Econ Final Exam Practice Quiz Questions

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  • 1/225 Questions

    Which of the following is a source of diseconomies of scale?

    • As a firm expands it's output labor begins to specialize
    • As a firm expands it finds itself depending more on hierarchical means of coordinating it's employees' activities
    • Individual employee incentives become clearer
    • Individual departments and divisions tend to work more as a team
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Economics Quizzes & Trivia
About This Quiz

This Econ Final Exam Practice Quiz assesses understanding of economic principles, focusing on scarcity, market requirements, and differences between microeconomics and macroeconomics. It's designed to prepare students for final exams by testing key concepts in economics.

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  • 2. 

    Suppose the target reserve ratio for the banking system is 10 percent and deposits are the only form of money. If the central bank supplies $1,000 in new reserves though an open market operation, the money stock will increase by how much after bankds use the new reserves as a basis for additional loans?

    • $10,000

    • $9,000

    • $900

    • $100

    Correct Answer
    A. $10,000
    Explanation
    When the central bank supplies $1,000 in new reserves, banks are able to use this as a basis for additional loans. The reserve ratio is 10 percent, which means that banks are required to hold 10 percent of their deposits as reserves. Since the central bank supplied $1,000 in new reserves, banks can create new loans worth 10 times that amount, which is $10,000. Therefore, the money stock will increase by $10,000.

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  • 3. 

    An economic policy is said to improve inefficiency if

    • It makes at least one person better off

    • It makes no one worse off

    • It makes at least one person better off and makes no one worse off

    • It makes a majority of people better off

    Correct Answer
    A. It makes at least one person better off and makes no one worse off
    Explanation
    An economic policy is said to improve inefficiency if it makes at least one person better off and makes no one worse off. This means that the policy should result in a positive outcome for at least one individual without negatively impacting anyone else. By ensuring that no one is worse off, the policy avoids creating any losers and promotes overall welfare improvement. This criterion emphasizes the importance of equity and fairness in economic decision-making.

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  • 4. 

    Environmental problems and policies provide numerous examples of

    • Market failures

    • Government failures

    • Both a and b

    • Neither a nor b

    Correct Answer
    A. Both a and b
    Explanation
    Environmental problems and policies often involve market failures, where the free market system fails to allocate resources efficiently to address environmental issues. This can occur due to externalities, such as pollution, where the costs are not fully borne by the polluter. Additionally, government failures can also contribute to environmental problems, such as inadequate regulation or enforcement. Therefore, both market failures and government failures are examples that can be observed in the context of environmental problems and policies.

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  • 5. 

    A point representing 500 roast turkey dinners and 600 steak dinners lies outside the production possibilty frontier of Joe's Restaurant, given the factors of production and technology available to it. This means that

    • The point can be produced if all factors are fully used

    • The point cannot possibly be produced given the current available factors of production

    • The point can be produced even when some of the factors are idle

    • No conclusion can be drawn from the information given

    Correct Answer
    A. The point cannot possibly be produced given the current available factors of production
    Explanation
    The given answer, "The point cannot possibly be produced given the current available factors of production," is the correct explanation. This means that Joe's Restaurant does not have the resources or technology to produce 500 roast turkey dinners and 600 steak dinners. The production possibility frontier represents the maximum output that can be achieved with the given resources and technology, and any point outside of this frontier is unattainable. Therefore, the point representing 500 roast turkey dinners and 600 steak dinners cannot be produced by Joe's Restaurant.

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  • 6. 

    Using Qs to indicate quantity supplied and Qd to indicate quantity demanded, which of the following circumstances would be likely to produce an upward movement of the price of a good?

    • Qs=100, Qd=200

    • Qs= 100, Qd=100

    • Qs=200, Qd=100

    • Not enough information given for an answer

    Correct Answer
    A. Qs=100, Qd=200
    Explanation
    When the quantity supplied (Qs) is less than the quantity demanded (Qd), it indicates that there is a shortage in the market. In this case, Qs=100 and Qd=200, which means that the demand for the good exceeds the supply. As a result, sellers can increase the price of the good to take advantage of the high demand and limited supply. This upward movement of the price is likely to occur in this circumstance.

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  • 7. 

    A tax on imports is known as a: 

    • Tariff

    • Quota

    • Trading bloc

    • Voluntary export restraint

    Correct Answer
    A. Tariff
    Explanation
    A tax on imports is known as a tariff. A tariff is a government-imposed tax on goods that are imported into a country. It is used to increase the price of imported goods, making them less competitive compared to domestically produced goods. Tariffs are often used to protect domestic industries, generate revenue for the government, or address trade imbalances.

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  • 8. 

    A monopolist than wants to maximize profits should produce where:

    • MC =ATC

    • MC = MR

    • MR = AVC

    • AVC =AR

    Correct Answer
    A. MC = MR
    Explanation
    In order to maximize profits, a monopolist should produce where marginal cost (MC) is equal to marginal revenue (MR). This is because at this point, the additional cost of producing one more unit (MC) is equal to the additional revenue generated from selling that unit (MR). By producing at this level, the monopolist can ensure that they are maximizing their profits and not incurring any unnecessary costs or missing out on potential revenue.

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  • 9. 

    In 2003, it cost $185 to purchase the same basket of consumer goods that could have been purchased for $100 in 1982. A worker who earned $800 per week in 1982 and $1,550 per week in 2003, therefore, would have experienced

    • An increase in real income

    • A decrease in real income

    • No change in real income

    • There is not enough information given to determine the answer

    Correct Answer
    A. An increase in real income
    Explanation
    The cost of the basket of consumer goods increased from $100 in 1982 to $185 in 2003. However, the worker's income also increased from $800 per week in 1982 to $1,550 per week in 2003. Since the increase in income is greater than the increase in the cost of goods, the worker's purchasing power has increased. Therefore, the worker would have experienced an increase in real income.

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  • 10. 

    Scarcity is

    • Best measured in objective terms such as tons or kilowatt hours.

    • A problem only in less-developed countries

    • A matter of the relationship between resources and human wants

    • Important for microeconomics, but not macroeconomics.

    Correct Answer
    A. A matter of the relationship between resources and human wants
    Explanation
    Scarcity refers to the limited availability of resources compared to the unlimited wants and needs of individuals and society. It is a concept that applies to all countries, regardless of their level of development. Scarcity is not best measured in objective terms like tons or kilowatt hours, as it is a qualitative concept that involves the relationship between resources and human desires. Both microeconomics and macroeconomics study scarcity, as it is a fundamental concept in understanding economic behavior and decision-making at both individual and aggregate levels.

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  • 11. 

    Which of the following is necesssary in order for a monopolist to practice price discrimination?

    • Inelastic demand for all customers

    • Knowledge of demand elasticity of different groups of customers

    • Elastic demand for all customers

    • Knowledge of consumer surplus for all customers

    Correct Answer
    A. Knowledge of demand elasticity of different groups of customers
    Explanation
    In order for a monopolist to practice price discrimination, they need to have knowledge of demand elasticity of different groups of customers. This is because price discrimination involves charging different prices to different groups of customers based on their willingness to pay. By understanding the demand elasticity of different customer groups, the monopolist can determine the optimal pricing strategy to maximize their profits. This knowledge allows them to set higher prices for customers with relatively inelastic demand and lower prices for customers with relatively elastic demand.

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  • 12. 

    From 1950 to 2007, the U.S. economy 

    • Was in an almost constant state of recession

    • Experienced some recessions, but grew at an average rate of about 3 percent per year

    • Avoided recession, but also failed to achieve any growth of real GDP

    • Experienced no recessions and grew steadily at about 3 percent per year

    Correct Answer
    A. Experienced some recessions, but grew at an average rate of about 3 percent per year
    Explanation
    The correct answer suggests that from 1950 to 2007, the U.S. economy experienced some recessions, but overall it grew at an average rate of about 3 percent per year. This means that although there were periods of economic decline, the economy managed to recover and achieve consistent growth over the long term.

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  • 13. 

    Which of the following is an example of a supply shock that would shift the aggregate supply curve upward?

    • An open market purchase by the Fed

    • An increase in world commodity prices (for commodity-importing country)

    • An appreciation of the county's currency relative to foreign currencies

    • A decrease in tax rates

    Correct Answer
    A. An increase in world commodity prices (for commodity-importing country)
    Explanation
    An increase in world commodity prices for a commodity-importing country would shift the aggregate supply curve upward. This is because when the prices of commodities increase, it becomes more expensive for the country to import those commodities. As a result, the overall cost of production for businesses in the country increases. This leads to a decrease in the supply of goods and services in the economy, causing the aggregate supply curve to shift upward.

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  • 14. 

    Policies related to the government's budget are known as

    • Fiscal policy

    • Monetary policy

    • Trade policy

    • None of the above

    Correct Answer
    A. Fiscal policy
    Explanation
    Fiscal policy refers to the government's decisions regarding taxation and spending in order to influence the economy. It involves measures such as adjusting tax rates, increasing or decreasing government spending, and implementing policies to manage inflation and unemployment. Monetary policy, on the other hand, relates to the actions taken by a central bank to control the money supply and interest rates to achieve economic stability. Trade policy refers to the regulations and agreements that govern international trade. Therefore, the correct answer is fiscal policy as it specifically relates to the government's budget decisions.

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  • 15. 

    Economic forecasts tend to be most accurate in which of the following cases?

    • In periods where the rate of growth and inflation are steady from year to year

    • In developing countries that have small, simple economies

    • When the economy is approaching a peak of the business cycle

    • When the economy is approaching the trough of the business cycle

    Correct Answer
    A. In periods where the rate of growth and inflation are steady from year to year
    Explanation
    Economic forecasts tend to be most accurate in periods where the rate of growth and inflation are steady from year to year because it allows for more predictable patterns and trends in the economy. When growth and inflation rates are stable, it becomes easier for economists to make accurate predictions about future economic conditions. This is because they can analyze past data and trends to project future outcomes with a higher level of confidence. In contrast, when growth and inflation rates are volatile or unpredictable, it becomes more challenging to accurately forecast economic conditions.

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  • 16. 

    ERB stabilization policy means a policy to combat hyperinflation that is based on

    • An exogenous real bound for the nominal interest rate

    • Introducing a fixed exchange rate of the nation's currency relative to a stable foreign currency

    • Exchange of real bills for liquid assets issues by the central bank

    • Fiscal consolidation to eliminate the real budget deficit

    Correct Answer
    A. Introducing a fixed exchange rate of the nation's currency relative to a stable foreign currency
    Explanation
    ERB stabilization policy refers to a policy aimed at addressing hyperinflation. It involves implementing a fixed exchange rate between the nation's currency and a stable foreign currency. By pegging the exchange rate, the government ensures that the value of the domestic currency remains stable, which helps to control inflation. This policy helps to restore confidence in the currency, encourages foreign investment, and promotes economic stability.

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  • 17. 

    Policies to control unemployment are primarily a concern of 

    • Macroeconomics

    • Microeconomics

    • Normative Economics

    • Econometrics

    Correct Answer
    A. Macroeconomics
    Explanation
    Macroeconomics is the study of the overall economy, including factors such as unemployment rates, inflation, and economic growth. Policies to control unemployment, which involve government intervention and macro-level strategies, fall under the purview of macroeconomics. This branch of economics focuses on understanding and analyzing the economy as a whole, rather than individual markets or specific economic agents. Therefore, it is the most appropriate field to address policies aimed at controlling unemployment at a broader level.

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  • 18. 

    If the short-run  aggregate supply curve intersects the aggregate demand curve at a point to the right of the natural level of real output, then, over time, the expected level of input prices will tend to

    • Rise

    • Fall

    • Remain unchanged

    • No generalization is possible

    Correct Answer
    A. Rise
    Explanation
    If the short-run aggregate supply curve intersects the aggregate demand curve at a point to the right of the natural level of real output, it indicates that the economy is operating above its potential output. This means that there is excess demand in the economy, leading to upward pressure on input prices. As businesses try to meet the increased demand, they may have to pay higher prices for inputs, such as labor and raw materials. Over time, this would result in the expected level of input prices rising.

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  • 19. 

    If the U.S. were to relax it's immigration restrictions, we might expect

    • A shift outward of the nations production possibilities frontier because of an increase in the potential labor force

    • A shift inward of the nations production possibilities frontier as unemployment increases.

    • No change in the production possibilities frontier.

    • An inward shift of the nations production possibilities frontier because of new technology

    Correct Answer
    A. A shift outward of the nations production possibilities frontier because of an increase in the potential labor force
    Explanation
    If the U.S. were to relax its immigration restrictions, it would lead to an increase in the potential labor force. This means that there would be more workers available to contribute to the production of goods and services in the country. As a result, the nation's production possibilities frontier would shift outward. This indicates that the economy would be able to produce more goods and services than before, leading to potential economic growth and expansion.

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  • 20. 

    If total investment exceeds saving, 

    • The economy cannot be in equilibrium

    • There must either be a government budget surplus or a foreign trade deficit or both

    • Prices and/or output must increase

    • None of the above

    Correct Answer
    A. There must either be a government budget surplus or a foreign trade deficit or both
    Explanation
    If the total investment exceeds saving, it means that there is a deficit in the savings of the economy. This implies that the economy is spending more than it is saving, which can lead to a decrease in the overall level of savings. In order to finance this deficit, the economy must either have a government budget surplus or a foreign trade deficit, or both. A government budget surplus means that the government is saving more than it is spending, while a foreign trade deficit means that the country is importing more goods and services than it is exporting, resulting in a deficit in the balance of trade.

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  • 21. 

    Investment, as the term is used in economics, means

    • Creating money

    • Putting money in the bank

    • Increasing the economy's stock of capital

    • Inventing new ways of doing things

    Correct Answer
    A. Increasing the economy's stock of capital
    Explanation
    Investment, in economics, refers to the act of increasing the economy's stock of capital. This involves allocating resources towards the production and acquisition of physical assets such as machinery, equipment, buildings, and infrastructure, which are essential for economic growth and development. By increasing the economy's stock of capital, investment aims to enhance productivity, stimulate economic activity, and contribute to long-term economic expansion.

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  • 22. 

    Economics profit is calculated as:

    • Total revenue minus explicit costs minus implicit costs.

    • Total revenue plus explicit costs plus implicit costs.

    • Total revenue minus explicit costs

    • Total revenue minus implicit costs

    Correct Answer
    A. Total revenue minus explicit costs minus implicit costs.
    Explanation
    The correct answer is "Total revenue minus explicit costs minus implicit costs." This is because economic profit takes into account not only the explicit costs (such as wages, rent, and materials) but also the implicit costs (such as the opportunity cost of the owner's time and capital). By subtracting both explicit and implicit costs from total revenue, we get a more accurate measure of the true profitability of a business or venture.

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  • 23. 

    Which of the following is key to increased standards of living in the long run?

    • Inflation

    • Growth in total labor input

    • Labor productivity growth

    • Population growth

    Correct Answer
    A. Labor productivity growth
    Explanation
    Labor productivity growth is key to increased standards of living in the long run. This is because when labor productivity increases, more output can be produced with the same amount of input. This leads to higher wages for workers, increased profits for businesses, and overall economic growth. As productivity increases, individuals and businesses can afford to consume more goods and services, leading to higher standards of living. Additionally, labor productivity growth encourages technological advancements and innovation, which further drives economic growth and improves living standards.

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  • 24. 

    If domestic product = 1,000, consumption = 800, planned investment = 100, government purchases = 150, exports =50, and imports = 75, then unplanned inventory investment must be

    • -25

    • 0

    • 25

    • None of the above

    Correct Answer
    A. -25
    Explanation
    Unplanned inventory investment refers to the change in inventory levels that occurs when actual sales differ from expected sales. In this case, consumption is 800, planned investment is 100, government purchases are 150, exports are 50, and imports are 75. To calculate unplanned inventory investment, we need to subtract actual sales (consumption + planned investment + government purchases + exports - imports) from domestic product. Therefore, unplanned inventory investment is 1000 - (800 + 100 + 150 + 50 - 75) = -25. This means that there is an unplanned decrease in inventory levels, resulting in a negative value of -25.

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  • 25. 

    If the level of final goods prices is higher than the expected level of input prices at the point of short-run equililbrium, we can expect which of the following to occur as the economy adjusts?

    • An upward shift of the short-run aggregate supply curve

    • A rightward shift of the long-run aggregate supply curve

    • A leftward shift of the long-run aggregate supply curve

    • A downward shift of the short-run aggregate supply curve

    Correct Answer
    A. An upward shift of the short-run aggregate supply curve
    Explanation
    If the level of final goods prices is higher than the expected level of input prices at the point of short-run equilibrium, it indicates that the costs of production have increased. In response to this, firms may reduce their output or increase their prices, leading to a decrease in aggregate supply in the short run. This would result in a leftward shift of the short-run aggregate supply curve. Therefore, the correct answer is a downward shift of the short-run aggregate supply curve.

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  • 26. 

    The tendency of policymakers to delay painful anti-inflation policies until after an election is an example of which of the following?

    • Time-inconsistency

    • Inside lags

    • A taylor rule

    • Monetarism

    Correct Answer
    A. Time-inconsistency
    Explanation
    The tendency of policymakers to delay painful anti-inflation policies until after an election is an example of time-inconsistency. This refers to a situation where policymakers have a preference for short-term gains, such as winning an election, over long-term goals, such as controlling inflation. By delaying anti-inflation policies, policymakers may be able to gain short-term popularity but at the expense of long-term economic stability. This inconsistency arises because what is considered optimal in the short run may not be optimal in the long run.

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  • 27. 

    Given identical marginal cost and demand curves, simple monopoly, compared to perfect competition, will result in a lower

    • Output

    • Price

    • Producer Surplus

    • Deadweight loss

    Correct Answer
    A. Output
    Explanation
    In a simple monopoly compared to perfect competition, the monopolist has the power to control the market and set prices higher than the marginal cost. This leads to a lower output level because the monopolist restricts production to maximize profits. As a result, the monopolist can charge a higher price to consumers, resulting in a higher producer surplus. However, this also leads to deadweight loss, which represents the inefficiency in the market due to the monopolist's ability to restrict output and charge higher prices.

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  • 28. 

    Observations of the U.S. economy suggest that in the short run, when the price level of final goods changes, input prices tend to adjust

    • Gradually

    • Instantly and completely

    • Not at all

    • In the opposite direction

    Correct Answer
    A. Gradually
    Explanation
    In the short run, when the price level of final goods changes, observations of the U.S. economy suggest that input prices tend to adjust gradually. This means that the adjustment process takes place over time rather than instantly and completely. The gradual adjustment allows for a smoother transition and helps to avoid sudden shocks to the economy.

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  • 29. 

    The required-reserve ratio is the minimum reserves that the central bank requires a bank or thrift to hold stated as a percentage of

    • Its liquid assets

    • Its total assets

    • The deposits to which the reserve requirement applies

    • Its net worth

    Correct Answer
    A. The deposits to which the reserve requirement applies
    Explanation
    The correct answer is "the deposits to which the reserve requirement applies." The required-reserve ratio is the minimum amount of reserves that a bank or thrift institution is required to hold as a percentage of the deposits on which the reserve requirement is applicable. This ratio ensures that banks have enough liquid assets to cover potential withdrawals by depositors and maintain stability in the financial system. By specifying the deposits to which the reserve requirement applies, the central bank sets the minimum reserves that banks must hold to fulfill their obligations.

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  • 30. 

    Which of the following is likely to be greater if accommodating policy is used after a supply shock than if there is no accommodating policy?

    • The price level

    • The level of real output

    • Both a and b

    • None of the above

    Correct Answer
    A. Both a and b
    Explanation
    If an accommodating policy is used after a supply shock, both the price level and the level of real output are likely to be greater. This is because an accommodating policy aims to mitigate the negative effects of the supply shock by increasing the money supply and stimulating economic activity. By increasing the money supply, the policy can help boost aggregate demand, leading to higher prices and increased production. Therefore, both the price level and the level of real output are expected to be higher with an accommodating policy compared to no policy.

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  • 31. 

    Which of the following is an example of normative economics

    • The rate of inflation was lower in 2009 than in 2008

    • The rate of inflation was below 6 percent per year in 2009

    • The rate of inflation should be held below 6 percent regardless of what happens to unemployment

    • If the budget deficit is reduced, other things being equal, the rate of inflation will fall.

    Correct Answer
    A. The rate of inflation should be held below 6 percent regardless of what happens to unemployment
  • 32. 

    The "other things being equal" clause in the law of demand covers

    • Consumer incomes

    • The prices of other goods

    • Consumer tastes and preferences

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    The "other things being equal" clause in the law of demand refers to the assumption that all other factors influencing demand remain constant. This means that when considering the relationship between price and quantity demanded, changes in consumer incomes, prices of other goods, and consumer tastes and preferences are all taken into account. Therefore, the correct answer is "All of the above" as all these factors are considered in the law of demand.

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  • 33. 

    Of the following persons, which one would be officially classified as unemployed?

    • A girl, 15, working 10 hours per week on her family's farm, without being paid

    • A construction worker off the job because of a winter storm

    • A 16-year-old person entering the labor force for the first time who is looking for a job, but has never before worked

    • None of the above would be classified as officially unemployed

    Correct Answer
    A. A 16-year-old person entering the labor force for the first time who is looking for a job, but has never before worked
    Explanation
    The correct answer is a 16-year-old person entering the labor force for the first time who is looking for a job, but has never before worked. This person meets the criteria of being actively seeking employment and being available for work, which are the requirements for being classified as unemployed. The other options either have some form of employment (working on the family's farm) or are temporarily unable to work due to external factors (construction worker off the job because of a winter storm).

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  • 34. 

    Suppose the Fed announces a target federal funds rate of 3 percent. Changing market conditions then increase banks' demand for reserves. Which of the following actions would help the Fed to hold the federal funds rate close to its target?

    • An open market purchase of securities

    • An open market sale of securities

    • An increase in discount rate

    • None of the above would help

    Correct Answer
    A. An open market purchase of securities
    Explanation
    An open market purchase of securities would help the Fed hold the federal funds rate close to its target because it increases the reserves in the banking system. When the Fed purchases securities from banks, it injects money into the system, increasing the supply of reserves. This increase in reserves makes it easier for banks to meet their reserve requirements and reduces their demand for borrowing in the federal funds market. As a result, the federal funds rate is likely to decrease and move closer to the target rate of 3 percent.

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  • 35. 

    A country that has a government budget deficit and domestic investment that exceeds domestic saving will also have

    • A current account deficit

    • A net financial outflow

    • A cyclical surplus

    • An external entitlement

    Correct Answer
    A. A current account deficit
    Explanation
    A country that has a government budget deficit and domestic investment that exceeds domestic saving will also have a current account deficit. This is because the government budget deficit means that the government is spending more than it is collecting in taxes, leading to a decrease in national savings. Additionally, when domestic investment exceeds domestic saving, it means that the country is relying on foreign capital to finance its investment, resulting in a net financial outflow. Both of these factors contribute to a current account deficit, as the country is importing more goods and services than it is exporting, leading to a deficit in its balance of payments.

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  • 36. 

    Karen spends $20 to hire a tutor to help her prepare for her economics final. This expense should be considered part of

    • The out-of-pocket cost of her college education

    • The opportunity cost of her college education

    • Both a and b

    • Neither a nor b

    Correct Answer
    A. Both a and b
    Explanation
    The expense of hiring a tutor to help Karen prepare for her economics final should be considered part of both the out-of-pocket cost and the opportunity cost of her college education. It is an out-of-pocket cost because Karen had to spend $20 directly from her own pocket to pay for the tutor's services. Additionally, it is an opportunity cost because Karen had to forego other potential uses of that $20, such as buying study materials or participating in extracurricular activities. Therefore, the expense encompasses both the direct financial cost and the alternative opportunities she had to give up.

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  • 37. 

    Domestic product equals

    • Consumption plus investment plus government purchases

    • Consumption plus investment plus government purchases plus exports

    • Consumption plus investment plus government purchases plus net exports

    • Investment plus government purchases plus net exports

    Correct Answer
    A. Consumption plus investment plus government purchases plus net exports
    Explanation
    The correct answer is consumption plus investment plus government purchases plus net exports. This is because net exports represent the difference between a country's exports and imports. Including net exports in the calculation of domestic product allows for a more comprehensive measure of a country's economic activity, taking into account both domestic consumption and investment as well as international trade.

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  • 38. 

    The money multiplier is 5, a $100,000 open market purchase by the Fed will cause the money stock to

    • Increase by $100,000

    • Increase by $500,000

    • Decrease by $100,000

    • Decrease by $500,000

    Correct Answer
    A. Increase by $500,000
    Explanation
    The money multiplier is a concept that measures the potential increase in the money supply based on changes in reserves. In this case, with a money multiplier of 5, a $100,000 open market purchase by the Fed will have a multiplier effect, resulting in a total increase in the money stock of $500,000. This is because the money multiplier indicates that for every dollar injected into the system, it can generate five times that amount in new money.

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  • 39. 

    A Taylor rule favors use of which of the following intermediate targets byt he central bank?

    • The rate of inflation

    • The output gap

    • Both a and b

    • Neither a nor b

    Correct Answer
    A. Both a and b
    Explanation
    A Taylor rule favors the use of both the rate of inflation and the output gap as intermediate targets by the central bank. The Taylor rule is an economic policy guideline that suggests how a central bank should adjust interest rates in response to changes in economic conditions. By considering both the rate of inflation and the output gap, the central bank can aim to maintain price stability while also promoting maximum employment and economic growth. Therefore, both a and b are the preferred intermediate targets according to the Taylor rule.

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  • 40. 

    Trade in meat and wheat between two countries is least likely to be profitable if

    • One country has an absolute advantage in both goods

    • One country has a comparative advantage in both goods

    • The opportunity cost of meat, in terms of what, is the same in both countries

    • Each country has an absolute advantage in one of the goods

    Correct Answer
    A. The opportunity cost of meat, in terms of what, is the same in both countries
    Explanation
    If the opportunity cost of meat, in terms of what, is the same in both countries, it means that both countries require the same amount of resources to produce meat. This implies that there is no comparative advantage in meat production for either country. In this scenario, it would not be profitable for the countries to trade in meat, as they would both have to give up the same amount of resources to produce it. Therefore, the trade in meat between the two countries would be least likely to be profitable.

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  • 41. 

    Budget items like social security and Medicare that are not subject to annual appropriations are known as

    • Appropriations

    • PAYGO expenditures

    • Entitlements

    • Earmarks

    Correct Answer
    A. Entitlements
    Explanation
    Budget items like social security and Medicare that are not subject to annual appropriations are known as entitlements. These programs are considered mandatory spending and are funded automatically without the need for Congress to allocate funds each year. Entitlements are typically based on eligibility criteria, such as age or income, and individuals who meet these criteria are entitled to receive the benefits provided by these programs. Unlike discretionary spending, which is subject to annual appropriations, entitlements are considered mandatory and are not dependent on the yearly budgeting process.

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  • 42. 

    Where is the cap-and-trade approach used most extensively for carbon emissions as of 2008? 

    • The United States

    • The European Union

    • Chino

    • Canada

    Correct Answer
    A. The European Union
    Explanation
    The cap-and-trade approach for carbon emissions is used most extensively in the European Union as of 2008. This approach involves setting a limit or cap on the total amount of carbon emissions allowed and issuing permits or allowances for companies to emit a certain amount. Companies can then trade or sell their unused allowances to those exceeding their limits. The European Union has implemented a comprehensive cap-and-trade system known as the European Union Emissions Trading Scheme (EU ETS), which covers various sectors and is considered one of the largest and most ambitious carbon markets in the world.

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  • 43. 

    Which of the following markets can contain a number of firms producing differentiated products?

    • Monopoly

    • Monopolistic competition

    • Perfect competition

    • None of the above

    Correct Answer
    A. Monopolistic competition
    Explanation
    Monopolistic competition is the correct answer because in this market structure, there are many firms producing similar but differentiated products. Each firm has some control over the price of its product due to product differentiation, but there is still competition from other firms. Monopoly refers to a market structure with only one firm, perfect competition refers to a market with many firms producing identical products, and "none of the above" is incorrect as monopolistic competition fits the description given in the question.

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  • 44. 

    The Clean Air Act, after amendments in the 1990's, uses which of the following to control acid rain?

    • Command and control

    • Property rights

    • Emission charges

    • Cap-and-trade

    Correct Answer
    A. Emission charges
    Explanation
    The Clean Air Act, after amendments in the 1990s, uses emission charges to control acid rain. Emission charges are fees imposed on polluters based on the amount of pollutants they release into the environment. By implementing emission charges, the government aims to incentivize industries to reduce their emissions and invest in cleaner technologies. This approach provides economic incentives for companies to reduce pollution and allows for flexibility in how they achieve emission reductions.

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  • 45. 

    The idea of free trade leading to a "race to the bottom" refers to 

    • Poor countries being deprived of the benefits of improved cash standards

    • Production moving to countries that ignore core labor standards

    • Low-income countries sacrificing environmental quality to keep production costs low

    • All of the above

    Correct Answer
    A. All of the above
    Explanation
    The idea of free trade leading to a "race to the bottom" refers to all of the above options. Poor countries may be deprived of the benefits of improved cash standards because they may not have the resources or infrastructure to compete effectively in the global market. Additionally, production may move to countries that ignore core labor standards, such as fair wages and safe working conditions, in order to cut costs. Finally, low-income countries may sacrifice environmental quality in order to keep production costs low, leading to negative impacts on the environment.

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  • 46. 

    A firm has total capital of $500 million. The opportunity cost of capital is 12 percent per year. The firm earns an accounting profit of $65 million and has no other implicit costs. Its pure economic profit is

    • -$5 million

    • $5 million

    • $60 million

    • $65 million

    Correct Answer
    A. $5 million
    Explanation
    The pure economic profit is $5 million. This is calculated by subtracting the opportunity cost of capital from the accounting profit. The opportunity cost of capital is 12 percent of the total capital, which is $500 million x 0.12 = $60 million. Therefore, the pure economic profit is $65 million - $60 million = $5 million.

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  • 47. 

    To be officially counted as part of the labor force, a person must be

    • Age 16 or higher

    • 65 or under

    • Both a and b

    • None of the above

    Correct Answer
    A. 65 or under
    Explanation
    To be officially counted as part of the labor force, a person must be 65 or under. This means that individuals who are 16 years old or older but not older than 65 are considered eligible to be included in the labor force. Those who are younger than 16 or older than 65 are not considered part of the labor force.

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  • 48. 

    The interest rate charged by the Fed on loans of reserve to banks is known as the 

    • Federal funds rate

    • Prime rate

    • Discount rate

    • Window rate

    Correct Answer
    A. Discount rate
    Explanation
    The correct answer is the discount rate. The discount rate refers to the interest rate at which the Federal Reserve lends money to commercial banks. This rate is typically higher than the federal funds rate and the prime rate. Banks can borrow from the Fed's discount window when they are in need of short-term funding. By adjusting the discount rate, the Fed can influence the borrowing costs for banks and ultimately impact the overall economy.

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  • 49. 

    Given powers granted to the Fed since 2008, and setting aside extreme crisis conditions, which of the following interest rates would normally be expected to be the highest?

    • The discount rate

    • The federal funds target rate

    • The rate paid by the Fed on deposits of reserves

    • All three rates must be equal when the market for bank reserves is in equilibrium

    Correct Answer
    A. The discount rate
    Explanation
    The discount rate is the interest rate at which banks can borrow directly from the Federal Reserve. Since the Fed has the power to set this rate, it would normally be expected to be the highest among the given options. The federal funds target rate is the interest rate at which banks lend their reserves to each other, and the rate paid by the Fed on deposits of reserves is the interest rate paid by the Fed to banks for holding their reserves. While these rates can also be influenced by the Fed, the discount rate is typically set higher to encourage banks to borrow from each other or from the market rather than directly from the Fed.

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Quiz Review Timeline (Updated): Feb 2, 2024 +

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  • Current Version
  • Feb 02, 2024
    Quiz Edited by
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  • Apr 20, 2011
    Quiz Created by
    AshyMSU

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