Economics Quiz

QUIZ 1
 Question 1
1 out of 1 points
Which one of the following is not a major macroeconomic objective of the government?
Answer
Selected
Answer:
A fall in the price of crude oil.
Correct Answer:
A fall in the price of crude oil.
 Question 2
1 out of 1 points
The money value of goods and services produced in a year within the geographical boundaries of a country is known as
Answer
Selected
Answer:
Gross Domestic Product
Correct Answer:
 Question 3
0 out of 1 points
Which one of the following is not an example of the use of government fiscal policy? A change in
Answer
Selected Answers:
Government spending on the Rural Programs

Correct Answers:
Interest Rates

 Question 4
1 out of 1 points
A monopoly market such as the market for pharmaceuticals may be self-perpetuating in the long run because profits may be use for
Answer
Selected Answers:
All of the above

Correct Answers:
All of the above

 Question 5
1 out of 1 points
If national output in one year is measured at AED 300 billion and a year later it is measured at AED 315 billion, then what is the growth
rate in that year.
Answer
Selected Answers:
5%

Correct Answers:
5%

 Question 6
1 out of 1 points
In the commonly accepted definition of a recession, the level national output
Answer
Selected Answers:
Falls

Correct Answers:
Falls

 Question 7
0 out of 1 points
The world demand for petrol
Answer
Selected Answers:
Is perfectly elastic

Correct Answers:
Is inelastic in the short run

 Question 8
0 out of 1 points
Which one of the following would best indicate economic growth? An index of
Answer
Selected Answers:
Gross National Product

Correct Answers:

 Question 9
0 out of 1 points
The basic difference between macroeconomics and microeconomics is that

Answer
Selected
Answers:
macroeconomics is concerned with policy decisions, while microeconomics applies only to theory

opportunity cost is applicable to macroeconomics, and the fallacy of composition relates to microeconomics.

Correct
Answers:
macroeconomics looks at the forest (aggregate markets), while microeconomics is concerned with the individual trees
(subcomponents).

 Question 10
1 out of 1 points
"Higher interest rates normally reduce the growth of demand in an economy, initially through consumer confidence and the housing
market." The policy measure described above is an example of
Answer
Selected Answers:
A deflationary monetary policy

Correct Answers:
A deflationary monetary policy

 Question 11
1 out of 1 points
If the price and wages rise at the same percentage rate, the real purchasing power of the average worker will
Answer
Selected Answers:
Stay the same

Correct Answers:
Stay the same

 Question 12
1 out of 1 points
It is impposible to have falling inflation and falling unemployment at the same time. - True or False
Answer
Selected Answer: False
Correct Answer: False
 Question 13
1 out of 1 points
A misallocation of resources is most likely to occur in a market where there is a monopoly if
Answer
Selected Answers:
Higher Prices are charged than under competitive conditons

Correct Answers:
Higher Prices are charged than under competitive conditons

 Question 1
0 out of 1 points
Suppose the Fed sells $25 million worth of Treasury bonds in the open market. This action will serve
to ________ the consumption of interest-rate sensitive goods like home mortgages. The U.S. dollar
will ________ against the other currencies.
Answer
Selected
Answer:
decrease; depreciate
Correct Answer:
decrease; appreciate
Response
Feedback: Correct answer:
decrease; appreciate
The sale of bonds implies that the Fed takes out money from the economy. This reduces the monetary base and the total
money supply in the economy, causing the real interest rates to rise in the short run. This makes the opportunity cost of
consuming interest rate sensitive goods like homes and cars more expensive, leading to a decrease in the consumption of
these goods. The high real rates will attract foreign funds into the U.S., causing the demand for U.S. dollars to increase.
The U.S. dollar will thus appreciate in the short run.
 Question 2
0 out of 1 points
The goal of an ideal inflation policy would be
Answer
Selected
Answer:
focusing on unemployment first
Correct Answer:
keeping inflation stable
Response
keeping inflation stable
Anticipated inflation, even at relatively high levels, is generally not problematic. Therefore an ideal inflation policy
would attempt to keep inflation as predictable and as stable as possible. Of course, the ideal inflation rate would be zero,
but minimizing average inflation, with no attention paid to the variability, would not be helpful. In the U.S., for example,
the Federal Reserve and the Treasury department are careful to broadcast the money supply, so that market participants
can make as accurate an estimate of inflation as possible.
 Question 3
0 out of 1 points
An economy which is experiencing substantial inflation and slow economic growth is said to be in:
Answer
Selected
Answer:
a contraction
Correct Answer:
a stagflation.
Response Correct answer:
Feedback:
a stagflation.
High and variable inflation rates have severe negative impact on an economy. At
times, the economy
spirals into a cycle of extremely slow growth and very high inflation. This stagnant
state battered by
rising prices is called "stagflation."
 Question 4
0 out of 1 points
Which of the following would be considered an automatic stabilizer?
I. Federal Reserve policy
II. government payrolls
III. public works projects
Answer
Selected
Answer:
I, III
Correct Answer:
none of these answers is correct
Feedback:
none of these answers is correct
An automatic stabilizer is anything that would decrease the government budget surplus
during slow economies and increase the surplus during strong economic periods. Federal
Reserve policy is not automatic, its directed. Government payrolls do not inherently
increase or decrease during economic periods. Similarly, public works projects would not
automatically increase due to an economic slowdown.
 Question 5
0 out of 1 points
The current account trade balance + the capital account trade balance =
Answer
Selected
Answer:
the currency balance at the World Bank
Correct Answer:
zero
Response
zero
By accounting identity, the capital account and current account must balance to zero. If there is a deficit in one, there
must be a surplus in the other. This is one reason why if a nation has a government budget deficit, which amounts to
negative domestic investment, the shortfall could be made up by foreigners, causing a capital account surplus. Conversely
there must be a current account deficit in such a situation. This is one reason why budget deficits and trade deficits are
linked. Note that the term "trade balance" usually refers to the current account.
 Question 6
1 out of 1 points
A new payroll tax on businesses results in an increase in cost for each unit of production. Assuming no
change in income or in the production mix, would this cause inflation?
Answer
Selected
Answer:
Yes, because higher costs result in less production and lead to higher prices.
Correct Answer:
Feedback:
When firms face generally higher unit costs they decrease production. Assuming no
change in income,there would be too many dollars (i.e. income) chasing too few goods (i.e.
production). Although it may be tempting to say that costs are being "passed on" to
consumers, this explanation is not economically viable. If demand for the product would
support a higher price, then firms would have been charging a higher price prior to the oil
shock and reaping higher profits. Even if we assume firms are "price takers," the new tax
will take the firm's zero economic profit and turn it into an economic loss. The result will
be fewer firms in the industry and less production overall.
 Question 7
1 out of 1 points
If the Central Bank wishes to diminish unemployment, it would attempt to ________ the money
supply by ________ short-term interest rates.
Answer
Selected
Answer:
increase, decreasing
Correct Answer:
Feedback:
The central bank would increase the money supply in an attempt to decrease
unemployment. This can be accomplished by decreasing short-term rates.
 Question 8
1 out of 1 points
How does inflation impact interest rates, all else equal?
Answer
Selected
Answer:
has no effect on the real rate; increases the nominal rate
Correct Answer:
Feedback:
The real rate of interest is simply the nominal rate less inflation. Therefore, the real rate
is not directly effected by inflation, while the nominal rate would rise as inflation rises.
 Question 9
0 out of 1 points
Which of the following is not an example of an inflationary change in prices?
I. A car dealer decides to charge more for a new model year of cars because of new features
II. A university decides to increase tuition to pay for a new athletic field
III. An electronics retailer charges more for new DVD players than for outdated VCRs
Answer
Selected
Answer:
I, II
Correct Answer:
None of these answers is correct
Response
Prices for goods can increase for reasons other than inflation. Inflationary price increases are the result of too many
dollars chasing too few goods. These examples are price increases that are the result of improvements in the good
being purchased.
 Question 10
0 out of 1 points
The phrase, "GDP equals what you eat plus what you invest plus what you export" characterizes which
of the following methods?
Answer
Selected Answer:
Income-cost approach.
Correct Answer:
Expenditure approach.
 Question 11
0 out of 1 points
The government currently has no debt. To alleviate an economic slow down, Government proposes an
increase in spending partially offset by an increase in the highest marginal tax rate. This will force the
Treasury to issue new debt. According to which of the following economic theories would this
stimulate the economy?
I. fiscal policy
II. supply-side
III. crowding out
Answer
Selected Answer:
II only
Correct Answer:
I only
Feedback:
I only
Anytime the government runs a deficit, it can be considered a fiscal stimulus. However,
since marginal tax rates were increased, the supply-side effect would be negative. The
crowding out effect suggests that government borrowing will increase interest rates and
partially offset the stimulate effects of the new spending.
 Question 12
0 out of 1 points
Which of the following is a definition of inflation:
I. a pervasive increase in prices
II. too many dollars chasing too few goods
III. a general decline in the value of money
IV. a general increase in wages
Answer
Selected
Answer:
II only
Correct Answer:
I, II, III
Response
I, II, III
Inflation is a pervasive increase in prices which is caused by too many dollars chasing too few goods. A price increase
that has some other cause (such as an improvement in a product) is not inflationary. Therefore these two ideas are
inseparable from the definition of inflation. Since prices are increasing, each unit of currency can buy fewer goods.
Hence, a general decline in the value of money.
 Question 13
1 out of 1 points
Which of the following would be counted in the calculation of GDP?
Answer
Selected Answer:
the broker's fees from the sale of 100 shares of IBM stock
Correct Answer:
the broker's fees from the sale of 100 shares of IBM stock
Response the broker's fees from the sale of 100 shares of IBM stock
Feedback: GDP is the total market value of all final goods and services produced domestically during
a specific period. Non market activities are not counted; the sale of used goods are also not
counted. A broker's fee is counted because it represents a service that was produced
domestically.
 Question 14
1 out of 1 points
If the quality of education in the U.S. improved, the direct effect would be a(n)
Answer
Selected Answer:
increase in both long-run and short-run aggregate
supply.
Correct Answer:
increase in both long-run and short-run aggregate
supply.
Feedback:
increase in both long-run and short-run aggregate supply. Increases in education, training
and skill-enhancing experience can improve the quality of the labor force and thereby
expand the supply of human resources, This could cause the cost of resources to decline
(permanently) and expand both short run output and long run sustainable output.
 Question 15
0 out of 1 points
Mrs. Davis was in the habit of keeping $500 in currency in her jewelry chest in case she ever needed
cash and the bank was closed. However, she recently got a combination debit/ATM card that gives her
access to her checking account 24 hours a day. She deposits her $500 in cash into her checking
account.
How does this immediately impact the monetary base and the effective amount money available for
transactions?
Answer
Selected
Answer:
decrease, increase
Correct Answer:
decrease, no change
Response
decrease, no change
Effectively, there is no difference in how Mrs. Davis is using money, simply a different vehicle for spending it. Therefore
the effective level of money in circulation has not changed. However, where the monetary base previously had including
her $500 in currency, it would now only include the percentage of this money held in reserve by her bank. The monetary
base equals currency plus bank reserves. Therefore the monetary base would decrease. Innovations like debit cards have
decreased the need to hold currency. Therefore certain measures of the money supply may decrease despite no real
change in the money level in circulation.
 Question 16
1 out of 1 points
Which of the following is a false statement?
Answer
Selected
Answer:
CPI is a broad measure of prices throughout the economy.
Correct Answer:
Feedback:
CPI is designed to measure the changes in the price level of consumer goods only. Since
GDP includes productions in all sectors, not just the consumer sector, consumer price
inflation is inadequate to calculate real GDP from nominal GDP.
 Question 17
1 out of 1 points
Which of the following statements about expected inflation are true?
Answer
Selected
Answer:
Correct Answer:
Feedback:
Market participants will compensate for expected inflation. For example, when lenders
make loans,they will price a certain inflation rate into the interest rate. If inflation is as
expected, then the rate will adequately compensate the lender for lost purchasing power.
Inflation is generally assumed to impact all prices, including wages, equally, therefore
workers will demand wage increases in line with
QUIZ 3
Which of the following will most likely result in an increase in the per capita GDP of a country?
Answer
Selected
Answer:
an increase in youthful workers as a proportion of the labor force
Correct Answer:
an increase in youthful workers as a proportion of the labor force
Feedback:
improvement in the average skill level of the labor force Education, training and skill
enhancing experience can improve the quality of the labor force and expand the supply of
human resources. Such a change causes the potential output of the country to increase so
that it is possible to produce and sustain a larger rate of output (in nominal and per capita
terms).
 Question 2
1 out of 1 points
What is the current CRR and SLR set by Reserve Bank of India?
Answer
Selected
Answer:
6.00% & 25% respectively
Correct Answer:

6.00% & 25% respectively
 Question 3
1 out of 1 points
If a nation is running a "trade deficit," it is
Answer
Selected
Answer:
importing more goods and services than it exports.
Correct Answer:
Feedback:
A trade deficit implies that a country is importing more value in terms of goods and
services than it is exporting to foreign countries.
 Question 4
1 out of 1 points
Each month, the Bureau of Labor Statistics in US calculates unemployment by....(Any Wild
Guess).......
Answer
Selected
Answer:
surveying a random sample of households.
Correct Answer:
Feedback:
The BLS does not contact each person in the U.S. to determine his or her employment
status. Instead, it randomly samples 59,500 households drawn from 729 locations in the
U.S. The survey is designed to reflect geographic and demographic groups in proportion to
their representation in the nation as a whole.
 Question 5
1 out of 1 points
Which of the following transactions belong to the Current account?
I. Balance of services.
II. Unrequited transfers.
III. Purchase of a foreign company.
IV. Income from foreign investments.
Answer
Selected
Answer:
I, II & IV
Correct Answer:
I, II & IV
Feedback:
I, II & IV
The current account consists of Trade and Services balance, Net income from all foreign
investments and Unrequited transfers, which include aid to foreign countries, losses due to
expropriation of property by foreign governments, etc. Hence, I, II and IV are directly
specified as part of the Current account. A purchase of a foreign firm is a capital investment
and as such belongs to the Capital account.
 Question 6
1 out of 1 points
What is the full form of IIP?
Answer
Selected
Answer:
Index of Industrial Production
Correct Answer:
Index of Industrial Production
 Question 7
0 out of 1 points
If unemployment were 3 percent and prices were rising 12 percent annually, which of the following
would be the most appropriate policy?
Answer
Selected
Answer:
an increase in planned government expenditures
Correct Answer:
the sale of U.S. securities by the Federal Reserve
Response The sale of U.S. securities by the Fed will result in a contraction of the money supply. This contraction will precipitate price
Feedback: deflation as the same number of transactions must now be conducted with a smaller amount of money. The Fed's policy would
serve to contain inflation.
 Question 8
0 out of 1 points
Which of the following will most likely occur during the expansionary phase of a business cycle?
Answer
Selected
Answer:
GDP rises sharply and unemployment falls.
Correct Answer:
inflation rises and employment falls.
Response
GDP rises sharply and unemployment falls.
During an expansionary phase of the business cycle business sales rise, GDP grows rapidly and the rate of unemployment
declines.
 Question 9
1 out of 1 points
Deflation will lead to
Answer
Selected
Answer:
All of the above
Correct Answer:

All of the above
 Question 10
0 out of 1 points
John makes T-shirts and sells them only to American citizens and he purchases one bottle of French
wine with his income. Which of the following will be true?
Answer
Selected
Answer:
John will be reducing the U.S. capital account surplus.
Correct Answer:
John will be adding to the U.S. trade deficit.
Response
John will be adding to the U.S. trade deficit.
John adds to the U.S. trade deficit because he purchases imports why contributing no exports to the trade balance
 Question 11
0 out of 1 points
If heavy federal borrowing pushes up interest rates in the U.S., which of the following will most likely
result?
Answer
Selected
Answer:
an inflow of financial capital from abroad and a depreciation in the dollar's foreign
exchange value.
Correct
Answer:
an inflow of financial capital from abroad and an appreciation in the foreign exchange
value of the dollar.
Response A high interest rate in the U.S. attracts foreign investors in search of a high return on their capital.Financial capital flows into the
Feedback: U.S. when interest rates rise. The increased demand for U.S. dollars (through which foreign investors "invest" in the U.S.) causes
the foreign exchange value of the dollar to rise.
 Question 12
0 out of 1 points
________ exchange-rates are determined by the market forces of supply and demand.
Answer
Selected
Answer:
None of these answers
Correct Answer:
Flexible
Response
Flexible
A system of flexible exchange rates is a system where the exchange rate is determined by the market forces. Floating
exchange rate is synonymous with flexible exchange rate.
 Question 13
1 out of 1 points
An appreciation of the U.S. dollar
Answer
Selected
Answer:
increases the purchasing power of the U.S. dollar in foreign markets for goods and
services.
Correct Answer:
services.
Feedback:
services. An appreciation of the U.S. dollar implies that it takes less U.S. dollars to
purchase one unit of foreign currency. Thus, a U.S. dollar goes further than it did before.
This is an increase in the purchasing power of the U.S. dollar.
 Question 14
1 out of 1 points
A nation has recently emerged from several years of war, in which the government used debt to
support the war effort without raising taxes. Which of the following economic problems is this nation
most likely facing?
Answer
Selected
Answer:
inflation
Correct Answer:
inflation
Feedback:
inflation
A debt-financed war is effectively expansionary fiscal policy. Therefore a nation emerging
from war time is likely to be dealing with substantial inflation. This is consistent with the
U.S. economy after World War I, World War II, Korea and Vietnam.
 Question 15
0 out of 1 points
________ permits the producers of each nation to concentrate on the things they do best while trading
for those things they do least well.
Answer
Selected
Answer:
A quota
Correct Answer:
Trade
Response
Trade
Trade leads to mutual gains because it allows each country to specialize more fully in the production of those things that it
does best.
 Question 16
0 out of 1 points
When individuals are unemployed because they lack the qualifications to fill available jobs, we call
this a form of
Answer
Selected
Answer:
frictional unemployment.
Correct Answer:
structural unemployment.
Response
structural unemployment.
Structural unemployment implies that changes in the basic characteristics of the economy prevent the "matching up" of vailable
jobs with available workers. Thus, workers possess skills which are not demanded by employers and employers demand skills
that unemployed workers do not have.
 Question 17
1 out of 1 points
Which of the following will most likely occur during the contraction phase of a business cycle?
Answer
Selected
Answer:
Real GDP declines and unemployment rises.
Correct Answer:
Real GDP declines and unemployment rises.
Response As aggregate business conditions slow, the economy begins the contraction or
Feedback:
recessionary phase of a business cycle. Real GDP grows at a slower rate or even declines
and unemployment increases.
 Question 18
0 out of 1 points
Congress passes a law requiring the government to pay certain debts of companies that have declared
bankruptcy. Which of the following terms most accurately describes this program?
Answer
Selected
Answer:
moral hazard
Correct Answer:
automatic stabilizer
Response
automatic stabilizer
An automatic stabilizer is anything that would decrease the government budget surplus during slow economies and increase the
surplus during strong economic periods. During slow economic periods, bankruptcies are likely to rise, and by paying a portion of
the defunct firms' debts, the government is injecting demand into the economy. This should be distinguished from an expansionary
fiscal policy, because the program is not designed to expand national income, but to stabilize a slowdown without the need for
further government action.
 Question 19
0 out of 1 points
Mr. Taylor states in his will that his $50,000 portfolio of bank CD's will go to his only son. Upon Mr.
Taylor's death, the son sells the CD's and invests the proceeds in a stock mutual fund. How does this
immediately impact M2 and the effective amount money available for transactions?
Answer
Selected
Answer:
no change, decrease
Correct Answer:
decrease, no change
Feedback:
decrease, no change
Prior to Mr. Taylor's death, the CD's were counted as part of M2. In addition, this money
was not used for current consumption. After the sale of the CD's, the money is still not
being used for current consumption, but it is now not counted as part of M2. The real level
of money in circulation has not changed here, but the measure of the money supply has
decreased. This is an example of a distortion of money supply measures.
 Question 20
1 out of 1 points
________ is an international banking organization with more than 100 member nations, designed to
oversee the operation of the international monetary system.
Answer
Selected
Answer:
The IMF
Correct Answer:
The IMF
Response The IMF does not control the world supply of money but does hold currency reserves for
Feedback:
member nations and makes currency loans to national central banks.

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QUIZ 1

The basic difference between macroeconomics and microeconomics is that

Correct Answer:

Correct Answer:

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