1. When a household owns shares of stock, _____.
a.
it has ownership rights in that firm
b.
it is entitled to the majority of the firm’s profits
c.
it is liable to bear the entire loss faced by the firm
d.
it can consume the firm’s products without paying for it
e.
it is responsible for correcting any defect in the product identified by the customers
2. Which of the following statements is a defining feature of a corporation?
a.
The owners of a corporation face unlimited liability on debts.
b.
A corporation owns and operates units only in foreign countries.
c.
A corporation is created by a verbal agreement.
d.
A corporation that is based on a verbal agreement is also recognized by State law.
e.
A corporation has a legal identity that is separate from that of its owners.
3. Which of the following institutions form the private sector in an economy?
a.
Only households
b.
Households and the government
c.
Households, businesses, and foreign firms
d.
Households and businesses only
e.
Foreign investors and foreign governments
4. The _____ tend to have a smaller public sector relative to the total economy.
a.
socialist economies
b.
centrally planned economies
c.
autocratic economies
d.
market economies
e.
mercantilist economies
5. Which of the following is true of households?
a.
It consists of the employed members of the family.
b.
It can comprise of either related members or unrelated individuals.
c.
It refers to only the owners of rented apartments.
d.
It comprises of a family of at least four members.
e.
It generally describes a family that has two earning members.
6. Which of the following does not constitute a household consumption item?
a.
A pair of jeans
b.
A bottle of Beck’s beer
c.
A haircut
d.
A steam turbine electric generator
e.
A packet of breakfast cereal
7. Which of the following sectors in the economy accounted for about 70% of the spending in the U.S. during 2009?
a.
The government
b.
Firms
c.
The foreign sector
d.
Investors
e.
Households
8. Based on the fact that the companies Ford, IBM, PepsiCo, and McDonald’s own and operate producing units in many
different countries, they are categorized as:
a.
joint ventures.
b.
sole proprietorship firms.
c.
partnership firms.
d.
multinational firms.
e.
co-operative firms.
9. Which of the following is a valid difference between sole proprietorship and partnership?
a.
Partnerships require a written agreement while sole proprietorships do not.
b.
Partnerships require a state charter while sole proprietorships do not.
c.
Partnerships generate lower profits than sole proprietorships.
d.
Partnerships are characterized by unlimited liability, while sole proprietorships are not.
e.
Partnerships consist of two or more partners sharing the responsibility of the firm, while sole proprietorship
consists of a single individual.
10. Which of the following is a defining feature of a multinational firm?
a.
It exports goods and services to foreign nations.
b.
It develops joint ventures with foreign firms.
c.
It owns and operates production facilities in more than one country.
d.
It employs agents in various countries to sell their products abroad.
e.
It holds patents on its products and services.
11. In economics, the term investment refers to:
a.
the cost of employing human capital.
b.
expenditure on expense accounts of employees.
c.
firms’ expenditure on salaries and rent.
d.
business spending for acquiring capital goods.
e.
the expenses on the purchase of stocks of a corporation.
12. Which of the following is true of investment spending in the U.S. economy?
a.
Investment spending in 2009 was higher than in 2006.
b.
Investment spending was almost double of household spending.
c.
Businesses had reduced expenditures on capital goods in 2008 and 2009.
d.
Investment spending exhibited a more or less steady increase between 1959 and 2009.
e.
Investment spending fluctuated relatively less than consumption.
13. Identify the international organization that makes loans to developing countries.
a.
The World Bank
b.
The Federal Reserve
c.
The World Trade Organization
d.
The Industrial Development Board
e.
The Bank of England
14. A country is categorized as a low-income economy by the World Bank if its per capita income is below:
a.
$1,000.
b.
$100.
c.
$10,000.
d.
$50.
e.
$5,000.
15. According to the World Bank, low-income economies are heavily concentrated in:
a.
Europe and Africa.
b.
Europe and Asia.
c.
Asia and Africa.
d.
Asia and Australia.
e.
North America and Australia.
16. Which of the following economic indicators is used by the World Bank to classify countries as industrial or emerging
economies?
a.
GDP
b.
Rate of inflation
c.
Net exports
d.
Per capita income
e.
Budget deficits
17. According to the World Bank, the high-income oil-exporting nations like Libya, Saudi Arabia, Kuwait, and the United
Arab Emirates:
a.
are considered to be still-developing countries.
b.
are the major trade partners of the U.S.
c.
are considered as underdeveloped economies.
d.
have highly interdependent economies.
e.
are considered highly-developed countries.
18. The term “import” refers to:
a.
a purchase of goods or services from another country.
b.
a business transaction between two or more domestic firms.
c.
a sale of goods or services to another nation.
d.
a tax on foreign merchandise.
e.
a trade agreement between two industrial countries.
19. Which of the following is true of Western Europe, Japan, Canada, Mexico, and China taken together?
a.
All these countries are classified as high-income countries by the World Bank.
b.
They are all members of the North American Free Trade Agreement [NAFTA].
c.
All these countries are considered developing countries by the World Bank.
d.
They are collectively the largest trade partners of the U.S.
e.
They are the five largest exporters of agricultural produce in the world.
20. A surplus in a country’s trade balance means that:
a.
its net exports exceed transfer payments.
b.
the country’s currency is over-valued.
c.
the value of its net exports is positive.
d.
imports into the country exceed exports.
e.
domestic savings exceeds domestic investment.
21. A trade deficit occurs when:
a.
a country imposes a price floor on the good in which it has a comparative advantage.
b.
a country’s imports exceed its exports.
c.
a country imposes a price ceiling on the good in which it has a comparative advantage.
d.
a country’s exports exceed its imports.
e.
the domestic product market is in disequilibrium.
22. The term net exports refers to:
a.
the situation in which a country’s exports exceed its imports.
b.
the situation in which a country’s imports exceed its exports.
c.
the shortages that result when a country imposes a price ceiling.
d.
the shortages that result when a country imposes a price floor.
e.
the difference between the value of exports and the value of imports.
Scenario 4-1
In a given year, country A exported $12 million worth of goods to country B and $6 million worth of goods to country C;
country B exported $4 million worth of goods to country A and $7 million worth of goods to country C; and country C
exported $5 million worth of goods to country A and $2 million worth of goods to country B.
23. According to Scenario 4-1, country A has net exports of:
a.
$18 million.
b.
$8 million.
c.
$13 million.
d.
$9 million.
e.
$6 million.
24. According to Scenario 4-1, country C has net exports of:
a.
zero.
b.
$13 million.
c.
$6 million.
d.
−$13 million.
e.
−$6 million.
25. According to Scenario 4-1, country B is running a:
a.
trade deficit with country A and a trade surplus with country C.
b.
trade surplus with both countries A and C.
c.
trade surplus with country A and a trade deficit with country C.
d.
trade deficit with both countries A and C.
e.
balanced trade with country A and a trade deficit with country C.
26. Which of the following is true of U.S. net exports prior to the 1960s?
a.
Since most of the oil needs of the U.S. were met through imports, imports exceeded exports prior to the 1960s
in the U.S.
b.
Prior to the 1960s, exports from the U.S. more or less equalled imports into the U.S.
c.
The U.S. was running a trade surplus prior to the 1960s.
d.
Prior to the 1960s, the U.S. ran twin deficits- both a current account deficit as well as a budget deficit.
e.
Since the U.S. dollar was overvalued prior to the 1960s, the U.S. neither exported nor imported any goods and
services.
27. The public sector of the U.S. economy includes:
a.
the federal, state, and local government.
b.
multinational corporations and the federal government.
c.
the Federal Reserve bank of the U.S.
d.
the judiciary and the federal government.
e.
households.
28. Which of the following is true of the U.S. government?
a.
The government in the United States takes the form of a single-party state where opposition parties are not
legally allowed to take power.
b.
The size of the federal government in the U.S. has been declining since 1930.
c.
Employment in the government sector currently exceeds employment in the manufacturing sector.
d.
The U.S. federal government plays a much smaller role than state and local government due to states’ rights.
e.
The service sector of the U.S. economy employs more number of people than the U.S. government.
29. Which of the following statements about transfer payments is true?
a.
Transfer payments are not included in total government expenditures.
b.
Transfer payments involve the international remittance of funds.
c.
Transfer payments refer to the transfer of money by the commercial banks to the people.
d.
Transfer payments are made by the government to taxpayers.
e.
Transfer payments are made when governments purchase goods and services.
30. Total government spending in the U.S. economy was around _____ of the GDP in the financial year 2010.
a.
5 percent
b.
36 percent
c.
25 percent
d.
44 percent
e.
16 percent
31. Which of the following is true of fiscal spending at the federal, state, and local levels of the U.S. government?
a.
In 2009, total government spending equalled around $1 billion.
b.
Investment expenditure in the U.S. exceeds the total spending at all levels of government.
c.
Government spending at federal, state, and local levels declined steadily from the 1960s until about 1980.
d.
Through the 1950s and 1960s, the U.S. government maintained a balanced budget.
e.
Federal government spending exceeds state and local government spending in the U.S.
32. The income transferred by the government from a citizen who is earning income to another citizen is referred to as:
a.
fiscal spending.
b.
transfer payment.
c.
budgetary allowance.
d.
taxation.
e.
internal debt.
33. When the government’s spending is less than tax revenue, it implies that:
a.
the government budget is balanced.
b.
the government is running a deficit.
c.
there is a budget surplus.
d.
there is a higher chance of default by the government.
e.
the government needs to borrow from the central bank.
34. Which of the following observations is true of the federal budget between 1960 and 2010?
a.
The federal budget was in deficit in the early 1960s.
b.
Between 1960 and 1970 the federal budget deficit reflected a sharp increase.
c.
The federal budget was in surplus between 1970 and 1980.
d.
The federal budget deficit was the highest in the late 1990s.
e.
The federal budget deficit was lower than 600 billion dollars in 2010.
35. In a market economy, _____ own(s) all the basic resources or factors of production.
a.
households
b.
the federal government
c.
the Federal Reserve bank
d.
the local government
e.
business firms
36. Households interact with business firms by:
a.
buying resource services from business firms.
b.
paying wages for the use of labor.
c.
selling goods and services to firms.
d.
receiving payments from firms for use of resource services.
e.
paying rent to firms for the use of land.
37. Financial intermediaries are best described as:
a.
informal institutions that provide funds to the government to manage budget deficits.
b.
institutions that accept deposits and make loans.
c.
institutions that control the money supply in the economy.
d.
institutions that provide financial aid to foreign countries.
e.
individuals who manage other’s investment portfolios.
38. Which of the following is considered a financial intermediary?
a.
The Federal Reserve
b.
A bankruptcy court
c.
The U.S. Department of Commerce
d.
A credit union
e.
A foreign exchange
39. Households and firms pay taxes to the government to:
a.
increase their consumption spending.
b.
finance the country’s import bill.
c.
increase their savings.
d.
improve their standard of living.
e.
finance government expenditures.
40. Which of the following flows from the government to the households?
a.
Goods and services
b.
Resources of production
c.
Taxes
d.
Government services
e.
Loans
41. A trade deficit involves:
a.
net flows of goods from foreign countries to the domestic government.
b.
net money flows from the foreign firms to the domestic government.
c.
net money flows from the domestic firms to the domestic government.
d.
net money flows from the foreign firms to the domestic firms.
e.
net flows of goods from foreign countries to the domestic firms.
42. When the flow of money from the foreign countries to the domestic firms equals the flow of money from the home
country to the foreign firms, _____.
a.
a trade surplus exists
b.
an equal amount of agricultural and manufactured products are exported
c.
a trade deficit exists
d.
an equal amount of goods and services are imported
e.
the value of net exports is zero
43. An unmarried couple holding joint title to their condominium constitutes a household.
a.
True
b.
False
44. A person obtains income by selling the services of the resources that he or she owns.
a.
True
b.
False
45. A household consists of only related family members like a father, mother, and children and not unrelated members
like two students sharing a rented apartment.
a.
True
b.
False
46. In 2009, household spending was the smallest component of total spending in the U.S. economy.
a.
True
b.
False
47. Consumption or household spending of an economy comprises of both consumer spending and business spending.
a.
True
b.
False
48. Empirical evidence on the U.S. economy suggests that household spending and income have an inverse relationship.
a.
True
b.
False
49. The owner of a sole proprietorship has limited liability, while stockholders of corporations have unlimited liability.
a.
True
b.
False
50. An enterprise that has only one shareholder does not constitute a corporation.
a.
True
b.
False
51. If a corporation cannot pay its debts, creditors cannot seek payment from shareholders’ personal wealth.
a.
True
b.
False
52. According to the World Bank, developing countries greatly outnumber industrial countries.
a.
True
b.
False
53. The United States is the largest consumer and importer of grains and other agricultural output in the world.
a.
True
b.
False
54. If total U.S. trade consists of $10 billion in electronics imports from Japan and $9 billion in automobile exports to
Germany, then the U.S. net export account will be negative.
a.
True
b.
False
55. Annual expenditures by the federal government exhibited an upward trend, rising from $3 billion in 1930 to more than
$1 trillion in 2010.
a.
True
b.
False
56. National economic policies are usually set by the local government in the U.S., making it the focus of economic
discussions.
a.
True
b.
False
57. Since the U.S. is organized as a market economy, the government sector does not play any role in economic activity.
a.
True
b.
False
58. Spending on goods and services by all levels of government in the U.S. combined is smaller than investment spending
but larger than consumption.
a.
True
b.
False
59. Empirical evidence suggests that the federal budget has remained more or less in surplus between 1990 and 2002.
a.
True
b.
False
60. A financial intermediary accepts deposits from savers and makes loans to borrowers.
a.
True
b.
False
61. The government sector sells resource services to households and buys goods and services from firms.
a.
True
b.
False