Fall 2008 Economics Semester Exam Review -1-
1. An example of a shortage is limited amounts of food available
because the trucks carrying it are on strike.
2. A production possibilities frontier shows the maximum amount that
an economy can produce
3. The kind of an economy where the government makes all the
decisions is a centrally planned economy.
4. The process of specialization makes an economy more efficient.
5. The economy of Canada would likely to be characterized as
mixed, but on the side of free market.
6. Positive externality is an economic side effect that generates
7. Which of the following is NOT an example of a public good?
8. The role of government in a free enterprise system allows individuals
to operate their businesses in ways they think will maximize their
9. The government requires businesses to disclose so much
information to the public to make buyers more knowledgeable
10.The interaction of supply and demand is what determines the price
and the quantity produced of most goods.
11.Ceteris paribus, or “all other things held constant,” is an
assumption that has which of the following effects on a demand
schedule? It takes only prices into account.
12.Import restrictions cause prices to rise.
13.An example of the law of supply would be a sandwich shop
increases the number of sandwiches they supply every day when
the price is increased.
14.Apples are an example of a good with an inelastic supply.
15.When the selling price of a good goes up, it becomes practical to
produce more goods.
16.Time is the factor has the greatest influence on elasticity and
inelasticity of supply.
17.When wages are set above the equilibrium level by law, firms
employ fewer workers than they would at the equilibrium wage.
18.One kind of monopoly that the U.S. government generally permits is
professional sports leagues
19.Monopolistic competition is when many companies are selling
similar but not identical products.
Fall 2008 Economics Semester Exam Review -2-
20.Sellers offer a wide variety of products is NOT a condition for perfect
21.A natural monopoly function is when a single firm supplies all the
22.Cartels are difficult to operate successfully because they work only if
members keep to their agreed output.
23.Royalties are a percentage of earnings paid for a franchise.
24.75 percent of U.S. businesses are sole proprietorships.
25.If a general partnership fails, all of the partners are responsible
for the debts.
26.The employer’s payments to Social Security could be considered
27.An example of money as a unit of account is checking the price of
a camera at several stores before buying it at the lowest price.
28.The main disadvantage of using shells as money instead of coins is
29.During the Free Banking Era currency varied widely from state
30.A certificate of deposit is NOT an example of a liquid asset.
31.Using coins as money is easier than using gold bars because coins
are more portable.
32.The government must control the money supply, which is necessary
for a fiat money system to work.
33.A stock certificate is not an example of financial intermediary.
34.Investing in a money market mutual fund is a higher risk than
investing in a certificate of deposit because unlike CDs the FDIC does
not insure money market funds.
35.Junk bonds are not low-risk investments.
36.The most trades are made on the OTC market.
37.Compared with the expenditure approach to calculating GDP, the
income approach is more accurate.
38.An accurate statement about the Great Depression would be that it
was the most severe economic downturn in the history of industrial
39.Saving less and spending more of one’s disposable income does
not promote capital deepening.
40.All of the following measures help to promote technological progress
EXCEPT increased wages for researchers.
41.Compared with the income approach to calculating GDP, the
expenditure approach is more practical.
Fall 2008 Economics Semester Exam Review -3-
42.The amount of money a person has left of his or her income after
taxes is called disposable personal income.
43.An accurate statement about the Great Depression would be that
it ended largely because of an increase in defense spending related
to World War II.
44.All of the following measures help promote technological progress
EXCEPT increased wages for researchers.
45.Social Security taxes pay for benefits to older citizens, surviving
family members of wage earners, and people with certain
46.The purpose of expansionary fiscal policy is to increase output.
47.Supporters of supply-side economics believe that taxes have a
strong negative influence on economic output.
48.All of the following are problems associated with high national debt
EXCEPT that it makes investing in treasury bonds, notes, and bills
49.One reason the U.S. government started a Federal Reserve system
was to provide consumers with access to funds for business
50.One way the Federal Reserve Bank serves the government is by
selling government securities.
51.The type of policy the Fed use to counteract a contraction could
be an easy money policy.
52.The result of the Bretton Woods Conference was the creation of a
fixed exchange-rate system for the United States and much of Western
53.A currency system in which each country tries to keep the value of
its currency constant against one another is called a fixed
54.A “most-favored-nation (MFN)” status means a country pays the
same tariffs as those paid by all MFN countries.
55.When an economist says that an area specializes in producing
certain products, it means they produce only certain goods rather
than everything they need.
56.An infant industry is a young or developing industry.
57.What economic status can the United States grant to countries
that allows them to pay the same tariffs as other countries with
the same status? most-favored-nation status
Fall 2008 Economics Semester Exam Review -4-
58.“Duty-free” shops in airports and on international boats sell
merchandise that can be brought into the country without import
59.The following is a treaty to eliminate all trade barriers between
Canada, Mexico, and the United States – NAFTA.
60.The primary measure of a country’s development is per capita gross
61.The calculating of a country’s population growth rate takes into
account all of the following EXCEPT the number of people who
marry in a given year.
62.“Brain drain” occurs when an engineer leaves her LDC to work in a
63.The Marshall Plan was a program funded by the U.S. government
that loaned and granted money to needy countries in Europe after
World War II in the hopes of promoting democracy.
64.All of the following are accurate statements about the debt problem in
LDCs EXCEPT that debt holders often seize government property
when loans are not repaid.
65.m An example of foreign direct investment would be a factory
that is built in an LDC but owned by a foreign company.
66.All of the following are associated with moving from a centrally
planned economy to a market economy EXCEPT an increase in the
role the government plays in the day-to-day operation of a business.
67.A legislative committee is weighing the pros and cons of a clean-
air program. If it spends $1 million on the program, the air will be
cleaner by 20 percent. If it spends $2 million, the air will be
cleaner by 30 percent. If it spends $3 million, the air will be
cleaner by 35 percent. After comparing opportunity costs and
benefits at the margin, the committee agrees to fund the program
with $2 million. Why did it not choose to appropriate $3 million?
At $3 million, the costs are no longer worth the benefits.
68.The following statement is true, as market economies have evolved
since Adam Smith’s time: Government intervention in the economy
has become greater.
69.China, like many other nations, is undergoing a period of
transition in which many of its state firms are being privatized.
The following statement BEST describes the change in China’s
mixed economy system: The economy is moving away from
central planning toward a market-based system.
Fall 2008 Economics Semester Exam Review -5-
70.Mariah is buying fewer boxes of macaroni and cheese, used cars, fast-
food dinners, and generic products because her income rose. This shift
in the demand curve caused by Mariah’s income has resulted in a
decreased demand for inferior goods.
71.The following is NOT a factor affecting elasticity - the good’s
72.In which category do subsidies, excise taxes, and regulation belong?
government’s influence on supply
73.The following BEST explains why rationing, not a price-based
system, was used during World War II: Unlike a price-based
system, the temporary price controls of World War II rationing
helped ease shortages and guaranteed every American a
minimum standard of living.
74.A firm sells natural gas to a city for one price and sells the same gas to
an outlying village at another price. This practice is called price
75.The following is one market trend that results when a
monopolistically competitive firm starts earning profits well
above its costs: Fierce competition would encourage rivals to
create new ways to differentiate their products and lure
customers to them.
76.The difference between a general partnership and a limited liability
partnership (LLP) is in an LLP, all partners are limited from personal
liability in certain situations.
77.What has happened to employment since 1986, according to the
graph? Production of services is increasing faster than
production of goods.
78.Why have minorities historically tended to earn lower salaries and
wages than their white counterparts, despite nondiscrimination laws?
Whites have had access to more education and work experience.
79.The following was an effect of the Taft-Hartley Act of 1947: The
act was an effort to curb union power, and mandatory union
membership could be banned.
80.The following categories is where collective bargaining, mediation,
and arbitration belong: negotiations between unions and company
81.One of the six characteristics economists use to judge how well an
item serves as currency is divisibility. What does this concept
mean? Money must be easily divided into smaller denominations.
Fall 2008 Economics Semester Exam Review -6-
82.The following is an important power given to the federal government
by the National Banking Acts of 1863 and 1864: the power to charter
83.Installment loans are a type of financial service offered at
commercial banks, savings and loan associations, and credit
unions is also offered at financial companies.
84.Investing contributes to a free enterprise system by giving more
money to businesses to expand and grow, creating new jobs and better
85.A bank is a financial intermediary.
86.Four factors, both expected and unexpected, perpetuate the business
cycle. Which of the following is NOT one of these factors?
87.During a war, the government puts pressure on producers for
heavy equipment, supplies, and services, making each more
valuable. What theory about inflation does this condition
88.The poverty threshold, or poverty line, varies according to the size of
89.What are the differences between the entitlement programs
Medicaid and Medicare? Medicare provides health care for
people over 65, and Medicaid offers benefits for low-income
families and individuals.
90.The role of the Congressional Budget Office (CBO) in the federal
budgetary process is giving Congress independent economic data to
help members fully understand and make decisions about the
President’s proposed budget.
91.One important distinction between classical economics and
Keynesian economics is that Classical economics teaches that free
markets regulate themselves, and Keynesian economics teaches
that government action affects the economy.
92.In the mid-1980s, Congress passed the Gramm-Rudman-Hollings Act.
The effect of this legislation created automatic cuts in some federal
expenditure if the deficit exceeded certain amounts.
93.What role does the Federal Reserve play in regulating the
banking system? The Federal Reserve coordinates all regulatory
activities and examines banks periodically.
94.The primary difference between inside and outside policy lags is that
Inside lags are delays in the implementation of policy, and outside
lags indicate the time it takes a new policy to become effective.
Fall 2008 Economics Semester Exam Review -7-
95.Human capital is crucial to the functioning of an economy and
includes the skills and knowledge gained by a worker through
education and experience.
96.What role does privatization play in a country’s transition from a
centrally planned economy to a market economy? Privatization
transfers government-owned businesses to individuals.