Question 1

South Korea is an example of a country that has adopted good institutions for promoting economic growth.

Accepted Answer

A) True 
 B)False

Question 2

Ideas:

Accepted Answer

A)  will run out some day. 
B)  are not depleted when they are used. 
C)  are not an important factor in economic growth. 
D)  occur at the same rate no matter what. 
A)  will run out some day. 
B)  are not depleted when they are used. 
C)  are not an important factor in economic growth. 
D)  occur at the same rate no matter what.

Question 3

For countries to be wealthy,they need lots of physical and human capital per worker,which,in turn,depends on a system of private property rights,political stability,a just legal system,honest government,and competitive and open markets.

Accepted Answer

A) True 
 B)False

Question 4

Institutions that support economic growth are the ones that:

Accepted Answer

A)  encourage consumption and discourage savings. 
B)  give the government more control over what is produced and how it is produced. 
C)  require companies to act in the social interest. 
D)  provide incentives for entrepreneurs to take risks and innovate. 
A)  encourage consumption and discourage savings. 
B)  give the government more control over what is produced and how it is produced. 
C)  require companies to act in the social interest. 
D)  provide incentives for entrepreneurs to take risks and innovate.

Question 5

Two people can benefit from trade if they both live in the same country,but not if they live in different countries.

Accepted Answer

A) True 
 B)False

Question 6

Recall Chapter 1's opening story about the British sea captains and the convicted felons.In what way were incentives used to solve the problem of the high mortality rate on board the ships?

Accepted Answer

A)  Payment (to ship captains)was to be offered for each prisoner that was taken aboard the ships. 
B)  Payment (to ship captains)was made independent of the regulations passed for prisoner welfare. 
C)  Regulations were passed so that prisoners could get better food,water,and medical care. 
D)  Payment (to ship captains)was made dependent on the survival rate of prisoners. 
A)  Payment (to ship captains)was to be offered for each prisoner that was taken aboard the ships. 
B)  Payment (to ship captains)was made independent of the regulations passed for prisoner welfare. 
C)  Regulations were passed so that prisoners could get better food,water,and medical care. 
D)  Payment (to ship captains)was made dependent on the survival rate of prisoners.

Question 7

In The Economics of Nonhuman Societies,economist Gordon Tullock describes the economics hidden in biology (e.g. ,ants and bees).One of the lessons of the book is opportunity cost.In what way does an animal,such as an ant,face opportunity costs?

Accepted Answer

A)  An ant suffers a large initial cost to find food. 
B)  Because an ant starves if it does not find food,it has a strong incentive to search. 
C)  Ants face increasing marginal costs while searching for food in one direction as they get farther from the anthill. 
D)  Searching for food in one direction means an ant cannot search in another direction. 
A)  An ant suffers a large initial cost to find food. 
B)  Because an ant starves if it does not find food,it has a strong incentive to search. 
C)  Ants face increasing marginal costs while searching for food in one direction as they get farther from the anthill. 
D)  Searching for food in one direction means an ant cannot search in another direction.

Question 8

With careful planning,we can usually get something that we like without having to give up something else that we like.

Accepted Answer

A) True 
 B)False

Question 9

Inflation increases the value of money by increasing the purchasing power of money.

Accepted Answer

A) True 
 B)False

Question 10

What is one cause of inflation?

Accepted Answer

A)  the persistent rise in prices in the economy 
B)  the inability of production to keep up with spending in the economy 
C)  increased spending by people and the government. 
D)  economic growth without money growth 
A)  the persistent rise in prices in the economy 
B)  the inability of production to keep up with spending in the economy 
C)  increased spending by people and the government. 
D)  economic growth without money growth

Question 11

The theory of comparative advantage concludes that people can produce more by specializing than by doing everything themselves.

Accepted Answer

A) True 
 B)False

Question 12

All booms and busts:

Accepted Answer

A)  are part of an economy's normal response to changing economic conditions. 
B)  are avoidable. 
C)  are caused by the weather. 
D)  affect the rate of economic growth. 
A)  are part of an economy's normal response to changing economic conditions. 
B)  are avoidable. 
C)  are caused by the weather. 
D)  affect the rate of economic growth.

Question 13

Trade increases production partly by taking advantage of:

Accepted Answer

A)  specialization. 
B)  mercantilism. 
C)  idealism. 
D)  internalization. 
A)  specialization. 
B)  mercantilism. 
C)  idealism. 
D)  internalization.

Question 14

What is meant by the term "marginal revolution"?

Accepted Answer

A)  the public disdain at the institution of marginal tax rates 
B)  the transformation in economic thought that occurred with the discovery of marginal thinking 
C)  the institution of the death penalty for drug dealers 
D)  the effect of policies on crime 
A)  the public disdain at the institution of marginal tax rates 
B)  the transformation in economic thought that occurred with the discovery of marginal thinking 
C)  the institution of the death penalty for drug dealers 
D)  the effect of policies on crime

Question 15

Why might the FDA err on the side of "overtesting" pharmaceutical drugs compared with the level of testing that is economically efficient?

Accepted Answer

A)  Dangerous side effects are more important than drug loss and drug lag. 
B)  Dangerous side effects are less important than drug loss and drug lag. 
C)  Drug lag and drug loss are not significant concerns in the case of most pharmaceutical drugs. 
D)  Dangerous side effects are not relevant in most pharmaceutical drug cases. 
A)  Dangerous side effects are more important than drug loss and drug lag. 
B)  Dangerous side effects are less important than drug loss and drug lag. 
C)  Drug lag and drug loss are not significant concerns in the case of most pharmaceutical drugs. 
D)  Dangerous side effects are not relevant in most pharmaceutical drug cases.

Question 16

Using the thinking at the margin concept,explain a student's decision to wake up and attend an 8 AM class in the winter (the student is already registered for the class).

Accepted Answer

On the one hand,the student will stand t

Question 17

Monetary and fiscal policy:

Accepted Answer

A)  can make matters worse if poorly used. 
B)  are useless. 
C)  can prevent all recessions. 
D)  are all-powerful. 
A)  can make matters worse if poorly used. 
B)  are useless. 
C)  can prevent all recessions. 
D)  are all-powerful.

Question 18

Which of the following statements is TRUE about trade?

Accepted Answer

A)  Everyone can benefit from trade,even people who trade with someone from a foreign country. 
B)  Comparative advantage is based on specializing in products that have a high opportunity cost of production. 
C)  If a person can do everything better than anyone else,there is no reason for that person to trade with others. 
D)  Trade makes one party better off but the other party worse off,so there is no net gain to society. 
A)  Everyone can benefit from trade,even people who trade with someone from a foreign country. 
B)  Comparative advantage is based on specializing in products that have a high opportunity cost of production. 
C)  If a person can do everything better than anyone else,there is no reason for that person to trade with others. 
D)  Trade makes one party better off but the other party worse off,so there is no net gain to society.

Question 19

What is the "invisible hand"?

Accepted Answer

A)  The idea that government economic planning tends to benefit not only the individual but also all of society. 
B)  The principle that most people avoid economic transactions with so-called "outsiders." 
C)  The idea that people pursuing their own self-interest actually benefit the public at large. 
D)  The notion that the pursuit of profit leads to the exploitation of consumers. 
A)  The idea that government economic planning tends to benefit not only the individual but also all of society. 
B)  The principle that most people avoid economic transactions with so-called "outsiders." 
C)  The idea that people pursuing their own self-interest actually benefit the public at large. 
D)  The notion that the pursuit of profit leads to the exploitation of consumers.

Question 20

Monetary and fiscal policies have the potential to improve unemployment and GDP during a recession.

Accepted Answer

A) True 
 B)False

Exam 1: The Big Ideas

South Korea is an example of a country that has adopted good institutions for promoting economic growth.

Ideas:

For countries to be wealthy,they need lots of physical and human capital per worker,which,in turn,depends on a system of private property rights,political stability,a just legal system,honest government,and competitive and open markets.

Institutions that support economic growth are the ones that:

Two people can benefit from trade if they both live in the same country,but not if they live in different countries.

Recall Chapter 1's opening story about the British sea captains and the convicted felons.In what way were incentives used to solve the problem of the high mortality rate on board the ships?

In The Economics of Nonhuman Societies,economist Gordon Tullock describes the economics hidden in biology (e.g. ,ants and bees).One of the lessons of the book is opportunity cost.In what way does an animal,such as an ant,face opportunity costs?

With careful planning,we can usually get something that we like without having to give up something else that we like.

Inflation increases the value of money by increasing the purchasing power of money.

What is one cause of inflation?

The theory of comparative advantage concludes that people can produce more by specializing than by doing everything themselves.

All booms and busts:

Trade increases production partly by taking advantage of:

What is meant by the term "marginal revolution"?

Why might the FDA err on the side of "overtesting" pharmaceutical drugs compared with the level of testing that is economically efficient?

Using the thinking at the margin concept,explain a student's decision to wake up and attend an 8 AM class in the winter (the student is already registered for the class).

Monetary and fiscal policy:

Which of the following statements is TRUE about trade?

What is the "invisible hand"?

Monetary and fiscal policies have the potential to improve unemployment and GDP during a recession.

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

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