Economic Analysis for Business Decisions Practice Questions

Dr Bhati R.K Page 1
ECONOMIC ANALYSIS FOR BUSINESS DECISIONS (102) (EABD): Dr. RAKESH BHATI
Question 1 2 3 4 Ans
.
Ans
.
1 Demand above the kink is: a. Inelastic b. Elastic c. Higher d. Lower B 2
2 What rule do Sweezy Oligopoly
firms use to maximize profits?
a. MR=P b. MC=P c. MR=MC d. AVC=MR C 3
3 If demand is inelastic and a firm
decreases price, what does this do
to Total Revenue?
a. Stays constant b. Increases c. Decreases d. None of the above C 3
4 Which of these are indicators of a
Sweezy oligopoly
a. Large number of
firms
b. Differentiated
products
c. No barriers to
entry
d. Homogeneous
products
B 2
5 In a Sweezy Oligopoly, if a firm
decreases its prices, a competitor
will?
a. Increase prices b. Decrease prices c. Keep their
prices constant
d. Either B or C B 2
6 The demand curve for
monopolistic competition has what
type of slope?
A.) upward B.) horizonal C.) vertical D.) downward D 4
7 What kind of economic profit can
a monopolistic competitve firm
look atachieving in the long-run?
A.) Positive B.) Negative C.) Flat D.) Zero D 4
8 In a monopolistically competitive
market what does a firm use to
controlpricing?
A.) Strong advertising B.) Perfect substitutes C.) Product
differentiation
D.) None of the
Above
C 3
9 Which are key characteristics of a
monopolistic competition?
A.) Barriers to entry B.) Free entry and exit C.) Perfect
Substitutes
D.) Few buyers and
sellers
B 2
10 In the short-run firms that enter
early into the market will most-
likely enjoywhich of the following?
A.) Short run profits B.) Long run profits C.) Market Safety D.) None of the
Above
A 1
11 Profit maximizing monopolists
should:
a. Produce outputs at
the level of demand
b. Produce outputs at
the point where
marginal revenue
equals marginal cost
c. Produce outputs
at the point where
marginal revenue
is greatest relative
to marginal cost
D.) None of the
Above
B 2

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12 Profits and Elasticity of demand a. Profits are
maximized when
demand is elastic
b. Profits are maximized
when demand is inelastic
c. Profits are
maximized when
demand is
unitary elastic
D.) None of the
Above
C 3
13 Marginal revenue is geometrically
equivalent to:
a. Slope of the total
revenue curve
b. Slope of the demand
curve
c.Slope of the
average total cost
curve
D.) None of the
Above
A 1
14 Which of the following best
represents a monopoly:
a. Coca-Cola b. Delta Airlines c. Corn d. Utility Company D 4
15 15. A profit maximizing strategy
within an oligopoly environment
is:
A) MR = ATC B) P = MC C) MR = AVC D) None of the
above.
D 4
16 Monopolistic competition refers to
the form of market organization in
which there are
many sellers of a
homogeneous product,
many sellers of a
differentiated product,
few sellers of a
homogeneous
product,
few sellers of a
differentiated
product.
B 2
17 The demand curve facing the
monopolistic competitor is
negatively sloped and
highly elastic,
negatively sloped and
highly inelastic,
horizontal, infinitely elastic. A 1
18 The best level of output for the
monopolistic competitor is the
output at which
MR equals AC, MR equals MC, MR exceeds MC, MR is less than MC. B 2
19 In the short run, the monopolistic
competitor
breaks even, makes a profit, incurs a loss, any of the above is
possible.
D 4
20 In the long run, a monopolistic
competitor
incurs a loss, breaks even, makes a profit, any of the above is
possible.
B 2
21 A monopolistic competitor, in the
long run,
produces where P
exceeds MC,
does not produce at the
lowest point on its AC
curve,
engages in
nonprice
competition,
all of the above. D 4
22 22. If an oligopolist incurs losses in
the short run, then in the long run,
it will go out of
business,
it will stay in business, it will break even, any of the above is
possible.
A 1
23 The short-run supply curve of the
oligopolist is
the rising portion of the
MC curve,
the rising portion of the
MC curve above AVC,
the rising portion
of the MC curve
above AC,
none of the above. D 4

Dr Bhati R.K Page 3
24 The kinked demand curve is used
to rationalize
collusion, price competition, price rigidity, price leadership. C 3
25 Price leadership is a form of overt
collusion,
a form of tacit
collusion,
illegal in the
United States,
used to explain price
rigidity.
B 2
26 52.Which of the following would
most likely be a fixed cost?
A)The cost of
property insurance.
B)The cost of water used
in the production
process.
C)The cost of
labor used in the
production
process.
D)The cost of
electricity used in
the production
process.
A
27 51.Which of the following is most
likely a fixed cost?
A)Raw materials cost. B) Labor cost. C) Energy cost. D) Property taxes. D
28 50.Which of the following costs
remains constant at all levels of
output?
A)Total costs. B) Variable costs. C) Fixed costs. D) Marginal costs. C
29 Costs of production that do not
change with the rate of output are:
A)Nonexistent. B) Variable costs. C) Fixed costs. D) Marginal costs. C
30 48.Which of the following costs do
not change when output changes in
the short run?
A)Average variable
costs.
B) Variable costs. C) Average fixed
costs.
D) Fixed costs. D
31 47.In the short run, when a firm
produces zero output, total cost
equals:
A)Zero. B) Variable costs. C) Fixed costs. D) Marginal costs. C
32 46. The amount of fixed cost is: A)The difference
between average
variable cost and
average total cost in
the short run.
B)Total cost at an
output of zero.
C)The difference
between total cost
and marginal cost
in the long run.
D)Represented by a
curve that slopes
downward as output
increases.
B
33 45.An increase in production in the
short run always results in an
increase in:
A)Average total costs. B) Marginal costs. C) Total costs. D) Average fixed
costs.
C
34 44. The market value of all
resources used in producing a
good or service is expressed by:
A) Total costs. B) Implicit costs. C) Fixed costs. D) Variable costs. A
35 The sum of fixed cost and variable
cost at any rate of output is:
A)Total variable cost. B) Total cost. C) Average total
cost.
D) Average
marginal cost.
B

Dr Bhati R.K Page 4
36 Whenever diminishing returns
appear with greater output:
A)Marginal cost will
be rising.
B)There are
diseconomies of scale.
C)MPP will rise. D)All of the above. A
37 41. Given a constant price per unit
for the variable input, marginal
cost will increase with greater
output if:
A)Marginal physical
product is declining.
C) Total variable cost is
decreasing.
B)Marginal
physical product
is increasing.
D) Total fixed cost
is increasing.
A
38 40.Rising marginal costs are the
result of:
A)The law of
diminishing returns.
B)Decreasing MPP. C)Adding more
variable factors of
production to a
fixed quantity of
other factors of
production.
D)All of the above. D
39 Rising marginal costs result from: A) Rising prices of
fixed inputs.
B) Rising prices of
variable inputs.
C) Falling
marginal
physical product.
D) All of the above. C
40 Marginal cost: A) Increases as a direct
result of diminishing
returns.
B)Rises whenever
marginal physical
product decreases.
C)Rises in the
short run because
some resources
are fixed.
41 If an additional unit of labor costs
Rs. 20 and has a MPP of 50 units
of output, the marginal cost is:
A) Rs. 0.50. B) Rs. 0.40. C) Rs. 20.00. D) Rs. 1,000.00. B
42 If an additional unit of labor costs
Rs. 15 and has a MPP of 50 units
of output, the marginal cost is:
A) Rs. 0.30. B) Rs. 0.50. C) Rs. 7.50. D) Rs. 750.00. A
43 Marginal cost is equal to: Total cost ÷ output. Change in total cost ÷
change in total output.
Change in total
cost ÷ change in
input.
Total cost ÷ input
cost.
B
44 The increase in total cost
associated with a 1-unit increase in
production is:
Marginal physical
product.
B) Marginal cost. C) Marginal
revenue.
D) Profit. B
45 Marginal cost: Is the change in total
output from hiring one
more factor of
production.
Is the change in total
cost from producing
one additional unit of
output.
Falls when there
are diminishing
returns.
Is the change in the
total cost when
hiring one more
factor of production.
B

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46 The shape of the marginal cost
curve reflects:
The law of
The competitiveness of
the firm.
The law of
diminishing
marginal utility.
The law of demand. A
47 31.The most desirable rate of
output for a firm is the output
that:
Minimizes total costs. Maximizes total profit. C)Minimizes
marginal costs.
D)Maximizes total
revenue.
B
48 The difference between total
revenue and total cost is:
A) Marginal cost. B) Average variable
cost.
C) Fixed cost. D) Profit. D
49 Profit is: The difference between
total cost and variable
cost.
The difference between
total revenue and total
cost.
Earned at all
points along the
production
function.
Only possible with
technical efficiency.
B
50 At any given rate of output, the
difference between total cost and
fixed cost is:
A)Marginal cost. B) Average variable
cost.
C) Zero in the
short run.
D) Variable cost. D
51 Costs of production that change
with the rate of output are:
A) Sunk costs. B) Variable costs. C) Opportunity
costs.
D) Fixed costs. B
52 Changes in short-run total costs
result from changes in only:
A) Variable costs. B) Fixed costs. C) Profit. D) The price
elasticity of demand.
A
53 Changes in marginal costs result
from changes in:
A) Variable costs. B) Fixed costs. C) Profit. D) The price
elasticity of demand.
A
54 In the short run, which of the
following is most likely a variable
cost?
A) Contractual lease
payments.
C) Property taxes. B) Labor and
raw materials
costs.
D) Interest payments
on borrowed funds.
B
55 In the long run, which of the
following is likely to be a variable
cost?
A)Factory rental. C) Interest payments on
borrowed funds.
B) Wage costs. D) All of the above
are variable costs.
D
56 In the short run, when a firm
produces zero output, variable cost
equals:
A)Zero. B) Total cost. C) Fixed cost. D) Marginal cost. A
57 In the long run, changes in total
costs are caused by changes in:
A) Fixed costs. B) Variable costs. C) Profits. D) Sunk costs. B

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58 Which of the following is true as
output increases?
A) Fixed costs decline
because the costs are
spread over greater
production.
B) Marginal costs
remain fixed.
C) Variable costs
rise.
D) Average total
costs decline
because of
C
59 Which of the following costs
always increases when output
increases by one unit?
A)Total costs. B) Average total costs. C) Marginal
costs.
D) Fixed costs. A
60 Which of the following is
equivalent to ATC?
A) FC + VC. B) AFC + AVC. C) Change in
output divided by
change in total
cost.
D) Total cost times
the quantity
produced.
B
61 Which of the following is
equivalent to ATC?
A) FC + VC. B) FC + MC. C) Change in total
cost divided by
change in output.
D) (FC + VC) ÷ Q. D
62 Which of the following contributes
to the typical U-shape of the ATC
curve?
A) The initial
dominance of
B) The eventual
dominance of the rising
MC curve.
C) The steady
impact of a rising
AFC curve.
D) All of the above. B
63 Which of the following must
always be downward-sloping?
A) The marginal cost
curve when it is below
the average total cost
curve.
B) The marginal cost
curve when it is above
the average total cost
curve.
C) The average
total cost curve
when it is below
the marginal cost
curve.
D) The average
total cost curve
when it is above the
marginal cost
curve.
D
64 Which one of the following curves
must be falling as output increases
when the marginal cost is below it?
A) The average
variable cost curve.
C)The average fixed cost
curve.
B)The average
total cost curve.
65 The average fixed cost curve: A) Is U-shaped as a
result of diminishing
returns.
B) Declines as long as
output increases.
C) Is intersected
at its minimum
point by marginal
cost.
D) Intersects the
marginal cost curve
at its minimum
point.
B
66 As the production rate is
increased, average fixed costs:
A) Are constant. B) First fall, then rise
(in a U-shaped curve).
C) Decline. D) Increase. C
67 For which of the following costs
does the average cost curve fall
continuously?
A) Fixed costs. B) Variable costs. C) Total costs. D) All of the above. A

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68 The average variable cost curve
slopes upward with a higher rate
of output in the short run because
of:
A) The effect of
C) Diseconomies of
scale.
B) The shape of
the average fixed
cost curve.
D) All of the above. A
69 In the short run, average costs
may rise as a firm increases the
rate of production because:
A) Inflation causes the
prices of resources to
increase.
B) The supply curve for
the product shifts.
C) Some inputs,
such as plant and
equipment,
cannot be
changed.
D) All of the above. C
70 A U-shaped average total cost
curve implies:
A) First, diminishing
returns, and then,
increasing returns.
B) First, marginal cost
below average total
cost, and then marginal
cost above average
total cost.
C) That total costs
are at a minimum
at the minimum of
the average cost
curve.
D) A linear total cost
curve.
B
71 The marginal cost curve intersects
the minimum of the curve
representing:
A) TC. B) ATC. C) AFC. D) All of the above. B
72 If the marginal cost curve is rising,
then which of the following must
be true?
A) The average total
cost curve must be
rising.
B) The average total cost
curve must be below the
marginal cost curve.
C) The average
total cost curve
must be above the
marginal cost
curve.
D) Total costs must
be rising.
D
73 The tendency for total costs to rise
more slowly at first and then to
increase more quickly results in:
A) First, diminishing
returns, and then,
increasing returns.
B) First, falling
marginal costs, and
then, rising marginal
costs.
C) First, negative
marginal costs,
and then, positive
marginal costs.
D) First, rising
average costs, and
then, falling average
costs.
B
74 When the average total cost curve
is rising, then the marginal cost
curve will be:
A) Below the average
fixed cost curve.
B) Falling with greater
output.
C) Above the
average total
cost curve.
D) Below the
average total cost
curve.
C
75 Which of the following contributes
to an upward-sloping long-run
average total cost curve?
A) Long-run
marginal cost above
long-run average
total cost law of
B) Long-run marginal
cost below long-run
average total cost.
C) Economies of
scale.
D) The law of
A
76 Money includes : a . Currencies and
demand deposits.
b. Bonds, government
securities.
c. Equity
shares.
d. All of the
above.
D 4

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77 Which of the following
statements about money is
incorrect?
a . There are many
assets which carry the
attribute on money.
b. Money is what
money does.
c. In modern
sense, money has
stability, high
degree of
substitutability
and feasibility of
measuring
statistical
variation.
d. None of the
above.
D 4
78 M1 in the money stock in India
refers to :
a . Post office saving
deposits.
b. Total post office
deposits.
c. Currency
plus demand
deposits plus
other deposits
with RBI.
d. Time deposits
with banks.
C 3
79 Narrow money refers to a. M1 b. M2 c. M3 d. M4 A 1
80 Broad money refers to a. b. M2 c. M3 d. M4 C 3
81 The basic distinction between
narrow and broad monies is the
a . Treatment of post
office deposits.
b. Treatment of time
deposits of banks.
c. Treatment of
savings deposits
of banks.
d. Treatment of
currency.
B 2
82 According to the RBI’s Third
working Group, NM2 + Long
Term Term Deposits with Banks
with maturity over one year +
Call/Term borrowing of the
banking system is equal to
a . NM1 b. NM2 c. NM3 d. NM4 C 3
83 Which of the following statements
about banks is incorrect?
a . Banks encourage
saving habits among
people.
b. Banks mobilise
savings and make them
available for production.
c. Banks help
in creating credit
money.
d. None of the
above.
D 4
84 Banks perform the function of a . Receiving
deposits
b. Lending of money c. Agency
services
d. All of the
above.
D 4
85 Commercial banks in India were
nationalised in 1969 because
a . There was urban
bias.
b. Agriculture sector
was neglected.
c. There was
concentration of
economic power.
d. All of the
above.
D 4

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86 Nationalisation of banks aimed at
all of the following except
a . Removal of
control by a few.
b. Provision of credit
to big industries only.
c. Provision of
adequate credit
for agriculture,
small industry and
export units.
d. Encouragement
of a new class of
entrepreneur.
B 2
87 Rural bank branches constitute--
per cent of total bank branches in
India.
a. 1 4 6 0 38 8 2 C 3
88 Population per bank in India is a . Around 5000 b. Around 20000 c. Around
12000
d. Around 45000 C 3
89 In terms of deposit mobilisation,
--- leads other states.
a . U.P. b. Maharashtra c. Kerala d. Bihar B 2
90 In terms of lending, priority
sectors constitute about -- of
total bank lending.
6 0 8 0 3 0 3 6 D 4
91 Which is the Central Bank of
India?
a . State Bank of
India.
b. Punjab and National
Bank.
c. Oriental
Bank of
Commerce.
d. Reserve Bank
of India.
D 4
92 Commercial banks suffer from a . Regional
imbalances.
b. Increasing overdues. c. Low
efficiency.
d. All of the
above.
D 4
93 Who is the official “lender of the
last resort” in India?
a . SBI b. PNB c. RBI d. OBC C 3
94 . ---- refers to that portion of
total deposits of a commercial
bank which it has to keep with
RBI in the form of cash reserves.
a . CRR b. SLR c. Bank Rate d Repo Rate A 1
95 .----refers to that portion of total
deposits of a commercial bank
which it has to keep with itself in
the form of liquid assets.
a . CRR b. SLR c. Bank Rate d. Repo Rate B 2
96 CRR in September, 2014 was
_______________ per cent.
8 6 4 5.5 C 3
97 At present, SLR is per
cent. (September, 2014)
2 2 3 0 3 5 4 0 A 1

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98 . _____________ is the official
minimum rate at which the
Central Bank of a country is
prepared to rediscount approved
bills held by banks.
a . CRR b. SLR c. Bank Rate d. Repo Rate C 3
99 At present, Bank rate is --- per
cent. (September, 2014)
5 9 6.5 5.5 B 2
100 In order to control credit in the
country, the RBI may
a . Buy securities in
the open market.
b. Sell securities in
the open market.
c. Reduce
CRR.
d. Reduce Bank
Rate.
B 2
101 In order to encourage investment
in the country, the RBI may
a . Reduce CRR. b. Increase CRR. c. Sell
securities in the
open market.
d. Increase Bank
Rate.
A 1
102 In order to discourage investment
in the economy, the RBI may
a . Increase Bank
Rate.
b. Decrease Bank Rate. c. Buy
securities in the
open market.
d. Decrease CRR. A 1
103 The effect of increase CRR will
be reduced or nullified if :
a . Bank rate is
reduced.
b. Securities are sold in
the open market.
c. SLR is
increased.
d. People do not
borrow from non-
banking institutions.
A 1
104 In order to control credit a . CRR should be
increased and Bank
Rate should be
decreased.
b. CRR should be
reduced and Bank Rate
should be reduced.
c. CRR should
be increased and
Bank Rate
should be
increased.
d. CRR should be
reduced and Bank
Rate should be
increased.
C 3
105 .---- controls affect
indiscriminately all sectors of the
economy.
a . Selective credit. b. Quantitative. c. Margin
requirements.
d. None of the
above.
B 2
106 During depression, it is advisable
to
a . Lower Bank
Rate and purchase
securities in the
market.
b. Increase Bank Rate
and purchase securities
in the open market.
c. Decrease
Bank Rate and
sell securities in
the open market
d. Increase Bank
Rate and sell
securities in the open
market.
A 1
is correct?
a . The RBI is just
like any ordinary
commercial bank in
India.
b. The RBI is
responsible for the
overall monetary policy
in India.
c. Selective
credit control
measures affect
all banks in a
similar manner.
d. A high rate of
interest encourages
new investment.
B 2

108 . ‘The lender of last resort’ means a . The government
coming to the rescue of
poor farmers.
b. Central Bank
coming to the rescue of
other banks in times of
financial crisis.
c. Commercial
banks coming to
the rescue of
small industrial
units.
d. None of the
above.
B 2
109 Who is the custodian of monetary
reserves in India?
a . SBI b. SIDBI c. NABARD d. RBI D 4
110 Who is called the ‘bank of issue’? a . RBI b. SBI c. IDBI d. ICICI A 1
111 Who is the fiscal agent and adviser
to government in monetary and
financial matters in India?
a . SBI b. IDBI c. ICICI d. RBI D 4
112 Who is the custodian of national
reserves of international currency?
a . SBI b. IDBI c. RBI d. ICICI C 3
113 The profitability ratio of bank has
declined over the years due to
a . Lower interest on
government
borrowings from
banks.
b. Subsidisation of
credit to priority sector.
c. High
expenditure
resulting from
overstaffing and
mushrooming of
branches.
d. All of the
above.
D 4
is correct?
a . Rural areas have
nearly 38 per cent of
bank branches but
more than 70 per cent
of the population
residing there.
b. Banks are evenly
spread out.
c. Most of the
banks have almost
nil NPAs.
d. None of the
above.
A 1
115 What is the IMF’s primary
objective?
(a) The overall
promotion of world
trade
(b) The fixation of the
value of world
currencies
(c) The
promotion of free
trade
(d) The promotion
of its policies in
certain countries
around the world
A 1
116 How does the IMF meet its
primary objective?
(a) By promoting free
international trade
(b) By overseeing the
balance of payments,
acting as a forum of
world negotiation and
regulating world
exchange rates
(c) By acting as
an arbitrator for
the dispute
settlement of
world trade
matters
(d) By aligning its
primary objective
with the monetary
objectives of
national
governments
A 1

117 Why has the IMF been criticised in
the past for being ineffective in the
implementation of its policies and
legal provision around the world?
(a) Because it did
not manage to
persuade States to
achieve consensus in
certain legal matters
and because the
implementation of its
policies has been ab
initio ineffective
(b) Because different
States seek to promote
their national interests to
the detriment of the
IMF’s efforts
(c) Because the
IMF cannot
promote its
policies in the
case of trade
blocks
(d) Because the
IMF is not an
independent
international
organisation
A 1
118 In world economic matters States
are not always to correspond to the
calls of the IMF. Why is this?
(a) States have
different agendas
(b) States do not have
the political will to
follow the IMF’s calls
(c) States oppose
the IMF’s policies
(d) States may not
always have the
same interests as
the IMF
D 4
119 There are two schools of thought
in the interpretation of the IMF’s
Articles of Agreement. Which one
has prevailed?
(a) Realism (b) Parochialism (c) Legalism (d) Interprevitism D 4
120 How would you describe
international monetary law?
(a) Rather detailed
and for this reason
exact
(b) Rather minimal
and for this reason
abstract
(c) Rather
detailed and for
this reason
convoluted
(d) Rather
minimal and for this
reason parochial
B 2
121 Is the IMF’s policy on exchange
rates of soft-law or hard law
nature and why?
(a) Of soft-law
nature, the reason
being national
sovereignty in
currency matters
(b) Of soft-law nature,
the reason being clarity
(c) Of hard-law
nature, the reason
being legal
precision
(d) Of hard-law
nature the reason
being global uniform
standards
A 1
122 The headquarters of IMF and
World Bank are located at :
A Geneva and
Montreal
B Geneva and Vienna C New York and
Geneva
D Washington D 4
123 Voting rights in the IMF are
determined on the basis of :
A one country, one
vote
B size of the economy C proportion to
contributions
given by each
country
D proportion to
quota alloted to
countries from time
to time
B 2
124 “World development Report” is an
annual publication of :
A World Bank B International Bank of
Reconstruction and
Development
C World Trade
Organisation
D International
Monetary Fund
A 1

125 Which one of the following is not a
member of Organization of the
Petroleum Exporting Countries
(OPEC)?
A Algeria B Brazil C Ecuador D Nigeria B 2
126 Which of the following countries is
not a member of SAARC ?
A Bhutan B India C Thailand D Maldives C 3
127 The fundamental economic
problem faced by all societies is:
a. unemployment b. inequality c. poverty d. scarcity D 4
128 "Capitalism" refers to: a. the use of markets b. government
ownership of capital
goods
c. private
ownership of
capital goods
d. private ownership
of homes & cars
C 3
129 3. There are three fundamental
questions every society must
answer. Which of the following
is/are one of these questions?
a. What goods and
services are to be
produced?
b. How are the goods
and services to be
produced?
c. Who will get
the goods and
services that are
produced?
d. All of the above D 4
130 5. The bowed shape of the
production possibilities curve
illustrates:
a. the law of
increasing marginal
cost
b. that production is
inefficient
c. that production
is unattainable
d. the demand is
relatively inelastic
A 1
131 6. You have taken this quiz and
received a grade of 3 out of a
possible 10 points (F). You are
allowed to take a second version of
this quiz. If you score 7 or more,
you can raise your score to a 7 (C).
You will need to study for the
second version. In making a
rational decision as to whether or
not to retake the test, you should
a. always retake the
quiz
b. consider only the
marginal benefits from
of retaking the quiz (four
extra points)
c. consider only
the marginal
opportunity costs
from taking the
quiz (the time
spent studying
and taking the
quiz)
d. consider both the
marginal benefits
and the marginal
opportunity costs
of retaking the quiz
D 4
132 7. The law of demand states that: a. as the quantity
demanded rises, the
price rises
b. as the price rises, the
quantity demanded rises
c. as the price
rises, the
quantity
demanded falls
d. as supply rises,
the demand rises
C 3

133 8. The price elasticity of demand is
the:
a. percentage change
in quantity demanded
divided by the
percentage change in
price
b. percentage change in
price divided by the
quantity demanded
c. dollar change in
quantity
demanded divided
by the dollar
change in price
d. percentage change
in quantity
demanded divided
by the percentage
change in quantity
supplied
A 1
134 9. Community Colleges desired to
increase revenues. They decided to
raise fees paid by students with
Bachelors degrees to $50 per unit
because they believed this would
result in greater revenues. But in
reality, total revenues fell.
Therefore, the demand for
Community College courses by
people with Bachelors degrees
must have actually been:
a. relatively inelastic b. unit elastic c. relatively
elastic
d. perfectly elastic C 3
135 10. The demand for a product
would be more inelastic:
a. the greater is the
time under
consideration
b. the greater is the
number of substitutes
available to buyers
c. the less
expensive is the
product in
relation to
incomes
d. all of the above C 3
136 11. In the case of agriculture, a. the demand has
shifted to the right
more than the supply
has shifted to the right
b. the demand has
shifted to the right less
than the supply has
shifted to the right
c. the demand has
shifted to the left
more than the
supply has shifted
to the left
d. the demand has
shifted to the left
less than the supply
has shifted to the left
B 2
137 12. The agricultural price support
program is an example of
a. a price ceiling b. a price floor c. equilibrium
pricing
d. None of above B 2
138 13. If there is a price floor, there
will be
a. shortages b. surpluses c. equilibrium d. None of above B 2
139 14. If there is a price ceiling, there
will be
a. shortages b. surpluses c. equilibrium d. None of above A 1

140 15. If there is a price ceiling, which
of the following is NOT likely to
occur?
a. rationing by first-
come, first-served
b. black markets c. gray markets d. sellers providing
goods for free that
were formerly not
free
D 4
141 16. The goal of a pure market
economy is to best meet the desires
of
a. consumers b. companies c. workers d. the government A 1
142 17. In a pure market economy,
which of the following is a function
of the price?I. provide information
to sellers and buyers II. provide
incentives to sellers and buyers
a. I only b. II only c. both I and II d. neither I nor II C 3
143 18. In a market system, sellers act
in ____________ interest , but this
leads to behaviors in ____________
interest.
a. self; self b. self; society’s c. society’s;
society’s
d. society’s; self B 2
144 19. The law of diminishing
(marginal) returns states that as
more of a variable factor is added
to a certain amount of a fixed
factor, beyond some point:
a. Total physical
product begins to fall
b. The marginal physical
product rises
c. The marginal
physical product
falls
d. The average
physical product
falls
C 3
145 20. Why is the law of diminishing
marginal returns true?
a. specialization and
division of labor
b. spreading the average
fixed cost
c. limited capital d. all factors being
variable in the long-
run
C 3
146 21. Which of the following is a
characteristic of pure monopoly?
a. one seller of the
product
b. low barriers to entry c. close substitute
products
d. perfect
information
A 1
147 22. In pure monopoly, what is the
relation between the price and the
marginal revenue?
a. the price is greater
than the marginal
revenue
b. the price is less than
the marginal revenue
c. there is no
relation
d. they are equal A 1
148 23. In order to maximize profits, a
monopoly company will produce
that quantity at which the:
a. marginal revenue
equals average total
cost
b. price equals marginal
revenue
c. marginal
revenue equals
marginal cost
d. total revenue
equals total cost
C 3

149 24. Compared to the case of
perfect competition, a monopolist
is more likely to:
a. charge a higher price b. produce a lower
quantity of the product
c. make a greater
amount of
economic profit
d. all of the above D 4
150 25. Which of the following is
necessary for a natural monopoly?
a. economies of scale b. a high proportion of
the total cost is the cost
of capital goods
c. the market is
very small
151 26. Which of the following best
defines price discrimination?
a. charging different
prices on the basis of
race
b. charging different
prices for goods with
different costs of
production
c. charging
different prices
based on cost-of-
service
differences
d. selling a certain
product of given
quality and cost per
unit at different
prices to different
buyers
D 4
152 27. In order to practice price
discrimination, which of the
following is needed?
a. some degree of
monopoly power
b. an ability to separate
the market
c. an ability to
prevent reselling
153 28. In price discrimination, which
section of the market is charged
the higher price?
a. the section with the
richest people
b. the section with the
oldest people
c. the section
with the most
inelastic demand
d. the section with
the most elastic
demand
C 3
154 29. Which of the following
concepts represents the extra
revenue a firm receives from the
services of an additional unit of a
factor of production?
a. total revenue b. marginal physical
product
c. marginal
revenus product
d. marginal revenue C 3
155 30. The demand for labor is the
same as the
a. marginal revenue
product
b. marginal physical
product
c. marginal cost d. wage A 1
156 31. The demand for labor slopes
down and to the right because of
a. the law of demand b. the iron law of wages c. the law of
diminishing
marginal returns
d. economies of
scale
C 3
157 32. Skills that embodied in a
person are called
a. Human capital b. Embodied skills c. Physical capital d. Experience skills A 1
158 33. “Treating an individual as
typical of a group” is the definition
of
a. pure discrimination b. statistical
discrimination
c. human capital d. specific skills B 2

159 34. If a 1% fall in the price of a
product causes the quantity
demanded of the product to
increase by 2%, demand is
Inelastic. Unit-elastic. Elastic. Perfectly elastic. B 2
160 35. Compared to the lower-right
portion, the upper-left portion of
most demand curves tend to be
More inelastic. More elastic. Unit-elastic. Perfectly inelastic. B 2
161 36. If a business increased the
price of its product from 7 to 8
when the elasticity of demand was
inelastic, then
Total revenues
decreased.
Total revenues
increased.
Total revenues
remained
unchanged.
Total revenues were
perfectly inelastic.
B 2
162 37. You are the sales manager for
a pizza company and have been
informed that the price elasticity
of demand for your most popular
pizza is greater than 1. To increase
total revenues, you should
Increase the price of
the pizza.
Decrease the price of
the pizza.
Hold pizza prices
constant.
Decrease demand
for your pizza.
B 2
163 38. Assume Amanda Herman finds
that her total spending on compact
discs remains the same after the
price of compact discs falls, other
things equal. Which of the
following is true about Amanda’s
demand for compact discs with
this price change?
It is unit-price-elastic. It is perfectly price-
elastic.
It is perfectly
price-inelastic.
It increased in
response to the price
change.
A 1
164 39. Which is characteristic of a
product whose demand is elastic?
The price elasticity
coefficient is less than
1.
Total revenue decreases
if price decreases.
Buyers are
relatively
insensitive to
price changes.
The percentage
change in quantity
is greater than the
percentage of
change in price.
D 4

165 40. The demand for Nike
basketball shoes is more price-
elastic than the demand for
basketball shoes as a whole. This is
best explained by the fact that
Nike basketball shoes
are a luxury good, not
a necessity.
Nike basketballs shoes
are the best made and are
widely advertised.
There are more
complements for
Nike basketball
shoes than for
basketball shoes
as a whole.
There are more
substitutes for Nike
basketball shoes
than for basketball
shoes as a whole.
D 4
166 41. Which is characteristic of a
good whose demand is inelastic?
There are a large
number of good
substitutes for the good
for consumers.
The buyer spends a
small percentage of
total income on the
good.
The good s
regarded by
consumers as a
luxury.
The period of time
for which demand is
given is relatively
long.
B 2
167 42. From a time perspective, the
demand for most products is
Less elastic in the short
run and unit-elastic in
the long run.
Less elastic in the long
run and unit-elastic in
the short run.
More elastic in
the short run than
in the long run.
More elastic in the
long run than in
the short run.
D 4
168 43. If a 5% fall in the price of a
commodity causes quantity
supplied to decrease by 8% supply
is
Elastic. Inelastic. Unit-elastic. Perfectly inelastic. C 3
169 44. If supply is inelastic and
demand decreases, the total
revenue of sellers will
Increase. Decrease. Decrease only if
demand is elastic.
Increase only if
demand is inelastic.
B 2
170 45. The chief determinant of the
price elastic of supply of a product
is
The number of good
substitutes the product
has.
The length of time
sellers has to adjust to
a change in price.
Whether the
product a luxury
or necessity.
Whether the product
is a durable or a
nondurable good.
B 2
171 46. A study shows that the
coefficient of the cross elasticity of
Coke and Sprite is negative. This
information indicates that Coke
and Sprite are
Normal goods. Complementary goods. Substitute goods. Independent goods. B 2
172 47. If a 5% increase in the price of
one good results in a decrease of
2% in the quantity demanded of
another good, then it can be
concluded that the two goods are
Complements. Substitutes. Independent. Normal. A 1

173 48. Most goods can be classified as
normal goods rather than inferior
goods. The definition of a normal
good means that
The percentage change
in consumer income is
greater that the
price of a normal good.
The percentage change
in quantity demanded of
the normal good Is
greater than the
consumer income.
As consumer
income
increases,
consumer
purchases of a
normal
goodincrease.
The income
elasticity of demand
is negative.
C 3
174 50. What will happen to supply
and demand for chicken and
waffles in Rosco?
Supply of chicken will
increase and quantity
of waffles will increase
Supply of chicken will
increase and quantity of
waffles will decrease
Supply of chicken
will decrease and
quantity of
waffles will
increase
Supply of chicken
will decrease and
quantity of waffles
will decrease
D 4
175 51. What will happen to the price
of chicken?
Increase, because the
demand for waffles
will increase
Decrease, because
chicken are cheaper
during influenzas
Increase,
because demand
stayed the same
while supply
decreased
No change C 3
176 52. What will happen to the
quantity supplied of waffles?
Increase, because
waffles are a substitute
for chicken
Decrease, because the
supplied of chicken has
decreased as well
Increase, because
more workers can
make waffles now
that supply of
chicken is
decreased
No change B 2
177 54. What will happen to the price
of Nerds Ropes and quantity
demanded of Baby Bottle Pops?
Price of Nerds Ropes
will increase and
quantity of Baby
Bottle Pops will
increase
Price of Nerds Ropes
will increase and
quantity of Baby Bottle
Pops will decrease
Price of Nerds
Ropes will
decrease and
quantity of Baby
Bottle Pops will
increase
Price of Nerds
Ropes will decrease
and quantity of Baby
Bottle Pops will
decrease
A 1
178 55. The country Beta is
experiencing an increase in
unemployment. If steak is a
normal good:
Demand for steak will
increase
Quantity demanded of
steak will increase
Demand for
steak will
decrease
Quantity demanded
of steak will
decrease
C 3

179 56. Orange juice and mango juice
are close substitutes. According to
cross-elasticity, if the price of
mango juice increases by 12%,
then the price/quantity demanded of
orange juice must also
increase/decrease:
Price, increase Price, decrease Quantity
demanded,
increase
Quantity demanded,
decrease
C 3
180 57. A private high school increases
student tuition. This will increase
total revenue if the price elasticity
of demand for private education
is:
Inelastic Unit-elastic Elastic Cross-elastic A 1
181 61. Why is the supply curve
upward sloping?
As price increases, so
do costs
As price increases,
consumers demand less
As the price
increases,
suppliers can
earn higher
levels of profit or
justify higher
marginal costs to
produce more
As the price
increases, producers
supply more of the
good.
C 3
182 62. Which is an explanation for the
downward slope of the demand
curve?
Substitution effect Elasticity Profit
maximization
Diminishing
marginal utility
D 4
183 63. The set of six determinants of
supply does not include:
Changes in technology Changes in the size of
the population
Changes in
resource costs
Changes in the
number of suppliers
B 2
184 64. Costs of production of jelly
beans increase simultaneously with
a decrease in the price of M&Ms, a
close substitute. This will cause:
A decrease in the
demand of jelly beans
A decrease in the price
of jelly beans
An increase in the
supply of M&Ms
An increase in the
demand of M&Ms
D 4

185 65. Income rises, and initially the
demand for sweatshirts increases.
As income continues to rise,
however, the demand for
sweatshirts decreases. This tells us
that a sweatshirt is:
A normal good at all
income levels
An inferior good at all
income levels
An inferior good
at low income
levels and a
normal good at
high income
levels
A normal good at
low income levels
and an inferior
good at high
income levels
D 4
186 66. Which of the following is NOT
a determinant of a product’s
demand?
Taxes and subsidies Changes in consumer
preferences
Expected future
prices by
consumers
Changes in prices
of substitute
products
D 4
187 67. Average income of the
American population decreases by
10%. The market would see an
increase in the demand for
products sold at:
Jewelry stores Boutiques Department stores Thrift stores D 4
188 71. Which of the following is NOT
an inferior good?
Fur coats Used cars Secondhand
clothing
Generic products A 1
189 72. An increase in the demand for
designer handbags would most
likely result from a(n):
Increase in the costs
of designer handbags
Increase in the costs of
production of designer
handbags
Increase in
unemployment
Increase in average
income
A 1
190 73. The price of red wine increases
by 7% and the quantity demanded
decreases by 13%. The elasticity
coefficient of red wine is:
Less than one, so it is
elastic
Less than one, so it is
inelastic
Greater than
one, so it is
elastic
Greater than one, so
it is inelastic
C 3
191 74. Which of the following would
cause the entire market demand
curve for peanut butter to shift
left?
An increase in the
costs of peanuts
An increase in the price
of peanut butter
A decrease in the
price of nutella,
a close substitute
An decrease in the
price of jelly, a
strong complement
C 3
192 75. Roy’s company produces both
ping pong balls and tennis balls.
The price of ping pong balls
decreases relative to the price of
tennis balls. What will happen to
the supply of both types of balls?
Supply of tennis balls
increases, supply of
ping pong balls
increases
Supply of tennis balls
increases, supply of
ping pong balls
decreases
Supply of tennis
balls decreases,
supply of ping
pong balls
decreases
Supply of tennis
balls decreases,
supply of ping pong
balls increases
B 2

193 76. Which of the following causes
a good to be more elastic?
Greater percentage of
income
Fewer substitutes Greater necessity Fewer suppliers of
the good
A 1
194 77. The price of cashmere scarves
increases by 4% but total revenue
remains the same. Price elasticity
of cashmere scarves is:
Inelastic Unit-elastic Elastic Equal to zero B 2
195 78. The quantity demanded of
shoelaces increases from 100 to
145 as price decreases from 7 to 5.
Comparison of total revenue
before and after the price change
proves that:
Elasticity of demand is
equal to zero
Elasticity of demand is
equal to one
Elasticity of
demand is
greater than one
Elasticity of demand
is less than one
C 3
196 79. Adam Smith's invisible hand
principle stresses
That compassion is a
powerful motivator
that encourages
individuals to engage
in productive economic
activity.
The tendency of the
competitive market
process to direct self-
interested individuals
into activities that
enhance the economic
welfare of society.
The potential of
government
regulation as a
means of bringing
the self interest of
individuals into
harmony with the
economic welfare
of society.
The tendency of
self-interested
individuals to pursue
activities that benefit
themselves, but
harm the overall
economic welfare of
society.
B 2
197 80. In a free market economy,
consumption and investment
decisions
Are controlled largely
by the government.
Shape the future course
of the national
economy.
Are necessarily
controlled by big
businesses.
Require protection
from foreign forces
if individuals desire
wealth
accumulation.
B 2
198 81. Most microeconomic models
assume that decision makers wish
to
Make themselves as
well off as possible.
Act selfishly. Not cooperate
with others.
None of the above. A 1
199 82. Which of the following is an
example of a normative statement?
A higher price for a
good causes people to
want to buy less of that
good.
A lower price for a good
causes people to want to
buy more of that good.
To make the
good available to
more people, a
lower price
should be set.
If you consume this
good, you will be
better off.
C 3

200 83. According to the Law of
Demand, the demand curve for a
good will
Shift leftward when the
price of the good
increases.
Shift rightward when the
price of the good
increases.
Slope downward. Slope upward. C 3
201 84. Holding all other factors
constant, consumers demand more
of a good the
Higher its price. Lower its price. Steeper the
downward slope
of the demand
curve.
Steeper the upward
slope of the demand
curve.
B 2
202 85. As the price of good increases,
the change in the quantity
demanded can be shown by
Shifting the demand
curve leftward.
Shifting the demand
curve rightward.
Moving down
along the same
demand curve.
Moving up along
the same demand
curve.
D 4
203 86. If the price of automobiles
were to increase substantially, the
demand curve for gasoline would
most likely
Shift leftward. Shift rightward. Become flatter. Become steeper. A 1
were to decrease substantially, the
demand curve for automobiles
would most likely
Shift rightward. Shift leftward. Remain
unchanged.
Become steeper. C 3
were to decrease substantially, the
demand curve for public
transportation would most likely
Shift rightward. Shift leftward. Remain
unchanged.
Remain unchanged
while quantity
demanded would
change.
B 2
206 89. An increase in the demand
curve for orange juice would be
illustrated as a
Leftward shift of the
demand curve.
Rightward shift of the
demand curve.
Movement up
along the demand
curve.
Movement down
along the demand
curve.
B 2
207 90. If government regulations
prohibit the production of a
particular good, the demand curve
for that good will most likely
Shift leftward. Shift rightward. Remain
unchanged.
Disappear. C 3
208 91. To determine the total demand
for all consumers, sum the
quantity each consumer demands
At a given price. At all prices and then
sum this amount across
all consumers.
Both a and b will
generate the same
total demand.
None of the above A 1

209 92. Suppose the demand curve for
a good shifts rightward, causing
the equilibrium price to increase.
This increase in the price of the
good results in
A rightward shift of the
supply curve.
An increase in quantity
supplied.
A leftward shift of
the supply curve.
A leftward
movement along the
supply curve.
B 2
210 93. Equilibrium is defined as a
situation in which
Neither buyers nor
sellers want to change
their behavior.
No government
regulations exist.
Demand curves
are perfectly
horizontal.
Suppliers will
supply any amount
that buyers wish to
buy.
A 1
211 94. If price is initially above the
equilibrium level,
The supply curve will
shift rightward.
The supply curve will
shift leftward.
Excess supply
exists.
All firms can sell as
much as they want.
C 3
212 95. A competitive equilibrium is
described by
A price only. A quantity only. The excess supply
minus the excess
demand.
A price and a
quantity.
D 4
213 96. In the labor market, if the
government imposes a minimum
wage that is below the equilibrium
wage, then
Workers who wish to
work at the minimum
wage will have a
difficult time finding
jobs.
Firms will hire fewer
workers than without the
minimum wage law.
Some workers
may lose their
jobs as a result.
Nothing will
happen to the wage
rate or
employment.
D 4
214 97. The change in price that results
from a leftward shift of the supply
curve will be greater if
The demand curve is
relatively steep than if
the demand curve is
relatively flat.
The demand curve is
relatively flat than if the
demand curve is
relatively steep.
The demand
curve is
horizontal than if
the demand curve
is vertical.
The demand curve is
horizontal than if the
demand curve is
downward sloping.
A 1
215 98. The change in price that results
from a rightward shift in demand
will be greater if
The supply curve is
supply curve is upward
sloping.
The supply curve is
relatively steep than if
the supply curve is
relatively flat.
The supply curve
is upward sloping
than if the supply
curve is vertical.
The supply curve is
supply curve is
vertical.
B 2
216 99. If the demand curve for a good
is horizontal and the price is
positive, then a leftward shift of
the supply curve results in
A price of zero. An increase in price. A decrease in
price.
No change in price. D 4
217 100. A vertical demand curve
results in
No change in quantity
when the supply
curve shifts.
No change in price when
the supply curve shifts.
No change in the
supply curve
being possible.
No change in
quantity when the
demand curve shifts.
A 1

218 101. A vertical demand curve for a
particular good implies that
consumers are
Sensitive to changes in
the price of that good.
Not sensitive to changes
in the price of that
good.
Irrational. Not interested in that
good.
B 2
219 102. The percentage change in the
quantity demanded in response to
a percentage change in the price is
known as the
Slope of the demand
curve.
Excess demand. Price elasticity of
demand.
All of the above. C 3
220 103. If the price elasticity of
demand for a good is less than one
in absolute terms, we say
consumers of this good
Are not very sensitive
to price.
Are not very sensitive to
the quantity they
demand.
Are very sensitive
to price.
Are elastic. A 1
221 104. The fundamental economic
problem faced by all societies is:
Unemployment Inequality Poverty Scarcity D 4
222 What is the IMF’s primary
objective?
(a) The overall
promotion of world
trade
(b) The fixation of the
value of world
currencies
(c) The promotion
of free trade
(d) The promotion of
its policies in certain
countries around the
world
A 1
223 Money in traditional sense : a . Serves as a
medium of exchange.
b. Serves as a store of
value.
c. Serves as
both medium of
exchange and
store of value.
d. Serves neither
as medium of
exchange and store
of value.
C 3
224 1. Money is A) backed by gold in
Fort Knox.
B) the same as income. C) the value of all
coins and
currency in
circulation at any
time.
D) anything that is
generally accepted
as a medium of
exchange.
D 4
225 2. The development of money as a
medium of exchange has facilitated
the expansion of trade because
A) holding money
increases people's
income.
B) no other mediums of
exchange are available.
C) money
eliminates the
"double
coincidence of
wants" problem.
D) holding money
increases people's
wealth.
C 3

226 3. The price of bonds and the
interest rate are
A) not related. B) positively related. C) negatively
related.
D) sometimes
positively related
and other times
negatively related,
depending on the
bond payments
C 3
227 4. When the general price level
rises,
A) investment rises as
a result of the real
wealth effect.
B) consumption
increases as a result of
the multiplier effect.
C)investment
rises as a result of
the multiplier
effect.
D) consumption
falls as a result of
the real wealth
effect
D 4
228 5. The post hoc fallacy and the
correlation problem both relate to:
A) the calculation of
marginal costs and
marginal benefits of
any economic activity.
B) the issue of
determining causation.
C) the frequent
inability of
households and
businesses to
behave rationally.
D) the tradeoff
problem associated
with competing
goals.
B 2
229 6. The assertion by economists that
"there is no free lunch" is:
A) contradicted by the
presence of free goods
offered by firms.
B) applies to goods that
have prices, not to goods
given away free by
firms.
C) remains true
even for goods
given away free
by firms.
D) applies to
agricultural goods,
but not to
manufactured goods.
C 3
230 7. If we say that two variables are
directly related, this means that:
A) the relationship
between the two is
purely random.
B) an increase in one
variable is associated
with a decrease in the
other variable.
C) an increase in
one variable is
associated with
an increase in
the other
variable.
D) the two graph as
a downsloping line.
C 3
231 8. Economists: A) always put the
independent variable
on the horizontal axis
and the dependent
variable on the
verticalaxis.
B) always put the
dependent variable on
the horizontal axis and
the independent variable
on the verticalaxis.
C) are somewhat
arbitrary in
assigning
independent and
dependent
variables to the
horizontal and
vertical axes.
D) measure the slope
of a line differently
than do
mathematicians.
C 3
232 9. If a positive relationship exists
between x and y:
A) an increase in x will
cause y to decrease.
B) a decrease in x will
cause y to increase.
C) the
relationship will
graph as an
upsloping line.
D) the vertical
intercept must be
positive.
C 3

233 10 The measured slope of a line: A) is independent of
how the two variables
are denominated.
B) will be affected by
how the two variables
are denominated.
C) necessarily
diminishes as one
moves rightward
on the line.
D) necessarily
increases as one
moves rightward on
the line.
B 2
234 11. Slopes of lines are especially
important in economics because:
A) they measure
marginal changes.
B) they always tell us
something about profits.
C) positive slopes
are always
preferred to
negative slopes.
D) they always
relate to resource
and output scarcity.
A 1
235 12. The economizing problem is
one of deciding how to make the
best use of:
A) virtually unlimited
resources to satisfy
virtually unlimited
wants.
B) limited resources to
satisfy virtually
unlimited wants.
C) unlimited
resources to
satisfy limited
wants.
D) limited resources
to satisfy limited
wants.
B 2
236 13. The concept of economic
efficiency is primarily concerned
with:
A) the limited wants-
unlimited resources
dilemma.
B) considerations of
equity in the distribution
of wealth.
C) obtaining the
maximum output
from available
resources.
D) the conservation
of irreplaceable
natural resources.
C 3
237 14. When the economist says that
economic wants are insatiable, this
means that:
A) economic resources
are valuable only
because they can be
used to produce
consumer goods.
B) economic resources--
land, labor, capital, and
entrepreneurial ability--
are scarce.
C) these wants
are virtually
unlimited and
therefore
incapable of
complete
satisfaction.
D) the structure of
consumer demand
varies from time to
time and from
country to country.
C 3
238 15. The study of economics exists
because:
A) government
interferes with the
efficient allocation of
scarce resources.
B) resources are scarce
in relation to economic
wants.
C) the market
system is an
obstacle to the
efficient use of
plentiful resources
to satisfy
constrained
wants.
D) resources are
overly abundant as
compared to wants;
thus, an allocation
problem exists.
B 2
239 16. An increase in efficiency
suggests that an economy:
A) has moved from a
point outside of, to a
point on, its production
possibilities curve.
B) has decided to
produce more consumer
goods and fewer capital
goods.
C) has moved
from a point on,
to a point inside,
its production
possibilities
D) is able to get
more output from a
given amount of
inputs.
D 4

curve.
240 17 Economics is primarily the
study of:
A) why resources are
scarce.
B) how advertising and
sales promotion shape
consumer wants.
C) how to make
profitable
financial
investments.
D) how to use
scarce resources
efficiently.
D 4
241 20 Money is not an economic
resource because:
A) money, as such, is
not productive.
B) idle money balances
do not earn interest
income.
C) the terms of
trade can be
determined in
nonmonetary
terms.
D) money is not a
free gift of nature.
A 1
242 22. Assuming an economy has
fixed quantities of resources, that
economy:
A) is more efficient,
the larger the amount
of goods and services
it produces.
B) is able to satisfy all
consumer wants.
C) will produce
the same output
whether or not
resources are used
efficiently.
D) is able to produce
the same amount of
output regardless of
the production
technologies it
chooses.
A 1
243 23. Productive efficiency refers to: A) the use of the least-
cost method of
production.
B) the production of the
product-mix most
wanted by society.
C) the full
employment of all
available
resources.
D) production at
some point inside of
the production
A 1
244 24. The production possibilities
curve illustrates the basic principle
that:
A) the production of
more of any one good
will in time require
smaller and smaller
sacrifices of other
goods.
B) an economy will
automatically obtain full
employment of its
resources.
C) if all the
resources of an
economy are in
use, more of one
good can be
produced only if
less of another
good is
produced.
D) an economy's
capacity to produce
increases in
proportion to its
population size.
C 3
245 25. Unemployment and/or
productive inefficiencies:
A) cause the
production possibilities
curve to shift outward.
B) can exist at any point
on a production
C) are both
illustrated by a
point outside the
production
D) are both
illustrated by a
point inside the
production
D 4

possibilities
curve.
246 26. If the production possibilities
curve is a straight line:
A) the two products
will sell at the same
market prices.
B) economic resources
are perfectly shiftable
between the production
of the two products.
C) the two
products are
equally important
to consumers.
D) equal quantities
of the two products
will be produced at
each possible point
on the curve.
B 2
247 29 A firm's supply curve is
upsloping because:
A) the expansion of
production necessitates
the use of qualitatively
inferior inputs.
B) mass production
economies are associated
with larger levels of
output.
C) consumers
envision a
positive
relationship
between price and
quality.
D) beyond some
point the
production costs of
additional units of
output will rise.
D 4
248 31. In moving along a stable
supply curve which of the
following is not held constant?
A) the number of firms
producing this good
B) expectations about
the future price of the
product
C) techniques
used in producing
this product
D) the price of the
product for which
the supply curve is
relevant
D 4
249 33. A market is in equilibrium: A) provided there is no
surplus of the product.
B) at all prices above
that shown by the
intersection of the supply
and demand curves.
C) if the amount
producers want
to sell is equal to
the amount
consumers want
to buy.
D) whenever the
demand curve is
downsloping and the
supply curve is
upsloping.
C 3
250 34 In a competitive market the
equilibrium price and quantity
occur where:
A) the downsloping
demand curve
intersects the
upsloping supply
curve.
B) the upsloping demand
curve intersects the
downsloping supply
curve.
C) consumers and
suppliers bargain
to a mutually
acceptable price.
D) quantity
demanded exceeds
quantity supplied or
vice versa.
A 1
251 35 A product market is in
equilibrium:
A) when there is no
surplus of the product.
B) when there is no
shortage of the product.
C) when
consumers want
to buy more of the
product than
producers offer
for sale.
D) where the
demand and supply
curves intersect.
D 4

252 36. If the supply and demand
curves for a product both
decrease, then equilibrium:
A) quantity must fall
and equilibrium price
must rise.
B) price must fall, but
equilibrium quantity
may either rise, fall, or
remain unchanged.
C) quantity must
decline, but
equilibrium
price may either
rise, fall, or
remain
unchanged.
D) quantity and
equilibrium price
must both decline.
C 3
253 37. An increase in supply (with no
change in demand) will:
A) increase
equilibrium price and
reduce equilibrium
quantity.
B) decrease
increase equilibrium
quantity.
C) increase both
equilibrium price
and equilibrium
quantity.
D) decrease both
equilibrium price
and equilibrium
quantity.
B 2
254 38. An increase in supply that
exceeds an increase in demand
will:
A) increase both
equilibrium quantity.
B) increase equilibrium
price and reduce
equilibrium quantity.
C) decrease
equilibrium
price and
increase
equilibrium
quantity.
D) decrease both
equilibrium price
and quantity.
C 3
255 39. Allocative efficiency occurs
only at that output where:
A) marginal benefit
exceeds marginal cost
the by the greatest
amount.
B) consumer surplus
exceeds producer surplus
by the greatest amount.
C) the combined
amounts of
consumer
surplus and
producer surplus
are maximized.
D) the areas of
consumer and
producer surplus are
equal.
C 3
256 41. Broadly defined, competition
involves:
A) private property and
freedom of expression.
B) independently
acting buyers and
sellers and freedom to
enter or leave markets.
C) increasing
opportunity costs
and diminishing
marginal utility.
D) capital goods and
division of labor.
B 2
257 42. If an economy is operating on
its production possibilities curve,
an increase in the production of
capitalgoods:
A) necessarily involves
an increase in the
division of labor.
B) is in conflict with the
concept of consumer
sovereignty.
C) necessitates
production of
fewer consumer
goods.
D) will impair future
productive
efficiency.
C 3
258 44 Specialization in production is
important primarily because it:
A) results in greater
total output.
B) allows society to
avoid the coincidence-
of-wants problem.
C) allows society
to trade by barter.
D) allows society to
have fewer capital
goods.
A 1

259 45. The coincidence-of-wants
problem associated with barter
refers to the fact that:
A) for exchange to
occur each seller must
have a product that
some buyer wants.
B) money must be used
as a medium of
exchange or trade will
never occur.
C) specialization
is restricted by the
size or scope of a
market.
D) buyers in
resource markets
and sellers in
product markets can
never engage in
exchange.
A 1
260 46. When a competitive industry is
in equilibrium:
A) economic profit
will be zero.
B) product demand and
derived demand are
equal.
C) the
economizing
problem will have
been solved for
that industry.
D) normal profit will
not be realized.
A 1
261 47. The market system's answer to
the fundamental question "What
will be produced?" is essentially:
A) "Goods and
services that are
profitable."
B) "Low cost goods and
services."
C) "Goods and
service that can be
produced using
round-about
production."
D) "Goods and
services that possess
lasting value."
A 1
262 49. Consumer sovereignty refers to
the:
A) fact that resource
prices are higher than
product prices in
capitalistic economies.
B) idea that the pursuit
of self-interest is in the
public interest.
C) idea that the
decisions of
producers and
resource
suppliers with
respect to the
kinds and
amounts ofgoods
produced must
be appropriate
to consumer
demands.
D) fact that a
Federal agency
exists to protect
consumers from
harmful and
defective products.
C 3
263 50. Two major virtues of the
market system are that it:
A) allocates resources
efficiently and allows
economic freedom.
B) results in an equitable
personal distribution of
income and always
maintains full
employment.
C) results in price
level stability and
a fair personal
distribution of
income.
D) eliminates
discrimination and
minimizes
environmental
pollution.
A 1

264 52. Government rather than the
private sector must provide
economically desirable public
goods because:
A) private production
of those goods would
entail unacceptably
high external costs.
B) the availability of
such goods yields no
benefits to individuals.
C) the benefits
yielded by such
goods are
available to
everyone and
cannot be
withheld from
those who refuse
to pay for them.
D) their provision is
necessary to achieve
full employment and
price-level stability.
C 3
265 53. The stabilization function of
government involves government's
efforts to:
A) alter the output of
specific goods when
external costs or
benefits are present.
B) reduce the after-tax
incomes of the rich and
increase the after-tax
incomes of the poor.
C) deal with the
problems of
substantial
unemployment
and rapid
inflation.
D) provide the
socially desired
output of public
goods.
C 3
266 54. Government purchases and
transfer payments:
A) differ because the
latter absorb resources
while the former do
not.
B) differ because the
former absorb resources
while the latter do not.
C) are alike
because both are
more
inflationary than
private spending.
D) are alike because
both absorb
resources.
C 3
267 55. In determining one's personal
income tax, taxable income is:
A) total income less
deductions and
exemptions.
B) earned income less
property income.
C) all income
other than wages
and salaries.
D) wage and salary
income only.
A 1
268 56. A progressive tax is such that: A) tax rates are
higher the greater
one's income.
B) the same tax rate
applies to all income
receivers, so that the rich
pay absolutely more
taxes than thepoor.
C) entrepreneurial
income is exempt
from taxation.
D) the revenues it
yields are spent on
transfer payments.
A 1
269 57 An income tax is progressive if
the:
A) absolute amount
paid as taxes varies
directly with income.
B) percentage of income
paid as taxes is the same
regardless of the size of
income.
C) percentage of
income paid as
taxes increases
as income
increases.
D) tax rate varies
inversely with
income.
C 3

270 58. The physical export of
motorcycles from the United States
to India best illustrates a:
A) trade flow. B) resource flow. C) financial flow. D) technology flow. A 1
271 59. The business-to-business (B2B)
retrieval of prices of foreign
resources via the Internet best
illustrates a(n):
A) trade flow. B) resource flow. C) financial flow. D) information
flow.
D 4
272 60. Which of the following has not
been a facilitating factor in world
trade?
A) dramatic
improvements in
communications
technology
B) general declines in
tariffs
C) import quotas D) improvements in
transportation
technology.
C 3
273 61.Multinational corporations: A) mainly are
headquartered in
Switzerland.
B) are so named because
of their heavy export
volume.
C) are illegal
under the U.S.
antitrust laws.
D) are so named
because of their
sizable foreign
production and
distribution assets.
D 4
274 62. Exchange rates are
particularly important because:
A) they present a
challenge to financial
speculators.
B) they link the price
levels of various
nations to one another.
C) they represent
exceptions to the
laws of demand
and supply.
D) equilibrium is
never achieved in
such markets.
B 2
275 63. Protective tariffs are: A) maximum limits on
the quantity or total
value of specific
products imported to a
nation.
B) excise taxes or
duties placed on
imported products.
C) licensing
requirements,
unreasonable
quality standards,
and the like
designed to
impede imports.
D) government
payments to
domestic producers
to reduce the world
prices of exported
goods.
B 2
276 64 Import quotas are: A) maximum limits
on the quantity or
total value of specific
products imported to
a nation.
B) excise taxes or duties
placed on imported
products.
C) licensing
requirements,
unreasonable
quality standards,
and the like
designed to
impede imports.
D) government
payments to
domestic producers
to reduce the world
prices of exported
goods.
A 1

277 65 Export subsidies are: A) maximum limits on
value of specific
nation.
placed on imported
products.
C) licensing
requirements,
unreasonable
quality standards,
and the like
designed to
impede imports.
D) government
payments to
domestic producers
to reduce the world
prices of exported
goods.
D 4
278 66. Nontariff barriers are: A) maximum limits on
value of specific
nation.
placed on imported
products.
C) licensing
requirements,
unreasonable
quality
standards, and
the like designed
to impede
imports.
D) government
payments to
domestic producers
to reduce the world
prices of exported
goods.
C 3
279 67. A nation's true gain from
international trade is:
A) increased
employment in export
industries.
B) an overall increase
in output obtained
through specialization
and exchange.
C) added
technological
knowledge.
D) the tariff revenue
that goes to the
national treasury.
B 2
280 68. The "most-favored-nation"
clause of reciprocal trade
agreements:
A) outlaw tariffs on
products for which an
exporting nation has a
comparative advantage.
B) single out a particular
nation for exemption
from an import quota.
C) means that
any tariff
reductions the
United States
negotiates with a
specific nation
will
automatically
apply to many
other nations.
D) confers special
trade privileges to
nations in which the
United States has
military bases.
C 3
281 69 The General Agreement on
Tariffs and Trade (GATT) is
based on the principle of:
A) establishing a single
international currency.
B) tariff reductions
through multilateral
negotiations.
C) converting
tariffs to import
quotas.
D) establishing
common
environmental and
labor standards for
all member nations.
B 2

282 70 The Uruguay Round of GATT
negotiations completed in late
1993:
A) established a free
trade zone between the
United States and
Mexico.
B) made the Russian
ruble convertible into
other currencies.
C) created the
European Union
(EU).
D) created
international
protections for
intellectual
property such as
patents, copyrights,
and trademarks.
D 4
283 71. An important outcome of the
Uruguay Round of GATT
negotiations was:
A) a worldwide
reduction of
agricultural export
subsidies.
B) establishment of the
European Union.
C) the elimination
of all tariffs and
quotas worldwide.
D) establishment of
the World Bank.
A 1
284 72 The World Trade Organization
(WTO):
A) sets tariffs to
balance international
trade among nations.
B) is the successor to
GATT.
C) is better known
as the European
Union.
D) sets exchange
rates to balance
international trade
among nations.
B 2
285 73. The World Trade Organization
(WTO)
A) sets tariffs to
balance international
trade among nations.
B) is the successor to
NAFTA.
C) hears and
rules on trade
disputes between
nations.
D) sets exchange
rates to balance
international trade
among nations.
C 3
286 74. Proponents of the WTO argue
that free international trade and
investment will:
A) reduce economic
growth rates in the
industrial economies.
B) reduce employment
in developing nations.
C) eliminate
world poverty.
D) increase living
standards of all
trading nations.
D 4
287 75. A trade bloc is: A) a tariff or quota that
impedes imports.
B) a group of nations
that allows free trade
among member nations
but restrict imports
from non member
nations via tariffs and
quotas.
C) an area of a
nation where
manufacturers can
import product
components
without paying
tariffs.
D) a group of
nations that
advertise their
common export
goods abroad.
B 2
288 76. The main problem posed by
trade blocs for nonmember nations
is that:
A) member nations
may achieve growth
rates that exceed those
of nonmember nations.
B) nonmembers must
exchange their
currencies for foreign
monies before they can
engage in export or
import transactions.
C) nonmembers
face tariffs that
member nations
do not.
D) member nations
refuse to participate
in tariff negotiations
sponsored by GATT.
C 3

289 77. The North American Free
Trade Agreement (NAFTA):
A) resulted from
GATT negotiations at
the Uruguay Round.
B) established a free
trade zone
encompassing Canada,
Mexico, and the United
States.
C) is also known
as the Reciprocal
Trade Act.
D) permits the
former republics of
the Soviet Union to
export goods duty
free to North
America.
B 2
290 78. A number of European nations
have agreed to use the___________
as a common currency:
A) mark. B) pound. C) euro. D) continental. C 3
291 79 A nation's gross domestic
product (GDP):
A) is the value of the
total output produced
within the borders of
the nation.
B) is the value of the
total output produced by
its citizens, regardless of
where they are living.
C) can be found
by summing C +
In + S + Xn.
D) is always some
amount less than its
C + Ig + G + Xn.
A 1
292 80. The GDP is the: A) monetary value of
all final goods and
services produced
within a nation in a
particular year.
B) national income
minus all nonincome
charges against output.
C) monetary
value of all
economic
resources used in
producing a year's
output.
D) monetary value
of all goods and
services, final and
intermediate,
produced in a
specific year.
A 1
293 81. National income accountants
can avoid multiple counting by:
A) including transfers
in their calculations.
B) counting both
intermediate and final
goods.
C) only counting
final goods.
D) only counting
intermediate goods.
C 3
294 82 Final goods and services refer
to:
A) goods and services
that are unsold and
therefore added to
inventories.
B) goods and services
whose value has been
adjusted for changes in
the price level.
C) goods and
services
purchased by
ultimate users,
rather than for
resale or further
processing.
D) the excess of
exports over
imports.
C 3
295 83 If intermediate goods and
services were included in GDP:
A) the GDP would
then have to be
deflated for changes in
the price level.
B) nominal GDP would
exceed real GDP.
C) the GDP
would be
overstated.
D) the GDP would
be understated.
C 3
296 84 Which of the following is a final
good or service?
A) diesel fuel bought
for a delivery truck
B) fertilizer purchased
by a farm supplier
C) a haircut D) Chevrolet
windows purchased
by a General Motors
C 3

assembly plant
297 85 Which of the following is an
intermediate good?
A) the purchase of
gasoline for a ski trip
to delhi
B) the purchase of a
pizza by a college
student.
C) the purchase
of baseball
uniforms by a
professional
baseball team.
D) the purchase of
jogging shoes by a
professor
C 3
298 86 GDP includes: A) neither intermediate
nor final goods.
B) both intermediate and
final goods.
C) intermediate,
but not final,
goods.
D) final, but not
intermediate,
goods.
D 4
299 87 GDP can be calculated by
summing:
A) consumption,
investment,
government purchases,
exports, and imports.
B) investment,
government purchases,
consumption, and net
exports.
C) consumption,
investment,
wages, and rents.
D) consumption,
investment,
government
purchases, and
imports.
B 2
300 88 In national income accounting,
consumption expenditures include
purchases of:
A) both new and used
consumer goods.
B) automobiles for
personal use, but not
houses.
C) consumer
durable and
nondurable goods,
but not services.
D) consumer
nondurable goods
and services, but not
consumer durable
goods.
B 2
301 89 In national income accounting,
consumption expenditures include:
A) purchases of both
new and used
consumer goods.
B) consumer durable
goods and consumer
nondurable goods, but
not services.
C) consumer
durable goods,
consumer
nondurable
goods, and
services.
D) changes in
business inventories.
C 3
302 100. Net exports are: A) that portion of
consumption and
investment goods sent
to other countries.
B) exports plus imports. C) exports less
imports.
D) imports less
exports.
C 3
303 101. Gross investment refers to: A) private investment
minus public
investment.
B) net investment plus
replacement
investment.
C) net investment
after it has been
"inflated" for
changes in the
price level.
D) net investment
plus net exports.
B 2

304 102 Net exports are negative when: A) a nation's imports
exceed its exports.
B) the economy's stock
of capital goods is
declining.
C) depreciation
exceeds domestic
investment.
D) a nation's exports
exceed its imports.
A 1
305 103 GDP is equal to: A) C + Ig + G + Xn. B) C + Ig + G - Xn. C) C + In + G +
Xn.
D) C + In + G - Xn. A 1
306 104 As defined in national income
accounting, investment includes:
A) business
expenditures on
machinery and
equipment.
B) all consumption. C) imports, but
not exports.
D) all nonfood
items.
A 1
307 105. If the economy adds to its
inventory of goods during some
year:
A) gross investment
will exceed net
investment by the
amount of the
inventory increase.
B) this amount should be
ignored in calculating
that year's GDP.
C) this amount
should be
subtracted in
calculating that
year's GDP.
D) this amount
should be included
in calculating that
year's GDP.
D 4
308 106. In calculating GDP,
governmental transfer payments,
such as social security or
unemployment compensation, are:
A) not counted. B) counted as investment
spending.
C) counted as
government
spending.
D) counted as
consumption
spending.
A 1
309 107. Transfer payments are: A) excluded when
calculating GDP
because they only
reflect inflation.
B) excluded when
calculating GDP
because they do not
reflect current
production.
C) included when
calculating GDP
because they are a
category of
investment
spending.
D) included when
calculating GDP
because they
increase the
spending of
recipients.
B 2
310 108. GDP differs from NDP in
that:
A) GDP is based on
gross exports, while
NDP is based on net
exports.
B) GDP includes, but
NDP excludes, indirect
business taxes.
C) net investment
is used in
calculating GDP
and gross
investment is used
in calculating
NDP.
D) gross investment
is used in
calculating GDP
and net investment
is used in
calculating NDP.
D 4
311 109 If depreciation exceeds gross
investment:
A) the economy's stock
of capital may be either
growing or shrinking.
B) the economy's stock
of capital is shrinking.
C) the economy's
stock of capital is
growing.
D) net investment is
zero.
B 2

312 110 The concept of net domestic
investment refers to:
A) the amount of
machinery and
equipment used up in
producing the GDP in
a specific year.
B) the difference
between the market
value and book value of
outstanding capital
stock.
C) gross domestic
investment less
net exports.
D) total investment
less the amount of
investment goods
used up in
producing the
year's output.
D 4
313 111 GDP excludes: A) the market value
of unpaid work in the
home.
B) the production of
services.
C) the production
of nondurable
goods.
D) positive changes
in inventories.
A 1
314 112 Value added can be
determined by:
A) summing the profits
of all enterprises in the
economy.
B) subtracting the
purchase of
intermediate products
from the value of the
sales of final products.
C) calculating the
year-to-year
changes in real
GDP.
D) deflating nominal
GDP.
B 2
315 113 Personal income is most likely
to exceed national income:
A) when gross and net
investment are equal.
B) during a period of
recession or depression.
C) when gross
investment
exceeds net
investment.
D) during a period
of extended
inflation.
B 2
316 114. Which of the following best
defines disposable income?
A) income received by
households less
personal taxes
B) the before-tax income
received by households
C) all income
earned by
resource suppliers
for their current
contributions to
production
D) the market value
of the annual output
net of consumption
of fixed capital
A 1
317 115 Nominal GDP is: A) the sum of all
monetary transactions
that occur in the
economy in a year.
B) the sum of all
monetary transactions
involving final goods
and services that occur
in the economy in a
year.
C) the amount of
production that
occurs when the
economy is
operating at full
employment.
D) money GDP
adjusted for
inflation.
B 2
318 116 Real GDP refers to: A) the value of the
domestic output after
adjustments have been
made for
environmental
pollution and changes
B) GDP data that
embody changes in the
price level, but not
changes in physical
output.
C) GDP data that
reflect changes in
both physical
output and the
price level.
D) GDP data that
have been adjusted
for changes in the
price level.
D 4

in the distribution of
income.
319 117. Real GDP measures: A) current output at
current prices.
B) current output at
base year prices.
C) base year
output at current
prices.
D) base year output
at current exchange
rates.
B 2
320 118. Which of the following
activities is excluded from GDP,
causing GDP to understate a
nation's well-being?
A) the services of
health care workers
B) the services of
military personnel
C) the
construction of
new buildings
D) goods and
services produced
in the underground
economy.
D 4
321 119.A college graduate using the
summer following graduation to
search for a job would best be
classified as:
A) not officially a
member of the labor
force.
B) a part of structural
unemployment.
C) a part of
cyclical
unemployment.
D) a part of
frictional
unemployment.
D 4
322 120. Unemployment involving a
mismatch of the skills of
unemployed workers and the skills
required for available jobs is
called:
A) frictional
unemployment.
B) structural
unemployment.
C) cyclical
unemployment.
D) compositional
unemployment.
B 2
323 121 Structural unemployment: A) is also known as
frictional
unemployment.
B) is the main
component of cyclical
unemployment.
C) is said to occur
when people are
waiting to be
called back to
previous jobs.
D) may involve a
locational
mismatch between
unemployed
workers and job
openings.
D 4
324 127. Inflation means that: A) all prices are rising,
but at different rates.
B) all prices are rising
and at the same rate.
C) prices in the
aggregate are
rising, although
some particular
prices may be
falling.
D) real incomes are
rising.
C 3

325 129. The rate of inflation can be
found by subtracting:
A) the real income
from the nominal
income.
B) last year's price index
from this year's price
index.
C) this year's
price index from
last year's price
index and
dividing the
difference by this
year's price index.
D) last year's price
index from this
year's price index
and dividing the
difference by last
year's price index.
D 4
326 131 Demand-pull inflation: A) occurs when prices
of resources rise,
pushing up costs and
the price level.
B) occurs when total
spending exceeds the
economy's ability to
provide output at the
existing price level.
C) occurs only
when the
economy has
reached its
absolute
production
capacity.
D) is also called
cost-push inflation.
B 2
327 132 Demand-pull inflation: A) occurs when total
spending in the
economy is excessive.
B) is measured
differently than cost-
push inflation.
C) can be present
even during an
economic
depression.
D) is also called
"hyperinflation."
A 1
328 133 "Too much money chasing too
few goods" best describes:
A) the GDP gap. B) demand-pull
inflation.
C) the inflation
premium.
D) cost-push
inflation.
B 2
329 136 . Cost-push inflation: A) is caused by
excessive total
spending.
B) shifts the nation's
production possibilities
curve leftward.
C) moves the
economy inward
from its
production
possibilities
curve.
D) is a mixed
blessing because it
has positive effects
on real output and
employment.
C 3
330 139. During a period of
hyperinflation:
A) creditors gain
because their loans are
repaid with dollars of
higher value.
B) people tend to hold
goods rather than
money.
C) income is
redistributed away
from borrowers.
D) the real value of
the national currency
rises.
B 2
331 141 Unanticipated inflation: A) reduces the real
burden of the public
debt to the
government.
B) hurts borrowers and
helps lenders.
C) hurts people
whose sole source
of income is from
Social Security
benefits.
D) helps savers. A 1

332 143 Electronic money is: A) closely associated
with smart cards.
B) issued in real terms so
that it is immune from
the effects of inflation.
C) the money
dispensed by
automatic teller
machines
(ATMs).
D) also called share-
draft money.
A 1
333 144 Which of these pairs of
financial institutions are most alike
in terms of their main lines of
business?
A) commercial banks B) insurance companies
and mutual fund
companies.
C) thrifts and
securities firms.
D) pension fund
companies and
commercial banks.
A 1
334 145. Credits cards are: A) the fastest growing
component of the M1
money supply.
B) near-monies that are
part of the M3 money
supply but not part of the
M2 or M1 money
supplies.
C) not money,
officially defined.
D) also known as
time deposits.
C 3
335 147 Which of the following
statements is correct?
A) The actual reserves
of a commercial bank
equal its excess
reserves minus its
required reserves.
B) A bank's liabilities
plus its net worth equal
its assets.
C) When
borrowers repay
bank loans, the
supply of money
increases.
D) A single
commercial bank
can safely lend a
multiple amount of
its excess reserves.
B 2
336 148 If a bank has liabilities that
exceed its net worth it:
A) will not be able to
meet the legal reserve
ratio.
B) is considered to be
insolvent.
C) most likely is a
heavy borrower
from its district
Federal Reserve
Bank.
D) may or may not
be a profitable
firm.
D 4
337 149 The reserves of a commercial
bank consist of:
A) the amount of
money market funds it
holds.
B) deposits at the
Reserve Bank and
vault cash.
C) government
securities that the
bank holds.
D) the bank's net
worth.
B 2
338 150 The goldsmith's ability to
create money was based on the fact
that:
A) withdrawals of gold
tended to exceed
deposits of gold in any
given time period.
B) consumers and
merchants preferred to
use gold for transactions,
rather than paper money.
C) the goldsmith
was required to
keep 100 percent
gold reserves.
D) paper money in
the form of gold
receipts was rarely
redeemed for gold.
D 4
339 151. The primary purpose of the
legal reserve requirement is to:
A) prevent banks from
hoarding too much
vault cash.
B) provide a means by
which the monetary
authorities can
influence the lending
ability of
commercialbanks.
C) prevent
commercial banks
from earning
excess profits.
D) provide a
dependable source
of interest income
for commercial
banks.
B 2

340 151. Most modern banking
systems are based on:
A) money of intrinsic
value.
B) commodity money. C) 100 percent
reserves.
D) fractional
reserves.
D 4
341 152 Banks create money when
they:
A) add to their reserves
in the Reserve Bank.
B) accept deposits of
cash.
C) sell
government
bonds.
D) exchange
checkable deposits
for the IOU's of
businesses and
individuals.
D 4
342 153 Excess reserves refer to the: A) difference between
a bank's vault cash and
its reserves deposited
at the Reserve Bank.
B) minimum amount of
actual reserves a bank
must keep on hand to
back up its customers
deposits.
C) difference
between actual
reserves and
loans.
D) difference
between actual
reserves and
required reserves.
D 4
343 154 Individual commercial banks
are limited in their ability to create
money by lending because:
A) lending is likely to
result in the loss of
reserves to other
banks.
B) only the Treasury and
the Reserve Banks are
authorized to create new
money.
C) the Board of
Governors
prohibits bank
lending when the
result is an
expansion of the
money supply.
D) banking is a
highly competitive
industry.
A 1
344 155. When a commercial bank has
excess reserves:
A) it is in a position to
make additional
loans.
B) its actual reserves are
less than its required
reserves.
C) it is charging
too high an
interest rate on its
loans.
D) its reserves
exceed its assets.
A 1
345 156 Banks create money when
they:
A) allow loans to
mature.
B) accept deposits of
cash.
C) buy
government
bonds from
households.
D) sell government
bonds from
households.
C 3
346 157 An increase in the reserve
ratio:
A) increases the money
supply by increasing
excess reserves and
increasing the
monetary multiplier.
B) decreases the money
supply by decreasing
excess reserves and
decreasing the
C) increases the
money supply by
decreasing excess
reserves and
decreasing the
monetary
multiplier.
D) decreases the
money supply by
increasing excess
reserves and
decreasing the
B 2

347 158. The discount rate is the
interest:
A) rate at which the
central banks lend to
the govt of india.
B) rate at which the
Federal Reserve Banks
lend to commercial
banks.
C) yield on long-
term government
bonds.
D) rate at which
commercial banks
lend to the public.
B 2
348 159 Changes in the discount rate
are:
A) the most powerful
and useful tool of
monetary policy.
B) less frequent than
changes in the reserve
requirement.
C) more
important than
open-market
operations.
D) less important
than open-market
operations in
implementing
monetary policy.
D 4
349 160 The purpose of a tight money
policy is to:
A) alleviate recessions. B) raise interest rates
and restrict the
availability of bank
credit.
C) increase
aggregate demand
and GDP.
D) increase
investment
spending.
B 2
350 161 Which of the following actions
by the RBI would cause the
money supply to increase?
A) purchases of
government bonds
from banks.
B) an increase in the
reserve requirement.
C) an increase in
the discount rate.
D) sales of
government bonds to
the public.
A 1
351 162. If the economy were
encountering a severe recession,
proper monetary and fiscal
policies would call for:
A) selling government
securities, raising the
reserve ratio, lowering
the discount rate, and a
budgetarysurplus.
B) buying government
securities, reducing the
reserve ratio, reducing
the discount rate, and a
budgetarydeficit.
C) buying
government
securities, raising
the reserve ratio,
raising the
discount rate, and
a
budgetarysurplus.
D) buying
government
securities, reducing
the reserve ratio,
raising the discount
rate, and a
budgetarydeficit.
B 2
352 163 An increase in the money
supply will:
A) lower interest rates
and lower the
equilibrium GDP.
B) lower interest rates
and increase the
equilibrium GDP.
C) increase
interest rates and
increase the
equilibrium GDP.
D) increase interest
rates and lower the
equilibrium GDP.
B 2
353 164 The sale of government bonds
by the Reserve Banks to
commercial banks will:
A) increase aggregate
supply.
B) decrease aggregate
supply.
C) increase
aggregate
demand.
D) decrease
aggregate demand.
D 4

354 165. One of the strengths of
monetary policy relative to fiscal
policy is that monetary policy:
A) can be
implemented more
quickly.
B) is subject to closer
political scrutiny.
C) does not
produce a net
export effect.
D) entails a larger
spending income
multiplier effect on
real GDP.
A 1
355 166. Critics of economic growth: A) contend that growth
and industrialization
reduce pollution.
B) argue that economic
growth does not resolve
socioeconomic
problems such as
income inequality.
C) point out that
growth results in
greater economic
security for
workers.
D) say that its
benefits accrue
nearly exclusively to
white males.
B 2
356 167 Proponents of economic
growth make all of the following
arguments except:
A) Growth is the basic
means of improving
living standards.
B) It is easier to reduce
poverty when the
economy is growing than
when it is not.
C) There is a
direct
relationship
between a
growing real
GDP and rising
pollution.
D) Growth provides
an economic
environment
favorable to
education and self-
fulfillment.
C 3
357 168. The budget deficit is found
by:
A) subtracting
government tax
revenues plus
government borrowing
from government
spending in a particular
year.
B) subtracting
government tax
revenues from
government spending
in a particular year.
C) cumulating the
differences
between
government
spending and tax
revenues over all
years since the
nation's founding.
D) subtracting
government
revenues from the
noninvestment-type
government
spending in a
particularyear.
B 2
358 169 The amount by which
government expenditures exceed
revenues during a particular year
is the:
A) public debt. B) budget deficit. C) full-
employment.
D) GDP gap. B 2
359 170. If government adhered
strictly to an annually balanced
budget, then during a recession:
A) expenditures and
tax collections would
remain unchanged.
B) both expenditures and
tax rates would have to
be decreased.
C) both
expenditures and
tax rates would
have to be
increased.
D) expenditures
would have to be
reduced and/or tax
rates increased.
D 4

360 171. National Sample Survey
Organisation (NSSO) was
established in?
(A) 1950 (B) 1951 (C) 1952 (D) 1947 A 1
361 172. Which state stands first in the
length of roads in the country?
(A) U. P. (B) M. P. (C) Maharashtra (D) Rajasthan C 3
362 174. Gilt-edged market means A. bullion market B. market of
government securities
C. market of guns D. market of pure
metals
B 2
363 175. In the last one decade, which
one among the following sectors
has attracted the highest foreign
direct investment inflows into
India?
A. Chemicals other
than fertilizers
B. Services sector C. Food
processing
D.
Telecommunication
D 4
364 176. Devaluation of a currency
means
A. Reduction in the
value of a currency
vis-a-vis major
internationally traded
currencies
B. Permitting the
currency to seek its
worth in the international
market
C. Fixing the
value of the
currency in
conjunction with
the movement in
the value of a
basket of pre-
determined
currencies
D. Fixing the value
of currency in
multilateral
consultation with the
IMF, the World
Bank and major
trading partners
A 1
365 177. The chairman of the 13th
Finance Commission is
A. Vijay L. Kelkar B. Millen Kuamr
Banerjee
C. C.Rangarajan D. C.K.Jaffer Sheriff A 1
366 178. The Tenth Plan period was
from
A. 1900–1995 B. 1992–1997 C. 2002–2007 D. 2007–2012 C 3
367 179. National Rural Development
Institute is situated at
A. Patna B. Shimla C. Hyderabad D. New Delhi C 3
368 180. The Headquarter of RBI is in A. Delhi B. Nasik C. Mumbai D. Kanpur C 3
369 181. National Income estimates in
India is prepared by
A. RBI B. C.S.O. C. Finance
Ministry
D. Planning
Commission
B 2
370 181. On July 12, 1982, the ARDC
was merged into
A. RBI B. NABARD C. EXIM Bank D. None of the
above
B 2
371 182. The former name of State
Bank of India was
A. Central Bank of
India
B. United Bank of India C. Imperial
Bank of India
D. People’s Bank of
India
C 3

372 183. Deficit financing means that
the government borrows money
from the
A. RBI B. local bodies C. big
businessmen
D. IMF A 1
373 186. Notes on which denomination
has the portrait of Mahatma
Gandhi printed on them?
A. 1000 rupee B. 500 rupee C. 100 rupee D. All of the above D 4
374 187. The banks are required to
maintain a certain ratio between
their cash in the hand and totals
assets. This is called
A. Statutory Bank
Ratio (SBR)
B. Statutory Liquid
Ratio (SLR)
C. Central Bank
Reserve (CBR)
D. Central Liquid
Reserve (CLR)
B 2
375 188. Reserve Bank of India was
nationalized in the year
A. 1935 B. 1945 C. 1949 D. 1969 C 3
376 191. In India, which one among the
following formulates the fiscal
policy?
A. Planning
Commission
B. Ministry of Finance C. Finance
Commission
D. The Reserve
Bank of India
B 2
377 198. Which is the most important
source of income for Government
of India?
A. Interest B. Licence fee C. Income tax D. Excise duty D 4
378 202. VAT is imposed— (A) Directly on
consumer
(B) On final stage of
production
(C) On first stage
of production
(D) On all stages
between production
and final sale
D 4
379 203. SEBI was established in— (A) 1993 (B) 1992 (C) 1988 (D) 1990 C 3
380 204 . The working of SEBI
includes—
(A) To regulate the
dealings of share
market
(B) To check the foul
dealings in share market
(C) To control the
inside trading of
shares
(D) All of these D 4
381 205. Which statement of the
following is true for IMF ?
(A) It is not an agency
of UNO
(B) It can grant loan to
any country of the world
(C) It can grant
loan to state Govt.
of a country
(D) It grants loan
only to member
nations
D 4
382 206. Which of the following is a
union tax?
a. Corporation tax b. Taxes on agricultural
income
c. Capitation taxes d. Land revenues A 1
383 207 Which of the following taxes
is/are withdrawn or abolished?
a. Interest tax b. Estate duty c. Gift tax d. All the above D 4

384 208 The tax levied on the interstate
trade of goods is
a. Sales tax b. Excise tax c. Service tax d. Central sales tax D 4
385 209. The difference between
revenue expenditure and revenue
receipts is
a. Revenue deficit b. Fiscal deficit c. Budget deficit d. Primary deficit A 1
386 210. The difference between
revenue deficit and grants for
creation of capital assets is called
a. Fiscal deficit b. Budget deficit c. Effective
revenue deficit
d. Primary deficit C 3
387 211. The difference between total
expenditure and total receipts is
a. Fiscal deficit b. Budget deficit c. Primary deficit d. Revenue deficit B 2
388 212. The difference between total
expenditure and total receipts
except loans and other liabilities is
called
a. Fiscal deficit b. Budget deficit c. Primary deficit d. Revenue deficit A 1
389 213. The difference between fiscal
deficit and interest payment
during the year is called
a. Fiscal deficit b. Budget deficit c. Primary
deficit
d. Revenue deficit C 3
390 214 The number of products
reserved for small scale industry
till October 2008 is—
(A) 35 (B) 21 (C) 81 (D) 106 B 2
391 215. From 2nd November, 2010,
the Repo Rate has been fixed at—
(A) 3•5% (B) 5•5% (C) 4•5% (D) 6•25% D 4
392 216 For 2010-11, the CSO has
predicted India’s GDP Growth
at—
(A) below 7% (B) 8•6% (C) 8•5% (D) 9•5% B 2
393 220. Total receipts from service tax
during 2011-12 has been estimated
at—
(A) Rs. 58000 crore (B) Rs. 82000 crore (C) Rs. 78000
crore
(D) Rs. 88000 crore B 2
394 221. From November 7, 2009, the
SLR has been fixed at—
(A) 24% (B) 26% (C) 25•5% (D) 25% D 4
395 222. CENVAT is associated with— (A) Direct Tax (B) Income Tax (C) Indirect Tax (D) Service Tax C 3

396 223. The maximum limit of
Foreign Direct Investment (FDI) in
public sector banking is—
(A) 51% (B) 50% (C) 33% (D) 49% D 4
397 224 According to Small and
Medium Enterprise Development
Act, the maximum limit for
medium enterprise is—
(A) Rs. 25 lakhs (B) Rs. 1 crore (C) Rs. 5 crore (D) Rs. 10 crore D 4
398 225. In Human Development
Report 2010, India has HDI
ranking at—
(A) 126th
(B) 119th (C) 127th (D) 129th B 2
399 Economics is the study of how: Best to use society's
scarce resources.
Society spends the
income of individuals.
Society purchases
resources, given
its
macroeconomic
goals.
Individual market
participants decide
what to produce
given fixed resource
constraints.
a 1
400 Economics can be defined as the
study of:
For whom resources
are allocated to
increase efficiency.
How society spends the
income of individuals.
How scarce
resources are
allocated to
fulfill society's
goals.
What scarce
resources are used to
produce goods and
services.
c 3
401 The fundamental problem of
economics is:
The law of increasing
opportunity costs.
The scarcity of
resources relative to
human wants.
How to get
government to
operate
efficiently.
How to create
employment for
everyone.
b 2
402 In economics, what does scarcity
mean?
That a shortage of a
particular good will
cause the price to fall.
That a production-
possibilities curve
cannot accurately
represent the tradeoff
between two goods.
That society's
desires exceed
the want-
satisfying
capability of the
resources
available to
satisfy those
desires.
That the market
mechanism has
failed.
c 3

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