Question 1

The following are types of unemployment EXCEPT:

Accepted Answer

Dynamic is NOT an example of unemployment.
Key Takeaway: Unemployment types include seasonal, structural and frictional unemployment. Seasonal unemployment is usually due to short-term factors such as tourist patterns, weather issues and college students breaking during the summer periods. Frictional unemployment is also of a short-term nature and is experienced by those who reentering the labor market, finishing their education or are in-between jobs. Structural unemployment is of a more long-term nature and arises out of a mismatch between employers and workers.

Question 2

Structural rate of unemployment is also referred to as the natural rate of unemployment and it is consistent with aggregate production. The two economists who developed this concept in the 1960s are:

Accepted Answer

Friedman & Phelps are two economists who developed the concept of the natural state of unemployment.
Key Takeaway: The natural rate of unemployment (structural unemployment) is a concept developed by Milton Friedman and Edmund Phelps in the 1960s. According to them, the natural rate of unemployment is consistent with a country's aggregate production over the long term.

Question 3

In the expenditure methodology in calculating the GDP of a country, the following are variables EXCEPT:

Accepted Answer

To calculate the GDP of a country using the expenditure methodology, savings and loans are not included.
Key Takeaway: Using the expenditure methodology, the GDP of a country is calculated as such: individual consumption + government spending + gross investment + export/import differential. Savings and loans are not considered a component of the GDP under this calculation.

Question 4

A policy mix is a mix of ___________ and ___________ policies.

Accepted Answer

A policy mix is a mix of monetary and fiscal policies.
Key Takeaway: A policy mix is designed to help a country achieve economic growth while reducing unemployment at the same time. As a mix of monetary and fiscal policies, a policy mix is determined and legislated by both a government body and a central bank.

Question 5

The market for loanable funds is represented by the equation below. What does NCO stand for? S = I + NCO

Accepted Answer

NCO stands for net capital outflows.
Key Takeaway: At the equilibrium interest rate, the amount that people save is equal to the desired quantities of investment and the net capital outflows. NCO is the imbalance between the purchases and sales of capital assets.

Question 6

One of the limitations of GDP indices is that they do not take ________ into account.

Accepted Answer

One of the limitation of GDP indices is that they do not take wealth distribution into account.
Key Takeaway: The disparity in the income between rich and poor members of a society are not accurately reflected in a country's GDP. In other words, a country that has a healthy GDP may still report large disparities in income between its richest and it poorest members. However, some economists do not consider such a disparity to be a significant indicator of economic health.

Question 7

In a given economic system, the difference between real GDP and nominal GDP is:

Accepted Answer

Inflation is the difference between real GDP and nominal GDP.
Key Takeaway: Real GDP in a country is calculated using constant figures such as government spending using fixed figures while nominal GDP is calculated using current market values. For example, construction costs for 2010 are calculated using current raw materials' costs which factor in inflation from the previous year. Therefore, inflation is the difference between real GDP and nominal GDP.

Question 8

The following are examples of commodity money EXCEPT:

Accepted Answer

Bonds are not an example of commodity money.
Key Takeaway: Commodity money is a type of money that holds value of the commodity itself. Examples of commodities are rare stones and naturally scarce minerals such as gold and silver. Other types of commodities that have been used as money include stones, rice, cigarettes and alcohol.

Question 9

The Federal Reserve is a private institution that was authorized by the United States' government in the early 20th century to regulate the quantity of money in the economy. The following are the functions of the Federal Reserve EXCEPT:

Accepted Answer

The Federal Reserve does not impose trade tariffs.
Key Takeaway: The Federal Reserve serves a number of function in monetary policies such as acting as a bankers' bank by providing loans to other banks. The Reserve also makes sure that other banks are following federal laws and banking practices. Finally, it controls the supply of money.

Question 10

MBC Electronics is a strong-performing firm that has reported high profits in 10 consecutive quarters. Investors, however, see merit in a merge with a larger manufacturer to offset the competitive force of nation-wide chains. This merger is an example of a(an):

Accepted Answer

This merger is an example of an external expansion.
Key Takeaway: Mergers and takeovers are considered external expansions. Companies engage in external expansion for a number of reasons including to become more competitive, to gain access to new markets, and to increase efficiency and lower overhead.

Question 11

Small companies represent a significant component of the United States economy. The following are the benefits of running a small company EXCEPT:

Accepted Answer

Small companies cannot easily gain economies of scale.
Key Takeaway: Small-sized companies possess a number of advantages in market economies including a high quality of service offered to customers and the ability to maintain lower overhead. These companies also report great production efficiency. Small companies, however, do not have the capability to easily gain economies of scale.

Question 12

In a free-market economy, the price of rice following a surplus is likely to:

Accepted Answer

In a free-market economy, the price of rice following a surplus is likely to decrease.
Key Takeaway: A free-market economy is based on the free decision making of individuals and organizations with minimal to non-existent interventions by governing bodies and regulators. Therefore, when supplies are in shortage, this market leads to an increase in prices for goods and services. When there is a surplus of supplies, there is likely an increase in prices. An equilibrium in prices exists within a free-market economy when supply and demand are matched.

Question 13

In early assumptions about how individuals utilize time, the following two options were stated:

Accepted Answer

In early assumption about how individuals utilize time, labor and leisure were stated.
Key Takeaway: Labor and leisure were considered the only two ways that individuals utilized their time. The assumption was that each individual determination the appropriate combination of labor and leisure that maximized their satisfaction with time utility.

Question 14

Middle class families, on average, earn $60K per annum before taxes are deducted. When state and federal taxes are directly removed from personal income, the remaining is referred to as:

Accepted Answer

When state and federal taxes are directly removed from person income, the remaining is referred to disposable income.
Key Takeaway: Disposable income is the remaining amount after taxes are directly removed from one's personal income. Every state and district has developed its own calculations and method in removing taxes from personal incomes. Exceptions are also granted to those who qualify. A large disposable income is often a factor in a consumer-driven economy.

Question 15

Employees at the Jackson factory have been given a substantial income raise of over 5%. As a result, the real income of these employees has risen which lead directly to an increase in the consumption of goods. What is this effect referred to?

Accepted Answer

Income effect refers to an increase in the consumption of goods due to an increase in real income.
Key Takeaway: When the real income of workers increases, the individual worker's ability to purchase consumer goods increases too. This is referred to as the income effect. The income effect is also implicated in the worker spending more money on leisure activities such as sports and vacations.

Question 16

The Organization for Economic Co-operation and Development (OECD) considers the following important factors in deciding whether a country or a territory is a tax haven EXCEPT:

Accepted Answer

High accountability to international laws is not an important factor in considering a country or a territory a tax haven.
Key Takeaway: Tax havens have traditionally been territories or countries that offered financial shelters for individuals at little or no nominal taxes. Additionally, these tax havens offered high levels of protection of personal information and low transparency to agencies investigating money laundering.

Question 17

The following are advantages of the free-market economy EXCEPT:

Accepted Answer

Among the advantages of the free-market economy is the open transmission of information between consumers and producers.
Key Takeaway: The free-market economy has a number of advantages that include open transmissions of information between consumers and producers and the absence of costly red tape bureaucracy. This type of economic system also possess built-in incentives for efficiency as producers aim to reduce costs and increase profits. Finally, a free-market economy allows competition amongst producers to a greater response to consumer wishes.

Question 18

In recent years, Microsoft Corporation has been accused of unfair competitive practices and an unequal access to consumers. Another negative consequence of the free-market economy is:

Accepted Answer

Lack of adherence to social and environmental goals is a negative consequence of the free-market economy.
Key Takeaway: While it has a number of advantages, the free-market economy also poses a number of negative consequences. Social consequences such as wage disparities and worker exploitation are common. Also, environmental degradation through the pollution of water and air resources are common under the free-market economy.

Question 19

Using the income method of calculating the GDP of a country, the COE refers to:

Accepted Answer

Using the income method of calculating the GDP of a country, the COE refers to compensation of employees.
Key Takeaway: The income method of calculating the GDP of a country measures all income that are considered in an economic system. Compensation of employees in the form of wages and salaries is a significant component of this calculation in addition to gross operating surplus, gross mixed income, and finally, taxes collected from individuals and corporations minus subsidies.

Question 20

According to a demand curve, the prices of goods and services are determined given quantities. The following are determinants of consumer demand except:

Accepted Answer

Market speculation is not a determinant of consumer demand.
Key Takeaway: Consumer demand curves are used to illustrate how much of goods and services will be demanded by consumers at any given price. Among the determinants of consumer demand are tastes, the availability of substitute goods, and distribution of income. All of these factors determine movements along and shifts in the demand curve.

Quiz 3: Economics