Which of the following correctly explains the role of the government in a free market? A) The government acts as a referee by enforcing contracts and preventing stealing. B) The government sets prices according to the relative value of each good. C) The government allocates goods to those buyers who value the goods the most. […]
Define economics. Who are economic agents? What will be an ideal response? ANSWER Economics is the study of how agents choose to allocate scarce resources and how these choices affect society. An economic agent is an individual or a group that makes choices.
According to Keynesian theory, the most important determinant of saving and consumption is A) the stock of durable goods in the consumer’s possession. B) the stock of liquid assets. C) the level of real disposable income. D) the level of consumer indebtedness. ANSWER C
Which of the following statements is TRUE? A) There is a direct relationship between investment and the interest rate. B) There is an inverse relationship between investment and the interest rate. C) Investment is always less than savings. D) There is no relationship between investment and the interest rate. ANSWER B
Fiscal policy involves which of the following? A) interest rates B) tax policy C) buying and selling government-agency bonds D) none of the above ANSWER B
An individual holds $10,000 in a non-interest-earning checking account, and the overall price level rises significantly. Other things being constant, we would expect A) the individual’s real wealth to decrease and consumption to decline. B) no change in the individual’s real wealth but a decline in real national product. C) the individual’s stock of real […]
In an economy with no government and no international trade, consumption expenditures will be less than the total value of goods and services when A) people save some of their income. B) people barter rather than use money in making exchanges. C) saving is zero. D) investment is zero. ANSWER A
Higher saving rates mean higher future growth rates because A) the banks have more money to distribute to their shareholders. B) saving contributes to more investment, which yields a larger capital stock. C) the interest earned from savings gives you more wealth. D) saving contributes to less investment, which yields a larger capital stock. […]
The Keynesian model is based on the idea that A) both consumption and saving are directly related to disposable income. B) saving depends only on the interest rate. C) consumption is unrelated to the level of real Gross Domestic Product (GDP). D) both consumption and saving are unrelated to the level of real Gross Domestic […]
A free market is a market: A) that has price controls imposed by a ruling authority. B) where almost all exchanges take place involuntarily. C) where determination of equilibrium quantity is free from the forces of demand and supply. D) that operates with little or no government control. ANSWER D
