Question 1

Fiscal policy is the use of ____________ intervention as a tool to influence economic decisions and outcomes.
A)private enterprise
B)federal reserve
C)central bank
D)government

Accepted Answer

Fiscal policy is the use of government intervention as a tool to influence economic decisions and outcomes.
Key Takeaway: Governments intervene in their economies through fiscal policy. From maintaining unemployment figures at certain levels, legislating trade, and controlling money supply and inflation, fiscal policy aims to regulate economic activity. Fiscal policies are also used to provide less common interventions such as bailouts.

Question 2

To increase the money supply in the United States, the Federal Reserve:
A)buys government bonds from the public
B)sells government bonds to the public
C)buys government bonds from private enterprises
D)sells government bonds to private enterprises

Accepted Answer

To increase the money supply in the United States, the Federal Reserve buys government bonds from the public.
Key Takeaway: The main way in which the Federal Reserve controls the money supply in the United States is through government bonds using newly printed money. To increase the money supply, the Reserve buys government bonds from the public. Conversely, to decrease the money supply, it sells those bonds to the public.

Question 3

The loanable funds ________ brings savers and borrowers together to finance expenditures.
A)process
B)market
C)portfolio
D)legislation

Accepted Answer

The loanable funds market brings savers and borrowers together to finance expenditures.
Key Takeaway: A loanable funds market facilitates the availability of funds to finance expenditures such as consumption or investment to borrowers. Savers provide the money or the loanable funds to the borrowers through the sale of bonds, for example, and the borrowers use that to consume goods or services or investments.

Question 4

Despite the unemployment rate hovering around 9.8% in the United States for the past 18 months, the rate of inflation has increased. The main reason for this inflation increase is:
A)an expectation of higher inflation
B)an expectation of higher unemployment
C)an expectation of lower prices
D)an expectation of lower interest rates

Accepted Answer

The main reason for this inflation increase is an expectation of higher inflation.
Key Takeaway: Despite an unemployment rate remaining constant, inflation rates increase due to an expectation of higher inflation in the future. Employers set a higher nominal wage in response to this expectation which, in turn, leads to an increase in price levels. This increase in price levels leads to a real increase in inflation rates.

Question 5

The main difference between nominal and real interest rates is that the latter accounts for:
A)lenders' fees
B)international tariffs
C)competition
D)inflation

Accepted Answer

The main difference between nominal and real interest rates is that the latter accounts for inflation
Key Takeaway: When calculating real interest rates, the lender is compensated for loss of value through a consideration of inflation. The relationship between the two can be described in this equation: real interest rate = nominal interest rate - calculated inflation. In many cases, the inflation component of future interest rates can only be estimated and those estimates may or may not be equivalent to the real inflation amounts.

Question 6

Expansionary monetary policy decreases interest rates in the short run. What is the effect of expansionary monetary policy in the medium run?
A)positive
B)neutral
C)negative
D)depends on GDP

Accepted Answer

Expansionary monetary policy is neutral on interest rates in the medium run.
Key Takeaway: Expansionary monetary policies are those policies implemented by governments to increase the size of the money supply in a country. While such policies decrease interest rates in the short run (thereby increasing investment and output), they are neutral in the medium run as they are offset by a contraction in the real value of money.

Question 7

The current administration in the White House is interested in stimulating the economy through support of small and medium-sized enterprises. Using supply-side economics, the administration can:
A)lower taxes
B)lower interest rates
C)increase imports
D)lower unemployment

Accepted Answer

Using supply-side economics, the administration can lower taxes.
Key Takeaway: Supply-side economics argues that growth in the economy can be stimulated by encouraging the supply side of the equation (production of goods). One way of doing so is to reduce taxes for small and medium-sized enterprises to help them purchase equipment and hire employees.

Question 8

Local retailers in a small Midwestern city have been accused of price stickiness despite the recent availability of cheaper imports. The following are reasons behind price stickiness EXCEPT:
A)imperfect information
B)money illusion
C)local bias
D)menu costs

Accepted Answer

Local bias is not a reason behind price stickiness.
Key Takeaway: Stickiness refers to instances in economics where price, as a variable, does not change as it should in reaction to changing circumstances. Among the reasons for price stickiness are imperfect information, money illusion, and menu costs. Price stickiness can mean an end to business viability; for example, local retailers in a city must adapt their prices to compete with cheaper imports or else they risk losing the business altogether.

Question 9

Over the past 8 years, the Zimbabwean currency has lost 90% of its value. This is an example of the ____________ effects of inflation on a local economy.
A)retroactive
B)sliding
C)positive
D)negative

Accepted Answer

Loss of currency value is an example of the negative effects of inflation on a local economy.
Key Takeaway: When a currency loses its value, it diminishes purchasing power and has adverse effects on local economies. High inflation rates can lead to a local currency losing a great deal of its value if not kept in check. For example, a country with a collapsed agricultural output such as Zimbabwe will find its local currency devalued so much that it is rendered worthless for individuals to purchase goods and services.

Question 10

Economics is the study of how people:
A)allocate societal resources by purchasing goods and services
B)gain access to local and foreign markets
C)produce goods and services at the lowest production costs
D)make profits and reduce unemployment

Accepted Answer

Economics is the study of how people allocate societal resources by purchasing goods and services.
Key Takeaway: Economics is the study of how a society produces, distributes and consumes goods and services. Economic analysis is conducted throughout a number of disciplines including politics, business, education, sociology, law and health.

Question 11

Economic pundits are predicting that local construction markets will most likely experience an increase in steel prices of nearly 20% in the coming 48 months. This is due to a shortage of available steel which will not be enough for all the needs of projected construction companies. What is this an example of?
A)uncontrolled greed
B)under-planning
C)scarcity
D)over-consumption

Accepted Answer

This is an example of scarcity.
Key Takeaway: Scarcity occurs when available resources are not enough for all wants and needs. In this example, the shortage of steel in the construction industry threatens constructions projects. Within an economic system, scarcity is implicated in price fluctuations.

Question 12

In lowest income neighborhood grocery stores, consumers are limited to one or two breakfast cereals which they can purchase. This is a limitation in:
A)caloric variety
B)choice
C)opportunity
D)over-consumption

Accepted Answer

This is a limitation in choice.
Key Takeaway: Consumer purchase decisions drive a large segment of economic activity within a society. Purchasing decisions are limited, in many instances, by the choices available to consumers such as the number of breakfast cereals available at a grocery store. Large markets with consumers that possess significant resources will offer greater choices in products and services than smaller markets and limited resources.

Question 13

What is the main difference between the two sub disciplines in economics: microeconomics and macroeconomics?
A)microeconomics study goods while macroeconomics study services
B)microeconomics study individuals while macroeconomics study corporations
C)microeconomics study allocation of resources while macroeconomics study economies as a whole
D)microeconomics study local markets while macroeconomics study international markets

Accepted Answer

Microeconomics is the study of resource allocations while macroeconomics study economies as a whole.
Key Takeaway: The behavior of individual consumers in purchasing goods and services as well as the behavior of business in a society comprises the sub discipline of microeconomics. The overall behavior of entire economies and industries such as a Gross National Product (GDP) comprise the sub discipline of macroeconomics.

Question 14

Alchem factories are offered competitive pricing by two competing processors of raw goods. Managers at the factory opt for the first company based on price despite the second company offering free shipping. The value given up in shipping costs is an example of a(an):
A)opportunity incentive
B)substitute cost
C)substitute incentive
D)opportunity cost

Accepted Answer

Opportunity cost is the value given up in shipping costs.
Key Takeaway: An opportunity cost is the value given up by a consumer when one product or service is chosen over another. Consumers like to narrow or minimize opportunity costs as much as possible which is the reason behind careful bidding and evaluation of goods.

Question 15

The following question is likely to NOT result from positive economics:
A)how much will a new shipping tax increase oil prices?
B)will an increase in health insurance premiums lower wages in mid-sized companies?
C)should the state increase the eligibility bracket for workers' compensation?
D)why is the price of free chlorine $8.50 per container?

Accepted Answer

Should the state increase the eligibility bracket for workers' compensation? This is not an example of positive economics.
Key Takeaway: Positive economics study the way the world is while normative economics study the way the world should be. Given that, questioning whether the state should increase the eligibility bracket for workers' compensation is not an example of positive economics.

Question 16

Comparative advantage is the ability to produce a specific good or service at:
A)lower opportunity cost
B)higher opportunity cost
C)lower tax threshold
D)higher tax threshold

Accepted Answer

Comparative advantage is the ability to produce a specific good or service at a lower opportunity cost.
Key Takeaway: When a manufacturer or a producer is able to generate a specific good or service at a lower opportunity cost than another producer, this is referred to as comparative advantage. Comparative advantage, thus, is the ability to produce a good or service efficiently given all the other goods or services that could be produced.

Question 17

Which of the following basic concepts are illustrated by a Production Possibilities Curve?
A)efficiency, raw materials availability, prices
B)efficiency, opportunity costs, production rate
C)scarcity, taxation level, prices
D)scarcity, opportunity costs, prices

Accepted Answer

A Production Possibilities Curve illustrates efficiency, opportunity costs, and production rate.
Key Takeaway: A Production Possibilities Curve (PPC) illustrates the different rates of production of two goods given limited resources. The PPC shows the efficiency, opportunity costs and production rates of the two goods. The PPC also shows the maximum obtainable amount that is produced for both products under certain circumstances.

Question 18

In the quantity theory of money, what does the (P) stand for as seen in the equation below? MV = PY
A)period
B)peak
C)product
D)price

Accepted Answer

The P stands for Price
Key Takeaway: In the above equation M stands for quantity of money, P is the price level, Y is the aggregate output and V is velocity or the number of times in a year that a dollar is spent on goods and services. The quantity theory of money states that the money supply has a positive relationship with price levels in an economic system. As the money supply increases, price levels increase as well.

Question 19

Bonds are IOUs or certificates of debts between lenders and borrowers. The following are characteristics of bonds EXCEPT:
A)term
B)profit margin
C)credit risk
D)tax treatment

Accepted Answer

Profit margin is not a characteristic of bonds.
Key Takeaway: Bonds have a number of characteristics such as term or the length of time until they mature. They also carry a credit risk which is the chance that the borrower will fail to pay a portion of the principal or interest. Bonds also have unique tax laws that govern how much tax is collected on the interest.

Question 20

Prescription drug retailers typically offer lowered prices for seniors in order to keep and maintain their loyalty. What is this practice called?
A)second degree price discrimination
B)third degree price discrimination
C)fourth degree price discrimination
D)price stickiness

Accepted Answer

This is called third degree price discrimination.
Key Takeaway: When producers and retailers offer different prices on the same goods to different customer segments, this is referred to as third degree price discrimination. Students, seniors, and military personnel may typically find themselves paying different prices for the same goods and services than individuals who are not in those categories.

Quiz 3: Economics

Fiscal policy is the use of ____________ intervention as a tool to influence economic decisions and outcomes.

To increase the money supply in the United States, the Federal Reserve:

The loanable funds ________ brings savers and borrowers together to finance expenditures.

Despite the unemployment rate hovering around 9.8% in the United States for the past 18 months, the rate of inflation has increased. The main reason for this inflation increase is:

The main difference between nominal and real interest rates is that the latter accounts for:

Expansionary monetary policy decreases interest rates in the short run. What is the effect of expansionary monetary policy in the medium run?

The current administration in the White House is interested in stimulating the economy through support of small and medium-sized enterprises. Using supply-side economics, the administration can:

Local retailers in a small Midwestern city have been accused of price stickiness despite the recent availability of cheaper imports. The following are reasons behind price stickiness EXCEPT:

Over the past 8 years, the Zimbabwean currency has lost 90% of its value. This is an example of the ____________ effects of inflation on a local economy.

Economics is the study of how people:

In lowest income neighborhood grocery stores, consumers are limited to one or two breakfast cereals which they can purchase. This is a limitation in:

What is the main difference between the two sub disciplines in economics: microeconomics and macroeconomics?

Alchem factories are offered competitive pricing by two competing processors of raw goods. Managers at the factory opt for the first company based on price despite the second company offering free shipping. The value given up in shipping costs is an example of a(an) :

The following question is likely to NOT result from positive economics:

Comparative advantage is the ability to produce a specific good or service at:

Which of the following basic concepts are illustrated by a Production Possibilities Curve?

In the quantity theory of money, what does the (P) stand for as seen in the equation below? MV = PY

Bonds are IOUs or certificates of debts between lenders and borrowers. The following are characteristics of bonds EXCEPT:

Prescription drug retailers typically offer lowered prices for seniors in order to keep and maintain their loyalty. What is this practice called?