Page 1 Question 1. 1. (TCO 1) Opportunity cost is best defined as (Points : 4) marginal cost minus marginal benefit. the time spent on an economic activity. the value of the best forgone alternative. the money cost of an economic decision. Question 2. 2. (TCO1) Money is not considered to be an economic resource because (Points : 4) as such, it is not productive. money is not a free gift of nature. money is made by man. idle money balances do not earn interest income. Question 3. 3. (TCO1) A point outside the production possibilities curve is (Points : 4) attainable, but there is not full employment. attainable, but there is not optimal allocation. unattainable because the economy is inefficient. unattainable because of limited resources. Question 4. 4. (TCO1) In a command system (Points : 4) self-interest guides and commands individuals to pursue actions that lead them toward achieving their goals. the head of each family decides what to do with the family's resources. the government makes production and allocation decisions. market traders command what outputs are produced and how they are allocated. Question 5. 5. (TCO 2) The demand curve is a representation of the relationship between the quantity of a product demanded and (Points : 4) supply. wealth. price. income. Question 6. 6. (TCO 2) What combination of changes would most likely decrease the equilibrium price? (Points : 4) When supply decreases and demand increases When demand increases and supply increases When demand decreases and supply decreases When supply increases and demand decreases Question 7. 7. (TCO 2) You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than one. To increase total revenues, you should (Points : 4) increase the price of the software. decrease the price of the software. hold the price of the software constant. increase the supply of the software. Question 8. 8. (TCO 2) Which of the following factors will make the demand for a product relatively elastic? (Points : 4) There are few substitutes. The time interval considered is long. The good is considered a necessity. Purchases of the good require a small portion of consumers' budgets. Question 9. 9. (TCO 2) Which is true for a purely competitive firm in short-run equilibrium? (Points : 4) The firm is making only normal profits. The firm's marginal cost is greater than its marginal revenue. The firm's marginal revenue is equal to its marginal cost. A decrease in output would lead to a rise in profits. .

1. Page 1
Question 1. 1. (TCO 1) Opportunity cost is best
defined as (Points : 4)
marginal cost minus marginal benefit.
the time spent on an economic activity.
the value of the best forgone alternative.
the money cost of an economic decision.
Question 2. 2. (TCO1) Money is not considered to be an
economic resource because (Points : 4)
as such, it is not productive.
money is not a free gift of nature.
money is made by man.

2. idle money balances do not earn interest income.
Question 3. 3. (TCO1) A point outside the production
possibilities curve is (Points : 4)
attainable, but there is not full employment.
attainable, but there is not optimal allocation.
unattainable because the economy is inefficient.
unattainable because of limited resources.
Question 4. 4. (TCO1) In a command system (Points : 4)
self-interest guides and commands individuals to pursue
actions that lead them toward achieving their goals.
the head of each family decides what to do with the
family's resources.
the government makes production and allocation decisions.
market traders command what outputs are produced and
how they are allocated.

3. Question 5. 5. (TCO 2) The demand curve is a representation of
the relationship between the quantity of a product demanded
and (Points : 4)
supply.
wealth.
price.
income.
Question 6. 6. (TCO 2) What combination of changes would
most likely decrease the equilibrium price? (Points : 4)
When supply decreases and demand increases
When demand increases and supply increases
When demand decreases and supply decreases
When supply increases and demand decreases
Question 7. 7. (TCO 2) You are the sales manager for a software
company and have been informed that the price elasticity of
demand for your most popular software is less than one. To

4. increase total revenues, you should (Points : 4)
increase the price of the software.
decrease the price of the software.
hold the price of the software constant.
increase the supply of the software.
Question 8. 8. (TCO 2) Which of the following factors will
make the demand for a product relatively elastic? (Points : 4)
There are few substitutes.
The time interval considered is long.
The good is considered a necessity.
Purchases of the good require a small portion of consumers'
budgets.
Question 9. 9. (TCO 2) Which is true for a purely competitive
firm in short-run equilibrium? (Points : 4)
The firm is making only normal profits.
The firm's marginal cost is greater than its marginal

5. revenue.
The firm's marginal revenue is equal to its marginal cost.
A decrease in output would lead to a rise in profits.
Question 10. 10. (TCO 2) Which case below best represents a
case of price discrimination? (Points : 4)
An insurance company offers discounts to safe drivers.
A major airline sells tickets to senior citizens at lower
prices than to other passengers.
A professional baseball team pays two players with
identical batting averages different salaries.
A utility company charges less for electricity used during
"off-peak" hours, when it does not have to operate its less-
efficient generating plants.
Question 11. 11. (TCO 3) A cartel is (Points : 4)
a form of covert collusion.
legal in the United States.
always successful in raising profits.

6. a formal agreement among firms to collude.
Question 12. 12. (TCO 3) In the short run, output (Points : 4)
is absolutely fixed.
can vary as the result of using a fixed amount of plant and
equipment more or less intensively.
may be altered by varying the size of plant and equipment
which now exist in the industry.
can vary as the result of changing the size of existing
plants and by new firms entering or leaving the industry.
Question 13. 13. (TCO 4) A recession is a decline in (Points : 4)
the inflation rate that lasts six months or longer.
the unemployment rate that lasts six months or longer.
real GDP that lasts six months or longer.
potential GDP that lasts six months or longer.

7. Question 14. 14. (TCO 4) Official unemployment rate statistics
may (Points : 4)
overstate the amount of unemployment by including part-
time workers in the calculations.
understate the amount of unemployment by excluding part-
time workers in the calculations.
overstate the amount of unemployment because of the
presence of "discouraged" workers who are not actively seeking
employment.
understate the amount of unemployment because of the
presence of "discouraged" workers who are not actively seeking
employment.
Question 15. 15. (TCO 4) GDP is the market value of (Points :
4)
resources (land, labor, capita, and entrepreneurship) in an
economy in a given year.
all final goods and services produced in an economy in a
given year.
consumption and investment spending in an economy in a
given year.
all output produced and accumulated over the years.

8. Question 16. 16. (TCO 4) The service a homeowner performs
when she mows her yard is not included in GDP because (Points
: 4)
this is a nonmarket transaction.
this is a nonproduction activity.
this is a noninvestment transaction.
multiple counting would be involved.
Question 17. 17. (TCO 6) The goal of expansionary fiscal policy
is to increase (Points : 4)
the price level.
aggregate supply.
real GDP.
unemployment.

9. Question 18. 18. (TCO 6) Refer to the graph. What combination
would most likely cause a shift from AD1 to AD3?
Graph Description (Points : 4)
Increases in taxes and government spending
Decrease in taxes and increase in government spending
Increase in taxes and decrease in government spending
Decreases in taxes and government spending
Question 19. 19. (TCO 6) Which of the following serves as an
automatic stabilizer in the economy? (Points : 4)
Interest rates
Exchange rates
Inflation rate
Progressive income tax
Question 20. 20. (TCO 6) The lag between the time the need for
fiscal action is recognized and the time action is taken is

10. referred to as the (Points : 4)
crowding-out lag.
recognition lag.
operational lag.
administrative lag.
page 2
1. (TCO 5) An increase in aggregate demand is most likely to
be caused by a decrease in (Points : 4)
the wealth of consumers.
consumer and business confidence.

11. expected returns on investment.
the tax rates on household income.
Question 2. 2. (TCO 5) The upward slope of the short-run
aggregate supply curve is based on the assumption that (Points :
4)
wages and other resource prices do not respond to price
level changes.
wages and other resource prices do respond to price level
changes.
prices of output do not respond to price level changes.
prices of inputs are flexible while prices of outputs are
fixed.
Question 3. 3. (TCO 5) Which would most likely increase
aggregate supply? (Points : 4)
An increase in the prices of imported products
An increase in productivity
A decrease in business subsidies

12. A decrease in personal taxes
Question 4. 4. (TCO 5) With cost-push inflation in the short
run, there will be (Points : 4)
an increase in real GDP.
a leftward shift in the aggregate demand curve.
a decrease in real GDP.
a decrease in unemployment.
Question 5. 5. (TCO 6) With an MPS of .3, the MPC will be
(Points : 4)
1 - .3.
.3 - 1.
1/.3.
.3.

13. Question 6. 6. (TCO 7) The M1 money supply is composed of
(Points : 4)
all coins and paper money held by the general public and
the banks.
bank deposits of households and business firms.
bank deposits and mutual funds.
checkable deposits and currency in circulation.
Question 7. 7. (TCO 7) Which of the following "backs" the
value of money in the United States? (Points : 4)
Gold stored in the Federal Reserve Bank of New York
Acceptability of it as a medium of exchange
Willingness of foreign government to hold U.S. dollars
Size of the budget surplus in the U.S. government
Question 8. 8. (TCO 7) How many members can serve on the
Board of Governors of the Federal Reserve System? (Points : 4)
Seven

14. Nine
12
14
Question 9. 9. (TCO 7) Which of the following is the most
important function of the Federal Reserve System? (Points : 4)
Setting reserve requirements
Controlling the money supply
Lending money to banks and thrifts
Acting as fiscal agent for the U.S. government
Question 10. 10. (TCO 7) Money is "created" when (Points : 4)
a depositor gets cash from the bank's ATM.
a bank accepts deposits from its customers.
people receive loans from their banks.
people spend the incomes that they receive.

15. Question 11. 11. (TCO 7) The establishment of a federal deposit
insurance program resulted from the (Points : 4)
establishment of the Federal Reserve System in 1913.
speculation during World War I.
stock market crash of 1987.
bank panics of 1930-1933.
Question 12. 12. (TCO 7) Which monetary policy tool was
created in response to the financial crisis of 2007-2008? (Points
: 4)
Discount rate
Term auction facility
Target federal funds rate
Open market operations
Question 13. 13. (TCO 7) The most frequently used monetary

16. device for achieving price stability is: (Points : 4)
open market operations.
the discount rate.
the reserve ratio.
the prime interest rate.
Question 14. 14. (TCO 8) Which of the following products is a
leading import of the United States? (Points : 4)
Grains
Aircraft
Petroleum
Generating equipment
Question 15. 15. (TCO 8) The principal concept behind
comparative advantage is that a nation should (Points : 4)
maximize its volume of trade with other nations.
use tariffs and quotas to protect the production of vital
products for the nation.

17. concentrate production on those products for which it has
the lowest domestic opportunity cost.
strive to be self-sufficient in the production of essential
goods and services.
Question 16. 16. (TCO 8) If a nation imposes a tariff on an
imported product, then the nation will experience a(n) (Points :
4)
decrease in total supply and an increase in the price of the
product.
decrease in demand and a decrease in the price of the
product.
decrease in supply of, and an increase in demand for, the
product.
increase in supply of, and a decrease in demand for, the
product.
Question 17. 17. (TCO 8) If a nation agrees to set an upper limit
on the total amount of a product that it exports to another
nation, then this situation would be an example of (Points : 4)
an import quota.

18. a revenue tariff.
a protective tariff.
a voluntary export restriction.
Question 18. 18. (TCO 8) Tariffs and import quotas would
benefit the following groups, except (Points : 4)
consumers of the product.
domestic producers of the product.
workers in domestic firms producing the product.
the government of the importing country.
Question 19. 19. (TCO 8) Which organization meets regularly to
establish rules and settle disputes related to international trade?
(Points : 4)
The United Nations Commission on Trade Law
The United Nations Conference on Trade and Development
The World Trade Organization

19. The Federal Reserve Board
Question 20. 20. (TCO 9) French and German farmers wanting
to buy equipment from an American manufacturer based in the
U.S. will be (Points : 4)
supplying dollars and also supplying euros in the foreign
exchange market.
demanding dollars and also demanding euros in the foreign
exchange market.
supplying dollars and demanding euros in the foreign
exchange market.
supplying euros and demanding dollars in the foreign
exchange market.

20. Page 3
Question 1. 1. (TCO 9) In the balance of payments
statement, a current account surplus will be matched by a
(Points : 4)
capital and financial accounts deficit.
capital and financial accounts surplus.
trade deficit.
trade surplus.

21. Question 2. 2. (TCO 9) If the United States wants to regain
ownership of domestic assets sold to foreigners, it will have to
(Points : 4)
increase domestic consumption.
increase its national debt.
export more than it imports.
import more than it exports.
Question 3. 3. (TCO 9) If a Japanese importer could buy $1,000
U.S. for 122,000 yen, the rate of exchange for $1 would be
(Points : 4)
8.19 yen.
122 yen.
820 yen.
1,220 yen.
Question 4. 4. (TCO 9) If the exchange rate is $1 = 0.7841 euro,
then a French DVD priced at 20 euros would cost an American

22. buyer (excluding taxes and other fees) (Points : 4)
$15.68.
$20.78.
$25.51.
$27.84.
Question 5. 5. (TCO 9) The monetary system for conducting
international trade is usually described as a system of (Points :
4)
fixed exchange rates.
freely floating exchange rates.
a managed gold standard.
managed floating exchange rates.
Question 6. 6. (TCO 8) a) Do protectionist policies benefit
producers, consumers, workers, or the government? Explain.
b) Explain how the "Buy American" theme hurts Americans.
(Points : 40)

23. Question 7. 7.
(TCO 6) a) Identify the four major tools of monetary policy. b)
Describe how changes in the Fed’s major policy tools leads to
[1] expansionary and [2] restrictive or contractionay monetary
policies.
(Points : 40)