. Environmental Damage Must Be Addressed In International Trade Agreements When A Country’s Actions Create
A. Property Rights
B. Negative Externalities
C. Positive Externalities
D. Private Goods
E. Military Output

59. Which Of The Following Is Used As An Argument Against Free Trade By Protectionists?
A. Environmental Quality
B. Human Rights
C. Infant Industries
D. Key Industries
E. All Of The Above

60. Which Of The Following Statements Regarding Human Rights And International Trade Is Correct?
A. Protectionists Believe Free Trade Leads To Exploitation Of Workers In Ldcs
B. Free Trade Advocates Believe It Is Efficient To Exploit Workers In Ldcs
C. Protectionists Believe Free Trade Leads To Increased Opportunity For Poor Workers
D. Free Trade Advocates Believe Trade Decreases Job Growth In Ldcs
E. The Wto Estimates That Free Trade Has Led To An Increase In Poverty Rates In Ldcs

61. What Do You Call It When Producers Sell Abroad At A Price Below Their Cost Of Production Or Their Domestic Price?
A. Limit Pricing
B. Voluntary Restraint Of Trade
C. Price Discrimination
D. Dumping
E. Gouging

62. Which Organization Is Charged With Settlement Of International Trade Disputes?
A. The Wto
B. The Eu
C. Nafta
D. Gatt
E. The Un

63. What Do You Call An Alliance Of Nations That Share Common External Tariffs? A(N)
A. Free Trade Area
B. International Trade Consortium
C. Customs Union
D. Trade Pact Area
E. Cartel Of Nations

64. Which Of The Following Best Describes Nafta? It Is A(N)
A. Free Trade Area
B. International Trade Consortium
C. Customs Union
D. Trade Pact Area
E. Cartel Of Nations

65. Most __________ Have Been Banned Under The World Trade Organization.
A. Tariffs
B. Voluntary Restraint Agreements
C. Quotas
D. Import Duties
E. Customs Unions

66. The European Union Is An Example Of A(N)
A. Free Trade Area
B. International Trade Consortium
C. Customs Union
D. Trade Pact Area
E. Cartel Of Nations

67. The Multi-National Currency Adopted By Members Of The European Union Is Called The
A. Euro
B. Dollar
C. Ruble
D. Franc
E. Peso

68. Which Of The Following Statements Is ?
A. The Euro Increases The Cost Of International Trade Between Members Of The European Union
B. The European Union Is A Free Trade Zone And Not A Customs Union
C. The Euro Reduces The Cost Of Trade Between Members Of The European Union
D. Common Market Treaties Are Becoming Less Popular Around The World
E. All Of The Above Statements Are

69. In Which Part Of The Globe Are You Most Likely To Find Nations Belonging To A Common Market Treaty?
A. North America
B. Asia
C. Europe
D. Africa
E. Everywhere

70. Which Of The Following Statements About Nafta Is ?
A. Nafta Is A Free Trade Zone And Not A Customs Union
B. Canada, Mexico, And The U.S. Are The Only Three Members Of Nafta
C. It Is Difficult To Empirically Measure The Economic Effects Of Nafta On The U.S. Economy
D. In The Long Run, Nafta Will Increase The Number Of Low-Paid Jobs In The U.S
E. Nafta Is Based On The Belief That Nations, In The Aggregate, Gain Economically From Free International Trade

71. What Have Researchers Concluded About The Net Effect Of Nafta On The Number Of Jobs In The U.S. Economy?
A. Nafta Has Increased The Number Of U.S. Jobs
B. Nafta Has Had No Effect On The Number Of U.S. Jobs
C. Nafta Has Significantly Reduced The Number Of U.S. Jobs
D. The Number Of U.S. Jobs Has Increased In Some Sectors Of The Economy, While In Other Sectors It Has Reduced The Number Of Jobs
E. No One Has Examined This Issue Yet

72. What Should Happen Once The Euro Has Been Completely Integrated Into The Economies Of The European Union (Eu)?
A. International Trade Between Eu Members Will Increase Due To Lower Transaction Costs Of Trade
B. Consumer Prices Will Increase And Income Will Fall
C. Trade Between Eu Members Will Decrease Due To The Increased Costs Of Using A Multi-National Currency
D. Eu Members Will Only Trade With Other Members And Stop Trading With The Rest Of The World
E. None Of The Above

73. Which Of The Following Is A Customs Union Of Nations?
A. Nafta
B. Wto
C. Eu
D. Gatt
E. Un

74. Which Of The Following Established A Free Trade Zone?
A. Eu
B. Gatt
C. Un
D. Wto
E. Nafta

75. Since The Introduction Of The General Agreement On Tariffs And Trade (Gatt) In The 1940s,
A. Tariffs And Import Quotas Have Increased Dramatically
B. Tariffs Around The World Have Fallen From An Average Of 40% To About 4%
C. Common Market Treaties Have Become More Difficult To Negotiate And Enforce
D. The Imposition Of Tariffs Has Been Declared To Be “Unfair” In Most Situations
E. Dumping Has Become A Widespread Practice Between Member Nations

76. The United States Currently Enforces An Embargo Against
A. Cuba
B. Saudia Arabia
C. The European Union
D. A) And B) Only
E. All Of The Above

77. Embargos
A. Are Import Quotas Set To 0
B. Are Export Quotas Set To 0
C. May Be Imposed For Political Reasons
D. May Be Imposed For Economic Reasons
E. All Of The Above

78. Outsourcing Is The Practice Of
A. Obtaining Raw Materials From Suppliers In Other Countries
B. Manufacturing Product In Another Country By Opening A Factory In That Nation
C. Purchasing Customer Services From Suppliers In Another Country Where The Costs Of These Services Are Lower Than Domestic Suppliers
D. Selling Goods To Another Country
E. Answers B And C Are Both Examples Of Outsourcing

79. The World Trade Organization, Or Wto, Has Been Unpopular With Many Environmentalists Because
A. It Produces A Great Deal Of Pollution
B. It Does Not Do Enough In Its Activities To Enforce Pollution Regulations
C. It Is Allowing Pollution Rights Licenses To Be Sold By Nations To One Another
D. It Encourages Developing Nations To Emphasize Jobs At The Expense Of Environment
E. The Wto Does Not Have A Pollution Control Agency

True / False Questions

80. Protectionists Want To Reduce Foreign Competition With U.S. Goods And Services.

81. Support For Protectionism Increases During Economic Expansions.

82. Free Traders Maintain That World Output Is Greatest If All Countries Are Free To Engage In Voluntary Exchanges.

83. A Country Should Strive To Export More Than It Imports Over Time.

84. Engaging In Exchange Enables A Country To Shift Its Production Possibilities Curve Outward.

85. Countries Should Trade For Goods In Which They Have A Comparative Advantage.

86. If A Country Has A Comparative Advantage In The Production Of One Good, It Must Have A Comparative Disadvantage In The Production Of Some Other Good.

87. It Is Efficient For An Economy To Save Service Jobs By Preventing Outsourcing.

88. An Exchange Rate Is The Price Of One Country’s Currency In Terms Of The Currency Of Another.

89. A Country’s Population As A Whole Will Benefit From Import Restrictions.

90. Everyone In The Economy Benefits From Free Trade.

91. For Many Years, U.S. Citizens Have Earned More Investment Income Abroad Than Foreigners Have Earned In The U.S.

92. Foreign Investment In The U.S. Provides Foreign Currencies To Import Goods.

93. Trade Deficits Are Important Only To The Extent That They Lead To Overall Balance Of Payments Problems.

94. To Preserve Jobs In The U.S., The U.S. Should Enact Legislation Lowering The Quantities Of Japanese Autos That It Imports.

95. Engaging In Trade Allows A Country To Shift Its Consumption Possibilities Curve Outward But Leaves Its Production Possibilities Curve Unchanged.

96. In Terms Of The Value Of Jobs Saved, The Voluntary Restrictions On Japanese Cars Imported To The U.S. In The Early 1980s Were Efficient.

97. Free Trade Would Reduce U.S. Well-Being Because We Could Not Compete With The Low-Wage Countries Of The World.

98. International Trade Makes It Possible For An Economy To Shift Its Production Possibilities Curve Outward.

99. As With Trade Between Regions Of One Country, Trade Between Countries Benefits Both.

100. Since Resources Are Sent Out Of The Country, International Trade Generally Results In A Reduction In An Economy’s Gdp.

101. International Trade Increases The Variety And Availability Of Consumer Goods In An Economy.

102. Free Trade Arguments Are Sound Only If Trade Is Between Countries Whose Workers Earn Roughly The Same.

103. Trade Between Individuals In Two Different Countries Would Not Occur Unless Both Parties Believed That It Made Them Better Off.

104. Tariffs Increase Both The Price Of Imports And Domestically Produced Goods.

105. A $100 Per Unit Tariff On South African Diamonds Will Increase The Price By $100.

106. Both Tariffs And Quotas Result In Higher Prices And Lower Quantities For Consumers.

107. Foreign Producers Who Hold Quota Rights May Earn Greater Profits With The Imposition Of A Quota.

108. A Voluntary Restraint Agreement Is A Quota Without The Force Of Law.

109. Quotas Result In Lower Prices Of Both Imported And Domestically Produced Goods.

110. All Forms Of International Trade Restrictions Result In Higher Prices And Lower Quantities Of Goods For Domestic Consumers.

111. Pegging The Exchange Rate Will Eliminate Balance Of Payment Deficits.

112. Pegging The Exchange For French Francs Below Its Equilibrium Level Will Generate A Shortage Of Francs.

113. Nafta Is A Customs Union Between The U.S., Canada, And Mexico.

114. The European Union Is A Free Trade Area.

115. International Trade Disputes Between Nations Are Settled Through The Actions Of The World Trade Organization.

116. Dumping Occurs When Producers Sell Abroad At A Price Below The Cost Of Production.

117. Dumping Is Not Considered An Unfair Trade Practice In Most Parts Of The World.

118. Members Of The Wto Must Agree To Treat All Other Members As Equals And Provide Them With “Most Favored Nation” Status.

119. The Wto Prohibits Member Nations From Imposing Tariffs On Other Members.

120. There Is More International Trade Today Than At Any Time In The Past.

121. Since The 1940s, Tariffs Around The World Have Fallen From An Average Of 40 Percent.

122. The Euro Will Increase The Transaction Costs Of Trade Between Nations Who Are Members Of The European Union (Eu).

123. The Euro Will Be Integrated Into The Economies Of Western Europe With Very Few Costs.

124. Common Market Treaties Are Decreasing In Popularity And Importance Around The World.

125. Most Tariffs Have Been Outlawed By The World Trade Organization (Wto).

126. Very Few Members Of The World Trade Organization (Wto) Are Also Members Of A Common Market Treaty.

127. Today, Custom Unions Or Free Trade Zones Can Be Found On Every Populated Continent Of The World.

128. In The Short-Run, Common Market Treaties Such As Nafta Both Create And Destroy Jobs In Member Nations.

129. In Recent Years, “Protectionists” Have Won The Battle With “Free Traders.”

130. An Embargo Occurs When One Nation Volunteers To Restrict Its Exports Of A Product.

131. The Intent Of An Embargo Is To Raise The Price Of A Country’s Exports.

ECO 405 Week 5 Quiz – Strayer University New

ECO/405 Week 5 Quiz – Strayer

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Chapter 06

The Economics Of Education: Crisis And Reform

Multiple Choice Questions

1. According To The Census Bureau, High School Graduates Can Expect To Earn How Much During Their Working Years?
A. $45,000
B. $1.2 M
C. $2.1 M
D. $2.5 M
E. $4.4 M

2. According To The Census Bureau, A College Education Adds How Much To Earnings Over A Person’s Work-Life?
A. Nearly $1m
B. $2.1 M
C. $2.5m
D. $4.4 M
E. Over $5 M

3. According To The Census Bureau, Someone With A Professional Degree Can Earn Approximately How Much During A Typical Work-Life?
A. $1 M
B. $1.2 M
C. $2.5 M
D. $4.4 M
E. Over $5m

4. Where Did U.S. Eighth Grade Students Rank Internationally In Terms Of Average Math Scores In 2007?
A. At The Top
B. Second
C. Near The Middle
D. Next To The Bottom
E. At The Bottom

5. Where Did U.S. Eighth Grade Students Rank Internationally In Terms Of Average Science Scores In 2007?
A. At The Top
B. Second
C. In The Middle
D. In The Bottom Half
E. At Bottom

6. Which Of The Following Is An Important Difference Between The United States And Other Countries In Terms Of Their K-12 Education System?
A. The United States Spends Less On Education Per Pupil Than Most Other Countries
B. The United States Spends A Higher Percentage Of Its Gdp On Education Than Other Countries
C. The United States Has A Shorter School Year Than Most Other Countries
D. The United States Has A Purely Private Market For Education
E. All Of The Above

7. About How Much Does The United States Spend On Education, Per Pupil?
A. $6,000
B. $7,000
C. $8,000
D. $9,000
E. $10,000

8. Approximately What Percent Of Its Gdp Does The United States Spend On Education?
A. 2.0
B. 3.0
C. 3.9
D. 4.2
E. 5.3

9. Which Of The Following Best Describes The U.S. K-12 Educational System?
A. It Is Largely Private
B. It Is Mainly Private With Some Public Education
C. It Is About Half Public And Half Private
D. It Is Predominantly Public
E. It Is Exclusively Public

10. Which Of The Following Is Of The U.S. K-12 Education System Relative To The K-12 Education System Of Other Developed Countries?
A. It Has Lower Expenditures Per Pupil And Lower Achievement
B. It Has Lower Expenditures Per Pupil And Higher Achievement
C. It Has Higher Expenditures Per Pupil And Lower Achievement
D. It Has Higher Expenditures Per Pupil And Higher Achievement
E. It Has Equivalent Expenditures Per Pupil And Achievement

11. In 2003, Approximately What Percent Of School Aged Children Attended Public Schools?
A. 90%
B. 75%
C. 50%
D. 25%
E. 10%

Questions 12 – 17 Refer To The Graph Below.

12. What Assumption Is Shown By The Fact That Mpc = Msc On The Graph?
A. This Graph Is For Public Education
B. There Are No Positive Externalities Associated With Education
C. Education Has Positive Spillover Benefits For Society
D. The Market Will Produce The Socially Optimal Quantity Of Education
E. This Graph Illustrates A Private Market For Education

13. What Is This Family’s Willingness To Pay For A First Year Of Education?
A. $0
B. $4,000
C. $6,000
D. $8,000
E. $10,000

14. What Is The Equilibrium Level Of Education In This Market?
A. 0 Years
B. 1 Year
C. 12 Years
D. 16 Years
E. Between 12 And 16 Years

15. What Tuition Would Result In The Family Demanding 16 Years Of Education?
A. $0
B. Less Than $4,000
C. $4,000
D. $6,000
E. $10,000

16. Which Of The Following Is For The First Years Of Education?
A. Mpb < Mpc B. Mpb > Mpc
C. Msb > Msc
D. Msb < Msc
E. Mpb = Msb

17. Which Of The Following Is For The 16th Year Of Education?
A. Mpb < Mpc B. Mpb > Mpc
C. Msb > Msc
D. Msb < Msc E. Mpb = Msb Questions 18 – 23 Refer To The Graph Below. 18. For Which Level Of Education Is The Family’s Mpb > Mpc?
A. 1 Year
B. Between 0 And E1 Years
C. Between E1 And E* Years
D. Exactly E1 Years
E. Exactly E* Years

19. The Negative Slope Of The Demand Curve Shows That
A. The Marginal Cost Of Education Increases As More Is Purchased
B. The Marginal Benefit Of Education Increases As More Is Purchased
C. The Marginal Benefit Of Each Additional Year Of Education Decreases
D. There Are Positive Spillover Benefits Of Education
E. Tuition Can Be Raised Above T1 Dollars

20. The Socially Optimal Level Of Education
A. Is 0 Years
B. Is 1 Year
C. Is E1 Years
D. Is E* Years.
E. Cannot Be Determined From The Diagram.

21. For Which Year Of Education Is The Family’s Mpb < Mpc? A. 0 Years B. 1 Year C. E1 Years D. E* Years E. None Of The Above 22. The Slope Of The Supply Curve Indicates That The A. Marginal Cost Of A Year Of Education Is Constant B. Marginal Benefit Of An Additional Year Of Education Increases C. Marginal Benefit Of An Additional Year Of Education Is Constant D. Marginal Benefit Of An Additional Year Of Education Increases E. Cost Of Education Is Subsidized By The Public 23. In The Diagram, The Equilibrium Level Of Education Is A. 0 Years B. 1 Year C. E1 Years D. E* Years E. Between E1 And E* Years 24. What Happens To The Marginal Benefit Of Education As A Child Gets More Schooling? It Will A. Increase B. Decrease C. Stay The Same D. Become Infinite E. Become Negative 25. Which Of The Following Is A Benefit Of Increased Education? A. Improved Literacy B. Increased Earnings C. Improved Health D. Greater Satisfaction E. All Of The Above 26. A Family’s Demand For Education For A Child Reflects The Family’s A. Income B. Preferences For Education C. Mpb Received From The Education D. Opportunity Cost Of Tuition E. All Of The Above 27. Which Of The Following Happens As Tuition Increases? A. The Demand For Education Increases B. The Demand For Education Decreases C. The Supply Of Education Increases D. The Years Of Education Demanded Fall E. The Cost Of Education Increases 28. The Supply Of Private Education Is Represented By A. The Mpb Curve B. The Mpc Curve C. The Msc Curve D. The Msb Curve E. None Of The Above 29. An Increase In The Demand For Education Will A. Increase The Supply Of Education B. Decrease The Equilibrium Tuition C. Decrease The Equilibrium Quantity Of Education D. Increase The Equilibrium Quantity Of Education E. Shift The Demand Curve For Education To The Left 30. A Decrease In The Cost Of Education Will A. Increase The Supply Of Education B. Increase The Equilibrium Tuition C. Decrease The Equilibrium Quantity Of Education D. Increase The Equilibrium Quantity Of Education E. Shift The Demand Curve For Education To The Left 31. Which Of The Following Will Decrease The Equilibrium Quantity Of Education In A Market? A. An Increase In The Demand For Education B. A Decrease In The Demand For Education C. A Decrease In Production Costs D. An Increase In The Supply Of Education E. None Of The Above 32. An Increase In Family Income Will A. Increase The Demand For Education B. Decrease The Demand For Education C. Increase The Quantity Of Education Supplied D. Increase The Quantity Of Education Demanded E. Decrease The Equilibrium Level Of Tuition 33. An Increase In The Marginal Benefit Of Education Will Cause Which Of The Following? A. The Demand Curve For Education Shifts Right B. The Demand Curve For Education Shifts Left C. The Supply Curve For Education Shifts Right D. The Supply Curve For Education Shifts Left E. The Equilibrium Number Of Years Of Education Will Decrease 34. The Creation Of New Learning Technologies Will Cause Which Of The Following To Decrease? A. The Demand For Education B. The Supply Of Education C. The Cost Of Education D. The Equilibrium Quantity Of Education E. The Number Of Children In School   35. If The Earnings Expected From A College Education Increase, It Will Lead To An Increase In A. The Demand For K-12 Education B. The Supply Of K-12 Education C. The Cost Of Education D. The Teacher Salaries E. All Of The Above 36. Education Is Said To Be Which Of The Following? A. Individually Consumed B. Individually Produced C. A Semi-Private Good D. A Private Good E. A Public Good 37. I Benefit Because You Become More Educated. This Is An Example Of A A. Negative Externality In Consumption B. Spillover Cost C. Positive Externality In Production D. Positive Externality In Consumption E. Negative Externality In Production 38. As The Number Of Years Of Education Increases, The Spillover Benefits Will A. Increase B. Decrease C. Stay The Same D. Become Negative E. None Of The Above 39. Which Of The Following Is An Example Of A Possible Spillover Benefit From Education? A. An Improved Democratic Process B. Improved Health C. Improved Public Safety D. More Charitable Giving E. All Of The Above 40. Students Learn About Health And Nutrition In School. This Provides A A. Positive Externality In Production B. Positive Externality In Consumption C. Negative Externality In Production D. Negative Externality In Consumption E. Cost To Society 41. Marginal Social Benefits Equal A. Mpb + Spillover Benefits B. Mpb – Spillover Benefits C. Mpcs D. Total Benefits + Positive Externalities In Consumption E. None Of The Above 42. With Positive Externalities In Consumption, The Market Equilibrium Quantity Will Be A. Greater Than Socially Optimal B. Less Than Socially Optimal C. Equal To The Socially Optimal Level D. Higher Than Otherwise E. None Of The Above 43. Educated Citizens Are More Likely To Be Informed Voters. This Is An Example Of A A. Positive Externality In Production B. Positive Externality In Consumption C. Negative Externality In Production D. Negative Externality In Consumption E. Cost To Society. 44. To Be Socially Optimal, Education Should Be Provided To The Point Where A. Mpb = Mpc B. Mpb = Msc C. Msb = Mpc D. Msb = Msc E. Mpb = Msb   45. The Existence Of Spillover Benefits Results In An Equilibrium Quantity In The Market That Is Socially Optimal. A. Higher Than B. Lower Than C. Equal To D. Better Than E. More Expansive Than 46. The Argument For Government Provision Of Education Hinges On The Existence Of A. Spillover Costs. B. Spillover Benefits. C. Voucher Programs. D. Negative Externalities In Production. E. Negative Externalities In Consumption Questions 47 – 50 Refer To The Graph Below. 47. The Socially Optimal Years Of Education Is A. 1 B. Between 1 And 11 C. 11 D. 12 E. 16 48. What Is The Equilibrium Number Of Years Of Education The Market Will Provide? A. 0 B. 1 C. 11 D. 12 E. 16 49. Which Of The Following Government Actions Will Move The Market Equilibrium To The Socially Optimal Number Of Years Of Education? A. A Tax On Education Equal To $1,000 B. A Tax On Education Equal To $3,000 C. A Tuition Subsidy Equal To $1,000 D. A Tuition Subsidy Equal To $3,000 E. Government Provision Of All Education 50. A Tuition Subsidy Of $6,000 Would Lead To A. The Socially Optimal Quantity Of Education B. Greater Than The Socially Optimal Quantity Of Education C. Less Than The Socially Optimal Quantity Of Education D. More Public Education E. A Budget Surplus Questions 51 – 54 Refer To The Graph Below. 51. The Socially Optimal Level Of Education Is A. 0 B. Between 0 And E1 C. E1 D. E2 E. E3 52. The Market Equilibrium Level Of Education Is A. 0 B. Between 0 And E1 C. E1 D. E2 E. E3 53. A Tuition Subsidy Equal To How Much Will Move The Market To The Socially Optimal Level Of Education? A. T3 – T2 B. T2 – T1 C. T3 – T1 D. T1 E. T2 54. A Tuition Subsidy Equal To T3 Would Result In Which Of The Following? A. The Socially Optimal Quantity Of Education B. Greater Than The Socially Optimal Quantity Of Education C. Less Than The Socially Optimal Quantity Of Education D. More Public Education E. A Budget Surplus 55. Greater Segregation Along Racial Lines Is A Likely Result Of A. Purely Private K-12 Education B. No Public K-12 Education C. Voucher Programs D. Tuition Subsidies E. All Of The Above 56. A Purely Private K-12 System Will Lead To A. Lower Private Costs B. Increased Public Costs C. Decreased Racial Segregation D. Increased Inequality E. Greater Social Benefits 57. In A Purely Private K-12 Education System, Spaces Would Be Allocated Based On A. Ability B. Equity C. Income D. Geographic Boundaries E. None Of The Above 58. In The Existing Public K-12 Education System, Spaces Are Allocated Based On A. Ability B. Equity C. Income D. Geographic Boundaries E. None Of The Above 59. A Program To Provide Public Funding For Students In Poor Performing Public Schools To Attend Other Schools Is Known As A. A Voucher Program B. A Charter School C. A Tuition Tax D. A Welfare Program E. Privatization 60. The Current K-12 Education System Can Be Described As A. Private B. Centralized C. Decentralized D. State Owned E. None Of The Above 61. Centralized Planning Leads To Which Of The Following? A. Limited Consumer Choice B. Decreased Quality C. Increased Prices D. Lack Of Responsiveness E. All Of The Above 62. Schools In Which Parents Or Other Groups Were Permitted To Create A New School With State Funding And Were Given Control Over Operations Are Known As A. Private Schools B. Voucher Schools C. Magnet Schools D. Experimental Schools E. Charter Schools 63. The Empirical Evidence Of The Effectiveness Of Voucher Programs Is Best Described As A. Positive B. Negative C. Inconsistent D. Substantial E. Nonexistent 64. Which Of The Following Is An Argument Against Voucher Programs? A. Cream Skimming B. Reduced Social Segregation C. Decreased Efficiency D. Increased Special Education E. All Of The Above 65. The Cream Skimming Argument Says That The Students Who Choose A Voucher Program Will Be A. Higher Income B. Lower Income C. Higher Achieving D. Non-Minority E. None Of The Above 66. Poor Students Are Less Likely To Participate In Voucher Programs Because Of A. Less Information B. Higher Transportation Costs C. Fewer Financial Resources D. A Weaker Tradition Of Education E. All Of The Above 67. Private School Cost Per Pupil Is Lower Because Of A. Fund Raising B. Private Contributions C. Student Fees D. Volunteer Labor E. All Of The Above 68. What Is The Relationship Between School Funding And Student Achievement? A. Positive B. Negative C. Mixed D. Unrelated E. Inverse 69. What Is The Relationship Between Student Achievement And Teacher Pay? A. Positive B. Negative C. Mixed D. Unrelated E. Inverse 70. What Is The Relationship Between Teacher Pay And A Shortage Of Teachers? A. Positive B. Negative C. Mixed D. Unrelated E. Direct 71. Public Schools Must Pay For Which Of The Following Expenses That Private Schools Do Not? A. Transportation B. Food C. Special Education D. All Of The Above E. None Of The Above 72. A Reduction In Class Size Should Be Undertaken As Long As The Marginal Benefit Of The Decrease Is A. Positive B. Negative C. Greater Than The Marginal Cost D. Less Than The Marginal Cost E. Increasing 73. Decreasing Average Class Size Without Changing Teacher Pay Leads To A. Lower Quality Teachers B. A Surplus Of Teachers C. Lower Costs Per Pupil D. Increased Segregation E. All Of The Above 74. Which Of The Following Statements Does Not Enjoy Widespread Agreement? A. Achievement Per Dollar In U.S. Education Is Too Low B. Reform Of The U.S. Education System Is Necessary To Maintain High Level Human Capital C. Smaller Class Sizes Can Improve Student Performance D. Voucher Programs Are The Most Effective Way To Improve The U.S. Education System E. Increased Teacher Pay Increases Teacher Quality 75. Education Could Be Considered A Semi-Private Good, Since A. There Are Spillover Benefits To Other Members Of Society Resulting From The Education Of A Child B. Education Of The Population Improves Everyone’s Lives Since It Results In Greater Productivity And Income For All Members Of Society C. There Are Benefits To Society From Education, Since It Reduces The Crime Rate D. Education Produces Positive Externalities To Society E. All Of The Above 76. If Government Wishes To Increase The Quantity Of Higher Education Consumed, What Can Be Done To Accomplish This? A. Charge Tuition That Is Below The Full Costs Of Providing The Educational Services B. Operate Public Colleges C. Provide Reduced Tuition To Students D. Any Of The Above Alternatives Would Increase The Consumption Of Education E. The Government Should Not Attempt To Increase Education, Since It Is A Private Good 77. Studies Of Voucher Programs Indicate That The Effects Of Vouchers On Student Achievement A. Are Small But Have Negative Impact On Student Performance B. Are Received Primarily By African-American And Economically Disadvantaged Children C. Have Yet To Be Examined In Large-Scale Programs D. Both B And C E. None Of The Above 78. Research On The Effects Of Charter Schools Show A. There Are Significantly Positive Impacts On Student Performance B. There Are Significantly Negative Impacts On Student Performance C. There Are Mixed Results, With Positive Impacts In Some Schools And Negative In Others D. Research Has Yet To Be Undertaken On These New Types Of Schools E. None Of The Above True / False Questions 79. A College Education Does Not Improve Earnings Over A High School Degree. 80. A Master’s Degree Increases Lifetime Earnings Over A Bachelor’s Degree By $2.5m Over High School Graduates. 81. More Education Will Increase The Revenue A Worker Adds To A Firm. 82. Improved Education Will Lead To Higher Economic Growth In A Country. 83. American High School Graduates Outperform All Other Countries On Math And Science Exams. 84. The Length Of The School Year In The United States Is Longer Than In Most Other Developed Countries. 85. The United States Spends Over $8,000 Per Pupil On Secondary Education. 86. The United States Is Toward The Middle Of Countries In Rankings Of Percent Of Gdp Per Capita Spent On Education. 87. Ninety Percent Of School-Aged Children Attend Public Schools In The United States. 88. There Are Approximately 50 Million School-Aged Children In The United States. 89. The Marginal Benefit Of Education Increases As A Student Completes More Years Of Education. 90. More Education Leads To Improved Decision-Making In Families. 91. The Move From Illiteracy To Literacy Has High Marginal Benefits. 92. A Family’s Demand For Education Comes From Its Marginal Private Benefits. 93. The Demand Curve For Education Has A Positive Slope. 94. Lower Tuition Rates Lead To Less Education. 95. Without Public Schools, There Would Be No K-12 Education. 96. Without Market Provision Of Education, There Is No Mechanism For Quality Control. 97. A Family Will Purchase Private Education As Long As The Mpb > Mpc.

98. Increased Income Will Increase The Demand For Education.

99. New Learning Technologies Will Increase The Cost Of Providing K-12 Education.

100. Everyone Agrees That Education Provides Significant Positive Spillover Benefits.

101. Years Of Education Completed Are Negatively Related To Criminal Activities.

102. The Greatest Positive Externalities Accrue In The Early Years Of K-12 Education.

103. Msb Of Education = Mpb + Positive Externalities.

104. If There Are Positive Externalities From Education, The Market Will Not Produce The Socially Optimal Level Of Education.

105. The Government Can Increase The Equilibrium Quantity Of Education In A Market Through Tuition Subsidies.

106. A Significant Positive Externality Of Education Would Support The Argument Against Public Education.

107. Public K-12 Education Facilitates Equal Opportunity.

108. A Purely Private K-12 Education System Would Increase Existing Segregation.

109. Markets Ration Education Based On A Price/Quality Trade-Off.

110. Public Schools Ration Education Based On A Price/Quality Tradeoff.

111. Voucher Programs Fund Students To Attend Poor Performing Schools.

112. Charter Schools Are Privately Funded And Community Controlled.

113. High-Income Students And Their Families Are More Likely To Benefit From Voucher Programs.

114. Voucher Programs Have Been Accused Of “Cream Skimming.”

115. The Costs Of Private Schools Are Greater Than Their Tuition.

116. Private Schools Must Pay Some Types Of Costs That Public Schools Do Not.

117. Economists Agree That Voucher Programs Improve K-12 Education.

118. Smaller Class Size Increases Student Achievement.

119. Higher Teacher Salaries Do Not Change Student Achievement.

120. The Achievement Of Low-Income Students Improves More With Smaller Class Sizes, Relative To Higher Income Students.

121. Smaller Class Size Is Always Cost-Effective.

122. Increased School Funding Increases Student Achievement.

123. Increasing Teachers’ Salaries Does Not Affect Student Achievement.

124. The Opportunity Cost Of Becoming A Teacher Is The Salary Of Similarly Trained Professionals.

125. Increased Spending On K-12 Education Is Certain To Be Cost-Effective.

126. The United States’ K-12 Education System Has An Efficient Level Of Achievement Per Dollar Spent.

127. Increased Competition In K-12 Education Can Lead To An Improved Education System.

128. Targeting Increased Funding To Programs For Disadvantaged Children Is The Most Cost-Effective.

ECO 405 Week 11 Quiz – Strayer University – *New*

ECO 405 Week 11 Quiz – Strayer

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Chapter 14

Government Spending, Taxation, And The National Debt: Who Wins And Who Loses?

Multiple Choice Questions

1. The Fears Of People Concerning The Size Of Government Are
A. Always Without Any Foundation
B. Well-Founded In Some Instances And Not Well-Founded In Some Instances
C. Difficult To Appreciate
D. Due To Low Income And Low Educational Levels Of Many People
E. Based Solely On Economic Efficiency

2. The Fears Of People Concerning Distribution Of Taxes Are Related To
A. Equity Or Justice In Taxation
B. Ample Evidence That There Are Tax Inequities In The Tax System At All Levels Of Government
C. The Complete Lack Of Understanding That People Have About The Purpose Of Taxes
D. Both (A) And (B)
E. All Of The Above

3. Total Government Expenditures Currently Represent Approximately What Percentage Of Gdp?
A. 20%
B. 30%
C. 40%
D. 50%
E. 10%

4. A Cash Payment From The Government To An Individual, Based On Need, Is An Example Of A
A. Transfer Payment
B. Government Purchase Of A Service
C. Government Purchase Of A Good
D. Transaction Payment
E. Government Receipt

5. A Payment From The Government To A Federal Employee Is A
A. Transfer Payment
B. Government Purchase Of A Service
C. Government Purchase Of A Good
D. Transaction Payment
E. Government Receipt

6. An Efficient Level Of Government Expenditures Is That Level Where
A. Total Costs Are Minimized
B. Total Benefits Are Maximized
C. Marginal Benefits Are Equal To Marginal Costs
D. Marginal Benefits Are Greater Than Marginal Costs
E. Marginal Benefits Are Less Than Marginal Costs

7. Public Goods And Services Have Characteristics That Make Them
A. Possible To Exclude People From Consuming Them
B. Less Available For One Person When Another Consumes Them
C. Easy To Provide Through Private Markets
D. All Of The Above
E. None Of The Above

8. The Size Of Government Is Growing At
A. A Slower Rate Than The Rest Of The Economy
B. Approximately The Same Rate As The Rest Of The Economy
C. A Faster Rate Than The Rest Of The Economy
D. Twice The Rate Of The Rest Of The Economy
E. A Negative Rate

9. Assuming Negative Externalities In Production, The Type Of Government Action That Could Bring About An Efficient Level Of Production Would Be
A. A Tax Levied On Each Unit Produced Equal To Marginal External Costs
B. A Tax Levied On Each Unit Produced Greater Than Marginal External Costs
C. A Subsidy To Consumers Equal To Marginal External Benefits
D. A Subsidy To Consumers Greater Than Marginal External Benefits
E. None Of The Above

10. Assuming Positive Externalities In Consumption, The Type Of Government Action That Could Bring About An Efficient Level Of Production Would Be
A. A Tax Levied On Each Unit Produced Equal To Marginal External Costs
B. A Tax Levied On Each Unit Produced Greater Than Marginal External Costs
C. A Subsidy On Each Unit Consumed Equal To Marginal External Benefits
D. A Subsidy On Each Unit Consumed Greater Than Marginal External Benefits
E. None Of The Above

11. Shifting Income From Those Who Are Relatively Productive To Those Who Are Relatively Unproductive, Say Through Taxes And Subsidies, Must Be Based On
A. Sound Economic Principles
B. The Laws Of Demand And Supply
C. The Values Of People As To What Constitutes A “Fair” Distribution Of Income
D. Marginal Cost And Marginal Benefit
E. Both (A) And (D)

12. A National Crime Lab Used To Prevent Criminal Activity Nationwide Is An Example Of A
A. Negative Externality
B. Positive Externality
C. Transfer Payment
D. Public Good
E. Private Good

13. Tax Equity Means That
A. All People Should Pay Equal Taxes
B. Only The “Rich” Should Pay Taxes
C. People In The Same Economic Circumstances Should Pay Equal Taxes, And People In Different Economic Circumstances Should Pay Unequal Taxes
D. The Distribution Of Income After Taxes Should Be Equal
E. None Of The Above

14. An Efficient Tax Would Be A Tax For Which
A. The Excess Burden” From Taxes Is Zero
B. Taxes Should Have A Neutral Effect On The Operation Of The Economy
C. Taxes Should Be Levied At Progressive Rates
D. (A) And (B)
E. All Of The Above

15. According To The Equimarginal Principle, The Efficient Level Of Government Expenditures Occurs When The Benefit Of The Last Dollar Spent For Each Government Purchase Is
A. Greater Than The Benefit Of The Last Dollar Spent In The Private Sector
B. Less Than The Benefit Of The Last Dollar Spent In The Private Sector
C. Equal To The Benefit Of The Last Dollar Spent In The Private Sector
D. Paid For Out Of Current Tax Collections
E. None Of The Above

16. An Efficient Level Of Government Expenditures Is That Level At Which
A. Marginal Benefits Exceed Marginal Costs
B. Total Benefits Equal Total Costs
C. The Net Benefits To Society Are Maximized
D. The Total Costs Are Minimized
E. None Of The Above

17. Where Marginal Benefits Are Greater Than The Marginal Costs, Government Expenditures Should
A. Be Increased
B. Remain The Same
C. Be Decreased Then Increased To Their Original Level
D. Be Increased Then Decreased To Their Original Level
E. Do None Of The Above

18. Characteristics Of Public Goods And Services Include Which Of The Following?
A. The Demand For These Goods And Services Is Divisible On The Basis Of Individual Quantity Demanded
B. The Supply Of These Goods And Services Is Generally Not Divisible Into Small Units
C. These Goods And Services Are Easily Provided By The Market System
D. The Costs Of These Goods Fall On Other Than The Buyer
E. None Of The Above

19. Which Of The Following Is An Example Of A Public Good Or Service?
A. A Public Highway
B. Free Cheese Offered By The Government
C. Food Stamps
D. Social Security
E. Automobiles

Questions 20 – 24 Refer To The Graph Below.

20. Assuming No External Benefits Or Costs, The Efficient Price And Quantity Would Be
A. P2, Q2
B. P2, Q1
C. P1, Q1
D. P0, Q0
E. P0, Q2

21. Suppose There Are External Benefits Associated With The Production Of The Good. The Efficient Price And Quantity Are
A. P2, Q2
B. P2, Q1
C. P1, Q1
D. P0, Q0
E. P0, Q2

22. If External Benefits Are Associated With The Consumption Of The Good, Consumers Could Be Induced To Purchase The Efficient Quantity If The Price Were Set At
A. P2
B. P1
C. P0
D. 0
E. None Of The Above

23. To Assure Consumers Purchase The Efficient Quantity When There Are Positive External Benefits, The Government Would Lower Price To
A. P2
B. P1
C. P2- P1
D. P0- P1
E. P0

24. Marginal External Benefits Are Represented On The Graph As The Distance
A. Ab
B. Q2a
C. Ea
D. Cf
E. Af

25. Which Of The Following Is The Major Tax Source Of The Federal Government?
A. Income Taxes
B. Excise Taxes
C. Property Taxes
D. Wealth Taxes
E. Sales Taxes

26. A Progressive Tax Rate Means That The Ratio Of Tax Collections To Income
A. Falls As Income Rises
B. Rises As Income Rises
C. Remains The Same As Income Rises
D. Either (A) And (B)
E. May Fall, Rise, Or Remain The Same As Income Rises

27. In The Us, Major Sources Of Tax Revenues Are:
A. Income Taxes At The Federal Level, Property Taxes At The State Level
B. Sales Taxes At The Federal Level And Income Taxes And Property Taxes At The State Level
C. Income Taxes At The Federal Level And Income And Sales Taxes At The State Level
D. Income Taxes At The Federal Level And Payroll Taxes At The State Level

28. The Ability To Pay The Principle Of Taxation Suggests That People With More Income Should Pay More Taxes. This Means That
A. Progressive Income Rates Are Consistent With The Ability To Pay Principle
B. Proportional Income Rates Are Consistent With The Ability To Pay Principle
C. Regressive Income Rates May Or May Not Be Consistent With The Ability To Pay Principle Depending On The Rate Of Regression
D. Sales Taxes Are Consistent With The Ability To Pay Principle
E. None Of The Above

Questions 29 – 33 Refer To The Graph Below.

29. The Demand Curve For This Product Can Be Described As
A. Perfectly Elastic
B. Perfectly Inelastic
C. Unitary Elastic
D. Hyper Elastic
E. Price Elastic

30. Given Demand Curve D, If An Output Tax Per Unit Of P- P2 Is Levied On This Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. It Can Not Be Determined

31. Which Of The Following Shifts Represents The Effect Of An Output Tax Levied On This Good?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above

32. Which Of The Following Shifts Represents The Effect Of A Tax On This Good Levied Independent Of Output?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above

33. Given Demand Curve D, If A Tax Independent Of Output Is Levied On This Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. Cannot Be Determined

Questions 34 – 38 Refer To The Graph Below.

34. The Demand Curve For This Product Can Be Described As
A. Perfectly Elastic
B. Perfectly Inelastic
C. Unitary Elastic
D. Hyper Elastic
E. Price Elastic

35. Given Demand Curve D, If An Output Tax Per Unit Of P- P1 Is Levied On This Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. Cannot Be Determined

36. Which Of The Following Shifts Represents The Effect Of An Output Tax Levied On This Good?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above

37. Which Of The Following Shifts Represents The Effect Of A Tax On This Good Levied Independent Of Output?
A. D To D1
B. D1 To D
C. S To S1
D. S1 To S
E. None Of The Above

38. Given Demand Curve D, If A Tax Independent Of Output Is Levied On This Good, How Much Of The Tax Will Be Shifted Forward?
A. None
B. One-Fourth
C. Half
D. All
E. Cannot Be Determined

39. An Output Tax Will Be Shifted Completely
A. Backward If Demand Is Price Inelastic
B. Forward If Demand Is Perfectly Price Inelastic
C. Forward If Demand Is Price Elastic
D. Backward, Regardless Of Elasticity
E. All Of The Above

40. A Tax Levied Independent Of Output, Such As A Tax Levied On Net Income Of Corporations, Will
A. Be Shifted If Demand Is More Elastic Than Supply
B. Be Shifted If Supply Is More Elastic Than Demand
C. Not Be Shifted In The Short Run If The Most Profitable Output Has Been Selected Before The Tax
D. Be Shifted In The Short Run If The Most Profitable Output Has Been Selected Before The Tax
E. Do None Of The Above

41. Government Borrowing Is Argued To Have The Effect Of Raising Interest Rates—The “Crowding-Out Effect.” In Conjunction With Government Spending, Does Government Spending And Borrowing Have A Positive Or Negative Impact On The Economy?
A. Negative, Since Borrowing Exceeds Spending
B. A Positive Impact, Since Expenditures Often Exceed Borrowing
C. A Neutral Effect, Since The Budget Is Always In Balance
D. Government Spending And Borrowing Have A Minimal Effect On The Economy
E. Government Spending And Borrowing Must Be Considered Separately

42. The Gasoline Tax Is Often Used To Illustrate The Benefits Received Principle Of Taxation Because
A. Everyone Benefits From The Gasoline Tax
B. Those Who Pay The Tax Receive Benefits, Since The Revenues Are Used For Road And Highway Construction And Maintenance
C. The Amount We Pay Is Consistent With Our Incomes
D. Everyone Knows When They Pay The Tax
E. The Gasoline Tax Is A Poor Example Of The Benefits Received Principle

43. Vertical Equity Implies That
A. People In Different States Should Pay The Same Taxes
B. People With Comparable Incomes Should Pay The Same Taxes
C. People In Different Economic Circumstances Should Pay Different Amounts
D. Taxes Should Rise As The Size Of Your Family Increases
E. Taxes Should Be Based Upon How Tall The Taxpayer Is

44. Proportional Tax Rates Mean That The Ratio Of Tax Collection To Income
A. Falls As Income Rises
B. Rises, As Income Rises
C. Remains The Same As Income Rises
D. Rises As Income Falls
E. Falls As Income Falls

45. Regressive Tax Rates Mean That The Ratio Of Tax Collections To Income
A. Falls As Income Rises
B. Rises As Income Rises
C. Remains The Same As Income Rises
D. Remains The Same As Income Falls
E. Falls As Income Falls

46. The Us Federal Personal Income Tax Is An Example Of A(N)
A. Regressive Tax Rate Structure
B. Proportional Tax Rate Structure
C. Progressive Tax Rate Structure
D. More Regressive Than Proportional Tax Rate Structure
E. Equitable Tax Rate Structure

47. If Demand For A Product Is Perfectly Inelastic, An Output Tax Will Be Shifted
A. Completely Backward
B. Completely Forward
C. Completely To The Poor
D. Completely To The Rich
E. Completely To The Producer

48. A Tax That Is Shifted Forward Is A Tax That Falls On
A. The Consumer In The Form Of Higher Prices
B. The Producer Through Lower Sales
C. The Government
D. Foreign Investors
E. None Of The Above

49. A Tax That Is Shifted Backward Is A Tax That Falls On
A. The Consumer In The Form Of Higher Prices
B. The Owners Of Resources In The Form Of Lower Resource Prices
C. The Government
D. Foreign Investors
E. None Of The Above

50. At The Federal Level, The Largest Revenue Generating Tax Is The
A. Corporate Income Tax
B. Personal Income Tax
C. Property Tax
D. Sales Tax
E. Customs Duty

51. If The Ratio Of Tax Collections To Income Rises As Income Rises, Then The Tax Rate Is
A. Regressive
B. Proportional
C. Progressive
D. Regressive Then Proportional
E. None Of The Above

52. The Federal Government Lowered Tax Rates In
A. 1986 And 2001
B. 1986
C. 2001
D. Neither Year
E. 1909 And Has Raised Them Ever Since

53. Suppose There Are Two Individuals Who Each Earn $25,000 Per Year. One Individual Pays $2,500 In Taxes And The Other Pays $2,000. This Is A Violation Of
A. The Benefits Received Principle
B. The Ability To Pay Principle
C. Vertical Equity
D. Horizontal Equity
E. None Of The Above

54. Suppose One Individual Earns $25,000 Per Year And Another Individual Earns $15,000 Per Year. If The Individual Earning $25,000 Per Year Pays $750 More Per Year In Taxes Than The Person Earning $15,000, This Is An Illustration Of
A. The Benefits Received Principle
B. The Ability To Pay Principle
C. The Equal Tax Treatment Principle
D. The Equitable Payment Doctrine
E. None Of The Above

55. If We Levy A Tax On Profits That Is Neither Shifted Neither Forward Nor Backward, It Is
A. An Output Tax
B. An Input Tax
C. A Tax Independent Of Output
D. A Tax Dependent On Output
E. None Of The Above

56. The Federal Tax System In The United States Can Be Described As
A. Regressive
B. Highly Progressive
C. Slightly Progressive
D. Proportional
E. None Of The Above

57. A Tax System That Will Not Alter The Distribution Of Income Is
A. Proportional
B. Regressive
C. Slightly Progressive
D. Very Progressive
E. None Of The Above
58. Which Of The Following Countries Has The Lowest Taxes Collected (As A Percent Of Gdp)?
A. The United States
B. Germany
C. Italy
D. France
E. The United Kingdom

59. The Highest Effective Federal Tax Rate In The United States Is Approximately
A. 10%
B. 15%
C. 20%
D. 24%
E. 34%
60. The Highest Effective Federal Tax Rate In The United States Falls On Which Income Category?
A. The Lowest Quintile
B. The Middle Quintile
C. The Top 10%
D. The Top 5%
E. The Top 1%

61. The Single Most Important Source Of Tax Revenue For The Local Governments In The United States Is The
A. Real Property Tax
B. Personal Income Tax
C. National Sales Tax
D. Cigarette Tax
E. Inheritance Tax

62. Enforcement And Collection Of Personal Income Taxes Is The Responsibility Of The
A. Treasury Department
B. Individual State Governments
C. Federal Reserve System
D. Internal Revenue Service
E. Department Of Labor

63. The Federal Government Uses Taxes To
A. Generate Revenue
B. Encourage Saving For Education And Retirement
C. Discourage Certain Behaviors
D. Promote The Purchase Of Houses
E. Do All Of The Above

64. The 1986 Tax Reform Act ________ The Number Of Tax Brackets And _______ The Highest Tax Bracket.
A. Increased; Increased
B. Increased; Decreased
C. Decreased; Increased
D. Decreased; Decreased
E. Decreased; Did Not Change

65. Since 2004, The Highest Personal Income Tax Bracket Has Been
A. 10%
B. 15%
C. 25%
D. 28%
E. 35%

66. The Economic Growth And Taxpayer Relief Reconciliation Act Passed By Congress And Signed By President George W. Bush Did Which Of The Following?
A. Immediately Cut Federal Tax Rates By One-Third
B. Gave A $300 Check To Each Taxpayer
C. Decreased The Tax On Income From Financial Investments
D. Decreased The Federal Budget Deficit
E. Increased The Number Of Personal Income Tax Brackets

67. The First Budget Surplus Since 1969 Occurred In
A. 1993
B. 1995
C. 1998
D. 1999
E. 2000

68. The Budget Surpluses Of The Late 1990’s And The Early 2000’s Could Be Attributed To Which Of The Following Government Policies?
A. The Value Added Tax Act
B. The Tax Reform Act Of 1986
C. The Economic Growth And Taxpayer Relief Reconciliation Act
D. Increased Government Debt
E. All Of The Above

69. If A Government Bond With A Maturity Value Of $10,000 Sells For $9,000 And Pays Annual Interest Of $1,000, What Is The Rate Of Interest On The Bond?
A. 1%
B. 10%
C. 11.1%
D. 88.9%
E. 90%

70. An Increase In Government Borrowing Will Cause Which Of The Following?
A. A Decrease In The Demand For Loanable Funds
B. A Decrease In The Supply Of Bonds
C. An Increase In The Interest Rate
D. An Increase In The Price Of Bonds
E. All Of The Above

71. Federal Debt Reduction Will Cause Which Of The Following?
A. A Decrease In The Interest Rate
B. An Increase In Private Investment
C. A Decrease In The Supply Of Bonds
D. An Increase In The Price Of Bonds
E. All Of The Above

72. The Federal Government Ended Its Most Recent Period Of Budget Surpluses And Returned To Deficits In
A. 1999
B. 2000
C. 2001
D. 2002
E. 2003

73. The Federal Deficit Was Increased In 2002 As A Result Of
A. The 2001 Recession
B. The War On Terrorism
C. The 2001 Tax Cut
D. Increased Defense Spending
E. All Of The Above

74. Retiring The Federal Debt Will
A. Decrease The Supply Of Government Bonds
B. Increase Government Bond Prices
C. Lower The Interest Rate On Government Bonds
D. Decrease The Demand For Money
E. Do All Of The Above

True / False Questions

75. The Fears That People Have Concerning Government Are Related To The Size Of Government And The Distribution Of Taxes.

76. Some Of The Fears That People Have Concerning Government Are Well-Founded And Some Are Not.

77. Government Expenditures Have Grown Faster Than The Gdp Since 1958, Representing About Fifty Percent Of Gdp Today.

78. Government Transfer Payments, Such As Public Assistance Payments And Social Security Payments, Have Been A Constant Percentage Of The Gdp Since 1960.

79. Government Purchases Of Goods And Services Have Remained A Constant Percentage Of The Gdp For The Last Two Decades.

80. Before An Intelligent Decision Can Be Made About Whether Government Is Too Large Or Small, The Benefits And Costs Must Be Weighed.

81. An Efficient Level Of Government Expenditures Is That Level Where Net Benefits To Society Are Maximized.

82. Public Goods And Services Can Be Supplied In The Market Because They Are Easily Divisible Into Small Units And Can Be Priced To The Individual Demander.

83. The Existence Of Externalities In Production Or Consumption Does Not Negate The Possibility That These Goods And Services Can Be Supplied Efficiently In The Market.

84. A Great Deal Of Government Activity Is Based On The Idea That People In Society Should Determine The Extent To Which The Distribution Of Income Should Be Altered.

85. The Major Tax Source Of The Federal Government Is The Highly Regressive Sales Tax.

86. The Federal Income Tax System Results In A Mildly Progressive Tax Structure.

87. The Major Tax Source Of State Governments Is The Property Tax.

88. Progressive Income Tax Rates Are Consistent With The Ability To Pay Principle Of Taxation But Are Inconsistent With The Tax Criterion Of Economic Efficiency.

89. The Relative Tax Treatment Doctrine Would Call For All Taxpayers To Pay Equal Taxes.

90. Since Gasoline Taxes Are Used Primarily To Finance Highways, Gasoline Taxes Can Be Defended On The Benefits Received Principle Of Taxation.

91. The Excess Tax Burden Is In The Form Of The Loss In Private Production That May Take Place If Incentives To Work And To Produce Are Discouraged.

92. A Tax Levied On Each Unit Produced Will Likely Be Shifted Forward And Backward Depending Upon The Elasticities Of Demand And Supply.

93. If An Output Tax Is Levied On A Product That Has A Perfectly Elastic Demand, The Tax Will Be Shifted Completely To The Consumer In The Form Of Higher Prices.

94. Federal Budget Deficits Occurred Throughout The 1970’s And 1980’s But In The Late 1990’s Deficits Turned Into Budget Surpluses.

95. The Tax Reform Act Of 1986 Increased The Highest Marginal Tax Rate To 50% From 38%.

96. In General, A Tax Levied On Net Income Of A Corporation Would Be Shifted To Consumers In The Short Run.

97. Tax Equity Would Probably Be Reduced If Federal Tax Exclusions, Such As Interest On State And Local Government Securities, Were Eliminated.

98. Demand For Public Goods And Services Is Not Generally Divisible On The Basis Of Individual Quantity Demanded.

99. The Tax Base Is What A Tax Is Levied On, Such As Income, Sales, Or The Value Of Property.

100. Regressive Tax Rates Mean That The Ratio Of Tax Collection To Income Rises As Income Rises.

101. Tax Equity Means That All People Should Pay Equal Taxes.

102. An Output Tax Will Be Shifted Completely Forward If Demand Is Price Elastic.

103. According To The Equimarginal Principle, The Efficient Level Of Government Expenditures Occurs When The Benefit Of The Last Dollar Spent For Each Purchase Is Greater Than The Last Dollar Of Cost.

104. When Marginal Benefits Equal Marginal Costs Then Net Benefits Are Maximized.

105. Horizontal Equity Means That People In Identical Economic Positions Should Pay Equal Taxes.

106. Transfer Payments Are Government Expenditures For Currently Produced Goods And Services.

107. In The Absence Of Externalities, Government Actions Are Needed To Ensure The Efficiency Of The Market System.

108. According To The Equal Tax Treatment Doctrine, People In Identical Economic Circumstances Should Pay Equal Taxes.

109. The Equal Tax Treatment Doctrine Pertains To Vertical Equity.

110. The Federal Tax System Is Much More Progressive Than Is Generally Believed.

111. The Economic Growth And Taxpayer Relief Reconciliation Act, The Job Creation And Worker Assistance Act, And The Jobs And Growth Tax Relief Act Each Reduced Effective Tax Rates On Income.

112. The United States Has Not Had A Federal Budget Surplus Since The 1960s.

113. The Personal Income Tax Is The Single Most Important Source Of Tax Revenue For The Federal Government Of The United States.

114. The Enforcement And Collection Of The Personal Income Tax Is The Responsibility Of The Internal Revenue Service.

115. There Are Currently 14 Tax Brackets Ranging From 11% To 50%.

116. The Federal Government Uses The Tax Code To Encourage Certain Behaviors.

117. Bond Prices And Interest Rates Are Inversely Related.

118. The First Budget Surplus Since 1969 Occurred In 1998.

119. A Budget Deficit Occurs When Tax Revenues Exceed Government Spending.

120. A Lower Interest Rate Encourages Private Investment Spending.

121. The National Debt Is The Sum Of Past Budget Deficits.

122. The Government Owes Almost One Third Of The National Debt To Itself.

123. An Increase In Government Borrowing Increases The Demand For Loanable Funds.

124. An Increase In Government Borrowing Increases The Supply Of Loanable Funds.

125. The Federal Budget Has Been In Deficit Each Year Since The Beginning Of The 1970s.

Chapter 15

Social Security And Medicare: How Secure Is Our Safety Net For The Elderly?

Multiple Choice Questions

1. Government Programs That Guarantee Citizens Financial Benefits For Events Beyond Their Personal Control And That Are Financed Through Tax Revenues Are Called
A. Social Insurance Programs
B. Entitlement Programs
C. Private Insurance Programs
D. Welfare Programs
E. Transfer Programs

2. The Largest Social Insurance Program In The United States Is
A. Temporary Assistance For Needy Families
B. Social Security
C. Medicaid
D. Federal Flood Insurance
E. Job Corps

3. The Most Significant Factor That Threatens The Financial Stability Of The Social Security System Is The
A. Increasing Number Of Young Workers
B. Relatively High Rates Of Social Security Taxes
C. Population Bulge Created By The “Baby Boom” Generation
D. Generosity Of Current Social Security Benefits
E. Threat Of Foreign Workers Entering The U.S. Due To Nafta

4. Which Of The Following Nations Was The First To Offer Its Citizens A Modern Social Insurance Program?
A. United States
B. Great Britain
C. Russia
D. Germany
E. Japan

5. In The United States, Social Security Was Established In When President Signed The Social Security Act Into Law.
A. 1903; Theodore Roosevelt
B. 1929; Herbert Hoover
C. 1965; Lyndon Johnson
D. 1865; Abraham Lincoln
E. 1935; Franklin Roosevelt

6. Which Of The Following Statements Is Concerning The Scope Of The Social Security Program?
A. Social Security Has Narrowed Its Scope Over Time To Focus On The Economic Stability Of The Individual
B. The Scope Of Social Security Has Remained Constant Throughout Its History
C. Social Security Has Broadened Its Scope Over Time To Focus On The Economic Stability Of The Family
D. The Scope Of Social Security Has Always Focused On The Family Unit
E. None Of The Above

7. How Many Americans Receive A Monthly Check From The Social Security Administration?
A. Fewer Than 10 Million
B. More Than 50 Million
C. About 27 Million
D. Roughly 38 Million
E. More Than 100 Million

8. As Originally Designed, Social Security Was To Be Financed As A
A. Private Insurance Program
B. Pure Income Transfer Program
C. Pay-As-You-Go Insurance Program
D. Fully-Funded Insurance Program
E. Means-Tested Benefits Program

9. How Are Social Security Tax Revenues Allocated Today?
A. They Are Used To Pay Today’s Social Security Beneficiaries, And Any Extra Is Placed Into The Social Security Trust Fund
B. All Of Today’s Revenues Are Placed In The Social Security Trust Fund To Pay For Tomorrow’s Beneficiaries
C. Tax Revenues Are Placed Into Accounts For Each Worker Who Will Draw Upon The Balance When They Retire
D. The Revenues Are Invested In Government Securities And In The Stock Market
E. No One Really Knows

10. Current Projections Estimate That The Social Security Trust Fund Will Be Completely Depleted
A. In Late 2003
B. During 2010-2020
C. In About 100 Years
D. Around 2100
E. Before 2040

11. Given The Way Social Security Is Financed, Which Of The Following Is ?
A. Social Security Results In A Transfer Of Income From The Old To The Young
B. Social Security Results In A Transfer Of Income From The Young To The Old
C. Social Security Has A Neutral Effect On The Nation’s Income Distribution
D. The Purchasing Power Of The Elderly Has Been Diminished By Social Security Taxes
E. (A) And (D)

12. Social Security Taxes Are
A. Paid Only By Workers
B. Levied On Salaries And Wages
C. Paid Only By Employers
D. Paid By Both Workers And Employers
E. (B) And (D)

13. Currently, The Total Combined Tax Rate Collected By Social Security Is
A. 21.6% Of Earnings
B. 15.3% Of Earnings
C. 7.65% Of Earnings
D. 6.20% Of Earnings
E. 1.45% Of Earnings

14. Which Of The Following Is Concerning Social Security’s Retirement Benefit Structure?
A. All Eligible Retired Workers Are Entitled To The Same Benefits
B. High Wage Workers Receive A Greater Percentage Of Past Earnings In Benefits Than Low Wage Workers
C. Retired Female Workers Are Entitled To Higher Benefits Than Retired Male Workers
D. Low Wage Workers Receive A Greater Percentage Of Past Earnings In Benefits Than Do High Wage Workers
E. Retired Workers Living In Cities Receive Larger Benefits Than Those Living In Rural Areas

15. Most Of Today’s College Student Population Will Be Eligible To Receive Full Social Security Retirement Benefits When They Reach The Age Of
A. 62
B. 65
C. 67
D. 70
E. 72

16. The Cost Of Living Adjustment (Cola) Employed By Social Security Is Based On The
A. Current Level Of Gdp
B. Local Rate Of Inflation
C. Consumer Price Index
D. Producer Price Index
E. Annual Poverty Threshold

17. How Many Elderly Households Receive Social Security Benefits?
A. More Than 90%
B. Less Than 50%
C. About 75%
D. Only About 15%
E. None Of The Above

18. Which Of The Following Statements Is ?
A. 20% Of Elderly Households Receive Social Security As Their Only Source Of Income
B. Approximately 90% Of Elderly Households Receive Social Security Benefits
C. Just Under 30% Of Elderly Households Receive Private Pension Benefits
D. For Nearly Two Thirds Of Elderly Households, Social Security Represents More Than 50% Of Total Income
E. None Of The Above. All Are

19. If People Choose To Work Fewer Hours Because The Social Security Tax Reduces Their Real Wage, Their Behavior Is Dominated By The
A. Substitution Effect
B. Bequest Effect
C. Income Effect
D. Wealth Effect
E. Real Wage Effect

20. If People Choose To Work More Hours Because The Social Security Tax Reduces Their Real Wage, Their Behavior Is Dominated By The
A. Substitution Effect
B. Bequest Effect
C. Income Effect
D. Wealth Effect
E. Real Wage Effect

21. Empirical Evidence Suggests That Social Security Has _______ The Overall Supply Of Labor.
A. Had No Effect On
B. Reduced
C. Increased
D. Stimulated
E. Done None Of The Above To

22. Social Security May Increase The Level Of Personal Saving Due To
A. The Retirement Effect
B. The Bequest Effect
C. The Wealth Substitution Effect
D. (A) And (B)
E. (B) And (C)

23. Empirical Studies Indicate That Social Security Has
A. Increased The Level Of Personal Savings
B. Had A Neutral Effect On The Level Of Personal Savings
C. Reduced The Level Of Personal Savings
D. Increased The Number Of Older Workers
E. Raised The Average Age At Which Workers Choose To Retire

24. The Effect Of Social Security On Personal Savings Is Important Because
A. The Level Of Savings Determines The Pool Of Investment Funds
B. Savings Are Necessary To Finance The Social Security Trust Fund
C. Personal Savings Are Negatively Related To Economic Growth
D. Savings Are A Major Source Of Income For All Elderly Households
E. The Level Of Savings Reflects The Magnitude Of Future Consumption

25. Why Can’t Social Security Rely On A Strict Pay-As-You-Go Financial Structure?
A. The Current Generation Of Workers Is Too Small To Support Future Retirees
B. A Pay-As-You-Go Financial Structure Is Inherently Unstable
C. The Current Generation Of Retirees Will Bankrupt The System Before The “Baby Boom” Retires
D. Inflation Erodes The Value Of Contributions That Must Be Saved To Pay Future Retirees
E. None Of The Above

26. The Most Simple And Direct Way To Postpone The Looming Social Security Financial Crisis Is To
A. Invest Social Security Taxes In The Stock Market
B. Raise Social Security Taxes And/Or Lower Benefits
C. Privatize The Social Security Administration
D. Eliminate The Social Security System And Force Everyone To Buy Private Insurance
E. Subsidize Social Security With General Tax Revenues

27. The Most Significant Argument Against Privatizing Social Security Is That
A. Benefits Would Have To Be Cut
B. It Has Not Worked In Other Countries
C. Future Benefits Levels Cannot Be Guaranteed
D. It Is Too Complicated To Be Practical
E. Taxes Would Have To Be Raised

28. Why Do Some People Favor Investing The Social Security Trust Fund In The Stock Market?
A. Because For Most Beneficiaries The Historic Return On Their Social Security Taxes Has Been Less Than What Would Have Been Earned If Those Dollars Were Invested In The Stock Market
B. Because Investment In The Stock Market Will Guarantee Higher Rates Of Return Over The Long Run For All Retirees
C. Because Investments In The Stock Market Carry Very Little Risk And Offer The Potential For Excessive Short-Run Gains With Little Or No Potential For Loss
D. Because The Stock Market Offers The Safest Form Of Investment
E. All Of The Above

Questions 29 – 33 Refer To The Graph Below.

29. The Results Of The Retirement Effect Are Illustrated On The Graph As A Movement From Point
A. E To F
B. A To C
C. E To G
D. F To E
E. None Of The Above

30. The Results Of The Bequest Effect Are Illustrated On The Graph As A Movement From Point
A. E To F
B. A To C
C. E To G
D. F To E
E. None Of The Above

31. The Results Of The Wealth Substitution Effect Are Illustrated On The Graph As A Movement From Point
A. E To F
B. A To C
C. E To G
D. F To E
E. None Of The Above

32. A Change In Consumption From Ce To Cf Could Be Caused By Which Of The Following?
A. The Bequest Effect
B. The Retirement Effect
C. The Wealth Substitution Effect
D. All Of The Above
E. None Of The Above

33. A Movement From Point E To Point F As A Result Of Social Security Would Result In Which Of The Following Costs To Society? A Long-Run Movement To
A. Ppc Cd Rather Than Gh
B. Ppc Gh Rather Than Cd
C. Point B Rather Than Point A
D. Point A Rather Than Point B
E. If To Cf

34. If I Start Saving More During My Working Life Because I Anticipate Retiring Earlier Thanks To Social Security, I Am Exhibiting Which Of The Following Effects?
A. Retirement
B. Bequest
C. Wealth Substitution
D. Opportunity Cost
E. None Of The Above

35. If I Spend More Each Year Because I Know That I Will Receive Social Security Payments When I Retire, I Am Exhibiting Which Of The Following Effects?
A. Retirement
B. Bequest
C. Wealth Substitution
D. Opportunity Cost
E. None Of The Above

36. If I Put Extra Into A Savings Account So That I Can Leave Assets To My Children To Compensate Them For Their Payments Into The Social Security System, I Am Exhibiting Which Of The Following Effects?
A. Retirement
B. Bequest
C. Wealth Substitution
D. Opportunity Cost
E. None Of The Above

37. If Inflation Increases, What Will Happen To The Social Security Cola? It Will
A. Expire
B. Increase
C. Decrease
D. Be Divided Among Social Security Recipients
E. Be Added To The Social Security Trust Fund

38. “An Agreement To Pay A Premium To A Company In Return For A Guarantee Of Financial Benefits In The Event Of An Undesired Circumstance” Defines
A. Social Insurance
B. Private Insurance
C. Private Investment
D. Asset Management
E. Retirement Savings

39. Social Insurance Uses Tax Revenues To Guarantee Citizens Financial Benefits For Events Including
A. Old Age
B. Disability
C. Poor Health
D. Death Of A Spouse
E. All Of The Above

40. If A Program’s Benefits Are Funded By Interest Earned On Accumulated Payments, It Is Which Type Of System?
A. An Investment System
B. A Fully Funded Scheme
C. An Interest Scheme
D. A Pay-As-You-Go System
E. An Endowed System

41. If A Program’s Benefits Are Funded Out Of Current Payments, It Is Which Type Of System?
A. An Investment System
B. A Fully Funded Scheme
C. A Pyramid Scheme
D. A Pay-As-You-Go System
E. An Endowed System

42. When Was The Medicare Program Established?
A. 1935
B. 1945
C. 1955
D. 1965
E. 1975

43. Today, The Health Care Sector Of The U.S. Economy Accounts For About Percent Of National Income.
A. 3
B. 5
C. 8
D. 12
E. 18

44. A Person With Health Insurance Will Tend To
A. Have A Lower Demand For Health Care Services
B. Have A Much Greater Concern For Preventive Care
C. Buy A Lower Quantity Of Health Care At A Higher Price
D. Demand More Health Care Services Than A Person Without Insurance
E. Do None Of The Above

45. The Payment And Delivery Of Health Care Service Under A Managed Care System Is Based On
A. A Fee-For-Service Market Principle
B. A Prearranged Schedule Of Fixed Prices
C. The Ability To Pay Principle
D. Price Negotiation Between The Consumer And Provider
E. None Of The Above

46. The Medicare Program
A. Was Established As A Socialistic Takeover Of Health Care Providers
B. Has Reduced The Demand For Health Care Services
C. Affects Persons 65 And Older, Regardless Of Income
D. Enrolls All Poor People Regardless Of Age
E. Does None Of The Above

47. Part C Of The Medicare Program (Medicare + Choice)
A. Provides Health Care Plan Choices To The Beneficiaries Of Medicare
B. Restricts Medicare Beneficiaries To A Simple Fee-For-Service Health Care Plan
C. Provides Comprehensive Health Insurance Coverage For All Poor People
D. Is Only Available To Disabled Retirees Receiving Social Security
E. Does None Of The Above

48. A Potential Benefit Of Managed Care Plans To Medicare Enrollees Is That These Plans
A. Typically Require Less Cost Sharing
B. Provide A Higher Quality Of Health Care
C. Provide A Greater Quantity Of Health Care
D. Require Less Paper Work
E. Do All Of The Above

49. Part A Of The Medicare Program (Hospital Insurance) Is Financed Primarily By
A. A Monthly Premium
B. A 2.9% Tax Levied On Wages And Salaries
C. An Allocation From General Tax Revenues
D. User Fees Paid By Patients
E. Insurance Deductibles

50. What Percent Of The Average Health Care Dollar Spent In The United States Comes Directly From The Consumer?
A. 100
B. 83
C. 50
D. 34
E. 12

51. Which Of The Following Factors Has Contributed Most To The Tremendous Increase In Health Care Expenditures Experience In The U.S. During The Past Fifty Years?
A. Health Care Inflation
B. The Aging Of The Population
C. Increased Public Support For Health Care
D. Private Health Insurance
E. Growth In Medicaid

52. Which Of The Following Receives The Largest Share Of Expenditures Made On Health Care In The United States?
A. Physicians
B. Nursing Homes
C. Hospitals
D. Personal Health Care Product And Service Providers
E. Pharmacies

53. In A Fee-For-Service Health Care System, Consumers Pay The
A. Insurance Company A Fee Every Time They Use A Service
B. Full Cost Of The Services They Receive
C. Hmo When They Receive Care
D. Doctor A Small Payment Called A “Co-Pay.”
E. Prearranged, Fixed Fee For Services They Receive

54. How Are Payments To Health Care Providers Determined Under A Managed Care System? By The
A. Government
B. Market
C. Insurance Company And The Provider
D. Provider And The Consumer
E. Ama (American Medical Association)

55. Which Of The Following Is An Example Of A Managed Health Plan?
A. Hmo
B. Ppo
C. Pos
D. Physicians Network
E. All Of The Above

Questions 56 – 59 Refer To The Graph Below.

56. With A Market Allocation Of Medical Services, Equilibrium Quantity Will Be
A. 0
B. 50
C. 2,000
D. 2,800
E. 4,000

57. If Medical Care Is Provided Free Of Charge, What Quantity Will Be Demanded?
A. 0
B. 2,000
C. 2,800
D. 4,000
E. An Infinite Amount

58. If Medical Care Is Provided Free Of Charge, What Quantity Will Be Supplied?
A. 0
B. 50
C. 2,000
D. 2,800
E. 4,000

59. The Supply Of Medical Services In This Market Is
A. Elastic
B. Inelastic
C. Unit Elastic
D. Price Elastic
E. Infinite

60. Under Most Insurance Systems, Patients Are Responsible For Which Of The Following Payments For Health Care Services?
A. Deductible
B. Co-Insurance
C. Fee-For-Service Charges
D. All Of The Above
E. None Of The Above

61. A Patient May Be Required To Pay A Percentage Of The Cost Of Their Health Care Above The Fixed Fee They Pay. This Is Known As
A. The Deductible
B. Co-Insurance
C. Fee-For-Service
D. The Health Care Tax
E. Medicare Tax

62. If Your Insurance Company Agrees To Pay A Fixed Fee For You To Receive A Given Treatment (For Example, $5,000 For An Appendectomy), The Company Is Using Which Of The Following?
A. A Fee-For-Service System
B. A Managed Care System
C. A Co-Insurance System
D. A Prospective Payment System
E. A Social Insurance System

63. If Your Deductible Is $200 And You Pay Co-Insurance Of 20%, How Much Will You Have To Pay For A $3,000 Hospital Stay?
A. $200
B. $560
C. $600
D. $760
E. $800

64. If Your Deductible Is $400 And You Have Co-Insurance Of 25%, How Much Will You Have To Pay For A $5,000 Hospital Stay?
A. $400
B. $1,150
C. $1,250
D. $1,550
E. $1,650

Questions 65 – 69 Refer To The Graph Below.

65. If Patients Pay The Full Price For Office Visits, What Price Will Be Charged In The Market?
A. $0
B. $25
C. $50
D. $75
E. More Than $75

66. If Patients Pay The Full Price For Of Office Visits, How Many Office Visits Will They Make?
A. 0
B. 30
C. 50
D. 70
E. More Than 70

67. If A Third Party Guarantees A Maximum Patient Price Of $25, What Quantity Of Office Visits Will Patients Demand?
A. 0
B. 30
C. 50
D. 70
E. More Than 70

68. If A Third Party Guarantees A Maximum Patient Price Of $25, What Total Price Must Be Paid Per Office Visit To Assure The Quantity Of Office Visits Demanded Will Be Provided?
A. $0
B. $25
C. $50
D. $75
E. More Than $75

69. If A Third Party Guarantees A Maximum Patient Price Of $25, How Much Must The Third Party Pay Per Office Visit?
A. $0
B. $25
C. $50
D. $75
E. More Than $75

70. Health Insurance Results In
A. An Increase In The Quantity Of Health Care Demanded
B. An Increase In The Quantity Of Health Care Provided
C. An Increase In The Total Cost Of Providing Health Care
D. All Of The Above
E. None Of The Above

71. The Medicare Modernization Act, Passed In 2003, Established
A. The First Long Term Care Coverage For Medicare Recipients
B. Lowered Deductibles For Most Medicare Recipients
C. Added A Prescription Drug Benefit To The Medicare Program
D. Instituted Stringent Price Controls On The Fees Doctors And Hospitals Can Charge
E. Restricted The Benefits That High Income Medicare Recipients Can Receive

72. The Prescription Drug Benefit That Is Part Of The Medicare Modernization Act Of 2003 Requires That Recipients Pay:
A. A Monthly Premium
B. A Co-Pay
C. A Deductible
D. All Of The Above
E. None Of The Above, These Benefits Are Provided To Recipients At No Charge

True / False Questions

73. Social Insurance Is Private Insurance Purchased By The Government.

74. Programs That Provide Citizens With Benefits For Events That Are Beyond An Individual Person’s Control Are Called Social Insurance Programs.

75. Both Social Security And Medicare Are Social Insurance Programs.

76. The Major Underlying Factor That Endangers Social Security’s Financial Stability Is The Population Bulge Created By The “Baby Boom” Generation.

77. The United States Was The First Nation To Provide Social Insurance Programs For Its Citizens.

78. The Original Design Of The Social Security System Called For A Pay-As-You-Go Financing Scheme.

79. The Social Security Act Was Signed Into Law By President Franklin Roosevelt In 1935.

80. Over Time, Social Security Has Evolved To Focus More On The Family And Less On The Individual.

81. Currently, About 20 Million Americans Receive Social Security Benefits.

82. All American Citizens Are Entitled To Receive Social Security And Medicare Benefits When They Retire.

83. Today, Social Security Is Financed Under A Pay-As-You-Go Financial System.

84. All Current Social Security Taxes Collected By The Government Are Used To Pay Current Beneficiaries, With Nothing Left Over.

85. Social Security And Medicare Are Financed Through A Flat Tax On Wages Paid Up To A Predetermined Limit.

86. Workers And Their Employers Share The Burden Of Social Security Taxes.

87. The Social Security Trust Fund Currently Has A Negative Balance.

88. Social Security Benefits Are Adjusted Each Year For Inflation Using The Consumer Price Index (Cpi).

89. About 50% Of All Elderly Households Receive Some Form Of Social Security Benefits.

90. Today, In The Aggregate, Social Security Accounts For Over 35% Of Senior Citizens’ Income.

91. Without Social Security, Nearly 50 Percent Of Elderly Households Would Live Below The Poverty Threshold.

92. The Substitution Effect Of Social Security Taxes Causes Some People To Work More Hours.

93. The Income Effect Of Social Security Taxes Causes Some People To Work Less Hours.

94. Studies Show That Social Security Has Caused Some Workers To Retire Earlier Than They Would If Social Security Did Not Exist.

95. The Bequest Effect Of Social Security Causes Some People To Save Less During Their Lifetimes.

96. The Empirical Evidence Suggests That, Overall; Social Security Causes People To Increase Their Personal Savings.

97. Because Social Security Increases Savings, More Funds Are Available For Investment In The Overall Economy.

98. Current Estimates Indicate That The Social Security Trust Fund Will Be Depleted Before 2040.

99. A Modest Increase In Taxes Could Postpone Social Security’s Financial Crisis For Decades.

100. Privatization Of The Social Security System Would Reduce The Financial Risks Faced By Retiring Workers.

101. Chile And Other Nations Have Successfully Privatized All Or Part Of Their Social Insurance Programs.

102. Oasdi Is Social Security’s Medical Insurance Program.

103. The Most Important Factor Explaining The Growth In Personal Health Care Expenditures On Hospital And Physician Services Is Higher Prices For These Services.

104. Third-Party Payments Increase The Efficiency Of Medical Markets.

105. A Dominant Feature Of The U.S. Health Care Industry Is Price Competition Among Providers.

106. Medicare And Medicaid Have Reduced The Demand For Health Care Services.

107. The Purpose Of A Prearranged Payment And Delivery System, Such As A Managed Care Plan, Is To Take Away Any Incentive For The Provider To Supply Unnecessary Care.

108. The Demand For Health Services Is Characterized By Well-Informed Consumers.

109. The Medicare Program Affects Persons Aged 65 And Older, Regardless Of Their Income Level.

110. A Consumer With Health Insurance Is Likely To Buy More Health Services Than One Who Is Not Insured.

111. A Reduction In The Price Of Medical Services Will Cause The Demand Curve To Shift To The Right.

112. Health Care Providers Are Paid The Amount Of A Patient’s Deductible By The Health Insurance Company.

113. The Amount A Patient Must Pay Above The Deductible Is Known As Co-Insurance.

114. Projections Indicate That The Medicare Hi Program Will Be Depleted Of Funds By 2025.

115. More Than 70% Of All Privately Insured Employees Are Covered By Managed Care Plans.

116. The Medicare Program Could Be Secured By An Increase In The Payroll Tax That Supports The Program.

117. The Medicare Program Could Be Secured By Increasing Premiums, Deductibles And Co Payments.

118. Medicare’s Fee-For-Service Plan Provides Incentives For Supplying Excessive Services.

119. Managed Care Plans Provide Incentives For Supplying Excessive Services.

120. Third-Party Payments For Health Care Increase The Quantity Of Services Demanded.

121. Third-Party Payments For Health Care Decrease The Price Consumers Pay For Services.

122. The Fee-For-Service Delivery And Payment System Is The Primary Means By Which Most Elderly Americans Receive Their Health Care.

123. Third-Party Payments For Health Care Result In Less Usage Of The Health Care System.

124. Managed Care Leads To Higher Costs Of Providing Health Care Services.

125. Investments Of Social Security Tax Payments Result In High Returns On The Contributions Made By Taxpayers.

ECO 405 Week 10 Quiz – Strayer University – *New*

ECO 405 Week 10 Quiz – Strayer

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Chapter 13

Unemployment And Inflation: Can We Find A Balance?

Multiple Choice Questions

1. A Person Is Considered Unemployed If The Person Is
A. Seeking A Job Requiring Greater Qualifications Than The Person Possesses And No One Is Willing To Hire The Person For Such A Job
B. Offered A Job For Which The Person Is Qualified But Prefers Not To Work
C. Qualified For A Job, Willing To Work, But Unable To Find Work For Over 30 Days
D. Out Of School During Christmas Vacation And Cannot Find Work During That Period
E. All Of The Above

2. Which Of The Following People Is Considered Unemployed?
A. A Truck Driver With A High School Education Who Has Been Laid Off His Job And Is Now Training To Be A Computer Programmer
B. An Individual Who Is Currently Not Working Nor Actively Seeking Employment
C. A Secretary Who Is Currently Not Working And Who Seeks Employment Using Secretarial Skills
D. All Of The Above
E. None Of The Above

3. An Auto Factory Worker Who Is Unemployed Because A Robot Now Has His Job Is A Victim Of
A. Structural Unemployment
B. Cyclical Unemployment
C. Underemployment
D. Frictional Unemployment
E. Seasonal Unemployment

4. Which Of The Following Individuals Is Considered Part Of The Labor Force?
A. An Unemployed Farmer
B. A College Graduate Looking For His First Job
C. A Retired Teacher Working As A Sales Clerk
D. A Department Store Santa During December
E. All Of The Above

5. When Individuals Want To Work, But Give Up Looking For A Job Because They Feel There Will Never Be One Available, They Are Considered
A. Pessimistic
B. Lazy
C. Discouraged
D. Part Of The Labor Force
E. Unemployed

6. Which Of The Following Individuals Is Part Of The Labor Force?
A. A 15-Year-Old Worker At A Fast Food Restaurant
B. A Paid Prison Worker At The Prison Carpentry Shop
C. A College Student Attending School Full-Time
D. A Stay-At-Home Dad
E. None Of The Above

7. The Unemployment Rate
A. For Blacks Is Roughly Twice The Rate For Whites
B. For Women Is Lower Than That Of Men
C. For Teenagers Is Below The Rate For The Labor Force As A Whole
D. Is Equal For Males And Females, Blacks And Whites, And Young And Old Workers
E. Is None Of The Above

8. Technological Change In An Industry That Historically Required Specific Labor Skills Will Lead To
A. Frictional Unemployment
B. Structural Unemployment
C. Cyclical Unemployment
D. Seasonal Unemployment
E. No Changes In Unemployment

9. People Who Are In The Process Of Changing Jobs Are Classified In The Category Of
A. Frictional Unemployment
B. Involuntary Unemployment
C. Structural Unemployment
D. Cyclical Unemployment
E. Seasonal Unemployment

10. A College Graduate Looking For Her First Job Is Considered
A. Frictionally Unemployed
B. Involuntarily Unemployed
C. Structurally Unemployed
D. Cyclically Unemployed
E. Seasonally Unemployed

11. A Farmer Who Has Lost His Farm Due To Increased Agricultural Productivity Is Considered
A. Frictionally Unemployed
B. Involuntarily Unemployed
C. Structurally Unemployed
D. Cyclically Unemployed
E. Seasonally Unemployed

12. A Factory Worker Who Loses A Job Because Of A Decrease In Aggregate Demand Is
A. Frictionally Unemployed
B. Involuntarily Unemployed
C. Structurally Unemployed
D. Cyclically Unemployed
E. Seasonally Unemployed

13. The Full-Employment Unemployment Rate Is
A. 0
B. Inconsistent With Price Stability
C. The Rate That Reflects Cyclical Unemployment
D. 10%
E. None Of The Above

14. Between 1960 And 2011, The Unemployment Rate Has
A. Steadily Increased
B. Steadily Fallen
C. Been Below 6% Over The Entire Period
D. Ranged From 1% To 12%
E. None Of The Above

15. Unemployment Rates Tend To Rise When
A. Inflation Rates Rise
B. Aggregate Demand Is High
C. The Economy Goes Through An Expansion
D. There Is A Recession
E. Interest Rates Are Low

16. A Major Cause Of Involuntary Unemployment Is
A. A Wage Rate Below Equilibrium
B. Not Enough Demand For Labor
C. Too Much Supply Of Labor
D. Laziness
E. A Wage Rate Above Equilibrium

17. The Unemployment Rate Will Not Fall To Zero Because Of
A. Cyclical Unemployment
B. Frictional Unemployment
C. Welfare
D. Voluntary Unemployment
E. All Of The Above

18. Which Of The Following Types Of Unemployment Is Considered Long-Term, Hardcore Unemployment?
A. Cyclical
B. Structural
C. Frictional
D. Seasonal
E. None Of The Above

19. A Poorly Educated, Unskilled Teenager Currently Unemployed Is An Example Of
A. Frictional Unemployment
B. Cyclical Unemployment
C. Structural Unemployment
D. Seasonal Unemployment
E. None Of The Above

20. People Who Are Unemployed Due To A Downturn In Economic Activity Are Classified In The Category Of
A. Frictional Unemployment
B. Structural Unemployment
C. Seasonal Unemployment
D. Cyclical Unemployment
E. Voluntary Unemployment

21. When General Motors Lays Workers Off Because Of A Decrease In Aggregate Demand, It Causes
A. Cyclical Unemployment
B. Frictional Unemployment
C. Seasonal Unemployment
D. Structural Unemployment
E. None Of The Above

22. Unemployment Below The Full Employment Rate Is A Measure Of
A. Underemployment
B. Structural Unemployment
C. Cyclical Unemployment
D. Seasonal Unemployment
E. None Of The Above

23. The Highest Unemployment Rate Is Found Among
A. People Between The Ages Of 16 And 19
B. Females
C. Ethnic Groups
D. The Elderly
E. Children

24. Which Of The Following Best Describes When The Economy Is Experiencing Inflation? When
A. The Price Of An Essential Good Increases Dramatically
B. The Prices Of Many Goods Go Up
C. There Is A Rise In The General Level Of Prices
D. All Prices Remain The Same Or Increase; No Prices Fall
E. The Value Of The Dollar Increases

25. Which Price Index Is Also Known As The Cost-Of-Living Index?
A. Consumer Price Index
B. Wholesale Price Index
C. Implicit Price Deflator
D. Gdp Deflator
E. All Of The Above

26. If Inflation Is Not Observable In The Form Of Rising Prices, It Is Called
A. Suppressed
B. Repressed
C. Deflation
D. Dynamic
E. None Of The Above

27. Price Index Numbers For A Series Of Years Show
A. If Money Gdp Is Growing
B. If Real Gdp Is Growing
C. If All Prices Are Rising
D. The Average Price Level For Each Year As A Percentage Of The Base Year
E. None Of The Above
28. If The Consumer Price Index Is 100 In 2010 And Is 120 In 2012, Then The Rate Of Inflation Between 2010 And 2012 Is
A. 10%
B. 20%
C. 15%
D. 5%
E. Unable To Be Calculated Without Further Information

29. The Best Description Of The Growth Of The Money Supply Since 1960 Is That It Has
A. Increased Steadily
B. Increased Rapidly During The 1980’s
C. Decreased Steadily
D. Decreased Rapidly During The 1960’s
E. Shown Patterns Of Both Fast And Slow Growth Over The Decades

30. When Inflation Redistributes Income From One Group In The Economy To Another, It Is An Example Of Which Effect?
A. Equity
B. Efficiency
C. Output
D. Input
E. None Of The Above

31. If Inflation Causes The Demand For Houses To Increase More Rapidly Than The Demand For Other Goods, The Economy Has Experienced Which Effect
Of Inflation?
A. Equity
B. Efficiency
C. Output
D. Input
E. None Of The Above

32. If Inflation Stimulates Production And Employment, The Economy Experiences Which Of The Following Effects Of Inflation?
A. Equity
B. Efficiency
C. Output
D. Input
E. None Of The Above

33. Which Of The Following Is Most Likely Be Hurt By Inflation?
A. People On Fixed Incomes
B. People Whose Wages Rise Faster Than Prices
C. Landholders
D. Borrowers
E. None Of The Above

34. Suppose A Family Spends $20,000 On A Basket Of Goods In 2011. Suppose The Same Basket Costs $22,000 In 2012. Using 2011 As The Base Year, The Price Index For 2012 Is
A. 105
B. 102
C. 111
D. 110
E. None Of The Above

35. The Effect Of Inflation On Production And Employment Is Known As
A. An Incomes Policy
B. The Equity Effects Of Inflation
C. The Efficiency Effects Of Inflation
D. The Output Effects Of Inflation
E. Fiscal Policy

36. Federal Income Taxes Are Levied On The Basis Of Nominally Stated Tax Brackets, And There Is A Nominal Upward Adjustment In Salaries And Wages During Inflation. Therefore, What Is Of Federal Tax Collections During Inflation? They Will
A. Decrease In Both Real And Nominal Terms
B. Increase In Both Real And Nominal Terms
C. Increase In Real Terms
D. Increase In Nominal Terms
E. Stay The Same

37. Which Of The Following Statements Is Correct? Inflation
A. Benefits Creditors At The Expense Of Debtors
B. Increases The Purchasing Power Of The Dollar
C. Increases The Real Value Of Savings
D. Arbitrarily “Taxes” Fixed Income Groups
E. Increases Real Wages

38. The Effects Of Inflation On The Distribution Of Income Are Called
A. An Incomes Policy
B. The Equity Effects Of Inflation
C. The Efficiency Effects Of Inflation
D. The Output Effects Of Inflation
E. None Of The Above
39. The Effect That Inflation Has On The Allocation Of Resources Is Known As
A. An Incomes Policy
B. The Equity Effects Of Inflation
C. The Efficiency Effects Of Inflation
D. The Output Effects Of Inflation
E. None Of The Above
40. In The Circular Flow Diagram, Economic Units Are Classified As
A. Imports And Exports
B. Households And Producers
C. Taxpayers And Governments
D. Subsidy Receivers And Taxpayers
E. Producers And Sellers
41. The Circular Flow Of Economic Activity Developed In The Text Is A Model Of The
A. Flow Of Goods, Resources, Payments And Expenditures Between The Sectors Of The Economy
B. Influence Of Government On Business Behavior
C. Influence Of Business On Consumers
D. Role Of Unions And Government In The Economy
E. Interaction Among Taxes, Prices, And Profits
42. Which Of The Following Statements Concerning The Circular Flow Is ?
A. The Circular Flow Of Economic Activity Shows How The Overall Economy Operates
B. The Circular Flow Emphasizes The Independence Of Economic Variables
C. There Are Two Circular Flows Involved In The Economy
D. The Circular Flow Shows That Real Income Is Determined By Physical Goods And Services Produced In The Economy
E. None Of The Above
43. Aggregate Demand
A. Represents The Sum Of The Demands By All Purchasers Of Goods And Services In An Economy
B. Is Comprised Of The Purchases Of Goods And Services Only By Consumers
C. Excludes Imports And Exports
D. Assumes That Governments Do Not Purchase Goods And Services
E. None Of The Above
44. The Aggregate Demand Curve Will Shift To The Right
A. When The Government Raises Taxes
B. If Investors Reduce Their Purchases Of Plant And Equipment
C. If Consumer Confidence Increases
D. If Prices Fall
E. None Of The Above

45. The Marginal Propensity To Consume Is
A. Consumption Divided By Income
B. The Change In Consumption
C. The Change In Consumption Divided By The Change In Income
D. Unaffected By Changes In Income
E. All Of The Above

46. The Marginal Propensity To Consume Plus The Marginal Propensity To Save
A. Represents What Happens As A Result Of Income Changes
B. Must Always Sum To 1
C. Must Always Sum To 0
D. A And B
E. None Of The Above

47. Investment Spending Is Sensitive To
A. Interest Rates
B. Expectations By Producers About The Return On Investment
C. The Confidence Of Investors
D. All Of The Above
E. None Of The Above

48. A Trade Deficit Will Occur In An Economy
A. When Spending Exceeds Income
B. When The Value Of Exports Exceeds The Value Of Imports
C. When The Value Of Exports Is Less Than The Value Of Imports
D. When An Economy Is Expanding
E. When An Economy Is In Recession
49. Assuming A Marginal Propensity To Consume Three-Fourths, The Spending Multiplier Is
A. 1
B. 2
C. 3
D. 4
E. None Of The Above
50. Assume That The Spending Multiplier Is 3. The Government Has Decided To Purchase New Computers To Improve Productivity And Will Spend $50 Billion On The Computer Equipment. The Resulting Increase In National Income Will Be
A. Zero
B. $200 Billion
C. $100 Billion
D. $150 Billion
E. It Cannot Be Determined

51. The Determinants Of Aggregate Supply Are
A. Resources, Prices, And Technology
B. Interest Rates
C. Consumer Wealth
D. Real Income
E. All Of The Above
52. Ameeta Spends $400 When Her Income Is $500. When She Receives A $100 Raise (Bringing Her Total Income To $600), She Spends $480. Her Mpc Is
A. 0.4
B. 0.5
C. 0.6
D. 0.8
E. 1.0

53. The Psychological Law Of Consumption Tells Us The Marginal Propensity To Consume Will Be
A. Less Than 0
B. Greater Than 0 But Less Than 1
C. Equal To 1
D. Greater Than 1 But Less Than 10
E. Greater Than 10

54. If The Mpc Is 0.8, The Spending Multiplier Equals
A. 0.2
B. 0.8
C. 1.25
D. 5.0
E. 8.0
55. If The Mps Is .4, The Spending Multiplier Equals
A. 0.4
B. 0.6
C. 1.67
D. 2.5
E. 4.0
56. Which Of The Following Is A Component Of Aggregate Demand?
A. Consumption
B. Investment
C. Government Spending
D. Exports And Imports
E. All Of The Above

Questions 57 – 62 Refer To The Graph Below.

57. Given Short Run Aggregate Supply S0, What Level Of Aggregate Demand Is Necessary For The Economy To Reach Full Employment?
A. Lower Than D1
B. D0
C. D1
D. D2
E. Higher Than D2

58. Given D0 And S0, An Increase In Aggregate Demand Would Lead To Which Of The Following?
A. Higher Unemployment
B. Lower Unemployment
C. Inflation
D. Deflation
E. Recession

59. Given S1 And D1, Which Of The Following Changes Reduces Unemployment? A Shift To
A. D0
B. D2
C. S0
D. All Of The Above
E. None Of The Above

60. Which Of The Following Would Cause A Shift From D1 To D2?
A. An Increase In Investment
B. A Decrease In Consumption
C. An Increase In Imports
D. An Increase In Saving
E. All Of The Above

61. Which Of The Following Would Cause A Shift From S1 To S0?
A. A Decrease In Resource Prices
B. An Decrease In Unemployment
C. An Increase In The Price Of Labor
D. An Increase In Consumption
E. All Of The Above

62. Demand-Pull Inflation Is Illustrated By A Movement From
A. S0 To S1
B. S1 To S0
C. D0 To D2
D. D1 To D0
E. Q1 To Q0
63. If The Economy Is Initially At Full Employment, An Increase In Aggregate Demand Will Result In
A. Demand-Pull Inflation
B. Profit-Push Inflation
C. Cost-Push Inflation
D. Unemployment
E. Underemployment

64. To Expand The Level Of Economic Activity, It Is Necessary That
A. Total Leakages Exceed Total Injections
B. Government Expenditures Exceed Tax Collections
C. Total Injections Exceed Total Leakages
D. Imports Exceed Exports
E. (C) And (D) Above

65. Leakages In The Circular Flow Consist Of
A. Savings, Taxes, And Exports
B. Savings, Investment, And Exports
C. Government Spending, Investment, And Exports
D. Savings, Taxes, And Imports
E. Investment, Taxes, And Imports

66. Injections In The Circular Flow Consist Of
A. Savings, Exports, And Investments
B. Savings, Exports, And Taxes
C. Government Spending, Savings, And Exports
D. Government Spending, Investment, And Exports
E. None Of The Above

67. Aggregate Supply Can Be Increased By
A. Reduced Incentives To Save
B. Higher Taxes
C. Increases In Government Spending
D. Policies To Induce More Saving
E. None Of The Above

68. The Phillips Curve Depicts The Relationship Between
A. Output And Inflation
B. Savings And Investment
C. Unemployment And Inflation
D. Imports And Exports
E. None Of The Above

69. Economists In The 1960s Believed That The Phillips Curve Relationship Would
A. Allow Governments To End Inflation
B. Provide Governments A Means To Control Recessions
C. Discourage Imports
D. Provide Policies That Would Trade Off Unemployment For Inflation
E. None Of The Above

70. Economic Policy Makers In The 1960s Held That Governments Could
A. Engage In Expansionary And Contractionary Policies To Manage The Economy
B. Spend Their Way Out Of Business Cycles
C. Eliminate Unemployment
D. Choose How Much To Produce
E. None Of The Above

71. After The Events Of The 1970s, Economists Learned That
A. Attempts To Trade Off Unemployment And Inflation Would Only Work For A Short Period Of Time
B. Shocks To The Aggregate Supply Could Alter The Relationships Between Unemployment And Inflation
C. The Phillips Curve Relationship Was Not Stable
D. The Phillips Curve Shifted Over Time
E. All Of The Above

72. By How Much Must Investment Spending Increase To Increase Output By $500 If The Mpc Is 0.8?
A. $100
B. $300
C. $400
D. $500
E. More Than $500

73. A Useful Measure Of The Size Of The Workforce, That Is, The Number Of Individuals Who Are Willing And Able To Work, Is
A. The Current Population Survey
B. The Unemployment Rate
C. The Rate Of Job Growth
D. The Labor Force Participation Rate
E. There Are No Useful Measures Of This Information, Due To The Difficulties Of Gathering The Sample

74. In An Economy Like That Of The Us, Due To A Variety Of Institutional And Social Factors, Wages Tend To Be
A. Very Flexible
B. Flexible During Recessions
C. Highly Rigid
D. Affected Only By Congressional Legislation
E. Sticky

75. Which Of The Following Factors In An Economy Contribute To “Sticky” Wages?
A. Flexible Working Conditions
B. Competitive Labor Markets
C. Collective Bargaining Agreements
D. Highly Mobile Capital Equipment
E. Investment Flexibility

True / False Questions

76. Unemployment Affects Both The Current And Future Production Of Goods And Services.

77. If Leakages Exceed Injections, Unemployment Will Result.

78. Involuntary Unemployment Occurs When Wage Rates Are Too Low, I.E., Below Competitive Levels.

79. Cyclical Unemployment Is Due Primarily To A Decline In Aggregate Supply.

80. Structural Unemployment Results From People Changing Jobs.

81. Frictional Unemployment Refers To Persons Who Are Unemployed Because The Economy Is In A Recession.

82. As An Economy Approaches Full Employment, Real Output Declines.

83. Frictional Unemployment Is A Long-Run Event For Particular Individuals.

84. The Unemployment Rate Is The Same For All Demographic Groups.

85. Full Employment Means That Everyone In The Labor Force Has A Job.

86. An Equilibrium Level Of National Income Implies The Economy Is Operating At Full Employment.

87. Frictional Unemployment Is Involuntary.

88. Structural Unemployment Results From The Economy Experiencing A Recession.

89. Cyclical Unemployment Occurs Because Workers Have No Marketable Job Skills.

90. A Certain Amount Of Frictional And Structural Unemployment Occurs Even At Full Employment.

91. Frictional Unemployment Can Be Reduced By Education And Training.

92. An Economy Reaches Full Employment When There Is No Cyclical Unemployment.

93. Full Employment May Be Reached Even Though There Is Frictional And Structural Unemployment.

94. Structural Unemployment Is A Long Run Event For Particular Individuals.

95. Frictional Unemployment Could Be Reduced By Decreasing The Minimum Wage.

96. All Unemployed Workers Are Unemployed For The Same Reason.

97. Cyclical Unemployment Is Involuntary.

98. When Frictional Unemployment Exists, Labor Services Are Voluntarily Unemployed.

99. As A Group, Women Suffer From The Highest Unemployment Rate.

100. The Lowest Unemployment Rate Is Found For Those Between The Ages Of 16 And 19.

101. Economic Growth Or Improved Technology Would Be Shown On An Aggregate Demand – Aggregate Supply Diagram As An Increase In Ad, As Remaining Constant.

102. An Increase In Government Purchases Financed By An Equal Increase In Tax Collections Will Increase National Income.

103. An Increase In The Marginal Propensity To Consume Will Increase The Size Of The Multiplier.

104. The Marginal Propensity To Consume Is Usually Greater Than One.

105. An Increase In Trade Deficit Will Increase Unemployment In The U.S.

106. An Increase In The Federal Budget Deficit Will Increase Unemployment.

107. An Increase In Imports Would Expand The Level Of Employment.

108. The Ad-As Relationship Is Not Affected By Circular Flow Relationships.

109. Inflation Means That Prices Are Too High.

110. A Price Index Shows The Absolute Changes In Price That Occur Over Time In A List Of Different Products And Services.

111. If The Economy Is Operating At A Less-Than-Full Employment Level, An Increase In Aggregate Demand May Result In An Increase In The Price Level As Well As An Increase In The Level Of Employment.

112. Inflation May Affect The Distribution Of Income In The Economy And May Increase National Output.

113. Inflation Is Not Equitable Because It Arbitrarily Changes The Pattern Of Income Distribution.

114. The Consumer Price Index Is A Cost-Of-Living Index.

115. Demand-Pull Inflation Ends Once Full Employment Is Reached.

116. During Inflation, Some Prices May Be Rising And Some May Be Falling.

117. The Effects Of Inflation On Resource Allocation Are The Equity Effects Of Inflation.

118. Inflation May Have A Stimulating Effect On Production And Employment.

119. The Labor Force Participation Rate Has Been Steadily Increasing In Recent Years.

120. Unemployment Rates Since 2007 Have Increased Due To Rising Structural Unemployment.

121. Since 1960, Inflation Rates Were Highest During The 1970s.

122. When A Phillips Curve Is Drawn, It Shows An Inverse Relationship Between Inflation And Unemployment Rates.

123. The Phillips Curve Is Another Name For A Production Possibilities Curve.

124. The Phillips Curve Has Displayed A Stable Relationship Between Inflation And Unemployment Since The 1960s.

125. Expansionary And Contractionary Policies Have Not Proved To Be Effective Tools To Control Unemployment And Inflation In The American Economy.

126. The Oil Embargo During The Early 1970s Showed How Stable The Relationship Is Between Unemployment And Inflation Rates.

127. Shifts In The Aggregate Supply Function Can Cause Shifts In The Phillips Curve.

128. The Relationship Shown By The Phillips Curve, Which Implies A Tradeoff Between Inflation And Unemployment Rates, Is A Long-Run Phenomenon.

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ECO 405 Week 9 Quiz – Strayer

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Chapter 11

Economic Growth: Why Is The Economic Road So Bumpy?

Multiple Choice Questions

1. Which Of The Following Is Consistent With Economic Growth?
A. Lower Unemployment
B. Increased Gdp
C. Increased Aggregate Demand
D. Increased Sales
E. All Of The Above

2. Why Is Economic Growth An Important Economic And Social Issue?
A. Economic Growth Leads To Improvements In Our Standard Of Living
B. Lower Levels Of Unemployment And Poverty Can Be Achieved Through Economic Growth
C. A Growing Economy Provides Consumers With More Choices And Opportunities
D. All Of The Above
E. Economic Growth Is Not An Important Economic Issue

3. Which Of The Following Statements Is About Economic Growth?
A. Economic Growth Is A Short-Run Process
B. Growth Of An Economy Is Generally A Smooth Process That Occurs Over Time
C. Economic Growth Is A Long-Run Process Resulting From The Compounding Of Many Events
D. To Measure Economic Growth, Economists Analyze Changes In The National Debt
E. The U.S. Economy Has Never Experienced A Year Of Negative Economic Growth

4. Which Of The Following Is The Most Commonly Used Measurement Of Economic Growth? Changes In
A. Real Gdp
B. The Money Supply
C. Nominal Gdp
D. The Federal Government Debt
E. The Level Of International Trade

5. Why Do Small Differences In Economic Growth Rates Today Result In Significant Differences In The Level Of Economic Activity In The Future?
A. Growth Rates Discount Over Time
B. Economic Growth Compounds Year After Year
C. Economics Grow In An Arithmetic Fashion
D. Business Cycles Are Less Likely At Higher Rates Of Growth
E. All Of The Above

6. Countries A And B Start Out With Real Gdp Equal To $1,000. If Country A Grows At A Rate Of 5% While Country B Grows At A Rate Of 10%, What Is Country A’s Level Of Real Gdp After 3 Years?
A. $1,000
B. $1,050
C. $1,158
D. $1,500
E. $2,500

7. Countries A And B Start Out With Real Gdp Equal To $1,000. If Country A Grows At A Rate Of 5% While Country B Grows At A Rate Of 10%, What Is Country B’s Level Of Real Gdp After 3 Years?
A. $1,000
B. $1,100
C. $1,210
D. $1,300
E. $1,331

8. Of The Following, Which Of The Following Values Most Closely Approximates The Average Annual Rate Of Growth For The U.S. Economy Since 1960?
A. 1.65%
B. 10.22%
C. 5.35%
D. 4.02%
E. 3.26%

9. Which Decade Resulted In The Lowest Average Annual Rate Of Economic Growth In The U.S.?
A. 1950s
B. 1960s
C. 1970s
D. 1980s
E. Unknown

10. Which Of The Following Decades Had The Highest Average Annual Rate Of Economic Growth In The U.S.?
A. 1930s
B. 1960s
C. 1970s
D. 1980s
E. 1990s

11. What Term Is Used To Describe An Erratic Short-Run Fluctuation In Economic Activity Around The Long-Run Trend?
A. Economic Depression
B. Economic Boom
C. Business Cycle
D. Recession
E. Diminishing Returns

12. Which Of The Following Is Not A Phase Of Every Business Cycle?
A. Trough
B. Expansion
C. Contraction
D. Depressions
E. Peak

13. Which Of The Following Lists The Four Phases Of The Business Cycle In The Correct Sequence?
A. Expansion, Peak, Contraction, Trough
B. Expansion, Contraction, Peak, Trough
C. Expansion, Peak, Contraction, Depression
D. Expansion, Peak, Depression, Trough
E. Peak, Recession, Trough, Depression

14. Which Phase Of The Business Cycle Best Describes An Economy That Is Experiencing A Positive Rate Of Economic Growth?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

15. When The Economy Ends An Expansion, It Enters Which Phase Of The Business Cycle?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

16. A Decline In The Level Of Economic Activity Occurs During Which Phase Of The Business Cycle?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

17. When Economic Output Hits A Short-Run Economic Low, The Economy Is In Which Phase Of The Business Cycle?
A. Expansion
B. Peak
C. Contraction
D. Trough
E. Depression

18. An Exceptionally Strong And Prolonged Contraction Is Known As
A. A Trough
B. A Recession
C. An Economic Bust
D. A Super Contraction
E. A Business Cycle

19. The Last Depression Experienced By The U.S. Economy Occurred
A. During The 1970s
B. In 1982
C. During The 1930s
D. Between 1974-1975
E. In 1990

20. What Is The Average Length Of A Typical Business Cycle In The Modern U.S. Economy?
A. 12 Months
B. 36 Months
C. 60 Months
D. 95 Months
E. 120 Months

21. Which Group Is Responsible For Announcing The Dates For Each Phase Of A U.S. Business Cycle?
A. The Federal Reserve
B. The National Bureau Of Economic Research
C. The Department Of Commerce
D. The Bureau Of Labor Statistics
E. The Federal Business Cycle Committee

22. The Most Commonly Used Tool To Forecast Future Changes In Economic Activity Is The
A. Leading Economic Indicators Index
B. Supply Of Money
C. Unemployment Rate
D. Lagging Economic Indicators Index
E. Federal Budget Deficit

23. The Economic Variables That Make Up The Leading Economic Indicators Index Tend To Move In The ______ Direction As Overall Economic Output And Do So _____ Changes In Real Gdp.
A. Opposite; Prior To
B. Same; After
C. Opposite; After
D. Same; Prior To
E. Same; Simultaneously As

24. Which Of The Following Is Not About Business Cycles?
A. All Business Cycles Have Four Distinct Phases
B. The Average Length Of A U.S. Business Cycle Is About 60 Months
C. Since 1960, The U.S. Has Experienced Six Complete Business Cycles
D. The Last Economic Depression In The U.S. Occurred In The 1930s
E. The Turning Points Of A Business Cycle Can Be Easily Predicted

25. What Do You Call Business Cycle Theories Based On The Belief That Economic Activity Follows General Trends Of Optimism And Pessimism?
A. Theories Of Expectations
B. Real Business Cycle Theories
C. Theories Of Innovation
D. Theories Of Externalities
E. Sunspot Theories

26. Which Of The Following Economists Is Associated With The Business Cycle Theory Of Innovations?
A. John Maynard Keynes
B. William Stanley Jones
C. Joseph Schumpeter
D. Ansel Sharp
E. Adam Smith

27. Monetary Theories Of The Business Cycle Postulate That Cycles Are Strongly Influenced By The Policy Actions Of The
A. U.S. Congress
B. Federal Reserve
C. World Trade Organization
D. National Bureau Of Economic Research
E. U.S. Department Of Commerce

28. Which Of The Following Focuses Primarily On Aggregate Supply Variables?
A. Theory Of Expectations
B. Exogenous Theories
C. Monetary Theories
D. Real Business Cycle Theories
E. Jevons’ Sunspot Theory

29. What Was The First Theory Put Forth By An Economist To Explain The Phenomena Of Business Cycles?
A. Inventory Theory
B. Schumpeter’s Theory Of Innovation
C. Real Business Cycle Theories
D. Theory Of Expectations
E. Jevons’ Sunspot Theory

30. What Are The Two Primary Determinants Of Economic Growth?
A. The Availability Of Resources And Productivity Factors
B. Technology And Money
C. The Quantity Of Capital And The Quantity Of Money
D. The Ability To Trade And The Size Of The Labor Force
E. Comparative Advantage And The Law Of Diminishing Returns

31. What Is The Result Of A Growing Labor Force?
A. Lower Rates Of Interest In The Capital Market
B. Higher Rates Of Unemployment
C. The Economy’s Production Possibilities Curve Shifts Outward
D. The Economy’s Production Possibilities Curve Shifts Inward
E. The Economy’s Rate Of Growth Must Slow To Accommodate More People

32. Which Of The Following Terms Is Used To Describe The Purchase Of Capital?
A. Savings
B. Consumption
C. Technology
D. Investment
E. Production

33. Why Does Spending On Capital Tend To Increase Economic Growth More Than Spending Of Consumption Goods? Because
A. Capital Lasts Longer Than Consumer Goods
B. Capital Can Be Used To Produce Future Goods And Services
C. Capital Puts Technology To Use
D. People Prefer To Invest In Capital In Order To Generate Income
E. Capital Purchases Are Taxed At A Lower Rate Than Consumption Purchases

34. What Was The Primary Opportunity Cost Of The Former Soviet Union’s Policy To Heavily Invest In Capital For Economic Growth?
A. An Inability To Trade With Other Nations
B. Democracy
C. Foregone Consumer Goods
D. Technological Innovations
E. Foregone Military Goods

35. Initially 10 Workers Produce 100 Units Of Output In An Economy. The Next Year, 20 Workers Produce 250 Units Of Output In The Same Economy. Productivity In The Economy Has
A. Doubled
B. More Than Doubled
C. Increased
D. Decreased
E. Not Changed

36. Which Of The Following Is The Best Definition Of “Productivity”?
A. A Measurement Of How Efficiently Resources Are Converted Into Goods And Services Through A Production Process
B. A Measurement Of How Technology Increases The Ability Of An Economy To Produce Goods And Services
C. The Ratio Of Inputs To Output
D. The Quantity Of Goods And Services Produced During A Given Period Of Time By Labor
E. The Total Output Produced In An Economy Given Its Set Of Resources And The Current State Of Technology

37. How Do You Calculate The Average Product Of Labor?
A. Total Quantity Of Inputs Divided By Total Output
B. The Average Number Of Workers Times The Average Level Of Output Produced
C. Total Output Produced Divided By Total Units Of Labor Employed
D. Total Units Of Labor Employed Divided By The Total Output Produced
E. The Average Number Of Labor Units Employed Times The Quantity Of Capital Employed

38. In An Economy, 100 Workers Can Produce 500 Units Of Output And 110 Workers Produce 600 Units Of Output. Which Of The Following Is ? The Average Product With
A. 100 Workers Is 500
B. 100 Workers Is 5
C. 110 Workers Is 600
D. 10 Workers Is 100
E. Both A) And C)

39. In An Economy, 10 Workers Can Produce 500 Units Of Output And 20 Workers Produce 800 Units Of Output. Which Of The Following Is ? The Average Product With
A. 10 Workers Is 500
B. 10 Workers Is 5
C. 20 Workers Is 800
D. 20 Workers Is 300
E. 20 Workers Is 40.

40. What Is Technology?
A. The Tools Of Production
B. The Human Input Of Production
C. Computers, Robots, And Factories
D. The Means And Methods Of Production
E. The Mix Of Labor And Capital Used In Production

41. Which Of The Following Is Cited As Contributing To The Recent Slowdown In Economic Growth?
A. Slower Rates Of Technological Advancement
B. Changes In Composition Of The Labor Force
C. Low Rates Of Saving And Investment
D. Government Regulation And Public Debt
E. All Of The Above

42. How Has The Increasing Importance Of The U.S. Service Sector Contributed To The Slowdown In Economic Growth?
A. Services Are Less Important To The Economy Than Goods
B. The Productivity Of The Service Sector Is Hard To Accurately Measure
C. Most Investment Takes Place In The Goods Producing Sector Of The Economy
D. Services Cannot Be Easily Exported To Foreign Nations
E. Technological Advances Have Had A Smaller Impact On The Service Sector

43. What Is The “Crowding Out” Effect?
A. Consumption Spending Is Reduced Because Of Spending On Capital
B. Capital Spending Is Reduced Because People Purchase Great Quantities Of Consumer Goods
C. Private Investment Is Reduced Because Government Borrowing Diverts Dollars Away
D. Government Spending Creates A Larger Demand For Capital Goods
E. Savings Is Insufficient To Support The Level Of Capital Investment In The Economy

44. Which Of The Following Is A “Pro-Growth” Economic Policy?
A. Raising The Tax On Capital Gains
B. Encouraging People To Save Less
C. Reducing Public Dollars Available For Education
D. Investing In Human Capital
E. None Of The Above

45. How Much Does The Federal Government Spend Annually On Research And Development?
A. Less Than 1% Of Gdp
B. About 10% Of Gdp
C. More Than 25% Of Its Budget
D. Zero
E. Exactly 5% Of Its Budget

46. Which Theories Concerning The Business Cycle Focus On Factors Outside Of The Economy?
A. Expectations Theories
B. Inventory Theories
C. Exogenous Theories
D. Monetary Theories
E. Theories Of Innovation

47. The Economic Growth Of An Economy Is Generally Measured By Examining Changes In
A. Employment
B. Real Gdp
C. Income
D. Government Revenues
E. Current Gdp

48. Which Of The Following Statements Is ?
A. The U.S. Economy Grew At A Higher Rate In The 1980s Than It Did In The 1960s
B. The Leading Economic Indicators Index Is Useful For Predicting Economic Recessions, But Not Economic Expansions
C. The Economist Most Often Associated With Theories Of Innovation Used To Explain Business Cycles Is Milton Friedman
D. A Small Reduction In Economic Growth Can Have Large Long-Run Effects On Real Gdp
E. All Of The Above Statements Are

49. How Many Complete Business Cycles Has The U.S. Experienced Since 1960?
A. 7
B. 1
C. 12
D. 2
E. 23

50. Relative To The Past, Business Cycles In The U.S. Are Becoming
A. Shorter In Duration
B. More Severe
C. Longer In Duration
D. (A) And (B)
E. Non-Existent

51. Which Of The Following Is Responsible For Officially Tracking The Index Of Leading Economic Indicators?
A. The U.S. Department Of Commerce
B. The Conference Board
C. The Bureau Of Labor Statistics
D. The Council Of Economic Advisors
E. The Federal Reserve Board Of Governors

52. Which Of The Following Is Not A Component Of The Index Of Leading Economic Indicators?
A. Stock Market Prices
B. An Index Of Consumer Expectations
C. New Building Permits Granted
D. Real Money Supply
E. None Of The Above. All Are Part Of The Index

53. In Response To An Economic Recession, Monetary Theories Of The Business Cycle Predict That The Federal Reserve Would
A. Increase The Supply Of Money To Create An Expansion
B. Reduce The Supply Of Money To Create An Expansion
C. Raise Interest Rates To Increase Real Economic Growth
D. Increase The Demand For Money To Bring About Economic Growth
E. Lower Taxes To Avoid A Full Depression

54. Which Famous Economist Is Associated With The Sunspot Theory Of Business Cycles?
A. Joseph Schumpeter
B. Milton Friedman
C. William Stanley Jevons
D. John Maynard Keynes
E. Charles Alan Register

55. Which Set Of Theories Can Be Used To Explain All Business Cycles?
A. Exogenous Theories
B. Theories Of Innovation
C. Inventory Theories
D. Monetary Theories
E. None Of The Above. No One Theory Can Explain Every Business Cycle

56. For An Economy To Expand Its Investment In The Production Of Capital Goods, It Must
A. Enhance Its Current Level Of Technology
B. Forego Some Production Of Consumer Goods And Services
C. Expand Its Geographic Territory
D. Increase Its Real Supply Of Money
E. Reduce The Level Of Savings By Consumers

57. The Quantity Of Capital In The U.S. Economy Has Grown At A Rate ________ The Growth In The Labor Force.
A. Slower Than
B. About The Same As
C. Faster Than
D. Only Half As Much As
E. Unknown

58. Human Capital Refers To
A. Foregone Earnings Of Students Enrolled In College
B. Money Required To Enroll In Educational Programs
C. Slaves Owned By Capitalists
D. Skills And Training That Increase A Worker’s Productivity
E. Factories And Equipment Owned By Workers

59. The First Decade Of The 21st Century Has Been Characterized By ______.
A. A Booming Economy Through The Period
B. A Recession At The Start Of The Decade, Followed By A Slow Recovery And Then A Second Recession
C. Stagflation
D. One Recession Followed By An Unprecedented Economic Boom
E. None Of The Above

60. Which Of The Following Statements Is ?
A. In The Foreseeable Future, Real Gdp Will Grow Slower Than The U.S. Population
B. Based On Past Economic Performance, It Is Likely That Standards Of Living In The U.S. Will Fall During The Early Part Of The 21st Century
C. Real Per Capita Gdp Will Likely Increase In The Near Future Due In Part To The Slowdown In The Rate Of Population Growth
D. In Economics, The Past Is A Very Poor Predictor Of The Future
E. The Rate Of Economic Growth Does Not Affect Individual People

Questions 61 – 65 Refer To The Graph Below.

61. An Economy’s Production Possibilities Curve Will Shift Out The Farthest In 2017 If It Chooses To Operate At Which Point In 2012?
A. A
B. B
C. C
D. F
E. E

62. An Increase In Labor Resources Will Cause Which Of The Following Shifts On The Graph?
A. Bf To Ag
B. Ag To Bf
C. D To C
D. C To D
E. D To E

63. Economic Growth Is Represented On The Graph As A Movement From
A. Bf To Ag
B. Ag To Bf
C. D To C
D. C To D
E. D To E

64. An Increase In Productivity Is Consistent With Which Of The Following Movements?
A. Bf To Ag
B. Ag To Bf
C. D To C
D. C To D
E. D To E

65. A Movement From Point D To Point C Is Consistent With
A. An Increase In Capital Goods Without A Decrease In Consumer Goods
B. Technological Change Between 2012 And 2017
C. An Increase In Productivity Between 2012 And 2017
D. All Of The Above
E. None Of The Above

Questions 66 – 70 Refer To The Graph Below.

66. An Economic Expansion Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

67. An Economic Contraction Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

68. A Peak In The Business Cycle Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

69. A Trough In The Business Cycle Is Illustrated On The Graph
A. At Point T2
B. At Point T3
C. Between T1 And T2
D. Between T2 And T3
E. Along The Straight Line

70. The Straight Line On The Graph Represents
A. An Economic Expansion
B. An Economic Contraction
C. A Business Cycle
D. A Long-Run Growth Trend
E. A Boom Period

71. The Longest Sustained Period Of Economic Growth In Modern U.S. History Occurred During The
A. 1920s
B. 1950s
C. 1960s
D. 1980s
E. 1990s

72. Which Of The Following Factors Was Not One Of The Reasons Why A Recession Started In 2008?
A. The Collapse Of A Speculative Bubble In The Real Estate Market
B. A Spike In Interest Rates
C. A Significant Rise In The World Price Of Oil
D. A Series Of Financial Fraud Schemes In The Financial Industry
E. All Of The Above

73. The Decline That Occurred In Real Gdp In The Fourth Quarter Of 2008 Was ________ .
A. The Smallest Decrease On Record
B. The Average Reduction
C. Smaller Than The Decrease In The Third Quarter
D. The Largest In Over 50 Years
E. There Was No Decline In Real Gdp During 2008
74. Which Of The Following Contributed To The Inflation-Free Economic Expansion Of The 1990s And Early 2000s?
A. Fed Policies To Raise Interest Rates
B. An Increase In Aggregate Supply
C. Improvements In Productivity
D. Improvements In Technology
E. All Of The Above

75. Productivity Gains In The 1990s Were A Result Of Which Of The Following?
A. Capital Investment
B. Improved Labor Quality
C. Technological Progress
D. Increased Use Of Computers
E. All Of The Above

76. Saving In An Economy Is Important For Economic Growth Because
A. If Households Don’t Save, They Cannot Consume In The Future
B. Without Saving, Aggregate Demand Increases
C. One Person’s Saving Is Another Person’s Consumption
D. It Is The Source Of Funds For Investment
E. Of None Of The Above; Saving Is Not Important For Economic Growth

77. Which Of The Following Is Not Something That Will Increase Economic Growth?
A. Expenditures On Research And Development
B. Increased Education
C. Using Resources To Develop Additional Capital
D. Replacing Old Machinery
E. All Of The Above Will Increase Economic Growth

78. According To Real Business Cycle Theory, The Primary Factor That Increases Aggregate Supply Is
A. Savings
B. Increases In The Size Of The Labor Force
C. Technological Improvements
D. Government Spending
E. Reductions In Regulation

True / False Questions

79. Economic Growth Is Necessary To Create New Jobs, Increase Incomes, And Raise Standards Of Living.

80. Economic Growth Is An Important Social Issue, But It Is Not Related To Other Problems Such As Unemployment And Poverty.

81. Economists Consider Economic Growth As A Short-Run Process.

82. Between 1960 And The Mid-1990s, The American Economy More Than Tripled Its Level Of Real Gdp.

83. During The Past Three Decades, The U.S. Economy Experienced Significant Periods Of Growth Without Interruption.

84. Even Small Differences In Growth Rates Can Result In Significant Gaps In Gdp Between Two Countries Over The Long Run.

85. Economic Growth Compounds Over Time.

86. The U.S. Economy Has Never Experienced A Year Of Negative Economic Growth.

87. U.S. Economic Growth Rates In The 1990s Have Been Higher Than Those Experienced In The 1960s.

88. An Erratic Short-Run Fluctuation In Economic Activity Around The Long-Run Trend Is Called A Business Cycle.

89. Every Business Cycle Has Four Distinct Phases; Expansion, Peak, Contraction, And Trough.

90. Strong Economic Expansions Are Sometimes Referred To As Economic Booms.

91. Another Name For The Trough Of A Business Cycle Is Recession.

92. Each Phase Of A Business Cycle Has Approximately The Same Duration.

93. Since Wwii, The Average Length Of A Typical U.S. Business Cycle Is Approximately 60 Months.

94. Given Modern Data Collection Techniques, It Is Very Easy To Identify When The Economy Is About To Move Into The Next Phase Of A Business Cycle.

95. In The U.S., The Official Dates For Each Phase Of A Business Cycle Are Determined After The Fact By The National Bureau Of Economic Research (Nber).

96. The Index Of Leading Economic Indicators Is Used By Economists To Forecast Changes In Economic Performance Over Time.

97. The Components Of The Index Of Leading Economic Indicators Tend To Change Prior To Changes In The Economy As A Whole.

98. The Components Of The Index Of Leading Economic Indicators Lead Changes In The Aggregate Economy, But Move In An Opposite Direction.

99. Economists Have Agreed Upon One Widely Accepted Theory To Explain Business Cycle Behavior.

100. Expectations About The Future Influence The Economic Decisions That People Make Today.

101. Joseph Schumpeter Theorized That Business Cycles Were Determined Primarily By Long-Run Waves Of Innovation.

102. Monetary Theories Of Business Cycles Are Based On How The Federal Reserve Manages The Money Supply In Response To Changing Economic Conditions.

103. Real Business Cycle Theorists Postulate That Economic Fluctuations Are Primarily Due To Changes In Aggregate Demand.

104. Jevons’ Sunspot Theory Of The Business Cycle Is Widely Used By Economists Today To Forecast Future Levels Of Economic Activity.

105. The Primary Determinants Of Economic Growth Include The Availability Of Resources And Productivity Factors.

106. As An Economy’s Labor Force Increases In Size, Its Production Possibilities Frontier Shifts Outward.

107. The U.S. Labor Force Has Not Grown Substantially During The Past Four Decades.

108. The Term Investment Is Used To Describe The Purchase Of Consumer Goods By Households In The Economy.

109. Investments In Capital Goods Increase An Economy’s Ability To Produce Consumer Goods In The Future.

110. In Recent Years, Capital Has Grown At A Slower Rate Than The Labor Force Within The U.S. Economy.

111. Productivity Is A Measure Of How Efficiently Resources Are Converted Into Goods And Services Through A Production Process.

112. The Total Output Produced Divided By The Total Units Of Labor Employed Is Called The Average Product Of Labor.

113. Productivity Is Not Influenced By The Law Of Diminishing Returns.

114. The Average Level Of Educational Attainment In The U.S. Has Been Gradually Declining Since The Mid-1970s.

115. Technology Refers To The Means And Methods Of Production.

116. On Average, The U.S. Economy Has Grown About 3.12% Annually Since 1960.

117. The U.S. Economy Grew At A Faster Rate In The 1980s Relative To The 1960s.

118. In The 1990s, The U.S. Economy Grew At An Average Annual Rate Of Only 2.1%.

119. The Rate Of Technological Growth In The U.S. Economy Is Higher Today Than It Was In The 1960s.

120. Capital Accumulation In An Economy Is Dependent Upon Savers To Provide Funds For Investors.

121. The Increasing Importance Of The Service Sector In The American Economy May Lead To An Overestimation Of Economic Growth.

122. Some Forms Of Government Regulation Of Business May Reduce Productivity And Therefore Contribute To The Slowdown Of Economic Growth.

123. “Crowding Out” Occurs When Government Borrowing To Finance Its Debt Diverts Funds Away From The Private Sector.

123. The Size Of The American Economy Will Double Within The Next Ten Years.

125. Currently, The Population Of The U.S. Is Growing At A Faster Rate Than Real Gdp Is Growing.

126. To Stimulate Additional Economic Investment, Some Policy Makers Favor Increasing The Tax Rate On Capital Gains.

127. Government Policies That Subsidize Higher Education Should Stimulate Labor Productivity And Enhance Long-Run Economic Growth.

128. The U.S. Government Spends Less Than 1% Of Gdp On Research And Development Each Year.

129. In Economics, The Past Is A Very Poor Predictor Of The Future.

130. The Slowdown In The Rate Of Population Growth Has Increased The Growth Rate In The Real Per Capita Gdp For The U.S.

131. The Rate Of Economic Growth Affects Everyone Living In An Economy.

132. Most Economic Forecasts Of The Near Future Predict That The Standard Of Living In The United States Will Fall.

133. One Strategy To Promote Economic Growth Is To Encourage People To Save More.

134. Savings Can Only Occur When The Economy Is In The Expansion Phase Of A Business Cycle.

135. A Reduction In Savings Will Lead To A Reduction In The Level Of Investment.

136. The Average Annual Rate Of Growth For The U.S. Economy During The Twentieth Century Was Between 3% And 3.5%.

137. The Most Important Determinants Of Economic Growth Are The Availability Of Resources And Productivity Factors.

138. Close Examination Of The Recent History Of Real Gdp In The U.S. Reveals That The Rate Of Economic Growth Has Been Diminishing Over Time.

Chapter 12

Money, Banking, And The Financial System: Old Problems With New Twists

Multiple Choice Questions

1. Commercial Banks Operate
A. By Attracting Deposits And Making Loans
B. Both Pay And Charge Interest
C. By Engaging In Financial Intermediation
D. All Of The Above
E. Under The Control Of State Governments

2. Commercial Banks
A. Attract Deposits By Offering To Pay Interest
B. Sell New Issues Of Stocks And Bond
C. Operate On A Non-Profit Basis
D. Attract Deposits By Offering Free Toasters
E. None Of The Above

3. Commercial Banks
A. Started By Offering Credit To Wealthy Landowners
B. Began As Goldsmiths That Provided Receipts To Customers Who Stored Their Gold With The Goldsmith
C. Operate In Both The Primary And Secondary Financial Markets
D. Operate Only In Cities With Major Financial Markets
E. Began In Germany

4. A Financial Intermediary
A. Seeks Deposits
B. Makes Loans
C. Matches Up Savers And Borrowers
D. All Of The Above
E. Operates In Between Two Banks

5. Investment Banks
A. Make Loans To Individual Households To Buy Houses And Cars
B. Work With Corporations To Finance Their Operations Through Primary Financial Markets
C. Work With Corporations To Finance Their Operations Through Secondary Financial Markets
D. Work With Investments From Private Individuals
E. None Of The Above

6. A Stock Is
A. A Financial Instrument That Provides Ownership Rights To Shareholders
B. A Financial Instrument That Provides Annual Payments Of Interest
C. A Financial Instrument That Is Traded Only In Primary Financial Markets
D. A Financial Instrument That Is Bought And Sold By Commercial Banks
E. All Of The Above

7. A Dividend
A. Must Be Paid By A Commercial Banks
B. Must Be Paid By Corporations To Owners Of The Company’s Stock
C. Is A Distribution Of A Corporation’s Profits To Stockholders
D. Is A Financial Instrument That Is Bought And Sold By Commercial Banks
E. None Of The Above

8. Corporations Raise Funds In
A. The Money Market
B. The Primary Financial Market
C. The Secondary Financial Market
D. Both The Primary And Secondary Financial Markets
E. None Of The Above

9. When A Person Buys A Stock On A Stock Exchange They Are Participating In
A. The Money Market
B. The Primary Financial Market
C. The Secondary Financial Market
D. Both The Primary And Secondary Financial Markets
E. None Of The Above

10. Insurance Policies
A. Require An Initial, One-Time Payment By Policy Holders But No Further Outlay
B. Make Payments To Policy Holders On A Monthly Basis
C. Require A Regular Payment Of Insurance Premiums By Policy Holders
D. Require An Initial Payment And Regular Payments Of Insurance Premiums By Policy Holders
E. None Of The Above

11. The Financial Crisis Of 2008 Affected
A. Only Commercial Banks
B. Only Investment Banks
C. Only Insurance Companies
D. All Of The Above
E. The Revenues Of Only State Governments

12. In The Early Years Of The American Republic, The First Bank Of The United States Was Established Through The Efforts Of
A. Thomas Jefferson
B. George Washington
C. James Madison
D. Alexander Hamilton
E. Aaron Burr

13. During Most Of The 1800s, The Federal Monetary Authority Was Called
A. The Bank Of America
B. The Bank Of Washington
C. The First National Bank
D. The Third Bank Of The United States
E. None Of The Above

14. Throughout The History Of The U.S., Until The Creation Of The Federal Reserve System In 1913, The Monetary System Was
A. Characterized By A Series Of Panics And Periods Of Instability
B. Under The Control Of The Second Bank Of The United States
C. The Product Of The Work Of President Andrew Jackson
D. Based Upon The English System
E. Under The Supervision Of The Us Mint

15. Prior To The Creation Of The Federal Reserve System, The Money Supply
A. Was Very Stable And Highly Valued
B. Was Comprised Of Currency Printed By The Department Of The Treasury
C. Was Produced By Local Banks And Often Traded At A Discount
D. Was Available Only To Bank Depositors
E. Was Comprised Of Gold

16. Money Serves As
A. A Unit Of Account
B. A Store Of Value
C. A Medium Of Exchange
D. All Of The Above
E. An Emblem Of Personal Wealth

17. When You Use Dollar Bills To Pay For A Purchase At A Store, Money Is Serving Which Function?
A. A Medium Of Exchange
B. A Measure Of Value
C. A Store Of Value
D. A Barter Facilitator
E. All Of The Above

18. When You Compare A Dollar’s Worth Of Apples To A Dollar’s Worth Of Oranges, Money Is Serving Which Function?
A. A Medium Of Exchange
B. A Measure Of Value
C. A Store Of Value
D. A Barter Facilitator
E. A Measure Of Wealth

19. If You Keep Some Cash In A Safe Place So That You Have It To Use Later, Money Is Serving Which Function?
A. A Medium Of Exchange
B. A Measure Of Value
C. A Store Of Value
D. A Barter Facilitator
E. All Of The Above

20. Banking Regulation Is Intended To Prevent
A. Bank Failures
B. Excess Bank Profits
C. Bank Losses
D. Banks From Selling Securities
E. Banking Monopolies

21. The Gramm-Leach-Bliley Act Allows Banks To
A. Sell Insurance
B. Underwrite Insurance
C. Sell Securities
D. Invest In Real Estate
E. Do All Of The Above

22. Money Is “Liquid” Because
A. It Loses Value With Inflation
B. Coins Can Be Melted To Use Their Metal To Make Goods
C. It Serves As A Measure Of Value
D. It Does Not Have To Be Sold To Buy Goods And Services
E. It Is A Valuable Asset

23. Which Of The Following Is Of A Fractional Reserve Banking System?
A. Banks Must Hold All Of Depositors’ Deposits In Their Vaults
B. Banking Is Only A Fraction Of The Services Banks Provide To Their Customers
C. Banks Lend Out Part Of Their Depositors’ Deposits
D. The Reserve Ratio Is 100%
E. Banks May Not Hold Excess Reserves

24. If The Reserve Ratio Is 10% And A New Demand Deposit Of $10,000 Is Made, What Is The Maximum Deposit Creation Possible?
A. $1,000
B. $9,000
C. $10,000
D. $90,000
E. $100,000

25. If The Reserve Ratio Is 10% And A New Demand Deposit Of $5,000 Is Made, What Is The Maximum Deposit Creation Possible?
A. $500
B. $4,500
C. $5,000
D. $45,000
E. $50,000

26. If The Reserve Ratio Is 20% And A New Demand Deposit Of $10,000 Is Made, What Is The Maximum Deposit Creation Possible?
A. $1,500
B. $10,000
C. $15,000
D. $40,000
E. $50,000

27. Money Does Not Serve As A
A. Medium Of Exchange
B. Store Of Value
C. Measure Of Value
D. Price Index
E. It Serves As All Of The Above

28. M1 Includes
A. Currency And Coins In Circulation, Traveler’s Checks, Demand Deposits At Commercial Banks, And Other Checkable Deposits
B. Currency And Coins In Circulation, All Demand Deposits, And All Time Deposits
C. All Demand Deposits And All Time Deposits
D. Just Currency And Coins In Circulation
E. None Of The Above

29. Banks Make Loans From Their
A. Required Reserves
B. Excess Reserves
C. Net Worth
D. U.S. Government Securities
E. None Of The Above

30. Which Of The Following Is Among The Assets Of A Commercial Bank?
A. Demand Deposits
B. Net Worth
C. Any Liability
D. Loans And Investments
E. Time Deposits

31. M2 Includes
A. M1, Plus Savings And Time Deposits Of Small Denomination, And Money Market Mutual Funds
B. M1 Plus Savings And Time Deposits Of Large Denomination (Over $100,000)
C. M1 Plus Banks Acceptances And Treasury Bills
D. M1 Plus Currency And Demand Deposits
E. None Of The Above

32. The Basic Money Supply Is
A. Composed Of Small Denomination Time Deposits Plus Coin And Currency Held By The Nonbank Public
B. Composed Of Assets That Are Completely Liquid And Easily Accessible
C. Our Broadest Measure Of Money
D. Simply The Coins And Currency Held By The Nonbank Public
E. None Of The Above

33. Excess Reserves Refer To
A. Reserves That Banks Are Required By Law To Hold
B. The Major Assets Of The Bank
C. Reserves A Bank Holds In Case Of Unexpected Case Needs
D. Reserves Over And Above The Bank’s Required Reserves
E. None Of The Above

34. The Money Multiplier Is
A. 1/R
B. Er
C. R/E
D. E/R
E. 1+1/Er

35. Suppose The Legal Reserve Requirement Is 0.20, And A Bank Has Excess Reserves Of $1,000,000. The Ultimate Increase In The Money Supply Will Be
A. $2,000,000
B. $200,000
C. $800,000
D. $5,000,000
E. $500,000

36. The Inflation Rate And The Growth In The Money Supply Are
A. Usually Inversely Related
B. Usually Directly Related
C. Never Directly Related
D. Not Related To One Another
E. Negatively Related

37. Who Controls The Aggregate Volume Of Demand Deposits In The Banking System?
A. The U.S. Treasury
B. The Federal Reserve Board Of Governors
C. Congress
D. Bankers
E. The President Of The United States

38. To Reduce Inflationary Pressures, The Federal Reserve Authorities Should
A. Sell Government Securities, Raise Reserve Requirements, And Lower The Discount Rate
B. Sell Government Securities, Lower Reserve Requirements, And Lower The Discount Rate
C. Buy The Government Securities, Raise Reserve Requirements, And Raise The Discount Rate
D. Sell Government Securities, Raise Reserve Requirements, And Raise The Discount Rate
E. Buy Government Securities, Decrease Reserve Requirements, Decrease The Discount Rate

39. If The Open Market Committee Of The Federal Reserve Sells Securities, This Action Will
A. Decrease The Money Supply
B. Increase The Money Supply
C. Reduce The Reserve Requirement
D. Decrease The Discount Rate
E. Do None Of The Above

40. When A Central Bank Wants To Increase The Money Supply, It
A. Sells Bonds
B. Buys Bonds
C. Sells Good And Services
D. Buys Goods And Services
E. Does None Of The Above

41. The Federal Reserve Can Decrease The Supply Of Money By
A. Selling U.S. Government Securities
B. Buying U.S. Government Securities
C. Selling Goods And Services
D. Buying Goods And Services
E. Decreasing The Reserve Requirement

42. The Federal Open Market Committee (Fomc) Is Highly Concerned With
A. The National Unemployment Rate
B. The Growth Of Real Gdp
C. Interest Rates
D. The Level Of The Stock Market
E. All Of The Above

43. When The Open Market Committee (Fomc) Purchases Government Securities, Their Actions Are An Attempt To
A. Raise Interest Rates
B. Lower Interest Rates
C. Reduce Borrowing
D. Raise The Inflation Rate
E. Influence Voters In The Next Presidential Election

44. When The Fed Increases The Money Supply, It Generally Has The Effect Of
A. Making Banks More Profitable
B. Increasing The Value Of Stocks
C. Lowering Interest Rates
D. Lowering The Inflation Rate
E. Increasing The Size Of Bank Deposits

45. When The Fed Wishes To Increase The Money Supply, It Can Do So By
A. Purchasing Government Securities Through Open Market Operations
B. Lowering The Discount Rate
C. Reducing The Reserve Requirement
D. All Of The Above
E. Increasing The Size Of Bank Deposits

Questions 46 – 49 Refer To The Graph Below.

46. Suppose That The Fed Has Increased The Money Supply. This Is Shown In The Diagram By
A. Q1 To Q0
B. Q0 To Q1
C. Ms1
D. Ms2
E. None Of The Above

47. Based On The Diagram, The Opportunity Cost Of Money Is Higher If
A. The Interest Rate Is I0
B. The Interest Rate Is I1
C. The Money Supply Is Curve Ms1
D. The Money Supply Is Curve Ms2
E. The Opportunity Cost Of Money Is Not Shown In The Diagram

48. A Shift From Ms1 To Ms2 Would Be The Result Of
A. An Increase In Aggregate Demand
B. An Increase In Aggregate Supply
C. A Decision By The Fed To Purchase Government Securities By The Fomc
D. A Decision By The Fed To Sell Government Securities By The Fomc
E. A Change In The Stock Market

49. If The Fed Wanted To Stimulate Business Investment, It Could Do So By
A. Increasing Interest Rates From I1 To I0
B. Decreasing The Money Supply From Ms2 To Ms1
C. Increasing The Money Supply From Ms1 To Ms2
D. Raising The Reserve Requirement
E. Increasing The Discount Rate

50. The Equation Of Exchange Is
A. Mp = Qv
B. Mv = Pq
C. M = V/Pq
D. P = Q/Mv
E. Pv = Qm

51. The Value Of Money Varies
A. Directly With The Interest Rate
B. Directly With The Price Level
C. Directly With The Volume Of Employment
D. Inversely With The Price Level
E. With None Of The Above

52. According To The Equation Of Exchange,
A. The Right-Hand Side Will Equal The Left-Hand Side Only If Velocity Does Not Change From Year To Year
B. Velocity Must Be Constant
C. An Increase In The Quantity Of Money Will Lead To An Increase In The Price Level, Other Things Constant
D. Prices Cannot Change
E. All Of The Above

53. The Quantity Theory Of Money Emphasizes
A. Government Taxation Policies
B. Government Spending Policies
C. Labor Productivity
D. Changes In The Money Supply
E. None Of The Above

54. A Key Assumption In The Quantity Theory Of Money Is That
A. The Supply Of Money Is Increasing At A Constant Rate
B The Price Level Is Stable Over Long Periods Of Time
C. The Level Of Output Of Goods And Services Changes Frequently In Response To Changes In Velocity
D. The Velocity Of Money Is Constant
E. None Of The Above

55. The Residential Housing Market Saw Remarkable Increases In
A. Housing Prices At The End Of The 1990’s And Through The First Half Of The 2000’s
B. Housing Prices At The End Of The 1980’s And Beginning Of The 1990’s
C. Foreclosure Rates At The End Of The 1990’s And Through The First Half Of The 2000’s
D. Foreclosure Rates At The End Of The 1980’s And Beginning Of The 1990’s
E. Both A And C

56. The Growth In The Residential Real Estate Market Is Largely A Product Of
A. A Large Increase In The Demand For Housing
B. An Unexpected Growth In Us Population
C. A Decline In Housing Prices
D. A Tightening Of Government Policies That Restrict Homeownership
E. A Decrease In Mortgage Availability

57. The Federal National Mortgage Association (Or Fannie Mae) Was Created To
A. Make Mortgages Hard To Obtain
B. Make Mortgages Less Likely To Go Into Foreclosure
C. Make A Larger Market In Mortgages By Establishing A Secondary Financial Market In Mortgages
D. Make Mortgages Available To New Immigrants To The Us
E. None Of The Above

58. A Mortgage Backed Security Is
A. A Share Of Common Stock Based Upon Home Mortgages
B. A Financial Instrument That Reduces Risk By Pooling Together A Large Number Of Mortgages Into One Asset
C. A Financial Instrument Developed To Reduce Liquidity In The Housing Market
D. A Financial Instrument That Is The Combination Of Only Subprime Mortgages
E. All Of The Above

59. A Subprime Mortgage
A. Made Obtaining A Mortgage Easier For Low Income Households
B. Is A Mortgage That Does Not Meet The Requirements For A Conventional Mortgage
C. Is Usually Structured As An Adjustable Rate Mortgage
D. All Of The Above
E. Is No Different From A Conventional Mortgage

60. A Collateralized Debt Obligation (Or Cdo)
A. Is Generally Riskier Than A Single Debt Of An Equal Value
B. Sells For A Lower Price Than Re-Sales Of Individual Mortgages That Comprise Them
C. Is Sold In The Primary Financial Market
D. Is A Financial Instrument That Obscures The Underlying Risks Of The Mortgages That Comprise Them
E. Is Always A Bad Financial Investment

61. The Interest Rate On An Adjustable Rate Mortgage (Arm) Is
A. Set To Equal The Fed Funds Rate
B. Adjusted On A Daily Basis
C. Set To Rise At The End Of Every Year For The Life Of The Mortgage
D. Adjusted Periodically Based Upon Current Market Conditions
E. Adjusted Based Upon The Value Of The House Purchase

62. Home Equity Loans
A. Allow A Home Owner To Recapture Some Of The Increase In The Value Of Their Home Without Selling The Home
B. A Way For Homeowners To Issue Stock, Or Equity, In Their Home
C. Only Used When Home Prices Are Increasing
D. A Way For The Market To Eliminate Paper Profits
E. None Of The Above

63. Besides Homeowners, Who Attempted To Profit From Increasing Home Prices During The Housing Bubble In The Early Part Of The 2000s?
A. Large Corporations
B. Speculators
C. Foreign Investors
D. Individuals Who Had Low Incomes
E. All Of The Above

64. A Credit Default Swap
A. Is What Happens When Homeowners Swap Their Mortgages With Their Neighbors
B. Is A Way For Investors In Collateralized Debt Obligations (Or Cdo’s) To Make Even More Money
C. Is A Way For Investors In Collateralized Debt Obligations (Or Cdo’s) To Reduce The Risk Of An Increase In Mortgage Foreclosures
D. Is A Way For Investors To Increase The Risks To Homeowners
E. Exists Only In Markets With Subprime Mortgages

65. Assets That Are “Marked To Market” Will Be Priced At
A. Their Original Purchase Price
B. Their Original Purchase Price Less The Depreciation Of The Asset
C. A Price That Is Equal To The Original Purchase Price Plus The Rate Of Inflation
D. A Price That Is Based Upon The Asset’s Current Market Value
E. A Price Determined In The Stock Market

66. Many Large Banks And Wall Street Investment Firms Got Into Financial Problems Due To
A. Investments In Subprime Mortgages
B. Required Payments On Credit Default Swaps
C. Failures Of Collateralized Debt Obligations Resulting From Home Foreclosures
D. Having To Mark Down A Significant Number Of Their Assets Due To The “Mark To Market” Accounting Requirement
E. All Of The Above

67. The Federal Government Stepped In During 2008 To Prevent Several Commercial Banks And Investment Banks From Failing Based Upon The Idea That
A. They Were “Too Big To Fail”
B. Any Business Failure Would Hurt Shareholders
C. These Banks Made Large Political Contributions And This Was A Way For Politicians To Pay Them Back
D. Government Would Make Large Profits By Doing So
E. None Of The Above

68. In Late 2008, The Us Treasury Department Began
A. Closing Banks That Were Not Following Regulations
B. To Implement The Troubled Asset Relief Program (Tarp)
C. Raising Interest Rates To Stimulate The Economy
D. Engaging In Open Market Operations
E. To Implement The Opening Of A New Bank Of The United States

69. Each Of The Following Is A Financial Intermediary Except
A. Commercial Banks
B. Investment Banks
C. Insurance Companies
D. Credit Unions
E. All Of The Above Are Financial Intermediaries

70. A Capital Gain Exists
A. When One Political Party Increases The Number Of Its Members In Congress
B. When An Interest Payment Is Made
C. When The Price Of An Asset Goes Up
D. When The Price Of An Asset Exceeds The Price Paid For It
E. When Taxes Are Paid On The Asset

71. Liquidity Of An Asset Increases When
A. It Is Easier To Convert The Asset Into Cash
B. The Asset’s Value Is Below Its Original Price
C. The Asset Is Purchased
D. The Asset Depreciates
E. The Asset Is Put On The Market

72. When A Share Of Stock Is Sold On The New York Stock Exchange, It Is Traded
A. In A Prime Financial Market
B. In A Primary Financial Market
C. For A Promise To Pay A Fixed Return
D. To Another Stock Exchange
E. In A Secondary Financial Market

73. The Financial Crisis That Began In 2008 Is A Result Of All Of The Following Except
A. The Bursting Of The Dot.Com Bubble
B. Problems In The Residential Real Estate Market
C. Changes In Accounting Rules About Asset Valuation
D. Large Firms Taking On Assets Whose Value Was Not Well Determined
E. Policies That Allowed Many Unqualified Homebuyers To Receive Mortgages That They Could Not Pay

74. Historically, Many Commercial Banks Began As
A. Coffee Houses And Taverns Where Stocks Were Traded
B. Jewelry Stores That Specialized In The Sale Of Precious Stones
C. Businesses That Engaged In Small Loans
D. Goldsmiths That Held Stores Of Gold For Their Customers
E. None Of The Above

75. An Increase In The Reserve Requirement Can
A. Decrease Interest Rates
B. Increase Liquidity
C. Decrease The Money Supply
D. Increase The Money Supply
E. Decrease The Profits Of Banks

True / False Questions

76. Commercial Banks Are Financial Intermediaries But Insurance Companies Are Not.

77. Investment Banks Assist Corporations In Issuing Stocks And Bonds In The Primary Financial Market.

78. Silversmiths Became Banks When They Started Lending Out Money Based Upon The Excess Silver That They Held For Their Customers.

79. Residential Real Estate Is Generally Considered To Be More Liquid Than A Savings Account.

80. The Us Has, Over Its History, Had Only One National Bank, That Is, A Bank Of The United States.

81. The Most Important Function Of Money Is As A Medium Of Exchange.

82. If The Supply Of Money Decreases, The Value Of A Dollar Increases.

83. The Key To The Federal Reserve’s Control Over The Money Supply Is Its Ability To Create Money By Making Loans.

84. A Commercial Banking System With Excess Reserves Has The Ability To Create Money In The By Making Loans.

85. A Credit Union, Unlike A Bank, Is Not A Financial Intermediary, Since It Is A Cooperative Banking Venture.

86. In The U.S. Banking System, The Ratio Of A Bank’s Reserves And Its Outstanding Deposits Is Usually Less Than One.

87. During Inflationary Periods, The Federal Reserve Should Lower The Discount Rate So That Member Banks May More Easily Obtain Needed Reserves To Enable Them To Increase Their Loans.

88. The Money Supply Consists Primarily Of Gold, Silver, And Other Metals Held By The Government.

89. Monetary Policy Refers To Control Of The Money Supply By The Federal Reserve Authorities.

90. Appropriate Federal Reserve Actions To Combat Inflation Are An Increase In The Discount Rate, An Increase In The Reserve Ratio And The Sale Of Government Securities.

91. The Reserve Ratio Is The Rate Of Interest Charged Commercial Banks When They Borrow From The Federal Reserve.

92. During Inflationary Periods, The Federal Reserve Should Buy Securities So That Commercial Banks Will Have More Reserves To Loan Out.

93. One Of The Main Functions Of Banks Is To Create Money.

94. When A Bank Makes A Loan To One Of Its Customers, It Increases Its Liabilities.

95. The Maximum Demand Deposit Creation Possible From A New Deposit Is Derived From The Equation D = E X 1/R.

96. The Discount Rate Is The Ratio Of Demand Deposits To Reserves That Banks Have To Maintain.

97. Policy Actions That Affect Changes In The Growth Rate Of The Money Supply To Keep Interest Rates At Levels That Promote Economic Stability And Growth Are Called “Fine Tuning” Policies.

98. The Issue Of The Appropriate Monetary Policy Target Has Been Resolved To The Satisfaction Of All Policy Makers.

99. The Quantity Theory Of Money States That Increases In The Money Supply Cause Increases In Both The Price Level And Output.

100. A Credit Union Is A Cooperative Banking Venture Where The Members Or Owners Of The Organization Have A Common Employer Or Union.

101. The Main Purpose Of The Fed Is To Control The Rate Of Interest.

102. The Annual Growth Rate In The Money Supply Has Been Held Constant By The Federal Reserve.

103. The Quantity Theory Of Money Stresses The Importance Of The Velocity Of Money.

104. The Money Multiplier Is Derived From The Legal Reserve Requirement.

105. An Increase In The Supply Of Money Will Decrease Interest Rates.

106. The Federal Reserve Open Market Committee’s Primary Function Is To Open New Banks.

107. The Discount Rate Charged By The Federal Reserve, Is Lower For More Creditworthy Banks.

108. Any Time The Discount Rate Increases, The Money Supply Also Increases.

109. If The Required Reserve Ratio Is Increased By The Fed, One Could Assume That The Fed Is Attempting To Control Inflation.

110. Prior To The Enactment Of The Monetary Control Act Of 1980, State-Chartered Banks Had The Option Of Whether Or Not They Wanted To Be A Member Of The Federal Reserve System.

111. Interest Rates Increase Or Decrease So That An Equilibrium Exists In The Money Market.

112. The Federal Government, Through The Work Of Agencies Like The Federal National Mortgage Association, Has Worked To Increase The Supply Of Funds Available To Mortgage Lenders.

113. A Policy Implemented By The Clinton Administration Resulted In Tighter Financial Requirements For Less Creditworthy Borrowers, So That Financial Markets Were Less Risky.

114. A Subprime Mortgage Is A Mortgage Issued To A Highly Qualified Borrower At Reduced Interest Rates.

115. Subprime Mortgages And Home Equity Loans Contributed Little To The Increase In The Demand For Residential Real Estate, Increasing Prices Dramatically.

116. A Homeowner Whose House Is Worth $500,000 But Who Owes $600,000 On Their Mortgage Is A Good Candidate For A Home Equity Loan, So That The Homeowner Can Build Their Equity.

117. Collateralized Debt Obligations Are A Way That Lenders Can Reduce The Risk Of Individual Mortgage Lending.

118. Collateralized Debt Obligations Always Exclude Subprime Mortgages, Because These Are Too Risky For Most Investors.

119. A Credit Default Swap Is One Way That Lenders Can Offset Some Of The Risks Associated With Investing In Subprime Mortgages.

120. A Number Of Banks Encountered Problems Because A Change In Accounting Rules Required Firms To Mark Assets At Their Original Purchase Price.

121. Borrowers Who Obtain A Mortgage Will Always Find That Their Mortgage Payments Rise Over Time.

122. The Definition Of The Money Supply Called M1 Includes All Of The Assets Included In The Definition Of M2.

123. An Increase In The Required Reserve Ratio Will Allow Banks To Create Less Money.

124. The Open Market Committee Of The Federal Reserve System Meets Regularly To Determine The Required Reserve Ratio.

125. Because Of Recent Changes In The Regulatory System, Commercial Banks Are Able To Offer A Smaller Variety Of Financial Products And Services Than In The Past.

126. The Distinctions Between Commercial Banks And Other Financial Institutions Has Blurred In Recent Years.

127. Large Corporations Enter The Secondary Financial Market To Provide Themselves Adequate Liquidity To Conduct Their Day To Day Operations.

128. Stockholders Can Receive A Capital Gain When They Purchase A Financial Asset.

129. Stocks And Bonds Are Essentially Interchangeable Financial Assets, Since Owners Of Both Of These Instruments Receive Regular Interest Payments.

130. When Ben Bernanke Became Fed Chairman, The Federal Reserve Began Explicitly Announcing Money Supply Targets.

ECO 405 Week 8 Quiz – Strayer University – *New*

ECO 405 Week 8 Quiz – Strayer

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Chapter 10

Competition In The Global Marketplace: Should We Protect Ourselves From International Trade?

Multiple Choice Questions

1. Which Of The Following Statements Is Most Accurate?
A. Historically, There Has Been Conflict Between Groups Wanting To Suppress Trade And Groups Wanting To Peg Exchange Rates
B. Since The Late 1940s, Import Restrictions Have Fallen
C. Resentment Of Imports Always Increases During Economic Expansions
D. The U.S. Government Engaged In A Free Trade Campaign Up To The End Of World War Ii
E. None Of The Above

2. Which Of The Following Is Part Of The “Protectionist” Perspective On International Trade?
A. Imports Are Responsible For Crowding Out Domestic Goods From The Market And Thereby Reduce American Jobs
B. Trade Restrictions Are Needed To Protect Key Industries Vital To National Security
C. Imports Should Be Restricted To Remedy The Balance Of Trade Deficit
D. Both (A) And (C)
E. All Of The Above

3. In A Free Market, Who Benefits From Voluntary Exchange?
A. Buyers
B. Sellers
C. Both Buyers And Sellers
D. The Government Only
E. Nobody

4. Why Is International Trade Important? International Trade
A. Increases The Variety And Availability Of Consumer Goods In An Economy
B. Expands The Production Possibilities Of A Nation’s Economy
C. Increases An Economy’s Gdp
D. Allows Nations To Specialize In The Production Of Goods According To Comparative Advantage
E. Does All Of The Above

5. Which Of The Following Is Not Used As A Protectionist Argument?
A. Imports Crowd U.S. Goods Out Of The Market
B. Imports Reduce The Demand For Domestic Labor Leading To Higher Unemployment
C. Our Industries Cannot Compete Successfully Against Those In Other Countries That Pay Much Lower Wages
D. Imports Raise Living Standards Above What They Would Otherwise Be
E. All Of The Above Are Used As Protectionist Arguments

6. The Fundamental Reason Countries Engage In Trade Is That
A. It Enables Each Country To Improve Its Standard Of Living
B. Domestic Markets Are Continually Shrinking
C. Powerful Special Interest Groups Benefit From Exchange
D. Trade Allows Countries To Save Some Of Their Resources For The Future
E. All Of The Above

7. Omega Can Produce Either Two Microcomputers Or Ten Tv Sets. Alpha Can Produce One Microcomputer Or Five Tv Sets. Which Of The Following Statements Is Correct?
A. Alpha Has A Comparative Disadvantage In Producing Both Products
B. Both Countries Have A Comparative Advantage In Producing Microcomputers
C. The Countries Are Unlikely To Engage In Trade In These Two Items
D. Labor Costs Are Obviously Too High In Alpha
E. All Of The Above

8. Which Of The Following Will Give Rise To U.S. Demand For Foreign Exchange?
A. U.S. Sales Of Airplanes To Japanese Buyers
B. U.S. Investments Abroad
C. U.S. Purchases Of French Perfume
D. Both (B) And (C)
E. All Of The Above

9. A Country Has A Comparative Advantage In The Production Of Any Good That It Can Produce
A. At A Lower Absolute Cost Than Can Other Countries
B. With Less Labor Than Can Other Countries
C. With A Smaller Sacrifice Of Some Alternative Good Or Service Than Can Other Countries
D. For Export
E. All Of The Above

10. Which Of The Following Is Not A Reason That Countries Have Comparative Advantages In The Production Of Some Goods And Comparative Disadvantages In The Production Of Other Goods? Differences In
A. Technological “Know-How.”
B. Exchange Rates
C. Literacy Rates
D. Natural Resources
E. Labor Force Quality

Questions 11 – 15 Refer To The Graph Below.

11. Assuming An Initial Combination Of 75 Million Loaves Of Bread And 150 Million Gallons Of Milk, The Country Represented Would Refuse To Enter Into Any Trade Relationships In Which The Cost Of Importing
A. Bread Exceeds Two Gallons Of Milk Per Loaf
B. Milk Exceeds One Loaf Of Bread Per Gallon
C. Milk Exceeds Two Loaves Of Bread Per Gallon
D. Both (A) And (B)
E. None Of The Above

12. The Opportunity Cost Of A Million Gallons Of Milk Is How Many Millions Of Loaves Of Bread For This Country?
A. 0.5
B. 1
C. 2
D. 150
E. 300

13. The Opportunity Cost Of A Million Loaves Of Bread Is How Many Millions Of Gallons Of Milk For This Country?
A. .5
B. 1
C. 2
D. 150
E. 300

14. If This Country Has A Comparative Advantage In The Production Of Bread And Produces Only Bread While Trading With Another Country For Milk, Which Of The Following Is Of Its Consumption Possibilities Curve?
A. It Shifts Out Parallel To The Ppc
B. Its Vertical Intercept Increases
C. Its Horizontal Intercept Increases
D. All Of The Above
E. None Of The Above

15. If This Country Has A Comparative Advantage In The Production Of Milk And Produces Only Milk While Trading With Another Country For Bread, Which Of The Following Is Of Its Consumption Possibilities Curve?
A. It Shifts Out Parallel To The Ppc
B. Its Vertical Intercept Increases
C. Its Horizontal Intercept Increases
D. All Of The Above
E. None Of The Above

Questions 16 – 20 Refer To The Graph Below.

16. Without Trade, The Republic Of Alpha’s Production Possibilities Curve Is Ab. If Consumption Along The Curve A1b Is Possible With Trade, Alpha Must Have A Comparative Advantage In The Production Of
A. Bread
B. Milk
C. Both Bread And Milk
D. Neither Bread Nor Milk
E. It Cannot Be Determined With The Information Given

17. Without Trade, The Republic Of Alpha’s Production Possibilities Curve Is Ab. With No Trade, Alpha’s Consumption Possibilities Curve Is
A. Ab
B. A1b
C. Cb
D. C1b
E. Cc1

18. Without Trade, The Republic Of Alpha’s Production Possibilities Curve Is Ab. The Cost Of Producing Bread In Alpha (In Terms Of Millions Of Gallons Of
Milk) Is
A. .5
B. 1
C. 2
D. 100
E. 200

19. Without Trade, The Republic Of Alpha’s Production Possibilities Curve Is Ab. For Alpha To Be Willing To Trade Milk For Bread, A Million Loaves Of Bread Would Have To Cost Less Than
A. 0.5 Million Gallons Of Milk
B. 1 Million Gallons Of Milk
C. 2 Million Gallons Of Milk
D. 0.5 Million Loaves Of Bread
E. Alpha Would Not Trade Milk For Bread

20. If Alpha Produces 100 Million Loaves Of Bread, With Trade (And Consumption Possibilities Curve A1b) It Can Consume How Many Gallons Of Milk?
A. 0
B. 100
C. 200
D. 300
E. 400

21. An Exchange Rate Is
A. The Price Of One Country’s Currency In Terms Of The Monetary Units Of Another Country
B. The Rate At Which One Good Exchanges For Another
C. The Price Of Gold In Terms Of The U.S. Dollar
D. The Fee Charged For Exchanging One Currency For Another
E. None Of The Above

22. Which Of The Following Demands Kenyan Shillings?
A. U.S. Importers Of Kenyan Goods
B. U.S. Investors In Kenya
C. U.S. Tourists Visiting Kenya
D. All Of The Above
E. None Of The Above

23. Which Of The Following Supplies Kenyan Shillings?
A. U.S. Exporters To Kenya
B. Kenyan Tourists Returning Home
C. U.S. Importers Of Kenyan Goods
D. All Of The Above
E. None Of The Above

24. The Largest Part Of U.S. Demand For Foreign Currencies Arises From
A. Increases In Investments Abroad
B. Imports Of Merchandise
C. Gifts That Persons In The U.S. Sent Abroad
D. Foreign Aid Transfers From The U.S. To Developing Countries
E. None Of The Above

25. The Largest Part Of The U.S. Supply Of Foreign Currency Arises From
A. Investments Made By Foreigners In The U.S
B. Exports Of Merchandise
C. Net Investment Income
D. Gifts That Persons Abroad Send Persons In The U.S
E. None Of The Above

Questions 26 – 30 Refer To The Graph Below.

26. In Equilibrium, The Price Of A British Pound, In Terms Of U.S. Dollars, Is
A. $1.50
B. $1.25
C. $.8
D. $.67
E. None Of The Above

27. In Equilibrium, The Price Of A U.S. Dollar, In Terms Of British Pounds, Is
A. $1.50
B. $1.25
C. $.8
D. $.67
E. None Of The Above

28. Which Of The Following Could Cause An Increase In The Equilibrium Exchange Rate?
A. An Increase In U.S. Investment In Britain
B. An Increase In U.S. Imports From Britain
C. An Increase In The Number Of U.S. Tourists Traveling To Britain
D. All Of The Above
E. None Of The Above

29. Pegging The Exchange Rate At $1.25
A. Imposes A Price Floor
B. Results In A Balance Of Payments Problem
C. Will Increase British Demand For U.S. Exports
D. Will Increase U.S. Demand For British Imports
E. Will Do Of The Above

30. Pegging The Exchange Rate At $1.25 Will Result In
A. A Shortage Of ≤20 Million Pounds Per Month
B. A Surplus Of ≤20 Million Pounds Per Month
C. A Shortage Of ≤40 Million Pounds Per Month
D. A Surplus Of ≤40 Million Pounds Per Month
E. None Of The Above

Questions 31 – 35 Refer To The Graph Below.

31. If D And S Are The Relevant Supply And Demand Curves, An Increase In Nigerian Travelers To The U.S. Would Result In Which Of The Following Changes In The Graph? A Movement From
A. S To S1
B. S1 To S
C. R1 To R
D. Q2 To Q1
E. Q To Q

32. Which Of The Following Could Cause A Shift In The Supply Curve From S To S1? An Increase In
A. U.S. Exports To Nigeria
B. Nigerian Exports To The U.S
C. U.S. Travelers To Nigeria
D. All Of The Above
E. None Of The Above

33. An Increase In U.S. Investment In Nigeria Will Have Which Effect On R? It Will
A. Increase
B. Decrease
C. Remain The Same
D. Be Pegged At R1
E. Not Be Able To Be Determined

34. If D And S Are The Relevant Demand And Supply Curves, Pegging The Exchange Rate At R1. Will Result In
A. A Shortage Of Q2q Niara Per Month
B. A Surplus Of Q2q Niara Month
C. A Shortage Of Q2q1 Niara Per Month
D. A Surplus Of Q2q1niara Pounds Per Month
E. None Of The Above

35. If D And S Are The Relevant Demand And Supply Curves, Pegging The Exchange Rate At R1
A. Imposes A Price Floor
B. Results In A Balance Of Payments Problem
C. Will Increase British Demand For U.S. Exports
D. Will Increase U.S. Demand For British Imports
E. Will Do All Of The Above

36. Import Restrictions, Like Tariffs And Quotas, Can Protect Domestic Jobs
A. At A Low Price
B. By Changing The Consumption Tastes Of Domestic Buyers
C. At A High Price
D. Without Any Effect On An Economy
E. By Changing The Structure Of The Economy

37. Free Trade Can Result In What Impact On An Economy?
A. A Net Increase Or Decrease In Overall Employment
B. A Reduction In The Efficiency Of An Economy
C. Free Trade Always Harms An Economy
D. Free Trade Always Increases Total Employment
E. No Impact At All

38. The Exchange Rate Ceiling On The Dollar Price Of The Pound Will Result In
A. A Surplus Of Pounds
B. A Balance Of Payments Deficit
C. A Balance Of Payments Surplus
D. An Increase In U.S. Exports To Great Britain
E. Undervaluation Of The Dollar Relative To The Pound

39. Which Of The Following Curves Represents The Maximum Combination Of Goods And Services That Can Be Consumed In An Economy When All Its Resources Are Efficiently Used?
A. Market Demand Curve
B. Production Possibilities Curve
C. Market Supply Curve
D. Consumption Possibilities Curve
E. Resource Possibilities Curve

40. With International Trade, Which Of The Following Curves For An Economy Will Shift Outward?
A. Consumption Possibilities
B. Production Possibilities
C. Demand
D. Supply
E. Marginal Revenue

41. A Nation That Enjoys A Lower Opportunity Cost In The Production Of Goods, Relative To Another Nation, Is Said To Have A(N)
A. Market Advantage
B. Absolute Advantage
C. Comparative Advantage
D. Relative Cost Advantage
E. Production Advantage

42. Suppose That On Mars, Martians Must Give Up 2 Widgets To Produce 1 Gadget. On Venus, Venusians Must Give Up ½ Widget To Produce 1 Gadget. Which Of The Following Is ?
A. Venus Has A Comparative Advantage In Gadgets
B. Mars Has A Comparative Disadvantage In Gadgets
C. Venus Should Specialize In Gadgets And Trade With Mars For Widgets
D. Mars Should Specialize In Widgets And Trade With Venus For Gadgets
E. All Of The Above

43. The Price Of One Nation’s Currency In Terms Of Another Is Called
A. The Exchange Rate
B. The International Trade Rate
C. A Tariff
D. A Balance Of Trade Account
E. The Capital Account

44. Assuming Everything Else Constant, An Increase In The Demand For Russian Rubles Will
A. Reduce The Price Of Rubles
B. Increase The Exchange Rate For Rubles
C. Cause A Surplus Of Rubles
D. Reduce Exports To Russia
E. All Of The Above

45. Economists Generally Agree That International Trade Restrictions
A. Improve Economic Well-Being And The General Standard Of Living
B. Generate Significant Costs To Consumers In The Form Of Higher Prices And Reduced Quantity Of Goods
C. Increase Gross Domestic Product And Lower The Rate Of Unemployment In The Long Run
D. Are Important To The Overall Health Of The Economy
E. Reduce The Severity Of Business Cycles By Limiting Recessions

46. The Primary Factor Affecting The Demand For Any Nation’s Currency Is
A. The Nation’s Current Standing With The United Nations
B. The Demand For The Products Produced By That Nation
C. The Size Of The Nation’s Domestic Economy
D. The Amount Of Gold Reserves Held By That Nation
E. None Of The Above

47. Which Of The Following Are Forms Of International Trade Restrictions?
A. Tariffs
B. Quotas
C. Voluntary Restraint Agreements
D. All Of The Above
E. None Of The Above

48. What Do You Call Taxes Placed On Imports?
A. Tariffs
B. Quotas
C. Voluntary Restraint Agreements
D. Exchange Rates
E. Dumping Taxes

49. Which Of The Following Will Occur When A Tariff Is Placed On Imported Sugar?
A. The Price Of Imported Sugar Will Rise
B. The Price Of Domestic Sugar Will Rise
C. The Price Of Imported And Domestic Sugar Will Rise
D. The Price Of Sugar Will Fall
E. More Sugar Will Become Available In The Marketplace

50. Which Of The Following Is A Statement?
A. Quotas Increase The Availability Of Imported Goods
B. Tariffs Reduce The Price Of Domestically Produced Goods
C. Unlike Tariffs, Quotas Will Reduce The Price Of Imports
D. Quotas Result In Greater Profits For Foreign Producers
E. A $1,000 Tariff On Japanese Cars Will Result In A $1,000 Increase In Their Price

51. A Tariff Leads To A Leftward Shift Of The _______Curve, Resulting In ______ Prices And __________ Imports.
A. Demand; Lower; Greater
B. Supply; Lower; Lower
C. Supply; Higher; Lower
D. Demand; Higher; Lower
E. Consumption Possibilities; Higher; Lower

52. Which Of The Following Will Not Result From A Tariff?
A. Higher Import Prices
B. Higher Prices Of Goods For Consumers
C. Less Availability Of Goods For Consumers
D. Price Increases For Exported Goods
E. Import Duty Revenue For The Government

53. When A Quota Is Enforced On An Imported Good, The Supply Curve For That Good
A. Shifts To The Left
B. Becomes Horizontal At The Import’s Price
C. Becomes Vertical At The Quota Limit
D. Shifts To The Right
E. Becomes Non-Existent

54. Which Of The Following Statements About Quotas Is ? Quotas
A. Reduce The Availability Of Imported Goods For Consumers
B. Reduce The Profits Of Foreign Producers
C. Increase The Price Of Imports
D. Increase The Price Of Domestically Produced Substitutes
E. Are Used As A Means To Restrict International Trade

55. Which Of The Following Is A Likely Result Of A Country Engaging In Free Trade?
A. Jobs Are Lost In The Export Sector
B. Jobs Are Gained In The Import Sector
C. The Price Of Imports Falls
D. Product Variety Decreases
E. All Of The Above

56. Protecting An Industry That Is Vital To National Security From International Competition Is
A. The Infant Industry Argument
B. An Economic, Rather Than Political, Argument
C. The Key Industry Argument
D. An Argument Against Protectionism
E. None Of The Above

57. A New Industry Producing Cutting-Edge Products Should
A. Be Protected From International Competition, According To The Key Industry Argument
B. Be Protected From International Competition, According To The Infant Industry Argument
C. Not Be Protected Until Later Stages, When The Market Is Fully Developed
D. Not Be Protected, According To The Infant Industry Argument
E. None Of The Above

58. Environmental Damage Must Be Addressed In International Trade Agreements When A Country’s Actions Create
A. Property Rights
B. Negative Externalities
C. Positive Externalities
D. Private Goods
E. Military Output

59. Which Of The Following Is Used As An Argument Against Free Trade By Protectionists?
A. Environmental Quality
B. Human Rights
C. Infant Industries
D. Key Industries
E. All Of The Above

60. Which Of The Following Statements Regarding Human Rights And International Trade Is Correct?
A. Protectionists Believe Free Trade Leads To Exploitation Of Workers In Ldcs
B. Free Trade Advocates Believe It Is Efficient To Exploit Workers In Ldcs
C. Protectionists Believe Free Trade Leads To Increased Opportunity For Poor Workers
D. Free Trade Advocates Believe Trade Decreases Job Growth In Ldcs
E. The Wto Estimates That Free Trade Has Led To An Increase In Poverty Rates In Ldcs

61. What Do You Call It When Producers Sell Abroad At A Price Below Their Cost Of Production Or Their Domestic Price?
A. Limit Pricing
B. Voluntary Restraint Of Trade
C. Price Discrimination
D. Dumping
E. Gouging

62. Which Organization Is Charged With Settlement Of International Trade Disputes?
A. The Wto
B. The Eu
C. Nafta
D. Gatt
E. The Un

63. What Do You Call An Alliance Of Nations That Share Common External Tariffs? A(N)
A. Free Trade Area
B. International Trade Consortium
C. Customs Union
D. Trade Pact Area
E. Cartel Of Nations

64. Which Of The Following Best Describes Nafta? It Is A(N)
A. Free Trade Area
B. International Trade Consortium
C. Customs Union
D. Trade Pact Area
E. Cartel Of Nations

65. Most __________ Have Been Banned Under The World Trade Organization.
A. Tariffs
B. Voluntary Restraint Agreements
C. Quotas
D. Import Duties
E. Customs Unions

66. The European Union Is An Example Of A(N)
A. Free Trade Area
B. International Trade Consortium
C. Customs Union
D. Trade Pact Area
E. Cartel Of Nations

67. The Multi-National Currency Adopted By Members Of The European Union Is Called The
A. Euro
B. Dollar
C. Ruble
D. Franc
E. Peso

68. Which Of The Following Statements Is ?
A. The Euro Increases The Cost Of International Trade Between Members Of The European Union
B. The European Union Is A Free Trade Zone And Not A Customs Union
C. The Euro Reduces The Cost Of Trade Between Members Of The European Union
D. Common Market Treaties Are Becoming Less Popular Around The World
E. All Of The Above Statements Are

69. In Which Part Of The Globe Are You Most Likely To Find Nations Belonging To A Common Market Treaty?
A. North America
B. Asia
C. Europe
D. Africa
E. Everywhere

70. Which Of The Following Statements About Nafta Is ?
A. Nafta Is A Free Trade Zone And Not A Customs Union
B. Canada, Mexico, And The U.S. Are The Only Three Members Of Nafta
C. It Is Difficult To Empirically Measure The Economic Effects Of Nafta On The U.S. Economy
D. In The Long Run, Nafta Will Increase The Number Of Low-Paid Jobs In The U.S
E. Nafta Is Based On The Belief That Nations, In The Aggregate, Gain Economically From Free International Trade

71. What Have Researchers Concluded About The Net Effect Of Nafta On The Number Of Jobs In The U.S. Economy?
A. Nafta Has Increased The Number Of U.S. Jobs
B. Nafta Has Had No Effect On The Number Of U.S. Jobs
C. Nafta Has Significantly Reduced The Number Of U.S. Jobs
D. The Number Of U.S. Jobs Has Increased In Some Sectors Of The Economy, While In Other Sectors It Has Reduced The Number Of Jobs
E. No One Has Examined This Issue Yet

72. What Should Happen Once The Euro Has Been Completely Integrated Into The Economies Of The European Union (Eu)?
A. International Trade Between Eu Members Will Increase Due To Lower Transaction Costs Of Trade
B. Consumer Prices Will Increase And Income Will Fall
C. Trade Between Eu Members Will Decrease Due To The Increased Costs Of Using A Multi-National Currency
D. Eu Members Will Only Trade With Other Members And Stop Trading With The Rest Of The World
E. None Of The Above

73. Which Of The Following Is A Customs Union Of Nations?
A. Nafta
B. Wto
C. Eu
D. Gatt
E. Un

74. Which Of The Following Established A Free Trade Zone?
A. Eu
B. Gatt
C. Un
D. Wto
E. Nafta

75. Since The Introduction Of The General Agreement On Tariffs And Trade (Gatt) In The 1940s,
A. Tariffs And Import Quotas Have Increased Dramatically
B. Tariffs Around The World Have Fallen From An Average Of 40% To About 4%
C. Common Market Treaties Have Become More Difficult To Negotiate And Enforce
D. The Imposition Of Tariffs Has Been Declared To Be “Unfair” In Most Situations
E. Dumping Has Become A Widespread Practice Between Member Nations

76. The United States Currently Enforces An Embargo Against
A. Cuba
B. Saudia Arabia
C. The European Union
D. A) And B) Only
E. All Of The Above

77. Embargos
A. Are Import Quotas Set To 0
B. Are Export Quotas Set To 0
C. May Be Imposed For Political Reasons
D. May Be Imposed For Economic Reasons
E. All Of The Above

78. Outsourcing Is The Practice Of
A. Obtaining Raw Materials From Suppliers In Other Countries
B. Manufacturing Product In Another Country By Opening A Factory In That Nation
C. Purchasing Customer Services From Suppliers In Another Country Where The Costs Of These Services Are Lower Than Domestic Suppliers
D. Selling Goods To Another Country
E. Answers B And C Are Both Examples Of Outsourcing

79. The World Trade Organization, Or Wto, Has Been Unpopular With Many Environmentalists Because
A. It Produces A Great Deal Of Pollution
B. It Does Not Do Enough In Its Activities To Enforce Pollution Regulations
C. It Is Allowing Pollution Rights Licenses To Be Sold By Nations To One Another
D. It Encourages Developing Nations To Emphasize Jobs At The Expense Of Environment
E. The Wto Does Not Have A Pollution Control Agency

True / False Questions

80. Protectionists Want To Reduce Foreign Competition With U.S. Goods And Services.

81. Support For Protectionism Increases During Economic Expansions.

82. Free Traders Maintain That World Output Is Greatest If All Countries Are Free To Engage In Voluntary Exchanges.

83. A Country Should Strive To Export More Than It Imports Over Time.

84. Engaging In Exchange Enables A Country To Shift Its Production Possibilities Curve Outward.

85. Countries Should Trade For Goods In Which They Have A Comparative Advantage.

86. If A Country Has A Comparative Advantage In The Production Of One Good, It Must Have A Comparative Disadvantage In The Production Of Some Other Good.

87. It Is Efficient For An Economy To Save Service Jobs By Preventing Outsourcing.

88. An Exchange Rate Is The Price Of One Country’s Currency In Terms Of The Currency Of Another.

89. A Country’s Population As A Whole Will Benefit From Import Restrictions.

90. Everyone In The Economy Benefits From Free Trade.

91. For Many Years, U.S. Citizens Have Earned More Investment Income Abroad Than Foreigners Have Earned In The U.S.

92. Foreign Investment In The U.S. Provides Foreign Currencies To Import Goods.

93. Trade Deficits Are Important Only To The Extent That They Lead To Overall Balance Of Payments Problems.

94. To Preserve Jobs In The U.S., The U.S. Should Enact Legislation Lowering The Quantities Of Japanese Autos That It Imports.

95. Engaging In Trade Allows A Country To Shift Its Consumption Possibilities Curve Outward But Leaves Its Production Possibilities Curve Unchanged.

96. In Terms Of The Value Of Jobs Saved, The Voluntary Restrictions On Japanese Cars Imported To The U.S. In The Early 1980s Were Efficient.

97. Free Trade Would Reduce U.S. Well-Being Because We Could Not Compete With The Low-Wage Countries Of The World.

98. International Trade Makes It Possible For An Economy To Shift Its Production Possibilities Curve Outward.

99. As With Trade Between Regions Of One Country, Trade Between Countries Benefits Both.

100. Since Resources Are Sent Out Of The Country, International Trade Generally Results In A Reduction In An Economy’s Gdp.

101. International Trade Increases The Variety And Availability Of Consumer Goods In An Economy.

102. Free Trade Arguments Are Sound Only If Trade Is Between Countries Whose Workers Earn Roughly The Same.

103. Trade Between Individuals In Two Different Countries Would Not Occur Unless Both Parties Believed That It Made Them Better Off.

104. Tariffs Increase Both The Price Of Imports And Domestically Produced Goods.

105. A $100 Per Unit Tariff On South African Diamonds Will Increase The Price By $100.

106. Both Tariffs And Quotas Result In Higher Prices And Lower Quantities For Consumers.

107. Foreign Producers Who Hold Quota Rights May Earn Greater Profits With The Imposition Of A Quota.

108. A Voluntary Restraint Agreement Is A Quota Without The Force Of Law.

109. Quotas Result In Lower Prices Of Both Imported And Domestically Produced Goods.

110. All Forms Of International Trade Restrictions Result In Higher Prices And Lower Quantities Of Goods For Domestic Consumers.

111. Pegging The Exchange Rate Will Eliminate Balance Of Payment Deficits.

112. Pegging The Exchange For French Francs Below Its Equilibrium Level Will Generate A Shortage Of Francs.

113. Nafta Is A Customs Union Between The U.S., Canada, And Mexico.

114. The European Union Is A Free Trade Area.

115. International Trade Disputes Between Nations Are Settled Through The Actions Of The World Trade Organization.

116. Dumping Occurs When Producers Sell Abroad At A Price Below The Cost Of Production.

117. Dumping Is Not Considered An Unfair Trade Practice In Most Parts Of The World.

118. Members Of The Wto Must Agree To Treat All Other Members As Equals And Provide Them With “Most Favored Nation” Status.

119. The Wto Prohibits Member Nations From Imposing Tariffs On Other Members.

120. There Is More International Trade Today Than At Any Time In The Past.

121. Since The 1940s, Tariffs Around The World Have Fallen From An Average Of 40 Percent.

122. The Euro Will Increase The Transaction Costs Of Trade Between Nations Who Are Members Of The European Union (Eu).

123. The Euro Will Be Integrated Into The Economies Of Western Europe With Very Few Costs.

124. Common Market Treaties Are Decreasing In Popularity And Importance Around The World.

125. Most Tariffs Have Been Outlawed By The World Trade Organization (Wto).

126. Very Few Members Of The World Trade Organization (Wto) Are Also Members Of A Common Market Treaty.

127. Today, Custom Unions Or Free Trade Zones Can Be Found On Every Populated Continent Of The World.

128. In The Short-Run, Common Market Treaties Such As Nafta Both Create And Destroy Jobs In Member Nations.

129. In Recent Years, “Protectionists” Have Won The Battle With “Free Traders.”

130. An Embargo Occurs When One Nation Volunteers To Restrict Its Exports Of A Product.

131. The Intent Of An Embargo Is To Raise The Price Of A Country’s Exports.

ECO 405 Week 7 Quiz – Strayer University – *New*

ECO 405 Week 7 Quiz – Strayer

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Chapter 08

The Economics Of Monopoly Power: Can Markets Be Controlled?

Multiple Choice Questions

1. Imperfect Competition Can Best Be Described As A Situation In Which
A. A Few Large Firms Produce And Sell A Particular Product
B. Many Firms Produce And Sell A Product
C. Only One Firm Produces And Sells A Product
D. Firms Exercise Some Monopoly Power
E. Both (A) And (D)

2. The Monopoly Power Of A Firm Can Be Measured By The Firm’s
A. Profits Relative To Other Firms In The Industry
B. Control Over The Demand For Its Product
C. Revenues As A Percent Of Industry Revenues
D. Prices Compared To Average Prices In The Industry
E. Control Over The Market Supply Of Its Product

3. Which Of The Following Is Likely To Have The Most Monopoly Power?
A. Ford Motor Corporation
B. Your Local Water Company
C. Mobil Oil Corporation
D. Avon Products (Cosmetics)
E. A Fast Food Restaurant

4. Concentration Ratios Are Used To Measure The
A. Potential Monopoly Power Within An Industry
B. Strength Of The Demand For An Industry’s Product
C. Potential Monopoly Power Of A Firm
D. Degree Of Competition Between Firms In Different Markets
E. Level Of Perfection In A Competitive Market

5. Suppose The U.S. Auto Industry Sells 1,000 Autos Per Year. Of This, Gm Sells 400, Ford 300, And Dodge 250. Given This Information, The Four-Firm Concentration Ratio Of The Industry Must Be At Least
A. 95%
B. 5%
C. 50%
D. 100%
E. Cannot Tell Without Further Information

Questions 06 – 08 Refer To The Table Below.

6. The 4-Firm Concentration Ratio In This Industry Is
A. 0.5
B. 0.6
C. 0.7
D. 0.8
E. 0.9

7. The 6-Firm Concentration Ratio In This Industry Is
A. 0.6
B. 0.7
C. 0.8
D. 0.9
E. 1.0

8. Assume That No Firm In This Industry Accounts For Less Than 5% Of Industry Sales. What Is The Largest Number Of Firms That Could Be In This Industry?
A. 6
B. 7
C. 8
D. 9
E. 10

9. Which Of The Following Would Cause An Industry’s Concentration Ratio To Make It Appear Less Competitive Than It Really Is?
A. Firms In The Industry Are Located In One Area Of The Country
B. Transporting The Industry’s Output Is Very Easy
C. Foreign Firms Export The Industry’s Product To The United States
D. High Barriers To Entry
E. All Of The Above

10. A Pure Monopoly Industry Has A 4-Firm Concentration Ratio Equal To
A. 0
B. 0.25
C. 050
D. 0.9
E. 1.0

11. To Maximize Profits, A Monopolist Produces The Output Level At Which
A. Its Total Receipts Are Greatest
B. Its Total Costs Are Minimum
C. Its Marginal Cost Equals Its Marginal Revenue
D. Its Total Costs Equal Its Total Receipts
E. None Of The Above

12. To Maximize Profits, A Competitive Firm Produces The Output Level At Which
A. Its Total Receipts Are Greatest
B. Its Total Costs Are Minimum
C. Its Marginal Cost Equals Its Marginal Revenue
D. Its Total Costs Equal Its Total Receipts
E. None Of The Above

13. One Difference Between A Competitive Seller And A Monopolistic Seller Is That The
A. Competitive Firm Faces A Horizontal Supply Curve
B. Monopolist Tries To Maximize Profit
C. Monopolist Has Some Price Setting Ability
D. Competitive Firm Is Free To Vary Output
E. Market Demand Curve Is Positively Sloped For A Monopoly

14. Monopoly Refers To
A. A Large Firm
B. A Firm That Is One Of A Few Firms In An Industry
C. A Single Seller Of A Product For Which There Are No Good Substitutes
D. A Firm That Refuses To Lower Its Price
E. All Of The Above

15. In A Competitive Market, The Single Firm
A. Competes With Other Firms For Its Share Of The Market
B. Is Unable To Raise The Price Of The Product
C. Can Increase Its Sales By Advertising
D. Can Increase Its Sales By Lowering Its Price
E. Is All Of The Above

16. A Major Objective Of Firms In All Types Of Market Structures Is
A. Output Restriction
B. Output Maximization
C. To Raise Prices
D. Profit Maximization
E. To Maximize Revenues

17. A Firm’s Total Revenue Equals Its
A. Income Minus Expenses
B. Pre-Tax Net Income
C. Income For Tax Purposes
D. Quantity Times Price
E. Quantity Times Costs

18. Profit Equals
A. Total Revenue Minus Total Cost
B. Marginal Revenue Minus Marginal Cost
C. Quantity Times Price
D. Marginal Cost Minus Marginal Revenue
E. Income Minus Opportunity Cost

19. Profits And Losses In A Private Enterprise Economic System
A. Contribute Toward A Breakdown Of The System
B. Lead To A Monopolization Of The Industries In Which They Occur
C. Show Where Productive Capacity Should Be Expanded And Where It Should Be Contracted
D. Do All Of The Above
E. Do Both (A) And (B)

20. For A Firm, At The Output Level At Which Marginal Revenue Equals Marginal Cost,
A. Profits Are Highest
B. There Is Neither Unemployment Nor Inflation
C. Output Is Maximized
D. Revenues Are Maximized
E. Costs Are Minimized

21. The Most Common Forms Of Nonprice Competition Are
A. Profit Maximization And Loss Minimization
B. Monopolization And Output Restriction
C. Advertising And Changes In Product Quality And Design
D. Inflation And Unemployment
E. None Of The Above

Questions 22-26 Refer To The Following Graph. For Each Question, Disregard Any Irrelevant Lines.

22. Suppose The Market Is Competitive. Equilibrium Market Price And Output Will Be
A. P1, X2
B. P2, X3
C. P3, X1
D. P1, X4
E. P3, X2

23. Now Suppose The Same Market Is Monopolized. Equilibrium Market Price And Output Would Be
A. P3, X1
B. P3, X2
C. P2, X3
D. P1, X2
E. P1, X4

24. The Area Of The Triangle Abc Reflects The
A. Dead-Weight Welfare Loss Due To Monopoly
B. Increase In Production Costs Due To Monopoly
C. Increase Price To The Consumer Due To Monopoly
D. Impact Of Barriers To Entry On The Market
E. Effect Of Monopoly On Income Distribution

25. If This Industry Changes From Pure Competition To Monopoly, Output Changes From
A. X4 To X1
B. X4 To X2
C. X2 To X4
D. X3 To X2
E. X2 To X3

26. If This Industry Changes From Pure Competition To Monopoly, Price Changes From
A. P3 To P2
B. B. P3 To P1
C. C. P2 To P1
D. D. P1 To P3
E. E. P2 To P3

27. If The Demand Curve Faced By A Firm Is Downward Sloping And The Market Price Of The Product Is Above Marginal Cost Of Production, Which Of The Following Is Correct?
A. Not Enough Of The Economy’s Resources Are Being Allocated To Producing The Good
B. Too Much Of The Economy’s Resources Are Being Allocated To Producing The Good
C. The Firm Is In A Competitive Market
D. The Firm Is Making Profits
E. The Firm Is Losing Money

28. A Monopoly Is Not Efficient Because
A. Price Exceeds Marginal Cost
B. Entry Into The Market Is Blocked
C. Output Is Too Large
D. Monopoly Is Illegal
E. Price Is Too Low

29. The Dead-Weight Welfare Loss Due To Monopoly Is
A. Too Small To Be Important
B. About 10% Of Gdp Per Year
C. Unable To Be Determined In A Complex Economy Such As Our Own
D. About 1% Of Gdp Per Year
E. About .01% Of Gdp Per Year

30. The Dead-Weight Welfare Loss Due To Monopoly
A. Results From The Monopolist’s Tendency To Reduce Output Below The Competitive Level
B. Is A Measure Of The Cost To Society From The Monopolistic Misallocation Of Resources
C. Is Estimated To Be About 1% Of Gdp Per Year
D. Is A Loss To Consumers Not Offset By Anyone Else’s Gain
E. All Of The Above

31. Monopolization Of A Previously Competitive Market Leads To
A. Reduced Production And Product Quality And Increased Costs And Prices
B. Increased Production And Higher Prices
C. Increased Production, Product Quality And Prices
D. Government Regulation
E. None Of The Above

32. Patents And Copyright Laws
A. Are Governmental Barriers To Market Entry
B. Encourage Orderly Market Entry
C. Discourage Research And Development
D. Reduce Monopoly Power
E. Do All Of The Above

33. When Firms Earn Profits,
A. They Will Likely Expand
B. New Firms Will Have An Incentive To Enter The Market
C. They Are Providing A Good Or Service That Consumers Want More Of
D. The Market Is Signaling More Firms To Enter
E. All Of The Above

34. In A Competitive Market In The Short Run, Firms
A. May Earn Profits Or Losses
B. Always Break Even
C. Earn Neither Profits Nor Losses
D. Must Be Free To Enter Or Exit The Market
E. Charge A High Price And Produce A Low Quantity

Questions 35 – 39 Refer To The Graph Below, Which Is For A Firm In A Competitive Market.

35. Since This Is A Competitive Market, The Firm’s Marginal Revenue Is
A. $5
B. $7
C. $20
D. $100
E. $150

36. The Profit-Maximizing Price And Quantity For This Competitive Firm Are
A. $5 And 100
B. $5 And 150
C. $7 And 100
D. $7 And 150
E. $7 And More Than 150

37. Equilibrium Price And Quantity In The Market Are
A. $5 And 100
B. $5 And 150
C. $7 And 150
D. $7 And More Than 150
E. None Of The Above

38. The Firm’s Total Revenue Is
A. $5
B. $7
C. $100
D. $150
E. $500

39. If The Firm Has A Total Cost Of $400, It Is Earning A
A. Profit Of $0
B. Profit Of $100
C. Loss Of $100
D. Loss Of $200
E. Loss Of $500

Questions 40 – 44 Refer To The Graph Below, Showing A Monopoly Market.

40. For The Firm Shown On The Graph, Profit Maximization Occurs At What Price And Quantity?
A. $20 And 50
B. $15 And 70
C. $15 And 50
D. $10 And 50
E. $10 And 70

41. At The Profit Maximizing Quantity, The Firm’s Total Revenue Equals
A. $10
B. $15
C. $20
D. $1,000
E. $1,400

42. If The Firm Has Total Costs Of $1,200 At The Profit Maximizing Output, Then It Is Earning A
A. Profit Of $0
B. Profit Of $100
C. Profit Of $200
D. Loss Of $100
E. Loss Of $200

43. If This Were A Perfectly Competitive Market, Equilibrium Price And Quantity Would Be
A. $20 And 50
B. $15 And 70
C. $15 And 50
D. $10 And 50
E. $10 And 70

44. Monopolization Of This Market Leads To A Deadweight Loss Equal To
A. $0
B. $50
C. $100
D. $150
E. Cannot Be Determined

45. If A Firm Sells 100 Units Of Output At A Price Of $5 And Each Unit Costs $3 To Produce, The Firm Is Earning A
A. Profit Of $200
B. Loss Of $2 Per Unit
C. Loss Of $200
D. Profit Of $500
E. Loss Of $300

46. Which Of The Following Is Of A Firm’s Total Costs? They
A. Do Not Include Opportunity Costs
B. Become Lower As More Is Produced
C. Are Greater Than Total Revenue When The Firm Is Earning A Profit
D. Are Equal To The Cost Per Unit Times The Number Of Units Produced
E. All Of The Above

47. If A Firm Sells 100 Units Of Output At A Price Of $5 And Each Unit Costs $3 To Produce, The Firm’s Total Revenue Equals
A. $3
B. $5
C. $200
D. $300
E. $500

48. A Perfectly Competitive Firm’s Supply Curve Is Its
A. Demand Curve
B. Marginal Revenue Curve
C. Total Revenue Curve
D. Marginal Cost Curve
E. Total Cost Curve

49. The Supply Curve For A Monopoly
A. Is Its Marginal Revenue Curve
B. Is Its Total Revenue Curve
C. Is Its Marginal Cost Curve
D. Is Its Total Cost Curve
E. Does Not Exist

50. The Demand Curve For A
A. Monopoly Firm Is Downward Sloping
B. Monopoly Industry Is Downward Sloping
C. Perfectly Competitive Firm Is Horizontal
D. Perfectly Competitive Industry Is Downward Sloping
E. All Of The Above

51. If A Firm Sells 100 Units At A Price Of $5 And Each Unit Costs $3 To Produce, Its Total Cost Equals
A. $3
B. $5
C. $200
D. $300
E. $500

Questions 52 – 56 Refer To The Graph Below.

52. If This Industry Is Perfectly Competitive, Equilibrium Price And Output In The Market Will Be
A. $16 And 10
B. $12 And 10
C. $12 And 14
D. $8 And 14
E. $8 And 10

53. If This Industry Is A Monopoly, Equilibrium Price And Output In The Market Will Be
A. $16 And 10
B. $12 And 10
C. $12 And 14
D. $8 And 14
E. $8 And 10

54. If This Industry Starts As Perfectly Competitive And Then Becomes A Monopoly, Market Price Will Change From
A. $16 To $12
B. $16 To $8
C. $12 To $8
D. $8 To $16
E. $12 To $16

55. If This Industry Starts As Perfectly Competitive And Then Becomes A Monopoly, The Deadweight Loss To Society Is Equal To Area
A. Abc
B. Adc
C. Bdec
D. Adec
E. None Of The Above

56. Society’s Net Benefits Are Maximized When Price And Quantity In The Market Are
A. $16 And 10
B. $12 And 10
C. $12 And 14
D. $8 And 14
E. $8 And 10

57. Which Of The Following Is A Private Barrier To Entry?
A. An Occupational License
B. A Patent
C. Ownership Of Raw Materials
D. A Regulatory Commission
E. All Of The Above

58. Which Of The Following Is A Government Barrier To Entry?
A. An Occupational License
B. Ownership Of Raw Materials
C. Product Differentiation
D. Advertising
E. All Of The Above

59. Which Of The Following Is A Barrier To Entry?
A. Import Restrictions
B. Copyright Laws
C. Exclusive Franchises
D. Zoning Ordinances
E. All Of The Above

60. Firms May Advertise Their Products In Order To
A. Create A Barrier To Entry
B. Provide Consumers With Information
C. Increase Demand For Their Product
D. Differentiate Their Product
E. Do All Of The Above

61. A Telephone Is Much More Useful To A Consumer When Other People Also Have Telephones. This Illustrates Which Of The Following Concepts?
A. Economies Of Scale
B. Diseconomies Of Scale
C. Natural Monopoly
D. Network Economies
E. Constant Returns To Scale

62. Which Of The Following Is An Example Of Nonprice Competition?
A. Advertising
B. Changing The Design Of A Product
C. Incorporating New Technology In A Product
D. Improving The Quality Of A Product
E. All Of The Above

63. The Loss To Society Caused By Monopoly Power May Be Greater Than Simply The Losses Associated With Deadweight Losses Because It Also Includes Losses Due To
A. Private Barriers To Entry
B. Government Barriers To Entry
C. Extensive Product Differentiation
D. Occupational Licensing
E. All Of The Above

64. With A Natural Monopoly,
A. The Long-Run Average Cost Curve Of The Firm Declines Over The Range Of Production
B. Government Regulation Ensures That Consumer’s Interests Will Be Served
C. Government Regulation Will Fail
D. There Are No Significant Economies Of Scale In Producing The Good
E. None Of The Above

65. The Government’s Regulation Of Pollution
A. Is Justified Because Of Natural Monopoly
B. Is Justified By Poorly Defined Property Rights
C. Is Justified By Concentration Ratios
D. Is Not Likely To Improve On The Market Outcome
E. Cannot Be Defended On Economic Grounds

66. The Capture Theory Of Regulation Suggests
A. In The Absence Of Regulation, Consumer Welfare Is Often Captured By Firms In The Market
B. The Lost Consumer Welfare Due To Unfair Business Practices Can Be Offset Through Government Regulation
C. When Market Failure Exists, Regulation Is Appropriate
D. The Regulators Of An Industry Are Often “Captured” By The Firms In The Market
E. None Of The Above

67. Which Of The Following Is Likely To Reduce Monopoly Power In The United States The Most?
A. Placing An Absolute Limit On The Total Assets That Any One Company Can Have
B. Removing All Government-Imposed Entry Barriers To Industries And Occupations
C. Placing A Government Ban On Television Advertising
D. Placing A Special Tax On Monopolists’ Outputs
E. None Of The Above

68. Which Of The Following Provides The Strongest Economic Justification For Regulation?
A. Natural Monopoly
B. Excess Consumer Information
C. Shortages And High Prices
D. All Of The Above
E. None Of The Above

69. The Best Estimate Of The Dead-Weight Welfare Loss Due To Monopoly Is Biased Downward Because It Does Not Take Into Account
A. Reductions In Product Quality
B. Higher Costs Of Production
C. Decreases In Product Variety
D. All Of The Above
E. None Of The Above

Questions 70 – 73 Refer To The Graph Below.

70. At What Level Of Output Does The Firm Experience Economies Of Scale?
A. 0
B. 0 – Q0
C. Q0
D. Above Q0
E. This Firm Does Not Experience Economies Of Scale

71. Increasing Output Beyond Q0 Will Cause The Firm To Experience
A. Economies Of Scale
B. Diseconomies Of Scale
C. Constant Returns To Scale
D. Network Economies
E. Decreasing Total Costs

72. At What Level(S) Of Output Do Reductions In The Average Costs Of Production Cease?
A. 0
B. 0 – Q0
C. Q0
D. Above Q0
E. There Are No Reductions In The Average Costs Of Production

73. It Is Cheaper Per Unit To Produce Higher Quantities When Output Is
A. High
B. Between 0 And Q0
C. Q0
D. Above Q0
E. Decreasing

74. Which Of The Following Is A Negative Consequence Of Allowing Competition In An Industry That Is A Natural Monopoly?
A. Deadweight Welfare Loss
B. Lower Prices
C. Restricted Output
D. Higher Average Costs
E. All Of The Above

75. Which Of The Following Is A Negative Consequence Of Allowing An Unregulated Natural Monopoly?
A. Deadweight Welfare Loss
B. Higher Prices
C. Restricted Output
D. All Of The Above
E. None Of The Above

76. Corporations
A. Are Legal Entities Separate From Their Owners
B. Are Owned By Stockholders
C. Finance Their Operations Through Many Small Investors
D. Account For 20% Of All Businesses In The United States
E. All Of The Above

77. Approximately What Percent Of Sales In The United States Are Made By Corporations?
A. 40
B. 50
C. 60
D. 70
E. 90

78. The “Agency Problem” Is Caused By
A. Corporate Managers Pursuing Goals Different From Stockholder’s Goals
B. Stockholders Attempting To Micromanage Corporations
C. Regulatory Agencies Interfering With Corporate Operations
D. Sudden Declines In Stock Prices
E. Over-Investment In New Capital

79. A Guarantee That Allows The Purchase Of Shares Of Stock At A Fixed Price Is A(N)
A. Non-Pecuniary Benefit Of Employment
B. Stock Option
C. Disincentive To Expand A Corporation
D. Illegal Means To Compensate Ceos
E. Stock Split

80. Some Would Argue That One Of The Primary Benefits Of Possessing A Monopoly Is
A. The Chance To Erect Entry Barriers
B. The Opportunity To Live The Quiet Life
C. The Ability To Restrict Output
D. The Chance To Create Deadweight Losses
E. The Ability To Jack Up Prices To Consumers

81. There Is The Possibility That The Sheer Size Of Some Firms—Their “Bigness”—Is A Problem For An Economy Because
A. Big Firms Possess Larger Entry Barriers
B. Bigness Implies That The People Who Run Such Firms Are Unethical
C. Bigger Firms Are More Inefficient
D. The Effects That The Failure Of Large Firms Can Have On The Us Economy
E. The Number Of Shares Of Stock That Are Traded In Large Firms

82. The Us Government In 2008 Did Not Step Into The Market To Bail Out Which Firm?
A. Chrysler
B. General Motors
C. Ford
D. Aig
E. The Government Stepped In To Bail Out All Of These Firms

True / False Questions

83. Firms With Monopoly Power Yield Higher Than Average Returns To Investors.

84. The Monopoly Power Of A Firm In An Imperfectly Competitive Market Is Greater The Larger The Firm’s Output Relative To The Industry Output.

85. The More Sellers There Are In, The Less Control Any One Seller Has Over The Price It Can Charge.

86. Shortages Are Important Evidence That Firms Are Exercising Monopoly Power.

87. A Four-Firm Concentration Ratio Of 0.9 Indicates That The Four Largest Firms In The Industry Control 90% Of The Industry’s Sales.

88. In A Perfectly Competitive Industry The Four-Firm Concentration Ratio Is Close To Zero.

89. Concentration Ratios Provide A Good Measure Of A Firm’s Potential For Exercising Monopoly Power.

90. Ford Motors More Closely Resembles A Monopoly Than Does Your Local Electric Company.

91. Concentration Ratios Tend To Be Biased Downward Because They Do Not Account For International Competition.

92. Profit Maximization As An Objective Of A Firm Is A Logical Extension Of The General Principle That People Prefer More To Less.

93. Sellers In A Competitive Market Must Take Into Account What Buyers Will Do And Those In The Monopolized Market Do Not.

94. Generally Monopolists Will Be More Concerned With Profit Maximization And Competitive Firms Will Be More Concerned With Earning A Fair Rate Of Return On Investment.

95. To Maximize Profits A Firm Tends To Produce An Output Level At Which Its Marginal Revenue Equals Its Marginal Costs.

96. Marginal Revenue For A Monopolist Is Less Than The Price It Charges For Its Product.

97. Marginal Revenue For A Competitive Firm Is Equal To The Price It Charges For Its Product.

98. If Its Marginal Revenue Is Less Than Its Marginal Cost, A Firm Should Reduce Its Output Product.

99. Like Other Demand Curves, The Demand Curve Facing A Competitive Firm Slopes Downward.

100. A Firm That Sells In A Competitive Market Restricts Output And Charges Higher Prices Than It Would If It Were A Monopolist.

101. Profits Serve No Useful Purpose In A Private Enterprise Economy And Should Be Taxed Away By The Government.

102. A Firm In A Competitive Market Has No Price Setting Capability.

103. Some Monopolists Block Entry Into Their Markets Through Their Control Of The Raw Materials Needed To Produce The Product.

104. Licensing Of Barbers Insures That We Will Get Better Haircuts At The Same Prices Or The Same Quality Of Haircuts At Lower Prices.

105. Licensing Of M.D.’S Has Nothing To Do With The Fact That They Are Among The Economy’s Highest Paid Professionals.

106. Changes In The Design And Quality Of A Product Often Results In Greater Consumer Satisfaction From The Product.

107. Monopoly Power In The U.S. Does Not Pose A Significant Economic Problem.

108. Unlike In Competition, The Monopolist Is Driven By A Desire To Maximize Profit.

109. Any Firm, Whether Monopolistic Or Competitive, Must Produce Where Marginal Cost Equals Marginal Revenue In Order To Maximize Profit.

110. The Monopolization Of A Previously Competitive Industry Will Lead To Restricted Production And Higher Prices.

111. Without Barriers To Entry, A High-Profit Monopoly Is Unlikely To Be Able To Maintain Its Monopoly Status.

112. Monopoly Firms Typically Have Lower Costs Than Competitive Firms Because They Receive Bulk-Buying Discounts For Their Inputs.

113. In Addition To Reducing Production And Raising Prices, Monopoly Decreases Product Quality.

114. Monopolies Will Have Higher Production Costs Than Competitive Firms.

115. Monopoly Can Lead To A Perverse Redistribution Of Income If The Owners Of The Monopoly Are Wealthier Than Buyers.

116. Severe Competition In A Market Leads To A Dead Weight Welfare Loss To Society.

117. Extremely Large Firms Cause Dead Weight Loss To Increase.

118. Monopolies In The U.S. Economy Are Estimated To Reduce Gdp By About 1% Per Year.

119. With Natural Monopolies, Consumers May Be Better Off With A Monopoly Than Competition.

120. Market Failure, By Itself, Is Enough To Justify Government Regulation Of Business.

121. Government Regulation Is Appropriate When There Is Market Failure And Regulation Is Cost-Effective.

122. Consumers Rarely Have Complete Information About Products And This Lack Of Information Doesn’t Keep The Market From Maximizing Welfare.

123. The Capture Theory Suggests That Regulators May End Up Working For The Interests Of The Firms Being Regulated Rather Than The Consuming Public.

124. Barriers To Entry Are Often Created By Governments.

125. A Benefit Of Monopoly Is That Costs Are Lower.

126. The Capture Theory Of Regulation Suggests That Government Regulation Of Business Represents An Unfair Attack On Private Firms By Government.

127. Natural Monopolies Are Common In The Modern World Economy.

128. In Their Desire To Achieve The Quiet Life, Monopolists Tend To Allow Costs To Rise Above Competitive Levels.

129. When A Firm’s Average Costs Fall As Output Is Increased, The Firm Is Experiencing Economies Of Scale.

130. When The Value Of A Product To A Consumer Is Enhanced When Others Also Consume The Good, Economies Of Scale Exist.

Chapter 09

The Economics Of Professional Sports: What Is The Real Score?

Multiple Choice Questions

1. Professional Sports Clubs Differ From Most Other Business Firms In Their
A. Organizational Structure And Relationship With Employees
B. Location And Emphasis On The Competitive Spirit
C. Ownership And Profitability
D. Legal Status As Corporations And Limited Tax Liability
E. Ability To Operate In Both The Product And Resource Market

2. In A Product Market,
A. Producers Sell Goods And Services
B. Consumers Buy Goods And Services
C. Final Goods And Services Are Exchanged
D. All Of The Above
E. None Of The Above

3. In A Resource Market,
A. Buyers And Sellers Exchange Goods And Services
B. Resourceful Buyers Find Goods That Are Otherwise Unavailable
C. Buyers And Sellers Exchange Factors Of Production
D. Firm Managers Exchange Production Techniques And Ideas
E. Workers Exchange Their Labor For The Firm’s Output

4. Firms That Coordinate Their Actions To Maximize Joint Profits Are Said To Have Formed A(N)
A. Monopsony
B. Cartel
C. Product Market
D. Oligopoly
E. Economic Treaty

5. Which Of The Following Sports Leagues Can Be Considered A Cartel?
A. The National Football League (Nfl)
B. The National Hockey League (Nhl)
C. The National Basketball Association (Nba)
D. (A) And (B)
E. All Of The Above

6. Which Of The Following Is Not Necessary For A Successful Cartel? Members Must
A. Produce Most Of The Industry’s Output
B. Produce A Homogeneous Output
C. Produce Heterogeneous Outputs
D. Be Able To Divide The Market
E. Have A Way To Prevent Cheating

7. Which Of The Following Best Characterizes A Cartel Arrangement?
A. Open Competition
B. Shared Competition
C. Monopsony
D. Shared Monopoly
E. Oligopoly

8. To Maximize Joint Profits, A Cartel Will Set The Market Price And Output Such That
A. Each Firm’s Marginal Revenue Equals Its Marginal Cost
B. The Market’s Marginal Revenue Equals The Market’s Marginal Cost
C. Each Firm’s Demand Schedule Is Equal To The Market Marginal Cost
D. The Market’s Marginal Revenue Is Equal To Each Firm’s Marginal Cost
E. None Of The Above

9. In A Product Market With A Cartel, Prices Will Be _____ And Output Will Be _____ Than In A Competitive Market.
A. Higher; Lower
B. Lower; Higher
C. Higher; Higher
D. Lower; Lower
E. Both Price And Quantity Will Be The Same

10. Which Of The Following Statements Is ?
A. Anti-Trust Laws Make Most Cartels Illegal In The U.S
B. Formation Of A Cartel Ensures That Each Firm Will Earn Greater Profits Than Without A Cartel
C. Cartels Maximize Joint Profits Not Individual Firm Profits
D. Professional Sports Leagues Insure The Stability Of Teams By Cooperating Through Cartel Arrangements
E. Cartels Are Difficult To Maintain When Cheating Is Possible

11. A Resource Market With Only One Buyer Of A Factor Of Production Is Called A(N)
A. Imperfect Monopoly
B. Monopoly
C. Competitive Market
D. Monopsony
E. Cartel

12. A Monopsony Is A Market With Only One
A. Buyer
B. Employer
C. Product
D. All Of The Above
E. A) And B)

13. The Additional Cost Incurred As A Result Of Hiring An Additional Worker Is The Firm’s
A. Total Cost Of Labor
B. Marginal Cost Of Labor
C. Average Cost Of Labor
D. Labor Cost
E. Human Capital Cost Of Labor

14. Which Of The Following Conditions Can Give Rise To A Monopsony Employer?
A. Mobile Workers With Limited Skills
B. Legal Protection From Anti-Trust Laws And A Mobile Workforce
C. Immobile Workers With Highly Specialized Skills
D. A Cartel Agreement That Results In Raising Joint Profits
E. A Merger Between Two Unrelated Firms

15. Why Does A Monopsony’s Marginal Cost Of Labor (Mcl) Curve Lie Above The Market Supply Of Labor Curve? Because The Monopsony
A. Must Raise The Wage It Pays All Employees In Order To Attract And Hire Additional Workers
B. Must Pay Higher Wages To Only The Last Workers Hired In Order To Attract And Hire Additional Workers
C. Faces The Market Demand And Marginal Revenue Curves
D. Must Lower The Wage It Pays All Employees In Order To Maintain Profitability
E. Has Such High Labor Costs Relative To The Supply Of Labor

16. If A Firm’s Workers Add $1,000 To The Firm’s Receipts And Total Wages Equal $500, Then Monopsonistic Profit Equals
A. $500
B. $1,000
C. $1,500
D. $500,000
E. A Number Unable To Be Determined With The Information Given

17. Under Which Of The Following Conditions Will A Monopsony Hire An Additional Worker? When
A. Mcl > Mrp
B. Mcl < Mrp C. Mrp = D D. Mc = Mr E. D > S

18. To Maximize Profit, A Monopsony Will Hire Workers Up To The Point Where
A. Mc = Mr
B. D = S
C. Mcl = Mrp
D. Mcl = P
E. Mr = P

19. A Monopsony Will Hire ______ Workers At A _____ Wage Than An Employer In A Competitive Labor Market.
A. More; Lower
B. More; Higher
C. Fewer; Higher
D. Fewer; Lower
E. The Same Number Of; Higher

20. The Difference Between A Worker’s Contribution To The Firm’s Receipts And The Wage Is
A. Monopsony Profit
B. Monopoly Profit
C. Cartel Profit
D. Economic Profit
E. Marginal Revenue Profit

21. Which Of The Following Releases Professional Athletes From Some Of The Monopsony Powers Of The Sports Leagues?
A. Player Drafts
B. Long-Term Contracts
C. Free Agency
D. Expanded Playing Seasons
E. Minimum Wage Laws

22. Why Does The Average Professional Baseball Player Earn More Than The Average Doctor?
A. The Baseball Player Has A Lower Mcl
B. The Doctor Has A Higher Mrp
C. The Baseball Player Has A Higher Mrp
D. There Are More Professional Baseball Players Than Doctors
E. The Demand For Baseball Is Higher Than The Demand For Medical Care

Questions 23 – 27 Refer To The Graph Below.

23. This Graph Represents The Labor Market For A(N)
A. Monopolist
B. Competitive Firm
C. Product Market Cartel
D. Monopsonist
E. Oligopoly

24. What Wage Will Maximize This Firm’s Economic Profit?
A. W1
B. W2
C. W3
D. W4
E. A Wage Above W4

25. How Many Workers Will This Firm Hire?
A. 0
B. L1
C. L2
D. L3
E. More Than L3

26. If This Labor Market Is Competitive, How Many Workers Will Be Hired?
A. 0
B. L1
C. L2
D. L3
E. More Than L3

27. If This Labor Market Is Competitive, What Wage Will Workers Be Paid?
A. W1
B. W2
C. W3
D. W4
E. A Wage Above W4

Questions 28 – 32 Refer To The Graph Below.

28. This Graph Represents The Labor Market For A(N)
A. Monopolist
B. Competitive Firm
C. Product Market Cartel
D. Monopsonist
E. Oligopoly

29. What Wage Will Maximize This Firm’s Economic Profit?
A. $500
B. $800
C. $1,000
D. Less Than $1,000 But Greater Than $0
E. $0

30. How Many Workers Will This Firm Hire?
A. 0
B. 10
C. 12
D. 15
E. More Than 15

31. If This Labor Market Is Competitive, How Many Workers Will Be Hired?
A. 0
B. 10
C. 12
D. 15
E. More Than 15

32. If This Labor Market Is Competitive, What Wage Will Workers Be Paid?
A. $0
B. $500
C. $800
D. $1,000
E. More Than $1,000

33. A Labor Union
A. Bargains On Behalf Of All Workers
B. Conducts Lock-Outs As A Bargaining Tool
C. Is Concerned With Salaries Rather Than Work Conditions
D. Does All Of The Above
E. Does None Of The Above

34. Which Of The Following Is A Work Stoppage Initiated By Workers?
A. Lockout
B. Strike
C. Mediation
D. Arbitration
E. Monopsony

35. Which Of The Following Is A Work Stoppage Initiated By Management?
A. Lockout
B. Strike
C. Mediation
D. Arbitration
E. Monopsony

36. One Way In Which Professional Sports Leagues Enforce The Monopsonistic Employment Of Players Is Through
A. Free Agency
B. Open Arbitration
C. League Expansion
D. Salary Caps
E. A Talent Agency

37. The Relatively High Salaries Paid To Professional Athletes Reflect
A. Their Contribution To Team Revenue
B. The Exploitation Of Fans
C. Their Contribution To Society’s General Well-Being
D. The Success Of Labor Union Representation
E. The Social Value Of Professional Sports

38. The Average Baseball Player Earns A Salary Greater Than The Average College Professor Because
A. Baseball Players Contribute More To Society’s General Well-Being
B. College Professors Contribute Less To Their Employer’s Revenues Than Baseball Players
C. Colleges Are Better Able To Enforce Their Monopsonistic Market Positions
D. The Market For Baseball Players Is More Competitive
E. Colleges Are Owned By The State

39. If A Worker Adds 20 Units To A Firm’s Total Output, The Output Is Sold For $2 Per Unit, And The Worker Is Paid $100, Then The Worker’s Marginal Revenue Product Is
A. 20
B. 40
C. 60
D. 100
E. 200

40. Which Of The Following Statements Is Not ?
A. Even Though The Essence Of Sports Is Competition, Professional Sports Clubs Cooperate With Each Other In The Marketplace
B. Professional Sports Leagues Are Economic Cartels
C. From An Economic Perspective, The Nfl, Nhl, Nba And Mlb Are Competitive Markets
D. Professional Sports Leagues Have Monopsony Power In The Resource Market
E. Owners Of Professional Sports Clubs Attempt To Maximize Their Joint Profits By Joining Leagues

41. Professional Baseball Enjoys An Exemption From ________ Laws That Make Cartels Illegal In Most Other Industries.
A. Minimum Wage
B. Antitrust
C. Common
D. Labor
E. Anti-Competition

42. A Cartel Is More Likely To Be Successful If
A. Cartel Members Produce Most Of The Output In The Market
B. Market Output Is Heterogeneous
C. Members Overlap In Their Control Of Market Territories
D. All Of The Above
E. None Of The Above

43. Which Of The Following Factors Is Not Necessary To Form A Successful Cartel?
A. Members Must Be Responsible For Most Of The Industry’s Output
B. Member Firms Should Produce Homogeneous Output
C. Members Must Be Located In Close Proximity To Each Other
D. The Cartel Must Be Able To Divide The Marketplace Between Member Firms
E. There Must Be A Mechanism To Prevent Cheating By Member Firms

44. Today, The Primary Source Of Revenue For Most Major League Clubs Is
A. Ticket Sales
B. Concession Sales
C. Merchandising
D. Broadcast Rights
E. Parking

45. To Maximize Joint Profits, A Cartel Will Produce Output Up To The Point Where
A. Mr = Mc
B. Tr = Tc
C. Mr = Tc
D. Tr = Mc
E. P = Mr

46. When A Professional Sports League Sells Broadcast Rights For The Entire League,
A. The Selling Price Will Be Higher Than The Price That Would Be Charged If Each Team Individually Sold Broadcast Rights
B. Fewer Games Will Be Broadcast Than Would Be If Each Team Individually Sold Broadcast Rights
C. Joint Profits Among All Teams In The League Can Be Maximized
D. (A) And (B)
E. All Of The Above

47. For A Cartel, The
A. Demand Curve Is Also The Marginal Revenue Curve
B. Marginal Revenue Curve Lies Above The Demand Curve
C. Marginal Revenue Curve Lies Below The Demand Curve
D. Marginal Cost Curve Lies Below The Demand Curve At All Points
E. Supply Curve Lies Above The Demand Curve At All Points

48. A Monopsony Exists Whenever There
A. Are Many Buyers In A Market
B. Is Only One Buyer In A Market
C. Is Only One Seller In A Market
D. Are Many Sellers In A Market
E. Are No Barriers To Enter Or Leave A Market

49. In The Resource Market, Professional Sports Clubs Must Face The
A. Upward Sloping Market Supply Of Labor Curve
B. Downward Sloping Market Supply Of Labor Curve
C. Horizontal Marginal Cost Of Labor Curve
D. Industry-Level Demand For Labor Curve
E. Upward Sloping Marginal Revenue Product Of Labor Curve

50. A Profit Maximizing Sports Club Will Hire Players Up To The Point Where The
A. Demand Of Labor Equals Marginal Revenue Product Of Labor
B. Supply Of Labor Equals The Marginal Cost Of Labor
C. Marginal Revenue Product Of Labor Equals The Marginal Cost Of Labor
D. Marginal Cost Of Labor Equals The Wage Rate
E. Wage Equals The Quantity Of Labor Available

51. In A Monopsony, The Difference Between The Marginal Revenue Product Of Labor And The Wage Rate Is Known As
A. Joint Profit
B. Monopsonistic Profit
C. Monopsonistic Cost
D. Cartel Profit
E. Competitive Returns

52. The Additional Revenue That A Player Generates For His Employing Team Is Called
A. Total Player Revenue
B. Marginal Revenue Product
C. Marginal Product
D. Marginal Revenue
E. Monopsonistic Revenue Product

53. Over The Past Twenty Years, Free Agency In Professional Sports Has
A. Increased The Monopsonistic Power Of Leagues And Caused Salaries To Stagnate
B. Reduced The Bargaining Power Of Players And Raised Owner Profits
C. Reduced The Monopsonistic Power Of Leagues And Caused Salaries To Rise
D. Improved The Economic Position Of Owners By Increasing The Competition For Good Players
E. Had Little Effect On The Sports Industry

54. Which Of The Following Statements Is ?
A. From An Economic Perspective, Most Professional Athletes Do Not Earn Their Pay
B. Salaries In Any Industry Reflect Labor’s Contribution To The Overall Health And Well-Being Of Society
C. Professional Sports Clubs Operate In Highly Competitive Product And Resource Markets
D. The Cartel Behavior Of Professional Sports Leagues Keeps Ticket Prices Low
E. The Salary Of A Professional Athlete Reflects His Contribution To His Employing Club’s Revenue

55. From An Economic Perspective, Which Of The Following Is The Best Reason For A City To Attract A Professional Sports Team?
A. A Professional Sports Team Generates Publicity And Creates Public Relations Opportunities For Businesses Located In The City
B. A Professional Sports Team Generates A Significant Number Of New Jobs For The Community
C. Professional Sports Teams Pay Large Sums Of Money In City Taxes
D. A New Team Will Increase The Demand For Other Entertainment Related Activities Within The Local Community
E. Sports Enhance The Tax Base Of Large Cities By Generating Significant Numbers Of New Professional Jobs

56. Which Of The Following Statements Is ?
A. Even Though Professional Athletes May Earn Millions Of Dollars Each Year, It Is Possible For Them To Be Exploited By Their Employers
B. From An Economic Perspective, Professional Athletes Do Not Earn Their Pay
C. The Economic Impact Of A Professional Sports Team On Their Home Community Is Relatively Small
D. Free Agency Has Caused The Salaries Of Professional Athletes To Rise Over Time
E. By Limiting Expansion, Professional Sports Leagues Ensure Greater Profits For The Existing Teams

57. A Monopsony Will Continue To Hire Workers Up To The Point Where The
A. Marginal Cost Of Labor Is Equal To Total Revenue
B. Total Cost Of Labor Is Equal To The Marginal Revenue Product Of Labor
C. Marginal Cost Of Labor Is Equal To The Marginal Revenue Product Of Labor
D. Marginal Profit Of Production Equals The Total Cost Of Production
E. Marginal Revenue Product Of Labor Is Maximized

58. Which Of The Following Factors Helps Professional Sports Teams To Exercise Monopsony Power Over The Players That They Hire?
A. Player Drafts
B. Exclusive Contracts That Limit Free Agency
C. The Specialized Skills Of Players
D. All Of The Above
E. None Of The Above

59. Which Of The Following Factors Reduces The Monopsony Power Of Professional Sports Teams In The Employment Of Players?
A. Player Drafts
B. The Reserve Clause
C. The Long-Term Employment Contracts
D. Cartel Agreements Between Teams
E. Free Agency

60. A Professional Sports League Can Maximize The Revenue It Generates From Selling Broadcast Rights By Playing Enough Games Such That
A. Demand Equals Supply
B. Total Revenue Equals Total Costs
C. Marginal Revenue Equals Marginal Costs
D. Marginal Revenue Equals Total Costs
E. Total Revenue Equals Marginal Costs

61. If A Cartel Discovers That Its Marginal Revenue Is Greater Than Its Marginal Cost Of Production, The Cartel Should
A. Increase Production
B. Shut Down
C. Reduce Production
D. Hire Fewer Workers
E. Increase The Number Of Cartel Members

62. If A Cartel Discovers That Its Marginal Cost Is Greater Than Marginal Revenue, The Cartel Should
A. Increase Production
B. Shut Down
C. Reduce Production
D. Hire Fewer Workers
E. Increase The Number Of Cartel Members

63. Teams That Belong To Professional Sports Leagues Are
A. Cartel Members
B. In Business To Make A Profit
C. Monopsony Employers
D. All Of The Above
E. None Of The Above

64. Approximately What Percent Of Funding For Stadium Construction And Renovation Has Come From Public Sources In Recent Years?
A. 1
B. About 10
C. Less Than 20
D. Over 50
E. Nearly 100

65. According To Economist Andrew Zimbalist, The Jacksonville Jaguars Expansion Football Team Has An Economic Impact On The Local Area Comparable To A
A. New Department Store
B. Major Hurricane
C. Large Military Installation
D. State University
E. City Park

66. The Primary Benefits Of A Professional Sports Team Are
A. Massive Economic Development
B. Privately Funded
C. Salaries And Wages
D. Intangible
E. All Of The Above

67. When Professional Sports Leagues Seek To Achieve Parity, They Are Seeking
A. Fair Wages
B. Competitive Balance
C. Teams With An Athletic Advantage
D. Equal Marginal Revenue Product Across Teams
E. Homogeneous Views On League Policies

68. Which Of The Following Contributes To Monopsony Power In Professional Sports?
A. Player Mobility
B. Free Agency
C. Player Drafts
D. All Of The Above
E. None Of The Above

69. Which Of The Following Is The Best Economic Reason For Taxpayers To Support The Development Of Facilities For Professional Sports Teams?
A. The Intangible Spillover Benefits Of The Team, Such As Civic Pride
B. The Number Of Jobs That Will Be Created By The Team
C. The Economic Impact On The City Due To Ticket Sales
D. The New Taxes That Will Be Paid By The Players And Coaches
E. The Tourists That Will Visit Town While Attending Home Games

70. When Does A Firm Experience Monopsony Profits?
A. Only When The Marginal Cost Of Labor Is Greater Than The Marginal Revenue Product Of Labor
B. When The Total Revenue Exceeds The Marginal Cost Of Production
C. Only When The Marginal Revenue Product Of Labor Exceeds The Marginal Cost Of Labor
D. Only When The Firm Is A Member Of A Cartel
E. When The Firm Is A Monopoly In Its Product Market

True / False Questions

71. Professional Sports Clubs Are Businesses Operated For Profit.

72. Professional Sports Leagues, Like The Nfl, Were Formed By Teams In An Effort To Earn Greater Profits And To Ensure Survival.

73. All Professional Sports Clubs Must Operate Independently To Guarantee A Competitive Economic Environment.

74. Unlike Other Workers, It Is Difficult To Measure The Productivity Of A Professional Athlete.

75. When A Player Is Drafted By A Team, That Team Acquires The “Property Rights” To The Player’s Employment Contract.

76. In Football, New Players Can Sell Their Services To The Highest Bidding Nfl Team.

77. Tickets And Broadcast Rights To Baseball Games Are Bought And Sold In The Product Market.

78. A Cartel Exists When Firms Coordinate Their Actions In A Manner To Maximize Joint Profits.

79. Antitrust Laws Make Most Cartels Legal Forms Of Business In The United States.

80. The National Basketball Association Is A Cartel.

81. A Cartel Is A “Shared Monopoly.”

82. Prices And Output Are Greater With A Cartel Than Under Competition.

83. Profits Are More Equally Distributed In A Competitive Industry Than In An Industry Dominated By A Cartel.

84. Professional Sports Leagues Do Not Regulate The Employment Of Players By Member Teams.

85. A Monopsony Is A Single Buyer In A Resource Market.

86. The Immobility Of Players Between Teams And The Athletes’ Highly Specialized Skills Generate Monopsony Power For Professional Sports Clubs.

87. The Marginal Cost Of Labor Curve (Mcl) Represents The Change In A Firm’s Total Labor Cost Due To Selling An Additional Unit Of Output.

88. If A Player’s Mrp> Mcl, The Player Should Be Hired By The Team.

89. The Mcl Curve Lies Above The Supply Of Labor Curve And Is More Steeply Sloped.

90. A Monopsony Must Face The Market Supply Of Labor Schedule Because It Is The Only Employer In The Market.

91. A Firm Can Maximize Its Economic Position By Hiring Workers Up To The Point Where Mcl = Mrp.

92. A Monopoly Must Face The Market Supply Of Labor Schedule Because It Is The Only Employer In The Market.

93. Monopsony Profit Is The Difference Between A Worker’s Mrp And The Mcl.

94. Economic Analysis Suggests That A Free Agent Baseball Player Will Earn Less Than An Equally Talented Player Who Is Not A Free Agent.

95. Professional Athletes Do Not Earn Their Pay From An Economic Perspective.

96. A Strike Is A Work Stoppage Initiated By Management.

97. A Labor Union Bargains On Behalf Of Workers For Better Wages And Working Conditions.

98. Salary Caps Enforce Monopsonistic Employment Of Players Across Teams In A Professional Sports League.

99. A Recently Drafted Player Will Most Likely Command A Higher Salary Than A Free Agent.

100. Labor Disputes Are Rare In Professional Sports And Are Likely To Become Even Less Common.

101. Most Economists Argue That Professional Sports Teams Should Be Used As An Economic Development Tool For Local Communities.

102. The Public Relations Benefit Of A City’s Professional Sports Team Is Generally More Valuable Than The Number Of Jobs It Creates.

103. The Economic Impact Of A New Professional Sports Team On A City Is About The Same As A New Department Store.

104. Most New Stadiums And Arenas For Professional Sports Teams Are Privately Built, Without Support From Local Taxpayers.

105. Professional Sports Teams Tend To Relocate When There Is A Surplus Of Teams In Their League.

106. The Shortage Of Teams In Professional Sports Is The Primary Reason That Teams Relocate.

107. Economic Factors Cannot Explain Why Teams Relocate Between Cities.

108. As It Becomes Easier For Professional Football Players To Become Free Agents, Nfl Salaries Are Likely To Increase Over Time.

109. The Economic Factors That Cause Professional Sports Leagues To Expand Also Cause Some Existing Teams To Relocate.

110. The “Civic Pride” Enjoyed By A Major League City Has No Economic Value.

111. Free Agency Increases The Monopsony Power That Professional Sports Teams Exert Over The Players That They Hire.

112. If A Cartel’s Marginal Revenue Is Greater Than Its Marginal Cost, It Should Produce More.

113. By Belonging To A Cartel, A Firm Can Guarantee That Its Individual Profit Will Be Greater Than If It Engaged In Competition.

114. The Reserve Clause Helped To Raise The Salaries Of Professional Baseball Players.

115. For A Cartel, Joint Profit Is Maximized Where Marginal Revenue Equals Marginal Costs.

116. Professional Sports Leagues Are Both Cartels And Monopsonies.

117. College Athletes Who Enter The Major Leagues Are Always Hired By The Team That Is Willing To Pay The Highest Salary.

118. A Work Stoppage Initiated By Management Is Called A Lock-Out.

119. By Adding New Teams, Professional Sports Leagues Guarantee That Existing Member Teams Earn Greater Profits.

120. From An Economic Perspective, All Professional Athletes Are Overpaid.

ECO 405 Week 6 Quiz – Strayer University – *New*

ECO 405 Week 6 Quiz – Strayer

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Chapter 07

Poverty And Discrimination: Why Are So Many Still So Poor?

Multiple Choice Questions

1. The Government’s Method Of Calculating The Official Poverty Rate
A. Does Not Take Into Account Differences In The Cost Of Living In Different Parts Of The Country
B. Does Not Account For The Value Of In-Kind Benefits Received By Poor Families
C. Is Based On Pre-Tax Household Income
D. Does All Of The Above
E. Does None Of The Above

2. The Incidence Of Poverty Is Highest Among
A. Black Families
B. Families Headed By A Female
C. Young Families
D. White Families
E. Small Families

3. The Percentage Of The U.S. Population Living In Poverty
A. Shows A Long-Term Increase
B. Is Holding Steady Over The Long Run
C. Is Not A Serious Economic Problem
D. Decreased Significantly In The Past Decade
E. Fluctuates Dramatically From Year To Year

4. The Official U.S. Poverty Definition Is An Income Sufficient To Provide
A. Minimum Biological Needs
B. Three Times The Cost Of An Economy Food Budget
C. The Income Of The Poorest 8% Of The Families
D. The Average U.S. Welfare Allowance
E. None Of The Above

5. How Is The Official “Poverty Threshold” Calculated?
A. Determine The Minimum Income Necessary For A Family To Purchase Clothing And Shelter, And Then Multiply By Three
B. Determine The Minimum Income Necessary For A Family To Live At A “Subsistence Level” In A Rural Community
C. Determine The Amount Of Income Necessary For A Family To Live On Without Becoming Eligible For Food Stamps
D. Determine The Minimum Income Necessary For A Family To Purchase An Adequate Diet, And Then Multiply By Three
E. None Of The Above

6. Which Of The Following Demographic Groups Historically Has The Highest Incidence Of Poverty?
A. White, Married Couples With No Children Living At Home
B. Black Families, Headed By A Male Income Earner, With Children Living At Home
C. Female Headed Black Families With Children Living At Home
D. Hispanic Families In Rural Areas With Children Living At Home
E. White, Female Headed Families In Urban Areas With No Children Living At Home

7. Critics Have Argued That The Official Definition Of Poverty Should
A. Account For Differences In The Cost Of Living In Different Regions Of The Country
B. Be Revised To Reflect The Fact That The Average Family Now Spends Less Than A Third Of Its Income On Food
C. Make Allowances For In-Kind Benefits Received By Poor Families
D. Be Based On A Family’s After-Tax Income
E. All Of The Above

8. The Incidence Of Poverty Falls Most Heavily On
A. Families With A Young Person As Head
B. Families With A Female As Head
C. Minority Groups
D. Children
E. All Of The Above

9. Most Poor People Are Poor Because They
A. Are Lazy
B. Are Exploited
C. Own Resources That Are Not Worth Much
D. Are Old
E. Are All Of The Above

10. Poverty In The Us Occurs As A Result Of
A. Inadequate Gdp
B. A Shortage Of Resources
C. The Occurrence Of Wars And Natural Disasters
D. Unequal Distribution Of Income
E. None Of The Above

11. Since 1960, Income Inequality Has
A. Stayed The Same
B. Fallen, Then Risen
C. Steadily Declined
D. Steadily Increased
E. Decreased Rapidly

12. The Distribution Of Income Among Persons Is Determined By
A. The Distribution Of Resource Ownership
B. The Prices Paid For Resources Of Different Kinds In Different Employments
C. Government Income-Support Programs
D. Both (A) And (B).
E. All Of The Above

13. Which Of The Following Statements Is Concerning Income Equality?
A. The Share Of Income Received By The Top 5% Remained Declined Between 1960 And 2000
B. The Share Of Income Received By The Top 5% Increased By About 20% Between 1960 And 2000
C. The Share Of Income Received By The Lower 20% Of Families Increased Significantly Between 1960 And 2000
D. The United States Has Achieved Income Inequality
E. None Of The Above

14. The Official “Poverty Threshold” Used By The U.S. Government Is Based On A(N) ______________ Definition Of Poverty.
A. Relative
B. Comparative
C. Absolute
D. Abstract
E. Economic

15. A Number Of Reasons Have Been Given To Explain Increasing Income Inequality In The Us Over The Last Few Decades. One Of These Is
A. The Decline Of The Us Manufacturing Sector
B. The Growth Of Unionization Through The Us
C. Increases In Tax Rates On The Wealthy
D. Improvements In Productivity
E. The Use Of Computers In The Workplace

16. The Ownership Of Capital Resources Varies Widely Among Individuals. Which Of The Following Is Not A Reason For This Variation?
A. Ethnic Background
B. Inheritance
C. Motivation To Accumulate
D. Luck
E. All Of The Above

17. Which Of The Following Best Describes The Trend In The Share Of Income Received By The Lowest 20% Of Families In The United States? The Lowest 20% Of Families Receive
A. 15% Of The Income, And Their Share Has Been Rising Since Wwii
B. 25% Of The Income, And Their Share Has Been Falling Since The 1960s
C. Less Than 5% Of The Income, And Their Share Has Been Slowly Declining Since The 1970s
D. A Share Of Income Approximately Equal To That Received By The Top 20% Of Families, And Their Share Has Remained Stable Since The 1960s
E. 10% Of The Income, But Their Share Has Been Falling Since Wwii

18. Skill Levels Vary Among Individuals Because Of
A. Differences In Location
B. Differences In Education And Training
C. The Industry The Person Works In
D. The Capital Labor Ratio In The Economy
E. All Of The Above

19. Why Might An Individual’s Labor Resource Holdings Differ?
A. Mental Talents Are Not Equally Distributed Among People
B. Physical Talents Are Not Equally Distributed Among People
C. People Have Different Preferences For Income And Leisure
D. Skill Levels Vary Among Individuals
E. All Of The Above

20. The Income Of A Person Depends On
A. The Price Of Labor Owned
B. The Quantity Of Labor Owned
C. The Quantity Of Capital Owned
D. All Of The Above
E. None Of The Above

21. Which Of The Following Results In Differences In Labor Resource Ownership?
A. Preferences For Work And Leisure
B. Propensities To Accumulate
C. Skill Levels
D. Both (A) And (C)
E. All Of The Above

22. Which Of The Following Factors Contribute To Differences In Labor Resource Ownership Between People?
A. Unequal Mental And Physical Genetic Inheritances
B. Differences In Skills Due To Human Capital Investments
C. Differences In Attitudes Toward Working
D. All Of The Above
E. None Of The Above

23. Which Of The Following Could Reduce Poverty?
A. Eliminating Discrimination In Educational Policies
B. Increasing The Productivity Of Poor Workers
C. A Negative Income Tax Structure
D. Education And Training Programs For The Poor
E. All Of The Above

24. A Government Transfer Payment Is A Payment
A. Made To Transfer Workers Form One Area To Another
B. To A Person Not In Return For Goods Or Services
C. Made To A Person Who Works For The Government
D. For Roads Built By The Government
E. Made To Move Troops From One Combat Area To Another

25. An Advantage Of The Negative Income Tax Proposal Is That
A. It Would Allow For The Free Exercise Of Consumer Choice
B. A Family’s Size Would Be The Fundamental Criterion Of Eligibility
C. It Would Be Favored By Middle-Income Groups
D. Inequalities In Present Antipoverty Programs Would Be Eliminated By Concentrating Transfer Payments On The Poor
E. None Of The Above

26. Under A Negative Income Tax, Government Payments To A Family
A. Are Positive At All Levels Of Income
B. Increase As Income Increases
C. Decrease To Zero As Income Decreases
D. Eventually Become Zero As Income Increases
E. Do None Of The Above

27. One Of The Problems In Paying Subsidies To The Poor Is That
A. It May Reduce Incentives To Work
B. The Poor Will Not Spend It On The Right Things
C. It Will Cause Inflation
D. It Will Require A Cutback In The Farm Price Support Programs
E. It Will Do None Of The Above

28. An Advantage Of Replacing All Income-Support Programs With A Negative Income Tax Is That
A. It Discourages Low-Income Workers From Working More
B. Households With Income Above The Poverty Threshold Pay Positive Taxes
C. It Is More Difficult To Administer Than Other Antipoverty Programs
D. Households Lose Benefits When They Choose To Work
E. All Of The Above

29. Under A Negative Income Tax,
A. Only The Poor Would Receive Negative Taxes
B. We Would Experience A Loss In Efficiency Relative To The Current Public Assistance Programs
C. The Recipients Of Government Subsidies Are Encouraged To Earn Income
D. Both (A) And (C)
E. All Of The Above

30. Families Are Not Eligible For The Earned Income Tax Credit (Eitc) Program When
A. Household Income Is Greater Than $34,700
B. No One In The Household Works
C. The Household Has No Children
D. The Household Receives Food Stamps
E. The Household Owns Its Own Home

31. The Supplemental Social Insurance (Ssi) Program Is Not Available To
A. Households With Children
B. Elderly Households
C. The Blind And Other Disabled Individuals
D. Households Comprised Of Illegal Residents
E. It Is Available To All Of The Households Listed Above

32. Which Of The Following Statements Is Concerning The Earned Income Tax Credit (Eitc)?
A. The Eitc Is A Non-Refundable Credit That Can Be Claimed By Poor Families With Children
B. The Eitc Lifts Many People Out Of Poverty, But It Does Not Change Official Poverty Rates
C. The Eitc Is A Negative Income Tax Scheme
D. The Eitc Was Introduced As Part Of The Welfare Reform Measures Enacted During The Mid-1990s
E. None Of The Above

33. Medicare, Medicaid, And Food Stamps Are Examples Of Programs That Provide
A. “In-Kind” Assistance To The Poor
B. Guaranteed Levels Of Income For The Poor
C. Training And Job Experience For The Poor
D. Income Transfers From The Poor To Business Firms
E. Non-Economic Support Of The Poor

34. Most Federal Assistance To The Poor Is In The Form Of
A. Cash Payments
B. Provision Of Health Services
C. Personnel Programs
D. Training Programs
E. Housing Programs

35. Under The Jtpa, The Federal Government Gave Money To States For Programs That Provided
A. Guaranteed Income Support For The Poor
B. Employment Training For Disadvantaged Workers
C. “In-Kind” Assistance Such As Food Stamps And Health Care For The Poor
D. Guaranteed Child Care Facilities For Poor Working Mothers
E. College Scholarships For Children From Impoverished Households

36. In 1996, The Personal Responsibility And Work Opportunity Act Established Which Of The Following Programs?
A. Food Stamps
B. Medicaid And Medicare
C. Aid To Families With Dependent Children (Afdc)
D. Temporary Assistance For Needy Families (Tanf)
E. Supplemental Security Income (Ssi)

37. Which Of The Following Effects Creates An Incentive For Poor Workers To Reduce Their Hours Of Work When They Receive Cash Assistance?
A. Income
B. Substitution
C. Lorenz
D. Supply
E. Welfare

38. The Record-Breaking Economic Expansion In The 1990s
A. Reduced Significantly The Incidence Of Poverty
B. Increased Incidence Of Poverty
C. Did Not Alter Significantly The Incidence Of Poverty
D. Led To A Change In How Poverty Is Calculated
E. Did None Of The Above

39. Income Support Programs Have
A. Had No Effect In Alleviating The Problem Of Poverty
B. Provided A Minimum Level Of Income To Millions Of People
C. Been Completely Unsuccessful
D. Actually Led To Increased Poverty
E. Done None Of The Above

40. Which Of The Following Statements Concerning The Earned Income Tax Credit (Eitc) Is ?
A. The Eitc Has Significantly Reduced Official Poverty Rates In The U.S. Since Enacted In 1975
B. If A Family’s Tax Liability Is Less Than Its Eitc, The Family Will Receive A Check For The Difference From The Irs
C. The Eitc Is Eventually Phased Out As Family Income Increases
D. More Than 20 Million American Households Now Claim The Eitc On Tax Returns Each Year
E. None Of The Above

41. Critics Have Claimed That The Eitc
A. Creates An Incentive For Families To Have Fewer Children
B. Causes Poor Families With Children To Pay More In Taxes Than Poor Families Without Children
C. Creates A Disincentive To Work For Those Who Find Themselves In The Phase-Out Range Of Income Eligibility
D. Distorts The Economic Incentives For Poor Families To Work Their Way Out Of Poverty
E. Does None Of The Above

42. Unlike The Old Afdc Program Of Income Support, Tanf Requires Recipients To
A. Be Physically Unable To Work Or Go To School
B. Be Retired
C. Be Women With Children Living At Home
D. Work
E. Be Blind Or Disabled

43. Which Of The Following Statements About The New Welfare System Is ?
A. Recipients Have No Time Limits On How Long They Can Receive Income Support
B. In General, Non-Citizens Do Not Qualify For Most Public Support Programs
C. Single Mothers Must Help Officials Identify The Fathers Of Their Dependent Children
D. Time Limits Are Imposed On The Receipt Of Food Stamps
E. States Determine If Tanf Recipients Qualify For Medicaid Assistance

44. According To Recent Studies, Which Of The Following Programs Is Most Likely To Pull The Average Poor Family Above The Official Poverty Threshold?
A. Earned Income Tax Credit (Eitc)
B. Temporary Assistance For Needy Families (Tanf)
C. Supplemental Security Income
D. Aid To Families With Dependent Children (Afdc)
E. The Job Training Partnership Act (Jtpa)

45. Which Of The Following Describes The Earned Income Tax Credit (Eitc)?
A. All Poor Families With Children Are Eligible For A Non-Refundable Tax Credit Based On The Number Of Children Living At Home
B. Poor Families With Two Or More Children Are Eligible For A Refundable Tax Credit If Household Income Is Less Than Some Predetermined Threshold. Beyond The Threshold, The Credit Is Gradually Phased Out
C. Poor Families Without Children Receive A Non-Refundable Tax Credit If Household Income Is Less Than Some Predetermined Threshold. Beyond The Threshold, The Credit Is Gradually Phased Out
D. Poor Families With Household Income Below A Predetermined Threshold Receive A Refundable Tax Credit Equal To A Guaranteed Minimum Income. Above That Threshold, All Households Must Pay Taxes
E. None Of The Above

46. Which Of The Following Problems Arise From The Earned Income Tax Credit (Eitc)?
A. In The Phase-Out Range Of Income, Workers May Experience A Disincentive To Work
B. The Eitc May Cause Some Households To Falsely Claim The Refundable Credit
C. It Is Too Complicated And Cumbersome
D. All Of The Above
E. None Of The Above

47. Suppose A Male And Female Teacher Have The Same Education And Experience, But The Female Is Paid More For Teaching The Same Course. This Would Indicate That
A. The Female Must Be More Productive
B. The Female Works Harder Than The Male
C. The Employer Is Male
D. The Employer Is Female
E. Discrimination May Exist

48. Ending Discrimination Against Minority Groups In Educational Processes And In Employment Situations Would Cause Gdp To
A. Fall Because Of The Increased Costs Of Training
B. Fall Since Trained Minority Workers Would Knock Some Of The Present Workers Out Of Their Jobs
C. Rise Because Of An Increase In The Quality And Productivity Of The Labor Force
D. Rise Because Minority Groups Would Consume More Goods And Services
E. Do None Of The Above

49. Discrimination Occurs
A. When Everyone Is Treated Arbitrarily
B. When Equals Are Treated Equally And When Unequals Are Treated Unequally
C. When Equals Are Treated Unequally And When Unequals Are Treated Equally
D. Whenever Two Workers In The Same Occupation Are Paid Different Wages
E. Only In Social Situations, Not In Economic Markets

50. Median Earnings Of Year-Round, Full-Time Women Workers Are Considerably Less Than Those For Men Because Women Have
A. Lower Productivity In Jobs
B. Higher Absence Rates
C. Less Permanent Attachment To Jobs
D. A Different Distribution Among Various Occupations
E. None Of The Above

51. From The Point Of View Of Economics, Discrimination
A. Results In An Actual Gdp That Is Below Potential Gdp
B. Results In An Actual Gdp That Is No Different From Potential Gdp Provided Resources Are Fully Employed
C. No Longer Exists In The U.S. Economy
D. Provides Incentives For Minority Groups To Work Harder At Their Jobs
E. Does None Of The Above

52. In The Past, Women Were Usually Taught Early In Life To Believe Their Economic Role Was Unimportant. The Effect Of This Was To
A. Freeze The Wages Of Women
B. Reduce The Mobility Of Women
C. Segregate Women To Certain Occupations
D. Enhance The Productivity Of Males
E. Do All Of The Above

53. Discrimination Is Indicated When
A. Whites Are Paid More Than Blacks
B. People Having Equal Productivity Receive Unequal Pay
C. Incomes Differ Between Males And Females
D. People Are Treated Differently On The Basis Of Individual Merit
E. Older Workers Are Paid More Than Younger Workers

54. Discrimination Occurs Because
A. Some People Have The Power To Discriminate
B. People Are Just Not Aware Of It
C. People Have The Desire To Discriminate
D. All Of The Above
E. Only (A) And (C)

55. Which Of The Following Does Not Exhibit A High Degree Of Occupational Segregation?
A. Professional Tennis Players
B. Plumbers
C. Secretaries
D. Teachers
E. Nurses

56. Spending On Education, Training, And Health Are Examples Of
A. Nonmarket Discrimination
B. Investments In Human Capital
C. Welfare
D. Transfer Payments
E. None Of The Above

57. Discrimination Means That
A. Equals Are Treated Unequally
B. Unequals Are Treated Unequally
C. Equals Are Treated Equally
D. Individuals Are Treated Differently
E. All Of The Above

58. Major Sources Of Discrimination Include
A. Competitive Markets
B. Low Wages
C. Labor Mobility
D. Scarce Labor Market Information
E. All Of The Above

59. Discrimination May Be Reduced By
A. Government Subsidies
B. Investment In Human Capital
C. Vigorous Enforcement Of Antimonopoly Laws
D. Education Related To Tastes For Discrimination
E. All Of The Above

60. Suppose That Group Z Workers Earn Only 75% Of What Group A Workers Earn. Discrimination Is
A. Equal To 25%
B. Equal To The Portion Of The Gap Created By Differences In Personal Characteristics
C. Equal To The Portion Of The Gap That Cannot Be Explained By Productivity Differences Between The Groups
D. Readily Apparent Between The Two Groups
E. Subject To A Variety Of Different Economic Measurements

61. The Major Piece Of Legislation That Makes It Illegal To Discriminate In The Labor Market On The Basis Of Race, Gender, Or Religion Is The
A. Anti-Discrimination In Employment Act (Adea)
B. Civil Rights Act Of 1964
C. Affirmative Action Act
D. Sherman Anti-Trust Act
E. Equal Employment Opportunity Act

62. What Is The Primary Source Of An Individual’s Taste For Discrimination?
A. Monopoly Power
B. The Law Of Diminishing Returns
C. Personal Prejudice
D. Market Imperfections
E. None Of The Above

63. Which Of The Following Is Charged With Enforcing The Federal Government’s Anti-Discrimination Laws?
A. The Ofcc
B. The Bureau Of Labor Statistics
C. The U.S. Department Of Justice
D. The Eeoc
E. The U.S. Senate

64. The Civil Rights Act Of 1964 Protects Workers From Discrimination Based On All The Following Characteristics Except One? Which One?
A. Race
B. Color
C. Gender
D. Religion
E. Age

65. Which Of The Following Minority Groups Is Not Covered By The Civil Rights Act Of 1964?
A. Black Workers
B. Female Workers
C. Older Workers
D. Jewish Workers
E. None Of The Above – All Of These Groups Are Covered

66. Which Of The Following Factors Contributes To Wage Differentials In Our Economy?
A. Workers Exhibit Different Degrees Of Experience And Skill
B. Some Workers Are More Productive Than Others
C. The Level Of Demand Varies Across Markets For Different Products
D. Prices Of Different Products Vary Tremendously In A Market Economy
E. All Of The Above

Questions 67- 71 Refer To The Information Given Below.
Suppose The Government Implements A Negative Income Tax Plan To Deal With The Poverty Problem. The Negative Income Tax Rate Is Set At 50%, And The Break-Even Level Of Income Is Set At $5,000.

67. The Guaranteed Annual Income Level Assured Each Family, Regardless Of The Amount Of Income Earned By The Family Is
A. $0
B. $1,500
C. $2,500
D. $5,000
E. $7,500

68. If A Family Earns $2,000 Income, Their Negative Income Tax Subsidy Will Be
A. $0
B. $1,500
C. $2,500
D. $5,000
E. $7,500

69. If The Negative Income Tax Rate Were Reduced From 50% To 40% While The Guaranteed Income Level Is Held Constant, The Cost Of The Plan Would
A. Increase
B. Decrease By More Than 10%
C. Decrease By 10%
D. Not Change
E. Not Be Able To Be Determined

70. If A Family Earns $5,000 Income, Their Negative Income Tax Subsidy Will Be
A. $0
B. $1,500
C. $2,500
D. $5,000
E. $7,500

71. If A Family Earns $3,000 Income, Their Disposable Income Is
A. $3,000
B. $4,000
C. $5,000
D. $6,000
E. $8,000

True / False Questions

72. The Incidence Of Poverty As It Is Officially Defined In The United States Is High Among Rural People And Southern People.

73. A Problem Arising From Transferring Income To The Poor Is That It May Reduce Their Incentive To Work.

74. Within The Next Three Years, The Elimination Of Poverty, As Currently Defined By The U.S. Department Of Labor, Is Possible In All Countries If The Rich Countries Help Out The Poor Ones.

75. The Earned Income Tax Credit (Eitc) Lifts Millions Of People Out Of Poverty Each Year.

76. The Earned Income Tax Credit (Eitc) Results In A Reduction In The Official Number Of People Living Below The Poverty Threshold.

77. The Social Security System Makes Payments To Individuals Over 65 Years Of Age, On The Basis Of Need.

78. The Unequal Distribution Of Income In The United States Is Due To An Unequal Distribution Of Resource Ownership.

79. In A Private Enterprise System A Sound Comprehensive Antipoverty Program Must Include Measures To Increase The Productivity Of The Poor.

80. Transfers Of Income To The Poor Sufficient To Eliminate Poverty Are Not Possible In The United States Without Substantially Decreasing The Well-Being Of All Taxpayers.

81. A Government Transfer Payment Is A Payment For Which No Goods Or Services Are Rendered By The Person Receiving It.

82. Poverty Is More Widespread Among Black Families Than Among White Families.

83. The Poverty Problem In The United States Is Essentially An Income Distribution Problem.

84. An Individual’s Income Depends Upon The Prices And Quantities Of Resources Owned.

85. Most Government Transfer Payments Go To Families That Live In Poverty.

86. Costs To Taxpayers Of A Negative Income Tax Plan Vary Inversely With The Guaranteed Level Of Income And Directly With The Income Tax Rate On Earned Income.

87. The Incidence Of Poverty Is Highest Among Minority Groups, The Young, The Aged, And The Uneducated.

88. Family Income In The United States Has Become More Equal Over The Last Forty Years.

89. The Negative Income Tax Proposal Calls For Families With Earned Incomes Below A Certain Minimum To Receive Payments From The Government, While Families With Earned Income Above The Minimum Make Payments To The Government.

90. Income Support Programs Designed To Alleviate Poverty Have Mitigated The Economic Hardship Of Low-Income Families And Individuals.

91. The Official Poverty Level For A Family Of Four Is Defined As The Cost Of The Family’s Food Budget Times Three.

92. The Poverty Problem In This Country Is Mainly One Of Low Production.

93. The Distribution Of Income Depends Upon The Distribution Of Resource Ownership And The Prices Paid For Resources In Different Kinds Of Employment.

94. Income Tax Cuts In The 1980’s And In The Early 2000’s Had No Impact On The Distribution Of Income.

95. The Aim Of Job Creation Programs Is To Increase The Number Of Jobs For The Poor And Disadvantaged In Private Industry And Government.

96. Jtpa Stands For The Job Training Partnership Act.

97. The Primary Objectives Of The Food Stamp Program Are To Improve The Diets Of Low-Income Families And To Increase The Demand For Food Products.

98. The Poverty Level Of Income Is Defined As Being Five Times The Minimum Food Budget For An Urban Family Of Four.

99. Some Workers Receive Higher Incomes Because They Have Greater Physical Strength, Have Greater Training Or Are Working In Industries Where The Value Of The Product Produced Is Greater.

100. The Poverty Problem In The United States Is Essentially A Problem Of Laziness.

101. The Eitc Is A Refundable Tax Credit Administered By The Irs.

102. During The Last Few Decades, The Income Shares Of The Low, Middle, And High Income Groups Have Changed Significantly.

103. In 1996, The Personal Responsibility And Work Opportunity Act Replaced The Old Afdc Program With The Tanf Program.

104. Through The Income Effect, Any Form Of Cash Assistance Will Generate Negative Incentives To Work.

105. No Work Requirement Is Placed On Those Who Receive Tanf Income Support Payments.

106. The Welfare Reform Measures Of The Mid-1990s Eliminated The Time Limits For Receipt Of Food Stamps By Poor Families.

107. Under The Tanf Program, Most Welfare Recipients Are Required To Work After Two Years Of Assistance.

108. The Income Effect Creates An Incentive For Welfare Recipients To Increase Their Earnings Through Extra Work.

109. In Most Cases, New Immigrants And Illegal Aliens Are No Longer Eligible To Receive Welfare Benefits.

110. The Welfare Reform Measures Of The Mid-1990s Created A Negative Income Tax Structure In The U.S. To Assist The Poor.

111. The Welfare Reforms Enacted In 1996 Places A Maximum Time Limit On The Number Of Years That A Welfare Recipient May Receive Income Support.

112. Relative Poverty Will Always Exist In A Market-Based Economy.

113. Even Though The Earned Income Tax Credit (Eitc) Incorporates Some Of The Features Of A Negative Tax Structure, It Is Not A Pure Negative Income Tax.

114. The Official Poverty Statistics For The U.S. Do Not Take Into Account The Differences In The Cost Of Living In Different Regions Of The Country.

115. The Primary Source Of An Individual’s Desire To Discriminate Is Personal Prejudice.

116. Discrimination Means That Equals Are Treated Unequally Or That Unequals Are Treated Equally.

117. Discrimination Exists In A Labor Market When Persons With Different Productivity Levels Are Paid Different Wages.

118. Differences In The Wages And Incomes Received By Males And Females Are Sufficient Evidence That Discrimination Exists.

119. Discrimination Is Present In The Cases Of Southern Textile Workers Being Paid Less Than Their Northern Counterparts.

120. Discrimination Exists When Two People Perform A Job Equally Well In A Factory And Receive Different Hourly Pay Because Of Seniority Considerations.

121. Employment Discrimination Means That Some Persons Are Not Hired Because Of Non-Economic Considerations Such As Race And Sex.