Test 1

1. When General Dwight D. Eisenhower ran for the presidency for the first time, he said 1
he would:
a.   end the recession and end inflation.
b.   end the recession and end the Korean War.
c.   end inflation and end the Korean War.
d.   end the recession, the Korean War, and inflation.
Hint: pp. 13-14
SLO5:Evaluate the different theories of Macroeconomics
LO5B:Recall the major elements of the economic evolution of the U.S. during the twentieth
century
2. When the demand for a product decreases but the supply of the product remains 1
unchanged:
a.   the price of the product will rise and quantity will decrease.
b.   the price of the product will be unaffected.
c.   the price of the product will fall and quantity will remain the same.
d.   the price of the product will fall and the quantity will fall.
Hint: pp. 74-75
SLO1:Analyze the relationship between productivity, savings, and economic growth
LO1A:Construct graphs and explain how equilibrium price and quantity are determined in
the demand and supply framework
3. All capitalist economies: 1
a.   can operate without government establishing a legal system.
b.   create an equal distribution of income.
c.   depend on central planning.
d.   depend on the price mechanism.
Hint: p. 52
SLO5:Evaluate the different theories of Macroeconomics
LO5A:Describe the major differences between the capitalist and communist economic
models
4. Which is the most accurate statement? 1
a.   There is no real competition in the American economy.
b.   To allow the price mechanism to work we need many competing firms in each
industry.
c.   The forces of supply and demand do not operate in our economy.
d.   The price mechanism functions perfectly in our economy.
Hint: pp. 51-53
SLO5:Evaluate the different theories of Macroeconomics
LO5A:Describe the major differences between the capitalist and communist economic
models
5. An external cost occurs when: 1
a.   some of the benefits derived from the production or consumption of some good
or service are enjoyed by a third party.
b.   the production or consumption of some good or service inflicts costs on a third
 party without compensation.
c.   private costs exceed social costs.
d.   private costs exceed private benefits.
Hint: p. 56
SLO5:Evaluate the different theories of Macroeconomics
LO5A:Describe the major differences between the capitalist and communist economic
models
6. An inward shift of the production possibilities curve could be caused by all of the 1
following, except:
a.   a war that destroys the nation's bridges, harbors and other infrastructure.
b.   a plague that wipes out one fifth of the population.
c.   a significant rise in the unemployment rate.
d.   30 years of neglect of the nation's railroad and interstate highway systems.
Hint: 32-37
SLO6:Discuss the tools of fiscal policy and evaluate its effects on the economy’s
production and inflation
LO6A:Discuss full employment, full production, and clarify the models of the circular flow
and the production possibilities frontier
7. In general demand curves slope _____ and supply curves slope _____. 1
a.   downward to the right, downward to the right
b.   upward to the right, upward to the right
c.   downward to the right, upward to the right
d.   upward to the right, downward to the right
Hint: pp. 74-78
SLO1:Analyze the relationship between productivity, savings, and economic growth
LO1A:Construct graphs and explain how equilibrium price and quantity are determined in
the demand and supply framework
8. In the 1970s, the main economic problem was: 1
a.   stagflation.
b.   huge budget surpluses.
c.   a slow growing money supply.
d.   an economy that was expanding too rapidly.
Hint: p. 15
SLO5:Evaluate the different theories of Macroeconomics
LO5B:Recall the major elements of the economic evolution of the U.S. during the twentieth
century
9. Which of the following was NOT a time period in which output in the U.S. sharply rose? 1
a.   World War I
b.   The Roaring Twenties
c.   The early 1930s
d.   The 1960s
e.   The late 1990s
Hint: pp. 14-15
SLO5:Evaluate the different theories of Macroeconomics
 LO5B:Recall the major elements of the economic evolution of the U.S. during the twentieth
century
10 The mechanical reaper was invented by: 1
. a.   Eli Whitney.
b.   The Marsh brothers.
c.   John Deere.
d.   Cyrus McCormick.
Hint: p. 4
SLO5:Evaluate the different theories of Macroeconomics
LO5B:Recall the major elements of the economic evolution of the U.S. during the twentieth
century
11 If the unemployment rate is 7 percent, our economy is operating: 1
. a.   inside the production possibility curve.
b.   on the production possibility curve.
c.   outside the production possibility curve.
Hint: pp. 29, 31
SLO6:Discuss the tools of fiscal policy and evaluate its effects on the economy’s
production and inflation
LO6A:Discuss full employment, full production, and clarify the models of the circular flow
and the production possibilities frontier
12 If we moved from point T to point R we would be: 1
.

a.   giving up trips for more transplants.

b.   giving up transplants for more trips.
c.   gaining both trips and transplants.
d.   losing both trips and transplants.
Hint: pp. 32-37
SLO6:Discuss the tools of fiscal policy and evaluate its effects on the economy’s
production and inflation
LO6A:Discuss full employment, full production, and clarify the models of the circular flow
and the production possibilities frontier
13 Each of the following is a characteristic of socialism, except: 1
. a.   prohibition of any private ownership of the means of production.
b.   a substantial degree of government planning.
 c.   a large-scale redistribution of income.
d.   government ownership of some of the means of production.
Hint: pp. 61-63
SLO5:Evaluate the different theories of Macroeconomics
LO5A:Describe the major differences between the capitalist and communist economic
models
14 Karl Marx and Friedrich Engels believed that the ideal communist society would come 1
. about when:
a.   the state withered away.
b.   the state gained control of the economy's means of production.
c.   there was private ownership of the means of production.
d.   all large corporations remained in private hands, but were regulated by the
government.
Hint: pp. 61-63
SLO5:Evaluate the different theories of Macroeconomics
LO5A:Describe the major differences between the capitalist and communist economic
models
15 Which statement is false? 1
. a.   Had the stock market not crashed and the rest of the world not gone into a
depression, the U.S. depression might have been avoided.
b.   By the end of 1930 thousands of banks had failed.
c.   By the first week in March 1933 every single bank in the United States had shut
its doors.
d.   None of the statements are false.
Hint: pp. 7-10
SLO5:Evaluate the different theories of Macroeconomics
LO5B:Recall the major elements of the economic evolution of the U.S. during the twentieth
century
16 Which statement is true? 1
. a.   Subsidy payments to farmers were almost completely phased out in 2007.
b.   The so-called new economy of the 1990s was neither new, nor very different
from the economy of the previous 25 years.
c.   Until the time of the Great Depression, the United States was primarily an
agricultural nation.
d.   There were no recessions during the presidency of Bill Clinton (January 1993-
January 2000).
Hint: pp. 17-18
SLO5:Evaluate the different theories of Macroeconomics
LO5B:Recall the major elements of the economic evolution of the U.S. during the twentieth
century
17 Each of these is true at equilibrium except that: 1
. a.   quantity demanded is equal to quantity supplied.
b.   the market is said to clear, there is not surplus or shortage.
c.   the buyers can buy as much as they want at the market price.
d.   the sellers can sell as much as they want at the market price.
 e.   All of these statements are true at equilibrium.
Hint: pp. 74-77
SLO1:Analyze the relationship between productivity, savings, and economic growth
LO1A:Construct graphs and explain how equilibrium price and quantity are determined in
the demand and supply framework
18 Which is the most accurate statement? 1
. a.   In order to have full production, there must be full employment.
b.   In order to have full employment, there must be full production.
c.   Both statements are accurate.
d.   Neither statement is accurate.
Hint: pp. 28-31
SLO6:Discuss the tools of fiscal policy and evaluate its effects on the economy’s
production and inflation
LO6A:Discuss full employment, full production, and clarify the models of the circular flow
and the production possibilities frontier
19 Which is the most accurate description of Japanese reindustrialization after World War 1
. II?
a.   Japanese manufacturers concentrated almost entirely on selling to the Japanese
home market.
b.   Japanese manufacturers charged twice as much to Americans as to Japanese for
the same products.
c.   Japanese manufacturers charged the Japanese twice as much as the Americans
for the same products.
d.   Japan concentrated on supplying the American market with luxury items that
were not being produced in the United States.
Hint: p. 5
SLO5:Evaluate the different theories of Macroeconomics
LO5B:Recall the major elements of the economic evolution of the U.S. during the twentieth
century
20 Who promised "two cars in every garage and a chicken in every pot?"
. a.   Herbert Hoover
b.   Franklin D. Roosevelt
c.   Dwight D. Eisenhower
d.   John F. Kennedy
e.   Ronald Reagan
Hint: p. 8