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FINAL EXAM REVIEW QUESTIONS



Multiple Choice
Identify the choice that best completes the statement or answers the question.
 

 1. 

A Keynesian economist would most favor __________ during a recession
a.
decreasing government spending
b.
raising the Federal Funds Rate
c.
letting the market self-regulate
d.
lowering personal income taxes
 

 2. 

When a country lowers its tariffs, it is likely to result in
a.
higher prices for consumers of imported goods
c.
both a and b
b.
retaliation by other countries who will increase their tariffs
d.
none of the above
 

 3. 

Decreased imports by the United States would lead to which of the following?
a.
increased foreign employment
c.
decreased domestic employment
b.
increased domestic production
 

 4. 

Which of the following is TRUE about the housing bubble that recently popped:
a.
The Federal Reserve took action to drastically cut interest rates in 2008 to help try to ease the problems in the housing and credit markets
d.
all of the above
b.
Historically low interest rates after the recession of 2001 encouraged people to buy homes.
e.
both a and b, but not c
c.
Overbuilding of homes and gradually rising interest rates caused housing prices to start declining and led to an increase in foreclosures.
 

 5. 

A business cycle contraction will most likely lead to a(n)
a.
increase in inflation
c.
decrease in both unemployment and inflation
b.
increase in unemployment
d.
increase in both unemployment and inflation
 

 6. 

If the economy were experienceing 11% inflation, what would the Fed be most likely to do?
a.
cut government spending
d.
decrease the discount rate
b.
sell Treasury bonds through Open Market Operations
e.
lower taxes
c.
increase government spending
 

 7. 

Which of the following about GDP growth rates in the U.S. is FALSE?
a.
three consecutive quarters with GDP growth rates less than zero defines a recession.
d.
a 3.7% GDP growth rate is considered by economists to be healthy growth without causing dangerous upward pressure on prices.
b.
a GDP growth rate of above 5% leads economists to fear possible inflation.
e.
both a and c
c.
a GDP growth rate of 1.3% is considered by economists to be a rapid growth rate
 

 8. 

Which of the following groups will be negatively affected by inflation?
a.
creditors such as banks
d.
none of the above
b.
people on fixed incomes
e.
a and b, but not c
c.
homeowners with fixed mortgages
 

 9. 

Which of the following are true about the phenomenon of globalization:
a.
the fall of the Soviet Union was a major factor behind globalization taking off
d.
both a and b
b.
it has involved the increasing isolation of the economies of the various countries of the world
e.
both a and c
c.
it has been fueled by a technological revolution which has led to a sharp decrease in communication costs
 

 10. 

mc010-1.jpg
Which of the following would cause the PPF curve to shift to the left:
a.
A large discovery of oil
b.
A rise in the unemployment rate
c.
A decrease in the population
d.
Both B & C
e.
None listed would shift the PPF curve to the left
 

 11. 

If the Federal Reserve lowers interest rates which statement is true:
a.
Consumers will increase their spending
b.
It is providing an incentive to save money
c.
Consumers will borrow more money
d.
They will generally increase any inflationary pressures in the economy
e.
All listed are true except b
 

 12. 

Which of the following best describes the fundamental idea of Adam Smith?
a.
Monopolies are created by successful competition and should be allowed to exist in the economy.
c.
The government should set prices and determine the level of competition in the marketplace.
b.
Competition in the marketplace causes prices to rise.
d.
Self-interest and competition leads to lower prices and efficient production
 

 13. 

The entity that has the power to decide to take steps to increase or decrease the money supply in order to push interest rates down or up is
a.
Congress
c.
the Federal Reserve’s Open Market Committee
b.
the President’s Council of Economic Advisors
d.
the General Assembly of Federal Reserve District Banks
 

 14. 

Opening up to global trade poses great challenges for developing economies, including
a.
a lack of capital/money for investment
c.
having to compete with large U.S. firms
b.
underdeveloped infrastructure
d.
all of the above
 

 15. 

The Dow Jones Industrial Average measures what?
a.
the industrial output of the United States in a calendar year
c.
how well thirty major U.S. stocks are doing
b.
the current rate of inflation
d.
the price of bonds issues by the Federal Reserve
 

 16. 

Which of the following statements about NAFTA is TRUE?
a.
It has greatly expanded trade.
c.
Few Americans have lost their jobs due to NAFTA.
b.
It has helped small-scale Mexican farmers.
d.
All of the above are false.
 

 17. 

Which would explain a rise in the price salsa 
a.
The price of tomatoes increases (an input to salsa)
b.
The technology to make salsa increases
c.
The number of sellers making salsa increases
d.
Both A & B are true
e.
All listed are true (A, B & C)
 

 18. 

If the market equlibirium price of Good A is $10 and the Government imposes a price ceiling of $9 which statment is true
a.
economic efficiency rises
b.
economic efficiency is not affected
c.
It would lead to a shortage of supply
d.
It would lead to a surplus of supply
e.
It would have no affect on equlibirium price
 

 19. 

Holding other factors constant, an increase in Government spending will _____ GDP in the short run.
a.
increase
b.
decrease
c.
Have no effect on
d.
could increase or decrease
 

 20. 



Assume that at this moment these are the most current economic indicators available.
GDP Growth Rate            0.9%            Inflation Rate                        0.2%
Unemployment Rate                    8.7%                    Federal Funds Rate              2.5%

Given the above indicators, which of the following policies would make the LEAST sense?
a.
raising the Federal Funds Rate
c.
keeping the Federal Funds Rate the same
b.
lowering the Federal Funds Rate
 

 21. 

Supporters of the WTO and free trade assert each of the following EXCEPT
a.
most people will benefit from developing economies joining the global marketplace
c.
with free trade new export industries spring up in developing countries, enriching their citizenry
b.
free trade suppresses the growth of democracy in countries
d.
businesses have more access to buyers
 

 22. 

Which of the following statements are true:
a.
an analysis of GDP is a microeconomic study
b.
an analysis of the auto industry is a macroeconomic study
c.
an analysis of interest rates is a microeconomic study
d.
all listed are true
e.
none listed are true
 

 23. 

Which of the following is the index used to calculate the inflation rate?
a.
CPI
d.
GDP
b.
FFR
e.
GEES
c.
PPF
 

 24. 

Argentina can produce more beef and more wheat than Spain.  Nonetheless, Spain produces and exports wheat to Argentina.  How is this possible?
a.
Argentina has a comparative advantage in wheat production.
c.
Spain has a comparative advantage in wheat production.
b.
Argentina has an absolute advantage in beef production.
d.
Spain has an absolute advantage in wheat production.
 

 25. 

When interest rates go up, which statement is true?
a.
borrowing money becomes more expensive
c.
both a and b are true
b.
GDP should increase (the circular flow should speed up)
d.
none listed are true
 

 26. 

An example of a price ceiling is
a.
rent control
b.
minimum wage
c.
Both A & B
d.
Neither A or B
 

 27. 

If the price of a product or service decreases, you would expect
a.
supply to decrease
d.
quantity supplied to increase
b.
the supply curve to shift to the right
e.
quantity supplied to decrease
c.
the supply curve to shift to the left
 

 28. 

Critics of the WTO and free trade argue which of the following:
a.
winners will outnumber losers in a globalized economy
c.
free trade brings about new opportunities in export markets
b.
it is mainly rich investors and big corporations who benefit from low-wage labor in developing countries
 

 29. 

Assume that mozzarella cheese is one of the main ingredients used to make pizza at Dominos.  Suppose that the price of mozzarella cheese declines.  That would lead to
a.
a decrease in the quantity of pizza supplied by Dominos
c.
no change in the quantity of pizza supplied by Dominos
b.
a shift to the left of Dominos supply curve
d.
a shift to the right of Dominos supply curve
 

 30. 

The economy  has fallen into a recession and the President is working with Congress to help the economy recover.  Which is the most appropriate response using FISCAL POLICY?
a.
lower taxes
d.
buy Treasury bonds
b.
decrease government spending
e.
none of the above
c.
reduce interest rates
 

 31. 

Which of the following about the Fed is INCORRECT?
a.
The Federal Reserve Board of Governors is the same thing as the Federal Reserve Open Market Committee
b.
The Federal Reserve system has twelve regional district banks.
c.
The Federal Reserve Board has seven members who serve fourteen year terms, except for the Chairman of the Fed who serves a four year term.
d.
both a and c are incorrect
 

 32. 

Which of the following lists taxes that are only charged by the Federal Government?
a.
Social Security Tax, Sales Tax
c.
Social Security Tax, Tariffs
b.
Medicare Tax, Property Tax
d.
Medicare Tax, Education Tax
 



 
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