The opportunity cost of a new public high school is the
(a) money cost of hiring teachers for the new school.
(b) cost of constructing the new school at a later date.
(c) change in the annual tax rate to pay for the new school.
(d) other goods and services that must be given up for the new school.
Which one of the following do economists consider to be an example of capital goods?
(a) Money in a bank.
(b) Machines in an auto plant.
(c) Corporate bonds of an oil company.
(d) Common stocks in a computer business.
What is meant by the statement that every economic system faces the problem of scarcity?
(a) The additional benefits of goods and services are greater than their additional costs.
(b) There are times when some products can be purchased only at high prices.
(c) There are never enough productive resources to satisfy all human wants.
(d) All economies have recessions during which scarcities exist.
From an economic point of view, which approach to controlling pollution is most efficient?
(a) Abolish the use of toxic chemicals in all production.
(b) Use economic resources to eliminate all pollution.
(c) Adopt laws and regulations that prohibit economic activities that cause pollution.
(d) Reduce pollution as long as the additional benefits are greater than the additional costs.
The essential difference between a command economy and a market economy is that in a market economy:
Shortages occur more often than surpluses.
Buyers and sellers determine resource allocation.
Central planning creates an effective incentive system for consumers and producers.
The prices of products and resources are largely determined by government regulation.
Which is a basic economic question that must be answered by all economic systems?
What will be the share of profits that go to businesses?
What will be the amount of the minimum wage for workers?
How will goods and services be produced?
How will the government collect income taxes?
Profits are equal to total:
Revenue minus total cost.
Assets minus total liabilities.
Sales minus wages and salaries.
Sales minus taxes and depreciation.
If the government decides to reduce the payroll taxes on the wages and salaries of workers, then there will most likely be:
A decrease in saving.
A decrease in investment.
An increase in consumption.
An increase in unemployment.
A high school student buys a sweatshirt from a store. The sweatshirt is on sale at a 20 percent discount off the regular price. In this exchange:
The student and the store benefit.
The student benefits, but the store does not.
The store benefits, but the student does not.
Neither the student nor the store benefits.
Specialization and division of labor by nations followed by increased international trade probably would:
Increase the level of worldwide unemployment.
Increase total world production of goods and services.
Lower living standards in the poor nations of the world.
Eliminate differences in standards of living among nations.
When there is a shortage of a product in a competitive market, it is usually the case that the:
Market price of the product will eventually increase.
Market price of the product will eventually decrease.
Quantity of the product exchanged in the market will eventually decrease.
Quantity of the product exchanged in the market will not change, but demand will increase.
In a competitive market, the price of a product is $5.00. If the government passes a law that sets a minimum price of the product at $6.00, this change will most likely result in:
a) a surplus of the product.
b) a shortage of the product.
c) a decrease in the supply of the product.
d) an increase in the demand for the product.
Which would most likely increase the quantity of gasoline sold in a competitive market?
a) An increase in the price of crude oil.
b) A decrease in the price of automobiles.
c) A decrease in the income of consumers.
d) An increase in taxes on gasoline products.
In a competitive market, the price of wheat is likely to be increased by:
a) a decrease in the supply of wheat.
b) a decrease in the demand for wheat.
c) more capital investment in wheat farms.
d) new machines reducing the cost of producing wheat.
Business firms wish to sell their products at high prices. Households wish to buy products at low prices. In a market economy, this conflict of interest is resolved by:
a) lawsuits.
b) competition.
c) collective bargaining.
d) government regulation.
A newspaper reports, 'COFFEE GROWERS' MONOPOLY BROKEN INTO SEVERAL COMPETING FIRMS.' If this is true, we would expect the coffee-growing industry to:
a) decrease output and decrease prices.
b) increase output and increase prices.
c) decrease output and increase prices.
d) increase output and decrease prices.
In a market economy, the public interest is likely to be served even when individuals pursue their personal economic goals because of:
a) the operation of competitive markets.
b) the social responsibility of business leaders.
c) central planning and coordination of market activity.
d) individuals' understanding of what is in the public interest.
Which characteristic makes the most positive contribution to people's incentive to produce and exchange goods and services in a market economy?
a) An equal distribution of income.
b) Controls on the supply of gold.
c) Restrictions on consumer choice.
d) The right to own private property.
Common stocks, limited liability, and unlimited life are basic characteristics of:
cartels
partnerships
corporations
proprietorships
What primary function is money serving when it is used to buy a ticket to a movie?
Store of value
Flow of funds
Unit of account
Medium of exchange
When commercial banks increase their loans to businesses and consumers, this usually results in:
a decrease in the spending power of consumers and businesses
an increase in government control over the economy
an increase in the banks' excess reserves
an increase in the nation's money supply
Inflation is an increase in:
interest rates over time
the standard of living over time
the general level of prices over time
real gross domestic product over time
An increase in real interest rates provides an incentive for people to save:
less and borrow less
more and borrow less
less and borrow more
more and borrow more
Over time the economic condition that would most likely lead to an increase in worker wages is an increase in:
the payroll taxes of the workers who make the product
the demand for the product that is made by the workers
the cost of the materials for the product the workers make
government regulation of the product the workers make
Why do medical doctors generally earn more than farmers?
Medical doctors are more efficient than farmers
Medical doctors provide a service rather than make a product
There are fewer medical doctors than farmers in our economy
Medical doctors are scarcer, given the demand for their services
A basic role of entrepreneurs in the economy is to:
create dividends for investors in new businesses
buy and sell the common stocks of new corporations
take the risks associated with starting new businesses
show government what new products the economy can produce and sell
Which would most likely increase the productivity of labor?
An increase in capital investment.
A decrease in the pay of corporate executives.
An increase in interest rates for business loans.
A decrease in the use of laborsaving technology.
How does a nation typically acquire more capital goods and increase productivity?
By increasing the money supply and the rate of inflation.
By increasing private saving and business investment.
By decreasing the length of the workweek for the labor force.
By increasing the growth rate of the population in the nation.
Government (rather than private business) provides national defense because:
It is a benefit and not a cost.
It is a cost and not a benefit.
Not all who benefit from it would pay for it.
If some benefit from it, less is available for others.
The tax described in the table below is a:
Flat tax on income.
Progressive income tax.
Proportional income tax.
Regressive income tax.
Which statement about tariffs is true?
Tariffs increase the market for exports.
Tariffs decrease employment in protected industries.
Tariffs benefit some groups at the expense of others.
Tariffs encourage the growth of a nation's most efficient industries.
Gross domestic product (GDP) is a measure of:
The price level of goods and services sold.
Total spending by federal, state, and local governments.
The quantity of goods and services produced by private businesses.
The market value of the nation's output of final goods and services.
A nation has an international trade deficit when:
its imports are greater than its exports.
its exports are greater than its imports.
its government expenditures are greater than its tax revenues.
its gold reserves are greater than the gold reserves of its trading partners.
An economy's potential output at any time is limited by:
the amount of money in circulation.
government regulations and spending.
business demand for final goods and services.
the quantity and quality of labor, capital, and natural resources.
Which would usually reduce total spending in the economy?
A fall in interest rates.
A decrease in business taxes.
A decline in consumer incomes.
A reduction in personal income tax rates.
An economy will typically experience a decline in its unemployment rate when there is:
an increase in population.
a decrease in consumer incomes.
an increase in economic growth.
a decrease in business investment.
If your annual income rises by 50% while prices of the things you buy rise by 100%, then your:
real income has risen.
real income has fallen.
money income has fallen.
real income is not affected.
One reason the federal government might reduce taxes is to:
slow the rate of inflation.
slow a rapid rise in interest rates.
decrease business spending on plant and equipment.
increase consumer spending and stimulate the economy.
A government budget deficit exists when:
tax revenues are falling.
government spending is rising.
the national debt is decreasing.
government spending is greater than tax revenues.
Which monetary policy would the Federal Reserve most likely adopt as the economy moves into recession during a period of low inflation?
Lower the federal funds rate.
Increase federal income tax rates.
Decrease purchases of government bonds.
Raise the reserve requirements for banks.
Juan is considering job offers from four companies, each of which will pay him $50,000 a year. If Juan is most interested in his career advancement, at which company would he most likely choose to work?
Company A that offers him health benefits
Company B that provides him with a company car to drive
Company C that gives him flexible work hours and holidays
Company D that enrolls him in an executive training program
Sadie is a high school graduate who has decided to go to college next year. From a financial decision-making perspective, she has concluded that the...
Costs of going to college are decreasing.
Expected benefits of going to college are certain.
Costs of going to college are less than the expected benefits.
Expected benefits of going to college are less than the costs.
Ruby decided to get a 2-year degree in electronics after graduating high school rather than enter the job market. What is the likely outcome of this decision on Ruby's future income?
She will earn a higher income as long as she then continues to get a 4-year degree.
She will earn a higher income because she has more work skills to offer an employer.
She will earn a higher income, but it will not cover the costs of the additional schooling.
She will earn a higher income because employers are required to pay higher wages for additional degrees earned.
Which of the following generally increases the wages or salaries that businesses pay their employees?
An increase in the productivity of workers
An increase in the interest rate for business loans
An increase in the cost of resources that are used by a business
An increase in the number of people in the economy who are unemployed
What economic event is most likely to increase the wage or salary of someone working in the home construction industry?
More applicants obtain home mortgages from banks.
More high school graduates seek employment in construction.
Higher interest rates lead to a downturn in the construction industry.
Local governments exercise more regulatory control over new housing.
Where do most of the payments to Social Security recipients come from?
Taxes paid by people currently working and their employers
Taxes paid by recipients and their employers when they were working
Individual retirement accounts funded by current workers and their employers
Individual retirement accounts funded by recipients and their employers when they were working
Alex is thinking of buying a five-year-old car from Owen. Owen advertised the car as like new. Which of the following would give Alex the most reliable source of information on how dependable the car might be?
the current owner of the car
a friend who is a taxi cab driver
an auto mechanic Alex has used in the past
a salesperson where the car was originally purchased
Maddie gets a haircut at the hair salon, washes her car at the spray wash, orders coffee at the coffee shop, and gets a flu shot at the drugstore. Which one of her consumer purchases has the most widespread and positive effect on others in her community?
coffee
haircut
flu shot
car wash
A car is priced at $25,000 at two dealerships. Each car has a warranty. One dealership offers a longer warranty on its cars. What will be the likely effect of the longer warranty?
lowers the lifespan of the car
makes leasing the car a better option
lowers the long-term cost of owning the car
increases the licensing and registration fees of owning the car
The Electronics Shop advertises a TV as costing $100 per month for six months instead of stating that it costs $600. Why would the store use this type of ad?
to get consumers to pay more for the TV
to make the TV seem more affordable to consumers
to encourage consumers to pay for a warranty on the TV
to make it easier for consumers to compare the total cost of TVs
When Desmond buys an expensive product, he spends time getting information about it. But when he buys an inexpensive product, he spends little time getting information on it. Which of the following best explains his economic decision about gathering product information?
The benefits of getting information on the expensive product are low.
The benefits of getting information on the inexpensive product are high.
The benefits of getting information on the inexpensive product are less than the costs.
The benefits of getting information on the expensive product are greater than the costs.
Most states have 'lemon laws.' These laws protect buyers from
false advertising
credit card fraud
defective products
contaminated produce
Taylor likes to shop. She often purchases expensive things without thinking about the consequences. Taylor's tendency to buy on impulse
reduces her earned income
increases the amount she saves
increases the interest rate on her credit card
reduces her opportunities to buy things in the future
What is most likely to happen when there is a large and sustained increase in the inflation rate?
The cost of living will decrease
The value of savings will increase
The cost of loans for automobiles will decrease
The interest rate on home mortgages will increase
Noah has $15,000 in his savings account at the major bank in his city. Which of the following best explains why Noah feels his money is safe?
The bank pays interest on his savings account.
Noah's savings account at the bank is FDIC-insured.
The bank offers investment services in addition to savings accounts.
Noah has both a checking account and a savings account at the bank.
What is the primary purpose of an IRA?
Allows workers to pay taxes with each paycheck
Provides incentives for people to save for retirement
Eliminates the need for savers to collect Social Security
Creates savings accounts for current health-care expenses
Which of the following is an advantage of a 401(k) retirement plan over a private savings plan that a worker establishes for retirement?
Employers may contribute to a 401(k) plan.
An unlimited amount can be contributed to a 401(k) plan.
The money withdrawn from a 401(k) plan at retirement is not taxed.
The government guarantees a minimum rate of return on a 401(k) plan.
Mia is comparing the terms for credit cards. She always pays on time, but rarely pays off her entire balance. Which of the following features is most important for Mia to consider when selecting a credit card?
Lowest annual fee
Lowest interest rate
Shortest grace period
Lowest fee for missed payments
Collateral for a loan is
The fee charged for not repaying the loan.
Property the bank can sell if the loan is not repaid.
The amount in damages the bank is due for a late payment.
The contract the bank holds in its vault until the loan is repaid.
A new car loan will likely have a higher interest rate if the borrower
Earns a higher income.
Has a higher credit score.
Wants a shorter term loan.
Makes a lower down payment.
What does a credit bureau do?
Makes decisions about credit applications
Matches banks to applicants who qualify for a loan
Explains to consumers why they have been denied credit
Provides creditors with reports of consumers' credit-paying histories
Which of the following will most directly affect a credit score?
Age
Value of assets
Annual income
Payment history
Sara has a bad credit score. One likely consequence is that:
A landlord may not rent her an apartment
A stockbroker may not sell her shares of stock
Her employer may drop her health care coverage
The Internal Revenue Service may audit her taxes
Mason is 25 years old. He got into financial problems and had to declare bankruptcy. What will happen to his credit score?
Improve because he will owe less money
Worsen because he did not pay back his creditors in full and on time
Improve because by law bankruptcy is not recorded on a credit score
Worsen because there is a penalty for filing for bankruptcy before age 30
Why are mortgage interest rates generally lower than credit card interest rates?
Mortgages are backed by collateral
Interest rates are lower on larger loans
Most consumers generally do not qualify for mortgages
Federal regulations set credit card rates higher than mortgage rates
Consumers have rights regarding their credit reports that include:
Receiving a free copy of their credit report every month
Adding relevant personal information to their credit reports
Removing any negative information companies put on their credit reports
Disputing incorrect information placed on their credit reports by companies
Which of the following statements about taxes on financial investments is correct?
Investors pay no taxes on capital gains from stock investments
Investors pay no taxes on interest earned from bond investments
Tax rates on financial investments will vary by the type of investment
Tax rates are higher for high-risk investments than they are for low-risk investments
Suppose a corporation issues two bonds. One bond matures in a year. The other bond matures in ten years. The bond maturing in one year is expected to:
Have a lower interest rate
Have a higher interest rate
Provide less diversification
Provide more diversification
Which of the following is the best example of a diversified portfolio?
Nora purchases several real estate lots in a small town.
Nolan owns a U.S. coin collection covering all periods of history.
Eva purchases mutual funds with stocks from different industries.
Morgan holds U.S. Treasury bonds with the same dates of maturity.
If Corporation XYZ announces profits greater than expected, what is most likely to happen?
The price of its stock will decrease.
The price of its stock will increase.
The interest rate on its stock will decrease.
The interest rate on its stock will increase.
One way the government helps promote well-functioning financial markets is to ensure investors have
a mix of stocks and bonds in their portfolios.
a guaranteed rate of return on their investments.
accurate information about a company's profits.
recommendations for the most highly rated stocks and bonds.
The primary responsibility of the Securities and Exchange Commission (SEC) is to
provide low-interest loans to businesses.
ensure the safety and soundness of banks.
recommend quality stocks and bonds for investors.
protect investors from illegal activity by companies.
Paul paid for auto insurance every year but never had an accident or filed a claim. Did he get anything of value for the money he paid?
No, because the insurance company never had to pay a claim.
No, because he protected himself and his car by being a careful driver.
Yes, because the insurance company was paid to assume his accident risk.
Yes, because the insurance company paid his interest on the premiums he paid.
Kayla has a low tolerance for taking risks because she wants to protect her growing family. She would be expected to choose an insurance policy that has
a low premium.
many exclusions.
a low deductible.
limited coverage.
Lucas got a loan from ABC Credit Union to buy a car. Which of these is true about Lucas's decision to buy auto insurance?
Both the state and the lender can require him to buy auto insurance.
Whether he has to buy auto insurance depends on the price he paid for the vehicle.
If he doesn't have an accident in the first six months, he doesn't have to buy insurance.
If he gets a loan from the car dealer instead of a credit union, the dealer will insure the car.
Which of the following actions by insurance companies encourage policyholders to take fewer risks once they are insured?
requiring policyholders to pay a co-pay
requiring policyholders to pay dividends
selling only policies with a zero deductible
charging a low premium for the insurance
Maria had a stroke and cannot work at her job as an accountant for at least a year. Which type of insurance would replace her income while she cannot work?
life insurance
liability insurance
disability insurance
unemployment insurance
Which type of auto insurance would pay for the repair of a cracked windshield caused by a rock hitting it?
liability
collision
comprehensive
uninsured motorist
The primary purpose of life insurance is to
provide a safe savings program.
protect a family from lost wages.
protect a family from unemployment.
provide for expenses such as having a baby.
Workers' compensation is an insurance program for workers