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Econ 101 Quiz on Practice Econ Test, created by mjheg on 03/05/2013.

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Practice Econ Test

Question 1 of 27

1

Consider the employment situation for the following three people:
William lost his job four months ago. He would like to work, but gave up searching for a job six weeks ago.
Frank quit his job six weeks ago and went back to school full time.
Elizabeth lost her full-time job last month. Since then, she's worked one day per week through a temp agency

Select one of the following:

  • Elizabeth and William

  • Frank and Elizabeth

  • Frank and William

  • All of them are considered unemployed

  • None of them are considered unemployed

Explanation

Question 2 of 27

1

Which of the following describes a situation in which every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it?

Select one of the following:

  • Allocative efficiency

  • Productive efficiency

  • Profit maximization

  • Marginal efficiency

  • Allocation maximization

Explanation

Question 3 of 27

1

Which one of the following scenarios would be least likely to change one's behavior?

Select one of the following:

  • The city of Saskatoon pays everyone a penny for each can they recycle to promote environmental protection

  • To make people eat healthier, the city of Bakersville tells its resident to eat whole wheat bread instead of white bread.

  • The country of Ravamock enacts a policy to fine companies 20% of their earnings if the safety standards are not acceptable.

  • A basketball team hires three new famous basketball stars who then clamor for other players to come and join their team to win the guaranteed championship.

Explanation

Question 4 of 27

1

Fiscal and monetary policies are less effective when

Select one of the following:

  • the a recession is caused by a real shock

  • the recession is caused by inflation

  • a firm has market dominance

  • the economic boom is caused by a real shock

Explanation

Question 5 of 27

1

Which of the following describes the process whose ultimate result is illustrated by the multiplier?

Select one of the following:

  • When people spend money, the money ends up in the hands or bank accounts of other people who then use that money in some way

  • When people see the government spending more money, they realize that the government thinks prices are low and thus a good time to buy things

  • When people see others spending money, they know that the economy is about to improve and so they also spend money

  • The multiplier exists because money today is always more valuable than money spent in the future due to inflation and interest. As such, when money is spent today, its value to the economy is a multiple of the value to the economy of money spent in the future.

Explanation

Question 6 of 27

1

As interest rates ________ , investment ___________.

Select one of the following:

  • decreases; decreases

  • increases; increases

  • increases; stays the same

  • decreases; increases

  • stays the same; decreases

Explanation

Question 7 of 27

1

The unemployment rate __________ if the number of discouraged workers increases.

Select one of the following:

  • decreases

  • increases

  • stays the same

  • There is not enough information to determine and answer

Explanation

Question 8 of 27

1

What is not a way to increase the money supply (Expansionary Policy)

Select one of the following:

  • Open market purchases

  • Lower the discount rate

  • Open market sales

  • Lower the reserve requirement

Explanation

Question 9 of 27

1

As the income tax increases, labor force participation _______, and as incentive _______ labor force increases.

Select one of the following:

  • decreases; increases

  • decreases; decreases

  • increases; increases

  • increases; decreases

Explanation

Question 10 of 27

1

Which of the following is not a problem with inflation

Select one of the following:

  • Interacts with other taxes

  • Causes price confusion and money illusion

  • Painful to stop

  • Redistributes wealth

  • Can cause a closed economy

Explanation

Question 11 of 27

1

Maggie gets a 10% raise, and therefore decides to take on a higher mortgage. Inflation during this period has increased by 10%. What has Maggie experienced?

Select one of the following:

  • Money illusion

  • Wealth redistribution

  • Real GDP growth

  • Price confusion

  • Interaction with other taxes

Explanation

Question 12 of 27

1

What happens when inflation is higher than the expected inflation rate?

Select one of the following:

  • Nothing happens

  • Wealth is redistributed from the lender to the borrower

  • Wealth is redistributed from the borrower to the lender

  • Both the borrower and the lender are benefited.

Explanation

Question 13 of 27

1

John's real returns on his loan to Tim are negative. What should John do?

Select one of the following:

  • Save the money so someone else can borrow it and therefore increase investment

  • Spend the money because it is gaining value

  • Spend the money because it is losing value

  • Do nothing

Explanation

Question 14 of 27

1

If the Reserve releases $1,000 and the reserve rate is 5%, how much will the money supply change?

Select one of the following:

  • 10,000

  • 5,000

  • 20,000

  • 21,000

  • 15,000

Explanation

Question 15 of 27

1

Which is not a way to decrease the money supply (Contractionary Policy)

Select one of the following:

  • Conduct open market sales

  • Raise discount rate

  • Lower discount rate

  • Raise Reserve requirement

Explanation

Question 16 of 27

1

What is one problem that arises from bank bailouts?

Select one of the following:

  • Systematic risk

  • Moral hazard

  • Confidence risk

  • Inflation

Explanation

Question 17 of 27

1

What is not a limit to fiscal policy?

Select one of the following:

  • Crowding Out

  • Drop in the Bucket

  • Matter of Timing

  • Real Shocks

  • Aggregate Demand Shocks

Explanation

Question 18 of 27

1

Which is not considered money?

Select one of the following:

  • Currency

  • Reserves

  • Checkable deposits

  • Savings deposits

  • Credit Cards

Explanation

Question 19 of 27

1

Which of the following is not a major role of the Federal Reserve?

Select one of the following:

  • Controlling the money supply

  • Setting income taxes

  • Clearing checks between banks

  • Lender of last resort

Explanation

Question 20 of 27

1

If your nominal wage rises faster than the price level then we can say your real wage has _______ and the purchasing power of your income has ________

Select one of the following:

  • risen;fallen

  • fallen;fallen

  • risen;risen

  • fallen;risen

Explanation

Question 21 of 27

1

What is market failure?

Select one of the following:

  • It refers to the inability of a market to allocate resources efficiently up to the point where marginal social benefit equals marginal social cost.

  • It refers to the inability of the market to allocate resources efficiently up to the point where marginal social
    benefit equals marginal private cost.

  • It refers to a situation where an entire sector of the economy (for example, the airline industry) collapses
    because of some unforeseen event.

  • It refers to a breakdown in a market economy because of widespread corruption in government.

Explanation

Question 22 of 27

1

Which of the following is an example of a good/service that is non-excludable and rival in consumption?

Select one of the following:

  • Radio Spectrum

  • National Defense

  • Charitable Donations

  • Lighthouse

Explanation

Question 23 of 27

1

Don't forget the markup in monopoly graphs! (Cover ATC)

Select one of the following:

  • Okay

  • What?

Explanation

Question 24 of 27

1

In a noncompetetive market, if the average cost is higher than the price, the market will

Select one of the following:

  • Suffer a loss

  • Break even

  • Make a profit

  • Be forced to exit the market

Explanation

Question 25 of 27

1

Why does the short run aggregate supply curve shift to the right in the long run, following a decrease in aggregate demand?

Select one of the following:

  • Workers and firms adjust their expectations of wages and prices downward and they accept lower wages
    and prices.

  • Workers and firms adjust their expectations of wages and prices upward and they accept lower wages and
    prices.

  • Workers and firms adjust their expectations of wages and prices upward and they push for higher wages
    and prices.

  • Workers and firms adjust their expectations of wages and prices downward and they push for higher
    wages and prices.

Explanation

Question 26 of 27

1

An increase in government spending growth will cause the Solow growth curve to

Select one of the following:

  • shift outward

  • shift inward

  • remain unchanged

  • first shift outward then shift inward

Explanation

Question 27 of 27

1

Which of the following will not cause aggregate demand to increase?

Select one of the following:

  • decreased imports and lower taxes

  • higher government spending and increased exports

  • increased net exports and higher taxes

  • faster money growth rate and increased wealth

Explanation

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