Economic scarcity.

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1. (TCO 1) As a consequence of the problem of scarcity (Points : 4)
there is never enough of anything.
individuals have to make choices from among alternatives.
production has to be planned by government.
things which are plentiful have relatively high prices.

Question 2. 2. (TCO1) Money is not considered to be an economic resource because (Points : 4)
as such, it is not productive.
money is not a free gift of nature.
money is made by man.
idle money balances do not earn interest income.

Economic scarcity.

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Question 3. 3. (TCO1) A point inside the production possibilities curve is (Points : 4)
attainable and the economy is efficient.
attainable, but the economy is inefficient.
unattainable, but the economy is inefficient.
unattainable and the economy is efficient.

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Question 4. 4. (TCO1) In a command system (Points : 4)
self-interest guides and commands individuals to pursue actions that lead them toward achieving their goals.
the head of each family decides what to do with the family’s resources.
the government makes production and allocation decisions.
market traders command what outputs are produced and how they are allocated.

Question 5. 5. (TCO 2) Which is consistent with the law of demand? (Points : 4)
A decrease in the price of tacos causes no change in the quantity of tacos demanded.
An increase in the price of pizza causes an increase in the quantity of pizza demanded.
An increase in the price of hamburgers causes a decrease in the quantity of hamburgers demanded.
A decrease in the price of turkey sandwiches causes a decrease in the quantity of turkey sandwiches demanded.

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Question 6. 6. (TCO 2) What combination of changes in supply and demand would most likely increase the equilibrium quantity? (Points : 4)
When supply increases and demand increases
When supply decreases and demand decreases
When supply decreases and demand increases
When supply increases and demand decreases

Question 7. 7. (TCO 2) Chuck Grim has a price elasticity of demand for beer of 1.2. Suppose that the price of beer is increased by 10 percent. What will happen to the total amount Chuck spends on beer? (Points : 4)
It will not change.
It will decrease.
It will increase.
It is impossible to tell.

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Question 8. 8. (TCO 2) The elasticity of supply for a product will be 2 if: (Points : 4)
A 1 percent decrease in the price causes a 0.2 percent decrease in quantity supplied
A 2 percent decrease in price causes a 1 percent decrease in quantity supplied
A 1 percent decrease in price causes a 2 percent decrease in quantity supplied
A 2 percent decrease in price causes a 2 percent decrease in quantity supplied

Question 9. 9. (TCO 2) Which is true for a purely competitive firm in short-run equilibrium? (Points : 4)
The firm is making only normal profits.
The firm’s marginal cost is greater than its marginal revenue.
The firm’s marginal revenue is equal to its marginal cost.
A decrease in output would lead to a rise in profits.

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Question 10. 10. (TCO 2) Consumers who clip and redeem discount coupons (Points : 4)
exhibit the same price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
exhibit more price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
exhibit less price elasticity of demand for a given product than consumers who do not clip and redeem coupons.
cause total revenue to decrease for firms that issue coupons for their products.

Question 11. 11. (TCO 3) A major reason that firms form a cartel is to (Points : 4)
reduce the elasticity of demand for the product.
enlarge the market share for each producer.
minimize the costs of production.
maximize joint profits.

Question 12. 12. (TCO 3) In the short run, output (Points : 4)
is absolutely fixed.
can vary as the result of using a fixed amount of plant and equipment more or less intensively.
may be altered by varying the size of plant and equipment which now exist in the industry.
can vary as the result of changing the size of existing plants and by new firms entering or leaving the industry.

Question 13. 13.
(TCO 4) Refer to the diagram. The phases of the business cycle from points A to D are, respectively:

Economic scarcity.

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Graph Description
(Points : 4)
Peak, recession, expansion, trough
Trough, recovery, expansion, peak
Expansion, recession, trough, peak
Peak, recession, trough, expansion

Question 14. 14. (TCO 4) In calculating the unemployment rate, part-time workers are (Points : 4)
counted as unemployed because they are not working full-time.
counted as employed because they are receiving payment for work.
used to determine the size of the labor force, but not the unemployment rate.
treated the same as “discouraged” workers who are not actively seeking employment.

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Question 15. 15. (TCO 4) GDP is the market value of (Points : 4)
resources (land, labor, capita, and entrepreneurship) in an economy in a given year.
all final goods and services produced in an economy in a given year.
consumption and investment spending in an economy in a given year.
all output produced and accumulated over the years.

Question 16. 16. (TCO 4) Nominal GDP differs from real GDP because (Points : 4)
nominal GDP is based on constant prices.
real GDP is based on current prices.
real GDP is adjusted for changes in the price level.
nominal GDP is adjusted for changes in the price level.

Question 17. 17. (TCO 6) The goal of expansionary fiscal policy is to increase (Points : 4)
the price level.
aggregate supply.
real GDP.
unemployment.

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Question 18. 18. (TCO 6) Refer to the figure. The economy is at equilibrium at Point B. What would expansionary fiscal policy do?

Graph Description
(Points : 4)
Shift aggregate demand from AD2 to AD1
Shift aggregate demand from AD2 to AD3
Move the economy from Point B downward along AD2
Move the economy from Point B upward along AD2

Question 19. 19. (TCO 6) The American Recovery and Reinvestment Act of 2009 is a clear example of (Points : 4)
nondiscretionary expansionary fiscal policy.
nondiscretionary contractionary fiscal policy.
discretionary contractionary fiscal policy.
discretionary expansionary fiscal policy.

Question 20. 20. (TCO 6) The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n) (Points : 4)
budget lag.
recognition lag.
operational lag.
administrative lag.

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3. (TCO 5) A fall in labor costs will cause aggregate (Points : 4)
supply to increase.
demand to increase.
supply to decrease.
demand to decrease.
6. (TCO 7) As of January 2010, slightly more than half of the money supply (M1) was in the form of (Points : 4)
currency.
checkable deposits.
gold coins and bars.
savings deposits.

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Question 7. 7. (TCO 7) The basic requirement of money is that it be (Points : 4)
backed by precious metals–gold or silver.
authorized as legal tender by the central government.
generally accepted as a medium of exchange.
some form of debt or credit.

Question 8. 8. (TCO 7) How many members can serve on the Board of Governors of the Federal Reserve System? (Points : 4)
Seven
Nine
12
14

Question 9. 9. (TCO 7) Which group is responsible for the policy of changing the money supply? (Points : 4)
Federal Open Market Committee
Office of Management and Budget
Thrift Advisory Council
Federal Advisory Council

Question 10. 10. (TCO 7) The Federal funds rate is the rate that banks pay for loans from (Points : 4)
the Fed.
the U.S. Treasury.
other banks.
large corporations.

Question 11. 11. (TCO 7) During the financial crisis of 2007-2008, the FDIC increased deposit insurance coverage from (Points : 4)
$50,000 to $100,000 per account.
$100,000 to $250,000 per account.
$200,000 to $500,000 per account.
$500,000 to $1,000,000 per account.

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Question 12. 12. (TCO 7) The purchase and sale of government securities by the Fed is called (Points : 4)
federal funds market.
open market operations.
money market transactions.
term auction facility.

Question 13. 13. (TCO 7) The most frequently used monetary device for achieving price stability is: (Points : 4)
open market operations.
the discount rate.
the reserve ratio.
the prime interest rate.

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Question 14. 14. (TCO 8) Which country is the United States’ largest trading partner in terms of volume of trade? (Points : 4)
Mexico
Japan
China
Canada

Question 15. 15. (TCO 8) In a two-nation world, comparative advantage means that one nation can produce (Points : 4)
a product with fewer inputs than the other nation.
a product at lower average cost than the other nation.
a product at a lower domestic opportunity cost than the other nation.
more of a product than the other nation.

Question 16. 16. (TCO 8) A tariff is a (Points : 4)
tax.
price ceiling.
quantity limit.
subsidy.

Question 17. 17. (TCO 8) If a nation agrees to set an upper limit on the total amount of a product that it exports to another nation, then this situation would be an example of (Points : 4)
an import quota.
a revenue tariff.
a protective tariff.
a voluntary export restriction.

Question 18. 18. (TCO 8) When tariffs on imported products are removed by a nation, it will result in (Points : 4)
higher prices and lower quantities consumed.
higher prices and quantities consumed.
lower prices and quantities consumed.
lower prices and higher quantities consumed.

Question 19. 19. (TCO 8) A major goal of the World Trade Organization is to (Points : 4)
increase the protection of producers against foreign trade competition.
encourage bilateral trade agreements between nations.
liberalize international trade among nations.
maximize tariff revenue for governments.

Question 20. 20. (TCO 9) U.S. businesses are demanders of foreign currencies because they need them to (Points : 4)
produce goods and services exported to foreign countries.
pay for goods and services imported from foreign countries.
receive interest payments from foreign governments.
receive interest payments from foreign businesses.

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1. (TCO 9) Remittances of Mexican workers in the U.S. to their families in Mexico are included in the U.S. balance of payments as a debit in the section on (Points : 4)
trade in services.
net international transfers.
financial accounts.
capital accounts.