Question 1

An economy in which entrepreneurs are free to experiment with new ideas and bring innovative products to the market will:

Accepted Answer

A)  help economic growth but not affect living standards. 
B)  lead to improved living standards and increased economic growth. 
C)  lead to increased living standards but stagnate economic growth. 
D)  help stagnate living standards but increase economic growth. 
A)  help economic growth but not affect living standards. 
B)  lead to improved living standards and increased economic growth. 
C)  lead to increased living standards but stagnate economic growth. 
D)  help stagnate living standards but increase economic growth.

Question 2

If two countries are initially at the same level of development, the institution of well-functioning markets can allow one country to develop faster than the other.

Accepted Answer

A) True 
 B)False

Question 3

In the long run, excess money printing by the government causes inflation and economic busts.

Accepted Answer

A) True 
 B)False

Question 4

The main incentive for business activity is:

Accepted Answer

A)  government subsidies. 
B)  technological advancement. 
C)  profit. 
D)  employment. 
A)  government subsidies. 
B)  technological advancement. 
C)  profit. 
D)  employment.

Question 5

Using the concepts of incentives and good institutions, explain how a country might achieve economic growth.

Accepted Answer

Economic growth stems from having well-f

Question 6

Economists believe that socially good outcomes arise whenever:

Accepted Answer

A)  self-interest is pursued. 
B)  either self-interest or social interest are pursued. 
C)  self-interest is pursued and it aligns with social interest. 
D)  self-interest is pursued and it does not align with social interest. 
A)  self-interest is pursued. 
B)  either self-interest or social interest are pursued. 
C)  self-interest is pursued and it aligns with social interest. 
D)  self-interest is pursued and it does not align with social interest.

Question 7

From 2007 to 2009, the inflation rate in Zimbabwe could be characterized as:

Accepted Answer

A)  negative. 
B)  zero. 
C)  positive but low. 
D)  positive and high. 
A)  negative. 
B)  zero. 
C)  positive but low. 
D)  positive and high.

Question 8

The environment best suited for economic growth is one with well-functioning competitive markets, property rights, and creativity in its firms.

Accepted Answer

A) True 
 B)False

Question 9

When Angel has a comparative advantage over Blake in cooking, it means that:

Accepted Answer

A)  the opportunity cost of cooking is higher for Angel than Blake. 
B)  the opportunity cost of cooking is lower for Angel than Blake. 
C)  Angel can cook faster than Blake can. 
D)  Blake can cook faster than Angel can. 
A)  the opportunity cost of cooking is higher for Angel than Blake. 
B)  the opportunity cost of cooking is lower for Angel than Blake. 
C)  Angel can cook faster than Blake can. 
D)  Blake can cook faster than Angel can.

Question 10

Which of the following statements reflects Adam Smith's important insight into marketplace behavior?

Accepted Answer

A)  Society benefits when people and firms pursue their own self-interests. 
B)  Markets are usually an inefficient way of organizing economic activity. 
C)  Greedy, self-interested behavior needs to be constrained to ensure strong economic growth. 
D)  Trade restrictions on imported goods increase domestic employment. 
A)  Society benefits when people and firms pursue their own self-interests. 
B)  Markets are usually an inefficient way of organizing economic activity. 
C)  Greedy, self-interested behavior needs to be constrained to ensure strong economic growth. 
D)  Trade restrictions on imported goods increase domestic employment.

Question 11

Inflation can be defined as:

Accepted Answer

A)  the general rise in the level of output in an economy. 
B)  the boom and bust cycles of an economy. 
C)  the rise and fall of the general level of prices in an economy. 
D)  the increase in the general level of prices in an economy. 
A)  the general rise in the level of output in an economy. 
B)  the boom and bust cycles of an economy. 
C)  the rise and fall of the general level of prices in an economy. 
D)  the increase in the general level of prices in an economy.

Question 12

A high-school graduate deciding to go to college makes that decision by:

Accepted Answer

A)  comparing the total income earned per year after graduating from college with the total cost of going to college. 
B)  comparing the additional income earned per year after graduating from college with the additional cost of going to college. 
C)  thinking about the benefit to society if she goes to college. 
D)  following what her friends do. 
A)  comparing the total income earned per year after graduating from college with the total cost of going to college. 
B)  comparing the additional income earned per year after graduating from college with the additional cost of going to college. 
C)  thinking about the benefit to society if she goes to college. 
D)  following what her friends do.

Question 13

There are ten Big Ideas in Chapter 1. List four of them.

Accepted Answer

A student could list any of the followin

Question 14

Markets align self-interest with the social interest as long as the government doesn't interfere.

Accepted Answer

A) True 
 B)False

Question 15

How are wealth and economic growth related?

Accepted Answer

A)  Increases in wealth help facilitate economic growth. 
B)  Economic growth causes increases in wealth. 
C)  Wealth and economic growth are negatively related. 
D)  Economic growth causes resource depletion and reduces society's wealth. 
A)  Increases in wealth help facilitate economic growth. 
B)  Economic growth causes increases in wealth. 
C)  Wealth and economic growth are negatively related. 
D)  Economic growth causes resource depletion and reduces society's wealth.

Question 16

Which of the following statements is TRUE?

Accepted Answer

A)  The Great Depression, despite its name, was really a small economic downturn with very little unemployment. 
B)  The Great Depression refers to the severe economic downturn that occurred during the nineteenth century. 
C)  The Great Depression would have been less severe if the Federal Reserve had acted appropriately. 
D)  Well-functioning economies grow at a constant rate and do not experience booms and busts. 
A)  The Great Depression, despite its name, was really a small economic downturn with very little unemployment. 
B)  The Great Depression refers to the severe economic downturn that occurred during the nineteenth century. 
C)  The Great Depression would have been less severe if the Federal Reserve had acted appropriately. 
D)  Well-functioning economies grow at a constant rate and do not experience booms and busts.

Question 17

An example of a case in which free markets do not align self-interest with social interest is pollution-emitting production:

Accepted Answer

A) True 
 B)False

Question 18

One of the "Big Ideas" in economic thinking is that there is an incentive to do something if the total benefit is bigger than the total cost.

Accepted Answer

A) True 
 B)False

Question 19

Most developed countries:

Accepted Answer

A)  have stopped growing. 
B)  grow at an unsteady rate. 
C)  grow at a steady rate. 
D)  grow at an increasing rate. 
A)  have stopped growing. 
B)  grow at an unsteady rate. 
C)  grow at a steady rate. 
D)  grow at an increasing rate.

Question 20

Explain why central banking is a hard job.

Accepted Answer

Too much money in the economy means that

Exam 1: The Big Ideas

An economy in which entrepreneurs are free to experiment with new ideas and bring innovative products to the market will:

If two countries are initially at the same level of development, the institution of well-functioning markets can allow one country to develop faster than the other.

In the long run, excess money printing by the government causes inflation and economic busts.

The main incentive for business activity is:

Using the concepts of incentives and good institutions, explain how a country might achieve economic growth.

Economists believe that socially good outcomes arise whenever:

From 2007 to 2009, the inflation rate in Zimbabwe could be characterized as:

The environment best suited for economic growth is one with well-functioning competitive markets, property rights, and creativity in its firms.

When Angel has a comparative advantage over Blake in cooking, it means that:

Which of the following statements reflects Adam Smith's important insight into marketplace behavior?

Inflation can be defined as:

A high-school graduate deciding to go to college makes that decision by:

There are ten Big Ideas in Chapter 1. List four of them.

Markets align self-interest with the social interest as long as the government doesn't interfere.

How are wealth and economic growth related?

Which of the following statements is TRUE?

An example of a case in which free markets do not align self-interest with social interest is pollution-emitting production:

One of the "Big Ideas" in economic thinking is that there is an incentive to do something if the total benefit is bigger than the total cost.

Most developed countries:

Explain why central banking is a hard job.

The Power of Trade and Comparative

Supply and Demand

Equilibrium

Elasticity and Its Applications

Taxes and Subsidies

The Price System

Price Ceilings and Floors

International Trade

Externalities- When the Price Is Not Right

Costs and Profit Maximization Under Competition

Competition and the Invisible Hand

Monopoly

Price Discrimination

Oligopoly and Game Theory

Competing for Monopoly

Monopolistic Competition and Advertising

Labor Markets

Public Goods and the Tragedy of the Commons

Political Economy and Public Choice

Economics, Ethics, and Public Policy

Managing Incentives

Stock Markets and Personal Finance

Price Discrimination

Consumer Choice

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