1 A Federal Reserve Bank

a is primarily in the business of consumer lending with insured deposits

b is established with the sole purpose of holding bank reserves
c is an agency of the US government
d Is a non profit bank to make business loans
2 Why do Rolling Stones receive more income from a single concert than a school teacher may receive for a lifetime of work?
a Because Rolling Stones deserve more money
b Because demand for Rolling Stones performance is relatively elastic
c Because demand for Rolling Stones performance is relatively inelastic
d Because the economy does not favor teaching
3 The equilibrium price will rise if the
a demand falls and supply remains constant
b demand falls and supply rises
c demand and supply both rise
d demand rises and supply falls
4 In economics, all resources are scarce
a except in highly productive economies
b except where technology is a major component of production
c except where the labor force is continuously trained and re trained
d none of the above
5 John Maynard Keynes
a is the father of classical economics
b was an advocate of tax cuts to stimulate the economy
c was an advocate of government spending to boost the economy
d Both b and c

6 Opportunity Cost is a concept
a used to comply with Generally Accepted Accounting Principles
b The cost of the next best alternative
c really the same as Marginal Cost of producing an item
d none of the above
7 Deficit spending is
a can not be undertaken by small governments
b an established monetary policy tool
c can only be implemented by the Fed
d an established fiscal policy tool
8 What annual deficit could a $55 billion economy growing at a real annual rate of 5% have without changing its debt burden?
a $150 million
b $250 million
c $350 million
d none of the above
9 The effect of contractionary monetary policy on the exchange rate through income and price:
a It pushes up the interest rate
b It decreases income and, thus, imports
c It has a tendency to decrease inflation
d All of the above results in increase of the exchange rate
10 The following topics are included in Macroeconomics except
a Impact of taxes on aggregate output
b the effect of trade on economic growth
c how firms set the price and quantity of their products
d military spending
11 Firms prefer quotas to tariffs because
a with quotas they receive more profits
b with tariffs they receive more profits
c neither makes a difference a firm
d none of the above
12 Inflation can reduce debt because
a it reduces the value of the currency, so debt is paid back with cheaper money
b it reduces the value of the currency and actually reduces debt
c both of the above
d none of the above
13 The cost of printing is always lower than the cost of money. That being the case, why doesn t the Fed just print lots of money

a To have value, the supply of money has to be limited
b The Fed does that all the time anyway
c The decision to print money can only come from the Congress
d None of the above
14 Banks prefer to have many depositors rather than one big one. Why?
a Large number of depositors bring stability to the bank
b The bank will be in trouble if a single large depositor decides to close her account.
c Banks are unwilling to make money on the float.
d a and b

15 A country with comparative advantage in production of wine should
a export its wine

b impose a tariff on wine from other countries
c not specialize in producing wine
d impose a quota on imported wine
16 A strong currency
a is harmful to the economy
b facilitates exports
c facilitates imports
d is trade neutral
17 If a government does nothing to stem its currency value decline in international
markets,

a it is probably aiming at reducing unemployment at home
b it is probably because of an incompetent government that does not understand economics
c it is probably because the government wants to encourage imports
d none of the above
18 Everything else being the same, if inflation goes up in the US,
a the dollar exchange rate against other currencies will go up
b the dollar exchange rate against other currencies will go down
c the dollar exchange rate against other currencies will remain unchanged.
d None of the above
19 Economists advocate free trade because
a trade restrictions lower aggregate output
b trade restrictions reduce international competition
c there could be harmful trade wars
d all of the above
20 Demand primarily includes
a want, need and necessity
b the ability to buy and necessity
c the ability and willingness to buy
d none of the above