ECON EOC Practice Test: Unit Four 1) If the federal government spends more than it collects in revenue, then A) it is running a surplus. B) the inflation rate should decline. C) it is running a deficit. D) the unemployment rate may increase. 2) If the federal government runs an annual budget deficit A) they will have a budget surplus. B) the national debt will decrease. C) the national debt will increase. D) they will attain a balanced budget. 3) Early Keynesian theorists developed the balanced budget multiplier, which suggests that an equal increase in government spending and tax revenue will boost aggregate demand by precisely the increase in the amount spent. How MIGHT governments fund programs in keeping with early Keynesian theorists? A) Increase deficit spending. B) Decrease deficit spending. C) Decrease income taxes D) Decrease income taxes 4) The process by which the Federal Reserve controls the supply, availability, and cost of money in order to keep the economy stable is A) fiscal policy. B) the interest rate. C) monetary policy. D) the discount rate. 5) When the Federal Reserve sells government securities on the open market, what effect does this action have on the nation s money supply and interest rates? A) Money Supply - Decreases / Interest Rates - Increase B) Money Supply - Decreases / Interest Rates - Decrease C) Money Supply - Increases / Interest Rates - Increase D) Money Supply - Increases / Interest Rates Decrease 6) What is the name of the "central bank" of the United States? A) Bank of the U.S. B) U.S. Congressional Bank C) The Federal Reserve D) The Federal Bank of America 7) Monetary policy is BEST described as A) benefits received by employees in addition to wages and salaries. B) a system that relies on supply and demand to determine the value of one currency to another. C) actions by the Federal Reserve System to expand or contract the money supply. D) actions by the federal government to use spending and revenue collection to influence the economy. 8) What would MOST LIKELY happen if the Federal Reserve decided to increase the reserve requirement in banks? A) The amount of federal taxes people owe would decrease. B) The amount of money circulating in the economy would decrease. C) The amount of federal taxes people owe would increase. D) The amount of money circulating in the economy would increase.
9) The Federal Reserve wants to increase the money supply in the United States. What is the Federal Reserve likely to do to accomplish this? A) reduce interest rates B) increase the reserve requirement for banks C) sell securities on the open market D) require banks to hold a reserve for all types of deposits 10) setting the discount and interest rates establishing reserve requirements for banks buying and selling US government securities All of these are ways in which the Federal Reserve system can A) control the stock market. B) decrease consumer spending. C) regulate the money supply. D) challenge Presidential power. 11) What consumer behavior is the Federal Reserve Board trying to encourage when it implements a loose monetary policy? A) increased saving and spending B) increased saving and reduced spending C) decreased saving and spending D) decreased saving and increased spending 12) Which of these actions of the Federal Reserve can slow economic growth? A) The Federal Reserve regulates the amount of money that flows into and out of the nation s economy. B) The Federal Reserve decreases the reserve requirement and banks have more money to loan to people who want to borrow it. C) The Federal Reserve buys securities, which puts money back into the hands of people who can spend it in the marketplace. D) The Federal Reserve increases interest rates, which causes people to save rather than to spend. 13) What is the term for the situation where more money is available for borrowing and investment? A) loose money B) tight money C) open market D) fiscal policy 14) How might monetary policy be used to combat inflation fears? A) The Federal Reserve might lower taxes. B) The Federal Reserve might lower interest rates. C) The Federal Reserve might raise taxes. D) The Federal Reserve might raise interest rates. 15) Which has LEAST LIKELY been the historical goal of the Federal Reserve's monetary policy? A) Keeping unemployment rates low B) Holding prices stable C) Providing national defense D) Sustainable growth 16) If Congress wants to encourage businesses and consumers to spend more money, it would MOST LIKELY A) increase the tax rate. B) increase the reserve requirement. C) decrease the tax rate. D) decrease government spending on goods and services. 17) The process by which the government manages spending and taxes to influence the direction of the economy is A) tax policy. B) fiscal policy. C) trade policy. D) monetary policy.
18) Which of these is MOST LIKELY to occur after the government increases taxes? A) Annual deficits increase. B) Consumer spending decreases. C) The national debt increases. D) Government programs decrease. 19) Which action would be a change in the government's fiscal policy? A) an increase in taxes B) a decrease in collected revenues C) a decrease in unemployment D) an increase in the price of goods 20) The leaders of a small country decide that they need to enact a contractionary fiscal policy. Which action is consistent with this fiscal policy? A) reduce taxes B) reduce government spending C) lower its discount rate D) lower the price of securities 21) One of the PRIMARY reasons that trade between nations takes place is because A) nations are self-interested. B) nations use their absolute advantage in production to monopolize international markets. C) resources are evenly distributed around the world. D) nations produce a surplus at a lower cost and export it for goods that are too cheap to produce. 22) Trade between nations can be mutually beneficial if one country has A) a monopoly. B) a comparative advantage. C) an absolute advantage. D) a protective tariff on imports. 23) Countries around the world specialize production, and trade with other countries based upon A) the overall size of the economy. B) comparative advantages in C) national defense needs. D) the amount of money printed by the central government. 24) Which relationship BEST illustrates a comparison of absolute advantage and comparative advantage? A) A country with an absolute advantage will always have a comparative advantage in producing products. B) A country with an absolute advantage can produce a product at a lower opportunity cost than a country with a comparative advantage in producing all products. C) A country with a comparative advantage can produce a greater output of a products than a country with an absolute advantage. D) A country with a comparative advantage can produce a product at a lower opportunity cost, even if another country has an absolute advantage in the production of all goods. 25) The difference between money paid to, and received from, other nations in trade is the A) balance of trade. B) balance of payments. C) absolute advantage. D) comparative advantage. 26) Suppose that in France 40 labor hours are required to produce a liter of wine. In Italy, 30 labor hours are required to produce a liter of wine. These figures indicate that A) Italy has an absolute advantage in wine B) Italy has a comparative advantage in wine C) France has an absolute advantage in wine D) France has a comparative advantage in wine
27) A Weak Dollar: by the Columbus Dispatch, September 7, 1999 If the price of buying a car starts rising in the United States, consumers may need to look no further than the dollar's recent slide against major foreign currencies. On the other hand, economically depressed Midwestern farmers may find it easier to sell surplus grain overseas if a weak dollar makes it cheaper for foreigners to buy U.S. goods. The dollar spent much of last week on the skids, flirting with its lowest level of the year against the Japanese yen...it also has lost ground to the Euro. According to the passage, Midwestern farmers have surplus grain to sell. The ability of a country to make MORE of a particular product that another country is called A) business cycle. B) infant industries. C) comparable worth. D) absolute advantage. 28) Coming into effect in 1994, NAFTA encouraged free trade between the United States and which two other countries? A) Canada and Cuba B) Canada and Mexico C) Japan and China D) Panama and Brazil 29) Supporters of NAFTA and free trade would contend that such agreements A) increase government control of a nation's economy. B) hamper democratic reforms and open markets in areas that are already strong. C) limit the growth of an economy and prevents inflation. D) stimulate democratic reform and open markets in areas in need of improvement. 30) Which statement BEST reflects the difference between tariffs and quotas? A) Tariffs raise prices on exports, while quotas set limits on imports. B) Tariffs raise prices on exports, while quotas set limits on exports. C) Tariffs raise prices on imports, while quotas set limits on exports. D) Tariffs raise prices on imports, while quotas set limits on imports. 31) The purpose of the founding of the European Union (E.U.) in 1993 was to A) prevent the poor from causing a revolution. B) become an economic power to compete China. C) fight the growing global network of terrorism. D) guarantee the freedom of movement of people, goods, services and capital. 32) A protective tariff is intended to protect the A) consumer from higher prices on foreign goods. B) manufacturer from higher prices on materials produced within the country. C) consumer from higher priced goods produced within the country. D) manufacturer or farmer from lower priced goods imported into the country. 33) All of these restrict international trade EXCEPT A) quotas. B) embargoes. C) tariffs. D) trade deficits. 34) The price of one nation's currency in terms of another nation's currency is called.. A) fiscal policy. B) the exchange rate. C) monetary policy. D) the discount rate.
35) Value of $1 U.S. in pesos is 10.34 Value of 1 Peso in U.S. Dollars is $0.09 Shelby traveled to Mexico to a resort and took $100 in U.S. currency. When she exchanged it for pesos, she received A) 10.3 pesos. B) 900 pesos. C) 103 pesos. D) 1034 pesos. 36) When a country experiences a depreciation of its currency, it can expect which of these to happen? A) imports to rise B) balance of trade to worsen C) exports to fall D) balance of trade to improve 39) Fearing a recession, the government decides to give citizens a tax rebate check to buy Christmas gifts. What is a possible outcome of this action? A) higher rates of inflation B) higher Interest Rates C) lower Rates of Inflation D) lower interest rates 40) If you were doing a presentation about "balance of payments," which journal entry would likely be the MOST helpful? A) "Banks Take a Strong Hit in 3rd Quarter" B) "Farmers Face a Tough Drought Situation" C) "Prices of Wheat Remains Constant" D) "Foreign Tourism on the Upswing" 37) Over the course of a year, the Mexican peso has depreciated relative to the U.S. dollar. Who would MOST benefit from this occurrence? A) U.S. consumers of U.S. goods B) Mexican consumers of U.S. goods C) U.S. consumers of Mexican goods D) Mexican consumers of Mexican goods 38) The economy is experiencing rapid inflation, pushing above 9%. Which fiscal policy action should the government implement in an attempt to fix this problem? A) Raise taxes B) Decrease Interest Rates C) Increase Spending D) Increase reserve requirements
41) United States Combating Use of Standards as Trade Barriers While U.S. standards concerns are not specific to just China, because American industry has demonstrated a clear interest to compete and participate in the Chinese marketplace, it is important that there is a standards development process that is open, transparent, participatory, and fair in China. Tensions have arisen... when certain countries take restrictive action that could potentially exclude market access to U.S. businesses. In this regard, I have been asked by the Committee to address a specific example where China has caused great concern with U.S. industry in its application of domestic source requirement standards - China's pending software procurement regulation which could limit the ability of U.S. industry to sell software products and services to the Chinese government. U.S. software companies, which are widely recognized as industry leaders for their leading-edge innovation, have invested billions of dollars in China to participate directly in China's growing information technology market. Based on Assistant Secretary Wu's testimony, the U.S. Commerce Department is MOST concerned about A) rising trade barriers on goods to China. B) lowering trade barriers on goods to China. C) rising trade barriers on goods from China. D) lowering trade barriers on goods from China. 42) Why would a country want to eliminate trade barriers such as tariffs or quotas? A) to make goods more expensive B) to protect domestic jobs C) to contract their markets D) to stimulate the economy 43) Which statement is the BEST example of a point of view opposed to free trade? A) Skilled worker migration works to reduce poverty. B) Mutually lowering tariffs produces gains on both the supply and demand side. C) Comparative advantage benefits developing nations. D) Sheltering domestic industries allows for the protection of domestic jobs. 44) All of these are international trade pacts EXCEPT: A) NAFTA. B) NATO. C) ASEAN. D) the EU. 45) Advisers in France recommend to the French President that they should place a limit on the number of American cars the French import. What would be a likely result if such an action were taken? A) France would increase its production of cars B) The United States would increase production of cars C) The United States would stop selling to the French D) The United States would place a limit on the amount of French imports into the United States 46) In 1999, the U.S. announced trade sanctions worth $116.8 million, targeting goods from France, Germany, Italy and Denmark. The sanctions were in retaliation for a ban on U.S. hormone-treated beef by which organization? A) ASEAN B) NAFTA C) EU D) WTO
47) In 1981, Congress responded to an economic downturn by passing a stimulus package that centered on massive tax cuts. This program was in line with which school of economic thought? A) Demand Side Economics B) Supply Side Economics C) Keynesian Economics D) Classical Economics 48) When Barack Obama was elected in 2009, the United States was experiencing the effects of a severe economic recession. Accordingly, his administration put together a stimulus package that included numerous shovel ready projects like bridge and highway construction. This program was in line with which school of economic thought? A) Demand Side Economics B) Supply Side Economics C) Classical Economics D) Reganonomics 49) Which the US dollar depreciates in value, which group sees the most benefits? A) American buyers of foreign products. B) American producers who sell products on the foreign market. C) Foreign producers who sell products in the United States. D) None of the above. 50) The type of trade barrier which prevents all trade with a particular nation is called a/an A) Tariff B) Subsidy C) Embargo D) Quota