Economics Practice Test #5

1. Which activity is an important component of the Gross Domestic Product (GDP)?

A. personal income tax

B. government spending

C. reserve requirement

D. tight money policy

2. How do banks make a profit?

A. By charging more for interest than they provide in interest payments to depositors.

B. By lobbying the government for subsidies and favorable regulations.

C. By offering loans to people who cannot repay them.

D. By investing in foreign currencies and precious metals.

3. Which of the following people is most likely experiencing frictional unemployment?

A. Adam just graduated from college with an engineering degree and hasn't been able to find a job in his field yet.

B. Rebecca lost her job at a car dealer after the dealer's sales had dropped because of an economic downturn.

C. Elizabeth was laid off from a department store after the Christmas shopping season was over.

D. Joe is a computer programmer who can't find a job because he doesn't know how to use some of the latest software.

4. Under which tax system do poor people pay a larger proportion of income than wealthier people?

A. Proportional Tax

B. Excise tax

C. Progressive tax

D. Regressive tax

5. The benefit of life insurance is that it grants the beneficiaries of the policy a certain sum of money when the policy holder dies. What are the costs associated with a life insurance policy?

A. deductibles, which must be paid when the policy is redeemed

B. reduction in coverage of other forms of insurance for the holder

C. periodic premiums, which unlike investments can't be withdrawn

D. an increase in the rates of other forms of insurance held

6. The steady rise in prices measured by an index of the cost of various goods and services is known as

A. gross domestic product.

B. per capita GDP.

C. deflation.

D. inflation.

7. Which type of policy is being enforced when the supply of money in the economy increases?

A. proportional money policy

B. regressive money policy

C. tight money policy

D. loose money policy

8. Recently, the local Burger Barn has had very few customers come in during the week. To help compensate for this, the manager is offering a new special. On Thursdays, combo meals will only be half price. Burger Barn hopes this will attract more customers.

In the example above, the restaurant's prices were changed due to the decisions of

A. households and businesses.

B. government and unions.

C. businesses and government.

D. unions and households.

9. What is the primary way banks encourage individuals to save money?

A. by promoting investments in the stock market

B. by offering checking accounts

C. by paying interest on deposits

D. by selling insurance products

10. The U.S. Bureau of Labor Statistics annually produces the consumer price index (CPI), which measures average price changes in relation to prices in a chosen base year. What is the CPI most likely measuring?

A. employment and unemployment

B. inflation and deflation

C. inputs and outputs of production

D. imports and exports

11. Why is low unemployment a primary macroeconomic goal?

A. It means that stability is achieved by investing in human consumption.

B. It means the price of goods and services will be stable over the long term.

C. It means the government has to guarantee fair regulations on inflation.

D. It means all available resources are being used to fuel the economy.

Personal Economic Decisions

12. Juan wanted a brand-name jacket worth $400, but he was short on cash and would have to save money. He also had a credit card from his mother, but she made it clear that he would have to provide the cash for whatever he bought. The card carries an 18% APR on unpaid balances. Juan figured he could afford to pay $15 a month on the account. He had to make a decision.

Which best describes the problem Juan faced as he made this decision?

A. deciding how much to pay for the jacket

B. deciding which jacket to buy

C. deciding when to buy the jacket

D. deciding who should buy the jacket

13. How is the unemployment rate calculated?

A. the number of unemployed workers divided by the number of employers

B. the number of unemployed workers divided by the number of employed workers

C. the number of unemployed workers divided by the total population

D. the number of unemployed workers divided by the total labor force

14. Which example is a fiscal policy?

A. The central government increases income tax rates.

B. The central bank increases the money supply.

C. The Federal Reserve decreases the money supply.

D. The Federal Reserve controls open market operations.

15. One of the most common forms of property insurance is homeowner's insurance, which provides a variety of protections. What is one of the main benefits of homeowner's insurance?

A. asset protection against many types of loss

B. guaranteed return on investment for the insurance holder

C. decrease in mortgage payments due to lower liability

D. removes the need for the holder to have life insurance

16. Which economic indicator describes the process of generally declining prices?

A. unemployment

B. inflation

C. deflation

D. gross domestic product

17. What is the main purpose of taxation?

A. to stimulate the economy and encourage spending

B. to have revenue for government programs and operations

C. to promote economic equality among citizens

D. to have a reserve of money available if needed

18. If financial institutions are paying interest on deposits, how do they make money?

A. They invest money in stocks and bonds.

B. They charge fees to become members.

C. They make up their losses in the higher volume of loans.

D. They charge more interest on the money they lend.

19. Which term is used to describe the inability to find employment by workers who are able and willing to work?

A. full employment

B. seasonal employment

C. unemployment

D. underemployment

20. Albert earns $100,000 per year, and his wife earns $30,000 per year. Albert pays 30% in income tax while his wife pays 15% in income tax. This concept is known as a

A. proportional tax rate.

B. fixed tax rate.

C. progressive tax rate.

D. regressive tax rate.

21. When accumulated interest is added to the initial principle, it is known as

A. compound interest.

B. flat interest.

C. simple interest.

D. fixed interest.

22. Aggregate supply is the supply of all goods and services within a country. Which of the following would most likely cause a decrease in the aggregate supply?

A. higher wage levels

B. a large increase in population

C. a large increase in the price of oil

D. lower interest rates

23. Which of these best describes a proportional tax?

A. an income tax that takes the same percentage of income regardless of the amount of income earned

B. an income tax that is higher for households earning relatively high incomes from both spouses

C. an income tax that becomes increasingly lower for those who live below the national poverty line

D. a income tax that varies depending on the amount of disposable income within a household

24. Which of the following is a benefit of disability insurance?

A. It provides the holder with employment after he or she recovers.

B. It covers all of the holder's expenses in the case of an accident.

C. It guarantees the holder is paid for an unlimited period of time.

D. It insures the holder against total loss of income for a certain time.

25. What would be the best indicator of a country's standard of living?

A. gross domestic product

B. per capita GDP

C. level of trade deficit

D. level of budget deficit

26. Which statement describes the role of the Federal Reserve System?

A. to regulate U.S. unemployment cycles

B. to monitor labor cycles and regulate resources

C. to monitor politicians and make recommendations

D. to regulate the U.S. financial system

27. Which of the following describes simple interest?

A. interest only calculated on the principal loan

B. a percentage of interest deducted for timely payments

C. accumulated interest added to the principle

D. interest that increases as more loans are taken

28. Which term describes the total value of goods and services produced in a country in a given year?

A. standard of living

B. national debt

C. consumer price index

D. gross domestic product

29. Which loan conditions would result in higher monthly payments?

A. higher sales tax

B. higher discount rates

C. higher fixed cost

D. higher interest rates

30. For a single day, Hedgehog's Burgers is offering a free ice cream cone for anyone who comes to the restaurant. Television and radio commercials advertise the special offer weeks before the day arrives. In organizing this event, Hedgehog's Burgers probably hopes that

A. only a few customers will ask for the free cones.

B. the customers will order something else as well.

C. only the restaurant's regular customers will learn about the offer.

D. the customers will expect free product offers in the future.

31. In the business cycle, recessions, downturns, downswings, and liquidations are also known as

A. expansions.

B. inflation.

C. prosperity.

D. contractions.

32. What banking behavior is the central government trying to encourage when it implements a tight monetary policy?

A. The government wants to encourage more spending.

B. The government wants to encourage lower interest rates.

C. The government wants to encourage more loans.

D. The government wants to encourage fewer loans.

33. What is the role of a securities broker?

A. to repair an individual's bad credit

B. to guarantee an individual will not lose money

C. to register the sale and purchase of stocks

D. to act as an agent selling investment opportunities

34. How would an overall increase in per capita income most likely impact prices?

A. Prices would fluctuate.

B. Prices would decrease.

C. Prices would stay the same.

D. Prices would increase.

35. Which is a tool used by the Federal Reserve to influence the volume of money in the economy by buying and selling government securities?

A. loose money policy

B. open market operations

C. personal income tax

D. reserve requirement

36. Typical health care insurance pays for certain medical expenses. Under most health insurance plans there are three monetary costs involved: the premium, which is paid every month, the co-pay, which is paid with every hospital or doctor's visit, and

A. the capitalization cost, which is the maximum paid by the holder.

B. the deductible, which is the minimum paid before the coverage begins.

C. the out-of-pocket cost, which the policy holder pays yearly.

D. the deductible, which the policy holder pays up front for coverage.

37. Which statement most accurately describes the relationship between incomes and expenditures in the circular flow of economic activities?

A. The flow of expenditures usually exceeds the flow of income.

B. The flow of income usually exceeds the flow of expenditures.

C. The flows of income and expenditures are about equal.

D. The flows of income and expenditures fluctuate constantly.

38. Which statement is a common argument against sales tax?

A. It is a regressive tax.

B. It is a proportional tax.

C. It is a progressive tax.

D. It is an excise tax.

39. The number of accounts a person has open, along with the length of time those accounts have been opened,

A. are indicators of that person's payment history.

B. will not factor in toward possible future loans.

C. will contribute to that person's credit score.

D. will not be viewed by banks or loaning agents.

40. The federal government can affect overall levels of income by raising the minimum wage. If the government does this, which of the following would most likely be a result?

A. More job opportunities will become available.

B. Foreign companies will open new factories in the U.S.

C. Companies will increase the prices of their goods.

D. Business owners will earn larger salaries.

41."Its main functions are to regulate the national money supply, set reserve requirements for members, supervise the printing of currency at the mint, act as a clearing house for the transfer of funds throughout the banking system and examine member banks to make sure they meet various regulations."www.dreyfus.com/content/dr/control

Which organization is described in the passage?

A. Office of Management and Budget

B. Office of U.S. Trade

C. Federal Reserve System

D. Central Intelligence Agency

42. In the U.S., how is the deficit different than the national debt?

A. The deficit is related to the Gross Domestic Product.

B. The national debt is getting smaller each year.

C. The national debt does not include payments made to other countries.

D. The deficit only includes shortfalls in the budget for the current fiscal year.

43. Under which policy would the nation's supply of money be allowed to grow at a slower rate than in the past?

A. fiscal policy

B. discount rate policy

C. loose money policy

D. tight money policy

44. All states in the United States require driver to purchase some form of automobile insurance. Automobile insurance provides several types of coverage to the car owner, including collision and incidental. Typically, however, in the case of an accident or damage to the vehicle, the policy owner is still required to cover some of the cost. This portion of the cost is known as the

A. collateral.

B. premium.

C. deductible.

D. minimum liability.

45. Which economic term describes a period of slow economic growth that also has inflation?

A. bankruptcy

B. scarcity

C. monopoly

D. stagflation

46. The Federal Reserve's discount rate is applied to

A. only government loans to institutions.

B. corporate and consumer loans.

C. government and consumer loans.

D. only consumer loans made by banks.

47. Economic growth is a measure of the increase in

A. the supply of money.

B. the gross domestic product.

C. the prices of goods.

D. the unemployment rate.

48. Identify a fiscal policy designed to stimulate economic growth.

A. full use of human and capital resources

B. controlling of inflation and price stability

C. control of production cycle fluctuations

D. sponsorship of high-tech industries

49.

Which word fits best in the empty box?

A. Incomes

B. Equilibrium

C. Demand

D. Competition

50. What is the purpose of the reserve requirement?

A. It gives traditional banks more power.

B. It protects public deposits.

C. It controls government spending.

D. It gives traditional banks more revenue.