Test Bank 1
to accompany
Economics
Sixteenth Edition
Campbell R. McConnell
University of Nebraska
Stanley L. Brue
Paci%c Lutheran University
Prepared by
Stanley L. Brue
Paci%c Lutheran University
www.mhhe.com
Test Bank 1 to accompany
ECONOMICS
Campbell R. McConnell and Stanley L. Brue
Published by McGraw-Hill, an imprint of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas,
New York, NY 10020. Copyright 2005 by The McGraw-Hill Companies, Inc.
All rights reserved.
The contents, or parts thereof, may be reproduced in print form solely for classroom use with
ECONOMICS
provided such reproductions bear copyright notice, but may not be reproduced in any other form or for
any
other purpose without the prior wri4en consent of The McGraw-Hill Companies, Inc., including, but not
limited
to, in any network or other electronic storage or transmission, or broadcast for distance learning.
1 2 3 4 5 6 7 8 9 0 Text printer code/Cover printer code 0 9 8 7 6 5 4
ISBN 0-07-288479-7
Table of Contents
1 The Nature and Method of Economics ...………………………………...…………………. 1
2 The Economizing Problem……..…………….………………..………………..…………….. 31
3 Individual Markets: Demand and Supply…………………………………..……………... 69
3W Applications and Extensions of Supply and Demand Analysis ………………….. 109
4 The Market System ……..………………..………………..………………..……………….... 125
5 The U.S. Economy: Private and Public Sectors……………………………………….. 141
6 The United States in the Global Economy………………………………………………. 175
7 Measuring Domestic Output and National Income…………………………………… 197
8 Introduction to Economic Growth and Instability…………………………………….. 229
9 Basic Macroeconomic Relationships …………………….………………..……………… 253
10 The Aggregate Expenditures Model ……..…………….………………..……………….. 289
11 Aggregate Demand and Aggregate Supply………..…………….………………..……. 335
12 Fiscal Policy .………………..…………….………………..………………..………………..…. 369
13 Money and Banking …………………..………………..………………..………………..…… 403
14 How Banks and ThriAs Create Money……………………………..…………….………. 433
15 Monetary Policy ……………………………..………………..…………….………………..…. 455
16 Extending the Analysis of Aggregate Supply ………………………………………..… 489
17 Economic Growth ………..………………..………………..…………….………………..….. 515
18 deficit, Surpluses, and the Public Debt…………………………………………………. 531
19 Disputes over Macro Theory and Policy………….…………….………………..……… 547
20 Elasticity of Demand and Supply……………….………………..…………….………….. 575
21 Consumer Behavior and Utility Maximization .……………………………………….. 611
22 The Costs of Production……..………………..………………..………………..…………… 647
23 Pure Competition…………………..………………..………………..…………….…………… 687
24 Pure Monopoly…………………………….………………..………………..………………..… 731
25 Monopolistic Competition and Oligopoly………………………....……………………. 773
26 Technology, R&D, and ECciency….………………..………………..………………..… 819
27 The Demand for Resources…………….………………..………………..…………….…… 843
28 Wage Determination …………….………………..…………….………………..……………. 875
29 Rent, Interest, and Pro%t ….………………..………………..…………….……………….... 909
30 Government and Market Failure …….………………..………………..………………..… 929
31 Public Choice Theory and Taxation……………….………………..………………..…… 953
32 Antitrust Policy and Regulation …..………………..…………….………………..………. 979
33 Agriculture: Economics and Policy……………..………………..…………….……….. 1001
34 Income Inequality and Poverty …………..………………..………………..……………. 1021
35 Labor Market Institutions and Issues: Unionism,
Discrimination, and Immigration ………………………………..………………..……… 1047
36 The Economics of Health Care …………………..………………..………………..……. 1077
37 International Trade ………….………………..………………..………………..……………. 1097
38 Exchange Rates, the Balance of Payments, and Trade deficit………...……… 1127
39W The Economics of Developing Countries (Internet-Only Chapter) …………… 1157
40W Transition Economies: Russia and China (Internet-Only Chapter) …………… 1177
Preface
Test Bank I contains more than 6,300 multiple-choice and true-false questions. We have created
approximately 670 new question for this edition; the remaining 5,630 have been checked and re%ned to
ensure compatibility with the 16th Edition.
Test Bank I continues to be accurate, functional, and user-friendly.
1. New questions: All new question are so identi%ed. This will provide long-time users of
Economics with a fresh set of questions.
2. Grouping by topic: As in previous editions, all questions are grouped by topic and sequenced in
the same order as the text material. A table at the beginning of each Test Bank chapter lists the
topics and corresponding question numbers. Each topic has been numbered for easy reference.
This sequencing should reduce the time required to make up well-balanced exams.
3. Consider This and Last Word questions: Test Bank I contains and identi%es two or three
questions on each Consider This and Last Word vigne4e.
4. Coding: Each item contains a code that identi%es the particular type of question. For example,
A=application of concept; D=de%nition; G=graphical analysis, and so forth. These codes are
identi%ed following this Preface, while the coding itself is found above each question. Former
users of Test Bank I have found these codes useful in preparing exams and in identifying the
types of questions missed by students.
5. Page references: Each question includes a 16th Edition page reference. To aid instructors who are
using the paperback split volumes, we list three separate page numbers: E indicates the
Economics page number; MA indicates the Macroeconomics split volume page number; and MI
indicates the Microeconomics split volume page number.
All Test Bank I questions are also available in a Brownstone test generating system for PCs and
Macintosh computers. Contact your McGraw-Hill/Irwin sales representative for more information.
We wish to thank Robert Jensen for assistance and Becky Szura for her expertise in creating the
Brownstone Diploma version.
Stanley L Brue
Campbell R. McConnell
Conversion Chart
There are three versions of the 16th edition of McConnell/Brue Economics:
Macroeconomics, Microeconomics, and Economics. Test Bank I follows the Economics
chapter order. Use the following chart to see how Test Bank I/Economics chapters
correspond with the other two books:
Economics/TB I Chapter Macroeconomics Chapter Microeconomics Chapter
1-6 1-6 1-6
7-19 7-19 ***
20-36 *** 7-23
37-38 20-21 24-25
3W 3W 3W
39W 22W ***
40W 23W 26W
Bold type indicates chapters common to all three books.
*** indicates chapters that do not appear in a particular split version of the text.
W indicates chapters that are available only at the book’s website,
www.mcconnell16.com.
Coding System for Test Bank I
The codes above each question indicate the following question types:
A = Application of Concept
A question that tests student understanding of a de%nition or concept.
C = Complex Analysis
A question that calls for students to apply more than one concept in order to reach the
correct answer.
D = De%nition
A straighLorward question that tests recognition of a de%nition.
E = Equation
A question that calls for solving one or more equations. Many of these are designated
as advanced analysis questions.
F = Fact
A problem that tests ability to recall a fact or some data.
G = Graphical
A question that requires students to demonstrate working facility with graphs.
T = Table
A question that requires students to interpret or manipulate tabular material.
New = New Question
A question that is new to this edition of Test Bank I.
E = Economics, 16th Edition
MA = Macroeconomics, 16th Edition
MI = Microeconomics, 16th Edition
CHAPTER 1
The Nature and Method of Economics
Topic Question numbers
_____________________________________________________________________________________
______________
1. Economics; economic perspective 1-20
2. benefit of studying economics 21-23
3. Methodology 24-40
4. Economic policy and goals 41-47
5. Macroeconomics and microeconomics 48-56
6. Positive and normative statements 57-66
7. Logical piLalls 67-82
Consider This 83-84
Last Word 85-87
True-False 88-100
Appendix
8. Construction and interpretation of graphs 101-155
_____________________________________________________________________________________
______________
Multiple Choice Questions
Economics; economic perspective
Type: D Topic: 1 E: 4 MI: 4 MA: 4 Status: New
1. For economists, the word “utility” means:
A) versatility and Pexibility. B) rationality. C) pleasure and satisfaction. D) purposefulness.
Answer: C
Type: D Topic: 1 E: 4 MI: 4 MA: 4 Status: New
2. In economics, the pleasure, happiness, or satisfaction received from a product is called:
A) marginal cost. B) rational outcome. C) status ful%llment. D) utility.
Answer: D
Type: A Topic: 1 E: 4 MI: 4 MA: 4 Status: New
3. When economists say that people act rationally in their self interest, they mean that individuals:
A) look for and pursue opportunities to increase their utility.
B) generally disregard the interests of others.
C) are mainly creatures of habit.
D) are unpredictable.
Answer: A
Chapter 1: The Nature and Method of Economics
McConnell/Brue: Economics, 16/e Page 2
Type: A Topic: 1 E: 3 MI: 3 MA: 3
4. According to Emerson: “Want is a growing giant whom the coat of Have was never large enough to
cover.”
According to economists, “Want” exceeds “Have” because:
A) people are greedy. C) human beings are inherently insecure.
B) productive resources are limited. D) people are irrational.
Answer: B
Type: A Topic: 1 E: 4 MI: 4 MA: 4
5. According to economists, economic self-interest:
A) is a reality that underlies economic behavior. C) is more characteristic of men than of women.
B) has the same meaning as sel%shness. D) is usually self-defeating.
Answer: A
Type: A Topic: 1 E: 4 MI: 4 MA: 4
6. When entering a building, Sam diverts his path to go through an open door rather than make the
physical
eQort to open the closed door that is directly in his path. This is an example of:
A) irrational behavior. C) marginal bene%t-marginal cost analysis.
B) a lazy person. D) programmed learning.
Answer: C
Type: A Topic: 1 E: 4 MI: 4 MA: 4
7. Joe sold gold coins for $1000 that he bought a year ago for $1000. He says, “At least I didn’t lose any
money on my financial investment.” His economist friend points out that in eQect he did lose money,
because he could have received a 3 percent return on the $1000 if he had bought a bank certi%cate of
deposit instead of the coins. The economist’s analysis in this case incorporates the idea of:
A) opportunity costs C) imperfect information.
B) marginal bene%ts that exceed marginal costs. D) normative economics.
Answer: A
Type: A Topic: 1 E: 4-5 MI: 4-5 MA: 4-5
8. There is too li4le of a good thing when its marginal:
A) benefit exceeds its marginal cost. C) cost equals its marginal benefit.
B) cost exceeds its marginal benefit. D) benefit is still positive.
Answer: A
Type: D Topic: 1 E: 3 MI: 3 MA: 3
9. Economics may best be defined as the:
A) interaction between macro and micro considerations.
B) social science concerned with the eCcient use of scarce resources to achieve maximum satisfaction
of
economic wants.
C) empirical testing of value judgments through the use of logic.
D) use of policy to refute facts and hypotheses.
Answer: B
Chapter 1: The Nature and Method of Economics
McConnell/Brue: Economics, 16/e Page 3
Type: D Topic: 1 E: 3 MI: 3 MA: 3
10. The study of economics is primarily concerned with:
A) keeping private businesses from losing money.
B) demonstrating that capitalistic economies are superior to socialistic economies.
C) choices that are made in seeking to use scarce resources eCciently.
D) determining the most equitable distribution of society’s output.
Answer: C
Type: D Topic: 1 E: 4 MI: 4 MA: 4
11. The economic perspective refers to:
A) macroeconomic phenomena, but not microeconomic phenomena.
B) microeconomic phenomena, but not macroeconomic phenomena.
C) the making of rational decisions in a context of marginal costs and marginal bene%ts.
D) unlimited resources in a context of limited economic wants.
Answer: C
Type: D Topic: 1 E: 4 MI: 4 MA: 4
12. The economic perspective entails:
A) irrational behavior by individuals and institutions.
B) a comparison of marginal benefits and marginal costs in decision making.
C) short-term but not long-term thinking.
D) rejection of the scienti%c method.
Answer: B
Type: D Topic: 1 E: 4 MI: 4 MA: 4
13. Rational behavior suggests that:
A) everyone will make identical choices.
B) resource availability exceeds economic wants.
C) individuals will make diQerent choices because their preferences and circumstances diQer.
D) an individual’s economic goals cannot involve tradeoQs.
Answer: C
Type: D Topic: 1 E: 4 MI: 4 MA: 4
14. Economics involves marginal analysis because:
A) most decisions involve changes from the present situation.
B) marginal bene%ts always exceed marginal costs.
C) marginal costs always exceed marginal benefits.
D) much economic behavior is irrational.
Answer: A
Type: A Topic: 1 E: 5 MI: 5 MA: 5
15. You should decide to go to a movie:
A) if the marginal cost of the movie exceeds its marginal benefit.
B) if the marginal benefit of the movie exceeds its marginal cost.
C) if your income will allow you to buy a ticket.
D) because movies are enjoyable.
Answer: B
Chapter 1: The Nature and Method of Economics
McConnell/Brue: Economics, 16/e Page 4
Type: D Topic: 1 E: 5 MI: 5 MA: 5
16. Marginal costs exist because:
A) the decision to produce more of some product means the sacri%ce of other products.
B) wants are scarce relative to resources.
C) households and businesses make rational decisions.
D) most decisions do not involve sacri%ces or tradeoQs.
Answer: A
Type: D Topic: 1 E: 3 MI: 3 MA: 3
17. The assertion that “There is no free lunch” means that:
A) there are always tradeoQs between economic goals.
B) all production involves the use of scarce resources and thus the sacri%ce of alternative goods.
C) marginal analysis is not used in economic reasoning.
D) choices need not be made if behavior is rational.
Answer: B
Type: A Topic: 1 E: 4 MI: 4 MA: 4
18. Consumers spend their incomes to get the maximum bene%t or satisfaction from the goods and
services
they purchase. This is a rePection of:
A) resource scarcity and the necessity of choice.
B) rational behavior.
C) marginal costs that exceed marginal benefits.
D) the tradeoQ problem that exists between competing goals.
Answer: B
Type: A Topic: 1 E: 5 MI: 5 MA: 5
19. There can be too much of a good thing. This statement suggests that:
A) rational choice cannot be applied to many economic decisions.
B) a good may be produced to the point where its marginal cost exceeds its marginal benefit.
C) certain goods and services such as education and health care are inherently desirable and should be
produced regardless of costs and benefits.
D) a good may be produced to the point where its marginal bene%t exceeds its marginal cost.
