Economics Multiple Choice
Question 1
(02.06 MC)
Some banks offer variable rate loans with defined periods. For example, a variable rate loan might start at 3% and have the rate guaranteed not to increase for five years. This could be a rational loan option for a person if he or she
has a strictly fixed and limited income
is unsure of future employment status
plans to pay off the loan entirely within five years
plans to take longer than five years to repay the loan
Question 2 (Multiple Choice Worth 4 points)
(04.01 MC)
If a series of events results in a decrease in investments in U.S. businesses, what is the result on the U.S. economy?
Contraction
Expansion
Peak
Trough
Question 3 (Multiple Choice Worth 4 points)
(04.01 MC)
The Great Depression was a period of high unemployment, poverty, and deflation. When the United States entered World War II, the government increased spending, resulting in inflation and decreased unemployment. Which of these characterizes the period of increased government spending?
Contraction
Expansion
Peak
Trough
Question 4 (Multiple Choice Worth 4 points)
(04.02 MC)
A supply and demand graph, showing quantity on the x axis and price is on y axis. Red supply line S rises up and to the right from 0,0 in positive x and y directions. Blue demand line D descends from x axis origin and upper range of y axis in positive x, negative y direction. A line marked Artificial Price extends from the y axis, roughly one third of the way up from the x axis and below the equilibrium point where S and D lines intersect. The intersection of the Artificial Price line with the S line is marked Quantity Supplied. The intersection of the Artificial Price line with the D line is marked Quantity Demanded.
Public Domain
Which of these is an example of the line marked “Artificial Price”?
Farm subsidies
Market price
Minimum wage
Rent controls
Question 5 (Multiple Choice Worth 4 points)
(04.05 MC)
Which of the following fiscal policies would most likely reduce unemployment?
Increasing funding for local grants
Lowering reserve requirements
Raising taxes on small business
Selling more government securities
Question 6 (Multiple Choice Worth 4 points)
(04.04 MC)
The housing market has collapsed. Banks are becoming very restrictive in their lending practices. Which of the following actions would the Fed most likely take to encourage banks to expand lending to home buyers?
Increase federal funds and prime rates
Lower reserve requirements
Sell government securities
Shut down open-market operations
Question 7 (Multiple Choice Worth 4 points)
(02.02 LC)
One benefit of a community college is
fewer choices for career paths
increased choices of career paths
greater demand for two-year degrees
reduced costs compared to four-year degrees
Question 8 (Multiple Choice Worth 4 points)
(04.04 MC)
If the United States falls into a recession, which action would the Federal Reserve take to encourage employment?
Buy government securities
Increase reserve requirements
Raise federal funds and prime rates
Sell government securities
Question 9 (Multiple Choice Worth 4 points)
(06.03 MC)
A nonprofit agency sets up a website to channel investments from all over the globe into microloans to support local farms, artisans, and other small businesses in developing nations. Which of the following would be a positive externality for the global environment?
Fewer people move from rural to urban areas, reducing urban sprawl.
More resources are consumed locally, reducing international shipping.
More sustainable development encourages the use of nonrenewable resources.
Genetically modified crops add vitamins to local foods, increasing health.
Question 10 (Multiple Choice Worth 4 points)
(04.05 MC)
Imagine the federal government has a national debt of $10.2 trillion. Congress’s budget for the coming year includes a spending projection of $4.2 billion. Tax revenue projects $3.8 billion. Which fiscal policy should Congress adopt to avoid increasing the national debt?
Cut interest rates
Decrease spending
Lower taxes
Raise reserve requirements
Question 11 (Multiple Choice Worth 4 points)
(04.03 LC)
Which best describes the function of the Federal Reserve System?
Administration of taxes
Control of the money supply
Oversight of international trade
Regulation of commerce
Question 12 (Multiple Choice Worth 4 points)
(04.02 LC)
Which of the following is a government price control?
Farm subsidies
Minimum wage
Research funding
Union actions
Question 13 (Multiple Choice Worth 4 points)
(04.05 MC)
Bar graph entitled 2010 Budget Projected Deficits and Debt Increases. X axis spans years 2007 through 2015. Y axis labeled Billions of Dollars, spanning o to 3,000, in increments of 500. Blue bars note Budget Deficit. Red bars note National Debt Increases. For 2007, blue is 200 billion dollars, and red is 500 billion dollars. For 2008, blue is 450 billion dollars, and red is 1,250 billion dollars. For 2009, blue is 1,750 billion dollars, and red is 2,750 billion dollars. For 2010, blue is 1,150 billion dollars, and red is 1,400 billion dollars. For 2011, blue is 900 billion dollars, and red is 1,200 billion dollars. For 2012, blue is 600 billion dollars, and red is 900 billion dollars. For 2013, blue is 550 billion dollars, and red is 900 billion dollars. For 2014, blue is 600 billion dollars, and red is 950 billion dollars. For 2015, blue is 650 billion dollars, and red is 975 billion dollars.
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Creative Commons Attribution-Share Alike 3.0 Unported
Which of the following statements best describes the data shown for 2012 to 2015?
Spending and tax rates will both decrease.
Spending and tax rates will remain about the same.
Spending will decrease relative to tax revenue.
Tax revenues will increase relative to spending.
Question 14 (Multiple Choice Worth 4 points)
(06.03 MC)
A livestock ranch decides to expand its operations. Which of the following would be a negative externality for the local environment?
Higher property taxes
Less land for development
Less use of renewable resources
More groundwater pollution
Question 15 (Multiple Choice Worth 4 points)
(04.02 MC)
Why is it in the best interest of the government to regulate natural monopolies?
To allow multiple suppliers access to the market
To gain a share of the profits of the monopoly
To keep costs to a minimum for consumers
To prevent surplus goods and services
Question 16 (Multiple Choice Worth 4 points)
(06.01 MC)
Circular flow chart showing connectivity, with blue arrows, from Government to Product Market and Household, from Product Market to Household, Business and Rest of World; from Household to Government and Financial Market, from Business to Factor Market and Product Market, from Factor Market to Rest of World and Household, from Rest of World to Product Market and Factor Market. Letter A marks arrow from Government to Product Market. Letter B marks arrow from Product Market to Business. Letter C marks arrow from Business to Product Market. Letter D marks arrow from Household to Government.
Cardinal Comics produces graphic historical novels and retails them through local shops throughout the United States. The publisher maintains an in-house staff of editors and illustrators but contracts out writing, printing, and distribution. Its printer uses domestically recycled paper but imports ink and much of its printing equipment from overseas. Segment B of the circular flow diagram above reflects which part of this scenario?
Consumers purchase graphic historical novels from local shops.
Publisher maintains an in-house staff of editors.
Cardinal Comics contracts out writing, printing, and distribution.
Printer uses domestically recycled paper.
Question 17 (Multiple Choice Worth 4 points)
(02.07 MC)
If Juliet consistently buys health insurance for twenty years but never suffers a costly illness, were her premium payments wasted?
No, if the safety of being insured was worth less to her than the monetary cost of the premiums
No, if the safety of being insured was worth more to her than the monetary cost of the premiums
Yes, having insurance is never worth more than the monetary cost of the premiums
Yes, if the safety of being insured was worth more to her than the monetary cost of the premiums
Question 18 (Multiple Choice Worth 4 points)
(06.02 MC)
Tennessee Valley Authority (TVA) Sites
Red = water dams
Purple = nuclear power plants
Orange = fossil fuel power plants
Map showing Tennessee and bordering states, Alabama, Mississippi, Georgia, South Carolina, North Carolina, Virginia, West Virginia, Kentucky, Illinois, Missouri, and Arkansas. Region served by Tennessee Valley Authority includes all of Tennessee and parts of Kentucky, Virginia, North Carolina, Georgia, Mississippi, and Alabama. Forty seven dams are spread throughout region, but concentrated in eastern Tennessee. There are three nuclear power plants, two south of Knoxville, Tennessee, and one near Huntsville, Alabama. There are 19 fossil fuel plants throughout region, the majority in western Tennessee, Mississippi, and southwestern Kentucky.
Public Domain
Study the map above. The TVA believes that the positive externalities outweigh the negative externalities of which renewable resource?
Coal
Uranium
Water
Lumber
Question 19 (Multiple Choice Worth 4 points)
(02.04 MC)
Principal Interest Year 1 Interest Year 10 Interest Year 20 Total Savings After 20 Years
$12,000 in Simple Interest Account $12,000 x 5%
= $600
= $12,600 $12,000 x 5%
= $6000
= $18,000 $12,000 x 5%
= $12000
= $24,000 $12,000 + 20 years of simple interest
= $24,000
$12,000 in Compound Interest Account $12,000 x 5%
= $600
= $12,600 ($12,000 + $6,615.94)
$18,615.94 x 5%
= $19546.74 ($12,000 + $18,323.40)
$30,323.40 x 5%
= $31,839.57 $12,000 + $20 years of compound interest
$31,839.57
Juanita, who lives with her brother, has saved $12,000 for a down payment on her own house. Her financial planner suggests she look for a savings account that offers compound interest accounts. Why should Juanita take this advice?
She will earn interest on the initial deposit, as well as interest earned.
She will have quick access compared to other savings account.
She is saving for a short-term goal that will be reached soon.
She has so little to invest that it will be safer over the long term.
Question 20 (Multiple Choice Worth 4 points)
(02.05 MC)
Jared’s friends invite him to dinner at an expensive restaurant. Jared examines his budget and determines he cannot afford an expensive dinner, so he declines the invitation. Which of the following best represents the reason for Jared’s decision?
His dislike of the selected cuisine
His limited income and budget
Lower price of an alternative option
Preference for another style of food
Question 21 (Multiple Choice Worth 4 points)
(06.02 LC)
A new bakery opens downtown. Which circumstance would most likely be a negative externality?
Customers of the old bakery see a drop in prices.
Neighboring stores get more foot traffic.
The city government collects added tax revenue.
The old bakery down the street loses some customers.
Question 22 (Essay Worth 4 points)
(06.05 HC)
Circular flow chart showing connectivity, with blue arrows, from Government to Product Market and Household, from Product Market to Household, Business and Rest of World, from Household to Government and Financial Market; from Business to Factor Market and Product Market, from Factor Market to Rest of World and Household, from Rest of World to Product Market and Factor Market.
Look at the circular flow diagram. Choose and define an environmental issue. Using the diagram as a guide, explain how the environmental issue you chose affects the relationship between household and government.
Question 23 (Essay Worth 4 points)
(02.04 MC)
Which two investment options would be best if you are 20 years old, just starting to save, and want to retire when you are 70? Consider the kind of investment, rate of return, level of risk, and other factors
