3rdSome MCQs
1. The fundamental economic problem faced by all societies is:
a. unemployment
b. inequality
c. poverty
d. scarcity✔
2. "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
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 ✔
4. If you were working full-time now, you could earn $20,000 per year. Instead, you are working part-time while going to school. In your current part-time job, you earn $5,000 per year. At your school, the annual cost of tuition, books, and other fees is $2,000. The opportunity cost of completing your education is:
a. $2,000
b. $5,000
c. $17,000✔
d. $20,000
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
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✔
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
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 percentage change in 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
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 ✔
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
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
12. The agricultural price support program is an example of
a. a price ceiling
b. a price floor ✔
c. equilibrium pricing
13. If there is a price floor, there will be
a. shortages
b. surpluses ✔
c. equilibrium
14. If there is a price ceiling, there will be
a. shortages✔
b. surpluses
c. equilibrium
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✔
16. The goal of a pure market economy is to best meet the desires of
a. consumers ✔
b. companies
c. workers
d. the government
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
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
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
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
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
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
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
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✔
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
d. all of the above✔
26. Which of the following is true about the way by which SDG&E has been regulated by the PUC?
a. SDG&E has been allowed to earn very high economic profits
b. The profits of SDG&E are calculated as a percent of the value of the capital goods✔
c. When the demand for electricity would fall, the price of electricity would also fall
d. All of the above
27. 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✔
28. 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
d. all of the above✔
29 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
30.If AR=1 then Monopoly power is :
a.0✔
b.1
c.2
d.Not determined
31. The largest source of tax revenue for the federal government is:
a. the personal income tax✔
b. the social security tax
c. the property tax
d. the sales tax
32. When my income was $100,000, I paid $10,000 in taxes. When my income became $200,000, I paid $40,000 in taxes. My marginal tax rate is:
a. 10%
b. 20%
c. 30%✔
d. 40%
33. The tax is question #2 is:
a. progressive✔
b. regressive
c. proportional
34. Which of the following taxes is regressive?
a. the federal income tax
b. the state income tax
c. the sales tax✔
d. the Medicare tax
35. Assume that there are two goods, A and B. In 1996, Americans produced 10 units of A at a price of $10 and 20 units of B at a price of $20. In 2002, Americans produced 20 units of A at a price of $20 and 30 units of B at a price of $30. The Nominal GDP for 2002 is:
a. $100
b. $400
c. $500
d. $900
e. $1300✔
36. Using the numbers in question 5, the Real GDP for 2002 is:
a. $400 b. $500 c. $800✔ d. $900 e. $1,300
37. Which of the following statements is/are true?
a. Business Investment Spending occurs when individuals buy stock in the stock market
b. Productivity is the United States grew very slowly between 1973 and 1996✔
c. Because of discouraged workers, the official unemployment rate is too high
d. “Full employment” occurs when there is no frictional unemployment
38. Immediately after a trough, we would expect to have a/an
a. peak
b. recession
c. recovery✔
d. another trough
39. Last week, Martha spent one day cleaning a house. For this, she was paid $50. The rest of the week, she spent looking for a job. Martha would be classified as
a. employed✔
b. unemployed
c. not in the labor force
d.all of the above
40. John lost his accounting job when Montgomery Wards closed its stores in San Diego. He looked for a similar job for ten months before finding an accounting job at Sears. During the month John was unemployed, he was
a. frictionally unemployed
b. seasonally unemployed
c. cyclically unemployed
d. structurally unemployed✔
41. Assume that there are only two goods: A and B
In the base year, Quantity Price
A 10 $1
B 10 $4
In the current year, Quantity Price
A 20 $ 5
B 25 $20
The Consumer Price Index (CPI) for the current year is:
a. 50
b. 100
c. 200
d. 500
e. 600✔
42. Which of the following groups is most hurt by unexpected inflation?
a. workers with cost of living adjustments in their labor contracts
b. homeowners
c. people with large debts to pay for their homes and cars
d. people with large retirement savings held in savings accounts✔
43. If the nominal interest rate is 5% and the inflation rate is 2%, the real interest rate is:
a. 2%
b. 3%✔
c. 5%
d. 7%
e. 2 ½%
44. For which of the following reasons might inflation cause Real GDP to grow slower than it otherwise would?
a. Inflation makes everyone poorer
b. Inflation reduces the value of consumer debt
c. Inflation increases business investment spending
d. Inflation decreases savings in financial form✔
45. Disposable Income is equal to:
a. National Income c. National Income Minus Taxes
b. Real GDP
c. National Income Minus Taxes
d. National Income Minus Taxes Plus Transfers✔
46. Assume that Potential Real GDP equals $10,000. National Income is therefore $10,000. Of this, consumers will pay $2,000 in taxes, save $1,000, and spend $7,000 on consumer goods. Business Investment spending is $2000. In order to avoid recessions and inflation (to have equilibrium), the government should have a:
a. balanced budget
b. budget deficit of $1000
c. budget surplus of $1000✔
d. budget deficit of $2000
47. According to Keynes, when the Great Depression started, the government should have:
a. done nothing
b. decreased the money supply
c. had a large increase in government spending✔
d. enacted high tariffs, such as the Smoot-Hawley Tariff
48. If the government lowers taxes by $10 billion, the Real GDP will rise by
a. more than $10 billion✔
b. less than $10 billion
c. exactly $10 billion
49. Which of the following is an automatic stabilizer?
a. unemployment benefits✔
b. spending on education
c. defense spending
d. net interest
50. “Crowding out” means that
a. a government budget deficit lowers interest rates and causes investment spending to rise
b. an increase in marginal tax rates lowers production
c. a government budget deficit raises interest rates and causes investment spending to fall✔
d. a government budget deficit raises American exports and lowers American imports
51. Which of the following IS a function of money?
a. medium of exchange
b. store of value
c. unit of accounting
d. all of the above✔
52. Which of the following is a component of M-1?
a. savings deposits
b. credit card
c. checkable deposits✔
d. gold
53. Which of the following is a NOT component of M-2?
a. small time deposits
b. money market mutual funds
c. stocks✔
d. checkable deposits
54. Which of the following is true about the Federal Reserve System (Fed)?
a. it is a system of 12 central banks✔
b. its Board of Governors is elected by a vote of the people
c. its main policy-making body is the FDIC
d. it accepts deposits from the public and makes loans to businesses
e. all of the above
55. An IOU of the Federal Reserve Bank of San Francisco to Bank of America is called:
a. discounts
b. federal funds
c. reserves✔
d. collateral
56. Which of the following is the most liquid?
a. a savings account✔
b. a 6 month CD
c. a home
d. water
57. The monetary base is composed of:
a. gold and silver
b. currency only
c. currency and reserves✔
d. currency and checkable deposits
58. If the monetary base is increased by $1,000 and the reserve requirement is 10% (1/10), by how much will the money supply be increased?
a. $100
b. $1,000
c. $5,000
d. $10,000✔
59.If the Federal Reserve wishes to increase the money supply, it should:
a. raise the reserve requirement
b. raise the discount rate
c. buy Treasury securities in the open market✔
d. all of the above
60. An increase in the money supply will cause interest rates to
a. rise
b. fall✔
c. remain unchanged
d.None
a. unemployment
b. inequality
c. poverty
d. scarcity✔
2. "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
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 ✔
4. If you were working full-time now, you could earn $20,000 per year. Instead, you are working part-time while going to school. In your current part-time job, you earn $5,000 per year. At your school, the annual cost of tuition, books, and other fees is $2,000. The opportunity cost of completing your education is:
a. $2,000
b. $5,000
c. $17,000✔
d. $20,000
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
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✔
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
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 percentage change in 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
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 ✔
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
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
12. The agricultural price support program is an example of
a. a price ceiling
b. a price floor ✔
c. equilibrium pricing
13. If there is a price floor, there will be
a. shortages
b. surpluses ✔
c. equilibrium
14. If there is a price ceiling, there will be
a. shortages✔
b. surpluses
c. equilibrium
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✔
16. The goal of a pure market economy is to best meet the desires of
a. consumers ✔
b. companies
c. workers
d. the government
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
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
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
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
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
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
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
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✔
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
d. all of the above✔
26. Which of the following is true about the way by which SDG&E has been regulated by the PUC?
a. SDG&E has been allowed to earn very high economic profits
b. The profits of SDG&E are calculated as a percent of the value of the capital goods✔
c. When the demand for electricity would fall, the price of electricity would also fall
d. All of the above
27. 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✔
28. 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
d. all of the above✔
29 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
30.If AR=1 then Monopoly power is :
a.0✔
b.1
c.2
d.Not determined
31. The largest source of tax revenue for the federal government is:
a. the personal income tax✔
b. the social security tax
c. the property tax
d. the sales tax
32. When my income was $100,000, I paid $10,000 in taxes. When my income became $200,000, I paid $40,000 in taxes. My marginal tax rate is:
a. 10%
b. 20%
c. 30%✔
d. 40%
33. The tax is question #2 is:
a. progressive✔
b. regressive
c. proportional
34. Which of the following taxes is regressive?
a. the federal income tax
b. the state income tax
c. the sales tax✔
d. the Medicare tax
35. Assume that there are two goods, A and B. In 1996, Americans produced 10 units of A at a price of $10 and 20 units of B at a price of $20. In 2002, Americans produced 20 units of A at a price of $20 and 30 units of B at a price of $30. The Nominal GDP for 2002 is:
a. $100
b. $400
c. $500
d. $900
e. $1300✔
36. Using the numbers in question 5, the Real GDP for 2002 is:
a. $400 b. $500 c. $800✔ d. $900 e. $1,300
37. Which of the following statements is/are true?
a. Business Investment Spending occurs when individuals buy stock in the stock market
b. Productivity is the United States grew very slowly between 1973 and 1996✔
c. Because of discouraged workers, the official unemployment rate is too high
d. “Full employment” occurs when there is no frictional unemployment
38. Immediately after a trough, we would expect to have a/an
a. peak
b. recession
c. recovery✔
d. another trough
39. Last week, Martha spent one day cleaning a house. For this, she was paid $50. The rest of the week, she spent looking for a job. Martha would be classified as
a. employed✔
b. unemployed
c. not in the labor force
d.all of the above
40. John lost his accounting job when Montgomery Wards closed its stores in San Diego. He looked for a similar job for ten months before finding an accounting job at Sears. During the month John was unemployed, he was
a. frictionally unemployed
b. seasonally unemployed
c. cyclically unemployed
d. structurally unemployed✔
41. Assume that there are only two goods: A and B
In the base year, Quantity Price
A 10 $1
B 10 $4
In the current year, Quantity Price
A 20 $ 5
B 25 $20
The Consumer Price Index (CPI) for the current year is:
a. 50
b. 100
c. 200
d. 500
e. 600✔
42. Which of the following groups is most hurt by unexpected inflation?
a. workers with cost of living adjustments in their labor contracts
b. homeowners
c. people with large debts to pay for their homes and cars
d. people with large retirement savings held in savings accounts✔
43. If the nominal interest rate is 5% and the inflation rate is 2%, the real interest rate is:
a. 2%
b. 3%✔
c. 5%
d. 7%
e. 2 ½%
44. For which of the following reasons might inflation cause Real GDP to grow slower than it otherwise would?
a. Inflation makes everyone poorer
b. Inflation reduces the value of consumer debt
c. Inflation increases business investment spending
d. Inflation decreases savings in financial form✔
45. Disposable Income is equal to:
a. National Income c. National Income Minus Taxes
b. Real GDP
c. National Income Minus Taxes
d. National Income Minus Taxes Plus Transfers✔
46. Assume that Potential Real GDP equals $10,000. National Income is therefore $10,000. Of this, consumers will pay $2,000 in taxes, save $1,000, and spend $7,000 on consumer goods. Business Investment spending is $2000. In order to avoid recessions and inflation (to have equilibrium), the government should have a:
a. balanced budget
b. budget deficit of $1000
c. budget surplus of $1000✔
d. budget deficit of $2000
47. According to Keynes, when the Great Depression started, the government should have:
a. done nothing
b. decreased the money supply
c. had a large increase in government spending✔
d. enacted high tariffs, such as the Smoot-Hawley Tariff
48. If the government lowers taxes by $10 billion, the Real GDP will rise by
a. more than $10 billion✔
b. less than $10 billion
c. exactly $10 billion
49. Which of the following is an automatic stabilizer?
a. unemployment benefits✔
b. spending on education
c. defense spending
d. net interest
50. “Crowding out” means that
a. a government budget deficit lowers interest rates and causes investment spending to rise
b. an increase in marginal tax rates lowers production
c. a government budget deficit raises interest rates and causes investment spending to fall✔
d. a government budget deficit raises American exports and lowers American imports
51. Which of the following IS a function of money?
a. medium of exchange
b. store of value
c. unit of accounting
d. all of the above✔
52. Which of the following is a component of M-1?
a. savings deposits
b. credit card
c. checkable deposits✔
d. gold
53. Which of the following is a NOT component of M-2?
a. small time deposits
b. money market mutual funds
c. stocks✔
d. checkable deposits
54. Which of the following is true about the Federal Reserve System (Fed)?
a. it is a system of 12 central banks✔
b. its Board of Governors is elected by a vote of the people
c. its main policy-making body is the FDIC
d. it accepts deposits from the public and makes loans to businesses
e. all of the above
55. An IOU of the Federal Reserve Bank of San Francisco to Bank of America is called:
a. discounts
b. federal funds
c. reserves✔
d. collateral
56. Which of the following is the most liquid?
a. a savings account✔
b. a 6 month CD
c. a home
d. water
57. The monetary base is composed of:
a. gold and silver
b. currency only
c. currency and reserves✔
d. currency and checkable deposits
58. If the monetary base is increased by $1,000 and the reserve requirement is 10% (1/10), by how much will the money supply be increased?
a. $100
b. $1,000
c. $5,000
d. $10,000✔
59.If the Federal Reserve wishes to increase the money supply, it should:
a. raise the reserve requirement
b. raise the discount rate
c. buy Treasury securities in the open market✔
d. all of the above
60. An increase in the money supply will cause interest rates to
a. rise
b. fall✔
c. remain unchanged
d.None
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