Economics Quiz Questions and Answers

Question 1 - Inflation and Consumer Price Index

The chart below shows the annual earnings of a worker and the level of the consumer price index (CPI).  Use this information to answer questions 1 through 3.

1. In which year was the rate of inflation the highest?

A. 2015

B. 2016

C. 2017

D. Cannot tell without knowing the base year.

2. What was the approximate percent change in the worker’s real earnings from 2016 to 2017?

A. +8%

B. +6%

C. +4%

D. +2%

E. -2%

3. The unemployment rate can decrease even if the number of employed people decreases if

A. There is a large drop in the labor force

B. There is a large increase in the labor force

C. The economy is in recession

D. The economy is not in recession

E. It can never happen

4. Which of the following people are considered to be unemployed according to the official definition of unemployment (mark all that apply)

A. People who are not working because they are retired

B. People who are working part-time but want to be working full-time

C. People who are actively seeking work but are no longer receiving unemployment benefits

D. People are would like to work but are not actively seeking employment

E. A recent college graduate who turned down a job offer and is continuing to look for work

5. Ignoring international trade, total spending in the economy is equal to (mark all that apply)

A. Nominal GDP minus savings 

B. Consumer spending plus business investment plus government purchases

C. Consumer spending plus household savings minus taxes

D. The change in total income minus the change in the national debt 

E. Business investment plus household savings minus the budget deficit 

F. Nominal GDP 

6. Which of the following best illustrates an increase in people’s standard of living?

A. An increase in nominal GDP 

B. An increase in nominal GDP per person

C. An increase in real GDP 

D. An increase in real GDP per person

E. An increase in the consumer price index

F. A decrease in the consumer price index

7. Over the course of a typical business cycle

A. real GDP rises, falls, and then rises back to its original level

B. real GDP rises, falls, and then rises above its original level

C. real GDP, rises and then falls below its original level

D. real GDP does not change during the business cycle; only nominal GDP changes

Question 2 - Changes in Real Earnings

8. If real GDP is below potential GDP 

A. real GDP is declining

B. the price level is above the base year price level

C. employment is below the level of full employment

D. all of the above

E. none of the above because real GDP and potential GDP mean the same thing

9. If households decreased their savings and increased their spending, it is likely that 

A. Output would increase in the short-run and grow faster in the long-run

B. Output would decrease in the short-run and grow slower in the long-run

C. Output would decrease in the short-run and grow faster in the long-run

D. Output would increase in the short-run and grow slower in the long-run

10. The economy can self-correct to reduce unemployment when 

A. Wages rise, which increases income and spending, leading to more employment

B. Wages fall, which encourages businesses to hire more workers

C. The government increases spending on programs to create jobs

D. Output per hour declines, forcing businesses to hire more workers to maintain output

11. The main reason why real GDP in 10 years is likely to be higher than it is today is because

A. It is not likely that the economy will be in a recession in 10 years

B. Potential real GDP tends to rise each year

C. Prices will almost certainly be higher in 10 years than today

D. The unemployment associated with full employment will be lower in 10 years

12. Which of the following occurred during the Great Depression?

A. Increases in the money supply and high inflation

B. Increases in the money supply and deflation

C. Decreases in the money supply and high inflation

D. Decreases in the money supply and deflation

13. When the Federal Reserve adds funds to the fed funds market

A. The fed funds rate and the money supply decrease 

B. The fed funds rate and the money supply increase

C. The fed funds rate decreases and the money supply increases

D. The fed funds rate increase and the money supply decreases

14. If the money supply increases 6% and nominal GDP increases 8% then

A. Real GDP must have increased 2%

B. Real GDP must have decreased 2%

C. The velocity of money must have increased 2%

D. The velocity of money must have decreased 2%

E. It can never happen

15. Which of the following is an example of expansionary fiscal policy?  

A. A cut in taxes

B. A reduction in government spending to balance the budget  

C. An increase in the money supply

D. A decrease in the budget deficit due to faster growth in tax revenues   

16. When the government has a budget deficit 

A. It sells bonds and earns interest from the bond buyers

B. It sells bonds and pays interest to the bond buyers

C. It buys bonds and earns interest from the bond sellers

D. It buys bonds and pays interest to the bond sellers 

17. Comparing 2018 to 2009

A. The budget deficit and the national debt were both higher in 2018 than in 2009

B. The budget deficit was higher in 2018, but the national debt was higher in 2009

C. The budget deficit was higher in 2009, but the national debt was higher in 2018

D. The budget deficit and the national debt were both higher in 2009 than in 2018

18. Which of the following are arguments against putting tariffs on imports to the U.S.?  

A. Tariffs increase prices paid by U.S. consumers and business

B. Tariffs on imports might cause other countries to put tariffs on U.S. exports

C. Tariffs may help less efficient industries at the expense of more efficient industries

D. Tariffs raise tax revenue that can be used to reduce other taxes

19. If the Federal Reserve reduced the money supply it is likely that 

A. The dollar will depreciate and imports will become more expensive

B. The dollar will depreciate and imports will become less expensive

C. The dollar will appreciate and imports will become more expensive

D. The dollar will appreciate and imports will become less expensive

20. An increase in the value of the yen versus the dollar would likely 

A. Decrease US exports to Japan and US imports from Japan

B. Decrease US exports to Japan and increase US imports from Japan

C. Increase US exports to Japan and US imports from Japan

D. Increase US exports to Japan and decrease US imports from Japan