Study Guide

Field 007: Economics
Sample Multiple-Choice Questions

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Objective 001
Understand economic terms, concepts, and systems.

1. Which of the following is the best example of marginal analysis?

  1. comparing the costs and benefits of a proposed investment
  2. estimating potential sales for a new product
  3. determining the fixed costs for a new production facility
  4. forecasting likely changes in major economic trends
Correct Response: A.

2. Use the following scenario to answer the question that follows.

Two independently owned drug companies arrange to merge their businesses to form a single firm. Before they can do so, however, the merger must be approved by a government agency to ensure that it does not violate antitrust laws.

This scenario most likely took place in which of the following types of economic systems?

  1. pure market economic system
  2. command economic system
  3. traditional economic system
  4. mixed-market economic system
Correct Response: D.

3. Which of the following concepts best explains the reasoning behind the core economic principle that voluntary trade creates wealth?

  1. economies of scale
  2. specialization
  3. marginal efficiency of capital
  4. capital mobility
Correct Response: B.

Use the circular flowchart below to answer the two questions that follow.

Circular flow chart showing roles in the U S economy.

Circular flow chart showing roles in the U S economy. In the Product Market the Business Firms provide Goods and Services to Households and Households provide the payments for goods and services to Business Firms. In the factor market Business Firms provide rent wages and interest to Households and Households provide land labor and capital to business firms.

Objective 002
Understand the market economy.

4. The information in the circular flowchart best illustrates which of the following features of the U.S. economy?

  1. the effect of incentives on economic activity
  2. the operation of mixed markets
  3. the influence of scarcity on economic decisions
  4. the voluntary exchange of goods and services
Correct Response: D.

5. Government purchases of airplanes would initially affect which of the following?

  1. Goods and Services
  2. Payment for Goods and Services
  3. Rent, Wages, Interest
  4. Land, Labor, Capital
Correct Response: B.


Objective 003
Understand the national economy.

6. A major limitation of gross domestic product (GDP) as a measure of a nation's economic performance is that it omits:

  1. nonmarket activities.
  2. inventory investment.
  3. government purchases.
  4. overseas transactions.
Correct Response: A.

7. Which of the following is the best indication that the economy has entered the contraction phase of a business cycle?

  1. a decline in business inventories
  2. an increase in the time required to make deliveries
  3. a rise in commodity prices
  4. a reduction in the length of the average workweek
Correct Response: D.

Objective 004
Understand fiscal and monetary policy.

8. Arguments that reducing the tax burden on low-income households while raising rates on high-income households can stimulate demand are most often based on which of the following economic concepts?

  1. elasticity of demand
  2. fine-tuning
  3. marginal propensity to consume
  4. allocative efficiency
Correct Response: C.

9. The U.S. national debt can best be defined as the:

  1. total amount of money the United States owes to foreign governments.
  2. difference between the nation's net exports and net imports over a given period of time.
  3. sum of all previously incurred annual federal deficits.
  4. difference between the assets and the liabilities of the U.S. government.
Correct Response: C.


Objective 005
Understand international trade.

10. Comparative advantage can best be defined as the advantage to be derived from comparing the:

  1. human and physical capital of two countries.
  2. level of economic development in two countries.
  3. opportunity costs of production in two countries.
  4. total imports and exports of two countries.
Correct Response: C.

11. Which of the following best describes the main function of the World Trade Organization?

  1. to monitor economic changes resulting from the global exchange of goods and services
  2. to remove obstacles to the global exchange of goods and services
  3. to help ensure that all participants benefit from the global exchange of goods and services
  4. to establish quality control standards for the global exchange of goods and services
Correct Response: B.

Objective 006
Understand international development.

12. The International Monetary Fund would likely be most active in efforts to resolve which of the following problems?

  1. an international debt crisis
  2. a disruption of trading at major world stock exchanges
  3. a multinational trade war
  4. a corruption scandal involving major global banks
Correct Response: A.

13. A developing country would most likely adopt an import substitution strategy to:

  1. attract foreign investment capital.
  2. curb inflation.
  3. promote competition in domestic markets.
  4. develop domestic industries.
Correct Response: D.


Objective 007
Understand principles and practices related to consumer economics and personal finance.

14. Individuals seeking to develop a personal investment philosophy should first:

  1. examine the investment practices of acquaintances.
  2. familiarize themselves with the services offered by investment firms.
  3. determine the amount of risk they believe they can handle.
  4. calculate the likely return from various types of investments.
Correct Response: C.

15. Personal budgets can best be used to achieve which of the following goals?

  1. keeping expenditures in line with income
  2. establishing a good credit rating
  3. maximizing purchasing power
  4. improving one's standard of living
Correct Response: A.


Objective 008
Understand the relationship between history and economics.

16. Which of the following statements best describes a major social consequence of industrialization in nineteenth-century Western Europe?

  1. Rural areas became more isolated.
  2. Birth rates began to decline.
  3. Urban areas became more socially homogeneous.
  4. Men began to outlive women.
Correct Response: B.

Objective 009
Understand the relationship between geography and economics.

17. Which of the following statements best explains the importance of the Mississippi River to U.S. economic development during the early nineteenth century?

  1. Western exploration and settlement followed the course of major rivers.
  2. River systems served as the primary means of transportation and commerce.
  3. Growing urban centers required stable sources of fresh water.
  4. Most agricultural production in the region took place on the fertile soils of floodplains.
Correct Response: B.

Objective 010
Understand the relationship between political science and economics.

18. Which of the following political ideas most influenced the development and implementation of mercantilist economic policies?

  1. Business monopolies were the primary threat to the authority of central governments.
  2. Government had an obligation to promote the general welfare.
  3. National power could be greatly expanded through the direction of economic activities.
  4. Markets worked best when unimpeded by government authority.
Correct Response: C.

19. Individuals seeking to establish a cause-and-effect relationship between the rise of capitalism and the development of representative government can best do so by focusing on which of the following features of free enterprise systems?

  1. protection of private property
  2. production for profit
  3. voluntary exchange of goods
  4. competitive markets
Correct Response: A.

Objective 011
Understand core democratic values, recognize the rights and responsibilities of citizenship in a democratic society, and apply methods for analyzing public policy questions.

20. An economics researcher would most likely use a pie chart to:

  1. show shifts in the investment priorities of a firm over the course of a quarter-century.
  2. illustrate the work process in an automobile plant.
  3. compare the gross domestic product of two countries over a period of three decades.
  4. show the proportion of people employed in major sectors of a nation's economy.
Correct Response: D.