Question 1

Economic booms and busts:

Accepted Answer

A)  can be moderated but cannot be avoided. 
B)  can be avoided by employing growth-encouraging institutions. 
C)  do not occur,since the economy always grows at a constant pace. 
D)  occur only when countries have bad institutions. 
A)  can be moderated but cannot be avoided. 
B)  can be avoided by employing growth-encouraging institutions. 
C)  do not occur,since the economy always grows at a constant pace. 
D)  occur only when countries have bad institutions.

Question 2

The opportunity cost of a choice is:

Accepted Answer

A)  the opportunity of using the money to buy something else cheaper. 
B)  the money cost that a person does not have to pay when doing something. 
C)  the money that a buyer has to pay for an item. 
D)  the value of the next best opportunity foregone. 
A)  the opportunity of using the money to buy something else cheaper. 
B)  the money cost that a person does not have to pay when doing something. 
C)  the money that a buyer has to pay for an item. 
D)  the value of the next best opportunity foregone.

Question 3

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 4

During the Great Depression,the United States unemployment rate exceeded ______ percent.

Accepted Answer

A)  35 
B)  30 
C)  25 
D)  20 
A)  35 
B)  30 
C)  25 
D)  20

Question 5

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 6

Adam Smith coined the term "invisible hand" to mean:

Accepted Answer

A)  a physical hand that leads individuals to promote social interest by pursuing self-interest. 
B)  a metaphorical hand that leads individuals to promote social interest by pursuing self-interest. 
C)  a physical hand that leads individuals to promote self-interest by pursuing social interest. 
D)  a metaphorical hand that leads individuals to promote self-interest by pursuing social interest. 
A)  a physical hand that leads individuals to promote social interest by pursuing self-interest. 
B)  a metaphorical hand that leads individuals to promote social interest by pursuing self-interest. 
C)  a physical hand that leads individuals to promote self-interest by pursuing social interest. 
D)  a metaphorical hand that leads individuals to promote self-interest by pursuing social interest.

Question 7

Entrepreneurial activity is encouraged by:

Accepted Answer

A)  good institutions. 
B)  opportunity costs. 
C)  economic growth. 
D)  trade-offs. 
A)  good institutions. 
B)  opportunity costs. 
C)  economic growth. 
D)  trade-offs.

Question 8

In an effort to clean the air,many communities impose restrictions on the burning of garbage.This policy causes more garbage to be buried underground,potentially increasing groundwater contamination.What concept does this example represent?

Accepted Answer

A)  trade-offs 
B)  marginal pollution 
C)  sunk costs 
D)  public provision 
A)  trade-offs 
B)  marginal pollution 
C)  sunk costs 
D)  public provision

Question 9

Air travel from Chicago to Los Angeles costs $800 and takes four hours.A bus ticket between the cities costs $100 and takes 104 hours.Other things constant,the minimum value of one's time that would induce a rational individual to fly rather than drive would be:

Accepted Answer

A)  $1 per hour. 
B)  $7 per hour. 
C)  $12 per hour. 
D)  $120 per hour. 
A)  $1 per hour. 
B)  $7 per hour. 
C)  $12 per hour. 
D)  $120 per hour.

Question 10

The opportunity cost of winning a free ticket to the Super Bowl worth $950 and choosing to attend the game is:

Accepted Answer

A)  zero,since the ticket was free. 
B)  priceless,if the person really loves football. 
C)  at least $950,the lost market value of selling the ticket,and the time to go. 
D)  zero,if the person would rather go to the game than do anything else. 
A)  zero,since the ticket was free. 
B)  priceless,if the person really loves football. 
C)  at least $950,the lost market value of selling the ticket,and the time to go. 
D)  zero,if the person would rather go to the game than do anything else.

Question 11

In addition to monetary incentives,economists also believe people respond to incentives like fame,power,reputation,and love.

Accepted Answer

A) True 
 B)False

Question 12

In Zimbabwe,the government ______ the ______ money,which caused the country's severe inflation.

Accepted Answer

A)  decreased;demand for 
B)  decreased;supply of 
C)  increased;supply of 
D)  increased;demand for 
A)  decreased;demand for 
B)  decreased;supply of 
C)  increased;supply of 
D)  increased;demand for

Question 13

Inflation typically arises from:

Accepted Answer

A)  a sufficiently rapid contraction of the money supply. 
B)  a constant money supply. 
C)  a sufficiently rapid increase in the money supply. 
D)  an increase in the price level. 
A)  a sufficiently rapid contraction of the money supply. 
B)  a constant money supply. 
C)  a sufficiently rapid increase in the money supply. 
D)  an increase in the price level.

Question 14

Which of these quotes from the text captures what makes central banking difficult?

Accepted Answer

A)  "No one can foresee the future." 
B)  "We cannot avoid all recessions." 
C)  "Markets,however,do not always align self-interest with social interest." 
D)  "In some situations the Fed must accept a certain amount of either inflation or unemployment." 
A)  "No one can foresee the future." 
B)  "We cannot avoid all recessions." 
C)  "Markets,however,do not always align self-interest with social interest." 
D)  "In some situations the Fed must accept a certain amount of either inflation or unemployment."

Question 15

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 16

What should happen to crime rates when the unemployment rate rises?

Accepted Answer

A)  Crime rates should fall because the economic gains to property crime will be lower when incomes are lower. 
B)  Crime rates should rise because the opportunity cost of crime (i.e. ,getting a legitimate job)has fallen. 
C)  Crime rates should fall because the opportunity cost of crime (i.e. ,getting a legitimate job)has risen. 
D)  Crime rates should rise because the trade-offs have been eliminated. 
A)  Crime rates should fall because the economic gains to property crime will be lower when incomes are lower. 
B)  Crime rates should rise because the opportunity cost of crime (i.e. ,getting a legitimate job)has fallen. 
C)  Crime rates should fall because the opportunity cost of crime (i.e. ,getting a legitimate job)has risen. 
D)  Crime rates should rise because the trade-offs have been eliminated.

Question 17

Economists believe that people are self-interested all the time.

Accepted Answer

A) True 
 B)False

Question 18

Manuel insists he places an infinite value on his life.Stefan is suspicious of this claim and points out to Manuel that he sometimes eats ice cream when broccoli would be much better for him.What Big Idea is Stefan using?

Accepted Answer

A)  The Power of Trade: Manuel could not make his own ice cream,though he could grow his own broccoli;Manuel must be trading for ice cream. 
B)  Incentives: No one is paying Manuel to be healthy. 
C)  Thinking on the Margin: "Infinite value" is too much to be on the margin. 
D)  Trade-offs: Gaining some enjoyment is worth giving up some safety. 
A)  The Power of Trade: Manuel could not make his own ice cream,though he could grow his own broccoli;Manuel must be trading for ice cream. 
B)  Incentives: No one is paying Manuel to be healthy. 
C)  Thinking on the Margin: "Infinite value" is too much to be on the margin. 
D)  Trade-offs: Gaining some enjoyment is worth giving up some safety.

Question 19

Imposing the death penalty on rapists may increase the number of murders,because:

Accepted Answer

A)  the death penalty is not a deterrent to the behavior of a rapist. 
B)  once a victim is raped there is no additional penalty imposed for also killing the victim. 
C)  rapists are irrational and place no value on the life of their victim. 
D)  rapists do not think about the consequences of their actions. 
A)  the death penalty is not a deterrent to the behavior of a rapist. 
B)  once a victim is raped there is no additional penalty imposed for also killing the victim. 
C)  rapists are irrational and place no value on the life of their victim. 
D)  rapists do not think about the consequences of their actions.

Question 20

The Great Depression was:

Accepted Answer

A)  a natural manifestation of competitive markets. 
B)  cut short because of well-thought-out monetary policy. 
C)  to date,the worst economic period in United States economic history. 
D)  about as severe as the 2008-2009 recession. 
A)  a natural manifestation of competitive markets. 
B)  cut short because of well-thought-out monetary policy. 
C)  to date,the worst economic period in United States economic history. 
D)  about as severe as the 2008-2009 recession.

Exam 1: The Big Ideas

Economic booms and busts:

The opportunity cost of a choice is:

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

During the Great Depression,the United States unemployment rate exceeded ______ percent.

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.

Adam Smith coined the term "invisible hand" to mean:

Entrepreneurial activity is encouraged by:

In an effort to clean the air,many communities impose restrictions on the burning of garbage.This policy causes more garbage to be buried underground,potentially increasing groundwater contamination.What concept does this example represent?

Air travel from Chicago to Los Angeles costs $800 and takes four hours.A bus ticket between the cities costs $100 and takes 104 hours.Other things constant,the minimum value of one's time that would induce a rational individual to fly rather than drive would be:

The opportunity cost of winning a free ticket to the Super Bowl worth $950 and choosing to attend the game is:

In addition to monetary incentives,economists also believe people respond to incentives like fame,power,reputation,and love.

In Zimbabwe,the government ______ the ______ money,which caused the country's severe inflation.

Inflation typically arises from:

Which of these quotes from the text captures what makes central banking difficult?

The main incentive for business activity is:

What should happen to crime rates when the unemployment rate rises?

Economists believe that people are self-interested all the time.

Manuel insists he places an infinite value on his life.Stefan is suspicious of this claim and points out to Manuel that he sometimes eats ice cream when broccoli would be much better for him.What Big Idea is Stefan using?

Imposing the death penalty on rapists may increase the number of murders,because:

The Great Depression was:

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Saving,investment,and the Financial System

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

Monetary Policy

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

In Zimbabwe,the government the money,which caused the country's severe inflation.