Question 1

The use of money for exchange and trade

Accepted Answer

A)  increases the importance of barter. 
B)  fosters more specialization in production. 
C)  reduces consumer sovereignty. 
D)  raises the need for a coincidence of wants. 
A)  increases the importance of barter. 
B)  fosters more specialization in production. 
C)  reduces consumer sovereignty. 
D)  raises the need for a coincidence of wants.

Question 2

What is the relationship between businesses and households in the circular ﬂow diagram?

Accepted Answer

Households buy the goods and services th

Question 3

A corporation is a type of business ﬁrm where the debt of the ﬁrm is considered its owners' personal
responsibility.

Accepted Answer

A) True 
 B)False

Question 4

One basic problem faced by central planners, but hardly present in a market system, has to do with

Accepted Answer

A)  determining the production goals or targets in a factory. 
B)  having limited resources and trying to match them with unlimited wants. 
C)  coordinating production in various industries so that bottlenecks do not develop. 
D)  providing ﬁnancial resources for increasing the real ﬂows of products in the economy. 
A)  determining the production goals or targets in a factory. 
B)  having limited resources and trying to match them with unlimited wants. 
C)  coordinating production in various industries so that bottlenecks do not develop. 
D)  providing ﬁnancial resources for increasing the real ﬂows of products in the economy.

Question 5

In what type of business do the owners bear no personal ﬁnancial responsibility for the company's debts and obligations?

Accepted Answer

A)  partnerships 
B)  corporations 
C)  sole proprietorships 
D)  in all the businesses listed in the other answers 
A)  partnerships 
B)  corporations 
C)  sole proprietorships 
D)  in all the businesses listed in the other answers

Question 6

An economic system

Accepted Answer

A)  requires a grouping of private markets linked to one another. 
B)  is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem. 
C)  requires some sort of centralized authority (such as government) to coordinate economic activity. 
D)  is a plan or scheme that allows a ﬁrm to make money at some other ﬁrm's expense. 
A)  requires a grouping of private markets linked to one another. 
B)  is a particular set of institutional arrangements and a coordinating mechanism used to respond to the economizing problem. 
C)  requires some sort of centralized authority (such as government) to coordinate economic activity. 
D)  is a plan or scheme that allows a ﬁrm to make money at some other ﬁrm's expense.

Question 7

In a market system, as one industry expands while another contracts, resources will ﬂow

Accepted Answer

A)  away from the expanding industry toward the contracting one. 
B)  across industries, driven by the changes in resource prices paid by ﬁrms. 
C)  toward the industry where the product demand is declining. 
D)  because resource allocation will have to equalize between the two industries. 
A)  away from the expanding industry toward the contracting one. 
B)  across industries, driven by the changes in resource prices paid by ﬁrms. 
C)  toward the industry where the product demand is declining. 
D)  because resource allocation will have to equalize between the two industries.

Question 8

Which of the following is not a typical characteristic of a market system?

Accepted Answer

A)  private property 
B)  freedom of enterprise 
C)  government ownership of most property resources 
D)  competition in product and resource markets 
A)  private property 
B)  freedom of enterprise 
C)  government ownership of most property resources 
D)  competition in product and resource markets

Question 9

The market system

Accepted Answer

A)  produces considerable ineﬃciency in the use of scarce resources. 
B)  effectively harnesses the incentives of workers and entrepreneurs. 
C)  is not consistent with freedom of choice in the long run. 
D)  has slowly lost ground to emerging command systems. 
A)  produces considerable ineﬃciency in the use of scarce resources. 
B)  effectively harnesses the incentives of workers and entrepreneurs. 
C)  is not consistent with freedom of choice in the long run. 
D)  has slowly lost ground to emerging command systems.

Question 10

The concept of consumer sovereignty refers to the situation where consumers have the right to vote for
the board of directors of large corporations.

Accepted Answer

A) True 
 B)False

Question 11

In a market system, employees and suppliers

Accepted Answer

A)  are usually shielded from risk, but at the cost of not sharing in the proﬁts of the ﬁrm. 
B)  are usually shielded from risk and share in the proﬁts of the ﬁrm. 
C)  are generally subject to as much risk as ﬁrm owners but get to share in the proﬁts. 
D)  bear as much risk as ﬁrm owners but don't get to share in the proﬁts. 
A)  are usually shielded from risk, but at the cost of not sharing in the proﬁts of the ﬁrm. 
B)  are usually shielded from risk and share in the proﬁts of the ﬁrm. 
C)  are generally subject to as much risk as ﬁrm owners but get to share in the proﬁts. 
D)  bear as much risk as ﬁrm owners but don't get to share in the proﬁts.

Question 12

The coordination problem in the centrally planned economies refers to the idea that

Accepted Answer

A)  planners had to direct required inputs to each enterprise. 
B)  the price level and the level of employment were inversely related. 
C)  the immediate effect of more investment was less consumption. 
D)  exports had to be equal to imports for a central plan to work. 
A)  planners had to direct required inputs to each enterprise. 
B)  the price level and the level of employment were inversely related. 
C)  the immediate effect of more investment was less consumption. 
D)  exports had to be equal to imports for a central plan to work.

Question 13

In a market system, if ﬁrms in an industry persistently earn total revenues that are less than total costs, then that industry will

Accepted Answer

A)  have some ﬁrms go out of business. 
B)  attract more resources toward it. 
C)  experience entry of new ﬁrms. 
D)  get government protection from failure. 
A)  have some ﬁrms go out of business. 
B)  attract more resources toward it. 
C)  experience entry of new ﬁrms. 
D)  get government protection from failure.

Question 14

If a competitive industry is neither expanding nor contracting, we would expect

Accepted Answer

A)  total revenue to be zero. 
B)  economic proﬁts to be zero. 
C)  total opportunity cost to be zero. 
D)  more resources to ﬂow to that industry. 
A)  total revenue to be zero. 
B)  economic proﬁts to be zero. 
C)  total opportunity cost to be zero. 
D)  more resources to ﬂow to that industry.

Question 15

Having a high ﬁxed salary is what motivates entrepreneurs to make prudent decisions in dealing with
business risk.

Accepted Answer

A) True 
 B)False

Question 16

How does human specialization contribute toward increasing an economy's output?

Accepted Answer

A)  It exploits the differences in abilities. 
B)  It is a process of creative destruction. 
C)  It pushes each worker to master the whole product. 
D)  It encourages people to be a "jack-of-all-trades." 
A)  It exploits the differences in abilities. 
B)  It is a process of creative destruction. 
C)  It pushes each worker to master the whole product. 
D)  It encourages people to be a "jack-of-all-trades."

Question 17

In a command economy like the old Soviet Union, one is able to improve one's lot and get ahead in society largely through

Accepted Answer

A)  entrepreneurship and risk-taking. 
B)  innovation and proﬁts. 
C)  participating in the political hierarchy. 
D)  getting high prices for one's products and resources. 
A)  entrepreneurship and risk-taking. 
B)  innovation and proﬁts. 
C)  participating in the political hierarchy. 
D)  getting high prices for one's products and resources.

Question 18

Capitalism gets its name from the fact that capital resources are mostly

Accepted Answer

A)  owned by the state or government. 
B)  given the highest priority in the economy's income distribution. 
C)  treated as private property. 
D)  in the form of money and ﬁnancial resources. 
A)  owned by the state or government. 
B)  given the highest priority in the economy's income distribution. 
C)  treated as private property. 
D)  in the form of money and ﬁnancial resources.

Question 19

Given the information, and assuming trade occurs between the three states, we can expect

Accepted Answer

A)  that there is no means by which Michigan can obtain lettuce while specializing in the production of autos. 
B)  that money will not be needed to accomplish the desired exchanges. 
C)  money to ﬂow counter-clockwise from Michigan to Texas to Washington. 
D)  money to ﬂow clockwise from Michigan to Washington to Texas. 
A)  that there is no means by which Michigan can obtain lettuce while specializing in the production of autos. 
B)  that money will not be needed to accomplish the desired exchanges. 
C)  money to ﬂow counter-clockwise from Michigan to Texas to Washington. 
D)  money to ﬂow clockwise from Michigan to Washington to Texas.

Question 20

Why might a company use barter rather than money to make a trade?

Accepted Answer

A)  Barter trade is generally more eﬃcient than money-based trade. 
B)  Barter can enable two ﬁrms to trade when their cash ﬂows are limited. 
C)  Money requires a coincidence of wants; barter is more direct. 
D)  Money is eﬃcient only for large transactions, so barter is preferred for smaller transactions. 
A)  Barter trade is generally more eﬃcient than money-based trade. 
B)  Barter can enable two ﬁrms to trade when their cash ﬂows are limited. 
C)  Money requires a coincidence of wants; barter is more direct. 
D)  Money is eﬃcient only for large transactions, so barter is preferred for smaller transactions.

Exam 2: The Market System and the Circular Flow

The use of money for exchange and trade

What is the relationship between businesses and households in the circular ﬂow diagram?

A corporation is a type of business ﬁrm where the debt of the ﬁrm is considered its owners' personal responsibility.

One basic problem faced by central planners, but hardly present in a market system, has to do with

In what type of business do the owners bear no personal ﬁnancial responsibility for the company's debts and obligations?

An economic system

In a market system, as one industry expands while another contracts, resources will ﬂow

Which of the following is not a typical characteristic of a market system?

The market system

The concept of consumer sovereignty refers to the situation where consumers have the right to vote for the board of directors of large corporations.

In a market system, employees and suppliers

The coordination problem in the centrally planned economies refers to the idea that

In a market system, if ﬁrms in an industry persistently earn total revenues that are less than total costs, then that industry will

If a competitive industry is neither expanding nor contracting, we would expect

Having a high ﬁxed salary is what motivates entrepreneurs to make prudent decisions in dealing with business risk.

How does human specialization contribute toward increasing an economy's output?

In a command economy like the old Soviet Union, one is able to improve one's lot and get ahead in society largely through

Capitalism gets its name from the fact that capital resources are mostly

Given the information, and assuming trade occurs between the three states, we can expect

Why might a company use barter rather than money to make a trade?

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Money Creation

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

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