Self Test: Multiple Choice

You can find the answers on the last page of this text.

  1. 2-1 Which of the following is a good example of microeconomics?

    1. How a specific company would maximize its production and capacity so it could better compete in its industry

    2. How an increase in the unemployment rate would affect a country’s GDP

    3. How a decrease in taxation affects consumer spending

    4. All of the above

  2. 2-2 There are four coffee shops in your town. All of them claim to have the “freshest-tasting coffee.” Each shop advertises the unique benefits of its coffee and prices. This is an example of

    1. pure monopoly.

    2. monopolistic competition.

    3. a regulated monopoly.

    4. an oligopoly.

  3. 2-3 Jeannette has a successful organic spa business in which she gives massages, facials, and organic body treatments. Last summer, another organic spa opened up in town. The supply curve for Jeanette’s business would shift in which direction?

    1. To the right

    2. To the left

    3. No change would occur.

    4. There is a shift along the demand curve only.

  4. 2-4 Which of the following is a determinant of demand?

    1. Technology changes

    2. Changes in income levels

    3. Price of substitute goods

    4. Price expectations

  5. 2-5 Racerback Swimwear, an Australian company, opens a factory near Tallahassee, Florida. The value of the swimsuits produced in the new Florida factory is included in which country’s GDP?

    1. Australia

    2. United States

    3. Both Australia and the United States

    4. It is not included in the GDP at all.

  6. 2-6 Which of the following tracks the prices of goods and resources sellers use to create their products?

    1. GDP

    2. CPI

    3. PPI

    4. GNP

  7. 2-7 Jackson Paulson works as a waterskiing instructor at Migis Lodge on Sebago Lake. He claims unemployment from October through April. Jackson experiences which type of unemployment?

    1. Frictional

    2. Seasonal

    3. Cyclical

    4. Structural

  8. 2-8 Which of the following is an example of the government’s fiscal policy to stimulate an economy?

    1. Increased government spending

    2. Increased taxes

    3. Decreases in the discount rate

    4. Selling government securities in open markets

  9. 2-9 What results when there is an increase in overall prices?

    1. Inflation

    2. Deflation

    3. Expansion

    4. Recession

  10. 2-10 At which point in the business cycle is the economy when GDP declines for two or more successive quarters?

    1. Peak

    2. Recession

    3. Trough

    4. Expansion or recovery

True/False

You can find the answers on the last page of this text.

  1. 2-11 Microeconomics is the study of the behavior of the overall economy.

    1. □ True or □ False

  2. 2-12 The discount rate is what is charged when banks borrow emergency funds from each other.

    1. □ True or □ False

  3. 2-13 Sweden, with its high taxes and widespread government programs, is a good example of a market economy.

    1. □ True or □ False

  4. 2-14 To celebrate the first day of summer, an ice cream shop dropped the price of its cones to 10 cents and sold out of them within two hours. This created a shortage of ice cream cones.

    1. □ True or □ False

  5. 2-15 The M-1 money supply measure consists of currency, traveler’s checks, and checking accounts.

    1. □ True or □ False

Critical Thinking Questions

  1. 2-16 To smooth out swings in the business cycle, the government influences the economy through its fiscal and monetary policies. Compare and contrast the monetary and fiscal policies of the United States.

  2. An image shows a star blue icon. 2-17 The U.S. Postal Service and Amtrak are examples of large organizations operated by the federal government. Discuss the pros and cons of privatizing these businesses.

  3. An image shows a star blue icon. 2-18 The text defines GDP as a measurement of economic activity. Think about other things that may “help” the GDP that are really not good for our society in general, such as the economic activity required to clean up oil spills or increases in consumer debt to buy more goods. In addition, there are other situations that may “hurt” the GDP by limiting expenditures on items but help the overall good of society, such as reusing plastic bags or installing solar water heaters (thus limiting spending on oil, gas, or electricity). Does the definition of GDP need to be revised?

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