Part 1- INTRODUCTION TO ECOMONICS AND THE ECONOM

1. Which one of the following statements about the competitive market system is correct?

A. The competitive market system encourages innovation because successful innovators are rewarded with economic profits.

B. The competitive market system encourages innovation because government provides tax breaks and subsidies to those whodevelop new products or new productive techniques.

C. The competitive market system discourages innovation because firms want to get all the profits possible from existing machinery and equipment.

D. The competitive market system discourages innovation because it's difficult to acquire additional capital in the form of new machinery and equipment.

2. The major source of tax revenue for the United States federal government is _______ taxes.

A. sales and excise

B. personal income

C. corporate income

D. property

3. Which one of the following statements about protective tariffs is correct?

A. Protective tariffs are licensing requirements, unreasonable quality standards, and the like designed to impede imports.

B. Protective tariffs are maximum limits on the quantity or total value of specific products imported to a nation.

C. Protective tariffs are excise taxes or duties placed on imported products.

D. Protective tariffs are government payments to domestic producers to reduce the world prices of exported goods.

Part 2- GDP, GROWTH, AND STABILITY

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Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.

1. Which one of the following is not considered to be a growth-promoting institutional structure?

A. A competitive market system

B.Strong government restrictions on international trade

C. Well-established and enforced property rights

D. Financial institutions that effectively link savers to investors

2. If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP?

A. Nominal and real GDP would both be unchanged.

B. Nominal GDP would rise, but real GDP would be unchanged.

C. Real GDP would rise, but nominal GDP would be unchanged.

D. Nominal and real GDP would both rise.

3. Which one of the following statements about GDP is correct?

A. GDP excludes positive changes in inventories.

B. GDP excludes the market value of unpaid work in the home.

C. GDP excludes the production of nondurable goods.

D. GDP excludes the production of services.

4. Which one of the following statements about national income is correct?

A. National income is the market value of the annual output net of consumption of fixed capital.

B. National income is the income received by households less personal taxes.

C. National income is the income earned by U.S. resource suppliers plus taxes on production and imports.

D. National income is the before-tax income received by households.

5. The percentage of the working-age population in the labor force is called the

A. employment-population ratio.

B. labor force participation rate.

C. work-activity rate.

D. work-nonwork ratio.

6. Melissa voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand, she's now searching for a position in management. At the present time, Melissa is considered to be

A. cyclically unemployed.

B. frictionally unemployed.

C. not a member of the labor force.

D. structurally unemployed.

7. Which one of the following statements about demand-pull inflation is correct?

A. Demand-pull inflation occurs only when the economy has reached its absolute production capacity.

B. Demand-pull inflation occurs when total spending exceeds the economy's ability to provide output at the existing price level.

C. Demand-pull inflation is also called cost-push inflation.

D. Demand-pull inflation occurs when prices of resources rise, pushing up costs and the price level.

8. In which phase of the business cycle will the economy most likely experience rising real output and falling unemployment rates?

A. Expansion

B. Recession

C. Trough

D. Peak

9. Recurring upswings and downswings in an economy's real GDP over time are called

A. output yo-yos.

B. recessions.

C. business cycles.

D. total product oscillations.

10. Suppose the total monetary value of all final goods and services produced in a particular country in 2008 is $500 billion and the total monetary value of final goods and services sold is $450 billion. We can conclude that

A. inventories in 2008 fell by $50 billion.

B. GDP in 2008 is $450 billion.

C. GDP in 2008 is $500 billion.

D. NDP in 2008 is $450 billion.

11. The system that measures the economy's overall performance is formally known as

A. business cycle measurement.

B. final output and income statistics.

C. GDP assessment.

D. national income accounting.

12. Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called _______ unemployment.

A. structural

B. cyclical

C. frictional

D. compositional

13. For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of

A. theCoase theorem.

B. Taylor's rule.

C. Okun's law.

D. Say's law.

14. The industries or sectors of the economy in which business cycle fluctuations tend to affect output the most are

A. military goods and capital goods.

B. services and nondurable consumer goods.

C. clothing and education.

D. capital goods and durable consumer goods.

15. Countries that have experienced modern economic growth have also tended to

A. have less leisure time for sport and artistic activities.

B. adopt feudalistic institutions.

C. move toward more democratic forms of government.

D. restrict women and minorities from holding certain economic and political positions.

16. The business cycle depicts

A. the phases a business goes through from when it first opens to when it finally closes.

B. the evolution of technology over time.

C. short-run fluctuations in output and employment.

D. fluctuations in the general price level.

17. Which one of the following statements best explains why prices tend to be inflexible even when demand changes?

A. Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

B. Production costs don't tend to change when a firm varies its level of output.

C. In most industries, the profit-maximizing price doesn't change even when demand changes.

D. Government regulations limit the number of times a firm can change prices in a year.

18. The historical reallocation of labor from agriculture to manufacturing in the United States has

A. reduced the average productivity of labor.

B. increased the average productivity of labor.

C. been inflationary.

D. had no effect on the average productivity of labor.

19. Which one of the following is used to measure directly the average standard of living across countries?

A. GDP per person

B. Nominal GDP

C. Real GDP

D. Purchasing power parity

20. Which one of the following is the correct definition of inflation?

A. Inflation is a situation in which all prices in the economy rise simultaneously.

B. Inflation is an increase in the overall level of prices.

C. Inflation is the rate of growth in nominal GDP.

D. Inflation is the growth phase of the business cycle.