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MAS – LECTURE NOTES ARMIN GLENN ARANETA, CPA


ECONOMICS

1. If both the supply and the demand for a good increase, the market price will:
a. Rise only in the case of an inelastic supply function.
b. Fall only in the case of an inelastic supply function.
c. Not be predictable with only these facts.
d. Rise only in the case of an inelastic demand function.

2. A supply curve illustrates the relationship between:


a. Price and quantity supplied c. Price and quantity demanded
b. Price and consumer tastes d. Supply and demand

3. Which one of the following has an inverse relationship with the demand for money/
a. Aggregate income c. Interest rates
b. Price levels d. Flow of funds

4. Which of the following market features is likely to cause a surplus of a particular product?
a. A monopoly c. A price ceiling
b. A price floor d. A perfect market\

5. Which of the following has the highest price elasticity coefficient?


a. Milk c. Bread
b. Macaroni and cheese d. Ski boats

6. The local video stores business increased by 12% after the movie theater raised its prices from
P65 to P70. Thus, relative to movie theater admissions, videos are:
a. substitute goods c. complementary goods
b. superior goods d. public goods

7. An individual receives an income of P3, 000 per month, and spends P 2, 500. An increase in
income of P 500 per month occurs, and the individual spends P 2, 800. The individual’s marginal
propensity to save is:
a. 0.2 c. 0.6
b. 0.4 d. 0.8

8. In any competitive market, an equal increase in both demand and supply can be expected to
always:
a. increase both price and market-clearing quantity
b. decrease both price and market-clearing quantity
c. increase market-clearing quantity
d. increase price

9. Which of the following will cause a shift in the supply curve of a product?
a. Changes in the price of the product
b. Changes in production taxes
c. Changes in consumer taxes
d. Changes in the number of buyers in the market

10. When the government imposes health and safety regulations on certain products, one of the
most likely results is:
a. greater consumption of the product
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b. lower prices for the product


c. greater tax revenues for the government
d. higher prices for the product

11. In a competitive market for labor in which demand is stable, if workers try to increase their
wage:
a. employment must fall
b. government must set a maximum wage below the equilibrium wage
c. firms in the industry must become smaller
d. product supply must decrease

12. A polluting manufacturing firm tends, from societal viewpoint to:


a. price its products too low c. report too little profitability
b. produce too little output d. employ too little equity financing

13. If the government regulates a product or service in a competitive market by setting a


maximum price below the equilibrium price, what is the long-run effect?
a. A surplus c. A shortage
b. A decrease in demand d. No effect on the market

14. If the income elasticity of demand coefficient for a product is 3.00, the good is likely:
a. a luxury good c. a complement good
b. an inferior good d. a necessity

15. Which of the following would cause the demand curve for a commodity to shift to the left?
a. A rise in the price of a substitute product.
b. A rise in average household income.
c. A rise in the price of a complementary commodity.
d. A rise in the population.

16. Price ceilings:


a. are illustrated by government price support programs in agriculture.
b. create prices greater than equilibrium prices.
c. create prices below equilibrium prices.
d. result in persistent surpluses.

17. X and Y are substitute products. If the price of product Y increase, the immediate impact on
product x is:
a. price will increase. c. quantity supplied will increase
b. quantity demanded will increase d. no effect.

18. Which of the following is not likely to affect the supply of a particular good?
a. Changes in government subsidies.
b. Changes in technology
c. Changes in consumer income
d. Changes in production costs

19. If a product’s demand is elastic and there is a decrease in price, the effect will be:
a. a decrease in total revenue.
b. No change in total revenue.
c. A decrease in total revenue and the demand curve shifts to the left.
d. An increase in total revenue.

20. All of the following are complementary goods except:


a. margarine and butter c. VCRs and video cassettes
b. Cameras and rolls of film d. Razors and razor blades
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21. The law of diminishing marginal utility states that:


a. Marginal utility will decline as a consumer acquires additional units of a specific
product.
b. Total utility decline as a consumer acquires additional units of a specific product.
c. Declining utilities causes the demand curve to slope upward.
d. Consumers wants will diminish with the passage of time.

22. In the pharmaceutical industry where a diabetic must have insulin no matter the cost and
where there is no other substitute, the diabetic’s demand curve is best described as:
a. Perfectly elastic c. Perfectly inelastic
b. Elastic d. Inelastic

23. In the long run, a firm may experience increasing returns due to:
a. law of diminishing returns c. Comparative advantage
b. Opportunity cots d. Economies of scale

24. The measurement of the benefit lost by using resources for a given purpose is:
a. Economic efficiency c. Comparative advantage
b. Opportunity costs d. Absolute advantage

25. Marginal revenue is:


a. Equal to price in monopolistic competition.
b. The change in total revenue associated with increasing prices.
c. Greater than price in pure competition.
d. The change in total revenue associated with producing and selling one more unit.

26. In microeconomics, the distinguishing cjharacteristic of the long run on the supply side is
that:
a. Only supply factors determine price and output.
b. Only demand factors determine price and output.
c. Firms are not allowed to enter or exit the industry.
d. All inputs are variable.

27. If consumer confidence falls, the impact upon economy is:


a. A downturn
b. No change
c. An upturn
d. consumer confidence does not have an impact upon the economy.

28. During the recessionary phase of a business cycle:


a. The purchasing power of money is likely to decline rapidly.
b. The natural rate of unemployment will increase dramatically.
c. potential national income will exceed actual national income.
d. Actual national income will exceed potential national income.

29. For a given level of tax collections, prices, and interest rates, a decrease in governmental
purchases will result in a(n):
a. Increase in aggregate demand. c. Decrease in aggregate demand
b. Increase in aggregate supply d. Decrease in aggregate supply

30. Which of the following would not be included in the calculation of the gross domestic
product?
a. Purchase of a new home c. A doctor’s fee
b. An automotive worker’s wages d. Purchase of common stock
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31. An upturn in economic activity is indicated by all of the following, except:


a. Increased housing starts
b. Reduction in the quantity of unemployment claims
c. Increase in personal travel
d. Reduction in the amount of luxury purchases.

32. Which of the following may provide a leading indicator of a future increase in gross domestic
product?
A. A reduction in the money supply.
B. A decrease in the issuance of building permits.
C. An increase in the timeliness of delivery by vendors.
D. An increase in the average hours worked per week of production workers.

33. The primary reason for allowing legal immigration into industrial nations is the immigrants’
potential for:
A. Reducing a trade deficit C. Contributing to economic growth
B. Fulfilling a trade agreement D. Fulfilling a political agreement

34. Some indicators that lead the economy into a recovery or recession, and some lag it. An
example of a lagging indicator is:
A. Chronic unemployment
B. Housing starts
C. Orders for consumer and producer goods.
D. Consumer expectations

35. A period of rising inflation:


A. Increases the price level, which benefits those who are entitled to receive specific
amounts of money.
B. Enhances the positive relationship between the price level and the purchasing
power of money.
C. Will not be affected by contracts that include the indexing of payments.
D. Increases the price level, which is negatively related to the purchasing power of
money.

36. According to fiscal policy principles, a tax increase will:


A. Increase spending and increase aggregate demand.
B. Increase spending and reduce aggregate demand.
C. Reduce spending and increase aggregate demand.
D. Reduce spending and reduce aggregate demand.

37. Which of the following instruments of monetary policy is the most important means by
which the money supply is controlled?
A. Changing the reserve ratio C. Manipulation of government spending
B. Open-market operations D. Changing the discount rate

38. The rate of unemployment caused changes in the composition of unemployment


opportunities overtime is referred to as the:
A. Frictional unemployment rate C. Cyclical unemployment rate
B. Structural unemployment rate D. Full-employment unemployment rate

39. Which of the following is true about deflation?


A. It motivates consumers to borrow money
B. It motivates businesses to make investments
C. It results in very low interest rates
D. It results in economic expansion
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40. What factors explain the difference between real and nominal interest rates?
A. Inflation risk C. Default risk
B. Credit risk D. Market risk

41. Exchange rates are determined by:


A. Each industrial country’s government
B. The international Monetary Fund
C. Supply and demand in the foreign currency market
D. Exporters and importers of manufactured goods

42. The money supply in a nation’s economy will decrease the following:
A. Open-market purchases by the nation’s central bank
B. A decrease in the discount rate
C. An increase in the reserve ratio
D. A decrease in the margin requirement

43. If the government were to use only fiscal policy to stimulate the economy from recession, it
would:
A. Raise consumer taxes and increase government spending
B. Lower business taxes and government spending
C. Increase the money supply and increase government spending
D. Lower consumer taxes and increase government spending

44. A market with many independent firms, low barriers to entry, and product differentiation is
best classified as:
A. A monopoly C. Monopolistic competition
B. A natural monopoly D. An oligopoly

45. Which type of economic market structure is composed of a large number of sellers of a
product or service, engaging primarily in nonprice competition?
A. Monopoly C. Perfect competition
B. Oligopoly D. Monopolistic competition

“Striving for success without hard work is like trying to harvest


where you haven't planted.”

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