Exam (elaborations) TEST BANK FOR INTRODUCTORY ECONOMICS AND INTRODUCTORY MACROECONOMICS AND INTRODUCTORY MICROECONOMICS JOHN G. MARCIS and MICHAEL VESETH (Auth.)

TEST BANK with Complete Questions and Solutions. To clarify, this is the TEST BANK, not the textbook. You get immediate access to download your test bank. You will receive a complete test bank; in other words, all chapters will be there. Test banks come in PDF format; therefore, you do not need specialized software to open them. TEST BANK FOR INTRODUCTORY ECONOMICS AND INTRODUCTORY MACROECONOMICS AND INTRODUCTORY MICROECONOMICS JOHN G. MARCIS and MICHAEL VESETH (Auth.) Chapter Conversion Table The following table keys the chapter numbers for Introductory Economics to those in each of the companion paperbacks. Corresponding Chapter in Introductory Introductory Macro- Micro- Introductory Economics Chapter economics economics Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Chapter 17 Chapter 18 Chapter 19 Chapter 20 Chapter 21 Chapter 22 Chapter 23 Chapter 24 Chapter 25 Chapter 26 Chapter 27 Chapter 28 Chapter 29 Chapter 30 Chapter 31 Chapter 32 Macroeconomic Problems Supply and Demand The Problem of Unemployment Understanding Inflation Measuring Economic Activity Aggregate Demand Aggregate Supply and the Economy Fiscal Policy Money and Banking Money, Credit, and the Economy Monetary versus Fiscal Policy The Monetarists International Trade The Foreign Exchange Market International Economics Problems, Goals, and Trade-Offs Scarcity arid Choice Specialization Demand and Supply: The Micro Side Markets at Work Consumer Choice Production and Cost Producer Choice: Monopoly Producers in Competitive Markets Imperfect Competition Labor Markets Capital and Natural Resource Markets Energy Markets Free Market Choice Market Failures: Externalities Market Failures: Monopolies Scarcity and Choice: The Poverty Problem 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 vii MACROECONOMIC PROBLEMS 1 Roman set numbers in parentheses refer to pages where the material is discussed in both Introductory Economics, andlntroductory Macroeconomics. 1. According to Veseth, which of the following situations is the most likely topic of discussion in a class on "macroeconomics"? (6) a. An increase in the price of hamburgers. B. An increase in the unemployment rate. c. An increase in the production of a particular company. d. An increase in the number of producers of a product. e. An increase in the wage rate paid construction workers. 2. According to Veseth, which of the following situations is the most likely topic of discussion in a class on "microeconomics"? (6) a. An increase in governmental taxes. b. An increase in governmental spending. c. An increase in the unemployment rate. D. An increase in the price of a resource used to produce a particular product. e. An increase in the rate of inflation. 3. According to Veseth, in which of the following decades has unemployment been considered the most serious problem? (8, 9) a. The 1950s. B. The 1930s. c. The 1960s. d. The 1940s. e. The 1970s. 4. According to Veseth, during which of the following decades has inflation been considered the most serious economic problem? (14-15) a. The 1930s. b. The 1940s. c. The 1950s. d. The 1960s. E. The 1970s. 5. If real gross national product is used as a measure of economic growth, during which of the following decades was economic growth in the United States the greatest? (12-13) a. The 1930s. b. The 1940s. c. The 1950s. D. The 1960s. e. The 1970s. 6. During the decade of the 1960s, economists observed the "Phillips curve phenomenon" in the United States. Which of the following statements, if any, best describes the Phillips curve relationship? (13-14) a. Unemployment can only be reduced by reducing inflation. b. Employment increases as unemployment falls. c. Any policy that increases inflation also increases unemployment. d. As unemployment increases, there is no change in the rate of inflation. E. None of the other responses is correct. 7. One explanation of the Phillips curve which has been proposed is that of the "wage-lag" theory. This theory maintains that inflation can temporarily reduce unemployment because inflation tends to: (13, 14) a. increase the supply of labor. B. increase business profits. c. cause productivity to lag behind wages. d. increase the purchasing power of the dollar in foreign markets. e. increase the purchase of agricultural products where more workers are needed. 1 2 CHAPTER 1 8. According to Veseth, a major contributor to the stagnation era of was: (15-16) a. the large increases in the exportation of wheat to the Soviet Union. b. the leftward movement of the Phillips curve. c. the manner in which the government "redefined" who was employed and who was unemployed. D. the embargo on oil shipments imposed by the Organization of Petroleum Exporting Countries (OPEC). e. the manner in which the government "redefined" how the rate of inflation was calculated. 9. There have been a number of theoretical attempts to explain the disappearance of the Phillips curve during the 1970s. Which of the following statements, if any, would not explain the disappearance of the Phillips curve? (16-17) A. Inflation is now more of a "demand-pull" phenomenon than a "cost-push"phenomenon. b. Expectations concerning the occurrence of inflation have changed. c. Inflation today is heavily influenced by rising oil prices. d. Consumers have become more sophisticated in the manner in which they anticipate inflation. e. The increases in demand which led to higher prices would, through the wage-lag mechanism, cause employment to rise also. 10. Suppose that the Phillips curve works in the manner which is described in the text. If this relationship holds, an increase in the rate of inflation will result in: (13-14) a. an increase in the unemployment rate b. an increase in the economic discomfort index. c. a decrease in the economic discomfort index. d. a decrease in the employment rate. E. none of the other responses is correct. 11. Economics is the social science which examines how society attempts to: (5) a. fight inflation and unemployment while achieving economic growth. b. organize business and earn profits for firms subject to governmental control. C. produce and distribute goods and services in a world of scarce resources. d. allocate resources among the government, industrial and international sectors of the economy. e. balance the budget and fight inflation without sacrificing any governmental services. 12. In a market economy, the decision-making unit which organizes the resources to produce goods and services is the: (5) a. household b. individual. c. government. D. firm. e. congressional committee. 13. In a market economy, the majority of decisions about the allocation of resources are made: (5) a. by the military. B. by households and firms operating in a market supervised by the price system. c. on the basis of tradition. d. by congressional committees. e. by central planners because of the lack of governmental intervention. 14. In a command economy, the mix of goods and services produced is decided by: (5) a. a market mechanism. B. a central planning agency. c. tradition. d. the economic resources provided. e. congressional committees. 15. The principal difference between a "market" economy and a "command" economy is: (5) a. scarcity is greater in a command economy, making economic policies more difficult to carry out. b. command economies are more concerned with macroeconomics, while market economies are more concerned with microeconomics. c. market economies suffer more from inflation than do command economies. d. command economies are more efficient in producing goods and services than are market economies. E. different groups are responsible for the production and distribution decisions in the two types of economies. MACROECONOMIC PROBLEMS 3 16. Ina market economy, the allocation of resources is made by: (5) a. central planners because of the absence of governmental intervention. B. individual consumers and producers operating in an environment supervised by the price system. c. governmental intervention because of the absence of central planners. d. governmental intervention because of the absence of an effective price system. e. central planners because of their control over both markets and prices. 17. A good economic model: (6) a. involves such a great deal of distortion of reality as to be worthless. b. will include all factors affecting changes in the economy. c. is useful only if it involves no simplification of reality. d. is impossible because of the inability of economists to construct a "controlled" experiment. E. will involve some simplification of reality. 18. "Microeconomics" is concerned with: (6) a. establishing an overall view of the operation of the economic system. b. concealing detailed information about specific segments of the economy. C. a detailed examination of specific economic units which make up the economic system. d. the total levels of income, employment and inflation in the economy. e. the economic goals expressed in The Employment Act of 1946. 19. The study of "microeconomics" focuses upon: (6) a. the most i m p o r t a n t questions of economics. B. the individual household and business units which make up the economy. c. the broad issues of the national economy, such as inflation and unemployment. d. the economic goals expressed in The Employment Act of 1946. e. the establishment of a model of the operation of the economic system. 20. The study of "macroeconomics" focuses upon: (6) a. the individual household and business units which make up the economy. b. individual markets and the pattern of competition which characterizes the firms in the industry. c. the manner in which a business determines the best level of output to produce. D. the broad issues of the national economy, such as inflation, and unemployment. e. a detailed examination of specific economic units which make up the economic system. 21. According to Veseth, the principal difference between microeconomics and macroeconomics is that: (6) A. they view the same economic activities from different perspectives; that is, "micro" looks at individual decisions and "macro" looks at these decisions taken together. b. they represent different theories of the economy; that is, "micro" maintains that individual prices and quantities are more important and "macro" says that inflation and unemployment are the more important things. c. they give us different prescriptions for economic policy; that is, "micro" says to let markets work while "macro" holds that wage and price controls are more effective. d. there is no difference between microeconomics and macroeconomics. e. they represent different theories of the economy; that is, "micro" deals with the economic goals expressed in The Employment Act of 1946 while "macro" deals with the manner in which firms determine their best level of output. 22. The economic goals outlined in The Employment Act of 1946 are observed to be: (7) a. price stability, economic growth and the equalization of incomes. b. the equalization of incomes, full employment and price stability. C. economic growth, price stability and full employment. d. full employment, the equalization of incomes and economic growth. e. a balanced budget, price stability and economic growth. 23. The Employment Act of 1946 established three macroeconomic goals for the economy. Which of the following goals are contained in that Act? (7) (#) full employment ($) price stability CHAPTER 1 (%) equitable distribution of income (Ö) economic growth (*) fair taxation (+) balanced budget a. Only goals (#), ($) and (%) are contained in the Act. B. Only goals (#), ($) and (+) are contained in the Act. c. Only goals ($), (%) and (+) are contained in the Act. d. Only goals (%), (Ö) and (*) are contained in the Act. e. Only goals (%), (*) and (+) are contained in the Act. The Employment Act of 1946 established three macroeconomic goals for the economy. Which of the following are not contained in that Act? (7) (#) full employment ($) fair taxation (%) balanced budget (Ö) price stability (*) economic growth (+) equitable distribution of income a. Only (#), ($) and (%) are not contained in the Act. b. Only (#), (%) and (+) are not contained in the Act. c. Only ($), (*) and (+) are not contained in the Act. D. Only ($), (%) and (+) are not contained in the Act. d. Only ($), (%) and (Ö) are not contained in the Act. According to Veseth, a good measure of the economic growth of the economy is the: A. real gross national product. b. economic discomfort index. c. Phillips curve. d. unemployment rate. e. business cycle. According to Veseth, the stock market crash of 1929 was important because it: (8-10) a. directly caused unemployment rates to rise. b. brought about higher rates of inflation which put people out of work. c. signalled the start of the Great Depression. D. destroyed peoples' savings and resulted in their spending less. e. resulted in the passage of The Employment Act by Congress. 27. According to Veseth, which of the following statements best describes the economic conditions in the 1930s in the United States? (8-10) a. Falling prices and falling unemployment. b. Rising prices and falling unemployment. C. Falling prices and falling employment. d. Cyclical fluctuations but no general trend for prices and employment. e. Stable prices and rising employment. 28. According to Veseth, which of the following statements best describes the economic conditions in the 1940s in the United States? (10) a. Falling prices and falling unemployment. B. Rising prices and falling unemployment. c. Falling prices and falling employment. d. Cyclical fluctuations but no general trend for prices and employment. e. Stable prices and rising employment. 29. According to Veseth, governmental spending increased dramatically during the decade of the 1940s. This policy: (10) a. was an attempt to lower unemployment rates which were still high from the period of the Great Depression. B. resulted in inflation and the need for wage and price controls. c. reduced inflationary pressures because most of the spending was for war materials which left the country. d. had no significant effect upon the economy. e. resulted in the decade of the 1940s having the longest period of economic growth in our history. 30. According to Veseth, which of the following statements best describes the economic conditions in the 1950s in the United States? (10-11) a. Falling prices and falling unemployment. b. Rising prices and falling unemployment. c. Falling prices and falling employment. D. Cyclical fluctuations but no general trend for price and employment. e. Stable prices and rising employment. 31. According to Veseth, the "economic discomfort index" is calculated by adding the: (11) a. interest rate and the rate of inflation. b. interest rate and the change in the real gross national product (RGNP). C. rate of inflation and the unemployment rate. d. unemployment rate and the interest rate. 4 24. 25. 26. MACROECONOMIC PROBLEMS 5 e. rate of inflation and the change in the real gross national product (RGNP). 32. According to Veseth, which of the following statements best describes the economic conditions in the 1960s in the United States? (12-13) a. Falling prices and falling unemployment. B. Rising prices and falling unemployment. c. Falling prices and falling employment. d. Cyclical fluctuations but no general trend for prices and employment. e. Stable prices and rising employment. 33. The decade of the 1960s saw a "trade-off between inflation and unemployment. This trade-off is often called the: (13) a. economic discomfort index. B. Phillips curve. c. Kennedy-Johnson curve. d. index of leading economic indicators. e. business cycle. 34. The statement that "the cost of reducing the rate of inflation is that people must lose their jobs" depicts a relationship that is known as: (13) a. real gross national product (RGNP). b. the economic discomfort index. c. the stagflation index. d. the Employment Act of 1946. E. the Phillips curve. 35. The Phillips curve discussed in the text suggests a "trade-off between the economic goals of: ( 13) a. low levels of unemployment and economic growth. b. economic growth and price level stability. c. price level stability and income equality. D. low levels of unemployment and price level stability. e. fair taxation and a balanced budget. 36. The Phillips curve discussed in the text relates the: (13) a. rate of inflation and the rate of growth in real gross national product (RGNP). b. rate of interest and the rate of inflation. C. rate of inflation and the percentage of the labor force unemployed. d. rate of growth in real gross national product (RGNP) and the rate of unemployment. e. rate of inflation and the employment rate. 37. One explanation for the phenomenon known as the Phillips curve is the "wage-lag" theory. This theory holds that inflation can cause the unemployment rate to decline because inflation: (13) A. temporarily increases business profits. b. temporarily increases worker productivity. c. increases the number of workers. d. forces workers' wages to lag behind salaried workers. e. temporarily decreases the economic discomfort index. 38. According to Veseth, in using a Phillips curve to portray the United States economy in the 1960s, an economist would depict the rate of inflation and the level of unemployment as being: (12-14) A. inversely related. b. unrelated until full employment is reached and then directly related. c. unrelated until full employment is reached and then inversely related. d. directly related. e. not reflecting any relationship during this period. 39. According to Veseth, the basic problem which is portrayed in the Phillips curve is that of: (13-14) a. price level stability and economic growth. b. income equality and price level stability. c. low levels of unemployment and economic growth. D. price level stability and low levels of unemployment